Tanzania - Power Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14503 PERFORMANCE AUDIT REPORT TANZANIA FOURTH POWER PROJECT (CREDIT 1405-TA) AND POWER REHABILITATION PROJECT (CREDIT 1687-TA) MAY 16, 1995 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalent Currency Unit = Tanzanian Shilling At Appraisal Year 1983, Credit 1405-TA: Tsh 1.0 = US$ 0.082 At Appraisal Year 1985, Credit 1687-TA: Tsh 1.0 = US$ 0.061 Abbreviations and Acronyms CIDA Canadian International Development Agency EIB European Investment Bank ERR Economic Rate of Return GDP Gross Domestic Product IDA International Development Association NGO Non-governmental Organization NORAD Norwegian Aid Development NUWA National Urban Water Authority OED Operations Evaluation Department OMS Operations Manual Statement PAR Performance Audit Report PCR Project Completion Report SAR Staff Appraisal Report SDR Special Drawing Rights SIDA Swedish International Development Authority TANESCO Tanzania Electric Supply Company Measurement GWh Gigawatt hour kWh Kilowatt hour MW Megawatts Fiscal Year Government: July 1 to June 30 TANESCO: January 1 to December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation May 16, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Tanzania Fourth Power Project (Credit 1405-TA) Power Rehabilitation Proiect (Credit 1687-TA) Attached is the Performance Audit Report on Tanzania Fourth Power Project (Credit 1405-TA) and Power Rehabilitation Project (Credit 1687-TA), prepared by the Operations Evaluation Department. Neither the Borrower nor the co-financiers provided comments. The Fourth Power Project achieved its primary objective of increasing the electricity generation capacity of the Tanzania Electric Supply Company Limited (TANESCO) through 1990 and beyond, although the rehabilitation of one of the diesel stations was postponed to a subsequent project. The Rehabilitation Power Project was successful in improving the reliability of the transmission and distribution networks but, due to financial constraints, the rehabilitation of a diesel plant and a gas turbine was not carried out as originally envisaged. The household energy component achieved the objective of developing more efficient charcoal production kilns and domestic cooking stoves. In both projects, the technical assistance for engineering studies and supervision of works was effective. On the other hand, support for general institution building was piecemeal and made little impact on TANESCO's performance. Throughout the project implementation period, TANESCO rarely met its financial covenants: cash generation was insufficient, the rate of return well below the opportunity cost of capital, and accounts receivable well above targeted limits. In view of the foregoing, the audit rates the outcomes of the two projects as marginally satisfactory, their institutional development impact as modest and their sustainability as uncertain. Robert Picciotto by Francisco Aguirre-Sacasa Attachment 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 Contents Preface . .................................................... 3 Basic Data Sheet .. .............................................. 5 Evaluation Sum m ary ........................................... 9 1. Introduction ............................................... 15 Country and Sector Context . .................................... 15 The Projects .. ............................................... 15 T he A udit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2. Objectives and Priorities ...................................... 17 Objectives .. ................................................ 17 Sector and Country Priorities . ................................... 17 3. Physical Accomplishments ..................................... 21 Fourth Power Project ......................................... 21 Power Rehabilitation Project .................................... 22 Maintenance ............................................... 22 4. Institution Building Experience ................................. 25 Strategy . .................................................. 25 Experience . ................................................ 25 5. Compliance with Covenants ................................... 27 Understandings..............................................27 Revenue Covenant............................................27 Debt Limitation Covenant.......................................28 Accounts Receivable..........................................28 Accounts and Audits..........................................29 Sustainability ............................................... 29 This audit was prepared by Messrs. Alvaro Covarrubias (Task Manager) and Guy Pr6noveau (Consultant) with secretarial assistance provided by Ms. Lorna Sibblies. 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. 2 Contents (Cont.) 6. Technical Assistance ............................................. 31 Fourth Power Project ............................................. 31 Power Rehabilitation Project ........................................ 31 Effectiveness of Technical Assistance .................................. 31 7. Co-Financing ................................................... 33 IDA's Role . ....................................................33 Effectiveness of Co-financing . ....................................... 33 8. Costs, Benefits and Economic Rate of Return .......................... 35 Fourth Power Project ............................................... 35 Power Rehabilitation Project ......................................... 36 9. Main Findings .................................................. 39 Project Outcome ................................................. 39 IDA's Performance ............................................... 40 Beneficiary's and Borrower's Performance .............................. 41 10. Lessons ...................................................... 43 Lessons Learned ................................................. 43 Prospects for World Bank New Power Sector Policy ....................... 44 Annexes A. Table: Re-calculation of Economic Rate of Return ........................ 47 3 Preface This is the Performance Audit Report (PAR) of the Tanzania - Fourth Power and Power Rehabilitation Projects for which Credit 1405-TA and Credit 1687-TA were signed in the amounts of SDR 32.5 million and SDR 34.7 million on September 22, 1983 and June 25, 1986, respectively. The first was closed on December 31, 1991, the second on June 30, 1992, about two and a half and two years respectively later than originally envisaged. The PAR consists of an Evaluation Summary and a Performance Audit Report prepared by the Operations Evaluation Department (OED). Two Project Completion Reports (PCRs), prepared by the Infrastructure Operations Division of the Eastern Africa Department of the Africa Regional Office, were previously submitted to the Board of Executive Directors as Reports Nos. 12556 and 12564. The PCRs contain an informative account of project implementation. The PAR is based on a review of the Staff Appraisal Reports, the Credit and Project Agreements, the PCRs, and the project files. It also draws on interviews with Tanzanian authorities and on field visits. While the Audit generally agrees with the PCRs, it offers a number of additional lessons. In particular, it highlights the importance of properly sequencing projects, of adequate maintenance, of instituting integrated systems and procedures, and of developing the ability to monitor financial progress and operating performance through timely reports. Following standard OED procedure, copies of the draft PAR were sent for comments to the Borrower, the Beneficiary, and the co-lender. No comments were received.  5 Basic Data Sheet (Credit 1405-TA) Key Project Data Actual or Actual as % of Appraisal Current Appraisal Item Expectation Estimate Estimate Total Project Costs (US$ Million) 197.1 160.7 82 Loan Amount (US$ million) 35.0 36.2 103 Date Physical Components Completed 6/30/88 4/91 130 Portion completed by that date 100% 100% 100 Economic Rate of Return 10.1% 30% 300 Loan Disbursements: Cumulative Estimated and Actual Disbursements (US$ million) Estimated Actual Actual as % Fiscal Year Amount Amount of Estimate -- Cumulative -- -- Estimate -- 1984 8.0 1985 12.2 11.9 98 1986 21.5 18.8 87 1987 30.5 21.3 70 1988 34.2 26.6 78 1989 35.0 28.9 83 1990 31.8 91 1991 34.6 99 1992 36.2 103 Project Dates Date Planned Date Actual Identification 4/6/81 Preparation 7/81 Appraisal Mission 11/24/81 11/24/81 Credit Negotiation 4/82 4/83 Board Approval 7/82 7/26/83 Signature of Development Credit 10/82 9/22/83 Agreement with Tanzania Credit Effectiveness 1/20/84 8/30/84 Credit Closing Date 6/30/89 12/31/91 Credit Completion 6/30/88 4/91 6 Staff Inputs (Staff Weeks) FY76 FY78 FY80 FY81 FY82 FY83 FY84 FY85 Sub-Total Preappraisal .8 .2 1.4 1.6 4.0 Appraisal 47.6 25.2 72.8 Negotiation 15.5 2.8 18.3 Supervision .4 33.1 18.3 51.8 Other .2 .0 1.2 8.2 27.7 .6 37.9 Total .2 .8 .2 2.5 57.4 68.8 36.5 18.3 184.7 Staff Inputs (Staff Weeks) FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 Total Preappraisal 4.0 Appraisal 72.8 Negotiation 18.3 Supervision 20.1 16.4 11.8 14.3 15.5 6.2 9.2 6.1 151.3 Other 37.9 Total 20.1 16.4 11.8 14.3 15.5 6.2 9.2 6.1 284.3 Mission Data Specializations Types of Stage of Project Month/Year No. of Staff Represented Ratings Problems Through Appraisal 1 79 1 MSG 2 81 1 EGR 3 82 4 EGR-REA-FNA-ECN 4 83 3 REA-FNA-ECN Supervision 1 83 1 EGR 2 84 3 FNA-EGR-ECN 2 M 3 85 3 FNA-ECN-EGR 3 M 4 86 3 FNA-ECN-EGR 2 F 5 86 2 ECN-EGR 2 F 6 87 4 ECN-EGR-FNA-C 3 F, C 7 87 2 FNA-EGR 3 F, C 8 88 2 FNA-EGR 3 F, C 9 88 2 FNA-EGR 3 F, C, T 10 89 3 ECN-EGR-FNA 3 F, C, T 11 89 1 FNA 3 F, C, T 12 89 1 EGR 3 F, C, T 13 90 1 FNA 3 F, C, T 14 91 1 EGR 3 F, C, T al Eco = Economist, Eng = Engineer, FA = Financar Analyst, IS = Institutional Specialist, PEng = Power Engineer, TS = Training Specialist b/ I = minor problems. 2 = moderate problems, 3 = major problems cl F = Financial, I = Impact, L = Legal, M =Management 7 Basic Data Sheet (Credit 1687-TA) Key Project Data Appraisal Actual or Actual as % of Item Expectation Current Estimate Appraisal Estimate Total Project Costs (US$ Million) 88.6 63.4 72 Loan Amount (US$ million) 40.0 44.3 111 Date Physical Components Completed 6/30/90 6/30/92 150 Portion Completed by that Date 100% 72% 72 Economic Rate of Return 12% N.A. N.A. Loan Disbursements: Cumulative Estimated and Actual Disbursements (USS million) Estimated Actual Actual as % Fiscal Year Amount Amount of Estimate --Cumulative--- Estimate 1987 14.9 1.0 3 1988 29.7 16.4 41 1989 37.1 28.2 71 1990 40.0 38.7 97 1991 - 43.6 109 1992 44.3 111 Project Dates Dated Date Actual Planned Identification 04/85 Preparation 04/85 Appraisal Mission 06/85 05/85 Credit Negotiation 03/86 03/86 Board Approval 05/86 05/06/86 Signature of Development Credit Agreement with Tanzania 06/25/86 Credit Effectiveness 09/86 03/13/87 Credit Closing Date 12/31/90 06/30/92 Credit Completion 6/30/90 06/30/92 8 Staff Inputs (Staff weeks) FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 Total Preappraisal 11.5 11.5 Appraisal 2.3 42.0 44.3 Negotiation 7.4 7.4 Supervision 2.0 19.9 20.2 18.0 14.9 6.1 2.4 7.8 91.4 Other 2.3 12.0 14.3 Total 16.1 63.6 19.9 20.2 18.0 14.9 6.1 2.4 7.8 168.9 Mission Data Stage of Month/ No. of Specializations Ratings b/ Types of Project Year Staff Represented a! Problems c/ Pre-Appraisal 05/85 3 Eco. FA. PEng n.a. Appraisal 05/85 3 Eco.FA. PEng n.a. Post-Appraisal 09/85 4 Eco. FA, n.a. PEng, TS Supervision 08/86 1 FA 1 Supervision 04/88 1 FA 3 F, I, M Supervision 04/89 4 Eco, FA, Eng, 3 F, L, M, I PEng Supervision 11/89 2 FA, IS 2 F, L, M, I Supervision 04/90 1 PEng 2 F, L, M, I Supervision 10/90 1 FA 2 F, L, M, I Supervision 09/91 1 PEng 2 M, L, I a/ Eco = Economist, Eng = Engineer, FA = Financial Analyst, IS = Institutional Specialist, PEng = Power Engineer, TS = Training Specialist b/ I = minor problems, 2 = moderate problems, 3 = major problems c/ F = Financial, I = Impact, L = Legal, M = Management 9 Evaluation Summary Country and Sector Context 1. Tanzania is one of the poorest countries of the world. During the 1970's and the first half of the 1980's, all important sectors of the economy declined. With the implementation of an Economic Recovery Program, GDP increased by about 4.5 percent in the period 1986- 1990 (paras. 1.1-1.2). The Projects 2. The Fourth Power Project consisted of the construction of the Mtera hydroelectric plant with a capacity of 80MW, a system control center, the rehabilitation of the Ubungo diesel station and other power facilities, training and studies. 3. The Power Rehabilitation Project consisted of the rehabilitation of existing power stations, transmission and distribution networks, the provision of communications equipment, vehicles, spares, tools, meters, project supervision and training, technical assistance to the Tanzania Electric Supply Company Limited (TANESCO) and the National Urban Water Authority (NUWA) and to Government relative to charcoal production and cooking stoves (paras. 1.3-1.4). The Audit 4. The audit assesses the extent to which the projects met the objectives of OMS 3.72. It also reviews the projects' physical accomplishments; their contribution to institutional building and financial strengthening; the effectiveness of the technical assistance provided; the role of co-financing; the performance of IDA and the Borrower; and the lessons of experience. It concludes with an assessment of the opportunity for Tanzania, one of the Sub-Saharan countries of Africa, to carry out the new Bank Group Policy in the electric power sector (para. 1.5). Project Objectives 5. The main objective of the Fourth Power Project was to increase Tanzania's electricity generation capacity. Other objectives included the improvement of institutions and tariffs. 6. The prime objective of the Power Rehabilitation Project was to restore TANESCO's electric power supply level and reliability. It also aimed to improve the skills of TANESCO's operating personnel and its financial performance and to assist in the preparation of a least- cost development program for the sector (para. 2.1). 10 Sector and Country Priorities 7. The combined priorities of the two projects under audit may have been right although their sequencing was not optimal and, as IDA's files reveal and notwithstanding current knowledge, the alternative of using gas-fueled power plants was not sufficiently investigated before deciding to proceed with the Mtera hydroelectric scheme (para. 2.3). Physical Accomplishments 8. The physical components of the Fourth Power Project were successfully completed, except for the rehabilitation of the Ubungo diesel stations which was included in the next IDA financed project. The project was completed in April 1991, with a time overrun of about 34 months. The major reasons for this overrun include about 7 months due to late effectiveness, an unrealistically short forecast execution period of only about four and a half years, and design, procurement, construction and financing difficulties (para. 3.1). While the power control center was installed as foreseen, the old control center is still used because the staff assigned to the new control center are still not confident enough to rely entirely on the new system (para. 3.4). 9. The physical components of the Power Rehabilitation Project were completed in June 1992, two years later than originally planned. Slippage occurred because of financial constraints, and deviations from Bank procurement guidelines in the bid documents and contracts. A reduced scope of work was satisfactorily completed but the planned rehabilitation of the Mwanza South diesel plant and of the Ubungo gas turbine was not carried out because of lack of financing (para. 3.5). Improved charcoal kilns and cooking stoves were successfully developed and private entrepreneurs are participating in the production of charcoal and manufacturing of stoves (para. 3.6). Maintenance 10. In light of the state of sector facilities, maintenance did not receive sufficient attention in the projects under review (para. 3.7). Nor did it receive much attention in the two projects which followed (para. 3.8). 11. In view of its potential to prolong the useful life of facilities and to improve service quality and reliability, maintenance should be systematically reviewed and commented on in the SARs for all infrastructure projects. 12. In this respect, maintenance had not been given adequate treatment in OMS 3.72, where it was only mentioned in connection with distribution system rehabilitation: "This implies ... a substantial effort directed toward training and equipping ... maintenance personnel..." (OMS 3.72, para. 8.17). The new Bank Policy of January 1993 goes further: "In many countries, utilities have given insufficient consideration to opportunities for major plant rehabilitation and life extension projects when they have prepared their investment programs", and " ... improved maintenance, plant rehabilitation, and life extension initiatives offer significant potential for deferring new investment" (pages 23 and 24). 11 Institutional Strategy 13. Under the two projects, institution building was to be accomplished through an array of measures, including training, technical assistance, studies, and performance monitoring (para. 4.1). 14. Institutional Experience. Overseas training was reportedly successful while local training virtually failed when financing from a potential co-lender did not materialize. The technical assistance to the Water Authority and for Household Energy was accomplished, while the technical assistance to improve TANESCO's accounting and information systems was unrealized for lack of timely identification of suitable candidates for a meaningful period. A sector organization study was not carried out when it appeared that it was no longer needed. A management study resulted in TANESCO's current organization structure. The new structure is weak because some of the major functions have been placed too low in the hierarchy to ensure balanced management. A tariff study changed the tariff structure without major impact on TANESCO's financial performance (paras. 4.2 to 4.6). 15. In light of the institutional problems facing the sector, the institutional component of the two projects may be considered grossly insufficient. This is confirmed by the severe institutional deficiencies addressed in subsequent projects. (para. 4. 7). Financial Understandings 16. TANESCO's financial discipline consisted mainly of a revenue covenant and a debt limitation covenant. It also foresaw upper limits for outstanding accounts receivable and, as usual, deadlines for the submission of audited financial statements. 17. Revenue Covenant. The revenue covenant oscillated between a rate of return and a cash flow over the span of four credits to the sector (para. 5.2). In the event, TANESCO rarely met its revenue objectives. Instead of attempting to "accommodate" the situation, IDA should have insisted more firmly on compliance with existing covenants and, if necessary, invoked remedies (para. 5.4). 18. Other Financial Covenants. In the period 1984 through 1991, TANESCO met its debt service coverage only three out of eight years on a yearly basis; its accounts receivable always exceeded the targeted 60 and 75 days of sales equivalent; and it never met its reporting deadlines (paras. 5.6 to 5.10). Technical Assistance 19. The technical assistance provided to prepare engineering studies and to supervise project execution was effective. That provided for general institution building was piece-meal and did not make much impact on TANESCO's operations. Experience with the two projects under review may be indicative of the relatively low priority often given to training and technical assistance aimed at institutional strengthening when carried out in association with a major infrastructure development (paras. 6.5 - 6.6). 12 Co-Financing 20. While the need for co-financing is not in question, co-financing can sometimes complicate project preparation and implementation and cause some unwanted additional costs. Experience with these projects also shows that the expressed willingness of potential co- lenders to participate in co-financing is no assurance that disbursements will be made. All locally mobilized funds came from TANESCO and the Government (paras. 7.2 - 73). Costs, Benefits, and Economic Rate of Return (ERR) Fourth Power Project 21. The Fourth Power Project was completed with a total investment cost of about 20 percent lower than the appraisal estimate (para. 8.1), the result of an effective use of international competitive bidding in procurement of civil works and electro-mechanical equipment, which overshadow costs over-runs in other project components. 22. Based on actual costs of Mtera and historical data for electricity prices and Mtera generation (historical data are higher than those estimated in the SAR) the audit re-calculated an ERR close to 30 percent, which is significantly higher than the 10.1 percent estimated in the SAR and the 12.4 percent re-calculated in the PCR (para. 8.2). Power Rehabilitation Project 23. The Power Rehabilitation Project was completed at a total cost of 28 percent lower than the appraisal estimate. The cost reduction is due partly to a cost effective project implementation but mainly to a downsizing of the project scope when expected co-financing from CIDA, EIB, and Finland failed to materialize: the training component for financial management, billing and accounting was canceled and the transmission and distribution rehabilitation components were reduced by 21 percent. The household energy component of the project and the technical assistance to NUWA were completed with a 7 percent cost overrun (para. 8.3). 24. Although the physical rehabilitation of the power system was not as complete as envisioned at the appraisal, it produced benefits to the consumers which are better than the SAR forecast at the end of the project: it increased the number of connections, electricity sales, electricity generation, sales per consumer, and electricity consumption per capita beyond the expectations of the SAR. Deficiencies in TANESCO's statistic on the actual total investment program which was implemented during the duration of the rehabilitation program prevented the audit from doing a meaningful re-calculation of the ERR of TANESCO's expansion program of which the rehabilitation project was a part. However, the audit can infer that the actual ERR should be higher than the 12 percent estimated at appraisal because of the lower than estimated cost of the rehabilitation project-other investment costs taken as assumed in the SAR-and the higher than estimated electricity sales and prices (paras. 8.4 and 8.5). 13 Project Outcome 25. The Bank Group OMS 3.72 mandated that all lending for electric power incorporate measures consistent with four objectives, namely: (i) provide basic infrastructure in accordance with least-cost programs; (ii) strengthen institutions and increase efficiency in the sector; (iii) improve local resource mobilization and catalyze co-financing; and (iv) improve access to public services by disadvantaged population groups (para. 9.1). 26. Least-Cost Development. Because of the urgency of system rehabilitation and unanswered questions on the feasibility of using a gas-fired power generation alternative, it is not certain that the sequence of these two projects were part of the least-cost program (para. 9.2). 27. Institutional Development. Both projects included studies, technical assistance and training components. However, these appear paltry in light of the institutional problems facing the sector (para. 9.3). 28. Resource Mobilization. The Fourth Power Project attracted considerably more co- financing than the Power Rehabilitation Project. IDA played a commendable role in helping Government to arrange and keep co-financing on track, in spite of cancellation of some co- lenders' financing and difficulties of others to make disbursements due to Government debt service arrears (para. 9.6). 29. The mobilization of local funds through internal cash generation was inadequate (para. 9.7). 30. Service Access. The issue of the access of the poor to electricity service, is not addressed in either the SARs or PCRs for the two projects under review. The Power Rehabilitation Project, however, helped the poor in other energy-related areas (para. 9.8). 31. Project Ratings. The Mtera hydro plant and the power system rehabilitation projects having met the objectives of increasing the supply of power, extending the electricity service, and improving the reliability of the service-at higher than estimated ERR-the audit rates the outcome of both projects as marginally satisfactory. Because the projects did not succeed in providing TANESCO with autonomy and independence from the Government, but contributed to improve part of TANESCO skill base, the audit rates their institutional development impact as modest. The audit rates the sustainability of both project benefits as uncertain as long as lack of full recovery of the cost of service impairs the financial performance of TANESCO. These ratings agree with those given to the projects in the PCRs (para. 9.9). IDA's Performance 32. IDA deserves credit for assisting the Government in co-financing coordination, although it failed to look into the arrears of the Borrower vis-A-vis potential co-lenders and their ability to make timely disbursements before launching the project (para. 9.10). 14 33. IDA should have concentrated its early efforts on the provision of technical assistance, given more emphasis to maintenance, and made sure inter-alia that TANESCO could produce meaningful and timely accounts before agreeing to finance infrastructure. Furthermore, before embarking on the expansion of new facilities, a thorough investigation of the state of existing facilities should have been insisted upon, and rehabilitation given priority (para. 9.11). Borrower 's Performance 34. TANESCO performed fairly well in the circumstances. Improvement of its operating performance has not proceeded as fast as it could due to insufficient emphasis on maintenance, delayed rehabilitation of its operating facilities and piece-meal technical assistance and training. For its part, the Government did not live up to its agreement of allowing TANESCO to raise tariffs (para. 9.12). 35. Although largely beyond its control, TANESCO's financial performance was inadequate. Accordingly, the sustainability of the electric power sector is uncertain. Lessons Learned 36. The audit generally agrees with the findings of the PCRs. However, it disagrees that the targets for improving TANESCO's financial performance were unrealistic. Additional lessons (para. 10.2) include: (a) Human Resources. Training programs should be comprehensive and a well integrated part of a manpower development program. The training will not produce the expected benefits if, as in the case of TANESCO, trained employees return to an unstructured environment, i.e., one with a sub-optimal organization structure, lacking in corporate plans, and operating without, or with seriously deficient systems and procedures manuals. Such an environment is bound to minimize the benefits from the employees' enhanced skills. (b) Covenants. Changing financial covenants and carrying out tariff studies with the understanding that their findings will be implemented are no substitute for the Government's commitment to approve the necessary tariffs adjustment on a timely basis. The Beneficiary's capability to produce meaningful and timely reports on project costs and financial statements is a key condition of appropriate project monitoring. (c) Investment Planning. Project identification and sequencing may have been sub- optimal. Power sector rehabilitation, and gas fired power may have had a higher priority than the Mtera hydroplant. 15 1. Introduction Country and Sector Context 1.1 Tanzania is one of the poorest countries of the world. It has a population of about 25 million growing at just under three percent per year. In the period 1970 to 1990, its urban population rose from 7 percent to 33 percent of total, school enrollment increased from 34 percent to 63 percent, but life expectancy remained under 50.' 1.2 During the 1970s and the first half of the 1980s, all important sectors of the economy declined. This led to widespread shortages of essential goods and services along with a rapidly deteriorating infrastructure. Inflation, as measured by the consumer price index, fluctuated between 10 percent and 35 percent per year. The Government took various steps to stem the decline, first through a modest structural adjustment program in 1982, and then through a more radical Economic Recovery Program in 1985. These programs resulted in an improved GDP growth of about 4.5 percent per year over the 1986-1990 period, a major reversal from the virtual stagnation of the economy in the early 1980s, when the growth rate was only 0.7 percent per year.2 The Projects 1.3 The Fourth Power Project was identified and appraised in 1981, approved and signed in 1983 and became effective about II months later in 1984. The Project consisted of: (i) the construction of the Mtera hydroelectric power plant with a capacity of about 80 MW; (ii) the construction of a system control center; (iii) the rehabilitation of the Ubungo diesel station and other power system facilities; (iv) training for engineering and managerial staff of the Tanzania Electric Company Limited (TANESCO); and (v) studies of: TANESCO's tariff structure; long- range power development alternatives; the electric power sector organization; the rehabilitation of power generation and distribution facilities; and TANESCO's management. 1.4 The Power Rehabilitation Project was identified and appraised in 1985, approved and signed in 1986 and became effective in March 1987. The Project consisted of: (i) the rehabilitation of virtually all existing power stations, transmission networks, distribution networks; (ii) the provision of communications equipment, vehicles, spares, tools, meters; (iii) supervision and training; (iv) technical assistance to TANESCO; (v) technical assistance to the National Urban Water Authority (NUWA); (vi) establishment of three charcoal production operations and related technical assistance; training and technical assistance related to charcoal cookers; and (vii) a study to evaluate the feasibility of manufacturing/importing electric cookers. 1. World Development Report 1992. 2. Tanzania: Sixth Power Project SAR, para. 1.2. 16 The Audit 1.5 The audit assesses the extent to which the projects have met sector policy objectives as laid out in OMS 3.72.' It also reviews the projects' physical accomplishments; their contribution to institutional building and financial strengthening; the effectiveness of the technical assistance provided; the role of co-financing; the performance of IDA and the Borrower; and the lessons of experience. It concludes with an assessment of the prospects that Tanzania can carry out the new Bank Group Policy' in the electric power sector. 3. OMS 3.72 of March 11, 1987. 4. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform. Washington, D.C., January 1993. 17 2. Objectives and Priorities Objectives 2.1 The principal objective of the Fourth Power Project was to increase the electricity generating capacity; other objectives included improved institutions and tariff policy.' The prime objective of the Power Rehabilitation Project in the electric power sub-sector was to restore TANESCO's electric power supply level and reliability. It also aimed to improve the skills of TANESCO's operating personnel and its financial performance and to assist in the preparation of a least-cost development program for the sector. In other areas, it aimed at stimulating the availability and production efficiency of household energy supplies in order to restrain deforestation; and to provide technical assistance to NUWA in its accounting, billing and collection operation as a means to improve payment of its bills to TANESCO. Sector and Country Priorities 2.2 Tanzania has a predominantly rural economy. In the early 1980s, TANESCO served only about 4 percent of the total population. Still, in view of the importance of energy for development, the Government gave high priority to the development of the power sector. In addition, following the 1973-74 energy crisis, it showed a definite preference for renewable energy sources. 2.3 The combined priorities of the two projects under audit may have been right although their sequencing was not optimal (paras. 2.4 and 2.5) and, as IDA's files reveal and notwithstanding current knowledge, the alternative of using gas-fueled power plants was not sufficiently investigated before deciding to proceed with the Mtera hydroelectric scheme (paras. 2.6 to 2.9). 2.4 The distribution network and the power sub-stations had been in dire need of rehabilitation long before the preparation of the Fourth Power Project. Furthermore, at the time, there did not seem to be any urgency to build Mtera: TANESCO had an installed power generation capacity of some 380 MW, of which 247 MW of hydro and 133 MW of diesel, and even though the total available capacity was only about 296 MW, it was more than sufficient to meet the peak demand of 150 MW.6 However, fuel prices expected to remain high, placed Mtera as part of the least-cost expansion program. 2.5 In view of the projected firm (and excess) capacity after completion of Mtera, the SAR for the Power Rehabilitation Project even explored ways to reduce the expected power surplus through possible export to Kenya and the installation of electric boilers at the Mufindi Pulp Mill.' During implementation of the Power Rehabilitation Project, the demand for electric 5. Tanzania: Fourth Power Project SAR, para. 3.10. 6. Tanzania: Fourth Power Project SAR paras. 1.12 and 1.14. 7. Tanzania: Power Rehabilitation Project SAR, paras. 2.10 to 2.17. 18 power was still depressed. This, combined with the fact that the construction of Mtera was well underway, resulted in the Government and TANESCO assigning very low priority to the rehabilitation of non-hydro generation plants. Not surprisingly, the rehabilitation of the Ubungo diesel plant was postponed to the next project. In addition, given a shortage of funds, the rehabilitation of the Mwanza South diesel and the Ubungo gas turbine was not carried out.8 In the event, the severe drought of the late 1980s and early 1990s reduced power availability from hydroelectric plants, including Mtera, and without sufficient thermal generation capacity back-up, severe load shedding ensued. 2.6 Concerning the use of gas-fired power plants as an alternative to Mtera, the Issues Paper and the Decision Memorandum of January 1982 are silent on the subject which first appears in IDA's files in June 1982 in a reply to questions raised by the Bank advisory staff. At that time, the pre-qualification for the civil works contract was ready to start, the information on gas utilization was considered speculative and likely to remain so until January 1983, and the Region recommended that IDA proceed with the processing of the Mtera project.' 2.7 The Yellow Cover Review Meeting recommended that the SAR include details and judgments on the possible use of natural gas for power generation. In December 1982, and after receiving indication that a new gas field had been identified at Mnazi Bay, the Bank advisory staff pointed out that studies should be carried out to clarify: "(i) the lack of reliable estimates for the cost of the various gas development options, and (ii) the uncertainty regarding the dry-year capability of Kidatu/Mtera (hydroelectric schemes) and the resulting implications for the power investment program".'o At one point, along with the final recommendation to go ahead with Mtera, the initiation of engineering studies for the feasibility of gas-fired plants was to have been a condition of negotiations, and the presentation of the draft report of such studies a condition of Board Presentation, provided the latter event occurred before May 31, 83." Both conditions were eventually waived. 2.8 The Loan Committee's approval to proceed with negotiations (and Mtera) notes that the Region's Memorandum "leaves a few questions opened" of which "the actual date of potential gas delivery".12 In the end, the SAR virtually ignored the gas-fired alternative, and based its economic analysis on a comparison of hydro, coal and oil alternatives, assuming that none of the gas from Songo-Songo, which far exceeded the needs of the then planned fertilizer plant, would be available for power, and ignoring the new discovery at Mnazi Bay. 8. Tanzania: Power Rehabilitation Project PCR para. 5.5. 9. IDA Office Memorandum of June 29, 1982. 10. IDA Office Memorandum of December 23, 1982. 11. IDA Office Memorandum of January 3, 1983. 12. IDA Office Memorandum of March 11, 1983. 19 2.9 In the SAR for the Sixth Power Project, approved in July 1993, one reads inter-alia: "...the capacity (of the Songo-Songo gas field) is sufficient to support (power) generation of up to about 250 MW"." 13. Tanzania: Sixth Power Project SAR, para. 4.33.  21 3. Physical Accomplishments Fourth Power Project 3.1 The physical components of the Fourth Power Project were successfully completed, except for the rehabilitation of the Ubungo diesel stations which was included in the next IDA financed project. The project was completed in April 1991, with a time overrun of about 34 months. The major reasons for this overrun include about 7 months due to late effectiveness, an unrealistically short forecast execution period of only about four and a half years, and design, procurement, construction and financing difficulties. 3.2 The procurement and construction of the Mtera hydroelectric power complex were fraught with problems. These included: (i) eight months of protracted discussions between the consulting engineer, TANESCO and the co-lenders on the award of the civil works contract for Mtera; the Swedish consultant recommended award to a Swedish firm, TANESCO to an Italian firm; IDA, the Kuwaiti Fund and Germany agreed with TANESCO's recommendation; (ii) unstable rock near the outlet of the tailrace tunnel caused additional work to realign that part of the works; this went undetected due to insufficient field investigations and erroneous geological interpretation; and (iii) cavitation damage to the runner buckets of the turbines resulted in the replacement of the runner for unit two by a modified spare runner, and modification of runner number two to eventually replace the original runner of unit one. The consulting engineers had certified payment to the turbine supplier for the model test for cavitation even though it did not meet the technical specifications of the supply contract; TANESCO ended up paying for the engineers professional services in connection with the modification; the additional cost was financed by grants from NORAD and SIDA."4 3.3 In addition to the foregoing, the implementation suffered from: (i) the decision of SIDA and NORAD to withdraw their financing for the civil works following award of the civil works to the Italian contractor; the gap thus created was later compensated by financing from Italy;" and (ii) the difficulty for various periods of time for IDA, Italy and the Kuwaiti Fund to disburse their share of the financing because Tanzania was in arrears in its debt service; once IDA had resumed disbursements, it was able to "advance" the portion of the Kuwaiti Fund financing by temporarily increasing its disbursement percentage, thus enabling the project to move ahead; this, however, did not entirely relieve the civil works contractor from operating under severe cash constraints due to late payments. 3.4 The installation of the power control center and the rehabilitation works included in this project were completed as foreseen, albeit with some delays. However, during a recent visit to Tanzania, it was noted that the old control center is still used because the staff assigned to the new control center are still not confident enough to rely entirely on the new system. Apparently, more training is required. 14. Tanzania: Fourth Power Project PCR, paras. 5.02 to 5.06. 15. Tanzania: Fourth Power Project PCR, para. 4.04. 22 Power Rehabilitation Project 3.5 System Rehabilitation. The physical components of the Power Rehabilitation Project were completed in June 1992, two years later than originally planned. Slippage occurred because of financial constraints, and deviations from Bank procurement guidelines in the bid documents and contracts. The scope of the rehabilitation of the power stations was changed several times in response to changes in financing. A reduced scope of work was satisfactorily completed but the planned rehabilitation of the Mwanza South diesel plant and of the Ubungo gas turbine was not carried out because of lack of financing. Field visits by the Audit confirmed that the planned rehabilitation of transmission lines, substations and distribution network was satisfactorily carried out, and that the communications facilities were also improved. Transport facilities, spares and tools were also provided as planned.16 3.6 Charcoal Production and Utilization. Tanzania consumes about 10 million tons of charcoal per year. Some 70 percent to 80 percent of all urban households, mostly poor, depend on charcoal as their major cooking fuel. Until recently, practically all charcoal had been produced by individuals using primitive and inefficient earth kiln technology. Annual wood cutting had been about 10 times the rate of reforestation. With increasing scarcity of wood resources near urban centers, price had been rising rapidly in real terms.'" There was a need to improve the efficiency of charcoal production and cooking stoves. The Project contributed to both with technical assistance and support to Government, local manufacturers and artisans to adapt technology used in neighboring countries in association with co-lenders and NGOs. The improved stove program has been particularly popular and the new stoves are now selling throughout the country. Transport costs make up the bulk of the cost of charcoal in the urban centers. Cost reduction attributable to the new kilns has thus a relatively small influence on charcoal price for urban consumers. Maintenance 3.7 Although maintenance has the potential to improve productivity, it consists of so many, sometimes small, activities that its effects may not be readily appreciated. For this reason, maintenance is often the first activity to suffer when resources become scarce. Up to a point, the return on maintenance "investment" should be higher than on rehabilitation or replacement alternatives. 3.8 In view of the state of the sector's facilities, it is a matter for concern that so little attention was devoted to maintenance in the projects under review. In the SAR of June 1983 for the Fourth Power Project, one reads: "Maintenance and operation of power facilities have been satisfactory". This is hardly credible when less than three years later, in the SAR of April, 1986 for the Power Rehabilitation Project, one finds the statement: "Installations are in a 16. Tanzania: Power Rehabilitation Project PCR, paras. 5.1 to 5.6. 17. Tanzania: Power Rehabilitation Project SAR, para. 2.22. 18. Tanzania: Fourth Power Project SAR, para. 3.08. 23 dangerous condition, protecting devices are missing or inoperative and there are pervasive signs of aging, overloading, corrosion and lack of maintenance".9 The only other reference to maintenance in these two operations is the usual clause in the Project Agreements: "TANESCO shall at all times operate and maintain its plant, machinery, equipment and other property ... in accordance with sound financial and engineering practices".0 Not surprisingly, maintenance does not appear as a separate function on the current organization chart, and the field visit by the Audit could not verify to which extent maintenance manuals exist and, in the affirmative, how complete they are. 3.9 The subject of maintenance did not receive more specific consideration in the two subsequent IDA-financed operations, the Power Engineering and Technical Assistance Project of December 1991, and the Sixth Power Project of July 1993. In the wake of major rehabilitation programs, the problems associated with inadequate maintenance might not have had time to show up. 3.10 In the view of the audit, maintenance had not been given adequate treatment in OMS 3.72, where it was only mentioned in connection with distribution system rehabilitation: "This implies ... a substantial effort directed toward training and equipping ... maintenance personnel...".2' However, the new Bank Policy of January 1993 goes further: "In many countries, utilities have given insufficient consideration to opportunities for major plant rehabilitation and life extension projects when they have prepared their investment programs", and " ... improved maintenance, plant rehabilitation, and life extension initiatives offer significant potential for deferring new investment".22 3.11 In view of its potential for prolonging the useful life of facilities and improving service quality and reliability, the maintenance activities of all infrastructure entities financed by the World Bank Group should be systematically reviewed and commented on in SARs, and measures indicated as necessary to strengthen this important function. 19. Tanzania: Power Rehabilitation Project SAR, para. 2.05. 20. Tanzania: Fourth Power Project and Power Rehabilitation Project Agreements, Section 3.02. 21. OMS 3.72 of March 11, 1987, para. 8.17. 22. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform. Washington, D.C., January 1993. pages 23 and 24.  25 4. Institution Building Experience Strategy 4.1 Under the two projects, institution building was to be accomplished through an array of measures, including: (i) training by foreign experts on-the-job and at TANESCO's Training Institute, and training in overseas power utilities; (ii) technical assistance consisting of two financial experts for TANESCO, technical assistance to the Water Authority in accounting, billing and collection; and technical assistance to improve charcoal production and cooking stove efficiency; (iii) studies: sector reorganization, TANESCO's management systems, and electricity tariffs; and (iv) performance monitoring using indicators such as power losses, number and duration of power interruptions, number of connections, number of employees, number of days' sales outstanding, etc. Experience 4.2 The training components were mostly technical. Training included overseas courses of varying lengths which were reportedly successfully completed. It also included on-the-job training, generally in association with the supervising engineers as well as some overseas practical training. The part of local training virtually failed, however, when financing from a potential co-lender did not materialize. 4.3 The technical assistance to the accounting and information systems areas did not take place for lack of timely identification of suitable candidates for a meaningful period. The technical assistance to the Water Authority and for the Household Energy component was carried out. 4.4 The PCR is silent on the sector reorganization study which was not carried out because "... it was no longer needed"." The management study formed the basis for TANESCO's current organization structure.24 The new structure has only three Directors reporting to the Managing Director. It is deficient mainly in not having each of the major functions, i.e., engineering, construction, operations, commercial, finance, and personnel and administration report directly to the Managing Director. Experience elsewhere shows that a Managing Director who has too few assistants reporting directly to him will tend to bypass them and risks giving conflicting or confusing directives to the lower echelons. One can speculate that such organization may account in part for the weaknesses of the corporate "culture" of TANESCO which still does not have well defined system and procedures.25 23. IDA Mission Aide-Memoir, Section I, page 2 of 3. March 4, 1988. 24. Tanzania: Fourth Power Project PCR, para. 5.10., and Power VI Project, para. 2.4 and Annex 2.1. 25. Tanzania: Sixth Power Project SAR, para. 2.14. 26 4.5 The tariff study was also carried out. As usual, the Credit Agreement called for the Government to implement the recommendations of the study. As a result the tariff structure was changed. However, the study has had no lasting impact on TANESCO's financial performance. In a period of inflation and devaluation, the country failed to devise an adequate tariff adjustment policy. This was not helped by the frequent changes in the financial covenants"6 which were expected to ensure TANESCO's financial viability. By now it should be obvious that tariff studies and/or changes in covenants cannot substitute for the willingness of the Government to support a financially sound and self-replicable sector entity. 4.6 Monitoring indicators can only reflect performance. They form part of an entity's accountability system and are normally used to trigger action. Their value is highest when information is produced on a timely basis, which is not generally the case at TANESCO. That insufficient actions have been taken is evidenced by the persistence of old issues. Power losses remain high although from 1987 to 1993 they dropped from about 25 percent to about 21 percent as a result of network rehabilitation under the Power Rehabilitation Project.27 There continues to be a lack of qualified and an excess of unskilled personnel, resulting in a recent connections per employee ratio of 26 i.e., much lower than at similar utilities in the region. In the period 1984 through 1991, accounts receivable varied between the equivalent of 121 and 135 days of sales, and rates of return never reached the covenanted 7 percent or 10 percent. 4.7 In sum, in light of the institutional problems facing the sector, the institutional component of the two projects may be considered grossly insufficient to meet the objectives. This is confirmed by the severe institutional deficiencies addressed in subsequent projects.28 26. Paras. 5.02 to 5.06 of this PAR. 27. Tanzania: Sixth Power Project SAR, para. 3.11. 28. Paras. 2.13 and 2.14 of this PAR. 27 5. Compliance with Covenants Understandings 5.1 The major Credit and Project covenants were aimed at improving TANESCO's financial performance. They consisted mainly of a revenue covenant and a debt limitation covenant. Starting with the Fourth Power Project, upper limits were agreed upon for outstanding accounts receivable. As usual, deadlines were also set for the submission of audited financial statements. Revenue Covenant 5.2 The revenue covenant varied considerably over the years. In a prior operation (Credit 1306-TA) it consisted of a rate of return of not less than 7 percent of revalued net fixed assets beginning in 1978. In the Fourth Project, it became a cash flow covenant, starting with internal cash contributions of 25 percent of the average of three years of capital expenditures in 1985 and 1986 increasing to 40 percent in years thereafter. In the Power Rehabilitation Project, the covenant went back to a rate of return of not less than 10 percent, effective 1987. Finally, in a subsequent operation (Credit 2489-TA), the covenant reverted to a cash flow of not less than 15 percent of the average of four years of capital expenditures (starting in 1994), increasing to 30 percent in the years 1996 through 1998; the Project Agreement does not state what discipline will apply after 1998. 5.3 An examination of the SARs and PCRs shows an un-mistakable pattern of "accommodation". In the years immediately preceding approval of the Fourth Power Project, the rates of return were 3.3 percent in 1981" and 2.1 percent in 1982, with an estimated 1.1 percent in 198330, i.e., well short of the 7 percent covenanted return. However, projections showed a relatively robust cash flow and the covenant was changed to cash contribution to investments in the Fourth Power Project. Then, in the years preceding approval of the Power Rehabilitation Project, actual results for 1983 and 1984 yielded negative net cash generation while the outlook was nowhere near the covenanted contribution to investment', particularly in the outer years. So, the covenant was changed to a 10 percent rate of return in the Power Rehabilitation Project. Again, this rate could not be met. Actual returns were 3.7 percent and 6.8 percent respectively in 1990 and 199132, and were not expected to meet the covenanted rate in the period 1992 through 1998. However, cash flows were strong in 1990 and 1991, and sure enough, for the Sixth Power Project the covenant went back to cash contribution. 5.4 Instead of accommodating the Borrower, IDA should have insisted more firmly on compliance with existing covenants and, if necessary, invoked remedies. 29. Tanzania: Fourth Power Project PCR, Annex 6. 30. Tanzania: Fourth Power Project SAR, Annex 10. 31. Tanzania: Power Rehabilitation Project SAR, Annex 5.2. 32. Tanzania: Sixth Power Project SAR, Tables 5.1 and 5.2. 28 Debt Limitation Covenant 5.5 The debt limitation covenant in Credit 1306-TA, called for TANESCO not to incur debt for investments not included in its plans without prior IDA agreement unless its projected internal cash generation would be at least 1.5 times its maximum future debt service. This was maintained in the Fourth Power Project, but changed in the Power Rehabilitation Project to 1.4 times the current year's debt service, then to 1.3 times in Credit 2489-TA. These covenants also changed in one other respect: starting with the Power Rehabilitation Project, TANESCO was empowered to make investments not in excess of US$5 million outside its plans. 5.6 On a yearly basis, the debt service coverage was met only three out of eight years in the period 1984 through 1991." Clearly, IDA approved TANESCO's expenditures, at least for the projects since it cleared all procurement. But, available documents do not state whether TANESCO incurred expenditures other than for the projects. Accounts Receivable 5.7 Timely collection of accounts receivable was mandated in the Project Agreements for the projects under review, namely: accounts receivable were not to exceed the equivalent of the last 60 days of billing in the Fourth Power Project and 75 days in the Power Rehabilitation Project.34 The latter figure was retained in Credit 2489-TA." 5.8 In the project execution period 1984 through 1991, outstanding accounts receivable were invariably much higher than covenanted. One major problems had been the inability of NUWA to pay its bills. Technical assistance under the Power Rehabilitation Project was to have helped NUWA to improve its accounts, billing and collection systems. The PCR states that: "Assistance to NUWA was provided as planned under the project"16 without, however, commenting on its impact. At the end of 1987, accounts receivable were estimated at about 110 days of sales, "... reflecting up-to-date payments by NUWA"." However, this improvement stemmed from Government payments of NUWA's old accounts prior to the negotiations of the Power Rehabilitation Project. In any event, if TANESCO's performance in subsequent years is any indicator, the technical assistance has not made much difference. At times, TANESCO's inability to produce timely accounts resulted in widely diverging estimates as can be seen not only in the project implementation files but also in more formal reports 33. Tanzania: Fourth Power Project PCR, para. 5.13. 34. Tanzania: Fourth Power Project, Project Agreement Section 3.07; and Tanzania: Power Rehabilitation Project, Project Agreement Section 3.04. 35. Tanzania: Sixth Power Project, Project Agreement Schedule 2, para. 11. 36. Tanzania: Power Rehabilitation Project PCR, para. 5.9. 37. IDA Aide-Memoir of March 1989. 29 issued by IDA. For instance, according to the Sixth Power Project SAR of April 1993," TANESCO's outstanding accounts receivable were equivalent to 215 days of billing at the end of 1988, while the PCR of November 1993 for the Fourth Power Project9 shows 135 days. 5.9 Another problem had been the difficulty for TANESCO to collect bills for electricity service provided to a number of Government departments and agencies which could not be disconnected for either security or humanitarian reasons. IDA made numerous representations to the Government and, eventually, in the Credit Agreement for the Power Rehabilitation Project, the Government agreed to ensure prompt payment of their electricity bills outstanding for more than 45 days. That this did not work is evidenced by the introduction of a much stronger undertaking in the next Credit Agreement for the Sixth Power Project, where the Government agreed to pay TANESCO directly on a quarterly basis commencing September 1993 for the Government departments and agencies that cannot be disconnected. Accounts and Audits 5.10 One important tool for monitoring financial performance is the timely availability of financial statements. TANESCO was unable to meet its reporting deadlines. Throughout the project implementation period IDA never received TANESCO's audited statements within the allotted time. In the SAR for the Fourth Power Project one reads in part: "... in FY80 and FY81 the audited statements were received as much as one year late,"40 and in the SAR for the Power Rehabilitation Project: "Audited accounts for 1983 were not completed until July 1985".' Yet, in Credit 1687-TA, the reporting deadline was to be reduced from 9 months for the 1985 accounts to 6 months for those of 1986, and to 4 months thereafter. In the SAR for the Sixth Power Project, one reads again: "TANESCO submitted its 1990 audited accounts to IDA only in February 1993 and now expects that 1991 audited accounts will be available by June 1993".42 Meanwhile, Credit 2489-TA calls for audited financial statements to be submitted within 10 months after closing for the year 1992, and 6 months thereafter. During the field visit in late May 1994, TANESCO's management informed the Audit mission that audited financial statements were unavailable from 1991 onwards. Sustainability 5.11 Although largely beyond its control, TANESCO's financial performance was inadequate. On the current basis, the sustainability of the development of the electric power sector of Tanzania is uncertain. 38. Tanzania: Sixth Power Project SAR, para. 5.14. 39. Tanzania: Fourth Power Project PCR, para. 5.13. 40. Tanzania: Fourth Power Project SAR, para. 2.04. 41. Tanzania: Power Rehabilitation Project SAR, para. 5.07. 42. Tanzania: Sixth Power Project SAR, para. 5.9.  31 6. Technical Assistance Fourth Power Project 6.1 The technical assistance component of the Fourth Power Project was directed at construction supervision, where it was most effective, and at carrying out various studies. The study of the rehabilitation of the power generation and distribution facilities provided major technical inputs for the Power Rehabilitation Project. Power Rehabilitation Project 6.2 The scope of the technical assistance and training components of the Power Rehabilitation Project was substantially redefined during implementation because funding from prospective co-lenders did not materialize. Under a combined contract for engineering, supervision and training, practical training was provided for three of TANESCO's staff in the UK headquarters of the same firm that had designed the rehabilitation program. The practical on-the-job training in Tanzania was less successful because of lack of suitable candidates from TANESCO. Training in the use of live line maintenance was very successful. 6.3 Because of lack of funds, the overseas training equivalent to 27 man-months and the strengthening of the capacity of the Technical Training Institute were not carried out. The financial gap also affected the proposed improvements in financial management, billing and accounting. IDA reallocated funds to finance a Financial Controller and a Computer Systems expert. However, as pointed out earlier, TANESCO was not successful in recruiting suitable candidates for a meaningful length of time. Assistance to the National Urban Water Authority (NUWA), TANESCO's major debtor, was provided as planned." Effectiveness of Technical Assistance 6.4 In general, the technical assistance provided to prepare engineering studies and to supervise project execution was effective. That provided for general institution building was piece-meal and did not make much impact on TANESCO's operations. It should be a matter for concern that, when some of the original financing for training and other technical assistance was not forthcoming, the Government and IDA were largely satisfied with the modification and reduction of some of the project components without deploying the kind of efforts which prevailed to ensure the completion of the Mtera scheme. 6.5 Experience with the two projects under review may be indicative of the relatively low priority often given to training and technical assistance aimed at institutional strengthening when carried out in association with a major infrastructure development. A stand-alone technical assistance project such as the Power Engineering and Technical Assistance Project approved by IDA in 1991 may stand a better chance of success. 43. Tanzania: Power Rehabilitation Project PCR, paras. 5.7 to 5.9. 32 6.6 Finally, it must be pointed out that no amount of training in the home country or abroad is likely to make much impact on the overall performance of an entity if, as in the case of TANESCO, the newly trained staff return to a largely unstructured environment, where there is a virtual lack of appropriate systems and procedures. Nor is the technical assistance provided to some functions in isolation of the rest of the enterprise likely to be conducive to balanced institutional development. The need for a more functional reporting structure and well integrated systems and procedures cannot be over-emphasized. 33 7. Co-Financing IDA's Role 7.1 The Bank played an important role in helping the Government to mobilize co-lenders. The task was not without difficulties and, at times, high cost to the Borrower. Co-financing also entailed the participation of TANESCO and, as a last resort, the Government. Effectiveness of Co-financing 7.2 While the need for co-financing is not in question, co-financing can sometimes complicate project preparation and implementation and cause some unwanted additional costs. For example, the award of the civil works contract for the Mtera contract was postponed some eight months because the contractor selected was not one of the nationals of the country of one of the intended co-lenders. Experience with these projects also shows that the expressed willingness of potential co-lenders to participate in co-financing is no assurance that disbursements will be made. A first example involved IDA, the Kuwaiti Fund and Italy which were unable over varied periods of time to make disbursements because Tanzania was in arrears in its debt service. In another example, a substantive technical assistance component to strengthen TANESCO's Training Institute was dropped when the hoped-for financing did not materialize. 7.3 All locally mobilized funds came from TANESCO and the Government. In the period 1984 through 1991, TANESCO rarely met its financial covenants. At times, its net internal cash generation was insufficient to meet its debt service, let alone a share of investment requirements or the cash shortfalls which developed when co-lenders withdrew their assistance, as occurred in the Power Rehabilitation Project. On a number of occasions, the Government elected to reschedule or convert some of TANESCO's debt into equity rather than raise tariffs to the required level. 44. Tanzania: Fourth Power Project PCR, para. 5.13.  35 8. Costs, Benefits and Economic Rate of Return Fourth Power Project 8.1 The Fourth Power Project was completed with a total investment cost of about 20 percent lower than the appraisal estimate (see Table 1). The cost reduction can be attributed to the cost effective international competitive bidding done for the civil works and the electro- mechanical equipment of the Mtera hydro plant. The cost reduction largely exceeded the partial cost overruns incurred in the rehabilitation of the Kidatu and Ubungo plants, the system control center, and the engineering and consultant services. The excellent cost information included in the completion report of the Mtera hydroelectric plant prepared by the consulting firm that assisted TANESCO in construction supervision, contrasts with the scant cost data on the other project components provided to the audit mission by TANESCO. Table 1 Project Performance Audit: TANZANIA - CREDIT 1405-TA Project Costs CTSh miltIon) -Appraisal Estimate-** - Actual--***** Project Components Local Foreign Total Local Foreign Total 1. Civil Uorks 201.00 584.40 785.40 281.34 515.21 796.55 2. Mechanical and Electrical Warks 102.40 294.80 397.20 50.74 378.52 429.26 3. System Control Center 6.50 35.60 42.10 9.80 110.55 120.35 4. Rehab. of Kidatu and Ubungo Plants 14.50 184.40 198.90 1.25 225.86 227.11 5. Studies 6.60 17.90 24.50 0.00 63.64 63.64 6. Training 0.00 9.00 9.00 0.00 8.75 8.75 7. Engineering and Consultant Services 68.10 117.70 185.80 47.66 242.71 290.37 Ease Cost 399.10 1243.80 1642.90 390.79 1545.24 1936.03 Contingencies 8. Physical Contingency 23.00 179.50 202.50 9. Price Contingency 196.80 361.60 558.40 Subtotal 219.80 541.10 760.90 TOTAL PROJECT COST 618.90 1784.90 2403.80 390.79 1545.24 1936.03 8.2 The project ERR re-calculated in the PCR is 12.4 percent which is higher than the 10.1 percent estimated at appraisal. The audit re-calculated a still higher ERR close to 30 percent. The audit and the PCR used the same methodology applied by the SAR, i.e. the incremental revenues generated by the Mtera hydro plant were taken as a proxy for the benefits of the Fourth Power Project, O&M costs were valued at 1.5 percent of the Mtera investment costs, and power losses assumed about 20 percent of gross generation. However, the ERR re-calculated by the audit is higher than that re-calculated in the PCR because the PCR only took into account the lower investment cost of Mtera and neglected to factor in both the actual higher price of electricity and higher generation output of Mtera (see Annex 1). 36 Power Rehabilitation Project 8.3 The Power Rehabilitation Project was completed at a total cost of US$ 63.4 million or 28 percent lower than the appraisal estimate of US$88.6 million. The cost reduction is due not only to a cost effective project implementation but mainly to a downsizing of the project scope by US$18.5 million when expected co-financing for the power components of the project from CIDA, EIB, and Finland failed to materialize: the training component on financial management, billing and accounting (US$7.0 million) was canceled and the transmission and distribution rehabilitation components were reduced by 21 percent. The household energy component of the project and the technical assistance to NUWA were completed with a 7 percent cost overrun. Table 2 Project Performance Audit: TANZANIA - CREDIT 1687-TA Project Costs (USS million) ---Appraisal Estimate- - ------ Actual ------- Project Components Local Foreign Total Local Foreign Total 1. Power Components Generation 0.40 8.50 8.90 0.20 5.90 6.10 Transmission 0.40 3.90 4.30 0.00 1.30 1.30 Transmission Substations 0.30 2.90 3.20 1.40 9.60 11.00 Distribution 5.10 24.80 29.90 0.80 22.40 23.20 Teleconuunications 0.10 1.20 1.30 0.10 4.10 4.20 Workshops 1.70 8.00 9.70 0.00 9.70 9.70 Training and Tech. Assist. 0.70 6.40 7.10 0.00 0.00 0.00 Technical Assistance and Equipment 0.00 2.40 2.40 0.00 1.50 1.50 Engineering 0.00 1.40 1.40 0.00 3.80 3.80 Subtotal Base Cost 8.70 59.50 68.20 2.50 58.30 60.80 Contingencies 2.50 15.10 17.60 Power Total Cost 11.20 74.60 85.80 2.50 58.30 60.80 2. Energy Components Charcoal Pilot Production 0.60 0.30 0.90 0.10 0.40 0.50 Charcoal Cooker Progrea 0.40 0.30 0.70 0.10 1.40 1.50 Feasibility Study/electric cookers 0.00 0.10 0.10 0.00 0.00 0.00 Energy Management 0.00 0.10 0.10 0.10 0.50 0.60 UnatLocated 0.00 0.20 0.20 0.00 0.00 0.00 Sub-total Base Cost 1.00 1.00 2.00 0.30 2.30 2.60 Contingencies 0.20 0.20 0.40 Energy Total Cost 1.20 1.20 2.40 0.30 2.30 2.60 3. Technical Assistance to MUWA 0.00 0.30 0.30 0.00 0.30 0.30 TOTAL PROJECT COST 12.40 76.10 88.50 2.80 60.90 63.70 Sources: Mtera Power Plant, Project Completion by SWECO, October 1992, Stockholm, Swedmn PCR, World Bank Report No. 12566, November 29, 1993 PCR, World Bank Report No. 12564, November 29, 1993 SAR, World Bank Report No. 4050-TA, June 29, 1983 SAR, World Bank Report No. 6026-TA, April 10, 1986 37 8.4 Although the physical rehabilitation of the power system was not as complete as envisioned at the appraisal, the project yielded other benefits to the consumers which are better than the SAR forecast as demonstrated by improvement in some key performance indicators (see Table below). Table 3: Improvement in some Key Performance Indicators SAR Actual Number of connections (No.) 134,000 152,000 Electricity Production (GWh) 1,089 1,379 Sales (GWh) 926 1,059 Sales per consumer (kWh) 1,381 1,395 Consumption per capita (kWh) 38.6 45.7 8.5 Unfortunately TANESCO could not provide to the Audit sufficient and reliable information on the actual total investment program which was implemented during the duration of the rehabilitation program to permit a meaningful re-calculation of the ERR of TANESCO's expansion program of which the rehabilitation project was a part. However, the audit can infer that the actual ERR is higher than the 12 percent estimated at appraisal because of the lower than estimated rehabilitation costs-other investment costs taken as assumed in the SAR-and the higher than estimated electricity sales and prices (para. 8.2).  39 9. Main Findings Project Outcome 9.1 The Bank Group OMS 3.72 mandated that all lending for electric power, whether for projects or adjustments operations, incorporate measures consistent with four objectives, namely: (i) provide basic infrastructure in accordance with least-cost programs; (ii) strengthen institutions and increase efficiency in the sector; (iii) improve local resource mobilization and catalyze co-financing; and (iv) improve access to public services by disadvantaged population groups. 9.2 Least Cost Development. Since the early 1970s, the development of the electric power sector of Tanzania has been carried out on the basis of engineering and economic studies largely financed and always reviewed and cleared by IDA. However, because of the matter of project sequencing45 and the unanswered questions on the feasibility of using a gas-fired power generation alternative, 46, one cannot be sanguine about the two projects having met IDA's least-cost infrastructure development objectives. 9.3 Institutional Development. Both projects included studies, technical assistance and training components. However, as in prior operations, these appear paltry in light of the institutional problems facing the sector. TANESCO has never been able to close its books and produce annual accounts on a timely basis, let alone submit audited accounts on time. It has seldom met its financial targets, and its accounts receivable remain unacceptably high. So do its systems losses. 9.4 Perusal of subsequent IDA financed projects confirms that prior measures had very limited impact on TANESCO's operating efficiency. In the SAR for the Power Engineering and Technical Assistance Project approved in December 1991, one reads in part: "TANESCO is experiencing a number of institutional problems. Inaccurate and untimely billing has been a chronic problem in the company for some time, partly stemming from an outdated computerized billing system and frequent computer breakdowns. The latter, together with outdated accounting procedures involving too many manual transactions and insufficient internal control, and a shortage of competent staff are causing delays in finalizing TANESCO's accounts".47 9.5 The Sixth Power Project approved in May 1993 identified the following problem areas: "... skill deficiencies among both professional, technical and administrative staff; absence of medium and long-term corporate planning; external influence in the management of corporate affairs; lack of integrated functioning among the different operating and functional 45. Paras. 2.04 and 2.05 of this PAR. 46. Paras. 2.06 to 2.08 of this PAR. 47. Tanzania: Power Engineering and Technical Assistance Project Memorandum and Recommendation of the President of IDA to the Executive Directors, para. 7 40 units; scant awareness of the business objectives of the institution, especially among the lower level headquarters and field staff; inadequate financial resources; inadequate delegation of authority leading to a low level of incentives to take initiatives". While it is no doubt easy to point to some past success, the very magnitude and varied nature of the actions, many long overdue, included in this and the Power Engineering and Technical Assistance Projects attests to the inadequacy of previous efforts. 9.6 Resource Mobilization. Concerning resource mobilization, the Fourth Power Project, a predominantly infrastructure development operation with large civil works and equipment contracts, attracted considerably more co-financing than the Power Rehabilitation project. IDA provided only 22.5 percent of the financing requirements of the Fourth Power Project, other foreign co-financiers 69.6 percent, and TANESCO/Government 7.9 percent. However, IDA provided 69.9 percent of the financing requirements of the Power Rehabilitation Project, other foreign co-lenders 26.5 percent, and TANESCO/Government a mere 3.6 percent. IDA played a commendable role in helping Government to arrange and keep co-financing on track, in spite of cancellation of some co-lenders' financing and difficulties of others to make disbursements due to Government debt service arrears. 9.7 The mobilization of local funds through internal cash generation was inadequate due mostly to insufficient tariffs and poor collection performance, poorly maintained plant resulting in excessive power losses, and failure to rehabilitate thermal generation plants before the onset of the recent drought which increased load shedding. 9.8 Service Access. Recently, only about 7 percent of the population 'Was served. The issue of access of the poor to electricity service is not addressed in the SARs or PCRs for the two projects under review. One may argue that at the low level of development of Tanzania, many far from fully satisfied basic needs should have priority over electricity. The Power Rehabilitation project nonetheless helped the poor in other energy-related areas (para. 3.6). 9.9 Project Ratings. The Mtera hydro plant and the power system rehabilitation projects met substantially the objectives of increasing the supply of power and extending the electricity service with higher than predicted ERR. The Audit rates both projects as marginally satisfactory. The projects did not succeed in providing TANESCO with autonomy from the Government and enabling recovery of their costs, but they contributed to improve part of TANESCO skill base. The Audit rates the institutional development impact of the projects as modest. For the reasons given in paras. 9.3 and 9.4, the Audit rates the sustainability of both projects benefits as uncertain. These ratings agree with those based on the PCRs. IDA's Performance 9.10 IDA deserves credit for helping the Government coordinate co-financing of the Fourth Power Project although it failed to look into the arrears of the Borrower vis-i-vis potential co- lenders and their ability to make timely disbursements before launching the project. Likewise, the Power Rehabilitation Project should have been held up until firm commitment of all 48. Tanzania: Sixth Power Project SAR, para. 2.7. 41 would-be co-lenders was in hand; additionally, once a financing gap had developed, IDA should have insisted that the Borrower make up the difference. 9.11 Instead of "accommodating" the Borrower by changing covenants, IDA should have insisted more firmly on compliance with existing covenants and, if necessary, exercised remedies. IDA should have concentrated its early efforts on the provision of technical assistance, given more emphasis to maintenance, and made sure inter-alia that TANESCO could produce meaningful and timely accounts before agreeing to finance infrastructure. Furthermore, before embarking into the expansion of new facilities, a thorough investigation of the state of existing facilities should have been insisted upon and, in a first installment, rehabilitation given unquestionable priority. IDA should have insisted on a complete analysis of the gas-fired generation alternative before agreeing to go ahead with the Mtera project. Beneficiary's and Borrower's Performance 9.12 A thorough review of the files indicates that TANESCO performed fairly well in the circumstances. Improvement of its operating performance has not proceeded as fast as it could due to insufficient emphasis on maintenance, delayed rehabilitation of its operating facilities and peace-meal technical assistance and training. For its part, the Government did not live up to its agreement of allowing TANESCO to raise its tariffs as necessary to meet its obligations. Finally, the fact that, in the absence of sufficient resources from TANESCO or the co-lenders, the Government did not finance all the technical assistance components included in the projects, casts doubts on its commitment to the strengthening of TANESCO. 4 43 10. Lessons Lessons Learned 10.1 The Audit agrees with the PCR for the Fourth Power Project on the importance for thorough review of project designs and bid documents as well as the need for formal understandings on procurement and other issues between co-lenders and the borrowers. However, it does not agree that the targets for improving TANESCO s financial performance were unrealistic. An electric power utility is either financially viable or it is not. The deficiency in this case must be attributed in large measure to the Government s failure to approve the necessary tariff adjustments on a timely basis. The lessons given in the PCR for the Power Rehabilitation Project are well taken. 10.2 The Audit offers the following additional lessons: (a) Human Resources. Training programs should be comprehensive and a well integrated part of a manpower development program. The training will not produce the expected benefits if, as in the case of TANESCO, trained employees return to an unstructured environment, i.e., one with a sub-optimal organization structure, lacking in corporate plans, and operating without, or with seriously deficient systems and procedures manuals. Such an environment is bound to minimize the benefits from the employees' enhanced skills. (b) Covenants. Changing financial covenants and carrying out tariff studies with the understanding that their findings will be implemented are no substitute for the Government's commitment to approve the necessary tariffs adjustment on a timely basis as per the Bank's firm insistence that covenants should be fulfilled. Also, the Beneficiary's capability to produce meaningful and timely reports on project costs and financial statements is a key condition of appropriate project monitoring. IDA should not finance a project in the absence of such capability, unless the project itself includes substantial measures to create or improve the Beneficiary's accounting and reporting systems. (c) Investment Planning. Project identification and sequencing may have been sub-optimal. Power sector rehabilitation, and gas fired power may have had a higher priority than the Mtera hydroplant. This perception derives from the well known fact that benefits accrued from rehabilitation of power facilities generally pay costs incurred quickly and yield ERRs frequently higher than 100 percent. Also the significant oil price drop observed over the past decade has driven a decrease in natural gas prices and made gas fired plants more competitive. 44 Prospects for World Bank New Power Sector Policy 10.3 The new policy encompasses transparent regulation, importation of services, commercialization and corporatization, commitment lending, and private investment. The prospect that the electric power entities of Tanzania, one of the Sub-Sahara countries can adhere to those policies is examined below. 10.4 Transparent Regulation. "A requirement for all power lending will be an explicit country movement toward the establishment of a legal framework and regulatory processes satisfactory to the Bank. To this end, in conjunction with other economy-wide initiatives, the Bank will require countries to set up transparent regulatory processes that are clearly independent of power suppliers and that avoid government interference in day-to-day power company operations (regardless of whether the company is privately or publicly owned). The regulatory framework should establish a sound basis for open discussion of power sector economic, financial, environmental, and service policies"." 10.5 Governments find it politically difficult to approve tariff increases. Tanzania is no exception. A clear set of rules protecting the interests of all stakeholders administered outside the Government appears to have a good chance of being adopted in Tanzania. Looking to the future, it should be clear that, while transferring certain functions (even the entire sector management) to the private sector may reduce costs, this will not absolve the governing authority or the regulatory body from approving realistic electricity tariffs on a timely basis. However, the success of new regulations will depend in no small measure on the quality and timeliness of operating and financial information. TANESCO needs strengthening in this area. 10.6 Importation of Services. "In some of the least developed countries, the Bank will assist in financing importation of power services to improve efficiency".o 10.7 The importation of services is not new to Tanzania. Expertise for project design, construction and construction supervision as well as other technical assistance has been imported. Further importation of services, could well involve global wholesale utility management, including engineering, construction, operating, commercial, financial, personnel and administrative services. Or, it could affect only some of these functions although such an alternative entails the danger that the sector could end up with less than well integrated systems and procedures. Whatever approach eventually prevails, care would have to be taken that TANESCO's higher-level staff, particularly those who have studied or have been trained abroad, are properly integrated in the new structure. 49. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform, page 14. 50. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform, page 16. 45 10.8 Commercialization and Corporatization. "The Bank will actively pursue the commercialization and corporatization of, and private sector participation in, developing- country power sectors".' 10.9 TANESCO is far from the standards of commercial operations. It lacks autonomy, its systems and procedures are deficient, and its accounts are perennially late. Much external assistance will be required to achieve the objectives of commercialization and corporatization. The Sixth Power Project may help resolve some of these issues. Appropriate sequencing of the assistance to be provided will be crucial to its success. 10.10 Commitment Lending. "Bank lending for electric power will focus on countries with a clear commitment to improving sector performance in line with the above principles".52 10.11 There is no doubt that in its own way, the Government of Tanzania is pursuing a policy of sectoral improvement; it is not averse to outside assistance, and is in favor of some form of privatization. However, its past performance on tariffs casts some doubts on the extent of its commitment to sector development. The big hurdle remains whether it will agree to enact transparent regulations for the electric power sector, and relinquish its current ability to intervene in the day-to-day operations of the sector. 10.12 Private Investment. "To encourage private lending in the power sector, the Bank will use some of its financial resources to support programs that will facilitate the involvement of private investors"." 10.13 The current Government is not averse to privatization. Indeed, in the Sixth Power Project, it has agreed to TANESCO's spinning off its in-house construction of transmission and distribution lines and offering such business to private investors. It has also agreed to have consultants carry out a study of privatization options, and to prepare an implementation plan in agreement with IDA." A regulatory framework appropriate for the selected option would also be expected to be in place when the new structure is introduced. 51. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform, page 16. 52. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform, page 17. 53. The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory and Financial Reform, page 17. 54. Tanzania: Sixth Power Project, Credit Agreement, Section 3.03.  47 ANNEX A Project Performance Audit: TANZANIA - CREDIT 1405-TA Re-calculation of Economic Rate of Return Parameters: 0.93 = Price (Tc/kAh) IRR(%)x 20.81 (a): Base 1993 Prices Const. 1983 prices 20.00 % Losses IRRC%)x 29.96 (b): Base historical prices *----Based on.--** 1993 Historic. ---Const. 1983 prices--- Price prices Year CPI Capit.Iny & Engineer.Gen Mtra Invest. (a) (b) Losses Sales Rev.-CostRev.-Cost Tsh. miLlios --------- Gwh miL Tsh -- Tsh/kWh -- Factor GWh mill Tsh xUL Tsh 1983.00 100.00 0.00 0.00 0.00 0.00 0.00 0.93 0.93 0.80 0.00 0.00 0.00 1984.00 136.10 372.80 0.00 31.00 0.00 273.92 0.93 0.93 0.80 0.00 -304.92 -304.92 1985.00 181.50 247.90 0.00 20.00 0.00 136.58 0.93 1.09 0.80 0.00 -156.58 -156.58 1986.00 240.30 250.10 0.00 23.00 0.00 104.08 0.93 1.22 0.80 0.00 -127.08 -127.08 1987.00 312.30 202.70 0.00 17.00 0.00 64.91 0.93 1.27 0.80 0.00 -81.91 -81.91 1988.00 409.80 151.40 4.80 9.00 1.83 36.94 0.93 1.02 0.80 1.36 -49.39 -49.26 1989.00 524.30 110.80 9.60 2.00 320.41 21.13 0.93 1.30 0.80 238.39 205.65 300.89 1990.00 652.20 19.80 9.60 0.00 450.65 3.04 0.93 1.55 0.80 335.28 322.65 544.36 1991.00 797.60 3.50 9.60 0.00 501.59 0.44 0.93 1.61 0.80 373.18 363.14 636.44 1992.00 973.70 17.50. 9.60 0.00 340.00 1.80 0.93 1.95 0.80 252.96 241.56 519.36 1993.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 .1994.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1995.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1996.00- 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1997.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1998.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1999.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2000.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2001.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2002.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2003.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2004.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2005.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2006.00 . 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2007.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2008.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2009.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2010.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2011.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2012.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2013.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2014.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2015.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2016.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79- 0.80 252.96 243.36 476.92 2017.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2018.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2019.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2020.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2021.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2022.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2023.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 Z024.00 0.00 9.60 0.00 340.00 - 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2025.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2026.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2027.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2028.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2029.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2030.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2031.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2032.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2033.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2034.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2035.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2036.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2037.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2038.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2039.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2040.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 SUN a 1376.50 504.00 17934.48 642.83 13090.29 IRR: Ec6n=ic Rate of Return (%) ................................. ......***....---*---- * 20.81 29.96 AN A 48 Project Performance Audit: TANZANIA - CREDIT 1405-TA Parameters: 0.93 - Price (Tc/kh) IRR(%)w 16.80 (a): Base 1993 Prices Const. 193 prices 20.00 Z Losses IRR(%) 24.31 (b): Base historical prices Based an 1993 Historic. ---Const. 1983 prices--- Price prices Year CPI Capit.Iny 0&M Engireer.Gen Xtra Invest. (a) (b) Losses Sates Rev.-CostRev.-Cost Tsh. xiLLions ---- I-- Gwh miLL Trh ** Tsh/kwh -- Factor GWh mitt Tsh mitt Tsh 1983.00 100.00 0.00 0.00 0.00 0.00 0.00 0.93 0.93 0.80 0.00 0.00 0.00 1984.00 136.10 372.80 0.00 31.00 0.00 273.92 0.93 0.93 0.80 0.00 -304.92 -304.92 1985.00 181.50 247.90 0.00 20.00 0.00 136.58 0.93 1.09 0.80 0.00 -156.58 -156.58 1986.00 240.30 250.10 0.00 23.00 0.00 104.08 0.93 1.22 0.80 0.00 -127.08 -12T.08 1987.00 312.30 202.70 0.00 17.00 0.00 64.91 0.93 1.27 0.80 0.00 -81.91 -81.91 1988.00 409.80 151.40 4.80 9.00 22.00 36.94 0.93 1.02 0.80 16.37 -34.38 -32.87 1989.00 524.30 110.80 9.60 2.00 94.00 21.13 0.93 1.30 0.80 69.94 37.20 65.14 1990.00 652.20 19.80 9.60 0.00 175.00 3.04 0.93 1.55 0.80 130.20 117.56 203.74 1991.00 797.60 3.50 9.60 0.00 246.00 0.44 0.93 1.61 0.80 183.02 172.99 307.C2 1992.00 973.70 17.50 9.60 0.00 304.00 1.80 0.93 1.95 0.80 226.18 214.78 463.16 1993.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1994.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1995.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1996.00 1202.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1997.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1998.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 1999.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2000.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2001.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.00 252.96 243.36 476.92 2002.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2003.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2004.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2005.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2006.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2007.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2008.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2009.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2010.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2011.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2012.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2013.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2014.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2015.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2016.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2017.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79- 0.80 252.96 243.36 476.92 2018.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2019.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2020.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2021.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2022.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2023.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2024.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2025.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2026.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2027.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2028.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2029.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2030.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2031.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2032.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 232.96 243.36 476.92 2033.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2034.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.9Z 2035.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2036.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2037.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2038.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2039.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 2040.00 0.00 9.60 0.00 340.00 0.00 0.93 1.79 0.80 252.96 243.36 476.92 U o 1376.50 504.00 17161.00 642.8n3 12514.82 IRR: Economic Rate of Return (%)..............................................................--- 16.80 24.31  IMAGING Report No: 14503 Type: PPAR