Tanzania - Fourth Power (Mtera Hydroelectric) Project

DoaMt of The World Bank FOR O CAL U ON Xb"tiK12S56 PROJECT COWPLETION REPORT UNITED REPUBLIC OF TANZANIA FORT POSER PROJCT (CREDIT 1405-TA) NOVEMBER 29, 1993 MICiROGRAPFHICS Repor-t No: 12556 Type: PCtw Infrastructure Operations Division Eastern Africa Department Africa Regional Office Thi doecment bas a resricted distdbuton ad may be used by ripiensonlb e peformace of teir officia dutie Its contents may not otberwie be dscksed wtdout Wod1d Bnk authOrizatio  CURRENCY EQUIVALENTS Currency Unit = Tanzanian Shilling (At Appraisal Year, 1983) Tsh 1.0 = US$ 0.082 US$ 1.0 = Tsh 12,2 (At Completion Year, 1991) Tsh 1.0 = US$ 0.004 US$ 1.0 = Tsh 230 WEIGHTS AND MEASURES 1 meter (m) 3.28 feet I square meter (m) = 10.75 square feet 1 kilometer (km) 0.621 miles 1 square kilometer n) = 0.386 square miles 1 cubic meter (i3) = 35.3 cubic feet I kilovolt (Kv) = 1000 volts 1 kilowatt hour (Kwh) 100 wat hours I megawatt. (MW) 100 0kilowatts 1 megawatt hour (Mwh) 1000 kilowatt hours 1 kilo calorie (kcal) = 3.97 British thermal units (Btu) 1 megavolt ampere (MVA) = 1000 kilovolt ampere (KVA) 1 ton of coal equivalent (tce) = 7,000,000 kilocalories (kcal) 1 ton of oil equivalent (toe) = 10,500 kilocalories (kcal) GLOSSARY AND ABBREVIATIONS KfW = Kreditanstat fuir Wiederaufbau MIS = Management Information System MWEM = Ministry of Water, Energy & Minerals NdF - Nordic Development Fund NORAD = Norwegian Aid Development NUWA = National Urban Water Authority PCR - Project Completion Report RTU = Remote terminal units SIDA Swedish International Development Authority TANESCO = Tanzania Electric Supply Company Ltd. FISCAL YEAR Government: July 1 to June 30 TANESCO: January 1 to December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washigton, D.C. 2043M U.SA Office of Director-eneral Operations Evaluation November 29, 1993 HNMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Tanzania Fourth Power Proiect (Credit 1405-TA) Attached is the "Project Completion Report on Tanzania - Fourth Power Project (Credit 1405-TA)" prepared by the Africa Regional Office. No contribution was received from the Borrower nor were comments requested from the co-financiers. The project achieved the primary objectives of increasing the electricity generation capacity to meet the growth in electricity demand through 1990, and improving tdchnical operations and reliability of power generation and distributitn facilities. Cost recovery, the enhancement of sector coordination and tariff objectives were achieved to a lesser extent. Cofinanciers contributed 702 of actual project cost, Tanzania Electric Supply Company Limited (TANESCO), the Government 8% and IDA 22%. Co- lenders were RfW, NORAD, and SIDA, Kuwait Fund, Italy, IDA and the Borrower. About 18% in project cost saving was achieved from the civil works procurement. Procurement disputes among co-lenders and contractual difficulties caused significant delays. A turbine supplier did not comply with the technical specifications. Flaws in the design of the Mtera hydroelectric station required the intervention of a Panel of Experts and remedial works by the contractor. The design shortcomings will significantly reduce technical efficiency even after all feasible remedies have been applied. Overall, the project outcome is rated as satisfactory. Institutional development is rated as partial since the skill base seems to have improved but the project did not succeed in providing TANESCO with autonomy and independence from the Government. Because of this and a mediocre financial performance so far, the sustainability of project benefits is uncertain. The PCR quality is satisfactory; it contains a frank account of the unsatisfactory performance of imported consultant services and weak coordination among co-lenders. An audit of the project is planned. Attachmentm This document has a restricted distribution and my be used by recipients only in the perfo._ac of their official duties. Its contents nmy not otherwise be disclosed without World Bsa* authorization.  FOR OMCIAL USE ONLY UNITED REU E AZ_ QMIJR L PO fl QOE,QEI PRECTT MMlMMBUM TABLE OF CONTENTS Preface~~~~~~~~~~~~~~~~~~~~Pg .N Pteface ................ . . . . .. . . . . . .. . . . . . . i Evaluation Summary .i PART I. PROJECT REVIEW FROM THE BANKS PERSPECTIVE 1. Projec Identity ............. 1 2. Project Background. 1 3. Project Objectives and Components. 2 4. Project Design and Organization ................ 3 5. Project Inplementation. 4 6. Project Results and Economic Re-evaluation ............. ...........8 7. Project Sustainabiity ............... 8 8. Association Performance ............... 9 9. Borrower Performance ............... 9 10. Project Relationship ............... 10 II. Consulting Services ............... 10 12. Project Documentation and Data ......................... 11 This documnent has a restricted distribution and mnay be used by recipients only in the petfomance of their official duties. Its contents may not otherwise be discosed without World Bank authorization.  TABLE OF CONTENTS (Cont'd.) Page No. PART R. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 12 PART m. STATISTICAL INFORMATION A. Table 1. Related Bank Loans adlor Association Credits ...... ................. 13 B. Table 2. Project Timetable ........................... 13 C. Table 3. Credit Disbursement ........................... 14 D. Table 4. Project Costs and Financing ........... ................ 15 E. Table S. Project Results ............................ 16 F. Table 6. Status of Covenant ....................................... 17 (J. Tables 8 (a) & (1). Use of the Association Resources ............,.18  i UN3ED QREPUBLIC OF TANZMNAIA PROJECT COMPLETION REPORT FOURT POWER PROJECT (fDlT 1405-TA) pREFAC:E This is the Ptoject Completion Report (PCR) for the Fourth Power Project in Tanzania for which IDA Credit 1405 - TA in the amount of SDR 32.5 million was approved on July 26, 1983. r:t Credit was closed on December 31, 1991, 3 years and 6 months later than originally expected. Except ior SDR 0.58 million which was cancelled, the proceeds of the Credit were disbursed by May 17, 1991. The PCR was jointly prepared by the Infrastructure Operations Division, Country Departnent II and the Industry and Energy Operations Division of the Southern Africa Department VI of the Africa Region (Prefice, Evaluation Summary, Parts I and O). On Feb. 11, 1993, the Association sent Parts I and Im to the Beneficiary with a request to prepare Part 11 by May 12, 1993, and their reply is awaited. Preparation of this PCR was started during the Association's final supervision mission of the project in April 1992 and is based, inter alia. on information contained in the Issues/Decision Papers, Staff Appraisal Report (SAR), the Development Credit Agreement (DCA), supervision reports, quarterly progress reports, correspondence between the Association and the Borrower/Beneficiary, internal memoranda and information gathered in Tanzania.  ii UNITED REUBLC OF TANZANA P-ROIEC CLoM E11QN BREP EQWiLEf2 PROJI (CREDIT I405-TMA EV-ALUATION SUMMARY 1. The primary objecive of the prtoect was to increase the electricity generation capacity in Tanzama to meet the growth in power demand through 1990. Te project would also help to lay the basis for improving the power sector instituions (para. 3.01). Imgp2mempn ELxpernence 2. Overall implement.ition of the project took eight years against the SAR estimate of 6 years and two months, with a 18% cost underrun (due to high appraisal estimate and low bid price due to the recession during this period, para. 6.05). The delay was due in part to the cumbersome coordination effort between the beneficiary and the other co-financing agencies (France, Germany - KFW, Italy, Norway -NORAD, Sweden - SIDA and Kuwait Fund) and slow award of the civil works contract. An item of note was a design error by the design consultants in the calculation of the turbine elevation causing cavitation damage to the turbine runners (para. 5.04). Correction of the problem will necessitate construction of a sill downsream of the turbines discharge to the tailwater level at a cost of about US$ 50,000 Cmn 1990 prices). With this measure, the loss of power plant productivity would be about 3 percent. It would also require shutting down of the power plant for the period of construction of the sill, which is not possible at the present time because of extreme shortage of power due to draught conditions in the country. 3. The project succeeded in (a) augmenting the power generation capacity by constructing the least cost solution within budget, (b) better equipping TANESCO to carry out more efficiently its role as the national electric power supply utility, and (c) rehabilitation of hydro-electric and generating units (para. 6.01). Sustanabiliqt 4. 'Me major benefit from the project is the availability of additional electric power to an extensive area of Tanzania covered by an interconnected grid. The added power supply is helping to enhance industrial production and the standard of living mainly in urban areas. This benefit of the project will endure for the investment's useful life of about 40 years provided the operations and maintenance expenditures are kept at proper levels. This in turn depends to a large extent on the level of tariffs applied during the life of the project and the ability of TANESCO to collect the revenues for services rendered.  iii To fiirer improve the benefits TANESCO and the Governm need to focus on continued instdonal development of TANESCO and its taiff policy and better financial performance through impwved bflling and coUection (paras. 7.01 to 7.03). F _nuan La=LM 5. The project experience provides the following main lessons: (a) befoe appraisal of hydro-electic projects of the nature of Mtera, the Association in addition to saisfying itself that the desig4 has been done by competet consultants, should have their work reviewed by a panel of idepene experts. It would be desirable to have this panel of pets involved in the project as soon as the feasibility sudy is completed (para. 8.03); (b) for projects involving complex funding arrangements with the participation of several donors, the Association should insist on an appropriate mechanism to settle disagreements between donors and between the Borrower and donors and for timely disbursement (para. 8.02); (c) the need for thorough review of bid documents by Bank Staff and/ or independent experts knowledgeable not only on hydro-electric project contracting but also on Bank's procurement guidelines and Sample Bidding Documents. Particular attention should be given to crteria for responsiveness and bid evaluation in the bid documents. Additional attention should be given to payment clauses in contracts for civil works to ensure that stpulated payments can be realistically met, particularly if a numnber of donors are funding a single contract (para. 8.03); and (d) targets for financial improvement should be realistic by basing them on a thorough review of the likelihood of the beneficiary acwally being able to achieve the proposed goals, and this should be discussed in the lssuesJDecision Papers and the SAR (paras. 5.12, 5.13 and 8.04).  - UNffED JPL'BLIC OF TANZAA PRO),EET CQMPLliTO REPORT EFOU I POWER PROJEI (CREDIT 1405-TA) PART I: PROJECT LEV1 FROM THE BANK'S PERSPEI 1. EMiect Idenity Project Name: Fourth Power Project Credit Number: 1405-TA RVP Unit: Africa Region, Country Departnent H Country: United Republic of Tanzania Sector: Infrastruchtre Subsector: Power 2. Project Background 2.1 The Association has supported the development of the power sector in Tanzania since 1969 with 5 loans and 4 credits of over US$ 160 million. This represents about 25% of the power sector's total investment in its facilities. The total financing requirement for the Fourth Power project which is the subject of this Project Completion Report was estimated at US$ 234.7 million including US$ 37.6 million interest during construction. The Associadon contributed US$ 35 million and six other donors US$ 124 million. 2.2 During the project's implementation, regulation of the electric power sector has been the responsibility of the Ministry of Water, Energy and Minerals (MWEM), which is in charge of formulating national policy for the sector. Within MWEM, power sector matters are dealt with by the Energy Department, which oversees TANESCO, the sole electric power utility in Tanzania.The beneficiary, TANESCO, was established in 1931 as one of several private power companies opeati in what is presently Tanzania. It was bought by the Government in 1964 and established as a state-owned autonomous national power utility the same year. Since then, TANESCO has been the sole utility responsible or power generation, transmission and distribution to the public. Currenty it supplies about 95% of the electric power consumed in the Country with the balance self-generated by parastaa and private organizations. Decisions concerning implementation of major investments by TANESCO, as well as semi-annual tariff increases above 15%, rest with MWEM prior to submission to the CabineL Although TANESCO is intended to operate as an autonomous corporadon, its autonomy is limited. 2.3 In broad terms, the role of the Association in supporting Tanzania's power sector has been to guide the development of the power sector along least-cost criteria. This objective has been achieved through a succession of loan and credits (in close cooperation with other lenders and donors) and throug studies and technical assistance to TANESCO in order to enhance its planning capability. Concurrently, the Association has been instrumena in the institutional strengthening of TANESCO through substantial training support to develop the skills needed by Tanzanian perso to properly manage the utility and operate its facilities.  -2 - 2.4 TANESCO's market enwompasses the whole of Tania, although only part of the country is supplied from an Interconnected system. Areas too distant to be supplied from this gid are provided with electric service by 20 separate diesel-electic stations. The effective generating capacity connected to the grid is presendy about 300 MW. At the time the Fourth Project was under consideration the available generating capacity in the grid was around 195 MW, and peak demand around 180 MW. Including Zanzibar and expansion of the grid to NW and SW zones it was forecast at appraisd that load demand would grow at an average of 10% per year, from 860 Gwh in 1983 to 1,700 Gwh in 1990. In fact load demand growth has been slightly slower (9% per year) reaching 1,565 Gwb in 1990. In the same period, peak demand has increased from 181 MW in 1983 to 264 MW in 1990, while in th SAR, peak demand was forecast to reach 300 MW that same year. 3. QWe&t Jbnves ad Compnt 3.01 T'ohObjAdw: Ine main proJect objectives were: (a) to increase the availability of electic power to meet the ibrecast growth in demand by 1990 by making good use of the available hydraulic head downstream of an existing large reservoir; (b) to help improve power sector coordination, tariff policy, power system control and load dispatching practices; (c) to maintain and improve TANESCO's operations through traiing and management programs; (d) to assist TANESCO in system development through a study of long term power development and rehabilitation of existing generating plants and distribution systems; and (e) to improve the reliability and efficiency of the existing generating plants and distribution systems. 3.02 EPje Comnen: The Mtera project was to be an integral part of a cascade system on the Great Ruaha River comprising both the existing 200 MW Kidatu power plant and Mtera. IThe powerhouse was to be located underground near the existing Mtera dam, which had been completed in late 1980 as part of the Kidatu Hydroelectric Project Stage n to enable TANESCO to utilize the power from Mtera. The project included: (a) construction of a water intake at the existing Mtera reservoir; a headrace tunnel and a vertical penstock shaft leading to an underground powerhouse with two 40 MW turbinegenerator units; a tailrace tunnel (about 10.5 km long); an outdoor switchyard; and administration building and TANESCO staff houses at Mtera; (b) rehabilitation of the existing Ubungo diesel station and other power facilities; (c) construction of a system control center at Dar es Salaam; (d) training of TANESCO's engineers and managerial staff; and (e) consultancy services for construction supervision and for studies on tariffs, long-rage power developments, power sector organization and management system of TANESCO.  4. *a=Desiggn and gQr andn Q 4.01 At the time the SAR was prepared the detailed desigs and bid documents for the Mtera component of the project were under preparation and well advanced. The prain of these documents had been entrusted to the same consultants who had prepared the feasibity sudy. TANESCO (under SIDA financing) had signed a separate contract with the same consultants for the consuction supervision. In addition TANESCO (under IDA financwig) employed a part-time Panel of Experts (POE) to monitor the work on Mtera and to advise in the event of unforeseen problems arising during project construction. TANESCO (also under IDA financing) employed two full-time experts to assist in the construction sprvision of the project, one of whom - the Project Advisor - stayed unt the end of 1991, wll after plant coissioning, to assist TANESCO in civil works claims. TANESCO also employed consultants to carry out studies on organization structure, tariffs, long range development and for the rehabilitation of its generion and distributi3n facilities. 4.02 Due to the complex finding arrangements for the project (six co-financiers), procurement for adl items of the project, except the civil works, was through procurement in accordance with the origin of the fimding source for each particular item. Civil works for Mtera were to be procured though international competitive bidding. 4.03 Eursmcat. Tne procurement for the various items of the project was organized as follows: (a) procurement for the civil works of the Mtera hydro-power plant, including the headrace and tirace tuns, the itake, the underground powerhouse and the admintrati on building was to be done through international competitive bidding procedures acceptable to the joint financiers, which were in accordance with the Associatio guidelines; (b) all goods were to be grouped in appropriate contract packages and procured in accordance with the guidelines of the particular financing agency who would finance the item - in effect reserved procuement; (c)- rehabilitation works would be entialy proprietary prcrement; and (d) consultants for all studies (to be financed by IDA) were to be selected in accordance with the Association guidelines on the use of consultants by Assochtion borrowers. 4.04 Ten bids were received for the civil works contrat and the Consultants recomended the award to a contractor from Sweden. TANESCO recommended the award to a contactor from Italy and the Association was in agreement with TANESCO'S recoendation. The Kuwaiti Fund and Gerny also concurred with this view. However, SIDA and NORAD disagreed with TANESCO's recommendation and wanted the award to be in favor of a Swedish contractor or resort to rebidding as an alternate measure. Ihere were protracted negoiations between the borrower and the co-finacierr 'nd ulmately after eight months it was decided that TANESCO would negotiate with the Italian contractor regarding the award of contrac. Part of this delay was to be made good by compressing the construction period by 4 monfts, for which the contractor agreed to receive Tsh 16.5 million as fdll compensation to be paid in addition to its bid amoun. This compression of the work schedule was to be used later on by the contaor as one of its rationales to support claims against TANESCO (para. 5.01). Consequent to TANESCO's award of contract to the Italian concor, SIDA and NORAD cancelled their financial support to the civil works conract. The Italian Government ageed to cover this finacing gap.  -4- 5. hoect lLmentation 5.01 The project was originally scheduled to be completed in June 1988 after about a 6 year implementation perioo. At the outset the project effectiveness was delayed by seven montbs due- to additional dmt required to resolve a procurement problem amongst co-financiers and revision of the financing plan. Agreements between the borrower and the vaious co-financiers were cross-effectiveness conditions. Ile delays in making the IDA and the other co-financiers' credits effectve, were detrimental to the project implementation, inter alia, because of additional payment of interest penalties to the Civil Works Contractor consequent to delay in payment of advance provided for in the contract, Coordinating disbursements from the co-financiers of the civil works contract (KfW, Kuwait Fund, SIDA, NORAD and IDA) - and for that matter disbursement from co-financiers fcor all other items of the project - proved to be a difficult endeavor. A proposed "Memorandum of Understanding" between the co- financiers designed to provide a handle on this matter, was never subscribed to and TANESCO was left on Its own to try to coax disbursements from the various agencies involved in financing the project. It also strained the relations between TANESCO and the Contractor and claims for large amounts have still not been settled (para. 4.04). 5.02 IhelMera Hydropower Station Comoonen. The construction work of the power plant went ahead without major difficulties except near the outlet of the tailrace tunnel, where the rock along the original aligmnent proved too unstable, forcing a realignment of this portion of the tunnel. The basic cause for this difficulty was insufficient field investigations coupled with erroneous geological interpretation. Notwithstanding this problem, which was solved with the assistance of the Panel of Experts, the construction was done in a workmanlike way and the quality of workmanship was excellent troughout. However, the contractor made numerous clains, a few of which were amicably setded. The outstanding amount of the claims, which were rejected by TANESCO, totalled US$ 54 million plus interest and consequenti damages (in total possibly well over the original contract amount). This claim was referred to arbitration by the contractor but was subsequendy withdrawn. 5.03 Actual completion of construction on December 1, 1988 was on schedule according to contract program. Trial runs for the first unit on May 1, 1988 and for the second unit on August 1, 1988 were also on schedule. Commissioning of the first urnt was completed on June 1, 1988 about six months later than anticipated in the SAR. The commissioning of the second unit could only be completed in October 31, 1988 (five mnonths lat) because of damage suffered by the genemtor at start up. 5.04 After only 2000 hours of operation the turbine runner in unit No. 1 presented extensive cavitation damage. According to the manuacturers, the problem was caused by the tailwater level being too low, i.e., below the specified elevation of 595 meters above sea level (m.a.s.l.) so that the minimum submergence of the turbine runner would be not less than 4 meter since the center line of the unner would be set at elevation 591 m.a.s.l. Apparendy, the lower than anticipated tailwater level was due to a misjudgment by the Consultant on the value of the coefficient of friction for the flow in the tunnd. The Consultant had used a Manning's 'n* value of 0.035 while the actal value was better than assumed. In fact during the field visit to Mtera in connection with the preparation of this PCR, and using actual flow data, an 'n' value of 0.0298 was computed. This better coefficient of frction might be due to the excellent smooth-blasting technique used by the contractor in driving the tailrace tunnel. However, calculation done during the above field visit indicated that the bare minimum submergence needed to avoid cavitation is 8 meters and not 5 meters as designed by the Consutant. This fact was also recognized by a distinguished specialist in hydraulics who was consulted by TANESCO. His recommendation (based on the consultant's original suggestion subsequendy withdrawn) was to build a sill just afte the outlet of the draft tube- with cret level at elevation 592.78 m.a.s.l (height about 2.80 meters), to increase submergence. The independent consultant also concluded that e cener line of runner should have been set at elevation 587 m.a.s.l. some 4 meters lower than the actual setting of 591  m.a.s.l. to minimize cavitation effects. This would have given a safe 9 meters submergence for the turbine rnmer. In other words, based on the available documentation, the Consultant made a basic error In designing the power house arrangement. 5.05 Construction of the s8il has not yet started because TANESCO cannot afford additional load shedding resulting from stoppage of Mtera for construction of the sill. While the reason for the very heavy deterioration of the turbine runners was being sought, the turbine supplier experimented with reshaping the runner's buckets in model testing and there was some improvement in the cavitation phenomenon due to this. The concrete sill at the tallwater tumnel entrance (estimated to cost USS 500,000 in 1990 prices, and requiring a construction period of about 2 - 3 months) Is still needed. While it would stop the cavitation, it would result in a permanent loss of hydraulic head. The reduction in average output is estimated at about 3 percent. 5.06 When examining the problem with the turbines it was found the turbine supplier had not complied with the technical specification in its supply contract concerning the performance of model tests for cavitation; model tests for which it was paid. According to this contractual stipulation the model tests were to be carried out in an independent laboratory and on a model turbine runner having a throat diameter of not less than 330 mm. Neither of these stipulations was complied with, i.e. the diameter of the model runner was 300 mm (against 330 mm) and the model tests were done in the turbine supplier's own laboratory. Nevertheless, the Consultant had certified payment to the turbine supplier for the model test as if they had been done in accordance to specifications. Faced with the seriousness of the problem TANESCO agreed to pay for an additional modified turbine runner, in order to permit modification of the runner in unit No. 1, which would later replace the runner in unit No 2. In addition TANESCO agreed to furiher payments to the Consultant for their professional services in connection with the provision of the new runner and reshaping of the existing runners. These actions by which the owner ended up paying for errors committed by the Engineer and for work improperly done by the Supplier raise serious questions about proper conduct of affairs. It should be noted that the payments by TANESCO were financed by grants from NORAD and SIDA and the Association was only informed about these arrangements after the agreements between TANESCO, NORAD and SIDA had been concluded. The Association could therefore not intercede in this questionable project financing, although it expressed its concern when the facts became known. 5.07 The Power System Control Center Comonent. The supply and erection of the power system control center at Ubungo as well as the remote terminal units (RTUs) at substations in the Grid was completed in June 1989, about three months later than contracted. The control center is well adapted to TANESCO's needs although some problems developed initially, which were corrected later. 5.08 The Rehabilitation Component. Two major rehabilitation works were included in the project scope: (i) refitting of the turbines of units No.I and 2 at the Kidatu Hydropower Plant; and (ii) refurbishment of the diesel-electric units at the Ubungo Thermal Power Station in Dar-es-Salaam. The refitting of the two turbines was successfully completed in early 1989. Rehabilitation of the Ubungo Mirless Blackstone diesel-electric sets (3 x 4.4 MW) was completed in early 1991, including the installation of a new cooling tower. Concerning the five Pielstick diesel-electric units at Ubungo, two 7.5 MW units and one of the 3 x 6.1 MW units are being refurbished under a French Technical co-operation program at a cost of US$ 12.5 million. The rehabilitation task should be completed in the second half of 1992. The other two 6.1 MW units are considered scrap. The major problem encountered in this work was a foundation crack on one of the units which required reconditioning of the top part of the base frame structure. 5.09 .Tndnig A mXThe Training Component was successfully completed by TANESCO in late 1989. The program involved the placement of 53 staff in foreign isitutons for courses lasting up  -6- to three years for technicians and from 2 to 12 months for higher-level staff. TANESCO has greatly benefited from the much better performmce of these personnel. 5.10 fie CmpM=en . All the studies included in the project were successfully completed, albeit with some delays as shown below: Completion Dates- Type of Study and (CONSULTANT) Target Acual Tariff Study (META SYSTEMS) 7185 -11185 Long Range Development (ACRES) 12184 12/85 TANESCO'S Mn ent Study (ESB) 6/85 5/86 Rehabilitation Study (EPD) 6/84 11185 The rehabilitation study prepared by EPD (UK) has been the basis for the Power Rehabilitation Project (IDA Credit I687-TA) now nearing completion, while the Long Range Development Study carried out by ACRES (Canada) established that the Kihansi Hydroelectric Scheme should be the next step in the least-cost expansion program to meet the forecast demand for electricity beyond 1997. The Association approved an IDA Credit (2330-TA) for US$ 10 million to finance the neceary design studies on this scheme. The Management Study formed the basis for the reorganization of TANESCO, as prsently structured. S.1 1 Enviromnental Issues. The enviromental impact of the Mtera project was dealt with in the SAR by stating that no adverse effects had been observed by the damming of the Great Ruaha River at Mtera and that the Mtera hydro-power project would be entirely undeground. There were no permanent settlements on the stretch of river between the dam and the outdet of the tailrace tunnel, and a minimum flow of 1.0 cumec required by the Government's 'Grant of Water Right Certificate' was maintained at all times. Furither, the SAR indicated that implementation of the recomnendations contained in detaied studies of all environmental aspects done between 1972 and 1978 on the Mtera dam had been reviewed in the PCR for Loan 1306-TA for the Second Stage of the Kidatu Project. ITese recommendations included: (a) the establishment of health programs and of a nature reserve, and (b) Government program for tapping the potential minimum yield of 3,000 tons per year of fish from the Mtera reservoir. It was found that these recommendations had been ssfactorily implemented. 5.12 &Iw _ PerformanceIThe original financial covenants in the Project Agreement included, in addition to financial statements and audits requirements: - the aggregat amount due TANESCO at the end of each month to be less than the sum of the amounts charged or to be charged by TANESCO for electricity supplied to its customers during the sixty days immediately precedig the date (Section 3.07 (a)); - TANESCO not to incur additional debt unless its revenue is at least 1.5 times its debt serice  -7- requirements (Section 4.03); - TANESCO to increase its tariff by 20% no later than January 1, 1984 and to take measures so that funds from internal sources shall be produced equivalent to n less than 25% of the annal average capital expenditures in CY1985 and CY1986. and no less than 40% in each fiscal year thereafter. TANESCO to review before September 30 each year the adequacy of its tariffs to meet the requirements (Section 4.04), and - TANESCO to develop by December 31, 1984, a method for valuation of its assets acceptable to the Association, and revaitue its asse every two years starting on January 1, 1986 (Secton 4.05). 5.13 The following table summarizes some of TANESCO's financial indicators during the implementation of the project: 1984 1985 1986 1987 1988 1989 1990 1991 Receivables (Das) 121 143 151 148 96 169 176 135 Opaatng Ratio 0.77 0.79 0.78 0.90 1.19 0.76 0.79 0.78 Deb Srvioe 0.62 1.20 O.85 1.78 (0.08) 1.14 1.57 1.63 Coverag Rate of Retun 7.61 6.68 4.12 1.41 (1.52) 2.01 2.23 2.74 Net Cash Goal 0.14 0.26 0.22 0.55 0.66 (0.29) (0.20) 0.00 Constuction Note: figures m brackets are negve. TANESCO's financial performance was adversely affected by the difficut economic conditons during the above period. Ihe devauation of the Tsh from 12.2 to the US$ in June 1984 to about Tsh 200 to the US$ at the time the project was completed in early 1991 had a serious impact on the company's finances and ability to service its debt. About 90% of TANESCO's capital investments were financed by foreign loans mostly on lent by the Government but also by some direct loans to the company. Also high accounts receivable have been a chronic problem and cotntbuted to the tight cash position that has affected TANESCO. Consequendy, TANESCO was not able to generate internally sufficient funds to pay debt service when due and to finance a reasonable portion of its capital investments after operating expenses had been met, in spite of regular tariff increases. In 1988, TANESCO and the Governmnent embarked on a financial restucturing of the company which comprised mainly of: Oi rescheduling of loans on-ent by the Government; (ii) rescheduling and converting into equity some of the overdue debt service to the Governmet; (ii) implementing a 45% tariff increase in mid-1988 with semiannual tariff increases of 15% thrafter; and (iv) converting into equity some of the grants originally received by the Government from foreign donors but on-lent to TANESCO. The implementation of the financial restructuring package has led to improvements over the past couple of years. However, billing and collection remain a particdularly troublesome area in TANESCO in spite of various attempts to corract the problem. New ounti procedues to be fully computerized and a new computerized billirg system are in the process of being implemented with the assistance of a team of experts financed. under the recently approved Power Engineering and Technical Assistance Cr. 2330-TA. The new accounting and billing sym are expected to eliminate many of the present manual processed which are at the base of the delay and inaccuracies plaguing the system.  -8- 6. ErQiec Reults 6.01 The project achieved its main objective, which was to develop the hydraulic head downstream of the Mtera dam for electric power production, although the turbine cavitation problem has still to be dealt with. Both the training component and the studies component also achieved their objectives, which were essentially to better equip TANESCO to cary out efficiently its role as the national electric power supply utility, and to establish the least-cost pattern of expanding elec&ticity supply in Tanzania. The rehabilitation objective has been partially met by the refurbishing of the turbines at Kidatu Stage I and of the MirJess Blackstone diesel-electric sets at Ubungo. Yet another objective achieved was the setting up of a modern power control center at Ubungo, which with proper additions should enable TANESCO to have adequate control of the grd operation. All in all, the results of the project can be considered satisfactory and having fWlfilled the SAR expectations except concerning TANESCO's finances. 6.02 Although TANESCO has a number of capable and dedicated managers and staff, it suffers from a shortage of middle level staff and still has a very large work force of 6,400 which gives a ratio of only 28 connections per employee, a very poor ratio. One of the reason is the high number of small power stations (mainly diesel), which require numerous employees. 6.03 'he recomputed internal economic rate of return is 12.4% compared with 10.1% computed at appraisal (See Part Hol. 6.04 Timetable and Costs. Overall implementation of the Fourth Power Project took 8 years from September 1983 to April 1991 (over two years more than anticipated). This excludes the rehabilitation of the Pielstick diesel-electric sets at Ubungo and the construction of the tailwater sill at Mtera. The basic reasons for the considerable time overrun were: (a) the cumbersome financing arrangements; and (b) the protracted award of the civil works contract. Notwithstanding the problems that arose during implementation of the project, the time schedule of 6 years estimated at appraisal seems to have been somewhat optimistic. In fact, the Bank's typical implementation profile for similar projects runs between 7 and 9 years. 6.05 The final cost of the project at December 31, 1991, including the construction of the tailwater sill at Mtera and the rehabilitation of the Pielstick diesel sets at Ubungo which are still to be completed, is equivalent to US$ 160.7 million compared to US$ 197.1 million estimated in the SAR. Ihe basic reason for the large reduction in project cost was due to lower than expected price obtained for the civil works contract for the Mtera hydro-plant. It could be argued that the cost of the Mtera component was considerably overestimated, even after the SAR had reduced the Consultant's cost estimate. A summary comparison of the original project cost estimate with the actual project expenditures per major item of the project is given in Part m. 7. Er-ect Sustainabilitv 7.01 The major benefit realized from the project is the badly needed additional supply of electric power to an exension of Tanzania covered by the interconnected system. The added supply is helping to enhance the industrial production and the standard of living of a large proportion of the urban population in the area served by the inter connected grid. This benefit will endure for all the useful life of the Mtera project, which would be about 40 years. 7.02 The second benefit is the revenue income from the sale of electricity produced at Mtera. Of course, this benefit depends on the level of power tariffs applied during the life of the project and the ability of TANESCO to collect the revenues for services rendered.  -9- 7.03 To ensure the projecta's sustainability TANESCO and the Govenmment need to focus on continued institutional development of TANESCO and its tariffs policy, proper maintenance of the power plant, and better financial performance through improved billing and collecion (paras. 5.12 and 5.13). S. Association Performance 8.01 The main project objective of supporting TANESCO's effort to expand the availability of electricity in the grid, was an integral part of the Association's strategy of using the Association resources to meet Tanzaniaes most pressing development needs. The Association played throughout the project implementation a discreet but vital role in trying to ensure that the project management was efficient though it was not always successfl (para.5.06). 8.02 The Association planned less than adequately for managing the complex financing arrangements devised for the project. The financing gap created as a result of donor's withdrawal in financing the civil works was a big factor in delayed payments to the civil works contractor resulting in major claims by the contaor. In hindsight, the Association could have entered into some form of agreement with cofinanciers to ensure the smooth implementation of the project including agreeing on a procedure to settle disagreements between cofinanciers and between the Borrower and the cofinanciers. The failure to address properly the consequences of the project financing set up, was undoubtedly at the root of the problems that later developed between the civil works' contractor and TANESCO. 8.03 The Association fUiled to ensure that the design work prepared by the consultant was properly reviewed, particularly the bid documents. 'his was ;he main cause of the problems encountered at award time, as well as of difficulties with the Contractor during construction of Mtera. There is no doubt that a more careful review of the consultant's work would have spotted the insufficiency of the site investigations in the downstream portion of the tailrace tunnel that forced the change in its alignment (para. 5.02). 8.04 In hindsight, the objectives set in the Project Agreement concerning financial performance may have been too optimistic to be attained (paras.5.12 and 5.13). The Association's supervision mission reports reflect concern about TANESCO's financial situation throughout, and show that the Association proposed naw schemes to bring TANESCO to finacial health. But there was no progress in the direction of a greater degree of autonomy or the conversion of TANESCO into a private corporation; TANESCO remained too tightly tied to Government, and was as such subject to Government's bureaucratic inefficiency and interference. 9. Borrower ' s Perfrmance 9.01 At project appraisal, TANESCO had made remarkable progress towards developing a rational power system in the eastern and north-western parts of Tanzania. In addition to providing additional power it had interconnected these regions and replaced power generation mainly from thermal power plants with energy generated by a more economic hydro-electric facility at Kidatu. TANESCO management staff were dedicated and performed capably in spite of the constraints discussed in this report. TANESCO's performance can be considered truly exemplary when aking into account the institutional and economic environment under which it operated and also considering the fact that it received little help from the Government when serious problems arose. 9.02 In several areas, TANESCO did not comply with the Credit covets (para 5.13). It should be stressed however, that TANESCO received little help from Government wbich was itself faced with the deteriorating economic situation of the country. These faflings therefor, should not be ascribed to TANESCO but to the general inefficient system in which it had tOD operate. Statements of good intentions  - 10- were rarely followed by effective govemment actions. A paticularly vexing problem is the aras of payments to TANESCO by government and partal entities, which still represent a sizeable porion of overdue payments for lc.taricity bled. IO. Proeet Rglatiobsip 10.01 The Association received very close cooperation from TANESCO during project preparation and appraisal. A cooperative attitude which was established since 1969 continued all dtough the project cycle. It helped to resolve many complications dtat onnally occur during projects of this nature. The Association's relations with the other financiers were good with the possible exception of SIDA and NORAD in the earier years. TMe Kuwait Fund for Arab Economic Development (KFAED) stopped disouement during project implemention. The Association disbursed the amounts due to KFAED on the undetanding that the latter will refund this amount to the Association upon settlement of ounding issues with Tanznia. The refund of US$ 2.9 million materialized in June 1992 after nealy two years of delay. II. Consulti Sendce Perbnance 11.01 The performance of the consultant for the Mtera hydro-power component of the project was unsatisfactory. The bid documents prepared by the consultants lacked clarity, resulting in different nterpretations during the bid evaluation stage. The difficulties encountered during excavation of the downstem portion of the tailrace tunnel were due to the fact that the consultant had not done a ihorough job in carrying out the sie investigations nor In their intepreion. 'his was not only eviden in the need to abandon a portion of the lined tunmel and align the lower stretch of the tailrace tunnel, but also in the consultant's failure to foresee the larW inflow of water which ensues from the dolerite dikes crossing the tunnel path. Not only had large extra payments to be made to the contractor for the abandoned portion of the tunnel and for additional pumping of this water flow into the tunnel, but this -isasseasment of the hydro-geology was the basis for one of the claims lodged against TANESCO by the contractor. 11.02 When the caiation problem in the turbines appeared, the consultant claimed that the lower tailwater level was due to overbreak in the tunnel excavation. A review of the technical specifications in the civil works contact reveals that there was no provision for a limit in overbreak as is :iormally stipulated in such type of works, nor was there a provision for the contactor to refill with concrete any excess in overbreak. According to information obtained during the preparation of this report, the contractor did an excellent job in driving the tunnel using smoohblasting technique with minimal or no overbreak at all. It appears that the consultant misjudged the value of the coefficient of friction in the tailwater tnel (para.5.04). But the basic reason for the cavitadon problem has been identified as a design error in the setting of the turbine runner elevation for which the consultant was responsible. Although the turbine supplier had not complied with the technical specification for model tests for cavitaion, the consultant certfied payment for the tests (pra. 5.06). The construction of the sill would correct the caviaion problem but it entails a sacrifice in power generation becaue of the pemnn loss of hydrdic head. 11.03 The Panel of Experts performed satisfactorily in helping to resolve some of the constuction problems that arose during implementation of Mtera, particularly regarding the re-routing of the tailrace tel through the meta-sedimentary rocks. The Project Advisor assigned to TANESCO performed sadsfactorily, and was instrumenta in guiding TANESCO staff in the direction of proper management and effecdve project implementation.  11.04 ConrA htoes . Ihe cvH works coor at Mtba xhibited excellet wo np However, their relaonship with the Consltat wu ls than cori and ofen qt h dirged nsuctions from the Consultant. Ihe contracrs reationship wit TANESCO was alo saimed by th numerous claims which ended up in arbitration and were subseqw ntly witdrawn (pm. 5.02). 11.05 Suppliers' Perfrm Except fr th turbines suppliw (pa. 5.06) al the ot con aorssuppliers completed their task in a satsfaty mnr with ooly mior adju_tm IX supplier was liable for (a) not having pefomd model tea rogequed contraally. ad (b) hafg supplied turbine runners with ip blades pitch angle. The ormet blades a_le wa Acay recognized by the supplier when they proceeded to chae the blades agle later. 12. Pti Docuinm ton ma 12.01 The SAR was generally comprensive althob sg a concning he projet cost esdant basis were misleading (para. 6.05). Nreles itpvded a usefdl faework for the Asoaoad TANESCO during project impletaon and for th preparation of this PCR. Superviso rl ots gv generaly good indications on the project status at al tmes and of any mar incidents det proj implementation. These repor together with the review of die projet fles, at the Asocts ad at TANESCOas offices provided the basi docuntary information for judgig the prjc retls Particularly useful have been the carefully ogaized files kept by the Proct Advbor.  - 12 - P|EL := CQN(PEJ= R BEPOfRT EQIIBHPOVQEER (CREDT 140I5-TA) PART IS: PROJECT REVIEW PROM THE BORROWER'S PERSPECTIVE No contribution was received from the Borrower nor were comments requested from the co-financiers.  - 13 - PRT m: STATSTIAL AND OTHER MF=