Ghana - Fifth Power Project

 Fifth Power Report No: ; Type: Report/Evaluation Memorandum ; Country: Ghana; Region: Africa; Sector: Distribution & Transmission; Major Sector: Electric Power & Other Energy; ProjectID: P000908 The Ghana Fifth Power Project, supported by an IDA credit of US$40 million equivalent, was approved in FY90. The credit was closed, after three one-year extensions, on December 31, 1996. The project was co-financed by the Caisse Francaise de Developpement Economique (CFD) of France (US$34 million) and the Commonwealth Development Corporation (CDC) of the UK (US$15 million). The Implementation Completion Report (ICR) was prepared by the Africa Regional Office. The borrower contributed to the preparation of the ICR; there were no contributions from the cofinanciers. The project's basic objective was to further advance the process of making the Electricity Corporation of Ghana (ECG) an efficiently functioning, commercially oriented, and financially viable entity capable of meeting Ghana's growing electricity needs. To this end, it provided support for (a) the investments in sub-transmission, distribution, telecommunications and vehicles needed to strengthen and expand ECG's network; (b) an institutional development program focusing on the commercialization of ECG through management reform and financial restructuring; and (c) studies of long term distribution requirements. The project's physical objectives were accomplished, albeit with considerable delay, making it possible for ECG to improve its service and meet the much higher than expected growth in demand. Although a number of measures aimed at improving efficiency were introduced, progress in strengthening ECG's operations and finances fell well short of project objectives. In particular, agreed targets for reducing total system losses and improving revenue collections were never reached, and ECG was not in compliance with the credit's financial covenants for most of the implementation period. Given ECG's continuing precarious financial condition (minus 4.8% financial return in 1996), commercialization still seems remote. In view of the above shortcomings in project performance, OED rates project outcome as marginally satisfactory, project sustainability as uncertain, institutional development impact as negligible, and Bank performance as satisfactory. These ratings are in line with the ICR, except for project outcome, which the ICR rates as satisfactory. The principal lesson to be drawn from this project is that efforts to establish commercially oriented, financially viable utilities are unlikely to be successful in the absence of radical sector restructuring. The project experience not only demonstrates, again, the futility of the Bank's "old" approach of requiring financial probity through the traditional covenants, but also shows that such "new" approaches as performance contracts between government and implementing agency and the contracting out of management functions are likely to be ineffective in a non-supportive environment. This lesson seems to have been learned; the Bank’s current efforts are focused on bringing about a wholesale reorganization of the sector. The ICR gives a satisfactory account of the implementation experience and problems, but, in its overall evaluation, does not give adequate weight to the project's shortcomings in meeting its non- physical objectives. No audit is planned.