Document of The World Bank Report No: ICR00002995 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-90206, TF-90207) ON A GPOBA GRANT IN THE AMOUNT OF US$ 5.18 MILLION TO THE PLURINATIONAL STATE OF BOLIVIA FOR A PROJECT December 24, 2013 Sustainable Development Department Bolivia, Ecuador, Peru and Chile Country Management Unit Latin America and the Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective October 5, 2013) Currency Unit = Bolivianos (Bs.) 1.00 Bs. = US$ 0.14 US$ 1.00 = 6.96 Bs. FISCAL YEAR January 1—December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan MTR Mid term review CAS Country Assistance Strategy MSC Mid-term Service Contract CO2 Carbon dioxide MSE Micro and Small Enterprises EA Environmental Assessment NPV Net Present Value GOB Government of Bolivia OBA Output-Based Aid GPOBA Global Partnership on Output-Based Aid O&M Operation and Maintenance ICT Information and Communications OTM Technical Office for Monitoring (Oficina Technology Técnica de Monitoreo) IDA International development Agency PAD Project Appraisal Report IDTR Decentralized Infrastructure for Rural PCU Project Coordinating Unit Transformation Project IERR Internal Economic Rate of Return PDO Project Development Objectives IP Implementation Performance PPP Public-Private Partnership IPDF Indigenous Peoples Development PV Photovoltaic Framework ISR Implementation Status and Results Report SHS Solar Home System KPI Key Performance Indicators TA Technical Assistance kWh Kilo-Watt-hour VMEEA Vice Ministry for Electricity and Alternative Energy M&E Monitoring and Evaluation Wp Watt-peak WTP Willingness to Pay Vice President: Hasan Tuluy Country Director: Susan Goldmark Sector Manager: Malcolm Cosgrove-Davies Project Team Leader: Lucia Spinelli ICR Team Leader Enrique Crousillat BOLIVIA CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 4 3. Assessment of Outcomes ............................................................................................ 9 4. Assessment of Risk to Development Outcome......................................................... 10 5. Assessment of Bank and Borrower Performance ..................................................... 11 6. Lessons Learned ....................................................................................................... 12 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 12 Annex 1. Project Costs and Financing .......................................................................... 13 Annex 2. Outputs by Component ................................................................................. 14 Annex 3. Economic and Financial Analysis ................................................................. 15 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 17 Annex 5. Beneficiary Survey Results ........................................................................... 19 Annex 6. Stakeholder Workshop Report and Results................................................... 19 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 20 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 20 Annex 9. List of Supporting Documents ...................................................................... 21 INSERT DATA SHEET HERE AFTER APPROVAL BY COUNTRY DIRECTOR AN UPDATED DATA SHEET SHOULD BE INSERTED MANUALLY IN HARD COPY BEFORE SENDING A FINAL ICR TO THE PRINT SHOP. NOTE: The Data Sheet is generated by the system using the information entered in the Operations Portal each time you use “Send Draft�, “Print� or “Submit Final� functions. 1. Project Context, Development Objectives and Design 1. The Decentralized Electricity for Universal Access Project, comprising two GPOBA Grants (TF090206 and TF090207) for a total of US$ 5.175 million was approved on July 2, 2007 and became effective on September 26, 2007. The original closing date —June 30, 2010— was extended three times throughout the implementation of the project. Final closing date was June 30, 2013. 1.1 Context at Appraisal 2. With an average nominal income of $960 (2004) and a poverty rate in rural areas (where about 40 percent of the population lived) of 82 percent, Bolivia was at the time of appraisal the most economically challenged country in South America. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 4. The Project Development Objectives, as approved in 2007, were to increase affordable access to electricity in remote rural areas of Bolivia. To this end the project was expected to: a. Extend sustainable electricity access to at least 7,000 households, micro-enterprises, schools and/or clinics in remote and dispersed rural areas using solar home systems at a subsidy of $650 per unit, and develop basic improved lighting solutions at a subsidy of $150 per unit for an additional estimated 2,000 very poor households (therefore directly benefiting an estimated 9,000 households, or 45,000 people). 1 b. Consolidate and mainstream a mechanism for electrification of dispersed households in Bolivia using output- based “Service Contracts� with private sector for the provision of electricity with decentralized, renewable energy technologies under the framework of the Government’s universal access policy. 5. Key outputs of the project were: 4. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 6. No changes were made to the PDO or any related performance indicators. 1.4 Main Beneficiaries 7. The beneficiaries of the project identified at the design stage were an estimated 45,000 low-income people (mostly indigenous) living in the rural dispersed areas of Bolivia. The project was aimed to address the needs of new areas not covered by the former IDTR project. In addition, it was foreseen that the poorest households who would not be able to afford the subsidized solar home systems fees would always benefit from the electrification of rural schools and health posts as well as from the multiplier effects of electricity in making possible rural business. 8. It was also expected that the project would benefit the private sector in enabling the creation of sustainable business operations through medium-term service contracts and the expansion of the market for renewable energy equipment. Also, central and departmental governments were expected to benefit through the achievement of their rural electrification targets. 9. While on a relatively limited scale, the project was expected also to provide global benefits through the reduction of greenhouse gas emissions. 1.5 Original Components (as approved) 10. The project’s components originally approved in 2007 were the following: 2 3 1.6 Revised Components 17. While the nature of the project components remained unchanged, savings stemming from a successful bidding for SHS made possible an increase in the total number of SHS and Pico-PV systems delivered, as well as an increase in the allocation of funds for the TA component. In practice, this involved the incorporation of 1,650 Pico-PV systems into the bidding process (and budget) of Component 1, together with 126 solar systems for public buildings (schools) that were not contemplated initially. A final reallocation of loan proceeds was formally agreed in March 2013 as part of the third project re-structuring, as shown in the following table. Funds allocation (in US$) Original allocation Amendment of March 2013 TF090207 TF090206 TF090207 TF090206 Component 1 1,380,000 3,220,000 1,380,000 3,220,000 Component 2 90,000 210,000 90,000 103,805 Component 3 82,500 192,500 82,500 298,695 Total 1,552,500 3,622,500 1,552,500 3,622,500 1.7 Other significant changes 18. The original closing date of the project was June 30, 2010. In October 2007, legal documents were amended to adapt them to the new organization of the Government of Bolivia (i.e. to move the PCU, including its staff, from the Ministry of Public Works, Services and Housing to the Ministry of Hydrocarbons and Energy). Further amendments extended the project’s closing date in three occasions till June 30, 2011, March 31, 2013 and June 30, 2013 respectively. Also, the design of the project was amended twice in order to reduce the service contract period for SHS (starting immediately after installations) from four years to three years and, then, two years. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. The project was designed following the Output-Base Aid (OBA) approach of its predecessor IDTR, approved in 2003. It incorporated general lessons on service contract design as well as lessons specific to the IDTR transaction that was under implementation. These included the importance of market information in ensuring the sustainability of SHS systems, 4 awareness of the high risks associated to long term exposure of providers, the need for transparent tender processes, the potential of SMEs in ensuring long-term sustainability and the importance of setting up an adequate incentives system for market development as well as establishing an accurate monitoring system. 20. The project was designed to maximize the benefit of available resources by adopting an OBA through which: (i) payments to private or public operators were made against functioning services; (ii) the bidding process aimed selecting a responsive bidder that minimized the use of the subsidy per unit, thus maximizing the number of installations. By that time, this approach was being tested in the IDTR project and had been applied in other Bank projects elsewhere. 21. Although at the time of project preparation the Bank had accumulated considerable experience in the implementation of rural electrification involving private-sector participation, the project assessment recognized that a project in Bolivia in general, and an intervention in rural areas in particular, could confront a set of exogenous obstacles. Economic and/or social instability were rated as high risk at appraisal, as well as political interference that could affect project implementation and the withdrawal of support to PPPs in infrastructure. These risks (that could not be mitigated by the project itself) were correctly diagnosed at appraisal and, to greater or lesser degrees, affected project implementation. Given this situation, attracting private-sector participation as service providers was indentified as a main challenge. In hindsight, it can be argued that, given the perception of high risk associated to external factors, the original project design that required a four-year commitment of SHS service providers after installations was overly optimistic. 22. The project was designed to rely on the institutional structure already in place for the IDTR project, for which a PCU had been established 2003 and was operating satisfactorily in most areas (except perhaps financial management). It was decided also to follow the same procurement and financial management resources and procedures in order to reduce institutional transaction costs. 2.2 Implementation 23. The GPOBA grant was approved on July 2, 2007 and became effective in less than three months. This quick start contrasted with a prolonged slow-down that prevented any significant progress during almost three years and ultimately required three extensions to ensure the project’s compliance with its development objectives. The perception that the project constituted a ‘bridge financing’ or transition between IDTR and a follow-up operation (IDTR II), may have been the cause of the lack of attention given to the project by authorities. That is, as the IDTR project was also delayed –and, hence, both projects co-existed during a few years– most efforts were allocated to the completion of the IDTR, presumably because of a management capacity constraint as well as the perception that there was no need expedite the implementation of the GPOBA. This delay raised doubts on the Government’s political will to support the project during its initial years and led the Bank to consider the possibility of its cancellation. 24. Prior pre-qualification of bidders, Component 1: SHS service contracts, that comprised 89 percent of the project budget, was bid in 2008 following the original project design that required a four-year commitment from service providers after installations. This process did not attract enough competition and was subsequently closed. After adjusting bidding conditions (i.e. reducing the service contract period to two years –as it was done also for the IDTR– and, hence, reducing risks to the service provider) a new bidding process was launched in 2010. Three competitive bidders responded but, due to further delays associated mostly to the extension of the grant, one bidder withdrew. Eight contracts were finally signed in November 2011. These included, in addition to the SHS, 1,650 Pico-PV that were incorporated into the service providers’ 5 obligations. The bidding process succeeded in achieving a lower subsidy level per unit, thus allowing a larger number of SHS installations. Furthermore, savings in the grant proceeds were used in bidding an additional number of Pico-PV systems in 2012. Overall, project implementation involved eleven contracts, including the said eight contracts for SHS, two for Pico-PV systems and one for public schools (Annex 2). 25. The average subsidy for SHS system resulting from the bidding process was US$479 per unit (as opposed to US$ 650 considered at design). The subsidy for Pico-PV units was US$ 20. Upon acknowledging that users could not afford paying entirely the local contribution (estimated at US$ 390/unit at design), municipalities and departmental governments covered an important part of these costs. Actual payment of users was reduced to about US$ 100 per unit as an average. The mobilization of additional resources to cope with the limited affordability of users was instrumental in the success of the project. Overall, local contribution exceeded by 10 percent the original target (see Annex 1) and project outcomes also surpassed appraisal estimates. The Project closed with the installation of 7,700 SHS systems and 5,705 Pico-PV systems, exceeded planned outcomes by 10 percent and 158 percent, respectively (Annex 2). 26. While the support of local government was instrumental for a successful bidding and implementation, it required also the signing of inter-institutional agreements to establish financial and legal responsibilities of each party. These agreements, plus the need to extend the project’s closing date and the difficulties faced by the PCU in obtaining permits from other government agencies, became important factors of delay. 27. Another factor of delay was the temporary but frequent understaffing of the PCU in several areas, but in particular in financial management, in spite of the continuous support (technical and financial) and pressure exerted by the Bank to fix this problem. This shortcoming was reflected in the project ratings for implementation project (IP). Throughout its implementation, IP ratings varied from satisfactory to moderately satisfactory, with the exception of some periods when it was downgraded to unsatisfactory levels (MU or U) either for the overall IP or for financial management, procurement and project management. At project close, overall IP was MU, in spite of the remarkable progress made during the last twelve months, thus reflecting the institutional weaknesses faced during implementation and the poor performance of initial years. It should be noted, however, that the project’s final rating for Development Objectives was Marginally Satisfactory. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E was recognized since the implementation of the IDTR project as a key factor in following performance. Accordingly, under IDTR a technical monitoring office was organized (Oficina Técnica de Monitoreo—OTM) with the purpose of overseeing contracts, performance indicators and risks. M&E activities include 29. The OTM was organized with a unit director, a PV/SHS specialist, a grid densification specialist, and an information and geo-positioning specialist, staff that was supported by eight field supervisors. The OTM is aimed at channeling user complaints and controlling quality, both at the installation and customer service levels. It also or mainly oversees quality and contractor 6 performance. The OTM is responsible for collecting project information, and controlling monitoring parameters. The OTM ensures that the Project is present and visible in the field, ensuring channels of communication with the users, and helping to strengthen communication with local officials. 2.4 Safeguard and Fiduciary Compliance. Safeguards. Environmental Safeguards. However, the Project triggered OP 4.01 and was categorized B for environmental impact in consistency with the then ongoing IDTR project. Environmental safeguard compliance was rated satisfactory or moderately satisfactory throughout the whole implementation of the project. 33. Social Safeguards. The Project triggered OP 4.10 on Indigenous Peoples since the Compliance with OP 4.10 was rated satisfactory or moderately satisfactory throughout the whole implementation of the project. Fiduciary a) Financial Management. The operation of financial management arrangements was considerably affected by adjustments and internal reorganization processes within the implementing entities; as well as high staff rotation not only in the Project Coordinating 7 Unit, but also in the Ministry's Administrative and Finance Unit. Lack of experienced and qualified staff for prolonged periods resulted in outdated and inaccurate accounting records thereby affecting the quality of financial information during the initial years. Consequently, Financial Management performance was rated unsatisfactory or moderately unsatisfactory during a period of one year (2010). Although during the last years a more stable institutional environment was in place, the dynamics between the PCU and Ministry of Hydrocarbon and Energy were still difficult resulting in bureaucratic and cumbersome procedures. Project performance, as it relates to Financial Management, significantly improved towards the end, thus permitting an orderly project closing. b) Procurement. The Project Coordination Unit was responsible for the procurement activities and the contracting process. Overall, responsibilities were handled in a satisfactory manner in spite of a very slow start caused by institutional weakness and a limited market response to the first bidding process. The technical Unit was in charge of defining technical specifications, preparing terms of reference and contract contents, evaluating offers and bid proposals and managing each signed contract. Problems faced during the initial bidding, which were associated to the difficulties in attracting quality bidders, were addressed satisfactorily through the amendment service contracts. However, this process was complicated by the linkages between the two projects (e.g. Bank’s no objection was conditioned to the extension of the projects closing dates) slow internal approvals and the need for inter-institutional agreements upon the participation of departmental governments and municipalities, less than optimal communications between public entities and shortcomings in staffing, thus resulting in an unusually long process. 2.5 Post-completion Operation/Next Phase the equipment installed under the SHS component, and its satisfactory operation, has a guarantee of two years backed by warranty policies that include maintenance and the replacement of defective equipment. Contracts for service providers stipulate that the full service is paid during the implementation phase, subject to confirmation of a satisfactory service, and no payments are made after installation. This ensures appropriate technical, financial and institutional support during a period of two years. Furthermore, a contractors’ guarantee is being held by the Bolivian authorities to assure contract compliance with maintenance requirements. Project design contemplated that, that approved the rules and regulations for Rural Electrification, together with Bolivian norms for PV installations. 8 37. While there may be some degree of uncertainty regarding which would be the operation and maintenance (O&M) conditions after the expiration of the two year guarantee period, it is expected that the Government’s continued support to rural electrification and, in particular, to the development of SHS nationwide, would offer the resources and delivery models to guarantee a sustained operation of the existing installations. It is also expected that in a near future distribution companies will be engaged in providing this service by law. 38. It is planned to conduct a beneficiary assessment for the project, and its predecessor IDTR project, 12-18 months from project closing in order to assess the effectiveness of the project and to monitor closely the sustainability of these projects. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Rating: Moderately Satisfactory 39. The project’s objectives and outcomes –which translate into improved living conditions for the targeted rural population– continue to be relevant, particularly given current country priorities, i.e. Government’s programs strongly emphasize improved living conditions and empowerment of rural and particularly indigenous people, including the objective of reaching universal electricity access by 2025. There continues to be a large population in Bolivia that lacks electricity. 40. The project’s design was clearly oriented towards improving rural living conditions and followed the experience, and relied on the institutional set up, of the ongoing IDTR project. In particular, it incorporated the lessons in implementing an OBA approach through medium-term service contracts that: (i) mobilized private service providers; (ii) ensured an effective operation and maintenance during the initial years of operation; and (iii) provided adequate training to customer in the use and basic maintenance of the installed equipment. Implementation of the project followed the original design with a few amendments to adapt it to market conditions. However, the OBA contracts designed for a 4-year post-installation maintenance guarantee proved to be overoptimistic and the M&E framework was insufficient. 41. The project was fully integrated with the Bank’s assistance strategy. In particular, the emphasis on rural and indigenous populations provided by the project reflects the Interim Strategy Note (2009) which led to a fast adaptation to the Government’s priorities, as well as objectives such as: (i) identifying shared goals and priorities, (ii) working with the fragile capacity of Government teams; (iii) continue the focus on shared priorities; (iv) to consider additional support for government teams in the preparation and implementation of projects; (v) avoid the fragmentation of projects and focus on a limited number of simple projects with clear objectives, well defined, measurable and realistic time frames for implementation; and (vi) continue to work to strengthen the long-term commitment of the World Bank in the country. 3.2 Achievement of Project Development Objectives Rating: Moderately Satisfactory 42. The project development objective was to increase affordable access to electricity in remote rural areas of Bolivia. In spite of an unusually slow start associated to political changes and institutional weaknesses, the project had a very strong finish that is reflected in the full achievement of all renewable energy installations and posterior service through medium-term 9 service contracts. The project also helped consolidating a mechanism for electrification of dispersed and poor households in Bolivia as the two service providers operating under contracts are well established in rural areas and in a position to continue providing their service. The outputs by components are shown in Annex 2, together with the achievement of indicators. The project was restructured to adapt it to new organizational conditions, allow more time for its completion and reduce the service period. However, the latter amendment implied a tradeoff between an effective project implementation and sustainability. 3.3 Efficiency Rating: Satisfactory 43. In spite of a very slow start, the Project was conducted efficiently overall, particularly during the last year of implementation. The design of the component on Solar Home Systems favored efficiency, as the selection of services providers was based on an optimal use of the proposed subsidy (i.e. maximizing the number of connections for a given subsidy). On this basis, the average subsidy per SHS dropped to US$479 (from US$ 650) thus allowing a larger number of SHS installed and, prior re-allocation of funds among components, the distribution of a much larger number of Pico PV. Overall, it is estimated that the Project directly benefits around 55,000 to 60,000 people, i.e. an increase of about 30 percent compared to what was originally planned. 44. An ex-post economic evaluation of the project, using actual data on costs, early benefits and most recent market studies, yielded the following results (details in Annex 3): an internal economic rate of return (IERR) of 17.3 % and a net present value (NPV, at 12% discount rate) of US$1.87 million. These results are based on a conservative forecast for future energy consumption (8.5 kWh per month per household). In the case that such consumption would reach 12 kWh/month, the IERR would be 23.4 percent and the NPV US$ 4.24 million, indicating the high sensitivity of the project’s economics to the future consumption of solar energy. The results obtained are similar to the estimates made at appraisal, which gave an IERR of 19.2% and NPV of US$1.72 million. 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 45. Taking into account the confirmed relevance of the project’s objectives, and the progress made in surpassing most of these objectives both in the physical side and the benefits to customers (confirmed by the economic analysis) the overall outcome rating is considered Moderately Satisfactory. The project had a strong finish after a slow start. The original model was amended in order to reduce risks to services providers and subsequent costs. However, these amendments, that included shortening the period for service contracts, implied a tradeoff between expediency and sustainability that may have an impact on the project’s operational sustainability. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 46. Through its design and execution, the project is helping to improve the living conditions of around 55,000 to 60,000 people, mostly indigenous, in rural areas. The social impact associated with providing lighting to schools is also worth noting. Also, the project is having positive gender consequences particularly through improved lighting that allowed more productive hours and better safety conditions. Further, the project interacted strongly with local communities and communal organizations, thereby developing a sense of ownership among beneficiaries. 10 (b) Institutional Change/Strengthening 47. The effort in implementing the project under difficult conditions, including an OBA approach, has contributed considerably towards strengthening the capacity of the implementing agencies in dealing with the contracting and monitoring of electricity services in rural areas. (c) Other Unintended Outcomes and Impacts (positive or negative) None were detected. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not Applicable. 4. Assessment of Risk to Development Outcome and Global Environment Outcome Rating - Overall: Significant. 48. As noted above (section 2.5), the sustainability of the project’s outcome –i.e. the benefits of increasing affordable access to electricity in remote rural areas of Bolivia– will rely mostly on an adequate operation and maintenance of the solar energy (SHS) installations. This is ensured for the first two years of operation through the existing service contracts. Accordingly, providers are expected to take care of the O&M of the systems and 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 50. The project was carefully prepared by taking into account the particular needs of the rural population in Bolivia and the lessons of the then ongoing IDTR project. The risk ratings were consistent in balance with what actually transpired during project execution and the bidding method incorporated strong efficiency incentives. However, the monitoring framework was too extensive to be used in a practical manner and lacked quantitative values. Also, the proposed OBA contracts included an apparently optimistic 4-year post-installation maintenance guarantee 11 that was not achievable. This required the amendment of the SHS contracts to attract an adequate number of service providers and ensure the main component’s implementation. (b) Quality of Supervision Rating: Satisfactory 51. During project execution the Bank maintained a constant presence in supervising the project, with two or more supervisions a year, and provided help to overcome the different difficulties encountered, particularly the project’s very slow start and failure of initial bidding initiatives. The project team responded in a timely and flexible manner in re-allocating the grant proceeds saved during the first bidding process. Also, it made a remarkable effort –together with the local counterpart– during the last year of implementation and ultimately succeeded in surpassing the expected outcomes and almost fully utilizing the grant proceeds (99 percent) within a very tight timetable. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory. This rating combines the ratings for project preparation and supervision. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 52. The changes in GoB impacted project performance and generated an unstable institutional environment during the initial years; however, the Government always provided the required support to the project (e.g. counterpart funds) and its development objectives. The Government’s support to rural electrification was prioritized in 2008, when the Electricity Program for Living with Dignity (Programa de Electricidad para Vivir con Dignidad) was issued as the National strategy to reach Universal Access by 2025. The GPOBA project, together with the previous IDTR project, were important components of the said program. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 53. Although the PCU experienced rotations mainly at the director level and fiduciary staff (financial management and procurement), it managed to maintain a core of qualified staff and to advance the project, and it ultimately achieved the project’s goals as measured by performance indicators. The PCU acknowledged the importance of supervision in the field and allocated important part of its resources (through the OTM) in doing so. Its efforts were intensified during the last year of implementation and, in close coordination with the Bank’s team, succeeded to meet its targets within a very tight timetable. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 54. Combines the ratings for Government and Implementing Agency. 6. Lessons Learned 55. The following lessons address areas that require special attention in the design and implementation of future OBA and rural electrification projects. 12 56. An OBA approach complemented by medium-term service contracts incorporates efficiency incentives and helps guaranteeing an adequate electricity service during a specific period, however, achieving sustainability may require other long term approaches. The project succeeded in installing a large number of SHS in remote areas and in guaranteeing a satisfactory operation during a period of two years after installation, however, there are concerns about the sustainability of these systems after the said period, i.e. at the termination of the medium-term service contracts. In particular, the situation would be aggravated after four to five years, when most batteries will need replacement. Long-term sustainability of SHS is a challenge yet to be resolved that requires an objective assessment during the preparation phase and a project design oriented towards a greater involvement of local communities and/or the long-term involvement of a utility or electricity service provider (as is being envisaged for the IDTR II project under preparation). 57. Local commitment from the early stages of a rural electrification effort is paramount in improving project design, contributing towards financing and ensuring sustainability. The active involvement of departmental governments and municipalities proved to be instrumental in the successful implementation of the project through the provision of better information on the communities’ requirements, poverty challenges, and the need and provision of additional financing. Also, since local interests are consistent with the long-term sustainability objectives of the rural electrification effort the involvement of local entities during this period is essential. 58. Adequate training of customers in the effective use of SHS is essential to fully achieve the benefits of electrification. Early experience of the GPOBA project, as well as in the IDTR project, confirms the importance of familiarizing customers in the correct use and primary maintenance of photovoltaic equipment in taking full advantage of the electrification effort. This training should be incorporated into the obligations of the service provider and the entities to be responsible for monitoring longer-term operation and maintenance. 59. Rural electrification projects are, by nature, poverty reduction operations. The limited affordability of rural households in dispersed rural areas constitutes a major constraint that often requires the support of local governments . The local contribution to the financing of off-grid electrification projects should be carefully assessed taking into account households affordability and local government’s willingness and capacity to support such effort. A flexible design –in terms local contributions and levels of subsidy– adaptable to the conditions found in each community should help in maximizing the benefits of the electrification effort. 60. An adequately designed bidding process has the potential of reducing subsidy requirements and, hence, maximizing the outcomes of a rural electrification project. The project experience confirmed that a competitive process that incorporates incentives to maximize the leverage of grant proceeds (e.g. the selection of bids based on the lowest subsidy requirement per unit) is an effective way of taking advantage of what the market can offer, and actually reduce subsidy requirements, while enhancing the scope of an electrification project. 61. A well designed, comprehensive and independent monitoring system is essential to the implementation and operation of an OBA approach to rural electrification. M&E is essential to off-grid electrification projects in order to track the performance of service providers, confirm payments and ensure that benefits reach the target population. The OTM established during the IDTR project, and maintained for the GPOBA, was particularly successful in keeping track on the project’s progress through frequent and periodical field visits and thus helping to attain the projects’ development objectives. 62. Pico-PV has the potential to address the electricity needs of the poorest rural households but should not be seen as an alternative to SHS. Project experience showed that 13 Pico-PV systems are a viable solution to primary energy needs of rural households in spite of its provision of a very limited Wp capacity. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 63. The PCU submitted comments to the draft ICR that have been incorporated into the text. In addition, the following comments and/or clarifications were made:  Savings stemming from an efficient (below budget) bidding process were used for social purposes, thus allowing a larger number of beneficiaries.  The Project underwent four amendments that constituted the main cause of delays (particularly the third amendment) and lack of compliance with the original timetable.  The subscription of agreements with Departmental governments and municipalities provided contractors a firm market in their assigned areas. This helped reducing implementation periods; nevertheless they had to face right-of-way issues that were solved through bilateral negotiations.  As for its predecessor (IDTR Project), the Project contemplates a maintenance service (Medium-term service contracts) until 2015. After that date, customers will assume responsibility for the maintenance and the reposition of parts, i.e. of the sustainability of the PV systems. 14 Annex 1. Project Costs and Financing Sources GPOBA Users & local Total governments Component 1: PAD 4,600 2,695 7,295 Actual 4,254 2,9502 7,204 Component 2: PAD 300 100 400 Actual 384 --- 384 Component 3: PAD 275 --- 275 Actual 514 --- 482 Total PAD 5,175 2,795 7,970 Actual 5,152 2,950 8,102 1/ In addition to what was planned at appraisal, Component 1 included 136 solar systems for public buildings. Also, 1,650 Pico-PV systems were incorporated into this component. 2/ While it was expected at appraisal that users would cover fully the local contribution, due to their limited capacity users contribution was complemented by departmental governments and municipalities, who covered as an average more than half of the local contribution. Sources: Project PAD and Grant Agreement, ISRs and reports of the PCU. 15 Annex 2. Outputs by Component Performance indicators were not explicitly quantified at appraisal. Upon this shortcoming, supervision reports (ISRs) established a performance monitoring system on the basis of the main outcomes proposed by the project. Hence the weakness reflected by a limited number, and relative significance, of intermediate outcome indicators. The table below presents the project’s outputs by the closing date.1 PDO Indicator Baseline Target Actual % Achieved Installation of at least 7,000 0 7,000 7,700 2 110.0 equivalent SHS for rural households, schools, clinics and MSEs Distribution of an estimated 2,000 0 2,000 5,705 285.3 Pico PV systems for lighting and basic ICT services for the poorest households Number of SHS service providers 0 3 2 66.7 operating under contracts signed in GPOBA areas. Intermediate Outcome Indicator Launching bidding process No Bidding Bidding process process launched underway launched in 2012 Overall, project implementation involved eleven contracts with two service providers, including eight contracts for SHS, two for Pico-PV systems and one for public buildings (schools), as presented below. Component 1: Solar Home Systems Department Service Number of SHS units Pico-PV units Provider Contracts Potosi Energetica 2 1.793 410 Cochabamba Energetica 3 2,300 640 Chuquisaca Enersol 2 3,098 600 La Paz Energetica 1 373 0 Total 8 7,564 1,650 Component 1: Social Systems (public buildings) Zone Service Number of Solar PV units Provider Contracts Chaco Enersol 1 57 Chiquitania Enersol 79 Total 1 136 1 Source: ISRs complemented by completion reports of the PCU. 2 Includes 136 solar systems for public buildings (schools) that were not contemplated initially. 16 Component 2: Pico-PV Zone Service Number of Pico-PV units Provider Contracts Chiquitania, Enersol 1 4,055 Chaco and Amazonia 17 Annex 3. Economic Analysis Following the Appraisal’s approach, the economic analysis focuses on the residential photovoltaic component, i.e. the Solar Home Systems (SHS) that were installed by the GPOBA project in thirteen departments and accounted for 95.5 percent of the project’s total investment (excluding Component 3: Transaction Support TA). The economic internal rate of return for the residential solar component is 17.3 percent and its net present value (NPV) is estimated to be US$1.87 million, based on a 12 percent discount rate that, as at appraisal, is considered to be the economic opportunity cost of capital in Argentina. These results are based on a conservative forecast for future energy consumption (8.58 kWh per month per household). In the case that such consumption would reach 12kWh/month, the rate of return would reach 23.4 percent and the NPV US$4.24 million, thus indicating the high sensitivity of the project’s economics to the future consumption of solar energy. These results to compa re to a rate of return of 19.2 percent estimated at appraisal and a NPV 0f US$1.725 million. Costs: The analysis includes the actual investment cost of US$ 7.2 million for 7,564 Solar Home Systems installed by the project. It includes also a cost of US$ 65 per unit for the replacement of batteries every four years, annual operation and maintenance costs and an economic life of fifteen years. Benefits: SHS have two types of benefits: on one hand, they substitute the expense associated with traditional energy sources, i.e. lighting and communications devices, such as kerosene lamps, candles, gas and batteries, by solar panels whose running costs are practically negligible (replacement of parts and batteries are considered as maintenance costs and are taken into account in the analysis). In addition to the savings over traditional lighting and communications devices, SHS make available more energy —and of better quality—and, therefore, they provide additional welfare benefits to the beneficiaries. Benefits are explained in the following figure that represents schematically the rural household demand for energy: When using traditional energy, users consume QK at price PK and the value of saved traditional energy resources is given by areas B+D. Once the consumer adopts a PV system, demand increases to QPV at price PPV, and the additional benefits associated with the extra energy are given by areas C+E. A straight line approximation to the demand curve is used given the lack of quantifiable information regarding consumers’ preferences. The analysis considers the case of a single PV customer using a 50Wp panel (by large the most used panel in the project) with the following characteristics based on the findings of surveys undertaken in different provinces: 18 QK: 52.6 kWh per year Economic value of savings in traditional energy (B+D), at border prices: US$ 132.8 per year; which yields a unit cost of US$2.52/kWh QPV: 103 kWh per year (with a sensitivity for 144 kWh per year) PPV: US$0.0 per kWh (i.e. running costs are only fixed maintenance costs) The table below presents the flow of costs and benefits for the project’s SHS component in thirteen provinces. Residential SHS Component – Cost and Benefits (thousand US$) # SHS Capital Batteries Total Avoided Total Net 1/ Year units Cost Replac. O&M Cost Cost WTP Benefits Benefits 0 7,564 7,204,0 0 0 7,204,0 0 0 0 -7,204,0 1 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 2 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 3 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 4 0 0 419,6 40,1 459,8 1,004,6 480,3 1,484,9 1,025,1 5 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 6 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 7 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 8 0 0 419,6 40,1 459,8 1,004,6 480,3 1,484,9 1,025,1 9 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 10 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 11 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 12 0 0 419,6 40,1 459,8 1,004,6 480,3 1,484,9 1,025,1 13 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 14 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 15 0 0 0 40,1 40,1 1,004,6 480,3 1,484,9 1,444,8 NPV: $1,868,2 IERR: 17.3% 1/ Additional benefits associated to more and a better quality of energy source 19 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Susan Bogach Senior Energy Specialist LCSEG Former TTL Karen Bazex Senior Energy Specialist LCSEG Team member Dana Ryzankova Senior Energy Specialist AFTEG Former TTL Supervision/ICR Lucia Spinelli Senior Energy Specialist LCSEG TTL Luis Vaca-Soto Consultant LCSWS Jose Vicente Zevallos Sr. Social Development Specialist LCSSO Sr. Financial Management Lourdes C. Linares LCSFM Specialist Juan Carlos Enriquez U. E T Consultant LCSEN David Reinstein Senior Oil and Gas Specialist SEGOM Janina A. Franco Energy Specialist LCSEG Jose Yukio Rasmussen K. Procurement Specialist LCSPT Joaquin Aguilar Consultant LCSEG Wendy Guerra Consultant LCSEG Adam Behrendt Social Development Specialist LCSSO Gabriela Arcos Environmental Specialist LCSEN Pilar Larreamendy Sr. Social Development Specialist EASVS Megan V. Hansen J.P.A. LCSEG Maria Lucy Giraldo Sr. Procurement Specialist LCSPT Karen Bazex Energy Specialist LCSEG Luz A. Zeron Financial Management Specialist LCSFM Susan Bogach Senior Energy Specialist LCSEG former TTL Luis Tineo Senior Operations Officer Yogita Mumssen Special Assist. To R.V.P Alejandro M. Tapia Energy Specialist Kilian Reiche Consultant Enrique Crousillat Consultant ICR (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Supervision/ICR FY11 35227.68 FY12 FY13 71.00 20 Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) FY14 71.46 Total: 35370.14 21 Annex 5. Beneficiary Survey Results Not Applicable Annex 6. Stakeholder Workshop Report and Results Not applicable 22 Annex 7. Summary of Borrower's ICR The Borrower issued in June 30, 2013 a draft report at the completion of the project. This reports included the following:  Brief description of project components  Detailed account of sub-projects for each component  Identification of all municipalities that benefit from the project  Budget execution as of end June 2013 The report did not include any specific conclusions or lessons learned. 23 Annex 8. Comments of Co-financiers and Other Partners/Stakeholders Not applicable 24 Annex 9. List of Supporting Documents Aide Memoire for the Project’s Supervision Missions. Global Partnership on Output-based Aid (GPOBA). World Bank. Implementation Completion and Results Report for the Bolivia World Bank. Project Implementation Status Reports (ISRs). 25 26 27 28