Morocco - Village Electrification Project

Do_dmtO The World Bank FOR OMfCLAL USE ONLY R-pwtNo., 7325 PROJECT COMPLETION REPORT MOROCCO VILLAGE ELECTRIFICATiON PROJECT (LOAN 1695-MOR) June 23, 1988 .. g ';~~~~~~~~' * Power and Energy Development Division Country Department II Europe, Middle East and North Africa Regional Office Tis documnt has a retited ditibutdon awd may be and by recipits only in te performace of tedir officad tdeL Its owtnts may not odtwibe be discoed witout World Dnk B thrizatr on.  FOR OMICIAL USIWIY THE WORLD BANK Washmton, OZ. 20433 US.A Olco 4d Ow.ctgwGgeUi June 23, 1988 I NM(ORANDUM TO THE EXECUTIVZ DIRECTORS AND THE PRESIDENT SUJECTS Project Campletion Report on Morocco Villame Electrification Prolect (Loan 1695-OR.) Attached, for information, is a copy of a report entitled *Project Completion Report on Morocco Village Electrification Project (Loan 1695-MOR)" prepared by the Europe, Middle East and North Africa Regional Office. Further evaluation of this project by the Operations Evaluation Department has not been made. Yves Rovani by km K. Chopra Attachment . ~~~~This document ha a rest ited disiibution uld nmy be used by free4hnt Only in the onc . ~~~~of their offcial dudtie Its contents may not olhewise be dbscld witbout World aulhdwdton.  FOR OMICI4L Us ONLY MOROCCO PROJECT COMPLETION REPORT VILLAGE ELECTRIFICATION PROJECT - LOAN 1695-MOR Table of Contents -.1 Page No. HIHLHPREFACE ............*....*.......*..*............. i BASIC DATA SHEET ION .... . ...............*............ ii Background .............*............................ v Subsector Organization 1......... ... ............0...... 1 Bank Participation in the Subsector 2.................. ; t I. PROJECT PREPARATION THROUGH EFFECTIVENESS ................. 3 Project Origin ......... .............................. 3 Appraisal .........* .................................. 3 Negotiations @000000000000000000000000000 00000(0...... 3 Role of Government Agencies .......................... 4 Loan Signing and Effectiveness *****................ , 5 Description of Project as Appraised .......... 5 Description of Project as Executed ..o**o ......... 6 Project Objectives 6 Performance i der the Loan and Project Agreements ..... 6 III. IMPLEMENTATION 7 Schedule and Actual Completion ......................... 7 Data Collection ................ ....... ...0 . 7 Project Cost ......................... 8 X Disbursements ...... 9- ,J Procurement 10 Performance of Consultants and Contractors ...... 10 IV. OPERATING PERFORMANCE .................11 Rural System ........... 11 - ONE's System .......... 12 This document has a mstited ditbution sed may be uwd by recpients only in the pefornance of thoir oMcial dutis Its contents man not othewise be dckoed without Wodd Bak authoutlon.  Table of Contents (con'd) Page No. V. FINANCIAL PERFORMANCE ...... ............ ......... 12 Rural System * ..................................... 12 j, ONE's System ........... ........................... 12 VI. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT ............ 14 VII. ECONOMIC REEVALUATION ... *. . ................... 15 VIII. BANK PERFORMANCE ...................... *. 16 IX. CONCLUSIONS *********.**..*.. 17 General ............ 17 Lessons Learned .......... 17 ANNEXES 1. Status of Complian ne with Loan Covenants 19 2. Cbmparison of Estimated and Actual Cost of Project 21 3. Estimated and Actual Disbursements ......................... 22 4. Disbursements Profiles ............... ......... ....... 24 5. Comparison of Forecast and Actual Sales, Production and Capacities ........ ..... 25 6. Comparison of Forecast and Actual Project Income Accounts 26 7. Re-evaluation of Rate of Return on Project 27 8* . F1.,ncial Statements ..... 28 * ., t A I4  MOROCCO PROJECT COMPLETION REPORT VILIAGE ELECTRIFICAWION PROJECT - LOAN 1695-MOR PREFACE. 2 me~~It project supported by Loan 1695-NOR for $42 million, consisted of the first attempt of the Moroccan Government to extend electricity service in rural areas In accordance with a defined program. The loan was closed on March 31, 1986, twenty-one months after the original closing date of June 30, 1984. Final disbursement was made on October 26, 1986 raising the total disbursements to $36.3 million. At the request of the Government, the loan amount was reduced by US$5 million on September 12, 19851, and the remaining undisbursed amount of US$0.7 million was cancelled on October 24, 1986, when the account was closed. This Project Completion Report was prepared by the Europe, Middle East and North Africa Region, Power and Energy Development Division, on,the basis of the staff appraisal report, supervision reports, progress reports by the borrower, other documents in the Bank's files, the draft Project Completion Report prepared by the Project consultants and on informatLon obtained during a Bank mission's visit to Morocco in April 1987. The PCR summnarizes the main points of interest. The loan was the third of a continuing series of Bank loans for the power sub-sector. begun in 1973, which have helped ONE, inter alias to improve its operations and planning practices. In ac-cordance with, the revised procedures for project performance audit reporting, this Project ComPletion Raport was read by the OPeratiOns Evaluation Department (OED), but the project will not be audited by OED staff, 'Following normal procedures, ORD sent coPies of the draft rePOrt to the Governmet and the Executing Agency for COiMMents;hee,noewr received. .: .)~~~~~~~~~' ..~~~~~~~~'  - ilRC MOROCCO PROJECT COMPLETION REPORT VILLAGE ELECTRIFICATION PROJECT -LOAN 1695-MOR BASIC DATA SEEET * - Reg Prolect Data Appraisal Item Expectations Actual MUS- Total Project Cost (uS$ million) 85.0 55.3 (Under)/Overrun (S) (35.0) Loan Amount 42.0 42.0 Disbursed 42.0 36.3 : Cancelled - 5.7 Date Principal Components Completed 12/83 06/86 Proportion Completed by above Date (Z) 25.0 98 .* Proportion of Time Overrun () - 60 Economic Rate of Return: 62 negative Financial Performance not satisfactory Institutional Performance satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million ) As of June, 30 1981 .1982 1983 1984 1985 1986 /1 (3/31) (9/30) (i) Appraisal Estimate 13.00 24.00 36.00 42.00 (ii) Actuel 1/ 0.10 0.10 7.59 12.89 19.83 28.11 36.30 (ii) as S of (i) 0.4 21 31 47 67 87 11The loan was closed March 31, 1986 but disbursement requests were allowed to,be submitted until September 30, 1986. The last disbursement was made .I1 on October 24, 1986. n4  H- i- OTHER PROJECT DATA Original Plan Actual First Mention in Files - 03/30/77 Government Application - Appraisal - 09/10/78 Negotiations - 28-30/03/79 Board Approval - 05/08/79 Loan Agreement Signed 05/22/79 Zffectiveness 08/28/79 04/30/80 Closing Date 30/06/84 03/31/86 Borrower Kingdom of Morocco Fiscal Year of Borrower Jan. - Dec. 31 Executing Agency Office National de I'Electricite Follow-on Project Name Power Distribution Project (in preparation) *1. ,.  - iv - MISSION DATA -4 Mouth No. of No. of LI Date of Year Weeks Persons Staffwcsks Reports , Relort Identification 5/1978 5 1 5 7/14/78 Preappraisal - - - - - 4J Appraisal 09-10/1978 4 3 12 11/06/78 Subtotals Y0 Implementation I 10/79 1-1/2 3 1 12/21/79 Implementation II 02180 1-1/2 1 1 03/20/80 Supervision I 9/80 1-1/2 1 1 10/30/80 " II 4/81 3 3 6 8/21/81 III 9/81 1 1 1/2 10/20/81 SO IV 3/82 2-1/2 2 1 5/04/42 n V 5-6/82 3 4 4 8/17/82 to VI 10/82 3 4 8 12/17/82 : nVII 4-5183 3 3 4 6/10/83 VIII 12/83 2 2 2 2/28/84 IX 3/84 1 2 1/2 3/30/84 ., n x 10/84 3 3 4 1/09/85 XI 7/85 3 3 4 9/12/85 XII 1-2/86 3 2 1 1/2 3/26/86 XIII 4/86 3 2 112 6/03/86 Subtotals 39 PCR 4/87 3 1 3 6/30/87 Totals 59 -A. COUNTRY EXCHANGZ RATE (Dirhsm/US$) Appraisal (September 1970) US$1.0 * DR 4.00 .| Intervening years average US$1.0 - DE 8.52 Completion year average US$1.0 * DR 9.27 i L1 Staff weeks allocated to project. .I I3 ;>  * mR~~~~~~toocco PROJECT COMPLETION RFPORT VILLAGE ELECTRIFICATION PROJECT - LOAN 1695-MOR HIGHLIGHTS 7 (i) Although ttechnically the Project was successfully texecuted, >', ecompletion was delayed by about two and a half years (mid 1986 rather than end ; ~1983). This dielay was due to: (i the Government's slowniess in ratifying the agret2entgs and concluding the agreement with the emecuting agency (ONE). its decision to r.-examine the list and numbers of centers to be electrified, and Hits slowness in making counterpart (local) funds available; (e) thee :protract-ed prequalification X. firms for the survey contracts-, (ii) the iaitial refusal cf the Ministry of Cim mrce and Industry to grant import licences for equipment also nanufastured in Mt rocco. On re-estimating the rate of return on the sam bais as at appraisal, the project adhieved "a -negative" rate of return. owever, this only temomtrates the iafdequacy of sthe triffs to generate a reasonable rate of return an the investment and not the ecojomec viability ofethe project. When the rate of return it sore-estlmted on the bais of af estipte of the consumersu willingness to pay, the frojem t achoeved a rate of return of 8H, compared with 6t calculated at ' ~the time of appraisal.. assi) The final scope of the Pronect was larger than plae ned. Nevertblessy in US ollar terms, the astual project cost was only 65S of tE e a Mpprainest estlte (para. 3.07)i and in Mrocecan Dirom terms about 140t of the as praisal etioate. Thias was due to the substantial appreciation of the ouS dollar and the devaluation of the Moroccan Dirham during Proferct 1 bi-ple_etation. } (iii) The project originally envisioned the completion of a feasibility study for the second phase of the rural electrifmcation program by the time - ~this project was completed. For this purpose an evsluation of the ; *~oeio-eeonomie impact of the first phase was required which the Bank had hoped s ~to form a pant of the completion report. However* the Government agencies assigned to collact the so-io-economic data did not perform as expected, and consequently the feasibility study was not undertaken. The Ministry of Energy and Mines has only recently initiated the socio-economic study with the ; ~assistane of local consultants which is expected to be completed in the j ~course of 1987, in time to be used iu formulating pbhase two of the rural electrification program. * I9 . ..i .. .A ,I -i  vi - 4 (iv) ONE's financial perfs-rmance remained below expectations because .4 during the longest and dryest period of drought on record (1981-85) the Government did not approve adequate rate increases to cover the large increases in fuel cost; the covenanted cash contribution of 20 was only met in 1979 and 1985. The following points are of special interest: i (a) the project was not ready for execution as evidenced by the Government's decision to revise the list of villages that were to be electrified. The experiences gained under this project and the cenclusions which the socio-economic study would reach, should enable the Borrower and the lending institution which may be associated with the second phase of the rual electrification project to avoid repeating the some mistakes made in the first phase; (b) although there were serious delays during the implementation phase, construction of the physical facilities was to a great extent uneventful; all contractors performed well and within the financial and time stipulations of their contracts. (c) the main lessons learned-which should be taken into consideration in executing the second phase of the rural electrification program are: Mi) the project should have been suabstantially defined and agreed upon among all parties (centers identified, and surveys and lay cut drawings of the program's first year completed); (ii) the draft subsidiary loan agreements between the Government and the beneficiaries should have been prepared and in principle agreed upon before project initiation; (iii) the required local funds should have been --ommitted by the Government through local lending agencies before project initiation; and (iv) the Government's responsibility, in sddition to servicing the foreign debt, should have been limited to controlling project execution through the submission by the executing agency of regular progress and financial reports, while retaining the option to initiate audits whenever these were deemed necessary. -A .  . -I1- MOROCCO PROJECT COMPLETION REPORT VILLAGE ELECTRIFICATION PROJECT - LOAN 169$-MOR .; 4 Iv INTRODUCTION P-e^kitround 1.01 Administratively, Morocco's 34 provinces are divided into eight economic regions. Provinces are divided into districts, each with a number of 3 communes which, in turn, are divided in "douars" - clusters of rural ; habitations. Presently there are 859 communes. (of which 99 urban) with some 33,000 douars. "Centers" are the seats of local government where services such as schools, health facilities, etc. exist. Each commune has at least one center. About 602 of douars are within a radius of about 2 km from the * cent.-rs. The words "village" and "center" are used rather interchangeably when referring to clusters of douars that have been electrified as a single - unit. 1.02 In view of the cost associated with the development of rural areas, the Government's policy is to give priority to the extension of infrastructure facilities to,and in centers, so as to spread the anticipated benefits over the largest number of inhabitants while stimulating migration toward the -. centers. Jncreasing access to electricity bas always been an important Governmenc objective. However, electrification of rural areas has been slow because of its great dependency on the availability of local funds. 1.03 In 1977 the Government requested Bank assistance in financing rural electrification for a five-year program. After Bank review, the program was reform'Wated to cover 15 years and was to be implemented over successive phases. The Bank agreed to finance the first three years (phase one) of this program - later e"tended to about four years - which was expected of affect 220 centers. Subsectoral Ormanization 1.04 The Ministry of Energy and Mines (MEM) is responsible for the overall development of the sub-sector and has administrative control over the main enterprise, Office National de l'Electricit6 (ONE). -j , ONE generates about 902 of all electricity, and distributes 471 to -;j its own consumers and 532 to ten "R6gies," located in the larger urban centers. These R6gies distribute potable water as well as electricity. The Regies are under the tutelage of the Mi-istry of the Interior (NI), together with all rural power systems (isolated and main grid connected) not owned by ONE. The 286 centers electrified under the Project are all connected to the 4. - 31  -2- main grid and core under the authority of MI. However, ownership of the installations was transferred to the various communes and, under sipecial contracts between ONE and the communes, ONE operates these centers on their behalf. On behalf of MI, ONE also operates 202 isolated rural power systems. 1.05 ONE owns the facilities of 576 centers connected to the main grid and these of 17 center& served from isolated power systems. Thus, including the centers mentioned above, ONE operates in total 862 interconnected centers and 219 centers served from isolated power system. In view of ONE's experience in constructing and operating rural systems, the implementation of the 15-year rural electrification program was entrusted to it. Bank's Participation in the Subsector 1.06 The Project was financed by the third loan made for power to Morocco. The first-936-MOR, made in 1973, financed gas turbines, transmission facilities and studies. The second, 1299-MOR, made in 1976, financed the Sidi-Cheho-Al Massira hydropower station and related transmission facilities. Both projects were successfully completed. The Project Completion Report for the first loan concluded that: (i) the project was completed with only minor delays and was technically successful; (ii) The Bank was instrumental in helping ONE become more autonomous and commercially oriented; and (iii) with respect to sector organization and ONE's finan4ial performance, success had been only partial because the proposed organization appeared incompatible with the public administrative philosopby and political organization of the country. The PCR for the second loan (December 2, 1983) reached essentially the same conclusions: the physical facilities were completed on time, but achievement of institutional objectives were less than adequate in those areas where Government approval was necessary. 1.07 A fourth loan, Public Enterprise Rationalisation Loan (PERL), has lately been approved. Its objectives are to increase the autonomy of the various entities, assist in improving the coordination between the entities, and contribute to the sound execution of the power investment program. A fifth loan, Power Distribution Project, is presently being appraised. The objectives of this loan are to assist ONE and the R6gies to: (a) meet demand at least cost while improving the quality of service; (b) achieve financial and managerial autonomy; and (e) reduce Governsent contributions. 1.08 The Bank's continued involvement in the power subsector had little impact on the organizational aspects of the power subsector which remained fragmented and uncoordinated (none of the Regies was a beneficiary under the previous loans made by the Bank), btit helped in strengthening ONE's technical capabilities, practices and, recently, its investment and accounting modeling. .4 ,";~~~~ *1s  tI. PROJECT PREPARATION TEROUGH EFFECTIVENESS Proiect Oriiin 2.01 Under the 15-year rural development program (para. 1.03), electricity service under the first phase was initially to be extended to 220 centers .1 located in 16 provinces. A preparatory study, financed by a Project Preparation Facility, was completed in September, 1978. Appraisal 2.02 The 1979-1982 Program, constituting the Project, was appraised in September-October 1978. The pjrincipal is3ues addressed during appraisal were: : (a) the relative weakness of the data base. Although many centers had been electrified in the past, a systematic procedure to collect / country-wide info?'_ation, had not been developed. The number of villages to be electrified was so largu that surveys would have taken too long. It was, therefore, decided to execute surveys of the first phase as part of the Project. For this reason, modifications were expected to take place during Project execution; (b) ONE's responsibilities in executing the Project. A special Project Unit was to be created and consultants were to be employed to assist A XdONE in all aspects of Project execution and management; * Cc) the definition of the role of the various Government agencies, ONE, X and the comunmes during and after construction of the first phase; a (d) the channeling of funds, including provision and timing of local fund:, and servicing of the Bank loan; and -. (e) continuation of financial agreements, reached between ONE and the Bank under the previous operation (Loan 1299-OR). Nezotiations 2.03 During negotiations, held in March 1979, the following principal j agreements were reached: (a) ONE wac appointed executing agency for the Project. It was also - proposed (recorded in the minutes of negotiations) that ONE would act .1 as the representative of the Government responsible for all - disbursements under the loan (this was later confirmed before loan I ' effectiveness); (b) although the Government could not see any direct linkage between the Project and the organixation of the subsector, it agreed to inform X the Bank of the conclusions reached by the interministerial 1-73 coumission which was studying the preparation of a subsectoral code for the development of the subsector (recorded in the minutes of nef,tiations); :  -4- (c) the main financial covenants which applied to ONE under Loan 1299-MOR 'i were repeated. It was agreed that ONE should finance 202 of its average capital requirements from internal sources, starting in 1979. The debt limitation agreed was 1.S. (d) a special agreement (Convention Particuliere), acceptable to the Bank should be signed between the Government - represented by MI, MEM and the Ministry of Finance - and ONE, to regulate: (i) the responsibilities of ONE as project executing agency and as agency eutrusted with the operation of the facilitis, and the responsibilities of the various Government agencies during project execution; * 4 (ii) project financing; MI and MEM were expected to contribute at the beginning of each fiscal year (January of each year) 501 of the total estimated cost for that year. This provision was changed before loan effectiveness; it was agreed that MI and MEM should contribute 501 each towards the local cost while ONE was authorized to take all loan disbursement actions. It was also agreed that the local cost should include 101 of total expenditures (plus taxes) to cover ONE services as executing agency and ONE should regularly inform the Government of the Project's financial status; (iii) ownership of facilities; the portion of the network up to the supply points would be transfetred to ONE's assets and the remaining networks to the communes' assets; (iv) the servicing of the loan; this was the responsibility of the- Government; (v) the operation of the systems; ONE was authorized to operate the systems on behalf of the communes; and any future extensions and initial supplies necessary to operate the systems would be financed by the various communes. For this purpose ONE was to sign an operational agreement with each commune - the model of 4 the agreement to constitute an annex to the,special agreement; and (vi) the names of the villages (centers) to be electrified should be annexed to the special agreement. Role of Government Agencies 2.04 In view of the scattered responsibilities of Government agencies in tho subsector (para. 1.04), an outline of the role of the various agencies with respect to the Project was agreed during negotiations (para. 2.03 (d)