Tunisia - Energy Conservation Demonstration Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14506 IMPLEMENTATION COMPLETION REPORT TUNISIA ENERGY CONSERVATION DEMONSTRATION PROJECT (LOAN 2735-TUN) aPRIL 28, 1995 Private Sector Development, Finance and Infrastructure Division Maghreb and Iran Department Middle East and North Africa 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 EOUIVALENTS Currency Unit - Tunisian Dinar (TD) CY 1985 March 1986 November 1994 US$1 , TD 0.757 TD 0.740 TD 0.984 TD1 = US$1.321 US$1.351 US$1.016 The rate used in the President's report was: US$1 = TD 0.73 FISCAL YEAR OF BORROWER Fiscal year = Calendar Year ABBREVIATIONS AND ACRONYMS AME - Agence de Maitrise de 1'Energie (Agency for Energy Conservation) MEM - Ministere de 1'Energie et des Mines (Ministry of Energy and Mining) SME - Soci6te de Maitrise de 1'Energie (Center for Energy Conservation) SNT - Societe Nationale de Transport (National Transport Company)  FOR OFFICIAL USE ONLY Table of Contents Page Preface i Evaluation Summary ii Part I Project implementation assessment A. Project Objectives 1 B. Achievement of Project Objectives 1 C. Implementation Record and Major Factors Affecting the Project 2 D. Project Sustainability 3 E. Bank Performance 3 F. Borrower Performance 5 G. Assessment of Outcome 5 H. Future Operation 5 I. Key Lessons Learned 6 Part II Statistical annexes Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Studies Included in Project Table 6A: Project Costs Table 6B: Project Financing Table 7: Status of Legal Covenants Table 8: Bank Resources: Staff Inputs Table 9: Bank Resources: Missions Appendix: Borrower contribution to the ICR This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   IMPLEMENTATION COMPLETION REPORT TUNISIA ENERGY CONSERVATION DEMONSTRATION PROJECT (LN 2735-TUN) Preface This is the Implementation Completion Report (ICR) for the Energy Conservation Demonstration Project in Tunisia, for which Loan 2735-TUN in the amolnt of US$ 4 million equivalent was approved on July 3, 1986 and made effective on March 17, 1987. The loan was closed on June 30, 1994, compared with the original closing date of June 30, 1990. It was almost fully disbursed (99.34%, with US$ 26,322.32 remaining), and the last disbursement took place on November 7, 1994. There was no cofinancing for the project. The ICR was prepared by Nichola Dyer Ciss6 of the Private Sector Development, Finance and Infrastructure Division of the Maghreb and Iran Department, Middle East and North Africa Region and reviewed by Amir Al- Khafaji, Division Chief, and Francois Amlot, Acting Project Adviser. The borrower provided comments that are included as an appendix to the ICR. Preparation of this ICR was based on material in the project file. It was agreed with the Department that no completion mission would take place on the grounds of: (i) the small loan amount; (ii) poor project execution; and (iii) current budgetary constraints. The borrower contributed to preparation of the ICR by providing requested data, preparing its own evaluation of the project's execution and initial preparation, and commenting on the draft ICR.   - ii - ENERGY CONSERVATION DEMONSTRATION Loan 2735-TUN TUNISIA Evaluation Summary Introduction Within the ten years prior to this loan, the Bank supported five energy sector projects in Tunisia (Table 2). Three power loans helped to expand the subsector: (i) the Second Power project in 1977 for US$ 14.5 million (loan 1355-TUN); (ii) the Third Power project in 1981 for US$ 41.5 million, of which US$ 5.4 million were cancelled (loan 2003-TUN); and (iii) the Fourth Power project in 1984 for US$ 38.7 million, of which US$ 17.2 million were cancelled (loan 2455-TUN). The Second Natural Gas Pipeline project in 1980, originally for US$ 37 million and reduced to US$ 27 million (loan 1864-TUN), financed pipeline construction. The 1982 US$ 5 million Technical Assistance loan (loan 2197-TUN) contained a US$ 700,000 energy component that financed energy audits and efficiency studies. Prolect Objectives The objectives of this project were to: (i) help the Agence de Maitrise de l'Energie (AME) develop an effective institutional and policy framework for a national energy conservation program; (ii) strengthen local capabilities for monitoring the program and implementing energy efficiency audits and actions; and (iii) finance short-term actions to demonstrate energy conservation. [Para. 1]. Energy conservation was important, realistic, and necessary, in view of Tunisia's expected dependence on energy imports. A stronger institutional and policy framework was essential for sustainability. However, the financing objective was unrealistic because of its complexity for AME. [Para. 2]. Moreover, project design was flawed: (a) a Bank loan was not an appropriate instrument since the project was non- commercial (in fact, no rate of return was calculated); (b) the loan amount was too small to achieve all of the project's objectives; and (c) technical assistance should have been provided throughout the project to AME. [Para. 4]. The project had four components. An institutional component provided technical assistance to AME, training in basic energy auditing and conservation techniques, and equipment for training and demonstration. Demonstration components in three sectors (industrial, transportation and hotel/buildings) included energy audits, feasibility studies, implementation of the recommended energy-saving actions, on-the-job training in energy conservation, and tools, equipment and/or instrumentation. [Para. 3]. Implementation Experience and Results The energy conservation objectives were only partially achieved. The number of energy audits conducted under the project was (i) fewer than planned and (ii) far less than the number undertaken overall (they are required by law)- Furthermore, the audited firms did not implement the recommendations, mainly because of AME's cumbersome approval procedures and the availability of cheaper government-subsidized credit. Consequently, the scheme was revised to finance other demonstration actions, including installation of photovoltaic systems in rural areas. These new actions are expected to have a substantial development impact. [Paras. 4,5]. The institutional objectives also were partially achieved. AME's creation satisfied the Bank at appraisal, but its staff were weak in project management, it was not always well-managed and it was not as independent from the government as originally envisioned. Nevertheless, training in energy auditing was carried out, and the auditing program increased conservation awareness and helped to strengthen local energy auditing capacity. [Para. 6]. The initial program of training and energy audits was carried out with some delays and fewer firms audited than planned. [Para. 9]. In May 1989 the Project Agreement was amended, reducing the firms' cost share in the energy audits, but the impact was negligible. In December 1989 the Bank agreed to extend the loan's closing date based on a revised plan, which was implemented  - iii - in 1993 and 1994. [Paras. 10,11]. Three more extensions were granted before the loan closed on June 30, 1994, almost fully disbursed. Total project cost was lower than expected (US$ 5.48 million instead of US$ 6.25 million) and the distribution altered because of the revisions to the plan. (Para. 12]. The key factor that interfered with achievement of the project's major objectives was poor performance of the government, the Bank, and the implementing agency. (Paras. 14,15,16]. Government commitment and support for the project were lacking; the borrower was not deeply involved in most aspects of project preparation. [Para. 26]. The government's program of subsidized credit discouraged the audited firms from using the Bank loan. (Para. 15]. AME was not always well-managed, it was insufficiently staffed, its staff was inadequately trained in project management, and its procurement processing was too time-consuming. [Para. 16]. The borrower did not comply with key covenants, particularly relating to the operation of AME. [Para. 28]. The government had sufficient reservations about the implementation progress that in 1992 the Minister of Planning requested its cancellation; instead, the reprogramming of the loan was agreed as a satisfactory solution. [Para. 27]. The Bank had acknowledged but not resolved some important issues during preparation, particularly the high potential for delays. [Para. 19). The implementation plan was unrealistic because of Tunisia's lengthy disbursement profile and AME's inexperience. [Para. 20). The Bank could have addressed some of these problems by rigorously enforcing covenant compliance but did not. [Para. 22]. Supervision was generally poor; a shift in task management following the 1987 reorganization adversely affected continuity. The Bank overstated the achievement of the objectives and the quality of AME's management and rated the project's progress more highly than warranted; this lack of a critical eye perpetuated the pattern of delays and extensions. [Para. 21]. A changed approach to supervision at the end of the project substantially contributed to the completion of the revised plan. [Para. 24]. The project will likely have a satisfactory outcome, but substantially different from originally envisioned, and in spite of the four-year delay. Energy audits were carried out, demonstration actions were undertaken, and conservation awareness was heightened. However, the resources applied to the end of the project were misallocated in that the problems they were solving should have been addressed earlier. [Para. 29]. Institutional / management weakness and lack of borrower commitment make the sustainability of the project uncertain. Factors likely to promote its sustainability include Tunisia's sound energy policies, the supportive legal framework, the positive environmental, technical, social and economic aspects of the audits and demonstration actions, and Tunisian ownership of the energy conservation objective. [Para. 17]. Summary of Findings, Future ODeration and Key Lessons Learned Before it was reprogrammed, this loan suffered from implementation problems that rendered the operation counterproductive. The borrower's lack of ownership of the project (but not the objective of energy conservation) is illustrated by the government's sponsorship of interest rates that competed directly with the project, and by the dismal participation of firms in activities financed by the Bank loan. The energy audits were too costly even after the firms' cost share was reduced, and firms avoided using AME and the Bank loan to finance audits they were required to undertake by law. Despite high Bank involvement in preparation and ample review, project implementation stalled after the initial program because of design flaws, lack of borrower commitment, and the failure of the Bank to take timely and effective measures to help deal with problems that the Bank itself had identified. The reprogramming salvaged the loan, so that the outcome was satisfactory despite the serious implementation problems. [Paras. 32,33].  - iv - Energy audits continue because they are required by law. The photovoltaic systems are being installed and are expected to have a positive impact. The action plan devised by AME for the future operation of the photovoltaic systems provides adequate institutional, technical, and financial arrangements. [Para. 30]. In its next mission, the Bank should focus on whether the program is broadly on track, and verify that the operation is not being adversely affected by the issues that hindered earlier aspects of this project (lengthy procedures, implementation delays). It is not recommended that the Operations Evaluation Department (OED) conduct a future impact evaluation of this operation because it was small and not a pilot or innovative operation, and because of the Bank's marginal involvement. [Para. 31]. The key lessons to be drawn from the problems of this project relate both to design and to implementation. The lessons from the design flaws are: (i) the appropriate instrument for non-commercial projects such as this would have been a grant, not a Bank loan; (ii) the Bank should ensure in making small loans that the amount is realistic to achieve the stated objectives; (iii) the Bank should ensure the institutional framework remains satisfactory by monitoring the achievement of institutional objectives (this includes establishing indicators), and should provide technical assistance throughout the project to foster and maintain institutional capacity; and (iv) the Bank should provide strong justification when the timetable at appraisal differs significantly from the country's average disbursement profile. The main lessons from the implementation problems are that (i) management should enforce timely disclosure of problems and appropriate action to resolve issues, and (ii) that the Bank must send a clear and consistent message to the borrower by: (a) rigorously enforcing critical covenants; (b) making discussions of new projects contingent on resolution of problems on ongoing projects; and (c) granting multiple extensions only on the basis of concrete agreements on specific actions and timetables. [Paras. 33,34].   Part I Project Implementation Assessment   A. PROJECT OBJECTIVES 1. The project's objectives were to: (i) help AME to develop an effective institutional and policy framework for a national energy conservation program; (ii) strengthen local capabilities for monitoring the program and for implementing energy efficiency audits and actions; and (iii) finance actions for selected enterprises to demonstrate energy conservation. 2. In view of Tunisia's expected dependence on energy imports, energy conservation was an important, realistic, and necessary objective. Strengthening the institutional and policy framework as part of the project was essential for its sustainability. However, the financing objective was unrealistic because it was too complex for AME, a newly-created institution; numerous entities were involved in each demonstration project and AME needed greater mastery of Bank and government procedures. 3. To achieve the objectives, the project had four components, one for institutional development and the remainder for demonstration of energy conservation in three energy-intensive sectors (industry, transportation and hotels/buildings). The institutional development component included initial technical assistance to AME for the design and monitoring of an Energy Conservation Program, training in basic energy auditing and conservation techniques, and measurement and monitoring equipment for training users and for demonstration. The demonstration components comprised energy audits, feasibility studies, implementation of the recommended short-term energy- saving actions, on-the-job training in energy conservation, and tools, equipment and/or instruments. 4. The project had serious design flaws. A Bank loan was not an appropriate instrument to finance this non-commercial project, and indeed no rate of return was calculated; a grant would have been a more effective instrument to accomplish the demonstration objectives. The loan amount was too small to achieve all of the project's objectives. Finally, technical assistance should have been provided to AME throughout the project to sustain and improve the agency's capacity, given its inexperience and the history of delays experienced under the energy component of Loan 2197-TUN. However, the objectives were sufficiently broad to permit reprogramming of a substantial portion of the loan to finance other demonstration actions, including the installation of photovoltaic systems in rural areas, when the energy-saving actions were not implemented as planned (the audited enterprises did not use the Bank loan to finance equipment purchases primarily because a government program, "Credit Fournisseurs", provided financing through local banks at lower rates than the interest plus cost for funds of the Bank loan). B. ACHIEVEMENT OF PROJECT OBJECTIVES 5. The energy conservation objectives were only partially achieved. Energy audits were conducted by local and foreign consultants, but only a few of the audited firms undertook the recommended actions (Table 5). However, other demonstration actions (some recommended by audits financed by loan 2197-TUN) were implemented under this loan. The photovoltaic systems component became the largest, and is expected to have a substantial development impact. 6. The institutional development objectives also were partially achieved. The Bank had strongly supported the creation of AME to help shift decision- making away from the government, but the agency was inadequately staffed and not always well-managed, and the government did not readily relinquish its authority. Nevertheless, equipment financed by the loan helped to strengthen AME's technical capacity. Also, the energy auditing program increased conservation awareness among some of the more energy-intensive users and, by involving local firms, helped to strengthen local energy auditing capacity. 7. Indicators were not used consistently or well within the context of the project. The President's Report cited a useful summary indicator for the  2 overall environmental impact of the project (expected energy savings per year), but did not specify a methodology for computing it. In 1989 the Bank reported a detailed assessment of the potential energy savings from the project but since then has not followed up. No indicators for the institutional objectives were identified, although it would have been possible. For instance, changes in the use of expatriate firms could have been used to track strengthening of local energy auditing and conservation capacity, and the effectiveness of the demonstration components at increasing conservation awareness could have been assessed by monitoring the number of independently-undertaken energy efficiency-enhancing actions. 8. The execution of this project does not reflect a cost-effective use of Bank resources and indicates a lack of Bank commitment to supervision. A total of 110 staff-weeks was allocated during the entire project cycle (Table 8) and 17 field missions were carried out (Table 9). Considerably more time was devoted to the project before it became effective (about 54 staff-weeks over less than 2 years) than to its supervision (about 48 staff-weeks over a period of 8 years), reflecting the greater frequency of missions before effectiveness (7 missions over a period of less than 2 years) than during supervision (10 missions over 8 years). In the final stages of the project a change in the Bank's approach helped to achieve more rapid progress while minimizing supervision. However, this still represents a misallocation of Bank resources because they were tackling problems that should have been addressed earlier. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT 9. Effectiveness of the loan was delayed by over six months, until March 1987, to accommodate slow Tunisian legal procedures (Table 3). The initial program of training and energy audits was then carried out, with some delays. Training of 30 industrial and tertiary sector and 17 transport sector participants was completed by November 1988. By December 1989, the Bank loan had supported audits of only 4 firms in the industrial sector, 5 in transport, and 6 in hotels/buildings, fewer than originally planned (12, 8, and 8, respectively) and far less than the total number of firms participating in the audit program because of the law (61, 17, and 80, respectively). 10. Project implementation then stalled. The financing for the energy-saving actions remained untouched because of: (i) cheaper government-subsidized credit; (ii) AME's time-consuming procedures; (iii) a reduced incentive to conserve energy because of declining oil prices; (iv) audits that recommended changes of process; and (v) the small amounts available under the loan, that were insufficient to finance the recommended actions. In May 1989 the Project Agreement was amended, reducing the enterprises' cost share in the energy audits from 35* to 25W, but the impact of this change was negligible. In December 1989 the Bank approved a first extension of the loan's closing date until June 30, 1991 in order for AME to implement the remainder of the project. The following year only a small training program was conducted (energy-saving driving techniques and maintenance, 49 participants). In May 1991 the Bank and the borrower agreed on a new set of energy efficiency improvement projects to be financed under the loan (primarily those recommended by the audits undertaken under loan 2197-TUN) and a plan to finance the installation of photovoltaic systems in rural households. The Bank granted two further extensions of the loan, in July 1991 and June 1992, although significant progress had yet to be made. 11. From 1993 to closing the project advanced rapidly. With procurement of the photovoltaic systems underway, a fourth and final extension was approved. The other actions undertaken in 1994 were: (i) acquisition and installation of diagnostic equipment and instrumentation, including equipment to monitor vehicle emissions and an energy bus to perform mobile energy diagnostics; (ii) installation of solar water heating at Gafsa regional hospital; (iii) training  3 of 43 participants and pilot energy-saving actions at SNT; and (iv) conversion of the Tunis airport terminal's heating to a more efficient steam system. 12. The loan closed on June 30, 1994 almost fully disbursed (99.34%). The balance of US$ 26,322.32 was cancelled effective November 7, 1994. Total project cost was lower thail expected (US$ 5.48 million instead of US$ 6.25 million) and the distribution of costs and financing substantially altered because of revisions to the plan (Tables 6A & 6B). The most important change in the project's cost structure was the inclusion of photovoltaic systems in the equipment furnished to AME, at a cost of US$ 2.72 million. In each of the three sectors, the actual cost for equipment was lower than estimated because of the firms' reluctance to undertake the recommended demonstration actions. 13. Implementation delays were the major problem of the project. The four extensions, the maximum possible under Bank procedures, doubled the project's lifetime. By 1989 it had become clear that almost half of the project's financing (US$ 1.82 million) would no longer be used for its original purpose and another one quarter (US$ 1.08 million) was still not committed. Almost two-thirds (64%) of disbursements occurred in the final year (Table 4). 14. Factors beyond government control The major factor beyond government control was the Bank's poor supervision. The Bank did not appropriately acknowledge and address implementation delays and in so doing, failed to provide the leadership that would have helped the project to achieve its objectives with fewer delays. i5. Factors within government control The government-sponsored "Credit Fournisseurs" program in effect competed with the Bank loan, with the result that the audited enterprises did not use the Bank loan to finance the purchase of energy-efficiency equipment. Also, the government's own cumbersome approval and administrative procedures interfered with AME's fulfilling its mandate under the project agreement. The lack of government commitment and support for the project substantially affected timely achievement of its objectives. 16. Factors subiect to AME control AMIE's weak capacity also interfered with the achievement of the project's objectives. The agency's staff was inadequate and insufficiently trained, its procurement processing was cumbersome and time-consuming, and it was not always well-managed. Further, in 1990 AME pursued a dialogue with the Bank about a future energy conservation project without taking concrete actions to resolve the delays on this project. D. PROJECT SUSTAINABILITY 17. The project's sustainability is uncertain because of institutional/ management weakness and lack of borrower commitment. Factors likely to promote its sustainability, particularly within a framework of grants (GEF or other), include: (i) Tunisia's basically sound energy policies; (ii) the law requiring energy audits, which fosters incentives for enterprises to adopt energy- conserving technology; (iii) the environmental benefits, technical feasibility and economic viability of using photovoltaic cells in rural households; (iv) the positive social impact and enhanced local participation of both the renewable energy and the energy auditing components; and (v) the evidence of Tunisian ownership of the energy conservation objective shown by the firms' preference for the cheaper government-subsidized credit. E. BANK PERFORMANCE 18. Identification The project was intended to demonstrate proven technologies and encourage the adoption of energy-conserving technologies. It was consistent with the government's development strategy and priorities as well as with the Bank's strategy for the country. However, a grant would have  4 been a better instrument, and technical assistance for the newly-formed AME should have been provided throughout the project. 19. Preparation The Bank was highly involved during preparation. The skill mix of mission members was appropriate, including energy and conservation specialists during various missions (Table 9). The number of preparation missions (5) seems excessive for such a small project, but the missions typically involved more than one project. Some important issues were acknowledged but not resolved during this stage, including the best way to retrofit hotels with solar water heaters and the high potential for delays. 20. Appraisal The Bank reviewed the project sufficiently. Implementation of loan 2197-TUN had already shown the potential for substantial delays, and the Bank expected the creation of AME to alleviate these problems by distancing project implementation from ministerial control. However, given AME's inexperience, Tunisia's disbursement profile (9 years at appraisal), and the number of entities involved, the 4-year implementation plan was unrealistic. 21. Supervision The Bank's supervision performance was deficient throughout much of the project. A significant factor was a lack of continuity in task management following the 1987 reorganization, just after the loan became effective. The Bank minimized the lack of progress on the institutional and physical objectives and overstated the quality of AME's management; it emphasized the satisfactory energy pricing policy and appropriate regulatory framework, which although important were beyond the scope of the project (and never contentious during the project). The project was highly rated until its originally-scheduled closing date, although disbursements were less than one- tenth of forecast and problems were clearly identified in supervision reports. Only after the first extension of the closing date were the development objectives and overall status ratings downgraded to 2 (Table 9). In 1991, the project's overall status rating fell to 3, and from then until closing, the project's ratings more accurately reflected its actual status. 22. The Bank reported on covenant compliance in FY89 and FY91. The reports were poorly prepared; they were incomplete and referred to nonexistent covenants. Furthermore, compliance issues were not raised with the authorities although AME did not fulfill its obligations under the project agreement because of its own inadequacies as well as government actions and procedures. 23. There were other reporting inadequacies that did not interfere with project implementation but warrant attention as they concern the Bank's institutional memory. Documents were misfiled (e.g. supervision report in the wrong project file) or missing altogether (e.g. Bank's official approval of closing date extensions), signalling a need for more streamlined filing procedures and better control over the files. Since 1992, back-to-office and supervision reports were not written, because the Bank was focusing resources on resolving implementation issues. 24. In 1993 and 1994, the Bank repeatedly informed AXE that unused funds from the loan would be cancelled, and ensured the rapid progress on disbursement through several brief targeted missions and appropriately cleared procurement arrangements. This changed approach contributed substantially to the successful implementation of the revised components. 25. Deviation from Bank procedures The initial procurement package issued in 1992 by AME for the acquisition of photovoltaic systems was not fully in line with Bank guidelines, but the Bank mistakenly endorsed it. Following a complaint from a potential supplier, the Bank asked AME to cancel the original bidding process and call for new bids. To allow AME to complete procurement of this component, which was then properly undertaken, the Bank extended the closing date of the loan the fourth and final time.  5 F. BORROWER PERFORMANCE 26. Preparation The borrower was not deeply involved in most aspects of project preparation. However, the borrower addressed major institutional and economic factors to the Bank's satisfaction; the government enacted energy conservation legislation, maintained an acceptable energy pricing policy, and addressed Bank concerns about implementation by creating AME and permanently dismantling its predecessor, SME. 27. Implementation Although the borrower's energy pricing policy and regulatory framework (including mandatory energy audits) remained satisfactory, borrower performance otherwise during implementation was deficient. The government competed directly with the project by offering subsidized interest rates through its "Cr6dit Fournisseurs" program. Procedural delays impeded progress and discouraged firms from participating in the project. AME remained inadequately staffed and was not always effectively managed. The agency inefficiently allocated resources to a related future project before achieving substantial progress on this project. Reports were often late or sent only after reminders from the Bank. This lack of borrower commitment was a substantial impediment to the progress of the project. The government had sufficient reservations about the implementation progress that in 1992 the Minister of Planning requested its cancellation; instead, the reprogramming of the loan was agreed as a satisfactory solution. 28. Covenant compliance The borrower did not comply fully with several covenants, but the Bank did not raise the issues with the authorities (Table 7). Covenant 3.01 of the Loan Agreement required the borrower to ensure that AME fulfill its obligations under the Project Agreement, but the government's own program of subsidized interest rates interfered with the execution of the demonstration actions and its approval procedures hampered AMJE's efficiency. Under the Project Agreement, Covenants 2.05 (progress reports) and 4.01 (financial reporting) were not always respected in timely fashion and 3.01 (sound management of AME) received only partial compliance. G. ASSESSMENT OF OUTCOME 29. The project will likely have a satisfactory outcome, because it has partially achieved its major objectives and, despite the problems, is expected to achieve satisfactory development results. Energy audits and demonstration actions were undertaken, and conservation awareness has been heightened. The largest component of the revised scheme, the photovoltaic systems in rural areas, is expected to have a substantial positive development impact. However, these results were substantially different than originally envisioned. Furthermore, three-quarters of this small loan was disbursed within the final quarter of the project, after significant delays. The time and resources applied to the end of the project were in effect misallocated as they were resolving issues that should have been addressed earlier. H. FUTURE OPERATION 30. The action plan devised by AME for the future operation of the photovoltaic systems provides adequate institutional, technical, and financial arrangements. The institutional framework is as follows: (i) the primary objective of the plan is to increase Tunisians' awareness and acceptance of photovoltaics; (ii) the plan is part of the National Rural Electrification program, which has the endorsement of the Bank; and (iii) the operational phase of the program is decentralized; with participating communities establishing firms responsible for operating the systems. The technical arrangements are satisfactory: (a) repair and maintenance provisions (including an inventory of spare parts) and guarantees by the supplier are adequate; and (b) the local firms are presently operating with the supplier and their staff are receiving on-the-job training in operating, maintaining  6 and repairing the systems. The financial arrangements are acceptable: (1) the beneficiary bears 10% of the cost of installation and the state 90% (currently Tunisia 70k and the gouvernorat 20%); (2) participating municipalities receive a tax exemption; and (3) beneficiaries bear the full operating cost. 31. AME has established monitoring schemes for the photovoltaic systems, and is tracking the number of systems installed and the number of breakdowns. All- terrain vehicles were purchased to allow on-site inspections. It is recommended that within one year the Bank send a mission (composed of an energy specialist or power engineer, within the context of supervising the existing portfolio) to monitor and evaluate the operation of the photovoltaic systems. Since no completion mission was undertaken, the Bank should focus on whether the program is broadly on track, and verify that the operation is not being adversely affected by issues that hindered earlier aspects of this project (lengthy procedures, implementation delays). It is not recommended that OED conduct a future impact evaluation of this operation because it was small and not a pilot or innovative operation, and because of the Bank's marginal involvement. I. KEY LESSONS LEARNED 32. Before it was reprogrammed, this loan suffered from implementation problems that rendered the operation counterproductive. The borrower's lack of ownership of the project, although not the objective of energy conservation, is illustrated by the government's sponsorship of interest rates that competed directly with the project, and by the dismal participation of firms in activities financed by the Bank loan. The energy audits were too costly even after the firms' cost share was reduced, and firms avoided using AME and the Bank loan to finance audits they were required to undertake by law. This avoidance extended to the demonstration actions, few of which were ultimately undertaken. The project was salvaged through a substantial reprogramming of the loan, yielding a satisfactory outcome despite the serious problems. 33. Despite high Bank involvement in preparation and ample review, flaws in the project design led to problems. The lessons learned from these problems are: (i) the appropriate instrument for non-commercial projects such as this is a grant, not a Bank loan; (ii) the Bank should ensure in making small loans that the amount is realistic to achieve the stated objectives; (iii) the Bank should ensure the institutional framework remains satisfactory by monitoring the achievement of institutional objectives (this includes establishing indicators), and should provide technical assistance throughout the project to foster and maintain institutional capacity; and (iv) the Bank should provide strong justification when the timetable at appraisal differs significantly from the country's average disbursement profile. 34. Implementation problems were exacerbated by a lack of borrower commitment to the project and the failure of the Bank to take timely and effective measures to help deal with problems that the Bank itself had identified. The main lesson from the experience is that the Bank must send a clear and consistent message to the borrower by: (i) rigorously enforcing critical covenants; (ii) making discussions of new projects contingent on resolution of problems on ongoing projects; and (iii) granting multiple extensions only on the basis of concrete agreements on specific actions and timetables. Management should enforce timely disclosure of problems and appropriate action to resolve issues.  Part II Statistical Tables Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Studies Included in Project Table 6A: Project Costs Table 6B: Project Financing Table 7: Status of Legal Covenants Table 8: Bank Resources: Staff Inputs Table 9: Bank Resources: Missions  I  Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Ne2ligible Not Applicable Macro policies / Sector policies / Financial objectives / Institutional development / Physical objectives / Poverty reduction / Gender issues / Other social objectives / Environmental objectives / Public sector management / Private sector development , Other (energy conservation) / B. Proiect Sustainability Likely Unlikely Uncertain C. Bank Performance Highly Satisfactory Satisfactory Deficient Identification i Preparation Assistance / Appraisal * Supervision / D. Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation* / Implementation / Covenant Compliance / E. Assessment of Outcome** Highly Highly Satisfactory Satisfactory Unsatisfactory Unsatisfactory * Borrower addressed concerns to Bank's satisfaction at the time. ** Based on results of substantially reprogrammed loan.  Table 2: Related Bank Loans/Credits Year of Loan/Credit Purpose Approval Status Title Preceding Operations 1355-TUN / To finance additional combustion 1977 Successfully completed in 1981, on schedule. Power II turbines. Exceeded appraisal expectations except in regard to energy pricing. 1864-TUN / To build Tunisian on-shore section of 1980 Closed in 1987 after 2 extensions. Objectives Gas 11 Algerian Transcontinental Pipeline and substantially met, except for financial. Changes all network distribution lines in North. agreed with Bank; reflected external factors and clarification of loan agreement. 2003-TUN / To finance STEG's rural electrification 1981 Successfully completed in 1985 as originally Power III program, rehabilitation of urban scheduled, with appraisal objectives for physical distribution systems, and training facilities, social and economic considerations realized. program. Institutional objectives not fully achieved; Bank had been too optimistic about political and social framework. 2197-TUN / Energy component to finance energy 1982 Closed in 1990, 18 months behind schedule. Energy Technical audits and efficiency studies to assess component took 3 years longer than expected. Assistance and test new and renewable energy Problems included (i) lack of continuity in Bank potential. supervision; (ii) underestimation at appraisal of effort and money necessary for successful implementation; and (iii) failure of appraisal to consider impact of electricity subsidies on users' choice of energy sources. 2455-TUN / To help rehabilitate STEG's 1984 Closed in 1990, 2 years later than planned, with 2 Power IV transmission and distribution network extensions. Met social and economic objectives; in urban and rural areas. construction of facilities completed; institutional objectives not achieved. Following Operations 3023-TUN I To attract private sector investments 1989 Closed 12131193. Petroleum for exploration in Tunisia and to Achievement of development objectives and Exploration strengthen ETAP's technical implementation progress both highly unsatisfactory Promotion capabilities in the management of because of lack of Borrower / beneficiary petroleum resources. commitment and ETAP's institutional inadequacies and lack of autonomy. 3418-TUN / To develop gas transmission system 1991 Under supervision. Project expected to be completed Gas linking north and south, enhance before loan closes, at lower cost than originally Infrastructure flexibility of Tunis distribution estimated. Gas transmission system almost completed network, provide consultant services and field work well advanced. with training, plan for future infrastructure development and enhance security of supply. Source: Project Completion Reports  Table 3: Project Timetable Steps in project cycle Date planned Date actual / latest estimate Identification 03/84* Preparation 12/84* Appraisal 01/86 Negotiations 05186 05/86 Board presentation 06/86 07/03/86 Signing 07/86 07/86 Effectiveness 09/86 03/17/87 Project completion 06/30/90 06/30/94 Loan closing 06/30/90 06/30/94 (4 extensions) Sources: World Bank Management Information System, President's Report * President's Report lists identification mission as having taken place 04/85 and gives no date for preparation mission.  Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ millions) FY87 FY88 FY89 FY90* FY91 FY92 FY93 FY94 FY95 Appraisal Estimate 1.00 2.20 3.20 4.00 4.00 4.00 4.00 4.00 4.00 Actual 0.00 0.01 0.13 0.41 0.74 0.83 0.92 1.41 3.97 Actual as % of 0.0 0.5 4.1 10.3 18.5 20.8 23.0 35,3 99.3 estimate Date of final 11/07/94 disbursement Sources: President's Report, FDB Reports * Original closing year of loan,  Table 5: Studies Included in Project Purpose as defined at appraisal/redefined Cost Study Status (US$ 1000) Impact of study Industry Energy audits and action plans in 4 industrial Completed 377 All enterprises signed contrats-programmes sector audits firms: STIR (refinery), CIOK (cement), Tunisie with AME comnnitting to implement the actions Lait (milk), STIL (milk) recommended by the audits. Proportion of actions completed: STIR: 30% CIOK: Just begun. Tunisie Lait: 70% STIL: Not started yet. Tertiary Energy audits and action plans in 6 tertiary-sector Completed 357 Two out of the 6 firms (Tunis airport and sector audits buildings: 3 hotels (Bel Azur, El Hana Beach and Central Bank headquarters) signed contrats- Sahara Beach), Tunis International Airport - programmes with AME to realize the Carthage terminal, Central Bank of Tunisia recommended actions; none have implemented headquarters, and polyclinic (Ettaoufik). the actions. Transport Energy audits and actions plans in 5 transit firms: Completed 349 Two out of the 6 firms (SNT and SNDP) sector audits SNT (urban passenger transport), SNTRI signed contrats-programmes with AME to (intercity passenger transit), STK (regional implement the actions recommended by the passenger transit), TMK (regional merchandise audits. transport), STM (merchandise transport); and I Proportion of actions completed: own-goods transporter, SNDP. SNT: 50% SNDP: 60% Feasibility Photovoltaic systems Not begun Discussed with Bank but finally not study undertaken. Prefeasi- Technical/economic study for design of solar Completed 5 Determined specifications for call for bids; bility study heating systems for sanitary water of Gafsa project performed third trimester 1994. Regional Hospital Source: AME  Table 6A: Project Costs Appraisal Estimate Actual/latest estimate (US$M) (US$M) Item Local Foreign Total Local Foreign Total costs costs costs costs 1. Assistance to AME Consulting Services * 0.32 0.32 0.02 0.13 0.15 Equipment / Materials - 0.08 0.08 0.94 2.60 3.54 2. Energy Conservation - Industry Consulting Services 0.33 0.63 0.96 0.12 0.26 0.38 Equipment / Materials 0.77 0.74 1.51 0.00 0.00 0.00 3. Enemy Conservation - Transport Consulting Services 0.03 0.28 0.31 0.17 0.31 0.48 Equipment / Materials 0.03 0.26 0.29 0.00 0.11 0.11 4. Energy Conservation - Hotels/Buildings Consulting Services 0.13 0.12 0.25 0.10 0.26 0.36 Equipment / Materials 0.48 0.77 1.25 0.16 0.30 0.46 Physical Contingencies 0.35 0.60 0.95 Price Contingencies 0.13 0.20 0.33 TOTAL 2.25 4.00 6.25 1.51 3.97 5.48 Sources: President's Report, AME, and FDB Reports *Negligible amount for local subsistence expenditures only.  Table 6B: Project Financing Appraisal Estimate Actual/latest estimate (US$M) Item Local costs Foreign Total Local costs Foreign Total costs costs IBRD/IDA 4.00 4.00 3.97 3.97 Domestic contribution 2.25 2.25 1.51 1.51 TOTAL 2.25 4.00 6.25 1.51 3.97 5.48 Sources: President's Report, AME and FDB Reports  Table 7: Status of Legal Covenants Tunisia Energy Conservation Demonstration Project I l | Original Revised Covenant Presenit fullfill ment date fu lfill1ment Agreement Section type status date Description of covenant Comments Loan Agreement 3.01 5 CP Borrower to enahle AME to fultill obligations unider Project Agreement (i) Delays partly due to cumbersome government approval procedures (ii) Government offered program of subsidized credit so that firms did not finance demon-- stration actionis with Bank loan 3.04(i) 12 C 12/31/** Annual review of Borrower's institutional and administrative framework and policies for energy conservationl, including level of petroleum products prices 3.04(ii) 12 C Appropriate action to ensure efficient implemenitation of energy conservation activities including adjustment ot petroleum prices to reflect international levels Schedule 2 A. 10 C 12/31/89 06/30/94 Energy Conservation Program: 1. Provision of technical assistance for design/ monitoring of energy conservation program 2. Provision of training in hasic energy auditing and conservation techniques 3. Provisio i of measurement and monitoring equipment for training users and for demonstration B. 10 C Industrial Sector Component: 1. Energy audits and feasibility studies (about 12 firms) 2. Short-term energy-saving actions (e.g. monitoring systems. retrofitting) 3. On-the-job training in energy conservation 4. Provision of basic energy-saving tools and equipment  Origirial Revised Covenant Present fulfillment date fulfillnent Agreement Sectioni type status date Description of covenant Comments C. 10 C Transport Sector Component: 1. Energy audits and feasibility studies (about 8 firms and vehicle parks) 2. Energy-saving actions (e.g. preventive maintenance) 3. On-the-job training in energy conservation management and efficient driving practices 4. Provision of instrumentation for fuel efficiency and preventive maintenance D. 10 C Hotels/Building Sector Component: 1. Energy audits and feasibility studies (about 8 hotels and buildings) 2. Energy-saving actions (e.g. application of renewable energies) 3. On-the-job training in energy conservation to staff 4. Provision of equipment Project Agreement 2.01 5 C AME to carry out project with due diligence _ 2.04(a) 9 C AME to periodically exchange views with Bank l__________ 2.04(b) 9 C AME to inform Bank promptly of problems l 2.05 9 CD Within 2 (i) AME to prepare progress reports and submit to Bank Not always respected in months after (ii) AME to change work program as necessary on basis of review timely fashion. end of semester 2.06 9 C 12/31/86 AME to select enterprises in accordance with Schedule 2 and fumnish list to Bank for approval 3.01 5 CP| Sound management of AME Pursued new energy conservation project without first resolving l__ l_l_l_| delays on this project. 3.02 5 C AME's operation and maintenance of equipment in accordance with sound engineering and financial practices 3.03 5 C AME to take out and maintain insurance satisfactory to Bank 4.01(a) I 1 C AME to maintain adequate operating and financial records  Original Revised Covenant Present fulfillment date fulfillment Agreement Section type status date Description of covenant Comments 4.01(b) 1 CD (i) End of each (i) Audit of accounts, financial statements and Special Account Not always respected in fiscal year (ii) AME to submit financial statements and audit report to Bank timely fashion. (ii) No later (iii) AME to furnish other information at Bank's request than 6 months after end of FY 4.01(c) 1 C AME to: (i) maintain adequate separate records related to Project (ii) retain all records for I year after Bank receives audit report from fiscal year of last withdrawal from Loan Account (iii) enable Bank to examine records (iv) ensure separate accounts included in audit with separate opinion Schedule 2: Eligibility criteria for selection of energy users I . Energy-savings problems representative of sector, with significant potentials for savings, user prepared to serve as demonstration case for other users in sector 2. Energy manager designated in plant 3. Agree to contribute at least 25% (originally 35%) of costs of energy Amended 05/15/89 at audits, feasibility studies and training activities of Project and 100% of borrower's request expenditures incurred for implementing energy saving actions. following audited enterprises' reluctance to fund demonstration actions under loan. 4. Savings sufficient to cover cost for 3 years for transport sector, 4 years for industry, and 6 years for hotels and buildings 5. For industrial sector drastic changes in technology, location, plant, management and ownership should not be required  Table 8: Bank Resources: Staff Inputs Planned* Revised Actual Stage of project cycle Weeks US$** Weeks US$ Weeks US$** Through appraisal 37.0 Appraisal - Board 16.9 Board - effectiveness Supervision 48.5 Completion 8.0 20.2 8.0 20.2 TOTAL 110.4 Source: World Bank Management Information System * No planned figures available. ** MIS did not provide dollar amounts.  Table 9: Bank Resources: Missions Performance rating* Number Days Specialized Implemen- Develop- Stage of Month/ of in staff skills tation ment project cycle year persons field** represented status objectives Types of problems Through 10/84 3 10 PE, E, F, Identification (i) Institutional setup (limited appraisal 12/84 2 15 EC, LO, NS Preparation technical and managerial capabilities 02/85 l 10 , of SME/AME); (ii) uncertainty on 03/85 2 10 . best way to retrofit hotels with solar 09/85 1 8 . water heaters; (iii) lack of reliable 12/85 l 2 data on non-renewable energy 01/86 4 21 Appraisal resources. Supervision 09/87 1 4 E NA NA Delays in implementation due to lack of experience of AME officers (reported in supervision report but not on Form 590). 09/88 4 14 E (3), F I I Delays caused by lengthy approval procedures (reported in supervision report but not on Form 590). 07/89 1 4 E 1 I No TOR or BTO in files. 10/89 1 4 PE I 1 (i) Bankruptcy of supplier delayed transport component; (ii) audited enterprises did not use Bank loan to purchase energy-efficient equipment primari;v because of AME's complicated procedures and subsidized loans from GOT. 12/89, 5 11 2 2 No 590s on file. Problems as in (ii) 03/90, 7 17 E above. All 3 missions discussed 10/90 2 4 preparation of another energy conservation loan with AME. 05/91 1 4 E 3 2 Problems as above. 01/92 2 4 E, PE 2 2 Problems as above. 02/93 1 7 PE 2 2 Procurement, resolved. Completion 11/94 0 0 U S None scheduled due to (i) small size of loan; (ii) poor execution of project; and (iii) other priorities for limited budget. Sources: Back to Office and Supervision Reports, Form 590s * Prior to FY94, Performance Ratings are for Overall Status and Project Development Objectives. ** Most missions involved two or more projects. Codes: E= Energy specialist (includes demand management, energy planning, conservation); EC=Economist; PE=Power/energy engineer; F=Financial specialist; LO= Loan officer; NS=not specified.  APPENDIX Borrower Contribution to the ICR   IMPLEMENTATION COMPLETION REPORT ENERGY CONSERVATION DEMONSTRATION PROJECT COFINANCED BY IBRD LOAN 2735-TUN The Energy Conservation Demonstration Project cofinanced by the IBRD loan 2735-TUN was initiated through a request addressed by the Tunisian Government to the World Bank, following the Ministers' Council held on January 3, 1985, and devoted to energy conservation legislation. Following this request, identification, pre-appraisal and appraisal missions took place respectively in March 1985, from September 25 to October 30, 1985, and from January 8 to 24, 1986, allowing: to examine, in collaboration with the Tunisian organizations concerned, the technical assistance and financing needs of the Energy Conservation Program that the Govermment was hoping to undertake; to identify the possibility of launching a pilot project; to define the content of the pilot project. The implementation of the project was thus decided for a total investment of 5.5 million dollars of which 4 million dollars to be covered by the IBRD Loan 2735-TUN. The Loan had two main objectives: On the one hand, to assist A.M.E. to establish the institutional framework for energy conservation in Tunisia, by ensuring proper training of its higher level staff, by having demonstration audits performed in the three sectors of industry, transport, and tertiary, and by equipping itself with appropriate tools and measures of control. On the other hand, to finance some energy conservation projects identified in the above-mentioned audits. The first objective has been largely achieved as training, audits and purchase of measurement equipment have been made in a timely manner. The second objective, however, has only been partially achieved. Only two enterprises, one in the transport sector (S.N.T.) and one in the tertiary sector (OPAT) were able to benefit from the loan. It turned out after examination of the results of the industry audits that the amount of the loan was insufficient to meet the necessary investments for the relevant projects.   It thus became necessary to reallocate the outstanding amount of the loan to other actions. Negotiations with IBRD allowed a reallocation of the remainder of the loan essentially to the rural photovoltaic program and to demonstration projects, among which solar water heating in a hospital in GAFSA. Procedures for bidding, opening of bids and procurement, both IBRD and local, were very long and constraining, the two parties -- IBRD and Tunisia -- thus agreed to extend twice the period of validity of the loan. However, the extensions enabled AME to acquire a good experience in loan and grant management within the framework of bilateral and multilateral agreements and to master the methods of purchasing and supplying equipment. In this field there are numerous intervening parties and there were financial (taxation, investment aids) and legal (ownership of equipment, commitments on results) problems to be resolved both at the level of the administration and with the beneficiaries of actions taken by AME. Despite all the difficulties encountered, the project was still able to be completed and the loan closed at approximately 100 %. The following tables summarize the objectives and achievements of loan 2735-TUN. AME wishes to thank the experts and staff in charge at the Industry and Energy Division at IBRD as well as the departments of the Tunisian Ministry of Cooperation which monitored the project and contributed to its realization. December 1994  Project Components Initial Objective of the Component Achievements or Loan 2735-TUN A. Energy Conservation Program The main achievements for this component concern * Organization of a training cycle in energy audits in the industrial and tertiary sectors for representatives of consulting firms, energy managers and senior AME. Al - AME Technical Assistance Develop a demonstration prograrn of energy * Purchase of audio-visual equipment in order to conservation measures and monitor related allow the agency to organize training and program activities. awareness activities. * Development of a photovoltaic rural electrification program which will provide electricity to 2,250 isolated rural households, located far away from the network. A2 - Energy Audits Training Train AME personnel, energy consumers * Implementation ofa solar water heating system participating in the demonstration activities and in a hospital in order to determine the degree of some selected technicians such as teachers in interest of this type of installation for other engineering schools, in energy audits and energy institutions and, in general, for tertiary and conservation techniques. residential infrastructures. A3 - Tools/Material Equip AME with required tools and material to * Purchase of equipment and material to enable measure and monitor energy consumption, to AME to achieve part of its intervention train energy consumers and to implement programs in the areas of Rational Use of Energy demonstration activities. (diagnostic groups and energy bus) and promotion of renewable energy usage (data banks and refurbishing of Jabouza windpower installation).  B - Industrial Sector Component The main achievements for this component concern; * Implementation of energy audits and design of action plans in four different types of establishments of the industry sector. BI - Audits and feasibility studies Undertake energy audits and feasibility studies in approximately 12 production enterprises B2 - Short term actions Implement actions to save energy in the short term, including actions such as implementation of a monitoring system of energy consumption and regular verification of material and of simple operations of adaptation, installation in said production facilities. B3 - On-the-job training Organize for the staff of the production facilities benefitting from the project on-the-job training with respect to energy savings. B4 - Tools/Material Equip the production facilities benefittiig from the project with basic tools and material to make energy savings.  C - Transport Sector Component The main achievements for this component concern * Implementation of energy audits and design of action plans in five road transport enterprises. Cl - Audits and feasibility studies Undertake energy audits and feasibility studies in * Implementation of a certain number of actions eight transport enterprises and vehicle fleets. identified by the energy audit in ani enterprise benefitting from the project (Societe Nationale des Transports). C2 - Short term actions Implement actions for short term energy savings, such as preventive maintenance within said enterprises and vehicle fleet. C3 - On-the-job training Organize for the staff of said enterprises and fleet benefitting from the project on-the-job training in order to enable them to manage energy savings and to adopt efficient driving practices. C4 - Instruments Equip said companies and fleets benefitting from the project with instruments that will allow more efficient driving methods and appropriate preventive maintenance.  D - Hotels & Buildings Component The main achievements for this component concern: * Implement energy audits and design action plans in six different types of institutions in the tertiary sector. Dl - Audits and feasibility studies UIlidertake energy audits and feasibility studies in * Implement a certain number of actions approximately 8 hotels and buildings. identified by the energy audit in one building (Air terminal of Tunis-Carthage International Airport). D2 - Short term actions Implement a program of energy savings including use of renewable energies such as solar heating in said hotels and infrastructures. D3 - On-the-job traininlg Organize for the staff of said hotels and infrastructures benefitting from the project, on- the-job training in order to teach them how to manage energy savings. D4 - Material Equip said hotels and buildings with appropriate material. NA:N1NI\ICR-2735   IMPLEMENTATION COMPLETION REPORT ENERGY CONSERVATION DEMONSTRATION PROJECT COFINANCED BY IBRD LOAN 2735-TUN The Energy Conservation Demonstration Project supported the policy framework for a national energy conservation program launched by the Government in the early 80s that resulted in the establishment of an energy pricing policy, the creation of the Agency for Energy Conservation (AME) and the formulation of a National Energy Conservation Program. Consequently, project effectiveness in 1987 was accompanied by a series of measures that were progressively introduced, dealing with: - review of the energy pricing policy, which consists of progressive adjustments to internal prices to match international prices - modification of the energy conservation law to create a framework more conducive to state intervention (para. 6) - reform of the Investment Incentives Code that eliminated the interest rate discount. (para. 27) On the other hand, given the difficulty encountered in managing actions to be implemented by organizations other than AME (a situation that, in large part, was the cause of the delays in the actions listed) the loan was reprogrammed to finance actions that the Agency could carry out directly. (Para. 16) Finally, in view of the reduced number of operations carried out annually under the loan, it was agreed with the Bank to proceed to annual audits of the loan in a grouped manner. (Para. 28) April 13, 1995    IMAG ING Report No: 14506 Type: ICR