Guinea - Second Power Engineering and Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11499 PROJECT COMPLETION REPORT REPUBLIC OF GUINEA SECOND POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (CREDIT 1595-GUI) DECEMBER 28, 1992 Occidental and Central Africa Department Industry and Energy Division Africa Regional Office This document has a restricted distribution 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.  ABBREVIATIONS AND ACRONONYMS DCA: Development Credit Agreement ENELGUI: Entreprise de 1'Electricite de Guin6e GOG: Government of Guinea KfW: Kreditanstalt fur Wiederaufbau NHS: National Hydrology Service PR: President's Report SNE: Societe Nationale d'Electricit6 CURRENCY EQUIVALENTS Currency Unit - Guinea Franc (GF) Calendar 1986 1992 US$1.00 - GF365 US$1.00 - GF992  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of the Director-General Operations Evaluation December 28, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Guinea Second Power Engineering and Technical Assistance Proiect (Credit 1595-GUI) Attached is a copy of the report entitled "Project Completion Report on Guinea - Second Power Engineering and Technical Assistance Project (Credit 1595-GUI)" prepared by the Africa Regional Office. The report is informative and comprehensive. However, Part II was not submitted by the Borrower. The project covering mostly technical assistance aimed at ambitious institutional goals and at improved power system efficiency and reliability. It followed on the first IDA operation in the sector, which ultimately achieved a few of its physical objectives but left the sector in the same dismal state it had been at project start. Despite this experience, the project did not establish the borrower's commitment to reform and failed to meet its sector objectives. However, at the very end of the project (1990-91), a major change in sector management did take place and led to the appointment of members of an assistance team to key managerial positions in the national utility. During implementation, the project scope was changed to accommodate emergency repair of the Banea dam. This component was successful and the studies included in the project were completed. However, at project completion, the implementation of the studies' recommendations, which were part of the project objectives, had not yet started. On balance, the project is rated as unsatisfactory and its sustainability as uncertain. An audit is planned. This document has a restricted distribution and may be used by recipients only in the performance of their officiaL duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT REPUBLIC OF GUINEA SECOND POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 1595-GUI) TABLE OF CONTENTS Page No. PREFACE.. .............. i EVALUATION SUMMARY ................ ii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity . . . . . . . . . . . . . . . . . 2. Background . . 3. Sectoral Objectives and Project Description . . . . 2 4. Project Design and Organization . . . . . . . . . 3 5. Project Implementation . . . . . . . . . . . . . . 4 6. Project Results . . . . . . . . . . . . . . . . . 6 7. Project Sustainability . . . . . . . . . . . . . . 6 8. Bank Performance . .7 9. Borrower Performance . . . . . . . . . . . . . . . 7 10. Project Relationships . . . . . . . . . . . . . . . 8 11. Consulting Services . . . . . . . . . . . . . . . 8 12. Project Documentation . . . . . . . . . . . . . . . 8 PART II PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE (This part was not submitted by the Borrower) PART III STATISTICAL INFORMATION ON THE PROJECT 1. Related IDA Credits to Guinea . . . . . . . . . . 9 2. Project Timetable . . . . .. . ..... 10 3. Cumulative Disbursements . . . . . . . . . . . . . 10 4. Project Implementation . . . . . . . . . . . . . . 11 5. Project Costs by Credit Category . . . . . . . . . 11 6. Project Results ..rdAr. ....... 12 7. Status of Covenant in Credit Agreement . . . . . . 14 8. Use of Bank Resources . . . . . . . . . . . . . . 16 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.   i PROJECT COMPLETION REPORT REPUBLIC OF GUINEA SECOND POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 1595-GUI) PREFACE This is the Project Completion Report (PCR) for the Second Power Engineering and Technical Assistance Project in the Republic of Guinea for which Credit 1595-GUI in the amount of SDR 8.4 million (US$8 million) was approved on May 16, 1985. The last disbursement took place on October 28. 1991. The Credit was closed on December 31, 1991 and a remaining undisbursed balance of SDR 48,545 was canceled on April 30. 1992. The Credit, the second operation in the Guinean power sector, was extended to the Government of Guinea (GOG) for on-lending to the Soci6t6 Nationale d'Electricit6, (SNE), the state enterprise created in 1961 to operate the Guinean public power system. Parts I and III of this PCR were prepared by the Industry and Energy Operations Division of the Occidental and Central Africa Department, and are based inter alia, on the President's Report, the Development Credit Agreement, supervision reports, correspondence between IDA, the borrower and the executing agency, data and information from Bank files and discussions with Bank staff involved in project implementation and supervision. A Bank mission visited Conakry in April 1992 to discuss the project with GOG, project agency staff and local representatives of the cofinanciers. (Part II has not been received by IDA). Parts I and III were sent to the Borrower and Cofinanciers in early June 1992 for comments. No comments have been received.   ii PROJECT CMPLETION REPORT REPUBLIC OF GUINEA SECOND POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 1595-GUI) EVALUATION SUMMARY Project Oblectives 1. The main objective of the project was to continue the sectoral rehabilitation efforts started under the First Power Project (Cr. 1085- GUI approved in December 1980). IDA's goal was to create a power utility capable of: (a) operating and maintaining the installations already rehabilitated; and (b) carrying out a major expansion of the sector in the late 1980's, based on hydro power. In specific terms, the project was to: (i) strengthen the power sector's organization and management; (ii) plan the development of Guinea's most abundant energy resource - hydroelectricity; (iii) improve power system efficiency and reliability through cost reductions, training and provision of technical assistance, vehicles, equipment and spare parts; and (iv) provide technical assistance and equipment to the National Hydrology Service. The project was later modified to include civil works, equipment and consulting services for the repair of the Banea dam (para 3.02). Implementation Experience 2. Project start-up and implementation were difficult. Performance ratings of 3 or 4 were recorded throughout the first six of the 7-year period of execution. Credit effectiveness was also delayed by a year. Three recovery plans for the utility drawn up between 1985-88 were not implemented and the technical assistance funded by the project during early implementation was not effective. When suspension of disbursement became a real possibility, important institutional changes were introduced in 1988-89. However, these had no impact on the poor performance of Entreprise Nationale d'Electricit6 de Guin6e (ENELGUI), as management issues were not addressed and no internal reforms took place (paras 5.01-5.07). 3. Five years after appraisal, the effort to reform ENELGUI was made by radically altering the institutional set-up of the sector. A new team was recruited and the TA personnel were given decision-making authority in ENELGUI. Major breakthroughs on the institutional front were achieved when GOG decided to go even further in the direction of autonomy for ENELGUI by granting full management powers to the TA personnel who were appointed, by Presidential decree, to all the top posts. It was not until 1991, the last year of the project, that substantial progress was achieved in reforming the ENELGUI and in improving its commercial performance. Consolidation of the reforms continued in 1992. Unfortunately, lengthy power outages remain endemic  iii and improving the service is difficult in the absence of major investments in long-term network rehabilitation programs and expansion of generation capacity (para 5.08). Prolect Results 4. The project was a major vehicle to help GOG with better decision- making information on developing its hydro-electric potential. Least- cost expansion programs could now be based on full-feasibility level studies. These studies demonstrated given the small size of the Conakry system, along with uncertain growth in demand. that some thermal expansion was justified. Thus the decision to defer by a number of years developing initially the Fomi and later the Garafiri projects. 5. Over three-quarters of the Credit was disbursed for studies and foreign technical assistance. The institutional reform and physical rehabilitation of the sector was to have been completed by the end of the project. The reform is still in its early stages, and is firmly under way. However, additional rehabilitation, particularly of the Conakry distribution system remains to be tackled under the next IDA project, which has been appraised and negotiated (paras 6.01-6.02). 6. Studies (including engineering services and financial and management audits), accounted for over 25 percent of the total Credit amount. These were generally well executed and helped GOG arrive at important decisions on the development of the sector. Some project components (e.g. training), were dropped during project implementation and were replaced by others, of high priority, such as the Banea dam embankment, which was in serious need of repairs. The repair of the Banea dam embankment was satisfactorily completed and may prove to be one of the enduring and tangible results of the project (paras 6.03 - 6.05). Sustainabilitv 7. As an engineering and TA credit, the project had only the repairs of the Banea Dam as a physical component. As regards the institutional and management reforms implemented at the end of the project, the results so far are very encouraging. Sustainability will depend, to a large extent, on successfully negotiating a contract with private operators to run ENELGUI under the next IDA project (para 7.01 - 7.02), and on Government's continued commitment to reforms. Conclusions and Lessons Learnt 8. The project's objectives were generally met. Important breakthroughs on institutional and management issues in the late stages of the project mean that prospects for further progress under the next project are significantly brighter. Although granting greater management responsibility in exchange for a performance-based approach to technical assistance could have offered better prospects, this was not feasible given the Government's reluctance to do so, and reluctance from operating utilities to accept such responsibility given the macro- economic environment in Guinea at that time.  iv 9. Both the utility and the Government gave repeated assurances to implement reform measures that they were unable or unwilling to carry out, undermining their credibility as well as relations with the Bank. In future, GOG should only agree to measures which are within its capacity to execute and the Bank should be more circumspect in accepting such assurances at face value (para 9.02). 10. Finally, IDA played a crucial role in bringing about fundamental sector reforms. A longer time was needed, than originally foreseen, due to the difficult environment in Guinea, and the systematic failure of the sector. IDA's support was a critical element that finally resulted in a turn around situation, that would not have otherwise been achieved.  I  PROJECT COMPLETION REPORT REPUBLIC OF GUINEA SECOND POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 1595-GUI) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Proiect Identity Name - Second Power Engineering and Technical Assistance Project Credit Number - 1595-GUI RVP Unit - Africa Country - Guinea Sector - Energy Subsector - Electric Power 2. Background 2.01 At the time of appraisal of this project in 1984, a new government committed to a far-reaching liberalization of the economy took power in Guinea. ending a very long period of centralized planning and state participation in all aspects of economic life. IDA's overall objectives were to assist the inexperienced new government in bringing about the profound transformation of the economy necessary to escape from the poor performance of the Guinean economy during the previous two decades. 2.02 In 1984, the electric power sector was in very poor shape, even by sub-Saharan African standards. Despite a major donor-financed system rehabilitation program that began in 1980, electricity generation was insufficient to meet demand and frequent and lengthy power outages were commonplace. The national power utility. Soci6t6 Nationale d'Electricit6 (SNE) was extremely weak, badly run and suffered from massive losses. Only about sixty percent of electricity produced was billed and only half of billings were actually collected by the utility. Preventive maintenance was non-existent and there was widespread pilferage of materials, equipment and fuel. 2.03 Responsibilities in the sector were fragmented and SNE's role was limited to operating the power system. Its supervising Ministry was responsible for planning and executing sectoral investments, but it also played a major role in the day-to-day operations of SNE including control of treasury operations. The latter had no autonomy and even junior staffing decisions were made by the Ministry of the Civil Servic-. Constant government interference in its operations combined with ineffective management, overstaffing, inadequate compensation, low tariffs and the lack of foreign exchange to buy essential spare parts, all contributed to the sector's problems.  - 2 - 3. Sectoral Obiectives and Proiect Description 3.01 The objectives of the project as stated in the President's ReportjJ (PR) were to continue the sectoral rehabilitation efforts started under the First Power Project (Cr. 1085-GUI of Dec. 1980). IDA's goal was to create a power utility which would be capable of: (a) operating and maintaining the installations already rehabilitated; and (b) carrying out a major expansion of the sector in the late 1980's, based on hydro power. Given the state of SNE as described above and the legacy of the previous regime, these goals were somewhat ambitious. 3.02 Obiectives. The project was to: (a) strengthen the power sector's organization and management; (b) plan the development of Guinea's most abundant energy resource - hydroelectricity; (c) improve power system efficiency and reliability through cost reductions, training and provision of technical assistance, vehicles, equipment and spare parts; and (d) provide technical assistance, equipment and vehicles to the National Hydrology Service (NHS). 3.03 Prolect Components The project initially consisted of: a) Consulting services and studies for: (i) a power generation and transmission planning study to the year 2000; (ii) an institutional, organizational and manpower study of the sector and of SNE; (iii) a study of the rehabilitation and reinforcement of subtransmission and distribution systems; (iv) a feasibility study and detailed engineering of the next generation project; and (v) a study of the tariff structure. b) Technical assistance to SNE and staff training: (i) extension of the ongoing technical assistance contract between SNE and a foreign power utility; (ii) overseas training for SNE staff;and 1/ No Staff Appraisal Report was prepared as the project was an engineering and technical assistance credit.  -3- (iii) equipment to complete the Training Center. c) Technical assistance to the NHS and staff training; d) Spares, equipment, vehicles and materials; and e) Buildings: (i) warehouse rehabilitation and equipment; (ii) perimeter wall and security lighting at Tombo power station. 3.04 Changes in Project scope: During project implementation and at the request of the GOG, the project scope was modified to address the serious erosion to the earth embankment of the Banea dam, which endangered its very existence. Given the urgent nature of these repairs and the unavailability of foreign exchange resources, a reallocation of funds of SDR 0.9 million was approved in December 1986 to finance: (a) Civil works and equipment for the repair of the Banea dam; and (b) Consultant services for the supervision of civil works at Banea and for periodic dam inspections. 4. Prolect Design and Organization 4.01 In the context of SNE's unfinished institutional and physical rehabilitation and the country's power planning vacuum at that time, this project was seen by both IDA and the borrower as a three-year transitional phase (1985-87), needed to lay the ground for a large hydro generation project to follow. With hindsight, it appears that the ambitious scope of the project and the unrealistic timetable did not take into consideration the difficulties of implementing fundamental reforms in the extremely distorted economic context of Guinea in the early 1980's. This was also one of the conclusions of the PCR of the First Project 2/, which argued that it was unrealistic to redress the sector in isolation of improvements in overall government policy. 4.02 At the heart of the rehabilitation program for SNE was a large technical assistance team that had been at work in SNE since late 1982. but as pointed out in the PCR for the First Power Project, they were handicapped by the lack of proper tools and equipment, had only advisory roles and were "stymied by the absence of effective SNE management, the lack of discipline of personnel and the general disarray in the country. In spite of the major efforts to bring about changes, they had only a minimal impact on SNE". 2J Report No. 7235 of 6 May 1988.  - 4 - 4.03 IDA staff were aware of the ineffectiveness of the TA team on the institutional and management front during its first two years (1982-84). As a result, in early 1985, as a precondition of negotiations for this project an attempt was made to redefine the role of the TA team to bring it closer to managerial rather than advisory functions. However, at that time both the Bank and the Borrower felt that placing expatriates in line positions was politically impossible; in addition operating utilities that could provide the TA were reluctant to accept such responsibility given the macro-economic environment in Guinea at that time. Thus a detailed recovery plan with quantitative and time-bound performance targets for all areas of SNE's operations was drawn up and agreed to by SNE's top management and the head of the TA team. Obligation to implement this plan was explicitly incorporated into the Development Credit Agreement (DCA). 4.04 In retrospect, it appears that IDA overestimated the ability of the parties involved to implement the recovery plan, given the weaknesses of the SNE management, the lack of experience of the new political leadership, despite its commitment to reform, and the vested interests of the supervising ministry, did not support SNE autonomy. In addition. insufficient account was taken of the likely resistance from SNE and ministry staff, to measures designed to end corruption, given the very low level of public sector salaries. 4.05 The nature of the technical assistance contract was also controversial, because of the large size of the team and its high overall cost. Ideally, their fees should have been linked, at least partially, to results. This, however, was not feasible given their lack of decision- making authority and an environment that was not conducive to reform. Responsibility for results was thus diffused and neither SNE's management nor the TA team could be properly held responsible for non-performance. 5. Prolect Implementation 5.01 Credit Effectiveness Although Credit signature took place less than a month after board presentation, meeting the effectiveness conditions took almost a year. When the credit was finally declared effective in June 1986, two of the conditions had to be waived. 5.02 A PPF ./, ensured that the institutional and system planning studies proceeded on schedule, while an unused balance of US$1.5 million from a Petroleum Technical Assistance Credit (Cr.1438-GUI), provided funds to keep the TA team in place before effectiveness. However, the shortage of foreign exchange for spare parts and equipment due to the non- effectiveness of both the IDA and Kreditanstalt fur Wiederaufbau (KfW) credits and of local currency because of delays in introducing a tariff i # P299-GUI of August 1984 for US$0.68 million.  -5- increase A/. meant that physical and financial goals set in the recovery plan at the time of negotiations could not be met during 1985-86. 5.03 IDA supervision reports from this period show that the TA team was not living up to expectations, largely because of the weak SNE management and an environment within the company that was not conducive to reform. Despite internal memos highlighting the urgency of replacing the SNE management and redefining the nature of the TA arrangements, IDA's official actions were limited to drawing up a revised recovery plan whose implementation COG was urged to support, but which was hardly acted upon. Thus, by mid-1987, two years after Board presentation, there were few tangible signs of progress. 5.04 IDA management formally informed COG in July 1987 that it would not agree to fund any new activities out of the credit because of the delay in implementing the 1986 recovery plan and the non-observance of most of the conditions in the DCA. Furthermore, in the absence of significant progress IDA would suspend all disbursements from end-October, 1987. 5.05 The next supervision mission drew up a third recovery program with SNE and GOG and recommended to IDA management that disbursements continue uninterrupted on the basis of fresh assurances from the highest political levels in Guinea to implement it. This was at a point in the project when nearly 50 percent of the credit had already been spent. In retrospect, the Bank should have been more demanding for the GOG to implement reforms and should not have just accepted assurances. Real reforms were thereby postponed by a further two years. 5.06 During 1988, as result of pressure from the Bank, GOG dissolved SNE and set up a new power company Entreprise Nationale d'Electricit6 de Guin6e (ENELGUI), with a board of directors and new top management. Net effect of these changes were largely cosmetic. There was no improvement in commercial performance or in the service to consumers. Internal reform in the "new" company was virtually absent, and the old malpractice by the SNE personnel who had all been retained, continued. 5.07 Meanwhile, the program of studies to be funded under the credit made steady progress. The number had increased in total, even though some of those initially envisaged had been shelved. As regards the investment planning for the future generation requirements of the sector, by early 1989 GOG had opted for a hydro scheme on the Konkoure river, some 160 km NE from the capital, Garafiri, following completion of the necessary technical studies. Despite the lack of progress in the daily operations of the power sector, GOG began to seek funding for the Garafiri project. This was at first supported by IDA, even though the latter was on the record as saying satisfactory progress in reforming ENELGUI was a necessary pre-condition for any major investment project. This gave mixed signals to the borrower and cofinanciers and also undermined IDA's own 4/ Which was the also the main obstacle to the effectiveness of the IDA credit.  - 6 - credibility in the area of sectoral reform where greater firmness was necessary. 5.08 Finally, in late 1989, five years after appraisal and with 70 percent of the credit already disbursed, and as a major conditionality of proceeding with any major investments in the sector, GOG and IDA agreed to make a fresh start to reforming ENELGUI by radically altering the technical assistance arrangements. A new team was recruited after competitive tendering and the TA personnel were given decision-making authority in ENELGUI. While it took another year until September 1990, for a new team to take over the management of the company, major breakthroughs on the institutional front were achieved. After attempting to introduce a compromise setup involving the board of directors and a management committee, GOG decided to go even further in the direction of autonomy for ENELGUI by granting full management powers to the TA personnel who were appointed by Presidential decree to all the top posts. 5.09 It was not until 1991, the last year of the project, that substantial progress was achieved in reforming ENELGUI and in improving its commercial performance V/. Consolidation of the reforms continued in 1992. Unfortunately, lengthy power outages remained endemic and improving the service proved impossible as these necessitated major investments for long-term network rehabilitation programs and expansion of generation capacity. 6. Prolect Results 6.01 If viewed solely from the perspective of the objectives, as stated in the PR, it is evident that the project only met its objectives at the end of the execution period. However, it is necessary to take a broader view and recognize that the post-1990 breakthroughs on the institutional and management issues mean that prospects for the future are significantly brighter. A future retrospective review of the sector may conclude that this project played a key role in setting the stage for subsequent progress. 6.02 Over three-quarters of the Credit was disbursed for studies and foreign technical assistance.