REPORT NO.: RES36385 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE POWER RECOVERY PROJECT APPROVED ON SEPTEMBER 29, 2014 TO THE REPUBLIC OF ALBANIA ENERGY & EXTRACTIVES GLOBAL PRACTICE EUROPE AND CENTRAL ASIA REGION Regional Vice President: Cyril E Muller Country Director: Linda Van Gelder Regional Director: Lucio Monari Practice Manager: Sameer Shukla Task Team Leaders: Rome Chavapricha, Gazmend Daci The World Bank Power Recovery Project (P144029) ABBREVIATIONS AND ACRONYMS ASA Advisory Services and Analytics EBRD European Bank for Reconstruction and Development EUR Euros FRP Financial Recovery Plan -- Albanian power sector KESH Korporata Elektroenergjitike Shqiptare – public power generation company KFW Kreditanstalt für Wiederaufbau OSHEE Operatori i Shpërndarjes së Energjisë Elektrike – public power distribution company OST Operatori i Sistemit te Transmetimit – public power transmission company PDO Project Development Objectives PRP Power Recovery Project SCADA Supervisory Control and Data Acquisition system TA Technical Assistance USAID United States Agency for International Development ii The World Bank Power Recovery Project (P144029) BASIC DATA Product Information Project ID Financing Instrument P144029 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 29-Sep-2014 30-Nov-2020 Organizations Borrower Responsible Agency Republic of Albania Ministry of Infrastructure and Energy Project Development Objective (PDO) Original PDO The project development objective is to improve reliability of power supply and financial viability of the power sector. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-84290 29-Sep-2014 03-Nov-2014 30-Jan-2015 30-Nov-2020 150.00 80.28 57.02 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No iii The World Bank Power Recovery Project (P144029) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The proposed restructuring entails: (i) 12-month extension of the project closing date to November 30, 2020 from the original closing date; (ii) partial cancellation of IBRD loan of approximately EUR 17.6 million due to restructuring and project savings; (iii) updates of the Results Framework; and (iv) revision of the Legal Covenant on OSHEE’s Revenue Escrow Account to reflect that OSHEE will pay the monthly energy purchase to KESh in full when due. The proposed extension would be the first extension of the closing date. 2. The Albania Power Recovery Project (PRP) has two objectives to: (i) improve reliability of power supply; and (ii) improve financial viability of the power sector. The Project has 4 components:  Component 1 (IBRD EUR 22.42m) provides funding for importing electricity during the rehabilitation of main hydropower plants in Albania (supported by the World Bank under the Dam Safety Project).  Component 2 (IBRD EUR 69.50m) includes financing to upgrade distribution infrastructure in the power distribution grid network and metering system thereby assisting the Borrower to reduce power losses, improve cash collection and reliability of power supply.  Component 3 (IBRD EUR 14.95m) in the power transmission grid network and metering system to strengthen the capacity of OST to transmit power.  Component 4 (IBRD EUR 4.95m) includes technical assistance for project implementation and policy interventions. In addition, there is a front-end fee of EUR 0.28m. 3. The project’s Overall Implementation Progress has been Moderately Unsatisfactory since December 2017. This is due to implementation delays and lack of progress mainly with Component 2—Upgrading Distribution Infrastructure. Since project effectiveness in January 2015, procurement delays and lack of counterpart funding for Component 2 resulted in the overall lack of implementation progress during 2016–2017. Other components have progressed better. The progress towards achievement of the Project Development Objective has been Moderately Satisfactory since December 2017. 4. Table 1 below provides a summary of progress for each component. For this proposed restructuring, the implementing agencies have revised their Implementation Plans, which target completion of the remaining activities by November 30, 2020. Only two activities— Component 2, supply and installation of low-voltage balancing meters, and Component 3, extension of OST SCADA system—will need extra time to complete in 2021. OSHEE and OST will respectively self-finance the residual costs after the IBRD loan closes (see Annex for details). Table 1. Implementation progress by components: Components Status Component 1: Short  Completed Term Complementary  Of the original EUR 22.4m IBRD loan, about EUR 21.7m is committed and the Power Import Support remaining balance will be cancelled. Component 2:  Experienced substantial delays in implementation until the mid-term review mid- Upgrading Distribution 2018, but the progress has improved. Infrastructure  Of the original EUR 69.5m IBRD loan, about EUR 37m is now committed. Approximately EUR 13m will be cancelled due to reduced scope of procurement package OSHEE LV panels and balancing meters and other cost savings. 1 The World Bank Power Recovery Project (P144029)  Expediting implementation of all activities with only one pending procurement package (estimated cost EUR 15m) to be awarded by end of 2019 (low-voltage electric balancing meters). The contract for rehabilitation of 3 substations in Tirana area became effective on September 16, 2019. The installation of low-voltage electric balancing meters is expected to be completed in 2021. Component 3:  Following initial delay, implementation is now progressing satisfactorily. Transmission  Of the original EUR 14.95m IBRD loan, EUR 11m is now committed. Approximately Meter/Data Center EUR 2.5m IBRD loan will be cancelled due to the establishment of a market platform Upgrade being moved to another TA (Power Sector Implementation Support). This TA for developing procedures for the establishment of a market platform, for IPPs and eligible customers was provided by IFC Advisory and complemented by the Bank  One pending procurement contract to be awarded by end of 2019 but will be completed in early 2021 (extension of OST SCADA system – estimated cost EUR 2.4m). Component 4:  The following TA were provided under this component: (i) advice and financial Supporting Power analyses support for the 2018 update of the Financial Recovery Plan (ESMAP grant); Sector Reforms and (ii) TA on social outreach program targeting electricity consumers and key Project Implementation stakeholders; and (iii) TA for project implementation support (will continue until project close).  A number of activities originally planned under this component and elaborated in the Loan Agreement were completed outside of the Project and/or supported by other development partners. These are no longer required under Power Recovery Project:  TA on revising the power market model to introduce more competition and reduce public power supply obligation (supported by Energy Community)  TA on revising renewable energy law (supported by Energy Community)  TA on cost-recovery tariff methodology (supported by USAID)  TA on Albanian energy strategy (supported by USAID)  TA on OSHEE performance management program (supported by KFW)  TA on establishing Albanian power balancing mechanism and Albanian Power Exchange (supported by IFC)  TA on weather volatility in the power sector (provided under World Bank macro fiscal ASA) 5. Since Project approval in 2014, the electricity distribution losses in Albania have been reduced from 45 percent in 2013 to 24 percent in 2018 mainly due to commercial loss reduction through metering, collection and theft prevention. Despite the improvement of distribution loss, it is still substantially higher than the original end-of-project target of 14 percent. Under this Project, the ongoing infrastructure upgrade, the new metering system, and the new billing system will help lower distribution losses further. The latest technical estimates suggest further loss reduction could reach 16 percent by 2022. Reliability of the medium-voltage network in Tirana, 89 percent in 2018 measured by the capacity utilization percentage of substations, has still not achieved its original end target of 70 percent or lower. The proposed restructuring includes revising of the end targets for electricity distribution losses and changing the measurement of the substation capacity of the medium-voltage network in the Tirana area. 6. The financial performance of KESH, OST and OSHEE have gradually improved since the project approval, but the companies continue to struggle with their financial recovery. By 2017, all three public power utilities recorded pre-tax net profits and positive operating cash flow prior to interest and tax payments. Historical arrears which OSHEE owes to KESH and OST have declined and are expected to meet the end-of-project target (550 days of revenue). However, the 2 The World Bank Power Recovery Project (P144029) companies remain exposed to the risk of high cost of electricity import during dry years1, which could exceed revenues from electricity sales especially for OSHEE leading to cash constraints, new arrears, and financial loss. During 2019, the Bank completed a macro fiscal technical assistance to address weather volatility and manage this financial risk to the companies. In April 2019, the Government approved the updated Financial Recovery Plan—supported under Component 4—which provides key financial parameters for public power utilities such as the level of distribution loss percentages, the level of yearly capital expenditures by power utilities, the level of government budget support for power utilities, and key legal or regulatory requirements to be approved by the authorities such as on electricity tariffs and fees. These financial parameters are designed to ensure financial viability of the power sector. 7. The project’s fiduciary arrangements remain adequate in terms of staff and effectiveness. However, the 2018 financial audits for Component 2 are overdue due to delays in OSHEE’s selection of auditor. In addition, the 2018 audits for Component 4 are also overdue due to a significant delay by the Ministry of Finance and Economy in contracting the auditor. Nevertheless, the audit exercises for both components are now underway and the audited project financial statements are expected to be submitted not later than February 28, 2020. There have been no issues identified from current and prior years audits. Other aspects of financial management are satisfactory. 8. Rationale for project restructuring:  A one-year extension is required to substantially complete the infrastructure upgrades under Component 2 and 3. These investments will help achieve intended development objective of power supply reliability improvement by lowering distribution losses toward 16 percent or lower by 2022 (the first full year after the new investments are completed). In particular, investments in distribution balancing meter infrastructure—the last package under Component 2, planned to be implemented in 2020 and 2021—is a crucial element to enable loss reduction toward 16 percent or lower.  Project implementation has improved substantially in the past year. Based on the latest performance as of end- September 2019, the Overall Implementation Progress ISR rating has been upgraded to Moderately Satisfactory. The PDO rating is being maintained at Moderately Satisfactory.  Closing the Project on November 30, 2019 as planned would disrupt the on-going distribution loss reduction program in Albania. This will delay future implementation, as OSHEE and OST will need to identify alternative sources of financing, thus postponing the expected economic and financial gains by multiple years.  The legal covenants under the Project help support financial recovery of public power utilities by establishing financial governance parameters (e.g. 5-year business plan, debt service coverage and debt-to-equity targets). These parameters remain very valuable as the Albanian power sector moves toward a competitive open market structure in the next five years.  The original scope of Component 4 to support power sector reform was ambitious as it included multiple TA activities elaborated in the Loan Agreement. Some of the TA activities including policy interventions were delivered outside the Project in practice. Therefore, the proposed restructuring is intended to clearly delineate the types of TA that will be directly supported by the Project, and which will focus on improving financial 1 Note: In 2017 the quantity of electricity sold to all end-users amounted to 5,565 million kWh and electricity loss in the power grid amounted to 1,874 million kWh. In a dry year such as 2017, the quantity of import electricity amounted to 2,900 million kWh compared to a typical import of around 1,000 million kWh each year. The incremental cost of import is on the order of EUR 100 million in 2017 (0.8% of GDP), or approximately 1.8 euro cents per kWh if charged to all end-users. However, this incremental cost was not passed through to end-users, but absorbed by OSHEE and required government budget support and short-term commercial loans for cash shortfall. Comparatively, in 2017 total OSHEE electricity sales amounted to EUR 430 million. 3 The World Bank Power Recovery Project (P144029) viability of the power sector and public power utilities. The Bank supported the update of the government’s FRP in 2018, which provides a framework to help improve financial liquidity of the utilities, contains the government's fiscal obligation to the power sector, and supports the move toward a competitive power market in Albania. II. DESCRIPTION OF PROPOSED CHANGES 9. This Restructuring Paper proposes the following changes: (i) 12-month extension of the project closing date to November 30, 2020 from the original closing date; (ii) partial cancellation of approximately EUR 17.6 million from the IBRD loan due to restructuring and project savings; (iii) updates on the Results Framework; and (iv) updates on the Legal Covenants to reduce the payment from OSHEE to 100% of the monthly energy purchase invoice to KESh. This is to reflect the full payment of invoices by OSHEE to KESh on a monthly basis. The payment of arrears by OSHEE due to KESh is now addressed through the repayment of an EBRD loan made to OSHEE since 2016. Disbursement projections will be revised to reflect the extended implementation period. 10. The partial IBRD loan cancellation is mainly due to:  Component 1 -- cost savings EUR 0.70 million  Component 2 -- reduced scope of procurement package OSHEE low voltage balancing meters (estimated cost reduction EUR 13 million)  Component 3 – cancellation of the TA for Establishment of a Market Platform (estimated cost EUR 2.5 million no longer needed)  Component 4 – cancellation of several TA activities which were carried out by other development partners (estimated cost reduction EUR 1.5 million) 11. The one year extension will provide additional time for installation of goods and equipment under the remaining Component 2: Upgrading Distribution Infrastructure and Component 3: Transmission Meter/Data Center Upgrade to be substantially completed by November 30, 2020. The Results Framework is updated to revise the end-target for the PDO- level indicator “Electricity distribution losses per year in the project area”, reflecting the delay in implementation and revised technical estimates. In addition, a number of clarifications and revisions are made to other PDO and Intermediate Level Results indicators (see Table 2 below). Finally, the Legal Covenant on OSHEE’s Revenue Escrow Account is revised to reflect that OSHEE will pay the monthly energy purchase to KESh in full when due. For Component 4: Supporting Power Sector Reforms and Project Implementation, the end target is revised to reflect TA initiated to support power sector reforms directly supported under the Project. All together, this restructuring will help the Project achieve the development objectives through extending implementation time, revising key targets such as distribution losses, reduced scope of Component 2, and cancelling some activities originally planned for Component 3 and 4. 12. The main proposed updates on the results framework include the following: Table 2: PDO Indicators Current Indicator/Targets Proposed Revised Comments Indicator/Targets PDO Indicators 4 The World Bank Power Recovery Project (P144029) Current Indicator/Targets Proposed Revised Comments Indicator/Targets Electricity losses per year in Electricity distribution Clarify that this is distribution losses only. The higher the project area losses per year in the percentage reflects the lack of metering infrastructure (Percentage) project area (Percentage) on the medium- and low-voltage power grid network by November 2020. Nevertheless, this indicator is End target – 14 percent End target – 23 percent envisaged to reduce further toward 16.5 percent by December 2022 after full completion of metering infrastructure by OSHEE. Total net injected power Deleted This indicator is used to calculate the above indicator (Megawatt hour(MWh)) “Electricity distribution losses per year”. It is proposed to delete this indicator to avoid error from estimating demand as both distribution losses and end- user consumption have decreased in recent years. Electricity losses per year in Deleted It is proposed to delete these two sub-indicators, and to the project area- Technical measure only the overall “Electricity distribution losses (Percentage) per year in the project area.” Electricity losses per year in Due to inadequate metering infrastructure and the project area- Non- methodologies in measuring “technical” and “non- Technical (Percentage) technical” distribution losses, there is a substantial margin of error in their measurement. Reliability of MV level at Added capacity of It is proposed to measure and report this indicator based Tirana area (Percentage medium-voltage network on the new capacity of the Kombinat Substation of 80 overload at project areas) level at Tirana area (Mega MVA constructed under this project, as compared to the Volt Amp [MVA]) total Tirana area substation capacity of 551 MVA (as of December 2018). End target – 70 percent (of End target – 80 MVA Reliability is improved through increased substation maximum load) capacity, which is translated into less service disruptions and more stable voltage of electricity supply. Note: Installed Tirana area substation capacity and maximum load (%). OSHEE has been adding substation capacity, but load growth continues to increase. Yr. 2015 - 441 MVA (90% loaded) Yr. 2016 - 481 MVA (93% loaded) Yr. 2017 – 551 MVA (83% loaded) Yr. 2018 – 551 MVA (89% loaded) Total amount of Total amount of KESH and It is proposed to clarify this indicator. This indicator intercompany arrears OST’s receiveables from measures receivables (arrears and current) that arise (Number of days) OSHEE net of provisions for from KESH’s electricity sales and OST’s transmission fees bad debt (Number of Days) to OSHEE net of provisions for bad debt. End target – 550 days End target – 550 days KESH’s receivables from OSHEE will remain substantially on KESH’s balance sheet for over ten years. This is due to 5 The World Bank Power Recovery Project (P144029) Current Indicator/Targets Proposed Revised Comments Indicator/Targets the back-to-back arrangement through EBRD where EBRD provides a EUR 218 million loan for KESH to refinance its short-term loans. In turn, OSHEE will be paying down receivables to KESH over more than 10 years to match the EBRD loan repayment. (b) Intermediate Result Indicators Current Indicator/Targets Proposed Revised Indicator/Targets Indicator Name Indicator Name Comments Component 1 (Short Term Complementary Power Import Support) Implemented Risk Deleted It is proposed to delete this indicator. This activity had management mechanism experienced delays in implementation due to the for weather related power uncertainty of the liberalization of the Albanian Power imports (Text) Market, particularly in which power sector entity would be faced with hydrological risk after market liberalization. In lieu of this activity, the World Bank initiated a bank- executed TA in 2018 on hydrological risk management to inform power utilities, Ministry of Finance, and Ministry of Infrastructure and Energy. Upon this TA’s completion in mid-2019, the government and power utilities may decide to implement the selected mechanism during and after the Closing of the Project. Component 2 (Upgrading Distribution Infrastructure) This indicator is New Impact of citizen This indicator will record the efforts that the project has engagement on project made to respond to citizen feedback during activities reported and implementation of this component, documenting disseminated (Yes/No) responsiveness and impact. End target – Yes Component 3 (Transmission Meter/Data Center Upgrade) Number of medium Number of medium voltage Based on actual procurement and Implementation Plan. voltage customers in customers in deregulated The revised target is derived from the technical deregulated market market (Number) assessment carried out under this component. (Number) 6 The World Bank Power Recovery Project (P144029) Current Indicator/Targets Proposed Revised Indicator/Targets End target – 5,000 End target – 1,000 customers customers Share of meters installed Installed OST meters It is proposed to measure this indicator by the number by OST (Percentage) (number) of meters for OST to be procured and installed. End target – 100 percent End target – 2,328 meters This indicator is New Installed OST data center The OST data center has been operational starting in May 2019. Baseline – Not Operational End target – Operational Component 4 (Supporting Power Sector Reforms and Project Implementation) Power sector reforms Technical assistance It is proposed to revise the end targets to reflect TA implemented (Text) initiated to support power activities directly supported under the Project. A sector reforms (Text) number of activities originally planned under this component and elaborated in the Loan Agreement were carried out outside of the Project, including those End target: End targets: supported by other development partners. See Section I (Table 1, Component 4) for details. New market rules in place/ Advice provided to support Cost recovery tariff the 2018 update of the methodology approved. Financial Recovery Plan. [Note: At present about 15% of the Albanian power market is deregulated.] Debt-to-Capitalization Deleted It is proposed to delete this indicator since it serves a Ratio of OShEE (shown), similar purpose as Debt to Equity Ratio KESh and OST (Percentage) End target – 60:40 7 The World Bank Power Recovery Project (P144029) I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Legal Covenants ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ DLIs ✔ Components and Cost ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE 8 The World Bank Power Recovery Project (P144029) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-84290 Effective 30-Nov-2019 30-Nov-2020 30-Nov-2020 30-Mar-2021 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation LOAN IBRD- Disburs 112,100,000.0 RESTRUCTUR EUR 17,651,415.27 31-Dec-2019 94,448,584.73 84290-001 ing 0 ING, COST SAVINGS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-84290-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: Short term power purch.Part 1 22,419,750.00 21,718,334.73 21,718,334.73 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: G,CS,non-CS,TR, Part 2 69,500,000.00 32,707,571.52 56,500,000.00 90.00 90.00 iLap Category Sequence No: 3 Current Expenditure Category: G,CS,non-CS, Part 3 14,950,000.00 7,428,453.18 12,450,000.00 80.00 80.00 iLap Category Sequence No: 4 Current Expenditure Category: G,CS,non-CS,TR, IOC Part 4 4,950,000.00 1,865,054.36 3,500,000.00 100.00 100.00 9 The World Bank Power Recovery Project (P144029) Total 111,819,750.00 63,719,413.79 94,168,334.73 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 20,000,000.00 0.00 2016 30,000,000.00 0.00 2017 40,000,000.00 0.00 2018 60,000,000.00 0.00 2019 0.00 75,000,000.00 2020 0.00 105,000,000.00 OPS_DETAILEDCHANGES_LEGCOV_TABLE LEGAL COVENANTS Loan/Credit/TF Description Status Action LA Section IV C1.Debt Service Coverage. Borrower to ensure: (a) OST/KESh not to incur any debt unless a reasonable forecast of revenues and expenditures show estimated net revenues for each FY during term of debt to be incurred shall be at least 1.0 for first 36 months and thereafter one and six tenths (1.6) times the estimated debt service requirements of the relevant PIE IBRD-84290 in such year on all debt of the OST and KESh, including Complied with No Change debt to be incurred. (b) that a reasonable forecast of OSHEE's net revenues and expenditures demonstrate that the ratio of estimated net revenue to debt service requirements is (i) within 36 months of the Effective Date, six tenths (0.6); and (ii) with the subsequent 36 months,one (1.0); and thereafter, one and six tenths (1.6). 10 The World Bank Power Recovery Project (P144029) LA Section IV B1. Debt Equity Ratio. Borrower to ensure that OST and KESh do not incur any debt if, after the IBRD-84290 Complied with No Change incurrence of such debt, the ratio of debt to equity shall be greater than sixty (60) to forty (40). LA Section IV A1: Revenue Escrow Account. Borrower to cause OShEE to open a Revenue Escrow Account by December 31, 2014, in a financial institution satisfactory to the Bank and deposit its monthly revenues to pay energy purchase as follows: (i) for each of the first 12 months, pay 85% of the monthly energy pruchase invoice to KESh and 85% of the monthly transmission fees invoice to OST; (ii) for each of the next 24 months, pay 95% of the monthly energy purchase invoice to KESh and 95% of the monthly transmission fees invoice to OST; (iii) for each of the next 36 months, pay 100% of IBRD-84290 Complied with Revised the monthly energy purchase invoice to KESh and 100% of the monthly transmission fees invoice to OST; and (iv) thereafter pay105% of the monthly energy purchase invoice to KESh and 105% of the monthly transmission fees invoice to OST until such time as the revenue arrears of each PIE are fully amortized. (b) ensure that any of OShEE's residual funds remaining after paying KESh and OST are transferred to OShEE on a monthly basis; and (c) cause OShEE to subject the Revenue Escrow Account to an annual audit satisfactory to the Bank. | Due Date :31-Dec-2014 “(iv) thereafter pay one hundred percent (100%) of the monthly energy purchase fees invoice to KESh and one hundred and five percent (105%) of the monthly Proposed C transmission fees invoice to OST until such time as the revenue arrears of each Project Implementing Entity are fully amortized." IBRD-84290 LA :Schedule 2 A3: Power Service Contracts. Borrower Complied with No Change to ensure that the PIEs enter into agreements, satisfactory to the Bank, comprising (i) the PSC between KESh and OShEE (the KESh/OShEE PSC) setting out OShEE's obligation to purchase power generated by KESh; (ii) the PSC between KESh and OST (the KESh/OST PSC) setting out OST's obligations to transmit the power generated by KESh and (iii) the PSC between OShEE (the OShEE/OST PSC) setting out OST's obligations to transmit power purchased by OShEE. (b) Borrower to 11 The World Bank Power Recovery Project (P144029) ensure that the PSCs contain information on: (i) daily scheduling, deviations and accounting; (ii) monthly energy balance; (iii) monthly energy and financial settlement based on methodology monitored and established by the market operator and OST; and (iv) the monthly payments and guarantees through commercial banks. (c) Borrower to ensure that the Power Service Cotracts are not assigned, amended, abrogated or waived without the Bank's prior approval in writing. Due Date :31-Oct-2014 LA Section IV D:Five year Business Plan. Borrower shall cause each Project Implementing Entity to prepare and submit to the Bank and the Borrower no later than IBRD-84290 Complied with No Change December 31 of each year, a 5 year business plan including associated financial projections in form and substance satisfactory to the Bank. LA Schedule 2 Section 1B 2(iv) :OShEE to contribute 10% of the contract value under Category 2 and OST 20% of the contract value under Category 3 respectively as set IBRD-84290 forth in the table Section V of Schedule 2 to this Complied with No Change Agreement; and ensure that all the relevant contracts are procured in accordance with the applicable World Bank procurement guidelines. LA Schedule 2 Section 1A1: Project Management Unit Borrower through MoEI to establish and maintain throughout the implementation of the Project, a PMU, which will be managed by a Project Coordinator appointed by MoEI with key staff with functions and responsibilities acceptable to the Bank, including the following additional responsibilities: (a) preparing the POM,together to be approved by the MoEI; (b) assisting IBRD-84290 Complied with No Change PIUs in developing BDs; (c) assisting the Borrower through the MoEi in estiblishment of BECs, comprising staff from PMU and PIUs according to the POM; (d) supporting coordination in the design and monitoring of social outreach programs; (e) carrying out implementation oversight including supervision; (f) providing periodic monitoring and evaluation of Project . implementation. 12 The World Bank Power Recovery Project (P144029) . Results framework COUNTRY: Albania Power Recovery Project Project Development Objectives(s) The project development objective is to improve reliability of power supply and financial viability of the power sector. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Electricity losses per year in the project area ElectricityDistribution losses per year in the 45.00 40.00 33.00 26.00 26.00 24.00 24.00 23.00 project area (Percentage) Rationale: Clarify that this is distribution losses only. The lower target reflects the lack of metering infrastructure on the medium- and low-voltage power grid network by Action: This indicator has November 2020. Nevertheless, this indicator is envisaged to reduce further toward 16.5 percent by December 2022 after full completion of metering infrastructure been Revised by OSHEE. Total net injected generation (Megawatt 7,145,000.00 7,250,000.00 7,360,000.00 7,470,000.00 7,590,000.00 7,720,000.00 7,850,000.00 7,850,000.00 hour(MWh)) 13 The World Bank Power Recovery Project (P144029) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Action: This indicator has been Marked for Deletion Electricity losses per year in the project 15.30 14.90 14.50 14.20 13.70 13.30 12.60 12.60 area- Technical (Percentage) Action: This indicator has been Marked for Deletion Electricity losses per year in the project 29.80 25.10 18.50 11.80 8.30 4.70 1.40 1.40 area- Non-Technical (Percentage) Action: This indicator has been Marked for Deletion Collection rate of distribution company Collection rate of distribution company 78.00 85.00 88.00 90.00 91.00 92.00 93.00 93.00 (Percentage) Reliability of MV level at Tirana area Capacity of Medium Voltage network (kilovolt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 80,000.00 - Amphere (KVA) (Percentage) 14 The World Bank Power Recovery Project (P144029) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Rationale: Action: This indicator has It is proposed to measure and report this indicator based on the new capacity of the Kombinat Substation of 80 MVA (80,000 KVA) been Revised Total amount of intercompany arrears KESH and OST's receiveables from OSHEE 1,200.00 800.00 775.00 750.00 650.00 600.00 550.00 550.00 net of provisions for bad debt. (Days) Rationale: It is proposed to clarify this indicator. This indicator measures receivables (arrears and current) that arise from KESH electricity sales and OST transmission fee to OSHEE net of provisions for bad debt. Action: This indicator has KESH’s receivables from OSHEE will remain substantially on KESH’s balance sheet for over ten years. This is due to the back-to-back arrangement through EBRD been Revised where EBRD provides EUR 218 million loan for KESH to refinance its short-term loans. In turn, OSHEE will be paying down receivable to KESH over more than 10 years to match EBRD loan repayment. PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Short Term Complementary Power Import Support Complementary Power 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Euro 21.7m Purchased (Text) 15 The World Bank Power Recovery Project (P144029) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Rationale: It is proposed to revise this indicator to measure short term complementary power import under this project. The original activity (Implemented risk management Action: This indicator has Mechanism for weather related power imports.) had experienced delay in implementation due to uncertainty of the liberalization of the Albanian Power Market, been Revised particularly on which power sector entity would be faced with hydrological risk after market liberalization. Upgrading Distribution Infrastructure Implementation of a new The risk New billing and The new Billing and billing and collection management collection system Management management system mechanism is not in in place System in Operation (Text) place Direct project 0.00 0.00 50,000.00 100,000.00 150,000.00 200,000.00 200,000.00 200,000.00 beneficiaries (Number) Female beneficiaries 0.00 0.00 52.00 52.00 52.00 52.00 52.00 52.00 (Percentage) Impact of citizen engagement on Project No No No No No No No Yes activities reported and disseminated (Yes/No) Rationale: Action: This indicator is This indicator will record the efforts that the project has made to respond to citizen feedback during implementation of this component, documenting New responsiveness and impact. Transmission Meter/Data Center Upgrade Number of medium 0.00 0.00 100.00 500.00 500.00 500.00 500.00 1,000.00 voltage customers in 16 The World Bank Power Recovery Project (P144029) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 deregulated market (Number) Rationale: Action: This indicator has Based on actual procurement and implementation plan. The revised target is derived from the technical assessment carried ou t under this component. been Revised Installed OST meter 0.00 0.00 0.00 0.00 0.00 0.00 1,000.00 2,328.00 (Number) Rationale: Action: This indicator has It is proposed to measure this indicator by the number of OST meters procured and installed directly under Power Recovery Project instead. been Revised Installed OST date center Not Operational Not Operational Not Operational Not Operational Not Operational Not Operational Not Operational Operational (Text) Rationale: Action: This indicator is The OST data center is already operational starting in May 2019. New Supporting Power Sector Reforms and Project Implementation Debt-to-Capitalization Ratio of OShEE (shown), 300.00 60.00 60.00 KESh and OST (Percentage) Action: This indicator has been Marked for Deletion 17 The World Bank Power Recovery Project (P144029) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Debt to Equity Ratio of OShEE (shown), KESh and 0.10 1.60 1.60 OST (Number) OShEE monthly revenues used to pay for energy purchases to KESh and 40.00 50.00 85.00 95.00 95.00 100.00 100.00 100.00 transmission fees to OST (Percentage) Technical assistance Update of the Update of the initiated to support No On going On going On going On going On going Financial recovery Financial recovery power sector reforms plan provided plan provided (Text) Rationale: It is proposed to revise the end targets to reflect TA activities directly supported under the Project. A number of activities originally planned under this component Action: This indicator has and elaborated in the Loan Agreement were carried out outside of the Project, including those supported by other development partners. See Section I (Table 1, been Revised Component 4) for details. IO Table SPACE 18 The World Bank Power Recovery Project (P144029) 19 The World Bank Power Recovery Project (P144029) Annex A. Summary progress of physical activities under the project Component 1 (Short Term Complementary Power Import Support)  KESH completed procurement for three tranches of power import of 356,550 MWh valued at EUR 21.7m.  No further disbursement of this component is expected Component 2 (Upgrading Distribution Infrastructure)  Of the original EUR 69.5m IBRD loan, about EUR 37m is now committed. OSHEE is expediting implementation through all activities with only one pending procurement packages (low-voltage balancing meters; estimated IBRD loan EUR 15m). Remaining Activities Status Target Completion & Required Actions Distribution feeder 25 out of 59 feeders 32 feeders by Nov 2019 upgrade completed (Sept 2019) 48 feeders by Nov 2020 59 feeders by Nov 2021 (last 11 feeders to be [Contributing to PDO completed after Kombinat substation construction indicator “Electricity completion by May 2020. losses per year in the project area”] Goods & equipment - OSHEE set aside EUR 16.7m for installation already procured contractors (confirmed Sept 2019). - OSHEE allows and facilitates contractors to work 7 days per week (confirmed Sept 2019). Single-phase meter 47,679 out of 120,000 - All meters to be installed by Nov 2020 installation meters installed (Sept 2019) - The remaining 39,000 meters will be installed by [Contributing to PDO OSHEE or outsourced to a contractor by December indicator “Electricity 2019 20 The World Bank Power Recovery Project (P144029) Remaining Activities Status Target Completion & Required Actions losses per year in the OSHEE contracted the project area”] installation of additional 41,813 meters (to be completed by March 2020) Meters already procured Three-phase meter 6,650 out of 12,500 - All meters to be installed by Nov 2020 installation meters installed (Sept 2019) - At least 100 teams of OSHEE staff already assigned [Contributing to for installation. After this summer 2019, additional Intermediate indicator Meters already procured OSHEE staff will be assigned. “Number of medium voltage customers in deregulated market”] Billing system (S&I) Installation completed - Operational acceptance test in November 2019. on October 15, 2019. [Contributing to PDO - Contractor to be in Tirana for full support during indicator “Collection the final 3 weeks of implementation. rate of distribution company”] Kombinat substation Contractor mobilized - Construction to be completed by May 2020 (S&I) and started work at site since April 26, 2019 - Close supervision by OSHEE [Contributing to PDO - Timely payment to contractor indicator “Reliability of - OSHEE and contractor to propose a plan to MV level at Tirana complete work earlier. area” (original)] 21 The World Bank Power Recovery Project (P144029) Remaining Activities Status Target Completion & Required Actions 3 substations Contract awarded and - Work to be completed Nov 2020 rehabilitation (S&I) effective on September 16, 2019 - Close supervision by OSHEE [Contributing to PDO - Timely payment to contractor indicator “Reliability of - OSHEE and contractor to propose a plan to MV level at Tirana complete work earlier. area” (original)] LV balancing meters Tender cancelled in - New tender to be launched and awarded by (S&I) September 2019 due to December 2019 unresponsive bids - Work to be completed by September 2021 [Contributing to PDO received indicator “Electricity - Close supervision by OSHEE losses per year in the - Timely payment to contractor project area”] Goods & equipment to - OSHEE and contractor to propose a plan to be delivered by March complete work earlier. 2020 22 The World Bank Power Recovery Project (P144029) Component 3 (Transmission Meter/Data Center Upgrade)  Of the original EUR 14.95m IBRD loan, EUR 9.5m is now committed. There is one remaining activity-- OST Supervisory Control and Data Acquisition (SCADA) system extension— to be financed with an estimated IBRD loan EUR 2m. Activities Status Target Completion & Required Actions OST metering system 787 out of 2,328 meters 1,830 meters by Nov 2019 (experiencing delay as installation (S&I) installed of Sept 2019) (Sept 2019) All 2,328 meters to be installed by May 2020. - OST and contractor need to expedite obtaining work authorizations from customers. - OST allows and facilitates contractors to work 7 days per week. OST data center Completed in April 2019 Contract close out. upgrade (S&I) OST Supervisory Bid was opened on - Bid award targeted for August 2019 Control and Data August 7, 2019 (experiencing delay as bid evaluation is still Acquisition (SCADA) underway as of mid-October 2019) system extension (S&I) - Work to be completed in early 2021 - OST to finance remaining amount after Nov 2020 (revised project closing date) TA for developing This TA was provided by Another follow up TA on operationalizing the procedures for the IFC Advisory and Albanian Balancing Market will now be carried out 23 The World Bank Power Recovery Project (P144029) establishment of complemented by the outside of PRP. This is due to time constraint as electricity market Bank under another this TA could take at least two years to be platform, for Bank-executed TA Power delivered. Moreover, OST stated its intention to independent power Sector Implementation revise the TOR to avoid duplicating prior work. producers and eligible Support (P163393). customers among others. 24