Public Disclosure Authorized
Document of
The World Bank FOR OFFICIAL USE ONLY
Public Disclosure Authorized
Public Disclosure Authorized
Report No: 83250-SAS
INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 206.3 MILLION (US$316.5 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN A PROPOSED CREDIT IN THE AMOUNT OF SDR 25 MILLION (US$38.25 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 4.4 MILLION (US$6.75 MILLION EQUIVALENT) TO THE KYRGYZ REPUBLIC A PROPOSED CREDIT IN THE AMOUNT OF SDR 78.3 MILLION (US$120 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF PAKISTAN AND A PROPOSED GRANT IN THE AMOUNT OF SDR 29.4 MILLION (US$45 MILLION EQUIVALENT) TO THE REPUBLIC OF TAJIKISTAN FOR A CENTRAL ASIA SOUTH ASIA ELECTRICITY TRANSMISSION AND TRADE PROJECT (CASA-1000)
Public Disclosure Authorized
March 7, 2014
Energy Sector Units South Asia Sustainable Development Department Europe and Central Asia Sustainable Development Department
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2014) Currency Unit =
AFN 55.8 PKR 105 KGS 50.4 TJS 4.76 SDR0.65
= = = = =
Afghan Afghani (AFN) Pakistani Rupee (PKR) Kyrgyz Som (KGS) Tajikistani Somoni (TJS)
US$1 US$1 US$1 US$1 US$1
FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS AAA AC ACG ADB AF AFMIS
Analytical & Advisory Activities Alternating Current Arab Coordination Group Asian Development Bank Additional Financing Afghanistan Financial Management Information System ARDS Afghanistan Reconstruction & Development Services ARIS The Community Development and Investment Agency of the Kyrgyz Republic ARTF Afghanistan Reconstruction Trust Fund BoD Board of Directors BT Barki Tajik CAGR Cumulative Annual Growth Rate CAP Certificate in Accountancy Program CAPS Central Asia Power System CAREC Central Asia Regional Economic Cooperation CAS Country Assistance Strategy CASA-1000 Central Asia South Asia Electricity Transmission and Trade Project CASAREM Central Asian South Asia Regional Energy Market CDC Community Development Council
CDD CE CHPP CIPA CoI COO CPPA CPS CQS CSE CSP CY DABS DC DfID DISCO DPO DS&I DSCR E&S EDB EBRD EDTIP EFF EIB
i
Community-Driven Development Chief Engineer Combined Heat Power Plant Certification for International Professional Accountant Corridor of Impact Chief Operating Officer Central Power Purchasing Agency Country Partnership Strategy Consultant Qualification Selection Construction Supervision Engineer Community Support Program Calendar Year Da Afghanistan Breshna Sherkat Direct Current UK Department for International Development Electricity Distribution Companies Development Policy Operation Design, Supply and Installation Debt Service Coverage Ratio Environment and Social Eurasian Development Bank European Bank for Reconstruction and Development Electricity Distribution and Transmission Improvement Project Extended Fund Facility European Investment Bank
EIRR ELRP EMP ESIA ESMAP FATA FBS FESTI FIRR FMIP FOB GDP GENCO GHG GNI GoA GoK GoP GoT GPS GTAC GWh HGA Hm3 HO HPP HSD HSFO HVAC IA IBA IBRD IC ICB IDA IDC IGA IGC IMF INT IPP IPSAS
Economic Internal Rate of Return Energy Loss Reduction Project Environmental Management Plan Environmental and Social Impact Assessment Energy Sector Management Assistance Program Federally Administered Tribal Areas Fixed Budget Selection Fuel and Energy Sector Transparency Initiative Financial Internal Rate of Return Financial Management Improvement Program Free on Board Gross Domestic Product Power Generation Company Greenhouse Gas Gross National Income Government of Afghanistan Government of the Kyrgyz Republic Government of Pakistan Government of Tajikistan Global Positioning System Governance Technical Assistance Credit Gigawatt-hour Host Government Agreement Cubic Hectometer Head Office Hydropower plant High Speed Diesel High Speed Fuel Oil High Voltage Alternating Current Internal Audit Important Bird Areas International Bank for Reconstruction and Development Individual Consultant International Competitive Bidding International Development Agency Interest During Construction Inter-Governmental Agreement Inter-Governmental Council International Monetary Fund Integrity Vice-Presidency Independent Power Producer International Public Sector Accounting Standard
IsDB ISIAC
Islamic Development Bank Independent Social Impact Consultant JBIC Japan Bank for International Cooperation JICA Japan International Cooperation Agency JSC Joint Stock Company JWG Joint Working Group KfW Kreditanstalt für Wiederaufbau KGS Kyrgyz Som km kilometer KPK Khyber Pakhtunkhwa Province kV kilovolt kWh Kilowatt-hour LARPF Land Acquisition and Resettlement Policy Framework LCS Least Cost Selection M&E Monitoring and Evaluation MDTF Multi-Donor Trust Fund MEW Ministry of Energy and Water MoF Ministry of Finance MP Management Plans MRRD Ministry of Rural Rehabilitation and Development MUV Manufacture Exports Unit Value MW Megawatt NATO/ISAF North Atlantic Treaty Organization / International Security Assistance Force NBT National Bank of Tajikistan NCB National Competitive Bidding NEGK National Electric Grid Company of Kyrgyzstan NEPRA National Electric Power Regulatory Authority NEPS North-East Power System NGO Non-governmental Organization NPL Non-Performing Loans NPV Net Present Value NSP National Solidarity Program NTC National Transmission Company NTDC National Transmission & Despatch Co. OCGT Open Cycle Gas Turbine ORAF Operational Risk Assessment Framework OTL Overhead Transmission Line PAC Project Affected Communities PAP Project Affected People PDO Project Development Objective PEO Project Environmental Officer PEPCO Pakistan Electric Power Company PFM Public Financial Management
ii
PforR PIA PIP PIU PKR PMF PMU PPA PPU PQ PRAMS PSC PSO PU QBS QCBS RAP REA ROW RPF s/s SBD SDDP
Program for Results Project Implementation Agreement Public Investment Program Project Implementation Unit Pakistani Rupee Project Management Firm Project Management Unit Power Purchase Agreement Procurement Policy Unit Pre-Qualification Procurement Risk Assessment Management System Project Steering Committee Project Social Officer Procurement Unit Quality Based Selection Quality and Cost Based Selection Resettlement Action Plan Regional Environmental Assessment Right of Way Resettlement Policy Framework Substation Standard Bidding Documents Stochastic Dual Dynamic Programming
SDU SECPO SEO SIA SIEPAC SOE SSO SSS T&D TAPI tCO2 TJS TL TOR TPP US$ USAID US¢ VAT VIP-3 WACC WAPP WTO
Special Disbursement Unit World Bank Corporate Secretariat Site Environmental Officer Social Impact Assessment Central American Electrical Interconnection System State-Owned Enterprise Site Social Officer Single Source Selection Transmission and Distribution Turkmenistan-Afghanistan-PakistanIndia pipeline tons of CO2 Tajik Somoni Transmission Line Terms of Reference Thermal Power Plant United States Dollars United States Agency for International Development United States Cents Value Added Tax Village Investment Project 3 Weighted Average Cost of Capital West African Power Pool World Trade Organization
South Asia Region
Europe and Central Asia Region
Vice Presidents
Philippe H. Le Houerou
Laura Tuck
Country Directors
Rachid Benmessaoud Robert J. Saum Salman Zaheer
Saroj Kumar Jha
Sector Managers
Julia Bucknall
Ranjit J. Lamech
Sector Directors
John Henry Stein
Laszlo Lovei
Task Team Leader Co-Task Team Leaders
Abdulaziz Faghi
Sunil Kumar Khosla Mirlan Aldayarov
iii
COUNTRY Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) TABLE OF CONTENTS Page I.
STRATEGIC CONTEXT ................................................................................................. 1 A. Regional and Country Context ....................................................................................... 1 B. Sectoral and Institutional Context .................................................................................. 2 C. Higher Level Objectives to which the Project Contributes ............................................ 4
II.
PROJECT DEVELOPMENT OBJECTIVE .................................................................. 5 A. PDO ................................................................................................................................ 5 Project Beneficiaries ............................................................................................................. 5 PDO Level Results Indicators .............................................................................................. 6
III.
PROJECT DESCRIPTION.............................................................................................. 6 A. Project Components ........................................................................................................ 6 B. Project Costs and Financing ......................................................................................... 10 C. Lessons Learned and Reflected in the Project Design.................................................. 12
IV.
IMPLEMENTATION ..................................................................................................... 13 A. Institutional and Implementation Arrangements .......................................................... 13 B. Results Monitoring and Evaluation .............................................................................. 19 C. Sustainability ................................................................................................................ 20
V.
KEY RISKS AND MITIGATION MEASURES .......................................................... 21 A. Risk Ratings Summary Table ....................................................................................... 21 B. Overall Risk Rating Explanation .................................................................................. 21
VI.
APPRAISAL SUMMARY .............................................................................................. 24 A. Economic and Financial Analysis ................................................................................ 24 B. Technical....................................................................................................................... 28 C. Financial Management.................................................................................................. 29 D. Procurement .................................................................................................................. 31 E. Social (including Safeguards) ....................................................................................... 33 F. Environment (including Safeguards) ............................................................................ 34 iv
Annex 1: Results Framework and Monitoring ......................................................................... 39 Annex 2: Detailed Project Description ...................................................................................... 42 Annex 3: Implementation Arrangements.................................................................................. 49 Annex 4: Operational Risk Assessment Framework (ORAF) ................................................ 75 Annex 5: Implementation Support Plan ................................................................................... 82 Annex 6: Economic and Financial Analysis .............................................................................. 86 Annex 7: Governance and Management of Export Revenues .............................................. 122 Annex 8: Social Safeguards and Community Support Program .......................................... 125 Annex 9: Macroeconomic and Sectoral Context of the CASA-1000 countries.................... 130 Project Map................................................................................................................................ 143 List of Figures Figure 1: Project Implementation Arrangements ............................................................................ 13 Figure 2: Project Institutional Architecture and Commercial Framework ..................................... 16 Figure 3 Project EIRR Sensitivity................................................................................................... 26 Figure 4 Project EIRR Sensitivity to Construction Delays ............................................................. 26 Figure 5: Project FIRR Sensitivities ............................................................................................... 27 Figure 6: Project FIRR Sensitivity to Construction Delays ............................................................ 27 Figure 7: CASA-1000 Project Schematic ....................................................................................... 46 Figure 8: Institutional Arrangements Diagram ............................................................................... 50 Figure 9: Flow Chart of Joint Decision-Making Process................................................................ 63 Figure 10: NTDC’s Procurement Management Structure .............................................................. 67 Figure 11: Forecast Summer Power Supply and Demand for the Kyrgyz Republic ...................... 89 Figure 12: Surplus Summer Power Available for Project from the Kyrgyz Republic ................... 89 Figure 13: Forecast Power Supply and Demand for Tajikistan ...................................................... 90 Figure 14: Surplus Summer Power Available for the Project from Tajikistan ............................... 91 Figure 15: Combined surplus summer power available for project from Kyrgyz Republic and Tajikistan......................................................................................................................................... 91 Figure 16: Base-Case Power Demand Forecast for Kabul Region ................................................. 92 Figure 17: Base-Case Demand Forecast for PEPCO system .......................................................... 93 Figure 18: Project EIRR Sensitivities ............................................................................................. 97 Figure 19: Construction Delays EIRR Sensitivity .......................................................................... 98 Figure 20: Project FIRR Sensitivities ........................................................................................... 100 Figure 21: Sensitivity of FIRR to Construction Delays ................................................................ 101 List of Tables Table 1: Project Costs ..................................................................................................................... 10 Table 2: Indicative Project Financing Plan ..................................................................................... 11 v
Table 3: Sensitivity Analysis and Economic Appraisal Results for the Project ............................. 25 Table 4: Switching Value Analysis of Economic Appraisal Results for the Project ...................... 25 Table 5: Financial Sensitivity Analysis of the Project .................................................................... 27 Table 6: Switching Value Financial Appraisal Results for the Project .......................................... 27 Table 7: Summary of Disclosure of Safeguard Documents............................................................ 38 Table 8: Summary of Cost for Component B ................................................................................. 47 Table 9: Reporting Summary for each Implementing Agency ....................................................... 56 Table 10: Summary of Audit Reports for Each Implementing Agency ......................................... 59 Table 11 Allocation of Afghanistan IDA Grant Proceeds .............................................................. 60 Table 12 Allocation of Pakistan IDA Credit Proceeds ................................................................... 61 Table 13 Allocation of Tajikistan IDA Grant Proceeds.................................................................. 61 Table 14 Allocation of Kyrgyz Republic IDA Credit and IDA Grant Proceeds ............................ 61 Table 15: Summary of Procurement Risk Mitigations ................................................................... 69 Table 16: Thresholds for Procurement Methods and Bank Prior Review (values in US$) ............ 71 Table 17: Estimated Resources Required for Project Supervision ................................................. 84 Table 18: Skills Mix Required ........................................................................................................ 85 Table 19: List of Partners................................................................................................................ 85 Table 20: Total Economic Investment Costs .................................................................................. 94 Table 21: Sensitivity Analysis of Economic Appraisal Results for the Project ............................. 97 Table 22: Switching Value Analysis of Economic Appraisal Results for the Project .................... 98 Table 23: Estimated WACC for the Project and Individual Countries........................................... 99 Table 24: Total Financial Costs (US$m) ........................................................................................ 99 Table 25: Project Financial Sensitivity Analysis .......................................................................... 100 Table 26: Switching value analysis of financial appraisal results for the project ......................... 101 Table 27: Ratio Analysis for NEGK ............................................................................................. 102 Table 28: Balance Sheet Projections for NEGK (figures in million Soms) ................................. 102 Table 29: Income Statement Projections for NEGK (figures in million Soms) ........................... 103 Table 30: Key Financial Ratios of BT .......................................................................................... 104 Table 31: Balance Sheet Projections for BT (figures in million Somoni) .................................... 105 Table 32: Income Statement Projections for BT (figures in million Somoni) .............................. 105 Table 33: Key Financial Ratios of DABS..................................................................................... 106 Table 34: Balance Sheet Projections for DABS (figures in million Afghanis) ............................ 107 Table 35: Income Statement Projections for DABS (figures in million Afghanis) ...................... 108 Table 36: Key Financial Ratios of NTDC .................................................................................... 109 Table 37: Balance Sheet Projections for NTDC (in million Rs) .................................................. 109 Table 38: Income Statement Projections for NTDC ..................................................................... 110 Table 39: Base-Case Power System Expansion Plan for Afghanistan (in MW) .......................... 111 Table 40: Base-Case Power System Expansion Plan for Pakistan (in MW) ................................ 112 Table 41: Fuel Price Forecast ....................................................................................................... 113 Table 42: Detailed Assumptions underlying Economic and Financial Appraisal ........................ 116 Table 43: Flow of Economic Costs and Benefits for the Project .................................................. 119 Table 44: Flow of Financial Costs and Benefits for the Project ................................................... 120 Table 45: The Five Main Targets of the National Power Policy 2013 ......................................... 131 Table 46: Key macroeconomic indicators and projections ........................................................... 140
vi
PAD DATA SHEET Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) (P145054) PROJECT APPRAISAL DOCUMENT .
SOUTH ASIA AND EUROPE AND CENTRAL ASIA SASDE / ECSEG Report No.: PAD826 .
Basic Information Project ID
EA Category
Team Leader
P145054
A - Full Assessment
Sunil Kumar Khosla
Lending Instrument
Fragile and/or Capacity Constraints [ X ]
Investment Project Financing
- Fragile States
- Small States
- Fragile within a non fragile country Financial Intermediaries [ No ] Series of Projects [ No ] Project Implementation Start Date
Project Implementation End Date
27-Mar-2014
31-Dec-2019
Expected Effectiveness Date
Expected Closing Date
15-Oct-2014
30-June-2020
Joint IFC
Joint Level
Yes
Complementary or Interdependent project requiring active coordination
Sector Manager
Sector Director
Country Director
Regional Vice President
Ranjit J. Lamech
John Henry Stein
Salman Zaheer
Philippe H. Le Houerou
.
Borrower: Islamic Republic of Afghanistan, Republic of Tajikistan, Islamic Republic of Pakistan, Kyrgyz Republic Responsible Agency: Da Afghanistan Breshna Sherkat Contact:
Eng. Shekeeb Nessar
Title:
Chief Operations Officer
Telephone:
+93700294722
Email:
[email protected]
Responsible Agency: National Electric Grid of Kyrgyzstan Contact:
Mr. Medetbek Aitkulov
Title:
vii
Director General
Telephone:
+996312661001
Email:
[email protected]
Responsible Agency: Barki Tajik Contact:
Mr. Ali Nazarov
Title:
Chairman
Telephone:
+992 372358766
Email:
[email protected]
Responsible Agency: National Transmission and Despatch Company (NTDC) Contact:
Mr. Muhammad Zia-ur-Rehman
Title:
Managing Director
Telephone:
924299202229
Email:
[email protected]
.
Project Financing Data(in USD Million) [ ]
Loan
[X]
[X]
Credit [ X ]
Grant
[ ]
Guarantee
IDA Grant [ ]
Total Project Cost:
1,170.00
Financing Gap:
173.00
Other Total Bank Financing:
526.50
.
Financing Source
Amount
BORROWER/RECIPIENT
134.50
International Development Association (IDA)
158.25
IDA Grant
368.25
Islamic Development Bank and ACG
250.00
Bilateral Agencies (unidentified)
31.00
Afghanistan Reconstruction Trust Fund
40.00
US Government
15.00
Total
997.00
.
Expected Disbursements (in USD Million) Fiscal Year 2015
2016
2017
2018
2019
2020
0000
0000
0000
Annual
30.00
40.00
100.00
155.00
115.00
86.50
0.00
0.00
0.00
Cumulative 30.00
70.00
170.00
325.00
440.00
526.50
0.00
0.00
0.00
.
Proposed Development Objective(s) The objective of the project is to create the conditions for sustainable electricity trade between the Central Asian countries of Tajikistan and Kyrgyz Republic and the South Asian countries of Afghanistan and Pakistan. .
Components Component Name
Cost (USD Millions)
A. Transmission Infrastructure
945.00
B. Technical Assistance and Project Implementation Support
30.00
C. Community Support Program
70.00
.
viii
Institutional Data Sector Board Energy and Mining .
Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector
Sector
%
Energy and mining
Transmission and Distribution of Electricity
100
Total
Adaptation Mitigation CoCo-benefits % benefits %
100
I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. .
Themes Theme (Maximum 5 and total % must equal 100) Major theme
Theme
%
Trade and integration
Regional integration
60
Environment and natural resources management
Climate change
40
Total
100
.
Compliance Policy Does the project depart from the CAS in content or in other significant respects?
Yes [ ]
No [ X ]
Does the project require any waivers of Bank policies?
Yes [ ]
No [ X ]
Have these been approved by Bank management?
Yes [ ]
No [ ]
Is approval for any policy waiver sought from the Board?
Yes [ ]
No [ X ]
Does the project meet the Regional criteria for readiness for implementation?
Yes [ X ]
No [ ]
.
.
Safeguard Policies Triggered by the Project
Yes
Environmental Assessment OP/BP 4.01
X
Natural Habitats OP/BP 4.04
X
No
Forests OP/BP 4.36
X
Pest Management OP 4.09
X
Physical Cultural Resources OP/BP 4.11
X ix
Indigenous Peoples OP/BP 4.10
X
Involuntary Resettlement OP/BP 4.12
X
Safety of Dams OP/BP 4.37
X
Projects on International Waterways OP/BP 7.50
X
Projects in Disputed Areas OP/BP 7.60
X
.
Legal Covenants
.
Name
Recurrent
Core Construction Agreements
Due Date
Frequency
31-Dec-15
Description of Covenant
The contracts for the HVDC converter stations will be signed by December 31, 2015. The contracts for the HVDC transmission line will be signed by December 31, 2015. The contracts for the HVAC transmission line will be signed by December 31, 2015. The operations and maintenance contracts will be signed by June 30, 2016. The Core Construction Agreements shall not be amended, suspended, abrogated or waived by any party thereto in a manner that would affect materially and adversely the carrying out of the Project. Name
Recurrent
Project Monitoring
Due Date
Frequency
X
Description of Covenant
Each Participating Country shall: (a) coordinate with IGC to ensure that IGC shall take actions within its authority to facilitate the carrying out of the Project and (b) to this end shall provide to the Association, on or about each quarter, a report on the progress of the project including recommended actions to ensure timely implementation of specific targets and milestones relating to the Project and setting out the recommended actions to ensure the efficient carrying out of the Project during the period following such date, and (c) thereafter, take all necessary actions to implement the recommendations as agreed with IGC and the Association. Name
Recurrent
Revenue Management
Due Date
Frequency
X
Description of Covenant
Tajikistan and the Kyrgyz Republic shall adopt and implement a transparent revenue management program by no later than 12 months after the Effective date. Name
Recurrent
Project Audit Reports
Due Date
Frequency
X
Description of Covenant
Timely Audits of the project financial statements prepared by each Implementing Agency. Name
Recurrent
Co-financing
Due Date
15-Oct-15
Description of Covenant
x
Frequency
Additional Co-Financing for Parts A and B of the Project (for Tajikistan, Kyrgyz Republic and Pakistan) shall be secured in a manner satisfactory to the Association by no later than 12 months after the Effective Date. Name
Recurrent
Guidelines for Community Support Programs
Due Date
Frequency
30-Jun-15
Description of Covenant
Prior to the commencement of construction work for the HVDC transmission line, the operational manual for the Community Support Programs for Pakistan and Afghanistan will be finalized and financing secured, for the purpose of implementing said component, in form and substance acceptable to the Association. Name
Recurrent
Off-take Arrangements for Sustainability of the Project
Due Date
Frequency
15-Oct-15
Description of Covenant
The Core Commercial Agreements (PPAs, Master Agreement, the Coordination Agreement, Host Government Agreements, Technical Code and the Account Bank Agreement), with terms and conditions satisfactory to the Association, shall: (a) become effective by the date which is 12 months after Effective Date; and (b) not be amended, abrogated or waived by any party thereto in a manner that would affect materially and adversely the carrying out of the Project. Name
Recurrent
Inter-Governmental Agreements
Due Date
Frequency
X
Description of Covenant
Additional Event of Suspension. Any of the Host Government Agreements, the Coordination Agreement, the Inter-Governmental Agreement, or any IGC Resolution has been amended, suspended, abrogated or waived so as to affect materially and adversely the ability of any of the Participating Countries or the IGC to carry out their respective responsibilities in connection with the Project. Name
Recurrent
Core Financing Agreements
Due Date
Frequency
X
Description of Covenant
Additional Event of Suspension. The right of any of the Participating Countries under any of the Core Financing Agreements to withdraw the proceeds of such financing is suspended, canceled or terminated, in whole or in part, pursuant to the terms of such agreement. Name
Recurrent
Legislation of National Transmission Companies
Due Date
Frequency
X
Description of Covenant
Additional Event of Suspension. Any National Transmission Company’s Legislation has been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of the Project Implementing Agency to perform any of its obligations under the Project. xi
Name
Recurrent
Performance under Subsidiary Agreements
Due Date
Frequency
X
Description of Covenant
Additional Event of Suspension. Any of the parties to the Subsidiary Agreements (between the Participating Countries and National Transmission Companies) has failed to perform any of its obligations under its respective Subsidiary Agreement. .
Conditions Name
Type
Power Purchase Agreements and the Master Agreement
Effectiveness
Description of Condition
The Power Purchase Agreements (PPAs) and the Master Agreement have been signed by all parties, in form and substance agreed with the Association. Name
Type
Financing Agreements
Effectiveness
Description of Condition
The Financing Agreements between the four Participating Countries and IDA have been executed and all conditions precedent to their effectiveness have been fulfilled. Name
Type
Co-Financing Agreement
Effectiveness
Description of Condition
The IsDB Co-financing Agreement has been executed and all conditions precedent to its effectiveness have been fulfilled. Name
Type
Subsidiary Agreements
Effectiveness
Description of Condition
The Subsidiary Agreements have been executed on behalf of the participating countries and the respective National Transmission Companies. Name
Type
Revenue Management Program
Effectiveness
Description of Condition
For Tajikistan and Kyrgyz Republic, the Recipients have submitted to the Association a program for transparent revenue management satisfactory to the Association. Name
Type
Project Management Firm
Disbursement
Description of Condition
For Afghanistan, the hiring of a Project Management Firm for Component B of the Project. xii
Team Composition Bank Staff Name
Title
Abdul Hameed Quraishi Operations Officer
Specialization
Unit
Operations Officer
SASDE
Abdulaziz Faghi
Senior Energy Specialist Co-Task Team Leader
SASDE
Adam Shayne
Lead Counsel
Lead Counsel
LEGLE
Afsana Afshar
Consultant
Power Engineer
SASDE
Angela Nyawira Khaminwa
Senior Social Development Specialist
Senior Social Development Specialist
ECSSO
Ani Balabanyan
Senior Energy Specialist Senior Energy Specialist ECSEG
Anjum Ahmad
Senior Energy Specialist Senior Energy Specialist SASDE
Anna C. O'Donnell
Social Development Specialist
Social Development Specialist
SASDS
Anwar Ali Bhatti
Financial Analyst
Financial Analyst
SACPK
Arcadii Capcelea
Senior Environmental Specialist
Senior Environmental Specialist
ECSEN
Artur Kochnakyan
Energy Economist
Energy Economist
ECSEG
Arun Manuja
Sr Financial Management Specialist
Sr Financial Management Specialist
SARFM
Asha Narayan
Sr Financial Management Specialist
Sr Financial Management Specialist
SARFM
Asif Ali
Senior Procurement Specialist
Senior Procurement Specialist
SARPS
Asta Olesen
Senior Social Development Specialist
Senior Social Development Specialist
SASDS
Boonsri Prasertwaree Kim
Program Assistant
Program Assistant
SASDO
Chaohua Zhang
Lead Social Development Specialist
Lead Social Development Specialist
SASDS
Chau-Ching Shen
Senior Finance Officer
Senior Finance Officer
CTRLN
Dung Kim Le
Program Assistant
Program Assistant
ECSSD
Evgenij Najdov
Senior Economist
Senior Economist
ECSP1
Faruk Khan
Lead Economist
Lead Economist
SASEP
Fouad Muhammad Khan E T Consultant
Environmental Specialist SASDI
Galina S. Kuznetsova
Sr Financial Management Specialist
Sr Financial Management Specialist
ECSO3
Gregory Scopelitis
E T Consultant
Energy Finance Specialist
SASDE
xiii
Heather B. Worley
Senior Communications Senior Communications Officer Officer
ECSEG
Javaid Afzal
Senior Environmental Specialist
Senior Environmental Specialist
SASDI
Joseph Paul Formoso
Senior Finance Officer
Senior Finance Officer
CTRLA
Joseph Walter Mik
Investment Officer
Investment Officer
CEUPP
Khalid Bin Anjum
Procurement Specialist
Procurement Specialist
SARPS
Kishor Uprety
Senior Counsel
Senior Counsel
LEGAM
L. Panneer Selvam
Lead Environmental Specialist
Lead Environmental Specialist
SASDI
Leiping Wang
Lead Energy Specialist
Lead Energy Specialist
SASDE
Marina Bakanova
Sr Country Economist
Sr Country Economist
ECSP1
Martin Sobek
Senior Investment Officer
Senior Investment Officer
CEUPP
Mirlan Aldayarov
Senior Energy Specialist Co-Task Team Leader
ECSEG
Mohammad Arif Rasuli Senior Environmental Specialist
Senior Environmental Specialist
SASDI
Muhammad Waheed
Economist
Economist
SASEP
Nagaraju Duthaluri
Lead Procurement Specialist
Lead Procurement Specialist
ECSO2
Nurbek Kurmanaliev
Procurement Specialist
Procurement Specialist
ECSO2
Richard Jeremy Spencer Country Sector Coordinator
Lead Energy Specialist
SASDE
Saeeda Sabah Rashid
Sr Financial Management Specialist
Sr Financial Management Specialist
SARFM
Salma Omar
Senior Social Development Specialist
Senior Social Development Specialist
SASDS
Samina Mussarat Islam
Consultant
Social Development Specialist
SASDS
Sunil Kumar Khosla
Lead Energy Specialist
Task Team Leader
ECSEG
Takhmina Mukhamedova
Operations Analyst
Operations Analyst
ECSEG
Yuriy Myroshnychenko
Senior Energy Specialist Senior Energy Specialist ECSEG
Zamir Chargynov
E T Consultant
E T Consultant
ECSEG
Name
Title
Office Phone
City
Iftikhar Khalil
Advisor
Non Bank Staff Lahore
xiv
Budak Dilli
Consultant
Ankara
John E. Besant-Jones
Consultant
London
.
Locations Country
First Administrative Location Division
Planned Actual Comments
Afghanistan
Parwan
Parwan
X
Afghanistan
Nangarhar
Nangarhar
X
Afghanistan
Laghman
Wilayat-e Laghman
X
Afghanistan
Kunduz
Kunduz
X
Afghanistan
Kabul
Wilayat-e Kabul
X
Afghanistan
Wilayat-e Baghlan
Wilayat-e Baghlan
X
Kyrgyz Republic Osh
Osh Oblasty
X
Kyrgyz Republic Batken
Batken Oblasty
X
Kyrgyz Republic Jalal-Abad
Jalal-Abad Oblasty
X
Pakistan
Khyber Pakhtunkhwa Peshawar Province
X
Pakistan
Federally Administered Tribal Areas
Federally Administered Tribal Areas
X
Tajikistan
Viloyati Sughd
Viloyati Sughd
X
Tajikistan
Khatlon
Viloyati Khatlon
X
xv
I.
STRATEGIC CONTEXT A. Regional and Country Context
1. The Central Asia-South Asia Electricity Transmission and Trade Project (CASA-1000) aims to facilitate electricity trade between hydropower surplus countries in Central Asia and electricity deficient countries in South Asia by putting in place the commercial and institutional arrangements and the transmission infrastructure required for this trade. The four countries participating in the project – Afghanistan, Kyrgyz Republic, Pakistan and Tajikistan – are of considerable geostrategic importance by virtue of their location at the crossroads of China, India, Russia and the Middle East. Sustained efforts to promote institutional development and socioeconomic prosperity in the CASA-1000 countries are therefore a very high priority, not only for the countries themselves, but also for the stability of the Central and South Asia regions more broadly. The CASA-1000 countries vary significantly in terms of population numbers, economic size and development trajectories, but also share several key characteristics and have complementary development needs and goals, especially in the energy sector, which form the basis for the CASA-1000 project described in detail later in this document. 2. With per capita GNIs under $1,000, Kyrgyz Republic and Tajikistan are among the poorest countries in Central Asia. Both have relatively small populations (Kyrgyz: 5.6 million and Tajikistan: 8 million), are landlocked, prone to exogenous geographic and economic shocks, and have suffered from significant social strife. Despite inheriting well-developed infrastructure, both countries have suffered significant declines in living standards since the break-up of the Soviet Union as a result of disruption in established trade and broader relations with other Soviet Republics. Poverty levels are currently extremely high – 38 percent of the Kyrgyz population and 46.7 percent of the Tajik people live below their respective national poverty lines and both countries have launched economic stabilization and structural reform initiatives to promote growth, in part with support from the International Monetary Fund (IMF), the World Bank and other International Financial Institutions (IFIs) and bilateral partners. Key elements of the structural agenda in the two countries concern improving the business climate to attract new private investment as well as diversifying economic production and exports, including electricity (given the countries’ abundant hydropower, especially during summer). 3. The South Asian participants in the CASA-1000 project, Afghanistan and Pakistan, have much larger populations – about 30 million and 180 million respectively – and substantially larger economies. With a GNI per capita of US$570, Afghanistan is the lowest income country in South Asia and emerging from over three decades of conflict. It remains an extremely fragile state with weak state and civil society institutions and faces enormous development challenges, including high levels of poverty (36 percent) and unemployment. Despite the ongoing conflict and insecurity, there have been some significant advances in institutional strengthening and rapid economic growth of 9 percent per year in 2000-2010, driven in large measure by huge foreign aid flows of close to US$16 billion per annum. With foreign aid set to decline from 2014 with the withdrawal of international forces and the labor force expanding by about 300,000 per year, the Afghan economy urgently needs to find ways to sustainably accelerate broad-based growth in the medium term - implying, inter alia, adequate and stable electricity supply to meet expanding demand. Even under reasonably optimistic scenarios, growth in Afghanistan is projected to fall from a 10-year average of over 9 percent to between 5 and 6 percent over 2011–18. Additionally, 1
unemployment, already at 8 percent in 2009–10, is projected to rise further, with potentially destabilizing effects. In this context, Afghanistan is actively seeking ways to accelerate growth through increased private and public investment, with a particular focus on addressing the country’s severe infrastructure bottlenecks. 4. Of the four countries participating in CASA-1000, Pakistan is by far the largest and possesses important strategic endowments and huge development potential. Realization of this potential has, however, been severely limited by the country’s significant economic, governance, and security challenges. There is evidence that poverty has been rising again in the past few years (after significant improvements over the 2001-2008 period) as a result of the continued security problems, two major floods, unresolved structural issues and overly expansionary fiscal policies. The goal of absorbing the country’s rapidly growing youth labor force – a key element of strategies both to reduce poverty and to maintain reasonable political stability - implies the need for real economic growth of at least 7 percent per annum in the medium- to longer term, nearly double the rates achieved over the past decade. Recent analysis by the IMF and the Bank indicates that the prospects for accelerated growth are not good, unless urgent policy action is taken to: (i) strengthen fiscal management, (ii) reform the energy sector to reduce shortages and curb untargeted subsidies, and (iii) implement financial policies aimed at reducing inflation and external vulnerabilities and strengthening the financial sector. B. Sectoral and Institutional Context Inter-Regional Energy Initiatives 5. Over the past decade or so, various countries in both the South Asia and Central Asia regions have engaged in a broad dialogue to create a regional energy market based largely on the export of gas and electricity from Central Asia to South Asia, in particular to Afghanistan, Pakistan and India. This inter-regional dialogue and the specific projects emerging from it are being supported by a number of multilateral and bilateral partners, notably the Asian Development Bank (ADB), the Islamic Development Bank (IsDB) and the World Bank as well as the Governments of the USA, UK and Australia, among others. 6. In addition to the CASA-1000 project, which is the subject of this document, a number of other important inter-regional gas and electricity projects are being developed at the present time. For example, Turkmenistan is pursuing gas exports to Afghanistan, Pakistan and India (called the “TAPI” project from the initials of each country). TAPI is estimated to cost about US$10 billion and is being developed with support from the ADB. Turkmenistan, Uzbekistan and Tajikistan have already begun exporting small quantities of electricity to Afghanistan and are studying ways of expanding the trade to other South Asian markets, especially Pakistan. The mix of thermal-based power from Turkmenistan and Uzbekistan and hydro-based power from Kyrgyz Republic and Tajikistan allows for a good seasonal mix in supply, thereby enabling all countries to benefit. Pakistan is also exploring various additional energy import opportunities, including a natural gas pipeline with Iran and an electricity interconnection with India. For its part, Afghanistan has developed a Power Sector Master Plan, which, inter alia, suggests the option of developing the Afghan grid to export power to Pakistan, after satisfying domestic demand. However, this plan implies the need to sufficiently adapt Afghanistan’s domestic power system before it can cater to significant power trading from neighboring countries. 2
Genesis of CASA-1000 7. Against the background of the broader Central Asia South Asia dialogue on energy, the Central Asian countries of Kyrgyz Republic and Tajikistan and the South Asian countries of Afghanistan and Pakistan began a series of discussions on the creation of a regional electricity market – the Central Asia South Asia Regional Electricity Market (CASAREM) – to link the Central Asian countries’ surplus electricity resources with the South Asian countries’ unmet demand for electricity, thereby alleviating the persistent shortages that have acted as a brake on growth, jobs and population welfare. In May 2006, a ministerial level meeting was held in Islamabad, Pakistan at which the four countries collectively declared their intention of pursuing electricity trade opportunities. The declaration also left open the possibility that other countries could join the initiative as the trade expands. 8. At a subsequent conference in Dushanbe, Tajikistan in October 2006, the four countries signed a memorandum of understanding in which they committed to pursue the development of the first phase of CASAREM by establishing the necessary transmission and trading infrastructure and systems to enable a trade of roughly 1,300 megawatts (MW) of electricity between Central Asia and South Asia – including 1,000 MW to Pakistan and 300 MW to Afghanistan – terming the project CASA-1000. In August 2008, the countries entered into a formal inter-governmental agreement to set up an Inter-Governmental Council (IGC) and an associated Secretariat to steer the development of the project. Since then, cooperation between the four countries has intensified. Working closely with international partners, including IFIs and bilateral donors, the IGC has spearheaded the conduct of required analytical work to establish the technical, economic, environmental, social and commercial feasibility of the CASA-1000. The ADB funded the original Feasibility Study for CASA-1000 and the Bank provided support for the update of the Feasibility Study in 2011 and subsequent studies with other development partners. ADB is earmarking resources originally proposed for this project to other regional initiatives developed under the Afghanistan Power System Master Plan that are complementary to CASA-1000. In 2011, the four countries requested the International Finance Corporation (IFC) to actively participate in project structuring and implementation and subsequently in 2012 the four countries each signed a Financial Advisory Services Agreement with IFC to act as lead advisor for the selection of the developer and operator for the project. 9. As already mentioned, the two South Asian countries (and the South Asia region as a whole) face tremendous energy challenges, with about 400 million people still deprived of reliable access to electricity, social unrest related to energy shortages arising nearly every year (especially in the scorching Pakistan summers), and the vast majority of urban firms pointing to energy shortages as one of the most binding constraints to business operations and expansion. Moreover, rising oil prices and the heavy reliance on fuel oil for power generation in both Afghanistan and Pakistan have placed increased burdens on an energy sector that is already in need of reform. For them, cleaner and cheaper electricity imports from Central Asia will enable improved coverage, reduce shortages over the critical summer period and lessen financial pressures deriving from fuel imports. 10. For their parts, the two Central Asian countries involved in CASA-1000, Kyrgyz Republic and Tajikistan, have abundant hydropower, which is the source for over 90 percent of 3
domestic energy needs. The natural hydrology driven by snow melts results in heavy water flows during the summer and significantly reduced flows during the winter –leading, in turn, to surplus power in the summer and perennial power shortages in winter. The water released in the summer is used for electricity generation up to the level of domestic demand and export, and the rest is spilled without passing through turbines. Obligations to meet summer water needs for irrigation in downstream countries and limited water storage capacity precludes the generation of adequate hydropower to adequately meet winter energy needs. At the present time, the seasonality of electricity supplies combined with low tariffs and under-maintenance of energy assets causes severe economic disruptions, with negative implications for productivity and population welfare. With support from ADB, European Bank for Reconstruction and Development (EBRD) and other development partners, the countries have committed specific investments for the rehabilitation of several aging hydropower plants (HPPs) and Kyrgyz Republic is embarking on the construction of one new HPP. Export of the countries’ relatively low cost, clean surplus summer electricity would help both governments to generate the revenues needed to bolster their respective budgets, which could then help finance fuel resources for winter energy needs, promote energy efficiency programs and undertake other measures to deal more effectively with their winter energy crises in the medium to long term. 11. Given the above context, the CASA-1000 project is seen as a “win-win” proposition by all the four countries involved, with its robust economic viability derived from not needing to set up any new generation capacity in exploiting a currently missed opportunity for regional energy trade. Furthermore, by establishing an “open access” regime, the Project enables other suppliers (for example in neighboring countries) to avail of unutilized transmission capacity to access electricity markets in the CASA-1000 countries. The project is, therefore, expected to: (i) alleviate summer electricity shortages in Pakistan and Afghanistan and/or reduce their dependence on costly and polluting oil-based generation; (ii) establish an additional, steady source of revenues to Tajikistan and the Kyrgyz Republic; (iii) help strengthen Afghanistan’s role as a viable transit country, leveraging a key comparative advantage and enhancing its growth prospects; and (iv) set the stage for expanded energy trade between Central Asia and South Asia. Further details regarding each country’s energy sector context, including current development and reform initiatives are available in Annex 9 of this document. C. Higher Level Objectives to which the Project Contributes 12. The proposed CASA-1000 project contributes to key strategic outcomes outlined in the Country Partnership Strategy (CPS) of each of the four participating countries (and Interim Strategy Note for Afghanistan.) It also serves to expand economic cooperation in a sub-region where security concerns dominate relations between neighbors. The project’s success can pave the way for greater economic cooperation, contributing to growth, the elimination of extreme poverty and the boosting of shared prosperity. 13. By investing in the CASA-1000 project, the exporting countries would be able to bring a stable export revenue stream for a number of years from electricity export. This is critically important in both countries which have experienced chronic large trade deficits and low levels of foreign reserves. For Afghanistan, the project is a demonstration of the country’s ability to facilitate safe transit of trade through its territory that could spur future investments within
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Afghanistan – for example in the country’s abundant natural and mineral resources - and help create further linkages between the two regions. 14. In Tajikistan, the project clearly responds to the expected result of improving the reliability/efficiency of electricity services and increasing energy export potential (Objective II of the Tajikistan CPS FY10–13). It also helps reduce poverty and vulnerability by maintaining fiscal stability and access to critical public services (Objective I of the CPS). In the Kyrgyz Republic, the project would also support the CPS objectives of accelerating growth and implementing essential reconstruction and rehabilitation of the country’s damaged infrastructure by generating valuable export revenues and diversifying its current export market. A CPS for Kyrgyz Republic (FY13-17) was discussed by the World Bank Board in July 2013 and refers to CASA-1000 as a project of focus for the government. 15. Both the Pakistan CPS (FY10–13) and Afghanistan Interim Strategy Note (FY12–14) highlight regional cooperation as an area of engagement for the Bank in light of its potential for enhancing both countries’ efforts to promote inclusive growth and jobs. In particular, the CASA1000 project could help Afghanistan rebuild its traditional connections to its neighbors in trade and transit, energy and water management. This, in turn, would help reduce poverty and promote socio-political stability. Moreover, the enhanced availability of energy once the CASA-1000 project is operational would directly contribute to relieving Pakistan’s and Afghanistan’s summer electricity shortages, which are currently a significant constraint to enterprise development and job creation. II. PROJECT DEVELOPMENT OBJECTIVE A. PDO 16. The objective of the project is to create the conditions for sustainable electricity trade between the Central Asian countries of Tajikistan and the Kyrgyz Republic and the South Asian countries of Afghanistan and Pakistan. Project Beneficiaries 17. The project will benefit all four countries. The import of power to Pakistan and Afghanistan will benefit households and businesses who suffer from chronic power cuts during the summer months. If the Central Asian electricity imports are used to displace high cost oilbased generation, they will also lessen the need for fiscal subsidies to the power sector, thereby freeing up budgetary resources for other priority expenditures. In turn, revenues from power sales will provide a new stream of public revenues for the Kyrgyz Republic and Tajikistan that they could use to invest in energy solutions, including measures to alleviate the winter energy deficit in those countries. 18. In addition, the countries have proposed the implementation of targeted Community Support Programs (CSPs) in each country as part of the CASA-1000 project. The aim of these programs would be to improve livelihoods of the corridor communities and increase the shared prosperity associated with the project. This represents a departure from usual practice since, given the relatively modest ecological and social impacts of high voltage transmission lines, 5
people living along the transmission corridor are not typically provided with special benefits. In this instance, however, taking into consideration the special, multi-regional nature of the CASA1000 Project, and the fact that its benefits will accrue predominantly to grid-connected electricity consumers and national budgets, the IGC has decided to establish a mechanism to directly share project benefits during the operation phase with the (approximately 670) poor communities living along the CASA-1000 corridor in the four countries. The CSPs will first be implemented during the project’s construction phase to help create a more supportive environment for the project, especially among conflict-affected and vulnerable populations. The IGC decision to create a mechanism for the provision of direct support to the communities during the project’s operation phase will ensure continued funding to the CSPs that will be established as part of CASA-1000 during construction. 19. Telecommunications companies and their customers could also be potential project beneficiaries if they avail of the excess fiber optic capacity embedded in the 1,200 km of CASA1000 transmission lines. While a small part of this capacity is needed for transmission system operations, unused capacity of hundreds of gigabits per second will potentially be available to national, regional, and global telecommunications entities and could be used to boost connectivity, improve reliability and cut telecommunications costs. PDO Level Results Indicators 20. Sustainability. Commercial framework agreements in place for electricity trade between the four countries (and being adhered to); Operations and Maintenance (O&M) contract in place for transmission infrastructure (with capacity development of national transmission companies); and community support programs for inclusive growth have been developed and are being implemented in Afghanistan, the Kyrgyz Republic, Tajikistan and Pakistan. 21. Infrastructure development. Construction contracts awarded to qualified contractors; Transmission infrastructure allowing electricity trade between the two regions has been established and is functional. 22. Institutional development. Inter-Governmental Council and its Secretariat are functioning effectively in facilitating efficient and timely project implementation; capacity of participating countries' transmission utilities has been strengthened, enabling them to undertake large cross-border infrastructure projects, negotiate and implement technical and commercial agreements. III. PROJECT DESCRIPTION A. Project Components 23. The Project would be comprised of three components: Component A – High Voltage Transmission Infrastructure, Component B – Technical Assistance and Project Implementation Support, and Component C – Community Support Programs. Component A costs in parenthesis are inclusive of contingencies and exclusive of applicable taxes, environmental and social costs and Interest During Construction (IDC).
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Component A. Construction of High Voltage Transmission Infrastructure (US$945 million 1, of which Bank financing is US$518.5 million). This component is comprised of the following four sub-components: a. Sub-component A1 – High Voltage Direct Current (HVDC) Transmission Line (US$295 million, Bank financing- US$216.5 million). Construction of about 750 km of 500 kV HVDC overhead transmission line to interconnect the electricity network of Tajikistan from the Sangtuda converter station, to the Pakistan network at the Peshawar converter station, and the Afghanistan network at the Kabul converter station. The line will have a transmission capacity of 1,300 MW in either direction, using a bipolar and earth-return configuration and consists mainly of self-supported lattice tower structures, conductors, and insulators. About 120 km of the line will be in Tajikistan, 560 km in Afghanistan, and 70 km in Pakistan. b. Sub-Component A2 – HVDC Converter Stations (US$385 million, Bank financing- US$257 million). Engineering design, construction, and commissioning of three HVDC converter stations: at (i) Sangtuda (1,300 MW) in Tajikistan; (ii) Kabul (300 MW) in Afghanistan; and (iii) Peshawar (1,300 MW) in Pakistan. These convert power from Alternating Current (AC) into Direct Current (DC), and vice versa, as required. The converter stations include specialized converter transformers, breakers, filtering equipment, inverters, controls, ground electrodes, and static and dynamic compensation equipment. c. Sub-component A3 – High Voltage AC Transmission (HVAC) Interconnection between the Kyrgyz Republic and Tajikistan (US$200 million, Bank financingUS$45 million) – Construction of about 475 km of 500 kV HVAC overhead transmission line to interconnect the electricity network of the Kyrgyz Republic at Datka substation (s/s) to the Tajikistan network, at the Khudjand s/s. About 450 km of the line will be in the Kyrgyz Republic and 25 km in Tajikistan. d. Sub-component A4 (US$65 million, Bank financing- US$0 million) – Tajikistan grid reinforcement. This includes the construction of about 115 km of 500 kV line from Regar s/s to Sangtuda s/s and other parts of the network necessary, along with associated substation equipment to ensure transfer of Tajik and Kyrgyz export power to the Sangtuda converter station. Component B. Technical Assistance and Project Implementation Support (US$30 million, Bank financing - US$8 million). 24. This component will finance the support for project implementation and technical assistance (TA) required to the four country-specific Project Implementing Agencies as well as for the IGC and IGC Secretariat. The component will be financed by donors through a multi donor trust fund (MDTF), which is being established specifically for CASA-1000. In addition, 1
An estimated amount of US$20m in environmental and social costs (including land acquisition) are added to this component and presented in the financing plan as part of the project Base Costs.
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the proposed IDA Grant to Afghanistan will finance the relevant activities in that country. This component aims to strengthen technical, contract and safeguards management, and the supervision capacities of the Project Implementing Agencies, as outlined below: a. Sub-component B1 – HVDC and HVAC Owner’s Engineers (US$12 million). This will support consultancy services of Owner’s Engineers, including for thirdparty monitoring and supervision during construction. It is expected that separate Owner’s Engineer’s will be hired for the HVDC and HVAC portions of the project given the nature of the technology and scope of work required for each. The Owner’s Engineers will be contracted by and report to the Implementing Entities. b. Sub-component B2 – Environment and Social Management Support (US$4 million). This will strengthen capacity of the implementing agencies to develop and supervise the implementation of environmental and social safeguards, such as country-specific Environmental and Social Impact Assessments and Resettlement Acquisition Plans (RAPs). It is expected that individual consultants (or in some cases firms) will be hired by each Implementing Agency separately to fill in any capacity gaps where needed. c. Sub-component B3 –Audits, Financial and Revenue Management (US$3 million). This will finance the annual audits of the project accounts in all the four countries and support for transparent financial management of expected revenues. Furthermore, it may also finance the entity audits of the implementing agencies/transmission companies in cases where these audits are not financed from other sources as well as other financial management improvement programs, as needed. d. Sub-component B4 – Project Management Support (US$4 million). This will finance general project management costs of the implementing agencies including procurement and contract management, financial management, monitoring and evaluation of project performance and results as well as operating costs such as travel, office consumables and miscellaneous project supervision costs. In addition, it will provide the implementing agencies with requisite training and capacity building focusing on HVDC operations and maintenance and power dispatch. It will also finance any commercial and legal advisory support required for the countries. e. Sub-component B5 – Coordination (US$3 million). This will support strengthening of the IGC Secretariat which will be coordinating all the multi country aspects of the project, including procurement and contract implementation, monitoring and evaluation of project, reporting, etc. This component will finance technical, commercial and legal consultants needed to support the IGC Secretariat as well as cover some incremental operating expenses. f. Sub-component B6 – Project Communications (US$2 million). This will finance a communications campaign and information-sharing activities directed to relevant stakeholders within each of the four countries, with a special emphasis on outreach to
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communities in the project areas. A multi-media communications strategy will be at the core of information sharing efforts, designed with the aim of ensuring that information on the project’s implementation progress and impacts is conveyed to interested members of civil society and the citizenry more broadly. To ensure that CSP communities living in the CASA-1000 corridor are effectively reached, the communications strategy will take into account their infrastructure access, literacy rates, and language. In addition, it will also ensure that feedback loops between the corridor communities and the implementing agencies are put in place and regularly utilized. g. Sub-component B7 – Capacity Building (US$2 million). Strengthening the institutional capacity of the Project Implementing Agencies and relevant government officials to manage cross-country and inter-regional electricity transmission initiative and trade mechanisms aiming to develop sustainable regional electricity markets as well as any other capacity building support for related activities as needed by the countries. Component C. Community Support Programs (US$70 million for construction phase, Bank financing- US$0 million.) 25. This component will develop and implement CSPs in each of the CASA-1000 countries during the project’s construction period to create a more supportive environment for project implementation by improving livelihoods among the approximately 670 (largely poor) communities living along the CASA-1000 corridor. The CSPs will be predicated on a community driven approach – i.e. community-led decision making for identification and implementation of the selected schemes is a key principle for the programs. The IGC agreed to a mechanism to directly share the benefits of the project with these communities during the operation phase through continued funding of some of these activities. Further details are given in Annex 8. 26. The preparation and implementation of the CSPs will be phased, with the Afghanistan CSP activities being prepared first. CSPs for the other three countries will be prepared over the course of CY14 in readiness for implementation by mid-2015, to align with the construction phase of the transmission line. The CSPs will be designed independently for each country to allow for tailoring to country-specific circumstances and to enable the incorporation of lessons from similar Community-Driven Development (CDD) projects. The World Bank-managed Afghanistan Reconstruction Trust Fund (ARTF) will finance the Afghanistan portion of the CSP component at an estimated cost of US$40 million. The MDTF being set up for CASA-1000 with donor support would be the main vehicle for funding of the planned CSP activities in the other three countries. The estimated cost, to be firmed up after detailed designs are completed, is expected to be US$10 million for each country. The scope of each country component may have to be adjusted depending on the level of available funding. Specifically, in the Kyrgyz Republic and Tajikistan, where the funding is limited, it is possible that commencement of the CSPs during construction may not be completely aligned with the construction phase; however, this should not have a significant impact on the project risks. The implementation and fiduciary arrangements would be finalized during preparation of the country specific CSP projects. The
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experiences and lessons learned from the construction phase CSP activities will be taken into account in designing the benefit-sharing mechanisms for the operational period of the project. Detailed designs for the operations phase benefit-sharing schemes will be finalized before project completion to avoid gaps in these community programs, including arrangements for annual planning, implementation, monitoring and evaluation. B. Project Costs and Financing 27. The project will be financed by the participating countries with support from IFIs and bilateral donors. The cost allocation for the investment component is based on the principle that each country will finance assets in its own territory. The project costs are based on the Feasibility Study Update completed in 2011 by an international consulting firm. The estimate was reexamined taking into consideration possible price variations in input costs for transmission lines from 2010 to 2013. For the HVDC converter stations, the cost was compared with recent procurements in the South Asia Region. The feasibility cost estimates are deemed to be in line with current market prices. Taking into account the perception of possible increases in security risks in Afghanistan post-2014 as well as the possibility of relative cost increases based on the final route alignment, the contingency amount has been estimated at 25 percent of the total cost for Afghanistan and 15 percent for the other three countries. Exact financing needs would be known after finalization of all the contracts. The project cost is presented in Table 1. Table 1: Project Costs Country Afghanistan US$m A. Transmission Infrastructure B. Project Implementation Support C. Community Support Program (construction phase) Environmental and Social Costs Total Base Costs Contingencies Taxes and IDC 2 Total Project Cost
Pakistan
Tajikistan Kyrgyz Project Republic US$m US$m US$m US$m 242 159 240 160 801 8
7
8
7
30
40
10
10
10
70
13 303 61 40 404
3 179 24 29 232
3 261 36 4 301
1 178 24 31 233
20 921 145 104 1170
28. Component A is proposed to be financed by the World Bank, IsDB, and the Arab Coordination Group (ACG) 3. Based on current indications of expected financing levels, the IFIs would together cover roughly 75 percent of the construction costs. The Government of Tajikistan 2
Taxes and duties on equipment and installation services for the Project in Tajikistan (estimated to be US$45 million at current rates) are assumed to be exempted as indicated by the Government of Tajikistan. 3 The ACG currently includes: the Saudi Fund for Development, the Kuwait Fund for Arab Economic Development, the Abu Dhabi Fund for Development and the OPEC Fund for Development.
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has allocated US$15 million from its own budgetary resources to support construction costs within its territory. Activities under Components B and C are proposed to be financed from a separate MDTF that is currently in the process of being set up. The financing plan assumes tentative contributions by bilateral partners through this MDTF for funding the CSP activities in Pakistan as well as the TA components for Kyrgyz Republic, Pakistan and Tajikistan. In the case of Afghanistan, Components B and C are proposed to be financed by the IDA Grant and the ARTF, respectively. Similar to ARTF-funded activities, the MDTF will be administered by the World Bank as a mechanism to channel grant funds from development partners to the CASA1000 countries. 29. Due to the perceived security risks in Afghanistan and Northwest Pakistan supplementary security arrangements will be needed. In Pakistan, the Government has agreed to cover all security costs from domestic resources. In Afghanistan, the contractors will make their own security arrangements in accordance with the pertinent national regulations and the costs will be included in the contract values. This is reflected in the higher contingency factor for Afghanistan. The environmental and social costs, mainly consisting of land acquisition (including any resettlement costs and related social costs), project related taxes and IDC will be financed by the respective Governments and/or their Implementing Entities. 30. Financing Gap and Potential Financiers. Based on the decision made by the CASA1000 IGC on the project contractual structure, each individual country will own the portion of the project assets on its territory and, therefore, all financing -regardless of its source- would be routed to individual countries. The project financing plan and contribution by financier is presented in Table 2. Table 2: Indicative Project Financing Plan Country Afghanistan Pakistan Costs and Sources of Financing Total Project costs (including contingencies, Taxes and IDC) IDA Credits and Grants IsDB Financing 4 ACG 5 Donors and Trust Funds Recipient/Implementing Agency Total Financing Sources Financing Gap
US$m
Kyrgyz Total Republic Project US$m US$m US$m US$m 404 232 301 233 1170
316.5 0 0 40 47.5 404 0
120 35 0 17 32 204 28
Tajikistan
45 70 55 15 22 207 94
45 50 40 14 33 182 51
526.5 155 95 86 134.5 997 173
31. The financing requirements of Afghanistan are expected to be met from the IDA Grant 6 with Recipient contributions for Components A and B and from ARTF for Component C. In 4
IsDB amounts are pending approval of the IsDB Board. ACG amounts are tentative and are pending written commitment for such amounts. 6 IDA Amounts include funds cancelled from other Afghanistan projects available for recommitment, namely: Emergency Irrigation Rehabilitation Project, Strengthening Higher Education Project, Financial Sector Strengthening Project and Expanding Microfinance Outreach and Improving Sustainability Project. 5
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Pakistan, financing requirements are expected to be met from the IDA Credit and IsDB with cofinancing from the Recipient. A financing gap remains with respect to activities in Pakistan, the Kyrgyz Republic and Tajikistan. Discussions with bilateral and multilateral financiers are ongoing to explore ways of bridging this gap. In the case of Pakistan, it is possible that the gap can be met from additional Recipient contributions. The IDA Grant for Tajikistan as well as the IDA Credit and IDA Grant for the Kyrgyz Republic are proposed to finance Component A activities in each country, respectively. The European Investment Bank (EIB) officially confirmed its interest to finance the CASA-1000 project and is targeting an approval of a financing package by June 2014 subject to internal approvals of its Board. Other IFIs, such as EBRD and the Eurasian Development Bank (EDB), have initiated specific discussions with Tajikistan which are currently ongoing. The modalities for the provision of financing will be negotiated with each financier and can be directed through either the proposed MDTF or through separate financing arrangements with each country. The financing requirement will be reassessed after all contracts have been awarded and, in the event that a residual gap remains, the Bank will propose to cover it from a subsequent IDA Additional Financing operation. C. Lessons Learned and Reflected in the Project Design 32. The unique character of this regional project limits the pool of projects around the world from which to draw lessons. In 2010, the Energy Sector Management Assistance Program (ESMAP) did a review of regional power integration projects across the globe. The review suggests that, given the unique circumstances of the regional projects studied, there are considerable differences between them in terms of design and outcomes. The report concludes, therefore, that there is no single recipe for success in a regional trade initiative and the right approach depends heavily on the motivations of the countries in entering into such arrangements. In this context, the relevant lessons, which have guided the design of CASA-1000 Project include: a. Establishing the appropriate regional institutions to guide project design and resolve issues as they arise and ensuring continued high level Government support for successful development and implementation of multi-country projects; b. Involving donor agencies in the provision of advisory support and required technical analysis to underpin key project decisions; c. Allowing participating countries to develop their domestic power system at their own pace while allowing regional trade as in the case of the Central American Electrical Interconnection System (SIEPAC); and d. Avoiding undue complexity in projects involving many financiers by clarifying the applicable guidelines, processes and timing well in advance. 33. The West African Power Pool (WAPP) is an example of a project being implemented in four fragile states with limited technical and commercial knowledge of carrying out such large regional projects. In WAPP, a special purpose vehicle was created, aligning the four countries’ interests and creating a sustainable coalition as equal shareholders of the project. In the case of CASA-1000 while the countries opted for a different governance structure (as described in 12
subsequent paragraphs) a similar alignment of interests and coalition were established through various institutional mechanisms and contractual arrangements. 34. Given the long gestation period of large regional infrastructure projects, advanced procurement of major construction packages was considered to be important to ensure that while the institutional and commercial frameworks were being negotiated, commencement of construction would be aligned with the finalization of these agreements. In addition, close coordination amongst the participating financiers and concomitance of their support to the countries were critical to reach financial closure as well as to provide comfort to the various stakeholders of the project. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 35.
The project will be implemented by the National Transmission Companies, namely: a. In Afghanistan – Da Afghanistan Breshna Sherkat (DABS) b. In the Kyrgyz Republic – Joint Stock Company (JSC) National Electric Grid of Kyrgyzstan (NEGK) c. In Pakistan – National Transmission and Despatch Company (NTDC) d. In Tajikistan – Open Joint Stock Holding Company Barki Tajik (BT) The overall Project implementation arrangements are outlined in Figure 1.
Figure 1: Project Implementation Arrangements
Project Implementation Oversight and Coordination 36. The governments of the four participating countries, namely Afghanistan, the Kyrgyz Republic, Pakistan, and Tajikistan have entered into various Memoranda of Understanding and an Inter-Governmental Agreement (IGA) relating to the CASA-1000 Transmission Project. The 13
IGA, signed in August 2008, is an umbrella agreement for the legal framework for the CASA1000 Project and confirms the commitment of the participating countries to implement the Project in full cooperation. 37. Inter-Governmental Council (IGC). Within the framework of the IGA, the countries have established a ministerial-level IGC, for steering the development of the CASA-1000 project. The IGC provides guidance on strategic and policy issues and is responsible for taking such decisions as may be necessary regarding the operation of the CASA-1000 Transmission Project. Each country has one vote and decisions are based on consensus. The IGC meets periodically to discuss important project related issues. IFIs and other partners are invited to the IGC meetings as observers. 38. Joint Working Group (JWG). The project preparation and implementation activities for the CASA-1000 project are led by dedicated working groups established in each country since November 2011 and collectively known as the JWG. The JWG meets regularly through virtual and face-to-face meetings to discuss overall progress and agree on the key decisions needed to advance project implementation. 39. IGC Secretariat. Assisting the IGC in the performance of its obligations is a full-time Secretariat, headed by an Executive Director. The IGC Secretariat is responsible for steering the development of the CASA-1000 project including coordination between the four countries. During the project implementation, the IGC Secretariat will additionally assume a role of overall Project Coordination and its functions will include (i) coordination among all relevant institutions to streamline the Project’s implementation and help resolve issues encompassing more than one country; (ii) serving as a single-point for joint procurements and tracking of the progress of implementation; (iii) monitoring overall project costs and financing; and (iv) preparing reports for the Governments of four CASA-1000 countries and financiers, according to the agreed results monitoring plan. Capacity of the IGC Secretariat will be strengthened with the addition of fiduciary staff to support project implementation. 40. Finance Committee. The IGC has established a Finance Committee for achieving financial closure as per the timeline agreed by the JWG. The Committee comprises up to two members per country, including a senior official from the ministry of finance and/or a senior official from the respective line ministry. The Finance Committee is tasked with exploring potential sources of financing and engaging with interested financiers to fill the remaining financing gap, as well as with finalizing the discussion vis-à-vis the committed financiers. 41. Procurement Committee. The IGC, through a resolution, has established a Procurement Committee, consisting of senior technical and procurement staff designated by each country to carry out all the work needed on behalf of the parties to IGA and IGC, to bring conclusion to the procurement process leading to award of the contracts by the national transmission companies. This has helped in streamlining the joint procurement process. The National Transmission Companies (NTCs) will follow their respective corporate procedures for internal clearances of all procurement and contract awards and assist this committee.
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42. Procurement Consultant. The four CASA-1000 countries have selected a Procurement Consultant through the IFC, to manage the selection process for the Design, Supply and Installation (DS&I) and O&M contractors. The Consultant is responsible for support to the bidding process for all joint procurements including for the HVDC converter stations and the HVDC and HVAC transmission lines. The Consultant reviews the designs, prepare technical specifications and tender documents for approval, and assist with the tendering process and contract awards. The Consultant’s team leader reports to the JWG and the IGC Secretariat via IFC. The Procurement Consultant would provide these services throughout the entire infrastructure and Owner’s engineer procurement process. 43. Owner’s Engineer Consultants. Two consultancy firms (one for the HVDC and another for the HVAC system) will be selected through a competitive process. The Consultants will be responsible for assisting the CASA-1000 countries in supervising the DS&I contracts until handing over and commercial operation of the facilities, certifying contractors’ payments, and assisting the IGC Secretariat with coordination among all relevant institutions. 44. In-Country Project Implementation Units. Implementation of project activities will be the responsibility of the NTCs in each country and the relevant line ministries where appropriate. Each NTC will have its own Project Implementation Unit (PIU) or Project Management Unit (PMU) that will be responsible for project implementation within its national borders. The NTCs will respond to country-specific engineering, technical, procurement and financial management issues, manage the Project’s country-specific financial flows and environmental and resettlement matters, communications, country-specific M&E and reporting, etc. The PIUs/PMUs will be closely coordinating with IGC Secretariat and relevant consultants. Project Implementation and Commercial Framework 45. The four countries have decided to implement CASA-1000 as a public sector project through their respective NTCs with support from IFIs and other donors. All the Project assets will be owned by the respective NTCs within the boundaries of their own country. This implementation mechanism of Contractual Joint Venture was preferred over setting up a separate legal entity (a Project Company) that would be responsible for the contracting and management of the DS&I and O&M contracts. The project countries rejected the latter option since they considered that the process for the establishment of a separate entity would likely be an unduly lengthy one and that the likelihood of major private project financing would be low. The selected implementation arrangements were subsequently reflected in the key IGC resolution, and formally approved in September 2013, at the Islamabad, Pakistan IGC meeting. The key commercial principles for the Project core agreements described below were also approved by the countries and formally signed at the September 2013 Islamabad IGC meeting. The Project institutional architecture is given in Figure 2.
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Figure 2: Project Institutional Architecture and Commercial Framework
46. The Contractual Joint Venture within the countries comprises a number of commercial agreements (referred to as the “Core Project Agreements”) outlined below: a. Four Power Purchase Agreements (PPAs) as follows: (i) a PPA between Electric Power Plants (EPP) of the Kyrgyz Republic and NTDC / Central Power Purchasing Agency (CPPA) of Pakistan (ii) a PPA between EPP of the Kyrgyz Republic and DABS of Afghanistan (iii) a PPA between Barki Tajik of Tajikistan and NTDC / CPPA of Pakistan (iv) a PPA between Barki Tajik of Tajikistan and DABS of Afghanistan b. A PPA between DABS of Afghanistan and NTDC/CPPA of Pakistan that will cover the sale of electricity generated in Afghanistan, and provide for the on-sale of electricity purchased by DABS from EPP of the Kyrgyz Republic and Barki Tajik of Tajikistan. Each of the PPAs shall be for an initial term of fifteen (15) years divided into three fiveyear blocks for the purpose of specifying electricity quantities and prices. At the end of this initial term, each of the PPAs will continue for a further five (5) years unless the parties to that PPA decide not to extend. Electricity will be supplied over the period from May 1 to September 30 in each year (the “Supply Period”). The supply quantities would be contracted in two tiers. Tier-1 quantities would be firm on a monthly and annual basis, while Tier-2 quantities would be committed for a block of five years. This two-tiered approach would help manage the variability in actual hydrology. There will be liquidated damages for the guaranteed supply of electricity and off-take. The prices in the PPAs are bundled prices (i.e., covering both the electricity sold as well as the allocated proportion
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of all associated costs under the project for the transmission of that electricity, including recovery of investment costs, in accordance with the Master Agreement). The draft model PPA, prepared by the Project Legal Counsel supporting the IGC Secretariat has been the basis for on-going negotiations within the country teams. The countries are supported by international and local commercial and legal advisors for these negotiations. c. A Master Agreement between the parties to the PPAs and the NTCs (if not already a signatory to the PPAs). The Master Agreement will, among other things, provide for: i. the standard terms and conditions to apply to all the PPAs; ii. provisions relating to the operation and maintenance of the AC facilities that are part of the project by each of the NTCs; iii. the allocation of transmission capacity on the DC facilities for each Supply Period (capacity is allocated to the countries for their PPAs on an agreed basis); iv. any capacity that the parties do not use may be allocated to other parties subject to open access rules, with the resulting revenues from fees to be shared between the parties; v. safeguards to mitigate against any adverse impact of change of law and change of tax; vi. implementation of a set of principles on which certain costs and risks will be allocated between the parties (“Cost and Risk Allocation Principles”), as follows: o the fees of the DC operator (including security costs during the operation phase) o Account Bank fees o operation and maintenance fees of the AC facilities (except for operation and maintenance of the Pakistan AC facilities) o recovery of investment costs (excluding Pakistan assets and the HVDC converter station at Kabul) o provisions relating to transit fees o a Common Fund to provide for unplanned outages, meet any other common expenses, and meet the variability of cash flows for the DC operator. All of the costs referred to in the subparagraph above are to be charged on the basis of the actual level of electricity sales under the PPAs (that is, on a basis of US cents per kWh). The draft Master Agreement has been prepared and is being negotiated by the country teams. d. A Coordination Agreement between entities designated by the governments of the Kyrgyz Republic and Tajikistan. This agreement will provide for all technical and commercial aspects of the wielding of power for the project and for operational coordination with the operator of the DC facilities (“DC operator”).
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e. A Technical Code (under development) to cover all operational requirements such as dispatch, metering, curtailments, and others. f. An Account Bank Agreement between the Account Bank and the parties to the PPAs, and the coordination agreement between the entities designated by the governments of the Kyrgyz Republic and Tajikistan. All payments under the PPAs are to be made into designated bank accounts with the Account Bank, envisaged to be located in a jurisdiction outside any of the four participating countries and having a long-term credit rating from a reputable credit rating agency (such as Standard & Poor’s, Moody’s, or Fitch). The fees of the Account Bank arising shall be paid by each of the Parties through their respective bank accounts established with the Account Bank. The scope of the Account Bank Agreement will include the following: i. establishment of separate bank/sub bank accounts with the Account Bank: o for each PPA for the receipt of all payments under the relevant PPA o for the receipt of fees payable by third parties under the open access rules o establishment of a bank account for the Common Fund ii. irrevocable standing payment instructions by each PPA party to the Account Bank authorizing the Account Bank to debit and credit such accounts in accordance with: o an agreed cost allocation model that reflects the Cost and Risk Allocation Principles agreed under the Master Agreement o the agreed order of payments (“Payment Waterfall”). g. An agreement between each government and its designated entities (“host government agreements” or “HGAs”). Each HGA will, among other things, reflect the obligations of the governments to each other under the IGA, such as: i. maintenance of land rights and rights of way ii. non-interruption of activities relating to the project iii. non-discrimination in relation to all goods, works, technology, and services associated with any activities relating to the project iv. provision of information to lenders, international financial institutions, and insurers v. carrying out of the project in accordance with applicable technical, safety, and environmental standards. All the agreements have been drafted and are currently under negotiation among the countries and some of the terms are being defined such as mechanisms to be used in case of war, acts of terrorism or civil disturbances. Negotiations are expected to be finalized in the first half of calendar year 2014, though Government approval of these documents may take some more time. Partnership Arrangements 47. The Project is supported by a number of multi- and bilateral development partners. Financing is expected to be provided by the World Bank, IsDB, ACG, US Government, DfID, EIB and potentially other partners expressing support including the Russian Federation,
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European Bank for Reconstruction and Development. The financing arrangements have taken into consideration the need to guard against the introduction of undue complexity in procurement arrangements because of the involvement of multiple co-financiers while also taking into account the financiers’ constraints with regard to their available allocations for each country. Both the World Bank and IsDB have country specific allocations, which limit the design options for procurement packaging. In light of this, the World Bank and IsDB are coordinating closely on preparation activities to maximize efficiency in project implementation. 48. Various financing institutions are expected to finance discrete parts of the project (e.g. HVAC lines, HVDC lines and HVDC converter stations) on a parallel financing basis, and will, therefore, follow their own procurement procedures. The largest financing gap of all project activities is for the HVDC converter stations (sub-component A2). Considering the size and technical complexity of these converter stations and the need to maintain consistency in specifications and technical compatibility amongst the three units, they must be procured as a single package with the responsibility for execution resting with the same party. With limitations on the amount of financing available for each country, it is proposed that IDA will finance the Pakistan portion of this sub-component with Recipient/implementing agency co-financing or from other concessional resources available to the Government of Pakistan. For Tajikistan, in addition to the pooling of available resources from IDA, US Government and its own funds, the Government of Tajikistan is exploring options to secure the required finances with support from other donors who have expressed interest in financing the project through grant and concessional sources. Discussions are being held with EIB, EBRD, and EDB amongst others. There is a possibility that a portion of this gap can also be filled from the MDTF or from some members of the ACG who may be willing to co-finance directly with IDA. Another source of finance for Tajikistan is IDA17 which would be processed as an Additional Finance operation. 49. A number of development partners have been working in a coordinated fashion with the CASA-1000 countries to support project preparation. Several of these international partners are expected to contribute to a World Bank-administered MDTF being set up for CASA-1000. The overall framework for, and implementation of, the MDTF will be guided by the IGC and a specially constituted development partners group. Bank policies do not allow for earmarking of funds contributed to an MDTF by participating donors to specific activities or to specific recipients. However, donors may state a preference that their contribution be used to finance one or more specific sectors/themes which will be accommodated by the Bank to the extent feasible (albeit without a binding commitment). The restriction on earmarking within MDTFs is needed in order to preserve the Bank‘s ability as fund administrator to optimally manage the fund to achieve maximum development impact. B. Results Monitoring and Evaluation 50. A Results and Monitoring Framework has been developed by the countries together with the IGC Secretariat and financing partners to document and measure the Project’s development impacts. The framework identifies results indicators for the overall Project as well as intermediate results for each component. The implementing entities have provided annual targets for the results indicators and baseline data against which results can be measured. The primary responsibility for M&E lies with the NTCs and the IGC Secretariat who will review the Project’s implementation progress and outcome indicators quarterly. 19
51. A mid-term review will take place approximately thirty (30) months after the effectiveness of the World Bank financing for the Project. 52.
There are three aspects to performance monitoring under the Project: a. Firstly, achievement of the Project’s expected outcomes and intermediate outcomes will be monitored regularly through: tracking project implementation progress – such as signing of commercial agreements; contracting and commencement of construction; and by the achievement of key results indicators under each of the three Project components. b. Secondly, the implementing entities’ financial performance will be assessed regularly through: the establishment of governance initiatives (financial transparency and reporting, the Account Bank agreement, revenue management); and, carrying out of entity audits and monitoring the companies’ financial viability indicators. The Project will monitor the entities’ financial performance annually. c. Thirdly, the implementation of the environmental and social management plans and Community Support Programs will be monitored through: by closely monitoring preparation and implementation of the country-specific plans. C. Sustainability
53. While recognizing the participating countries’ limited capacity for undertaking complex cross-border infrastructure projects, CASA-1000 is designed to ensure that capacity gaps are addressed and more importantly, that the augmented capacity is adequate to sustain long-term, mutually beneficial commercial transactions. A number of countries in both regions do already engage in bilateral cross-border trade, but this trade is predominantly undertaken on the basis of short-term supply contracts arising from high level political agreements. In the case of CASA1000, political commitments have been supplemented by long-term commercial contracts being designed for CASA-1000 that are based on widely accepted principles of equitable cost and risk sharing mechanisms. 54. A key principle of the sustainability of the project is creating the mechanisms for the four countries to not only relieve acute shortages of electricity which is debilitating economic activities, but also support long term planning through additional revenues in Central Asia. The project would help generate savings for the sector and consequently for the finances of the respective country, by displacing more expensive (and more polluting) power in Pakistan and Afghanistan. In addition, allowing open access to the CASA-1000 system as agreed by the four countries creates the incentive for them to benefit from the possible future engagement of additional power producers in inter-regional energy trade as the market grows and matures. 55. Close coordination between the countries and respective utilities will continue beyond the project construction period through the already established IGC, IGC Secretariat, and the JWG. These entities are expected to operate throughout the PPA period and, potentially, beyond.
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Together the three bodies will form an institutional and hierarchical platform for discussing and resolving any issues impeding the project’s progress. Issues impeding the project would be handled as follows: first, the issue would be reported to and discussed with IGC Secretariat; then, if needed, it would be considered at the JWG, which meets quarterly; and, finally, if required, it would be further elevated to the IGC, which meets semi-annually. A formal international arbitration of any commercial disputes would only be processed if/when it is not resolved at JWG or IGC level. As such, these institutions would require substantial TA that initially, during construction, will be provided through the MDTF and, further, by contributions from NTCs. Joint procurement of assets and combining construction with operations and maintenance would ensure assets are properly maintained and operated according to international standards. V.
KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Category
Rating
Stakeholder Risk
High
Implementing Agency Risk - Capacity
High
- Governance
High
Project Risk - Design
Substantial
- Social and Environmental
Substantial
- Program and Donor
Substantial
- Delivery Monitoring and Sustainability
Substantial
Overall Implementation Risk
High
B. Overall Risk Rating Explanation 56. As described in previous sections of this document, the proposed project has the potential for tremendous medium and long-term benefits for the four countries involved and for the Central Asia and South Asia regions more broadly. It is particularly important to note that the project is not just a transmission line investment, but rather an initial step in a strategic engagement that aims to link the two regions as part of the effort to promote greater growth, political stability and security through enhanced economic cooperation. It is also a high risk operation. As detailed in the Operational Risk Assessment Framework (ORAF), the project’s risks are at a number of levels—including at the geopolitical, country, sector, and project levels. The magnitude of these risks is significantly higher than for national level projects, given that this large infrastructure development project involves four countries, comprising one fragile state (Afghanistan) and two states (the Kyrgyz Republic and Tajikistan) with very limited experience of developing large infrastructure under commercially sustainable frameworks.
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57. The countries and the development partners have put together several risk mitigation measures, but nevertheless the risks will need to be continuously reassessed and the mitigation plan recalibrated during project implementation. The IGC and JWG mechanism have already proven to be very useful in expeditious development of the project and amicable resolution of several potentially polarizing issues faced during Project development. It is also planned to continue with the well-functioning donor coordination mechanism for support to CASA-1000 preparation by formalizing the arrangement. While these initiatives are expected to help address the main foreseeable project risks, the exceptional nature of this project in terms of the numbers of governments, implementing entities and contractual arrangements involved as well as the fraught political context suggests that unforeseen obstacles could arise following Board approval. Taking this possibility into account, a number of key implementation benchmarks and remedies have been included in the project agreements to be employed in the event that an insurmountable stumbling block is encountered. 58. Geopolitical risks pertain principally to the project’s perceived links to future large hydropower projects planned in Central Asia. Project endorsement and support by local communities is also critical to the project. The political transition and elections in Afghanistan (2014) could also impact the speed of decision making by the countries. The viability of the CASA-1000 project does not depend on future large hydropower projects and the four CASA-1000 governments along with development partners are engaging with countries in the region to respond appropriately. The four CASA-1000 countries have also agreed to collectively approach other Central Asian countries as well as the Russian Federation to invite them to participate in project by utilizing the spare capacity of the CASA-1000 line during the winter months. The IGC has created a number of empowered committees of senior technical officials from the four countries to take decisions on key matters related to the project which would mitigate against the risk of delayed decision-making during the election cycle. Appropriate slack has been built in the timelines for project milestones where government statutory approvals are required. The CSPs described further in this section are intended to ensure support by local communities for the Project. 59.
The project-related risks include: a. Electricity flow in a predictable and efficient manner: i. delivering the quantities of electricity supply committed under the PPAs ii. volatility in available quantities due to hydrological variation iii. Payment risk and credibility of off-takers b. Implementation risks: i. capacity constraints in the countries ii. coordination between the countries on implementing mutually linked projects and risk of differing pace of implementation in such projects c. Transparency of revenue management from exports d. First-time exposure to HVDC technology for the countries e. Security risks related to construction and operation of the line, for the contractors, Project authorities and the Bank staff particularly in Afghanistan and Northwest Pakistan, exacerbated by expectations of a security decline after NATO/ISAF withdrawal.
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60. Several of these risks are being addressed through the project’s design. For example, the legal framework (that is, PPAs, Master Agreement, and so on) are designed to safeguard against some of the commercial risks and volatility of supply, by defining quantity and price tiers and other mechanisms and providing appropriate mechanism for ensuring committed supplies and payment by the off-takers. Revenue management and fund flows would be handled through an independent Account Bank. The project governance structure will require establishing a transparent mechanism for the management of export revenues in the Kyrgyz Republic and Tajikistan. The Bank has already been successful in introducing similar mechanisms in Kyrgyz Republic through engagement under development policy operations (DPOs). To address the coordination challenges and mitigate risks of different paces of project implementation, a Procurement Committee has been set up by the four countries through an IGC resolution with adequate power delegation. Additionally, Owner’s Engineers will be appointed to closely monitor project implementation and proactively deal with any issues that arise. The JWG and IGC secretariat would also closely interact with one another to resolve any major issues. 61. Security remains a key risk for the project and a source of concern for many stakeholders. The areas where security risks are perceived to be the highest are in Pakistan and Afghanistan. The four countries have developed a security management plan that outlines the key features of security risk mitigation and that specifies how these will be handled during both the construction phase (when the risk is highest) as well as during the operation phase. All four countries will be responsible for ensuring the overall safety of personnel and assets during construction and have prepared security management plans in close coordination with relevant authorities and security forces in each country to supplement these efforts. The experience of working in fragile country operations, including Afghanistan, will be followed throughout project implementation and supervision to lower the risks to various personnel working on the project. Finally, in considering the security risks to the project, it should be borne in mind that Afghanistan has successfully built and is currently operating new 220 kV transmission lines in most of the areas of the planned CASA-1000 corridor. These transmission lines have been functioning without problems over the last several years. The proposed alignment of the CASA-1000 transmission line also follows existing right of ways for the majority of its length within Afghanistan and in several areas it will be running in parallel to existing transmission lines already in operation. It should be noted that the risk is not spread equally across the full length of the line and most of it tends to be concentrated in certain areas and the security plans for countries will take this into account. 62. A salient feature of the project design is the emphasis placed on establishing strong outreach to local communities along the proposed right of way of the transmission line, which should enhance their understanding of, and support for, the project. The support of the communities will thus be a critical complement to the security arrangements mentioned above. Development assistance to local communities via the CSPs is an important means of gaining their support for the project (especially in Afghanistan and Pakistan where there is a perception of higher risk that opposition to the project could materialize). Initial field surveys and consultations have been carried out to assess community needs and development priorities. Discussions with the governments over the design of the CSPs and their implementation modalities are ongoing and will be concluded prior to commencement of construction activities for the CASA-1000 infrastructure. A summary of the proposed concept design of these community development schemes and funding mechanisms during construction can be found in
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Annex 8. In addition, the implementation of a communication strategy will ensure that accurate and timely information on project impacts and rationale for benefits under the CSPs are widely disseminated. The CSP for Afghanistan is at an advanced stage of preparation and is planned to be presented to the ARTF management committee for approval in March 2014, thereby ensuring adequate sequencing with the start of construction of the transmission line infrastructure. 63. The country and geopolitical risks are largely beyond the ability of the Bank to mitigate, but both monitoring and dialogue at all levels will help in their management. The current coalition at global level (the World Bank Group, IsDB, the US and UK governments, the Russian Federation and others), the IGC, the CAREC program, and so forth are mechanisms that the countries have engaged to manage geopolitical and in-country political risks. Other technical and operational risks will be handled through the project design and the provision of engineering design consultations to manage the procurement of a large DS&I package for the infrastructure as well as third-party monitoring and supervision during construction. The O&M of the DC facilities will be contracted to a capable O&M operator, who will coordinate with the countries on the operational aspects of energy flow, metering, maintenance, and repairs. 64. Funding for the large majority of project costs has been firmed up, but a financing gap remains at this time as shown in the Indicative Project Financing Plan (Table 2) presented earlier in this document. Based on ongoing discussions with several interested international development partners (e.g. EIB, EBRD and the Japanese International Cooperation Agency JICA) there seems to be a reasonable likelihood that most (or all) of the remaining financing gap will be closed before the commencement of physical construction of project activities. The main risk related to this aspect pertains to the HVDC converter stations where a significant financing gap for the Tajikistan portion remains while the contract for this package is expected to be signed in December 2014. The Bank is actively assisting the Government of Tajikistan with their ongoing dialogue with a number of IFIs keen on supporting the project, such as EIB, EBRD and EDB, which would substantially reduce the financing risks. In the event that some gap still remains, it is expected that the Bank will seek to process one or more Additional Finance operations to bridge the difference. VI. APPRAISAL SUMMARY A. Economic and Financial Analysis 65. Economic Analysis of the Project: The economic appraisal is carried out for the period 2014-2047 based on the cost-benefit analysis with and without the project and taking into account the following assumptions: a. Power export volumes are limited to the surplus power available from the existing generation capacity after meeting the forecast summer power demand in these countries. No new capacity has been assumed to be added in the Kyrgyz Republic and Tajikistan for economic analysis. The volume to be traded is capped by the capacity of the CASA-1000 transmission line.
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b. The Kyrgyz Republic continues to have the option of exporting to Kazakhstan in the absence of the project; Tajikistan’s surplus to be exported via CASA-1000 is over and above the maximum that can be exported to Afghanistan under the current PPA. c. Pakistan and Afghanistan reduce their marginal generation costs by successfully implementing their ambitious Power Sector Expansion Plan and build significant new generation capacity to meet the forecast demand; Pakistan replaces its existing expensive generation plants (diesel and fuel oil fired IPPs). d. The economic benefits that would be generated for the communities alongside the route of the transmission line through the CSP are excluded from the analysis. 66. The project economic costs include construction costs, environmental costs and land acquisition costs, CSP costs, incremental O&M costs, and power costs. The construction costs are based on the expected DS&I (including physical contingencies) of the HVAC/HVDC facilities and network reinforcement in the four countries. The associated costs include the community benefit program, additional security arrangements, and implementation support during construction. The economic cost of power for the Kyrgyz Republic is assessed at the opportunity cost of existing exports to Kazakhstan. In the absence of competing export opportunities for Tajikistan for the available surplus, the economic cost of power for Tajikistan is estimated at the marginal cost of generation. The economic benefits of the project include reduction in the costs of meeting projected power demand in Pakistan and Afghanistan and reduction of GHG emissions from marginal fossil fuel plants. 67. The economic analysis indicates that the project is economically viable with a Net Present Value (NPV) of US$1,208 million with a discount rate of 10 percent and an Economic Internal Rate of Return (EIRR) of 26 percent, even with the conservative base case assumptions. The sensitivity analysis indicates that the project is economically robust even in case of substantial variation of key variables (see Table 3, Table 4, Figure 3 and Figure 4). Table 3: Sensitivity Analysis and Economic Appraisal Results for the Project NPV (million US$) Base-case 1,208 a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan 1,006 b. 30% increase of total project construction cost 986 c. 30% lower cost of diesel, fuel oil and natural gas 693 d. 2-year delay of in-service date of project facilities 693 e. Combination of a, b, c and d above 42 Table 4: Switching Value Analysis of Economic Appraisal Results for the Project Change in variable required to make EIRR=10% and NPV=0 162% increase of total project construction cost 7 years of delay of in-service date of project facilities 70% lower cost of diesel, fuel oil and natural gas 69% lower energy surplus
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EIRR (%) 26% 25% 21% 20% 18% 10%
Figure 3 Project EIRR Sensitivity
Figure 4 Project EIRR Sensitivity to Construction Delays
68. Financial Analysis of the project: The financial analysis is carried out for the period 2014-2047 and is based on the financial benefits and costs that would be generated as result of the project. The benefits and costs are inclusive of applicable direct taxes. The financial benefits of the project include the incremental revenues from the sale of imported power in Afghanistan and Pakistan. 69. The financial costs of the project include the tax inclusive investment costs, incremental O&M costs, incremental cost of power generation in the Kyrgyz Republic and Tajikistan, incremental transmission and distribution costs in the four countries, and the O&M fee of HVDC Operator. The investment costs include expected DS&I costs (including physical and price contingencies), transmission connection and network reinforcement costs and land acquisition costs. 70. The financial analysis indicates that the project is financially viable with an NPV of US$3,861 million with a financial discount rate of 2.1% and an FIRR of 25%. The project continues to be robust in the case of substantial variation of key variables that affect its financial viability (Table 5, Table 6, Figure 5 and Figure 6).
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Table 5: Financial Sensitivity Analysis of the Project
Base-case a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan b. 30% increase of project construction cost c. 30% lower domestic average end-user tariff in Afghanistan and wholesale tariff to DISCOs in Pakistan d. 2-year delay of in-service date of project facilities e. Combination of a, b, c and d
NPV (million US$) 3.861 3,970 3,520 2,037
FIRR (%) 25% 23% 20% 17%
3,770 1,241
19% 9%
Table 6: Switching Value Financial Appraisal Results for the Project Change in variable required to make FIRR=2.1% and NPV=0 338% increase of total project construction cost 15 Year delay of in-service date of project facilities -224% lower domestic average end-user tariff in Afghanistan -89% lower wholesale tariff to DISCOs Figure 5: Project FIRR Sensitivities
Figure 6: Project FIRR Sensitivity to Construction Delays
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71. The financial condition of the implementing entities in the Kyrgyz Republic, Tajikistan and Pakistan is overall poor largely due to insufficient revenues and/or cash collections; however, the financial sustainability of the project (including their ability to properly operate and maintain the infrastructure built under the project, service the debt and, for importing countries, to make timely payments for imports) should not be jeopardized due to the following reasons: (i) the transmission component of the bundle export tariff should ensure full recovery of investments for the Kyrgyz and Tajik implementing agencies and recovery of the HVDC transmission line necessary for power transit to Pakistan by DABS; (ii) the project is financially viable for all four implementing entities and, therefore, will accrue net positive cash flows for each of them; (iii) a larger share of the payments under CASA-1000 PPAs will come from NTDC which represents less than 3% of its overall annual payments for power purchases, while the remaining will represent a larger portion (less than 50 percent) of the annual payments made by DABS, which has demonstrated a sound financial situation and a good track record for payment for past imports; (iv) critical sector reforms in Pakistan are under discussion to strengthen its long term financial viability; and (v) through other operations, the Bank is supporting the participating countries with facilitating their energy tariff reforms and with improving operational efficiency of the implementing entities, which should further improve the financial standing of these companies. B. Technical 72. The proposed CASA-1000 project will build a cross-border power trade facility, comprising about 475 km of 500kV HVAC transmission lines to carry power from Kyrgyz Republic to Tajikistan at Khudjand; a 1300 MW HVDC converter in Tajikistan and thereafter a 750km long ±500kV HVDC transmission link via a 300 MW HVDC converter in Kabul, to a 1,300 MW terminal with HVDC converter facilities in Pakistan. The AC to DC converter station would be designed to help power trade in any direction and would offer significant emergency system support to the national grids of the countries connected through HVDC system. 73. The concept of the CASA-1000 project was developed through a series of sector studies and analytic work, beginning with a Phase I pre-feasibility study (2007) of the viability of such a trade arrangement from Kyrgyz and Tajikistan through Afghanistan to Pakistan. This was further developed through a feasibility study in 2009. This feasibility study was updated in December 2011 and is the basis of the currently proposed investment project. 74. It is well established in international practice that HVDC has significant financial, technical and commercial advantages over HVAC. On the other hand, HVAC systems are more appropriate for the import and export of surplus power over short distances between neighboring countries, especially where the transmission networks are well developed. Increasingly HVDC and HVAC systems are used in conjunction with one another to improve system reliability and to facilitate the operation of large, regional systems. CASA-1000 does not foreclose on any of the plans set out in the Afghanistan Power Master Plan for the period to 2032; indeed it complements other plans for the wheeling of domestic and imported power as set out in the Master Plan.
28
Main Technical Issues Synchronization 75. The major obstacle to power trading in the region is the inability of the various neighboring grids in the Central Asian countries, Afghanistan and Pakistan to be synchronized with each other. As a consequence, several domestic Afghan grids currently operate in island mode to facilitate power imports from Central Asia. The need for islanding is also exacerbated because those exporters do not permit Afghanistan to synchronize its domestic generation to their grids given the weak Afghanistan system. HVDC technology Proposed under CASA-1000 76. When large volumes of power are to be transmitted over long distances, in excess of 600 km apart, the use of HVDC over HVAC is recommended because of the low cost of the HVDC transmission lines and smaller overall losses. Moreover, the use of HVDC technology will also enable Afghanistan and Pakistan to interconnect with its neighboring asynchronous systems and will provide additional stabilizing functions. Route selection and possible alternatives 77. The CASA-1000 feasibility study proposes a route for the line that takes into consideration cost effectiveness, security (especially in Afghanistan and Pakistan to avoid areas that would require significant demining), terrain to facilitate easier operations and maintenance and minimizing social and environmental impacts. For the most part the line traverses a manageable topography with an exception of a narrow and high mountain range in Afghanistan known as the Salang Pass which offers the most direct route linking the North East Power System (NEPS) with Kabul. In the possible scenario of space constraint in that area, alternative options to bypass the Salang pass are also being studied. The final route will be designed by the transmission line contractor within the first year of the contractor’s scope of work. Extensive Coordination Requirement 78. One of the key technical challenges for a project of this nature is in the level of coordination required within each member country as well as among the four countries to ensure alignment throughout the project’s development and implementation phases in order for the power trade to succeed. The countries are setting up implementation mechanism, like a common Owner’s Engineer for HVDC coordination and similar one for the HVAC system that should help with this challenge. C. Financial Management 79. An FM assessment was carried out to ensure that the implementing entities in the participating countries have acceptable FM arrangements with respect to the funding provided by
29
the Bank 7 to have an adequate assurance that funds are used for their intended purposes. The FM assessment summarized below was carried out for the following implementing entities which will be responsible for executing the project: NEGK in Kyrgyz Republic, Barki Tajik (BT) in Tajikistan, DABS and Ministry of Energy and Water (MEW) in Afghanistan, and NTDC in Pakistan. Overall, the project FM risk is rated as substantial largely due to the complexity of the project requiring coordination across four countries, weak FM capacities in some of the implementing agencies and volatile security situation in the project area limiting the ability to conduct physical verification. However, most of the project funds will be spent on a few construction contracts spread over several years using direct payments and special commitments. With the agreed FM arrangements for the project as described in the PAD, they are considered adequate and acceptable. 80. Support for project implementation and TA required by the project implementing agencies (Component B) and for the CSPs (Component C) are to be financed through IDA/ARTF (for Afghanistan) and the MDTF (for the other countries). Consequently, the FM assessments for CSP and other expenditures to be funded under Component B through IDA/ARTF/MDTF for the respective countries, as applicable will be finalized during the preparation of the ARTF/MDTF project respectively. 81. There are varying features of the public financial performance of the participating countries in the project, which may not play a notable role in the performance of the proposed project as it will be implemented mainly by the public sector entities, NEGK (Kyrgyz Republic), BT (Tajikistan), DABS and MEW (Afghanistan), and NTDC (Pakistan). Nevertheless, the various World Bank funded operations would support the CASA-1000 project as a whole in enhancing transparency and accountability from the country perspective. In the Kyrgyz Republic, the preparation of a series of DPOs resulted in the Government adopting the regulatory framework for the transparent and targeted use of export revenues in the electricity sector, which will also be used under CASA-1000. In Tajikistan, BT is supported through a Financial Management Improvement Program (FMIP) to improve its financial management system under the Bank-funded Energy Loss Reduction Project (ELRP) and the activities are expected to be continued under CASA-1000. In Afghanistan, there is an ongoing Public Financial Management Reform Project II which enhances the fiduciary measures put in place during the past years. 82. All the implementing entities will submit quarterly Interim Financial Reports (IFRs) to the Bank within 45 days after the end of their respective quarter. The project audited financial statements together with the auditor’s opinions and the management letters will be provided to the Bank within six (6) months of the end of the fiscal year, and will be made public in a manner acceptable to the World Bank. The receipt of entity audit reports will be monitored through an intermediate results indicator.
7
From the perspective of planning and budgeting, accounting, funds flow, internal controls, financial reporting and auditing arrangements.
30
Disbursements 83. The activities under Component A (IDA Credits/Grants) will be financed through direct payments by the Bank and special commitments. The documentation for the supporting expenditures will be retained at each Implementing Agency and will be readily accessible for review by the external auditors and periodic Bank implementation support missions. The disbursement details are provided in the Disbursement Letter and all disbursements will be subject to the conditions of the Credit/Grant Agreements and disbursement procedures as defined in the Disbursement Letter. Except for selected activities in Afghanistan under Component B to be financed from IDA, the disbursement arrangements under Components B and C would be finalized as part of the funding of ARTF and/or MDTF projects, as applicable. It is expected that in addition to the direct payments and special commitment, advances and reimbursements to the Designated Accounts (DA) will be used by the implementing agencies. The DA will be audited annually in conjunction with the audit of the project as specified in the audit arrangements. Further details provided in Annex 3. 84. For activities under component B and C, the disbursement arrangements would be finalized as part of IDA financing, MDTF and/or ARTF, as applicable. For Afghanistan, the project funds will be deposited in the Designated Accounts (DA) to be opened and maintained at the Da Afghanistan Bank (DAB) for MEW. The Implementing Agency will be responsible for submitting quarterly replenishment applications with a reconciled bank statement and IFRs (NTDC) or appropriate supporting documentation in accordance with the Disbursement Letters. The implementing entities will also be submitting quarterly Interim Financial Reports (IFRs) to the Bank. The Designated Account will be audited annually in conjunction with the audit of the project as specified in the audit arrangements. The project audited financial statements together with the auditor’s opinions and the management letters will be provided to the World Bank within six months of the end of the fiscal year. Further details on this are stated in implementation arrangements under the financial management section. D. Procurement 85. The project procurement is complex and the nature of the major procurement packages requires close coordination among the four implementing countries. Market conditions and security concerns along the route of the proposed transmission line add to the complexity of the project as do the possibility of co-financing by other multilateral institutions. Hence the project’s implementation arrangements include an intergovernmental mechanism for the procurement and contract management decision-making process for the joint procurement packages for the countries. The IGC has established through a resolution a Procurement Committee, comprising of senior technical and procurement staff designated by each country, to carry out all the work needed on behalf of the parties to oversee and bring conclusion to the procurement process leading to award of the contracts by the IGC and signed by the NTCs except the procurements meant for a particular NTC, which will be handled by that NTC. The responsibly will be further elaborated in the Procurement Plan. This has helped in streamlining the joint procurement process. The NTCs will follow their respective corporate procedures for internal clearances of all procurement and contract awards and assist this committee.
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86. The main large and complex procurements under the project include the HVDC stations in three countries, HVDC and HVAC transmission lines and O&M contracts. Although the implementing agencies have some experience in managing large and complex contracts, they do not have sufficient resources to help with drafting of the Pre-Qualification (PQ) / bidding documents and the evaluation reports, hence, these functions are being facilitated by an international engineering consulting company that has already been appointed by IFC. Progress in the procurement process for several of these packages has already been made, with the launch of the prequalification process for selection of the DS&I contract for the three HVDC converter stations and Operation and Maintenance of the complete HVDC system, including HVDC line. PQ applications were opened on January 10, 2014 and the evaluation is in progress. 87. Procurement for the Bank financed portion of the proposed project will be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and NonConsulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply. Consultation with other potential financiers are currently in progress and implementation arrangements for contracts financed by sources other than the Bank will be finalized in accordance with those consultations. 88. In Tajikistan, BT, the state-owned utility responsible for generation, transmission, and distribution of electricity, is the designated project implementation agency responsible for the overall project implementation. Some of the project’s fiduciary functions would be outsourced to the Central PIU. In the Kyrgyz Republic, NEGK, the state-owned Transmission Company is the designated utility responsible for the overall project implementation, including the project’s fiduciary functions. Within the NEGK, the External Communications and Project Implementation Department is responsible for project implementation. In Afghanistan, DABS, the state-owned power utility company will be mainly responsible for project implementation, but MEW will implement some limited aspects of procurement as well. In Pakistan, NTDC, the national electricity transmission company will be the Implementing Agency. The procurement units in each of the agencies will be charged with carrying out procurement. Procurement assessments for each of the implementing agencies have been carried out. While procurement decisions related to more than one member country will be elevated to the Procurement Committee, procurements exclusive to each member country will be carried out independently by the respective country’s Implementing Agency. 89. Due to the complexity and the large scope of CASA-1000, the procurement risk for the project is rated as ‘high.’ To mitigate the procurement risks BT, NEGK, DABS, MEW and NTDC will implement measures agreed with the Bank which would include: (i) allocating adequate human resources for the project’s fiduciary functions – including, where necessary, hiring of procurement specialist to augment capacity; (ii) intensive training for the designated procurement staff on the Bank’s DS&I type bidding documents and procedures prior to project’s effectiveness; (iii) ensuring quality preparation and review of technical specifications/Terms of
32
Reference (TOR), Bid Evaluation Reports and the final deliverables; and (iv) putting in place an efficient contract monitoring mechanism designed to maximize overall value for money of contracting activities. More detailed findings of the assessment, the proposed procurement arrangements, and measures to address the identified risks are presented in Annex 3. The Procurement Plan covering the first 18 months of the project implementation is under preparation and will be finalized by negotiations. E. Social (including Safeguards) 90. Social surveys were carried out among representative samples of the communities along the proposed transmission line corridor in the four project countries. The surveys provided an ethnic and socioeconomic profile of the communities and reviewed the overall status of development in the project areas. As part of the surveys, community consultations were conducted on general development priorities as well as on the potential and perceived adverse social impacts of the project. The surveys showed that the potential project area, in all countries, is mostly rural with a low population density. Other characteristics of the communities include high dependency on agriculture for livelihoods, limited access to energy during the winter, and variability in access to basic social services. Groups potentially vulnerable to economic shocks and difficulties in accessing services were identified, including female-headed households, households with more than one family living together, rural families not involved in agricultural production, and households with more than one family. It is anticipated that the project will finance investments such as towers, sub-stations, and access roads, which will require the involuntary acquisition of land, restrictions to use of land both temporarily and permanently, and possible loss of crops and assets. It is not expected that land taking will be significant as the broad project area is mostly rural and sparsely populated. Height of vegetation will be restricted under the Transmission Line. Although this is expected to have limited impact on economic crops, there may be some impacts on community infrastructure. Project design will also be attentive to areas of potential dispute and will avoid the areas that include the Uzbek and Tajik enclaves in the south of the Kyrgyz Republic. 91. Considering that the alignment of the corridor is yet to be finalized, country-specific Resettlement Policy Frameworks (RPFs) have been developed in line with the relevant legal policies in the respective countries and the World Bank OP 4.12 on Involuntary Resettlement to guide future detailed resettlement planning and implementation. The frameworks describe the overall possible impacts, project policies including its entitlement policies, resettlement planning, institutional and implementation arrangements, including grievance redress and monitoring mechanisms. The draft RPFs have been disclosed in local languages and finalized based on the consultations. Field surveys also reflect that the ethnic communities in the project areas do not fall under the definition of indigenous peoples as per World Bank OP 4.10 and therefore this policy is not triggered under this project. 92. Field consultations indicate high expectations from local communities to benefit from the project. The social surveys assessed the community development priorities and recommended interventions to assist the communities with their development needs. On the basis of the community feedback, CSPs will be designed and implemented in each of the four countries within the corridor of impact of the project. These programs will assist in the governments’ poverty alleviation efforts to improve the well-being of the communities along the corridor of the 33
project transmission line, with the aim of fostering a partnership between the project agencies and local communities and create a safer and supportive environment for the construction phase and will be continued (albeit in a different form during future operation of this transmission line) by means of a mechanism to share some of the project benefits as agreed to by the IGC. 93. The programs will adopt community-driven approaches in their planning and implementation, following established institutional and operating modalities for rural development in each of the four countries. The programs will pay particular attention to ensuring that women are included in decision-making and are well-placed to benefit from the projects. The recent gender diagnostic for Tajikistan, for example, points to constraints in women’s agency in the private and public spheres. The programs will adopt appropriate methods of ensuring that women are actively engaged in decision-making. During the project construction phase, these programs will be funded either through extension of active programs or through funding from other development partners. They will be supported during the operational phase through a fund to be established with contributions from power tariff. F. Environment (including Safeguards) 94. The CASA-1000 has been under preparation for a number of years and has therefore been the subject of several Environmental & Social (E&S) investigations by international consultants which include: a. Environmental and Social input to the initial Feasibility Study (2009); b. Environmental and Social Impact Assessment (ESIA) and Environmental & Social Management Plan (2010); c. Project Feasibility Study Update (2011); d. Avian Risk Assessment and Management Study (2012); e. Social Impact Assessment on the social and community aspects through targeted consultation and early work around potential community support initiatives (2012); f. Regional Environmental Assessment (REA) (2013); and g. A range of stakeholder consultations on the project since its development concept. 95. The REA encapsulates all the above stated studies and updates with additional evaluation and incorporation of the avifauna work and overall consultations undertaken on the cumulative body of assessment work. The REA summarizes potential primary impacts from construction of transmission lines within a broader corridor of two km width, and follows a framework approach with detailed guidance for preparing country specific ESIAs and several specific Management Plans (MPs) by independent EA consultants that would meet the requirements of respective national laws and applicable Safeguards Policies of the World Bank. 96. The final routing/alignment of transmission lines and exact location of DC-AC converters, substations and footings for towers would be defined later by the DS&I Contractor(s) after carrying out detailed route surveys and a consideration of the site-specific environmental and social aspects through further country-specific ESIAs carried out by independent consultants which will be approved by the respective Recipients and the Bank. 97. Legal Framework. The REA presents details on the relevant legislation within the participating countries, which show several existing discrepancies between EA/World Bank and 34
National requirements. As with all World Bank assisted projects, the standard of the safeguards that will be applied will be the strictest of national law and those of the Bank. Any gaps or conflicts between the two sets of standards will be fully expounded in the subsequent countryspecific ESIAs and there are mechanisms in place to ensure that the more rigorous standard is adhered to. This is particularly the case in aspects like public consultation and potential resettlement impacts. The following Operational Policies of the Bank are applicable to the CASA-1000 project: a. OP 4.01 (Environmental Assessment): The project is rated Category ‘A’ because it involves green-field construction of more than 1,000 km of high voltage Overhead Transmission Lines (OTL), crossing four countries with potential adverse environmental and social impacts that in some cases might be significant due to the fact that proposed civil works will be implemented in/or in the vicinity of environmentally sensitive areas. The above referred environmental reports indicate that the current practices followed by the four participating countries to maintain the right of way (ROW) free of vegetation don’t involve use of pesticides or herbicides. The final routing and alignments in each country would be guided by country specific ESIAs (as stated above) and will avoid any impacts on physical cultural resources and the ESIAs will include detailed chance find procedures. b. OP 4.04 (Natural Habitats): The proposed project is not expected to cause significant impact to critical and natural habitats. Also, the project is not expected to cause significant impact to critical and natural forests as it will not include any plantation activity, commercial harvesting or harvesting conducted by small-scale landholders or local communities. However, the Avian Risk Assessment and Management study identified the presence of several Important Birds Areas (IBAs) and Ramsar sites in the vicinity of the project areas that need to be studied during the detailed design phase and as part of country-specific ESIAs. The Kyrgyz government requires an analysis of important avian fauna risks for the entire segment of the line within their territory and not limited to the already identified Important Birds Areas or Ramsar sites. This will be carried out as part of their country-specific ESIA. Furthermore, during the construction phase (and potentially during the operations stage), there will be some removal of vegetation for right-of-way maintenance and for access roads and other associated facilities. The construction and operation may also cause disturbance or increased pressures to fauna. All these potential impacts and relevant mitigation and monitoring activities will be studied as part of the OP 4.04 requirements and included in the respective country specific EIAs and EMPs. 98. Baseline Analysis. In general, the land across large sections of the project route is characterized by steep mountainous terrain, often in semi-arid conditions and very limited or no agricultural activity across large swathes. The proposed route is located in mostly remote areas which are sparsely populated, only some areas in Pakistan (Peshawar and Machi) and in Kyrgyz Republic (Jalal-Abad, Osh and Batken) are more densely populated. Overall the proposed transmission line route passes through the areas which are poorly vegetated and supports low biodiversity as well as a limited number of settlements/villages, and in some areas - cultivated land, water courses and community infrastructure. From an avifauna perspective the project route
35
lies within two international flyways, through which bird populations traverse on seasonal migratory movements. Within the entire TL there are five Important Bird Areas (Tigrovaya Balka Nature Reserve in Tajikistan; Imam Sahib, Salang Kotal, Kole Hashmat Khan and Jalalabad Valley – in Afghanistan) and one Ramsar site - Lower part of Pyandj River located at the border between Afghanistan and Tajikistan. These natural habitats will require particular study in the ESIA to be prepared for participating countries. 99. Analysis of Alternatives. The REA includes analysis of several alternatives for their potential environmental and social impacts, results of which guided the initial selection of alignment and location of towers and other key infrastructure facilities. These include: The noproject option; alternative projects; different alignments or sections of alignment for the Transmission Line (TL); Different locations of towers and other key infrastructure, within operational constraints; and Different construction methods, timings and other constructionrelated modifications, including those needed for minimizing potential avian risks. 100. Potential environmental impacts. The broad conclusion of the REA and previously conducted EA studies is that overall E&S adverse impacts are considered to be limited and of low to moderate nature, due to the lack of protected areas and high value biodiversity areas; the general avoidance of heavily populated communities; and the existence of sufficient flexibility to adjust the TL and infrastructure to avoid any ‘local’ sensitive features that might be encountered during subsequent country specific ESIA work. 101. Construction related impacts are likely to be short term and site specific and can be mitigated by applying internationally recognized best construction practices. Typically such impacts are related to aspects such as: (i) location, establishment and operation of the construction camps; (ii) construction of about 3000 towers required to support the TL in four countries; (iii) routing and construction of the many access roadways required throughout the length of the project; (iv) soil resource management and the need for erosion control; (v) physical cultural resource; and (vi) a range of security issues (including unexploded ordnance and land mines), particularly associated with the on-going conflict in Afghanistan and some associated security issues in parts of Pakistan as part of working in tribal regions. 102. The Avian Risk study revealed both generic risks to birds within strategic flyways (global or regional migratory routes used by birds) as well as individual habitat areas valuable to birds, such as IBAs and Ramsar sites. The fieldwork recommended by the study should be done as part of country-specific ESIAs, based on what avian risks can be clarified. Overall the preliminary assessment concludes that by applying relevant avoidance and mitigation measures the avian risks can be significantly reduced. 103. The REA includes an analysis of the potential downstream hydrological impacts of the project and concludes that if the project is operated as designed, there will be no impacts on water releases from the Toktogul and Nurek HPPs, as compared to the existing pattern of releases from these facilities. This analysis is based on information available from the feasibility study and other studies in the region, as well as from the public domain. The basic premise for the CASA-1000 project is that the Central Asia countries have existing (in the Kyrgyz Republic) or potential (in Tajikistan) surplus of clean energy in summer from their existing hydropower
36
plants without new generation, which is supported by the analysis of past exports and spillage of water without running through turbines, that could be used to offset shortages in South Asian countries, particularly Afghanistan and Pakistan and the planned energy exports over the CASA1000 to Afghanistan and Pakistan. The summer surplus is primarily linked to the operation of the Nurek and Toktogul reservoirs, which regulate the releases in the Vakhsh River (Tajikistan) and the Naryn River (Kyrgyz Republic) respectively, and, thus, control the generation at the cascades on these two rivers. The designed transmission capacity of the CASA-1000 project and, therefore, the estimated volumes of electricity export and corresponding water releases under CASA-1000 project from both the Kyrgyz Republic and Tajikistan will remain within the range of historic maximum and minimum parameters. Furthermore, the energy exporting countries confirmed that water releases from the Toktogul and Nurek HPPs will be made taking into account the irrigation requirements of the downstream countries and prioritizing supply to meet the domestic demand. The above information was taken into account in the analysis as to whether or not OP7.50 – Projects on International Waterways, should be applicable to the project. In this analysis, it was considered relevant that the project would not lead to changes in downstream flows. On this basis, it was concluded that OP7.50 is not applicable and no riparian notification of the project is necessary. 104. The proposed project will not be financing any new dam construction or making any modifications to existing dams and the bulk of the electricity will be from the excess power generated by the two large dams - Toktogul in Kyrgyz Republic and Nurek in Tajikistan. On this basis, it was concluded that OP4.37 – Safety of Dams is not applicable. The Bank has financed the following two separate assessments under the Water and Environmental Management Project in March 2000: (a) Nurek Dam Safety Assessment; and (b) Toktogul Dam Safety Assessment. As a follow-up to these assessments, the Bank and ADB are currently financing additional assessments of safety of the two dams, respectively to enhance their management. The Bank is working closely with the Nurek dam authorities to monitor the findings, recommendations and follow-up actions associated with this process as they may be relevant to the CASA-1000 and will work closely with the ADB to monitor the findings, recommendations and follow-up actions on the Toktogul Dam Safety Assessment they may be relevant to the CASA-1000. Environmental Management Plan (EMP) 105. The EMP section of the REA contains details on the scope and methodology for the country-specific ESIAs themselves, along with organizational elements for environmental management and guidance on the TOR for the engagement process of the ESIA Consultant, including guidance on deciding on alignment changes and preparation of various Management Plans to mitigate some of specific impacts such as: site preparation and restoration, safety, health impacts etc. The EMP provides a framework approach to guide future development of specific EMP plans and sub-plans by the ESIA Consultant, and the DS&I Contractor. The EMP contains guiding principles and procedures for communication, reporting, training, monitoring and plan review to which all project personnel, contractors and subcontractors are required to comply with throughout the preconstruction and construction phases of the project. An operation phase EMP will be subsequently developed by the NTCs during the construction phase of the proposed project. The funding for development of the EMP is included in sub-component B2.
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106. Consultations to Date. A variety of consultations have occurred to date, commencing at the project identification stage and carrying through to the Feasibility Studies, which included preliminary environmental studies. Following this phase, a round of consultations were initiated when IEL were commissioned to undertake the ESIA. The NTCs/ Ministries in each of the four countries were invited and assisted to conduct consultations on the TOR for the ESIA. A web site has been established for the project (http://www.casa-1000.org), making the project available for web users across the participating countries. This is a useful mechanism for consultation, but of course is limited to internet users. 107. Disclosure and Consultation. The draft safeguard instruments have been disclosed in all four countries in English, Russian (in Tajikistan and Kyrgyz Republic) and local languages as appropriate. The instruments have also been made available in hard copies in public locations in relevant capital cities, regional/provincial/district headquarters in the proposed project area. Table 7 below summarizes the disclosure for each document per country and appropriate language. The documents have been also disclosed in the World Bank InfoShop at the time they have been disclosed in-country. The draft REA Summary has been distributed to SECPO on November 20, 2013. Consultations have been carried out between December 2013 and January 2014 in capital cities as well as regional centers in the proposed project areas. Relevant Government Ministries and Departments, local and regional authorities, the NGO sector, Project Affected Communities (PACs) and Project Affected People (PAPs) and interested parties engaged in the process. Overall the safeguards documents have been accepted by participants with minor revisions done on the REA and RPFs. The recommendations made will be taken into consideration in developing the country-specific safeguards instruments to address site specific aspects, including land take, potential resettlement, socio-economic impacts, access to work sites, and employment aspects, etc. The final documents have been disclosed following the conclusion of public consultations and will also be disclosed in the World Bank InfoShop. Table 7: Summary of Disclosure of Safeguard Documents Country
Language
Afghanistan
English, Dari, Pashtu English, Urdu
Pakistan
Date of disclosure 11/25/2013
11/11/2013
Date and location of consultations January 7, 2014 (Kabul) January 8, 2014 (Jalalabad) January 11, 2014 (Kunduz) December 23, 2013 (Peshawar); December 24, 2013 (Islamabad)
Kyrgyz Republic
Kyrgyz, Russian
11/15/2013
December 18, 2013 (Bishkek); December 20, 2013 (Batken)
Tajikistan
English, Russian, Tajik
11/13/2013
December 4, 2013 (Dushanbe); December 6, 2013 (Khudjand); December 9, 2013 (Kurgan Tyube)
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Place of disclosure Ministry of Energy and Water website: http://mew.gov.af/en NTDC website: http://www.ntdc.com.pk/CASA_1000.p hp and Ministry of Water and Power website: www.mowp.gov.pk Ministry of Energy and Industry website:http://www.energo.gov.kg/site/i ndex.php?act=view_cat&id=28 Ministry of Energy and Industry website http://www.minenergoprom.tj/view_post t.php?id=401
Annex 1: Results Framework and Monitoring Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) Project Development Objective (PDO): to create the conditions for sustainable electricity trade between the Central Asian countries of Tajikistan and Kyrgyz Republic and the South Asian countries of Afghanistan and Pakistan. Cumulative Target Values
Data Source/ Methodology
Responsibility Description (indicator for Data definition etc.) Collection
Unit of Measure
Baseline (CY 2013)
CY 2014
CY 2015
CY 2016
CY 2017
CY 2018-2020
Indicator One: Trade initiated between the participating countries
Yes/No
No
No
No
No
No
Yes
Annual
NTCs/utility database
NTCs
Indicator Two: Commercial framework between the countries is established and operational
Text
Not established
Master Agreement and PPAs signed
Master Agreement and PPAs effective
Master Agreement and PPAs effective
Account Bank Agreements signed and Technical Code Finalized
Annual
NTCs/utility database
NTCs/IGC Secretariat
Text
IGC Secretariat and JWG established
IGC and JWG established
IGC Secretariat and JWG strengthened
IGC and JWG meetings held
IGC and JWG meetings held
All Core Project agreements including Account Bank, Technical Code finalized IGC and JWG meetings held
Annual
IGC/JWG Meetings
IGC Secretariat
Indicator Four: Transmission lines constructed under the Project
km
0
0
0
0
700
1,300
Cumulative
NTCs/utility database
NTCs/IGC Secretariat
Core
PDO Level Results Indicators
Indicator Three: Institutional mechanism for project sustainability is in place
⌧
39
Frequency
Commercial flows of electricity traded under at least one of the PPA between at least one of the sellers and one of the buyers. Number of commercial framework agreements signed and implemented.
Ensure coordination and decision-making processes and capacity are established Total extension of new transmission lines constructed under the Project
INTERMEDIATE RESULTS
Intermediate Result indicator One: Construction contracts signed for HVDC converter stations Intermediate Result indicator Two: Construction contracts signed for HVDC line Intermediate Result indicator Three: Converter stations constructed under the Project Intermediate Result indicator Four: HVDC line constructed under the Project Intermediate Result indicator Five: HVAC line between the Kyrgyz Republic and Tajikistan constructed under the Project Intermediate Result indicator Six: Indirect Project Beneficiaries 8
Core
Baseline Cumulative Target Values (CY CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 2013) Component A: Construction of a High Voltage Transmission Infrastructure Intermediate Results Indicators
⌧
Unit of Measure
CY2020
Frequency
Data Source/ Methodology
Responsibility Description (indicator for Data definition etc.) Collection
Yes / No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Cumulative
NTCs/utility database
NTCs/IGC Secretariat
Yes / No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Cumulative
NTCs/utility database
NTCs/IGC Secretariat
Number
0
0
0
0
2
3
3
3
Cumulative
NTCs / utility database
NTCs/IGC Secretariat
km
0
0
0
0
750
750
750
750
Cumulative
NTCs/utility database
NTCs/IGC Secretariat
km
0
0
0
0
0
475
475
475
Cumulative
NTCs/utility database
NTCs/IGC Secretariat
number
0
0
0
0
0
27,500,000
28,500,000
30,000,000
Annual
NTCs/utility database
NTDC, DABS
8
Electricity consumers in Pakistan and Afghanistan benefiting from increased electricity supply.
The mandatory core indicator ‘Direct Project Beneficiaries’ is not applicable. Direct benefits for the end-user are difficult to define due to the nature of the project which does not finance electricity distribution. Therefore, it is more accurate to define the total customer base in Afghanistan and Pakistan as indirect project beneficiaries.
40
INTERMEDIATE RESULTS Core
Baseline Cumulative Target Values (CY CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 2013) Component B: Project Management and Capacity Building Intermediate Results Indicators
Unit of Measure
CY2020
Frequency
Data Source/ Methodology
Responsibility Description (indicator for Data definition etc.) Collection
Intermediate Result Yes/No No indicator One: Owners Engineers hired and in place Intermediate Result Yes/No No indicator Two: Timely Audits carried out of the Entity Audits within 9 months of the closure of financial year Intermediate Result 0 0 indicator Three: Number of staff receiving knowledge transfer on HVDC technology/ Transmission Dispatch Component C: Community Support Program
No
Yes
Yes
Yes
Yes
Yes
Yes
n/a
NTCs / IGC Secretariat
NTCs / IGC Secretariat
No
Yes
Yes
Yes
Yes
Yes
Yes
n/a
NTCs / IGC Secretariat
NTCs / IGC Secretariat
0
10
10
40
40
40
40
Annual
NTCs / IGC Secretariat
NTCs / IGC Secretariat
Intermediate Result indicator One: Development of operational manual for the Community Support Programs Intermediate Result indicator Two: Agreement on financing for operations phase
Yes/No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
NTCs / IGC Secretariat
NTCs / IGC Secretariat
Yes/No
No
No
No
Yes
Yes
Yes
Yes
Yes
n/a
NTCs / IGC Secretariat
NTCs / IGC Secretariat
41
Number of NTCs/national consultants/contractor staff involved in HVDC activities and Transmission dispatch during design and construction phases
Annex 2: Detailed Project Description Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) 1. Background. The CASA-1000 project is based on a feasibility assessment carried out by an international consultant on behalf of the four countries. The project envisages a transmission interconnection between the Central Asia and South Asia Regions that would be used to export surplus electricity in the summer from existing generation capacity in Kyrgyz Republic and Tajikistan to energy-deficient Afghanistan and Pakistan. The feasibility confirmed the soundness of the considerations that led to the CASAREM initiative to develop a regional market on the basis that: a. sufficient quantities of surplus electricity are available in the Central Asian countries (the Kyrgyz Republic and Tajikistan), even under conservative estimates of no new generation project; b. a significant need for electricity imports exists in South Asia (particularly Pakistan) to meet existing and projected demand; and c. the differences in the cost of electricity between the importing and exporting countries potentially provide a justifiable rationale to make transmission investments to support the electricity trade. 2. Energy Supply. The proposed project is based on an export potential defined as the power available from existing and committed supply in the exporting countries minus the domestic demand and the binding commitments of exports of the seller countries. Data from hydrological years from 1987–2009 were used to simulate possible scenarios/sequences of water inflow based on Monte Carlo probabilistic scenarios. Based on information provided by the Kyrgyz Republic regarding agreements with riparian states, the flow of the Toktogul HPP was limited to 600 m3/second in the winter months (October–March). In addition, it was suggested to have the reservoir level above a minimum value of the 10,000–12,000 Hm3 needed in the beginning of the summer (April 1). The Nurek reservoir modeling was based on the actual operating mode wherein the Nurek reservoir is fully filled in summer and lowered in winter so as to utilize all the available storage and reduce as much as possible the winter deficits. 3. Import Potential of Pakistan. The generation expansion plan for Pakistan provided by NTDC is very ambitious, showing the total installed generation capacity of 22,697 MW in 2010– 11 nearly doubling (42,350 MW) in 2015–16 and increasing to nearly three times (63,683 MW) in 2020–21. The expansion plan includes the commissioning of the CASA-1000 transmission line in the year 2016. In view of the huge capital requirements and implementation issues, it will be difficult to build all the generation capacity planned, and thus the CASA-1000 or similar import projects would be important contributors to alleviate electricity shortages in Pakistan. 4. Import Potential of Afghanistan. Significant efforts are being made to develop the generation capacity within the country and to import electricity from neighboring countries. It is estimated that in the initial years of CASA-1000 operation, Afghanistan may not be able to absorb the complete share of power envisaged under CASA-1000. This has implications for the
42
optimum configuration of the project and its economic viability. As a result, the installation of a 1,300 MW converter in Pakistan, instead of a 1,000 MW converter, was considered in the feasibility update to facilitate the use of all the available power on the CASA-1000 system. 5. Exportable Surplus. Power exports from the Kyrgyz Republic and Tajikistan are limited to surplus power available from the existing generation capacity after meeting forecast summer demand and that could be transmitted under the project during the evaluation period. This conservative scenario avoids incorporating the substantial uncertainty about the future development of power generation capacity in these countries. 6. Transmission Line Routing. Given security considerations, such as demining, and access requirements for repair and maintenance, the feasibility update concluded that the line routing recommended in the original study is still deemed the most suitable. For the space constraint in the Salang Pass, it is recommended that approximately 7 km of the existing double circuit 220 kV line (part of the North East Power System (NEPS) connecting Uzbekistan through Pul-eKhumri to Kabul) be relocated to provide space for the CASA-1000 HVDC line. This would be done by relocating the existing 220 kV line closer to the mountain on steel tubular poles with insulated arms and shorter spans to limit the conductor swing, and routing the proposed HVDC line on steel tubular poles as well but closer to the tunnel. 7. Open Access Rules and Procedures. One of the key characteristics of the project design is the provision of open access by third-parties to the CASA-1000 transmission system for power trading during the non-supply period (or the period where the countries have committed to fully utilize the line). The CASA-1000 countries all agree to this principle and as such are developing appropriate ‘open access’ rules and procedures to manage and facilitate these future transactions. This includes defining the participants in the transaction(s), access charges, main characteristics of the allocation mechanism of capacity to third parties, contracting arrangements, operational planning and congestions management including responsible for dispatch and management of the transactions. Given the limited experience in the region on third party access, it is important to develop this in a phased manner. The CASAREM vision of a regional market is a medium to long term vision, hence, it is critical to begin with the implementation of open access principles with simple mechanisms including medium to long term contracts (as opposed to spot markets or explicit auctions) although the latter models are being considered for long term implementation. The complete rules and guidelines are being developed with the assistance of an international consulting firm with expertise in open access systems and in the design of electricity markets. 8. Description of Project Components. Based on the analysis carried out in the feasibility study, the project would consist of the following components. A diagram describing the scheme is shown as Figure 7. Component A. Construction of High Voltage Transmission Infrastructure 9. Sub-component A1 – HVDC Transmission Line (US$295 million). Construction of about 750 km of 500 kV HVDC overhead transmission line to interconnect the electricity network of Tajikistan, at the Sangtuda substation, with the Pakistan network, at the Peshawar substation, via Kabul substation in Afghanistan. The line will have a transmission capacity of
43
1,300 MW in either direction, using a bipolar and earth-return configuration and consists mainly of self-supported lattice tower structures, conductors, and insulators. About 120 km of the line will be in Tajikistan, 560 km in Afghanistan, and 70 km in Pakistan. This would also include the necessary line connectivity to link the HVDC converter stations with the AC systems of the countries. 10. Sub-component A2 – HVDC Converter Stations (US$385 million). Engineering design, construction, and commissioning of three HVDC converter stations: Sangtuda (1,300 MW) in Tajikistan, Kabul (300 MW) in Afghanistan, and Peshawar (1,300 MW) in Pakistan. These convert AC power into DC, and vice versa, as needed. The converter stations main equipment include specialized converter transformers, breakers, filtering equipment, inverters, controls, ground electrodes, and static and dynamic compensation equipment. 11. The HVDC converter stations are an integral part of the CASA-1000 transmission system. The stations primary purpose is to rectify the power (from AC to DC) in order to transfer the Kyrgyz and Tajik power supplies through the HVDC line to Kabul and to Peshawar where the converter stations there would invert the power from DC to AC in order to be absorbed into the Afghan and Pakistan grids, respectively. The estimated time for completion of this component is 36 months from the effective date of the contract. 12. The scope of works of this package shall consist of engineering, design, manufacturing, testing, supply, installation and commissioning of the following: a.
1,300 MW converter station at Sangtuda in Tajikistan;
b.
300 MW converter station at Kabul in Afghanistan;
c.
1,300 MW converter station at Peshawar in Pakistan;
d. Repeater stations at required locations for communication link through optical ground wires; e.
Electrode stations at Sangtuda, Kabul and Peshawar;
f.
AC line bays in the existing s/s in Tajikistan: i. Internet and communication technology bay at New Sangtuda 500 kV s/s ii. Supply, installation and commissioning of one 3x 167 MVA 500kV/220kV Transformer at Sangtuda (New-HVDC Pooling point) iii. 500 kV line bay at Sangtuda(New HVDC Pooling point) iv. 220 kV Yard at New Sangtuda 500 kV s/s v. 220 kV line bay and 220 kV transformer bay at New Sangtuda 500 kV s/s vi. 220 kV line bay at existing 220 kV s/s
g.
AC line bays in the existing s/s in Afghanistan and Pakistan.
44
13. The scope of this component also includes the O&M of the following facilities for 15 years (the duration of the PPAs) after successful commissioning: a.
Converter stations at Sangtuda, Kabul and Peshawar;
b.
Sangtuda – Kabul – Peshawar +/– 500 kV HVDC line (construction will be under separate contracts);
c.
Electrode lines and Electrode Stations in Tajikistan, Afghanistan and Pakistan.
14. Sub-component A3 – HVAC Interconnection between the Kyrgyz Republic and Tajikistan (US$200 million) – Construction of about 450 km of 500 kV HVAC overhead transmission line to interconnect the electricity network of the Kyrgyz Republic, at Datka s/s, with the Tajikistan network, at the Khudjand s/s. About 450 km of the line will be in the Kyrgyz Republic and 25 km in Tajikistan. 15. Sub-component A4 (US$65 million) – Tajikistan grid reinforcement. Reinforcements in Tajikistan including construction of about 115 km of 500 kV line from Regar s/s to Sangtuda s/s and other parts of the network necessary, along with associated substation equipment to ensure transfer of Tajikistan and Kyrgyz export power to the Sangtuda converter station.
45
Figure 7: CASA-1000 Project Schematic
46
Component B: Technical Assistance and Project Implementation Support (US$30 million) 16. This component will provide support to the four CASA-1000 countries and their project implementing agencies, namely NTDC, BT, DABS and NEGK. It will also provide the support needed to the JWG as well as the Finance and Procurement Committees established by the countries to finalize the commercial agreements and selection of DS&I contractors. It will also cover necessary technical, commercial, financial management, environment and social, and legal support for the four countries directly or through the IGC secretariat. Areas of support and their approximate cost are provided in Table 8. Table 8: Summary of Cost for Component B SN Activity B1 Owner’s Engineers for the DC and AC facilities for third-party monitoring and supervision during construction B2 Environment and Social Management Support B3 Audits, Financial and Revenue Management B4 Project Management Support B5 Coordination B6 Project Communication B7 Capacity Building Total
Cost (US$m) 12 4 3 4 3 2 2 30
Component C. Community Support Programs (US$70 million) 17. This component will develop and implement CSPs in each of the four CASA-1000 countries to create a more supportive environment for project implementation by improving livelihoods during the construction period among the approximately 670 communities living along the CASA-1000 corridor. They will follow a community driven approach – community-led decision making for identification and implementation of the selected schemes is a key principle for the programs. The IGC agreed to a mechanism to directly share the benefits of the project with these communities during the operation phase through continued funding of some of these activities. Further details are given in Annex 8. Construction phase 18. Afghanistan CSP. This program will be designed following a CDD approach, and would be closely aligned spatially and time-wise with CASA-1000 construction phase. Subject to GoA approval, the project will be implemented by the Ministry of Rural Rehabilitation and Development (MRRD) utilizing the existing project implementation modalities and Facilitating Partners of its National Solidarity Program (NSP). The implementation period will span four years. The project is proposed to be funded by the ARTF with initial funding needs estimated to be about US$40 million. 19. Pakistan CSP. In Pakistan this program will support about 27 communities within the CASA-1000 corridor in the Federally Administered Tribal Areas (FATA) and the Khyber Pakhtunkhwa Province (KPK). Both regions have Provincial Project Steering Committees that
47
are currently in operation who will work with communities to lead the selection and finalization of the schemes, designing monitoring mechanisms to ensure transparency, and coordinate among the various stakeholders involved in the program. The estimated cost of the program is US$10 million and would be funded through the MDTF. The Environmental and Social Impact Cell of NTDC will be responsible at the project level to coordinate, supervise and report on implementation performance. 20. Kyrgyz Republic CSP. Discussions regarding the design of the project and implementation arrangements are ongoing and could include electrification of rural areas. A broader range of local development initiatives may be considered after electrification is achieved. The dialogue with the Government will include options for extending the CSP beyond the COI. Funding is expected to be channeled through the MDTF. Implementation arrangements require further discussion. 21. Tajikistan CSP. The program design will pay particular attention to ensuring links with country planning processes for rural development to ensure sustainability of investments. It is envisioned that the program will focus on increasing efficient energy access in affected areas. The program design will build on field-level consultations and recent studies on energy needs in rural Tajikistan. The estimated cost of this program is US$10 million. Funding is expected to be channeled through the MDTF. Operations Phase 22. Although the operations phase is outside the scope of this component, a variation of the CSP activities will continue into the operations phase, at a reduced scale of annual investment, as a means of sharing a small portion of the project benefits with local communities. A funding mechanism has been agreed among the four governments and would provide support through a portion of project revenues from each unit of energy exported/imported. The amount in US¢/kWh will be agreed as part of the tariff negotiations for the CASA-1000 energy trade. The JWG proposed an amount of US¢0.1/kWh; however, given the significant size of the communities in Afghanistan the countries agreed to share the total contribution by 50 percent going to Afghanistan and the remaining 50 percent shared equally among the other three countries. This proposal will be taken to respective country authorities for formal approval. Based on the experiences and lessons learned from the construction phase, the operating model will be reviewed and revised at the end of the construction phase for its continued implementation during the operational phase, including the annual planning, implementation, monitoring and evaluation arrangements.
48
Annex 3: Implementation Arrangements Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) Project Institutional and Implementation Arrangements 1. The IGC will provide overall strategic guidance to the countries and will convene annually (or more frequently if needed). The JWG delegated by the IGC will be responsible for ensuring effective coordination amongst the four countries on the common aspects of the projects including the major infrastructure contracts as well as finalization of the Core Project Agreements. The JWG will continue to meet on a quarterly or monthly basis to advance these activities. The project institutional arrangements are outlined in Figure 8; however, the roles and responsibilities are expected to evolve over the project implementation. 2. The IGC Secretariat, as a common working level body, will continue to be the liaison between all stakeholders to coordinate inter-country activities, monitor the project activities, and consolidate progress reporting. Project administration mechanisms 3. The project will be implemented by the four NTCs. Each NTC will utilize a PIU or PMU that has experience in implementing projects supported by IFIs. Where needed, the capacity of these PIUs/PMUs will be strengthened. The project administration mechanisms will be aligned with the fiduciary arrangements for the project including the procurement strategy and financial management. 4. For component A the bulk of the infrastructure works (be it AC or DC) would be common to at least two countries and therefore would be procured jointly. The procurement process will be led by the CASA-1000 Procurement Committee which includes members of all countries and will be facilitated by the IGC secretariat, and with technical support from the IFCsupported procurement consultants. For contracting purposes, each package would contain individual lots depending on the location of the assets to enable each NTC to manage the contract and works to be carried out in its territory. 5. Smaller contracts that are specific to each country and have fewer complexities (e.g. technical assistance activities or preparation of country-specific consultancies for preparation of safeguard documents) as well as some TA activities would be procured by the individual NTCs.
49
Figure 8: Institutional Arrangements Diagram
Financial Management, Disbursements and Procurement Financial Management Kyrgyz Republic 6. NEGK, a joint stock company (with 80 percent of shares belonging to the State property Fund and a further 13 percent belonging to the Social Fund) is a power transmission company. It is a State-Owned Enterprise (SOE) with regional branches and around 2,500 staff. NEGK currently executes investment projects with funding from the Asian Development Bank, Islamic Development Bank and China Eximbank. The implementation of the China Eximbank projects is done by a PIU established within NEGK, and projects with the other donors are managed by the external relations department of NEGK. NEGK follows the donors’ requirements for procurement, reporting and auditing; and will need to be introduced to the Bank fiduciary requirements. The tariff charged by NEGK does not cover all costs, especially the full cost of capital investments and maintenance. Cash collection has improved in recent years, but, until very recently, actual allocation of the cash paid by the customers between NEGK and the “Electricity Stations” company was done in accordance with the Ministry of Energy instructions irrespective of the amount of energy sold by NEGK. 7. Consequently, NEGK has issues with its cash management, and has overdue interest and principal debt repayments, as noted from its financial statements. Following the Government
50
regulations, NEGK has prepared its financial statements in accordance with IFRS since 2003. However due to a lack of qualified accountants for this task, the statements are not fully IFRS compliant. A local audit company audits them on an annual basis, but the selection process of the auditor is not transparent. Though the audit opinion is clean, the review of the financial statements raises some questions about their reliability, particularly regarding fixed assets valuation. NEGK has 1C accounting software in the main office and all its branches, with separate modules (not 1C) for the accounting of fixed assets and payroll. The data from the branches is submitted per e-mail and is consolidates manually, which significantly enhances the risk of errors. 8. NEGK has assigned an internal PIU (which is already implementing the Datka-Kemin project) to be responsible for the CASA-1000 implementation (including FM and disbursement arrangements) by issuing a formal decree. The PIU head has initiated the work on the staffing structure and responsibilities, and in consultation with the Bank, will also prepare and issue an internal order on how the PIU will interact with all other departments within NEGK on CASA1000 project, which constitutes de facto the internal operational manual. Temporary staff has already been allocated for working on CASA-1000 preparation, including specialists from the financial department. Similar to other investment projects, the accounting entries will be one by NEGK accounting department based on the information provided by the PIU and verified by the finance department and/or other departments (engineers) where applicable. Details will be described in the internal order prepared by the PIU. Tajikistan 9. BT is a vertically integrated power generation, transmission, and distribution company. As the largest Tajik SOE with an income of around US$210m, it plays a significant role in the country’s economy. The entity has a long history of selling electricity at government mandated rates that do not cover costs. BT accounts for almost 65 percent of such activities in the SOE sector. BT is organizationally structured into a head office (HO) and 31 subsidiaries. 10. BT has experience with Bank-financed projects, in particular the FY05 ELRP (now closed) and the FY12 ELRP Additional Financing. The auditor issued disclaimer of opinion on the financial statements of BT for 2010, 2011 and 2012 as they were unable to verify fixed assets, debtors and revenues of the company. The audit report for 2012 was submitted in December 2013 with a significant delay, but was considered acceptable by the Bank for fiduciary assurance on the Bank funding to the project. 11. ELRP includes a component to support implementation of the FMIP within BT to address the financial management deficiencies of the company. The FMIP covers four major areas: (i) Accounting Policies and Systems, (ii) Financial Position, (iii) Revenue Management; and (iv) Internal Controls (including those reflected by the external auditors). The Bank also hired an international FM consultant to support BT in the work under FMIP. The selection of a consultant company to carry out fixed assets and debtors valuation is under way. However, the progress to date remains limited, as neither the provision of financial resources to BT by international donors / the Ministry of Finance (MoF) nor management’s remuneration / contracts are linked to the
51
improvement in the company’s corporate governance, financial performance, and operational efficiency. 12. Barki Tajik's financial standing has deteriorated and has resulted in a breach of one of the financial covenants of the ELRP Additional Financing (regarding tariff increases and measures to improve the collection of electricity revenues from all categories of consumers to ensure the project Implementing Agency’s cost recovery and financial viability). The continued increases in BT costs coupled with a deterioration in electricity payment collections (76 percent for the first half of 2013 as compared to about 87 percent for the same period in 2012) led to sizable increases in accounts payables to the budget (taxes, repayment of loans), and independent power producers (Sangtuda-1 and Sangtuda-2). Moreover, the delay in timely debt service payments results in significant penalties for delays. This issue has been discussed with Government of Tajikistan and an action plan is under development to bring Barki Tajik's financial health back to good standing. A sub-group has been established under the chairmanship of first Deputy Prime Minister, to develop this action plan. Positive developments in the recent past have been the announcement by the Ministry of Energy to an increase in tariffs and specific measures to improve collection rates for the billed energy. This issue is being followed under the ongoing ELRP project, which is scheduled to close at the end of 2014, and is part of sector and development policy dialogue with Tajikistan. 13. The Bank and Government of Tajikistan had a series of meetings at various levels in the past two months, including a meeting with the Tajikistan Prime Minister in early December, to discuss BTs financial situation and the need for a Government-supported program/action plan and its effective and timely implementation to restore the financial viability of the company. As a result, the Government recently set up an Inter-Ministerial Working Group, headed by a Deputy Prime Minister, to comprehensively examine the BT financial and operational situation and develop measures to address the issues facing the company. This work has resulted in the drafting of a Government Resolution, which includes several short term and medium term measures aimed to improve BT financial performance, including measures such as cash collections improvements, tariff increases, changes in taxation, and transfer of social and other non-core assets from BT to other entities. The Ministry of Energy and BT have started developing action plans for the necessary measures, the implementation of which is expected to improve BT’s financial standing in the next few years. 14. While the responsibility for overall project implementation will rest with BT, it will be supported by an already established external PIU (a separate legal entity, established under the Government of Tajikistan, that was set up in 2003). Fully funded by BT, this PIU helps to manage large investment projects with ADB, IsDB, Kreditanstalt für Wiederaufbau (KfW), etc. and consists of 83 staff, including procurement, accounting, construction engineers, electricity specialists, customs specialist, etc. The division of duties between BT and the PMU will be defined in a Project Implementation Agreement (PIA) and the CSP Operational Manual. Pakistan 15. All aspects of the project’s implementation in Pakistan will be managed by NTDC, a public limited company carrying a license for exclusive transmission business from National
52
Electric Power Regularity Authority (NEPRA) for a term of thirty years since 2002. The members of the Board of Directors are nominated by the government for a period of three years. The 8 current directors comprise 4 ex-officio members including the managing director, and 4 members from the private sector selected by the government. A separate Code of Corporate Governance (the Code) for public sector enterprises was recently issued by the Securities and Exchange Commission of Pakistan, which is applicable to NTDC. The Board was constituted in October 2013 and its members are conscious of the requirements of this regulation and have initiated the preparation of action plans to achieve complete compliance. All required subcommittees – audit, procurement, human resources, risk management and nomination committees have been put in place and are functional. 16. NTDC is one of the implementing entities for an ongoing IBRD project – Electricity Distribution and Transmission Improvement Project (EDTIP) which is due to close on February 28, 2014. A PMU within NTDC is in place to manage this existing Bank project. NTDC is also managing several other externally financed projects, including projects supported by ADB, JICA, JBIC, KfW and others. A PMU headed by a Project Director has been appointed to implement CASA-1000. This is an existing PMU with sufficient FM capacity and is already implementing a couple of locally funded development projects, and therefore the FM arrangements at NTDC are considered satisfactory. NTDC annual financial statements are prepared on accrual basis in accordance with IFRS as applicable in Pakistan, and include a comprehensive disclosure of information for all ongoing development projects. Afghanistan 17. The project activities will be implemented by DABS and MEW under the responsibility of the DABS Chief Operating Officer (COO) and the MEW Deputy Minister, respectively. DABS under the oversight of its Board of Directors will implement Component A and parts of Component B of the project with assistance from a Project Management Firm (PMF). Some parts of Component B will be implemented by MEW under the oversight of a project steering committee with support from individual consultants as needed. DABS have not implemented any Bank-financed project yet, although it has experience in implementing other donor-funded projects. They are also currently preparing a Bank-financed project, namely Naghlu Hydropower Rehabilitation. MEW has experience in implementing Bank projects, however the capacity remains weak. Both the entities will receive technical assistance to support implementation of the project and also support for the financial management functions through the services of a PMF, the hiring of which will be a disbursement condition for Component B. Planning and Budgeting 18. NEGK. Planning and budgeting is done manually (in Microsoft Excel) by the finance and economics department at NEGK. The department is also responsible for the calculation of interest and principal repayments, which it provides to the MoF. The planning and budgeting under all investment projects is done by staff/consultants in the PIU, which provides their data to the Finance and Economics Department. The Bank funds would be a part of the annual planning and budgeting of NEGK when CASA-1000 is under implementation.
53
19. BT. There are issues with the project budget preparation under ELRP owing to delayed approvals of the procurement plan, as the budget is prepared based on the activities implementation schedule and procurement plan. The Bank funds would be a part of the annual planning and budgeting of BT when CASA-1000 is under implementation. 20. NTDC. The budget is prepared on an incremental basis starting with actual expenditures for the current year and new activities planned for the next year. All units submit budget requirements to the Finance Directorate where it is vetted by the budget section. The budget section then prepares a consolidated budget for approval by the Board of Directors. After approval, it is communicated to all units who are required to submit monthly statements of budget and expenditure with reasons for variance (+/- 5 percent). For donor-funded projects, the budgets are prepared as per implementation plan for activities by the concerned PMU. These are included in the overall entity budget for approval by the Board. 21. DABS and MEW. A Budget Committee within DABS will coordinate the preparation of annual work plans and the derivation of annual budgets, prior to submitting them to the MoF. The Committee will also coordinate quarterly budget reviews to ensure adequate budget discipline and control. Similar functions within MEW will be carried out by the Planning Directorate. DABS and MEW will ensure that project expenditures for each fiscal year are captured in the Governmental Development Budget of that fiscal year and that carry forward budgets are used during the initial months of the next year while waiting for Parliament’s approval of the new budget. DABS and MEW will be supported by the PMF in preparation of the project budget. In keeping with current practices for other projects in Afghanistan, the DA will be operated by the Special Disbursement Unit (SDU) in the Treasury Department of the Ministry of Finance. Requests for payments from the Designated Account will be made to the SDU by DABS and MEW when needed. Further advances from the DA for day to day operating expenditures may be taken by DABS and MEW, subject to periodic and timely acquittal. In addition to payments out of these funds, DABS and MEW can also request the SDU to make i) direct payments from the Grant Account/s to consultants, consulting firms or suppliers. These payments will follow World Bank procedures. All project payments will be made either to international firms or to local firms that have bank accounts in DAB, a local commercial bank, or an overseas bank. Accounting (including staffing and record keeping) 22. NEGK. There is a limited number of professionally qualified FM staff at NEGK (the Chief Accountant holding a CIPA qualification; and three staff with CAP, the local accounting certification). The accounting policy has been developed in line with IFRS (without adequate considerations for the valuation of property, plant and equipment). 1C accounting software implementation was completed in the HO and all branches. However, the consolidation of information is done manually in excel. NEGK prepares its annual financial statements in accordance with IFRS, however, the quality of these statements may not be considered fully reliable - for example, PPE is shown at historical cost less depreciation, but for other similar companies in the region, the revaluation is considered a more appropriate method.
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23. BT. The accounting function at BT is weak with no CIPA or CAP qualified staff. The accounting policy has been developed in line with IFRS. 1C accounting software implementation is complete in the HO and a majority of the subsidiaries. An Accounting methodology division has been established, senior accounting staff in HO and subsidiaries have been trained in the new accounting policy, and IFRS implementation guidelines. The automation of accounting is still in progress - the accounting package was implemented completely with full data conversion in 21 subsidiaries, while in other subsidiaries it still varies in terms of the usage of the modules and the extent of data conversion. There is no integrated system designed, so that data is transmitted between the 31 subsidiaries and the HO via e-mail. IT back up and security of financial data is poor. This is becoming an important area as the BT has been actively automating its accounting function and introducing or upgrading the billing system. At the same time, integration of the billing system with the existing accounting system at BT was not yet considered. Under current plans, collection procedures will be strengthened during implementation of the billing system. There are a number of critical areas still to be addressed for IFRS compliance with respect to PPE and inventory revaluation, and trade and other receivables and payables. 24. NTDC. The Finance Directorate in NTDC is generally well staffed at the senior and midlevel positions but there are several vacancies at the junior and operational level against sanctioned positions. Due to an overall ban on recruitment imposed by the government, there is currently no plan to fill these vacancies. Most importantly, the position of CFO has been vacant for over a year and the Finance Manager has been assigned the acting Finance Director position. Under the Code of Corporate Governance, the Board recruits the CFO. The position has been advertised and candidates shortlisted and interviewed. No formal job descriptions are available. The PMU for CASA-1000 is staffed with 3 finance personnel – a Budget and Accounts Officer supported by an Accounts Assistant and a Senior Clerk. None of this staff has previous experience with handling a foreign-funded project, but there are several personnel within NTDC with the requisite experience who can provide the necessary guidance and support. Positions for two additional Accounts Assistants are vacant in the PMU but considering the level of activities to be managed by this PMU is low, the current staff is considered adequate for the project. 25. NTDC follows approved accounting standards as applicable in Pakistan. These comprise such IFRS as notified by the Securities and Exchange Commission of Pakistan as per the provisions of the Companies Ordinance, 1984. A detailed Book of Financial Powers provides the approval thresholds for various types of transactions. An accounting procedures manual is not in place, but the accounting is completely manual but there are comprehensive procedures in place to ensure segregation of duties and adequate review for accuracy, completeness and reliability. For each development project, NTDC maintains a separate payment register, cash book, general ledger and invoice register. Bookkeeping and accounting processes are entirely manual, often leading to delays in financial reporting. The existing process is, however, considered adequate for recording and reporting project receipts and expenditures, and the same procedures will be followed for CASA-1000. 26. DABS and MEW. The financial management functions for the project will be carried out by the finance departments of DABS and MEW respectively, with support from the PMF. The Government follows International Public Sector Accounting Standards (IPSAS) cash basis of accounting and at the central level, uses a computerized accounting system Afghanistan
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Financial Management Information System (AFMIS) to record and report all project disbursements, to exercise controls and generate financial statements. DABS utilize Great Plains accounting software for its accounting and reporting, while MEW maintains subsidiary records in Microsoft Excel currently. Through other Bank funded projects with MEW, the Bank will finance a basic off the shelf accounting software to be used by the finance department. Both DABS and MEW will use these systems for CASA-1000 following international accounting standards, and reconcile their records with AFMIS records on a monthly basis. The respective finance departments of DABS and MEW will be responsible for preparation of the relevant documents to facilitate project payments, including locally used B27 allotment forms and M16 payment request forms. All of these functions will be facilitated by the PMF to be hired under the project, which will work closely with the agencies’ finance departments to carry out the FM transaction work. While original copies of required supporting documents are attached to the Form M16, DABS and MEW are required to keep photocopies of these documents for records retention and audit purposes. The current FM manual for DABS will be updated by 30 June 2014 by the DABS finance department under the guidance of its CFO. It will reflect the detailed FM arrangements for the Bank funded projects (namely, (i) roles and responsibilities of FM staff; (ii) documentation and approval procedures for payments; (iii) project reporting requirements; and (iv) quality assurance measures to help ensure that adequate internal controls and procedures are in place and are being followed, and approved by the Bank. At the central level, MoF system AFMIS will be used for accounting and the project will also follow MoF chart of accounts. Financial Reporting 27. Each Implementing Agency will prepare quarterly unaudited IFRs at the end of each calendar quarter in the agreed format and submit to the Bank within 45 days of the close of each quarter (Table 9). The IFR for a subsequent quarter shall also present cumulative information on the use of funds. The submission of IFR will be monitored as a covenant in the financing agreement. The IFR format will be finalized at negotiations. This will include necessary columns for Bank funds and the implementing entities will have the flexibility to expand it reflecting parallel funding from other donors. At a later stage, and taking into account the project management needs to monitor project expenditures incurred by all donors, the Bank would encourage the implementing entities to develop a uniform reporting format, agreed with all donors and implementing agencies. Table 9: Reporting Summary for each Implementing Agency Implementing Agency IFR period Submission within 45 days of the end of the quarter 1 January – 31 March 15 May of the following quarter NEGK Financial Year – 1 1 April – 30 June 15 August of the following January – 31 December 1 July – 30 September quarter 1 October - 31 December 15 November of the following quarter 15 Feb of the following quarter 1 January – 31 March 15 May of the following quarter BT Financial Year – 1 1 April – 30 June 15 August of the following January – 31 December 1 July – 30 September quarter
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Implementing Agency
IFR period 1 October - 31 December
NTDC Financial Year – 1 July – 30 June
1 July – 30 September 1 October - 31 December 1 January – 31 March 1 April – 30 June
DABS and MEW (consolidated IFR) GoA Financial Year – 21 December – 20 December
21 December - 20 March 21 March – 20 June 21 June – 20 September 21 September – 20 December
Submission within 45 days of the end of the quarter 15 November of the following quarter 15 Feb of the following quarter 15 November of the following quarter 15 Feb of the following quarter 15 May of the following quarter 15 August of the following quarter 5 May of the following quarter 5 August of the following quarter 5 November of the following quarter 5 Feb of the following quarter
28. While financial information from the accounting records at NEGK, BT and NTDC will be reported in quarterly IFRs, consolidated quarterly interim financial reports will be prepared by the PMF on behalf of DABS and MEW based on records from three sources: (i) DABS and MEW accounting records; (ii) expenditure statements from SDU (as recorded in AFMIS) and reconciled with DABS/MEW; and (iii) bank statements from DAB. Also, in the case of Afghanistan, the annual project accounts to be prepared from AFMIS (after due reconciliation to records maintained at DABS and MEW) will form part of the consolidated Afghanistan Government Accounts for all development projects. This is done centrally in the Ministry of Finance Treasury Department, supported by the Financial Management Advisor. Internal controls 29. NEGK does not have an internal audit department. At present, it has a review department consisting of only one staff member to undertake all reviews and corrections of accounts and financial reports, which is inadequate. Controls over expenditures in donor-supported investment projects are performed by the staff managing the projects (external relations department/PIU respectively). Controls mechanisms and procedures for expenditures incurred under the CASA1000 project will be specified in the internal regulations. 30. BT. The key weakness observed in BT is a lack of adequate corporate governance structure with no risk and/or audit committees and internal auditor reporting to the chief accountant. There is no risk management function in the entity. The internal audit (IA) function has been established and currently five (5) staff members are employed. However, IA effectiveness has been limited by the lack of required capacity, skills, and mandate. A number of requirements stated in the IA Charter are not followed in practice, including reporting to the Chairman (in practice to the chief accountant), conducting system audit, qualification of internal auditors (CIPA), etc. The IA also does not have enough independence from management to provide the expected value in improvement of the internal controls. The IA unit mainly conducts
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reviews and corrections in accounting and financial reporting. The controls for the expenditures under the CASA-1000 project will be specified by BT. 31. NTDC. The Book of Financial Powers documents a very detailed and comprehensive authorization matrix which also provides for adequate segregation of duties. Management reports are prepared at the end of each month to allow monitoring of performance and activities. Mechanisms are in place to ensure that the reporting requirements related to all development projects and regulatory agencies are met. Checklists are used to monitor the compliance. While fixed assets are fully recorded, systematic coding and tagging of assets needs to be done. Sample physical verification is conducted annually by the external auditors. Value of fixed assets at various locations is reconciled with the control accounts. Straight line method of depreciation is used based on estimated useful lives. Inventory management is automated and headed by a Chief Engineer, and 100 percent physical verification of inventory is conducted annually. Internal Audit department is in place and reports to the Audit Committee of Board of Directors. It is headed by an experienced and qualified accountant who is supported by 30 internal auditors covering all operations including the development projects, but several junior level positions in internal audit are vacant due to a current recruitment ban. Bank accounts are operated by joint signatures and the Banking Section in the Finance Directorate prepares monthly bank reconciliations for all accounts by the 10th of the following month. 32. DABS and MEW. Adequate internal controls exist at the central level and at the level of the implementing entities. The effectiveness of these controls will be periodically reviewed by the Bank. Project–specific internal control procedures in DABS for requests and approval of funds will be described in the FM Manual including segregation of duties, documentation reviews, physical asset control, asset verification, and reconciliation and cash management. The internal audit function for DABS will be carried out by its own internal audit department at least on a bi-annual basis. The internal audit function within MEW is weak; however, given that there will be minimal transactions for MEW, the lack of internal audit arrangements is not expected to have a negative impact on the project. External Audit 33. Overall, the project financial statements for each implementing agency will include Bank funds. Parallel financing by other funding partners is not required to be covered by the same audit for the Bank’s fiduciary purposes. The entity audit report will be monitored by the Bank through an intermediate results indicator as specified in Annex 1, which will allow the Bank to monitor the entities’ financial performance during the life of the project. 34. The project audits of NEGK and BT will be conducted by private audit firms acceptable to the Bank on an agreed TOR and the audits will be submitted to the Bank within 6 months of the closure of the financial year along with the auditor’s opinions and the management letter. 35. External audit for NTDC is jointly conducted by two private firms of Chartered Accountants with international affiliation. Terms of Reference and appointment of the external auditors is approved in the AGM on the recommendation of the Board. However delays occur in finalization of accounts after the year-end mainly awaiting the completion of reconciliation with
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the power producers and distributors. Under the ongoing EDTIP, NTDC has not been able to meet the deadline for submission of entity audited financial statements within 6 months. The audit report for FY2012-13 is overdue and an exception has been granted to proceed to negotiations as required under OP/BP 10.00 FM processing instructions. NTDC has been directed by its Board to finalize the financial statements by February 28, 2014. Review by the Audit Committee and approval by NTDC’s Board of Directors will take about four weeks. As a result, the NTDC’s FY2012/13 audited financial statements are expected to be transmitted to the Bank not later than April 21, 2014. For CASA-1000, it has been agreed that NTDC shall submit project financial statements audited by the Auditor General of Pakistan within 6 months of the closure of the financial year. 36. For DABS and MEW, The Supreme Audit Institution in Afghanistan will be responsible for the audit of Bank funds and the audit report on agreed TOR will be submitted to the Bank within 6 months of the closure of the financial year along with the auditor’s opinions and the management letter 37. Following the Bank’s formal receipt of the project’s annual audited financial statements from the implementing entities, the Bank will make them available to the public on its website in accordance with the World Bank Policy on Access to Information. In addition, the Recipient will make these audited financial statements available to the public in a timely manner as acceptable to the World Bank. 38. As a covenant in the Financing Agreement, the following audit reports will be submitted by the project implementation agencies to the Bank by the agreed due dates (Table 10). Table 10: Summary of Audit Reports for Each Implementing Agency Implementing Agency Audit Report Agreed Due Date NEGK Project audited financial Within six months of the end statements along with the of each financial year – June audit report and management 30 letter BT Project audited financial Within six months of the end statements along with the of each financial year – June audit reports and management 30 letter NTDC Project audited financial Within six months of the end statements along with the of each financial year – audit reports and the December 31 management letter DABS and MEW Project audited financial Within six months of the end (consolidated) (financial year statements along with the of each financial year - by December 21 – December 20) audit report and the June 20 management letter 39. Implementation support. Review of agreed financial management arrangements will be an integral part of review during Bank implementation support missions. During project
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implementation, the World Bank will also monitor the timely submission of acceptable quarterly IFRs and annual audit reports by the implementing entities. 40. Revenue Management by Kyrgyz Republic and Tajikistan – after the project closing date. Although the export and other revenues will occur only after the project closure date, their management in the energy sector remains a key concern in Kyrgyz Republic and Tajikistan. Consequently, the arrangement for a transparent use of the revenues is seen an important risk mitigation measure for the use of project benefits and was discussed during appraisal. The basic underlying principles of transparent management of export revenues are as follows: (i) export revenues should flow to a special escrow account opened in a qualifying bank; (ii) funds accumulated in this account will be used only for the purposes stipulated in respective agreements between the implementing agency, the bank, MoF/Ministry of Energy acceptable to the World Bank (primarily to ensure uninterrupted operation of the CASA project that would include timely payments for the IPPs and debt service payments); (iii) the quarterly reports showing the receipts and payments from the account should be published on the websites of the implementing agencies, Ministry of Energy, and the bank; (iv) there should be an annual audit of these statements by an independent internationally recognized private auditor; and (v) the audited statements together with the audit opinion should also be made public on the websites mentioned above. 41. Revenue transparency. The adoption and implementation of the Revenue Management Program is one of the legal covenants for the Kyrgyz Republic and Tajikistan financing and should be complied with within twelve (12) months after the Project Effectiveness Date. Disbursement Arrangements 42. Afghanistan. IDA financing of US$316.5 million will be used to finance at 100% (inclusive of taxes) of project activities under Component A and B. ARTF funds will be utilized to finance activities under Component C. Allocation of IDA grant proceeds is shown in Table 11. The hiring of a Project Management Firm is a condition for disbursement under Component B. Table 11 Allocation of Afghanistan IDA Grant Proceeds Category Amount of IDA Percentage of Expenditures to be Grant (in US$) Financed (inclusive of taxes) (1) Goods, works, non-consulting 308,500,000 100% services, consulting services for Component A1 and A2 (ii) (2) Goods, non-consulting services, 5,000,000 100% consulting services, training, workshops and incremental operating costs for Component B Project Preparation Advance 3,000,000 Total 316,500,000 43. Pakistan and Tajikistan. Due to the nature of expenditures and types of contracts involved in Component A of the Project, the bulk of IDA funds will be disbursed through the
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direct payment and special commitment. Before a withdrawal application is processed, a consultation will be conducted to determine the types of expenditure or contract to be financed by IDA funds and the corresponding financing percentage. The allocation of Pakistan IDA Credit and Tajikistan IDA Grant proceeds are given in Table 12 and Table 13, respectively. Table 12 Allocation of Pakistan IDA Credit Proceeds Category Amount of IDA Credit (in US$) (1) Goods, works, non-consulting 120,000,000 services, and consultants’ services for Component A.1 and A.2(iii) TOTAL AMOUNT 120,000,000 Table 13 Allocation of Tajikistan IDA Grant Proceeds Category Amount of IDA Grant (in US$) (1) Goods, works, non-consulting 45,000,000 services, and consultants’ services for activities for Component A TOTAL AMOUNT 45,000,000
Percentage of Expenditures to be Financed (inclusive of Taxes) 100%
Percentage of Expenditures to be Financed (exclusive of Taxes) 100%
44. Kyrgyz Republic. Disbursement for the project under this financing package will be first drawn down from the grant at 100%. Once the grant funds have been fully disbursed, further disbursement for the project would be drawn down from the credit, also at 100%. Table 14 specifies the allocations of IDA Credit and Grant proceeds. Table 14 Allocation of Kyrgyz Republic IDA Credit and IDA Grant Proceeds Category Amount of Amount of Percentage of Expenditures IDA Credit IDA Grant to be Financed (in US$) (in US$) (exclusive of Taxes) (1) Goods, works, non38,250,000 6,750,000 100% consulting services, and consultants’ services for activities for Component A.3 TOTAL AMOUNT 38,250,000 6,750,000 Procurement 45. Procurement for the proposed project will be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply. In the
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case of some countries, in view of limited experience and the complex and time sensitive nature of the project, assistance will be provided through Procurement Consultants to provide support for those packages that are exclusive to each of the countries and are not being provided support by the IFC provided consultant. The project will also provide for an Owner’s Engineer to provide oversight of project implementation, particularly for the HVDC packages. As the CSP component will follow a CDD approach, the procurement arrangements for that component will be in line with the Guidance Note for Design and Management of Procurement Responsibilities in Community-Driven Development Projects, dated March 15, 2012. 46. For each contract to be financed by the Credit/Grant, the different procurement methods or consultant selection methods, the need for prequalification, source of financing, procurement responsibility, estimated costs, prior review requirements, and time frame have been agreed between the countries and the Bank and are reflected in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement Committee 47. In order to streamline decision making for contract packages that may include more than one member country, a procurement committee was set up through a resolution of the IGC at its meeting on September 16-17, 2013 in Islamabad. The committee will oversee the development of all documentation for calls for expression of interest, management of the pre-qualification process, issuance of requests for technical and financial proposals, arrangements for the evaluation of such proposals and preparation of bid evaluation reports and award of contracts. Contract signing will be done by respective NTCs for their portion of the work and based on source of financing. 48. The committee will also have the authority to carry out the prequalification of applicants and notify them accordingly; carry out all the other work needed on behalf of the CASA-1000 countries to bring conclusion to the procurement process leading to award of the contracts by the NTCs; regularly liaise with the IGC Secretariat, Implementing Agencies and JWG and project consultants; ensure that all applicable requirements of the World Bank or other applicable financier’s procurement guidelines and procedures are adhered to; provide regular progress reports to the IGC through the IGC Secretariat as may be requested from time to time. 49. The final decisions for the joint packages will be taken by the Procurement Committee, formed by representatives of all four countries. The countries have nominated three representatives to the Procurement Committee who have already participated in the Procurement Committee meetings and endorsed the first PQ document under the project. The joint decision making process is presented in Figure 9. The major contracts (HVDC converter stations, HVDC line and HVAC line and associated works) will be signed by the respective NTCs for their portion of the work and based on source of financing. The Owner’s Engineers will supervise these contracts on behalf of the countries and those contracts will be signed jointly by the countries signing the respective S&I contracts. The day to day contract management in the countries will be provided by the respective Implementing Agency. The Procurement Committee
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will be responsible for overall supervision, coordination between the countries and managing the Owner’s Engineers and other major contracts. Figure 9: Flow Chart of Joint Decision-Making Process
Consultant prepares draft PQ/ bid documents/ BER
Document agreed upon by all parties, endorsed by the Procurement Commiittee and sent by the IGC Secretatiat to the Bank for review and no objection
The implementing agencies prepare their comments
The country's representatives communicate those comments at the Procurement Committee's meetings
Consultantions amongst the relevant parties
Consultant faciliates the discussions of the Procurement Committee by consolidating the comments and revises the documents accordingly
Institutional and Implementing Arrangements for the Countries Tajikistan 50. BT will be the designated project implementation agency responsible for the overall project implementation, including the project’s fiduciary functions. The Implementing Agency will be solely responsible for the procurement of small contracts and will actively participate in the decision making process for the joint procurement packages. 51. The IGC and the Procurement Committee of JWG will be responsible for procurement of HVDC converter stations including O&M of stations and the line, HVDC and HVAC lines, an Owner’s Engineer to supervise the construction contracts, and project audit contracts. The GoT has already nominated three representatives in the Procurement Committee (representatives of the Ministry of Justice and BT chaired by a representative of the State Investment and Property Management Committee). With regard to the day-to-day project coordination the project will be implemented by BT through the PMU, a legal entity under the GoT. The overall responsibility for implementation of project activities will be with BT while certain implementation functions (including procurement) will be delegated to the PMU through the PIA. In addition, a CSP Operational Manual will be developed by the project effectiveness date and will provide specific details of roles and responsibilities. Procurement Capacity and Risk Assessment 52. A Procurement Capacity and Risk Assessment of the project’s Implementing Agency was undertaken in November 2013. The team carried out procurement capacity assessment of Barki
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Tajik and also conducted procurement performance assessment using Program for Results (PforR) methodology. The team has assessed risks using Procurement Risk Assessment and Management System (PRAMS) and the Procurement Capacity Assessment and Performance Reports has been filed in the PRAMS. Barki Tajik will have overall responsibility for the supervision of the procurement function. The PMU will be directly responsible for day-to-day project coordination, including ensuring timeliness and high quality of the comments to be provided to the Procurement Committee for the high value joint procurement/consultancy packages and will conduct actual procurement of the small value contracts envisaged under the project. It will also ensure proper procurement planning, contracts monitoring and fiduciary reporting. Kyrgyz Republic 53. NEGK will be the overall responsible Implementing Agency, including for the project’s fiduciary functions. NEGK will nevertheless have limited procurement responsibilities as the responsibility for the procurement of major packages will rest mainly with Procurement Committee – which would review/approve procurement packages for joint infrastructure contracts and for selection of the Owner’s Engineer. The actual procurement documents are prepared by an engineering consulting company appointed by IFC, which are sent to NEGK for secondary review. 54. The Procurement Committee is composed of representatives from all four countries. Kyrgyz Republic is represented through following members: a. General Director of NEGK b. Head of Foreign Relations Department and PIU of Ministry of Energy c. Advisor to General Director of NEGK 55. NEGK will be assigned primary responsibility for procurement of minor packages. This includes the selection of several individual consultants and selection of an audit company. Given the comprehensive and clear instructions of consultants selection procedures under state procurement law, as well as considerable experience in procurement procedures under ADB and IsDB financed projects NEGK’s current procurement capacity will be sufficient for selection of the above consultants. 56. The procurement process to be followed for large packages in Kyrgyz Republic is similar to Tajikistan. The bidding document, PQ documents, PQ evaluation reports and bid evaluation reports as well as required documents for selection of supervision consultant will be reviewed by the Procurement Department in close coordination with the External Communications and Project Implementation Department. Taking into account the relatively complex nature of upcoming packages, a higher level of scrutiny would be required from each entity participating in the process. Even though NEGK will provide secondary review, special attention will be paid to providing adequate capacity building/training for NEGK’s Procurement and Logistics Department and its External Communications and Project Implementation Department so as to make sure that qualified opinions/comments (technical and as well as commercial) are communicated to the Procurement Committee.
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Procurement Capacity and Risk Assessment 57. The Recipient is implementing the project through NEGK which is a 93 percent stateowned joint stock company managing the transmission grid of the entire Kyrgyz Republic. NEGK is managed by General Director, reporting to a Board of Directors composed of 5 members. There are 3 deputies to the General Director. Different departments are under the oversight of these Deputy Directors, while general management is under the responsibility of the General Director. NEGK’s head office is located in Bishkek, and there are 6 regional offices throughout the country. There are two responsible departments for procurement – (i) Logistics and Procurement Department – responsible for procurement undertaken through state funds; (ii) External Communications and Project Implementation Department – responsible for procurement through financing of different IFIs. 58. The public procurement environment in the country is improving as the Public Procurement Methodology Department is revising the Public Procurement Law and establishing a Public Procurement Regulatory Body and Procurement Complaint Review Commission. NEGK follows the Kyrgyz Law on Public Procurement. 59. A market survey was carried out and indications show that there is sufficient number of companies on the local market in Kyrgyz Republic to undertake low voltage (110kV and less) supply and installation of transmission lines. There are not many local companies capable of supply and installation of transmission lines above 110kV. 60. Logistics and Procurement Department – is responsible to procurement under state funds. Department is composed of 6 employees. All employees of the department have considerable experience in public procurement. External Communications and Project Implementation Department – is responsible for procurement under the projects financed by IFI’s. This department also has procurement capacity. 61. As for Tajikistan, the Bank undertook a procurement capacity assessment of NEGK and also conducted procurement performance assessment using PforR methodology. The team has assessed risks using PRAMS and the Procurement Capacity Assessment and Performance Report has been filed in the PRAMS. 62. Procurement arrangements using one of the departments referred to above were examined with a view to creating sustainable procurement capacity. With this in mind, the Bank and NEGK agreed that the Logistics and Procurement Department will be responsible for procurement under the project but will work in close coordination with External Communications and Project Implementation Department. Afghanistan 63. DABS will be the entity that is primarily responsible for implementation of the Afghanistan portion of the project, but some (limited) aspects of project-related procurement may also be implemented by MEW. The key procurements here will be the contract for the
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transmission line. Due to the market conditions and security situation in Afghanistan, there is a risk of low participation in the bids for this contract. One of the mitigating measures being considered to deal with the security issues is to slice the transmission line package into two or more so that if one contractor faces issues, the work across the whole line is not disrupted. Given the shortage of contractors in Afghanistan, this may lead to a series of direct contracts. As in the case of the other member countries, procurement decisions affecting other members will be elevated to the Procurement Committee. DABS will be responsible for implementation of parts of the procurement plan exclusive to Afghanistan. Procurement Capacity and Risk Assessment 64. The Bank has gained substantial experience and understanding of the procurement environment in Afghanistan through its involvement in the interim procurement arrangements put in place under the Emergency Public Administration Project (2002) and though working with the institutions currently responsible for procurement functions, including the Afghanistan Reconstruction and Development Services (ARDS). As part of the broader review of Afghanistan’s PFM system, the Bank carried out two assessments, in June 2005 and September 2007, of the procurement environment in the country based on baseline and performance indicators developed by a group of institutions led by the World Bank and Organization for Economic Co-operation and Development – Development Cooperation Directorate (OECD/DAC). 65. A new Procurement Law was adopted in November 2005 that radically transforms the legal and regulatory framework. In accordance with the law, GoA established a Procurement Policy Unit (PPU) under the Ministry of Finance to provide oversight for implementation of the Procurement Law. At this stage, the PPU has issued several circulars regarding implementation of the Procurement Law. 66. In the absence of adequate capacity to manage procurement activities effectively, a central procurement facilitation unit, the ARDS-Procurement Unit has been established under the Ministry of Economy to support line ministries and project implementing agencies. The Bank and the Government have agreed on a program for country-wide procurement reform and capacity building, leading to the transition from centralized to decentralized procurement services. 67. DABS will be responsible for project implementation. This is an SOE that has good management and is committed to best practice and capacity building. A procurement capacity assessment of DABS was carried out in October 2013. While there is an established procurement department, with clear lines of responsibility and clearly documented procurement processes including service standards for various types of procurement, the assessment shows a reasonable setup of procurement processes of DABS. There is also a Procurement Manual and regular staff training is carried out. While there is ongoing support from USAID and ADB for institutional development of DABS –including a procurement and inventory management system – DABS does not have direct experience of procuring or managing large and complex projects and relies on donor-supported consultants to execute and supervise such projects. The same approach will also need to be adopted for CASA-1000. The assessment also found some gaps in staff
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competencies, understanding of the market for power equipment, internal audit system and decentralization. As in the case of the other member countries, procurement decisions affecting other members will be elevated to the Procurement Committee. DABS will be responsible for implementation of parts of the procurement plan exclusive to Afghanistan. MEW will be involved for procurement under the Project Preparation Grant and will mainly be responsible for the procurement of the Transaction Advisory Service as well as some Technical Assistance. Mitigation measures agreed with MEW as a result of the capacity assessment are acceptable. Pakistan 68. NTDC will be the entity responsible for implementation of the Pakistan portion of the project. The key package here will be the portion of the HVDC package as it relates to Pakistan and the transmission line. No market uncertainties are perceived for the transmission line package, but the route of the line presents security issues and may lead to low contractor participation. This is expected to be partly mitigated through the implementation of community development projects similar to those planned for Afghanistan. As in the case of the other member countries, procurement decisions affecting other members will be elevated to the Procurement Committee. NTDC will be responsible for implementation of parts of the procurement plan exclusive to Pakistan Procurement Capacity and Risk Assessment 69. A Procurement Capacity Assessment of NTDC was carried out in November 2013. NTDC is a state owned corporation, incorporated on Nov 6, 1998 and commenced commercial operation on Dec 24, 1998. The procurement management structure is described in Figure 10 below. NTDC is headed by a Board of Directors (BoD) with a Managing Director (MD). The Chief Engineer (MP&M) is responsible to oversee and manage projects/procurements, supported by two Procurement Managers and a Material Control Manager. The Procurement function is centralized at the department. The Chief Engineer (C.E.) (MP&M) reports to General Manager (Projects) who directly reports to Managing Director. The Chief Engineer (Design) acts as an internal consultant for NTDC and support C.E. (MP&M) in preparation of bidding documents, evaluation reports, draft contracts, specifications etc. Figure 10: NTDC’s Procurement Management Structure
Board
Managing Director
GM Projects
C.E. (MP&M)
GM Services Division
C.E. (Design)
70. NTDC follow Public Procurement Rules for procurements using their own funds, however they use Donor Guidelines if the project is funded by a Donor. NTDC has experience of working with World Bank, Asian Development Bank, USAID, KfW, Kuwait Fund, etc. NTDC has good experience of working with international donors; however, the capacity built while
67
working on these projects has not been retained or captured in a systematic way. The Chief Engineer (Design) department has 6 managers, 30 deputy managers and 35 assistant managers with some support staff. All these staffs are basically Engineers and learned procurement by doing. There is no special cadre for Procurement with specialized and dedicated Procurement position. There is no training need assessment of staff to update them as per the latest innovations and best practices to achieve timely results. If an experienced staff leaves or transferred then the new replacement has to again learn the process. The capacity is not consistent and the understanding of rules and procedures vary from person to person. 71. The Bank under the Electricity Distribution and Transmission Improvement Project proposed and helped the distribution companies (DISCOs) and NTDC to develop a detailed Procurement Manual. The manual will standardize the Procurement Process and will help to build consistent systems and capacity. 72. NTDC prepares Procurement Plans for donor funded projects; however, there is no such plan for their own procurements. There is a lack of focus on meeting and monitoring the timelines mentioned in the Procurement Plans. It was reported that there not a single contract which was completed within the original completion time. The two contracts under Bank’s EDTIP for Kassowal Grid Station and Transmission Line are also delayed substantially. Normally a Transmission Line of 100km takes around 720 days for completion, similarly a Grid Station of 220kV takes around 720 days on average for completion. NTDC informed that these delays are largely due to weak contractor’s technical capacity for implementation. There is a need to extend the role of procurement function beyond contract award and signature. Clarity on the concepts of project management should be in place. 73. NTDC uses Pakistan Engineering Council bidding documents for processing procurements through their own funds. Donor’s standard bidding documents were used for projects funded by the Donors. The templates for evaluation by Donors are used for all procurements. 74. In the past there was a WAPDA enlistment or pre-registration of bidders but since the promulgation of the Public Procurement Rules, there is no such practice. NTDC checks the bidder’s qualification during evaluation but at the time of contract award there is no practice to recheck the qualification information. In last two years, 4 firms were debarred. There is no standard committee for Procurement, C.E. Design notifies a committee on case to case basis. No formal and standardized complaint redressal in place. Summary of Risks and Risk Mitigation Measures in all four countries ( 75. The key issues and risks concerning procurement for implementation of the project include: (i) potential risk of delays in the implementation of the project, due to the complexity of the project and the need for coordination between the countries on implementing mutually linked projects; (ii) lack of technical/procurement expertise within the project implementation agency to match the complexity of the procurement envisaged under the project; (iii) not sufficient contract monitoring and management skills; (iv) different Procurement Guidelines between the World Bank and other likely financiers, (v) the complexity of both the internal and the joint decision
68
making process to approve contract variations/ amendments during the contract implementation that need “employer’s approval”. 76. Given the findings of the assessments the initial overall procurement risk under the project is assessed as ‘High.’ To mitigate the identified procurement-related risks, mitigation actions are suggested in Table 15. It is expected that, after these measures have been taken, the risk would be reduced to “Substantial”. Table 15: Summary of Procurement Risk Mitigations SN Actions 1 BT, DABS and NTDC responsible for the day-to-day project coordination should allocate adequate human resources for the project’s fiduciary functions. 2 Where necessary, additional procurement specialists or consulting firms should be added to strengthen capacity and streamline implementation 3 Training of staff involved in the project procurement activities in Bank’s Plant, DS&I type bidding documents and procedures , 4 Preparation of an Operational Manual for the CSP with a detailed chapter on procurement including a detailed description of the programs’ coordination mechanisms and decision making process; 5
Prepare a detailed procurement plan for the first 18 months of the project
6
Pro-active participation in the preparation of the PQ/ bidding documents for the first year of project implementation to facilitate the initiation of the procurement as per the agreed Procurement Plan Ensure quality review of the both technical specifications/ TOR, Bid Evaluation Reports and the final deliverables For each of the implementing entities, put in place a complaint handling mechanism that receives, reviews and disposes of complaints from bidders, and monitors the process with regular reporting Put in place an efficient contract monitoring mechanism designed to maximize overall value for money of contracting activities Regular procurement support during project implementation by Bank procurement staff.
7 8
9 10
Deadline Appraisal/ Negotiations Appraisal/ Negotiations Negotiations In coordination with the finalization of the CSP Appraisal and agreed by the Negotiations Negotiations/ first months of implementation Ongoing Negotiations
Ongoing Ongoing
Procurement Implementation and Arrangements 77. Procurement of Works and Goods. The procurement under the project will include supply and installation (including design) of HVDC converter stations in three locations: Sangtuda – Tajikistan, Kabul – Afghanistan, and Peshawar – Pakistan , including the contract for operation and maintenance for the HVDC facilities, supply and installation (including design) of HVDC transmission line from Sangtuda to Peshawar, AC transmission lines supply and installation (including design) in Kyrgyz Republic and Tajikistan. The Bank’s most recent version of the Standard Bidding Documents (SBD) for Procurement of Plant Design, Supply, and
69
Installation for all International Competitive Biddings (ICBs) will be used and the PQ document will be used for all planned prequalification procedures. 78. Selection of Consultants. The consultant services under the project will be mainly needed for construction supervision, support for project implementation, audit and TA. Specific areas where support would be needed include the provision of an Owner’s Engineer of HVDC converter stations and HVDC line; an Owner’s Engineer for the HVAC line; design of CSP schemes, some individual consultants for project management and supervision, audit, etc. For specific consultancies, the short lists of consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 79. Procurement Arrangements and Strategy: As described above, the IGC through its Procurement Committee will be responsible for procurement of large packages shared by the countries with other contracts required specifically for any of the Implementing Agencies being procured by the respective Agency. The procurement plan shall also include source of financing and responsible unit for procurement. The procurement strategy allows for multiple partners to finance complex high value packages. a.
DS&I of HVDC converter stations shall include O&M of HVDC line and converter station as these will be high technology assets for the project in Tajikistan, Afghanistan and Pakistan. The procurement will follow pre-qualification and twostage ICB process. This package will also include electrode stations at Sangtuda, Kabul and Peshawar. The package is designed to be financed by IDA and will follow World Bank Procurement Guidelines.
b.
DS&I of HVDC line will include associated AC sub-station work at Sangtuda, Kabul and Peshawar and repeater station for communication link. The Afghanistan section will be procured following post qualification procedures and will consist of three (3) lots financed by IDA. This package will be launched immediately following the HVDC converters package and will follow World Bank Procurement Guidelines. The segment of the HVDC line from Sangtuda to Afghanistan’s northern border and from the Afghan southeastern border to Peshawar will be financed by IsDB following PQ ICB process in two lots. These packages may follow IsDB Procurement Guidelines.
c.
DS&I of the AC line from Datka to Khudjand and between Regar and Sangtuda including associated AC sub-station work will be financed by IDA, IsDB, ACG and other financiers. The lines will be split based on the financiers and will follow their respective Procurement Guidelines. If all financiers agree, one PQ process will be followed for the entire AC line, otherwise separate ICB tenders could be issued for individual lots.
80. Specific Procurement thresholds for all four countries. Procurement under the project will include the following categories: Civil Works, Goods and Consulting Services and the thresholds for procurement methods and Bank prior review applied for procurement are
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presented in Table 16. The procurement thresholds may be adjusted during the project implementation to reflect the increased capacity of the Implementing Agency. Table 16: Thresholds for Procurement Methods and Bank Prior Review (values in US$) 9 Expenditure Contract Procurement Method Bank Prior Review Category Value (US$) >= 5,000,000 ICB All < 5,000,000 NCB All Contracts above 1,000,000 Civil Works = 1,000 000 ICB All the ICB contracts = 100,000 Consultant for individuals; and all SSS Services NA SSS contracts. NA IC 81. Procurement Plan. The Procurement Plan for the first 18 months of the project’s implementation will be agreed upon and coordinated by the Procurement Committee, and sent through the IGC Secretariat for the Bank’s review and no objection prior to project negotiations. 82. NEGK, BT, DABS and NTDC will also prepare Procurement Plans for the first 18 months of the project to reflect the country-specific procurements to be implemented in the Kyrgyz Republic, Tajikistan, Afghanistan and Pakistan respectively, and which will be coordinated by the Procurement Committee, and the specific procurement/selection procedures for which the each of the companies will be solely responsible. The Procurement Plan will be updated annually or as needed to: (a) reflect project implementation; (b) accommodate changes that should be made; and (c) add new packages necessary for the project. Each update will be subject to Bank’s prior review. The Procurement Plan will be published in the World Bank website. Procurement under the project will be carried out in accordance with the agreed PP and as updated from time to time during the implementation of the project. 83. CSP Operational Manual. An operational manual shall be developed for the CSP component and would cover, inter alia, procurement aspects under these programs such as: procurement implementation arrangements, procurement plan and reporting, procurement methods and thresholds, responsibilities of procurement staff and evaluation committees, procurement process including contract monitoring, procurement control procedures and complaints handling procedure. The manual shall include procurement arrangements for the CSP 9
ICB – International Competitive Bidding; NCB – National Competitive Bidding; QCBS – Quality and Cost Based Selection; QBS – Quality Based Selection; FBS – Fixed Budget Selection; LCS – Least Cost Selection; *CQS – Selection Based on Consultants’ Qualification below US$300,000; SSS – Single (or Sole) Source Selection; IC – Individual Consultant selection procedure; NA – Not Applicable
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in line with the Guidance Note for Design and Management of Procurement Responsibilities in Community-Driven Development (CDD) Projects, dated March 15, 2012. The manual will be agreed between the countries and the Bank. 84. Post-review by the Bank. Contracts not subject to prior-review will be subject to postreview as per procedures set forth in Paragraph 5 of Appendix 1 of the Procurement Guidelines and Consultant Guidelines. The Bank will carry out procurement post review on an annual basis with an initial sampling rate of twenty (20) percent. This rate will be adjusted periodically during project implementation based on the performance of the project implementing agencies. The post review of procurements under the CSP will be detailed in the CSP operational manual. Environmental and Social (including safeguards) Environment and Social safeguards 85. EMP and RPF Roles and Responsibilities: The EA issues will require joint efforts of several parties as described below: a. NTCs: have overall responsibility for environmental and social performance of the Project and specifically for: (i) supervision and management of all aspects of Project preparation and construction; (ii) coordination with local authorities to facilitate the participation of local communities and projected affected persons during Project preparation and implementation; (iii) ensuring that the preparation of the country-specific ESIAs and RAPs is done by independent parties acceptable to the Bank and other lenders, that the requirements of World Bank safeguards policies (and other IFI lender requirements), the RPFs and national environmental laws and regulations are met, and that all measures set out in the Project EMP, the respective ESIA, RAPs and other Project environmental and social documentation are carried out; (iv) ensuring that Project commitments of the construction contractors are fulfilled, including the detailed development of Project level specific environmental and social management plans; (v) reporting the on-going status of EMP implementation to the World Bank and other lenders as appropriate. b. Project Environment Officer (PEO) and Project Social Officer (PSO): The PEO will be responsible for overall coordination of EMP implementation in each country and should report directly to the NTC, but will be expected to be involved in regular liaison with the wider Project team, which includes World Bank specialist assistance. The PEO and PSO shall have the authority to monitor and stop construction works if in his/her opinion there is/may be a serious threat or impact to the environment or local communities caused directly or indirectly by the construction operations. His/her authority shall also extend to emergency situations where consultation with the Construction Supervision Engineers of the DS&I team is not immediately possible. In addition, the PSO will be charged with managing the grievance redress mechanism under the RPF and reporting on grievances to the wider Project team.
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c. Construction Supervision Engineer and Environmental Supervisor (CSE): CSE are responsible for inspection, supervision, audits and oversight of all construction related works and other activities undertaken by the Contractor(s), and ultimately responsible for ensuring compliance with the environmental specification and contractual requirements. The role of environmental personnel in the DS&I team is to provide support and guidance to the construction personnel, whilst conducting monitoring to assess the compliance to agreed performance, as specified in the EMP following each ESIA. d. The Construction Contractor and Sub-Contractors: The Contractor, all employees and sub-contractors shall adhere to the mitigation set in the EMP that will be compiled during the forthcoming ESIAs to minimize project impacts on the environment and local communities. e. Contractor’s Site Environmental Officer (SEO) and Site Social Officer (SSO): Each Construction Contractor will be required to appoint at least one competent individual as the SEO and SSO which will be responsible for overseeing the Contractor’s internal compliance with the EMP and RAP requirements and ensuring that the environmental specifications and social requirements are adhered to. f. Independent Environmental Monitoring Consultant (IEMC): To implement and be able to demonstrate transparent compliance to environmental (and social) agreed performance, the NTC will engage the services of an IEMC, who will monitor and assess the overall environmental performance, and who will prepare monitoring reports on EMP implementation, submitting them reports to the NTC for approval. g. Independent SIA Consultant (ISIAC): To implement and be able to demonstrate transparent compliance to RAP requirements, the NTC will engage the services of an ISIAC, who will monitor and assess the RAP implementation and overall social performance, and who will prepare monitoring reports on RAP implementation, submitting the reports to the NTC for approval. Monitoring & Evaluation 86. Monitoring and evaluation (M&E) of the project results will rely on the existing governance structuring consisting of the IGC, the IGC Secretariat and the NTCs. The primary responsibility for monitoring and evaluation lies with the NTCs. Each PMU will submit quarterly reports to the IGC Secretariat, each appropriate Ministry, the Bank and other participating financiers, no later than 45 days after the end of each quarter. The quarterly report will cover progress reports and expected completion dates of each civil works and equipment supply contract as well as progress on technical assistance and capacity-building components. The report would cover financial and procurement information, including: (i) comparison of actual physical and financial outputs with forecasts, and updated six-month project forecasts; (ii) project financial statements, including sources and application of funds, expenditures by category statement, and special accounts reconciliation statements; and (iii) a procurement management report showing status and contract commitments.
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87. Each PIU Director would prepare an annual report to be delivered to the IGC Secretariat, each Ministry, and the Bank at a date to be agreed on during negotiations. The report would cover progress on each project component, implementation key features, key performance indicators, the Annual Work Plan for implementation, annual funds required for implementation with breakdown by each participating financier, update on disbursement profile, planned actions for mitigating negative effects during construction and target indicators for the coming fiscal year. 88. The Bank will perform semi-annual reviews. A mid-term review of the project would be undertaken by September 2016. An Implementation Completion Report would be submitted to the Bank by each PIU no later than six months after the closing date. 89. M&E Consultants would be recruited by the PIUs of each NTC for M&E implementation progress and progress impact, including the implementation and monitoring of the EMP and RAP under TOR acceptable to the Bank. The M&E activities would provide a continuous feedback on the project implementation performance, corrective actions that would have been undertaken and those to be taken in a timely manner. Changes to the project, if any, would be reflected in the implementation review aide memoires and/or communicated through an exchange of letters between the Bank and the Governments. Bank Staff located in the country offices or consultant will ensure regular contact with the PMUs and visit the project sites wherever possible. Role of Partners 90. In addition to the World Bank, the project is being supported by a number of partners including the Islamic Development Bank and Arab Coordination Group, USAID, Australian Aid, UK’s Department for International Development (DFID), the ARTF, Russian Federation, and others. Parallel financing arrangements are being considered for the infrastructure subcomponents (A1 – A4) between the various financiers.
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Annex 4: Operational Risk Assessment Framework (ORAF) Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) (P145054) .
Project Stakeholder Risks Stakeholder Risk
Rating
Risk Description:
Risk Management:
1. Although all four governments are very supportive and have demonstrated their commitment to maintaining the political momentum, support to CASA-1000 from each of them could sway as part of normal political life. Major events such as NATO withdrawal from Afghanistan by late 2014 and forthcoming elections in Afghanistan in mid-2014 could bring some uncertainty.
High
1. The leadership of the four countries in moving the project forward has proved very positive in sustaining the momentum. The seriousness of the energy crisis in Pakistan, Afghanistan's endeavor to prove itself as a viable transit country and value for diversification of export markets in Central Asian countries is expected to sustain the support of the Governments. The Bank remains active in facilitating internal dialogue among Kyrgyz state institutions. Resp:
Status:
Stage:
Both
Completed
Preparation
2. Opposition might arise from neighboring countries that are not yet participating in CASA-1000, either as a trading partner or as a financier. Various interests compete for inter-regional trading opportunities in an uncoordinated manner.
Risk Management:
4. The support and buy-in from local communities along the corridor in the four countries, especially in Northern Pakistan and in Afghanistan is important for CASA-1000.
Both
Recurrent: Due Date:
Frequency:
31-Dec-2013
2. Dialogue with neighboring countries is ongoing to address their concerns. The hydrological flow will remain unchanged so as to limit impact on downstream countries. CASA-1000 also includes an open access scheme, which will allow any other interested party to participate. The countries and the Bank has initiated discussions with various donors and potential financiers, 3. Opposition from civil society organizations might arise in the including EIB, EBRD, JICA, EDB and bilaterals including the Russian Federation, US, UK, countries, including criticism from political opposition due to Germany, etc. to seek interested parties to contribute to this project. Dialogue with donors concerns about revenue management, power deficits and foreign supporting similar energy trading initiatives is ongoing and will be deepened to allow a more debt. This could delay approval of the Financing Agreement which strategic and cooperative approach to energy trade. needs to be ratified. Resp: Status: Stage: Recurrent: Due Date: Frequency: In Progress
Preparation
31-Aug-2014
Risk Management:
3. The countries and team monitor closely the state of support within the countries, and a 5. Security environment remains uncertain in some of the regions detailed communications strategy for the four countries helps to keep the dialogue going and address concerns of civil society. Pro-active engagement with the Parliament and civil society crossed by the line in Pakistan and Afghanistan. has been and remains part of project preparation via various media to communicate the benefits of the project. Several rounds of consultations have already been conducted and additional consultations will allow ensuring support from and inclusion of the civil society and communities. A dedicated website allows easy access to all relevant project documentation to lead the discussion on an informed basis. In the Kyrgyz Republic, the bilateral program
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addresses energy revenue management transparency. Resp:
Status:
Stage:
Both
In Progress
Both
Recurrent: Due Date:
Frequency:
30-Nov-2014
Risk Management: 4. The importance of the local communities was recognized very early on by the countries and the team, as was the necessity of building strong support for the project within the communities. Country-specific plans will be prepared to mitigate the environmental and social impacts of the project. Additionally, community consultations along the transmission line have been conducted in all countries to guide the preparation of a Community Support Program, in order to strengthen community buy-in of the project. An additional round of consultations is in progress. Resp:
Status:
Stage:
Both
In Progress
Preparation
Recurrent: Due Date:
Frequency:
31-Dec-2014
Risk Management: 5. The experience with implementing projects in these areas to date is positive. The four countries agreed that provision of security is the responsibility of each Government. The Governments have prepared security management plans to provide a secured environment via policing. The countries agreed that in Afghanistan the cost of security arrangements by the contractor will be built into the bid but not recovered through the PPA tariff. Resp:
Status:
Stage:
Recurrent: Due Date:
Frequency:
Both
In Progress
Preparation
Capacity
Rating
High
Risk Description:
Risk Management:
1. The utilities in the four countries are relatively inexperienced in managing such large international energy trade projects. They also lack familiarity with international agreements and managing international contractors for the construction as well as the monitoring and execution of the long-term O&M contracts. Procurement and financial management capacity could be issues in one or more of the implementing agencies.
1. The World Bank is working with the four utilities to make their finances more sustainable. Financial Management assessment and Procurement assessment have been carried out by the World Bank to identify the areas where one or more of the implementing agencies could need support. The four utilities will receive technical assistance to support project implementation and develop their capacity to manage such project. Project implementation, procurement and contract management will be supervised by a reputable internationally recruited firm and the same or another reputable internationally recruited firm will be designated as the engineer in the Supply and Installation contract.
30-Jun-2014
Implementing Agency (IA) Risks (including Fiduciary Risks)
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2. CASA-1000 requires a substantial level of coordination between the utilities of the four countries in finalizing the details or the specifications for procurement in a timely manner. Delays in procurement of packages involving more than one member country could be encountered due to the procurement and decision making processes of each country, in particular for the HVDC and O&M contracts.
Pre-qualification has been initiated for HVDC converter stations. IFC funded consultant will be supporting the project until contract award. Resp:
Status:
Stage:
Both
Not Yet Due Implementation
Recurrent: Due Date:
Frequency: Yearly
Risk Management: 2. The Bank has worked with the IGC, NTCs and the MoFs of participating countries to sign a resolution on procurement and contract management decision making process at the IGC meeting in September 2013. A dedicated Procurement Committee appropriately empowered was created and is streamlining the procurement management, coordination and decision for the project. Resp:
Status:
Stage:
Both
Completed
Both
Governance
Rating
High
Risk Description:
Risk Management:
1. The corporate governance structure in the implementing agencies of Pakistan, the Kyrgyz Republic, and Tajikistan are relatively solid and clear. In Afghanistan, DABS is a relatively new organization that has yet to solidify its governance and streamline the decision processes.
1. The corporate governance structures in the implementing agencies of Pakistan, the Kyrgyz Republic, and Tajikistan are relatively clearly defined. These agencies are independent organizations with established corporate structures. In Afghanistan, DABS is a relatively new organization that is rapidly strengthening its governance and streamlining its decision-making processes. Recent assessments show the steep progress made in this area and the Bank will continue to support DABS in this effort.
2. The countries preferred continued multilateral discussions as a governance mode to the creation of a dedicated project company. Therefore, reaching agreements in a timely manner and maintaining the alignment of interests might prove challenging at times.
CASA-1000 is a high visibility and priority project for the four countries and for the donors due to its transformational potential in the region. Coordinated efforts will be made to improve the governance of the countries’ utilities and will include annual entity audits and close monitoring by the Bank. Resp:
Status:
Stage:
Both
In Progress
Preparation
Recurrent: Due Date:
Frequency:
17-Sep-2013
Recurrent: Due Date:
Frequency:
Risk Management: 2. An IGC was created to provide a multilateral discussion mechanism. The IGC proved to be an efficient decision body with the full support of the four countries in accelerating project preparation. The IGC has a fully functional secretariat that closely ensures that the multilateral discussions sustain the momentum and keep making progress, bringing specific neutral legal, commercial and technical expertise to inform the discussions. The JWG is given authority by
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the IGC to discuss and make decisions on technical, commercial, or legal matters. A Legal Sub-Committee, a Procurement Committee and a Finance Committee are empowered to lead discussions in these areas. A contractual framework is designed to provide a multilateral governance structure and align the interests of the participants toward the success of CASA. The Core Project Agreements include a comprehensive Master Agreement providing the general terms that apply to all participants, as well as a Technical Code, an Account Bank Agreement and long-term Power Purchase Agreements. Resp:
Status:
Stage:
Both
In Progress
Preparation
Recurrent: Due Date:
Frequency:
Risk Management: 3. Strengthened mitigations measures for transparent revenue management in the Kyrgyz Republic and Tajikistan will be implemented. The mitigation measures will include annual audits of financial reports with recommendations available to the public, escrow accounts. Emphasis will be placed by the team on ensuring that procurement is carried out in accordance with the Bank’s Procurement Guidelines, regular IFRs are produced in a timely manner, project audits are carried out annually, and actions are taken on the recommendations of auditors. In the Kyrgyz Republic Technical Assistance and investments from ADB, USAID and the Bank aim to improve financial transparency and revenue management in the power sector. Donors are strongly recommending establishment of an independent regulator and settlement center. Upstream involvement of INTs Preventive Service to advise on F&C risks and proactive steps will also be considered as an added mitigation measure. Resp:
Status:
Stage:
Both
Not Yet Due Implementation
Design
Rating
Substantial
Risk Description:
Risk Management:
Recurrent: Due Date:
Frequency:
Project Risks
1. The transmission line alignment is not finalized and depending on conditions on the ground, modifications of the route might appear necessary at detailed design stage. Such modifications would have potential implications on project cost and schedule. 2. The electricity surplus available for export in the Central Asia countries is inherently volatile, depending on yearly hydrological
1. A certain degree of flexibility is a common feature of all transmission projects until the detailed design stage. The current alignment was established after studying several route options and the Bank will keep working with the Governments, the implementing agencies and the consultants to finalize the alignment and assess potential implications in cost and delays. Given high altitudes in some project areas, re-routing portions of the line would not necessarily result in additional cost and delays. The economic and financial analysis demonstrates the robustness of the project on the construction cost and potential delays which give sufficient comfort that a satisfying detailed design can be found.
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flows as well as local demand growth. This translates into potential volatility in the trade volume and revenue stream.
Resp:
Status:
Stage:
Client
In Progress
Preparation
Recurrent: Due Date:
Frequency:
3. Although the cost of the project can be reasonably estimated, it Risk Management: can be impacted by significant risk premium depending on the 2. Volatility is a risk inherent to hydroelectricity generation, but in the case of CASA-1000, contractors’ perception of the security risks. fast-tracking the project development and avoiding delays in implementation will allow the countries to start trading and recovering the cost when the trading potential is expected to be 4. Afghanistan will have the possibility of buying up to 300 MW the highest, i.e., the initial years. To account for this volatility, a probabilistic approach was from CASA-1000, but it is not obliged to and can re-export the used in project economic and financial assessment and the results show its robustness. electricity to Pakistan, which is not obliged to purchase it. Commercial agreements have been designed to handle this volatility through a two-tier commitment mechanism for energy sales. Resp:
Status:
Stage:
Client
In Progress
Preparation
Recurrent: Due Date:
Frequency:
Risk Management: 3. To anticipate bidders’ concerns on the security aspects, the countries are preparing security management plans to give a sufficient degree of comfort to bidders. The economic and financial analysis incorporated additional provision for a potential risk premium and the results of sensitivity analysis on cost dimensions demonstrates the robustness of the project’s benefits/returns, even in the face of higher costs. Resp:
Status:
Stage:
Client
In Progress
Preparation
Recurrent: Due Date:
Frequency:
Risk Management: 4. Given Pakistan’s severe energy crisis currently and (likely) in the medium term, there is little real concern that Pakistan would not wish to purchase the cheap and clean electricity reexported by Afghanistan via CASA-1000. The additional 300MW brought by CASA-1000 would help Afghanistan meet its growing demand. Resp:
Status:
Stage:
Client
In Progress
Preparation
Social and Environmental
Rating
Substantial
Risk Description:
Risk Management:
1. Environmental risk. Overall, the environmental risks are not significant. Most of the impacts are likely to occur during the
1. The project environmental risks will be mitigated by: (a) careful selection of the footprints for electric towers and stations, avoiding environmentally sensitive areas, physical cultural resources, densely populated areas; (b) following the guidance provided in the REA, each of
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Recurrent: Due Date:
Frequency:
construction work and these are typically related to potential impacts on vegetation in the ROW, soil, migratory birds within Important Birds Areas, health and safety issues relevant to transmission line projects etc. These risks are mostly temporary and reversible in nature and could be mitigated. 2. Environmental risk. Inadequate monitoring of potential impacts and unsatisfactory implementation of EMPs, due to capacity constraints and a lack of experience in managing large contracts could become a potential risk during the construction and operation stages. 3. Social and security risks. Direct adverse social impacts such as land acquisition will be limited. However, lack of support from the local communities may create an unfavorable environment for the construction and operation of the project, and increase the security risks for the project. This is particularly so in Afghanistan and Pakistan where security situation remains volatile and risks are high. In Tajikistan and Kyrgyz Republic the construction of the Transmission Line might foster discontent in communities which suffer from energy shortages in the winter. The community development program is being further developed, including mobilization of needed funding. Timely and adequate funding mobilization is critical to the community program.
the four participating countries will engage independent ESIA consultants to prepare countryspecific ESIAs, in close coordination with DS&I Contractors for finalization of the detailed design; and (c) the regular supervision and monitoring of project activities. Resp:
Status:
Stage:
Client
In Progress
Preparation
2. Weak institutional capacity risk will be mitigated by strengthening the institutional arrangements for implementing the EMPs and will include: Project Environmental Officer; an Independent Environmental Monitoring Consultant, as well as Owner’s Engineer. Before the start of project activities, the Bank will provide training on EMP implementation to the implementing agencies. The main provisions of the EMPs will be incorporated into the tender documents for future works contracts. Resp:
Status:
Stage:
Client
In Progress
Preparation
Frequency:
3. Resettlement Policy Frameworks/Land Acquisition and Resettlement Policy Frameworks have been prepared for each country. To mitigate the security risks for project infrastructure, a Community Support Program for each country is under preparation as a means to encourage support and buy-in from communities by delivering necessary development initiatives. The communication strategy will also mitigate community-level concerns regarding project impacts and benefits in the short and long term. However, the overall security risks are beyond the project means to address and need to be tackled with thorough special security arrangements and as part of the national strategy. Stage:
Client
In Progress
Preparation
Program and Donor
Rating
Substantial
Risk Description:
Risk Management:
Multiple financiers are involved in CASA-1000 and the
Recurrent: Due Date:
Risk Management:
Status:
2.
Frequency:
Risk Management:
Resp:
1. Each country is expected to finance the portion of the assets falling in its territory. The donors currently involved might not be in a position to completely cover the financing needs. Currently, there is a financing gap of US$173 million.
Recurrent: Due Date:
Recurrent: Due Date:
Frequency:
1. Discussion with several IFIs and bilateral donors suggest that the likelihood of reaching financial closure is high. In-principle agreement from financiers is expected to be in place by Fall 2014. Discussions among the countries have recently been initiated with various financiers to provide concessional finance for portions of the project. Resp:
Status:
Stage:
Both
In Progress
Preparation
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Recurrent: Due Date: 30-Apr-2014
Frequency:
number might increase to bridge the financing gap. Harmonization Risk Management: of financing and procurement rules and procedures are an issue for 2. Issues and potential conflicts between the rules and procedures of the various financiers timely delivery of the project. have been identified early on to allow harmonization and find creative solutions. The final procurement strategy will take into account these considerations to facilitate the financing of each package. Resp:
Status:
Stage:
Bank
In Progress
Preparation
Delivery Monitoring and Sustainability
Rating
Substantial
Risk Description:
Risk Management:
The sustainability of CASA-1000 depends on the continuity of power trade among the participating countries under changing conditions over the long term. Discontinuity of trade of the project for technical, political, economic or safeguard issues would challenge the sustainability.
CASA-1000 is an important and highly visible project, demonstrating cooperation on trade sought on a commercial basis and governed by an IGC and a solid contractual framework, including long-term PPAs. The countries are signing long-term contracts, and the existing framework will remain, with the support of the World Bank. O&M will be contracted via a single contractor for the DC portion of the line in order to ensure consistency and strengthen the sustainability of the project. Resp:
Status:
Stage:
Both
In Progress
Preparation
Rating
High
Recurrent: Due Date:
Frequency:
30-Apr-2014
Recurrent: Due Date:
Frequency:
Overall Risk Overall Implementation Risk: Risk Description: The technical coordination challenges and security risks remain serious implementation concerns that will require close monitoring and successful implementation of the community support program. However, the country led coordination mechanism of IGC, JWG and Procurement Committee) have demonstrated countries’ willingness and ability to deal with current and future coordination issues. Maintaining these mechanisms during the project implementation period would be part of the project’s financing agreement with each of the countries.
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Annex 5: Implementation Support Plan Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) Strategy and Approach for Implementation Support 1. The Implementation support plan ensures that the Bank mobilizes the required resources to provide the four implementing agencies with the necessary support to for implement the various components of the project on schedule, as well as the mitigation measures identified in the ORAF. 2. CASA-1000 will require simultaneous implementation of project activities by four utilities in four different countries belonging to two different regions of the Bank. Staff providing support for the project will be identified in both regions. 3. The project would be a high supervision cost project and Bank management will allocate a supervision budget considering its four-country involvement and complexity. 4. The plan will be undertaken by Bank staff and is based on three major principles: (i) consistent review of fiduciary procedures and controls within the implementing agencies; (ii) frequent field-based supervision of project activities; and iii) continual high-level policy dialogue on improving institutional capacity of the implementing agencies. a. Procurement: a Procurement Committee ensures coordination among the four countries and final decision on joint packages. A Procurement Consultant selected through the IFC has been assisting and will continue to assist the four countries in managing the procurement processes in a coordinated and simultaneous manner. The Bank will review the procurement document, provide guidance to the clients on the Bank procurement guidelines and processes, and will monitor the procurement progress against the detailed Procurement Plan agreed on by the Procurement Committee. b. Financial management: the Bank would review the project’s financial management systems in the four countries, including but not limited to accounting, reporting and internal controls. The Bank will also supervise contracts on a random sample basis and work with the four implementing agencies in each country to improve financial management and reporting. c. Environmental and Social Safeguards: the Bank will supervise and provide support to the implementing agencies for the implementation of the EMPs and RAPs d. Governance: the Bank will supervise and provide support in implementation of the transparency and accountability mitigation measures agreed on during appraisal, including for revenue management in the Tajikistan and the Kyrgyz Republic. e. Technical Assistance: a MDTF managed by the Bank will channel grants for technical assistance to the four countries to provide support in (i) revenue management and audits; (ii) legal support for commercial arrangement finalization, (iii) Owner’s Engineer; (iv) preparation and implementation of EMPs and RAPs; and (v) training on operations of HVAC/HVDC systems and dispatch. 82
f. Community Support Program: through a separate and parallel project, the Bank will work with the four implementing agencies of CASA-1000 and the four Governments to design and implement adequate Community Support Program. A Consultant will be hired to support the design of the program. Implementation Support will then be provided through this project parallel to CASA-1000. Implementation Support Plan 5. The Bank team would consist of staff located in Headquarters in Washington, DC, and in each of the four Country Offices to ensure timely, efficient and effective implementation support to the clients. Close support to the implementing agencies will be particularly provided by the field offices during the first 18 months. Formal supervision and field trips, where possible, would be carried out semi-annually or as often as rendered necessary by implementation needs. a. Technical inputs: Power engineering expertise, in particular for HVDC and HVAC technologies will be needed to review the procurement documents and contracts. The Bank team will provide in-house expertise or contract individual external experts to bring in the required expertise. During construction and until commission, technical supervision will be required to ensure contractual obligations are met on technical grounds. Fields visits will be carried out semi-annually by the power engineers. b. Fiduciary requirements and inputs: The team will help the implementing agencies identify capacity-building needs in financial management and procurement management. Adequate training will be provided to the implementing agencies for Procurement and Financial Management capacity. For each of the financial management and procurement areas, a Bank senior specialist will cover the four countries, supported by two specialists (one for Tajikistan and Kyrgyz republic and one for Afghanistan and Pakistan). c. Safeguards: The project’s environmental and social impacts are limited and the implementing agencies will be responsible for ensuring that the EMPs and RAPs are properly implemented. An environmental specialist and a social specialist for each country will provide guidance and inputs to the implementing agencies and monitor the progress of implementation of the EMPs, RAPs and Community Support Program. An IEMC will provide with transparent third-party monitoring of the environmental and social performance of project implementation and highlight any issues as well as possible alternative solutions. d. Operation: A specialist in each country will provide day-to-day supervision of all operational aspects and coordination with the client and among the Bank team members. 6. The budget for this Implementation Support Plan is estimated at US$750,000 per annum. Table 17, Table 18 list the skills required and an estimate of resources to support the countries with project implementation. Table 19 gives a list of partners on this project:
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Table 17: Estimated Resources Required for Project Supervision Time First twelve months
Focus
Skills Needed
Technical Review, procurement review, site review, bidding documents
Power engineers Procurement
Resource Estimate 1x6 Staff Weeks 2x6 Staff Weeks
Design of community Support Program
Social specialist
4x6 Staff Weeks
RAP Implementation
Senior Social Specialist Social Specialist
1x1 Staff weeks
Partner Role Some packages will be funded by other financiers. Coordination with Partners will be critical on procurement management. IFC will be closely involved in the management of the Procurement Consultant Funding
Coordination with other financiers on requirements
4x2 Staff Weeks Environmental Supervision
Capacity-building
12-48 months
Senior Environmental Specialist Environmental Specialist Senior Financial Management Specialist Financial Management Specialist Senior Procurement Specialist Procurement Specialist
1x1 Staff Week
4x3 Staff Weeks 1x1 Staff Weeks
1x1 Staff Weeks
2x4 Staff Weeks 2x8 Staff Weeks
TTLs
Project Construction
Power engineer Procurement and contract management
4 Staff Weeks 2x4 Staff Weeks
Environmental and Social Monitoring
Senior Environmental Specialist Environmental Specialist Senior Social Specialist
1x1 Weeks
Social Specialist Financial Management Specialist
4x2 Staff Weeks 2x2 Staff Weeks
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Funding Coordination with other financiers on requirements
2x4 Staff Weeks
Team Leaders
Financial Management, Disbursement, Report
Coordination with other financiers on requirements
Coordination with other financiers is highly necessary Some packages will be funded by other financiers. Coordination with partners will be critical on procurement management. Coordination with other financiers on requirements
4x2 Staff Weeks 1x1 Staff Weeks
Coordination with other financiers on requirements
Time
Focus
Skills Needed
Capacity-Building
Task Team Leadership
Financial Management Specialist Procurement Specialist TTL
Resource Estimate 4x3 Staff Weeks 4x3 Staff Weeks 2x8 Staff Weeks
Partner Role Funding
Coordination with other financiers is highly necessary
Table 18: Skills Mix Required Skills Needed TTLs
Number of Staff Weeks 2x8 Annually
Senior Environmental specialists
1 annually
Environmental specialists Senior Social Specialist
4x8 the first year then 4x2 Annually 1 Annually
Social Specialist
4x4 Annually
Senior Procurement Specialist
1 Annually
Procurement Specialists
2x10 Annually
Power Engineer
6 for the first year then 4 Annually 1 Annually
Senior Financial Management Specialist Financial Management Specialist Senior Finance Officer
2x4 the first year then 16 Annually 2x2 Annually
Communication Specialist
2x2 Annually
Trust Fund Management Specialist
4x4 Annually
Administrative and Client Support Staff
2x6 Annual
Number of Trips Field trips as required Field trips as required Field trips as required Field trips as required Field trips as required Field trips as required Field trips as required Field trips as required Field trips as required Field trips as required Not Required Field trips as required Field trips as required Not required
Comments International International Country office based International Country office based International Country office based International International Country office based N/A International International N/A
Table 19: List of Partners Name IFC Islamic Development Bank USAID/State Department DfID EIB Russian Federation
Institution/Country IFI IFI US UK European Union Russian Federation
Role Transaction Advisors for procurement Partner financier Partner financier Potential financier Potential financier Potential financier
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Annex 6: Economic and Financial Analysis I.
Economic Analysis
1. The economic analysis discusses the rationale for public financing of the project, the valued added from the Bank support and description of the analysis of the project’s development impact in terms of expected benefits and costs. Rationale for public sector provision/financing 2. The project warrants public intervention given its economic viability for the participating countries and the fact that private sector financing and provision is not plausible due to: a. Limited domestic capital markets: Domestic private capital markets in the participating countries lack the breadth and depth to mobilize the financing required for such a large infrastructure project. b. Prohibitively high private capital costs due to scarce capital and risks: Costs for private capital are significantly higher than for public debt in all of the involved countries given the macro and project-specific risks involved. Thus, in case of private financing, the end-users of electricity in importing countries would benefit less. Moreover, the transmission line operators in all of the project countries are stateowned companies with limited ability for borrowing on commercial terms. 3. Thus, given the risks involved and significant social benefits (development of local communities alongside the route of the transmission line) and externalities associated with the project, the public financing of the project is justified. Value added of the Bank’s support 4. The participating countries have limited capacity to prepare and implement the project given the complexity of overall project management, technical, fiduciary and safeguards aspects. Thus, the Bank’s additional value added will arise from the technical inputs of the staff in helping the Recipient countries to identify and address in a timely manner all project implementation issues related to technical aspects, procurement, financial management, environmental and social impact mitigation. Details of Economic Appraisal of the Project 5. The economic viability of the project is assessed through cost-benefit analysis and is determined through: a. Assessment of the expected economic return for the project, evaluated in terms of the NPV and EIRR from total economic costs and benefits, irrespective of the allocation of project costs and benefits among the four countries that would own and invest in the project facilities.
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6. Key Assumptions: Given the uncertainties associated with the project, the economic analysis under the base-case scenario is based on a number of key conservative assumptions, as follows: a. Power exports from the Kyrgyz Republic and Tajikistan are limited only to surplus power available from the existing generation capacity 10. The evaluation is based on the conservative assumption that no new generation plants will be built in the Kyrgyz Republic and Tajikistan. This conservative scenario avoids incorporating the substantial uncertainty about the future development of power generation capacity in these countries. The evaluation does not consider power trade between the Kyrgyz Republic and Tajikistan. b. The Kyrgyz Republic continues to have the option of exporting power to Kazakhstan in the absence of the CASA-1000 project. c. Afghanistan implements its ambitious Power Sector Expansion Plan 11 and builds significant new generation capacity to meet the forecast demand shown in Table 39. d. Pakistan is assumed to implement its ambitious Power Sector Expansion Plan summarized in Table 40 as follows: (i) delaying by 3-5 years completion of new generation capacity originally scheduled for commissioning in 2012-2016; (ii) catching up to the original schedule of commissioning of new capacity planned after 2017 and onwards; and (iii) constructing additional gas-fired peaking plants to replace all existing diesel and fuel oil fired IPPs. Moreover, the analysis assumes that additional supply of natural gas will be available from Iran and Turkmenistan to fire most of the additional thermal generation. e. The economic benefits that would be generated for the communities through the Community Support Program are not quantified in the economic analysis. 7. The economic life of the project is assumed to be 30 years from the estimated commissioning of project facilities in 2018. 8. The assessment of project costs and benefits was limited for the area served in Pakistan by the state-owned Pakistan Electric Power Company (PEPCO) and by the area served in Afghanistan by NEPS of the Kabul Region. 12 9. The estimate of summer surplus power from the Kyrgyz Republic and Tajikistan is based on the hydrological simulation results of the Stochastic Dual Dynamic Programming (SDDP) Power System Simulation Program. 13 The simulations were done considering the historical sequence of inflows to Toktogul (the Kyrgyz Republic) and Nurek (Tajikistan) reservoirs in April-September for the period of 1987-2009. The simulations were run for the period of 20162035. The surplus power for 2036-2047 was estimated by extrapolating the pattern of variation in hydro generation derived by SDDP simulations.
10
The estimate of the surplus from the Kyrgyz Republic also includes potential summer generation by Bishkek CHPP. 11 Afghanistan Power Sector Master Plan, Nov. 2012 12 “Afghanistan Power Sector Master Plan,” Draft Final Report, November 2012. 13 Developed by the Brazilian Power System Research. Source: CASA-1000 Project Feasibility Study Update, February 2011.
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10. The project costs and benefits are expressed in US$2013 price terms that are based on average exchange rates for 2013. The economic analysis is based on estimated real prices/costs and is exclusive of any taxes and duties that might be applicable to the project inputs and outputs in any of the four countries. The project costs do not include IDC or any contingencies for expected price inflation. The evaluation does not incorporate any relative movements in exchange rates over the project evaluation period. The detailed list of other assumptions is presented in the Table 42. 11. The base-case for economic analysis is formed from expected values for the main evaluation variables, namely expected: (a) project construction cost and in-service date; (b) amount of power 14 supplied under the project (based on simulated results of generation in the Kyrgyz Republic and Tajikistan), and (c) the projected costs of fuels (Table 41) used by marginal plants or alternative power imports that would be displaced by power imports under the project in Pakistan and Afghanistan. 12. Power Supply and Demand in the Kyrgyz Republic: The Kyrgyz power supply system is dominated by HPPs with total installed capacity of 2,910 MW, which account for 85 percent of the total installed capacity of 4,750 MW. Thermal generation capacity consists of the Bishkek and Osh combined heat and power plants (CHPPs) with total installed capacity of 530 MW, which accounts for the remaining 15 percent of the total. The thermal plants are dilapidated and inefficient with high variable costs, and thus they are operated mainly in winter to meet seasonal and daily peak demand. The country’s hydropower storage capacity is sufficient to meet weekly variations in river flows, but not seasonal variations. Thus, the Kyrgyz Republic experiences power shortages in winter and has power surplus during summer months. 13. The amount of power available for exports under the project is estimated as the difference between the forecast summer demand and available summer generation by existing HPPs simulated by the SDDP model and existing TPPs. The estimate of available summer power (Figure 11) is based only on existing generation capacity considering retirement plans. No new generation plants were assumed to be commissioned during the evaluation period. The forecast summer power demand was derived drawing upon the base-case power demand forecast for the Kyrgyz Republic developed under the Power Sector Regional Master Plan for Central Asia (2013). 15 The demand forecast assumes 8 percent annual real tariff increase until 2020. The duration and magnitude of tariff increase might be higher depending on the Government’s plans to bring tariffs to cost-recovery levels. This will result in larger power surplus under the project.
14
For the purposes of economic and financial analyses, all of the exported power is treated as non-firm. The project is not expected to defer capital investments neither in Pakistan nor in Afghanistan. 15 “Central Asia Regional Economic Cooperation (CAREC): Power Sector Regional Master Plan,” Sep. 2012.
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Figure 11: Forecast Summer Power Supply and Demand for the Kyrgyz Republic 16
Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011 and “CAREC Power Sector Regional Master Plan,” Sep. 2012.
14. Figure 12 below presents the estimated surplus summer power available from the Kyrgyz Republic for exports under the project. 17 Specifically, with no generation expansion and increasing domestic demand, the surplus power is expected to decrease from 1,433 GWh in 2018 to zero from 2039 and onwards. Figure 12: Surplus Summer Power Available for Project from the Kyrgyz Republic
Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011 and “CAREC Power Sector Regional Master Plan,” Sep. 2012.
16
The based year of demand forecast was revised to reflect the change in the base year. The demand forecast assumes income elasticity of 0.7 until 2015; 0.6 until 2020 and 0.5 afterwards. The price elasticity is assumed at (0.15) until 2020 and (0.2) afterwards. Tariff is assumed to increase by 8% annually until 2020 and 0% increase afterwards. 17 The power surplus estimates for Kyrgyz Republic are based on the “CASA-1000 Project Feasibility Study Update, February 2011,” adjusted to include updated demand forecast.
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15. Power Supply and Demand in Tajikistan: Tajikistan’s state-owned power supply system is dominated by HPPs with total installed capacity of 4,750 MW that is 96 percent of the total capacity. Available thermal generation capacity of 200 MW (Dushanbe CHPP) accounts for the remaining 4 percent. Dushanbe CHPP is currently being converted from gas-fired to coalfired. Nurek HPP is the cornerstone of Tajikistan’s power system. At 3,000 MW, it represents more than 60 percent of the total installed capacity and accounts for 72 percent of annual power generation. Moreover, there are two large IPPs, the 670 MW Sangtuda-1 HPP and 270 MW Sangtuda-2. The country’s hydropower storage capacity is sufficient to meet weekly variations in river flows, but not seasonal variations. As a result, Tajikistan has excess capacity during summer with limited market opportunities for sales. Water is spilled instead of being used to generate power during the summer as the reservoir capacity in the system is inadequate to allow storage of the spilled water for use during the winter months. 16. The amount of power available for exports under the project was estimated as the difference between Tajik summer demand and the available total summer generation by existing HPPs. No new generation plants were assumed to be built during the evaluation period. The available summer power presented in Figure 13 was estimated assuming the committed rehabilitation of the existing HPPs, which will preclude reduction in hydropower generation due to obsolescence of critical equipment and civil works and increase the potential power generation, and planned retirement. The forecast summer power demand was derived drawing upon the base-case power demand forecast for Tajikistan developed under the Tajikistan’s Winter Energy Crisis Report (2013). The base-case forecast summer power demand also took into account the impact of tariff increasing to the level of willingness-to-pay by 2022 and energy efficiency improvements. 18 In case tariff increase is longer in duration or larger in magnitude, the available surplus power will increase. Figure 13: Forecast Power Supply and Demand for Tajikistan 19
Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011; and “Tajikistan’s Winter Energy Crisis: Electricity Supply and Demand Alternatives,” 2013, World Bank. 18
Energy efficiency improvements at Tajikistan Aluminum Company (TALCO), loss reduction, introduction of energy efficiency standards and labeling, and introduction of solar water heaters. Source: “Tajikistan’s Winter Energy Crisis: Electricity Supply and Demand Alternatives,” The World Bank, 2013. 19 The demand forecast was revised to reflect the change in the base year.
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17. Figure 14 below presents the estimated surplus summer power available from Tajikistan for exports under the project. With no generation expansion and increasing domestic demand, the surplus power is expected to decrease from 4,117 GWh in 2018 to zero from 2044 onwards. Figure 14: Surplus Summer Power Available for the Project from Tajikistan
Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011; and “Tajikistan’s Winter Energy Crisis: Electricity Supply and Demand Alternatives,” 2013, World Bank.
18. The combined surplus power available from the Kyrgyz Republic and Tajikistan under the base-case is presented on the Figure 15. The available surplus is different from the actual power exports under the project given the transmission line capacity constraint at 1,300 MW (4,000 GWh during summer season). The estimated available surplus is different from the estimates in the Update of the Feasibility Study (2011) of the project and the revised demand forecasts for the Kyrgyz Republic and Tajikistan. Figure 15: Combined surplus summer power available for project from Kyrgyz Republic and Tajikistan
Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011; and the relevant demand forecasts
19. Power Supply and Demand in Afghanistan: Afghanistan’s generation capacity includes hydro- and thermal power consisting of diesel-fired grid-connected and off-grid plants. The total installed hydro capacity and thermal capacity are 254 MW and 221 MW, respectively, 91
but this capacity is not sufficient to meet the domestic demand. The diesel-fired plants are operated to a very limited extent given the prohibitively high unit cost of fuel, and the available hydro capacity is reduced due to severe dilapidation of several plants. Moreover, several industrial and commercial end-users have off-grid supply from diesel generation sets, which are quite expensive to operate. Thus, the country depends on imports to meet a large share of its power demand. Specifically, in 2011, the country imported 2,250 GWh of power from Turkmenistan, Uzbekistan, Tajikistan and Iran, which corresponds to 73 percent of total served demand in 2011. Moreover, given that the power grid is isolated and currently operates in island mode, not all of the available plants and imports are accessible to serve the demand in the project area. Therefore, the un-served energy in the country for existing customers connected to the grid 20 was estimated at 10 percent of the total unconstrained demand throughout the year. 21 20. The unconstrained power demand (including un-served) 22 in the Kabul Region is expected to increase from 2,300 GWh in 2014 to 3,300 GWh in 2018 (Figure 16). The large increase in forecast demand is driven primarily by the expected increase in the connection rates of households in the Kabul Region, which stood at 44 percent in 2011. The demand is assumed to grow at a lower rate in 2033-2047 considering that connection rate is estimated to reach 97.5 percent by 2032, according to Afghanistan Power Sector Master Plan. The summer demand is expected to increase from 900 GWh in 2014 to 1,300 GWh by 2018. Figure 16: Base-Case Power Demand Forecast for Kabul Region
Source: Afghanistan Power Sector Master Plan, Nov. 2012; Bank estimates
21. The country will therefore require a significant increase in supply to meet the total forecast power demand, including the forecast demand in Kabul Region, which accounts for 50 percent of the total. The total investments to meet the forecast demand by 2030 are estimated at US$7.4 billion over same time period, which will be very challenging to finance. According to the Afghanistan Power Sector Master Plan, the unserved power demand might be eliminated by 2020 only if the country implements all of the required investments, including sizeable investments in transmission and distribution infrastructure. Specifically, the country will be
20
This estimate of un-served demand excludes the potential customers, which are not connected to the grid. Afghanistan Power Sector Master Plan, Nov. 2012. 22 This includes only the required power that is not supplied to grid-connected customers and excludes the un-served energy for those who are not connected to the grid. 21
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required to commission a total of 650 MW of new supply by 2018 and 4,400 MW by 2032 (Table 39). 22. Power Supply and Demand in Pakistan: The PEPCO system is dominated by thermal generation accounting for 64 percent of the total capacity. Specifically, as of 2012, the total system generation capacity was 20,433 MW, which includes 13,166 MW of thermal (including thermal IPPs, 6,627 MW of hydro (including IPPs), and 650 MW of nuclear. 23 23. However, the country fails to fully meet the unconstrained demand primarily due to the high average cost of power supply, including the power supplied by the thermal IPPs. The thermal generation operates primarily on natural gas and imported fuel oil, which results in a high cost of generation due to: (a) high-cost of fuel oil and (b) inefficiency of the existing thermal plants. Meanwhile, technical and commercial losses at around 20 percent and bill collection rates at 86 percent 24 create a financial drain on the state-owned utility. Consequently, the generators struggle to finance the purchase of fuel required for thermal generation. Thus, the country has significant unmet power demand throughout the entire year, including 6,325 MW 25 during summer peaks or 20 percent of actual consumption in 2012. 26 The unmet demand will significantly increase if the country does not implement its Power Expansion Plan. 24. Power demand in PEPCO area of Pakistan is forecast to increase at a high rate considering the expected economic performance and rapid increase in population (Figure 17). Figure 17: Base-Case Demand Forecast for PEPCO system
Source: Electricity Demand Forecast for 2012-2035 based on Multiple Regression Analysis,” NTDC, May 2012; Bank estimates
25. The country will need significant new generation capacity to meet the increasing demand and to replace existing generation plants (primarily state-owned thermal), which are close to or 23
“Electricity Market Data,” 36th Issue, NTDC, 2011. “State of Industry Report 2012,” National Electric Power Regulatory Authority; Electricity Market Data, 36th Issue, 2011. 25 Exclusive of exports to area served by Karachi Electric Supply Company (KESC). Source: “State of Industry Report 2012,” National Electric Power Regulatory Authority; Electricity Market Data, 36th Issue, 2011. 26 Bank estimate based on demand data from NTDC. 24
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beyond their economic service life and are fuel-inefficient. In order to eliminate the un-met demand under the PEPCO system by 2020, meet the forecast base-case demand thereafter as well as displace expensive fuel oil IPPs, the country would need to add 104,000 MW capacity by 2030 with almost 32,000 MW capacity to be added by 2020.The total cost of new generation assumed to be commissioned by 2020 is estimated at around US$46 billion. 26. Economic Analysis of the Project: The main economic costs include the total investment cost (construction and associated costs as described in Table 20 below), incremental O&M, and project energy costs. The main economic benefit is the estimated value of the power exported under the project to Afghanistan and Pakistan computed in terms of the reduction in the costs of meeting projected power demand in these countries. The volume of trade assumed in this analysis is based on the potential trade estimates described above and are capped by the expected maximum capacity of the CASA-1000 transmission line. The economic analysis indicates that the project is economically viable with an NPV of US$1,208 million and an EIRR of 26 percent. The flows of economic benefits and costs are presented in Table 43. 27. Project Economic Costs: Project construction and associated costs are summarized in Table 20. The construction costs are expressed in U.S. dollar price terms. The costs are projected according to the years in which they are expected to be incurred during the project construction period. 27 They are based on the expected: (a) DS&I costs, including physical contingencies, of the project; (b) network reinforcements in the four countries; (c) owner’s engineer costs; and (d) environmental and social costs. The economic costs of the project also include associated costs comprised of community benefit program costs, additional security costs, and implementation support during construction. The associated costs are targeted at ensuring sustainability of the project and additional security during construction. Table 20: Total Economic Investment Costs 28 Kyrgyz Tajikistan Construction Cost Republic DS&I and local grid reinforcement US$m 160 240 Owner’s Engineer US$m 2 4 Environmental and Social Cost US$m 0.4 2 Contingency US$m 16 24 Total Construction Cost US$m 179 270 Associated Cost Community benefit sharing 10 10 program US$m Additional line security during 0 0 construction US$m Implementation support during 2 4 construction US$m 12 14 Total Associated Cost US$m 192 284 Total Project Cost US$m 27
Afghanistan
Pakistan Total
242 5 11 48 306
159 3 3 16 180
801 15 16 104 936
30
10
60
0
10
10
4
2
12
34 340
22 203
82 1,018
Project construction costs are not levelized over the operating life of the project. Source: CASA-1000 Project Feasibility Study Update, Final Report, February 2011; Bank estimates. The estimated totals might be different from the sum of individual items presented due to rounding.
28
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28. The total project cost is estimated at US$1,018 million, including construction cost of US$936 million. The incremental annual project O&M and insurance costs are estimated at 2 percent for HVAC DS&I and local grid reinforcement in each country and 3.9 percent for HVDC DS&I. 29. The economic cost of power is assessed as the economic opportunity cost for the Kyrgyz Republic and incremental generation cost for Tajikistan. Specifically, for the Kyrgyz Republic it is assumed to equal to average export tariff to Kazakhstan over 2009-2013 (US¢2.9/kWh) given that exports were of comparable size in terms of kilowatt-hours. For Tajikistan, it was computed to equal the variable cost of hydropower generation assumed at US¢0.2/kWh given that Tajikistan does not have export opportunities competing with CASA-1000. 30. The following estimates of power trade are used for project costs and benefits: (a) the quantity of power exports is the amount supplied at the project in-take terminals in the Kyrgyz Republic and Tajikistan; (b) the quantity of power imports is the amount supplied at the project off-take terminals in Afghanistan and Pakistan based on the quantity of power offloaded from the project intake terminals less 1.5 percent of technical losses in the project transmission facilities. 31. Project Economic Benefits: Economic benefits are estimated as the economic value of (a) power imported under the project computed in terms of the reduction in the costs of meeting projected power demand in Pakistan and Afghanistan; and (b) reduction of GHG emissions from marginal fossil fuel plants. The environmental benefits of the project were quantified for the overall project and cannot be attributed to individual countries. For the purpose of this appraisal, both countries are assumed to fully implement their respective Power System Expansion Plans and eliminate the unmet demand. In addition to investments under Power System Expansion Plans, Pakistan is also assumed to build around 4,000 MW of additional gas turbine plants in order to stop buying power from existing fuel oil fired IPPs. The reduction in the cost of meeting forecast demand was computed as the avoided cost of the marginal sources of power used to meet summer demand in Pakistan and Afghanistan. In case the importing countries only partially implement their Power System Expansion Plans, the project benefits would be higher given that power imported under the project would help to eliminate the unmet demand. The CSP under the project would also generate economic benefits for the communities alongside the route of the transmission line; however, those were not quantified. 32. In Afghanistan, the economic value of imported power is computed as the variable economic cost of the marginal sources in the supply mix, i.e. grid-connected diesel-fired generation and thermal generation-based power imports. 29 The variable economic cost of displaced grid-connected diesel-fired generation is estimated at US¢17-22/kWh, reflecting forecast real price of diesel. Currently, the most expensive imports cost for Afghanistan is US¢7/kWh. However, those are estimated to reach US¢8.9/kWh by 2018. 30 The project will also help Afghanistan to reduce upward pressure on end-user tariffs since it will be displacing some higher cost supply sources. The project will also generate a number of non-quantifiable benefits for Afghanistan such as: (a) track record of reliable transit country in regional power trade; (b)
29 30
There is also significant off-grid diesel-generation with variable economic cost of around US¢32/kWh. The tariff is assumed to increase further to US¢8.9/kWh by 2018. Source: Bank estimate.
95
experience with regional interconnection projects; (c) contribution to the broader agenda of domestic and regional stabilization through economic ties and cooperation. 33. In Pakistan, the economic value of imported power is computed: (a) until 2019, as combination of variable economic cost of marginal fuel-oil and Open Cycle Gas Turbine (OCGT) plants displaced; and (b) from 2020 and onwards – as the variable economic cost of these plants. OCGTs are considered marginal plants starting from 2020 since it is assumed that: a. Iran-Pakistan and Turkmenistan Afghanistan Pakistan India (TAPI) pipelines will be commissioned by 2017 and 2020, respectively 31; b. Pakistan will make up on delays in implementation of its Power Expansion Plan; c. Commission in a timely manner all new generation capacity scheduled for 20182030; and d. Construct additional OCGTs to displace fuel oil IPPs. 34. The variable economic cost of displaced fuel oil IPPs is estimated at around US¢14/kWh, reflecting forecast real price of fuel oil. 32 The estimate is derived considering: (a) forecast fuel costs of IPPs; (b) average variable O&M costs of IPPs as approved by NEPRA. The marginal plants are identified taking into account: (a) the merit order for the dispatch of power plants, as of June 30, 2012, published by the NEPRA; and (b) planned decommissioning of existing fuel oil plants as discussed in the Power System Expansion Plan for 2012-2030. 35. The variable economic cost of displaced OCGTs is estimated at around US¢8-12/kWh, reflecting forecast real price of imported natural gas from Iran through Iran-Pakistan pipeline and Turkmenistan through TAPI. 33 The estimate of cost reduction is derived considering: (a) forecast gas price; and (b) average variable O&M costs of OCGTs. 36. The environmental benefits of the overall project are computed as the total avoided social cost of carbon due to reduction of GHG emissions from displaced marginal generation sources in Afghanistan and Pakistan using the relevant emission factors. The avoided social cost of GHG emissions is estimated based on conservative social cost of carbon at US$13/tCO2, 34 which is assumed to gradually increase throughout the evaluation period. 37. Sensitivity analysis of the project: Sensitivity analysis is conducted to assess the robustness of the estimated project economic returns to changes in the main evaluation variables. Sensitivity analysis covers the following cases that in turn stress test the economic returns to the project. The results of the sensitivity analyses are presented in the Table 21 below.
31
Tarbela 4th unit is under construction and Dasu is under preparation. Imported High-Sulfur Fuel Oil (HSFO) with sulfur content of 3.5%, which accounts for largest share of fuel oil in Pakistan used for power generation. 33 The Iranian section of the pipeline has already been completed. The Iran-Pakistan pipeline is assumed to be commissioned by 2017. TAPI pipeline is assumed to be commissioned by 2020. 34 The median estimates from various studies suggest a range of US$13-US$43/ tCO2. Source: Kirk Hamilton and Jana Stover, “Economic Analysis of Projects in Greenhouse World,” World Bank, July 2012. 32
96
a. 30 percent higher project construction cost 35 with the expected in-service date and the base-case values for the amount of power supplied under the project and the forecast fuel prices of marginal sources displaced in Afghanistan and Pakistan. b. A 2-year delay in the project in-service date with the base-case values for the project construction cost, the amount of energy that would be supplied under the project, and the projected costs of marginal sources displaced in Afghanistan and Pakistan. c. 30 percent lower projected fuel cost of marginal sources displaced in Afghanistan and Pakistan with the base-case values for the project construction cost and in-service date and the amount of power supplied under the project. d. 30 percent lower surplus energy with base-case values for the project construction cost, the 2-year delay of project in-service date, the projected costs of marginal sources displaced in Afghanistan and Pakistan. e. Combination of the above three cases. Table 21: Sensitivity Analysis of Economic Appraisal Results for the Project NPV (million US$) Base-case 1,208 a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan 1,006 b. 30% increase of project construction cost 986 c. 30% lower cost of diesel, fuel oil and natural gas 693 d. 2-year delay of in-service date of project facilities 693 e. Combination of a, b, c and d 42
EIRR (%) 26% 25% 21% 20% 18% 10%
38. Sensitivity analysis upward and downward on these variables yields the results presented in Figure 18 and Figure 19 below. Figure 18: Project EIRR Sensitivities EIRR 40.0%
Project EIRR Sensitivity
20.0% Hurdle 10% 0.0% -30% -20% -10% Surplus available TAJ FO cost
35
0%
Cost of HVDC+HVAC and domestic grid reinforcements.
97
10% 20% 30% Variation Project construction cost increase Diesel cost
Figure 19: Construction Delays EIRR Sensitivity
Construction Delays Sensitivity 30.0% 25.0% 20.0% 15.0% Hurdle 10%
10.0% 5.0% 0.0% 0
1 2 EIRR
3
4
5
6
Years
39. The results of the sensitivity analysis suggest that the project is economically robust even in case of substantial variation of main variables that affect its viability. The project may become economically unviable only in case of simultaneous occurrence of the above extreme sensitivity scenarios, which is unlikely. 40. Switching value analysis of the project: Switching value analysis was conducted to assess the changes in the key evaluation variables at which the EIRR of the project equals the social discount rate and NPV equals zero. The results in Table 22 of the switching value analysis suggest that project will become economically not viable only in case of significant variation of key evaluation variables, which has a very low probability of occurrence. Table 22: Switching Value Analysis of Economic Appraisal Results for the Project Change in variable required to make EIRR=10% and NPV=0 162% increase of project construction cost 7 years of delay of in-service date of project facilities 70% lower cost of diesel, fuel oil and natural gas 69% lower energy surplus II.
Financial Analysis
41.
The financial analysis assesses the financial sustainability of the project.
Approach to Financial Analysis of the Project 42. Key Assumptions: The financial analysis assesses the financial sustainability of the project. The analysis adopts a number of inputs from the economic analysis, including: export quantities, PPA tariffs, project construction schedule and life time, investment costs, and O&M. The financial analysis excludes environmental benefits used in the economic analysis. International US$ inflation is applied to the costs in the financial analysis since it is expected that most of the O&M costs will be US$-denominated. 98
43. The financial costs and benefits are assessed inclusive of applicable direct taxes. To that end, the applicable direct taxes (Value Added Tax or ‘VAT’, import duties, sales tax and income tax) of each country are incorporated into financial revenues and expenses and related cash flows of the relevant Implementing Agency and aggregated for the overall project level financial analysis. The application of taxes is currently under discussion among the participating countries. 44. The weighted average cost of capital (WACC) used to assess the financial NPV for each country is assessed based on the after-tax on-lending rates currently applicable to on-lending arrangements between the implementing entities and their respective Governments (see Table 23). The WACC for the overall project is estimated based on the weighted average of individual Implementing Agency’s WACCs. Table 23: Estimated WACC for the Project and Individual Countries Project as a whole Kyrgyz Republic: NEGK (transmission company) Tajikistan: Barki Tajik (vertically-integrated power utility) Afghanistan: DABS (vertically-integrated power utility) Pakistan: NTDC (transmission company and wholesale buyer)
2.1% 2.25% 1.13% 0.98% 5.33%
45. Financial Analysis of the Project: The financial costs of the project include the investment costs, marginal costs of power generation in the Kyrgyz Republic and Tajikistan, incremental transmission costs, incremental distribution costs (applicable only for Afghanistan), the operating and maintenance costs of HVAC facilities, and the fee to HVDC Operator in charge of O&M of the HVDC portion of the project. The financial benefits include the incremental revenues from the domestic sale of imported power in Afghanistan by DABS and incremental revenues from sale of imported power by NTDC to DISCOs in Pakistan. The financial analysis indicates that the project is financially viable with an NPV of US$3,861 million and an FIRR of 25 percent. Financial flows of benefits and costs are given in Table 44. 46. Project Financial Costs: Project construction costs are summarized in Table 24. The construction costs are expressed in U.S. dollar price terms. The costs are projected according to the years in which they are expected to be incurred during the project construction period. 36 They are based on the expected DS&I costs, including physical and price contingencies, of the project and the required transmission connections and network reinforcements in the four countries. The financial costs of the project also include the cost of land that is expected to be acquired for the project or for resettlement of people displaced by the project. Table 24: Total Financial Costs (US$m) Kyrgyz Republic Tajikistan Afghanistan Pakistan Total DS&I and grid reinforcement 183 240 271 170 863 Contingency 27 36 67 25 155 Environmental and Social Costs 0.4 2.2 12 3 18 210 278 349 198 1,035 Total Project Financial Cost
36
Project construction costs are not levelized over the operating life of the project.
99
47. The financial costs include the incremental power generation and transmission cost for the Kyrgyz Republic and Tajikistan. The incremental variable cost of hydropower generation is assumed at US¢0.2/kWh. 48. Project Financial Benefits: Financial benefits are estimated as the incremental revenue in Afghanistan and Pakistan from sale of the imported power. Specifically, in Afghanistan the incremental revenue is estimated as the revenue to DABS from domestic sale of power net of distribution costs. The revenue is estimated at weighted average billed tariff of US¢12.5/kWh. In Pakistan, the benefits are estimated as the incremental revenue from wholesale of power by NTDC/CPPA to distribution companies. The wholesale price is estimated at US¢10/kWh. 49. Sensitivity Analysis: Similar sensitivities to the economic analysis were run on the project FIRR and Financial NPV and the results are presented in Table 25, Figure 20 and Figure 21 below. Table 25: Project Financial Sensitivity Analysis Base-case a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan b. 30% increase of project construction cost c. 30% lower domestic average end-user tariff in Afghanistan and wholesale tariff to DISCOs in Pakistan d. 2-year delay of in-service date of project facilities e. Combination of a, b, c and d
NPV (million US$) 3.861 3,970
FIRR (%) 25% 23%
3,520 2,037
20% 17%
3,770 1,241
19% 9%
Figure 20: Project FIRR Sensitivities
Project FIRR Sensitivities
FIRR 30.0% 25.0% 20.0% 15.0% 10.0% 5.0%
Hurdle 2.1%
0.0% -30%
-20%
-10%
0%
Project construction cost increase PAK Wholesale tariff Surplus available TAJ
100
10%
20%
30%
AFG tariff Surplus available KRG
Variation
Figure 21: Sensitivity of FIRR to Construction Delays
Sensitivity of FIRR to Construction Delays 30.0% FIRR
25.0% 20.0% 15.0% 10.0%
Hurdle 2.1%
5.0% 0.0% 0
1
2
3
4
5
6
Years
50. Switching value analysis of project: The results of the switching value analysis (Table 26) suggest that the project is financially robust even in case of substantial variation of key variables that affect its viability. Table 26: Switching value analysis of financial appraisal results for the project Change in variable required to make FIRR=2.1% and NPV=0 338% increase of project construction cost 15 Year delay of in-service date of project facilities -224% lower domestic average end-user tariff in Afghanistan -89% lower wholesale tariff to DISCOs in Pakistan 51. Financial Performance Analysis of Implementing Entities: This section assesses the financial performance of each of the implementing entities based on the analysis of the financial statements- income statement, cash flow statement and balance sheet- for the last two years (2011-2012) and financial statement projections for 2013-2018. Financial statement projections are conducted incorporating the revenues and expenses and cash flows that would be associated with CASA-1000 project. As part of the financial analysis, key ratios are assessed to examine the profitability, liquidity and solvency of the company. 52. Kyrgyz Republic: The overall financial performance of the JSC NEGK has been volatile. The company recorded positive but declining net income and operating cash flow for the 201112. As a result, profitability, liquidity and debt and solvency ratios of NEGK have been overall adequate however volatile too. It should be noted that the profitability ratios are likely overstated as the company has been under-spending on O&M of infrastructure due to low level of tariffs. In addition the company has assumed significant amount of long term debt with increasing repayments starting in the 2013-18 forecasting period that will impact its financial standing in the future. 53. The financial performance of NEGK was projected for 2013-2019 assuming the company rehabilitates the transmission infrastructure that is in urgent need to investments due to age 101
(ending of the useful life) and condition with an estimated cost of US$160 million, proceeds with the rehabilitation of the investment projects started with the financing of bilateral and multilateral donors and commissions CASA-1000 project. The financial projections are summarized in Table 27, Table 28 and Table 29, and assume transmission tariff increase of 10 percent annually, which will allow the company reaching short-term cost recovery by the year 2019 (assessment based on the Power Sector Chapter of the Public Expenditure Review of the Bank, 2013). The projections also incorporate larger maintenance costs both to incorporate the additional operational and maintenance costs associated with CASA-1000 and to ensure adequate maintenance of the transmission infrastructure in the future years. The forecast assumes that the historical working capital levels (in relation to sales or cost of sales) will not change in the future. 54. With the above assumptions, the company is projected to have negative profits in early years of projection, which will be eliminated starting from year 2018 when CASA-1000 project enters into operational stage and NEGK starts earning Kyrgyz portion of the transmission tariff. Despite deterioration of profitability ratios in early years of forecasting (Table 27), the liquidity as well as debt and solvency ratios remain overall adequate, which should allow the company to adequately operate and maintain the overall transmission infrastructure, including the Kyrgyz portion of CASA-1000 line and to service its debt. Table 27: Ratio Analysis for NEGK Ratios 2011 2012 Profitability Ratios Gross profit margin 11% 11% Net profit margin 12% 4% Liquidity Ratios Current Ratio 0.7 0.1 Quick Ratio 5.3 3.4 Solvency Ratios Debt service coverage ratio 3.1 1.8
2013f
2014f
2015f
2016f
2017f
2018f
2019f
13% 2%
10% 1%
20% -5%
20% -3%
25% -5%
21% 2%
19% 5%
0.1 0.5
0.2 0.6
0.3 0.8
0.5 1.0
0.4 1.0
0.4 1.1
0.3 1.0
1.5
1.4
1.5
1.5
1.7
2.1
2.3
Table 28: Balance Sheet Projections for NEGK (figures in million Soms) ASSETS 2011 2012 2013f 2014f 2015f 2016f Non-Current Assets Property, Plant & Equipment 6146 14369 21552 26853 33552 36562 Intangible Assets 2 2 2 3 4 4 Total non-current assets 6148 14371 21555 26856 33556 36566
2017f
2018f
37404 4 37408
36386 35369 4 4 36391 35373
Current Assets Cash and marketable securities Inventory Trade and other receivables Other current assets Total Current Assets
326 300 234 1861 2722
161 926 461 4239 5787
552 692 400 3509 5154
1,858 796 479 4203 7337
3,478 1,006 528 4628 9640
5,424 1,025 547 4797 11793
5,231 1,181 594 5210 12216
4,796 4,218 1,318 1,406 704 770 6171 6751 12989 13145
Total Assets
8870
20158
26709
34193
43195
48359
49624
49380 48518
102
2019f
ASSETS LIABILITIES Non-Current Liabilities Long-term debt Other long-term liabilities Total Long-Term Liabilities
2011
2012
2013f
2014f
2015f
2016f
2017f
2018f
4692 311 5002
14744 319 15063
11530 198 11728
19396 296 19692
29117 0 29117
35146 0 35146
36852 0 36852
36714 37618 639 1140 37353 38758
Current Liabilities Short-term debt Trade and other payables Taxes payable Total Current Liabilities
399 90 23 511
607 1100 10 1717
10579 672 10 11261
10693 773 17 11482
10763 977 0 11740
10791 994 0 11786
10859 1146 0 12005
11018 11113 1279 1364 36 64 12332 12541
Total Liabilities
5514
16780
22989
31175
40856
46932
48857
49685 51299
EQUITY Shareholder capital Retained Earnings Reserves Total Equity Total Equity and Liability
1740 224 1392 3356 8870
1752 223 1402 3378 20158
1752 300 1667 3720 26709
1752 343 923 3018 34193
1752 131 456 2339 43195
1752 -3 -322 1427 48359
1752 -258 -727 767 49624
1752 1752 -121 189 -1937 -4722 -306 -2781 49380 48518
Table 29: Income Statement Projections for NEGK (figures in million Soms) 2011 2012 2013f 2014f 2015f 2016f Total Revenues 2677 2873 3193 3825 4211 4365 Total Cost of Sales 1811 1952 2124 2443 3088 3144 Depreciation expenses 295 313 400 400 862 862 Gross profit 867 921 1069 1382 1124 1221 Gain/Loss from Asset Revaluation -184 -69 0 0 0 0 Administrative Expenses -291 -317 -347 -373 -397 -421 Other Operating Income 22 16 22 26 29 30 Operating Profit 413 552 744 1035 755 830 Investment Income 7 7 8 10 11 11 Interest Expenses 91 225 641 971 967 963 Gain/Loss from Foreign Exchange -18 -227 0 0 0 0 Other Non-Operating Income 45 35 46 55 61 63 Profit before tax 357 142 157 129 -140 -59 Income Tax 42 40 26 21 0 0 Net Profit 315 102 77 43 -212 -133
2017f 2018f 2019f 4741 5616 6143 3623 4043 4313 1171 1171 1171 1118 1572 1830 0 0 0 -446 -472 -501 32 38 42 705 1138 1371 12 15 16 959 955 979 0 0 0 69 81 89 -174 279 497 0 46 82 -255 137 310
55. Tajikistan: The financial performance of vertically integrated power utility BT has been poor in 2011-12. The net income and, therefore, the related net profit margin of BT has been negative due to significant increase in costs of sales and other expenses (driven by high inflation and significant increase in material costs) without commensurate increase in revenues. The liquidity ratios of BT for 2011-12 are also low indicating that the company does not generate sufficient cash or other liquid assets are not adequate to meet its short-term obligations. Availability of cash to meet short-term obligations is very low due to inability of the company to 103
2019f
effectively convert billed revenue into cash. BT’s reliance on debt has significantly increased during 2011-2012 without matching increase in operating income and cash flows. The increase of long-term debt is driven by the Government borrowing from IFIs and bilaterals to finance new capital investments and rehabilitation of existing core assets. The company’s debt service coverage ratio has been below 1.0 in 2011 and 2012 clearly demonstrating the severe liquidity problem it is currently facing. The cash shortfall has been dealt with by delaying payment to creditors including IPPs and debt holders. 56. The financial performance of BT for 2013-2019 presented in Table 30-Table 32 was forecasted assuming the company implements the following investment scenario: (a) rehabilitation of existing HPPs (assessed at US$1.1 billion by 2020, with some projects already under implementation); (b) scale-up of ongoing energy loss reduction projects that will enhance its operational and, thus, financial performance; and (c) commissioning of the CASA-1000 project. The forecast of the financial performance was done assuming tariff increase to a level sufficient to finance the above investments and ensure cost-recovery for BT by 2020. Specifically, the average billed tariff was assumed to increase from 8.7 diram/kWh (US¢1.8/kWh) in 2012 to 21 diram/kWh (US¢4.3/kWh) by 2020, which is a conservative assumption considering an estimated weighted average willingness-to-pay of 35 diram/kWh (US¢7.2/kWh) 37. 57. Based on the above assumptions, the financial performance of BT is projected to significantly improve due to: (a) gradual increase of average billed tariff; and (b) additional revenues from power exports under the project, which will materially improve financial standing of BT starting from 2019 after the expected commissioning of the project. Specifically, the net profit margin is expected to exceed 20 percent by 2018 with increased availability of cash and other liquid assets to pay for current obligations as tariff increase picks up pace. The Debt Service Coverage Ratio (DSCR) is expected to reach 1.2 by 2019 after significant reduction in 2014-2016. Table 30: Key Financial Ratios of BT Ratios 2011 2012 Profitability Ratios Gross profit margin 59% 53% Net profit margin (12%) (7%) Liquidity Ratios Current Ratio 0.59 0.53 Quick Ratio 0.01 0.04 Solvency Ratios DSCR 0.66 0.62
37
2013f 2014f
2015f
2016f
2017f
2018f
2019f
54% (5%)
56% 4%
57% 8%
60% 12%
62% 16%
64% 22%
73% 42%
0.54 0.05
0.57 0.07
0.58 0.01
0.59 (0.05)
0.62 (0.05)
0.67 (0.08)
0.92 0.18
1.36
0.85
0.01
(0.08)
0.27
0.59
1.2
Tajikistan’s Winter Energy Crisis: Electricity Supply and Demand Alternatives,” November 2012, World Bank.
104
Table 31: Balance Sheet Projections for BT (figures in million Somoni) ASSETS 2011 2012 2013f 2014f 2015f 2016f Non-Current Assets 4,637 4,812 4,796 5,216 7,287 9,550 Property, Plant & Equipment 182 183 183 183 183 183 Long-term investments 145 119 119 119 119 119 Other non-current assets 4,964 5,113 5,097 5,517 7,589 9,851 Total non-current assets Current Assets Cash and marketable securities Inventory Trade and other receivables Other current assets Total Current Assets Total Assets LIABILITIES Non-Current Liabilities Long-term debt Other long-term liabilities Total Long-Term Liabilities
2017f
2018f
2019f
10,675
11,113
12,332
183
183
183
119
119
119
10,976
11,414
12,634
20
9
138
214
60
(168)
(175)
31
758
618
819
791
864
1,136
1,435
1,602
1,687
1,866
187
268
424
499
556
633
716
810
1,177
67
104
104
104
104
104
104
104
104
893
1,200
1,457
1,681
1,857
2,004
2,248
2,632
3,904
5,857
6,313
6,554
7,198
9,446
11,856
13,224
14,046
16,538
967
1,079
2,971
3,437
5,404
7,553
8,774
9,298
10,579
1,818
1,803
0
0
0
0
0
0
0
2,785
2,882
2,971
3,437
5,404
7,553
8,774
9,298
10,579
403
692
0
0
0
0
0
0
0
Current Liabilities Short-term debt Trade and other payables Taxes payable Other short-term liabilities Provisions Total Current Liabilities
0
0
83
98
109
124
140
158
230
1,725
2,415
2,715
2,950
3,175
3,406
3,652
3,913
4,255
Total Liabilities
4,509
5,296
5,687
6,386
8,579
10,959
12,426
13,211
14,834
384
384
384
384
532
691
691
691
691
940
609
460
404
310
182
83
120
989
24
24
24
24
24
24
24
24
24
1,348
1,017
868
812
867
897
798
835
1,704
5,857
6,313
6,554
7,198
9,446
11,856
13,224
14,046
16,538
EQUITY Shareholder capital Retained Earnings Reserves Total Equity Total Equity and Liability
93
112
193
216
233
252
271
289
319
667
664
0
0
0
0
0
0
0
561
946
2,439
2,637
2,833
3,030
3,240
3,466
3,707
Table 32: Income Statement Projections for BT (figures in million Somoni) 2011 2012 2013f 2014f 2015f 2016f 2017f 105
2018f
2019f
Total Revenues Total Cost of Sales Gross profit Selling Expenses General expenses Other expenses Change in bad debt provision Depreciation expenses Total other income Operating Profit Financing cost: Interest on loans Profit before tax Income Tax Net Profit
965 399 566 340 164 51 57 83 17 (112) 155 (33) 34 (67)
1099 519 580 308 158 27 96 78 14 (73) 347 (301) (31) (270)
1238 569 669 327 167 28 83 149 19 (66) 83 (149) (149)
1455 646 809 355 182 31 15 190 22 59 115 (56) (56)
1623 696 926 384 196 33 11 196 24 130 223 (94) (94)
1848 747 1101 416 213 36 15 230 28 218 347 (128) (128)
2090 800 1290 445 228 38 16 266 31 328 427 (99) (99)
2364 855 1509 465 238 40 18 267 35 516 479 37 37
58. Afghanistan: The financial performance of the vertically-integrated power utility DABS has been overall sound. DABS reported positive net income in 2011-12, reaching a net margin of 14 percent post fuel subsidies and 9 percent when excluding the subsidies in 2012. The improvement in profitability has been largely driven by increased revenues (by 28 percent in 2012), reflecting improvement in average tariff increase. DABS has a very liquid balance sheet and generates sufficient cash to meet its short term obligations and shows comfortable liquidity ratio (current ratio and quick ratio). DABS was recently incorporated and inherited assets and liabilities from its predecessor company, Da Afghanistan Breshna Moassessa. Nonetheless the level of borrowing and the financial leverage is very low (1.2 percent of total assets) DABS had no debt service in 2012 and repaid fully its short-term borrowing. 59. The financial performance of DABS, presented in Table 33, Table 34 and Table 35 was projected for the period 2013-2019 assuming it implements all of the investments presented in the Master Plan – developed by international consultants with support from ADB – under the base case, and commissions the CASA-1000 project in 2018. Assumptions for technical and commercial losses are similar the same as in the Master Plan. The funding for the investment is assumed to come from on-lending of foreign grants from the GoA at its standard terms. DABS passes on costs increases and has been able to increase the average tariff over recent years sufficiently to cover its cost. Therefore, a slow retail tariff increase of 3 percent is assumed through the forecast period. The sizeable investments of DABS’s program will be met by a significant increase in long term borrowing and associated interest expenses for which DABS generate sufficient cash throughout the forecast period. The long grace period granted by GoA under its standard on-lending terms allows DABS to implement the investment program without diminishing its financial sustainability until the assets are operational. The DSCR remains strong during the forecast period. The gearing ratio increases from 0.1 to 0.8 over the forecast period reflecting better utilization of the assets of the company. The cash position remains strong.
Table 33: Key Financial Ratios of DABS Ratios 2012 2013f 2014f 106
2015f
2016f
2017f
2018f
2019f
2020f
3435 915 2520 497 254 43 72 268 51 1438 569 869 869
Profitability Ratios Gross profit margin Net profit margin Liquidity Ratios Current Ratio Quick Ratio Solvency Ratios Debt service coverage ratio
68% 14%
59% 21%
69% 11%
65% 8%
62% 2%
59% -1%
58% 0%
56% -1%
56% 3%
26.7 6.2
9.8 2.7
10.5 3.8
11.2 4.4
12.7 5.8
12.1 5.1
11.5 4.4
11.9 4.8
11.1 3.9
N/A
N/A
36.9
7.6
5.9
5.6
5.1
4.9
4.1
Table 34: Balance Sheet Projections for DABS (figures in million Afghanis) ASSETS 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f Non-Current Assets Property, Plant & 18,803 21,364 38,587 75,227 106,355 125,361 155,315 181,514 203,500 Equipment Current Assets Cash and marketable 2,458 4,410 7,094 9,322 13,633 13,526 14,020 16,682 18,781 securities 3,133 4,613 5,308 6,061 6,751 7,602 9,105 10,082 13,703 Inventory 3,650 4,587 4,545 5,475 6,434 7,578 9,234 10,593 14,346 Trade and other receivables 1,389 2,066 2,378 2,715 3,024 3,405 4,079 4,516 6,138 Other current assets 10,630 15,676 19,324 23,573 29,841 32,110 36,438 41,873 52,968 Total Current Assets Total Assets LIABILITIES Non-Current Liabilities Long-term debt Other long-term liabilities Total Long-Term Liabilities Current Liabilities Short-term debt Trade and other payables Other short-term liabilities Total Current Liabilities Total Liabilities EQUITY Shareholder capital Retained Earnings Reserves Total Equity Total Equity and Liability
29,433
37,040
57,911
98,800
136,196
157,472
191,753
223,386
256,469
362 2,825
4,004 2,825
22,470 2,825
61,343 2,825
97,833 2,825
118,545 2,825
151,309 2,825
181,839 2,825
209,678 2,825
3,187
6,828
25,295
64,167
100,658
121,369
154,134
184,664
212,502
0 217 181 398
0 1,258 347 1,605
0 1,448 399 1,846
0 1,653 455 2,108
0 1,841 507 2,348
0 2,073 571 2,644
0 2,483 684 3,167
0 2,750 757 3,507
0 3,737 1,029 4,767
3,585
8,433
27,141
66,276
103,006
124,013
157,301
188,171
217,269
25,000 1,452 -604 25,848 29,433
25,000 4,128 -522 28,607 37,040
25,000 5,550 220 30,770 57,911
25,000 6,857 667 32,524 98,800
25,000 7,151 1,039 33,190 136,196
25,000 6,946 1,513 33,458 157,472
25,000 6,973 2,478 34,451 191,753
25,000 6,783 3,433 35,216 223,386
25,000 7,935 6,265 39,200 256,469
107
Table 35: Income Statement Projections for DABS (figures in million Afghanis) 2012 2013f 2014f 2015f 2016f 2017f 2018f Total Revenues 10,177 12,878 12,761 15,372 18,063 21,277 25,926 Total Cost of Sales 6,955 7,653 8,806 10,056 11,200 12,612 15,106 Gross profit 3,222 5,225 3,955 5,316 6,864 8,665 10,820 Selling Expenses 976 1,417 1,404 1,691 1,987 2,340 2,852 General expenses 1,583 2,060 2,042 2,460 2,890 3,404 4,148 Other expenses -607 -644 -638 -769 -903 -1,064 -1,296 Depreciation expenses 1,121 1,081 1,243 2,232 4,365 6,161 7,268 Total other income 499 348 374 409 437 461 463 Operating Profit 1,624 3,075 1,682 1,802 949 624 1,162 Financing cost: Interest 0 -13 75 337 681 946 1,212 on loans Profit before tax 1,624 3,088 1,607 1,465 268 -322 -49 Income Tax 204 411 185 158 -25 -117 -77 Net Profit 1,421 2,677 1,422 1,307 294 -205 27
2019f 29,743 16,726 13,017 3,272 4,759 -1,487 9,001 463 1,207 1,512
2020f 40,279 22,735 17,544 4,431 6,445 -2,014 10,522 463 3,054 1,780
-306 -115 -190
1,274 122 1,152
60. Pakistan: The overall financial performance of NTDC including the wholesale power buyer, CPPA, is poor as measured by liquidity, operating performance, solvency and profitability indicators. The profitability of NTDC is low since the bulk of the revenues come from CPPA’s energy sales, which essentially passes through the cost and revenues of energy trade earning a minimal or no margin on each kWh. Due to transmission tariff increase, the net income and operating profit of the company improved in 2012 with related improvement in profitability ratios. Similarly to other companies of the power sector, NTDC is severely affected by the accumulation of receivables and does not generate enough cash from sales to meet its short-term obligations. In 2012, total current assets were sufficient to cover only 85 percent of the shortterm liabilities. The cumulated losses exceed the paid-in capital of the company leading to a gearing ratio (ratio of total liabilities to total assets) over 1 and extremely low levels of solvency ratio. The company’s balance sheet is essentially financed through large accumulation of trade payable which increases its solvency risk. The level of long term debts remains low (5 percent of total liabilities) therefore the company has sufficient level of coverage of its debts service in 2012. 61. The financial performance of the company presented in Table 36, Table 37 and Table 38 was projected for the period 2013-2019 assuming it implements all of the investments presented in the Power Expansion Plan, and commissions CASA-1000 project in 2018. 100 percent of the funding required for this investment plan is assumed to come from on-lending of foreign loans from GoP at its standard terms. These terms imply substantial payments of interests and foreign exchange hedging cost to the GoP at rates significantly higher than other sources of funding used by NTDC in the past. This assumption is therefore considered conservative. To support its significant investment plan, NTDC is assumed to increase its transmission charge at a rapid pace. Recent petitions filed by NTDC and subsequent tariffs authorized by NEPRA, lower than the petitions, illustrate the ongoing preparation for the upcoming investments. The sizeable investments will be met by a significant increase in the long term borrowing and associated interest expenses. Despite rapid expansion of operating profit at Cumulative Average Growth Rate (CAGR) of 71 percent over the forecast period, significant interest expenses lead to net losses for part of the forecast period. The debt service coverage ratio falls below 1.0 for part of 108
the forecast period before coming back above one in the last year. The gearing ratio remains high through the forecast period, close to 1. The cash position and liquidity remains acceptable during the forecast period. Table 36: Key Financial Ratios of NTDC 2011 2012 Ratios Profitability Ratios 3% 2% Gross profit margin -3% 0% Net profit margin Liquidity Ratios 0.81 0.85 Current Ratio 0.80 0.84 Quick Ratio Solvency Ratios 1.60 Debt service coverage ratio 8.95
2013f
2014f
2015f
2016f
2017f
2018f
2019f
2% 1%
3% 0%
4% 0%
5% -2%
6% -1%
7% 0%
9% 1%
0.92 0.91
0.93 0.92
0.92 0.91
0.89 0.88
0.86 0.85
0.84 0.83
0.75 0.75
3.92
1.37
1.01
0.82
0.79
0.79
0.89
Table 37: Balance Sheet Projections for NTDC (in million Rs) 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f ASSETS Non-Current Assets Property, Plant & 105,404 120,140 205,067 373,884 616,640 877,420 982,963 1,093,389 1,182,695 Equipment Other non-current 54,323 44,107 44,111 44,111 44,111 44,111 44,111 44,111 44,111 Assets Current Assets Cash and marketable 13,122 25,976 76,785 103,755 130,692 154,443 171,725 186,986 104,074 securities 7,757 6,648 9,637 10,047 10,510 11,092 11,643 12,292 12,992 Inventory Trade and other 381,044 575,905 542,608 569,577 600,790 640,292 680,418 729,008 783,813 receivables 140,478 131,587 145,710 152,745 160,854 171,102 181,395 193,806 207,707 Other current assets 542,401 740,117 774,740 836,124 902,846 976,929 1,045,181 1,122,092 1,108,586 Total Current Assets 702,128 904,363 1,023,917 1,254,119 1,563,596 1,898,460 2,072,255 2,259,592 2,335,392 Total Assets LIABILITIES Non-Current Liabilities Long-term debt Other long-term liabilities Total Long-Term Liabilities Current Liabilities Short-term debt Trade and other payables Taxes payable Other short-term
34,385
35,722
117,031
280,900
509,548
743,121
806,903
868,683
785,277
13,809
14,546
15,276
16,078
16,962
17,934
19,003
20,180
21,474
48,194
50,268
132,306
296,979
526,510
761,054
825,906
888,863
806,751
47,449
13,292
3,311
10,074
23,455
42,624
63,696
73,220
83,406
610,881
840,655
819,133
853,982
893,338
942,779
989,634
1,044,849
1,104,345
2,957 7,569
2,284 12,584
3,601 18,336
3,780 31,911
3,987 58,351
4,249 108,819
4,516 161,210
4,838 218,484
5,202 275,715
109
liabilities Total Current Liabilities Total Liabilities EQUITY Shareholder capital Retained Earnings Reserves Total Equity Total Equity and Liability
668,855
868,814
844,381
899,747
979,131
1,098,471
1,219,056
1,341,390
1,468,668
717,049
919,082
976,688
1,196,726
1,505,641
1,859,525
2,044,962
2,230,253
2,275,419
52,700 (67,621) 0 (14,921)
52,700 (67,419) 0 (14,718)
52,700 (62,307) 56,836 47,230
52,700 (57,952) 62,645 57,393
52,700 (59,100) 64,356 57,956
52,700 (79,618) 65,853 38,935
52,700 (92,552) 67,145 27,293
52,700 (92,114) 68,752 29,339
52,700 (76,597) 83,870 59,974
702,128
904,363
1,023,917
1,254,119
1,563,596
1,898,460
2,072,255
2,259,592
2,335,392
Table 38: Income Statement Projections for NTDC 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 679,222 868,459 900,235 944,980 996,766 1,062,302 1,128,876 1,209,490 1,300,417 Total Revenues 659,738 850,442 879,364 916,775 959,025 1,012,101 1,062,401 1,121,676 1,185,547 Total Cost of Sales 19,484 18,017 20,871 28,205 37,741 50,202 66,474 87,814 114,870 Gross profit Selling Expenses 4,047 4,862 5,215 5,474 5,774 6,154 6,540 7,006 7,533 General expenses Provision for doubtful 26,525 7,559 1,423 1,121 818 516 213 31 0 debt 3,047 2,405 1,711 996 196 (679) 113 121 130 Other expenses 3,639 3,717 3,004 5,127 9,347 15,416 21,936 24,574 27,335 Depreciation expenses 581 797 3 3 3 3 3 3 3 Total other income (17,192) 271 9,521 15,491 21,609 28,798 37,676 56,084 79,875 Operating Profit Financing cost: Interest (675) (22) 2,135 9,198 22,757 49,316 50,610 55,451 57,452 on loans (16,517) 293 7,387 6,293 (1,148) (20,518) (12,934) 634 22,423 Profit before tax 612 90 2,275 1,938 0 0 0 195 6,906 Income Tax (17,129) 202 5,112 4,355 (1,148) (20,518) (12,934) 438 15,517 Net Profit
110
Table 39: Base-Case Power System Expansion Plan for Afghanistan (in MW) Power Expansion Plan NEPS-SEPS grid interconnection
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
150
150
150
150
150
150
150
150
150
300
300
300
300
300
300
300
300
300
300
Sheberghan TPP gas
-
-
-
150
200
200
200
250
350
400
400
400
400
400
400
400
400
400
400
TKM-NEPS-UZB imports TKM-NEPS-UZB additional imports
-
-
-
-
300
300
500
500
500
500
500
500
500
500
500
500
500
500
500
-
-
-
-
-
-
500
500
500
500
500
500
500
500
500
500
500
500
500
Kunar B HPP
-
-
-
-
-
-
-
-
-
-
300
300
300
300
300
300
300
300
300
Kunar A HPP
-
-
-
-
-
-
-
-
-
-
-
-
789
789
789
789
789
789
789
Bamyan TPP coal
-
-
-
-
-
-
-
-
-
-
-
-
0
400
400
1200
1200
1200
1200
Gulbahar HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Kajaki Addition HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
100
100
100
Kama HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Kilagai HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Kukcha HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Olambagh HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
90
90
90
90
Surobi HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Baghdara HPP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
210
111
Table 40: Base-Case Power System Expansion Plan for Pakistan (in MW) 38 New Capacity
2012- 2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
OCGT
-
2108
1000
1614
2000
-
-
-
-
-
-
-
-
-
-
CCGT
-
-
546
1022
4363
-
1379
-
-
-
-
1379
-
-
1379
ST400
-
-
452
-
-
-
-
-
-
-
-
-
-
-
-
ST600
-
-
2835
2268
3969
3969
2268
567
2268
0
3402
0
5670
4536
5670
Nuclear
-
-
320
320
320
940
940
-
940
940
-
-
940
940
-
Hydro
-
-
2136
1236
2219
5446
3061
5316
4768
5544
911
4356
-
-
-
Wind
-
-
500
700
600
-
400
400
400
400
400
400
400
400
400
Imports
-
-
1000
1000
-
-
-
-
-
-
-
-
-
-
-
Annual additions
-
2,108
8,789
8,160
13,471
10,355
8,048
6,283
8,376
6,884
4,713
6,135
7,010
6,183
7,449
Cumulative additions
-
2,108
10,897
19,057
32,528
42,883
50,931
57,214
65,590
72,474
77,187
83,322
90,332
96,515
103,964
38
Most optimistic scenario.
112
Table 41: Fuel Price Forecast Crude Nominal and Real Price Forecast Forecast average nominal spot price of crude MUV as proxy for inflation (2013=100d) Forecast average real spot price of crude HSFO nominal price forecast for PAK Forecast average spot price of crude Average forecast spot price of Dubai crude Ratio of HSFO/Crude price Forecast HSFO price , FOB Singapore Forecast HSFO price, Ex-Depot Karachi Forecast HSFO nominal price (delivered to plant gate in Pakistan) HSFO real price forecast for PAK Forecast average real spot price of crude Average forecast real spot price of Dubai crude Ratio of HSFO/Crude price
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
105.0
105.7
102.0
100.7
100.1
99.6
99.1
98.7
98.3
98.0
97.6
98.2
100.9
105.3
102.7
100.7
99.2
100.0
101.0
102.4
103.8
105.3
106.9
108.5
110.2
112.0
113.8
115.6
123.2
131.2
139.9
149.0
158.8 169.2
105.0
104.7
99.6
97.0
95.1
93.2
91.3
89.5
87.8
86.1
84.4
79.7
76.9
75.3
68.9
63.4
58.6
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
US$/bbl
105.0
105.7
102.0
100.7
100.1
99.6
99.1
98.7
98.3
98.0
97.6
98.2
100.9
105.3
102.7
100.7
99.2
US$/bbl
104.0
104.7
101.0
99.7
99.1
98.7
98.2
97.8
97.4
97.1
96.7
97.2
100.0
104.2
101.7
99.7
98.3
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
US$/bbl
95.1
95.7
92.3
91.2
90.6
90.2
89.7
89.3
89.0
88.7
88.4
88.9
91.4
95.3
93.0
91.1
89.8
US$/bbl
99.7
100.3
96.9
95.8
95.2
94.8
94.3
93.9
93.6
93.3
93.0
93.5
96.0
99.9
97.6
95.7
94.4
US$/bbl
102.2
102.8
99.4
98.3
97.7
97.3
96.8
96.4
96.1
95.8
95.5
96.0
98.5
102.4
100.1
98.2
96.9
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
105.0
104.7
99.6
97.0
95.1
93.2
91.3
89.5
87.8
86.1
84.4
79.7
76.9
75.3
68.9
63.4
58.6
US$/bbl 104.00 103.7
98.6
96.0
94.2
92.3
90.5
88.7
86.9
85.3
83.6
78.9
76.2
74.5
68.3
62.8
58.1
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
US$/bbl
US$/bbl
US$/bbl
0.91
0.91
113
Forecast HSFO price , FOB Singapore Forecast HSFO price, Ex-Depot Karachi Forecast HSFO real price (delivered to plant gate in Pakistan) HSD nominal price forecast for AFG Ratio of HSD/Crude price Forecast Gasoil price, FOB Arab Gulf Forecast HSD price, Ex-Depot Forecast nominal HSD price (delivered to plant gate in Afghanistan) HSD real price forecast for AFG Ratio of HSD/Crude price Forecast Gasoil price, FOB Arab Gulf Forecast HSD price, Ex-Depot Forecast real HSD price (delivered to plant gate in Afghanistan) NG nominal price forecast for PAK Nominal border price of imported gas in PAK Incremental domestic
US$/bbl
95.1
94.7
90.2
87.8
86.1
84.4
82.7
81.1
79.5
78.0
76.4
72.1
69.6
68.1
62.4
57.4
53.1
US$/bbl
99.7
99.3
94.8
92.4
90.7
89.0
87.3
85.7
84.1
82.6
81.0
76.7
74.2
72.7
67.0
62.0
57.7
US$/bbl
102.2
101.8
97.3
94.9
93.2
91.5
89.8
88.2
86.6
85.1
83.5
79.2
76.7
75.2
69.5
64.5
60.2
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
US$/bbl
119.3
120.1
115.9
114.4
113.7
113.2
112.6
112.1
111.7
111.3
111.3
111.3
111.3
111.3
111.3
111.3 111.3
US$/bbl
127.3
128.1
123.9
122.4
121.7
121.2
120.6
120.1
119.7
119.3
119.3
119.3
119.3
119.3
119.3
119.3 119.3
US$/bbl
128.6
129.3
125.1
123.7
123.0
122.4
121.8
121.4
120.9
120.6
120.6
120.6
120.6
120.6
120.6
120.6 120.6
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
US$/bbl
119.3
118.9
113.2
110.2
108.0
105.9
103.8
101.7
99.7
97.9
95.9
90.6
87.4
85.5
78.3
72.0
66.6
US$/bbl
127.3
126.9
121.2
118.2
116.0
113.9
111.8
109.7
107.7
105.9
103.9
98.6
95.4
93.5
86.3
80.0
74.6
US$/bbl
128.6
128.2
122.4
119.4
117.3
115.1
113.0
111.0
109.0
107.1
105.2
99.8
96.6
94.8
87.5
81.3
75.9
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
US$/mmbtu
11.60
11.67
11.30
11.17
11.11
11.06
11.01
10.97
10.93
10.90
10.86
10.92
11.19
11.63
11.37
11.17 11.02
US$/mmbtu
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
114
0.71
0.71
T&D costs Nominal gas price at the plant gate NG real price forecast for PAK Real border price of imported gas in PAK Incremental domestic T&D costs Real gas price at the plant gate
US$/mmbtu
12.31
12.38
12.01
11.88
11.82
11.77
11.72
11.68
11.64
11.61
11.57
11.63
11.90
12.34
12.08
11.88 11.73
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
US$/mmbtu
11.60
11.57
11.06
10.80
10.61
10.42
10.23
10.05
9.88
9.71
9.54
9.07
8.79
8.63
7.99
7.44
6.96
US$/mmbtu
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
0.71
US$/mmbtu
12.31
12.28
11.77
11.51
11.32
11.13
10.94
10.76
10.59
10.42
10.25
9.78
9.50
9.34
8.70
8.15
7.67
115
Table 42: Detailed Assumptions underlying Economic and Financial Appraisal Source of Data/Information Macroeconomic Average 2013 KGS/US$ exchange rate 46.14 Central Bank of Kyrgyz Republic Average 2013 TJS/US$ exchange rate 4.57 National Bank of Tajikistan Average 2013 PKR/US$ exchange rate 90 National Bank of Pakistan International US$ inflation 2% CASA-1000 Project Feasibility Study Update, February 2011 General CO2 emissions from natural gas 0.40 kg CO2/kWh CO2 Emissions From Fuel Combustion, IEA, 2012 CO2 emissions from HSFO and Gasoil 0.69 kg CO2/kWh CO2 Emissions From Fuel Combustion, IEA, 2012 Social cost of carbon in 2013 13 US$/tCO2 Bank assumption Annual increase of social cost of carbon in 3.6% Bank assumption 2014-2030 Social opportunity cost of capital 10% Bank estimate Kabul Region demand growth in 2033-2036 3.5% Bank estimate Kabul Region demand growth in 2037-2041 3% Bank estimate Kabul Region demand growth in 2042-2047 2% Bank estimate PEPCO system demand growth in 20364.5% Bank estimate 2040 PEPCO system demand growth in 20413.5% Bank estimate 2047 Thermal efficiency of marginal fuel oil IPPs 36% Bank estimate in Pakistan Thermal efficiency of marginal OCGTs in 38% Bank estimate Pakistan Thermal efficiency of marginal diesel plant 34% Bank estimate in Afghanistan Project Specific Owner’s engineer USD 12 million Bank estimate based on CASA-1000 Project Feasibility Study Update, February 2011 Physical Contingency for Kyrgyz Republic, 10% of DS&I Bank estimate Tajikistan and Pakistan Physical Contingency for Afghanistan 20% of DS&I cost Bank estimate Price Contingency 5% of DS&I cost Bank estimate Transmission losses during evaluation period 1.5% CASA-1000 Project Feasibility Study Update, February 2011 Incremental annual O&M costs for HVAC 2% of HVAC DS&I CASA-1000 Project Feasibility Study cost Update, February 2011 Incremental annual O&M costs for HVDC 3.9% of HVDC DS&I CASA-1000 Project Feasibility Study cost Update, February 2011 Energy Costs 116
Variable O&M cost of HPPs Variable (excluding fuel) cost of fuel oil and gas- fired TPPs Fuel Price 2012 average FOB Singapore price of HSFO (380 centistoke) 2012 average FOB Singapore Gasoil/HSD price 2012 average FOB price of Dubai Crude
0.002 US$/kWh 0.005US$/kWh
Bank estimate NEPRA, Pakistan
118.2 US$/bbl
HSFO and Gasoil/HSD freight cost from port of Singapore to port of Karachi Port handling and on-land transport costs of HSFO to depots in Pakistan Estimated transport cost of HSFO from fuel depot to power plant gate in Pakistan Estimated transport cost of Gasoil/HSD from Arab Gulf to fuel depots in Afghanistan Estimated average transport cost of Gasoil/HSD from fuel depot to power plant gate in Afghanistan Ratio of HSFO FOB Singapore price to Dubai Crude price used in the analysis
2.1 US$/bbl
Energy Prices and Taxes, 2Q of 2013, IEA, 2013 Energy Prices and Taxes, 2Q of 2013, IEA, 2013 Energy Prices and Taxes, 2Q of 2013, IEA, 2013 World Scale Tanker Nominal Freight Database, July 2013 Pakistan Power Sector Expansion Plan; Bank estimate Pakistan Power Sector Expansion Plan; Bank estimate CASA-1000 Project Feasibility Study Update, February 2011 Bank estimate
128.1 US$/bbl 109 US$/bbl
2.5 US$/bbl 2.5 US$/bbl 8 US$/bbl 1.25 US$/bbl
0.91
Ratio of Gasoil/HSD FOB Singapore price to 1.15 Dubai Crude price used in the analysis
Border price formula for imported natural gas in Pakistan
10% of average 10month crude price + 1.1 US$ 0.71 US$/mmbtu
Incremental domestic T&D costs of natural gas Unit Value Index of Manufactured Exports is used to convert forecast nominal fuel prices into real prices Forecast of average spot price of crude for 2026-2047 is assumed to change in 11-year cycle of increase and decrease with upward trend Taxes Custom duties in Kyrgyz Republic 5% VAT in Kyrgyz Republic 12% Income tax 10%
Bank estimate based on data from IEA Energy Prices and Taxes, 2Q of 2013 and IEA Oil Market Review 2011: Annual Statistical Annex Bank estimate based on data from IEA Energy Prices and Taxes, 2Q of 2013 and IEA Oil Market Review 2011: Annual Statistical Annex Pakistan Power Sector Expansion Plan; Bank estimate Pakistan Power Sector Expansion Plan Commodity Price Forecast Update, World Bank, Oct. 28, 2013 Bank estimate
Bank tax assessment Bank tax assessment Bank tax assessment 117
Custom duties in Tajikistan
0%
VAT in Tajikistan
0%
Income Tax Customs duties in Afghanistan
25% 5% for equipment 2.5% for electricity 10%
VAT in Afghanistan
Custom duties on High Speed Diesel imports in Afghanistan Income Tax Customs duties in Pakistan General Sales Tax (or VAT) in Pakistan Custom duties on Furnace Oil imports in Pakistan Income Tax Financial Discount Rates Project as a whole
12% 25% 8.1% 17% 0% on equipment 0%
NEPRA fuel adjustment notifications
35%
NTDC
2.1%
Weighted average of the four countries WACC Bank estimate of applicable onlending terms Bank estimate of applicable onlending terms Bank estimate of applicable onlending terms Bank estimate of applicable onlending terms
Kyrgyz Republic
2.25%
Tajikistan
1.13%
Afghanistan
0.98%
Pakistan
5.33%
Additional Assumptions used in Transmission Tariff Calculation Return on Capital Annual contribution to Community Benefit Program USD Short term Borrowing rate Common Fund creation period Common Fund target amount
Tajik law exempts IFI-financed projects from custom duties Tajik law exempts IFI-financed projects from VAT. It assumed that the proceeds of export of electricity through CASA-1000 will not be subjected to VAT as is currently the case for Tajikistan’s export to Afghanistan. Bank tax assessment According to Afghanistan’s 2012 Tariff (Ministry of Finance) Bank estimate. No VAT currently exists in Afghanistan but the introduction of VAT is under preparation for 2014. Afghanistan Tariff 2012, Ministry of Finance Bank estimate Bank estimate Applicable Pakistani tax law.
6% US$4 million
Bank estimate Bank estimate
5% 3 years US$38 millions
Bank estimate Bank estimate
118
Table 43: Flow of Economic Costs and Benefits for the Project BASE CASE: FLOWS OF COSTS AND BENEFITS Economic costs
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
Construction and associated costs Incremental HVDC O&M and insurance Incremental HVAC O&M and insurance Allowance for restoration of unplanned outages of project facilities
US$m
102
305
407
204
0
0
0
0
0
0
0
0
0
0
0
0
US$m
0
0
0
0
22
22
22
22
22
22
22
22
17
6
0
0
0
0
0
0
6
6
6
6
6
6
6
6
6
6
6
6
US$m
0
0
0
0
6
6
6
6
6
6
6
6
5
2
0
0
Transit cost in TAJ
US$m
0
0
0
0
1
1
1
1
1
1
2
1
1
0
0
0
KRG total exports
GWh
0
0
0
0
1433
1221
1397
1174
1248
1316
1600
1492
1217
0
0
0
TAJ total exports
GWh
0
0
0
0
2567
2779
2603
2826
2752
2684
2400
2400
1885
1059
30
0
Combined total energy exports
GWh
0
0
0
0
4000
4000
4000
4000
4000
4000
4000
3892
3102
1059
30
0
KRG exports as % of total
%
0%
0%
0%
0%
36%
31%
35%
29%
31%
33%
40%
38%
39%
0%
0%
0%
TAJ exports as % of total
%
0%
0%
0%
0%
64%
69%
65%
71%
69%
67%
60%
62%
61%
100%
100%
0%
Economic cost of KRG energy
US$m
0
0
0
0
42
36
41
34
37
39
47
44
36
0
0
0
Economic cost of TAJ energy
US$m
0
0
0
0
5
5
5
5
5
5
4
4
3
2
0
0
Total incremental economic costs
US$m
102
305
407
204
83
77
82
75
77
79
87
83
68
15
6
6
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
Incremental energy costs
Economic benefits AFG share of energy AFG cost savings from energy imports
GWh
0
0
0
0
946
946
946
946
946
946
946
920
733
250
7
0
US$m
0
0
0
0
96
94
93
87
87
87
86
82
65
22
1
0
Value of GHG reduction in AFG
US$m
0.0
0.0
0.0
0.0
6.3
6.5
6.7
6.7
6.9
7.1
8.2
9.0
8.3
3.3
0.1
0.0
PAK share of energy PAK cost savings from energy imports
GWh
0
0
0
0
2994
2994
2994
2994
2994
2994
2994
2913
2322
793
23
0
US$m
0
0
0
0
401
367
309
304
300
295
280
264
207
67
2
0
Value of GHG reduction in PAK
US$m
0
0
0
0
29
26
20
21
21
22
26
29
26
10
0
0
Total incremental economic
US$m
0
0
0
0
532
494
429
419
415
411
400
384
307
103
3
0
119
benefits Net incremental economic benefits
US$m
-102
NPV EIRR
US$m %
1,208 26%
-305
-407
-204
449
417
347
343
337
332
313
301
238
88
-3
-6
Table 44: Flow of Financial Costs and Benefits for the Project BASE CASE: FLOWS OF FINANCIAL COSTS AND BENEFITS Financial costs Construction and associated costs Construction and associated costs Incremental O&M and insurance costs Incremental HVDC O&M and insurance for project facilities Incremental HVAC O&M and insurance for project facilities Allowance for restoration from unplanned outages of project facilities Incremental energy costs KRG total exports TAJ total exports Combined total energy exports KRG exports as % of total TAJ exports as % of total Incremental financial cost of KRG energy Incremental financial cost of TAJ energy
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
US$m
104
311
414
207
0
0
0
0
0
0
0
0
0
0
0
0
US$m
0
0
0
0
22
22.6
23.1
23.5
24.0
24.5
26.5
28.7
31.0
33.6
36.4
39.4
US$m
0.0
0.0
0.0
0.0
6.5
6.6
6.7
6.9
7.0
7.1
7.7
8.4
9.0
9.8
10.6
11.5
US$m
0.0
0.0
0.0
0.0
6.8
6.8
6.8
6.8
6.8
6.8
6.8
6.6
5.3
1.8
0.1
0.0
GWh GWh GWh % %
0 0 0 0% 0%
0 0 0 0% 0%
0 0 0 0% 0%
0 0 0 0% 0%
1433 2567 4000 36% 64%
1221 2779 4000 31% 69%
1397 2603 4000 35% 65%
1174 2826 4000 29% 71%
1248 2752 4000 31% 69%
1316 2684 4000 33% 67%
1600 2400 4000 40% 60%
1492 2400 3892 38% 62%
1217 1885 3102 39% 61%
0 1059 1059 0% 100%
0 30 30 0% 100%
0 0 0 0% 0%
US$m
0
0
0
0
3
2
3
2
3
3
4
4
3
0
0
0
US$m
0
0
0
0
5
6
5
6
6
6
6
6
5
3
0
0
120
Incremental T&D costs KRG incremental transmission cost from generation plants to Datka SS TAJ incremental transmission cost from Khudjand SS to Nurek SS AFG incremental distribution cost from Kabul SS to end-users PAK incremental transmission cost from Peshawar SS to DISCOs Total incremental financial costs
US$m
0.0
0.0
0.0
0.0
0.5
0.4
0.5
0.4
0.4
0.5
0.6
0.6
0.6
0.0
0.0
0.0
US$m
0.0
0.0
0.0
0.0
1.5
1.3
1.5
1.3
1.4
1.5
2.0
2.1
1.8
0.0
0.0
0.0
US$m
0.0
0.0
0.0
0.0
5.1
5.2
5.3
5.4
5.5
5.7
6.1
6.4
5.6
2.1
0.1
0.0
US$m
0.0
0.0
0.0
0.0
7.1
7.3
7.4
7.6
7.7
7.9
8.5
9.0
7.7
2.9
0.1
0.0
US$m
104
311
414
207
57
58
59
60
61
63
68
72
69
53
47
51
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2027
2031
2035
2039
2043
2047
Financial benefits AFG share of energy DABS incremental revenue PAK share of energy NTDC incremental revenue Total incremental financial benefits Net incremental financial benefits
GWh US$m GWh US$m
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
946 118 2994 299
946 118 2994 299
946 118 2994 299
946 118 2994 299
946 118 2994 299
946 118 2994 299
946 118 2994 299
920 115 2913 291
733 92 2322 232
250 31 793 79
7 1 23 2
0 0 0 0
US$m
0
0
0
0
418
418
418
418
418
418
418
406
324
111
3
0
US$m
-104
-311
-414
-207
360
359
358
357
356
355
350
335
254
57
-44
-51
NPV FIRR
US$m %
3,861 25%
121
Annex 7: Governance and Management of Export Revenues Background 1. The CASA-1000 project would help the Government of Tajikistan to generate significant revenues from summer electricity exports. These revenues, in turn, could help finance additional generation capacity and/or energy efficiency programs as a means of dealing with Tajikistan’s winter energy crises which occur with regular frequency. However, the management of export revenues in the energy sector has been a key concern as evidenced from the present TajikistanAfghanistan electricity export experience. Therefore, the design of the governance structure for the transparent management of revenues from electricity sales is important and discussions are now ongoing about the option of opening an Escrow Account as described below. Objectives 2. The key objective of an Escrow Account is to ensure transparent use of export revenues that will include the following: a. Inflows from all electricity export sales, including from the existing bilateral Tajikistan-Afghanistan power trade; b. Revenues from electricity export under the CASA-1000 project (despite the fact that exports, and hence, revenues will only take place after the completion of Project activities); c. Transmission and O&M recovery charges for AC facilities specifically being built for CASA-1000; d. Charges of Tajikistan portion for the Community Support Program implementation. Permissible Use 3.
The funds out of the “blocked” escrow account shall be used for the following purposes: a. Payment of any Independent Power Producer (IPP) revenue related to CASA-1000 sales (Nurek HPP, etc.) b. Activities targeted on reduction of winter deficit and agreed with the world Bank and other IFI’s – CASA-1000 financiers; c. Maintenance of assets specifically created/built for CASA-1000; d. Rehabilitation of existing generating capacities; e. Implementation of the Community Benefit Sharing Program; f. the remaining funds may be used for other activities as agreed with the World Bank and Islamic Development Bank and may include the following: (i) loan repayments; (ii) interest repayment; (iii) bank’s fee; or (iv) transferred to the main bank account of the Implementing Agency loan repayments;
Underlying principles /Monitoring of Escrow Account 4. The basic underlying principles of transparent management of export revenues are as follows: a. export revenues should flow to a special escrow account opened in a qualifying bank; 122
b. the use of funds accumulated in this account should be limited to the purposes stipulated in respective agreements between the Government and implementing agencies and acceptable to the World Bank; c. the monthly statement showing the receipts and payments from the account should be published on the websites of the Implementing Agency (BT), Ministry of Energy, the banks; d. there should be an annual audit of these statements by an independent private auditor acceptable to the World Bank. e. the audited statements with the opinion of the auditor should also be made public on the websites mentioned above. 5. Implementation of these principles would significantly decrease the risk of inappropriate use of export revenues, provided the Government of Tajikistan supports the arrangements and adheres at all times to the provisions in the respective legal agreements. Escrow Account Bank Selection Criteria and rationale for opening Escrow Account at the National Bank of Tajikistan 6. The qualifying bank should fulfill certain eligibility criteria, such as the size of the bank, capital adequacy ratio, liquidity ratio, single borrower limit, share of non-performing loans (NPLs), compliance with the National Bank prudential norms in the past three years, clean audit opinion by an international auditor for the past three years. 7. In Tajikistan, the banking sector remained weak, with a large overhang of NPLs, weak capital positions, and liquidity constraints. Tajikistan’s financial sector remains shallow by regional standards, as the banking sector remains concentrated with the four largest banks controlling about three fourths of total assets. There are several obstacles which limit the restoration of a stable and sound banking sector. 8. It seems unlikely that any of the large commercial banks in Tajikistan will be able to fulfill the eligibility criteria. It is therefore suggested that an escrow account for the export revenues from CASA-1000 be opened in the National Bank of Tajikistan (NBT), which is more independent than the other commercial banks. The NBT is regularly audited by private international auditors and the last annual audit opinion (for 2012) was clean. In addition, NBT’s experience with a similar escrow account for the Pamir Energy project indicates that NBT will have the capacity to manage the escrow account under CASA-1000. 9. The Kyrgyz experience: On May 26, 2011 the Ministry of Energy of the Kyrgyz Republic issued an order under which the country's main generation company JSC Electric Power Plants (EPP) was required to set up a special Escrow Account for receiving all the revenues from export of power. The order also adopted a Regulation on the setting up, operation and monitoring of this escrow account under which EPP was obliged to carry out a competitive selection of an Escrow Account bank based on pre-set minimum criteria. Additionally the order established a “Blocked Accumulated Level" of funds which EPP had to instruct the bank could be used only for specified purposes, namely: for paying transit fees to Transmission Company;
123
and for purchases of fuel supplied to Bishkek and Osh CHPs. Revenues in excess of the “Blocked Accumulated Level” could be transferred to ordinary accounts of EPP. 10. Control over the Escrow Account is the responsibility of the Board of Directors of EPP. The Secretary of the Board carries out a compliance monitoring of all the procedures. The Escrow Account Bank provides monthly statements to the Ministry of Energy and to EPP. The monthly statements include information about the total account balance, the amount of money received and spent for that month and the names and details of the senders and receivers of this money. The BoD has the right to order an audit of the escrow account. Publication of monthly statements of the account on the Ministry's web-site for the past two years and going forward is a prior action requirement under the DPO 2. 11. For CASA-1000 purposes, consideration is being given to strengthening the escrow mechanism, by getting the Regulation approved as part of the Loan Agreement, which, once ratified, would have the power of law. Revision of the uses of funds is also under consideration as is a new requirement for mandatory annual audits. In CASA-1000 EPP will be the main beneficiary as the seller of power and a party to PPAs. However, the transmission company (NEGK), which will be the owner of the line and the main recipient of the financing, will also benefit from transmission fees. 12. Currently, there exists a separate Escrow Account for NEGK's revenues from frequency regulation provided to the Central Asian Power System. The existing provisions of the Regulation governing this Account are much simpler, the only requirements are: (i) competitive selection of the Escrow Account Bank, and (ii) quarterly reporting to the Ministry of Energy and Regulatory department on how funds were used from this account, including provision of bank statements. The NEGK escrow regulation will be revised in line with the criteria established for the EPP escrow account described above. Publication of monthly statements from this account on the Ministry's web-site is also a condition under the DPO 2.
124
Annex 8: Social Safeguards and Community Support Program Social Safeguards 1. Involuntary Resettlement. It is anticipated that the project will finance investments such as towers, sub-stations, and access roads, which will require the involuntary acquisition of land, restrictions to use of land both temporarily and permanently, and loss of crops and assets. It is not expected that the land take will be significant as the broad project area is mostly rural and sparsely populated. Impacts on economic crops are expected due to height restrictions under the Transmission Line. There may also be some impacts on community infrastructure. 2. Because the alignment of the Transmission Line is yet to be finalized, RPFs have been prepared for each participating country. The RPFs describe the overall possible impacts, project policies including its entitlement policies, resettlement planning, institutional and implementation arrangements, including grievance redress and monitoring mechanisms. 3. The draft RPFs for all countries have been disclosed in-country and at the InfoShop and will be the subject of consultations with relevant stakeholders in the capital cities and in the proposed project areas prior to appraisal. Final versions of the RPF will be prepared based on the feedback from the consultations and will be submitted to the World Bank for review and clearance. 4. Indigenous Peoples. OP 4.10 is not triggered. A screening of the project area determined that there are no indigenous peoples, as per OP 4.10, in the proposed project area. 5. Social analysis. An SIA was prepared in 2013, which collated information from previous assessments (Environmental and Social Impact Assessment, 2011 and Studies on community benefit sharing options, 2011/2012 – for Kyrgyz Republic, Tajikistan, Afghanistan and Pakistan). The SIA, which covers all four countries, shows that the proposed project area, in all countries, is mostly rural, has relatively low levels of economic development. The local communities are mostly rural and highly dependent on agriculture, with only mixed access to services due to uneven infrastructure. The SIA also showed that migration levels (mostly men but also some women) were high in Kyrgyz Republic and Tajikistan. The impact has been a high prevalence of female-headed households, some of which were doing well financially because of remittances from their spouses. 6. Vulnerability. Social analyses identified the following groups that are vulnerable to economic shocks due to limited income and difficulties accessing services: female-headed households (where women were divorced or widowed), households with more than one family living together and rural families not involved in agricultural production. The RPFs indicate that additional support will be provided to vulnerable groups to mitigate any additional adverse impacts that they may experience. 7. Gender. The SIA detailed the range of gender issues in the four countries within the limitations of (sparse) available data, especially for the Kyrgyz Republic. In all four countries there is a general level of traditional attitudes towards women which is manifested in a number 125
of ways including: the practice of purdah in the proposed area in Pakistan, a history of wide gender gaps in women’s access to services, economic opportunities and voice in Afghanistan, limited access to education (including vocational training), lower economic activity, and unequal control over and access to assets and resources such as land and credit. In Tajikistan for example, only 1 percent of privatized land owners are women even though they are over 70 percent of the agricultural workforce. There are however pockets of improvement: in Afghanistan, for example, women are increasingly being included in forums to determine village development priorities. The environment for women in the four project countries will have implications for the implementation of the RPFs and the Community Support Programs. In the former case, for example, the RPFs include specific measures to protect vulnerable groups (including female headed households) from disproportionate impacts related to involuntary acquisition of land or assets. In the latter case, particular attention will need to be paid to the inclusion of women’s voices in consultations and project implementation. In addition, initiatives that target poverty reduction measures through economic activity may, for example, have to pay particular attention to providing specialized training for women, taking into account lower educational levels. 8. Consultations. The draft RPFs were subject to stakeholder consultations, including consultations at the sub-national level (at selected proposed project sites). The RPFs were finalized after feedback from the consultations was integrated. Community Support Programs 9. Rationale. The areas along the transmission line corridor are among the poverty-stricken and lagging regions of the four countries, with low household income, limited access to public infrastructure and social services. While the primary beneficiaries of the project are outside the immediate project area, local communities will not see any direct benefits from the project. 10. In all countries there is a general expectation and aspiration among local communities that they will benefit from the project development. In Afghanistan and Pakistan, the current conflict and security situation renders local community support a vital factor for the development and future operation of this investment. Local buy-in from the communities would give added comfort on the safety of the contractors and the infrastructure. In Tajikistan and Kyrgyz Republic, much of the country, including communities in the proposed project area, suffers from winter energy shortages resulting in much discontent about electricity being exported out of the country. In this environment, if project-affected communities bear the brunt of the impacts without seeing any benefits they could easily jeopardize the development of the project, the safety of the infrastructure, and may cause localized instability as communities feel excluded from the development process. Concerns regarding localized instability are pressing given high levels of unemployment and economic stagnation. At the national level, government efforts at addressing the winter energy shortage would strengthen stability and perceptions of inclusive development. 11. As a result, the CASA-1000 project includes CSPs for each country as a third component of the project. The CSPs will be designed to deliver community-level development activities (in the form of infrastructure, services, economic activities, etc.) based on community needs and delivered using a community driven approach. Initial surveys in representative communities (in 126
Tajikistan, Kyrgyz Republic, Afghanistan and Pakistan) have highlighted the following as community priorities: access to energy in the winter (priority in Tajikistan and Kyrgyz Republic), access to potable water and improved rural transport infrastructure, among others. 12. Each country will prepare its CSP based on individual country needs and implementation arrangements. Initial program concept notes have been prepared for most of the CASA-1000 countries and these will be further designed in detail. The CSP will run through the course of the project (construction phase) and will be adjusted to fit specific country needs during the operational phase. Currently, the design readiness of the CSP component is uneven across countries and it is envisioned that the components will be rolled out sequentially with Afghanistan and Pakistan being implemented first due to advanced preparation and available funds (for the former) and the high and present security risks for both. In the Kyrgyz Republic and Tajikistan, where the funding is limited, it is possible that commencement of the CSPs during construction may not be completely aligned with the construction phase; however, this should not have a significant impact on the project risks 13. Objectives and principles. The CSP aims to maximize the socioeconomic benefits of this energy investment by assisting in the governments’ poverty alleviation efforts among communities along the corridor of the project transmission line. This will improve the well-being of local communities, help foster a partnership between the project agencies and local communities, build better local ownership of this public investment and create a supportive environment for the construction and future operation of this transmission line across the region. The following principles will guide the program planning and implementation: a. This program will be demand-driven with communities leading the selection and finalization of the schemes. b. Community participation will be socially inclusive, with women, the poor and marginal groups contributing using culturally-appropriate processes. c. Planning and implementation process will respect local traditions and customs. d. Monitoring mechanisms will be designed to ensure transparency. e. Coordination with other local development activities and plans will be required to promote sustainability. 14. Coverage and scope. The proposed program will be limited to a project corridor as defined for each country. The list of eligible communities will be further determined and finalized during the design of the respective country programs. Although there are differences across the four countries, the general preferences for development interventions include: improved electricity access/supply quality; community infrastructure and facilities, such as water supply systems, roads and schools; and livelihood support measures, including vocational training and extension support services. These preferences are general and indicative. Community-specific investment activities will be proposed and finalized through a participatory planning process within each individual community. 15. Project costs and financing. The CSPs will be structured into two phases for financing mobilization, i.e. the construction phase and the operational phase. The costs of the CSP during the construction phase are estimated at US$70 million – Afghanistan (US$40 million), Pakistan 127
(US$10 million), Tajikistan (US$10 million) and Kyrgyz Republic (US$10 million). These funds will be mobilized through funding under World Bank operations and/or through other development partners possibly in a Multi Donor Trust Fund. To date, there is a commitment for funds for Afghanistan. There is a financing gap for Pakistan, Kyrgyz Republic, and Tajikistan and efforts to raise money from donors are needed. A funding mechanism has already been agreed among the four governments to support community development initiatives during the operational phase through project revenues. 16. Planning and implementation. The community development programs will be responding to the prioritized needs of the beneficiary communities within the corridor of impacts in each country. A community-driven approach will be adopted, following established institutional and operating modalities for rural development in each of the four project countries. Current arrangements for each CSP are as follows: 17. Afghanistan: The program will be designed in close alignment spatially and time-wise with the CASA-1000 construction phase. The project will be a multi-year project to be implemented, subject to agreement by GoA, utilizing the existing project implementation modalities and Facilitating Partners as well as the Monitoring and Evaluation system under the ongoing National Solidarity Project (NSP). The NSP is the largest investment in rural Afghanistan, operating in all 34 provinces, aiming at building, strengthening, and maintaining elected Community Development Councils (CDCs) as effective institutions for local governance and socio-economic development. 18. The project would target the communities (represented by their CDCs) within the Corridor of Impact (COI) and in line with existing NSP policies, and attempt clustering of CDCs as far as possible and relevant. Community institutions, such as CDCs, Irrigation Associations, Youth Associations, Self-Help Groups and Agricultural Cooperatives, will be engaged for supporting implementation and operation of the program. Where communities have proven capacity, the program planning and implementation could be done by communities themselves through community contracts. For complex projects which are beyond the capacity of local communities, implementation could be done through the private sector or other suitable entities following a competitive bidding process. 19. Pakistan: The CSP will be managed and implemented through an established setup under development programs supported by development partners. 39 A Project Steering Committee (PSC) and a PMU have been established at FATA and KPK provincial level. The PSC has an overall function of policy formulation and supervision. The PMU is established within the Directorate of Project under FATA Secretariat and Planning and Development Department of KPK Province, with a project director and a full staff. It is responsible for project 39
FATA Rural Development Project supported by ADB FATA Livelihoods Project supported by German Technical Cooperation KPK Community Infrastructure Project and FATA Rural Livelihoods And Community Infrastructure Project, KPK Southern Area Development Project by World Bank
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implementation. At the agency and district level, there is either an agency implementing unit in FATA or an appointed district officer dedicated to support the program. Local communities play a central role in the program scheme selection, planning and implementation. Programs use the local indigenous structure including Jirga (council of elders), tribal elders (Mallack), and agency development councils as facilitating partners to ensure the participation of local community members. Locally-based organizations are engaged to facilitate the social mobilization process. They would carry out consultations with local communities; facilitate awareness raising and development scheme selection. 20. In addition to the above setup which also has regular monitoring and evaluation responsibilities, additional monitoring mechanisms are also being piloted such as progress review partners and independent third party monitoring involving local civil society organizations, such as youth groups, and using ICT and community feedback tools 21. Kyrgyz Republic: Discussions regarding the design of the project and implementation arrangements are ongoing. The CSP could be implemented by the Community Development and Investment Agency (ARIS). ARIS has some 10 years of experience working on community driven development and has local staff in the three concerned oblasts (Jalalabad, Osh, and Batken). The CSP could be incorporated into the Village Investment Project-3 (VIP 3) currently under preparation. The dialogue with government will include options for extending the CSP beyond the COI. 22. Tajikistan: Discussions regarding the design of the project and implementation arrangements are ongoing. Government has indicated an interest in strengthening winter energy access to community facilities such as schools and clinics in addition to supporting investments in priority sectors such as water. Implementation arrangements are also being considered—with government considering using an NGO as an implementing partner, or alternatively centering implementation in government. There is a strong interest in ensuring that during construction and operations that the CSP is not confined to the communities in the COI, but benefits rural communities in other regions in Tajikistan. As such, government sees the construction phase as a pilot phase for testing delivery mechanisms, coordination arrangements, and implementation arrangements to prepare for a more robust rural intervention post-construction. The CSP may be implemented as a stand-alone operation activity with financing from donors through the proposed Multi Donor Trust Fund. 23. Considering the need and urgency for community engagement for the construction phase in Afghanistan and Pakistan, it is considered important that the CSPs at construction phase in both countries should synchronize with the transmission construction schedule and start their implementation along the transmission line civil works. 24. Consultations. Survey and consultations have been carried out amongst a representative sample of communities through community meetings, focus group discussions and individual interviews. The consultations discussed, assessed and summarized the community development needs and prioritizations. During the design of the country-specific CSPs, further communitylevel consultation will be undertaken.
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Annex 9: Macroeconomic and Sectoral Context of the CASA-1000 countries Pakistan Energy sector context 1. The sector has a regulator and relies on a single national transmission company, NTDC, and nine different distribution companies (DISCOs), as well as a vertically integrated utility serving the city of Karachi (Karachi Electricity Supply Corporation, KESC) for the provision of services to consumers. The performance and capacity of the DISCOs vary significantly. In 2012, the total installed generation capacity was about 22,800 MW; however, a significant portion of this capacity is not being fully utilized and the available capacity is closer to 14,000 MW. No significant power generation capacity has been added for many years. In a country of 180 million that is one of the most urbanized in the region, the demand for energy continues to grow. Between 2004 and 2009, electricity consumption grew by 22 percent while the supply remained practically stagnant. From 2010 to 2012, Pakistan made a serious effort to deal with the electricity crises by investing in the domestic expansion of hydropower (1,410 additional MWs from an already constructed tunnel on the existing Tarbela Dam and is proceeding with the Dasu project which, when completed, will be 4,320 MW), improving the efficiency of the natural gas distribution system, mapping the potential of solar and wind energy, and pursuing import opportunities for electricity/gas from Central Asia, Iran, and India. 2. Pakistan’s energy sector is facing a serious crisis, especially in electricity. Key challenges include large and growing shortages of energy, high costs, and inefficiencies that prevent the sector from financing all its costs. Based on preliminary estimates, the poorly performing electricity sector is thought to have reduced GDP growth by 2 percent per annum for the past several years. The sector relies heavily on government support, through subsidies amounting to about 2.75 percent of GDP in 2012/2013, and funding for almost its entire investment program. Actions are required in three broad areas. The first is to improve sector finances by ensuring that the full cost of electricity service is recovered from consumers. The second is to overcome the investment deficit and to rebuild low-cost, efficient supply side capacity suited to the demand profile. The third is to improve sector governance, managerial autonomy and accountability. The problems and potential solutions to the recovery of the Pakistan energy sector are well understood but until recently the political will to undertake deep structural reforms has been wanting. 3. To support the objective of improving energy supply, the government has set out a National Power Policy that was approved by the Council of Common Interest in July 2013. Pakistan’s goal is to develop an efficient and consumer oriented electric power system that meets the needs of its people and economy sustainably and affordably. The three guiding principles of the National Power Policy are efficiency, competition and sustainability and it focuses on five main targets set out in Table 45.
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Table 45: The Five Main Targets of the National Power Policy 2013 Target Current Situation Goal and date Decrease gap between supply 4,500 – 5,000 MW shortfall Reduce to zero by 2017 and demand Improve affordability by Average generation cost Reduce average generation decreasing cost of generation US¢12/kWh cost to US¢10/kWh by 2017 Decrease aggregate technical T&D losses currently about Reduce T&D losses to about and commercial T&D losses 23-25 percent 16 percent by 2017 Improve collection of billed Collections are currently about Increase collections to 95 electricity 85 percent of billing percent of billing Improve governance by Slow decision making Shorter processing times (goal decreasing decision making yet to be established) times at Ministries, related departments and regulators 4. The government has developed an Action Plan to implement the National Power Policy over the next 3 to 5 years. The Action Plan ties together the policies and actions required to implement the specific strategies of the 2013 National Power Policy. The strategies are closely interlinked. Achieving financial sustainability requires improving cash flows both through tariffs reflective of efficient costs, efficiency and performance of the companies through commercialization, and reducing losses, in particular theft. Achieving cost reflective tariffs in a sustainable manner requires reducing generation costs through efficiency improvements, increase in gas supply, and targeting subsidies only to low-income households. Creating awareness and consensus for the policy implementation requires increasing transparency through greater access to information, strengthening the capacity of NEPRA and improving its accountability. 5. The Government of Pakistan has already started implementation of its 2013 National Power Policy. The Government has already taken a number of significant initial steps including substantive retail tariff adjustments (a 50 percent (weighted average) increase for industrial, commercial and bulk consumers on August 5, 2013 resulting in a revenue increase of about Rs.140 billion) and another increase on October 1, 2013 for households to phase out subsidies to households consuming more than 200kWh per month with further increase for domestic consumers partial settlement of circular debts (about Rs 500 billion equivalent), bringing the DISCOs under the purview of the Companies Act. It has also signed three performance contracts with the DISCOs. 6. The Bank is working with ADB and JICA to prepare a series of Development Policy Credits to support the implementation of the 2013 National Power Policy, the first of which is planned to be submitted for Board Approval in FY14. The proposed DPC is envisaging support of three key policy area: a. Adopting clear policies on tariffs and subsidies. This area aims to mitigate the unsustainability of the sector – partial cost recovery by utilities. In particular it will ensure implementation through NEPRA rules and regulations to reduce discretion and lag in tariff approval. This will go hand in hand with reducing the subsidy burden on the government while maintaining its social responsibility. This area further supports private 131
sector investments in two ways (i) it helps bring the sector to greater financial viability, thus giving the investor more confidence that it will be paid and (ii) it improves the government’s fiscal position, thus improving its credit rating and the value of a sovereign guarantee to potential investors. b. Improving sector performance and opening the market to private participation. This area aims to create the conditions that will lower down the high cost of electricity generation in the future: (i) Improving Sector Performance by managing revenues and collections to establish creditworthiness of the sector; improving demand side efficiency and strengthening energy conservation; managing generation cost through least cost planning and entry of new generation follows the plan; (ii) opening the market by increasing gas supply and opening the gas market to direct contracting sales to large customers; commercialization and improving performance of DISCOs, NTDC and GENCOs; corporatization and commercialization of CPPA and implementation of a multiple buyers’ market by allowing generators to contract sales directly with large consumers; and c. Accountability and transparency. implementation of mechanisms to allow information access and strengthening the transparency of NEPRA for all stakeholders. Sector Reforms and Trading Arrangements 7. Pakistan is implementing a power sector reform program, including the rationalization of tariffs and a predictable regulatory framework, strengthening the performance and creditworthiness of the distribution companies, introduction of competition and promotion of efficient low cost generation / supply mix, and attracting investment and new participants in the sector. As part of this reform, the sector has been restructured into its different activities, with separate distribution companies (DISCOs), generation companies (GENCOs) and national transmission company (NTDC) responsible for high voltage transmission system, including international interconnections. 8. Of particular importance to the proposed CASA-1000 project is the agreed roadmap for the full independence of CPPA. The reform program will move to a multi-buyers and multisellers competitive wholesale market where each DISCO purchases power to supply its customers. In the transition to this final arrangement, a single wholesale function (CPPA) will responsible for power purchase on behalf of all DISCOs, with a pooled price (average purchase price) paid by each DISCO for the energy purchased to supply its load. The reform process has the following stages until the implementation of wholesale competition: a. Currently, the CPPA function is licensed to NTDC and operating as a department of NTDC. b. Before the end of 2014, the CPPA function will be eliminated from NTDC and a separate CPPA will become operational as an independent agency to purchase power on behalf of DISCOs and resell to DISCOs at a pooled price. The existing contracts/PPA signed by NTDC will be novated to the independent CPPA. Through amending NTDC 132
license to cover only transmission services, NTDC will focus on expansion planning, timely transmission investments, maintenance and reliable system operation. c. By 2017, a market will start allowing Bulk Power Consumers to purchase power on their own, while DISCOs will purchase and supply their non-Bulk Power Consumers. d. When the commercial operation of the wholesale market starts, the CPPA will become a power exchange / market operator. Each DISCO will procure power on its own, and existing contracts signed by CPPA will be transferred to DISCOs. 9. The Bank is working in close coordination with: (i) the IMF which approved a three-year Extended Fund Facility in September 2013 that focuses, inter alia, on issues in the energy sector and (ii) the ADB which remains the major donor funding investments in the power sector in Pakistan. The Bank is also coordinating assistance with other donors such as USAID, DfID, IsDB, Agence Française de Développement and KfW/Deutsche Gesellschaft für Internationale Zusammenarbeit. Macroeconomic context 10. Pakistan is facing many crises at the same time: terrorism, economic and energy. In this very difficult context, with its convincing win in the last May's election, the Pakistan of Muslim League-Nawaz (PML-N) of Prime Minister Nawaz Sharif has a strong mandate to implement needed reforms. This could facilitate the implementation of a comprehensive reform agenda that can help the country avoid a balance of payment crisis and regain strong and sustained growth rates. The citizens are now demanding more transparency and performance from the Government. 11. The economy remains stuck in a low-investment-low growth trap. Real GDP growth at 3.6 percent in 2012/13 was modest but below the 4.4 percent reached in the previous year. The slowdown was partly explained by a marked fall in private investment (10.3 percent of GDP), the lowest level in two decades. Energy bottlenecks and security concerns are also major contributors to the slump. Inflation dropped markedly to single digits (7.4 percent) due to improved food supply, and reduced demand and inflationary expectations; yet pressures on prices remain high, which might push inflation back again into double digits. 12. Pakistan’s very weak external position remains the most pressing short-term economic challenge. Although the current account deficit remained small due to a marginal improvement in export growth, deceleration in imports associated with the economic slowdown and inflows of workers’ remittances; falling financial inflows and substantial debt amortization payments have resulted in a marked drawdown of foreign reserves. In terms of import coverage, reserves declined from about 2.7 months by June 2012 to 1.5 months by June 2013 (1.2 months in September 2013). 13. Unsustainable fiscal imbalances compound the current crisis and need urgent attention. The consolidated fiscal deficit exceeded by a sizeable margin the budgeted target, and reached 8 percent of GDP again. Significant shortfalls in revenue and a sharp overrun in energy subsidies, 133
originating from country’s dependence on imported expensive fuel to produce electricity, worsened an already large fiscal deficit. Moreover, due to restricted external financing, domestic bank borrowing and direct financing from the SBP rose, reducing the availability of private sector credit. 14. Recovery cannot happen without the major structural reforms, especially in tax policy and administration and the energy sector. On the tax front, FBR, the tax collection agency, initiated some attempts to register tax evaders, remove zero ratings for domestic sales of selected export products, and raise excise duties on tobacco, but results were by and large unsuccessful as the tax ratio fell to 9.6 percent of GDP. On the energy front, the government was unable of increasing power tariffs in 2012/13 and, as a result, expenditures on the tariff differential subsidy reached Rs349 billion— 1.5 percent of GDP. In addition, the financial losses of overall SOEs also continued to bleed the budget. 15. Regional integration is low within South Asia and with Central Asia. Energy import from regional energy surplus areas would not only help ease the biggest constraint on economic growth by improving the reliability of electricity supply and likely lowering electricity prices, but also help in increasing the regional integration and thus contributing to greater stability. 16. The Government has a sound economic plan; has completed its discussions with the IMF for a 3-year US$6.7 billion Extended Fund Facility (EFF, approved by IMF Board on Sept. 4 2013); and has taken the initial stabilization reform actions. In the EFF, the Government has announced a bold set of stabilization and structural reforms for the next three years that aim to reduce the risk of a crisis in the short term and regain and sustain high and inclusive growth in the medium term. As prior actions, the Government has agreed to focus on strengthening the external situation and on fiscal consolidation. A well-implemented reform program will restore framework for effective budget support from the World Bank and, possibly, other donors which could address structural reforms in areas such as revenue mobilization, the power sector, business climate, state-owned enterprises, trade liberalization and strengthening of the safety-net system. Tajikistan Background 17. Tajikistan is a small landlocked country vulnerable to natural disasters and the influence of external economic conditions. Located in the heart of Central Asia, it is blessed with abundant water resources, contributing to its specialization in cotton production. Tajikistan also has considerable hydropower potential—inexpensive electricity has led to its other specialization: processing of aluminum. Shortly after its independence in 1991, the country descended into a civil war that lasted until mid-1997 and brought widespread physical damage and loss of life. It is susceptible to natural disasters and is regularly affected by floods, landslides, earthquakes, and droughts. Only 7 percent of its total land area is arable; high mountain ranges make communication between different parts of the country difficult, especially in winter. These factors combine to make Tajikistan one of the world’s poorest countries, with a
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gross national income per capita of US$880 in 2012. Limited employment opportunities at home have led 40 percent of the working age population to seek better jobs in Russia. 18. Despite these difficult initial conditions, its economy grew rapidly prior to 2009 global economic crisis. Strong economic growth, at more than 8 percent per annum during 2000-2009, was made possible by five favorable factors: the peace agreement that permitted businesses and households to return to normal economic activity; a stabilization dividend from the government’s success in stabilizing the economy; the growing global and regional economy that led to increased aluminum and cotton exports as well as rising inflows of remittances; increased development assistance, including from the international financial institutions; and reforms that permitted businesses and households to take advantage of emerging opportunities. Energy sector context 19. Tajikistan relies almost exclusively on hydropower (96 percent of its 4,750 MW of installed capacity) to meet its electricity needs. The Vakhsh cascade also follows the same pattern of summer surplus and winter shortages, except that the storage capacity of the Nurek reservoir is smaller making the water spillages in the summer even larger. As the poorest country in Europe and Central Asia, Tajikistan has significant development challenges and poverty alleviation is critical. The World Bank's recent Poverty Reduction Strategy Paper (PRSP) for 2010-12 underscored the essential role of the infrastructure sector in achieving the objectives of poverty reduction and growth. In particular, the energy sector was identified as a priority, given its significant development impact and potential. Also, the 2001 Country Economic Memorandum (CEM) calls for hydro resource development for growth and poverty reduction. The power sector is managed mainly by Barki Tajik, a state-owned enterprise. Some of the key issues facing the sector are: (i) the financial viability of Barki Tajik, which carries a sizable cash deficit (about 2 percent of GDP for 2010); (ii) the seasonal mismatch between electricity supply and demand, contributing to economic losses and hardship for the population, with winter power shortages leading to 12-18 hours of load shedding during winter months outside of the capital city of Dushanbe; (iii) the increasing liability of the payments to IPPs for electricity that cannot be commercially utilized during the summer months in the absence of export opportunities; and (iv) the need to advance commercialization of the power sector, including unbundling of generation, transmission and distribution systems.. Recent economic and fiscal developments 20. After slowing down to below 4 percent, economic growth rebounded to 6.5 percent in 2010 and further to 7.4-7.5 percent in 2011-2012. Real GDP grew by 7.4 year-on-year during January-September 2013. Economic activity in the post-crisis period has been spurred by the pickup in gross remittance inflows, which rebounded sharply in 2010 and continued to grow afterwards, reaching record high level of 48 percent of GDP in 2012. Larger inflows of remittances fueled domestic demand and strong growth in services, which accounted for more than one-third of total growth in 2012 and the first 9 months of 2013. Other sectors (agriculture, industry and construction) performed well too, though industrial output growth was driven mainly by extractive industries with manufacturing sector performance being mixed. Inflation was contained at single digit levels, declining on a year-on-year basis from 9.8 percent in 135
December 2009 to 5.5 percent in September 2013. After widening to close to 5 percent of GDP in 2011, current account deficit was reduced to 1.2 percent of GDP in 2012 and expected to remain below 2 percent in 2013. 21. The overall fiscal stance improved notably in the post-crisis period. The overall fiscal deficit dropped dramatically from 5.4 percent of GDP in 2009 to a surplus of 0.1 percent in 2012, on the back of higher revenues and lower (in relation to GDP) expenditures. The fiscal consolidation largely reflected the pattern of capital investments from the externally financed Public Investment Program (PIP), which is being phased out gradually. Despite the sizable improvement in the government fiscal position, fiscal buffers are yet to be restored as government deposits in banks remain well below their pre-crisis levels. The general government budget was concluded with a surplus of 0.9 percent of GDP during January-September 2013 but expected to move to a deficit by the end of 2013 due to higher expenditures and moderated revenues. Risks and medium-term outlook 22. Notwithstanding these positive developments, the country remains vulnerable to a number of shocks, whilst the ability to dampen the shocks is limited. High dependence on remittances, narrow export base (cotton and aluminum account for close to 60 percent of exports), low external and fiscal buffers (foreign currency reserves account for 1.6 months of imports) make Tajikistan's economy highly vulnerable to external shocks. The ability to dampen the shocks is limited by weak domestic policies, creating additional fiscal risks, stemming from government-directed lending via commercial banks and quasi-fiscal activities of SOEs (including energy utilities). Weak governance and financial sector accountability, and the poor business climate hold back financial sector and government debt market development. 23. In the medium-term, growth is projected to ease down to below 6 percent per annum due to a deceleration in Russian growth and a related moderation in the inflow of remittances. Downside risks include even slower growth in Russia, major terms of trade shocks, financial sector and contingent liabilities. Pace of construction and financing terms of major energy projects create additional risks. In addition to better-than-projected growth in main trading partners, higher remittances and terms of trade improvement, possible upsides include growth dividends from more decisive actions on structural reforms, including those allowing Tajikistan to reap the benefits of its recent WTO membership, will bring medium- and long-term growth dividends, and possible gas exploration. Afghanistan Energy sector context 1. Although Afghanistan has recently begun rehabilitating its power sector after two decades of conflict, it will take many years for this sector to function adequately and meet the country's demand for electricity. In the meantime, demand is growing rapidly. The lack of access to electricity for a significant portion of the population continues to hamper economic growth and raises doubts about the country's future ability to provide this key infrastructure, especially 136
during the impending transition from decades of conflict marked by the anticipated withdrawal of the NATO/ISAF from the country in 2014. 2. The government's medium-term outlook for the energy sector focuses on: enhancing energy security through the rehabilitation of clean and low-cost major hydro plants, which is currently underway; adding local resources based on more generation capacity to meet unmet and future demand (coal-based power plants associated with mining activities); expanding small and medium hydro plants; and starting work on one or two large hydro plants based on the optimized development of water resources. In addition, the government places strategic importance on tapping into surplus power from neighboring Central Asian countries, which would also enhance its prospects as a safe transit country and increase revenues from potential transit fees for sales to Pakistan and other neighbors. Macroeconomic context 24. The economy grew strongly in 2012, driven by an exceptional agriculture harvest and rapid expansion of the services sector. Real GDP growth (excluding opium production) was 14.4 percent in 2012, which represented a sharp uptick from 6.1 percent in 2011. The strong performance was in large part due to an exceptional agricultural harvest supported by favorable weather conditions. Agriculture accounts for about a quarter of GDP (excluding opium) in Afghanistan and also has strong links to the rest of the economy. As a result, economic growth is influenced heavily by the volatile agricultural sector. Growth in 2012 also benefited from rapid expansion of the services sector, which accounts for about half of GDP. 25. Economic growth is projected to slow considerably to 3.1 percent in 2013 and 3.5 percent 2014 due to the increased uncertainty surrounding transition and flat growth in the agricultural sector. Presidential elections are scheduled for April 2014 but uncertainty remains over multiple efforts to build broad-based alliances and about whether the resulting government will be sufficiently cohesive to make significant policy decisions. While the Afghan security forces have demonstrated competence in responding to security incidents, uncertainty persists about the security outlook after most international forces withdraw in 2014. In this context, investment and economic growth have slowed down. Agricultural growth in 2013 is also expected to be flat or slightly negative after a bumper harvest in 2012. Economic growth is projected at 3.1 percent in 2013. Growth is projected to remain weak in 2014 before picking up in 2015 assuming a smooth political and security transition. Investor confidence and growth in the non-agricultural sectors should pick up modestly in the second half of 2014 as uncertainty lessens. This, coupled with the assumption of favorable weather conditions for agriculture, should generate growth of about 3.5 percent in 2014. Public investment expenditures on essential infrastructure provide an important prop for economic activity during this period of heightened uncertainty and also contribute to Afghanistan’s medium term growth prospects. 26. In the medium term, post-transition growth is projected to be about 5 percent per year during 2015-16. This is less than the average growth of 9.4 percent per year during 200312 that was fueled by the surge in international aid and security spending. The post-transition growth outlook is contingent upon a relatively stable security environment, with agriculture and extractive industries likely to be among the significant sectors driving growth. Agriculture 137
accounts for about a quarter of GDP and is also linked closely to other parts of the economy, such as food and beverages (which account for almost all of manufacturing), and parts of transport and retail. Afghanistan has the potential to build on this foundation by reviving its historical position as an important exporter of fruits, nuts, vegetables, and other higher valueadded products. This will require investments in irrigation and extension services to improve capacity, as well as efforts to build and improve downstream agro-processing activities. On the other hand, the extractive industries sector currently accounts for a very small share of GDP, but has significant potential in light of Afghanistan’s deposits of copper, iron ore, and hydrocarbons. Unlocking this potential will require progress on the legislative framework as well as securing financing for the necessary infrastructure. 27. Tapping the potential of regional integration could also become an important contributor to growth. Afghanistan lies at the crossroads of rapidly growing and resource rich economies in Central, South, and West Asia. A number of regional energy transit initiatives will require the direct participation of Afghanistan. These include the CASA-1000 project intended to carry Central Asian power to Pakistan and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline intended to carry Central Asian gas to Pakistan and India. In addition, Afghanistan can tap the potential of growing transit trade in the region. Taking advantage of regional integration will require investments in infrastructure, improving customs facilities, and strengthening trade agreements. 28. After a decade of strong fiscal performance, revenue collection has weakened in 2013, potentially delaying Afghanistan’s path toward self-reliance. Revenues amounted to Afs 48 billion in the first six months of 2013, down 11 percent in nominal terms from Afs 54 billion in the first six months of 2012. The decline in revenue collection is due to the economic slowdown, as well as leakages and weakness in administration, particularly in customs. The Ministry of Finance has introduced a number of measures to stabilize revenues, including changes in the leadership of the customs department. With the political uncertainty undermining enforcement, revenues are expected to remain weak at about 10-10.5 percent of GDP during 2013-14. 29. Maintaining macroeconomic sustainability in Afghanistan’s highly aid dependent environment will require improving revenue mobilization while also securing grant assistance to meet its considerable financing needs. Afghanistan faces considerable expenditure needs in the areas of security, infrastructure development, service delivery, and operations and maintenance. Meeting these needs will also require significant grant assistance for the foreseeable future. The projected total financing gap, while declining from more than 40 percent of GDP in 2012, will remain above 20 percent of GDP through 2025. In order to preserve fiscal sustainability, in addition to securing the necessary grant financing, a concerted effort will be required going forward to improve revenue mobilization by (i) strengthening tax and customs administration; (ii) expediting introduction and implementation of the planned value-added tax; and (iii) progress on the legislative and regulatory framework for the extractive industries sector. 30. In light of high project costs for Afghanistan, it will be important for the country to ensure that supply and transactions arrangements are favorable to them. While the project 138
costs will be financed by international grant assistance, the country-specific costs should, nevertheless be justified by the country-specific benefits. In this context, it will be important to for the country to ensure that electricity supply arrangements, price differentials, and transit fees are adequate to recover the cost of their investment. 31. The benefits for Afghanistan will depend in large part on adequate domestic electricity supply arrangements. The energy deficit in Afghanistan is substantial: in addition to lower supply for private consumption purposes, it also leads industries to operate sub-optimally and with high input costs. Firms in manufacturing and services are either faced with lower electricity supply which affects their overall productivity or use alternative sources of energy which increase their input costs. The latter strongly affects the firms’ overall performance, competitiveness and profitability. Not only will sufficient supply of electricity boost present industries, it will also encourage further private investment in the country – as lack of access to electricity is often cited as one of the major constraints to private investment in Afghanistan. This can have growth spillover effects in Afghanistan in the medium term. Kyrgyz Republic Energy sector context 32. Kyrgyz Republic. Over 90 percent of electricity in the country is produced by the Naryn hydroelectric cascade, which is regulated by the Toktogul reservoir with a storage capacity of 19 billion cubic meters, enabling multiyear regulation of the cascade operation. The inflows into the cascade are highest during the summer period as a result of snow melts, leading to a surplus of unused electricity and in some times spillage of water due to the need to maintain the downstream flows and, at times, constrained by the reservoir's storage capacity. Historically, the electricity exports during the summer have been made to Central Asia Power System (CAPS) partners, primarily to Kazakhstan, based on yearly negotiations, but the price levels are low and the amount is uncertain. Recently completed and planned investments in generation and transmission facilities Kazakhstan (Moinak HPP, North-South, Alma, Moinak transmission lines) are expected to substantially lower Kazakhstan’s demand for electricity import from the Kyrgyz electricity over the longer term. 33. During the winter, when demand is high and the water inflows are not enough to meet the peak needs for electricity and heating, there are often four-six hours of load shedding. As a shortterm measure to deal with its energy deficits in the winter, Kyrgyz Republic has been exporting its summer surplus of electricity to neighboring countries, such as Kazakhstan, in exchange for fuel supplies from coal and gas. The sector suffers from large losses (in excess of 30 percent of net generation), very low electricity tariffs (less than US¢1.6/kWh), and suboptimal contractual arrangements and payment mechanisms between the energy companies that hinder the transparency of power and financial flows in the sector and undermine the incentives for good performance and sound management by the sector entities. In recent years, there has been a strategic focus on implementing critical investments to improve the viability of the power sector and respond to the energy needs of the country in the medium to long term. The major cause for the lack of investments has been the poor financial health of the energy sector, due mainly to the
139
above-mentioned very low level of tariffs (the lowest in the Europe and Central Asia region) and the poor operational performance of the utilities. 34. To address the sector challenges, the Government has approved an Action Plan for Reforming the Energy Sector in 2013-14 and the Bank and other donors have structured support around it. The Bank has sizable engagement in the energy sector of the Kyrgyz Republic through investment lending operations, development policy operations, as well as analytical and advisory activities, which is focused on helping the country address two fundamental and inter-linked challenges of strengthening the sector governance and accountability and enhancing its financial viability. The Government has committed to implement governance reforms under the development policy operations (including establishment of a performance monitoring framework and periodic collection and publication of key financial and operational performance indicators). The Government is also receiving a technical assistance from the Bank for Tariff Setting Methodology, which will help enhance the financial performance of energy companies, including the transmission company that will be the Implementing Agency for the Kyrgyz portion of the project, and improve transparency and accountability in the broader power sector. Macroeconomic context 35. The economy is bouncing back after a rather tumultuous year in 2012. Gold production (the country’s main driver of economic growth, provider of revenues, and much needed foreign exchange), plummeted in 2012, owing to geological factors, which affected the fiscal and current account balance as well as headline growth. A return to normal operations has helped boost growth to nearly 9 percent y-o-y in September 2013. Non-gold sectors of the economy are also performing well (e.g. trade and construction services) reflecting resilient remittances as well as growing credit to the private sector. The trade balance deteriorated significantly in the first half of 2013, driven by an increase in imports from strong domestic demand as well as gradually recovering gold exports. The trade deficit is expected to come down in the second half of the year as gold exports return to normal levels, which will help reduce the current account deficit to around 10 percent of GDP. Inflation has moderated, driven by lower international food prices. Key indicators and projections are summarized in Table 46 below. Table 46: Key macroeconomic indicators and projections (in percent of GDP, unless otherwise noted) 2008 Act. Real sector GDP, in US$ million GDP per capita, in US$ GDP growth, in % Investments Fiscal accounts Revenues and grants Expenditures Balance Public debt
2009 Act.
2010 Act.
2011 Act.
2012 Act.
2013 Proj.
2014 Proj.
2015 Proj.
5,131 972 8.4 20.2
4,683 864 2.9 22.9
4,794 875 -0.5 23.9
6,199 1,120 6.0 24
6,473 1,158 -0.9 25.4
7,266 1,287 7.8 25.5
8,007 1,405 6.5 25.8
8,678 1,507 5.3 26.2
29.9 29.3 0.6 48.5
32.1 36.1 -4.0 58.1
30.5 36.6 -6.1 59.7
31.8 36.3 -4.5 49.4
34.5 39.8 -5.3 50.0
32.4 37.6 -5.2 48.0
30.7 34.8 -4.1 48.3
30.8 33.9 -3.1 48.1
External accounts 140
Exports of goods and services Imports of goods and services Current account balance External debt Prices and exchange rates Inflation, period average Exchange rate, KGS/US$
54.0 92.8 -15.5 73.3
54.5 78.9 -2.5 89.3
52.7 81.7 -6.4 92.7
54.7 82.3 -6.0 76.7
54.7 99.6 -15.3 81.3
55.7 92.2 -10.4 74.4
55.2 95.3 -12.4 72.6
51.9 90.3 -10.3 71.3
24.5 39.4
6.8 44.1
7.8 47.1
16.6 46.5
2.8 47.4
7.0 48.6
4.5
4.5
Source: Bank calculations based on data from national authorities.
36. Prospects for the medium-term remain favorable, especially if the neighboring region continues growing. Growth is expected to moderate slightly, but still remain strong. Remittances and exports will benefit from the slight recovery in Russia’s growth rate and the robust expansion in Kazakhstan. At the same time, China is becoming an increasingly important source of investment, including in transport and energy, estimated to reach around US$3 billion over the next few years. The stronger capital inflows will keep the current account deficit relatively high. Inflation is estimated to remain in the 5-7 percent region for the next few years. 37. Improving efficiency of government spending will be critical for growth, inclusion, and stability. The medium-term fiscal framework envisages a reduction in the deficit from 5.4 percent of GDP in 2012 (one of the highest in ECA) to below 3 percent of GDP by 2016. Safeguarding fiscal solvency is a task made more difficult by the 3–6 percent reduction in revenues due to the mid-2014 closure of the Manas Transit Center. Tax policy and administration reforms may strengthen revenues; however, most of the adjustment needs to come from expenditures. Meanwhile, public investments need to remain high to address infrastructure bottlenecks, and social inclusion policies need to be promoted to strengthen cohesion. These competing priorities can be tackled through improved efficiency of public expenditure. The World Bank’s Public Expenditure Review is providing recommendations that could generate savings, while improving quality of public services in education, health, pensions, social protection, and energy as well as cross-cutting themes such as the wage-bill and public investment management and intergovernmental relations. 38. The overall macroeconomic impact of the CASA-1000 project is positive. The concessional nature of the debt agreements for construction of CASA-1000, and guaranteed income flows under the PPAs, would ensure cost recovery of all investments and provide export revenues for the country over at least a 15-year period (the duration of the PPAs). This should limit any worsening of the Kyrgyz Republic’s debt sustainability, which is currently rated as moderately at risk of distress under the 2013 Bank-Fund Debt Sustainability Assessment. 39. While CASA-1000 may provide the Kyrgyz Republic with an expanded market for its energy exports, the sustainability of the sector remains the main priority. The energy sector is running a quasi-fiscal deficit equivalent to 2.4 percent of GDP, and tariffs are 35 percent of cost recovery levels. At the same time, weak governance arrangements and inadequate pricing policies, threaten the viability of the system; create significant contingent liabilities and contribute to poor service quality. Governance and tariff reforms are therefore essential, and remain the main priority to ensure the sustainability of the sector.
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40. The recently adopted 2013-2017 National Sustainable Development Strategy provides the overarching strategic framework for developments in the Kyrgyz Republic. The objective of the strategy is to establish a democratic state with a stable political system, dynamic economic growth and growing incomes of Kyrgyz Republic citizens. The strategy underscores the need for good governance and state building, recognizing the problems of corruption and weak governance. The CPS (2014-2017) is fully aligned with the National Sustainable Development Strategy, setting governance as the central theme. We are supporting the government implement public finance management reforms through budget support operations and a programmatic Public Expenditure Review. In addition, investment operations have a strong governance aspect. The World Bank is supporting the government implement its strategy via a number of operations including: national road rehabilitation, rural water supply and financial sector development, and improving the business environment. Alongside these operations, the Bank continues to work with the government on poverty monitoring and associated social protection. 41. Governance arrangements in the Kyrgyz Republic are evolving following the turmoil in 2010. The replacement of dismantled institutions has been slow, and the shift towards a parliamentary democracy, understandably, is yet to be fully embedded. At the same time, there are positive developments: there was a non-violent change of government in 2012, and according to the 2012 OECD ACN, the legislative framework in a number of areas is sound (civil service, access to information, asset declaration). Implementation of these laws, however, remains fragmented. 42. An enhanced framework for management of the CASA-related proceeds can help alleviate some of the concerns from the weak governance arrangements in the energy sector. In late-2012, the authorities adopted a comprehensive action plan to enhance transparency, accountability and governance in the sector. An updated plan was adopted in 2013 but progress remains uneven, which may require the proceeds from CASA-1000 to be ringfenced. The Kyrgyz Republic already manages an escrow account where the proceeds from exports of electricity are deposited. This framework could be used for CASA-1000 transmission revenues, earmarked to service the debt liabilities of the transmission company. Revenues flowing to the generation company may need to be managed differently in case inflows are significantly above debt servicing and liquidity needs of the company. Good international practice suggests that such an arrangement will link fund allocations with the sector priorities based on a comprehensive analysis of the priorities and a multi-year plan on capital and O&M expenses. The process should ensure, among other things, that: i) all receipts are covered; ii) comprehensive representation in the management of the entity managing the funds; iii) adequate oversight arrangements (by the executive and the civil sector) etc. As fiduciary arrangements in the sector improve, the export resources could be better integrated into the overall system
142
IBRD 40794
CENTRAL ASIA SOUTH ASIA POWER TRANSMISSION PROJECT CASA-1000 PROJECT
OPERATIONAL
70°E
72°E 42°N
KAZAKHSTAN
KYRGYZ REP.
FUTURE
Aydarkul Lake
500–1000 MW HYDROPOWER PLANT 500 kV SUBSTATIONS
TASHKENT
Sy rD a
110kV OVERHEAD LINES
N a r yn
a ry
220kV OVERHEAD LINES 500 kV OVERHEAD LINES
Datka 500/220 kV
MAIN RIVERS NATIONAL CAPITALS
Khudjand 500/220 kV
INTERNATIONAL BOUNDARIES
Zerav shan Da ry a
40°N
40°N
UZBEKISTAN Dushanbe 500kV
TA J I K I S TA N
DUSHANBE
Regar 500kV
Nurek 500kV
Surkhan 220kV uD
ary
a
Termez 220kV
38°N
Vakhs h
TURKMENISTAN Am
Sangtuda 1 HPP 670 MW
Sangtuda 500/220kV and Converter Station
38°N
Pyanj
Hayratan 220kV Khulm 220kV
Kunduz 220 kV
A F G H A N I S TA N Aibek (Namangan) 220kV
GSDPM Map Design Unit
36°N
Pul-e-Khumari 220kV
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.
Dowshi 220kV
KAZAKHSTAN
Charikhar 220kV UZBEKISTAN
TURKMENISTAN
ISLAMIC REP. OF IRAN
KYRGYZ REPUBLIC TAJIKISTAN
Kabul 300MW
Area of Main Map CHINA
PAKISTAN
Naghlu 100MW Sarobhi 22MW
KABUL
Jelalabad 110kV
AFGHANISTAN 0
PAKISTAN INDIA
50 KILOMETERS
Peshawar
100
Peshawar 1,300MW ISLAMABAD
70°E
72°E MARCH 2014