Tanzania - Power Engineering and Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 16823 IMPLEMENTATION COMPLETION REPORT GOVERNMENT OF TANZANIA POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 2330-TAN) June 30, 1997 Water, Urban and Energy 1 Africa Region This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Tanzanian Shilling (TSH) US$1.0 = 230 TSH as of July 1991 US$.004 = I TSH FISCAL YEAR Government: July 1 - June 30 TANESCO: January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 millimeter (mm) = 0.039 inch (in) 1 kilometer (Km) = 0.62 mile (mi) 1 square kilometer (kmi) 0.386 square mile (sq mi) ABBREVIATIONS AND ACRONYMS AfDB = African Development Bank DCA = Development Credit Agreement EIA = Environmental Impact Assessment ESBI = Electricity Supply Board of Ireland GOT = Government of Tanzania ICR = Implementation Completion Report ICS Interconnected system IDA = International Development Agency SAR = Staff Appraisal Report TANESCO = Tanzania Electric Supply Company Ltd. UNDP = United Nations Development Program Vice President: Callisto Madavo Country Director: James Adams Technical Manager: Jeffrey Racki ICR prepared By: Alfred Gulstone  TANZANIA FOR OFFICIAL USE ONLY POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (CREDIT 2330-TAN) IMPLEMENTATION COMPLETION REPORT CONTENTS PREFACE EVALUATION SUMMARY Introduction ...............................................i Project Objectives ...............................................i Project Results and Implementation Experience. ii Project Outcome, Sustainability and Future Operation. ii Key Lessons Leared. iii PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Introduction .1 B. Statement and Achievement of Project Objectives . C. Project Implementation Experience .3 D. IDA Performance .5 E. Borrower Performance .6 F. Project Outcome, Sustainability and Future Operation .6 G. Major Lessons Learned .7 PART II: STATISTICAL TABLES AND ANNEXES Tables: Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation - Not applicable Table 7: Studies Included in the Project Table 8A: Project Costs Table 8B: Project Financing Table 9: Economic Costs and Benefits - Not applicable Table 10: Status of Legal Covenants Table 1 1: Compliance with Operational Manual Statements - Not applicable Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions Appendices: Appendix A: Proposed Operational Plan This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   IMPLEMENTATION COMPLETION REPORT TANZANIA POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 2330-TAN) PREFACE This is the Implementation Completion Report for the Power Engineering and Technical Assistance Project for which IDA approved a credit in the amount of SDR 7.5 million equivalent (US$ 10 million) on January 14, 1992. The Credit became effective on June 12, 1992. The Credit closed on June 30, 1996, a year later than planned and was fully disbursed. The final disbursement on the Credit took place on October 11, 1996. The ICR was prepared by Alfred Gulstone, Principal Power Engineer, and was reviewed by Fauzia Najm, under the supervision of Jeffrey Racki, Technical Manager, AFTU1. The Borrower had no comments on the ICR and did not provide its own completion report. The contents of this report are based on material in the project file.   IMPLEMENTATION COMPLETION REPORT TANZANIA POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT Credit 2330-TA EVALUATION SUMMARY Introduction 1. IDA's country assistance strategy for Tanzania, at the time of project appraisal (199 1), was to help the Government of Tanzania (GOT) implement its power sector objectives by financing investment and technical assistance projects designed to help Tanzania obviate sector constraints. GOT's policy objectives for the electric power sector, at the time of project preparation were to ensure (a) the ability of the country to meet power demand at least cost; (b) the pricing of electricity at full economic and financial cost; and (c) the maintenance of the sector's financial viability. However, growth in power demand, low tariffs, and ineffective systems for billing, collection and accounting threatened the country's ability to meet these objectives. Prior to the project, IDA had financed two investment projects for hydropower development in Tanzania. The main lesson from these projects was the importance of preparing the detailed design and receiving bids before finalizing the financing plan and starting construction, to minimize the risk of delays. The project took account of this lesson in preparing its engineering component and its design reflected lessons from IDA's experience with similar projects in Africa and other regions, which had indicated that technical assistance projects were successful when the components were discrete and well-defined. Project Objectives 2. The project had two major objectives: (a) assisting TANESCO in completing the design work for the least-cost hydroelectric generation project at Lower Kihansi; and (b) upgrading the accounting and financial capabilities of TANESCO. The objectives were clear and operationally focused to support the broader sector objectives of meeting the country's power needs at least cost and improving TANESCO's financial performance. They were important for advancing Tanzania's least cost power development program and promoting TANESCO's commercial orientation and financial viability. The achievement of project objectives was realistic as long as TANESCO made effective use of the consultant expertise which the project provided.  - ii- Project Results and Implementation Experience 3. The project substantially achieved its objectives. It advanced the least cost power development program by designing the facilities which are now under construction with funds from Credit 2489-TA. The project completed this design work according to the original project schedule. It also improved the financial viability of the power sector by upgrading TANESCO's billing and accounting systems. This upgrading began under the project and is continuing under Credit 2489-TA. The system improvements have increased TANESCO's average daily revenue collection significantly and should make it possible for the company to complete its annual audits on schedule. The project completed the construction of the training center and trained TANESCO's staff in the operation of computerized accounting and billing systems. 4. The Bank declared the credit for the project effective in June 1992, about six months later than originally planned, due to a delay in negotiations and Board presentation . The project completed the detailed design of the Lower Kihansi project and the preparation of related bid documents on schedule. There was a delay in the completion of new billing and accounting systems because both IDA and the Borrower had underestimated the amount of time required to prepare terms of reference for the consultants and complete the manual review and adjustment of records necessary before installing the computerized systems. To finish the work, IDA extended the project's closing date from June 1995 to June 1996. Actual project costs amounted to US$12.2 million compared to US$ 11.6 million estimated at appraisal. IDA disbursed a total of US$ 10.6 million. The difference between estimated and actual figures is due to the change in the exchange rate between the SDR, the currency of the Credit and the US dollar. IDA's performance overall was highly satisfactory because of its innovative approach and flexibility in helping the Borrower to meet the most pressing needs of the TANESCO system. The Borrower's performance was satisfactory, showing a sufficient commitment to the project and compliance with most project covenants except for some delays in audit reporting. Project Outcome, Sustainability and Future Operation 5. The project's outcome was satisfactory. The design work for future generation facilities and the accomplishments in approving the billing system were instrumental in preparing the Power VI project, which currently is the main vehicle for developing the power system at least cost and maintaining TANESCO's financial viability. The sustainability of the project is likely. Power VI Project (Credit 2489-TA) is constructing the facilities for the Lower Kihansi Hydroelectric scheme based on the design work under 2330-TA. The new computerized accounting system is in place and TANESCO should be able to maintain adequate cost accounting and timely audit reporting with norrnal updating of data and equipment maintenance. To ensure maintenance of the integrity of the billing system IDA's recommended specialist assistance to supervise the development of the billing system for an additional 12-18 months following the departure of the original consultants. TANESCO has hired consultants from the Electricity Supply Board of Ireland (ESB) to provide this oversight. Furthermore, the Bank has recommended that TANESCO take  - iii - specific actions to ensure timely procurement of equipment; full integration of pre-payment metering into the company's operations; improved policies and procedures; monitoring of service standards; provision of adequate maintenance; and the development of long-range planning. TANESCO has followed IDA's recommendation and hired the consultants. Key Lessons Learned (a) A technical assistance project to advance project design preparation can be extremely useful to the implementation of the least-cost power development plan and can be particularly important in a severely supply constrained power system as in Tanzania. (b) A pre-payment metering system can be a very effective way to both improve power company finances and encourage customers to conserve electricity . However, any power company introducing such a system needs to make sure that its technical configuration can accurately reflect the tariff structure. (c) TANESCO should manage its consultants closely to ensure the efficient use of time; minimize the need for contract extensions; and detect errors in operations. One way to achieve this is to request more frequent reports and reviews and use lump sum contracts to encourage adherence to schedule. (d) A technical assistance project can be useful to continuing the dialogue between the Bank and the Borrower on important sector issues while a large investment project is under preparation. (e) Data clean-up and consolidation for billing and accounting systems which have many manual transactions and staff that lack experience in modem financial control systems can be very time consuming and the implementation schedule to should allow at least two years instead of one year between the award of the contract and the installation of the new system.   TANZANIA POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (Credit 2330-TAN) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. INTRODUCTION 1. The Governnent's policy objectives for the electric power sector, at the time of project preparation (1991), were to ensure (a) the ability of the country to meet power demand at least cost; (b) the pricing of electricity at full economic and financial cost; and (c) the maintenance of the sector's financial viability. However, growth in power demand, low tariffs, and ineffective systems for billing, collection and accounting threatened the country's ability to meet these objectives. IDA's country assistance strategy was to support the Government of Tanzania (GOT) in implementing its power sector objectives by financing investment and technical assistance projects designed to help Tanzania obviate sector constraints. 2. The Power Engineering and Technical Assistance Project was the first of its kind in Tanzania. About 70 percent of the project's funds were for the engineering design work necessary to construct the Lower Kihansi Hydroelectric Project, a component of the Power VI Project (Credit 2489-TA) Project which IDA was planning to support. Sector development studies had indicated that this project was the least-cost solution for Tanzania's power system expansion to meet demand, beginning in the late 1990s. 3. The design of the project took account of lessons learned from IDA's experience with similar projects in Africa and other regions. This experience had indicated such techimcal assistance projects were successful when the components were discrete and well- defined. In addition, the Bank had financed two investment projects for hydropower development in Tanzania: one at Kidatu (LN 1306-T-TA) and another at Mtera (Cr. 1405- TA). The main lesson from these projects was the importance of preparing the detailed design and receiving bids before finalizing the financing plan and starting construction, to minimize the risk of delays. 4. The President's Report for Credit 2330-TA did not indicate any specific lessons from IDA-wide experience concerning improvements in billing and accounting systems. However, the problems were clear and IDA had successful experience in reorganizing and updating computerized billing and accounting systems in other countries. B. STATEMENT AND ACHIEVEMENT OF PROJECT OBJECTIVES 5. The project had two major objectives: (a) assisting Tanzania Electric Supply  Company Limited (TANESCO) in completing the design work for the least-cost hydroelectric generation project at Lower Kihansi; and (b) upgrading the accounting and financial capabilities of TANESCO. The objectives were clear and operationally focused to support the broader sector objectives of meeting the country's power needs at least cost and improving TANESCO's financial performance. They were important for advancing Tanzania's least cost power development program and promoting TANESCO's commercial orientation and financial viability. The achievement of project objectives was realistic as long as TANESCO made effective use of the consultant expertise which the project provided. 6. IDA's participation in the project was crucial for several reasons. First, GOT and TANESCO had requested that IDA finance the final preparation activities for the Lower Kihansi Hydroelectric Project. Although IDA and the governments of Italy, Norway, Sweden and the Federal Republic of Germany all had been principal financiers/donors in the power sector, only IDA had expressed an interest in financing the preparatory work. Second, IDA's participation in the preparatory engineering work was important to attract co-financing for the Lower Kihansi Project. Third, IDA's involvement in the project was important to ensure the efficient implementation of major power sector policies, especially the level and structure of tariffs. The project included a covenant for substantial increases in the average tariff. These increases were necessary because the low level of TANESCO's tariffs threatened the company's ability to generate the revenues necessary for investment in system expansion even with improved systems of billing and accounting. The project also took place during the same time as important tariff and sector organization studies. 7. The project was not too demanding for TANESCO, the implementing agency. It included sufficient technical assistance to make project irnplementation of components well within TANESCO's capability. The design of facilities for the Lower Kihansi Project was straightforward and the project's preparatory work anticipated no major problems. The re-design of the financial control systems was a major task because both the billing and accounting systems were in poor condition, due to substantial arrears, the lack of a reliable customer data base, and overdue audit reports. Neither operational procedures nor computer systems provided TANESCO with the capability to exercise the financial control necessary for a commercially viable utility. Furthermore, in designing the billing system, the project promoted, where economically viable, a relatively new type of technology -- prepayment metering. The application of this technology required not only a change in equipment but a complete reorientation of the billing system with increased emphasis on improved revenue collection and customer service. 8. The project's design was not very complex. It consisted of four clearly-defined, discrete components: the detailed design for the Lower Kihansi Hydroelectric Project, including site investigations and the preparation of bid documents; the installation of new billing and accounting procedures along with the procurement of related computer hardware and software, equipment and vehicles; the construction of a training center; and the training of TANESCO staff in the use of computers in their operations and in accounting procedures. The principal risks to the achievement of the project's objectives were possible  - 3 - delays due to slower than expected procurement of project consultants and the lack of sufficient institution-building resulting from the inadequate provision of local counterpart staff to work with expatriate consultants. However, the project's preparation took steps to minimize this risk by selecting the consultants for the design work prior to project approval. 9. The project substantially achieved its objectives. It advanced the least cost power development program by designing the facilities which are now under construction with funds from Credit 2489-TA. The project completed this design work according to the original project schedule. The project also improved the financial viability of the power sector by upgrading TANESCO's billing and accounting systems. This upgrading began under the project and is continuing under Credit 2489-TA. The system improvements have increased TANESCO's average daily revenue collection significantly and should make it possible for the company to complete its annual audits on schedule. However, since the completion of the project, long term financial viability has been threatened by poor payment performance of Government Agencies. The project completed the construction of the training center and trained TANESCO's staff in the operation of computerized accounting and billing systems. C. PROJECT IMPLEMENTATION EXPERIENCE Implementation Record 10. The Bank declared the credit for the project effective in June 1992, about six months later than originally planned, due to a delay in negotiations and Board presentation. The project completed the detailed design of the Lower Kihansi project and the preparation of related bid documents on schedule. The project also completed the construction of the training facility. There was a delay in the completion of new billing and accounting systems because both IDA and the Borrower had underestimated the amount of time required to prepare terms of reference for the consultants and complete the manual review and adjustment of records necessary before installing the computerized systems. To finish the work, IDA extended the project's closing date from June 1995 to June 1996. Actual project costs amounted to US$12.2 million compared to US$ 11.6 million estimated at appraisal. IDA disbursed a total of US$ 10.6 million. The difference between estimated and actual figures is due to the change in the exchange rate between the SDR, the currency of the project credit and the US dollar, the currency used in the description of project costs as they appeared in the President's Report. 11. There were several changes in project's components during the implementation process. After beginning the review and clean-up of manual data records, TANESCO and the IDA recognized the task was much larger than they originally had anticipated. Therefore, they decided to have some of the consultant experts for the accounting component begin their work earlier than planned. However, even with the early deployment of additional consultants, there was a delay because of the magnitude of the task. Furthermore, the use of additional consultants in the initial clean-up activity led to the requirement for additional funds for consultant supervision of the initial operational phase  - 4- of the accounting system. IDA and the Borrower therefore decided to continue the work under the Power VI Project, (Credit 2489-TA). 12. Another change in the project was the decision to make pre-payment metering the basis of the new billing system, where economically viable. This technology consists of installing an electricity meter based on a card-vending system that requires the customer to pay for electricity use in advance. The customer purchases a card which encodes the corresponding amount of electricity based on the customer's tariff category and rate. IDA and TANESCO saw it as a powerful tool both for minimizing TANESCO's collections problem and encouraging consumers to conserve electricity in a supply-constrained system. Initially, during the project's implementation, IDA and TANESCO planned to introduce prepayment metering on a pilot basis only. However, they made the decision to expand the system as a result of the impressive performance in improving the company's cash flow -- a tripling in the average daily revenues. The system also helped to reduce problems of high arrears in revenue collection. 13. The project also responded well to a technical problem that arose with the operation of the prepayment metering system. TANESCO purchased prepayment metering systems from a major vendor but was not aware that the configuration of the system was suited more to a flat tariff structure than TANESCO's steep, inverted-block tariff. This block structure causes the customer's cost per kWh to vary during the month depending on the amount of electricity use; i.e. it increases the cost per kWh after specified level of use. At the beginning of the prepayment metering program's operation (October 1995), IDA and TANESCO discovered that the system was overcharging customers who bought more than a one-month supply of electricity by moving them into a higher tariff step than their normal usage warranted. The system had no provision to adjust such overpayment at the time of subsequent purchases. By April 1996, it became evident that the system's adjustment problem was serious and required correction. The Bank then advised TANESCO to resolve the problem promptly to avoid a deterioration in customer relations. 14. After considering various options for correcting the prepayment metering system, the Bank and TANESCO agreed that the most efficient option was to install a corrective software program. This program uses a rolling average of electricity use for each customer. The average is based on the previous year's usage. The program recalculates and updates the average at the end of each month. If the purchase of power by existing customers exceeds the monthly average which the system has recorded, the billing software allocates the excess kWh forward into one or more future months, to avoid moving the customer into a higher tariff category. At the same time, the system restricts the purchase of more than the cost of 12 months' average usage in advance, alerting the utility to a sudden, large, upward change in load to protect the utility from undercharging the customer. For new consumers, where there is no previous history of electricity consumption, TANESCO uses an average that results from a survey of household electrical appliance usage. Reportedly there are very few complaints about the system.  -5- Major Factors Affecting Project Implementation 15. Factors not Subject to Borrower or Implementing Agency Control. The main factor not subject to the government's control in project implementation was the performance of project's consultants. Overall performance was satisfactory; however, the consultants in charge of billing system improvements did not give sufficient attention to the supervision of the contractor for the pre-payment metering system and the problems with the system's configuration. 16. Factors Subject to Borrower Control. GOT had control over increases in tariffs, reductions in Government arrears to TANESCO, and the requirement that TANESCO use the government's audit corporation for the completion of its annual audits. The govermment increased tariffs in fulfillment of the related project covenants (Table 10), and reduced Government arrears to an acceptable level. Unfortunately, after the completion of the project, the Government's performance on paying electricity bills has deteriorated. The requirement that TANESCO use the government audit corporation contributed to TANESCO's inability to submit timely audit reports and comply with the related project covenants. 17. Factors Subject to Implementing Agency ControL The imnplementing agency, TANESCO, had control over timely preparation of the information necessary for the audit reports, the management of the project's consultants, and completion of the project's training facility which was funded mostly by TANESCO. The poor condition of TANESCO's financial records and the greater clean-up process required than initially envisaged contributed to delays in audit reporting. The company could have been more rigorous about managmg the consultants for the billing and accounting systems in order to reduce project delays. However, a major constraint to management improvement is the lack of an adequate incentive structure and the situation should improve with the planned commercialization of the utility. At present, GOT is preparing for restructuring TANESCO and inviting private participation. D. IDA PERFORMANCE 18. IDA's performance in project identification, preparation assistance appraisal and supervision was satisfactory. In particular, IDA's supervision of the project demonstrated both innovative thinking and flexibility in working with the Borrower to meet the most pressing needs in the TANESCO system. The supervision team also helped draw the Borrower's attention to deficiencies in the configuration of the pre-payment metering system and suggested that TANESCO take immediate action to prevent overcharging consumers and maintain good customer relations. The pre-payment metering system already has had a major impact in improving the company's cash flow. Furthermore, since the same staff were involved with the supervision of Credit 2330-TA and Credit 2489-TA, there was a smooth linkage between the two projects in extending the accounting and billing system improvements.  -6- E. BORROWER PERFORMANCE 19. Borrower performance in preparing and implementing the project was satisfactory. The Borrower (GOT) showed sufficient commitment to the project and complied with most project covenants. TANESCO, the implementing agency, also complied with most of the relevant project covenants except for timely audit reporting. There were delays in the submission of audit reports due in part to problems in data collection which the project was addressing in its re-design of the accounting system. Unfortunately the new accounting system was not completed soon enough to improve audit reporting during the project's implementation period. Some delays were due to the heavy workload of the government's audit corporation which the government had designated as TANESCO's auditor. Also, as noted in para. 17, TANESCO could have made a greater effort to manage the accounting and billing consultants to reduce project delays. F. PROJECT OUTCOME, SUSTAINABILITY AND FUTURE OPERATION 20. The project's outcome was satisfactory. The design work for future generation facilities and the accomplishments in approving the billing system were instrumental in preparing the Power VI project, which is the main vehicle for developing the power system at least cost and maintaining TANESCO's financial viability. The Power VI project is implementing the design of hydroelectric facilities which Credit 2330-TA (project under review) provided. The construction of these facilities is proceeding well. The Power VI Project also is completing the installation of the accounting and billing systems, since the cost of the improvements extended beyond the funds available under Credit 2330-TA. Specialist staff is providing training in the operation of the new systems. 21. IDA's main concern about the future operation of the project's components is whether or not TANESCO will be able to maintain the integrity of the new billing system now that the project is completed. After reviewing the status of billing system development IDA has recommended that TANESCO obtain some specialized assistance to supervise the development of the billing system for an additional 12-18 months following the departure of the original consultants. TANESCO has hired consultants from the Electricity Supply Board of Ireland (ESBI) to provide this oversight. Furthermore, the Bank has recommended that TANESCO take specific actions to ensure: timely procurement of equipment; full integration of pre-payment metering into the company's operations; improved policies and procedures; monitoring of service standards; provision of adequate maintenance; and the development of long-range planning. Appendix C (Operational Plan) outlines these actions in more detail. 22. The sustainability of the project is likely. The Power VI Project (Credit 2489-TA) is constructing the facilities for the Lower Kihansi Hydroelectric scheme based on the design work under Credit 2330-TA. The new computerized accounting system is in place and TANESCO should be able to sustain the benefits of this system, such as cost accounting and timely audit reportng with normal updating of data and equipment  - 7 - maintenance. It also appears that TANESCO will be able to sustain the benefits of the pre- payment billing system if it adopts the operational plan attached as Appendix C. There are also plans to extend the prepayment metering system under Power VI. Already TANESCO has installed 42,925 prepayment meters under both Credit 2330-TA and Credit 2489-TA. These meters cover about 20 percent of the customer base accounting for around 60 percent of the company's revenues. Under Credit 2489-TA, TANESCO will complete improvements to the conventional billing system and will install an additional 10,000 prepayment meters in the Zanzibar power system, which will operate under private management. There are also plans for installing an additional 10,000 prepayment meters in the main power system as part of the proposed Songo Songo Power Development Project. 23. Supervision reports for the Power VI project have raised several issues that need to be resolved to ensure the efficient operation of the billing system since the consultants left in February 1997. First, it appears that there is no standard set of monthly reports on the operation of the system, which may indicate that TANESCO still views the prepayment system as a pilot project, rather than a long-term business procedure. Second, a review of conmection standards is necessary for both interior wiring and external connection to the TANESCO system. Third, the external consultant for the prepayment metering system has indicated that the interest and competence of the technical personnel varied but that with proper organization and supervision they would be able to install and maintain the prepayment meters properly after the end of the external consultant's contract. To ensure the sustainability of the prepayment metering system, the supervision work of the Power VI project has made some recommendations for the future operation of the system which the operational plan has incorporated. G. MAJOR LESSONS LEARNED 24. The following are the major lessons learned by IDA in the implementation of the project: * A technical assistance project to advance project design preparation can be extremely useful to the implementation of the least-cost power development plan. The time saved by early preparation was particularly important due to the emergency power situation that developed during the implementation of the project, thus increasing the importance of completing the Lower Kihansi project on schedule. * A pre-payment metering system can be a very effective way to both improve power company finances and encourage customers to conserve electricity. However, any power company introducing such a system needs to make sure that its technical configuration can accurately reflect the tariff structure. Fortunately, in the case of Tanzania, both IDA and TANESCO responded promptly to the initial problems in the system's technical configuration and  - 8- found a viable cost-effective solution to the problem. The simplification of the tariff structure, which took place during the project's implementation period but not part of the project, also enhanced the performance of the prepayment metering system by reducing the number of tariff categories and thus lessening the likelihood of errors and customer dissatisfaction. * TANESCO should manage its consultants closely to ensure the efficient use of time; minimize the need for contract extensions; and detect errors in operations. One way to achieve this is to request more frequent reports and reviews, perhaps on a monthly basis, and a final operational manual to help with the transfer of skills. In addition, lump sum contracts instead of contracts based on a number of days, which TANESCO has begun to employ, link payments to performance and are likely to encourage adherence to schedule. However, further commercialization of the utility is necessary to develop a sufficient incentive structure for improved management. * A technical assistance project can be useful to continuing the dialogue between the Bank and the Borrower on important sector issues while a large investment project is under preparation. For example, Credit 2330-TA was able to promote the move toward pricing electricity at economic and financial cost by including substantial tariff increases as project covenants. Also , the project enabled IDA to maintain a dialogue with the GOT on power sector organization and tariff reform. * It is important to allow adequate time to the data clean-up and consolidation for billing and accounting systems which have many manual transactions and staff that lack experience in modem financial control systems. The timeline which the project originally provided was one year between the award of the contract and the installation of the new system. A more realistic timeline, based on experience with Credit 2330-TA, is about two and a half years.  PART II: STATISTICAL TABLES AND APPENDICES  PART II: STATISTICAL TABLES AND APPENDICES Tables: Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation - Not applicable Table 7: Studies Included in the Project Table 8A: Project Costs Table 8B: Project Financing Table 9: Economic Costs and Benefits - Not applicable Table 10: Status of Legal Covenants Table 11: Compliance with Operational Manual Statements - Not applicable Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions Appendices: Appendix A: Proposed Operational Plan  Table 1: Summary of Assessments A. Achievement of Project Objectives Assessment Substantial Partial Negligible Not Applicable Categories Macroeconomic Policies X Sector Policies X Financial Objectives X Institutional X development Physical objectives X Gender concerns x Other social objectives X Environmental X X Public sector X management Private sector X development Other X B. Project Sustainability Likely Uncertain | Unlikely x  C. Bank Performance Stage of Project Highly Satisfactory Satisfactory Deficient Cycle Identification X Preparation X Appraisal X Supervision x D. Borrower Performance Stage of Project Highly satisfactory Satisfactory Deficient Cycle Preparation X Implementation X Covenant X Compliance E. Assessment of Outcome Highly Satisfactory Marginally Unsatisfactory Highly Satisfactory Satisfactory Unsatisfactory x  Table 2: Related Bank Loans/Credits Loan/Credit Title Loan/Credit Amount Purpose Year of Status No. US$m Approval Preceding Operations Power IV C1405-TA 35.0 Complete design work for the 1984 Completed least-cost generation project and upgrade the accounting and billing systems. Power I L518-TA 5.2 Meet projected power 1969 Completed demand by adding 20 Mw of diesel capacity. Power II L715-TA 30.0 First phase of Kidatu 1970 Completed Hydroelectric Project and extension of diesel capacity. Power III L1306-TA 30.0 Finance second phase of 1976 Completed Kidatu development. Petroleum Sector TA C1604-TA 8.0 Exploration Promotion for 1985 Completed I petroleum. Power Rehab./Energy C 1687-TA 40.0 Rehabilitation of 1986 Completed transmission and distribution Petroleum Rehab. C22020-TA 44.0 Rehabilitation refinery and 1991 Completed storage Following Operations Construct the Kihansi Power VI C2489-TA 200.0 hydroelectric plant and strengthen TANESCO's 19 non management. Table 3: Project Timetable Steps in project cycle Date planned Date actual/estimate Identification Preparation Jan 1991 Jan 1991 Appraisal May 1991 May 1991 Negotiations September 1991 January 1992 Letter of development policy NA NA Board presentation and November 1991 January 1992 approval Signing NA March 1992 Effectiveness January 1992 June 12, 1992 Project completion December 1994 June 1996 Credit closing June 30, 1995 June 30, 1996 Source: Project Files, Bank Management Information System and Bank staff estimates.  Table 4: Credit Disbursements: Cumulative Estimated and Actual (in million US$) FY FY FY FY FY 92 93 94 95 96 Appraisal estimate 2.8 4.4 8.0 10.0 10.0 Actual 0.0 4.9 7.0 8.7 10.6 Actual as % of estimate NA 112 87 87 106 Date of final disbursement October 11, 1996 Source: Project Files and Loan Department. Table 5: Key Indicators for Project Implementation Key implementation indicators in the Expected Actual/ICR SAR/President's Report Completion Estimate of Date Completion Date Detailed design and bid document preparation Award of contract 12/31/91 12/91 Completion of mobilization 01/31/92 12/91 Draft inception report 04/30/92 01/92 Draft preliminary works tender documents 06/30/92 04/92 Draft civil works prequalification document 07/31/92 06/92 Draft project definition report 09/30/92 07/92 Bid for engineering/supervision 09/30/92 09/92 Evaluation of preliminary works contract 10/31/92 09/92 Draft field investigation report 11/30/92 10/92 Draft main civil works contract tender documents 12/31/92 11/92 Drafts of all other tender documents 03/31/93 12/92 Billing and Accounting Components 03/92 Award of Contract 04/00/92 31 Installation of new hardware and software 04/00/93 a/ Installation of new procedures 10/00/93 a! Source: Project Files and Bank staff estimates.  a/ The award of the contracts for these services took place during June/July 1994, a little more than a year later than originally planned. The delay resulted from longer time required to prepare terms of reference and recruit consultants. The final installation of hardware and software for the accounting system began in July 1995 and was completed under the Power VI Project. The introduction of prepayment meters for the billing system also began in July 1996 and was completed in February 1997 under Credit 2489-TA. Table 6: Key Indicators for Project Operation Not applicable to this project. Table 7: Studies Included in the Project Study Purpose Status Impact Environmental To ensure that the Lower Completed. The project Assessment Kihansi Hydroelectric consolidated Scheme will have no environmental work significant adverse into a formal report environmental and social which indicated that impacts. the Lower Kihansi project would not cause significant environmental problems and produced a mitigation plan. Source: Project Files.  Table 8A: Project Costs Item Appraisal Estimate (US$mm) Actual/latest estimate (US$mm) Local Foreign Total Local Foreign Total costs costs costs costs costs costs Training 0.00 0.15 0.15 0.00 0.18 0.18 Construction of 1.00 0.15 1.15 1.11 0.18 1.29 Training Center Equipment and 0.10 1.90 2.00 0.11 2.24 2.35 vehicles Consultancy -- -- -- -- -- -- Services Detailed design 0.25 4.30 4.55 0.29 5.06 5.35 and preparation of bid documents Billing and 0.08 1.25 1.33 0.09 1.47 1.56 accounting Finance 0.00 1.20 1.20 0.00 1.41 1.41 Environmental 0.00 0.05 0.05 0.00 0.06 0.06 Update Subtotal 0.33 6.80 7.13 0.38 8.00 8.38 Base Cost 1.43 9.00 10.43 1.6 10.6 12.2 Contingencies Physical 0.13 0.60 0.73 -- -- -- Price 0.06 0.40 0.46 Subtotal 0.19 1.00 1.19 -- -- TOTAL COSTS 1.62 10.00 11.62 1.6 10.6 12.2 Source: Project Files and Bank staff estimates.  Table 8B: Project Financing (in US$ million) Source Appraisal estimate Actual/latest estimate Local Foreign Total Local Foreign Total costs costs costs costs costs costs IDA 0.00 10.00 10.00 0.0 10.6 10.6 TANESCO 1.62 0.00 1.62 1.6 0.0 1.6 TOTAL 1.62 10.00 11.62 1.6 10.6 12.2 Source: Project Files and Bank Staff estimates. Table 9: Economic Costs and Benefits Not applicable to this project. No economic rate-of-return calculated at appraisal Table 10: Status of Legal Covenants -,kgreement/ Covenant Status Original Revised Covenant description Comments Section type fulfillment fulfillment _ _ _ date date _ _ _ _ iCA/3.01(a) Management C NA NA Borrower declares commitment to project objectives; re-lending the proceeds to TANESCO at 7.3 % interest for 18 years and not amend the loan agreement with TANESCO without IDA agreement. CA/ 3.02 Procurement C NA NA Procurement of goods, works and services subject to provisions of the PA. 'CA/ 3.03 General C NA NA TANESCO shall carry out conditions obligations outlined in section 2.03 of the PA. -CA/4.01(a) Project C NA NA Borrower and IDA to Execution exchange views on Borrower's electricity pricing policies and plans for power sector development.  Agreement/ Covenant Status Original I Revised | Covenant description Comments Section type fulfillment fulfillment date date DCA/4.02(b) Financial C NA NA Borrower agrees to establish prices that allow TANESCO: to earn an adequate return on funds invested, meet financial obligations and make a reasonable contribution to future power system expansion. DCA/4.02(c) Financial C January NA Borrower to approve a tariff 1992 increase of at least 15% on July 1992 agreed dates. PA/3.01 Management PC NA NA TANESCO to conduct its TANESCO and operations according to was inhibited operations sound administrative, in full financial and public utility compliance practices. because of the difficulty of collecting Government Accounts. PAf3.02 Management C NA NA TANESCO to operate and and maintain plant, machinery, operations equipment and other property according to sound engineering and financial practices, making repairs and renewals as necessary. PAf3.03 Management C NA NA TANESCO to have and insurance in satisfactory operations amounts against risks in line with appropriate utility practice. PA/4.01(a) Financial C NA NA TANESCO to maintain records reflecting its operating and financial condition according to sound accounting practices.  'greement/ |Covenant |Status Original |Revised |Covenant description |Commenbt | Section type fulfillment fulfillment date date J4.01 (b) Financial C NA NA TANESCO to have audits of its records, financial statements and the Special Account, for each fiscal year, by independent auditors acceptable to IDA. ./4.01b,ii Financial NC 14 months TANESCO to furnish TANESCO's after FY90 certified copies of financial performance in statements for each FY of this area has NC 10 months the project with a report of improved after detail and scope as the 6 months reasonably requested by introduction of NC after FY92 IDA. the new and accounting thereafter system. /4.Olb,iii Financial C NA NA TANESCO to furnish IDA with other information about records, accounts and financial statements as reasonably requested. /4.02 Financial C January TANESCO to increase its 1992 average tariff at least 15% 1 July 1992 on agreed dates. Source: Project Files and Bank staff estimates. Abbreviations: DCA=Development Credit Agreement; PA=Project Agreement; C=compliance; NC=non-compliance; and NA= not applicable. Table 11: Compliance with Operational Manual Statements Not applicable to this project. Table 12: Bank Resources: Staff Inputs Stage of project cycle | Planned [ Actual 1 |_________________ |Weeks US$ Weeks US$000 Through appraisal NR NR 3.4 8.3 Appraisal NR NR 9.3 23.5 Negotiations through NR NR 15.4 39.2 Board approval I I l l _l | Supervision NR NR 33.1 91.9 Completion NR NR 6.0 | l Abbreviations: NR=not reported.  Table 13: Bank Resources: Missions Stage of project Month/ Number of Days in Specialized Performance Types of cycle Year persons field staff skills rating problems represented Through appraisal 01-02/91 NR NR NR NR NR Preparation Appraisal through Board approval Appraisal 05/91 2 14 FA, HE NA NA Post Appraisal 11/91 2 3 FA, PE Supervision Supervision 1 06-07/92 2 15 EC, PE NR PS Supervision 2 06/93 2 15 FA, PE NR AUD Supervision 3 09/93 1 20 PE NR AUD Supervision 4 05/94 3 16 ES, FA, 2PE NR F Supervision 5 07-08/94 2 18 FA, PE 2 AUD, F, Supervision 6 03-04/95 1 '13 PE NR F, M Supervision 7 03-04/96 3 14 FA, 2PE NR F  Stage of project Month/ Number of Days in Specialized Performance Types of cycle Year persons field staff skills rating problems represented Completion NA NA NA NA NA NA The project did not include a completion mission. Source: Project Files and Bank staff estimates. Problem Codes Types of problems: AUD=auditing problems; F=financial problems; M=management problems; PS=power shortages Mission Staffing Codes ES=Environmental Specialist; FA=Financial Analyst; HE=Hydropower Engineer PE=Power Engineer Other Codes NA=Not applicable; NR=Not reported  Appendix A Page I of 3 TANZANIA POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT (CREDIT 2330-TAN) PROPOSED OPERATIONAL PLAN Introduction The main component of the Power Engineering and Technical Assistance Project, the design of the Lower Kihansi hydroelectric component, is complete and the power station is under construction. The new accounting system is in place, the new training center is operational and TANESCO is capable of sustaining its operation. However, the Bank has concerns about the planning and organization for maintain the integrity of the new billing system after the original system consultants depart in February 1997. Therefore, in the context of the ongoing Power VI project, TANESCO followed the Bank's recommendation to obtain some specialized external oversight for an additional 12-18 months. The Bank has recommended that TANESCO take specific actions in the following areas: procurement, the full integration of prepayment metering into the company's operations, policies and procedures, service, maintenance, and long-range planning. The following sections summarize these recommendations. Procurement TANESCO needs to ensure the timely procurement of materials for prepayment metering in order to avoid public relations problems and resulting pressures to use convention metering in areas where TANESCO has designated prepayment metering as a viable option. The transition to the prepayment metering system should be as smooth as possible. Integration into Operations It is important for TANESCO's staff to view prepayment metering as part of the company's normal operations and not as a temporary experiment or pilot. Some regional offices with two types of metering must have clear procedures to make distinctions and maintain the integrity of prepayment areas. Policies and Procedures TANESCO needs to provide written policies, procedures and position descriptions to allocate responsibilities for prepayment operations. Before the departure of consultants and contractors, they need to ensure that they have appropriate descriptions of all  Appendix A Page 2 of 3 prepayment billing functions. TANESCO needs to define both general policy objectives and several specific policies which are necessary for the efficient functioning of the system. There should be basically two objectives for the prepayment billing system: (a) improving utility collections and cash flow by eliminating delayed payments and bad debts and reducing operating expenses; and (b) increasing customer satisfaction by instilling confidence in the accuracy of the billing system, allowing convenient schedules of customer payments, and providing real-time information to customers on their electricity usage, in order to promote energy conservation. Specific policies which TANESCO should include in its operations are: installing prepayment meters in all areas where economically justified'; calculating the economic break-even point for installation and submitting budget proposals for those that meet the economic criteria; installing prepayment meters in all locations that meet the economic criteria for selection; and locating prepaid card vending stations within walking distance of customers.2 Detailed operating procedures are necessary for a broad range of functions such as applications for new service, transfer of accounts, installation of equipment, procurement of materials, maintenance of inventory, repair of equipment, sale of prepayment cards, data base maintenance, and periodic reports. These procedures should consist of operational instructions which provide the details for implementing specific policies and desk or field procedures which are step-by-step instructions for training new employees to perform specific functions. Most of the instruction material should be available since the consultant and the contractor are responsible for training TANESCO employees to operate and maintain the prepayment system. The consultant should ensure that TANESCO has such instructions organized in a formal operations manual, which should include position descriptions for key personnel performing the functions. Service Standards TANESCO should review service standards continuously and revise them if necessary to minimize connection costs. In new constructions, TANESCO should provide a customer all wiring from the household distribution panel to the point of attachment to the TANESCO system, with detailed instructions and drawings on the requirements for installing the prepayment meter. In addition all installations in areas likely to have prepayment meters in the future should have wiring that meets the standards for prepayment The criteria for selection considers the average cost per installation and the average revenues from the customers in the proposed installation area. For example at $150 per installation and present tariffs, an average monthly usage of 120 kwh may justify connection. 2Generally no customer should have to walk more than 2000 meters to purchase a prepayment card.  Appendix A Page 3 of 3 meters. TANESCO should adopt the contractor's installation documents on service wiring and connections standards, editing, and reformatting it where appropriate. Maintenance TANESCO's data indicates that the rate of prepayment meter failure is about 1% annually. Therefore a reasonable estimate for maintenance is that TANESCO should be prepared to respond to one or two failure reports per day. Beginning in March 1997, TANESCO staff will be responsible for evaluating malfunctions and replacing failed units in the field. All service personnel should receive training in detecting the reasons for failure and have the proper equipment in the service truck to make immediate replacement and restore service to the customer. TANESCO also needs to develop a policy for disposing of failed units. Two viable options are (a) obtaining an agreement with the manufacturer or other contractor to maintain repair facilities for repayment meters in Dar es Salaam or, (b) ship the units to the manufacturing plant for repair and return. In making the choice between the two, TANESCO will have to evaluate repair costs, shipping costs and estimated downtime of the units. Long Range Planning Over the long term, TANESCO should extend the use of prepayment meters to all areas of the country where they are economically justified. The company should review areas under consideration and update the necessary cost and benefit information annually. Position Descriptions TANESCO needs to more clearly specify the functions of the Manager of Customer accounts and both the zonal and regional levels.   I ~ ~ ~ ~ ~ ~ IMAGING Report No.: 18823 Type: ICR