Documentof The WorldBank Report No.: 29924 PROJECT PERFORMANCE ASSESSMENT REPORT MOZAMBIQUE ENERGY TECHNICAL ASSISTANCE AND REHABILITATION PROJECT (CREDIT 1806-MZ) URBAN HOUSEHOLDENERGY PROJECT (CREDIT 2033-MZ) September 15,2004 Sector, Thematic and Global Evaluation Group Operations Evaluation Department Currency Equivalents(annual averages) Currency Unit = Meticais (MT) 1987 US$1-00 $ 40. 1988 US$1 .oo $ 404. 1989 US$l .oo $12342. 1990 US$1.oo $ 813. 1991 US$1 .oo $ 1040. 1992 US$1 .oo $ 1748. 1993 US$l.oo $ 2724. 1994 US$l.OO $ 5288. 1995 US$l .oo $ 6537. 1996 US$l.oo $10760. 1997 US$l .oo $10983. 1998 US$1 .oo $11710. Abbreviations and Acronyms BADEA Arab Bank for Economic Development inAfrica BDM Banco de Moqambique BEU Biomass EnergyUnit o f the Ministry o f Agriculture BPD Banco Popular de Desenvolvimento C M H Mozambique Hydrocarbons Company (former ENH) DNE Direcqao Nacional de Energia EDM Electricidade de Moqambique ESMAP Energy Sector Management Assistance Program FA0 UnitedNations Foodand Agriculture Organization GOM Govemment o f Mozambique GWh Gigawatt-hour ICR Implementation Completion Report LPG Liquified Petroleum Gas Moqacor Distribuidora de Combestiveis, S A R L , subsidiary o f PETROGALMoqambique NDF Nordic Development Fund NDFW National Directorate o f Forests andWildlife NORAD NorwegianAgency for Development Cooperation OED Operations Evaluation Department Petromoc Petr6leos de Moqambique, S A R L PPAR Project Performance Assessment Report Prolec UrbanElectrification Program SIDA Swedish International Development Agency FiscalYear Govemment: January 1-December 31 Director-General, Operations Evaluation : Mr.Gregory K.Ingram Director, Operations Evaluation Department : Mr.Ajay Chhibber Manager, Sector, Thematic and Global Evaluation Group : Mr.AlainBarbu Task Manager : Mr.Fernando Manibog OED Mission:Enhancingdevelopmenteffectivenessthrough excellenceand independenceinevaluation. About this Report The Operations EvaluationDepartmentassesses the programsand activitiesof the World Bank for two purposes:first, to ensurethe integrityof the Bank's self-evaluation processand to verify that the Bank's work is producingthe expected results,andsecond,to helpdevelop improveddirections,policies,and proceduresthrough the disseminationof lessonsdrawnfrom experience.As part of this work, OED annually assesses about 25 percentof the Bank's lendingoperations. Inselectingoperationsfor assessment, preferenceis given to those that are innovative,large, or complex;those that are relevantto upcomingstudies or country evaluations;those for which ExecutiveDirectorsor Bank managementhave requestedassessments;andthose that are likelyto generate studies. important lessons. The projects,topics, and analyticalapproachesselected for assessmentsupport larger evaluation A Project PerformanceAssessment Report (PPAR) is based on a review of the Implementation Completion Report (a self-evaluation by the responsibleBank department) and fieldwork conducted by OED. To prepare PPARs, OED staff examine project files and other documents, interview operational staff, and in most cases visit the borrowing country for onsite discussionswith project staff and beneficiaries.The PPAR thereby seeks to validate and augment the information provided inthe ICR, as well as examine issues of special interest to broader OED studies. Each PPAR is subject to a peer review process and OED managementapproval. Once cleared internally, the PPAR is reviewed by the responsible Bank department and amended as necessary.The completed PPAR is then sent to the borrower for review; the borrower's comments are attached to the document that is sent to the Bank's Board of Executive Directors.After an assessment report has been sent to the Board, it is disclosed to the public. Aboutthe OED RatingSystem The time-tested evaluation methods used by OED are suited to the broad range of the World Bank's work. The methods offer both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach. OED evaluators all apply the same basic method to arrive at their project ratings. Following is the definition and rating scale used for each evaluation criterion (more information is available on the OED website: http://worldbank,org/oed/eta-mainpage.html). Relevanceof Objectives: The extentto which the project's objectives are consistent with the country's current development priorities and with current Bank country and sectoral assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, Sector Strategy Papers, Operational Policies). Possible ratings: High, Substantial, Modest, Negligible. Efficacy:The extent to which the project's objectives were achieved, or expected to be achieved, taking into account their relative importance. Possible ratings: High, Substantial, Modest, Negligible. Efficiency:The extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared to alternatives. Possible ratings: High, Substantial, Modest, Negligible. This rating is not generally applied to adjustment operations. Susfainabilify:The resilience to risk of net benefits flows over time. Possible ratings: Highly Likely, Likely, Unlikely, Highly Unlikely, Not Evaluable. lnsfifufionalDevelopmentImpact: The extent to which a project improvesthe ability of a country or region to make more efficient, equitable and sustainable use of its human,financial, and natural resources through: (a) better definition, stability, transparency, enforceability, and predictability of institutional arrangements and/or (b) better alignment of the mission and capacity of an organization with its mandate, which derives from these institutional arrangements. Institutional Development Impact includes both intended and unintended effects of a project. Possible ratings: High, Substantial, Modest, Negligible. Outcome: The extent to which the project's major relevant objectives were achieved, or are expected to be achieved, efficiently. Possible ratings: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly unsatisfactory. BankPerformance: The extent to which services provided by the Bank ensured quality at entry and supported implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of the project). Possible ratings: Highly Satisfactory, Satisfactory, Unsatisfactory, Highly Unsatisfactory. BorrowerPerformance: The extent to which the borrower assumed ownership and responsibility to ensure quality of preparation and implementation, and complied with covenants and agreements, towards the achievement of development objectives and sustainability. Possible ratings: Highly Satisfactory, Satisfactory, Unsatisfactory, Highly Unsatisfactory. ... 111 Contents PrincipalRatings ................................................................................................................ v Key StaffResponsible ........................................................................................................ v Preface .............................................................................................................................. .. vi1 Summary ........................................................................................................................... xi Background ........................................................................................................................ 1 The Project ......................................................................................................................... 2 Project Objectives.,.................................................................................................. 2 Project Costs and Financing ................................................................................... 2 ImplementationArrangements ................................................................................. 3 ImplementationRecord............................................................................................ 4 EnergyTechnical Assistance andRehabilitationProject............................ 4 UrbanHouseholdEnergyProject ................................................................ 4 Ratings ................................................................................................................................ 5 Energy TechnicalAssistance and Rehabilitation Project........................................ 6 Outcome....................................................................................................... 6 Relevance o f Objectives .............................................................................. 6 Efficacy........................................................................................................ 7 Efficiency..................................................................................................... 8 InstitutionalDevelopment Impact................................................................ 8 Sustainability.,.............................................................................................. . . 8 Bank Performance........................................................................................ 9 Borrower Performance................................................................................. 9 Urban Household Energy Project ......................................................................... 10 Outcome..................................................................................................... 10 Relevance of Objectives .......................................................................... ..11 Efficacy...................................................................................................... 12 Efficiency................................................................................................... 13 Institutional Development Impact.............................................................. 13 Sustainability.............................................................................................. . . 14 Bank Performance...................................................................................... 15 Borrower Performance............................................................................... 16 This reportwas preparedby RodJanssen(consultant). who assessedthe project inFebruary 2004 The . report was editedby William Hurlbut. andRose Gachinaprovidedadrmnistrative support. iv Findings. LessonsLearnedand Outlook ....................................................................... 16 Major Findings ..................................................................................................... 16 LessonsLearned..................................................................................................... 18 Outlook ................................................................................................................... 18 Bibliography ..................................................................................................................... 21 Annex A BasicData Sheet . .............................................................................................. 23 Annex B Borrower Comments . ....................................................................................... 27 V PrincipalRatings ENERGY TECHNICALASSISTANCE AND REHABILITATIONPROJECT ICR* ICR Review PPAR " ~ ~ - ~ 1 1 ~ ~ 1 "ll_"ll~ Outcome Satisfactory Satisfactory Satisfactory Sustainability Likely Uncertain Likely Institutional Partial Moderate Modest Development Impact Bank Performance Satisfactory Satisfactory Satisfactory Borrower Performance Satisfactorv N.A. Satisfactorv URBAN HOUSEHOLD ENERGY PROJECT - /CR* -ICR Review PPAR I Outcome Unsatisfactory Unsatisfactory Moderately Satisfactory Sustainability Uncertain Uncertain Likely Institutional Partial N.A. Modest Development Impact Bank Performance Unsatisfactory Unsatisfactory Unsatisfactory Borrower Performance Unsatisfactory Unsatisfactory Satisfactory * The Implementation Completion Report (ICR) is a self-evaluation by the responsible operational division of the Bank. The ICR Review and earlier Evaluation Memorandum are intermediate OED products that seek to independently verify the findings of the ICR. N.A. - not available Key Staff Responsible TECHNICALASSISTANCEAND REHABILITATIONPROJECT Project Task Managed Division Chief/ Country Director Leader Sector Director Appraisal Mr. J. Besant-Jones N.A N.A Completion Mr. Mahesh Sharma Mr. Jeffrey Racki N.A URBAN HOUSEHOLD ENERGY PROJECT Project Task Manager/ Division Chief/ Country Director Leader Sector Director Appraisal N.A N.A N.A Completion Ms. Yuriko Sakairi Mr. Mark Tomlinson Ms. Phyllis Pomerantz vii Preface This i s a Project Performance Assessment Report (PPAR) on the Energy Technical Assistance and RehabilitationProject and the UrbanHouseholdEnergy Project. The former project was approved for a credit o fUS$20.0 million equivalent in May 1987. The project's closing date o fDecember 31, 1992was extended two years to December 31, 1994, at which time about US$1.5 millionequivalent was cancelled. The UrbanHouseholdEnergyProject was approved for a credit ofUS$22.0 million equivalent inJune 1989. The project's closing date o fDecember 31, 1996 was extended two years to December 31, 1998, at which time US$2.3 million equivalent was cancelled. Cofinancing o fthe EnergyTechnical Assistance and Rehabilitationproject was providedby the Norwegian Agency for Development Cooperation (NORAD). Cofinancing o f the UrbanHouseholdEnergyProject was providedby the Nordic Development Fund (NDF) andthe Arab Bank for Economic DevelopmentinAfhca (BADEA). The two projects were selected for an OED assessmentinorder to look more carefully at the performance and sustainability o fprojects implementedunder civil war conditions, and also to include inthe overall PPARportfolio some projectswhere there has been a substantial durationbetween project closing and the PPAR. Moreover, they provide useful lessons that could inform the ongoing EnergyReform and Access Project (approved on August 19,2003) -an Adaptable Program Loanthat i s the first phase o f the Energy Reform and Access Program for Mozambique. For the Energy Technical Assistance andRehabilitationproject, the report i s based on the Implementation CompletionReport (Report No. 14734), issuedJune 28, 1995; the StaffAppraisal Report (Report No. 6647-MOZ) dated May 1, 1987; loan documents, project files anddiscussionswith Bank staff. For the UrbanHousehold EnergyProject, the report is basedonthe Implementation CompletionReport (Report no. 19449), issued June 17, 1999; the StaffAppraisal Report (Report No. 7611-MOZ), dated May 12, 1989; loan documents, project files and discussions with Bank staff. An Operations Evaluation Department(OED) missionvisitedMozambiquebetweenJanuary31andFebruary7, 2004. The missionhaddiscussions with government officials o fthe relevant ministriesand agencies, representatives o fdonors, the major energycompanies, and other stakeholders. Their cooperation and assistancei s gratefully acknowledged. Following standard OED practice, the draft assessment report was sent to the Borrower for comments before it was finalized. The borrower's comments are attached as Annex B. i x Summary The Energy Technical Assistance and Rehabilitation Projectwas prepared and approved in 1987 inresponseto the civil conflict inMozambique. It was realizedthat, without rehabilitationof the energy infrastructure, energy services would deteriorate even more and that improvements were neededto both the infrastructure and the supply o f affordable energy services to support the economic recovery o fthe country. The project hadtwo objectives: to bringabout rapidly a sustained improvement inthe supply and distribution o f electricity andpetroleumproducts inthe main urban areas o f Mozambique; and to support economic recovery beyondthe short term by helpingenergy agencies to prepare plans for the sound development o f the power, petroleum, and household energylwood fuels subsectors. The project's outcome i s ratedsatisfactory. Following initial delays, the project was effective inproviding short-term improvements. These included funding urgent maintenance andrehabilitation o fthe power generation, transmission, and distribution system; providingneededtransportation equipmentto the major energy companies; supporting technical assistance for almost all aspects o fmanagement and operations as well as studies on various technical and policy issues. Together, these elements provided the foundation for a more robust energy systeminMozambique. The project's sustainabilityi s rated likely, given the project's effectiveness in establishing the foundation for the modernizationand restructuringprocess o f the energy companies. The successful maintenance and rehabilitationwas also instrumentalinensuringthat the energy system didnot collapse. The institutionaldevelopment impact i s ratedmodest becausethe energy companies made only minor improvements to their management and financial systems, which already started from a poor base. The Bank's performancei s ratedsatisfactory, as project development and supervision were good. However, the project was complex for the small, qualified staff available inMozambique. Support to help the borrower meet conditions andvarious covenants, which were clearly difficult for the borrower, could have beenbetter. The borrower's performance i s ratedsatisfactory, with the borrower's active and positiveparticipation inimplementation despite difficult war conditions. The objectives o f the Urban Household Energy Project (UHEP), approved in 1989,were to quickly enhance supply and significantly reduce energy costs for about 25 percent o f households inmain urban centers; to continue the institutional and financial strengtheningo fthe principal energy supply companies that was initiated under the EnergyTechnicalAssistance Project; and to slow significantly the deforestation around the urban centers andto improve air quality. The project's outcome is rated moderately satisfactory: while some o fthe objectives were not completely fulfilled, the project did provide long-term benefits that are setting the energy sector on a strong foundation. Its sustainabilityi s rated likely becausemany o f the project's reform components, particularly the energy legislation, are having a positive and lasting impact: the energy markets are opening up to competition, the energy companies have become more financially viable, the number o f new electricity customers has increased, and the management o f wood fuels improved. The institutional development impact i s rated modest. The major energy companies have X shown strong improvements but some are still highly dependent on continuing technical assistance. The Biomass EnergyUnitwas a success during the lifetime o f the project and then was disbanded to be replacedby a different, community-based approach. The National Directorate o f Energy(DNE)had difficulties coordinatingthe implementation o f the project but came away from it stronger inbothpolicymakingandproject implementation. The Bank's performance i s rated unsatisfactory becauseit allowed for the project to become far too complex for the borrower to manage. There were also problems with supervision inthe middlepart of the project, at which time it was restructured twice, first to reflect the 1992 peace settlement and then in 1994as a result o f the cyclone that devastated the country. The borrower's performance i s rated satisfactory inhelpingachieve project outcomes despite a most difficult situation o f armed conflict combinedwith project design flaws and capability shortcomings among its localpartners. These projects provide useful lessonsfor future energyprojects andpolicies in Mozambique and elsewhere: The objectives of short-term emergency assistance and mediumto long-term institutionaldevelopment andpolicy assistance are sufficiently different that they should be treated inseparate operations. The benefits o f energy sector reform needto be clearly explained to decision-makers, managers o f energy companies, opinion leaders and the population as a whole inorder to buildtheir ownership and support. Care mustbe given to adapt the scale and complexity o fprojects to ensure that the borrower has the capacity to both manage the projects and absorb the information and lessons that are derived from them. Banksupervision teams needto havethe necessaryrangeof expertise to deal effectiveIy with the major project components, such as power sector and biomass energy components. Moving a country from a traditional-he1based energy systemto one that provides modernenergy services to a significant portion of the population requires a long-term strategy that goes beyondthe specifics o f any one project. Gregory K.Ingram Director-General Operations Evaluation 1 Background 1. In1987, Mozambiquerequiredemergency assistanceto ensurethe availability and reliability o f electricity andpetroleumproducts. The country's civil war and lack of significant progress inthe energy sector since independence in 1975 meant that the sector infrastructure was ina poor condition. A Bank-financedsector assessment study, Mozambique: Issues and Options in the Energy Sector (January 1987), stated that rehabilitating existing energy sector assets and institutions was a priority. The prices of commercial energywere well below the economic cost o fmeeting demand and the prices for various energy products were inequitable: traditional fuels usedby the poor were muchmore costly than the commercialfuels usedby the relativelybetter offhouseholds (though the availability of commercial fuels was erratic). Mozambique was relatively well endowed with energy resources andthe long-term economic prospects were good once peace was restored to the country. TheIssues and Options study highlightedthat economic recovery would be adversely affected ifenergy supply systems were not in better condition. 2. Mozambique became a member o f the InternationalMonetary Fundand the World Bank in 1985. The first IDA credit financed part o f the government's 1985-86 program o f imports o f equipment, spare parts, and raw materials, as well as related technical assistance for industry, transport, and agriculture. 3. Mozambique's then existing energy systemwas not sustainable. The country was heavily dependent on biomass fuels; the availability o fpetroleumproducts was limited andvery expensive; and distribution networks were poorly developed. Duringthe civil war, the urban areas, which now have about one-third o f the total population, were virtually cut off from the rest o fthe country. This resultedinsevere deforestation near the urbanareas. Furthermore, avery small percentage ofthe populationhadaccessto electricity, and eventhenonly with frequent electricity blackouts due to sabotage o f the distributionnetwork. The civil conflict also disruptedtransportation routes o f coal and petroleumproducts. 4. It was inthis context that the World Bank was asked for assistance. The Energy Technical Assistance and RehabilitationProject was the second IDA operation in Mozambique and the first totally dedicated to the energy sector. The Urban Household EnergyProject (UHEP) was IDA'Ssecond lendingoperation inthe energy sector of Mozambique. Together the projects were to help rehabilitate the energy sector infrastructure, help the urban areasrecover from the impacts o f the war, and improve energy availability for the low-incomepopulation 5. In2003, Mozambiquehadapopulationof 18.9 million, up from about 14million whenthe project started. It is one o fthe poorest countries with a gross nationalincome per capita o f $210 in2002. In2003, it ranked 170out of 175 inthe UnitedNation's Development Program's Human Development Index. Energy consumptionper capita is about two-thirds the average inall Africa and electricity consumptionper capita i s about halfthe African average. 2 6. The countryhas an area of 802,000 square kilometers, about the size o f Germany and Swedencombined. The transport network i s poorly developed, inlarge part because o fthe long distances and the relatively small populationdensity. 7. The main energycompanies, Electricidadede Moqambique(EDM) andPetroleos de Moqambique, SARL(Petromoc), are state owned. At the beginningofthe Bank- financed projects, EDMwas integratingthe country's three electric utilities (one for each region) into a single system. The first IDA lending operation was designed to provide some of the emergency technical assistance and rehabilitation to the energy infrastructure. The Energy Technical Assistance and RehabilitationProject was designed to build on that first credit. Unfortunately, the first credit was delayedby about two years andthe two projects were implementedintandem more than expected. 8. Now, Mozambique is showing strong improvements. Annual GDP growth i s strong - about 7 percent per year. Progress i s beingmade and a new IDA credit, focusing on electricity, i s starting in2004. The EnergyReform andAccess Project (approved on August 19,2003), anAdaptable ProgramCredit, is the first phaseof the EnergyReform and Access Program for Mozambique. The Projects ProjectObjectives 9. The Energy TechnicalAssistance andRehabilitationProjecthadtwo objectives. First, the project sought to bringabout a rapid and sustained improvement in the supply and distribution o f electricity andpetroleum products inthe mainurbanareas o f Mozambique. The second objective was to support economic recovery beyond the short-term byhelpingenergy agencies to prepare plans for the sound development o fthe power, petroleum, and household energy/wood fbels subsectors. 10. The UrbanHouseholdEnergyProjecthadthree main objectives. The first objective was to quickly enhance supply and significantly reduce energy costs for about 25 percent o f households inmain urban centers, particularly Maputo, Beira, Nampula, Nacala, and Quelimane. The second objective was to continue the institutional and financial strengthening o f the principal energy supply companies that were initiated under the Energy Technical Assistance Project. The third objective was to significantly slow the deforestation around the urbancenters andto improve air quality. ProjectCosts and Financing 11. For the EnergyTechnical Assistance andRehabilitationProject, about US$20.1 million equivalent were disbursedandUS$1.5 million equivalent were cancelled at the 3 time o f the project's closing (see project costs inAnnex A).' Almost halfo fthe funding was for technical assistance for the major energycompanies, particularly EDM.Funding was also provided for maintenance andrehabilitation o fthe power generation, transmission, anddistribution facilities andthe petroleum product distribution system. There was also support for connecting4,150 households to the gridandfor the purchase o f urgentlyneededtransportation equipment for EDMandPetromoc. What was not initially expectedwas financing for the LithuliBuilding,which was usedto house the expatriate experts. 12. Financing was primarily from the disbursed IDA credit o fUS$20.1 million equivalent. Cofinancing amounting to US$5.0 million equivalent was providedby the Norwegian Agency for Development Cooperation (NORAD). The credit was extended three times, and it closed two years after the original closing date. 13. For the UrbanHousehold EnergyProject, funding from the disbursedIDA credit o f US$20.35 million equivalent was for rehabilitation, reinforcement, and extension o fthe power distributionsysteminMaputo andeight other cities; loans for wiring housesto connect to the distribution system; theprovision o f stoves, lamps, and electric bulbs; reinforcement o fthe kerosene and LPG storage and distributionfacilities; rehabilitationo f the cable factor and awood fuel utilizationprogram. Financingwas alsoprovided for techcal assistance, institutional support, andpolicy support. 14. IDA financed almost halfofthe project. Cofinancing was providedbythe Nordic Development Fundand the Arab Bank for Economic Development inAfrica (BADEA). BADEA funds didnotbecome available untillate 1994due to EDM's delay inmeeting effectiveness conditions. The credit was closed inApril 1998 after two extensions, at which time US$2.3 million equivalent o f undisbursedamounts were cancelled. ImplementationArrangements 15. The EnergyTechnical Assistance and Rehabilitation Projectwas implemented throughmultipleinstitutions: Electricidadede Moqambique (EDM), Empresa Nacional Petroleos de Moqambique (Petromoc), Empressa de Hirocarbonetos (ENH), and the MinistryofIndustryandEnergy(MIE). 16. Project coordination for UHEP was the responsibilityo f the National Directorate o f Energy(DNE), supported by the Ministryo fMineral Resources and Energy (MMRE).' The various components o f the project includedmany other organizations. For the electricity component, organizations included EDM, the Prolec unit o fDNE, and a bank, Banco Popular de Desenvolvimento (BPD). For the petroleum component Petromoc was 1.The Staff Appraisal Report indicates an IDA Credit amount o fUS$20 million equivalent. Taken together, the amounts disbursedand cancelled at project closing sumup to a total that is greater than the appraised amount due to fluctuations betweenthe US$ and SDR exchange rate. Ths also applies to the second project int h s PPAR. 2. Originally the project was coordinated by the Ministryo f Industry and Energy (MIE). In 1994, the energy functions and overall coordination were transferredto the Ministryo f MineralResources and Energy. 4 included. For the biomass component, the Ministryof Agriculture was the main organization. Implementation Energy TechnicalAssistance and Rehabilitation Project 17. Implementation o fthe EnergyTechnical Assistance and RehabilitationProject was delayed two years becauseEDMandPetromoc experienced difficulties incomplying with a condition o f disbursement for goods and becauseo f a shortage o f appropriate accommodation for the long-term expatriate specialists. BothEDMand Petromoc were requiredto prepare and submit financial statementsfor the years 1984 to 1987 andto forecast for 1988. Giventhe poor state o fthe companies' accounts, the financial statements were not prepared until late 1988. The subsequent delay was due to waiting for the accommodation to be completed. Not untilthere was accommodation could the specialists be appointed. The project was also affected by sabotage o f power transmission lines, which ultimately addedto the debt burdeno fEDM. 18. Implementationwas also affected by the ambitious schedule o f the project. The agenda included short-term andmedium-to long-termneeds and there was not enough staff with sufficient qualificationsto handleall the tasks. Also linkedto the design o f the project, was the large scale o f the technical assistance (about 1,200 man-months o f expatriate support), which placeda significant burden on the qualified staff in Mozambique. 19. Finally, several institutionalfactors hinderedimplementation. These included decisions by the GOM over the patrimony o f EDM's and Petromoc's assets; a program for clearing inter-enterprise arrears and for adjustingprices o f electricity and petroleum products; the needto introduce a compensation scheme earlier inthe project cycle to facilitate recruiting and retaining qualified staff; and streamlining the approvalprocess for contracts by government authorities. Urban Household Energy Project 20. Meetingthe effectiveness conditions for the UHEPtook 10months because o f the slow administrativeprocedures inthe government. The energy companies, EDMand Petromoc, also delayed the project because o f their difficulties inmeetingthe conditions o f credit disbursement, which would have started sooner ifthe government had facilitated the compliance o f these companies. Inthe S A R it was agreed that EDMwould implementa tariff increase inthe secondhalfo f 1989, that the government would initiate paying o f f arrears o f accounts receivable during 1989, and that EDM's assets would be properly valued with a view to government being able to establish the patrimony and equityo fEDMbythe end o f 1990. The government, which didnot recognize depreciation cost to bepart o ftariffs, was reluctant to increase tariff rates, thus affecting EDM's financial viability. The settlement o f arrears was also irregular. 5 21. Theproject was restructured in 1994, following amidtermreview in 1992, when the armed conflict inthe country was resolved. The review was conductedjointly with other donors. Several o f the components were modified, although the objectives were unchanged and the project designremained fundamentally the same. Effectively, the target for electrical connections was reduced from 40,000 to 4,000; the financing o f imported electricity bulbswas eliminated; the financing o f imported stoves, lamps, and solar panels was reduced by 50 percent because they were locally available; the coal program ,which included 50,000 stoves, was eliminatedbecause coal was no longer brought to Maputo after the peace agreement; a decentralized off-grid electrificationpilot project o f small towns was added; financing o fpre-payment electricity meters was added; and a pilot community-managed, natural woodland resource management program was includedin 1995 to produce biofuel more efficiently. 22. Following the amended Credit andProject Agreements, Mozambique was hit by a cyclone inMarch 1994 and the documents were amended again to include inthe project a component to cover the rehabilitation needs of the northernpower system. 23. The extension o fEDM's distributionnetwork was delayed twice. This was because funds from the Arab Bank for Economic Development inAfrica (BADEA) did not become available to'EDMuntillate 1994, givenEDM's failure to meet effectiveness conditions for the credit. The second delay was because EDMhadnot met the disbursementconditions for the IDA credit. Ratings 24. The EnergyTechnicalAssistance and RehabilitationProjectwas evaluatedmore than nineyears afier the project closed. Consequently, indiscussions with Bank projects staff and Mozambique officials, little was rememberedabout this project or how its results may have beenusedas a basis for further technical assistance and infrastructure development. This project was designed as emergency support, so normal project indicators were not developed, andthe context changed continually throughout the implementation o f the project, largely because o f achievingpeace in 1992. 25. The ICRwas quite critical o fthe UHEPinmanyrespects. The results overall at the end o f the project were disappointing, but even thenthere were positive signs. Plus, the UHEP could not have beenimplementedunder muchmore difficult conditions: the country was not yet at peace and was still having a difficult time creating a more economically and managerially competent administration, a legacy o f gaining independenceonly inthe mid-1970s. Now that the war has been over for more than a decade, the context for assessingthe performance o f projects inMozambique has definitely changed. 26. Almost 10 years since project closing, the ratings are also affected by the fact that there have been many other relatedprojects (mainly technical assistance), but it i s still possible to piece together the enduring results that are attributable to both these projects. 6 Energy Technical Assistance and Rehabilitation Project Outcome 27. The project's outcome i s rated satisfactory. Following initial delays, the project was effective inproviding short-term improvements to the energy supply industriesin order to ensure a more stable situationand allow Mozambiqueto bebetter prepared for economic recovery. Short-term solutions also requirea long-term framework and the technical assistanceprovided by the project was important instartingthe process for the main energy companies to be more financially viable, with better technical capability for the future. 28. Maintenance and rehabilitation o fthe power generation, transmission, and distribution system did occur, althoughwith some difficulties due to sabotage. Needed transportation equipment for the energy companies was provided. Technical assistance provided by expatriate specialists assisted both EDMand Petromoc inmanaging a number of areas: engineering, maintenance oftransport fleets, aviationfuelling facilities, petroleumproduct movement, power supply facilities. Further technical assistance was provided for the design and implementationo f financial and accounting systems, management information systems, stock control, asset management, and manpower development. Following this technical assistance, EDM, ENH, and Petromoc produced annual financial statements and continue to do so today. Furthertechnical assistancewas provided for the design and implementationo f financial and accounting systems, management information systems, stock control, asset management, and manpower development. Following this technical assistance, EDM,ENH, and Petromoc produced annual financial statements and continue to do so today. 29. Overall, o f the 15 covenants, only six were complied with completely while four were partially fulfilled andtwo hadhadsubstantial delays. Two other covenants related to the financial performance o fEDMwere not met by the end o fthe credit but were to be completed inlater corporate restructuring. Relevance 30. The relevance of the project's objectives i s rated substantial. The project was developed as an emergency aid project to attempt to bringneeded infrastructure improvements to the energy supply sector duringthe civil war. Maintaining and expanding the electricity andpetroleumproduct infrastructurei s fully consistent with that context. The project was designedto set the mainenergy industries on a firmer financial and management footing, which could prepare them for later reforms that were starting to take place inother countries and that would improve the overall functioning o f the energy supplyindustry.Theproject also providedpolicy support to allow for the development of more robust, balanced energypolicies. These are necessary for the development o f sustainable energy strategies. 31. The project i s fully consistent with thepriorities inthe CAS o f June 2000 (Report No. 20521 MOZ). These priorities include: (i) maintaining an enablingprivate sector 7 environment; (ii) developing infrastructure; and (iii) promotingrural development and agriculture. 32. The specific sectoral targets ofthe government's PovertyReduction Strategy Paper are: to ensure that all district capitals and administrative posts are suppliedwith electricity; and to expand the national gridto connect rural areas. These sectoral targets are to help achieve the MillenniumDevelopment Goals o freducing child mortality, improving matemalhealth, and achieving universalprimary education. For this project, there cannot be any direct link with the MillenniumDevelopment Goals but it can be arguedthat the technical assistanceandrehabilitation are a necessarycondition beforethe energy sector can be inany position to provide assistance toward these goals. 33. The project is fully consistent with the Bank's objectives as outlined inthe Bank's 2001 EnergyBusiness RenewalStrategy. The mainpriorities for the program include helpingthe poor directly, improving macroeconomic and fiscal balances (including protecting budgets for social programs that help the poor), promoting good govemance andprivate sector development, andprotecting the environment. Efficacy 34. The efficacyof the project is rated substantial. For the mostpart, the objectives o f the project were achieved. The primary objective o fthe project was to bring about rapidly a sustained improvement inthe supply and distribution o f electricity and petroleumproducts inthe main urban areas o fMozambique. One major project outcome i s that inMaputo alone, 7,376 households were connected to the distribution system between 1990 and 1992, thus contributing to economic recovery up to mediumterm. Without t h s emergency support, the energy infrastructurewould have deteriorated even more. The energy companies also had some basic needs from vehicles to technical support to rehabilitating existinginfrastructure. Another important project outcome was able to provide much o fthis urgentlyneededshort-term support. 35. Secondarily, the project achieved the objective o f providing some technical, analytical, and management assistance, which effectively set the foundation for energy policy development and the better governance o fthe energy sector. Through technical assistance, the project made important headway assisting both EDMandPetromoc in managing a number o f areas: engineering, maintenance o f transport fleets, aviation fuelling facilities, petroleumproduct movement, andpower supply facilities. There were 18 expatriate specialists (12 for EDMand 6 for Petromoc) for this, 4 more than originally planned. It hadbeenhoped that the expatriate staffwould be able to double up and train local staff, but this was only partially successful. 36. The project also yieldeduseful outputs related to studies andpolicy formulation. Least-cost development plans were prepared for EDMandPetromoc. A nationalurban householdenergypolicy and implementationprogram was also prepared. A variety o f other studies were undertaken, including a study on charcoal production technology, an aerophotographic forest inventory o f southern Mozambique, a study o f fuel wood supply options, a study o fpotential for fuel wood plantations, studies onpetroleum product 8 supply and distribution, and a development program for EDM.The fuel wood plantation study, however, was not completed. Efficiency 37. Basedon the economic and financialratesof return,the efficiencyof the projectis ratedmodest.The original intemal economic rate ofretum(IERR) was estimated at 27 percent, which appears to be reasonable. According to the ICR, this was based on expected quantifiable increases inelectricity consumption resulting from improvements inbothpower andpetroleumproduct supply and distribution. However, the ICRwas unable to provide an actual estimate becauseit felt it was impossibleto isolate the investments from other investments inthe sector and becausesabotage o f the electricity grid increased costs without increasing supply and distribution. The ICR concluded that the IERRwould be lower than the original estimate. There i s no reason to suggest it would be otherwise today. Institutional Development Impact 38. The institutionaldevelopmentimpactis ratedmodest.A majorthrust oft h s project was to support the institutionaldevelopment o fthe major energycompanies o f Mozambique, through various forms o f technical assistance, particularly the design and implementation o f financial and accounting systems, management informationsystems, stock control, asset management, manpower development, as well as those related to policy formation. The management systemswere very basic at the beginningo fthe project. For example, annual financial reports hadnot beenpreparedbefore this project andthere was no pressure from the government to do so. EDMalso argues that its priority was to integrate the three regional companies that mergedto become EDMand one o fthe problems was that eachregionalcompany had a different financialmanagement system that affected compatibility. This projectwas important inassisting the management modernization process as well as helpingto consolidate the corporate structure. (EDMdoes not fully agree with the "modest" rating, pointingout that various management systems for different areas were introduced inEDMinthe early 1990s,o fwhich the important ones include: (a) the Project PlanningSoftware, which is reported as having improved considerably the performance o fEDM's EngineeringDepartment inpreparingproduct documents for donors; (b) the Stock Control Software, which has facilitated the auditability o fEDM's accounts; and (c) the Performance Evaluation System, which has provenuseful instaffmanagement.) Sustainability 39. The project's sustainabilityis ratedlikely. The technical assistanceprovidedby the project laid the foundation for the future development o f the energy sector in Mozambique. The investments made inrehabilitation and expansion were also keyto further developinga system o fregular maintenance, which is fundamental to long-term sustainability. The technical assistance was designedto help inthe restructuringprocess o fthe energy companies, which has happened. EDMhas continuedto receivetechnical assistance from bilateral donors, such as SIDA, NORAD, BADEA, KfW, Nordic 9 Development Fund, and the African Development Bank, buildingon the support providedby the IDA credit. A new IDA credit hasbeen approved and starts in2004. 40. The technical assistanceto support policy development was important becauseof the needto start developing long-term energypolicies. For example, G O M developed a comprehensive strategy for the development o fthe energy sector, consideredby the Council o f Ministers inJune 1999, aiming at increasing energy exports; promoting competition inthe generation and distribution o f electricity; increasingaccess to electricity through the creationo f decentralized power markets; increasing the use o f commercial forms o f energymore inrelation to wood fuels; increasing the efficient use o fbiomass fuels; and strengtheningthe institutionalcapacity o f the sector entities. The GOMusedthe results ofthe IDA-supportedproject as a foundation for future work. The DNEhas developed a goodcapabilityinpolicy analysis anddevelopment. 41. The provision oftransport equipment was seen as a short-term emergency measure and could not be expected to have a lasting effect. Bank Performance 42. The Bank performance is rated satisfactory. A good analytical base was available for the development o f the project and this helpedinthe project's preparation. One problem inthe project design was that there was so muchto do, seemingly at once, that the project became very complex and heavily taxed the small group o f qualified staff within the energy companies andthe govemment. 43. The ICR raised concerns about the nature of conditionality, administering conditionality, and the composition o f supervision missions. Concerning the nature o f conditionality, the problemwas the lack o f data, inthe absence o f any financial statements, to fully analyze the financial performance o f EDMandPetromoc and to assess the adequacy o f energyprices to improve the financial prospects o f the companies. Without such analysis, covenants were set on aproforma basis, whereas the ICR indicates that an incremental approach to financial performance requirements shouldhave beenadopted. Onthe issue of administering conditionality, no differentiationwas made between procedural and substantive covenants, effectively giving equal weight to the two types when substantive covenants were o f much greater long-term importance. 44. Concerningthe composition o f the supervision missions, the ICRwas critical that a power engineer was included inonly 2 o f 18 supervision missions, even though the power sector represented a major component o f the project. Inthis evaluation, there was no possibility o f exploring these points since no project staffremain, and the ICR's conclusions have to be accepted. Borrower Perform ance 45. The borrower's performance is rated satisfactory. Despite the scale and complexity o f the project, the borrower was able to producepositive results. The outcome was only partially achieved as the borrower fully complied with only 6 o f the 15 10 covenants. The borrower showed good will and intentions, but the context made it difficult for the borrower to perfom any better. UrbanHouseholdEnergyProject Outcome 46. The project's outcome is ratedmoderatelysatisfactory,basedon its ratings of "substantial" for relevance, "substantial" for efficacy, and "modest" for efficiency. The ICRrated the outcome as unsatisfactory, but the assessment mission found that the project had some important positive benefits. As explained below, although the distribution network connections were significantly below targets, performance outcomes ranged from successful to highlysuccessful on the components related to electric meters, liquidfuels distribution, pilotingalternative energy, andreforms. Thus, while some o fthe objectives were not completely achieved, the overall result is positive, with many benefits for the future, including a strong foundation for further energy sector reforms. 47. The most noticeable partial achievement concerns the Prolec component where only 2,500 customers were connected to the distributionnetwork compared to the target of 4,000 (after revision from the original 40,000). This was a complex task, bringing together the electric utility, municipal planningauthorities, the lending institution Banco Popular de Desenvolvimento (BPD) and DNE,representing the GOM. The loan programs to help new customers wire their homes and prepare for being connectedwas not successful inpart because the procedures were too complicated andBPD didnot have the capacity for such a venture. That should have been knownwhen the project was designed. M a n ynew customers instead wired their homes using their own resources. Another factor for the low level o f connections was that municipalities didnot prepare urban plans inareas that were targeted for the connections and this preventednew connections inthose areas. Another reason was that EDM,which should have been the key player, lacked interest inthe component because it was not taking the lead role. 48. The project financed pre-payment electric meters that provedhighly successful. Bythe end o fthe project 5,000 metershadbeeninstalled anda hrther 15,000were inthe installation stage. By 2004, 50,000 pre-payment meters hadbeen installed. 49. The distribution system for kerosene and LPGthroughout the country has been greatly enhanced through the UHEP. Overall, the expansion o f the liquid fuels distribution system has worked well. A rural sales network was created providing 200- liter drums, pumps, and trailers through soft loans. While the project providedthe equipment, it was not responsible for ensuring that each o f the distributors received kerosene supplies. This was not a problem for those who had stores and had supplies come anyway. But for those who didnot have regular supplies coming, it often meant having to travel long distances to pick up the kerosene. It is estimated that 50 percent o f those who were subsidized duringthe project are still distributingpetroleum products and, given the small dispersedmarket, this is consideredpositive. As well, virtually every gasoline filling station has a pump for kerosene. 11 50. Theproject also piloted off-grid, decentralized electrification for small villages. Electricity generatedby usingnatural gas from nearby gas fields was suppliedto the villages o f Vilankulo and Inhassoro. Initially 200 consumers were connected inVilankulo and 40 inInhassoro. After ninemonths, total connections increasedto 400. 51. Duringthe project, the BiomassEnergyUnit(BEU)was created at the Ministryof Agriculture and several studies were undertaken. This unit, and the analytical base that developed, provided an important foundation for future biomass energy work in Mozambique. A community-based biomass pilot project was implemented southwest o f Maputo in 1997. The project was delayed and cut to 10months from the original 24 months. The project introduced sustainable forest management practices as well as more efficient technology for charcoal production. Efficiency improved 100percent as aresult o f the project. 52. EDM,Petromoc, andMoqacor allbenefitedfrom reforms introducedunderthe project andbecame more financially sustainable. None has amonopoly position anymore. Moqacor is now part o f the Portuguese company Petrogal. The company has 7 percent o f the liquidfuels market and 78 percent o f the LPGmarket inMozambique. Its target i s to achieve 14-15 percent o f the liquid fuels market. Petromoc i s hnctioningwell under increased competition. I t is more efficient, havingreduced its staff significantly. Petromoc i s 80 percent state-owned and 20 percent employee-owned. Privatization i s continuing and the company i s working with the IFC to develop a privatization strategy. 53. Undertheproject, technical support ledto the adoptionofthe PetroleumLaw liberalizedthe petroleum sector, opening the market to greater competition. For example, in1990, Petromoc had83 percent ofthe liquidfuels market andit is downto 39 percent now. 54. Interms ofpolicyreforms, theprojectwas instrumentalinraisingelectricity tariffs and having both electricity andpetroleum legislation developed and approved. The 1997Electricity-Lawcreated the National ElectricityCouncil (CNELEC), which acts as an arbitrator between the concessionaire andthe consumer. There i s no independent regulator at this point. The law also took the monopolypositionaway from EDMfor generation. 55. All the covenants, bothproceduralandsubstantial, were eventually fulfilled, although several had serious delays that slowedthe implementationprocess. A number o f studies that were completed, ranging from financial management support to studies on improvedwood stoves, electrification and distribution, restructuringinthe petroleum and electricity sectors, integrated energy planning, support for the electricity law, and an LPG study. There was also technical assistance for all components o f the project. Relevance of Objectives 56. The project's relevance is rated substantial. The project was designed to help the urbanareas develop a more balanced, long-term, and cost-effectiveapproachto energy supply. The project helpedrestructure the main energy companies inorder to encourage greater competition and more stable energy supplies at lower cost. The project 12 was also designed to increase the access to electricity through connecting more households to the distribution systems. 57. The project i s fully consistent with the priorities inthe Country Assistance Strategy o f June 2000 (Report No. 20521 MOZ). These priorities include: maintaining an enabling private sector environment; (ii) developing infrastructure; and (iii) promoting rural development and agriculture. 58. The specific sectoral targets o fthe government's Poverty Reduction Strategy Paper are to: ensure that all district capitals and administrative posts are supplied with electricity; and to expand the national grid to connect rural areas. These sectoral targets are to help the Millennium Development Goals o f reducing child mortality, improving maternal health, and achieving universal primary education. For this project, the link with the Millennium Development Goals mainly concerns access to electricity and modern energy, which will have an impact on health, education, and other targets. 59. The project is fblly consistent with the Bank's objectives as outlined inits Energy Business Renewal Strategy. The strategy's mainpriorities are to help the poor directly, improve macroeconomic and fiscal balances includingprotecting budgets for social programs that help the poor, promote good governance andprivate sector development andprotect the environment. Efjcacy 60. The project's efficacy is rated substantial, based on the achievement o f the project's most important objectives. 61. Interms o fbringinglow-cost commercial fuels to a largenumber o fhouseholds, the results were mixedbut overall fairly good. The distribution infrastructure for liquid fbels has improved and the increasedcompetition has helped to bringthe price down. The pilot village electrification schemes were successful and more such schemes have been implemented since this project. However, the new electricity connections duringthe project were below expectations (only about 2,500) even after the mid-term review. 62. The capability and viability o f government agencies and major energy companies were strengthened. EDM, Moqacor and Petromoc have been substantially strengthened managerially and financially. Management systems have improved. This includes financial management and human resource management. There i s significantly more training available, for example. The three companies are exposed to greater competition and this has obliged them to become more efficient. Inthe electricity sector, the project financed prepayment meters, which ensured that EDMwould minimize the non-payment problem. By the end of the project 5,000 electric meters hadbeen installed and a further 15,000 were inthe installation stage. This process has continued andby 2004, 50,000 prepayment meters hadbeen installed. 63. The thirdmajor objective concerns slowing deforestation around urban areas and helping to alleviate poverty through lower cost o f fuel, developing indigenous fuels, and improving the institutional support. The Biomass Energy Unit was created under this 13 project to bothhelp forestry management and to help support the deployment o fmore efficient stoves and appliances. Many studies were conducted on charcoal production technology, aerophotographic forest inventory o f the regionnear Maputo, and fuel wood supplyoptions. The project endedbefore everythingwas on a firm foundation andthe Biomass EnergyUnitwas disbanded soon after the project closed. However, a more community-based management approach, which was starting to take shape at the end o f the UHEPproject, has moved forward through two subsequentprojects. The current one i s being fundedby the FAO. 64. The switchby urbanpopulations to lower-cost petroleumproducts didnot occur as expected since petroleumprices are still out o f reach o f most o f the poor. While cheaper on an energy-equivalent basis, people are requiredto buy and store minimum quantities o fkerosene or LPG. With wood or charcoal, they can buy intermittently based onwhat their cash flow can bear, eventhough it i s essentially more expensive. 65. Deforestationi s still a problem. There are some plantations around Maputo and other urbanareas that are important. However, inmany cases, the wood needed inurban areas i s coming from farther distances. Efficiency 66. Basedon the economic andfinancialratesofreturn,the efficiency ofthe projectis ratedmodest.The ICRstatedthat becauseof changesinthe project components from the SAR, that no ex-post ERRonthe project as awhole was possible. The main change that would affect the analysis was reducing the target for urbanhousehold electric connections from 40,000 to 4,000 andthenonly achieving about 2,500. The original ERR from the S A R was 50 percent. It appearsthat the original estimate was overly optimistic giventhe capacity ofthe GOMto managethe project, therole o fEDMandthe capacity of the BancoPopular de Desenvolvimento to provide loans. 67. For the investment insmall-rown electrification, the ICR did calculate an ex-post ERRo f 11percent. There is no reasonto change this estimate. Some villages were electrified but the demand for electricity remains low. The price o f electricity in decentralized off-grid areas i s not subject to the national electricity price, which i s uniform throughout the country andi s generally higher than the nationaltariff Institutional Development Impact 68. The institutionaldevelopmentimpactis ratedmodest.Thisproject has contributedto the institutionaldevelopment o fthe energy sector. The energy companies -EDM,Petromoc,andMoqacor-haveimprovedfinanciallyandmanagerially. Petromoc and Moqacor are muchmore effective than they were previously because o f the technical assistance they have received andthe rigors o fthe competitive liquid fuels market. But this market i s small and there are no signs that it will grow significantly in the short to medium-term: Fundamentally, Mozambique i s a poor country and the market for liquid fuels i s not developingrapidly. EDMhas made improvementsbut they have beenslow incoming and the company has continuedto relyon technical assistance. The company still has the mentality o f a monopoly position, but it i s difficult to blameEDM. 14 There are many factors at play, including the difficulty increating a competitive electricity market and the reality i s that competitionwill be minimal. There i s separation o f accounts between generation, transmission, and distribution functions and that i s a positive step inthe restructuring process. EDMhas created a nationaltransmission department that could eventuallybe transformed into a separate company. Competitors are free to go into regions where EDMi s not present, which i s acceptable to EDM officials as they believe those regions are low-potential areas. 69. At the endofthe project, the BEUwas disbanded,replacedby a community- basedmanagement unit. The forestry engineers who usedto work inthe BEUnow mainly work inthe provinces and many believe that to be a better approach. The current work i s fundedby the Dutch and the FA0 through a five-year forestry development program. Phasetwo, funded by the FAO, started in2003. The project includes local participation. The community-based management approach built on the lessons leamed from the BEUand institutionally i s on a reasonably sound foundation. 70. Theproject was complex for DNEto manage. Givenall the difficulties in implementing the project, the organization maturedwell. This has provided long-term benefits to policymaking andproject management that are still evident today. Sustainability 71. The project's overall sustainability is rated as likely. Many elements o fthe project are sustainable, most particularlythe legislativeframework for electricity and petroleum, which has already had a positive impact, for example, on the development of the liquid fuels markets for kerosene and LPG. The transmission o f electricity i s still a monopoly, but power generation has beenopened up to private investments. Therewill be further restructuringusingthese laws as the base. 72. While the initial increase inthe number o f electricity consumers was disappointing duringthis project, improvements have taken place as a result o fproject activities. The use o fprepayment meters funded through the credit have now expanded to 50,000 andwill continue to grow according to EDMofficials. The meters are beingused by about 20 percent o fEDMcustomers. Today, EDMis connectingabout 25,000 a year and there are about 230,000 customers intotal. Between 1997 and 2000, billed electricity increased from 779.2 gigawatt hours to 1013 gigawatt The bigproblem for EDM i s expanding the network. EDMi s planningto spend $300 million over the next five years for rural electrification. Most o fthe money i s coming from a variety o f foreign sources. Five years ago total electricity losseswere inthe range o f 35-40 percent. Now they are down to 23-24 percent and the company has plans to reduce them further. 73. Improvingthe capacity o f the energy companies i s important for their long-term sustainability. EDMhas two training centres inMaputo and inthe central region, and there are several in-house programs. Engineeringand financial training at the senior level, which must be done abroad, has beencoordinated with donors to ensure that training i s provided for engineers and other highlyqualified personnel under donor- 3. EDMBrochure, 25 Anos, 1977-2002. 15 fundedprojects. A large number of managers, economists, engineers andother staffhave benefitedfrom overseas training underbilateralcooperation programs with SIDA, NORAD, Electricidadede Portugal, and others. Petromoc also has started a training program. It has a humanresourcesprogram that provides scholarships to staff to complete university degrees. Since 2002, it hasprovided about 20 scholarships. 74. The financial andtechnicaVmanagement viability o fthe energycompanies is improving inpart due to this project and inpart due to further technical assistance from bilateral donors. It will be further enhancedby anew IDA credit. EDMstates that the price o f electricity i s still below the real cost but it i s primarily a government decisionto change prices. There are some basic rules for raisingprices, but they are very complicatedto implement.EDMi s also concemed about non-payments, which it i s obligatedto make good. This i s effectively a double penalty for the company and, effectively, a motivator to minimize non-payment. 75. The biomass energyprogramis sustainable now, althoughit i s debatable how much o fthis i s attributable to the UHEP project. Undoubtedly, the project was responsible for buildingup the capacity within the BEUand inthe local universitythat undertook most o f the related studies for the project. The BEUclosed soon after the end o f the project. The project had created expectations o f continuingresources for a long- term program, but the closing o f the project caused the operational money to end. Even before the end o f the project andthe closing o f the BEU, the new government in 1995 was evolving its forestry policy approach to amore community-based management o f forests. A community-based approach requireda long-term commitment and the UHEP was almost at an end. The new approach was later funded by other donors and it continues today. Nevertheless, the new approach was based on the capacity developed through and the lessons o f the UHEP. 76. Switching from wood to liquid fuels has not proven completely successful. The infrastructure for liquid fuels distributionis there and will have long-term benefits. However, with price increases, people have switched back to wood and charcoal even if they are more expensive. They can buy coal and charcoal invery small quantities, according to what money they have available. It i s an advantage to individuals but not to the country as a whole because it i s more costly for the latter. The environmental implications o f either option are probablyminimal ifbetter forestry management i s in place and more efficient stoves are used. Bank Performance 77. Bank performance is rated unsatisfactory. There were several problems with the Bank performance. First, the project design was too complex; it included too many organizations, and EDMwas not givenenough o f a centralrole (e.g., inProlec) to make it more invested inthe project's success. 78. Supervisionwas a problemduringparts o fthe implementation phase, especially inthe early 1990swhenthere was frequenttumover ofBank staff. This affectedthe continuity o f the project, particularly at a time when peace hadbeen restored and the project was beingredefined. The biomass component certainly could have benefitedfrom 16 better, specialized supervision to avoid- or at leastminimize-the problems that occurred at the end o f the project and the complete revampingo f the approach taken afterwards. Bank performance inthe latter years o fthe project improved greatly, ensuring that the legislative elements, for one, were achieved. Borrower Performance 79. Borrower performance is rated satisfactory. The ICR rated the borrower's performance unsatisfactory and a case canbe made for that. However, it i s the view o f this evaluation that the borrower's seeminglypoor performance was due inlargepart to the designo f the project, the complexity o f which exceededthe capability o f the borrower. The various elements requireda level o f coordinationand cooperation among various partners that never fully developed. For example, EDMdidnot accept its role in the Prolec component that was managedby DNE.Although inter-agency cooperation was weak, eachindividual agency's level o fparticipation inthe project was good. 80. The mainproblem comes downto designoftheproject. Although the designi s obviously ajoint effort between the Bank andthe borrower, the borrower didnot have the experience or capacity to realize that the project was more than it was capable o f handling.Fromthe borrower's perspective, there was awar and the borrower wanted to do everythingpossible to insulate the energy systemfrom the war's negative impacts. 81. The borrower has to be faulted by the delays inmeetingthe substantial covenants and for partial compliance at best at project closing. It i s hard to recreate the context at the beginningo fthe project to understand the government's reluctance to facilitate the meeting o f the financial covenants. At the time, the roles o fthe government and the state energycompanies were poorly delineated and the state energy companies hadvery poor management systems inplace. The Energy Technical Assistance and Rehabilitation Project, which was to help inthe modernization o f management and financial systems for these companies, was still underway. 82. Essentially, after initial delays and failures, many o f the partners developed no sense o f ownership inthe project and its aims. They became passive instead o f active participants. The project was too complex for the small but good staff that was available at DNE, which was coordinating the entire project. This was a major undertakingfor the organization and the Prolec program involved good cooperation with EDMandthe Banco Popular de Desenvolvimento.DNEdidnot have the necessary capacity to bringall partners together adequately and that again, inpart, was a function o f the project design. This should have beenforeseen duringthe project design stage. Findings,Lessons Learned,and Outlook Major Findings 83. The Energy Technical Assistance and RehabilitationProject was an emergency operation and has to be seen inthat context since most o f the implementationperiod 17 occurred before peacewas achieved. Implementationwas never going to be easy and this was exacerbated by delays to the beginningof the project becauseo f lack o fhousing for expatriate staff. This indicates the poor conditionthat Maputo, and Mozambique as a whole, was in.While not described as an emergency operation, the UHEP followed soon after the first project and was affected by the difficulties o f operating ina post-conflict country. Also, the UHEPwas designedto help urbanareas, which were least affected directly by the civil unrest but were forced to change their energyhabits because o fthe war. The urbanarea, like the rest o fthe country, is highlydependent on wood for fuel. Because o f the dangers involved inventuringtoo far away from the urban areas during the war, there was widespread deforestation closer to them. The project was designed to increase wood supply, improve the efficiency o fwood and charcoal use, increase the availability o f affordable liquid fuels, and to increase the penetrationo f electricity to new customers. To do so, a number o f reforms were also required. These included improving the financial andmanagerial capability ofthe main energy companies and increasing competition inorder to lower costs o f supply. This requiredsome legislative actions. 84. Together the two projectsprovided some buildingblocks for developing a sound energy infrastructure and balanced energypolicy. Bothprojectsprovided significant technical assistance to the energy companies and bothprovided support for getting those companies on a sound financial andmanagement foundation. 85. The UHEP, inparticular, movedbeyondthe energy infrastructure into policy development andprogram management. These are not easy for any country but were particularlydifficult for Mozambiquewhere there was limitedhuman and financial capacity and little tradition inpolicy development andproject management. It has been argued byPaul Stern4and others that energypolicies have to be seen as experiments because even with the best planningone can still never be certain o f the outcome. This i s definitelythe casewith the Prolec component ofthe UHEP, but canbe equallytrue for other elements o f the projects. 86. Overall, the technical assistancehas provenvery important. The most important part o fthe legacy appears to be the annual preparation o fthe financial situation o fthe energy companies, which continues today. One o fthe faults o f the technical assistance was that there was too much to manage and absorb ina short period o ftime for a small group o f officials. While it i s important to be ambitious, there are limitations. The staff o f the energy companies and the DNEi s good but it i s still not large. The companyhas an in-house training program and some engineeringand financial training at the senior level i s undertaken abroad. 87. Bothprojects providedneededassistance to EDMandPetromoc inparticular, but also to other energy players. Inthe petroleum area, the market i s hnctioningquite well and there is good competition. The problem is that the marketi s so small andthis makes it difficult to investintheregions where there is little demandandthat is unlikelyto change inthe foreseeable future. 4. Paul Stem and Elliot Aronson, editors, Energy Use: The Human Dimension, Washington, National Research Council, 1984. 18 88. Today, the staffo f these organizations i s better equipped to manage the companies. Nearly all EDMstaff are now Mozambicanand about 6% holduniversity degrees. 89. One issue that came up repeatedly duringthe assessmentmission was energy as a public service. BothEDMandPetromoc officials expressedtheir public service obligations to provide energy throughout the country and at prices they do not necessarily have full control over. EDMindicatedthat the price o f electricity was below its real cost and that it was obliged to electrify some villages eventhough it was not inthe company's interest to do so. It i s a delicate balancingact betweenproviding (subsidized) public service and energy sector reform that has to be monitored carefully, especially inthe context o f achieving poverty reduction goals. 90. Although these projects had good objectives, they were too ambitious and too complex, giventhe human capacity within the administrationand energy companies as well as the context of civil war. Thewar endedduringthe implementationofthe Energy Technical Assistance andRehabilitationProject and, as a result, some changes were made to the project components. These changes responded to some of the implementation problems, but the changes were too little, too late. Lessons Learned 91. The lessons from the experience ofthese projects reinforce those o f other OED evaluations: 0 The objectives o f short-term emergency assistance and mediumto long-term institutional development and policy assistance are sufficiently different that they should be treated inseparate operations. The benefits o f energy sector reform needto bebetter explained to decision-makers, managers o f energy companies, opinion leaders and the population as a whole inorder to buildtheir ownership and support. Care must be givento adapt the scale and complexity o fprojects to ensure that the borrower has the capacity to both manage the projects and absorb the information and lessonsthat are derivedfrom them. Bank supervision teams needto have the necessary range o f expertise to deal effectively with the major project components. This was true for boththe power sector component and the biomass energy component o f this project. 0 Movinga country from a traditional-fuel based energy system to one that provides modern energy services to a significant portion o f the populationrequires a long-term strategy that goes beyond the specifics o f any one project. Outlook 92. For all their shortcomings, the projects were very important, giventhe circumstances at the start o f implementation. Work continues to build on the technical assistance from these projects. There are now projects with Denmark, Norway, and Sweden, inparticular. There i s also a new IDA credit that recently started that will continue with the development ofthe electricity system. 19 93. Mozambique i s undergoing major growth andthe energy companies are seen as an important component for supporting such growth. Energy access i s still very low, yet economic growth is demanding reliable energy supplies. Care needs to be given to ensure that the larger social goals and poverty reduction are not lost inthe pressure to provide modern energy to the growing new industries. With the support o f these two projects, the policies are inplace and overall the outlook for the energy sector i s positive. 21 Bibliography EnergySector Assistance Program, Mozambique: Issues and Options in the Energy Sector, Report No. 6128-MOZ, UNDP/World Bank, January 1987 ESMAP,Mozambique: Household Electricity Utilization Study, ReportNo. 113/90,March 1990. ESMAP,Mozambique: Sample Suwey of Low VoltageElectricity Customers, Report No. 195197, June 1997 OED, Powerfor Development,A Review of the WorldBank Group's Experience withPrivate Participation in the Electricity Sector, Washington, 2003. Paul Stern and Elliot Aronson, editors, Energy Use: TheHuman Dimension, Washington, NationalResearch Council, 1984. World Bank, A Brighter Future? Energy in Africa's Development, A Sector Strategy for the WorldBank Group, undated. World Bank, Energy and MiningSector Board, The WorldBank Groups Energy Program - Poverty Reduction, Sustainability and Selectivity, December 2001. 23 Annex A Annex A. Basic Data Sheet ENERGYTECHNICAL ASSISTANCE AND REHABILITATIONPROJECT Component Appraisal Actual* Actual Percentage Share PowerSystem Maintenanceand 6.5 2.9 54.3 Rehabilitation Transport Equipmentfor EDM 1.8 1.5 82.3 PetroleumSystem Maintenance& 3.1 3.1 118.9 Rehabilitation Transport Equipmentfor Petromoc 3.1 0.6 18.7 TechnicalAssistance 12.3 10.1 92.4 Lithuli Building 0.8 ProjectPreparationFacility 1.I 1.I 100.0 Contingenciesand Interest During 3.9 Construction Total Project Cost 31.8 20.1 74.6 *IDA costs only Source Appraisal Estimate Actual IDA 20.0 20.1 NORAD 5.0 5.4 GOM and energy companies 6.8 NIA Total 31.8 25.5* * Onlyforeign costs CumulativeEstimatedandActual Disbursements(in US$million equivalent) FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Appraisal 3.1 10.0 12.4 15.9 19.7 20.1 Estimate Actual 2.6 2.6 3.3 6.7 11.9 17.2 18.9 20.1 Actual as % of 83.4 26.0 26.6 42.1 60.4 85.6 94.0 100.0 estimate 24 Annex A Original Actual ~ 1 1 -~ ^,,"--I____ Negotiations January 1987 April 13-17, 1987 Board Presentation February 1987 May 26,1987 Effectiveness October 24, 1987 November 30, 1987 Closing Date December 31, 1992 December 31, 1994 Acfual No. Actual US$ -~ ~- Staff Weeks (000s) Pre-appraisal 23.9 NIA Appraisal 24.7 NIA Negotiations 5.9 NIA Supervision 87.1 NIA Completion 5.2 NIA Total 146.6 NIA Mission Data Performance rating (month/year) Date persons No. of Specializationsrepresented Implementation Development status objectives Appraisal through July 1986 4 ECN Board approval Supervision 1 September 1987 2 ECN, FNA No 590 Supervision2 February-March 1988 1 FNA 1 1 Supervision3 August 1988 1 FNA 1 1 Supervision4 November 1988 1 FNA 1 1 Supervision5 April 1989 1 FNA 1 1 Supervision6 November 1989 2 FNA 2 2 Supervision7 April-May 1990 2 EGR, FNA No 590 Supervision8 October-November 1990 3 EGR, ECN, FNA 2 3 Supervision9 February-March 1991 1 FNA 2 3 Supervision 10 October 1991 3 EGR, ECN, FNA 2 3 Supervision 11 May 1992 1 ECN No 590 Supervision 12 August 1992 1 FNA 2 3 Supervision 13 October-November 2 ECN, FNA 2 2 1992 Supervision 14 March 1993 2 FNA No 590 Supervision 15 July 1993 1 FNA 2 2 Supervisi6n 16 November-December 1 FNA 2 2 1993 Supervision 17 March-April 1994 1 FNA 2 2 ICR May 1995 1 ECN B Y :EGR=Power Engineer; FNA=FinancialAnalyst; ECN=Economist; OPN. 25 Annex A URBANHOUSEHOLDENERGYPROJECT Component Appraisal Actual Actual Percentage Share l_-l-ll_--.l - I - ~ ~ - _ EDM 20.60 16.71 81.I Petromoc 2.50 6.24 249.6 MOCACOR 0.87 0.33 37.9 DOE 9.36 13.14 140.4 Prolec 11.61 5.20 44.8 Commercial Energy 4.37 0.30 6.9 Program Fuel Imports 30.0 0.0 0 Interest During 1.49 0.69 46.3 Construction Total Project Cost 80.8 42.61 52.7 Source Appraisal Actual - Estimate IDA 22.0 20.35 Government of Denmark 3.0 0.0 Badea 10.0 8.19 Nordic Development Fund 5.70 5.55 Moz. Companies 8.90 3.08 GOM 1.20 5.43 Total Project Finance 50.80 42.61 Commodity Aid Funds by SIDA, Norad and IDA 30.0 NIA Total 80.80 NIA CumulativeEstimatedand Actual Disbursements(in US$million equivalent) FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 Appraisal Estimate 3.8 5.9 10.8 14.8 18.3 20.6 21.8 22.0 - Revised 3.2 3.2 5.2 6.6 8.8 10.7 13.0 16.9 22.0 Actual 3.2 3.2 5.2 6.6 8.8 10.7 13.0 15.0 20.4 Actualas%ofestimate 84 54 48 45 48 52 60 68 Original Actual Negotiations February 1989 April 1989 Board Presentation March 1989 June 1989 Effectiveness December 1989 April 1990 Closing Date December 31, 1996 April 30, 1998 26 Annex A Actual No. Actual US$ Staff Weeks (OOOsl Preparation and Appraisal 41 90 Appraisal to the Board 6 14 Board to Effectiveness 12 34 Supervision 158 518 Completion 229 799 Total 446 1455 Mission Data Performance rating (monthbear) Date persons No. of Specializations represented Implementation Development status objectives Supervision 1 November 1989 2 FA S S Supervision2 May 1990 3 FA, PE, RE S S Supervision 3 November 1990 3 FA, EC, RE S S Supervision4 March 1991 1 FA S S Supervision5 October 1991 3 FA, PtE, EC us S Supervision6 August 1992 1 FA us S Supervision7 November 1992 2 FA, EC us S Supervision8 March1993 2 FA S S Supervision9 July 1993 1 FA S S Supervision 10 December 1993 1 FA S S Supervision 11 April 1994 1 FA S S Supervision 12 December 1994 2 FA, EC S S Supervision 13 June 1995 4 FA, EC, PtE, PE S S Supervision 14 November 1995 4 FA, EC, PE, RE S S Supervision 15 March1996 3 FA, EC, PE S S Supervisi6n 16 October 1996 3 FA, EC, PE S S Supervision 17 June 1997 3 FA,. EC, RE S S Supervision 18 February 1998 2 EC, RE S S ICR .~ Mav 1998 3 FA.,EC.,RE S S KEY: FA=Financial Analyst; EC=Economist; PE=Power Engineer; PtE=Petroleum Engineer; RE=Renewable Energy Specialist. Performance Rating: S=Satisfactory; US=Unsatisfactory. 27 Annex B Annex B. Borrower Comments World Bank OperationsEvaluation Department Att: Mr.Alain Barbu Washington DC -U.S.A. __.._I "aderCncia V o w Comunicaqia de Data 143/cAf3004 06/09/2004 Assunto: Re. Mozambique - Enerev Technical Assistance and Rehabilitation Proiect lCredit 1806- M a Urban HouseholdE n e r w Proiect (Credit 2033 -MZ) c-ommentsto the Performance Assessment Report Dear Sir, We refer to your Draft Projcct Pbrformance Assessment Report submitted to us for comments onAugust 18,2004. As such, pleasedh dbellow the commcnts wc arc plcasedto submit to you: 1. Inparagraph (24), page (S), it states that the Mozambique officials did not remembm anything about the project and virtually no one that worked on the project was around. We would like to mention that most of the former coordinators o f the EDM componcnts for both projects are still around and they would have given their contribution to the missionifwe were requiredto make them available; 2. Inparagraph(38), page (8), we wouldnot agree completely with therating. Ourpoint of view is that the Tnstitutional Dcvclopmcnt of EDMhas comprchcndcd an impact much more significant compared to the one described in the report. In fact, various management systems for different areas were introduced in EDM in the early 90's. Following arc some examples introduced between late 80's and early 90's: i)Thc ProjectPlanningSohare, which has improved considerably the performanceo f our Enginewing Dcpanmcnt at preparing the project documcnts for thc Donors; ii)the 28 Annex B Stock Control Somare which has helpedthe accounts of EDMto become auditable; iii)the Perfonnancc Evaluation Systcmwhich has scrving as anextremelyuseful instrument for staffmanagement; and others; 3. Inparagraph (39), page (8), we would only like to add NORAD, NDF, BADEA, KFW, BADto Donorscontinuingto deliver importantTechnical Assistance to EDM; 4. Tn paragraph (73) we have two notes: i)Apart from the training centre of Maputo, EDMhas onemoretrainingcentreinthe central region, at Chimoio city, ii)of course most of the training courses for engineering andfinancial at the senior level do takc place abroad. What is not completely true inthe report is the difficulty to implement it. In fact, EDM has always managed to coordinate with Donors and to ensure training programs for engineers and other high qualificd personnel involved in projects hnded by various Donors over the years. A large numbcr of different high qualified senior staff including Managers. Economists, Engineers and others have benefited from ovcrsca training over thc ycars under bilateral cooperation with SIDA, NORAD, EDP from Porhrgaland others; 5. The paragraph (88) states that EDM is today heavily dependant on cxpam'atc staff, which is not an updatedpicture. This is the situation the EDMusedto be in thc past. The real situation for today i s completely different, the whole 100% of personnel are r r \ Mozambican and about G% of which are qualified and hold universitydegrees. Yours sincere Vicente I e unia Veloso -- Chairman of E ecutive Board MF