Actual Project Name : Tanzania Emergency Power Supply Country: Tanzania. Project Costs (US$M US$M):

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1 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 09/24/2007 Report Number : ICRR12725 PROJ ID : P Appraisal Actual Project Name : Tanzania Emergency Project Costs (US$M Power Supply Country: Tanzania Loan/Credit (US$M Sector Board : EMT Cofinancing (US$M 0 0 Sector(s): Power (100%) Theme(s): Infrastructure services for private sector development (100% - P) L/C Number: C3916 Partners involved : Evaluator : Panel Reviewer : Group Manager : Group: Alvaro J. Covarrubias Kris Hallberg Alain A. Barbu IEGSG 2. Project Objectives and Components: Board Approval Date : 06/08/2004 Closing Date : 08/31/ /31/2006 a. Objectives: Objectives The Memorandum of the President (MOP) states the Project Development Objective (PDO) as: To assist the Government in implementing its emergency measures to avert a prolonged period of severe load shedding which could have crippled economic activities and hindered the delivery of social services. The Development Credit Agreement (DCA) states the PDO as: (i) to assist the Borrower in implementing its emergency measures to avert a prolonged period of severe load-shedding and (ii) address the current power crisis through the financing of electric power purchases and fuel needed to maintain power supply at a level sufficient to prevent a severe contraction of the economy and sustain provision of social services during the Emergency." [numbering added] This review uses the DCA's statement of the PDO since it makes the objective more explicit and amenable to judging efficacy, and also because the discussion in the ICR itself uses this two-part formulation. The project's key performance indicator and target was to reduce the impact of load shedding on GDP by about 6 percent of GDP. The intermediate outcome indicator and target was to minimize or eliminate load shedding by about 27 percent of projected energy requirements in b.were the project objectives/key associated outcome targets revised during implementation? No c. Components (or Key Conditions in the case of DPLs, as appropriate): Part A (US$33.4m at appraisal; US$45.8m at completion): Emergency electric power during the emergency, assisting the Borrower in acquiring emergency electric energy from a private Independent Power Producer (IPP), namely Independent Power Tanzania Ltd (IPTL); and

2 Part B (US$10.4m at appraisal; US$0m at completion): Emergency fuel during the emergency, financing utilization of productive capacity through the purchase of fuel for the state-owned Tanzania Electric Supply Company (TANESCO). Revised components: Part B did not materialize and funds were reallocated to Part A to increase the purchase of emergency electric energy from IPTL. Other significant changes: No d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project cost (US$45.8 million) was 4.6 percent higher than the appraisal estimate (US$43.8 million) because of a favorable rate of exchange of the SDR to the US dollar that allowed the Borrower to purchase more emergency electric energy from IPTL than the original estimate. The IDA credit contributed to project financing with US$45.4 million and the Government contributed with the balance of US$0.4 million. The Development Credit Agreement was declared effective on 09/13/2004 or three months after Board approval. The credit was fully disbursed and its closing date was extended 11 months to close on 07/31/ Relevance of Objectives & Design: The project objectives were consistent with the Bank's strategy of supporting Tanzania in developing and using its Songo Songo natural gas resources. They were also consistent with the Government s priority of addressing the severe hydroelectric crisis caused by the 2003 drought through specific emergency measures intended to avert an impending energy and economic crisis, and to ensure generation capacity for future energy requirements at least cost. The project's narrow focus on acquiring emergency electrical power seems to be more appropriate to achieving objective (ii) as set out in the DCA rather than objective (i). For instance, there appears to have been little consideration given to managing demand for power during the crisis. 4. Achievement of Objectives (Efficacy): (i) Assist the Borrower in implementing its emergency measures to avert a prolonged period of severe load-shedding: substantially achieved. Considering that the Emergency Power Supply Project focused on the short-term objective of financing electric power purchases, and that longer-term sector reforms are being addressed in another project (the Songo Songo Project, 3569-TA), the achievement of this objective is the same as for Objective (ii). Load shedding was totally avoided throughout 2005, but was again necessary in (ii) Address the current power crisis through the financing of electric power purchases and fuel needed to maintain power supply at a level sufficient to prevent a severe contraction of the economy and sustain provision of social services during the Emergency. 5. Efficiency (not applicable to DPLs): Because this was an emergency project, no ERR/FRR estimate was required at appraisal. Since the ICA credit was used exclusively to purchase thermal power from IPTL (an Independent Power Producer) which is stated to be expensive, it is likely that the efficiency of the project is modest. a. If available, enter the Economic Rate of Return (ERR ERR)/Financial Rate of Return (FRR FRR) at appraisal and the re-estimated estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: Based on substantial relevance, substantial efficacy, and modest efficiency, the outcome of the project is rated Moderately. a. Outcome Rating : Moderately

3 7. Rationale for Risk to Development Outcome Rating: Although the unusually good rains in late 2006 and early 2007 have restored to full capacity the water of the Mtera reservoir, a reoccurrence of load shedding is the main risk to the development outcome of the project,. This risk remains high because the absence to date of a regional power transmission system makes the country very vulnerable to droughts notwithstanding implementation of new IPPs. Moreover, in the absence of a sustained commitment by the Government to regularly implement cost-reflective tariffs, the financial recovery of TANESCO will remain the biggest issue for the utility. Also, considering that parallel activities (the demand-side management study, the conversion of IPTL to use indigenous gas, and the rehabilitation of TANESCO s transmission and distribution network to reduce losses) under the Songo Songo Project were not implemented by the end of the Emergency Project, it is very clear that the project achievements have not been sustainable as indicated by the fact that load shedding could not be averted in 2006 when the project funding was no longer available. a. Risk to Development Outcome Rating : High 8. Assessment of Bank Performance: a. Ensuring Quality at Entry. Rating: The project was prepared and processed quickly (two months from Appraisal to Board) in view of the emergency nature of the needs of the country. The project objectives met the need to avoid load shedding in the power sector in It had a simple design (injection of cash to TANESCO to finance the purchase of fuel and electricity) with minimal conditionality and flexibility for credit disbursement including 20 percent for retroactive financing. Although the purchase of fuel and electricity was not an investment, it was considered a necessary technical bridge to buy time while the expected investments financed as components of the Songo Songo project were implemented (conversion of Ubungo to domestic natural gas) without load shedding affecting GDP growth. b. Quality of Supervision Rating: Moderately Supervision of the Emergency Power Supply Project took two years from July 2004 to July The credit funds were quickly and fully disbursed by the Bank over the period and as a result load shedding was averted. A mid-term review of the project was undertaken in November 2004 at which time the project team did not revise the project implementation timetable even though the gas conversion of IPTL was not feasible as scheduled. However, the Bank was very flexible in responding quickly to the government s request to amend the DCA to reallocate funding to buy additional emergency generation through leasing arrangements, as part of the contingency plan when purchase of Jet A1 fuel proved impossible, and later to buy additional power generation from IPTL when the leasing arrangements also failed. Form July 2005 to July 2006, project supervision was limited to ensure compliance with financial and performance reporting obligations and, in view of the lack of progress in implementing the emergency program, the project team downgraded implementation progress rating to moderately satisfactory. a. Ensuring Quality -at at-entry Entry: b. Quality of Supervision :Moderately c. Overall Bank Performance : 9. Assessment of Borrower Performance: a. Government Performance. Rating: Moderately The Government drew up a satisfactory emergency plan as an addition to the earlier reform program being implementing. It also approved tariff increases of 4.5 percent in May 2004 and 5 percent in January However, further tariff increases were not sufficient to make TANESCO financially sustainable, because of the costs of power purchased from IPTL. b. Implementing Agency Performance: Rating: Moderately Since TANESCO has no control over tariff increases its finances have been always facing a negative cash flow. Following complex negotiations of a contract with a supplier, TANESCO failed to purchase Jet A1 fuel for Ubungo generators prior to domestic natural gas availability, and its attempt to purchase emergency leased capacity from an IPP did not work out. Finally, an amendment of the Credit Development Agreement permitted TANESCO to purchase all electricity form IPTL. Also, TANESCO was late in submitting its audited accounts for 2005 and the final audit of the project s accounts.

4 c. Overall Borrower Performance. Rating: Moderately. a. Government Performance :Moderately b. Implementing Agency Performance :Moderately c. Overall Borrower Performance :Moderately 10. M&E Design, Implementation, & Utilization: (i) M&E Design: The key performance indicators mentioned in section 4 were inappropriate and inadequate. Since load shedding varies from year to year depending on hydrological conditions and demand, it would be more appropriate to use this indicator only over a long period of time. And measuring the impact of load shedding on GDP seems even more complicated and difficult to estimate (and the methodology is not described anywhere). Moreover, there are no targets, either for the "impact on GDP" or the load shedding itself. (ii) M&E Implementation: It is not clear from the ICR as to how the outcome indicators (as they exist) were estimated. (iii) M&E Utilization: The ICR does not indicate how M&E was utilized. a. M&E Quality Rating : Negligible 11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Environment. The project was rated C for environmental assessment purposes. The project did not involve any resettlement or compensation because it made use of existing facilities. The project was executed in compliance with the Bank s Environmental Safeguard Policies and Environment, Health, and Safety Guidelines, mainly in connection with the air quality/emissions and noise abatement of the functioning of Ubungo and IPTL. Procurement. There was one anomaly : the reallocation of US$8.4 million to purchase additional generation output from IPTL in February 2005 was done without seeking no objection by Operations Procurement Review Committee (OPRC). This violated the Bank s procurement guidelines in the sense that any increase in an initial contract amount exceeding 15 percent requires mandatory prior review by the Regional Procurement Manager (RPM) or OPRC. Since the expenditures were in line with the overall project objectives and were disbursed under a category previously approved by OPRC for US$32.2 million, the project team likely felt that it was most important not to create further delays, given the emergency nature of the project. Auditing and Financial statements. The Credit closed on July 31, 2006, but the second external audit on the Project s records and accounts was late and received on March 29, Moreover, TANESCO has been late in submitting its audited financial statements. Its statement for the calendar year 2005 was only submitted in March Unintended outcomes and impacts: None 12. Ratings: ICR IEG Review Reason for Disagreement /Comments Outcome: Moderately Moderately Risk to Development Significant High Broader sector issues and demand Outcome: side management have not been addressed to any significant degree. Bank Performance : Borrower Performance : Moderately Quality of ICR : Moderately Unsatisfactory NOTES: - When insufficient information is provided by the Bank for IEG to

5 arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: An emergency operation should be a part of a wider dialogue or strategy, with clear goals specified for both short term and long terms aspects of the total effort. Demand side management should be a complement to emergency power interventions. 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: Three major shortcomings are noted: (i) The ICR failed to clearly distinguish the achievements of the Emergency Power Supply Project from those of the Songo Songo project, thus providing a misleading evaluation of the former. (ii) The ICR's treatment of M&E was inadequate (see Section 10). (iii) Although an ERR/IRR was not strictly required due to the emergency nature of the operation, the ICR could have provided other measures of project efficiency. a.quality of ICR Rating : Unsatisfactory