the world bank for official use...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 61067-TZ

PROJECT PAPER

ON A

PROPOSED ADDITIONAL CREDIT

IN THE AMOUNT OF SDR 17.2 MILLION

(US$27.88 MILLION EQUIVALENT)

TO THE

UNITED REPUBLIC OF TANZANIA

FOR AN

ENERGY DEVELOPMENT AND ACCESS EXPANSION PROJECT

May 9, 2011

Energy Group

Sustainable Development Department

Country Department AFCE1

Africa Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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ii

CURRENCY EQUIVALENTS

(Exchange Rate Effective April 30, 2011)

Currency Unit = Tanzanian Shillings

TSh 1,508.50 = US$ 1

US$ 1.6209 = SDR 1

FISCAL YEAR

July 1

January 1

–

–

June 30 (Government of Tanzania)

December 31 (TANESCO)

ABBREVIATIONS AND ACRONYMS

AF

AF 2010

AfDB

AMR

CAS

CMU

CQS

DA

DSM

EDCF

EIB

EIRR

EMP

ENPV

ESMF

EWURA

FIRR

FM

FY

GEF

GOT

HPP

HV

IBRD

ICB

IDA

IFC

IFR

IP

ISR

JICA

kV

kWh

LKEMP

Additional Financing

Additional Financing as approved in April 2010 for the TEDAP

African Development Bank

Adaptive Multi-Rate

Country Assistance Strategy

Country Management Unit

Selection Based on Consultants‟ Qualifications

Designated Account

Demand Side Management

Economic Development Cooperation Fund

European Investment Bank

Economic Internal Rate of Return

Environmental Management Plan

Economic Net Present Value

Environmental and Social Management Framework

Energy & Water Utilities Regulatory Authority of Tanzania

Financial Internal Rate or Return

Financial Management

Fiscal Year

Global Environment Facility

Government of Tanzania

Hydropower Plant Project

High Voltage

International Bank for Reconstruction and Development

International Competitive Bidding

International Development Association

International Finance Corporation

Interim Financial Report

Implementation Progress

Implementation Status and Results Report

Japan International Cooperation Agency

Kilovolt

Kilowatt hour

Low Kihansi Environmental Management Project

iii

LKHP

MCC

MEM

MKUKUTA

MOF

MTR

MW

NCB

OPRC

PDO

PIU

PoA

QCBS

RPF

SSS

TANESCO

TEDAP

REA

RMU

SDR

SHS

TANROADS

TF

WBG

Low Kihansi Hydropower Plant

Millenium Challenge Corporation

Ministry of Energy and Minerals

Mpango wa Kukuza Uchumi na Kupunguza Umaskini Tanzania

Ministry of Finance

Mid Term Review of December 2010

Megawatt

National Competitive Bidding

Operational Procurement Review Committee

Project Development Objective

Project Implementation Unit

Program of Activities

Quality- and Cost-Based Selection

Resettlement Policy Framework

Sole Source Selection

Tanzania Electric Supply Company Limited

Tanzania Energy Development and Access Expansion Project

Rural Energy Agency

Ring Main Unit

Special Drawing Right

Solar Home Systems

Tanzania National Roads Agency

Trust Fund

World Bank Group

Vice President: Obiageli Katryn Ezekwesili

Country Director: John Murray McIntire

Sector Manager: S. Vijay Iyer

Task Team Leader: Robert Schlotterer

iv

TANZANIA

ADDITIONAL FINANCING - ENERGY DEVELOPMENT AND ACCESS EXPANSION

PROJECT

CONTENTS

ADDITIONAL FINANCING Data SheeT .........................................................................................v

I. Introduction .................................................................................................................................1

II. Background and Rationale for Additional Financing in the amount of $27.88 million .........2

A. Background ............................................................................................................................2

B. Status of Ongoing Project .......................................................................................................3

C. Rationale for Additional Financing .........................................................................................6

D. Alternatives Considered ..........................................................................................................9

III. Proposed Changes ................................................................................................................. 10

A. Key Indicators and Results Framework ................................................................................. 10

B. Financing ............................................................................................................................. 10

C. Implementation Arrangements .............................................................................................. 12

D. Condition of Effectiveness and Legal Covenants ................................................................... 12

E. Readiness of Activities for Additional Financing ................................................................... 13

F. Risks .................................................................................................................................... 13

IV. Appraisal Summary .............................................................................................................. 13

A. Economic and Financial........................................................................................................ 13

B. Procurement ......................................................................................................................... 15

C. Financial Management.......................................................................................................... 16

D. Environmental and Social ..................................................................................................... 16

Annex 1: Revised Results Framework and Monitoring .................................................................. 19

Annex 2: Operational Risk Assessment Framework ...................................................................... 26

Annex 3: Detailed Description of Project Components.................................................................... 32

Annex 4: Revised Procurement Plan ................................................................................................ 36

Annex 5: Revised Project Financing Plan including other sources of funds ................................... 41

v

UNITED REPUBLIC OF TANZANIA

ADDITIONAL FINANCING - ENERGY DEVELOPMENT AND ACCESS EXPANSION

PROJECT

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF)

Country Director: John M. McIntire

Sector Manager/Director: Subramaniam V.

Iyer

Team Leader: Robert Schlotterer

Project ID: P125824

Expected Effectiveness Date: July 1, 2011

Lending Instrument: Specific Investment Loan

Additional Financing Type: Cost Overrun

Sectors: Power (86%); Renewable energy

(11%); Central government administration

(3%)

Themes: Infrastructure services for private

sector development (40%); Other urban

development (20%); Rural services and

infrastructure (20%); Climate change (20%)

Environmental category: B Partial Assessment

Expected Closing Date: March 31, 2015

Joint IFC: N/A

Joint Level: N/A

Basic Information - Original Project

Project ID: P101645 Environmental category: B Partial Assessment

Project Name: TZ-Energy Development &

Access Expansion

Expected Closing Date: March 31, 2015

Lending Instrument: Specific Investment Loan Joint IFC: N/A

Joint Level: N/A

AF Project Financing Data

[ ] Loan [ X ] Credit [ ] Grant [ ] Guarantee [ ] Other:

Proposed terms: 40 years, with a 10 years grace period

AF Financing Plan (US$m)

Source Total Amount (US$m)

Total Project Cost: 43.38

Cofinancing: 0.00

Borrower: 15.50

Total Bank Financing:

IBRD 0.00

IDA 27.88

New 0.00

Recommitted 27.88

43.38

15.50

27.88

vi

Client Information

Recipient:

Ministry of Finance

P. O. Box 9111

Dar es Salaam

Tanzania

Tel: +255 22 2926001/6

Fax: +255 22 2926011

Email: [email protected]

Responsible Agency:

Tanzania Electric Supply Company Ltd. (TANESCO)

Umeme Park, Ubungo

Tanzania

Tel: (255-22) 245-1130

Fax: (255-22) 451-158

Email: [email protected]

AF Estimated Disbursements (Bank FY/US$m)

FY 12 13 14 15

Annual 5.00 10.00 5.00 7.88

Cumulative 5.00 15.00 20.00 27.88

Project Development Objective and Description

Original project development objective:

The Project Development Objective is to improve the quality and efficiency of the electricity

service provision in the main three growth centers of Dar es Salaam, Arusha, and Kilimanjaro

and to establish a sustainable basis for energy access expansion and renewable energy

development in Tanzania.

Revised project development objective

N/A

Project description:

TEDAP consists of three components (indicating original cost estimates): (A) a grid component

of US$85.8 million focusing on investments in national utility‟s transmission and distribution

network; (B) an off-grid component of US$47.5 million (including US$6.5 million from GEF

and a US$ 25million Credit Line) to support an institutional set-up for the newly established

Rural Energy Agency (REA) and to develop and test new off-grid electrification approaches for

future scale up; and (C) a technical assistance component of US$3.2 million. The Additional

Financing is only for the on-grid part of the Project, which includes components A and C.

vii

Safeguard and Exception to Policies

Safeguard policies triggered:

Environmental Assessment (OP/BP 4.01)

Natural Habitats (OP/BP 4.04)

Forests (OP/BP 4.36)

Pest Management (OP 4.09)

Physical Cultural Resources (OP/BP 4.11)

Indigenous Peoples (OP/BP 4.10)

Involuntary Resettlement (OP/BP 4.12)

Safety of Dams (OP/BP 4.37)

Projects on International Waterways (OP/BP 7.50)

Projects in Disputed Areas (OP/BP 7.60)

[ X ]Yes [ ] No

[ X ]Yes [ ] No

[ ]Yes [ X ] No

[ ]Yes [ X ] No

[ X ]Yes [ ] No

[ ]Yes [ X ] No

[ X ]Yes [ ] No

[ X ]Yes [ ] No

[ X ]Yes [ ] No

[ ]Yes [ X ] No

Does the project require any waivers of Bank policies?

Have these been endorsed or approved by Bank management?

[ ]Yes [ X ] No

[ ]Yes [ ] No

Conditions and Legal Covenants:

Financing Agreement

Reference

Description of Condition/Covenant Date Due

Article 5.01 a) The Subsidiary Agreement has been

executed on behalf of the Recipient

and TANESCO.

Effectiveness

Article 5.01 b) TANESCO has adopted the

Operational Manual, in accordance

with the provisions of Section D. of

the Schedule to the Project

Agreement.

Effectiveness

1

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide an additional

credit in an amount of SDR17.20 million (equivalent of approximately US$27.88 million) to the

Tanzania Energy Development and Access Expansion Project (P101645; Cr.-4370 TA1). This

Additional Financing is sought on the basis of OP 13.20, paragraph 1, by using a cancellation

amount from the Songo Songo Gas Development and Power Generation Project (Songo Songo

Cr. 3569), which was cancelled in December 2010 on the basis of OP 13.50.

2. The proposed additional credit would help finance completion of the original Project

activities as a result of an unanticipated cost overrun of up to US$43.38 million in the on-grid

part (Components A and C). This proposed Additional Financing will not entail restructuring of

any of the Project‟s components or its implementation arrangements. The current Project

Development Objective will remain unchanged and the current closing date will not be extended.

3. A previous Additional Financing for US$25 million to support a rural/renewable energy

credit line under the Project´s off-grid part (Component B) was approved by the Board on April

2010 and became effective in September 2010 (“AF 2010”). The AF 2010 restructured the off-

grid part‟s (Component B) sub-components including their implementation arrangements and

extended the Project´s original closing date by three years from March 31st 2012 to March 31

st,

2015.

4. In addition to this former restructuring of the Project, an amendment of the Financing

Agreements and reallocation of Unallocated Funds was approved on April 7, 2011 through a

Level II restructuring. This latest restructuring was processed in advance of this Additional

Financing to immediately prevent certain credit category cost overruns and to facilitate a

Government Notice to waive all future taxes and duties liabilities on this Project, thereby

reducing the overall financing gap.

5. The Government of Tanzania (GOT/Government) and its state owned utility Tanzania

Electric Supply Company (TANESCO) have reiterated the importance of this Project for the

energy sector in Tanzania, which suffers from a chronic shortage of power supply during the dry

season that is aggravated by high transmission and distribution losses. Because of the

importance of this Project, the GOT not only requested an Additional Financing for this Project

by using project savings from another IDA-financed energy project, but also confirmed

contribution of Government counterpart funds of up to US$11 million through its letter dated

March 8, 2011. In addition the Government is about to process a tax waiver for contracts

financed by this Project as mentioned in the previous paragraph. Finally TANESCO in their

Letter dated April 18, 2011 confirmed to the Bank that in addition to the GOT counterpart funds

it will use up to US$4.5 million from its own budget to complete the overall funding gap

remaining after use of the IDA Additional Financing amount and usage of GOT counterpart

funds.

1 Please note that while the TEDAP includes also credit Cr. 4726-TZ (Credit Line Component B) and GEF Trust

Fund TF091281, this Additional Financing only relates to the Project‟s main Credit Cr. 4370-TA. Currently no cost

overruns occur under Cr. 4726-TZ and GEF TF091281.

2

II. Background and Rationale for Additional Financing in the amount of $27.88 million

A. Background

6. The Tanzania Energy Development and Access Expansion Project (TEDAP) for originally

US$105 million (IDA), and US$6.5 million (GEF) was approved on December 13, 2007 and

became effective in March 2008, in the aftermath of one of the most serious energy crises in the

country. The crisis exposed the underlying vulnerability of hydro-dominated generation systems

to drought and the need to diversify generation, and it accentuated the urgent need for

investments in transmission and distribution networks to improve reliability of supply.

7. Project Development Objective remains unchanged. The Project Development Objective, as

slightly reformulated by the 2010 Additional Financing to highlight the project‟s enhanced focus

on renewable energy development, is to improve the quality and efficiency of electricity service

provision in the three main growth centers of Dar es Salaam, Arusha, and Kilimanjaro, and to

establish a sustainable basis for energy access expansion and renewable energy development in

Tanzania. The Project‟s Global Environmental Objective is to abate greenhouse gas emissions

through the use of renewable energy in rural areas to provide electricity.

8. The current Project Development Objective will not be affected by this Additional Financing.

Achieving TEDAP‟s development objective remains a key element of TANESCO‟s 5-year

investment plan aimed at not only improving service in the key urban areas, but also reducing

losses and improving revenue streams, thereby directly contributing to TANESCO‟s financial

recovery. The current technical and non-technical combined losses stand at 20 percent. TEDAP

and related transmission and distribution rehabilitation projects being financed by other

Development Partners (AfDB, EIB, MCC, JICA, South Korea EDCF and Finland), anticipated to

be completed between 2012 and 2015, are expected to bring significant reduction of combined

losses in target areas.

9. Consistency with CAS and Regional Strategy. Furthermore, the TEDAP is in line with the

objectives of the outgoing Tanzania Joint Assistance Strategy JAST and the GOT‟s own former

poverty reduction strategy, the MKUKUTA (Goal 6: Provision of reliable and affordable energy

to consumers). In addition the TEDAP is in line with the GOT‟s recently endorsed new poverty

reduction strategy, MKUKUTA 2, as well as with the proposed new World Bank Tanzania CAS

submitted for Board approval in parallel with this Additional Financing. The Project, including

this Additional Financing, contributes to outcomes and goals of each strategy by allowing for

improved electricity access to the population and, through focusing the majority of investments

on specific, targeted service quality improvements and access expansion in key economic growth

areas. Furthermore, the project will improve the quality of life for the affected population. At

the regional level, the project supports several economic and social objectives of the World

Bank‟s New Africa Strategy of March 2011, and at the corporate level, the TEDAP is also in line

with the current draft of the proposed WBG Energy Sector Strategy.

10. Project Components’ scope remains unchanged. The proposed Additional Financing will not

change the current structure and scope of the Project. TEDAP consists of three components: (A)

a Component A (on-grid part) with an original cost estimate of US$85.8 million (including

contingencies) focusing on investments in national utility‟s transmission and distribution

3

network; (B) a Component B (Small Power Project Component under the off-grid part) of

US$47.5 million (including US$6.5 million from GEF and a US$25 million Credit Line2); and

(C) a technical assistance related Component C with an original cost estimate of US$3.2 million.

11. The Additional Financing relates mainly to Component A cost overruns. TEDAP´s

Component A supports investments in TANESCO‟s transmission and distribution networks in

Dar es Salaam, Arusha, and Kilimanjaro. This grid component will improve the capacity of

existing networks, thus improving the service quality for existing customers and allowing new

customers to connect to the grid in the three main growth centers of Tanzania. Furthermore,

these investments will improve the capacity of existing networks, thus improving power system

performance by reducing system losses, frequent outages due to overloaded transformers and old

equipment, low and fluctuating voltage conditions and poor system power factors. The

investments will include adding, replacing or upgrading transmission and distribution lines and

substations and medium and low voltage equipment, meters, spare parts, and tools. Component

A is implemented by TANESCO.

12. Additional funds also needed to cover some cost overruns under Component C . Due to some

higher than anticipated bid prices, certain cost overruns under Component C recently occurred

and parts of the existing Unallocated Funds have been added to cover those costs. In addition,

procurement advisory services were added to this Component two years ago. It is proposed to

strengthen TANESCOs environmental capacity through an additional institutional and capacity

development consultancy (See paragraphs 32-34). Consequently, Component C will also need

some additional funds under this Additional Financing to cover the costs of all existing and

planned activities.

B. Status of Ongoing Project

13. Current Overall Project Rating. Since its effectiveness in March 2008, TEDAP‟s

development objectives and implementation progress have been consistently rated satisfactory or

moderately satisfactory. The project ratings, as reported in the past two ISRs are tabulated

below:

Table 1: Project Ratings since June 2010

Rating June 2010 February 2011

Progress towards achievement of PDO MS MS Progress towards achievement of GEO S S

Overall Implementation Progress (IP) MS MS Financial Management S S Project Management MS MS Counterpart funding S S

Procurement MS MS Monitoring & Evaluation S S Public involvement S S Government commitment S S

Overall Safeguard Compliance S S

2 This Credit Line was introduced by the AF 2010 to support an institutional set -up for the newly established Rural

Energy Agency (REA) and to develop and test new off-grid electrification approaches for future scale up.

4

14. The Component A (on-grid part) and Component B (Small Power Project Component) have

recorded different implementation performance up to the Mid Term Review completed in

December 2010. The implementation of Component B has progressed satisfactorily and some

intermediate outcome indicators are already close to being achieved or even exceeded.

Implementation of Component C has also been Satisfactory. Further details on the status of

Components B and C and their current rating explanation can be found in Annex 3.

15. Since this Additional Financing only relates to Component A and Component C of the

project and taking into account that the implementation of the Small Power Project Component

(Component B) is progressing satisfactorily the following sections focus only on Component s A

and C.

16. Component A is rated Moderately Satisfactory. After effectiveness, Component A‟s

implementation started on a satisfactory level with timely launch of all major procurement

processes. However, in late 2008 seven large transmission and distribution rehabilitation

contracts of Sub-Component A.1 encountered some delays in their procurement processes partly

caused by TANESCO‟s lack of continuous focus on those important procurements, but also due

to some set-backs in procurement evaluations, notably causing the rebidding of the distribution

packages under this Sub-Component. Consequently, TANESCO took measures in 2009 and

throughout 2010 to enhance the performance of the procurement functions (details in Annex 3).

17. While those mitigation measures were proven successful and allowed for an improvement of

implementation speed of the ongoing procurements at that time, Component A faced another

implementation delay that occurred in the three transmission-rehabilitation contracts, which were

successfully awarded in May 2009 (additional details Annex 3). Those additional set-backs led

to a downgrade of the transmission and distribution sub-component under Component A to

Moderately Satisfactory, and given the overall weight of Component A under the Project (over

60% of the total credit amount), the Project‟s overall PDO and IP ratings were downgraded to

Moderately Satisfactory in 2010.

18. During the Mid-Term Review in December 2010, additional progress was noted on the

implementation of Component A, as most of the Transmission Line‟s implementation issues had

been resolved or were close to being resolved. At the same time the Mid-Term Review revealed

a significant financing gap, and since the full mobilization of the transmission line contractor

was not yet achieved, the ratings for Component A and for the overall project ratings were kept

at Moderately Satisfactory.

19. Action Plan. Following the Mid-Term review and during the preparation mission for this

Additional Financing, a concrete Action Plan to address the past implementation challenges and

to avoid further delays and cost increases was agreed with the GOT and TANESCO. The most

relevant measures agreed with the GOT are the following:

Dedicated Teams. TANESCO has to ensure that dedicated Project teams continue being

available and duly monitor and take timely action on the implementation processes, such as

timely release of pending/new change orders, which could have an impact on the project cost.

With regard to Component A, during preparation of this Additional Financing, it had been

agreed that TANESCO will enhance its TEDAP team with two additional engineers, which

5

will ensure timely and close follow up on all outstanding actions to secure the transmission

rehabilitation sites and ensure that full mobilization of the contractor is reached before the

end of the year 2011. The appointment of those two engineers had been fulfilled by the time

of this Additional Financing‟s appraisal in April 2011. In addition TANESCO will submit an

updated operation/procedures manual for its TEDAP Team. Submission of a manual

acceptable to IDA is a condition for effectiveness.

Improvements in TANESCO Procurement. Under TEDAP, TANESCO has recruited and put

in place a qualified procurement specialist with international experience. Despite important

improvements in the past two years, procurement efforts on the remaining procurements of

Component A have to be further improved, and timely processing of procurements becomes

critical to avoid further delays. In this regard, it was agreed during preparation of this

Additional Financing that a dedicated Procurement Specialist from TANESCO‟s central

procurement department was going to be deployed full-time to the TANESCO‟s TEDAP

team. The Procurement Specialist was subsequently appointed by the time of appraisal in

April 2011.

Treatment of Taxation and Customs Duties. A general exemption for taxes and duties under

the Project‟s major works, goods and consultancy contracts or arrangement for payment of

those fees outside the Project becomes an important necessity to limit the amounts required

for additional financing. In this regard, an agreement has now been reached between IDA

and MOF in which MOF will waive any future tax payments and custom duties under

Contracts.

20. In addition, TANESCO, through a letter to the Bank dated April 18, 2011, outlined a credible

implementation time line of the project‟s Component A activities showing that the Component

can be fully implemented before the Project closing date. Taking into account that the maximum

implementation time of the most complex and lengthy contracts is expected not to exceed

twenty-four months from mobilization, and assuming that all major contracts will have been

procured and mobilized by the latest in 2012, full implementation of Component A is achievable

during 2014, which would be three to six months in advance of the current closing date of March

31, 2015.

21. Therefore, subject to implementation of the above actions and subject to the approval of the

proposed AF, the Project would be able to achieve the current PDO by Project closing. It is

further expected that upon implementation of the above Action Plan the Project could reach an

overall Satisfactory rating within the next supervision cycle if no new issues are identified.

22. Legal Covenants and Financial Management. Based on the information available to the

Task Team at appraisal the Project is in compliance with all critical legal covenants. The

financial reporting and auditing performed to the implementing agencies, REA, MEM and

TANESCO is overall in compliance with World Bank requirements. The transfer of

implementing responsibilities under the Off-Grid part recently led to some minor delays in

reporting and some recent “post reviews‟ under the MEM‟s contracting responsibilities revealed

that efforts have to be strengthened, especially with regard to documentation and expenditures

reconciliations.

6

23. The overall project credits 4370-TA and 4726-TZ (Credit Line under Component B) have

currently disbursed 24% of the allocated funds. Overall, the FM rating is Satisfactory.

24. Audits. The 2009/2010 external audit reports were received before the deadline of December

31, 2010. Unqualified (clean) audit reports were issued. The management letters did not contain

any major issues.

C. Rationale for Additional Financing

25. Total Project Costs likely to increase by US$35.4 million. During the MTR of the project, a

comprehensive financial analysis of the project‟s funding situation was carried out, and this

analysis was updated during appraisal of this Additional Financing in April 2011. The updated

analysis indicates that Total Project Costs would increase by US$35.4 million, assuming all

Project activities would still be contracted and implemented as originally planned. The analysis

is based on the SDR amounts allocated at original Board for Credit 4370-TA (December 2007)

and Credit 4726-TZ (Credit Line introduced in April 2010) and compares those amounts to: (i)

the current allocation at appraisal of this Additional Financing, which takes into account the

recent allocation of the originally Unallocated amounts; and (ii) the required allocation if the

Project would continue to include all currently planned activities including their required

additional costs.

26. The analysis does not include the US$6.5 million of the TEDAP-related GEF Trust Fund, as

there are currently no cost overruns anticipated under this Trust Fund. The Total Project costs by

Component would change as follows when all currently planned activities are implemented:

Table 2: IDA Financing for TEDAP: Original, Current and Proposed

Components/Activities Original

Allocation 2007

Current Allocation

2011

Proposed Allocation

2011 (including

Counterpart funds and excluding Contingencies)

USD USD USD

A: Component A – Ongrid Investments 76,631,173 81,563,219 116,335,590

B: Component B – Offgrid Investments (excl CL & GEF) 15,993,943 16,411,454 16,411,454

B 4: Sub-Component B.4 – Credit Line (Board April 2010) 0 24,896,580 24,896,580

C: Component C – Sectoral Technical Assistance 3,183,261 6,714,671 7,378,422

Unallocated 9,316,860 0 0

Total Credit Amount (US$) 105,125,237 129,585,924 165,022,046

27. The above table confirms that the cost overruns only relate to Components financed by the

main credit 4370-TA. In addition, current cost overruns where additional funding is needed

mainly relate to Component A and to a smaller extent to Component C. Those cost overruns are

mostly caused by (i) substantial cost increases of the transmission and distribution rehabilitation

contracts when comparing the contracted and bidding prices with the original cost estimates; (ii)

implementation delays of the transmission rehabilitation contract; and (iii) higher than

anticipated contract costs for various consulting assignments under Component C, including the

addition of one new consultancy.

7

28. Transmission and Distribution contract price increases. The important difference in prices

between the appraisal stage estimates of August 2007 and the bid submission prices

(transmission lots) of June 2008 and bid submission prices of November 2010 (distribution lots)

can be explained by steadily increases in equipment prices from 2007 to date for transmission

and distribution equipment on the world market. These price increases are driven by an

increasing global demand for such equipment and correlated steady rise in prices of raw

materials like copper and aluminum, which are the main commodities used for the manufacture

of the equipment. In addition the US dollar exchange rates to major currencies have been subject

to important fluctuations, and in most cases the US dollar overall depreciated against major

currencies from the time of original appraisal in 2007 to the time of bid submissions.

29. In addition overall funding requirements under the project were increased due to the current

implementation delays under the transmission rehabilitation contract. Those additional increases

currently amount to approximately US$6 million, including price increases due to design

changes, contract time extensions as well as applicable import duties and taxes (which until now

were financeable under the credit).

30. Cost increases under Component C: This component supports various technical assistances

to TANESCO and the GOT. The component supports capacity building implementation

measures for TANESCO and contributes to increasing the GOT‟s capacity to develop public and

private generation projects through the provision of legal, technical, financial, environmenta l,

and social advisory services.

31. The cost increases under Component C are mainly caused by higher than anticipated

consultancy contract prices for three advisors (legal, financial and technical) to the Ministry of

Energy and Minerals (MEM), to prepare the next major hydropower project in Tanzania with

participation of a private investor. Since some of those advisory contracts were awarded to firms

that had bid on non-US Dollar prices, the US Dollar depreciation against those currencies in the

last three years added to the contract price increases against former estimates. In addition the

MEM requested a much larger scope for the technical advisory contract to include consulting

services for the implementation phase, which were originally not foreseen. However, given the

complexity of a hydropower project‟s implementation, extending this advisory contract for the

implementation phase is warranted, which is why the change of scope was approved in the

procurement phase. Two of the three advisories have now been procured and contracted, and the

contracting of the technical advisor is expected during May 2011.

32. Two additional capacity-strengthening measures included in Sub-Component C.1. When the

procurement delays under the transmission and distribution Sub-Component A.1 occurred in late

2008, TANESCO agreed with the Bank to hire an international procurement advisor to

strengthen TANESCO‟s procurement capacities. This advisory capacity was introduced under

Sub-Component C.1 in 2009 and is currently financed by the Project over two years with an

allocated budget of US$360,000. In addition TANESCO recently approached the Bank to

consider including an additional capacity-building measure under Sub-Component C.1, which

relates to TANESCO‟s Environmental unit and foresees strengthening of the utility‟s capacity

for environmental management.

8

33. This proposed additional environmental capacity-strengthening activity relates to a follow up

action for which TANESCO is responsible for implementing the Environmental Management

Plan (EMP) after the closure of the IDA financed (Credit 3546 -1-TA) Lower Kihansi

Environmental Management Project (LKEMP, P105220). This separate project will close on

June 30, 2011. As per the objective of the LKEMP an updated Environmental Management Plan

(EMP) was agreed and approved in 2004 in the context of the IDA financed Lower Kihansi

Hydropower Plant (LKHP). The EMP outlines actions to mitigate LKHP impacts on the Kihansi

Gorge, which contains the ecosystems in which several unique and previously unknown species,

including the Kihansi Spray Toad (KST) and at least four new plant species have been found.

The proposed LKEMP activities support the reintroduction of the captive bred KST into its

natural habitat in Kihansi gorge. According to this EMP, TANESCO is legally responsible to

implement environmental mitigation measures from the operation of the LKHP. The EMP

prescribes a series of actions to be implemented by TANESCO during the life of the LKHP

facility.

34. The proposed activity to be included under the TEDAP will enable TANESCO to fulfill its

monitoring and environmental auditing responsibilities under the LKHP EMP. This includes

monitoring of key ecological indicators in the Kihansi gorge; sustaining the population of captive

bred KST at the captive breeding facilities at the University of Dar es Salaam and Kihansi; and

the implementation of soft and hard releases of KST back to the gorge as detailed in KST

reintroduction plan. Through additional support in Component C, TANESCO will strengthen its

capacity for mitigating environmental impacts in the operations of the LKHP and to protect,

minimize and mitigate adverse environmental impacts on future hydropower plants.

Consequently this capacity building measure is in line with the existing PDO of the TEDAP

“establish a sustainable basis for […] renewable energy development in Tanzania”.

35. Total financing gap of up to US$43.38 million. The total financing gap assessment took

account of (i) the current existing contract costs; (ii) anticipated contract price increase; and (iii)

all planned future commitments as per current price estimates under all components. In addition

and as a precautionary measure, the financial analysis also includes new contingency amounts of

US$7.94 million for all major contracts under Components A and C, since the credit‟s former

Unallocated funds have all been allocated by now. When adding the required contingencies of

US$7.94 million to the current cost overrun amount of about US$35.44 million, the total

additional financing need is US$43.38 million.

36. Finally the financial analysis compared the current financing gap with the available IDA

resources for this Additional Financing of about US$27.88 million (equivalent of SDR17.2

million at current exchange rate) sourced from the cancellation amount under the Songo Songo

Credit 3569-TA. The analysis consequently shows the following funding requirements and

funding sources as documented in the table below:

9

Table 3: TEDAP Cost Overrun and Financing Plan

US$

Additional Financing Requirements

Cost Overrun TEDAP Project Credit -35,436,122

Contingencies on Major Contracts -7,944,390

TOTAL AF Requirement 43,380,512

Financing Sources

Songo Songo Savings (equivalent of SDR 17.2 million) 27,880,512

GOT/TANESCO Counterpart Funds Required 15,500,000

37. GOT and TANESCO counterpart funds of US$15.50 million proposed: As the table above

documents, and since no more IDA resources are currently available under the Tanzania IDA

country envelope, the currently needed counterpart funds from the GOT and TANESCO amount

to about US$15.50 million.

38. Given the importance of this project for TANESCO‟s efforts to (i) reduce transmission and

distribution loss levels and (ii) to enhance its overall operational performance, the utility

informed the Task Team through Letter dated April 18, 2011 that it is ready to provide the

necessary counterpart funds from its own budget in addition to the confirmed GOT counterpart

funds. Those funds are proposed to finance certain outstanding contract procurements as further

explained in the following Section III.

39. The proposed additional financing, accompanied by the implementation of measures agreed

under the Action Plan, will allow processing the outstanding contracts and achieving the

Project‟s Development Objective by project closing.

D. Alternatives Considered

40. Dropping Project Sub-Components. Given the limited amount of IDA funds currently

available, and in the absence of any counterpart funds, the Project would have to be downsized

by dropping certain sub-components and activities. Since major contracts have already been

awarded (transmission rehabilitation contract and nearly all of the consultancies under

Components A and C) or are close to contract award (distribution packages under sub-

component A.1), a cancellation of those ongoing procurements would offset the implementation

efforts made in the past two years. In addition, the cancellation or downsizing of the

transmission and distribution contracts would risk that major outcomes of this project could only

be achieved partially or not at all. Consequently the current PDO could not entirely be achieved.

In addition, TANESCO‟s current transmission and distribution network needs substantial loss

reduction improvements, and in the current situation of load shedding due to generation

shortfalls, the reduction of those losses becomes even more important to enhance the utility‟s

operational performance. Finally the economic analysis (see Section IV below) also confirmed

that even with the increased prices the Project is still economically viable at the current scope.

41. Provision of additional IDA funds. The Tanzania IDA country envelope under IDA 15 has

already benefited from additional funding resources allocated in this Fiscal Year. Considering

that those previous allocations have been fully committed to other projects, the only available

10

funding for this additional financing in this Fiscal Year is the cancellation amount from the

Songo Songo Credit 3569-TA.

42. Preparation of this Additional Financing in FY12. The Task Team also considered the

possibility to propose this Additional Financing in the next Fiscal Year when a new Tanzania

IDA country envelope becomes available. However, this alternative was rejected since the

amounts from the Songo Songo Credit 3569-TA were cancelled under IDA 15 and cannot be

transferred beyond the IDA 15 cycle as per the World Bank‟s guidelines. The funds would

consequently be unavailable in the next Fiscal Year.

43. Provision of counterpart funds from other Development Partners . Similar activities to those

being implemented under TEDAP´s Component A are also supported by other Development

Partners in Tanzania by existing projects (AFDB, JICA, Korea EDCF, Finland and MCC).

However, none of those Development Partners have currently sufficient additional funds

available under their projects to support the cost overruns under the TEDAP Project and

processing additional resources, if available, would take a long time. Since one of the largest

cost overruns under the project relates to the distribution rehabilitation contracts, which are

expected to be contracted within the next few months, the availability of the required funds is

very time sensitive.

III. Proposed Changes

A. Key Indicators and Results Framework

44. The incurred delays under the On-Grid part required some necessary changes to the Outcome

and Intermediate Outcome indicators. However those changes only relate to a rescheduling of

the targets into future years. All activities could be implemented and targets achieved as per the

original target values by the current Project closing date of March 2015, recently extended

because certain On-Grid targets would not have been achievable in the original time frame of the

Project. The Results Framework was already updated in this regard during the Mid Term

Review of December 2010 and reviewed by and agreed with the Bank. The applicability of this

updated Results Framework was reconfirmed during appraisal by the Bank and the Borrower

including validity of all its indicator values and targets. The updated Results Framework also

includes the Energy Core Indicators relevant for this Project and is outlined in Annex 1.

B. Financing

45. GOT counterpart Funds allocation. As indicated above, the Additional Financing is sought

to cover cost overruns which mainly arise under Component A and to a smaller extent under

Component C. As per the financial analysis documented above, this Additional Financing

proposes to add SDR17.2 million to the financing of Components A and C, using the formerly

cancelled funds under the Songo Songo Credit 3569-TA. As common practice for Additional

Financings, this additional amount will be provided in form of an additional credit under the

TEDAP, which is closely linked to the Project‟s main credit 4370-TA. In addition, the GOT and

TANESCO through various official communications have indicated that they will provide

counterpart funds to this Additional Financing in the amount of US$ 15.5 million.

11

46. The proposed counterpart funds are proposed to be used for certain original project activities

which are at an advanced stage of preparation, but which are not yet contracted. TANESCO will

procure those activities by applying World Bank procurement guidelines but without having to

seek clearance from the World Bank on the individual procurement steps. However, progress of

those activities will be closely monitored by the Task Team. The proposed activities to be

funded by the GOT/TANESCO funds is as follows:

Table 4: TEDAP Activities to be financed by GOT/TANESCO Counterpart Funds

# Activity Name Activity under

Sub-

Component

Estimated

Costs US$ (incl.

Contingencies)

Financed by

1 HV Distribution Network, Lot 1: Network for

25,000 new customers and new HV Cluster,

Lot 2: RMU switching units

A.2 and A.3 10,000,000 GOT Budget through

counterpart funds to

TANESCO

2 Lot 2 : 10,000 Three Phase Whole-Current

Split Type Keypad-Operated Smart (AMR)

Prepayment kWh Meters

A.4 5,000,000 TANESCO's own budget

US$4 million (plus US$1

million GOT counterpart

funds)

3 Vehicles for Project Supervision A.5 500,000 TANESCO's own budget

TOTAL 15,500,000

47. Activities Financed by TANESCO. The IDA credit currently finances a consultancy related

to the preparation of the Activity 1 in the above table. According to TANESCO a draft set of

Bidding Documents for this procurement of the HV Distribution Network has been submitted for

TANESCO‟s initial comments, and it is expected that the procurement process for those works

can be launched in the coming months. Since the current implementation time of this activity

including the procurement process is currently expected not to be longer than twenty-four

months, this activity currently can be implemented in the remaining time of the Project.

TANESCO proposes to use the GOT budget counterpart funds to fund this US$10 million

procurement, including contingencies.

48. With regard to Activities 2 and 3 in the above tables, those activities have recently been bid

out, but the bids received were found non-responsive according to TANESCO‟s Tender Board.

Since those procurements will have to be rebid and taking into account the current cost overruns

under the IDA credit, TANESCO proposes to finance those activities through its own budget

with US$4.5 million and to use US$1 million from the counterpart funds provided through the

GOT‟s budget.

49. Revised IDA Financing Plan: By financing those proposed three activities, which were

foreseen by the original project, TANESCO and the GOT will contribute about US$15.5 million

to the financing of the total cost overruns plus including contingencies that will complement the

IDA Additional Financing of SDR17.2 (about US$27.88 at applied exchange rate). The

Financing Plan by component would then be financed as follows3:

3 A comprehensive overview on the development of the Original Project Financing Plan since 2007 including other

sources of funding can be found in Annex 5.

12

Table 5: IDA Financing by component in US$ since original Project approval in 2007

Component including

Contingencies and

Excluding GEF TF)

Original

financing

Changes

with

AF2010

April

2010

Reallocation

Unallocated

Amounts

April 2011

Changes with

proposed AF

June 2011

Revised

financing

After this

AF

Financed by IDA IDA IDA IDA GOT/

TANESCO

1: Grid Component 77.00 -- 5.00 27.28 15.50 124.78

2: Offgrid Component 16.00 25.00 -- -- -- 41.00

3: Technical Assistance 3.00 -- 4.00 0.60 -- 7.60

Unallocated 9.00 -- -9.00 -- -- --

Total 105.00 25.00 0.00 27.88 15.50 173.38

C. Implementation Arrangements

50. The implementation arrangements for Component A will not change; however, the

implementation and procurement capacity of TANESCO´s TEDAP team has been strengthened

(see risk section below). In addition a revised implementation schedule focusing on

TANESCO‟s activities implemented under Component A has been received by the Bank and

was reviewed by the Task Team. The review showed an acceptable updated timeline and

confirms that all outstanding activities can be completed before the current Project closing date ,

subject to approval of this Additional Financing and provision of GOT/TANESCO counterpart

funds. Financial management and disbursement arrangements will remain unchanged for this

IDA Credit.

51. With regard to the proposed new capacity building measure on TANESCO‟s environmental

management capacity, TANESCO will contract this capacity building measure in form of a

consultancy with the University of Dar es Salaam in accordance with the current implementation

and procurement arrangements, which remain unchanged. The attached Procurement Plan has

been updated accordingly with a proposed Consultancy under Sub-component C.1, labeled

Consulting Service on Mainstreaming Implementation of the KST Reintroduction Management

Plan.

D. Condition of Effectiveness and Legal Covenants

52. Conditions of effectiveness will consist of (i) the submission of a copy of the duly executed

Subsidiary Agreement between TANESCO and the MOF related to this Additional Financing

Credit; and (ii) Submission of an updated Operational Manual for the TANESCO TEDAP team‟s

operation. New Legal covenants will include withdrawal restrictions under the new credit for (i)

payments to the proposed three activities, now funded through GOT counterpart funds; and ii)

any withdrawals under the new credit after July 1, 2013, if the proposed GOT counterpart funds

have not been established fully by then.

13

E. Readiness of Activities for Additional Financing

53. Contracts for procurement of transmission equipment have been procured and awarded under

the Project and are already under implementation. Procurement for distribution equipment are at

the bid evaluation phase, which is when the higher than originally expected cost bids have been

observed thereby prompting the need for this Additional Financing. As a result, it can be

anticipated that the procurement will be completed and awards made in the next few months

following AF approval. Consequently the activities supported by this Additional Financing are

ready for implementation. The additional capacity-building measure under Sub-Component C.1,

is also ready for implementation. In addition TANESCO and the Task Team have started to

discuss the outline of the new Operational Manual and it is expected that this Manual will be

completed by early June 2011 so that effectiveness can be achieved shortly after approval of this

AF.

F. Risks

54. Key Project risks and mitigating measures for this Additional Financing are presented in the

ORAF (See Annex 2). Overall risk for Additional Financing is rated MI (medium driven by

impact). At an earlier stage of this project, weak implementation capacity at TANESCO and

weak procurement capacity had hindered timely implementation of the Project. Implementation

and procurement capacity have improved since TANESCO took concerted measures starting in

2009 and continuing throughout 2010 in order to enhance the performance of the procurement

functions. These mitigation measures involved a reorganization of the procurement department

and introduction of service level agreements between the procurement department and

operational departments. TANESCO also hired an international Procurement advisor (financed

under this Project) who is supporting the strengthening of procurement operations.

55. In addition, to continue this progress, TANESCO and the World Bank have recently agreed

on an Action Plan that will continue to strengthen the implementation and procurement capacity

of the PIU. The Action Plan has been outlined under Section II above and most of the actions

have been taken by appraisal.

IV.Appraisal Summary

A. Economic and Financial

56. For both the Economic and Financial Appraisal, the assumptions used for the original

assessment were reviewed and updated where necessary. The project benefits are based on

reductions in unserved energy, reductions in technical network losses and reductions in non -

technical network losses. For each investment program, whilst costs have increased, it is

expected that reductions in technical network losses, non-technical losses and unserved energy

will be the same as were planned at the time of the original appraisal. A conservative approach

was originally taken on the size of these expected reductions for each package of investment and

this conservative approach is now maintained.

57. For the Economic Appraisal, the value of reducing unserved energy is derived from the cost

of avoided self-generation of industrial and commercial customers as well as cost of avoided

self-generation of domestic customers. Work carried out by consultants DECON for TANESCO

14

found these values to be USc 50/kWh and USc 40/kWh respectively. These figures and the rest

of the key assumptions used in the original appraisal are judged to still be appropriate and valid.

58. Even with the increased costs, the recalculated overall EIRR of investment projects is

expected to be clearly positive at about 17.4% with an Economic Net Present Value (ENPV) of

US$43.0 million (see Table 6 below). This reflects the high value to society of making the

system more reliable and efficient. For the connection of new urban customers, as previously,

the Economic Internal Rate of Return (EIRR) is expected to be even higher than indicated in the

table, due to high current alternative energy costs, high consumer willingness to pay (by both

households and businesses) in urban areas, and the potentially lower than assumed connection

costs.

Table 6: Summary of revised Economic Analysis for Ongrid Components

Component Economic internal

rate of return (%)

Economic NPV

@ 10%

(US$ million)

Reinforcement of distribution and

transmission networks in Dar es Salaam

11.1 3.7

Reinforcement of distribution networks in

Arusha

19.8 10.1


Kilimanjaro

35.4 16.5

Connection of 25,000 new customers 38.4 12.7

Replacement of 60,000 credit meters 10.0 3.7

Total for Ongrid Investments 17.4 43.0

59. Table 7 below presents the Financial Internal Rate of Return (FIRR) and financial net present

value for different components. The increased costs lead to an overall project FIRR that is now

very slightly below the 10% threshold. Reinforcement work at Arusha and Kilimanjaro remains

strongly above the threshold minimum rate and so the overall relatively low financial return is

driven by financial returns in Dar es Salaam. The considerable increase in cost of works for

reinforcement of distribution and transmission networks in Dar es Salaam (almost doubling from

c.US$ 30.3m to c.US$ 58.6m) has made this activity net negative financially. The sub-

component that will finance the connection of 25,000 new customers also shows a low rate of

financial return and a negative NPV. For both these instances, customers are almost exclusively

from Tariff Group D1: Domestic low Usage Tariff. It is often the case that utility activities in

low tariff customer areas are cross- subsidized by customers paying higher tariffs in other supply

areas. This is expected to be the case here. We have verified that the financial „loss‟ on these

activities is small relative to the overall activity and period over which the benefits will be

derived. It is also worth remembering that each of these activities has strongly positive

economic returns. For instance, the component that will finance the connection of 25,000 new

customers has an economic rate of return of 38.4% (as shown in Table 6 above).

15

Table 7: Financial Assessment of Project Investments4

Component Financial internal

rate of return (%)

Financial NPV

@ 10%

(US$ million)

Reinforcement of distribution and

transmission networks in Dar es Salaam

6.7 -10.6


Arusha

13.0 3.0


Kilimanjaro

20.0 5.8

Connection of 25,000 new customers 2.3 -3.3

Replacement of 60,000 credit meters 5.3 -1.3

Total for Ongrid Investments 8.8 -6.3

60. Overall, it is noted that two out of the three reinforcement clusters (Arusha and Kilimanjaro)

are expected to earn a sufficient return with an FIRR above the minimum hurdle of 10%. The

overall Financial NPV is negative though remains moderate compared to the investments

proposed of now over US$100 million for Component A.

B. Procurement

61. The Procurement of activities not started as of January 1, 2011 are or will be carried out in

accordance with the World Bank‟s "Guidelines: Procurement of Goods, Works and Non

Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers"

dated January 2011; and "Guidelines: Selection and Employment of Consultants under IBRD

Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011; Guidelines on

Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA

Credits and Grants, dated October 15, 2006 and revised in January 2011; and the provisions

stipulated in the Legal Agreement. For each contract to be financed by the Credit, the different

procurement methods or consultant selection methods, the need for pre-qualification, estimated

costs, prior review requirements and time frame, are agreed between the Borrower and the Bank

in the Procurement Plan (Annex 4). The overall risk assessment for the procurement risk of this

Project is currently rated MI (Medium driven by Impact - further details in Annex 2).

62. The Project‟s current Procurement Plan has been updated to take into account the methods

and thresholds applicable as well as the revised estimated costs and the one new activity to be

included under sub-component C.1. The Procurement Plan will continue to be updated at least

annually, or as required, to reflect the actual project implementation needs and improvement s in

institutional capacity. Additional Financing procurement will maintain existing arrangements for

TANESCO. Since this Additional Financing only relates to Credit 4370-TA, the other project

related Procurement Plan for the GEF Trust Fund is not included. The updated Procurement

Plan is attached in Annex 4 and also shows the three procurements that were formerly being

procured under the IDA credit and are now proposed to be funded by GOT/TANESCO

counterpart funds.

4 Tariff for 2011 is taken from EWURA Electricity (TANESCO) Tariff Adjustment Order, 2010. No. 010 -019.

16

C. Financial Management

63. As part of the preparation for this Additional Financing, a financial management assessment

was carried out in accordance with the Financial Management Practices Manual issued by the

Financial Management Sector Board in March 2010. The objective of the assessment is to

ensure that the implementing agency of this Additional financing, TANESCO, has adequate

financial management arrangements to ensure that (a) TEDAP AF funds will be used for the

purposes intended in an efficient and economic way; (b) TEDAP financial reports w ill continue

to be prepared in an accurate, reliable and timely manner; and (c) external audit reports will be

prepared in line with international accepted audit standards and issued on time. The Financial

Management Team‟s work included a visit to both MEM and TANESCO. The conclusion of the

assessment is that project‟s financial management arrangement satisfies the Bank‟s minimum

requirement under OP/BP 10.02 and the existing system is adequate to provide, with reasonable

assurance, accurate and timely information on the status of the project as required by the IDA.

Based on the findings of this review, the overall FM risk rating remains moderate5 and ISR FM

rating remains satisfactory.

64. As per the current and recently amended Financing Agreements of the original Project credit

4370-TA, the proceeds of the grant will finance 100% of eligible expenditures exclusive of taxes.

Under the Subsidiary Agreement, to be concluded between MOF and TANESCO, the MOF will

pass on the Additional Financing funds allocated to Categories (1) and (2) on a grant basis as for

the original credit 4370-TA.

65. Disbursements will continue to be made on the basis of quarterly unaudited Interim Financial

Reports (IFRs) whereby the Designated Account (DA) ceiling will be equivalent to a forecast for

two quarters as provided in the quarterly IFR. The existing DA under Component A of the

Original Financing will be used for Component A of the Additional Financing. However, a new

DA will be opened for the proceeds of Part B (as defined in the Legal Agreements for this

Additional Financing). Part B, as defined in the Legal Agreements for this AF corresponds to the

activities of the original Project‟s Component C.1. Additional instructions are provided in the

World Bank Disbursement Guidelines for Projects, dated May 1 2006 and the Disbursement

Letter.

D. Environmental and Social

66. Overall Safeguards Compliance is currently rated Satisfactory. The Additional Financing

does not alter the safeguards policies triggered or the arrangements for safeguards compliance.

Current Safeguards related Operational Policies (OPs) are mainly triggered for Project

Component‟s A and B.

67. Safeguards Policies triggered: Component A, which will be supported by this Additional

Financing triggers OP/BP 4.01, OP/BP 4.04, OP/BP 4.11 and OP/BP 4.12. Component B, which

is not subject of this Additional Financing, triggers the same OPs and in addition triggers OP/BP

5 This “moderate” risk rating is the FM team‟s own assessment, which is different from the ORAF risk categories.

The Task Team overall rates this rating with an MI (Medium driven by Impact (MI) corresponds to a risk that would

have high impact if it took place but a low likelihood of it occurring) in the context of the ORAF with regard to

Implementing agency risk.

17

4.37 (Safety of Dams) and OP/BP 7.50 (International Waterways). Those additional two policies

had been triggered at the original approval of the Project. Further details on the status of this

Component‟s safeguards and those policies are given further below in paragraphs 70 and 71.

68. The full suite of safeguards documents produced and publicly disclosed for the project to

date are:

Environmental Impact Assessment (“EIA” for Component A);

Environmental Audits of 18 Substations (“EA” for Component A);

Resettlement Policy Framework (“RPF A” for Component A - Rehabilitation works in

Dar es Salaam);

Two Resettlement Action Plans (“RAP” for Component A – one for Rehabilitation works

in Arusha and Kilimanjaro and one for Rehabilitation works in Dar es Salaam);

Environmental and Social Management Framework (“ESMF” for Component B);

Resettlement Policy Framework (“RPF B” for Component B);

Riparian Notification (“RN” for Component B).

69. Implementation of Safeguards under Component A. Environmental management has

proceeded satisfactorily to date, with the latest development being approval by the owner‟s

engineer of the transmission line and substation contractor‟s Environmental Management Plan

(EMP) that had been submitted in draft at the time of the MTR. The MTR also confirmed that

the recommendations of the substation environmental audits TANESCO carried out during

project preparation have been included in the design for the one substation in the audited group

that is being addressed in the project. As mentioned above, an EIA was prepared and disclosed

in 2005 prior to appraisal of the original project in 2007. The EIA includes a general EMP.

Based on this general EMP, each contractor procured under the Project‟s Component A is

obligated to submit a detailed EMP for the particular segments he is working on. Since to date

only one contractor has been contracted under Component A for rehabilitation works, currently

only one EMP has been finalized and since the contractor only recently started mobilization, the

EMP was submitted accordingly. It is expected that additional EMPs will be prepared once

distribution rehabilitation works, currently under procurement, have been contracted.

Management of physical cultural property under this Component A is addressed in the EIA and

to date no physical cultural property issues have been identified.

70. The Social Safeguards under Component A are based on two Resettlement Action Plans

(RAP) and one preceding Resettlement Policy Framework (RPF). The implementation of the

RAP for the distribution line from Moshi to Arusha has been accomplished by now. The

implementation of the RAP for the transmission and rehabilitation works in Dar es Salaam is

ongoing, though the majority of the affected people have been compensated by now. According

to this RAP 2,212 properties were affected out of which 955 needed to resettle. However, in one

transmission line segment in Dar es Salaam, approximately seven houses originally not thought

to be in the right-of-way are actually within its limits. Transmission tower design is being

modified to avoid or minimize new resettlements. Once the technical work is finalized (not

18

expected before August 2011), a RAP Addendum will be prepared, consulted upon, and

disclosed. Civil works will not commence until the RAP Addendum is implemented.

71. Implementation of Safeguards under Component B. Under Component B, not affected by

this proposed Additional Financing, safeguards implementation has been satisfactory to date.

OP/BP 4.37 (Safety of Dams) and OP/BP 7.50 (International Waterways) were originally

triggered under this project. These policies were triggered since Component B was expected to

involve mini-hydro development. Consequently riparian notification in accordance with OP 7.50

was carried out by the Bank in 2007 (at the request of the Government) and no comments were

received opposing the project. OP 4.37 was triggered as a precautionary measure, as only small,

run-of-river dams were expected and have been proposed to date. The ESMF prepared for

Component B explains the application of dam safety to the small dams, and the review of

proposed mini-hydro projects includes ensuring that designs are prepared by engineers qualified

to incorporate standard dam safety measures.

72. Following outreach and consultations by the Task Team with local communities and mini -

hydro project developers during the initial years of project implementation, the Task Team

determined at MTR that there would be additional value created by preparing summaries of the

ESMF and RPF (for Component B) so that the documents are more easily accessible and

understood by stakeholders who are both benefitting from and being affected by the mini-hydro

sub-projects. GOT through the Rural Energy Agency (REA) has engaged a local consultant and

an international advisor to reformat these documents, which will also be disclosed in-country (in

English and Kiswahili) and through the Info Shop, once finalized.

73. Transferred Project Status. The project began as a Category B transferred project. Due to

the proposed addition of the LKEMP related capacity building activity the project will not

continue as a transferred project for safeguards oversight and clearance purposes. At the same

time the project will retain its Category B status after this Additional Financing.

19

Annex 1: Revised Results Framework and Monitoring

TANZANIA: ADDITIONAL FINANCING - ENERGY DEVELOPMENT AND ACCESS

EXPANSION PROJECT

Results Framework

Revisions to the Results Framework Comments/

Rationale for Change

PDO

Current (PAD) Proposed

The Project Development Objective is

to improve the quality and efficiency of

the electricity service provision in the

main three growth centers of Dar es

Salaam, Arusha, and Kilimanjaro and to

establish a sustainable basis for energy

access expansion and renewable energy

development in Tanzania.

No changes proposed to PDO in

this AF.

Small change in the PDO adding

“and renewable energy

development in Tanzania”

incorporated in AF 2010.

PDO indicators

Current (PAD) Proposed change*

Improvement in TANESCO‟s operational

efficiency as measured by: (i) a 7%

reduction in losses; and (ii) a 25% increase

in collection efficiency in targeted areas.

No change

Improvement in service quality as measured

by: (i) increase in end user voltage to 216

volts; and (ii) improved customer

satisfaction.

No change

REA fully functional as demonstrated by: (i)

capacity to develop, finance, and implement

scale-up of pilot schemes, and (ii) pipeline

of new rural connections.

No change

Generation capacity (MW) of Renewable

Energy constructed under the project

No change Renamed indicator in AF 2010;

increased target

Number of direct beneficiaries, of which

female (%) (Component B only)

No change New indicator, incorporated in

AF2010

20

Intermediate Results indicators

Current (PAD) Proposed change*

Improved customer service with a

centralized call center and a high

value customer cell in place.

No change

Improved IT systems for

commercial, technical service and

resources management functional.

No change

Replacement of 60,000 credit

meters with prepaid meters

completed.

No change

Pilot project for low loss high

voltage distribution system

implemented.

No change

Number of people provided with

access to electricity under the

project by household connections

(Component A)

No change Renamed indicator during MTR

and revised target values

Number of people provided with

access to electricity under the

project by household connections

(Component B)

No change Renamed indicator in AF 2010;

revised target

Number of indirect beneficiaries,

of which number of women

(Component B)

No change New indicator incorporated in AF

2010

Number of community electricity

connections under the project

No change Renamed indicator in AF2010

Standard PPA/Ts methodology for

small renewable power projects

adopted and in use (Yes/No)

No change

Delivery of MW of renewable

energy by grid connected SPPs

under Standard PPA/Ts

No change Increased target in AF 2010

Number of subproject transactions

concluded by REA.

No change Increased target in AF 2010

Number of PFI loans approved for

rural / renewable energy sub-

projects

No change New indicator incorporated in

AF2010

Number of banks accessing

REA‟s capacity building services No change New indicator incorporated in

AF2010

Timely and equitable

development of the identified least

cost large power generation

project.

No change

Institutional capacity development

needs identified and a plan to

address these agreed and

implemented.

No change

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value

21

Revised Project Results Framework

Project Development Objective (PDO): The Project Development Objective is to improve the quality and efficiency of the electricity service provision in the main three growth centers of Dar es Salaam, Arusha, and Kilimanjaro and to establish a sustainable basis for energy access expansion and renewable energy development in Tanzania

PDO Level Results Indicators C

ore UOM

Baseline Original Project Start (2007)

Progress To Date (2011)

Cumulative Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection Comments 2012 2013 2014 2015 (at

closing)

1. Improvement in TANESCO‟s

operational efficiency as measured by: Electricity losses per year in the project areas.

% 28 28 27 25 23 21 Monthly

Report on “Transfer Units – Grid System”, Monthly Sales Reports

TANESCO

This indicator has been renamed during MTR 2010 to follow the proposed Energy Core Indicators

2. Improvement in TANESCO‟s operational efficiency as measured by: Improvement in collection efficiency

% 70 70 70 75 85 95 Monthly TANESCO Monthly Zonal Reports

TANESCO

3. Improvement in service quality

as measured by: Increase in end user voltage

Volts 190 190 190 >190 >218 >218 Monthly Marketing Division Monthly Reports

TANESCO

4. Improvement in service quality as measured by: Improved customer satisfaction.

% - 40 45 60 >75 >75 Bi-annually

Summary Report of Customer Feedback Survey to be made available

TANESCO

22

PDO Level Results Indicators

Core UOM


Progress To Date

(2011)

Cumulative Target Values Fre-

quency Data Source/ Methodology

Responsibility for Data

Collection Comments

2012 2013 2014 2015 (at closing)

5. REA fully functional as demonstrated by: Capacity to develop, finance, and implement scale-up of pilot schemes.

REA is unfunc-tional

Transfer of Offgrid

Component implemen-

tation to REA, functionnal

REA, key staff appoint-ted

Improved technical

and business assess-ment

capacity

Improved business

and economic

assess-ment

capacity

Improved business, economic

and financial assess-ment

capacity

REA identifies

and approves

new connec-

tions

Annual

World Bank Supervision

Mission Reports,

Ongoing sector dialogue

REA

6. REA fully functional as demonstrated by: pipeline of new rural household connections

Number - 27,500 30,000 34,000 40,000 50,000 Annual


Mission Reports,


REA

7. Global Environmental Objective: Generation capacity (MW) of Renewable Energy constructed under the Project.

MW - 11 15 18 20 25 Annual SPPA

implementation REA

Beneficiaries

Direct project beneficiaries, (Component B)

Number - 20,000 30,000 50,000 80,000 114,000 Annual


Mission Reports,


REA Only for

Component B

Of which female Percent - 50% 50% 50% 50% 50% Annual


Mission Reports,


REA Only for

Component B

23

Intermediate Results and Indicators

Intermediate Results Indicators

Core

Unit of Measurement



Target Values

Frequency

Data Source/

Methodo-logy

Responsi-bility for

Data Collection

Comments 2012 2013 2014 2015 (at Project closing)

Intermediate Result 1: Component A (TANESCO related and Ongrid Investments): Increased operational efficiency of TANESCO, increased quality of supply and service levels in selected clusters, and increased access to electricity in targeted clusters.

1. Improved customer service with a centralized call center and a high value customer cell in place

- - - -

Call Center and High

Value Customer

Cell Imple-mented

-

Call Center and High

Value Customer

Cell Implemented

Annual

Monthly Marketing Division Reports

TANESCO

2. Improved IT systems for commercial, technical service and resources management functional.

- - - -

Implementation of CMS,

TSMS & RMS

- - Annual Monthly IT Division Reports

TANESCO

3. Replacement of 60,000 credit meters with prepaid meters completed.

Number - - 10,000 35,000 60,000 60,000 Annual


TANESCO

4. Pilot project for low loss high voltage distribution system implemented.

- No No No No Partially

Implemented

Fully Implemented

Annual


TANESCO

5. Number of people provided with access to electricity under the project by household connections (Component A)

Number - - -

25,000 household

or 142,500 persons

25,000 households

or 142,500 persons

25,000 households

or 142,500 persons

Annual


TANESCO

24



Core

Unit of Measurement



Target Values

Frequency

Data Source/

Methodo-logy

Responsi-bility for

Data Collection


Intermediate Result 2: Component B (Small Renewables off-grid): Increased electricity access in rural and peri-urban Tanzania to productive enterprises, service delivery facilities (in health and education), and to households with the capacity to pay for electricity, establishment of a functioning institutional and regulatory framework for commercially oriented, sustainable service delivery for rural electrification and renewable energy that can be scaled up, removal of barriers to, and reduction of costs of, implementation of renewable energy technologies to help mitigate greenhouse gas emissions, provision of long-term loans to renewable/rural energy developers on commercial basis, an enhanced bank expertise in appraising and supervising rural/renewable energy projects

6. Number of persons provided with access to electricity under the Project by household connections (Component B)

Number -

11,000 House-holds

or 62,700 persons

70,000 persons

78,000 persons

85,000 persons

110,000 persons

Annual

MEM/REA reports, verification reports and surveys

MEM/REA

7.Number of indirect beneficiaries, of which number of women (Component B)

Number 0

50,000 persons of which 25,000 women




250,000 persons, of

which 125,000 women

Annual


MEM/REA

8. Number of community electricity connections under the project

Number - 800 825 870 910 1,200 Annual


MEM/REA

9. Standard PPA/Ts methodology for small renewable power projects adopted and in use (Yes/No)

Number No

SPPAs signed

SPPA/Ts signed for 10 MW





Annual MEM/REA/ TANESCO reports

MEM/REA

10. Delivery of MW of renewable energy by grid connected SPPs under Standard PPA/Ts

MW - 10 13 15 18 20 Annual MEM/REA/ TANESCO reports

MEM/REA

11. Number of subproject transactions concluded by REA.

Number - 3 5 7 9 10 Annual

MEM/REA/ TANESCO reports

MEM/REA

12. Number of PFI loans approved for rural / renewable energy sub-projects

Number 0 2 4 - - 4 Annual REA reports MEM/REA

25



Core

Unit of Measurement



Target Values

Frequency

Data Source/

Methodo-logy

Responsi-bility for

Data Collection


13. Number of banks accessing REA‟s capacity building services

Number 0 2 3 - - 3 Annual REA/TIB reports

REA

Intermediate Result 3: Component C (Technical Assistance): Support for legal/technical/financial advisory support for least cost IPP and capacity building for TANESCO and MEM

14. Timely and equitable development of the identified least cost large power generation project.

- Studies under

Contract - - -

Studies completed

Annual Consultant reports

TANESCO

15. Institutional capacity development needs identified and a plan to address these agreed and implemented.

-

Capacity Building

needs identi-fied

Capacity Building program initiated

- -

Capacity Building program

completed

Annual

Monthly Human Resource Division Reports

TANESCO

26

Annex 2: Operational Risk Assessment Framework

TANZANIA: ADDITIONAL FINANCING - ENERGY DEVELOPMENT AND ACCESS EXPANSION PROJECT

Project Development Objective(s)

The Project Development Objective is to improve the quality and efficiency of the electricity service provision in the main three growth centers of Dar es Salaam, Arusha, and Kilimanjaro and to establish a sustainable basis for energy access expansion and renewable energy development in Tanzania

PDO Level Results Indicators: 1. Improvement in TANESCO‟s operational efficiency as measured by: (i) a 7 percentage point reduction in losses; and

(ii) a 25percentage point increase in collection efficiency in targeted areas.

2. Improvement in service quality as measured by: (i) increase in end user voltage to 216 volts; and (ii) improved customer satisfaction.

3. REA fully functional as demonstrated by: (i) capacity to develop, finance, and implement scale-up of pilot schemes, and (ii) pipeline of new rural connections.

4. Generation capacity (MW) of Renewable Energy constructed under the project

5. Number of direct beneficiaries, of which number of women (Component B only)

Rating Category Explanation: Low (L) corresponds to a risk factor with a low impact if it does happen and a low likelihood of it occurring; High (H) relates to a risk with a high impact on the PDOs and a high likelihood that it will occur; Medium driven by Likelihood (ML) rating indicates a risk that would have a low impact even if there is a high likelihood that it will happen; and Medium driven by Impact (MI) corresponds to a risk that would have high impact if it took place but a low likelihood of it occurring.

Risk Category

Risk

Rating Risk Description Proposed Mitigation Measures

Project Stakeholder Risks

MI Borrower commitment to the Project objective may change

TANESCO and the Government of Tanzania have reiterated the importance of this Project for the energy sector in Tanzania, which suffers from a chronic shortage of supply during the dry season, which is aggravated by high transmission and distribution losses. Because of the importance of this Project, the Government of Tanzania not only requested an Additional Financing for this Project, but also confirmed contribution of Government counterpart funds of up to US$ 11million. In addition the Government is also about to process a tax waiver for

27

contracts financed by this Project, which will reduce the overall financing gap. Finally TANESCO in addition to the GOT counterpart funds confirmed additional funds from its own budget of up to US$4.5 million.

Implementing Agency Risks Overall

MI The past experience has shown some weaknesses in TANESCO‟s overall implementation capacity under this project for Components A and C, mainly relating to slower than expected procurement processes. REA, the implementing agency for Component B is a relatively new organization which has no previous experience with World Bank projects. Consequently implementation efforts under Component B could risk to slow down in the future.

The proposed mitigation measures and detailed assessment for each Implementing agency‟s risk rating is shown in the following section on Implementing Agency Risks by Agency.

Implementing Agency Risks

By Agency

TANESCO

MI MI

Weak implementation capacity at TANESCO

Weak procurement capacity of TANESCO

TANESCO has agreed to strengthen the PIU´s implementation capacity by hiring two additional engineers and have a dedicated procurement staff. All three staff members have been hired by appraisal and are now duly established. TANESCO will submit to the Bank an updated operation/procedures manual of the TEDAP PIU review before appraisal. In addition, TANESCO has agreed to have close management follow-up on the Project´s PIU.

TANESCO has already implemented key measures to address TANESCO´s weak procurement capacity including a reorganization of the procurement department and introduction of service level agreements between the procurement department and supporting operational departments and hiring a procurement advisor. In addition, TANESCO now also added to the PIU a dedicated Procurement Staff to work on the TEPAD Project.

28

MI

Weak financial management at TANESCO

TANESCO has demonstrated throughout Project implementation that it has adequate fiduciary capacity. The Bank team will continue close monitoring and supervision of fiduciary aspects.

Rural Energy Agency (REA)

MI MI ML

Component B: REA has not extensive experience with IDA projects

Component B: REA does not have much procurement experience with IDA projects

Component B: REA does not have much financial management experience with IDA projects

Component B: REA is fully staffed and operational. A full procurement, financial management and safeguards capacity assessment of REA as an implementing agency was undertaken during the preparation of TEDAP AF 2010 (Component B) and ranked the institutional capacity as “satisfactory”. TEDAP is supporting REA in building its capacity and developing scalable models for renewable energy and access expansion. REA also benefits of technical assistance under the SIDA Trust Fund executed by the Bank and the SIDA capacity building program implemented by a private consulting firm.

Component B: A procurement capacity building plan was agreed during the design of the AF 2010 for Component B and is currently being implemented. Component B: A financial management capacity enhancement plan was agreed during the design of the Additional Financing for Component B and is being implemented. REA staff benefited of financial management training for IDA projects provided by the Malawi Institute of Management.

Project Risks

Design

L

Project design is not adequate

The AF will support the implementation of key investments on T&D under Component A that were designed to improve the capacity of existing networks in Dar es Salaam, Arusha, and Kilimanjaro by reducing technical and nontechnical losses and improving the overall reliability of the system. The additional funds to be provided by this AF will allow

29

MI

Component B. Delays in the materialization of the small power projects pipeline

the pending contracts under Component A to be processed and implemented before project closing on March 31, 2015. IDA approved in 2010 a credit line for rural/renewable energy development under TEDAP AF that provides long term financing (10-15 years)to local developers through local commercial banks, on market terms. IDA is working with REA on the establishment of a financing mechanism including a PoA that will improve the financial viability of the projects and address the equity gap.

Social and Environmental

MI Component A: Implementation of the RAP for this component could face some resistance from some of the affected people since it involves urban land and property. TANESCO needs to strengthen its social safeguards team and monitoring of the RAP implementation. TANESCO needs to update the RAP to reflect a change in number of PAPs in one transmission-line segment. Contractor has prepared an acceptable EMP for the transmission line and substation work and needs to be diligent in its implementation. Component B: REA does not have much experience on safeguards with IDA projects

Component A: An EMP has been prepared for the transmission line and the substation. Additional EMPs will be prepared as and when necessary. Continued Bank supervision of RAP modification and implementation. A systematic monitoring of the RAP implementation and continued direct oversight of the contractor by the owner‟s engineer consultant, and continued supervision by the Bank.

Component B: An ESMF and RPF have been prepared for this component to guide safeguards implementation. REA needs to improve its safeguard capacity. To address this, REA has already hired a social scientist who will be solely working on the safeguards issues related to the rural electrification. In addition, an international consultant has been contracted to improve REA capacity in this regard.

Program and Donor

L Lack of cohesiveness among interventions in the energy sector projects financed by donors

Over and above the continued engagement of IDA, NORAD, SIDA, and AfDB in the sector, the GOT and TANESCO have been able to draw additional donor interest from Millennium Challenge Corporation of USA (MCC), EU, Finland, JICA, and South Korea

30

EDCF. Furthermore, to harmonize the support provided to the energy sector, the World Bank has taken the lead in collaborating with SIDA, NORAD, South Korea EDCF, MCC, JICA, Netherlands, EU, AfDB and UNDP to design the overall assistance to the energy sector. The off-grid efforts are supported by several trust funds managed by the Bank: SIDA TF for support to electricity access and regulation, AFREA Lighting Rural Tanzania Grant, etc

Delivery Quality

MI

ML

Weak capacity of PIU at TANESCO will affect the capacity to deliver Component A of the Project Component B: The household connections may be delayed due to some challenges (equity gap, limited local capacity etc) faced by local developers

An action plan that will strengthen the PIU´s capacity to deliver the Project has been agreed with TANESCO. New staff has already been hired and a dedicated procurement staff supports now the procurement processes currently under way. Component B: The team is working with the client and other donors (SIDA, NORAD) on several instruments aimed at mitigating the equity gap risk (through Carbon Finance Program of Activities, grants under the Russian Trust Fund etc). Moreover, several instruments under TEDAP (matching grants) and SIDA Trust Fund provide capacity building to the developers, local commercial banks and other stakeholders

31

Overall Risk Rating at Preparation Overall Risk Rating During Implementation

Comments

ML MI

This is an AF to an ongoing operation (TEDAP), which has been rated as Moderately Satisfactory (DO and IP) for the past year. The rating has been selected considering that the implementation and procurement capacity of the implementing agency (TANESCO) has improved over the last 15 months and is expected to continue on that path as various measures described above have already or will be put in place, including: (i) additional staff for the PIU including a dedicated procurement specialist, (ii) a revised operational manual, and (iii) continuous oversight by TANESCO´s management. The implementation of Small Power Projects (SPP) Component B has been satisfactory.

32

Annex 3: Detailed Description of Project Components

TANZANIA: ADDITIONAL FINANCING - ENERGY DEVELOPMENT AND ACCESS

EXPANSION PROJECT

I. On-Grid Component (Components A&C)

A. Summary of Components’ main activities

1. Component A supports investments in TANESCO‟s transmission and distribution networks

in Dar es Salaam, Arusha, and Kilimanjaro. This grid component, once fully implemented, will

improve the capacity of existing networks, thus improving the service quality for existing

customers and allowing new customers to connect to the grid in the three main growth centers of

Tanzania. Furthermore, these investments will improve the capacity of existing networks thus

improving power system performance by reducing system losses, frequent outages due to

overloaded transformers and old equipment, low and fluctuating voltage conditions and poor

system power factors.

2. Most of these investments are either in an advanced stage of procurement or are already

under implementation. The investments include adding, replacing or upgrading transmission and

distribution lines and substations and medium and low voltage equipment, meters, spare parts,

and tools. The main rationale of these investments is to create value in the electricity business

and to demonstrate its viability in a replicable manner. Component A is implemented by

TANESCO.

3. At the same time implementation of this Component faced some severe implementation

issues and currently the Component‟s implementation is about 1-2 years delayed.

4. Component C supports technical assistance to TANESCO and the MEM for: (i) building

implementation based on a detailed training plan currently under assessment by TANESCO; and

(ii) providing legal, financial and technical advisors to the MEM to develop the next major

hydropower generation project (Ruhudji HPP) on a public private partnership basis. Except for

the capacity building training and the proposed environmental capacity building measure to

TANESCO, all of those Technical Assistances have been contracted by now and are under

implementation.

B. Current status of Component A main activities

5. Status of Procurements. The four Distribution Rehabilitation lots have been rebid in early

2010 after a failed first procurement in mid 2009. This ICB procurement was reviewed at the

Bank‟s OPRC level. During the bidders conference for this procurement there was some

miscommunication with regard to the pricing methodology applicable. While those Bids had

been requested on an adjustable price basis close to all bidders submitted fixed price bids.

Consequently the Bidding was cancelled but a new bidding was approved by the Bank‟s

authorities. Under the new bidding bids were submitted by 16 firms on November 29, 2010.

The analysis of the submitted bids is currently on-going and the submission of the Bid evaluation

report is expected in May 2011. The procurement for these distribution packages are currently

33

delayed by 2 years due mainly to the failed procurement attempt. However, with an estimated

implementation time of 21 months and an expected contracting of those four distribution lots in

mid 2011, those contracts are expected to be implemented within the current project lifetime.

6. The procurement process for the HV distribution and Network Expansion is under

preparation by a related consultancy. This procurement is now expected to be financed by

TANESCO as per the earlier indications in the main part of this Project Paper. Regarding the

Metering Sub-Component, the Bank gave its no objection for award of contract under Lot 3 and

the analysis for the Lot 1 and 2 Evaluation Report is ongoing. It is expected that Lot 2 will be re-

bid due to non-responsive bids. This Meter Lot 2 is expected to be financed by TANESCO as

one of the counterpart funding measures to bridge the current financing gap. All the other

procurements of goods are currently under preparation and all consulting services are under

implementation, with the exception of the Marketing Department Study and Training for

Capacity Building. It is expected that all components under the Credit will be implemented by

the revised Project closing date of March 2015.

7. Status of Transmission Contract. The three transmission lots under Sub-Component A.1,

were procured in May 2009 and all three contracts became effective in March 2010. The delay

for effectiveness was mainly due to the processing of the Letter of Credit by TANESCO. The

contractor has mobilized on the majority of the substations sites and transmission corridors

although on some sites and corridors there are some remaining issues with regard to land sites

and right of way not used as planned originally in the project, which is expected to be resolved

within the next few months. Those delays had already an impact on the contract completion date

of March 2012 and the anticipated cost increases have been taken into account in the additional

financing amount calculation. Additional delays are also experienced due to slow timely

payment of custom duties and clearance of shipments of invoices as well as slow timely release

of pending/new change order proposals of the Contractor, which to some degree could have an

impact on the project cost. Those additional costs have been taken into account in this

Additional Financing. Consequently a Tax exemption of the project‟s activities from local

taxation and custom duties has now been agreed with the Ministry of Finance (MOF).

C. Current Rating explanation and brief summary of Rating history of Component A

8. Component A is currently rated Moderately Satisfactory. After effectiveness the Component

A implementation started on a satisfactory level with timely launch of all major procurement

processes. However in late 2008 the procurement process of the transmission and distribution

rehabilitation contracts of Sub-Component A.1, encountered some severe delays as explained

above.

9. Subsequently the IP rating of the Distribution packages related Sub-Component was

downgraded to Moderately Satisfactory in 2009 and the Task Team and TANESCO took various

measures to enhance the procurement implementation performance under Component A

including: (i) provision of additional World Bank procurement training to TANESCO‟s TEDAP

team; (ii) engagement of an International Procurement Advisor by TANESCO (financed by this

project); and (iii) reallocation of the TEDAP Task Team Leader from Washington DC to Dar es

Salaam.

34

10. While those mitigation measures were proven successful and allowed for an improvement of

implementation speed of the ongoing procurements at that time, Component A faced another

implementation delay that occurred under the 3 transmission rehabilitation contracts,

successfully awarded in May 2009 as explained above. Those additional set-backs led to a

downgrade of the transmission related sub-component under Component A to Moderately

Satisfactory and given the overall weight of Component A under the Project (currently over 60%

of the total credit amount) the Project‟s overall PDO and IP rating was downgraded to

Moderately satisfactory in 2010.

11. During the Mid Term Review in December 2010 additional progress was noted on the

implementation of Component A as most of the Transmission Line sites‟ and substation sites‟

issues had been resolved or were closed to being resolved. At the same time the Mid Term

Review revealed a significant financing gap and since the full mobilization of the transmission

line contractor was neither achieved, the Component A‟s and the overall project‟s rating was

kept at Moderately Satisfactory. This rating is currently maintained.

12. However and as explained in the main text of this Project Paper under Section I, the Project

is expected to reach a Satisfactory level, once this Additional financing is approved and the

proposed Action Plan has been implemented and if no new issues are identified.

II. Small Power Project Component (Component B)

13. The implementation of the off-grid component has been satisfactory. The component has

established a new framework for off-grid electrification to be financed on a public private

partnership basis and the first pilot projects under this framework are being implemented. The

component was initially implemented by the Ministry of Energy and Minerals but was

transferred to the Rural Energy Agency (REA) in 2010 when REA became fully operational.

14. The Component B under the off-grid part consists of four sub-components: (i) small power

generation and distribution (SPGD); (ii) sustainable solar market development (SSMD); (iii)

technical assistance (TA); and (iv) rural/renewable credit line.

15. Under the SPGD sub-component, the project has established a comprehensive framework

consisting of (i) streamlined and simplified regulatory procedures for small power projects,

including standardized power purchase agreement (SPPA) and tariff (SPPT), and (ii) financing

package consisting of a performance grant (US$ 500 per connection) and matching grant (for

pre-investment support). In 2010, Additional Financing was processed to add one additional two

activity under SPGD – B.1 e) low-cost electrification pilot, and one new sub-component B.4

relating to a rural/renewable energy credit line, channeling long-term commercial funding for

rural and renewable projects through Tanzanian commercial banks.

16. The SPGD component is on track to reach its targets. TANESCO has already signed SPPAs

with 5 projects for total of 24 MW, of which 10.4MW are already in operation, and a Letter of

Intent was signed with additional four projects for 17.8 MW. REA has awarded first two

performance grants for 6,000 connections, and three matching grants for a new pipeline of

projects seeking pre-investment support. Two commercial banks pre-qualified for the credit line,

and two sub-projects are currently being considered for credit line financing. A study to design a

new low-cost electrification approach was launched in February 2011.

35

17. The SSMD component has developed two new approaches to electrification with solar

photovoltaic (PV) systems. One of the key issues in the past PV projects in Tanzania was high

prices of PV systems and sustainability. The component is addressing these issues by piloting

new approaches that would aggregate demand in a defined geographic area (reducing costs of

service provision) and require longer term sustainability measures (maintenance, training, market

development activities). The project has financed first three sustainable solar market packages

(SSMP) in Rukwa region, which combine installations of PV systems for public institution with

development of commercial market for households and businesses. The first three packages for

500 public institutions and 8,000 household/business connections were competitively awarded to

a private sector provider, which has already started the installations. Additional packages are

now prepared for eight districts in five regions, and are expected to be bid out in early 2012. A

parallel PV cluster pilot project is working with rural cooperatives, such as agricultural

association (tea, coffee and cashew nuts) to provide solar home systems to their members, with

the cooperatives serving as demand aggregators and providing credits for their members to buy

Solar Home Systems (SHS). The installations are ongoing in two clusters and a scale up to other

cooperatives/regions is now also being prepared.

18. The technical assistance sub-component is also implemented satisfactorily. Main activities

included design and implementation support of SSMP and PV clusters, transaction advice for

SPGD component, and other capacity building activities for REA, MEM and project developers.

36

Annex 4: Revised Procurement Plan


Revised Procurement Plan

April 28, 2011

1. Goods, Works, and Non Consulting Services

List of contract packages to be procured following ICB, NCB and direct contracting and other methods of contracting:

Ref. No.

Contract Description Part of the

Project

Estimated Cost

(US $)

Procurement

Method

P-Q*

Domestic Pref.

(yes/no)

Review by Bank (Prior / Post)

Expected Bid-Opening

Date

Implemen-ting Agency

Remarks/ Status

1 a) Works/ Supply and Installation – TANESCO

1.1 5 132/33 kV Substations in DSM A.1 (Trans.) Contracted ICB No No Prior Completed- bids were opened on 23rd June.

2008 TANESCO

Contract under implementation

1.2 4 132 kV 36Transmisión Lines in Dar es Salaam

A.1 (Trans.) Contracted ICB No No Prior Completed- bids were opened on 23rd June.

2008 TANESCO


1.3 1 132/33 kV substation at KIA A.1 (Trans.) Contracted ICB No No Prior Completed- bids were opened on 23rd June.

2008 TANESCO


1.4 6 new 33/11 kV substations in DSM

A.1 (Distrib) 16,000,000 ICB No No Prior Completed- bids were opened on November

29. 2010 TANESCO

Bid Evaluation Stage

1.5 Rehabilitation of 5 33/11 kV substations in DSM


29. 2010 TANESCO


1.6 8 new 33/11 kV substations in Arusha and Kilimanjaro


29. 2010 TANESCO


1.7 33 and 11 kV overhead lines in Dar es Salaam, Arusha and Kilimanjaro


29. 2010 TANESCO


1 b) Works – REA

1.8 Low Cost Electrification Pilot B.2.a 4,000,000 NCB No No Selected

for Prior December, 2011 REA Bid preparation

37

Ref. No.

Contract Description Part of the

Project

Estimated Cost

(US $)

Procurement

Method

P-Q*

Domestic Pref.

(yes/no)

Review by Bank (Prior /

Post)


Date

Implemen-ting Agency

Remarks/ Status

2 Goods – TANESCO

2.1 a)

Meters, Lot 1-3: Replacement of 60,000 credit meters by prepaid meters, supply and installation of 25,000 new prepaid meters and up to 10,000 new prepaid meters for the HV cluster;;

A.3, A.4 9,200,000 ICB No No Prior Completed TANESCO Bid Evaluation Stage /Contracting stage for Lot 3

2.1 b) Supply and Installation of 1,800 Solid State Remote Meters

A.4 630,000 ICB No No Prior January, 2012 TANESCO Procurement process in preparation.

2.2 Centralized Call Center for Dar es Salaam

A.4 260,000 NCB No No Post January, 2012 TANESCO Procurement process in preparation.

2.3 High Value Customer Cell A.4 130,000 NCB No No Post January, 2012 TANESCO Procurement process in preparation.

2.4

Corporate IT Systems: Lot1: Commercial Management System (CMS); Lot 2: Technical service management System (TSMS); Lot3: Resource Management System (RMS)

A.4 3,315,000 ICB No No Prior September, 2011 TANESCO Procurement process in preparation.

3 Goods – MEM/REA

3.1 First 3 SSMP packages B.2.a Contracted ICB Yes No Prior Completed. MEM Contract under implementation

3.2 Second SSMP packages B.2.a 3,800,000 ICB Yes No Prior September, 2011 REA Bid preparation 3.3 IT equipment B.3 Contracted NCB No No Post Completed MEM Completed 3.4 Office equipment B.3 Contracted Shopping No No Post Completed MEM Completed

3.5 Vehicles B.3 Contracted NCB No No Prior Completed MEM Completed 3.6 Office equipment B.3 50,000 Shopping No No Post September 2011 REA Under Preparation

* P-Q stands for Pre-Qualification (a) ICB contracts for works estimated to cost above US$5,000,000 equivalent per contract, for goods estimated to cost above US$500,000 equivalent per contract and all direct contracting will be subject to prior review by the Bank. However, a specified number of NCB contracts will be identified in the Procurement Plan to be prior reviewed

38

2. Consulting Services

(a) List of consulting assignments.

RefNo.

Description of Assignment

Part of the

Project

Estimated Cost (US$)

Selection Method

Review by Bank

(Prior / Post)

Expected Proposals Submission

Date

Implementing Agency

Remarks/ Status

1 Consulting Services – TANESCO

1.1 Training Needs Assessment for TANESCO

C.1.a Dropped at TANESCO Request; with Self Financing

Completed TANESCO Under Implementation

1.2 (a) Implementation of Capacity Building for TANESCO – to be identified

C.1.b 620,000 Multiple Contracts

– TBD

TBD September 2011 TANESCO Procurement to start upon completion of item 1.1.

(b) Procurement Advisory C.1.b Contracted IC Prior Completed TANESCO Contract Under implementation 1.3 Consultancy services for

training, supervision of TEDAP Investments & Project management - Component A.1 (transmission)

A.5 Contracted QCBS Prior Completed TANESCO Contract Under implementation

1.4 (a) Consultancy services for preparation of bid packages for TEDAP - Component A.1 (distribution)

A.5 Contracted SSS Prior Completed TANESCO Contract under implementation

(b) Consultancy services for training, supervision of TEDAP Investments & Project management - Component A.1 (distribution)

A.5 1,000,000 QCBS Prior Completed6 TANESCO Contract initialed but not signed. Will start only after 1.4a) has been completed and after No Objection by World Bank.

1.5 Consultancy for project management (A.3/ A.4)

A.5 1,000,000 QCBS Prior November 2011 TANESCO Procurement process in preparation.

1.6 Planning, design, bid documents, evaluation for HV Distribution Cluster

A.5 Contracted QCBS Prior Completed TANESCO Contract Under implementation

1.7 Consultancy services for Corporate Management Systems: (i) Incorporation of CMS to improve operational procedures and customer information; (ii) Incorporation of TSMS to attend to customers claims; (iii) Incorporation of RMS (including definition of new

A.5 Contracted QCBS Prior Completed TANESCO Contract under implementation

6 A QCBS process for a Time-Based Contract involving Consultancy services (supervision of implementation works up to commissioning and preparation of the final project report) for the TANESCO Distribution System Reinforcement Project for Dar es Salaam, Arusha and Kilimanjaro was negotiated by TANESCO in May 2006 and an initialed contract was provided with a conditional No Objection by the Bank in 2006.

39

RefNo.

Description of Assignment

Part of the

Project

Estimated Cost (US$)

Selection Method

Review by Bank

(Prior / Post)

Expected Proposals Submission

Date

Implementing Agency

Remarks/ Status

operational procedures)

1.8 Design and implementation of the Marketing Department, including the Centralized call Center and High Value Customer Cell

A.5 830,000 QCBS Prior September 2011 TANESCO Rebidding to start

1.9

Mainstreaming Implementation of the KST Reintroduction Management Plan Advisory. (One contract with subtasks)

C.1 263,000 SSS Prior June 2011 TANESCO Procurement under preparation

2 Advisory Services – MEM

2.1 (a) Legal Advisors for Ruhudji HPP

C.2 Contracted QCBS Prior Completed MEM Contract under implementation

(b) Financial Advisor for Ruhudji HPP

C.2 Contracted QCBS Prior Completed MEM Contract under implementation

(c) Technical Advisor for Ruhudji HPP

C.2 3,500,000 QCBS Prior Completed MEM Contract Negotiations

3 Advisory Services to REA

3.1 Various Feasibility Studies B.3 500,000 QCBS Prior September 2011 REA Procurement under preparation Note: Single Source Selection (SSS) to be adopted subject to clearance by the Bank

………… Those lines refer to procurement items that have been completed or are under implementation.

40

3. Goods, Works, now to be financed by TANESCO/GOT counterpart funds

Ref. No.

Contract Description Part of

the Project

Estimated Cost

(US $)

Procurement

Method

P-Q*

Domestic Pref.

(yes/no)

Review by Bank

(Prior / Post)


Date

Implementing Agency

Remarks/ Status

1 Works/ Supply and Installation – TANESCO

1.8

HV Distribution Network, Lot 1: Network for 25,000 new customers and new HV Cluster, Lot 2: RMU switching units

A.2, A.3

10,000,000 ICB No No N/A November,

2011 TANESCO

To be procured and financed by TANESCO/GOT counterpart funds

2 Goods – TANESCO

2.1 a)

Meters, Lot 2: Procurement of up to 10,000 new three phase prepaid meters split type;

A.3, A.4

5,000,000 ICB No No N/A October 2011 TANESCO Rebidding and financed by TANESCO/GOT

counterpart funds

2.5 Re-tendering of Vehicles for Project Supervision

A.5 500,000 ICB No No N/A October, 2011 TANESCO Rebidding and financed by TANESCO/GOT

counterpart funds

41

Annex 5: Revised Project Financing Plan including other sources of funds


The table below shows the Financing Plan of the entire Project, including counterpart funds and other sources of funds and

how those financing contributions evolved since the original IDA Board approval of the TEDAP in December 2007. IDA sources are shown in US Dollars and have been computed from the approved SDR amounts at the exchange rate applied at

appraisal of each Additional Financing. The format of the table follows the format of the original Project Appraisal Document’s Data Sheet generated in 2007.

Source Original Financing Plan

(November 2007)

With Revised Plan

(April 2010)

With Proposed Plan

(June 2011)

(US$m) (US$m) (US$m)

Borrower 6.80 6.80 22.30

International Development Association (IDA) 105.00 130.00 157.88

Global Environment Facility (GEF) 6.50 6.50 6.50

Other Donors and Bilateral Agencies 3.20 3.20 3.20

Local Sources of Borrowing Country (Private Sector, unidentified) 13.55 13.55 13.55

Foreign Private Sector (unidentified) 13.55 13.55 13.55

Total 148.60 173.60 216.98