Report and Recommendation of the President to the Board of Directors. Proposed Grant Republic of Tajikistan: Regional Power Transmission Project

Transcription

1 Report and Recommendation of the President to the Board of Directors Project Number: July 2010 Proposed Grant Republic of Tajikistan: Regional Power Transmission Project

2 CURRENCY EQUIVALENTS (as of 21 July 2010) Currency Unit somoni (TJS) TJS 1.00 = $0.28 $1.00 = TJS4.382 ABBREVIATIONS ADB - Asian Development Bank SCADA - supervisory control and data acquisition TALCO - State Unitary Enterprise TALCO WEIGHTS AND MEASURES GWh - gigawatt-hour (1 million kilowatt-hours) km - kilometer (1,000 meters) kv - kilovolt (1,000 volts) MW - megawatt (1,000 kilowatts) NOTES (i) (ii) The fiscal year (FY) of the government and its agencies ends on 31 December. In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director P. Song, Energy and Natural Resources Division, CWRD Team leader Team members Peer reviewer L. Mtchedlishvili, Energy Specialist, CWRD Z. Abdulalieva, Project Implementation Officer, CWRD L. Blanchetti-Revelli, Senior Social Development Specialist, CWRD B. Konysbayev, Senior Counsel, Office of the General Counsel M. Kunzer, Senior Environment Specialist, CWRD J. Liston, Principal Energy Specialist, CWRD S. Roth, Social Development Specialist (Gender and Development), CWRD R. Sanda, Investment Specialist, CWRD A. Guha, Lead Professional (Energy), South Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS Page I. THE PROPOSAL 1 II. III. THE PROJECT A. Rationale 1 B. Impact and Outcome 2 C. Outputs 2 D. Investment and Financing Plans 4 E. Implementation Arrangements 5 DUE DILIGENCE A. Technical 6 B. Barki Tojik Operations 6 C. Economic and Financial 7 D. Governance 7 E. Poverty and Social 8 F. Safeguards 8 G. Risks and Mitigating Measures 9 IV. ASSURANCES AND CONDITIONS 10 V. RECOMMENDATION 10 APPENDIXES 1 Design and Monitoring Framework List of Linked Documents 14

4 I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed grant to the Republic of Tajikistan for the Regional Power Transmission Project. The design and monitoring framework for the project is in Appendix 1. II. THE PROJECT A. Rationale 2. The project is critical for energy security in Tajikistan. It targets the expansion and modernization of the electricity transmission network and paves the way for much needed reforms. Transmission network modernization is a precondition to cutting system losses, improving energy efficiency, and facilitating energy trade with neighboring countries. The latter is a national priority, but also a key goal under the Central Asia Regional Economic Cooperation Program (CAREC). Reform focuses mainly on the national utility company, Barki Tojik. This is a precondition for raising key performance indicators, governance, and institutional effectiveness. A problem tree analysis provides context for the project. This mirrors the design and monitoring framework (Appendix 1). Key sector issues are given in the summary sector assessment Generation gap. About 98% of all electricity generated in the country comes from hydropower plants (HPPs). While this is environmentally attractive and cost-effective, the mix also results in significant winter shortages. It does produce high summer surpluses, but these are wasted unless they are traded with neighboring countries. Current installed capacity is about 5,055 megawatts (MW). This comes from eight large plants, several smaller hydropower facilities (4,737 MW), and two fossil-fuel-fired combined heat and power plants (318 MW). This capacity is more than enough to meet domestic demand during most months of the year, but not in the winter. Many remote areas have power only a few hours a day. This affects rural and urban populations and businesses. 4. Energy security. The winter shortage (about 500 MW) has both short- and mediumterm solutions. The latter includes non-hydro facilities and/or building selected run-of-the river schemes. While not rejecting any of these options, the government is more keen to develop larger, and by definition, longer-term projects, in particular, the completion of a large dam first started under the Soviet period (Rogun). 2 The latter is a major undertaking. It requires considerable technical and financial resources, strong project management and first class environmental due diligence to ensure full consensus with, and among, riparian countries over the water flows and other potential impacts. In the meantime, the most effective way to deliver energy security is to step up work on energy efficiency and to expand and modernize the transmission network. Regional trade is the most effective way to address winter shortages and summer surpluses. This worked well in the past and can be easily revived in the future. This is a key feature of the CAREC energy strategy. Trade requires strong collaboration among the regional countries, but also a quality transmission network. Repairing this network is a top priority for the government, along with sector reforms and the restructuring of Barki Tojik. Energy efficiency is linked to transmission, although the 1 Summary Sector Assessment: Energy (Appendix 2). 2 Work on the first phase of the project is under way, although a share purchase scheme to finance these works has been frozen.

5 2 distribution system and the energy practices by industrial, residential, public administration and commercial users also play a role. The distribution system needs improvements, but not as urgently as the transmission network. 5. Transmission. The transmission network is in a bad state of repair (leading to high technical losses). It also has limited geographic coverage. This affects the evacuation of power from plants and restricts winter and summer trade with Uzbekistan, Afghanistan and the Kyrgyz Republic. Low network coverage exacerbates Tajikistan s high dependence on the Central Asian Power System which operates out of Tashkent. At the same time, improvements in reliability of Tajikistan s network ultimately improve the overall reliability of the Central Asian Power System. The latter breaks down from time to time and often create disputes among member countries. 6. Operational performance. Since 2006 the government increased electricity tariff by more than 200%; however, the financial position of the sector is still weak. Technical and commercial losses are high, while the collection rate remains low. Arrears of the state-owned enterprises are increasing with organizations under the Ministry of Land Reclamation and Water Resources being on the top of the list. Recognizing the need for series of policy reforms to address the deteriorating infrastructure, inadequate capacity, and weakened institutions, the government developed a strategy for power sector reform and investment and requests international assistance Project. Although the energy sector needs investments across the entire chain, the government and ADB have agreed to tackle the transmission network first. This requires physical investments and reforms. The project is included in the Tajikistan country partnership strategy (CPS) and country operations business plan The project is part of CAREC. This is the second regional transmission project in Tajikistan. Work on a transmission line to Afghanistan is underway. 4 B. Impact and Outcome 8. The project will improve the reliability of the transmission system and supply to households and businesses. This will increase energy security, energy efficiency, and energy trade. It will also improve reform, governance, and the operational effectiveness of Barki Tojik. The outcome will be an expanded and modernized high-voltage transmission network. C. Outputs 9. The main components of the project are as follows: (i) Construct a 220-kilovolt (kv) transmission line between Kairakum and Asht (approximately 70 km), and rehabilitate the Kairakum 220 kv substation and one additional bay in the Asht 220 kv substation. These facilities will aid exports to the Kyrgyz Republic and increase energy security in the northern part of the country, including Asht. 3 Summary Sector Assessment: Energy (Appendix 2). 4 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loans, Technical Assistance Grants, and Administration of Loan by OPEC Fund for International Development to the Islamic Republic of Afghanistan and the Republic of Tajikistan for the Regional Power Transmission Interconnection Project. Manila.

6 3 (ii) Construct a 220 kv transmission line between Geran and Rumi (approximately 69 km), rehabilitate the 220 kv Rumi substation, and rehabilitate and expand the 220 kv substation at Geran. The transmission line will support electricity exports to Afghanistan 5 and improve energy security in southern Tajikistan. (iii) (iv) (v) Rehabilitate the Regar 500 kv and Baipaza 220 kv substations. Regar is the major 500 kv substation connecting Tajikistan to the Central Asian Power System. Technical problems at the Regar substation impact on the entire Central Asian Power System, and interrupt electricity supplies to about 50% of Tajikistan's consumers. Install a supervisory control and data acquisition (SCADA) system at the national control center and key high-voltage substations. This will replace an outdated and partially-collapsed Soviet telecommunication system and central control panel with a real-time information system, essential for any substantial electricity grid, and critical for decision making. Implement reforms and provide capacity development and operational performance improvements at Barki Tojik and the power sector. ADB intends to support the government on a reform action plan focusing on governance, operational and financial performance, including cost recovery. It will take a phased approach where phase 1 focuses on comprehensive assessment of the sector and Barki Tojik to define problems, deficiencies and opportunities. Phase 2 will define sector reforms and action plans including the restructuring of Barki Tajik, and phase 3 will focus on the implementation of the reforms. It also includes the preparation of a sector development master plan for rehabilitation and expansion of generation, transmission and distribution for the next 20 years. Additionally, it provides capacity building (planning and oversight), project management support, and training Physical 10. The project will build two new 220 kv single-circuit transmission lines totaling 140 km of overhead line (OHL). It will also rehabilitate in whole or part six transmission substations at Kairakkum, Asht, Geran, Rumi, Baipaza, and Regar. A third output is to put in place a SCADA system linked to a National Dispatch Centre in Dushanbe, and 32 priority substations across the country (capable of expansion to 204 national substations). The construction of these facilities will be done through three design, supply and install contracts, including testing and commissioning. 2. Nonphysical 11. The project will implement a sector operational performance improvement program targeting Barki Tojik and comprising the following activities: (i) development of program strategic and business plans and corporate governance changes; (ii) commercial, operating and financial plans; (iii) project management and training; (iv) preparation of accounting and management information systems; and (v) preparation of technical or operational performance audits. The program also includes reviews of sector-wide policy and institutional 5 On 29 August 2008, Tajikistan signed a power purchase agreement with Afghanistan for 25 years. 6 Summary Sector Assessment: Energy, and Project Administration Manual (Appendix 2).

7 4 issues followed by sector reform program with specific action plans and their implementation. The reform program will be supported by ADB through the proposed project implementation. Least-cost sector infrastructure development master plan is an additional output. D. Investment and Financing Plans 12. The project is estimated to cost $141 million (Tables 1 and 2). Table 1: Project Investment Plan ($ million) Item Amount A. Base Costs 1. Kairakum Asht Geran Rumi Regar and Baipaza substations SCADA 22 Subtotal (A) 110 B. Consultancy 1. Project management 5 2. Sector operational performance improvement program 10 Subtotal (B) 15 C. Contingencies 14 D. Financing Charges During Implementation 2 Total (A+B+C+D) 141 SCADA =supervisory control and data acquisition Source: Asian Development Bank estimates. Table 2: Financing Plan Source Amount Share of Total ($ million) (%) Asian Development Bank Government and Barki Tojik Total Source: Asian Development Bank estimates. 13. The government has requested a grant not exceeding $122 million from ADB s Special Funds resources to help finance the project. The amount of $9.5 million will be allocated to the Ministry of Energy and Industry for sector reforms and capacity development for Barki Tojik. The remainder will be re-lent to Barki Tojik through a subsidiary loan agreement to fund the physical investments. The relending is for a term of 25 years, with a 5- year grace period, and interest rate of 5% per annum. Barki Tojik will be responsible for foreign exchange risks, an established practice between the Ministry of Finance and Barki Tojik. The government and Barki Tojik will contribute $19 million. For the government s contribution, it will either (i) allocate additional funds from the budget to cover value-added tax (VAT) and customs duties accrued on project expenditures, or (ii) exempt the project

8 5 from such taxes and duties. Detailed cost estimates are given in the project administration manual. 7 E. Implementation Arrangements 14. Barki Tojik will be the executing agency for the physical investments. The Ministry of Energy and Industry will be the executing agency for sector operational performance improvement program. Project implementation management will be outsourced to a specialized firm. The firm will report to Barki Tojik and handle all project-related activities, such as the preparation of tender documentation and oversight over the evaluation and the contract awarding process. It will also supervise the contractors and report to the government and ADB on project execution performance. One of the requirements for the firm is to build the facilities on time, within budget and to pre-set standards. Contracts will have fixed price and fixed delivery periods, with premiums and penalties against performance and quality indicators. The implementation arrangements are summarized in Table 3, and described in detail in the project administration manual. 7 Table 3: Implementation Arrangements Aspects Arrangements Implementation period September 2010 July 2014 Estimated project completion date February 2015 Project management (i) Executing agency (physical) (ii) Executing agency (nonphysical) (iii) Project management Barki Tojik Ministry of Energy and Industry Outsourced to a consultant team Procurement Method Contracts Amount ($ million) (i) Plant-design, supply and install contract ICB for substations (ii) Plant-design, supply and install contract ICB for transmission lines (i) Plant-design, supply and install contract ICB for SCADA Consulting services Method Contracts Amount ($ million) (i) Project management (firm) QCBS (ii) Sector operational performance QCBS improvement program (firms) Disbursement Type Minimum Ceiling (i) Plant-design, supply and install contract Direct payment $100,000 No (ii) Consulting services Direct Payment/ commitment/ reimbursement $100,000 No 7 Project Administration Manual (Appendix 2).

9 6 III. DUE DILIGENCE A. Technical 15. ADB conducted technical due diligence on the investment proposal and is satisfied with the quality of the cost estimates, operating cost structures, appropriateness of the technology, and the execution plan. The readiness level is high and the technical solutions are assessed to be more cost-effective than the alternatives. The SCADA system is a standard power utility practice based on proven technology, and considered appropriate in this case. Barki Tojik s operational and maintenance staff are familiar with the proposed design concepts. The technical proposals do not represent a major shift from existing practices. Training will be included in the contractor's scope of work. The SCADA system is a technological step change for the company. This will require training to be included in the terms of reference of project management consultants and contractors. This is routine practice for a utility when first implementing a SCADA system. All investment sites were visited by consultants and ADB staff, and the poor condition of existing facilities was confirmed. The contracts will include sufficient spare parts and quality and performance guarantees. B. Barki Tojik Operations 16. The due diligence work included a full review of Barki Tojik operations. Back in 2006 the company was split from the Ministry of Energy and Industry, the intention being to deliver more efficiency and governance. After 4 years, performance on these targets has been disappointing. There are also gaps in the policy regime (shortcomings on planning, oversight, tariff structures, maintenance and conditions for private sector involvement). The company itself still lacks a clear strategic focus and sound management. Its business plan is disjointed and unfunded. Physical assets (generation, transmission and distribution facilities) are in a bad state of repair. Maintenance at best is ad hoc. The internal organizational structure is ineffective and corporate governance inept. Management, financial and operational staff skills are inadequate. Decision-making is slow; even slower is the collection of receivables. Together with ineffective cash management practices, these gaps aggravate an already dire financial situation. A credible financial audit needs to be conducted across the board. Technical losses are high and increasing. Financial management is poor. The management information and reporting systems are unreliable. Service quality is low, and so is staff morale. A restructuring and management improvement plan is required. The commercialization of operations is a must to ensure the viability of any investment. The proposed investment in transmission facilities will be synchronized with reforms that are included in the project. Others will form part of a program loan planned with ADB. 17. In particular, the government is willing to adopt legal and regulatory reforms and accepts the concept of immediate but well-thought out restructuring. It is also keen in opening up opportunities for the private sector, particularly in power generation. The restructuring of Barki Tojik needs additional and detailed due diligence and, thereafter, specific and sequenced actions in three areas: (i) commercialization of operations, (ii) competition, and (iii) divestment. The commercialization aspect is critical to unlock other changes and ensure financial viability. The opening up of the market to independent power generation companies requires access to an efficient transmission network. A regulatory body will ensure equal treatment to all. The sale of selected generation and distribution assets is only possible once a policy, legal, and regulatory regime is in place. An

10 7 intergovernmental committee made up of various state stakeholders will oversee the definition and implementation of the reform and restructuring plans. It has asked ADB to be a member of this committee (observer status), and oversee the reform works. The plan needs assessments where financial audit is a first priority. The other work will identify other gaps. C. Economic and Financial 18. The financial analysis has been performed. All financial costs and benefits of the project are expressed in constant 2009 prices. Cost streams used to determine the financial internal rate of return, i.e., capital investment, operation and maintenance, insurance costs and taxes, reflect the costs of delivering the benefits. The financial internal rate of return is 6.24%. This is higher than the estimated weighted average cost of capital of 3.54%. The financial viability was estimated by comparing the incremental costs and benefits with- and without-project scenarios. The incremental benefits arise from reduced outages and domestic and international power sales. Regional benefits are not included in the financial evaluation, although these are substantial. 19. The economic viability takes into account a stream of benefits and costs resulting from the construction, installation, and operation of the facilities. Although the regional economic benefits are presented and highlighted, they are not included in the computation of the economic internal rate of return as these accrue to countries other than Tajikistan. Other non-quantifiable benefits are in local areas such as Asht, Gafurov, and Kanibadam, and include increased yields in agriculture (power supplies making a difference), increased hours of operation by processing industries (leading to more jobs and income), and the opening of schools and health centers. The transmission facilities will benefit people and businesses. The economic internal rate of return is 31.4%, higher than the 12% opportunity cost of capital. 8 D. Governance 20. The government will comply with ADB s Anticorruption Policy (1998, as amended to date) for the purposes of the project. ADB reserves the right to investigate, directly or through its agents, any allegedly corrupt, fraudulent, collusive, or coercive practices relating to the project and the government will cooperate fully with any such investigation and extend all necessary assistance. To support these efforts, all contracts financed by ADB will include provisions specifying the right of ADB to audit and examine the records and accounts of Barki Tojik and all contractors, suppliers, consultants, and other service providers as they relate to the project. Grant funds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2007, as amended from time to time). 21. A financial management assessment was prepared in accordance with ADB guidelines. The work includes a risk management assessment. The financial management capabilities of Barki Tojik s mirror those of the country. There are substantial gaps in accounting standards, disclosure and auditing. Barki Tojik itself is in poor financial condition, a situation aggravated by unacceptably low receivables collection rate. It has high electricity losses from both technical and commercial sources, inadequate controls and reporting systems, weak financial management arrangements, and a serious shortage of trained staff to run this part of business. Corporate planning is inadequate. Poor customer care and 8 Financial and Economic Analyses (Appendix 2).

11 8 customer relations are another feature of the business model. Barki Tojik is poorly managed and seriously underfunded. The governance structure is weak. E. Poverty and Social 22. The transmission lines will cross public and mostly unused lands and affect cultivated plots only in a few locations. The substations will have no social impacts at all. Employment opportunities are expected during the construction. Gender-responsive core labor standards to promote female employment opportunities with non-discrimination, equal pay for work of equal value, and provision of separate male and female toilets where appropriate will be ensured. The construction site will have an influx of workers which can increase the risk of HIV/AIDS. A gender-sensitive HIV/AIDS awareness campaign will be conducted for construction workers and communities adjacent to the construction site. This will be monitored by ADB and the project supervision advisors. F. Safeguards 1. Environmental Assessment 23. An environmental assessment was completed. 9 Environmental categorization of the project is B. The transmission lines run through areas with low environmental sensitivities and do not traverse any village or settlement. Distances to any dwelling or settlement will be kept at a minimum of 50 meters. No significant or irreversible impacts are expected with the operation of the new lines. There will be some temporary impacts during the construction phase but appropriate mitigation measures have been developed. Provided the environmental management and monitoring program is properly implemented, these impacts will not be significant. Barki Tojik s environmental management expertise is low; provisions for training are included in the environmental management budget. 2. Social Assessment 24. Two subprojects Geran-Rumi and the Kairakhum-Asht transmission lines will cause impacts only on two-thirds and one-third of the alignment, respectively, and affect only small plots occupied by tower bases. These two subprojects will also cause small losses of crops and trees due to stringing operations and the construction of the towers. Overall, the subproject impacts will have minimal effects on the livelihood of affected people. No impact on buildings will occur and no family will have to be resettled. In order to assess and set the mechanisms for the compensation of these impacts, a land acquisition and resettlement plan was prepared in accordance with the ADB Safeguard Policy Statement (2009). 10 Involuntary resettlement category is B. Under Tajikistan law, few farmers own their lands. This means that no land will be technically acquired and no land compensation will be provided. However, to rehabilitate the affected people for land-use losses, they will receive income from the land occupied by the towers in addition to actual crop compensation. The two transmission lines will affect Tajik and Uzbek communities. These are considered to be particularly vulnerable, and are generally well adapted to the Tajikistan political-economic process. These groups do not show elements that would identify them as indigenous peoples 9 Initial Environmental Examination (Appendix 2). 10 Land Acquisition and Resettlement Plans for the Gerein-Rumi 220 kv Transmission Line, and Kairakhum-Asht 220 kv Transmission Line (Appendix 2).

12 9 as defined by the relevant ADB policy. Such a policy, therefore, will not be triggered by this project and indigenous people categorization of the project is C. G. Risks and Mitigating Measures 25. The project does not have any unusual technical risks. The components will use standard technologies, and these conform to international standards. They are commercially proven and widely used across the world. During the implementation, various tasks will be outsourced to independent experts. This will ensure that the equipment and works comply with design requirements and agreed quality standards. The risk of improper operation and maintenance of facilities will be mitigated through training programs at the level of Barki Tojik. The broader policy framework will also be tightened to pay more attention to maintenance. 26. Another risk is the weak organizational structure of Barki Tojik. This will be changed. Project management and implementation work will be outsourced to an international consulting firm. 27. Major risks and mitigating measures are summarized in Table 4. More details are in the risk assessment and risk management plan. 11 Table 4: Summary Risks and Mitigating Measures Risks Ineffective organizational structure and inadequate capacity of Barki Tojik Overdue liabilities from major debtors Collections from largest industrial enterprise Collections from irrigation and water pumping entities Mitigating Measures An international team will be recruited to work on the following areas: (i) corporate governance and strategic planning; (ii) financial performance and controls; (iii) institutional strengthening and human resource development; (iv) management information systems; and (v) technical performance measurement. The government will ensure that by 31 December 2011: (i) Barki Tojik and its major debtors reconcile their respective overdue liabilities; and (ii) Barki Tojik and each such debtor will enter into an agreement, acceptable to ADB, whereby the net overdue liabilities will be reduced by at least one third by 31 December 2014 and fully eliminated by 31 December State Unitary Enterprise TALCO will provide a bank guarantee for payment of an amount equivalent to its average monthly electricity bill for the next month, and a similar guarantee for each subsequent month, until such time when evidence has been provided to ADB demonstrating that State Unitary Enterprise TALCO has fully settled its liabilities with Barki Tojik for the past 2 years. The government will take measures such that the Ministry of Agriculture and the Ministry of Water Resources and Land Reclamation pay to Barki Tojik at least 70% of their respective electricity bills for FY2012 and settle in full their respective electricity bills for FY2013 and the subsequent years; and in the event that any payment target is not met, the government will take all necessary measures to settle between 11 Risk Assessment and Risk Management Plan (Appendix 2).

13 10 Risks Implementation delays Equipment manufacturing, delivery, and installation delays Mitigating Measures Barki Tojik and these ministries the difference between the amounts paid by these ministries and the target. Project management will be outsourced. An international team will be recruited to assist Barki Tojik with procurement, supervision, contract management, safeguards monitoring, and reporting. These risks will be mitigated under plant-design, supply and install contracts. Consultants will be engaged to assist the executing agency with the process and also assist in the implementation supervision. TALCO = Tajikistan Aluminum Company. Source: Asian Development Bank. IV. ASSURANCES AND CONDITIONS 28. The government and Barki Tojik have assured ADB that implementation of the project shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the project administration manual and grant documents. The government and Barki Tojik have agreed with ADB on certain covenants for the project, which are set forth in the grant and project agreements. 29. No withdrawal shall be made from the loan account until: (i) a subsidiary loan agreement, in form and substance satisfactory to ADB, has been duly authorized or ratified by, and executed and delivered on behalf of, the government and Barki Tojik; and (ii) an appropriate legislation has been passed to provide exemption from taxes and duties on project expenditures or the government has made budgetary allocation to Barki Tojik for the costs of such taxes and duties. V. RECOMMENDATION 30. I am satisfied that the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the grant not exceeding $122,000,000 to the Republic of Tajikistan from ADB s Special Funds resources for the Regional Power Transmission Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant and project agreements presented to the Board. Haruhiko Kuroda President 23 July 2010

14 Appendix 1 11 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Improved reliability of domestic power supply for household, commercial, industrial consumers and for regional power trade Outcome Expanded and modernized highvoltage transmission network for regional trade Performance Targets and Indicators with baselines Breakdown of transmission assets decreased from the current annual average of 3 weeks to 1 day after 2014 In 2015, annual electricity export from Tajikistan to Central Asian countries and Afghanistan will be at least 700 GWh Barki Tojik collection for current electricity bill from large industrial enterprise TALCO and irrigation and water pumping entities reaches 100% by 2013 Data Sources and Reporting Mechanisms Barki Tojik annual reports and national dispatch center Annual reports of state statistics departments and state utilities of Central Asian countries and Afghanistan Barki Tojik annual and audit reports Progress reports of project management consultants Assumptions and Risks Assumptions Government policy will continue to support regional trade Government continues commitment to reforms in energy sector Risk Government's reluctance to enforce electricity tariff payment by large state industries Outputs 1. Kairakum-Asht and Geran-Rumi transmission lines constructed. 2. Regar, Baipaza, Kairakum, Asht, Geran and Rumi substations rehabilitated 3. SCADA system installed 4. Sector operational performance improvement program is implemented 1. Two new 220 kv transmission lines 70 km each (total 140 km) constructed and energized by mid kv Regar and 200 kv Geran, Asht, Rumi, Baipaza and Kairakum substations rehabilitated and energized by mid SCADA system installed and fully operational in 32 substations and national control center by mid Barki Tojik's new organizational and business process structures fully operational by mid Barki Tojik annual reports Commissioning certificates Project management consultant s project completion report Assumptions Land acquired as planned Necessary permits obtained on time

15 12 Appendix 1 Activities with Milestones Transmission Network Expansion 1.1. The executing agency engaged the contractor by February Transmission lines Kairakum-Asht commissioned by February Transmission lines Geran-Rumi commissioned by February Inputs ADB: $122 million Government: $19 million High-Voltage Substation Rehabilitation 2.1. The executing agency engaged the contractor by July Six substations rehabilitated and commissioned by July SCADA System Installation 3.1. The executing agency engaged the contractor by July SCADA system installed and commissioned in 32 substations and national control center by July Sector Operational Performance Improvement Program 4.1. The executing agency engaged the contractor by February Phase 1 comprehensive sector assessment completed by August Phase 2 reform program prepared by November Phase 3 reform program approved and implementation initiated by December Program implementation evaluated and future development plan prepared by July SCADA= supervisory control and data acquisition, TALCO= Tajikistan Aluminum Company Source: Asian Development Bank estimates.

16 Problem Tree Analysis CAPS = Central Asian Power System, CAREC = Central Asia Regional Economic Cooperation, CDC = Coordinating Dispatch Center, SCADA = supervisory control and data acquisition Source: Asian Development Bank. Appendix 1 13

17 14 Appendix 2 LIST OF LINKED DOCUMENTS 1. Grant Agreement 2. Project Agreement 3. Summary Sector Assessment: Energy 4. Project Administration Manual 5. Project Classification Summary 6. Contribution to the ADB Results Framework 7. Development Coordination 8. Financial and Economic Analyses 9. Country Economic Indicators 10. Summary Poverty Reduction and Social Strategy 11. Initial Environmental Examination 12. Land Acquisition and Resettlement Plans for the Gerein-Rumi 220 kv Transmission Line, and Kairakhum-Asht 220 kv Transmission Line 13. Risk Assessment and Risk Management Plan 14. Project Concept Outline