Sierra Leone - Third Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4525 PROJECT COMPLETION REPORT SIERRA LEONE ELECTRICITY CORPORATION THIRD POWER PROJECT CREDIT 734 SL May 31, 1983 Western Africa Region Projects Department Energy Division 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.  COUNTRY EXCHANGE RATES Name of Currency Leone (Le) Appraisal Year 1977 Exchange Rate US$1 = Le 1.16 Completion Year 1982 Exchange Rate USS1 = Le 1.26 UNITS AND MEASURES kW = Kilowatt MW = Megawatt = 1000 Kilowatts GWh = Gegawatt hour = 1 million KWh kWh = Kilowatt hour km 1000 meters = 0.62 miles kV = Kilovolt = 1000 volts kVA = Kilovolt ampere r.p.m. = Revolutions per minute ABBREVIATIONS AND ACRONYMS PWD - Public Works Department SLEC - Sierra Leone Electricity Corporation BADEA - Banque Arabe du Developpement en Afrique CIDA - Canadian International Development Agency IMF - International Monetary Fund OPEC - Organisation of Petroleum Exporting Countries ESB - Electricity Supply Board of Ireland NPA - National Power Authority CSO - Central Statistical Office FISCAL YEAR April 1 - March 31  FOR OFFICIAL USE ONLY SIERRA LEONE ELECTRICITY COPPORATION THIRD POWER PROJECT CREDIT 734-SL PROJECT COMPLETIOtN REPORT Table of Contents Page No. Preface .... i. Basic Data Sheet ................ ii Highlights ................ iv 1. INTRODUCTION . 2. PROJECT PREPARATION AND APPRAISAL. 2 Origin and Preparation of the Project. 2 Project's Role. 5 Project Description. 5 3. PROJECT IMPLEMENTATION, OPERATION AND COST. 6 Conditions of Effectiveness. 6 Changes in Project. 7 Implementation Schedule. 7 A. IDA Financed Portion of the Project .7 Extension of King Tom Power Station .7 Data Processing Equipment. 7 Preparation of Bumbuna Project. 8 B. BADEA Financed Portion of the Project . 9 33KV Distribution First Stage. 9 Generating Units for the Provinces. 9 Measures to Prevent Generator Outages at King Tom Power Station. 9 Consultants Services .10 Procurement ..10 Costs and Disbursements .11 Extension of King Tom Station .11 Bumbuna Hydro Project Preparation .12 Disbursements .14 Operations . 14 Performance of Consultants, Contractors, Suppliers and Borrower .15 Consultants .15 Contractors .16 Suppliers .16 The Borrower .16 IThis 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.  4. OPERATING PERFORMANCE .................................... 16 SLEC's Performance .16 5. FINANCIAL PERFORMANCE .17 Financial Results .17 Financial Covenants .18 6. INSTITUTIONAL PERFORMANCE .19 Management and Organizational Effectiveness .19 Organization and Staffing .19 Staff Training and Development .20 Covenants and Sectoral Development .20 7. PROJECT JUSTIFICATION.............................21 The Market for Power .21 Rate of Return .21 Project Achievements .22 8. BANK PERFORMANCE .23 Assessment of Borrowers Implementation Capacity .23 Assessment of Beneficiaries Implementation Capacity . 23 Supervision .24 Working Relationships .24 9. CONCLUSIONS .24 ANNEXE S Annex 1: Provincial Towns Statistics 1978/79 Annex 2: Schedule of Disbursements by Category Annex 3: Disbursements by Quarters Annex 4: Principle Covenants Annex 5: Development of System Capability, Demand, Sales, etc., Actual and Forecast Annex 6: Tabulation for Rate of Return Computation Western System only Annex 7: Schedule of Supervision Missions  SIERRA LEONE SIERRA LEONE ELECTRICITY CORPORATION PROJECT COMPLETION REPORT THIRD POWER PROJECT - CREDIT 734-SL Preface This is a Project Completion Report (PCR) for the third power project in Sierra Leone for which a credit of $8.2 million was approved on July 12, 1977. Parallel financing of $5.0 million was provided by BADEA and because of cost overruns a supplementary loan of $1.6 million was obtained from the OPEC fund in May 1979. The credit was closed on December 31, 1981 after three postponements totalling twenty-four months. Final disbursements from the credit were made on July 29, 1982. This Project Completion Report was prepared by the Western Africa Regional Office following the visit of an IDA mission to Sierra Leone in June/July 1982. It is based on completion reports prepared by others for certain parts of the project, progress reports from the Sierra Leone Electricity Corporation (SLEC) management and its consultants, supervision reports and IDA files, and on discussions with the borrower (Government) and beneficiary (SLEC). The project has not been subjected to audit by the Operations Evaluation Department. Copies of the PCR were sent to SLEC, the Government, BADEA and the OPEC Fund for comments; however, none were received. The authors are grateful for the assistance given them by the officials of the Government ministries concerned, the staff of SLEC at all levels and SLEC's consultants.   - ii - Project Completion Basic Data Sheet Sierra Leone - Third Power Project (Credit 734 SL) Key Project Data Actual 1/ as % of - Appraisal Actual or Appraisal Estimate Estimated Actual Estimate Project Costs (US$ million) 15.2 19.2 126% Credit Amount (US$ million) 8.2 8.2 Date Board Approval 07/12/77 Date Effectiveness 12/28/77 03/29/78 Date Physical Components Completed 09/30/79 10/31/82 Proportion then completed (%) 72% Closing Date 12/31/79 12/31/81 Economic Rate of Return (%) 13% 10% Financial Rate of Return (%) 12% 4% Institutional Performance improvement deterioration Agronomic Performance NA NA Number of Direct Beneficiaries (year...) NA NA Cumulative Disbursements FY78 FY79 FY80 FY81 FY82 Appraisal estimate (US$ million) 7.3 8.2 Actual (US$ million) NIL 7.2 7.7 8.0 8.2 Actual as % of estimate 0 88 94 98 100 Date of final disbursement 07/29/82 Principal repaid to (mo.,day,year) (US$ million) 12/31/82 $NIL / Principally due to changes in exchange rates and additional studies required from Consultants   - iii - Mission Data Special- zations Per- Date No. of Mandays Repre-1/ formancp Types of Mission (mo./Yr.) Persons in Field sented Rating; Trend-/ Problems-4/ Identification 11/1974 3 35 Appraisal 1 04/1975 3 45 Appraisal 2 11/1975 4 30 Appraisal 3 04/1976 2 14 Subtotal 124 Supervision 1 11/1977 2 14 (a)(b) 2 2 MFP Supervision 2 11/1978 2 21 (a)(b) 3 3 ME Supervision 3 02/1979 1 6 b 3 3 MF Supervision 4 07/1979 1 6 b 3 2 MF Supervision 5 04/1980 1 10 b 3 2 MFP Supervision 6 12/1980 2 10 (a)(b) 3 3 MF Supervision 7 07/1981 2 8 (a)(b) 3 3 MFP Supervision 8 11/1981 2 12 (a)(b) 3 1 MF Supervision 9 06/1982 2 21 (a)(b) 3 1 MFP Subtotal 108 Total 232 Other Project Data Borrower Sierra Leone Government Executing Agency Sierra Leone Electricity Corporation Fiscal Year March 31 Name of Currency Leone (Le) Currency Exchange Rate: Appraisal Year Average (1976) US$ 1.00 =1.17 Intervening Years Average US$ 1.00 =1.07 Completion Year Average US$ 1.00 =1.26 Follow-on Project: Name Power Sector Engineering & Technical Assistance Project Loan/Credit Number Cr. 1265 SL Loan/Credit Amount $5 million Date Board Approval June 17, 1982 -/ (a) Engineer (b) Financial Analyst 2/ 1= problem-free or minor problems; 2= moderate problems; 3= major problems 3/ 1= improving; 2= stationary; 3= deteriorating 4/ F= financial; M= managerial; T= technical; P= political; O= other   - iv - SIEPPA LEONE SIERRA LEONE ELECTRICITY CORPORATION PROJECT COMPLETION RFPORT THIRD POWER PROJECT - CREDIT 734 SI Highlights The principal objectives of the project were firstly to prepare the first step (Bumbuna hydroelectric project) in a long term plan to develop the country's resources of renewable energy in order to reduce its dependence on imported oil fuel, and secondly to maintain and improve reliability of electricity supplies to consumers until the Bumbuna project could be implemented. A third objective was to improve financial management of SLEC (para. 2.2.1.). The project did not fully meet any of the above objectives. The preparation of bidding documents, which was the final stage of preparation for the Bumbuna project, was left unfinished due to lack of foreign exchange with which to pay the consultants (para. 3.3.4.). The creation of a Bumbuna Development Committee and appointment of an Executive Engineer to give direction to the Bumbuna Project implementation and form the nucleus of a project management organization, did not meet its objective - probably because of the appointment of an engineer with no previous experience of Hydroelectric developments (paras. 6.4.3. and 8.1.2.). Although the equipment for improving reliability of supplies was provided and installed, reliability in fact deteriorated primarily due to lack of funds with which to purchase fuel because of the government's refusal to approve increases in tariffs whilst at the same time withholding the alternative subsidies necessary to enable SLEC to purchase adequate supplies; and also because SLEC exhausted its stocks of essential maintenance materials and was unable to obtain the foreign exchange with which to replenish them (para. 4.1.1.). None of the important financial covenants in the Project Agreement, such as rate of return, revaluation of assets, tariff revision and audit were met by SLEC (see Annex 4) due primarily to the fact that top management was almost entirely preoccupied with trying to maintain electricity supplies under the difficuLt conditions created by the Government (paras. 4.1.2. to 4.1.4. and Chapter 5). There were in addition a number of subsidiary objectives as outlined in the covenants to the credit and project agreements (Annex 4). These were primarily designed to ensure sufficient autonomy and revenue to SLEC to enable it to improve its management and finances. Few of these requirements were met and none of the more important ones such as maintaining the price of fuel at world market prices (para. 3.7.4.) or granting SLEC's executives the necessary autonomy in day to day management (para. 6.1.1.) or increasing tariffs (para. 4.1.1.) and provision of foreign exchange for purchase of essential spares (para. 4.1.1.). The project cost exceeded the estimates but the exact extent will not be known for some time since the project has not yet been completed  -v - (para. 3.3.4.), however the overrun on some items is known. For example the cost overrun in dollars on the installation of slow speed diesels was 38% due entirely to changes in exchange rates. An estimated overrun of 225% in the cost of preparation of the Bumbuna project is about one-third due to the exchange rate and the balance to additional work undertaken by the consultants (para. 3.5.8.). The overrun of 100% in time was due partly to a three months delay in making the credit effective (paras. 3.1.2. and 3.1.3.) but mainly due to delays in completing the preparation of Bumbuna caused by the addition of studies and a slowdown by the consultants because they were not being paid (para. 3.3.4.). An unusually large amount of retroactive financing ($5.7 million or 70% of the credit) was involved due to a delay of nearly eighteen months in presenting the credit to the IDA Board because of the Government's failure to meet conditions required by IDA and the IMF (paras. 2.1.6. and 2.1.9.) to restore SLEC's financial viability and stabilize the economy respectively. The principal lesson which this project makes abundantly clear is that where a Government is pursuing unsound economic policies and as a result has already got into financial difficulties, promises of corrective action in the form of covenants in credit and project agreements are not enough (paras. 9.3. and 9.5.). In extreme cases such as this, where the Government's difficulties had been well known to IDA over the five year period of preparation of the project (para. 2.1.9.) it would be prudent, in spite of the sensitivities of the Government of the day, to require action on important issues affecting the Beneficiary before making the credit available; as has since been done in Credit 1265 for completion of the Bumbuna Project preparation (para. 8.1.). Experience with this project also confirms accumulated experience in other countries that public utilities are unlikely to maintain acceptable standards of efficiency unless they are shielded from political influences in day to day management by conferring on them a high degree of financial and managerial autonomy (para. 6.1.1.).  SIERRA LEONE SIERRA LEONE ELECTRICITY CORPORATION PROJECT COMPLETION REPORT THIRD POWER PROJECT - CREDIT 734-SL 1. INTRODUCTION 1.1. Development of the power sector in Sierra Leone was the responsibility of the Public Works Department (PWD) of Government until 1964 when the Government created the Sierra Leone Electricity Corporation (SLEC) to take over all the assets and responsibilities of the PWD associated with public supplies of electricity. SLEC was managed by a Board of Directors appointed by the Minister of Works and developed satisfactorily until 1969 when major labor troubles led to violence and the resignation of the General Manager. For a while things improved under new management until 1973/74 when a series of electrical failures in the King Tom Power Station generators necessitated extensive load shedding for prolonged periods. At the same time SLEC ran into serious financial problems due to the dramatic increases in fuel prices and the Government's refusal to approve increases in tariffs. The immediate financial problems were aleviated by short-term advances from the Government, which by 1974/75 had reached Le 7.2 million. 1.2. In early 1974 SLEC's management came under Government investigation for alleged corrupt practices, following which the entire top management was dismissed in May 1974 and legislation passed abolishing the SLEC Board. The Board's functions were taken over in October 1974 by a newly formed Ministry of Energy and Power and SLEC came under the direct control of the Minister, who promptly entered into a five year agreement with a German consulting firm to provide five senior staff and manage the corporation. The consultant's management services contract was renewed for three years in 1979 and finally terminated on July 5th, 1982 since when the corporation has been managed by Sierra Leonian staff apart from some expatriate assistance on the financial side. 1.3. Apart from some small steam units totalling 5MW installed between 1944 and 1960, and a 2.4MW seasonal hydro station owned by the Guma Valley Water Authority in the Freetown Area, generation of public electricity supplies in Sierra Leone has been entirely by diesel engines. About 87% of SLEC's sales are in the Western System, the area comprising the capital city of Freetown and its environs which has a maximum demand of about 23MW. The remaining 13% of sales are in 14 provincial towns, all supplied by small diesel stations, and having maximum demands of between 85KW and 2.0MW. In addition, SLEC runs four small township supplies associated with Government developments on an agency basis for the Government. These installations supply four townships with demand varying from 28KW to 300KW. Five other townships receive supplies from private generating plants associated with industries in their areas. (See Annex 1)  - 2 - 1.4. Development has been slow due to a stagnant economy, an extreme shortage of foreign exchange due to the country's heavy committments in supplier's credits and short-term loans, and an acute shortage of cash due to the Government's past refusal to permit tariff increases in the face of steeply rising fuel costs. In the Western System around Freetown increases in sales have averaged 7.9% per annum over the past 4 years but for SLEC as a whole, only 5.3%. Power generated in the Western Area has increased at 8% in the same period and is probably a more accurate indication of the demand since sales statistics have been distorted by widespread illegal connections and tampering with meters. The low figure of 5.3% for SLEC as a whole is caused by a reduction of sales in provincial centers averaging 5% per annum due to the fact that in recent years SLEC has been obliged to reduce the hours in which supply is available from 24 to as low as 12 because they were unable to find the necessary cash to purchase sufficient fuel. Sales to provincial centers are now 32% less than they were in 1975, and there is little doubt that there is substantial latent demand in all the provincial centers. 1.5. The Government's primary objective in the power sector is to develop the considerable renewable resources of energy contained in the country's river systems, estimated at about 1,300 MW and 6,800 GWh per annum. To this end, the Government in 1971 commissioned a Swiss firm of consultants to do a survey of potential developments entirely within the borders of Sierra Leone. Of the sites reconnoitred, Bumbuna Falls on the Seli River about 230 km from Freetown was found to be the most attractive, and in 1974 the Government asked the Bank and the Banque Arabe du Developpement en Afrique (BADEA) to finance further studies to bring the project to the bidding stage. 1.6. Two previous loans had been made to SLEC by the Bank. Loan 388- SL for US$ 3.8 million in 1964 and Loan 553-SL for US$ 3.9 million in 1968. The first loan was for 11.2MW of slow speed marine diesel plant in King Tom power station in Freetown and some 11KV distribution. The second was for a further 6.6 MW of slow speed diesel plant in Freetown and new diesel stations of 3 MW at Kenema and 2 MW at Koidu, as well as some H.T. and L.T. distribution improvements and additions at each center. The Bank Group's participation in the financing of the sector was therefore relatively small though not insignificant. No technical assistance was involved in either loan. 1.7. This report is based on project completion reports for certain items in the project, progress reports from SLEC management and its consultants, supervision reports and files, and the findings of an IDA mission to Sierra Leone in June/July, 1982. 2. PROJECT PREPARATION AND APPRAISAL 2.1. Origin and Preparation of the Project 2.1.1. Credit 734-SL was primarily for preparation of the Bumbuna hydroelectric project; the equipment and other services being an addition to secure the supply of electricity in the interim period until Bumbuna could be commissioned.  - 3 - 2.1.2. The Bumbuna Project originated from three studies carried out in 1970 and 1971. The first was a reconnaissance of the Bumbuna Falls and other sites commissioned by Government in July 1970 from Canadian consultants, with an understanding that if found feasible the consultants would complete the design and assist the Government in getting a soft loan from CIDA, the Canadian International Development Agency. The study was completed in October 1970 and recommended a 50 MW development to be commissioned in 1975. The Government then commissioned a second study for development of Bumbuna Falls from Yugoslav consultants on the understanding that they would design and build the project as well as arrange the financing for it. Their report was issued in mid-1971 and recommended an 85 MW development and offered a loan of 50% of the estimated cost of $53.9 million. The third study was carried out by a Swiss consultant under a UNDP Special Fund grant. Their report issued in September 1971, entitled "Strengthening of the Sierra Leone Electricity Corporation", covered the investigation of 19 different sites on the principal rivers within the country. It recommended five of them for further investigation, one of which was the Bumbuna Falls on the Seli River with a capacity of 72 MW. About the same time the Canadian consultant who by then had formed a consortium with an Italian contractor and a Canadian contractor put forward a proposal for a scheme estimated to cost $41.8 million and offered to provide financing for 80% of the cost if they built it on a turnkey basis. Because of their more favourable financial offer, the Government in January 1972 commissioned the Canadian consortium to carry out a full feasibility study including preliminary design work for the sum of C$ 1,350,000. 2.1.3. Towards the end of 1972 the Bank, in response to a request from Government for comments on the UNDP report, advised Government not to proceed with the project because of the uncertain and weak state of the economy, the excessive amount of suppliers credits already contracted and the doubtful priority of the project. In January 1973, representatives of the Canadian consortium sought the Bank's support for the project on their way to discussions with the Government and were told the Bank did not favour its development at that time. Shortly after this meeting the Canadians backed out of the consortium. 2.1.4. In spite of the Bank's repeated admonitions, and reassuring statements from Ministers in Government that they were not likely to proceed with the project, the Government continued to actively pursue the matter and in the Fall of 1973 approached the Canadian Government (without success) for a $15 million loan to cover the cost of the Bumbuna transmission lines and substations. 2.1.5. By February 1974 the Bank's attitude towards the project had softened in view of the petroleum crisis and because of several major electrical breakdowns of the Bank-financed diesel alternators in King Tom power station. In July that year, the Bank in response to a request from Government offered to finance consultants to bring the Bumbuna project up to the bidding stage and also the supply of generating equipment to meet the additional demand in the interim period. A condition of the Bank's assistance was a long overdue increase in tariffs, and improvements in SLEC's management. Tariffs were increased by 60% on August 1st 1974 and the Government sacked the Board of SLEC and in October put the Corporation  - 4 - under the direct control of a new Ministry of Energy and Power (para. 1.2). The Bank agreed in January 1975 to appraise the interim project and in response to a request from the President of Sierra Leone also agreed to assist the Government in finding long term finance if the Bumbuna project appeared to be viable. Meanwhile the Government commissioned an Italian consultant, to make a comparative study of three alternative staged developments of the Bumbuna/Yiben sites under terms of reference agreed with the Bank. It also entered into supplier credit contracts of about $4.5 million for construction of access roads to the sites. 2.1.6. The project was first appraised in April 1975 but work was suspended on processing of this and two other projects in May when it was found that the Government had contracted five suppliers credits totalling about $5.6 million, contrary to an undertaking it had given the Bank a few months earlier that it had imposed a temporary moratorium on new suppliers credits until June 1976. One of these credits was for a power plant to provide a substantial part of the additional load which was the basis for justification of the interim thermal plant to be financed by the Bank. After assurances from the Government of tighter control over development expenditures, etc. during the Bank's annual general meeting in September, a reappraisal mission visited Freetown in November 1975. In December, in anticipation of a loan being presented to the Bank's Board early in 1976 the Bank raised no objection to the award of a contract for approx. $6.0 million for the urgently needed slow speed diesel, for which some retroactive financing was included in the credit. During this period discussions were initiated with BADEA regarding the possibility of joint financing of the project on soft loan terms. 2.1.7. In April 1976 a Bank mission visited Freetown for pre-negotiation discussions and clarification of some financial issues including fuel prices and payment of outstanding Government Accounts. Negotiations were completed in Washington on July 30th for an IDA credit of $8.2 million on the assumption that BADEA would provide parallel financing of $5 million for identified portions of the project. Conditions of Board presentation in September were that: (a) Government and SLEC settled all outstanding claims between them as of March 1976; (b) tariffs were increased by 15% in August 1976 and the price of fuel reduced so that SLEC could achieve the agreed rate of return; (c) the BADEA loan was available to SLEC. Board presentation was also contingent on an agreement in principle between the Government and IMF on a standby arrangement and supporting stabilization program. However the negotiations for this agreement broke down in August over the question of a proposed 25% devaluation of the Leone. 2.1.8. Negotiations with BADEA were satisfactorily completed in September 1976 but Government still baulked at the steps the Bank and IMF considered necessary to stabilize the economy and restore SLEC's financial viability until early 1977 when tariffs were increased 15%, an oil price increase was deferred and discussions resumed with the IMF on a stabilization program. A Bank mission in March to update the appraisal for the third time found that SLEC's finances had greatly improved and  -5- recommended proceeding with Board presentation with some amendments to the Credit documents, subject to the Government paying SLEC an outstanding amount of about Le 1.0 million for a rural subsidy. 2.1.9. Throughout the whole five year period of the Bank Group's involvement in preparation of the project the Government was frequently in arrears of up to six weeks on repayment of previous Bank loans. Several warnings were given Government that it would not be possible to present the power loan or credit to the Board unless action was taken to improve its performance. The Government's failure in this respect was a major contributary factor in the delay in preparation and appraisal of the project, for which an $8.2 million credit was finally approved by the IDA Board on July 12, 1977. Retroactive financing of $5.7 million was included in the credit for the slow speed diesel ordered in December 1975 (para. 2.1.6). 2.2. Project's Role 2.2.1. The project was the first step in a long term plan to develop the country's resources of renewable energy, in order to reduce its dependence on imported fuel and conserve scarce foreign exchange. Secondary objectives were to maintain and improve reliability of supplies to consumers in the interim until the Bumbuna project could be implemented, and also to improve financial management of SLEC. 2.3. Project Description 2.3.1. The project, including the portion financed by a BADEA loan of US$ 5 million, comprised: Part A: The installation of a 9.2 MW diesel-electric generator at the King Tom power station including auxiliary facilities. Part B: Measures to prevent electric generator outages at the King Tom power station by (i) hiring of a specialist to study the causes of such outages and the electric protection schemes of the generators and to design, and supervise procurement and installation of additional protective devices , and (ii) procurement and installation of such protective devices. Part C: The construction of the first stage of a 33 kV distribution in the Western system. Part D: The installation of a 1,000 kW diesel-electric generator at Makeni, one 500 kW diesel-electric generator at Lungi and eight 100 kW diesel-electric generators in other provincial centers to be determined by agreement with the Association. Part E: (1) The employment of consultants to: (i) procure, plan and supervise the construction or installation for Parts A, C and D above; (ii) prepare a master plan for the further electrification of provincial areas; and (iii) strengthen SLEC's financial management and accounting procedures. (2) Purchase of data processing equipment for SLEC.  - 6 - Part F: The employment of consultants to: (i) complete the feasibility study of Bumbuna hydroplant; (ii) design the first stage of such plant to the detail required for the preparation of tender documents for the main items of equipment and civil works; and (iii) to prepare such tender documents. 2.3.2. The IDA credit financed Parts A, F, E (2) and that portion of E (1) (i) related to Part A. Parts C, D and E were intended to provide the basis for development of latent electrical demand in the country on which the future justification of the Bumbuna project would depend. Part E (1) (iii)was intended to turn SLEC into a financially viable autonomous Government-owned corporation. 2.3.3. Of the $8.2 million credit, $7.1 million was relent to SLEC under a Subsidiary Loan Agreement at 8.5% repayable over 20 years including a 4 1/2 year grace period. The BADEA loan to Government was relent to SLEC at 8.5% interest, the principal sum being repayable over 15 years including a grace period of 5 years. 3. PROJECT IMPLEMENTATION, OPERATION AND COST 3.1. Conditions of Effectiveness 3.1.1. Apart from the usual requirements for execution and ratification of the Project Agreement, BADEA Loan Agreement and Subsidiary Loan Agreement, the following special conditions for effectiveness were included in the Credit Agreement: (i) Appointment of a Sierra Leonian counterpart to the Head of the Generation Department. (ii) Appointment of financial consultants to strengthen SLEC financial management and accounting procedures. (iii) Payment to SLEC of the annual subsidy due as compensation for the financial losses incurred by SLEC in respect of its provincial operations in the fiscal year ending March 31, 1977. 3.1.2. Financial Consultants were appointed in September and the provincial subsidy paid. The position of counterpart to the Chief Generation Engineer had to be advertised as there were no suitable candidates in SLEC. Confirmation of the appointment was received on the 28th February 1978. 3.1.3. There were other factors which delayed effectiveness. Firstly the Government had agreed in negotiations not to increase the price of fuel to SLEC before December 31st, 1977 and thereafter to charge no more than the world market price as determined on a basis to be agreed with IDA. Although this is incorporated in the Credit Agreement, the price was increased on July 1st, 1977 just prior to presentation of the credit to the IDA Board and again on January 1st, 1978 without reference to IDA. Confirmation that Government would rectify these breaches of the covenant and reimburse SLEC no later than May 1, 1978 for the cost of the increase was not received by IDA until March 22nd, 1978. Secondly, it became apparent during the visit to Washington of a Sierra Leonian delegation in  - 7 - February 1978 that the Government had failed to disclose all its external debts to IDA. In fact three suppliers credits totalling nearly $15 million for Kissy Oil Jetty, Colour Television and a Satellite Earth Station were obtained after June 30th, 1977 without informing IDA. These matters were finally clarified and the credit declared effective on March 29th, 1978. However, Government did not reimburse SLEC for the increased price of oil as they had promised to do. 3.2. Changes in Project 3.2.1. In the course of the financial consultants work, it was found that additional financial technical assistance was required to strengthen SLEC's accounting department and bring the Corporations accounts up to date. $150,000 of the $200,000 provided in the credit for purchase of data processing equipment was therefore reallocated with IDA's approval to financial technical assistance and a separate consultancy agreement entered into for this work. This was the only major change in the project. 3.2.2. There were some minor additions to the main contract for supply and erection of the diesel generator. These included provision of two sump pumps, two daily service fuel tanks and changes in the neutral earthing arrangements. In the case of the civil contract, there were additions in respect of sea water ducts, access roads, ceramic tiling of the power house, remote control of ventilating louvres and an increase in the size of the power station building. 3.3. Implementation Schedule A. IDA Financed Portion of the Project 3.3.1. Extension of King Tom Power Station Engine foundations were completed on time but changes in dimension of the building, and delay in delivery of steelwork due to the consignment being mislaid in transit, resulted in a twelve months delay in completion of the building until September 1978. The 9.2MW 150rpm Diesel/alternator was commissioned four months late on September 8th, 1978. Delay was caused partly by late arrival of the suppliers erection staff, but mainly because erection work had to be suspended to enable a major emergency repair to be undertaken on the adjoining No. 3 machine. The restricted space and the fact that the overhead crane was in constant use on the repair made it impracticable to do both jobs at the same time. Engineering consultancy for this part of the project was provided by SLEC's management consultants. 3.3.2. Data Processing Equipment The installation of this equipment was deferred pending the outcome of the financial consultants recommendations for reorganization of the accounts (see para. 3.2.1.). Work on the financial technical assistance to which the funds were reallocated started in August 1981 and was completed in March 1982.  - 8 - 3.3.3. Preparation of Bumbuna Project The establishment of the Bumbuna Development Committee with the composition called for under Section 3.03 (a) of the Credit Agreement was completed prior to the loan becoming effective, but the appointment of an executive engineer was not made until early 1979. 3.3.4. Draft terms of reference for the Feasibility Study and the Design Study up to and including preparation of bidding documents were prepared by IDA and sent to the Government in July, 1977. Although Government protested at the extent of detail and what they deemed some duplication of effort, only minor changes were made following further discussions with IDA. The Consultancy Agreement for revision of the Feasibility Study, design studies and preparation of bidding documents was signed on August 18, 1978, and the consultants started work in December. From the start of this contract, the consultants had great difficulty in obtaining payment for work done. The down payment of Sw.Fr 550.000 (about $300,000) due at contract signing, was not paid until ten months later in June, 1979. IDA funds were exhausted by March 1980 before the completion of the work. The revision of the Feasibility Study was scheduled for completion in June, 1979 but in fact was not completed until November, 1980 with additional funds provided from the OPEC Special Fund (see para. 3.5.4.). During the course of this work it was found that none of the three sequences being investigated (para. 2.1.5.) showed a clear economic advantage over the others. Since there could be considerable differences between the financial costs and benefits, and the scheme was large in relation to the existing load and estimated growth of demand it was deemed prudent to refine the financial costs of the alternatives. At the suggestion of IDA therefore, all three alternatives were developed to full feasibility status, resulting in an increase of about 60% in time charges for consultants services. Other additions included studies of downstream effects on agriculture, sedimentation, higher storage levels and a transmission line to SEFADU. In addition, a descriptive summary was prepared and 200 copies printed for a potential donors meeting. Work on detailed engineering and preparation of bidding documents proceeded until October 1981 although no payments had been made on invoices submitted since OPEC funds were exhausted during February. At this point, with about three months work required to complete the civil engineering bid documents, the consultants stopped work until the outstanding invoices were paid. Apart from delays caused by inability to get payment during the latter part of their work, the very considerable additions to the consultants tasks during the course of the work, particularly for the Feasibility Study; all contributed to a prolongation of the consultants contract. 3.3.5. In June, 1982, IDA approved a credit No. 1265-SL to the newly formed National Power Authority, which included additional funds for completion of this part of the project. The credit became effective on December 3, 1982 and the bidding documents originally scheduled for completion in March, 1980 (later changed to end of June 1981 under an amending agreement signed on December 15th, 1980), are now expected to be completed by mid 1983 after review of a comparison with an alternative hydro project on the Mano River which forms the frontier between Sierra Leone and Liberia.  - 9 - B. BADEA Financed Portion of the Project 3.3.6. 33KV Distribution First Stage Work on this part of the project did not start until February 1981 due to prolonged and unnecessary delays in the bidding process (para. 3.4.4.). It was completed in May 1982 after a delay of several months due to the Government failing to pass on to SLEC the foreign exchange provided by BADEA to pay outstanding invoices for DM.240,000 in respect of work already done. 3.3.7. Generating Units for the Provinces Fourteen bidders were prequalified for the supply of eight 100KW units complete with switchgear and auxiliaries to be installed by SLEC's engineering staff. No problems were experienced and the contract was awarded in mid-1979. All units were installed by mid-1980, seven of them at Bonthe, Kabala, Kailahun, Kambia, Moyambe, Pujehun and Rokupr. The eighth unit was mounted on a trailer for use as a mobile emergency unit. One unit originally intended for Magburaka was not installed as additional supplies were obtained from Makeni by 33KV O/H line. 3.3.8. There was a delay of about four months in placing the order for the three 500KW units due to a disagreement between SLEC's consultants and BADEA with regard to the evaluation of bids. SLEC on the advice of their consultants proposed to award the contract to a German firm whose offer did not meet the specification and whose price was about 7% higher than that of the lowest bidder. The reason given was that the lowest bidder had not submitted a bid bond or comparative payment schedule and would not guarantee delivery date. The contract was eventually awarded to the lowest bidder in November 1979 for delivery in May 1980. There has since been a long delay in obtaining the local currency from the Ministry of Development for the building of engine foundations. These foundations were under construction at Koidu and Port-Loko in August 1982, the Makene foundation having been built under a separate contract for an entirely new station housing two other machines. The supplier's erector was expected shortly thereafter to erect the two machines at Koidu and Port Loko and all three machines were expected to be commissioned in October 1982. Two of these units were originally intended for Lungi (Freetown International Airport) and the third for Makeni. However, because of the protracted delay in ordering, the Government obtained and installed two 500KW machines on short delivery from Germany and installed them before the machines ordered under the credit arrived. The latter were therefore diverted to Port-Loko and Koidu where demand already exceeds the installed capacity. 3.3.9. Measures to Prevent Generator Outages at King Tom Power Station SLEC's inhouse management consultants selected a suitable protection engineer from a German electrical utility to undertake the consulting work on the King Tom protection system. Approval of IDA for the person selected was applied for in accordance with the Project Agreement and subsequently from BADEA. For some unexplained reason final approval from BADEA was not obtained until 18 months after the application  - 10 - was sent to IDA, by which time the engineer selected was no longer available. An approach to the Electricity Supply Board of Ireland (ESB) was then made and a quotation of $40,000 received, which SLEC considered excessive. On the advice of an IDA supervision mission in November 1981, NPA negotiated a contract with ESB for the work. 3.3.10. Consultants Services The relatively small amount of consulting services required for the extension of the 33KV distribution and the extension of provincial generating stations was provided by SLEC's management consultants as part of their in-house consultancy. The same consultants also prepared a master plan for development of the provincial centers. Financial assistance was provided by a UK consulting firm whose appointment was a condition of effectiveness for the credit. 3.4. Procurement 3.4.1. Procurement of those items of the project financed by IDA was carried out in general accordance with the Banks Guidelines for Procurement and under the supervision of IDA. Only two equipment contracts were involved; these were: (a) Civil works covering supply and erection of steelwork, etc. for the power house building and provision of foundations for the building and diesel engine. (b) Supply and erection of one slow speed Diesel Generator of about 9MW complete with all auxiliaries switchgear and ancillary equipment. 3.4.2. Bidding documents were purchased on March 15, 1975 by eight firms, four of whom submitted bids; two for civil works and two for the Diesels. Bidders were required to state their bids in Leones, indicating the amount of payment required in their own currency and the exchange rate to the Leone on which their bids were based. Bids were opened on July 1, 1975. One civil and one Diesel bid were from Germany and one civil and one Diesel bid were from Switzerland. Bids were evaluated by SLEC's consultants using the currency exchange rates in force on the bid opening day and a recommendation for award of contract made to Government in September 1975. Letters of intent were issued in December 1975 to the Swiss bidder for one 9.2MW, 150 rpm Diesel generator and ancillary equipment and to the Sierra Leone associate of the Swiss civil engineering firm for the civil works. It is of interest to note that in the evaluation of bids for the diesel generator, the Swiss bid was 6.5A below the German bid but with the subsequent movements in exchange rates the German machine would have been cheaper than the Swiss machine. 3.4.3. Procurement of consultants was not required in the case of the King Tom extension since the work was done by SLEC's in-house management consultants. In the case of the Bumbuna studies IDA indicated that it would have no objection to Government employing the Italian consultant who carried out the original comparison of the BUMBUNA/YIBEN alternatives (para. 2.1.5.) as consultants for the additional Bumbuna studies provided they were associated with another consultant of international repute acceptable to IDA who would take the leading part in the design studies.  - 11 - IDA subsequently concurred with the borrowers choice of Bumbuna -ydro- Consultants, a consortium specifically created for this job, composed of the Italian and Swiss consultants previously involved in the Rumbuna studies and three Sierra Leonian consulting firms who had also been involved in studies of the Bumbuna development. 3.4.4. Procurement for those parts of the project financed by BADEA was by international competitive bidding according to BADEA rules. BADEA refused to finance the preparation of a master plan for development of the provincial areas and engineering of the 33KV distribution by SLEC's in- house consultants, because there was no international competition. In the case of the contract for supply and erection of the 33KV distribution, SLEC's consultants originally advertised this contract, estimated by them to cost Le 1.9 million, in only one local paper in Freetown and one German paper. Three bids were received - all from German firms. In July 1978, the consultants submitted their evaluation recommending the award to one of the three for Le 3.6 million. BADEA refused to finance the contract on the grounds that bidding was not international. SLEC consultants after prolonged and unnecessary delays then invited new bids following prequalification in April/May 1979 with widespread international advertising. Twenty-six firms applied for prequalification of whom 19 were approved. Bids were opened on October 15, 1979 and the contract awarded with BADEA's approval to a German firm for Le 1.95 million in January 1980. 3.5. Costs and Disbursements Extension of King Tom Station 3.5.1. In the case of the main contract for supply and erection of the Diesel Alternator, 97% of the contract price was payable in Swiss Francs and 3% in Leones. The actual price paid in Swiss Francs was 1.2% above the bid price due to the addition of some minor items (para. 3.2.2.) costing Sw.Fr.175,000 and a charge of Sw.Fr.20,000 for delay in commissioning due to the repair of No. 3 machine (para. 3.3.1.). 3.5.2. In the case of the civil contract actual cost exceeded the bid price by 8% due to the additions mentioned in para. 3.2.2. Fifty-six per cent of the contract price was payable in Swiss Francs and fourty-four per cent in Leones. 3.5.3. In total the foreign cost in Swiss Francs was 1.6% above the bid price and local costs 8.4% above bid price, due almost entirely to the additional items mentioned in para. 3.2.2. There were however large changes in the exchange rates between the Swiss Franc and the US Dollar and Leone in the interval between appraisal and disbursements. At the time of appraisal in April 1977 the exchange rate was assumed to be Sw.Fr.2.5 to $1.00 whereas during the disbursement period July 1978 to April 1979 the rate varied between Sw.Fr. 1.5 and Sw.Fr. 1.8 to $1.00. Since 90% of the disbursements were in Swiss Francs there was an increase of 38% in the dollar cost of the extension of King Tom Power Station although at the appraisal estimate rates of exchange the cost was 13% less than the estimates. The following table compares the total actual and estimated costs of the KinR Tom extension.  - 12 - APPRAISAL ACTUAL COST ESTIMATED COST IN $ (MILLION) At At Dis- Appraisal bursement million million Exchange Exchange Le $ Rates Rates Equipment 7.20 6.20 6.28 8.87 Civil Works 1.05 .90 0.99 1.29 Engineering 0.63 0.54 0.45 0.52 Pro rata Physical 0.86 0.74 - - contingency Pro rata Price 0.62 0.53 - - contingency TOTAL 10.37 8.91 7.72 10.68 3.5.4. Since it was apparent shortly after the IDA credit was approved that the foreign exchange costs would exceed the amount of the credit, the Government, in May 1979, obtained from the OPEC Special Fund a loan repayable over 20 years including 4 years grace at no interest, but with a 3/4% service charge, to cover the estimated increase in cost of the King Tom diesel generator and civil works ($0.533 million), and also overruns on the cost of the Bumbuna consultants ($1.067 million). IDA agreed to act as executing agent for the OPEC Special Fund for this loan. Annex 2 shows the amounts disbursed from the IDA credit and OPEC loan. The balance of $3.29 million equivalent including $2.72 million equivalent in foreign exchange for the King Tom extension was provided by the Government. The total cost per KW installed was $1161 which is about average for an installation of this type installed at that time. 3.5.5. Bumbuna Hydro Project Preparation The first appraisal mission in April 1975 estimated the foreign exchange cost of the Consultant's Feasibility and Design studies for Bumbuna at US $1.2 million. This figure was revised in November 1975 following discussions with the Government to US $1.7 million, made up as follows:  - 13 - Million US$ Completion of Comparative Studies (Feasibility) 0.11 Project Preparation (Design & Tender Docs) 1.39 1.50 Contingencies 0.14 Escalation 0.06 Total 1.70 The figure of $1.39 million for project preparation was reduced to $0.8 million in the May 1977 appraisal report because by then the Government had already signed a contract for a drilling program at the site which was financed from a private Italian source. 3.5.6. By March 1978 it was apparent from the Consultants detailed estimates of man months required to fulfill the terms of reference (para. 3.3.4.) that the funds provided in the credit would be insufficient. Discussions with the Consultants reduced the estimated time required from 24 months to 18 months but still left a financial gap of about Sw.Fr. 1.3 million (about US$ 0.7 million) for completion of the Feasibility Study and Sw.Fr. 0.5 million (about US$ 0.3 million) for the Design Study. The OPEC loan (para. 3.5.4.) was intended to fill this gap. The reason for the increase, given at the time, was that it was due to the appreciation of the Swiss Franc increasing the cost of the Swiss component of the consultants consortium formed on the recommendation of IDA in April 1977 (para. 3.4.3.), but whilst this accounted for part of the increase the main reason was the additional studies the consultants were asked to undertake. 3.5.7. The additional work and the problems encountered by the Consultants (para. 3.3.4.) resulted in an increase of 112% in the charges for man months employed on the Feasibility Study, and about 74% for the Design stage up to the time when the Consultants ceased work in October 1981, when compared with the consultants main contract signed in August 1978. The consultants estimate about another 55% increase in man months charges will be required to complete the Design and tender documents including prequalification of contractors, making an increase over the estimated man months of about 129% for the Design Stage. In total, the charges for time spent, and to be spent on the Feasibility Study and the Design Stage are estimated to be about 225% of the original estimates. 3.5.8. The total cost of the Feasibility and Design stages up to preparation of bid documents and prequalification of contractors is now  - 14 - estimated to be Sw.Fr. 8,137,969 of which Sw.Fr. 6,847,373 has already been incurred. In terms of US Dollars already disbursed ($2,364,925) and yet to be disbursed, this amounts in total to about $4.4 million compared with the original estimate of $1.1 million. About $1.2 million of the increase can be attributed to appreciation of the Swiss Franc which varied from 2.6 to the dollar at the time of the original estimates to as low as 1.5 to the dollar during the period of actual disbursements. The $2.1 million balance of the excess is due to the time spent on refining the alternatives to arrive at an optimal financial solution, and additional studies requested by the Borrower, mainly on the advice of IDA, during the course of the work. Since decisions with regard to selection of the least cost alternative should be based on economic considerations, and not financial considerations, it is difficult to see the justification for this additional delay and expense. 3.5.9. Disbursements Some difficulty was experienced at the start of the project due to the unreliability of the mails causing delays in receipt of authorized signatures and applications for disbursement. Although the credit became effective on 29th March 1978 the large retroactive payment of $5.7 million for the King Tom Diesel was not made until 22nd July 1978. Thereafter applications were received and paid promptly and this part of the IDA credit was fully disbursed by 16th February 1979. There was also a delay in commencing disbursements for the Bumbuna Consultants, a precondition for which was appointment of a Bumbuna Development Committee and an Executive Engineer. The Committee was appointed before the credit became effective but it was not until June 1979 that IDA was able to obtain confirmation that an executive engineer, whose curriculum vitae had been approved by IDA in March, had been appointed. Although this delayed the down payment of Sw.Fr. 555,000 to the consultants until 19th June 1979, it did not delay the start of the consultants work. However, the IDA funds were exhausted by September 1980 from which date disbursement of OPEC funds began, until these too were exhausted in May 1981. At this point since the Government was unable to meet the consultants bills the work slowed down and finally came to a complete stop in October 1981. A schedule of actual disbursements compared with estimated disbursements at the time of IDA Board presentation is given in Annex 3. Disbursements were suspended for 2 1/2 months in February 1981 on all loans and credits to Sierra Leone because of long overdue service payments totalling over $800,000. 3.6. Operations 3.6.1. Commercial operation of the extension to King Tom Power Station was achieved on 8th September 1978, four months after the scheduled completion date. The reasons for the delay are given in paragraph 3.3.1. The 9.2MW slow speed diesel unit has given satisfactory performance from the time of commissioning, under arduous conditions of long running hours, heavy loads and dirty fuel. However, there has been some exceptionally rapid deterioration of the scavenge air cooler tubes and sea water circulating pumps. The trouble appears to be due to unsuitable materials having been used in manufacture. The suppliers are  - 15 - holding replacement parts manufactured from corrosion proof material, but will not deliver until the Government settles outstanding payments due on installation of a second slow speed unit commissioned in 1980. 3.6.2. The eight 10OKW units for the provincial centers were commissioned early in 1979 having been delayed about 9 months on account of the delay in the credit becoming effective (paras. 3.1.1 - 3.1.3.). These units have given satisfactory mechanical performance but have had trouble with printed circuits on the protection and alarm wiring, and on their governors. In the three years since commissioning, circuits on 4 protection units and 2 governors have had to be replaced in spite of the fact that most of these units are running only 12 to 16 hours a day because of SLEC's inability to find the money to purchase adequate fuel supplies. The three 500KW units were not expected to be commissioned until October 1982 for the reasons given in para. 3.3.8. 3.6.3. The 33 KV distribution was not completed until May, 1982, approximately 2 1/2 years later than scheduled in the appraisal report, for the reasons given in para. 3.3.4., but within five months of the contract date. It is still not in operation at the time of writing because of a defect in the differential protection. There has been no operating experience to date. 3.7. Performance of Consultants, Contractors, Suppliers and Borrower 3.7.1. Consultants In the case of Bumbuna the consultants performance was satisfactory. Considering the difficulty they experienced in trying to get payment, both before their part of the IDA credit became effective, and after the IDA and OPEC funds were exhausted, they deserve credit for having brought the studies and preparation to within a few months of the bidding stage. Very little consulting was involved in the King Tom extension. There were only two contracts, i.e. a civil contract for the building and foundations and a supply-and-erect turnkey contract for the engine and mechanical and electrical auxiliaries. No problems were experienced. Since the consultants were the same firm which supplied the senior management team for operating SLEC, their relations with the Borrower were good. Their performance in the bidding for the 33KV distribution was however less than satisfactory (para. 3.4.4.). It was equally unsatisfactory as regards the assistance they gave their management team in connection with the purchase of the 500KW provincial units (para. 3.3.8.). Whilst some of their initial failings might be attributed to lack of familiarity with international lending institutions requirements they appear to have had great difficulty in understanding communications with BADEA, even to the point of being obstructive, with the result that there were unreasonable delays in purchase of equipment. However, in preparing the master plan for development of the provincial centers they did a good job. The financial consultants did an excellent job under somewhat adverse circumstances due to lack of support (or even interest) from SLEC's management in the early stages because of the latter's almost total preoccupation with trying to maintain electricity supplies while handicapped with inadequate supplies of fuel and spare parts.  - 16 - 3.7.2. Contractors No problems were experienced with the contractors for the extension of King Tom Power Station and the provincial generating units. In the case of the 33KV Distribution, delays arose only because of non- payment for work completed; but the standard of workmanship was satisfactory on the whole. 3.7.3. Suppliers Equipment supplied was generally to specification and delivered on the due dates. Only in the case of the printed circuits on the 100 rw units and the scavange air and water cooling arrangements of the slow speed diesel (para. 3.6.1.) did the equipment not measure up to the standards of reliability required and SLEC is taking this up with the manufactures. 3.7.4. The Borrower Most of the difficulties experienced with this project were due to the failure of the Government to comply with the terms of its agreements, not only with IDA and BADEA, but also with the consultants, with SLEC and with SLEC's suppliers. The Government's failure in some cases seems to have originated from an acute shortage of foreign exchange due to its heavy commitment to short-term loans and suppliers credits. However the failure to meet the covenants with regard to provincial sub- sidies, price of fuel to SLEC, which was increased to 70% above the market price, tariff increases and day to day autonomy of SLEC's management all seem to indicate a lack of understanding of the problems involved, some of which it had itself created. There also appears to have been a failure of communications within the Government which may be largely attributable to frequent changes of ministers and senior civil servants. 4. OPERATING PERFORMANCE 4.1. SLEC's Performance 4.1.1. The expected improvement in SLEC's performance did not materialize. The main reasons for this failure were, inability to recruit and retain suitably qualified staff, especially in the accounting departments, and a chronic cash shortage which got worse over the years due to the Government policy of keeping electricity prices unchanged whilst approving increases in the price of fuel to SLEC, to subsidise the uneconomic operations of the oil refinery in Freetown. The result of the cash shortage was that SLEC became almost entirely dependent on Government handouts to meet its fuel bills. Because of its bad record for non- payment of fuel bills, the oil companies refused credit, making it impossible for SLEC to enter into any long term agreements for supplies of fuel. Since the Government only provided SLEC with enough money at one time to purchase a week's supply of fuel and SLEC's revenue was barely sufficient to meet salaries and wages and other operating costs, much of the top management's time was spent each week in trying to get money from Government and the customers in order to pay bills and organize fuel deliveries. A secondary effect of this hand to mouth existence was  - 17 - overloading of the fuel cleaning equipment resulting in dirty fuel getting into the engines due to the amount of sludge being drawn off with fuel from the bottom of the storage tanks. In the first half of 1982 Freetown was without supplies of electricity for periods of more than 24 hours on three occasions due to running out of fuel. To make matters worse, because of Government's failure to allocate the required foreign exchange, SLEC has been unable to obtain essential spare parts and materials from equipment suppliers for a period of about two years. In some cases such as the suppliers of the main generators and diesel engines at King Tom power station, supplier3 refuse to accept new orders until payments have been received for past services or deliveries. One 6.6 KVA generator has been out of service for a period of one year with a burnt out stator winding which the manufacturer refuses to repair until paid DM 240,000 outstanding for a similar repair completed in 1974. In one recent case a cable supplying a residential district of Freetown was severed by a road building contractor, and since SLEC had no spare cable, repairs could not be undertaken until the contractor had a short-length of new cable flown in from the suppliers, using his own source of foreign exchange. 4.1.2. As a result of management's almost total preoccupation with trying to maintain supplies of electricity in the extremely difficult circumstances created by the Government, it is not surprising that the financial consultants complained of a lack of support from management in their attempts to improve the corporations accounts and financial management. 4.1.3. In spite of the enormous difficulties facing them, the management consultants team managed in the last twelve months of their contract to bring about some marked improvements, particularly in the field of management information systems, cash collections and removal of illegal connections. On the engineering side this was made possible by the increasingly active participation of the Sierra Leonian counterpart management staff. On the financial side however, progress has been retarded so far by the inability of SLEC to attract and retain suitably qualified counterparts and lower level staff. 4.1.4. This failure to achieve the desired improvements in management of SLEC was not due to any lack of provisions in the credit agreements, but almost entirely due to actions taken or not taken by Government contrary to the terms of the agreements (para. 3.7.4.). Failure to meet the principal objective of completing the preparation of the Bumbuna project was due to the acute shortage of foreign exchange with which to pay the consultants, brought on mainly by the Government's inability to exercise restraint in short term borrowing and suppliers credits at a time when the economy was already in poor shape. 5. FINANCIAL PERFUORMANCE 5.1. Financial Results 5.1.1. Annual accounts were not prepared by SLEC for fiscal years 1976 through 1978 but a statement of affairs was prepared as at March 31, 1978, the end of the fiscal year, to form the basis of the annual accounts for  - 18 - FY79 and subsequent years. Income statements, funds flow statements and balance sheets for FY79 through FY82 showing the actual results achieved compared to the appraisal estimates are shown in Annex 8. 5.1.2. Rates of return on net fixed assets in operation (at historic cost) which had been estimated at the time of appraisal to average 12% annually over the four year period FY79-82, only achieved an average of 4% over the years. Reasons for the poor performance were first, energy sales did not grow as quickly as expected and by FY82, at 112 GWh were 15% lower than the appraisal estimate of 139 GWh for that year and second SLEC was not allowed to increase tariffs as necessary to meet the fuel and other operating costs which increased due to the fuel crisis and inflation. Revenues were, however, maintained at about the levels forecast for FY81 and 82 due to Government's subvention to SLEC for the operation of uneconomic provincial stations being much higher than estimated for those years. Average tariff levels for FY82 at Le 0.125/kWh (US cents 9.61) were about 8% below the appraisal estimate and operating costs were 10% above the estimate of Le 15.8 (US $ 12.1) million made during appraisal. 5.1.3. The reduced earnings and higher than expected investment in working capital, resulted in SLEC making no contribution to construction expenditures in the period FY79-82. Working capital increased at a greater rate than expected due to poor collection of energy receivables and long delays in payment by Government of the oil and provincial subsidies to which SLEC considered it was entitled under the Credit (Section 4.07) and other agreements. Government accepted responsibility for the provincial subventions but not for the oil subsidies. The subventions, government electricity bills and other amounts due to SLEC were partially settled by offsetting debt service and other payments made on SLEC's behalf, with Government paying only the minimum amount necessary to cover SLEC's day-to-day cash operating expenditures including salaries and fuel oil bills. SLEC was therefore always short of cash and unable to operate effectively even with maximum use of available bank overdraft facilities. 5.1.4. Despite these problems, SLEC was technically solvent at the end of FY82 as the operations and development expenditures were kept within the resources available by neglecting maintenance, reducing inventories and curtailing system expansion to inadequate levels. The debt/equity ratio was 41/59 largely due to greater than expected Government equity contributions toward construction expenditures, which were about the level anticipated at appraisal for the four year period. The current ratio was 2.0 for FY82, a satisfactory level. 5.2. Financial Covenants 5.2.1. SLEC complied with none of the financial covenants included in the Project Agreement during the implementation period, although efforts have been made recently by the Government and SLEC to comply with them in the context of a new credit No. 1265 for preparation of the Bumbuna project. Audited accounts were not produced for FY76 and FY77 but were produced as a statement of affairs for 1978 followed by audited accounts for each subsequent year. Adequate tariff increases were not granted (Section 4.03), assets have not yet been revalued (Section 4.04) but the  - 19 - revaluation is expected to be completed early in 1983. For these reasons SLEC was not able to comply with the rate of return covenant (Section 4.03) which provided for a 10% rate of return on historic net assets and also for a rate of return (not less than 8% on a revalued base) to be agreed following completion of the assets revaluation. The situation illustrates the lack of financial management that prevailed in SLEC during the early years of the project implementation period, a lack that led to little or no attention being paid to the financial covenants despite the efforts of supervision missions. The covenants were appropriate and worthwhile as the dialogue with Government eventually led to understanding of the covenant objectives and to a substantial intention to comply, following the completion of the project. 6. INSTITUTIONAL PERFORMANCE 6.1. Management and Organizational Effectiveness 6.1.1. At the time of negotiations the day to day business of the corporation had been under the direction and control of the Minister for a period of about three years (para. 1.2.) during which time the expatriate General Manager from the consultants team had gradually lost authority over all except the most trivial routine operational matters. This situation was recognized by IDA as being unsatisfactory but it was unable during the negotiations to persuade the Government to amend the 1974 Act so as to restore the autonomy of the Corporation. Instead, an assurance was obtained that the General Manager would be allowed to fully and effectively exercise his executive and management responsibilities (Section 4.1, Annex 4 page 3). In practice this meant no change, and partly because of frequent changes in the Minister, matters deteriorated until by 1981 the Corporation was near to a total collapse, both physically and financially. The Government in July 1982 has at last taken steps to arrest the deterioration by creating a National Power Authority (NPA) under legislation providing the authority with a high degree of autonomy, and an independent Board of Directors. At the same time steps have been taken to make it financially viable by lowering the price of fuel by 40% to the free market price,and increasing tariffs by 75%. Provided the Government now allows the Board of NPA to exercise the authority given to it under the law, there is every reason to expect that the management and efficiency of the sector will improve. 6.2. Organization and Staffing 6.2.1. The organization of SLEC follows the conventional pattern for power utilities of its size and is adequate for the purpose, provided suitably trained and experienced staff are available. The five man consultants team appointed in 1974 (para. 1.2.) was supposed to train Sierra Leonian counterparts to take over from the expatriates after some years. Three appointments of engineering counterparts had been made before negotiation of the IDA credit and appointment of a fourth (generation engineer) was made a condition of effectiveness. All these counterparts have taken over the responsibilities of their mentors in the early part of 1982, and are performing satisfactorally. No suitable candidate could be found to fill the post of counterpart to the financial controller, nor has it been possible to find a Sierra Leonian to fill the  - 20 - post of Chief Accountant. Both these functions are performed by the one remaining expatriate on the SLEC staff. New financial procedures, requiring changes in the accounting organization have been recommended by the financial consultants, and these are being introduced. 6.2.2. The number of staff employed, which was considered to be excessive at the time of appraisal, especially at the lower paid levels, is still high in relation to the number of consumers. However, there has lee.i a steady fall in the rate of increase over the past four years from 11% in 1978 to less than 1% in 1981. The ratio of consumers to staff is now about 33 to 1 excluding the 31 staff employed in operating the fourgovernment installations on an agency basis. The total number of persons employed excluding casual labor is now 1,010 compared with 827 in 1977. An average annual increase of 5%. 6.3. Staff Training and Development Although under Section 3.02 of the Project Agreement, SLEC undertook to prepare a staffing and training plan by September 30, 1978, the plan was not prepared. The main reason for the failure to prepare the plan was management's preoccupation with the day-to-day running of the utility in very adverse circumstances. The objective of moving to formalized manpower planning and training was therefore not achieved. Two Sierra Leonean engineers from two of the Sierra Leonean firms in the Bumbuna Hydro-Consultants consortium were however sent to Switzerland for training under their European colleagues for a period of 11 months. 6.4. Covenants and Sectoral Development 6.4.1. Annex 4 details the principal covenants specifically related to the project in the Credit and Project Agreements. SLEC complied with the covenants of the Project Agreement except where it was prevented from doing so by Government and with regard to the method of procurement of consultants for the provincial development study and restriction of numbers of staff. 6.4.2. The Credit Agreement contained a covenant [Section 3.02(a)] requiring SLEC to employ consultants for the preparation of a master plan for the further electrification of provincial areas. This plan was prepared by the management consultants and published in January 1980. It covers a period of five years from 1980 to 1985. The estimated cost of the developments proposed is Le 36,321,000 in 1980 prices. The plan has not been implemented because SLEC had no funds for development. However where it was essential to extend service, or make changes to maintain supplies in the provincial towns, SLEC has followed the plans proposals since 1980. 6.4.3. The credit agreement also contained a covenant requiring the Government to establish a Bumbuna Development Committee [Section 3.03 (a)] until "Alternative arrangements satisfactory to the Association shall have been made," to give general directions for the proper implementation of the Bumbuna project. The covenant also specified the composition of the committee. Although the Government established the committee as required neither the committee nor their executive engineer seem to have made any  - 21 - substantial contribution to the execution of the project. In fact there are few references to the Committee in any of the progress reports and files, though there are many references to directions given by IDA staff in the course of their supervision missions following discussions on progress of the work. The covenant therefore did not achieve the objective and the committee's function has since (July 1982) been taken over by the NPA. 6.4.4. The Government did not comply with the more important covenants regarding autonomy of management, provision of necessary foreign exchange, increases in tariffs, stabilization of oil prices and prompt payment of Government electricity bills. 7. PROJECT JUSTIFICATION 7.1. The Market for Power 7.1.1. Comparisons between the actual GWh sold, GWh generated, maximum demand and load factor and the forecasts in the appraisal report for the five financial years 1978 through 1982 are given in Annex 5. Actual sales in FY1982 are about 15% below the forecast, though in the Western System which represents 87% of total sales, they were only about 6% below the forecast. Of the 12,060 KW of large non-residential loads forecast for connection in the Western System in the year 1977 through 1979 all but 2,100 KW have been connected and of these 1,700 KW are scheduled to be connected this year, or in 1983. The drop of 25% in provincial sales is entirely due to the restriction in operating hours at these centers, caused mainly by lack of funds to purchase fuel. There is a considerable latent demand in these provincial towns as indicated by the overall annual growth of maximum demand which has averaged 9% over the past three years; varying from 2 or 3% in some of the smaller centers such as Moyamba and Bonthe up to 30% in the larger centers such as Makeni. Due to the unreliability of the statistical data caused by deficiencies in the computer on which SLEC's accounts are processed in the Government's Central Statistical Office (CSO), and acute staff constraints in SLEC's accounting department, a more detailed analysis by categories could not be made. 7.1.2. The growth in maximum demand in the Western System is shown in Annex 5 and averaged about 9% per annum. Without the 9.2 MW diesel supplied under the credit the demand could not have been met, and in fact had not been met for several years prior to FY1979. In the provinces the aggregate demand at the 14 centers supplied by SLEC grew from 640OKW to 8400KW between FY1979 and FY1982, an average rate of about 9% per annum. However, this does not reflect the real demand. In all but three of these centers the peak loads exceeded the firm capacities of the stations even after the commissioning of the additional ten diesel generators supplied under the credit. 7.2. Rate of Return 7.2.1. The rate of return on the extension of King Tom power station by addition of one 9.2MW unit with ancillary equipment and associated distribution is 10% assuming the foreign exchange costs valued at 30% over  - 22 - market prices and actual prices for costs of production and benefits from sales up to the present time. From 1983 onwards a growth rate of 7% per annum for sales, consistent with the average for the last five years has been assumed. Future benefits have been calculated on incremental sales at the recently increased tariffs, averaging 0.1925 Le/KWh compared with 0.11 Le/KWh up to December 1981, and future fuel costs are based on the recently reduced fuel price of $193 per ton compared with $323 per ton previously. Incremental sales attributable to the 9.2 MW unit exceed the annual increment in total sales to the Western Area because of overdue retirement of some old machines at the time of commissioning the new machine. 7.2.2. The true economic return on investment is higher than the above calculations suggest because the rates charged have been taken as a proxy for benefits, and underestimate the full benefits to consumers. If the new rates yielding an average of 0.1925 Le per KWh were applied to all the KWh sales attributable to the new unit, instead of 0.11 Le per KWh actually obtained between FY 1979 and 1981, the rate of return would be 13.5%. Details of the cost streams used in the calculations are given in Annex 6. 7.2.3. The residual value of the investments in 1990 has been calculated using straight line methods of depreciation as appears to have been done in the appraisal report. If instead, the residual value is based on the discounted benefits over the remaining eight years life of the No. 4 unit at say 11%, and these are estimated at an average of 2 million Leones per annum in current terms, then the residual value in 1990 would be 11 million Leones instead of 7.33 million. The effect of this would be to raise the rate of return on the base case from 10% to 10.5% and for the case using current tariffs retroactively, from 13.5% to 14%. 7.2.4. It would not be meaningful to calculate the actual rate of return on the investment in the provincial centers because of the reduced hours of operation at these stations since the new units were installed. The true benefits have not yet been obtained, and will not be obtained until the financial situation of the NPA has improved sufficiently to enable it to purchase the fuel required to operate these centers on a normal 24 hour a day regime. However, even if they were working on a normal regime, using current tariffs and costs for calculating the cost stream, the rate of return would certainly be negative, since fuel and operating cost alone are about equal to the average revenue of Le 0.1925 per KWh sold. 7.3. Project Achievements Project achievements have been dealt with elsewhere in this report, but may be summarized as follows: (a) A more reliable source of power generation has been provided in the Freetown area to replace old and worn out machines and meet the additional demand for power up to the end of 1981. (b) Worn out machines have been replaced and additional capacity added at 10 of the provincial centers enabling them to meet increased peak demands.  - 23 - (c) A rehabilitation and development plan for the provincial centers has been prepared by consultants. (d) The first stage of a 33KV distribution system in Freetown has been constructed to reduce losses and reinforce supplies to the industrial area. (e) The Bumbuna Project has been brought close to the implementation stage. (f) SLEC's reliance on expatriates for top management has been eliminated except for the post of financial controller. (g) A plan for an improved system of accounts has been provided by consultants, and financial technical assistance provided in the project has begun to yield results as evidenced by more timely presentation of accounts and improved collection. Although the physical objectives of the project have either been achieved or will very shortly be achieved, with the exception of improvements to the protection system at King Tom power station, the benefits expected to follow from these developments have not yet been achieved for the reasons given elsewhere in this report. 8.0 BANK PERFORMANCE 8.1.1. Assessment of Borrowers Implementation Capacity It is evident from the record of the two years delay between the first appraisal and presentation of the credit to the IDA Board, that there were misgivings about lending on the grounds of the country's economic performance. Moreover the Government's disregard for negotiated agreements, bordering on insouciance, provided ample warning that unless important covenants were made conditions of Board presentation or effectiveness, they were not likely to be observed. If, as would now seem justified, the creation of an autonomous authority with an independent Board, a tariff increase, reduction in the cost of fuel and payment of outstanding electricity accounts had all been made conditions of effectiveness, there would have been a very much better chance of the project's objectives being achieved. All these matters have since been made a condition of further lending and have been met by Government in order to obtain a subsequent engineering credit (No. 1265 SL) to complete those items of the project left undone, mainly completion of Bumbuna project preparation. 8.1.2. Assessment of Beneficiaries Implementation Capacity With hindsight the capacity of the consultants management team to carry out the project was overestimated by the appraisal team, and later supervision missions found it necessary to draw the attention of the Government to the team's inadequacies. In fact the team did little more than provide technical engineering assistance and a chief accountant. A team with experience in electrical utility management might have received more respect from the Minister and been able to persuade the Government that observance of the covenants in the agreements was in the best interests of the Government, the public and SLEC. The approval by IDA of a local Public Works Engineer with no experience of hydorelectric schemes as executive engineer to the Bumbuna Development Committee was a  - 24 - mistake. An experienced engineer in this position would probably have reduced the work of the consultants and by giving firm direction and assistance to their studies, saved a great deal of time and money. 8.2. Supervision 8.2.1. A schedule of supervision is given in Annex 7. The average interval between supervision missions was 7 months and over the period of 5 years three changes were made in the engineer and three in the financial analyst responsible for supervision. It is unlikely that more frequent supervision would have made any material improvement in project performance. The problems with the project derived mainly from much more fundamental problems with the Government's management of the economy. 8.2.2. A large part of the engineering works to be constructed under the project were completed before the loan became effective. There was therefore relatively little engineering supervision required on the ground. With regard to the accounting technical assistance provided under the project, although the amount of money in the credit and the BADEA loan for consulting services was only $470,000, or 3.6% of the total, most of the IDA missions's time was devoted to close and detailed supervision of this work. This was found to be necessary because of the SLEC management's preoccupation with more urgent problems, their lack of utility accounting experience and the lack of qualified and experienced support staff in SLEC's accounting department. 8.3. Working Relationships 8.3.1. Relations between IDA staff and Government civil servants were at all times good in spite of the long record of broken covenants and agreements and the Government's failure to meet Bank service payments leading in early 1981 to a suspension of disbursements. Relations with SLEC were not so good at times, particularly with regard to financial matters, for the reasons given in the preceding paragraph. Friction arose between the financial consultants and the management consultants team because of the latter's alleged lack of interest in financial matters and the urgent need to introduce corrective measures. Although IDA staff shared the consultants' frustration, and had already indicated to Government its lack of confidence in the consultant's ability to manage SLEC in 1979, when Government was thinking of renewing this contract, relations at the personal level were good enough for IDA staff to act as intermediaries in resolving difficulties between the financial consultants and the management. 9. CONCLUSIONS 9.1. The project did not succeed in fully meeting any of the objectives set out in para. 2.2. of this report. The Bumbuna project preparation estimated in the appraisal report to cost $1.1 million in foreign exchange is still unfinished due to lack of funds. Already $3.7 million has been spent by the consultants and another $0.7 million is required to complete preparation up to the bidding document stage. As regards the secondary objectives, although the necessary equipment has been provided, the reliability of supplies has not been improved. The  - 25 - measures recommended by the consultants for improvement of SLEC's finances have yet to be implemented and the nucleus of a project management organization for Bumbujna has not materialized. 9.2. The reasons for the failure were primarily lack of foreign exchange due to the Government's overcommittment on short term borrowing in a period of economic depression, and bad management of SLEC under the direction of the Ministry of Energy and Power. Both these weaknesses were well known to IDA management at the time the credit was made and the question arises as to whether the covenants were adequate to ensure the fulfillment of the projects objectives and whether in the light of the Government's past record it was reasonable to expect that they would observe them. The prevailing judgement at the time was evidently that this was the best that could be obtained, but recent experience with Engineering Credit 1265 seems to indicate that this may not have been the case. 9.3. As a minimum IDA should have refused to make the credit available unless the following measures were first put into effect: (a) Government recreated an autonomous corporation and combined the Ministry of Energy and Power with some other Ministry such as Industry to distract it from preoccupation with SLEC's day to day management. (b) Tariffs were adjusted to a level which would make SLEC financially viable. (c) All outstanding debts between SLEC and Government were settled in one way or another. (d) The price of fuel to SLEC was reduced to the free market price in Freetown Harbour. All these steps have recently been taken by Government in a period of even greater economic stringency, in order to obtain credit 1265 SL to complete the Bumbuna project preparation and undo the damage done to SLEC's management and installations over the past five years. 9.4. In the matter of the appointment of an engineer with no experience of hydroelectric projects as executive to the Bumbuna Development Committee, IDA should have provided foreign exchange for employment of an expatriate, and insisted on recruitment of an engineer with suitable experience. 9.5. The main conclusion to be drawn from this project must be that it is not in the interests of a borrower country for IDA or the Bank to waive conditions which it perceives to be essential to the successful utilisation of development funds, because of the sensitivities of the Government of the day.  Annex 1 - 26 - Page 1 of 2 Sierra Leone Credit 734-SL Completion Report Provincial Towns Statistics 1978/79 Town Max. Annual Load Demand KWh Factor Meters Staff Population KW. Generated x Connected Employed 1979 Makeni 450 735 19 934 36 26.800 Lungi 506 1506 35 176 24 4.800 Port Loco & Lunsar 322 1598 57 615 37 10.500 Magburaka (est.) 190 150 9 388 27 10.300 Kabala 98 403 47 259 24 7.800 Rokupr ? 160 9 113 13 5.800 Kambia 62 258 47 166 16 5.700 Bo 1100 5683 59 1997 72 39.400 Moyamba 140 563 46 313 23 6.400 Bonthe 93 312 38 248 24 6.400 Pujehun 72 293 46 225 18 4.700 Kenema 1440 7447 59 1990 79 31.500 Koidu 1760 8459 56 2049 52 75.600 Kailahun 48 180 43 233 19 7.200 Operated on an agency basis for the Go ernment Njala 300 1473 56 1 17 Jimmy Bargbo 55 25 5 1 3 Koyeima 28 32 13 1 2 Daru 70 429 70 1 11 Totals 6926 29706 49 9386 497 Privately owned plants supplying other consumers are situated at Marampa, Pepel, Bomba- Gbangbama, Yengema and Tongola-Tongofield.  Annex 1 -27 - Page 2 of 2 Sierra Leone Credit 734-SL Completion Report Provincial Town Statistics Installed Plant Maximum D nd Rate of Growth Town No & Size Date Actual Forecast in Demand KW Installed 1978/ 1981 1985 % 1979 1982 Past Future Makeni5 2x500W 1980 450 1000 1820 30 10 lx500 1982 Lungi lx380 1960 506 980 1210 25 7 lx250 1958 Port Loco & Lunsar lx140 1961 322 400 550 8 7 lx500E 1982 Magburakao 2x134 1951 190 o Kabala lxl00 1980 98 146 250 14 10 lxl72 1979 Rakupr lx72 E 19980 ? 90 340 ? 7 lx100o 1980 Kambia 2x200 1982 62 106 140 20 10 Bo5 2xlO00 1965 1100 1300 1670 6 5 Moyamba 2x50 1980 140 15C 260 2 7 lx22 1958 Bonthe lx60 1975 93 10C 220 3 10 lxlOO E 1980 Pujehun 2x58 19680 72 8f 160 6 10 Kenema5 3xlO00 1972 1440 190 2330 10 5 Koidu 2lx500 1982 1760 200 2360 5 5 Kailahun lxloo