India - Uttar Pradesh Power Project

Document of The World Bank FOR OMCAL USE ONLY Rqxwt No. 12551 PROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWUR PROJECT (LOAN 2957-IN) NOVEMBER 22, 1993 MICROGRAPHICS Report No: 12551 Type: PCR Energy Operations Division Country Department II (India) South Asia Region 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 Rate (Yearly Average) Rupee (Rs) Exchange Rate Used in the Staff Appraisal Report Rs. 13/US$ Year Rupees1US$ 1987 (Project Appraisal) 12.96 1988 (Loan Approved and Becomes Effective) 13.92 1989 16.23 1990 17.50 1991 22.74 1992 (Loan Cancelled) 26.20 Abbreviations GOI - Government of India GOUP - Government of Uttar Pradesh IBRD - International Bank for Reconstruction and Development IDBI - Industrial Development Bank of India LIC - Life Insurance Corporation of India NHPC - National Hydroelectric Power Corporation NTPC - National Thermal Power Corporation OFAP - Operational and Financial Action Plan PCR - Project Completion Report PFC - Power Finance Corporation REC - Rural Electrification Corporation SAR - Staff Appraisal Report SEBs - State Electricity Boards U.P. - Uttar Pradesh UPSEB - Uttar Pradesh State Electricity Board Government of India, Government of Uttar Pradesh. and Uttar Pradesh State Electricity Board Fiscal Year April 1 - March 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washlngton, D.C. 20433 US.A. Offite of Director-Gceeral Operations Evaluation iMEMORANDUM TO -HE EXECUTIVE DIRECTOkJ AND THE PRESIDENT SUBJECTs Project Completion Report on India Uttar Pradesh Power Project (Loan 2957-IN) Attached is the "Project Completion Report on India - Uttar Pradesh Power Project (Loan 2957-IN)" prepared by the South Asia Region. Part II was not prepared by the Borrower. This was one of several Bank Projects to a State Electricity Board (SEB) in India. The US$350.0 million loan was approved in 1988. In the mid- 1980's the Bank had revised its country strategy for the power sector to focus on those states which were prepared to improve the operational performance and financial viability of their SEB. In the end, only US$24.4 million were disbursed because the loan was canceled for failure to implement key conditionalities related to these issues. The project was to alleviate the acute pover shortage suffered by the state of Uttar Pradesh and to improve the operational and financial performance of the local SEB. Despite an Action Plan and a mid-term review, the institutional and financial components of the project were not carried out. Actually, upfront actions were reversed. The PCR concluded that the Bank should require stronger irreversible upfront institutional and financial recovery actions before making a loan to a SEB in financial distress. The PCR gives a candid account of project implementation which was cut short. Overall, the project is rated as unsatisfactory, its sustainability as unlikely, and its institutional impact as negligible. No audit is planned. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) TABLE OF CONTENTS Page No. PREFACE . ...... .i EVALUATION SUM MARY.. .. . ii PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE. 1 Project Identity .1 Project Background ............................. 1 Project Objectives.... .... 2 Project Description . . 3 Project Design and Organization . 3 Project Implementation ............... . .. 4 Environment, Resettlement and Rehabilitation 4 UPSEB's Institutional and Financial Recovery and Strengthening .................... 4 Suspension of Disbursements. 5 Cancellation of the Loan ......................... 6 bank Performance ................................ 6 Borrower Performance ............7 Performance of Consultants and Contractors 7 Relationship with the Borrower . 7 Project Documentation and Data . 7 PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE..... 9 (This Part was not completed by the Borrower) PART III STATISTICAL SUMNARY ........... ....... .. ......... ,0 ATTACHMENT: Paragraph 9 of the Minutes of Negotiations, dated May 2, 1988, Detailing Upfront Actions Taken by GOUP and UPSEB. ........ . . . .13 This document has a restricted distribudon and may be used by recipients only in the performance of t. r official duties. It contents may not otherwise be disclsed without World Rank authorizatin.  -:1ROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) Preface This is the Project Completion Report (PCR) for the Uttar Pradesh Power Project in India, for which Loan 2957-IN in the amount of US$350 million was approved on June 15, 1988. The Loan1 was made to India, acting by its President. The Government of India (GOI) was to make available the proceeds of the loan to the Government of Uttar Pradesh (GOUP) as part of Central assistance to Uttar Pradesh for development projects on terms and conditions applicable at the time. GOUP was to onlend the loan to the Uttar Pradesh State Electricity Board (UPSEB)2. GOI was to bear the foreign exchange and interest rate risks. Th3 Loan was cancelled on August 28, 1992 - much earlier than the scheduled original closing date of December 31, 1995 - and the project has not been completed. This situation results from the fact that GOUP and UPSEB did not implement the institutional strengthening and financiu recovery components of the Action Plan adopted by UPSEB, even though a critical bencbmark, the rate of return covenant, was revised to give UPSEB and the project another chance. At the closing date, US$302,951,926.78 were cancelled, and on November 25, 1992, US$22,674,109.52 (the balance in the Special Account) were refunded by GOI and cancelled by the Bank as of that date. Thus, disbursements under the loan were US$24,373,963.70, which India will reimburse during the period from December 1, 1993 to June 1, 2008. The PCR (Preface, Evaluation Summary and Part I) was prepared by the Energy Operations Division, Country Department II (India) of South Asia Regional Office, and was based, inter alia, on the Staff Appraisal Report (No. 7048-IN), the Loan and Project Agreements, supervision reports, correspondence between the Bank and the Borrower and internal Bank memoranda. The Loan was for 20 years, including five years' grace, at the Bank's standard variable interest rate. 2 The loan from GOUP to UPSEB was for 20 years, including five years' grace, at GOUP's interest rate applicable at the time for its lending to UPSEB, but not less than 10.25Z per annum.  - ii - PROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) Evaluation Summary Obiectives The main objectives of the project were to alleviate the acute power shortage suffered by Uttar Pradesh and the Northern Region and improv.j the operational and financial performance of the Uttar Pradesh State Electricity Board (UPSEB). In a broader sectoral context, the Bank expected that if the Action Plan approach used under the project was successful, it could be replicated with other State Electricity Boards (SEBs) that were prepared to improve, with the support of their respective state governments, their operational performance and, in particular, their financial viability (Part I, paras. 3 and 4). Implementation Experience Implementation of the physical components of the project started late because the procurement process took longer than projected and have so far not been completed because of the cancellation of the Loan (Part I, para. 8). Implementation of the Action Plan to strengthen UPSEB as an institution and to improve its finances was not satisfactory (Part I, para. 10). Results As the Government of Uttar Pradesh (GOUP) and UPSEB were in default of the institutional strengthening and financial recovery components of the Action Plan adopted by UPSEB, the Loan was cancelled on August 28, 1992 (Part I, paras. 10-14). Findings and Lessons Learned The major findings of this operation are that: (i) although the Bank did require upfront actions by GOUP and UPSEB to strengthen UPSEB as an institution and to put UPSEB's finances in order, these actions were not irreversible and GOUP avoided taking the necessary steps to support the institutional and financial recovery of UPSEB (Part I, paras. 3 and 10-14). (ii) the Bank took a calculated risk in putting its faith in the successful implementation of an Action Plan, which required many courageous decisions by UPSEB and by GOUP (Part I, paras. 2 and 15);  - iii - (iii) the Bank mistook the energetic support by the Chairman of UPSEB at the tim of appraisal as a sign that the management of UPSEB and GOUP were capable of sustaining a reform program (Part }, para. 17): and (iv) in recognition of the risk it was taking with the Action Plan approach, the Bank introduced a mid-term review (for the first time in the power sector in India, and long before the Bank made such reviews part of the project implementation review process -- Part I, paras. 11 and 15). The Bank used its remedies flexibly to induce corrective action which, unfortunately, was in the end unfulfilled. Given the critical need to improved power supply in Uttar Pradesh, the Bank was reluctant to finally cancel the loan until all possibilities of assisting in this improvement were exhausted (Part I, paras. 12-15). Other important findings ares (a) the Action Plan and the mid-term review approach was an effective instrument to detect deficiencies in the progress toward attaining the objectives of the project, particularly in the institutional and financial areas, and its use should be generalized (Part I, paras. 11 and 16); (b) the baseline data about the resettlement and rehabilitation requirements for the Srinagar dam and hydropower project should have been more complete (Part I, para. 9). The major lessons to be learned from this unsuccessful operation are that the Bank should; (i) require stronger irreversible upfront institutional and financial recovery actions from the Borrower and its Implementing Agency before making a loan to an SEB under the existing conditions of ownership and institutional framework to allow the SEB to operate commercially with the required operational and financial autonomy (Part I, paras. 2 and 10); (ii) require more detailed and realistic baseline data on rehabilitation and resettlement requirements (Part I, para. 9); and (iii) use its remedies (suspension and subsequent threat of cancellation) flexibly to induce corrective action. In this case, although ultimately unsuccessful, the threat of cancellation did assist COUP in pushing through a tariff increase which, unfortunately, was subsequently partly rescinded. At the time the Loan was cancelled, UPSEB's financial situation was slightly better because upon Bank's recommendations and threat of cancellation, its tariffs had been adjusted, albeit insufficient to comply with the Loan convenants (Part IS paras. 12-15). The Bank's willingness to use its remedies can incite other Implementing agencies (particularly SEBs) to take actions to improve their institutional, operational and financial performance in order to avoid the cancellation of the Bank loans to them.  INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE Project Identity Project Name , Uttar Pradesh Power Project Loan Number 2957-IN RVP Unit s South Asia Region Country India Sector Energy Sub-sector : Power Project Background 1. In India, the responsibility for electricity supply is shared constitutionally between the Government of India (GOI) and the states. The Electricity (Supply) Act of 1948 (the Act) created the State Electricity Boards (SEBs) and entrusted the state governments and the boards with primary responsibility for public power supply. Between 1960 and 1980, power demand in India grew twice as fast as the economy, and the generating capacity increased almost five-fold from about 5,600 MW to about 32,000 MW. Yet, for the entire period the country faced power shortages, frequent power interruptions, wide variations in system frequency, and large drops in voltage at the consumer level because the SEBs could not fulfill their responsibilities. Though set up as autonomous bodies, the SEBs have been under the stringent control of their state governments in vital matters such as changes to tariffs and tariff structure, with the result that they have not developed commercial and financial discipline, and their financial performance generally has been poor, to the extent of depending on the state governments for operational subsidies. 2. Beginning in the mid-1980s, the Bank attempted to improve the performance of the SEBs by direct involvement at the state level with those SEBs whose state governments were prepared to improve the operational performances and financial viabilities of their respective SEBs. Loan 2957-IN for the Uttar Pradesh Power Project was made under this strategy. UPSEB was the largest and probably the weakest of the SEBs. The weakness of UPSEB management and limits of GOI's influence on the state governments and SEBs were underlined in the SAR. The Bank took the risk of making a loan to UPSEB on the premise, still valid today, that even a very small improvement in UPSEB's performance would have a major impact in the sector as a whole. In addition, it was considered that if this operation succeeded in introducing improvements in UPSEB, the experiment would easily be replicable to other SEBs. 3. In view of the failure experienced by the Bank in India and elsewhere in having conditions tied to the meeting of certain performance indicators (such as rate of return, transmission and distribution losses, months receivables, etc.) the Bank decided to focus on the implementation of actions that were expected to enable the utility to meet those targets. The idea was  -2- -that if the utility implements the actions, the Bank considers it to be in compliance even if the target expected is not reached. This recognizes that there are many factors affecting the attainment of a performanc' target and that it is more important to ensure that the botrower demonstrates its willingness to take corrective actions. Therefore, only one major measurable financial covenant (the financial rate of return covenant as defined under the Act) was included in the legal agreements and GOUP and UPSEB agreed to implement an Action Plan for the institutional strengthening and financial recovery of UPSEB. The Plan was comprehensive and provided a detailed timeframe for each family of actions. It was prepared in close cooperation between the Bank, GOI, GOUP and UPSEB. Prior to and during appraisal, GOUP and UPSEB took some dctions to improve UPSEe*. But they eventually proved insufficient to put UPSEB on a sound institutional and financial basis; moreover they were not irreversible. Pret Obiectives 4. The main objectives of the project were to: (a) alleviate the acute power shortage suffered by Uttar Pradesh and the Northern Region4; (b) develop economic hydr6 resources for power generation; (c) improve the ouLput efficiency of existing thermal power stations; (d) introduce the new technology of fluidized bed boilers to Indian utilities; (e) reduce system losses; and (f) improve the operational and financial performance of UPSEB.- a UPSEB hired consultants to draft a corporate plan, prepare a financial recovery program, design a modern management information system, advise on risk management, design and implement an asset management system, and prepare power distribution master plans for the cities of Kanpur (the largest in Uttar Pradesh) and Varanasi. During the preparation of the said master plans, emphasis was given to improve and strengthen metering to ensure better control of losses and monitoring of revenue collection. 4 The Northern Region is formed of the generation and transmission facilities of the state-owned electricity utilities of Uttar Pradesh, Himachal Pradesh, Rajasthan, Haryana, Punjab, and Jammu & Kashmir, and Union Territories of Chandigarh and Delhi. Various power plants owned and operated by GOI-owned entities such as NTPC and NHPC are also connected to this regional system.  -3- Project Description 5. The project included the following components: (a) construction of a 350 MW hydropower station near Srinagar, including a 70 meter high and 200 meter long concrete gravity dam. intake structures, a sedimentation basin, a five-km long channel, an outdoor powerhouse with six 55 MW generating units, and associated infrastructure and auxiliaries; (b) resettlement, rehabilitation, and compensatory afforestation measures associated with (a); (c) rehabilitation of the 90 MW Harduaganj 'A" thermal power station, including installation of two fluidized bed boilers of 160 t/hr of steam each and modernization of the coal and ash handling systems and electrical auxiliaries; (d) reinforcement of the coal handling system at the 1,000 MS Obra 'B3 thermal power station, including the installation of an additional handling system of 1,000 t/hr of coal capacity and the acquisition of 220 wagons for the transporting coal from the coal mine; (e) construction of about 350 km of single circuit 400 kV lines, 80 km of single circuit 220 kV lines, and associated substations with an additional 1,000 MVA transformer capacity and associated telecommunication facilities for the evacuation and distribution of additional generated power; (f) installation of around 2,000 energy meters and maximum load indicators on 33 kV and 11 kV feeders; and (g) consulting services and training for execution of the project, ant improvement of the organization and performance of the utility along the lines specified in an Action Plan (para. 3). Project Design and Organization 6. The engineering of the Srinagar hydroelectric scheme was carried out by UPSEB and the Uttar Pradesh Irrigation Department (UPID) and was reviewed by the Central Water Authority and Central Electricity Authority of GOI. An independent Panel of Expert was appointed to-review the design and specifications and advise UPSEB. The Panel met several times in 1988 and 1989. Supervision of activities were carried out by UPID and UPSEB's staff at Dehra Dun, near the project site. The specifications for the rehabilitation of Obra "B thermal power plant were prepared by UPSEB with the assistance of consultants. UPSEB appointed foreign consultants for the design and preparation of the technical specifications for the rehabilitation of the Harduaganj 'Al power station. Consultants' works were coordinated by UPSEB's central thermal power plants department. The design and engineering of the transmission and distribution facilities were carried out by UPSEB's central departments in Lucknow.  -4- Project ImPlementation 7. Loan Effectiveness and Project Start-up. Loan 2957-IN was approved on June 15, 1988; the Loan and Project Agreements were signed on July 27, 1988. The authorization and ratification of the Loan Agreement by Uttar Pradesh was a condition for effectiveness. The loan was declared effective on September 22, 1988, within the 90-day period. 8. ImPlementation Process and Procurement. Implementation of the physical components of the project started late because the procurement process took longer than projected. In addition to delays by UPSEB in preparing the bid documents, delays were caused by the approval of the contracts by the various departments and ministries of GOUP and GOI. By the time the disbursements were suspended in April 1991 (two years and nine months after loan approval), most of the-major contracts were awarded, including the contracts for the Srinagar dam, powerhouse a'd electro-mechanical equipment, Obra *BO coal handling plant and for various transmission and distribution equipment, had been awarded. However, UPSEB had not yet selected the consultants for its training program. ! spite the need for additional clarifications, procurement and recruitm nt of foreign consultants were carried out in accordance7 with Bank guidelines. Environment, Resettlement and Rehabilitation 9. During the appraisal, the Bank accepted GOI's special numeration which estimated that only 59 families would be affected by the construction of the Srinagar dam and hydro project. However, supervision missions found out that the number of families was substantially higher. In February 1991 (almost four years after appraisal), UPSEB had reported that more than 1,050 families would be relocated. Had the project continued, resettlement and rehabilitation of the people affected by the project would have been a potential large issue. UPSEB's Institutional and Financial Recovery and Strengthening 10. During project preparation, the Bank realized that UPSEB needed substantial strengthening as its operational, institutional and financial performance had not been satisfactory. A comprehensive diagnosis of the organization and all its operations (planning, maintenance, commercial and financial) of UPSEB was undertaken. The diagnosis which was carried out by UPSEB staff with the assistance of consultants and in close cooperation with the Bank and GOUP, resulted in the preparation by UPSEB, of a detailed and comprehensive Action Plan. The Plan covered actions needed to; (a) improve operational efficiency; (b) strengthen project management; and (c) begin the financial recovery of UPSEB. Achievable targets and measures required to reach them, together with specific deadlines and responsibilities, were mutually agreed. The Action Plan incl-.;&- not only the responsibilities of UPSEB but, very importantly, also those of the State, recognizing explicitly the role played by the state governments in the successful operation of the SEBs. -Prior to negotiations, GOUP and UPSEB took upfront actions in seven key  -5 areas of the financial recovery program of the Action Plan'. These actions brought UPSEB to an acceptable financial shape. At negotiations, further specific commitments were made -by both GOUP and UPSEB to further introduce improve the operational efficiency of UPSEB under the Action Plat.. However, when the Government of Uttar Pradesh changed in 1989, following the state elections, the new government failed to keep the commitments under the Action Plan. Although UPSEB took most of the actions it had to take under the Action Plan, its financial recovery was not sustained because of default by GOUP. An important financial covenant was that UPSER would achieve a minimum 32 financial rate of return (the minimum set in the Electricity Act) starting in 1990/91, within three years from the approval of the Loan. 11. In recognition of the risk the Bank was taking with the Action Plan approach, a mid-term review was introduced (for the first time in the power sector in India, and long before the Bank made such reviews part of the project implementation review process). In accordance with the Loan Agreement, the Bank was to reviei- the progress made by December 31, 1989, towards implementing the Action Plan and achieving its objectives. Because of changes in GOUP and UPSEB's management, the review could be carried out only in May 1990. It concluded that while some modest progress was made in a few areas, UPSEB was failing in reducing its accounts payables to suppliers, presenting its financial reports in a timely manner and initiating the training program. The review also pointed out to the large gap which existed to complete the financIng plan for the implementation of the Srinagar hydropower component of the Project, due mainly to GOUP's failure to comply x th its funding commitments. suspension of Disbursements 12. Subsequent communications with 001, GOUP and UPSEB and successive supervision missions to Uttar Pradesh did not help in improving UPSEB's financial position which further deteriorated. On April 5, 1991, the Bank decided to suspend disbursements under the loan, because GOUP and UPSEB were in violation of the rate of return covenant in Section 4.03(a) and other requirements of the Action Plan referred to in Section 3.03(a) of the Project Agreement. However, on April 19, 1991, the Bank informed GOI that it would be prepared to lift the suspension if: (a) GOUP came up with a revised action plan which initially, through a substantial increase in tariffs, is sufficient to raise the rate of return from the minus 8.7Z estimated for 1990/91 to 12 in 1991/92 and with subsequent actions sufficient to achieve 22 in 1992193 and 32 in 19931945 and (b) the said revised plan contained steps to reduce UPSEB's arrears and debts. It may appear that too much weight was given by the Bank to the violation of the ROR covenant in the decision to suspend and eventually to cancel. However, this covenant was the only measurable one and reflected accurately and immediately GOUP's support (or lack of) to UPSEB. Under the circumstances, it demonstrated GOUP's failure to comply with its own responsibilities under the Action Plan. -A copy of paragraph 9 of the Minutes of Negotiations, dated May 2, 1988, detailing these up-front actions is attached for easy reference.  13. On September 12, 1991, the Indian authorities were informed that unless satisfactory actions were taken by mid-October 1991, the loan would be cancelled pursuant to the remedies of the Bank under the General Conditions of the Loan Agreement. In the continuous absence of remedial actions, senior management's consent for cancelling the loan was obtained in November 27, 1991. Two days later, GOI informed the Bank that they had been informed that GOUP had endorsed an increase in tariffs. In view of the very difficult power supply situation in Uttar Pradesh, the Bank opted to give GOUP, UPSEB and the project another chance, and refrained from cancelling the loan. Repeated requests by the Bank for clarifications and answers by UPSEB on the category- wise approvals and new levels of the tariffs, the exact date of their implementation, their impact on UPSEB's finances and other actions by GOUP and UPSEB took several months. In mid-June 1992, the Bank obtained confirmation that UPSEB's tariffs were increased on average by 38X, effective from February 1992. In addition to the adjustment in tariffs, GOUP agreed to provide state subsidy to meet the stipulated ROR and devised a plan of action to keep UPSEB's accounts payable and receivable within the covenanted levels. On June 22, 1992, the Bank concluded that GOUP and UPSEB were substantially in compliance with the agreements under the Loan and, India's right to withdraw from the Loan was reinstated in accordance with the Bank's telex of June 24, 1992. Cancellation of the Loan 14. A few days earlier than the above date, to encourage the industrial development in the state and to check the flight of industries, GOUP had rolled back tariff increases for industries by about 101.- The amount rolled back was computed as about Re 1.3 billion out of the expected tariff revenues of RS 25.1 billion. As result, GOUP and UPSEB were no more in compliance with their commitments under the Loan and Project Agreements. On June 25, 1992, the Bank informed the authorities to disreg.ard the above telex and requested to be informed of actions taken by GOUP to make up the shortfall of revenue of UPSEB due to the roll back in tariff levels. As UPSEB continued to remain in violation of the rate of return covenant, on July 29, 1992, the Bank informed GOI, GOUP and UPSEB that failure to meet their obligations was going to result in the cancellation of the remaining undisbursed balance of the loan in 30 days. Clarifications brought by the authorities were not satisfactory. Thus, on August 28, 1992, the Bank cancelled the undisbursed amount of US$302,951,926.78. There was a balance of US$22,674,109.52 in the Special Account which W0I refunded to the Bank on November 25, 1992, and which was cancelled effective November 25, 1992. Disbursements under the Loan were eventually US$24,373,963.70, which India will reimburse during the period December 1, 1993 to June 1, 2008. Bank Performance 15. The major findings of this operation about the Bank's performance are that the Bank: (i) did require several upfront actions by GOUP and UPSEB to strengthen UPSEB as an institution and to put UPSEB's finances in order; however, their effect was not sustainable once GOUP stopped to support the institution-l and financial recovery of UPSEB; (ii) took a calculated risk in putting its faith on the successful implementation of an Action Plan, which required many courageous decisions, although these actions as well as the remedies had been identified by UPSEB and endorsed by COUP; and, (iii) mistook  -7- the energetic management of the Chairman of UPSEB at the time of appraisal as a sign that the management of UPSEB and COUP were capable of sustaining such high levels of activity, taking the necessary remedial actions and, more importantly, convincing GOUP of complying with its commitments. The Bank used its remedies flexibly to indui.e corrective action which, unfortunately, was in the end unfulfilled. Given the critical need to improved power supply in Uttar Pradesh, the Bank was reluctant to finally cancel the loan until all possibilities of assisting in this improvement were exhausted. At the time the Loan was cancelled, UPSEB's financial situation was slightly better because upon Bank's recommendations and threat of cancellation, its tariffs had been adjusted, albeit insufficient to comply with the Loan covenants. 16. The Action Plan and the mid-term review approach were effective instruments to detect deficiencies in the progress toward attaining the objectives of the project, particularly in the institutional and financial areas. Had the Bank used these instruments in other projects in the power sector portfolio, it would have detected the deficiencies sufficiently early and taken appropriate remedies. The Action Plan approach was also the precursor of the Operational and Financial Action Plan (OFAP) approach currently used by the Power Finance Corporation (PFC)7. Borrower Performance 17. When the Government of Uttar Pradesh and the management of UPSEB changed in 1989, following the state elections, GOUP and UPSEB failed to comply with their commitments. However, it should be noted that Uttar Pradesh suffered political upheaval which forced GOUP to focus on other urgent matters neglecting its responsibilities toward UPSEB. This project has confirmed how dependent is the functioning of the SEBs on the support from the States. During the preparation and appraisal of the project, the Bank had a lot of support from GOUP and UPSEB. However, when GOUP and the management of UPSEB changed, institutional continuity was lost particularly at COUP, which did not comply with its commitments. In addi.ion, GOI, GOUP and UPSEB also failed to inform the Bank in a timely manner that GOUP and UPSEB had rolled back a major part of the tariff adjustments upon which the Bank based its assessment before agreeing to lift the suspension of disbursements. Performance of Consultants and Contractors 18. At the time of suspenston of disbursements, it was too early to judge on the performance of consultants and contractors (para. 8). 6 Mr. A.K. Sah was appointed Chairman of UPSEB following a successful tenure as the Chairman and Managing Director of NTPC. During his tenure at NTPC the Bank came to know and respect him as an efficient manager. At the time he was leaving for negotiations he had a severe stroke. His successors did not measure up to his performance. 7 PFC is supported by Loan 3436-IN for the Power Utilities Efficiency Improvement Project.  _8- Relationship with the Borrower 19. All the difficulties which led to the cancellation of the Loan did not affect the relationship between GOI and the Bank. Project Documentation and Data 20. The project's legal agreements adequately reflected the Bank's interest in satisfactory execution of the project. The staff appraisal report was comprehensive, well prepared and provided a useful framework for the Bank and UPSEB during implementation. The Action Plan (tts scope and the timetable for actions) was detailed in the SAR. UPSEB regularly submitted Quarterly Progress Reports for the project. They provided useful data which were used for review of physical performance of UPSEB. However data to assess UPSEB's financial performance was obtained separately on an ad hoc basis. Supervision missions included site visits in addition to review meetings at UPSEB's corporate office in Lucknow.  -9- PROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE The Borrower did not complete Part 11.  - 10 _ PROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) PART III: STATISTICAL SUMMARY Related IDA Credit/Bank Loan Credit/Loan Nr. Year of Title Purpose APproval Status Comments None. Proiect Timetable Item Planned Revised Actual Appraisal Mission MaylJune 1987 Loan Negotiations April 26-May 2, 1988 Board Approval June 15, 1988 Loan Signature July 27, 1988 Loan Effectiveness September 22, 1988 Loan Closing December 31, 1995 August 28, 1992 Completion of Disbursements November 25, 1992  - 11 - Disbursements (USS million) (Loan 2957-IN) Estimated in SAi' Actual Bank Fiscal Year Actual Z of and Semester Quarterly Cumulative Quarterly Cumulative Estimated FY89 December 31, 1988 25.0 2540 25.3 25.3 101 June 30, 1989 1.5 26.5 - 25.3 95 FY90 December 31, 1989 4.0 30.5 - 25.3 83 June 30, 1990 6.0 36.5 1.3 26.6 73 FY91 December 31, 1990 14.7 51.2 18.9 45.5 89 June 30, 1991 14.8 66.0 1.5 47.0 71 FY92 December 31, 1991 34.3 100.3 - 47.0 47 June 30, 1992 34.3 134.6 - 47.0 35 FY93 December 31, 1992 45.0 179.6 -22.6(*) 24.4(**) June 30, 1993 50.0 229.6 - FY94 December 31, 1993 37.2 266.8 - - June 30, 1994 30.0 7)6.8 - - FY95 December 31, 1994 15.0 311.8 - - June 30, 1995 15.0 326.8 - - FY96 December 31, 1995 13.2 340.0 - June 30, 1996 10.0 350.0 - - Original Closing Date: December 31, 1995; disbursements were expected to be completed during the semester ending June 30, 1996. (*) The Loan was closed on August 28, 1992 and the undisbursed balance of US$302,951,926.78 was cancelled as of this date. There was a balance of US$22,674,109.52 in the Special Account. The balance was refunded by GOI on November 25, 1992, and was cancelled by the Bank as of this date. (**) Disbursements under Ln. 2957-IN were US$24,373,963.70, which India will reimburse during the period from December 1, 1993 to June 1, 2008.  - 12 - Use of Bank Resources A. Staff Inputs Staff inputs in carrying out the various tasks through the project cycle from preparation to completion in FY93 were as follow: Tasks Input (Staff-weeks) Project Preparation 14.1 Project Appraisal 60.7 Loan Negotiations 21.0 Loan Processing 2.9 Project Supervision 60.3 Project Completion Report 2.0 Total 161.0 B. Missions Month/ Number of Days Speciali- Performance Type of Project Cycle Year Persons in Field zation /a Rating /b Problems /c Preparation 3187 3 4 E;FA;RR Appraisal 5-6/87 6 20 E;FA;Mgm.- Post- Appraisal 10187 5 E;FA;Mgm. Supervision 9/88 2 3 E;FA Supervision 5/89 1 2 E Supervision 7/89 3 2 FA;EC Supervision 10-11/89 5 10 E;FA;EC;Tr. Supervision 2/90 2 6 E 3 Def. Supervision 4-5/90 1 7 FA 3 Def. Supervision 2/91 1 7 E /a E: Engineer, PA: Financial Analyst, EC: Economist, RRs Rehabilitation and Resettlement Expert, Mgm.: Organization and Management Expert, Tr.: Training Expert /b 1=No or minor problem; 2=Moderate problem(s); 3=Major problem /c PR: Procurement problems and delays. I: Implementation delays, D: Disbursement delays; Def.s Default on Financial Covenants and Action Plan  - 13 - Attachment Page 1 of 2 PROJECT COMPLETION REPORT INDIA UTTAR PRADESH POWER PROJECT (LOAN 2957-IN) Paragraph 9 of the Minutes of Negotiations, Dated May 2. 1988, Detailing Upfront Actions Taken by GOUP and UPSEB Financial Recovery Program 9. The Indian delegation indicated that the following actions have been taken with a view to improving UPSEBIs financial operations: (a) Perpetual Loans: GOUP has confirmed that the outstanding loans owed by UPSEB to the GOUP as of March 31, 1988, as well as all future loans granted by GOUP to UPSEB until March 31, 1995, will be treated as loans in perpetuity and accordingly GOUP will not recall their payment. (b) Offsetting of Accounts: The Indian delegation confirmed that the balance of accumulated interest accrued and interest deferred owed by UPSEB to GOUP as of March 31, 1988 has been waived by GOUP and UPSEB has withdrawn all claims for rural electrification subsidies owed by GOUP to UPSEB at that date. (c) Collection of Arrears of Electricity Bills (Section P.A. 3.03): According to the targets established during appraisal, half of the total amount of the undisputed arrears for electricity bills owed by GOUP and its agencies (Irrigation Department, Water Works, and Public Lighting) as of August 31, 1987 has been collected, and the balance will be recovered by March 31, 1989. Further UPSEB will take appropriate action to ensure that from April 1, 1989 onwards the receivables from GOUP and its agencies will not exceed the equivalent of 60 days' sales. An aggressive program to accelerate collections from private consumers has alrady been initiated in March 1988. (d) Arrears of Payment to Suppliers: (i) by June 30, 1988 a program to eliminate the backlog of payables to major suppliers (NTPC and Coal India) will be prepared and furnished to the Bank; (ii) by September 30, 1988 the letter of credit covering purchases of power from NTPC will be increased from the current level of Rs 110 million to Rs 150 million; and (iii) from April 1, 1989 onwards UPSEB will maintain letters of credit with all major suppliers of power for amounts equal to not less than the purchases planned for the next following month.  _ 14 - Attachment Page 2 of 2 (e) Financing of Cap4talized Interest: From April 1, 1988 to March 31, 1995, GOUP will finance, on the same terms as the regular loans provided by GOUP to UPSEB, the total amounts of capitalized interest resulting from the application of the accounting norms of the Government of India. (f) Financing of UPSEB's Investment Program: In addition to financing capitalized interest, GOUP will provide loans to UPSEB in amount equal to 802 of the total cost of UPSEB's inivestment program (including price escalation) less the net loans received by UPSEB from REC, IJC, IDBI, market borrowings and proceeds from the World Bank loan. The balance is expected to be met by UPSEB from its internally generated sources. (g) Rural Electrification Subsidies: To compensate for the losses incurred in the provision of electricity to rural consumers from April 1. 1988, GOUP will pay to UPSEB rural electrification subsidies to the extent of the lowest of the followings (a) actual rural electrification subsidies calculated on the Lasis of the existing formula, i.e. formula on which it was worked out up to March 31, 1988; (b) amount equal to the short-fall between the actual surplus and the one required to meet the 32 statutory surplus under the Electricity (Supply) Act of 1948; and (c) amount equivalent to the interest on GOUP loans charged to operations.