Mozambique - Energy Technical Assistance and Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14734 IMPLEMENTATION COMPLETION REPORT NOZAMBIQUE ENERGY TECHNICAL ASSISTANCE AND REHABILITATION PROJECT (CREDIT 1806-MZ) JUNE 28, 1995 Energy and Infrastructure Operations Division Country Department I Africa Region This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Meticais (MT) MT I = US$ 0.0051 MT I = US$ 0.00012 US$ I MT 200' US$ I MT 79062 ABBREVIATIONS AND ACRONYMS SIDA - Swedish International Development Agency EDM - Electricity Company of Mozambique ENE - National Hydrocarbons Company IDA - International Development Association MIE - Ministry of Industry and Energy NORAD - Norwegian Agency for Development Cooperation PETROMOC - National Petroleum Supply Company PPF - IDA's Project Preparation Facility FISCAL YEAR Government and Public Enterprises: Calendar Year Conversion rate at appraisal 2 Current conversion rate  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT MOZAMBIQUE ENERGY TECHNICAL ASSISTANCE AND REHABILITATION PROJECT (Credit 1806-MZ) CONTENTS Page Number PREFACE ...................................................................................................................................... EVALUATION SUMMARY ...........................................ii PART 1: PROJECT IMPLEMENTATION ASSESSMENT ..........................................1I A. PROJECT OBJECTIVES .1 Statement of Objectives .1 Evaluation of Objectives 1 B. ACHIEVEMENT OF PROJECT OBJECTIVES .2 Physical Aspects of the Sector .2 Operational Support .3 Institutional Devlopment .3 Planning and Policy Formulation .4 D. PROJECT SUSTAINABILITY .6 E. IDA'S PERFORMANCE ........................7 G. BORROWER PERFORMANCE .8 H. ASSESSMENT OF OUTCOME .8 I. FUTURE OPERATIONS .9 J. KEY LESSONS LEARNED .9 PART 2: STATISTICAL ANNEXES ....................................................................11 TABLE 1: SUMMARY OF ASSESSMENT .11 TABLE 2: RELATED BANK LOANS/CREDITS .12 TABLE 3: PROJECT TIMETABLE .12 TABLE 4: CREDIT DISBURSEMENTS - CUMULATIVE AND ACTUAL .13 TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION .13 TABLE 6: KEY INDICATORS FOR PROJECT .13 TABLE 7: STUDIES INCLUDED IN PROJECT .14 TABLE 8A: PROJECT COSTS ........................................................... 15 TABLE 8B: PROJECT FINANCING ........................................................... 13 TABLE 9: ECONOMIC COSTS AND BENEFITS ........................................................... 16 TABLE 10: STATUS OF LEGAL COVENANTS ........................ ................................... 17 TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS .............................. 19 TABLE 12: BANK RESOURCES - STAFF INPUTS ........................................................... 19 TABLE 13: BANK RESOURCES - MISSIONS ............................................................ 20 APPENDICES A. MISSION'S AIDE MEMOIRE B. BORROWER'S CONTRIBUTION TO THE ICR C. Map IBRD No.20093 This document has a resticted distzibution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization. I   IMPLEMENTATION COMPLETION REPORT MOZAMBIQUE ENERGY TECHNICAL ASSISTANCE AND REHABILITATION PROJECT (Credit 1806-MZ) PREFACE This is the Implementation Completion Report (ICR) for the Energy Technical Assistance and Rehabilitation Project in Mozambique for which Credit 1806-MOZ in the amount of SDR 15.6 million (US$20.0 million equivalent) was approved on May 26, 1987, and made effective on November 30, 1987. The Credit was closed on December 31, 1994, two years later than was originally envisaged after three extensions. Final disbursement took place on May 10, 1995, at which time a balance of SDR 1.07 million was canceled. Cofinancing for the Project was provided by the Norwegian Agency for Development Cooperation. The ICR was prepared by Mahesh Sharma of the Southern Africa Energy and Infrastructure Operations Division, Africa Region, and Mr. Robert Belk, Consultant. It was reviewed by Mr. Jefflrey Racki, Division Chief, and Mr. Jaime Roman, Acting Operations Advisor. The Borrower provided comments that are included as appendixes to the ICR. Preparation of this ICR was begun in March 1995 and the Associations completion mission was fielded during May 8 to May 12, 1995. It is based on, inter alia, the Staff Appraisal Report; the President's Report; the Credit and Project Agreements; Supervision reports; correspondence between the Association and the Borrower; and internal Bank memoranda. The Borrower contributed to preparation of the ICR by its own evaluation of the project's execution. The cofinancier did not submit a separate evaluation of the project.   -ii- IMPLEMENTATION COMPLETION REPORT MOZAMBIQUE ENERGY TECENICAL ASSISTANCE AND REHABILITATION PROJECT (Credit 1806-MZ) EVALUATION SUtMMARY Introduction 1. The Project was the International Development Association's (IDA) second operaion in Mozambique. It was prepared on the basis of a study on the Issues and Options in the Energy Sector in Mozambique, which was canied out under the auspices of the joint UNDP/World Bank Energy Assessment Program. The objectives of the Project reflect the priorities identified by that study and were fully consistent with IDA's country assistance strategy, which was to support the key productive and infrastructural sectors through rehabilitation of facilities and technical assistance. Statement and Evaluation of Project Objectives 2. The primary objective of the Project was to bring about rapidly a sustained improvement in the supply and distribution of electricity and petroleum products in the main urban areas of the country. As this was to be achieved through the rehabilitation of existing facilities and strengthening of relevant institutions, it was conceived as an emergency-type operation. The Projects secondary objective was to support economic recovery beyond the short-term by assisting energy agencies prepare plans for the sound development of the power, petroleum, and household energy/woodfuels subsectors. 3. For a country in the circumstances of Mozambique, the operation was complex. It was made more so by the need to coordinate the large amount of the technical assistance provided under a Project Preparation Facility and the operation to assist the Government of Mozambique (GoM) and the beneficiaries - Electricidade de Mozambique (EDM), Empressa Nacional Petroleos de Mozambique (PETROMOC), Empressa de Hidrocarbonetos (EINH) and the Ministry of Industry of Energy (MIE) - in implementing the Project. Implementation ELperience and Results 4. Achievement of Project Objectives. The achievement of the stated objectives, when evaluated against the implementation experience of the components financed under the operation was mixed. Physical aspects of the sector, including rehabilitation and maintenance, connection of consumers to the power grid were ffilly implemented and all of the transport equipment was procured. However, because of delays in start-up of the rehabilitation and maintenance components, their contribution to improving the supply of electricity and petroleum products was not as rapid as  -iii- envisaged. Likewise, a third of the vehicles procured by EDM have already been scrapped and scavenged for parts. 5. Operational Support, covering the services of 18 expatriate specialists was provided to both EDM and PETROMOC. Although their appointment was delayed by about two years, the assistance of the specialists enabled the two beneficiaries to implement the maintenance and rehabilitation component and keep the power and petroleum product distribution facilities operational. The expectation that such support would enable the staff of the two beneficiaries to acquire training in selected aspects of utility operations, however, was not fully met. This was primarily because the counterpart staff assigned to work with the specialist were either inadequately trained or fully qualified but overstretched. 6. Institutional Development component was partially implemented. Accounting, planning and budgeting systems were installed at EDM, ENH and PETROMOC and training was provided, though to a smaller number of their staff than planned. A manpower development program for EDM was implemented, but mainly under financing from NORAD and to a lesser extent from SIDA. As for the other institutional developments components, including management information systems for EDM and PETROMOC and a manpower development program for PETROMOC, these were not implemented. Also not completed was work on stock inventory and asset management. 7. Planning and Policy Formulation component also was partially implemented. Studies on petroleum product supply and distribution were carried and based on their results a development program for PETROMOC was formulated. A development program was also prepared by EDM, but only a few months before the revised closing date of the Credit. Hence, its contribution to the Project was minimal. All of the studies, except the one on potential for fuel wood plantations, were completed. A draft national urban household energy strategy paper was prepared and discussed in November 1992, but it has yet to be finalized. 8. Factors Affecting Achievement of Objectives. Start-up of the Project was delayed by about two years due to: (i) the difficulties experienced by EDM and PETROMOC in complying with a condition of disbursement for goods; and (ii) the shortage of appropriate accommodations for the long term expatriate specialists for operational support. The appointment of the long-term specialist had to await the completion of the Lithuli building for which financing was made available under the Credit. In addition to the delay in start-up, implementation was also affected by the broad-based agenda of the Project as well as by the size and structure of the technical assistance provided. Whereas, the former contributed to diluting the effectiveness of the country's scare qualified staff by spreading them thinly over a multitude of task, the later added to the complexity of the operation and reduced accountability along with the effectiveness of support. 9. Part of the delay in complying with the condition of disbursement for goods is attributable to GoM taking a longer time than expected for resolving the issue of patrimony of EDM's and PETROMOC's assets. Other factors under the purview of the GoM that affected implementation include delays in: (i) clearing inter-enterprise arrears and in adjusting the prices of electricity and  -iv- petroleum products, which continued to have an adverse impact on the cash flow of EDM and PETROMOC; (ii) introducing a compensation scheme; and (iii) streamlining procedures for the approval of contracts and appointment of consultants. Achievement of the objectives also was affected by a protracted delay in the submission of Audit reports by EDM, which resulted in disbursements being suspended and further delayed the implementation of the Project. 10. IDA's Performance in preparing and supervising the Project was satisfactory, though there are a number of areas where it could have been better. Firstly, instead of setting targets on a profonna basis, IDA could have adopted an incremental approach to financial performance requirements for EDM and PETROMOC, especially as it was not possible to identify a priori the specific measures that would be required to achieve these, given the paucity of data. Secondly, in administering conditionality, greater differentiation could have been made by IDA between procedural and substantive conditionalities like submission of Audit reports and achievement of financial performance targets. Thirdly, given the complexity of the operations, more attention could have been accorded to ensuring that supervision missions were adequately staffed vis-a-vis the requirements of the operation and that there was continuity in its management. 11. Borrowers Performance was fully satisfactory until effectiveness. Thereafter, delays were experienced in implementing actions required to comply with covenants and to address issues needed to keep the operation on track. Notwithstanding these delays, the overall record of compliance was satisfactory. Of the fifteen covenants, six were complied with fully, four partially and two after substantial delays. Two others, covering the financial performance of EDM, were not met and the status one could not be assessed during the life of the Project. 12. Project Outcome was generally satisfactory. The objective of improving the supply of electricity and petroleum products in the key urban areas was achieved, albeit with substantial delays. The objective of institutional development and planning and policy formulation also was achieved, but only moderately so when compared to the stated objectives, which clearly were ambitious. 13. The ex-post intemal economic rate of return (IERR) for the Project cannot be estimated on the same basis as the ex-ante IERR, because the measurable increases in electricity consumption attributable to it cannot be isolated readily from those stemming from additional investments in and technical support to the sector financed by SIDA and NORAD as well as IDA (Credit 2033-MOZ) over the life of the Project. Nevertheless, the substantial delay in the implementation of the Project and disruptions caused by sabotage attest to the fact that the ex- post IERR would have been the lower than the ex-ante IERR of 27%. Summary of Findings, Future Operations and Key Lessons Learned 13. Project Sustainability. The achievements of the Project in the petroleum sub-sector are unquestionably sustainable, especially when viewed in the context of the reforms implemented in the area of petroleum product prices and those envisaged with respect to the structure of the sub-sector  and ownership of PETROMOC. ENH also is expected to enter into a joint-venture with a private sector company as a non-operating minority shareholder for the development of the Pande gas field, whose development is being supported under the Gas Engineering Project. 14. In the power sub-sector the improvements brought about in the supply of electricity by EDM are clearly sustainable, but the financial viability of the utility remains problematic, despite recent increases in tariffs. In order to address this, GoM needs to formulate and implement a comprehensive program for restructuring the utility. 15. Future Operations. No formal arrangements were made for following-up on the Project, as it was considered to be an emergency type operation. However, the future operations of EDM and PETROMOC will be monitored under the Urban Household Energy Project and of ENH under the Gas Engineering Project. Key Lessons Learned 16. The main lessons learned are: (a) An emergency-type operation, such as this, can generate a good deal of "value-added", provided that its agenda is modest and well focused; (b) Technical assistance is critical, but it should be tailored to the absorptive capacity of the country; this is especially so for long-term assistance as it is normally aimed at capacity building, (c) There are limits to what can be achieved through conditionality even when it is "right"; consequently, a condition should be introduced only when it can be monitored and fully enforced; and (d) The frequency with which an operation is supervised is important, but equally important is the composition of the team supervising it.  PART 1: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. Statement of Objectives. The primary objective of the Project, as stated in the Staff Appraisal Report, was to bring about rapidly a sustained improvement in the supply and distribution of electricity and petroleum products in the main urban areas, especially Maputo, Beira, Nampula and Nacala, the country's main trading and processing centers. As this was to be achieved through the rehabilitation of facilities and strengthening of relevant institutions, it was conceived as an emergency- type operation. 2. A secondary objective of the Project was to support economic recovery beyond the short-term by assisting energy agencies to prepare plans for the sound development of the power, petroleum, and household energy/woodfuels subsectors. These were to include cohesive programs for both rehabilitating and expanding supply systems, while limiting premature or non-economic efforts on large projects under consideration by Governent. 3. Evaluation of Objectives. The operation had its genesis in the Economic Action Program (EAP), adopted by the Govemrnment of Mozambique (GoM) in 1984, when the economy was on the verge of collapse and recovery was elusive. As a part of the EAP strategy, GoM applied to become, and was accepted in 1985 as, a member of the Intemational Monetary Fund (IMF) and the World Bank. In support of EAP, the First Rehabilitation Credit (Credit 1610-MOZ) was approved in June 1985, by the International Development Association (IDA) to finance part of GoM's 1985/1986 program of imports of equipment, spare parts and raw materials, as well as related technical assistance for industry, transport and agriculture. 4. The Project was IDA's second operation in Mozambique. It was prepared on the basis of a study on the Issues and Options in the Energy Sector in Mozambique, which was carried out under the auspices of the joint UNDP/World Bank Energy Assessment Program. The objectives of the Project reflect the priorities identified by that study and were fully consistent with IDA's country assistance strategy, which was to support Mozambique's key productive and infrastructural sectors through rehabilitation of facilities and technical assistance. 5. Though critical for the economy and the sector, the operation was corhplex in terms of both scope and design, especially for a country in the circumstances of Mozambique. In terms of scope, the Project involved multiple institutions including Electricidade de Mozambique (EDM), Empressa Nacional Petroleos de Mozambique (PETROMOC), Empressa de Hidrocarbonetos (ENH) and the Ministry of Industry and Energy (MIE)3; and it covered almost all of the subsectors of energy and was aimed at addressing the short-term and the medium-to-long-term needs of the sector. 3 It is now the Ministry of Energy and Mineral Resources.  -2- 6. As for the design of the Project, it was more akin to that of a traditional investment operation than an emergency-type operation, particularly with respect to the structure of conditionality. In this regard, the Project was better suited for a country where IDA had had extensive involvement with the sector. 7. The complexity of the operation was recognized by IDA during project preparation, as was the demand that it would place on the skeletal trained staff at M4E and the operating entities, as they had had little experience not only with IDA's guidelines and procedures, but also in managing an operation the size of the Project. It was partly for this reason that substantial technical assistance was provided under a Project Preparation Facility (PPF) and the operation. The size of the technical assistance itself and the need for coordinating it, however, added to the complexity of the operation and, to an extent, affected the overall outcome of the Project. 8. The scope of the Project, despite its complexity, was formally modified once during implementation to provide financing for the completion of an apartment building, as the shortage of appropriate housing had become a key constraint to mobilizing expatriate consultants for operational support. In addition, funds were reallocated among categories to take into account the requirements of the entities as the Project progressed. B. ACHIEVEMENT OF PROJECT OBJECTIVES 9. In support of the Project's objectives, financing was provided under the Credit for components covering: (i) physical aspects of the sector; (ii) operational support; (iii) institutional development; and (iv) planning and policy formulation. The achievement of the Project's objectives, when evaluated against the implementation experience of these components, can be characterized as mixed, reflecting that some components were fully implemented, others partially, and still some others not at all, as is discussed below. 10. Physical Aspects of the Sector covered under the operation included: (i) the maintenance and rehabilitation of the power generation, transmission and distribution facilities and of the petroleum product distribution system; (ii) connection of 4,150 households to the power grid; and (iii) transportation equipment for EDM and PETROMOC. 11. The maintenance and rehabilitation component, including the connection of households to the national grid, was fully implemented by both EDM and PETROMOC. However, because of a delay of over two years in start-up (paras 23 and 24) and disruptions caused by ongoing sabotage of transmission lines, its contribution to improving the supply of electricity and petroleum products was not as rapid as was originally envisaged. 12. Likewise, all of the transportation equipment was procured by both beneficiaries. This included 31 tankers and trucks and 38 small vehicles, including combies, for PETROMOC and 8  - 3 - trucks, 90 pick-ups, 6 minibuses, 3 tractors, 6 motorbikes and 43 mopeds for EDM. The bulk of the transportation equipment purchased by PETROMOC is still in operation, whereas about a third of the vehicles purchased by EDM have been scrapped, largely because they were subject to frequent breakdowns, resulting from a combination of poor road conditions, inadequate maintenance and shortages of spare parts. Most of the vehicles scrapped were scavenged for parts. 13. Operational Support comprised the provision of services of fourteen expatriate specialists to assist EDM and PETROMOC for a period of about three years in managing engineering and maintenance of transport fleets, aviation fueling facilities, petroleum product movement and power supply facilities. It was the expectation that such support would enable the staff of the two beneficiaries to acquire training in selected aspects of utility operations. 14. A total of eighteen expatriate specialists, four more than originally planned, were appointed, though not all on a long-term basis. Of these, twelve were appointed by EDM in the areas of power plant and distribution network operations and transport fleet management and six by PETROMOC. Their appointment, however, was delayed by two years for reasons mentioned below. This delay, in a sense, was fortuitous as their appointment generally coincided with the delivery of goods for the physical aspects of the sector. The expatriate specialists, as a result, were able to provide EDM and PETROMOC the assistance needed in implementing the maintenance and rehabilitation component and keeping the facilities operational. 15. Financing also was provided for expatriate support to EDM in the area of transmission network operations. As the support envisaged under the Project was being provided to the utility under financing from the Swedish Intemational Development Agency (SIDA), funds, earmarked under the Credit for this component were reallocated. The support provided to EDM in the area of distribution network operations also was realigned to complement the work being carried by SIDA financed consultants. 16. The expectation that support of expatriate specialists would enable the two beneficiaries to train some of their staff, however, was not fully met. This was primarily because the counterpart staff assigned to work with the specialist were either inadequately trained or fully qualified but overstretched. 17. Institutional Development covered technical assistance for the design and1 implementation of financial and accounting systems, management information systems, stock control and asset management, as well as for manpower development. 18. The financial, accounting, planning and budgeting systems have been implemented and financial statements have been produced on an annual basis by EDM, ENH and PETROMOC, albeit with substantial delays especially by EDM. However, after eight years of support, financial management remains weak and Audits, conducted in accordance with international standards on auditing, continue to identify shortcomings in procedures, controls and practices. Training was provided by the consultants, but because of the shortage of qualified staff the number trained were fewer than planned.  - 4 - 19. As for the management information systems for EDM and PETROMOC, these were not implemented as priority was accorded to making the accounting, planning and budgeting systems operational. Also not implemented was the manpower development program for PETROMOC, because its allocation for the institutional development component had been fully utilized by the work on accounting, planning and budgeting as well as by the support needed for the annual Audit of accounts. In contrast, the manpower development program for EDM was implemented but under financing mainly from NORAD and to a lesser extent from SIDA. 20. Planning and Policy Formulation involved the preparation of least-cost development plans for EDM and PETROMOC, and of a national urban household energy policy and implementation program. To provide the inputs needed for the preparation of the latter, provision was made under the operation for (i) a study of charcoal production technology; (ii) an aerophotographic forest inventory of Southem Mozambique; (iii) a study of fuelwood supply options; and (iv) a study of potential for fuelwood plantations. 21. Studies on petroleum product supply and distribution were carried out under the operation and based on their results a development program for PETROMOC was formulated. The program formed the basis for realigning PETROMOC expenditures on rehabilitation of the existing system. A development program was also prepared by EDM, but only a few months before the revised closing date. However, neither were the investment ranked in order of economic merit nor were their financing requirements and sources of financing identified. Moreover, as the impact of the development program on the financial viability was also not assessed, its contribution to the Project was minimal. 22. All of the studies, except the one on potential for fuelwood plantations, were completed. A draft national urban household energy strategy paper was prepared and discussed in November 1992. In addition recommending the use of coal and electricity as the least cost means for meeting the demand for energy, the draft strategy highlighted the importance of setting the prices of energy products, at a minimum, at parity with the economic cost of supply for promoting allocative and operational efficiency. It also emphasized the need for addressing the market distortions, as these were increasingly becoming a constraint to Mozambican appliance manufacturers. The draft strategy, however, has yet to be finalized. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT 23. Although the Credit was made effective only about a month later than was originally envisaged, on November 30, 1987, instead of October 24, 1987, implementation took longer than planned due to a number of factors. As was noted above, start-up of Project was delayed by about two years. The initial delay of about a year was due to the difficulties experienced by EDM and PETROMOC in complying with a condition of disbursement for goods. Under its provisions, both entities were required to prepare and submit to the Association financial statements for the years 1984 to 1987 and  forecast statements for 1988. Financing for advance procurement of technical assistance for the preparation of these statements was provided under a Project Preparation Facility. But, because the accounts of EDM and PETROMOC were in an extremely poor state and the issue of the patrimony of their assets took longer to resolve than expected, the consultants were unable to complete these until September 1988 for PETROMOC and until November of that year for EDM. 24. The subsequent delay was due to the shortage of appropriate accommodations for the long term expatriate specialists for operational support. This was to be provided by EDM and PETROMOC and financing was made available under the operation for renovating and furnishing houses for the specialists. However, as accommodation that could be upgraded within the budgeted amount of US$10,000/unit could not be found, GoM in 1989, requested IDA finance the completion of the Luthuli building. IDA acceded to the request, but two years had lapsed before the work was completed and the specialists were appointed. 25. Another factor affecting the implementation of the Project was the disruptions caused by ongoing sabotage of power transmission lines. It added to the debt burden of EDM, without the utility being able to realize the revenues from the investments made. 26. Yet another factor that had an impact on implementation was the ambitious agenda of the Project. It covered a multiplicity of tasks aimed at addressing the short-term as well as the medium-to- long-term needs of the sector, ranging from rehabilitation and maintenance of the existing infrastructure to planning and policy formulation. This broad-based agenda diluted the effectiveness of the country's scarce technically qualified staff in dealing with substantive issues as they were spread too thinly over a multitude of tasks. GoM, as a result, was unable to involve itself fully as a real working partner on critical issues to generate the commitment and ownership that is essential for both an intensive dialogue and a successful outcome. In this regard, had the Project's agenda been less ambitious and more focused, it would have allowed for the better deployment of scarce resources and generated a good deal of value added. 27. Still another factor was the size and structure of technical assistance provided for operational support, institutional development and planning and policy formulation. In terms of size, the technical assistance envisaged under the Project was large, amounting to over 1,200 man-months of expatriate support and absorbing over one-half of the Credit. By virtue of its size and the need for coordinating it, the technical assistance, instead of assisting GoM and the operating entities, as was originally envisaged, added to the complexity of the operation and placed additional demands on the scarce qualified staff which, as was noted diluted their effectiveness in dealing with substantive issues. Moreover, despite its size and the circumstances of Mozambique, the technical assistance was structured along lines that were the norm when the Project was processed. In particular, as a clear distinction was not made between advisory, line management and training functions, it was assumed that these were interchangeable. Because of this ambiguity, overall accountability was reduced along with the effectiveness of the technical assistance, especiaDy with respect to transfer of skills.  - 6- 28. In addition to the above, there are a number of other factors on which a timely actions by GoM and/or the beneficiaries would have contributed to improving Project implementation. In particular, factors under the purview of the GoM include: (a) decision on patrimony of EDMfs and PETROMOC's assets which, in part, contributed to the overall delay in the preparation of the financial statements for these entities and, in turn, their complying with the condition of disbursement for goods; (b) adoption of and adherence to a dated and monitorable program for clearing inter- enterprise arrears and for adjusting the prices of electricity and petroleum products, as these continued to have an adverse impact on the cash flow situation of both EDM and PETROMOC; (c) introduction of a compensation scheme earlier in the project cycle would have allowed the beneficiaries to recruit and retain qualified staff and, in tum, enhance the prospects of technology transfer; and (d) streamlining the process of approval of contracts and consultants by the Ministry of Finance and the Bank of Mozambique. 29. As for the beneficiaries, EDM, in particular, could have taken the actions needed to comply with the Audit requirements. Because of protracted delays in meeting this requirement, disbursements were suspended by the IDA, which added to the delays in implementation. Timely preparation of the investment program by EDM, could also have enhanced the prospects of agreement being reached on measures required to achieve financial targets set under the operation. D. PROJECT SUSTAINABILITY 30. The achievements of the Project in the petroleum sub-sector are unquestionably sustainable, especially when viewed in the context of policy reforms that have been implemented or are envisaged. In particular, with the view to providing better incentives, the prices of petroleum products have been partially liberalized and are now adjusted to reflect movements in international prices, based on an agreed formula. On the institutional side, a decision has been made by GoM to privatize PETROMOC's retail activities and to increase competition. Likewise, ENH is expected to enter into a joint-venture with a private sector company as a non-operating minority shareholder for the development of the Pande gas field, whose development is being supported under the Gas Engineering Project (Credit 2629-MOZ). 31. In the power sub-sector the improvements brought about in the supply of electricity by EDM are clearly sustainable, but the financial viability of the utility remains problematic, despite recent increases in tariffs. However, it is unclear whether the financial difficulties of EDM are due to the level of tariff being low relative to its financial requirements, or to inefficiencies in its operations, or both.  - 7- GoM needs to formulate and implement a comprehensive program for restructuning the utility, comprising measures to improve the operational and financial performance of EDM, measures for setting tariffs and arrangements whereby GoM's role as an owner-operator can be separated from its public role of regulator. E. IDA'S PERFORMANCE 32. Overall, IDA's performance in preparing and supervising the Project was satisfactory, accommodating the reality of the operation as it evolved. However, there are a number of areas where its performance could have been better. The first relates to the nature of conditionality. For instance, during project preparation IDA was aware of the fact that, because of the paucity of data, it was not be possible to analyze fully EDMs and PETROMOC's past financial performance, the adequacy of present prices or to assess their future financial prospects until financial statements were prepared. Despite this, covenants were introduced which required both EDM and PETROMOC to fund at least 20% of their investment programs from net income after debt servicing in FY89, and 30% from FY90 and to not incur debt which would reduce the ratio of net revenues to debt service requirements below 1.5 times. Instead of setting targets on a pro forma basis, as was the case in this instance, IDA should have adopted an incremental approach to financial performrance requirements, especially as it was not possible to identify a priori the measures required to achieve these. 33. The second covers the approach to administering conditionality. EDM and PETROMOC were both required, as a condition of disbursement for goods, to prepare and submit to IDA their actual and forecast financial statements. Disbursements were withheld until this condition was met, despite a delay in the preparation of these statements which was beyond the control of both the Government and the beneficiaries. Also, when GoM was unable to comply with the dated covenant relating the issue of patrimony of EDM's and PETROMOC's assets, the date was formally revised. Likewise, disbursements were suspended for EDM when it failed to comply with the audit covenant. But when EDM was not in compliance with the conditionalities on self-financing and debt service coverage, neither was it enforced nor was it formally waived. In effect no differentiation was made between procedural and substantive covenants. In so doing, IDA may have undermined the very reason for covenanting financial perforrmance targets, that of introducing financial discipline. 34. A third area where the IDA's performance could have been better was with respect to the composition of the supervision missions. Over the life of the Project, eighteen supervision missions were fielded by the Association. But, surprisingly, only two of these included a power engineer, even though over one half of the Credit was allocated to EDM for improving the supply of electricity. Clearly, more attention could have been accorded to ensuring that supervision missions were adequately staffed 35. Last, but not least, is the change in staff managing the operation. During the seven-year implementation period, the task managers were changed three times, with each having to resume the dialogue at a different stage of implementation stage. This resulted in lack of continuity.  - 8 - G. BORROWER PERFORMANCE 36. Until effectiveness of the Credit, GoM's performance was fully satisfactory. A dynamic individual to coordinate the operation was appointed at the Ministry of Energy and Industry. It was in part due to his efforts that the Credit was made effective with minimal delay, despite the fact that it was the IDA's second operation in Mozambique. 37. After effectiveness, however, the Government was unable to sustain the momentum. Delays were experienced in implementing actions required to comply with covenants to address issues needed to keep the operation on track, including those relating to patrimony of EDM's and PETROMOC's assets, and to the financial performance of EDM . Despite this, the overall record of compliance was satisfactory. Of the fifteen covenants, six were complied with fully, four partially and two with substantial delays. Two others, covering EDM's financial performance were not met and the status of one could not be assessed during the life of the Project. H. ASSESSMENT OF OUTCOME 38. The overall outcome of the Project was generally satisfactory. It achieved its objective of improving the supply of electricity and petroleum products in the key urban areas, albeit with substantial delays. The objective of institutional strengthening and planning and policy formulation also was achieved, but only moderately so when compared to the stated objectives. These, as was noted earlier, were clearly ambitious for an emergency-type operation and for the circumstances of Mozambique. 39. The ex-post internal economic rate of return (IERR) for the Project cannot be estimated on the same basis as the ex-ante IERR, because the measurable increases in electricity consumption attributable to it cannot be isolated readily from those stemming from additional investments in and technical support to the sector financed by SIDA and NORAD as well as IDA (Credit 2033-MOZ) over the life of the Project. Nevertheless, the substantial delay in the implementation of the Project and disruptions caused by sabotage attest to the fact that the ex- post IERR would have been the lower than the ex-ante IERR of 27%. I FUTURE OPERATIONS 40. No formal arrangements were made for following-up on the Project, as it was considered to be an emergency type operation. However, the future operations of EDM and PETROMOC will be monitored under the Urban Household Energy Project and of ENH under the Gas Engineering Project.  -9 - J. KEY LESSONS LEARNED 41. The achievement of the Project's objectives was characterized above as mixed, when evaluated against the implementation performance of the components financed under the Credit. This mixed achievement is attributable to a combination of factors including the agenda of the Project, the size and structure of technical assistance, adequacy of conditionality and quality of supervision. Experience with these aspects of the Project constitute the key lessons learned. These are: (a) Had the agenda of the Project been less ambitious, it would have allowed GoM to better deploy the country's scarce technically qualified staff and generate the commitment and ownership that is essential for both and intensive dialogue and successful outcome. In sum, an emergency-type operation, such as this, can generate a good deal of "value-added", provided that its agenda is modest and well focused; (b) The size of the technical assistance provided under the Project was large and the need for coordinating it added to the complexity of the operation. Moreover, as clear distinction was not made between advisory, line management and training functions overall accountability was reduced along with the effectiveness of the technical assistance. This experience highlights the fact that technical assistance is critical, but it should be tailored to the absorptive capacity of the country and should be structured to enhance accountability and effectiveness. This is especially so for long-term assistance, which is normally aimed at capacity building; (c) There are limits to what can be achieved through conditionality even when it is "right"; consequently, a conditionality should be introduced only when it can be monitored and fully enforced, unlike the financial performance targets covenanted for EDM under the Project. Specifically, establishing targets on a pro-forma basis is likely to undermine the very reasons for which they are set, such as introducing financial discipline as was the case with EDM; and (d) Frequency with which an operation is supervised is important, but equally important is the composition of the team supervising it. The significance of this is underscore by the fact that, although the power subsector was the single largest recipient of the funds under the Project and was also the one where the financial, institution and technical problems were the most acute, only two out of eighteen supervision missions over the life of the operation included a power engineer. In retrospect, one cannot but assumed that the quality of the dialogue and the overall outcome in the power subsector was unaffected by the composition of missions.  -10- PART 2: STATISTICAL ANNEXES Table 1: Summary of Assessment A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic Policies O O O X Sector Policies EO X O O Financial Objectives O O EO X Institutional Development O X EO O Physical Objectives X O O O Poverty Reduction O E O X Gender Concerns O E El X Other Social Objectives O El El X Environnental Objectives E E El X Public Sector Management E E El X Private Sector Development E E El X Other (specify) E E E El B. Project Sustainability Likely Unlikely Uncertain C Bank Performance Satiufary Satisfactory Deficient Identification E X El Preparation Assistance E X El Appraisal E X El Supervision E X El Highly D. Borrower Performance Sad7ficory Satisfactory Deficient Preparation E X E Implementation E X E Covenant Compliance E X E Operation El X El E. Assessment of Outcome Satisractoy Satisfactory Unsatisfactory Unsati&fatory El X El El  Table 2: Related Bank Loans/Credits Credit Title Purpose Year of Status Approval Preceding Operations NONE Following Operations Household Energy Project improve the availability of June 8, 1989 Ongoing Credit 2033-MOZ fuel and appliances and there by reduce the impact of adjustment on middle and low income urban population. Gas Engineering Project assist Government in June 16, 1994 Ongoing Credit 2629-MOZ encouraging private sector involvement in development of the Pande Gas Field. Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/Latest Estimate Identification/Preparation NA April-May 1985 Pre-appraisal NA NA Appraisal NA July 1986 Negotiations January 1987 April 13-17, 1987 Board Presentation February 1987 May 26, 1987 Signing June 24, 1987 Effectiveness October 24, 1987 November 30, 1987 Project Completion June 30, 1992 Credit Closing December 31, 1992 December 31, 1994  -12- Table 4: Credit Disbursements - Cumulative and Actual (SDR Million) FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Appraisal Estimate 2.42 7.80 12.40 14.82 15.40 15.60 -- - Actual 1.91 1.91 2.40 4.77 8.59 12.36 13.63 14.53 Actual as % of 79.0 24.5 19.3 32.2 55.7 79.2 87.4 93.1 Estimate Date of Final May 10, 1995 Disbursement Cancellation: SDR 1.26 million canceled Table 5: Key Indicators for Project Implementation For monitoring the implementation of the Project, target dates were specified for issuing the bidding documents, awarding the contract and for completing the work on each component financed under the Credit. These targets could not be maintained because of delays in complying with the condition of disbursement and in mobilizing expatriate specialist due to the shortage of suitable accommodations. Table 6: Key Indicators for Project Operation The Project was conceived as an emergency-type operations and, hence, indicators of performance were not specified.  -13 - Table 7: Studies Included in Project Study Purpose Status Impact Petroleum Supply Determine under what Completed Decision made to not restart conditions refinery the refinery operations could again be economically viable. Petroleum Product Develop the optimal plan for Completed Investment program was Distribution the rationalization of prepared and expenditures petroleum products to all under Credit realigned parts of the country. Power System Establish clear operational Not Implemented rules and procedures for the economic utilization of different power sources for meeting demand in the three main grid systems of EDM at least economic cost to Mozambique. Power Distribution Enable EDM to establish Completed Investment program general standards and formulated but has yet to be procedures for its implemented systematically distribution systems, and to assess, evaluate, and review all existing distribution practices in EDM. Household Energy Prepare a national urban First draft completed No Impact household energy policy and but yet to be finalized implementation plan Fuelwood Supply To identify the alternative Completed Provided inputs for urban Options sources of fuelwood supply household energy policy. Aerophotographic Establish a data base Completed No impact forest inventory of Southern Mozambique Charcoal Production Assess the economic Not implemented Technology viability of using alternative technologies for charcoal production Potential for Identify approaches to Completed No impact fuelwood plantations promoting fuelwood plantations  - 14 - Table 8A: Project Costs Item Appraisal Estimate (SDR M) Latest Estimate (SDR M) Foreign 1 Local Total Foreign [Local Total Costs Costs Costsc j Costs 1. Power System Maintenance & 3.70 1.30 5.00 2.01 NA Rehabilitation 2. Transport Equipment for EDM 1.30 0.08 1.38 1.07 NA 3. Petroleum System Maintenance & 1.85 0.50 2.30 2.20 NA Rehabilitation _ 4. Transport Equipment for 2.30 0.10 2.40 0.43 NA PETROMOC 5. Technical Assistance 7.9 0 1.70 9.60 7.30 NA 6. Lithuli Building 0.69 8. Project Preparation Facility 0.85 -- 0.85 0.85 Total Base Cost 17.90 3.80 21.70 -- Contingencies 1.60 0.40 2.00 = Total Project Cost 19.50 4.20 23.70 Interest During Implementation -- 1.10 1.10 Total Financing Required 19.50a 5.30 24.80 14.50b NA NA a Includes SDR 3.9 million provided by NORAD under parallel financing. b. Excludes funds provided by NORAD and $DR 1.07 million of the Credit that was canceled. c. Details relating to the utilization of NORAD funds not available.  - 15 - Table BB: Project Financing I Source Appraisal Estimate (SDR M) Latest Estimate (SDR M) Foreign Local Total Foreign Local Total Costs Costs Costs Costs IDA 15.60 15.60 14.50 14.50 NORAD 3.90 3.90 3.90 3.90 EDM 2.90 2.90 NA PETROMOC 2.10 2.10 NA Government of Mozambique 0.30 0.28 NA Total 19.50 5.30 24.80 18.40 Table 9: Economic Costs and Benefits The ex-ante internal economic rate of return (IERR) for the Project was estimated at about 27%. It was based on quantifiable increases in electricity consumption stemming from improvements in both power and petroleum product supply and distribution capability brought about by investments and technical assistance financed under the Project. The ex-post IERR for the Project cannot be estimated on the same basis, as the measurable increases in electricity consumption attributable to it cannot be isolated readily from those stemming from additional investments in the sector. Over the seven year life of the Project, financing for such additional investments in and technical support to the sector was made available not only by SIDA and NORAD but also by IDA itself under the Urban Household Energy Project (Credit 2033-MOZ). The substantial delay in the implementation of the Project and disruptions caused by sabotage, nevertheless, attest to the fact that the ex-post IERR would have been the lower than the ex-ante EERR.  Table 10: Status of Legal Covenants MOZAMBIQUE Energy Technical Assistance and Rehabilitation Project Present Orieinal Revised Covenant st Fulffllment Fulfilment Agreement Secon Type Date Date Descriptin of Covenant Comments Credit 4.01 l C The Borrower to subt it to the Association audited project accounts and statements of expeniditures within six months after the end of each FY. Credit 4.03 5 C The Borrower and the Association to carry out a semi- annual review of electricity tariffs and petroleum ___________ _________ __________ ~~~~ ~~ ~~~~product pncea. Credit 4.04 2 CP 12/31/87 TbeBorrowerto establish, not laterthan December31, Valuation still inprogress in 1994. 1987, the patrimony of EDM's and PETROMOC's assets. Credit 4.05 5 CP 12/31/87 The Borrower to establish, not laterthan December 31, PETROMOC confimied its plan in October 1987, compensation packages for EDM's and 1991. The Association was still concerned PETROMOC's staff. with EDM's progress in this area in July 1992. - Credit 4.06 2 The Borrower not to undertake investment in excess of EDM finally submitted its Investment USS3 rnillion equivalent which is not included in the Program for 1991-1996. agreed Energy Sector Priority Investment Program to 1991. Projec 2.06 5 CP PETROMOC to submit to the Association the findings Management Information System and of the studies on the institutional development of Institutional Study were not implemented PETROMOC, and implement in accordance with agreed time table new systems for managemnent, accounting and planning, organization and manpower ______ ______ __ ___ ______ __ ___ ______ __ ___ ______ ____ _ ______ _____ develop mient Project 2.08 5 C PETROMOC to keep a register of vehicles financed under the Project indicating locations of these vehicles. Project 4.01 1 CD PETROMOC to submnit its audited accounts within six Substantially in compliance. IDA has months of the end of its FY. accepted audited project accounts for years ending 1992 as substitute for AFS audit Projed 4.02 2 PETROMOC to generate intenal resioues of not less tha 20% of its capital expenditures in 1989 and not less than 30% of annual expenditures for each of the next three years.  Cowd ~Preet O0bm Reb Covatntd sen FulfiUhnat Fulfi111mesat Agreemet Secton Type Dae Dae Descrlption of Coveant Co Prcjed 4.03 2 C PETROMOC not to miur any debt unles its net revenues wre at leat 1.5 times the estinmat maximum debt service requirements. Projed 2.06 5 CP EDM to submit to the Association the findings of the Management Infomnation System not studies on the intitutional development of EDM and implemented implement in accordance with greed tine table new syslems for fnuncial managt aconing and planning organization and management. Projed 2.08 5 C EDM to keep a registsr of vehicles financed under the _________ _ _________ Project indicating locations ofthese vehicles. Projed 4.01 1 CD EDM to submit its audited acoounts within six months Subdsantialy in compliance. IDA has of the end of its FY. accopted audited project accounts for years ending 1992 as subsiute for AFS audit Project 4.02 2 NC EDM to genate intenal resources of not less than Not in compliance. EDM is not expected to be 20% of its capital expenditures in 1989 and not less in compliance until its capital restructuring than 30% of annual expenditures for each ofthe next scheduled for 1994. three years. . Projed 4.03 2 NC EDM not to incur any debt unless its net revenues are Not in compliance. EDM is not expected to be at least 1.5 times the estimated maximum debt service in compliance until its financial restrucuring ____________ requirements. scheduled for 1994. Covenant Types: 1 = Accounts/audits 8 = Indigenous people 2 = Financial performance/revenue generation from beneficiaries 9 = Monitoring, review, and reporting 3 = Flow and utilization of project funds 10 = Project implementation not covered by categories 1-9 4 = Counterpart funding 11 = Sectoral or cross-sectoral budgetary or other resource allocation 5 = Management aspects of the project or executing agency 12 = Sectoral or cross-sectoral policy/regulatory/institutional action 6 = Environmental covenants 13 = Other 7 = Involuntary resettlement Present Status: C = covenant complied with CD = complied with afler delay CP = complied with partially NC = not complied with  - 18 - Table 11: Compliance with Operational Manual Statements There were no significant deviations in compliance with the Bank's Operational Manual Statements under the Project. Table 12: Bank Resources - Staff Inputs | Stage of project cycle Plarnned Revised Actual Weeks US$ Weeks US$ Weeks US$ Preparation to appraisal N/A N/A N/A N/A 23.9 N/A Appraisal N/A N/A N/A N/A 24.7 N/A Negotiations through Board N/A N/A N/A N/A 5.9 N/A approval Supervision N/A N/A N/A N/A 87.1 N/A Completion N/A N/A N/A N/A 5.2 N/A TOTAL N/A N/A N/A N/A 146.6 N/A N/A - Not Available  - 19- Table 13: Bank Resources - Missions Stage of Month/year Number Days Specialized Performance rating Types of project cycle of in staff skills problems persons field represented Impleme Develop ntation ment status impact Through appraisal _ Appraisal through Jul 1986 4 14 ECN Board approval Supervision Sep 1987 2 7 ECN, FNA No 590 Feb-Mar 1988 1 12 FNA I 1 Aug 1988 1 4 FNA 1 I Nov 1988 1 8 FNA 1 1 Apr 1989 1 7 FNA I 1 Nov 1989 2 14 FNA, FNA 2 2 Apr-May 1990 2 10 EGR, FNA No 590 Oct-Nov 1990 3 10 EGR, ECN, 2 3 LC, FP FNA Feb-Mar 1991 1 12 FNA 2 3 LC, FP Oct 1991 3 7 EGR, ECN, 2 3 FP FNA May 1992 1 15 ECN No 590 Aug 1992 1 7 FNA 2 3 FP Oct-Nov 1992 2 12 ECN, FNA 2 2 Mar 1993 2 FNA, FNA No 590 Jul 1993 1 17 FNA 2 2 Nov-Dec 1993 1 16 FNA 2 2 Mar-Apr 1994 1 12 FNA 2 2 Completion May 1995 I 5 ECO Key: EGR Power Engineer FNA : Financial Analyst ECN : Economist OPN Operations Officer   Appendix A MOZAMBIQUE Aide Memoire of the Misssion for the Implementation Completion Report for Credit 1806-MOZ A World Bank mission, comprising Mahesh Sharma, visited Mozambique from May 8 to 12, 1995, to finalize the Bank's Implementation Completion Report (ICR) for Energy Technical Assistance and Rehabilitation Project (Credit 1806-MOZ). The mission takes this opportunity to thank the Government of Mozambique, the officials at the Ministry of the Energy and Mineral Resources and the management and staff of EDM, ENH and PETROMOC for their cooperation and assistance. A list of persons met is appended as Attachment I. Based on the information collected by the mission, Part I of the ICR (Project Implementation Assesment) was updated (Attachment II) and reviewed with the Project Coordinator. The mission received the Government's comments on the report (Attachment III), and was advised that these are subject to the Government having the option of reviewing the report in the event it is subsequently revised and there are substantive changes in its conclusions. The mission also received a copy of the Government's draft ICR (Attachment IV) for the Credit prepared by the Project Coordinator. It has been submitted to the relevant Ministries for clearance. The Project Coordinator confirmed that the Government's ICR would be finalized and made available to the mission upon its return to Maputo on June 1, 1995 for the planned 'brain-storming' session on the energy sector.  Appendix A List of Persons Met Ministry of Energy and Mineral Resources * Mr. Manuel Ruas Project Coordinator Department of Energy Empressa Nacional Petroleos de Mocambique * Mr. Aires Viola Technical Director * Ms. Teresa Moreira Financial and Planning Director Electricidade de Mocambique * Mr. Rui Lousa Adviser * Mr. Manuel Machiana Economist * Mr. Dhiresh Amichanda Accountant * Mr. Stephan Regard Financial Adviser Empressa de Hidrocarbonetos * Mr. Mario Marques General Director * Ms. Miquelina Menezes Finance Director SwedPower * Mr. Staffan Troedsson Chief Adviser * Goran Rundqvist Resident Chief Adviser  Appendix B REPUBLICA DE MOAMBIQUE MINISTERIO DOS RECURSOS MINERAIS E ENERGIA DEPARTAMENTO DE ENERGIA Tel.,Fax.:420963; 420245; Tlx: 6292 Internet: mruask(iedoe.uern.mz Av. 25 de Setembro, 1218 - 3