Document of. The World Bank FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-77480) ON A IN THE AMOUNT OF US$305 MILLION

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1 Public Disclosure Authorized Document of FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-77480) ON A Loan Public Disclosure Authorized IN THE AMOUNT OF US$305 MILLION TO THE REPUBLIC OF INDIA FOR THE Public Disclosure Authorized HARYANA POWER SYSTEM IMPROVEMENT PROJECT June 25, 2018 Energy and Extractives Global Practice South Asia Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective February 11, 2018) Currency Unit = Indian Rupees (INR) INR 64.4= US$1 FISCAL YEAR April 1 - March 31 ADR AMI BIS AMR AT&C CAPEX CGFA CPS DPR DHBVN EA EIRR E&S ESPP EMP FM GIS GoH GoI GSDP HERC HUDA HVDS HVPN IA ISR IT KPI LT M&E MIS MU NPV ABBREVIATIONS AND ACRONYMS Alternative Dispute Resolution Advanced Metering Infrastructure Bureau of Indian Standards Automatic Meter Reading Aggregate Technical and Commercial Capital Expenditure Corporate Governance and Financial Accountability Country Partnership Strategy Detailed Project Report Dakshin Haryana Bijli Vitran Nigam Limited Environmental Assessment Economic Internal Rate of Return Environmental and Social Environmental and Social Policies and Procedures Environmental Management Plan Financial Management Geographic Information System Government of Haryana Government of India Gross State Domestic Product Haryana Electricity Regulatory Commission Haryana Urban Development Authority High Voltage Distribution System Haryana Vidyut Prasaran Nigam Limited Implementing Agency Implementation Status and Results Report Information Technology Key Performance Indicator Low Tension Monitoring and Evaluation Management Information System Million Units Net Present Value

3 PAD PDO PMC PIE R-APDRP RoW S&I SCADA TA UDAY Project Appraisal Document Project Development Objective Project Management Consultant Project Implementing Entity Restructured Accelerated Power Development and Reform Program Right of Way Supply and Installation Supervisory Control and Data Acquisition Technical Assistance Ujwal DISCOM Assurance Yojana Regional Vice President: Ethel Sennhauser Country Director: Junaid Kamal Ahmad Senior Global Practice Director: Riccardo Puliti Practice Manager: Demetrios Papathanasiou Task Team Leader(s): Mani Khurana, Kavita Saraswat ICR Main Contributor: Barsha Pandey

4 TABLE OF CONTENTS DATA SHEET... ERROR! BOOKMARK NOT DEFINED. I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES... 5 A. CONTEXT AT APPRAISAL... 5 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)... 9 II. OUTCOME A. RELEVANCE OF PDOs B. ACHIEVEMENT OF PDOs (EFFICACY) C. EFFICIENCY D. JUSTIFICATION OF OVERALL OUTCOME RATING E. OTHER OUTCOMES AND IMPACTS (IF ANY) III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION B. KEY FACTORS DURING IMPLEMENTATION IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE C. BANK PERFORMANCE D. RISK TO DEVELOPMENT OUTCOME V. LESSONS AND RECOMMENDATIONS ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ANNEX 3. PROJECT COST BY COMPONENT ANNEX 4. EFFICIENCY ANALYSIS ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ANNEX 6. SUPPORTING DOCUMENTS (IF ANY)... 40

5 DATA SHEET BASIC INFORMATION Product Information Project ID P Country India Original EA Category Project Name HARYANA POWER SYSTEM IMPROVEMENT PROJECT Financing Instrument Investment Project Financing Revised EA Category Organizations Borrower Government of Haryana Implementing Agency DHBVN, HVPN Project Development Objective (PDO) Original PDO The development objective of the proposed project is to improve the availability, efficiency and accountability of electricity supply in the state of Haryana through strengthening the transmission and distribution systems. PDO as stated in the legal agreement The objective of the Project is to improve the availability, efficiency and accountability of electricity supply in Haryana through strengthening the transmission and distribution systems. Page 1 of 40

6 FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing IBRD ,000, ,212, ,212,150 Total 330,000, ,212, ,212,150 Non-World Bank Financing Borrower 80,000, Total 80,000, Total Project Cost 410,000, ,212, ,212,150 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 04-Aug Oct Nov Dec Dec-2017 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) 19-Dec Apr-2017 Amount Disbursed (US$M) Key Revisions Change in Loan Closing Date(s) Change in Components and Cost Cancellation of Financing Change in Financing Plan Reallocation between Disbursement Categories Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Satisfactory Substantial Page 2 of 40

7 RATINGS OF PROJECT PERFORMANCE IN ISRs No. Date ISR Archived DO Rating IP Rating Actual Disbursements (US$M) Feb-2010 Satisfactory Moderately Unsatisfactory May-2010 Satisfactory Satisfactory Dec-2010 Satisfactory Satisfactory Jun-2011 Satisfactory Satisfactory Jan-2012 Satisfactory Satisfactory Oct-2012 Satisfactory Moderately Satisfactory Jun-2013 Moderately Satisfactory Moderately Satisfactory Dec-2013 Moderately Satisfactory Moderately Satisfactory May-2014 Moderately Satisfactory Moderately Satisfactory Feb-2015 Moderately Satisfactory Moderately Satisfactory Aug-2015 Moderately Unsatisfactory Moderately Unsatisfactory Apr-2016 Moderately Satisfactory Moderately Satisfactory Jun-2017 Moderately Satisfactory Moderately Satisfactory Dec-2017 Moderately Satisfactory Moderately Satisfactory SECTORS AND THEMES Sectors Major Sector/Sector (%) Energy and Extractives 100 Energy Transmission and Distribution 62 Other Energy and Extractives 38 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Page 3 of 40

8 Private Sector Development 28 Business Enabling Environment 17 Investment and Business Climate 17 Jobs 11 Job Creation 11 Public Sector Management 33 Public Administration 33 Transparency, Accountability and Good Governance Human Development and Gender 17 Health Systems and Policies 17 Health Service Delivery 9 Adolescent Health 4 Child Health 4 Urban and Rural Development 22 Urban Development 11 Urban Infrastructure and Service Delivery 11 Rural Development 11 Rural Infrastructure and service delivery ADM STAFF Role At Approval At ICR Regional Vice President: Isabel M. Guerrero Ethel Sennhauser Country Director: N. Roberto Zagha Junaid Kamal Ahmad Senior Global Practice Director: John Henry Stein Riccardo Puliti Practice Manager: Salman Zaheer Demetrios Papathanasiou Task Team Leader(s): ICR Contributing Author: Sudeshna Ghosh Banerjee, Ashish Khanna Mani Khurana, Kavita Saraswat Barsha Pandey Page 4 of 40

9 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. Sectoral challenges. India s Economic Survey of 2006 estimated the annual cost to the economy from power sector inefficiencies to be US$75 billion, or 7 percent of gross domestic product. During the appraisal period in 2009, bottlenecks in intra-state electricity transmission and distribution network were identified as one of the main challenges to India s economic growth. Compared to central sector entities, state entities have less mature governance structures and are more vulnerable to changes in political economy. State entities are also financially constrained due to below-cost-recovery tariffs, operational inefficiencies, and underdeveloped institutions. 2. State of Haryana. Haryana was and continues to be a middle-income state 1 with a population of 21 million, 2 traditionally dependent on agricultural economy. However, a growing manufacturing and services sector has fueled rapid real estate and infrastructure growth, shifting agriculture s role in the composition of its economy. The state, located in the northern part of India, has towns that are integral to the national capital region. It was the first state to achieve 100 percent electrification in 1971 and has infrastructure supporting various economic activities. It has India s largest automobile hubs and accounts for two-thirds of passenger cars, 50 percent of tractors, and 60 percent of motorcycles manufactured in the country. The state has also emerged as a base for the knowledge industry, including information technology (IT) and biotechnology. 3. Haryana s power sector. Haryana was among the pioneer states that initiated legal, structural, regulatory, and institutional reforms in the power sector much before the enactment of Electricity Act In , the Government of Haryana (GoH) unbundled and corporatized the vertically integrated Haryana State Electricity Board into four companies Haryana Power Generation Corporation Limited to undertake generation of electricity; Haryana Vidyut Prasaran Nigam Limited (HVPN) to undertake transmission; and Uttar Haryana Bijli Vitran Nigam Limited in the north and Dakshin Haryana Bijli Vitran Nigam Limited (DHBVN) in the south, for electricity distribution and retail supply. Further, the Haryana Electricity Regulatory Commission (HERC) was set up in 1998 as an autonomous entity. However, despite these developments, Haryana s power sector faced the twin challenges of serving an increasingly commercial, urban, and industrial customer base while also serving the needs of its rural communities. 4. The main challenges faced by the sector at appraisal are summarized as follows: (a) Rising electricity demand and persistent shortages. Haryana was able to meet a peak demand of 4,863 MW in with peak-time deficit of 1,200 1,500 MW and off-peak deficit of MW. These resulted in expensive and carbon-intensive coping strategies by consumers and businesses. 1 Gross state domestic product (GSDP) US$1,143 per capita in FY According to Economic Survey of Haryana Page 5 of 40

10 (b) Low cost recovery through tariffs. With rising costs and deteriorating service levels, state authorities found it difficult to justify higher tariffs, which just exacerbated the situation. The main impact was felt by citizens who lacked access to alternate means of power supply, that is, farmers and poor households in urban and rural areas. The state opted instead to subsidize supply costs from its budget, which adversely affected spending on social sectors and still left the utilities vulnerable to inadequate compensation. (c) Power supply to agriculture sector. Groundwater (pumped through electricity-powered pumps) was (and continues to be) the predominant means of irrigation, and electricity consumed by agriculture constituted (and still does) almost 40 percent of total electricity consumption. Electricity supply to agriculture pumps was largely unmetered and priced at a highly subsidized tariff. This led to an ambiguity on electricity consumption estimates related to the agriculture sector, and the regulator was unable to compensate the utilities fully. (d) Incomplete sector and institutional reforms. The sector had been unbundled a decade ago, but institutions were immature and their empowerment was still a work in progress. The companies, though autonomous, suffered from weak management systems and continued to depend on the GoH for critical areas like recruitment. 5. The above challenges led to a worsening financial performance of the power sector and higher dependence on subsidies. The budget subsidies for power sector increased from US$210 million in FY to about US$482 million in FY (1.5 percent of GSDP). Rationale for the Project 6. An efficient and reliable electricity transmission and distribution network at the state level is key to making India s power sector responsive to the demands of consumers and fueling economic growth. In the past, the World Bank had led pioneering efforts in the Indian power sector in the states of Haryana, Orissa, Andhra Pradesh, Uttar Pradesh, and Rajasthan and achieved mixed results. With lessons drawn from these engagements as well as international experience, the World Bank was well placed to support the project. 7. Given that Haryana was among the Indian states supported by the World Bank in the late 1990s, this project was a natural transition from a policy and structural support to investment lending support combined with technical assistance (TA) for specific areas. The project also contributed to the implementation of the broader South Asia Energy Strategy of the World Bank that identified service/distribution improvement, clean energy, and transmission/energy markets as the three pillars of engagement. 8. The project was also aligned with the priorities of the Government of India (GoI) and the World Bank s Country Strategy for India, mainly (a) achieving rapid economic growth and (b) increasing the effectiveness of service delivery by focusing on infrastructure investments. The distribution component of the project was aligned with the GoI s Restructured Accelerated Power Development and Reform Program (R-APDRP) launched in FY2008, and the distribution subprojects were designed to focus on reducing technical and commercial losses and on improving services to further leverage R-APDRP investments. Page 6 of 40

11 Theory of Change (Results Chain) 9. As shown in Figure 1, the results chain was clear and simple. It also fitted well with the needs and priorities of the sector. It was built on the assumption that Government and utilities ownership of the actions identified to strengthen institutional capacity and corporate governance of the utilities, was solid. The project was designed to support network augmentation as well as institutional development and improvement in operational efficiency. Based on lessons learnt from the past state level engagements, the investment sub-projects were confined to specific geographies and focused on both short-term and long-term results, by achieving intermediate outcomes, directly related to areas of intervention rather than the sector as a whole. The project considered the political economy of the sector and adopted a phased approach to institutional changes rather than a drastic sector reform approach as was done in past state level engagements. The first component supported the transmission company to increase its network capacity to cater enhanced supply. Component 2 focused on improving the efficiency and reliability of electricity supply in selected high load centers in urban areas, while Component 3 on Technical Assistance, was designed to include support on aspects related to successful implementation of Components 1 and 2, like project planning and implementation, and institutional aspects like employee management and corporate governance. Areas of intervention included under Component 3 were identified through a highly consultative process initiated during project preparation which resulted in the development of a capacity building and institutional strengthening plan. On the technical side, the utilities were supported during project preparation to undertake load flow studies to identify least cost investments, update technical specifications and prepare bidding documents based on World Bank guidelines. Given the significance of subsidies to financial sustainability of the sector and importance of improving regulatory effectiveness, the World Bank provided support to Government of Haryana and HERC (outside the project but concurrent to it) on development of an MIS to monitor agriculture consumption and put in place multi-year tariffs. Figure 1. Results Chain Activities Outputs Outcomes Project Activities 1. Contract to build transmission lines and associated substations 2. Contracts to convert low tension (LT) lines to high tension lines and construct new 11 kv feeders for Outputs Transmission lines and substations built High voltage distribution lines constructed. New feeders constructed to relieve overloaded feeders Intermediate Outcomes Increase in transformation capacity and transmission lines Reduction in aggregate technical and commercial (AT&C) losses Outcome Improved availability of electricity and reliability of transmission system. Improve efficiency and reliability Longer term outcome Enhance the state s economic growth by alleviating power supply bottlenecks in an economical and sustainable manner Page 7 of 40

12 Activities Outputs Outcomes Project Activities urban distribution system 3. Technical assistance to strengthen institutional capacity and corporate governance of the utilities Outputs Institutional strengthening action plan implemented Corporate Governance and Financial Accountability (CGFA) Action Plan implemented Intermediate Outcomes Improved institutional capacity Improved the corporate governance of the utilities Outcome Improve the accountability and institutional capacity of the utilities (transmission and distribution). Longer term outcome Project Development Objectives (PDOs) 10. The original PDO as stated in the legal agreement is to improve the availability, efficiency and accountability of electricity supply in Haryana through strengthening the transmission and distribution systems. Key Expected Outcomes and Outcome Indicators 11. The project aimed to achieve three key outcomes measured by the four PDO indicators (outlined in Annex 1) as follows: Table 1. List of outcomes and indicators Expected Outcomes Improve the availability of electricity and efficiency of transmission system Improve the efficiency of the distribution system (selected) Improve accountability and institutional capacity of the utilities (transmission and distribution) Outcome Indicators Total energy transmitted through the transmission system (million units); Increase in Transmission Lines (Kilometers); and Increase in transformation capacity (kva) Reduction in AT&C losses (in percentage); and Introduce system for managing and measuring customer service standards in selected urban centers (Yes/No). Development and implementation of institutional strengthening; Proportional reduction in weighted average of delays in project execution (Months); Inter-unit reconciliation of accounts (Yes/No); and Development and implementation CGFA action plan. Components 12. The project had three components. Please see Table 2 for details. The difference in estimated and actual allocation is due to a cancellation which is discussed in section B. Page 8 of 40

13 Table 2. Project Components Component Component 1: Transmission System Strengthening (Estimated US$312.5 million) (Actual US$312.5 million) Component 2: Urban Distribution System Strengthening (Estimated US$87.5 million) (Actual US$67.5 million) Component 3: Technical Assistance and Capacity Building of Transmission and Distribution Companies (Estimated US$10 million) (Actual US$5 million) Description This component included priority investments in 400 kv, 220 kv, 132 kv, and 66 kv substations and transmission lines for system strengthening and augmentation. These investments were expected to reduce overall system losses, improve reliability, and increase the transfer capability of the state transmission network. This component adopted the twin pillar strategy of improving operational efficiency and enhancing customer service. Three high growth towns (Charkhi Dadri, Faridabad, and Gurgaon) were selected for their distribution infrastructure improvement. The specific activities included (a) conversion of feeder network to High Voltage Distribution System (HVDS) (to reduce technical and commercial losses); (b) construction of new 11 kv feeders to relieve overloaded feeders; (c) construction of dedicated industrial feeders; (d) building new 33 kv substation to respond to increased demand; and (e) Advanced Metering Infrastructure (AMI) for select consumers. The TA activities were designed to support project implementation and institutional development through interventions designed to put in place a revamped organization structure and improved business processes, employee management systems, and automation of business functions. Given the high-growth scenario in areas served by the distribution utility, this component also supported development of a long-term investment planning process. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) 13. The PDO and outcome targets remained unchanged. One significant subproject (AMI) under Component 2 was deleted. Revised PDOs and Outcome Targets Not applicable. Revised PDO Indicators Not applicable. Revised Components Not applicable. Page 9 of 40

14 Other Changes 14. The project was restructured twice (level 2) on December 19, 2014, and February 23, 2017, and on both occasions the project closing date was extended. In the first instance, closing date was extended to allow for completion of ongoing contracts and add new subprojects (from the least-cost investment plan prepared during preparation) to utilize surplus funds available due to U.S. dollar/indian rupee devaluation and cost efficiencies achieved during contracting. In the second instance, the closing date was extended to allow for completion of ongoing contracts. No new subprojects were added. The first restructuring extended the project closing to November 30, 2016, while the second restructuring extended the project closing date to December 31, 2017, cancelled US$25 million of unallocated funds and increased the percentage of eligible expenditure financed by the World Bank. Rationale for Changes and Their Implication on the Original Theory of Change 15. Rationale for the first restructuring. The first seven transmission packages were awarded during the first year of the project and indicated average savings of 9 percent from estimates. There was a pause in procurement after two more packages were awarded, for almost a year, as the planned generation capacity addition was delayed and HVPN did not want to create stranded transmission assets. Also, contractual issues (such as incompetent sub-contractors, improper operational health and safety practice) were faced during implementation of awarded contracts due to which implementation was delayed. Further, the contracting of AMI package had not been completed though the process was quite advanced. The first restructuring was done to extend the project closing date from December 31, 2014, until November 30, 2016, to allow completion of ongoing contracts, allow contracting of the AMI package, and add additional subprojects to use savings from devaluation of the Indian rupee and contracting efficiency. 16. Rationale for the second restructuring. The second restructuring was primarily done for three reasons: (a) To extend the Project closing date from November 30, 2016 to December 31, 2017 This was done to allow time for completion of the already awarded packages that were delayed due to contractor default on account of reasons beyond the control of Implementing Agency (IA), and Right of Way (RoW) issues. Further, the upgradation of the supervisory control and data acquisition (SCADA) cum Energy Management System (sub-project under Component 1) was yet to be completed. This sub-project was of strategic importance as an upgraded SCADA system was necessary in the transmission utility to effectively utilize the enhanced asset base and improve grid operations and system reliability. (b) To cancel $25 million of loan amount - The client decided to cancel the procurement of AMI and bundle it with, the then recently announced, Smart City investments to ensure technical consistency and to avoid infructuous expenditure. Further, there were cost savings in some subprojects. The part cancellation was done to account for these two factors. (c) To increase the percentage of eligible expenditure to be financed by the World Bank from 80 percent to 90 percent Under the Loan Agreement, the World Bank had agreed to finance 80 percent of the eligible expenditures against Components 1 and 2. However, during implementation, the costs associated with land acquisition, crop/forest/railway Page 10 of 40

15 II. OUTCOME A. RELEVANCE OF PDOs compensation, which were all part of the project costs but not eligible expenditures for Bank s purposes, increased significantly. The counterparts contributions exceeded the agreed counterpart funding of 20 percent of the project costs. Therefore, the borrower requested Bank to finance 90 percent of the eligible expenditures under Components 1 and 2. Assessment of Relevance of PDOs and Rating 17. The project was and remained substantially aligned with and relevant to both the World Bank s Country Strategy and the GoI s strategic need to scale-up infrastructure investment and services at the time of project appraisal. The GoI at the appraisal stage, that is, during 2009 envisaged an ambitious investment program of US$175 billion to meet the expanding demand for power and targeted over 80,000 MW of new generation capacity, with corresponding investments in transmission and distribution networks. 18. Similarly, the PDO is relevant to Outcome 1.2 (improved inter-regional power transmission connectivity) of the Country Partnership Strategy (CPS). The CPS promotes financially sustainable access to electricity by addressing bottlenecks in generation, transmission, and distribution at both the state and national levels. Continued rapid economic growth is a precondition for poverty reduction and shared prosperity, and to achieve economic growth, it is imperative that India can provide all its citizens with affordable and reliable electricity supply, in line with growing demand. Moreover, the power sector developed well in Haryana in the past several years to the extent that power disruptions have reduced significantly in the three cities where project investments were made. 19. The PDOs were derived from the Government s priorities, as mentioned earlier, by addressing the Government s need for both hard and soft support through the two project components. Component 1 and 2 supported in solving the bottlenecks that the sector faced during the appraisal stage. Component 3, on the other hand, focused on improving staff capacity, operational efficiency, and accountability. Rating: Considering the above facts, explanations, and assessment, the overall relevance of PDOs is rated High. B. ACHIEVEMENT OF PDOs (EFFICACY) 20. The PDO had three main outcomes: (a) Improve the availability of electricity and efficiency of transmission system; (b) Improve the efficiency of the distribution system (selected); and (c) Improve the accountability and institutional capacity of the utilities (transmission and distribution). Page 11 of 40

16 21. To measure the PDO s achievement, four PDO-level indicators and five intermediate indicators were developed. For more information on indicators and status at completion, please refer to annex 1. Assessment of Achievement of Each Objective/Outcome Outcome Area 1: Improve the availability of electricity and efficiency of transmission system 22. The project achieved the targets set at the beginning of the operation. The project was successful in transmitting 49,220 million units (MU) from 26,145 MU, increase the transmission lines length from 8,203 km to 14,701 km, and increased the transformation capacity from 9,700 MVA to 19,750 MVA. The project has surpassed its targets of establishing 13,500 km of transmission line and increasing the transformation capacity to 16,000 MVA of the transformation capacity. Outcome 1 indicator total energy transmitted through the transmission system (MU) to measure the achievement is an indicative measurement to capture the benefit of the intervention in strengthening the transmission network in the state. 23. Although Outcome 1 is clear, achievable, and outcome-oriented, the outcome indicator for this is not fully attributable to the World Bank s investment. The increase in total transmitted electricity is not solely the result of this project, but also to other investments HVPVL has taken up during the lifetime of this project. While, it is difficult to measure the electricity transmitted due to the World Bank s investment, Bank s intervention has increased the transformation capacity and thus, resulted in increased electricity transmission. 24. The Outcome Area 1 had two intermediate indicators: Increase in transmission lines (circuit km); and Increase in transmission capacity (MVA). 25. The project fully achieved the intermediate indicators before the closing date and in fact, surpassed the target. The achievement of the targets has addressed the challenges of supply shortages, improved the technical losses, and dependence on power purchase from other states. In total, over 45 substations of 19,750 MVA capacity and its associated transmission lines and SCADA expansion have helped in transmission of increased power generation across the state resulting in improved availability of power supply, reduction in overall system losses, and enhanced power quality in the intervention areas. 26. As stated above, the PDO indicators for availability measured not the project level, but state level targets. While this makes it difficult to assess the outcomes achieved by the Bank investment, the surpassed targets that the state has been able to achieve indicates that the transmission company has been performing well. The performance of the utility can partly be attributed to Bank s effort. 27. The project faced challenges that affected the achievement of the outcomes during implementation, namely RoW issues, local protests for land compensation (under other infrastructure projects) closer to World Bank project areas, contractor default due to liquidity issues, significant capital expenditure (CAPEX) scale up while project implementation capacity was still maturing, and deliberate pause in contract award to avoid stranded transmission assets due to delay in generation capacity coming on line. The outcomes would have been achieved earlier if the project had not face these challenges. Page 12 of 40

17 Though some of these issues were beyond the project s control, it tried its best to resolve them by working together with the district administration. Outcome Area 2: Improve the efficiency of distribution network in selected cities 28. Outcome Area 2 is measured by one outcome-level indicator and two intermediate level indicators. The PDO was mainly focused on improving the distribution system efficiency of three towns namely Charkhi Dadri, Faridabad, and Gurgaon by replacing the low voltage network with high voltage, construction of new feeders, and relocation of consumer meters to facilitate meter-reading. The AT&C loss figures available during project preparation did not appear to be based on reliable data and therefore, it was decided that a baseline would be developed through a third party and losses monitored against this baseline. However, the target figures were decided based on data available prior to baseline study. The outcome was partially achieved as all planned feeders could not be converted due to RoW issues, and the urban development authority did not allow construction of overhead network in some areas because of which no work was carried out in these areas. Further, the reconnection and relocation of consumer meters was not initially included under the project and utility preferred to undertake this work using their own resources. This also resulted in partial achievement of planned outcome. In subsequent contract packages, this scope was included. Name of Town Table 3. AT&C losses comparison AT&C Losses (Before the Project) (%) AT&C Losses (Targeted in Project DPR) (%) AT&C Losses (FY ) (%) Charkhi Dadri Gurgaon Faridabad Note: DPR = Detailed Project Report. 29. The project was able to overachieve the AT&C loss reduction target in these cities. In the case of Dadri, the baseline data in the Project Appraisal Document (PAD) varies significantly when compared to the baseline survey data (70 percent according to baseline survey versus 52 percent as per PAD). However, the Results Framework was not updated to reflect the data collected by third party consultant. For assessment of the outcome and to address the ambiguity of the data, the difference between target and baseline has been used to measure the achievement. At appraisal stage, the baseline AT&C losses were percent and target was to reduce to 26 percent, that is, percent reduction in AT&C losses. According to the latest report from the third-party consultant, more than 35 percent reduction in AT&C losses has been achieved. Nevertheless, the targets have been met and this indicator is fully achieved. 30. There is a duplication of PDO and intermediate-level indicators. The reduction of AT&C losses is used as an indicator for both the project outcome indicators as well as intermediate outcome indicators. The first intermediate-level indicators are already discussed earlier. The second intermediate-level indicator was to Introduce system for managing and measuring customer service standards in select urban centers. This intermediate-level indicator is fully achieved. The DHBVN established a customer grievance system and grievances are received at a centralized Customer Care Center in Gurgaon. Page 13 of 40

18 31. The deployment of AMI could not be delivered despite best efforts from the World Bank as well as the Government. Initially, AMI deployment was deliberately delayed as India had set up India Smart Grid Task Force to prepare technical specifications for smart meters. Indian standards for smart meters were considered necessary to develop an interoperable AMI system as well as meet the regulation of the Ministry of Consumer Affairs that requires all electricity meters to be BIS3-certified. However, while the specifications were still under finalization, the IA decided to go forward with Automatic Meter Reading (AMR) instead of AMI as AMR was already deployed on high value consumers while large scale implementation of AMI was still seen as an expensive option and limited to pilot projects. During pre-bid meetings for AMR package, IA received strong market feedback about maturing of AMI technology and modified the technical specifications included in AMR package to allow AMI solutions. However, the procurement (single stage single packet) had to be cancelled as the lower bids did not qualify and there was a significant cost difference between the lowest (unqualified) and the qualified bidder. The Procurement Strategy was revised in the next round of bidding and two-stage two packet system was followed with provision for technical discussions with qualified bidders and revision of technical requirements based on these discussions. The procurement was almost at award stage when the GoH decided that they would take up smart meters as a part of Gurgaon Smart City Project which was announced in 2015 and cancelled the procurement. Outcome Area 3: Improve the accountability and institutional capacity of the utilities (transmission and distribution) 32. The Outcome Area 3 is achieved. The outcome-level indicator development and implementation of institutional strengthening action plan and corporate governance and financial accountability action (CGFA) plan were prepared and implemented. There have been shortcomings in the implementation, however, the plans are under implementation and well-endorsed by the management of both the implementing agencies. The DHBVN and HVPN made considerable efforts toward strengthening of the various FM and corporate governance aspects as well as institutional capacity development. Table 4. List of TA activities Area of Intervention Output Results TA activities undertaken during project preparation using grant funds Diagnostic studies and vision exercise Capacity Building and Institutional Strengthening Plan Interventions for Component 3 of the project were identified Network planning Investment Report based on load flow studies Investments required in the transmission system were identified and prioritized. The top priority investments were undertaken under Component 1. TA activities undertaken under the Project using loan funds Contract Management including safeguard aspects Project Management Consultant (PMC) appointed (a) PMC provided resources to IAs to supervise and monitor contracts (b) Standard contract monitoring formats prepared (c) Asset quality, particularly civil works, ensured (d) Safeguard management support provided 3 Bureau of Indian Standards Page 14 of 40

19 Area of Intervention Output Results Long-term capital investment planning Employee management Business Process Reengineering IT support Long-term capital investment program till 2025 prepared using standard load forecast methods and robust network topology Key performance indicator (KPI)- based performance management system; Transfer Policy Redesigned organization structure and business processes to strengthen the key processes (including finance) Recruit IT-skilled resources to implement/integrate its Enterprise Resource Planning, R-APDRP, and other ongoing IT initiatives Training program Funding of the training calendar in the HVPN and DHBVN Concurrent TA activities (under grant funds) Agriculture subsidy Monitoring and Evaluation (M&E) framework to estimate and monitor agriculture consumption Regulatory capacity enhancement Multiyear tariffs regulations Recommendations like distribution at 33 kv, underground network, compact substations, and so on are being followed in expansion of Gurgaon city s electricity distribution network. KPI-based performance management system rolled out in both IAs Transfer Policy notified Prepared manuals relating to financial accounting, internal audit costing and budgeting Updated geographic information system (GIS) database including assisting DHBVN in cleaning up and updating consumer records; validated system generated AT&C loss reports and helping the DHBVN identify and addressrelated issues Personnel increased knowledge through technical, managerial, and training on safeguards Three methodologies developed and presented to regulator. Tool for accepted methodology developed and handed over to distribution utility. The accepted methodology applied by regulator to approve subsidy. The HERC adopted the multiyear tariff regulation and have used it ever since Assessment of Achievement of Each Objective/Outcome Justification of Overall Efficacy Rating 33. Based on the earlier assessment of the achievements of the three PDOs, the project s overall efficacy is rated Substantial. The Project focused on institutional capacity building which is a significant factor for the success of any institutions and sustainability of the project. The Project was successful in developing the capacity of the human resources with respect to procurement planning, contract management, safeguards etc. Through this Project, the two implementing agencies could make considerable changes and upgradation in their business processes especially focusing on financial management, inter audit costing and budgeting employee management. The effort put on the governance side has a long term sustainable effect in the way the organization performs. This was reflected in their day to day improved functioning of the organization. (a) The project fully achieved the PDO Outcome Area 1 and improved the availability of electricity and efficiency of transmission system, as reflected in the attainment of the relevant PDO and intermediate indicators for this outcome. The PDO-level indicators were Page 15 of 40

20 met with minor shortcomings considering the fact that the entire outcome cannot be attributable to Bank. (b) The project achieved the PDO Outcome Area 2. (c) Under Outcome Area 3, the project made significant contributions to building the capacity of the IAs in project management, employee management practices, financial management (FM), and corporate governance aspects. This outcome is very important as achievement of this, reflects the achievement of outcome 1 and 2 as well. The Project did a tremendous effort to build the institutions capacity in all aspects. C. EFFICIENCY Assessment of Efficiency and Rating 34. The efficiency is rated Modest for the project. The cost of achieving the project objectives was much lower than what was envisaged during appraisal. The project has allocated US$330 million during appraisal from IBRD resources and later, cancelled US$25 million as the scope of AMI installation was later cancelled from the project. The project has disbursed around (85 percent) US$260 million so far, leaving US$45 million undisbursed. There were various reasons for this huge unallocated amount such as costsavings from competitive biddings, client being able to save resources due to Indian currency devaluation, and cancellation of few of the contracts. However, with a project duration of over eight years, this amount could have been utilized more efficiently. 35. The economic returns of the project are high at completion stage of the project. Please see table 5 to see the Economic Internal Rate of Return (EIRR) and Net Present Value (NPV) for the HVPN and DHBVN components. The increase in the economic returns were mainly attributed to lower costs and higher benefits realized due to evacuation of additional energy from new generating plants and reduction of transmission losses. The component achieved its objective in costs lower than what was estimated in the appraisal stage. Please see annex 4 for further details on efficiency assessment. Table 5. Appraisal vs. completions stage efficacy assessment Financial Cost (US$, millions) Economic Cost (US$, millions) NPV (US$, millions) EIRR (%) Appraisal Completion Appraisal Completion Appraisal Completion Appraisal Completion HVPN DHBVN Dadri Gurgaon Faridabad Considering, the cancellation of the AMI component (one major subproject to achieve reduction of commercial losses), over three years of project completion date extension and high economic returns, the efficiency is rated Modest. Page 16 of 40

21 D. JUSTIFICATION OF OVERALL OUTCOME RATING 37. Based on the abovementioned ratings, the overall outcome rating is judged as Moderately Satisfactory. Relevance Efficacy Efficiency Overall Outcome Rating High Substantial Modest Moderately Satisfactory E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 38. The activities under the project focused on gender activities by improving women s access to infrastructure and allied services, thereby, improving their overall quality of life. Employment opportunities were created through civil work for men and women living close to the project site. Institutional Strengthening 39. Strengthening the institutional capacity of the Government was part of the PDO and it was achieved through the various activities undertaken under Component 3. Further, the World Bank organized a transmission workshop where international best practices in transmission planning were presented and arranged a study tour to understand the way the distribution companies in Brazil became profitable by reducing theft and improving customer satisfaction. The indicators for the institutional component did not fully capture the extent of the achievements for that component. Mobilizing Private Sector Financing Not applicable. Poverty Reduction and Shared Prosperity 40. The project made more electricity available to the state. Availability of electricity and economic growth are directly proportional resulting in increased productivity of different income-level groups. The project not only improved supply but also resulted in reduction in AT&C losses in three major towns. Other Unintended Outcomes and Impacts 41. The use of project management cum quality assurance consultants was beneficial for the Implementing Agencies (IAs) as it is always challenging for Government organizations to meet significant CAPEX scale-up targets as was the case here. Since this was the first time the IAs worked with the PMCs, it was initially challenging for the three entities Employer, Contractor, and PMC to function efficiently. The PIEs addressed this by issuing a procedure order defining roles and responsibilities and communication protocols of employer and PMC in relation to the contractor. By the end of the project, the PMC was well-integrated and their role appreciated by the IAs. The utility is now using similar arrangements under domestic funded projects also. Page 17 of 40

22 42. Two major challenges related to agriculture subsidy and regulatory issues were also faced by the state, but not addressed as a part of the project being sensitive from political economy point of view. Given their criticality to sustainable power sector operations, they were addressed concurrently under grant funds. The intervention on agriculture subsidy included the measurement of actual power consumption and related data corresponding to segregated feeders, establishing MIS for measurement and control of agricultural consumption, and developing guidelines and methodology for reporting on actual agricultural consumption to the regulator. The support given to the HERC addressed issues related to tariffs (the implementation of a multiyear tariff incorporating transmission pricing and benchmarking, and so on), pushed state power market development (intra-state availability based tariff and institutional arrangements required for further market development), and promoted mechanisms to enhance consumer voice in regulatory decision making. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 43. This project was an opportunity for the World Bank to reengage in power sector reform at the state level after The project was carefully designed based on lessons learned from past engagements, considered the political economy realities and recognized that it is not possible to address all sector challenges at the same time. It focused on improvements in specific geographies, which could serve as internal benchmarks to carry out similar improvements in other geographies. The operation was also consistent with vision of state utilities to achieve sustainable development of power sector to meet economic development targets. The project rightly identified risks such as poor implementation capacity and gaps in institutional set up and addressed them through the project. The following are the key factors discussed in detail during the preparation that affected implementation outcomes: (a) Appropriate project design. The project design considered the reality of political economy of the state s power sector and the support it required to develop its institutions as well as infrastructure. Complex issues like agriculture subsidy, regulatory issues were not included in the project but supported outside it. (b) Realistic objectives. The objectives of improving the efficiency and customer satisfaction of the distribution system were designed with right level of ambitiousness. The subproject scope was ringfenced to focus only on outcomes achievable as a direct result of project interventions. The project selected three cities, carried out baseline survey to set the baseline data and later measured the target. (c) Risk assessment of the institutional capacity. While the team carried out a correct assessment of the institutional capacity, the mitigation measures could have been stronger. It was very evident during preparation that the implementation capacity was limited. The role of the PMC in HVPN could have been enlarged to include day-to-day supervision as in case of the DHBVN. B. KEY FACTORS DURING IMPLEMENTATION Factor Subject to Government s and/or Implementation Entities Control Page 18 of 40

23 44. Project management. The project faced various challenges resulting in delays and cancellation of packages. While some were attributable to external factors, there are aspects that could have been better addressed ensuring cash flow of contractors through faster payments, close contract monitoring right from award and proactive actions to avoid delays thus avoiding levy of liquidated damages, using provisions available under the contract like direct payment to supplier in case of liquidity issues with main contractor to ensure progress and avoid cancellation of contracts, are some examples. However, the contract management improved considerably as the project progressed and IAs worked with the PMCs and imbibed good practices. Initial lack of close monitoring from IA resulted in time lag between HVDS installation and LT connectivity within Dadri and Gurgaon, resulting into delayed utilization of the HVDS line. However, this was addressed during subsequent packages and LT connectivity works were a part of the HVDS installation for Faridabad and added as additional scope in the Gurgaon contract. 45. Hiring of capable subcontractors. A few packages were delayed due to slow progress by the contractors. The bidding document included enough clauses to ensure hiring of capable contractors but initially did not include criteria for sub-contractors. Capacity needs assessment of the subcontractors is essential before the project is handed to them to avoid delays in implementation. The project later set the criteria for subcontractors as well to maintain a certain quality. 46. Delay and cancellation of AMI package. The deployment of AMI could not be delivered despite best efforts from the World Bank as well as the Government. Procurement of AMI package was deliberately delayed (as mentioned in the outcome section) to allow development of Bureau of Indian Standards (BIS) for smart meters. During this time, the IA altered its strategy and decided to go forward with AMR instead of the AMI as the AMR technology was considered more established. The project lost three years in this process. Furthermore, the first round of procurement had to be cancelled as the lower bids did not qualify, and there was a significant cost difference between the lowest (unqualified) and the qualified bidder. The rebidding took time and when the procurement was at completion stage the GoH decided to take up smart meters as a part of Gurgaon Smart City Project and decided to cancel the procurement under the project. This subproject was dropped in the last restructuring. 47. Lengthy project cycle. The project closing date was extended twice and even after eight years, one package remains incomplete and is expected to complete in September There are many external and internal factors responsible for delays in completion of the project. The procurement was on track when project was initiated in The G1-07 packages were awarded in 2010 and two more a few months later. However, the IA faced issues related to non-mobilization of qualified civil subcontractors, and mismatch between material supply and physical progress. These were addressed by introducing appropriate clauses in bidding document which improved performance of subsequent contracts. However, some contracts still could not be completed due to liquidity issues faced by the contractors and contracts had to be terminated and re-bid. 48. FM staffing. Appointment of Director (Finance) in the DHBVN remained a critical issue during the implementation of the project. Though advertised, as there was no response for the vacancy for a long time. At the HVPN, a team of section officers, divisional accountants, and junior accountants continue to work on a contractual basis. This issue, though flagged during almost every mission, remained prominent throughout the project implementation. However, what needs to be taken into consideration is that these two agencies can only make recommendations as the ultimate decision on the hiring process is done by the GoH. Page 19 of 40