AFRICAN DEVELOPMENT BANK

Transcription

1 AFRICAN DEVELOPMENT BANK Langue: English Original: French REPUBLIC OF TUNISIA RURAL ELECTRIFICATION PROJECT ELECTRICITY VI PROJECT COMPLETION REPORT INFRASTRUCTURE DEPARTMENT (OINF) AUGUST 2006

2 CONTENTS Pages BASIC DATA EXECUTIVE SUMMARY...i - vi PROJECT MATRIX...vii 1 INTRODUCTION PROJECT OBJECTIVES AND FORMULATION Objectives Description Origin Preparation, Appraisal, Negotiation and Approval PROJECT IMPLEMENTATION Effectiveness and Start-up Modifications Implementation schedule Reporting Award of Contracts Sources of Finance and Disbursements PROJECT PERFORMANCE Overall Evaluation Operating Performance Institutional Performance Financial Performance Economic Performance SOCIAL AND ENVIRONMENTAL IMPACT Social Impact Environmental Impact PROJECT VIABILITY PERFORMANCE OF THE BANK, BORROWER AND OTHER DONORS Performance of the Bank Performance of the Borrower and Executing Agency Performance of the other Co-financiers OVERALL PERFORMANCE AND RATING CONCLUSIONS, LESSONS LEARNT AND RECOMMENDATIONS Conclusions Lessons Learnt Recommendations...16

3 LIST OF ANNEXES N Annex Number of Title pages Annex 1 Project Zones 1 Annex 2 Project Components 2 Annex 3 Procurement data 3 Annex 4 Financing and Project Outputs 2 Annex 5 Assumptions for Calculation of Project Rate of Return 3 Annex 6 Economic Analysis of the Project 3 Annex 7 Performance Assessment and Rating 2 Annex 8 Matrix of Recommendations and Follow-up Measures 1 Annex 9 List of Documents Consulted This report was prepared by Messrs. M. B. SALAWOU, Senior Financial Analyst at OINF.3 (Task Manager), M. de MONTGOLFIER, Consulting Financial Analyst and A. B. SEMANOU, Consultant, Electrical Engineer, further to their mission to Tunisia from 13 to 27 March Questions on this document should be referred to Messrs.: G. MBESHERUBUSA, Director OINF (Ext 2034); A. T. DIALLO, Division Manager, OINF.3 (Ext. 2125) and M. B. SALAWOU, Senior Financial Analyst OINF.3, Project Director (Ext. 3077).

4 i EQUIVALENTS, ACRONYMS AND ABBREVIATIONS CURRENCY EQUIVALENTS Currency Appraisal (February 1999) Completion (June 2005) 1 Unit of Account (UA) TND USD EURO UNITS OF MEASURE 1 ha = Hectare = m² 1 km = Kilometer = meters (m) 1 km² = Square kilometer = m² 1 kv = Kilovolt = volts (V) 1 kva = Kilovolt ampere = volt-amperes (VA) 1 kvar = Kilovolt ampere reactive = volt-amperes reactive(var) 1 kw = Kilowatt = watts (W) 1 MVA = Megavolt-ampere = kva 1 MVAr = Megavolt-ampere reactive = kvar 1 MW = Megawatt = kw 1 kwh = Kilowatt-hour = Watt-hours (Wh) 1 MWh = Megawatt-hour = kwh 1 GWh = Gigawatt-hour = kwh 1 KOE = Kg. of oil equivalent = kilos of oil equivalent (KOE) 1 TOE = Ton of oil equivalent = Ton of oil equivalent (TOE) 1 GWh = 283 TEP ACRONYMS AND ABBREVIATIONS ADB = African Development Bank MV = MediumVoltage CGDR = General Commission for Regional Development ESMAP = Energy Sector Management Assistance Programme GAT = Gas Turbine GDP = Gross Domestic Product GNP = Gross National Product HV = High Voltage EIRR = Economic Internal Rate of Return IRDP = Integrated Rural Development Programme IRR = Internal Rate of Return LV = Low Voltage MDCI = Ministry for Development of International Cooperation RDP = Regional Development Programme SME = Small and Medium-sized Enterprises STEG = Tunisian Electricity and Gas Company TND = Tunisian Dinar ST = Steam Turbine Fiscal Year: 1 January - 31 December

5 EXECUTIVE SUMMARY 1. In the framework of the overall policy of country planning aimed, among other things, at reducing the economic disparities between the different regions of the country and a more equitable sharing of the fruits of economic growth, Tunisia, in the late Seventies, embarked on a vast rural electrification programme with a view to bringing the benefits of electricity to almost half the country s rural population, almost 6 % of whom had no access to electricity. The programme had always been on the list of priorities in the successive national development plans. Since 1979, the Bank has been contributing to funding the programme and, on that score, participated in financing six rural electrification projects including the Electricity VI Project, the subject of this completion report. Overall, the Bank s assistance in the electricity sub-sector in Tunisia is UA million. 2. The sector goal of the Electricity VI Project was to improve the living conditions of the population and the economic and social development of the rural areas. Its specific objective was to electrify almost a thousand (1,000) rural localities by connecting some LV subscribers and 320 pumps with a view to increasing the country s rate of rural electrification, which was to increase from 83 % in 1998 to 90 % by the end of the project. At project completion in June 2005, the objective of LV connections had been attained, and even exceeded, by about 7 % since 52,738 connections had been made as against 45,320 anticipated. The project contributed to over one-third increase in the rural electrification rate, which finally rose from 86.9 % in 1999 to 97.3 % in The increase in the number of rural subscribers over the project duration, which was about 5 % a year, was considerably higher than that of the rural population (estimates available only for , of 1.9 % a year on average). The country s overall electrification rate rose from 94.2 % to 99 % between 1999 and The project was carried out over a period of six (6) years from June 1999 to end of June 2005, instead of three-and-a-half years. It was completed with two-and-a-half years delay in relation to the time schedule established at appraisal. The delay may be attributed to: i) the updating of the schedule of benchmark contract prices which required the launch of tenders on similar works; ii) approval of the list of villages by the National Rural Electrification Commission, which meets twice a year; iii) increase in project quantities; iv) elasticity of demand for connections, and v) the mobility of the members of the project unit. 4. At completion, the total cost of the project was estimated at TND million as against at appraisal, i.e., a % increase. The overrun of almost 19 % caused by the excess was fully covered by STEG and the beneficiaries. Almost three-quarters of the increase in costs were attributed to the depreciation, over the past six years, of the Tunisian currency in relation to the American dollar, which was adopted as the benchmark currency in the loan agreement. The rest was due to the increase in the number of LV connections, as well as that of associated installations, namely, MV, LV and MV/LV transformer plants. 5. The project was fully in keeping with previous rural electrification projects. Just like the previous ones, it was included in the national development plans, i.e., the IXth Plan and the Xth It benefited from the series of regional and local coordination mechanisms of the different sector and thematic programmes, which enabled it to derive full benefit from the knock-on effects of the access to electricity.

6 6. In the beneficiary regions, the living conditions of rural households improved were enhanced by the electrification of homes. Families also gained from the improvements in basic social services such as connection of school establishments, health centers, cultural premises or literacy centers. The availability of better quality services and the associated economic prospects resulting from access to electric power encouraged the gainfully employed to relocate to the rural areas, thereby slowing down, and even sometimes reversing, rural-urban migration. 7. Village groups were established to undertake new activities ranging from services such as sewing and hairdressing salons or communication centres to small trades such as blacksmiths or carpentry, maintenance and repair shops, or all those dealing with the marketing and processing of stock-farming and farming products. 8. Thanks to electricity, there was an improvement in the living conditions of women. They had more time for their own leisure and for their children who, for their part, were afforded more facilities to revise their lessons. Preservation of drugs and food products enabled rural women to better satisfy the corresponding family needs. Thanks to information and exchanges created by the new modes of communication, they were able to attend literacy programmes and have a greater opening to the world. 9. All these combined effects had a positive impact on the social and cultural environment. A comparison of the advantages derived by the community from the installation of the project in relation to the status quo, clearly favours the solution retained. Taking the 12 % adopted by the IX th and the X th Plans as their discount rates, the Net Value Added of the costs borne in the non-project situation was considerably higher than that of the with project situation. 10. The project was classified as environmental category II. It had no direct negative impact on the environment besides the alterations made to the aesthetics in the areas overhung by overhead MV and LV lines. For having led to an increase in electricity consumptions, the project contributed to increasing the carbon monoxide emission rate linked to all kwh products. It did not degrade the flora nor the fauna. Regular sensitization campaigns organized by STEG led to an awareness of the potential danger of an electric cable. 11. At appraisal, an economic internal rate of return, EIRR, was calculated on the basis of the comparative advantages of the project or the status quo for the community. The rate calculated at the time was 9.4 %. On the basis of the same hypothesis updated with actual project data and with some clarifications concerning unit costs, the EIRR on completion, was 12.3 %. This rate was extremely satisfactory and is only marginally affected by the sensitivity tests, especially on a 10 % increase in running costs or a 10 % (and the two combined) decrease in consumption. The financial rate of return proved negative at appraisal, and the completion confirmed this observation which, in 1999, led the State to be the Borrower and take charge of all debt servicing.

7 BASIC PROJECT DATA 1. Loan N. : B/TUN/ELC-6/RUR/99/66 2. Borrower : Government of the Republic of Tunisia 3. Beneficiary : Tunisian Electricity and Gas Company 4. Executing Agency : Tunisian Electricity and Gas Company A. LOAN Estimate at Appraisal Actual 1 Amount (in million USD) Interest rate Floating Floating 3 Repayment period 15 years 15 years 4 Grace period 5 years 5 years 5 Date of loan negotiations - End May Date of loan approval June /06/99 7 Date of loan signature - 11/06/99 8 Effective date - 29/12/99 B. PROJECT DATA 1. Total cost (in million TND) Estimate at appraisal Actual Difference Difference ( %) FE LC Total Financing Plan (in million TND) Estimate at appraisal Actual Ratio Sources FE LC. Total FE LC. Total Value % ADB Government (0.29) (2.68) Beneficiaries STEG Total Key dates Appraisal Completion Ratio (in months) 3. Date of first disbursement /02/ Date of last disbursement 31/12/ /06/ Start up June 1999 June Completion December 2002 June

8 C. PERFORMANCE INDICATORS 1. Cost overrun : % 2. Time overrun (%) - Slippage on effectiveness : No delay - Slippage on completion date : + 71 % - Slippage on last disbursement : % - Number of extensions of last disbursement deadline : 2 3. Status of project implementation: Completed 4. List of verifiable indicators and level of completion (in %/at estimated levels) - Electricity supply to homes against the estimated : + 17 % - Provision of electricity to about inhabitants as against : + 17 % - Electricity supply of 81 pumps as against the 320 anticipated : - 75 % - Increase in rate of rural electrification from 86.9 % in 1999 to 97.3 % in 2004, against 93 % in 1998 to 90 % in 2002 : % - - Increase in country s electrification from 94.2 % in 1999 to 99 % in 2004 against 93 % in 98 to 86 % in 2002 : % 5. Institutional performance : Satisfactory 6. Performances of equipment providers : Satisfactory 7. Performance of enterprises : Satisfactory 8. Economic rate of return (%): - At appraisal : % - At completion : % D. MISSIONS Missions Dates N of Composition Persons/days persons Appraisal Feb Electrical Engineer 14 1 Financial Analyst 14 1 Environmentalist 14 Supervision 8/10/00-20/10/ Electrical Engineer 12 1 Financial Analyst 12 19/03/01 2/04/ Electrical Engineer 12 2/07/02 15/07/ Electrical Engineer 14 10/12/02 24/12/ Electrical Engineer 15 28/07/03 8/08/ Electrical Engineer 12 1 Financial Analyst 12 19/04/04 30/04/ Electrical Engineer 12 1 Financial Analyst 12 4/07/05 9/07/ Electrical Engineer 5 1 Financial Analyst 5 Completion 13-28/03/ Electrical Engineer 15 1 Financial Analyst 15 1 Financial Analyst 7 Total

9 E. DISBURSEMENTS 1. Disbursements per source of finance (in million TND) Sources Appraisal Completion Difference % ADB Government (0.29) (2.68) Beneficiaries STEG Total Loan disbursements (in million USD) ADB Appraisal Actual Percentage Total disbursed % Cancellation % 3. Time frame for loan disbursement (in million USD) TOTAL Estimated Actual % Time frame for disbursement per source of finance (in million UA) Appraisal (in million UA) UA = TND Sources Total ADB Other Total Completion (in million UA) UA= TND Sources Total ADB Other Total F. EQUIPMENT SUPPLIERS/CONTRACTORS The list of equipment supply contracts financed by the Bank is given in Annex 3. G. CONSULTANT Recourse to an external consultant was not anticipated at appraisal. Engineering designs and control and supervision of the works were carried out by the staff of the studies and works division of the Districts of STEG involved in the project.

10 vii PROJECT MATRIX Project Name : Tunisia - Rural Electrification Project (Electricity VI) Completion date : 2005 Design team : M. SALAWOU - M. de MONTGOLFIER - A.SEMANOU Hierarchy of Objectives (HO) Objectively verifiable indicators Means verification (MeV) Assumptions serious Risks Sector objective At appraisal Actual (Sector objective to overall objective) 1. Improvement of conditions of living of populations and socioeconomic development of the countries concerned. Project objective: 1 Electrification of almost villages and localities and connection of subscribers ( houses and 320 pumps) 2 Increase in rate of country s rural electrification. 1.1 Increase in the number of electrified households, schools and rural health centres (90 %) 1.2 Increase in income of rural populations At 31/12/ Almost localities electrified households and 320 pumps connected. 1.3 Rate of country s rural electrification: 90 % 1.1 Increase in the number of electrified households, schools and rural health centres (97.3 %) 1.2 Increase in income of rural populations End June Almost localities electrified. 1.2 Total of houses and 81 pump connected. 1.3 Rate of rural electrification: 97.3 % 1.1 STEG annual reports 1.2 Publications of the National Statistical institute 1.1 STEG Annual reports and Bank supervision reports 1.2 National statistics 1.3 Progress reports 1.4 Completion reports (Project objective to sector objective) : 1 Estimates of domestic connection and pumping requests realistic. 2 Production capacity and transport network sustainably support increase in consumption Achievements 1 Extension of MV networks through the construction of km overhead lines of 30 kv and 17.5 kv 2 Installations of MV/LV transformer plants 3 Construction of km LV lines 4 Realization of new LV connections Activities 1.1 Studies for execution and preparation of tender dossiers, contract award, construction 1.2 Procurement 1.3 Supervision and control of works 1.4 Handing over of works and switch on of installations 1.1 At 31/12/2002: i) km of MV lines laid ii) MV/LV plants installed iii) km of LV lines installed iv) new LV subscribers connected. 1 Resources (in million USD) ADB loan: Government: 9.70 Beneficiaries: 7.98 STEG 9.10 Total At 30/06/2005: i) km MV lines laid ii) MV/LV transformer lines laid iii) km of LV lines installed iv) new LV subscribers connected 1 Resources (in million USD) ADB loan: Government: Beneficiaries: STEG: Total: Project implementation reports 1.2 Bank supervision mission reports 1.3 Borrower s and Bank s project completion report 1.1 Contracts signed and effective. 1.2 Project implementation reports 1.3 Bank supervision reports. 1.4 Completion report (results to objective of project) 1 Adherence to the commitments made by all partners to complete project financing plan (ADB, Government, Beneficiaries and STEG) (Activities to results) 1.1 The studies and implementation schedules were realistic. 1.2 Financial situation of STEG s healthy

11 i 1. INTRODUCTION 1.1 Since the mid-seventies, Tunisia has been undertaking a voluntarist policy of country planning aimed, among other things, at reducing economic development disparities between the different regions of the country through a more equitable geographical distribution of the dividends of economic growth. Among other things, the Tunisian Government set a priority objective of electrifying the rural areas with a view to improving the conditions and living environment of rural dwellers, with a view to stemming rural-urban migration. Indeed, in 1976, almost half of the Tunisian population lived in rural areas, almost 6 % of which had access to electricity. 1.2 To implement this policy, the Tunisian Government approached the Bank in 1978 to seek its support for the rural electrification programme included in the 5 th economic and social development plan ( ). The Bank s support, which was initiated in 1979 with the financing of the Rural Electrification Project in the Governorate of Sfax and Gafsa in the south of Tunisia (Electricity I), was pursued in the framework of the 6 th, 7 th, 8 th Plans with Rural Electrification in the Governorates of Gabes, Gafsa, Tozeur, Medenine and Tataouine (Electricity II) in 1981, the Urban Electrification Project (Electricity III) in 1984, and the Rural Electrification Projects (Electricity IV, V and VI) covering the rural areas of the entire country in 1989, 1993 and The total amount of the Bank s assistance for these six (6) projects was UA million, of which UA million was used for the five Rural Electrification Projects and UA million for the Urban Electrification Project. 1.3 The first four rural electrification projects (Electricity I, II, IV and V) were completed and led to the electrification of almost villages and rural homes, supply of electricity to over families, i.e., a population of almost 1.5 million inhabitants, and connection of pumps for irrigation. They thus contributed to increasing the rate of the rural electrification of Tunisia by 6 % in 1976 to 86.9 % in The Electricity VI project, which is the subject of this completion report, again improved the country s rural electrification rate, which attained 97.3 % at the end of December The urban electrification project (Electricity III) for its part, led to providing electricity to almost 215,000 families spread over the entire national territory. The six projects contributed to 97.3 % electrification of the rural areas and 99 % of the whole country. 1.4 This project completion report was prepared on the basis of the Bank s supervision reports, activity reports, external audit reports and the completion report of the project implementation agency, the Tunisian Electricity and Gas company STEG, as well as data and documents gathered during the project completion mission to Tunisia in March PROJECT OBJECTIVES AND FORMULATION 2.1 Objectives The rural electrification project (Electricity VI) was part of the priority measures undertaken by the Tunisian Government in the framework of the country s 9 th economic and social development Plan ( ). It was in keeping with the Government s regional development policy orientations adopted in the mid-seventies which retained rural electrification as a priority measure to implement through the country s economic and social

12 2 development plans. Its sector goal was to: i) improve the living conditions of rural dwellers and ii) reduce rural-urban migration and substitute the traditional sources harmful to the environment with electricity The specific objective of the project was the electrification of almost localities or groups of dwellings and connection of households and 320 irrigation pumps in the rural areas of the whole country. The project was to lead to increasing the use of electric energy by rural households and developing irrigated agricultural areas. It was to contribute to increasing the country s rural electrification rate from 83 % in 1998 to 90 %, and of the national electrification rate from 93 % in 1998 to 96 %. 2.2 Description The project objectives were to : (i) install km of 30 kv three-phase overhead and 17.5 kv single phase lines; (ii) construct 2,820 MV/LV distribution substations; (iii) install 4,800 km of LV lines; (iv) connect domestic subscribers and 320 LV motor pumps; and (v) improve the operation of MV and LV networks as well as increase the consumption of LV subscribers in the rural areas. The description of these outputs is set out in Annex Origin The project was initiated by STEG in keeping with the orientations of the country s 9 th Economic and Social Development Plan. It prepared the preliminary designs for the extension of the networks into the zones not affected by the previous rural electrification programmes. STEG began its operations on the basis of the last population and housing census and its own archives of the previous projects to identify the villages and farms that could be electrified at least cost in the framework of the 9 th plan. After authentication of the list of built-up areas with the beneficiaries and Government, STEG then prepared the feasibility study which served as a tool of dialogue between the Government and the Bank The rural electrification programme of the 9 th Plan, which was adopted after the designs, provided for the supply of electricity to rural households, i.e., a population of almost 270,000 spread over all the rural areas of the country, and connection of 320 irrigation motor pumps using gas oil or fuel oil. The cost of the programme was estimated on the basis of a unit cost of average connection of TND 2000 per subscriber. This unit cost was used for the finalization of the selection of villages to be electrified during the preparation of the annual rural electrification programmes to be carried out in the framework of the Electricity VI project. 2.4 Preparation, Appraisal, Negotiation and Approval The project was identified by the country and submitted to the Bank. It was prepared during a mission to the-site fielded in December 1998, on the basis of a feasibility study prepared by STEG. A retrospective analysis of the data indicates that the number of new subscribers was underestimated while that of motor pumps was overestimated. In February 1999, the Bank appraised the project on the basis of a feasibility study, after receiving the official request from the Borrower. The Bank s appraisal team was composed of an Electrical Engineer, Financial and Economic Analyst, and Environmentalist. The composition was

13 3 deemed adequate. The loan negotiations were held at Abidjan in late May The conclusions of the project appraisal mission and loan conditionalities were accepted by both the parties. The financing of the project was approved by the Board of Directors of the Bank at its session of 9 June PROJECT IMPLEMENTATION 3.1 Effectiveness and Start-up The loan agreement was signed on 11 June The condition precedent to effectiveness of the Agreement related to the fulfillment of the conditions at Section 5.01 of the General Conditions applicable to Loan agreements and Guarantee agreements of the Bank. This condition was fulfilled and the loan agreement became effective on 28 December 1999, within the 6-month deadline required by the Bank The conditions precedent to the first loan disbursement were formulated as follows: The Borrower was to i) communicate to the Bank the performance contract for the period signed with STEG; and ii) provide the Bank with evidence of the publication of the text on the new organization of STEG. These conditions were not constraining insofar as the performance contract had already been finalized before project appraisal in February The new organization of the STEG was also at a very advanced stage, and its publication did not pose any major problem The project started up even before the Bank s appraisal. To facilitate the smooth running of the activities, Section b) of the agreement stipulated that: In the application of the measures under Section 6.01 paragraph (b) of the General Conditions, expenditures relating to the Project works committed in 1999 and carried out after the approval of the Loan Agreement by the Board of Directors of the Bank shall be financed with the Loan resources in the amount of a maximum USD 1.4 million. This provision avoids possible delays in the acquisition of the components financed by the Bank. 3.2 Modifications No modification was made to the initial project design. The works were implemented as anticipated. Nonetheless, there was an overall increase in project quantities that entailed two modifications of the list of goods and services. The first modification of the list of goods and services made in January 2003 related to an adjustment of the quantities which had been overestimated at appraisal; the second, in May 2004, related to the Bank s financing of the operating equipment and management of subscribers. With the Bank s agreement, the categories of expenditure after the second modification are set out as follows:

14 4 Table 3.1 Comparative Table of Project Costs per Expenditure Category (in million TND) Appraisal Completion Currency Currency Ratio Expenditure Category Local Currency Total Local Currency Total Abs % (million TND) (million TND) 1. Equipment for MV and LV networks and connection of LV subscribers Operating equipment and management of subscribers Works on MV and LV networks and connection of LV subscribers Studies, control and supervision of works Total Implementation Schedule The initial project implementation schedule provided for its implementation over a three-and-a-half month period, from June 1999 to December The project was completed in June 2005 with a two-and-a-half year delay. The delay may be attributed to: i) the updating of the schedule of benchmark contract prices which required the issuing of invitations to bid for similar works; ii) approval of the list of villages by the National Rural Electrification Commission which meets twice a year; iii) increase in project quantities; iv) flexibility of the demand for connections, partly due to the irregularity of the incomes of some beneficiaries; and v) the mobility of the members of the project unit Project implementation activities began in January 1999 with the preparation of detailed designs and bidding documents (BD). Bidding was initiated on 28 March The Bank gave its agreement for the first awards on 16 August 2000, and the first contracts for the procurement of equipment were signed on 5 February 2001 after the Bank s non-objection. It must be pointed out that the works started before the loan became effective on STEG s own resources bids were launched for the procurement of equipment resulting in 93 contracts (38 international and 55 national contracts, including framework contracts). National shopping was used for the procurement of microcomputers. Of all the tenders, two were declared unsuccessful, namely: i) the one for portable terminals for data input and IT management equipment, due to non-conformity with technical specifications and ii) the one of LV connectors for the same reasons bids were launched for works resulting in 96 contracts. The contracts led to 119 sub-projects, which were implemented and completed by the end of June The works carried out in the framework of the framework contract (in respect of which the manpower cost was lower than TND ) per contract were entrusted to local subcontractors on the basis of updated framework contract prices. In all, 1,635 contracts were signed per framework contract. This mode of procurement is a good practice that must be encouraged where feasible.

15 The designs and control of works were ensured by design and work teams from the STEG districts and regions involved the project. The project unit and central services of the Management assisted the districts in the management of the contracts, control, supervision and works acceptance. 3.4 Reporting During project implementation, the executing agency submitted to the Bank fourteen (14) activity reports, seven (7) project external audit reports, seven (7) external audit reports on STEG financial and accounting statements and one (1) project completion report. Mid-way, the half-yearly submission of activity reports agreed with the Bank during the loan negotiations was replaced with a quarterly submission. STEG deemed this change of frequency in the submission of activity reports necessary for monitoring the execution of the works more closely. All information indispensable for project monitoring by the Bank was included in these different reports which were considered satisfactory. 3.5 Award of Contracts The Bank s procedures for the procurement of goods and services were adhered to. The average period between the launching of bids and signature of supply contracts was between 5 and 7 months, with 18-month peaks. The shortest delays were between 4.7 and 5.8 months. The longest delays related to MV/LV cables and disconnectors whilst the wrought iron, LV poles and microcomputers recorded the shortest delays. In conclusion, the Bank s procedures for the procurement of goods and works were applied and none of the contractors and suppliers made any claims in respect of any contract. The Borrower s project unit applied the bid evaluation criteria. This performance was achieved owing, among other things, to the permanent contracts between the Bank and STEG, favoured by the temporary transfer of the Bank s headquarters to Tunis. This performance notwithstanding, it would be useful to envisage periodically, and as required, seminars on procurement procedures for members of the project unit The procurement of works by framework contract was beneficial for the project. Although the updating of the contract price schedule led to delays at project start-up, the delays were subsequently made up for. This mode of procurement has some benefits such as time gain in the award of contracts. Furthermore, it affords the small-scale contractors easier access to works contracts. 3.6 Sources of Finance, and Disbursements The sources of finance were the Bank, Government, Beneficiaries and STEG. The comparative project financing plan at appraisal and at completion is set out as follows:

16 6 Table 3.2 Sources of Finance (million TND) Estimate at Appraisal Actual Ratio Sources FE Local Total FE Local Total Value % currency currency ADB Government (0.29) (2.68) Beneficiarie s STEG Total At appraisal, the Bank s loan was to be used to fund 100 % of the project costs in foreign exchange, i.e., 70.2 % of the total cost of the project. The Government, Beneficiaries and STEG were to respectively finance 10.8 %, 8.9 % and 10.1 % of the project costs in local currency, i.e., 29.8 % of the total cost of the project. The share of the Beneficiaries was in the form of payment of the cost of connection: TND 200 for domestic connection, and TND 250 for pumping. At completion, the Bank s share had increased by % in TND equivalent but its contribution to the total cost of the project had not changed, on the basis of the reference amount of the loan Agreement of US$ million. The Government s share in project financing reduced by 2.68 % while that of the Beneficiaries and STEG increased by % and % respectively as indicated in table 3.2 above. Table 3.3 Disbursement Schedule per Source of Finance (in million UA) Appraisal (in million UA) UA= TND Sources Total ADB Others Total Completion (in million UA) UA= TND Sources Total ADB Others Total Disbursements of the ADB loan anticipated at appraisal over a period of four (4) years from 1999 to 2002, were spread over (5), from 2001 to The cumulative disbursements of the ADB financing were TND million, i.e., % in Dinar equivalent of the initial loan amount of USD million. The comparative disbursement schedule at appraisal and completion was estimated as indicated in the above table There was no delay in the disbursement of the Bank s loan that needed to be pointed out at the beginning of its activities. The first disbursements were made in 2001, for STEG ensured the financing of the initial works carried out. The Loan Agreement authorized re-financing. Once the start-up phase was over, 66 % of the loan was disbursed over 2002

17 7 and It is worth noting that STEG used the four modes of disbursement at its disposal, namely, i.e., repayment (29 % of the loan amount) for the works carried out in 1999 and 2000, direct payment (15, %), letter of guarantee (6, %), and the special account (50 %). The special account was mainly used in financing the works of the framework contract Given the delay in the project, the deadline for the last disbursement, which was initially fixed at 31/12/2003, was extended twice; the first time up to 31/12/04 and the second time, end of June 2005, to allow the last disbursement on the loan to be made. 4. PROJECT PERFORMANCE 4.1 Overall Evaluation The project was carried out and completed satisfactorily, and project performance may also be considered satisfactory. The loan agreement became effective on , within the 6-month period prescribed by the Bank. The general conditions and other loan conditions were regularly adhered to. The project objectives were attained and even exceeded. The project led to providing 52,567 rural homes with electricity as against the estimated at appraisal, i.e., 16.8 % more. The project complemented the previous rural electrification projects and contributed to increasing the country s rate of rural electrification, by over a third. The rate rose from 86.9 % in 1999 to 97.3 % in 2004, i.e., more than the 90 %estimated at appraisal for the end of the project. It is true that the project was spread over a longer period than anticipated i.e., six instead of three-and-a-half years but, at the end of 2002, the rate had already attained 93.9 %. The increase in the number of rural subscribers over the project duration, which was about 5 % a year, was considerably higher than that of the rural population (1.9 % a year on average, according to the estimates available for the period ) The pumps (about 1 % of the number of connections anticipated) however did not attain the estimated number since only 81 were installed against the 320 anticipated. This low achievement was due to the following two principal factors: (i) a period of drought over the first three years of the project which led the Ministry of Agriculture and Water Resources to restrain its pumping approvals with a view to protecting the groundwater and (ii) the impossibility for the single-phase installations to penetrate the depths of groundwater, which would have required a three-phase connection not anticipated in the project. 4.2 Operational Performance The increase in project quantities due to increasing demand for connections significantly increased the length of the MV and LV lines necessary for reaching all subscribers, often in areas far removed from the existing network. The same applied to the number of MV/LV transformers installed and LV substations. The total number of connections made exceeded the estimates by 16.8 %, and the total costs in Dinars similarly exceeded the estimates, but the excess can be three-quarters attributed to the depreciation of the Dinar in relation to the dollar during the project period. The combination of a larger number of subscribers on the project and of a specific electricity consumption which was a little higher (about 2 %) than anticipated at appraisal, led to an about 19 % increase in energy. These factors, combined with higher rates (about 3.4 % a year) over the project period led to an increase in STEG receipts. However, the running charges were affected by the increased costs per barrel which weighed on the cost price of kwh. Having said that, the STEG tariff policy made it possible to offset the rising costs although, by the end of the project, the average cost price remained slightly higher than the average selling price of the kwh.

18 8 4.3 Institutional Performance The Energy Sector The appraisal report had underlined some developments in the sector policy to clarify the framework within which the STEG was to manage its operation. The first point that deserves mention was the creation, in 2004, of the National Agency for the Control of Energy which succeeded the National Agency for Renewable Energies. ANME became the preferred interlocutor for a large number of future rural electrification installations. Furthermore, the efforts resulting from the energy rationalization strategy bore fruit since the primary energy intensity rose from 0.42 TEP for Dinar of GDP in 1989 to 0.36 in 2004, i.e. about 15 % savings over fifteen years The growth in the demand for energy slackened over the period (2.4 % against 4.5 % a year between 1995 and 2000). That notwithstanding, the situation of dependency, which had been foreseen at appraisal, appeared during the project. The Government wanted to forestall the dependency situation by launching an efficient energy, prospection and substitution policy. The latter has already been concretized with the introduction in the STEG of a combined cycle for the generation of electricity and the emphasis placed on natural gas supplies and consumption to the detriment of the other hydrocarbons. The Electricity Sub-sector There was consequently a slow down in the demand for electricity since it reduced from an annual rate of about 7.7 % during the decade, to 6.6 % during the following decade, and then to 5.4 % over the period , which was far below the 8% rate envisaged at appraisal. That was mainly due to the energy control policy and modification of the demand configuration, but also to the saturation, more rapidly than anticipated, of the country s rate of electrification, to which this project contributed. In 2004, excluding clients with their own generators, the total capacity of the sector was 3,010 MW, of which 2,512 for the STEG and 498 for two private operators which supply energy to STEG. These purchases accounted for almost 20 % of the total energy available, and were contracted at market prices, which was not the case for part of the company s gas supplies As in 1999, STEG continued to obtain its gas supply from the two main sources, namely trans-mediterranean gas pipeline and the national deposit of Miskar. Algerian gas 1, which was acquired by the Tunisian State as a lump-sum tax (also known as royalties) and with a commercial contract for supplementary quantities, was in fact re-sold to the STEG without the full repercussion of the price rise. The price of Miskar gas was directly pegged to the price of crude which has significantly increased during the past five years and especially since 2005, when the cost of a barrel rose above US$60. It would be recalled that natural gas accounts for almost all (98.6 % in 2004) consumption of fuel by producers of electricity (and all by the independent ones). 1 For national consumption, Algerian gas accounts for 52% of total liquid assets against 48 % for national production (within which Miskar alone accounts for 72 %).

19 9 The Tunisian Electricity and Gas Company (STEG) Institutional Framework The reorganization of STEG appeared in the chapter on conditions precedent to the first disbursement. This condition was fulfilled through a communication to the Bank of the organization chart enacted by Presidential decree in October The text endorsed the decentralization envisaged at appraisal towards the regions and especially the districts. These entities acquired considerable autonomy in terms of financial, accounts and daily human resource management. The increase of responsibilities constituted an asset for project viability. Another condition precedent concerned performance contracts. It was fulfilled with the signing of the contract in March The period covered by the Electricity VI project was marked by two contracts: (i) the third of the series, which was concluded for the five years of the IX th National Plan and whose effects were evaluated positively on completion and, (ii) the fourth contract, covering the period of the X th Plan, which is under implementation The performance contract benefited from a general positive appraisal based on a 91.7 % 2 rate of achievement. The objectives regarding new subscribers and the rate of electrification or penetration of gas were attained and were exceeded. The ten objectives of operation (demand satisfaction, improvement of the quality of service and productivity) were attained with a higher rate at 100 % for four of them and higher rates at 96 % for the four others. The share anticipated for financing rural electrification programmes and the State also supported STEG in its search for financial balance. The only two objectives not attained related to the cost of training in relation to the wage bill and the number of days of absence per staff per year, carried out only at 67 and 53 % respectively and taken up in the current programme-contract. Table 4.1 below summarizes the objectives of the performance contract. Table 4.1 Objectives of the Fourth Performance Contract for the Period Total Demand for Electricity (GWh) Electrification (new subscribers) Demand for Gas (ktoe) Gas penetration (new subscribers) Average annual timeframe for electricity and gas connection in days Client satisfaction index (%) * High voltage/high pressure 67/60 72/72 * Medium voltage/medium pressure 60/71 70/75 * Low voltage and Low pressure Source: STEG Programme-Contract (2002, 2003, achievements) STEG further set up project units to respond to the essential and difficult specific needs to be taken charge of by the permanent structure. It is in the framework of the project Quality created in 1998 that STEG committed itself to an objective of achievement performances equivalent to those of the best placed industrialized countries, whose central measure is the ISO 9001 certification of most of its units. Although the Electricity VI project did not envisage measures of institutional support, it did the right thing precisely owing to its 2 Balance sheet jointly prepared by STEG and the Ministry responsible.

20 10 policy of seeking quality, which STEG permanently demonstrates. On the other hand, at 7.2.3, emphasis will be laid on the deficiencies which continue to appear in the monitoring of the accounts of project expenditure. Human Resources Management At the end of 1999, the Development of Human Resource Management project was established. It supported the deconcentration programme and prepared a draft framework law which at the moment is being considered by the oversight Ministry. It is an internal text aimed at defining all the company s positions During the past five years, the staffing policy was marked by a degree of caution. As set out in Table 4.1, the total staff complement has even decreased by 1.35 % a year since It can however be observed that, over the same period, there was a 2.5 % yearly increase in the female staff complement. The proportion of women in the overall staff complement rose from 10.9 to 12.7 % between 1999 and The rise in staff expenses increased by an average 5.8 % a year (against 4.7 % in the programme-contract at appraisal), which mainly reflects the government salary increases negotiated every three years and the impact of career advancement. The training policy was placed at the service of the major reforms undertaken. The effort mainly bore on advancement whilst the initial training highly reduced during the period owing to the slack in the recruitment policy. Table 4.2 Human Resources Data (number of staff and millions of TND for staff expenditure) Managerial staff Supervisory Junior Staff Total Female staff Personnel Costs Source: STEG/DRHAJ, 27 March 2006 STEG/DEP/DPDE for subscribers ( (1) : provisional data) Pricing, Billing and Debt Recovery The appraisal report dwelt on the worrying situation of outstanding payments to STEG. In June 2000 the company established a Recovery project whose action led to an improvement in the balance sheet of STEG clients accounts. The rate of outstanding payments which in 1999 exceeded 13 %, i.e., about 47 days of billing, was reduced to 10 % in 2005, i.e., about 36 days. For each category of client, supervisory criteria were devised. Thus, for ordinary subscribers, the acceptable amount of the client s account must remain lower than 8 % of the average yearly bill. For the total of the account, the target rate was 6 %, i.e., about 22 days of billing against 10 % as at present As regards Low Voltage, a meter reading was taken every 120 days of the ordinary subscribers (OS), who account for 90 % of the total number, but billing was made on a two-month basis, one on the actual index, and another by estimate 3. At rural level, however, the meter reading was taken only on half-yearly basis, but the billing remained bimonthly. A few large subscribers were also excepted. Their meter reading and billing was done on a monthly basis. The conditions of payment were 16 working days at billing date (not reception) and the date of disconnection was on the 24 th day, without notice. 3 The client however has the possibility to read his index himself and communicate it to STEG

21 The administrative Low Voltage underwent a special treatment and was different depending on the category. Public authorities 4 (local administrative areas, governorates), which, as a matter of fact, accounted for a mere 2 to 3 % of the turnover, remained STEG s worst payers as testified by the same annex, but the balance-sheet has been improving over the past five years. Their outstanding payments rate, which was 142 % (almost one and a half year delay) in 2001, reduced to 80 % in This was made possible by the crossed financial relations STEG had with the communities. Administrations with autonomous budget (mainly the Ministries) were, for their part, subject to meter reading and billed every 60 days and the payment deadline was 45 days on receipt of the bill. A first written notice, which may entail selective disconnections, was sent after 45 days. The second notice led to negotiation with the Ministry concerned. For this category of clients, there was a slight improvement in the situation in 2004 and National companies, offices and Embassies constitute a series of special cases in this same LV category. The rule here is the same for all: billing and meter reading every 60 days and period of payment 30 days at date of reception of bill. The principal innovation has been to get a few public enterprises to domicile their bills (automatic deductions). The situation has also improved by a few points these past three years MV and HV clients (mainly private industrialists and national companies and offices) were subjected to a monthly rate of meter reading and billing. The period of payment is the 25 th of the month n+1. Beyond that date, notice was given, subsequent disconnections made, and late interests charged on the actual bill. The rate of outstanding payments was always low, about 1 %, and it even reduced to 0.4 % in 2004, lower than the maximum 1 % target rate Electricity rates which had not changed since 1994 went up once in As from that date, STEG benefited from seven (07) rate adjustments up to the latest one, on 1 January These successive meter readings led to raising the average cost of KWh from millimes of TND in 1999 to in 2004 (figures of 2005 not definitive) i.e., an average annual rise of 3.4 %. In 2004, selling price remained lower than the cost price but there was considerable reduction in the ratio. While it was 7.23 millimes in 2000, it reduced to a mere 1.90 in Financial Performance Analysis of Operating Accounts and Balance Sheet The analysis of the results was carried out on the basis of the income statements, balance sheets and statement of cash flows for 1999 to As indicated in the Summary table 4.4.1, the activity of the electricity branch was expressed by an increase in KWh sold of an average 5.5 % a year. In LV, the number of subscribers increased at an annual rate of 3.8 % and unit consumption per subscriber recorded an annual rise of 1.7 %, i.e., a of 5.7 % progression of sales in KWh per year. As indicated above, the increase in rates over the period enabled the turnover to progress at a rate of 11 % a year between 1999 and 2004, shooting from TND 610 to million. The company had never witnessed a result so favourable. The year 2000 was marked by a high rise in the price of oil and the result became 4 Including the theoretical conditions of settlement, since 2003, of 45 days on receipt of reception of bill.