India Kerala Power Project

 Kerala power project Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Hydro; Major Sector: Electric Power & Other Energy; ProjectID: P009838 The Implementation Completion Report (ICR) on the India Kerala Power Project (Loan 2582-IN, approved in FY85) was prepared by the South Asia Regional Office and reviewed by the Operations Evaluation Department (OED). The loan for US$176 million equivalent was approved on June 13, 1985, and was closed on December 31, 1994, more than three years after the original closing date of September 30,1991. Of the total loan amount, US$99.6 million were disbursed, US$20 million was canceled on May 1, 1993, US$30.0 million was canceled on April 15, 1994, and an undisbursed balance of US$26.4 million was canceled on May 17, 1995. CIDA cofinanced the project, contributing US$10.3 million equivalent. The ICR includes comments from the Borrower. The primary objective of the project was to increase the power generation capacity of the Kerala State Electricity Board (KSEB). In addition, the project aimed to improve the performance of KSEB's existing system and strengthen the managerial, commercial and financial practices of KSEB. The project comprised: (i) the construction of the 180 MW Lower Periyar hydroelectric power system; (ii) the construction of 525 km of transmission lines and substations; (iii) the reinforcement of secondary transmission and distribution networks in three major cities in Kerala; (iv) the provision of training, technical assistance and consulting services for KSEB's project construction management; and (v) an institutional development program including consulting and training services to KSEB. The objectives of the project have not yet been met. Following extensive delays, only about 70 percent of the Lower Periyar hydroelectric power station and 40 percent of the transmission and distribution components had been implemented. About 45 percent of the loan was canceled in successive increments during the eighth, ninth, and tenth years of implementation, as it became evident that the KSEB would be unable to use the funds in the time available, given the slow rate of project implementation. The implementation was due to delays in procurement, unsatisfactory performance of the contractors, and the cumbersome process for transferring the funds from the GOI through the State government to the KSEB. The institutional development studies were completed, but most of the recommendations were not implemented. KSEB was in violation of a key financial revenue covenant for the first eight years of the project, and their tight liquidity position was a significant contributing factor to delays in project implementation. At the time of the ICR mission, project completion was expected for 1997. The economic rate of return of the project, which was estimated at 13 percent at the time of appraisal, was not re-estimated for the ICR. The outcome of the project is rated as unsatisfactory: the objectives have not yet been met, and Kerala continues to suffer from an extensive shortage of power at high economic cost. The sustainability of the project is uncertain. Although the Bank has agreed to assist KSEB in providing part of the funds required to complete the project through an ongoing lending operation for Power Utilities Efficiency Improvement (Loan 3436-IN), completion of the project still represents a major challenge. The institutional development impact was negligible. While some improvement has been achieved in relation to KSEB's accounting systems and tariff levels, most of the recommendations in project-financed studies on organization and management, inventory of fixed assets, data processing and tariff simplification and restructuring were not implemented. The Bank's performance is rated as unsatisfactory, in view of the inadequate appraisal of the financial, institutional and procurement aspects of the project. With the exception of Bank performance, which the ICR rates as satisfactory, these ratings are in agreement with those in the ICR. The ICR draws a number of lessons from the experience with this project. The KSEB's institutional and financial capability to undertake the project was not realistically assessed. Proper project engineering designs and studies, and bidding documents for major works, equipment and materials, were not available for review at the time of appraisal. The procurement plan included an excessive number of contracts/packages. Forest and land acquisition clearances had not been obtained prior to issuance of bidding documents. The bottom line is that the quality at entry of this project was unsatisfactory. The main message is simply that unsatisfactory quality at entry tends to lead to unsatisfactory outcomes. The ICR is satisfactory. It provides a well-written summary of the implementation of the project and draws the appropriate lessons.