FOR OFFICIAL USE ONLY Report No: PAD3316 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR22.9 MILLION (US$31.7 MILLION EQUIVALENT) TO THE REPUBLIC OF TAJIKISTAN FOR A RURAL ELECTRIFICATION PROJECT June 18, 2019 Energy & Extractives Global Practice Europe And Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2019) Currency Unit = Tajik Somoni US$1 = TJS9.4393 US$1 = SDR0.7216 FISCAL YEAR January 1 - December 31 Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Senior Global Practice Director: Riccardo Puliti Practice Manager: Sameer Shukla Task Team Leader(s): Artur Kochnakyan, Takhmina Mukhamedova ABBREVIATIONS AND ACRONYMS AKFED Aga Khan Fund for Economic Development ASTER Advanced Spaceborne Thermal Emission and Reflection Radiometer BDU Business Development Unit BESS Battery Energy Storage System BT Barqi Tojik CAPS Central Asia Power System CASA Central Asia South Asia CHP Combined Heat and Power Plant CPF Country Partnership Framework CRI Corporate Results Indicator DA Designated Account DABS Da Afghanistan Breshna Sherkat DCC Development Coordination Council DFIL Disbursement and Financial Information Letter DH District Heating DRR Disaster Risk Reduction DTM Digital Terrain Model EA Environmental Assessment EBITDA Earnings Before Interest, Taxes, and Depreciation ECA Europe and Central Asia EE Energy Efficiency EIRR Economic Internal Rate of Return E&S Environmental and Social ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan ESPMU Energy Sector Project Management Unit ESRS Environmental and Social Review Summary ESS Environmental and Social Standard EU European Union FCV Fragility, Conflict and Violence FM Financial Management FIRR Financial Internal Rate of Return GAP Gender Action Plan Gcal Gigacalories FY Fiscal Year GBAO Gorno-Badakhshan Autonomous Oblast GDP Gross Domestic Product GAP Gender Action Plan GHG Greenhouse Gas HFO Heavy Fuel Oil HH Household HPP Hydropower Plant GDP Gross Domestic Product GoT Government of Tajikistan GRM Grievance Redress Mechanism GRS Grievance Redress Service (WB) GWh Giga-watt hour IA Implementing Agency IDA International Development Association IE Independent Evaluation IFR Interim Financial Report IPF Investment Project Financing IPP Independent Power Producer IPSAS International Public Sector Accounting Standards ISP Implementation Support Plan KfW Kreditanstalt für Wiederaufbau Km Kilometer kV Kilovolt kW Kilowatt kWh Kilowatt hour LCOH Levelized Cost of Heating masl Meters above sea level M&E Monitoring and Evaluation MIS Management Information System MOF Ministry of Finance MW Mega-watt NASA National Aeronautical and Space Administration NBT National Bank of Tajikistan NEET Not being in Employment, Education, or Training NGO Non-governmental Organization NPV Net Present Value ODA Official Development Assistance OHL Overhead Line O&M Operations and Maintenance OP Operational Policy (WB) PDO Project Development Objective PEC Pamir Energy Company POM Project Operations Manual PPA Power Purchase Agreement PPSD Project Procurement Strategy for Development PMC Project Management Consultant PDSI Project Design, Supply, and Install RE Renewable Energy REDP Rural Economy Development Project REP Rural Electrification Project RFB Request for Bids RMR Risk Mitigation Regime ROR Run-of-River RSP Resilience Strengthening Program RPF Resettlement Policy Framework SAR Spaceborne Synthetic Aperture Radar SECO State Secretariat for Economic Affairs SE PMUES State Enterprise Project Management Unit for the Energy Sector SERSP Socio-Economic Resilience Strengthening Program SOE State Owned Enterprise TALCO Tajikistan Aluminum Company TJS Tajik Somoni TSA Target Social Assistance USAID United States Agency for International Development VAT Value Added Tax The World Bank Rural Electrification Project (P170132) TABLE OF CONTENTS DATASHEET ........................................................................................................................... 1 I. STRATEGIC CONTEXT ...................................................................................................... 8 A. Country Context............................................................................................................................... 8 B. Sectoral and Institutional Context ................................................................................................. 10 II. PROJECT DESCRIPTION.................................................................................................. 15 A. Project Development Objective..................................................................................................... 15 B. Project Components ...................................................................................................................... 16 C. Project Beneficiaries ...................................................................................................................... 19 D. Results Chain ................................................................................................................................. 19 E. Rationale for Bank Involvement and Role of Partners................................................................... 20 F. Lessons Learned and Reflected in the Project Design ................................................................... 22 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 23 A. Institutional and Implementation Arrangements.......................................................................... 23 B. Results Monitoring and Evaluation Arrangements........................................................................ 25 C. Sustainability .................................................................................................................................. 25 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 26 A. Technical, Economic and Financial Analysis .............................................................................. 26 B. Fiduciary .................................................................................................................................... 31 C. Legal Operational Policies ......................................................................................................... 32 V. GRIEVANCE REDRESS SERVICES ..................................................................................... 37 VI. KEY RISKS ..................................................................................................................... 38 VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 40 ANNEX 1: Implementation Arrangements and Support Plan .......................................... 46 ANNEX 2: Detailed Project Description .......................................................................... 49 ANNEX 3: Financial Management, Disbursements, and Procurement ............................. 63 ANNEX 4: Economic and Financial Analyses ................................................................... 69 ANNEX 5: Operational Policy 7.50 with Respect to Sebzor HPP and Small Hydros ........... 90 The World Bank Rural Electrification Project (P170132) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country Project Name Tajikistan Rural Electrification Project Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P170132 Substantial Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [✓] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 20-Jun-2019 31-Dec-2025 Bank/IFC Collaboration No Proposed Development Objective(s) The project development objective is to provide electricity access to target settlements in GBAO and Khatlon regions of Tajikistan. Components Component Name Cost (US$, millions) Page 1 of 91 The World Bank Rural Electrification Project (P170132) Component 1: Provision of electricity access to target settlements in GBAO region 25.2 Component 2: Provision of electricity access to target settlements in Khatlon region 6.5 Organizations Borrower: Republic of Tajikistan Implementing Agency: Pamir Energy Company Barqi Tojik PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 31.70 Total Financing 31.70 of which IBRD/IDA 31.70 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 31.70 IDA Grant 31.70 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount Transitional Support 31.70 0.00 0.00 31.70 Total 31.70 0.00 0.00 31.70 Expected Disbursements (in US$, Millions) WB Fiscal Year 2020 2021 2022 2023 2024 2025 2026 Annual 2.00 3.00 4.00 6.00 6.00 6.00 4.70 Cumulative 2.00 5.00 9.00 15.00 21.00 27.00 31.70 Page 2 of 91 The World Bank Rural Electrification Project (P170132) INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Energy & Extractives Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ High 2. Macroeconomic ⚫ Substantial 3. Sector Strategies and Policies ⚫ Substantial 4. Technical Design of Project or Program ⚫ Substantial 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Substantial 8. Stakeholders ⚫ Moderate 9. Other 10. Overall ⚫ Substantial Page 3 of 91 The World Bank Rural Electrification Project (P170132) COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Relevant Community Health and Safety Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Relevant Biodiversity Conservation and Sustainable Management of Living Natural Relevant Resources Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Not Currently Relevant Local Communities Cultural Heritage Relevant Financial Intermediaries Not Currently Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS). Legal Covenants Name Recurrent Due Date Frequency Debt Service Coverage of PEC X Continuous Description of Covenant Page 4 of 91 The World Bank Rural Electrification Project (P170132) Except as the Association shall otherwise agree, the Project Implementing Entity shall, commencing not later than the Effective Date, not incur any long-term debt unless a reasonable forecast of its revenues and expenditures shows that its estimated net revenues for each fiscal year during the term of the debt to be incurred shall be equal to at least 1.2 times the estimated long-term debt service requirements in such year on all debt of the Project Implementing Entity, including the debt to be incurred. Name Recurrent Due Date Frequency Debt Service Coverage of BT X Continuous Description of Covenant Except as the Association shall otherwise agree, the Project Implementing Entity shall, commencing not later than the Effective Date, not incur any short-term or long-term debt unless a reasonable forecast of its revenues and expenditures shows that its estimated net revenues for each fiscal year during the term of the debt to be incurred shall be equal to at least the estimated debt service requirements in such year on all debt of the Project Implementing Entity, including the debt to be incurred. Source of Fund Name Type IDA BT Subsidiary Agreement Effectiveness Description of Condition The BT Subsidiary Agreement has been entered into by the parties thereto in form and substance satisfactory to the Association. Source of Fund Name Type IDA PEC Subsidiary Agreement Effectiveness Description of Condition The PEC Subsidiary Agreement has been entered into by the parties thereto in form and substance satisfactory to the Association. Source of Fund Name Type IDA Project Operational Manuals Effectiveness Description of Condition The Project Operational Manuals have been adopted by the Project Implementing Entities in a form and substance satisfactory to the Association. Source of Fund Name Type IDA ESPMU Agreement Disbursement Description of Condition ESPMU Agreement has been entered into by the parties thereto in form and substance satisfactory to the Association. TASK TEAM Bank Staff Name Role Specialization Unit Page 5 of 91 The World Bank Rural Electrification Project (P170132) Team Leader(ADM Artur Kochnakyan Overal task management GEE03 Responsible) Takhmina Mukhamedova Team Leader Overall operational GEE03 Almudena Mateos Merino Team Member Renewable energy GEE03 Procurement Specialist (ADM Dilshod Karimova Procurement GGOPC Responsible) Ahmed Merzouk Procurement Specialist Procurement GGOPC Financial Management Niso Bazidova Financial management GGOEE Specialist (ADM Responsible) Financial Management Garik Sergeyan Financial management GGOEE Specialist Environmental Specialist(ADM Javaid Afzal Environmental GENEC Responsible) Ruxandra Costache Counsel Legal LEGOP Jasna Mestnik Finance Officer Disbursements WFACS Eric Ranjeva Finance Officer Disbursements WFACS Ma Dessirie Kalinski Finance Analyst Disbursements WFACS Social Specialist(ADM Suryanarayana Satish Social GSU03 Responsible) Renewable energy and energy Rhedon Begolli Team Member GEE03 efficiency Pierre Audinet Peer Reviewer Technical GEE08 Dana Rysankova Peer Reviewer Technical GEEDR Dung Kim Le Team Member Operational support GEE03 Emil Zalinyan Team Member Financial analysis GEE03 Hiwote Tadesse Team Member Operational GEE03 Katsuyuki Fukui Team Member Power engineering GEE03 Sr. Social Development Audrey Sacks Gender GSU03 Specialist Extended Team Name Title Organization Location Kubanychbek Turdubaev Power engineering consultant The World Bank Kyrgyz Republic Power system planning Javier Inon The World Bank United States consultant Page 6 of 91 The World Bank Rural Electrification Project (P170132) Marta Elena Molares- Legal consultant The World Bank United States Halberg Iftikhar Khalili Hydropower consultant The World Bank Pakistan Daniele Battaglia Geology consultant The World Bank Italy Federico Ciampitti Hydromechnical consultant The World Bank Italy Ezgi Canoplat Social development consultant The World Bank United States Savri Kurbanbekova Social development consultant The World Bank Tajikistan Malika Babadzhanova Environmental consultant The World Bank Tajikistan Page 7 of 91 The World Bank Rural Electrification Project (P170132) I. STRATEGIC CONTEXT A. Country Context 1. Real GDP growth rate increased to 7.3 percent in 2018, up from the 6 percent in the immediate aftermath of the post‐2014 resource price shock, but economic conditions are volatile. The increase in growth was supported by the traditional drivers: remittance‐driven consumption and public investments. The somoni‐denominated value of remittances from, principally, Russia have fluctuated between one‐ quarter and one‐half of GDP, following international oil price fluctuations and the Russian business cycle. Fiscal revenues, reliant on import‐related value‐added tax (VAT) have fluctuated accordingly, affecting public expenditures and deficits. Following the commodity price shock in 2014, and subsequent stagnation of the Russian economy, Tajikistan went through a cumulative 45 percent decline of both remittances and imports, which has been partially reversed, as of 2017, by rising energy prices. Total investment rates are low, given investment needs at around 21–22 percent of GDP, due to very low rates of private investment (at about 4 percent of GDP). In terms of sectoral contributions to growth, construction, food processing, metallurgy, and energy sectors were the primary drivers of industrial growth. 2. The combination of prudent monetary policy and lower imported food prices have resulted is subsiding inflationary pressures. Relatively stable exchange rates from prudent monetary policy and the availability of food imports from Uzbekistan since the re‐opening of bilateral borders has led to a decline in the consumer price inflation from 7.3 percent in 2017 to 3.9 percent in 2018. Specifically, with food accounting for more than 55 percent of the consumption basket, the dampening effects from food inflation offset increased water and electricity tariffs and the secondary effects from rising global oil prices. The National Bank of Tajikistan (NBT) has maintained its focus on absorbing excess liquidity from the market. 3. The authorities have taken steps to reverse the counter‐cyclical fiscal expansion during 2016–17 and restore macro‐fiscal stability. The fiscal deficit is estimated to have fallen to 5.0 percent of 2018 GDP, from 9.8 percent in 2016 and 6.9 percent of GDP in 2017. Fiscal consolidation was limited by the authorities’ decision to launch Rogun Hydropower Plant’s (HPP) first turbine by November 2018. The accelerated investment profile of the power plant, accompanied with a 15‐percent increase in expenditures on public‐ sector wages, pensions, and other social transfers, drove the fiscal deficit up to an estimated 4.9 percent of GDP by the first three quarters of 2018. These were offset by spending cuts and payment delays in other budget lines in other recurrent and capital expenditures, through which the Government managed to reduce public spending by 5.6 percent of GDP during 2016–18. The approved State Budget for 2019 envisages the continuation of the fiscal consolidation path launched in 2018. 4. Tax and expenditure reforms are needed to support social expenditures in a sustainable manner as well as for private sector development. In the face of continued fiscal stress, it will be necessary to broaden the tax base to accompany expenditure rationalization measures if Tajikistan is to increase resources to its targeted social assistance program. The latter program is expected to be rolled out nationwide in 2019 and will be critical in protecting the poor from the impacts of anticipated tariff increases and economic shocks. The tax system and administration will need to be rationalized to support private sector development. 5. Natural disasters and climate change threaten Tajikistan’s economic and social development. 1 The 1 World Bank, Reducing Multi-Hazard Risks Across Tajikistan: Protecting Communities Through Quality Infrastructure (Washington, DC: World Bank, 2017). Page 8 of 91 The World Bank Rural Electrification Project (P170132) country’s varied geological, climatologic, and topographic features exacerbate its vulnerability and make it highly susceptible to many natural hazards, including earthquakes, floods, landslides, and avalanches. From 1992 to 2016 natural disasters affected 7 million people in Tajikistan—more than 80 percent of the total population—and caused economic losses worth US$1.8 billion.2 In response to these risks, the Government of Tajikistan is gradually moving from disaster response to risk mitigation and has taken steps to mainstream disaster risk mitigation into development planning, including the adoption of the Sendai Framework for Disaster Risk Reduction in 2015. Projected increases in temperatures could result in an increase in the frequency or intensity of heat waves. Increased heat, together with higher evaporation, could lead to increased drought with subsequent loss of crops and pastures and the expansion of desert areas. Extreme high temperatures will also cause glaciers to melt, which could lead to flooding in some areas and shortage of fresh water in other areas. The increase in intensity of precipitation will aggravate mudflow, landslides and avalanches. 6. Tajikistan has the highest proportion of youth to adults among all post-Soviet republics and a high percentage of female headed-households. Official 2018 figures show that the proportion of the population under 30 years old is 63 percent of the country’ total population, with the age group 15-29 years constituting 29 percent of the total.3 According to the 2016 Labor Force Survey, among youth in Tajikistan aged 15–24, 29.3 percent, or 435,621, are not in employment, education or training (NEET).4 it is noteworthy that 49.3 percent of young Tajik women aged 15-24 are NEET, compared to 7.2 percent of the same age cohort of men.5 The country’s NEET population aged 15-24 is 88.4 percent female and 11.6 male. Approximately one in six young Tajik men and one in 10 young women aged 20-24 were found to be too discouraged to look for work. The highest concentration of NEETs is in Dushanbe at 40.4 percent, followed by DRS at 36.1 percent, and GBAO at 30.4 percent.6 7. A critical source of resilience against the described risks in Tajikistan is the strength of local institutions, including community organizations such as mahalla committees. Other sources of resilience are (a) strong popular interest in stability based on the collective memory of the severe costs of the civil war of the 1990s, and (b) labor migration, which – despite inherent risks to social cohesion – is also a driver of positive change entailing a range of significant economic benefits such as remittances transfers, skill development and changing gender roles. Many migrants in Russia have expressed a desire to help the Tajik economy through skills-transfer programs and appear to be ready to contribute, and the absence of men because of labor migration has also created opportunities for women to take on leadership positions in rural areas and to play an increasingly important role in rural economies. 2 In 2003 heavy periods of rainfall destroyed 185 km of forest roads and 50,000 planting stocks of forest nurseries, 9,000 fruit and forest trees were damaged with almost 70 percent of the total yield lost. 3 Statistical Agency under the President of the Republic of Tajikistan, Annual Population Data, January 1, 2018. http://stat.ww.tj/files/cislennost_naselenia_na_1.01.2018.pdf. 4 Statistical Agency under the President of the Republic of Tajikistan, Labor Force Survey (Washington, DC: World Bank, 2016). 5 Statistical Agency under the President of the Republic of Tajikistan, Labor Force Survey (Washington, DC: World Bank, 2016). 6 Statistical Agency under the President of the Republic of Tajikistan , Situation in the Labor Market in the Republic of Tajikistan. (Dushanbe: Statistical Agency under the President of the Republic of Tajikistan, 2017). Page 9 of 91 The World Bank Rural Electrification Project (P170132) B. Sectoral and Institutional Context Power Sector Context 8. The power sector is comprised of the vertically integrated energy company, Barqi Tojik (BT), three independent power producers (IPPs), and a concession in Gorno-Badakhshan Autonomous Oblast (GBAO) combining power generation and distribution. BT is fully owned by the Government. It owns and operates most of the electricity generating plants and is also responsible for electricity transmission, dispatch, and distribution services to around 8 million people in all regions of the country except for GBAO. Two of the IPPs – 670 MW Sangtuda-1 and 220 MW Sangtuda-2 hydropower plants – were constructed with investments from Russian and Iranian state-owned companies, and supply electricity to BT under 21-year and 12.5-year power purchase agreements (PPAs) respectively. The third IPP – 3,600 MW 100 percent state-owned Rogun HPP – is under construction. The first unit has been commissioned on November 16, 2018. Pamir Energy Company (PEC) generates and supplies electricity to about 227,000 people in GBAO under a 25-year concession agreement. 9. BT generates and supplies electricity to about 8 million people in its service area. The total installed generation capacity of BT is 5,226 MW and HPPs account for 89 percent. The 3,000 MW Nurek HPP, with a seasonal reservoir, is the largest generating plant in operation. The bulk of thermal energy-based generation comes from the new 400 MW coal-fired Dushanbe-2 combined heat and power plant (CHP), which was completed in 2016. The thermal power plants are operated in winter season7 to supply electricity and heat given: (a) high winter electricity demand, which accounts for 60 percent of annual demand, and (b) limited generation by HPPs due to hydrology conditions. BT also operates about 50 MW of available capacity (from 200 MW of installed) at the old and inefficient Dushanbe-1 CHP, which is run on heavy fuel oil (HFO) or natural gas imported from Uzbekistan. 10. With commissioning of the 400 MW Dushanbe-2 CHP in 2016, the Government managed to significantly reduce the winter electricity shortages. In winter season, the Dushanbe-2 CHP has been generating about 1 billion kWh of electricity during heating season and supplying 345,000 Gigacalories (Gcal) of heat for the district heating (DH) system of Dushanbe, which covers about 30 percent of the city. Moreover, the first unit of Rogun HPP will be supplying around 200 million kWh of electricity during winter months. The additional electricity from Dushanbe-2 and Rogun HPP as well as the revival of DH helped to eliminate the un-met electricity demand. However, the reliability of electricity supply has not been improving due to increasing frequency of equipment failures on electricity transmission and distribution (T&D) networks. 11. The frequency of equipment failures on T&D networks has been increasing due to under-spending on operations and maintenance (O&M) of T&D assets. Since 2014, BT has been struggling to finance the required O&M expenditures due to severe cash shortage driven by the continued deterioration of the financial situation of the company. The steep decline across key financial and operational indicators was the result of numerous years of below cost-recovery tariffs; expensive short-term commercial borrowing; low and inconsistent levels of collections for billed electricity; excessive energy losses; and some other factors. In 2017, the average annual daily duration of electricity supply to customers on the BT grid was 22 hours. 12. In order to rectify this situation, the Government adopted the US$1.5 billion Program for Financial 7 November – March. Page 10 of 91 The World Bank Rural Electrification Project (P170132) Recovery of BT for 2019-2025, which details the key financial and operating measures that need to be implemented to eliminate the cash deficit8 by 2025. The Bank may be supporting the implementation of some activities in the Government Program through Program-for-Result operation under preparation. 13. PEC generates and supplies electricity to about 227,000 people9 in GBAO under a 25-year concession agreement. PEC is a special purpose company, which is owned 70 percent by the Aga Khan Fund for Economic Development (AKFED) and 30 percent by the International Finance Corporation (IFC). It operates GBAO’s power generation and distribution under a 25-year concession agreement, which was signed on May 24, 2002 (and expires in 2026), by the Government of Tajikistan and PEC. The company constructed, rehabilitated, and currently operates 11 medium and small HPPs, which account for 91 percent of the supply to consumers. Five percent of the demand of PEC customers is met with electricity supply from BT. 14. PEC is currently able to ensure reliable and adequate electricity supply to grid-connected consumers in GBAO. PEC has a total installed generation capacity of 44.1 MW comprised of 11 medium and small HPPs. In 2018, the total electricity demand in GBAO was estimated at 202 GWh per year, including an estimated 20 GWh of unmet electricity demand from consumers without access. The supply reliability has significantly improved since the construction and rehabilitation of new small HPPs. PEC has been able to ensure an average of 23-hour electricity supply to its grid-connected consumers. 15. The electricity demand in Tajikistan is highly seasonal, with a winter peak driven by reliance on electricity-based heating. BT and PEC have been struggling to fully meet this winter electricity demand given reliance on hydro and unfavorable hydrology conditions in winter. On the other hand, there has been significant electricity surplus in the summer given the abundant hydropower resource and much lower demand compared to heating (winter) months. The district heating service is available only to parts of Dushanbe from the recently-commissioned 400 MW Dushanbe-2 CHP. DH does not reach all consumers in Dushanbe due to the dilapidation of the heat transmission and distribution network, which is gradually being rehabilitated with the resources of Dushanbe Municipality. There is no DH in other urban or rural areas of the country, including GBAO and Khatlon. 16. Challenge #1: Ensuring adequate and reliable electricity access to grid-connected consumers in GBAO. The electricity demand in GBAO for grid-connected consumers has been growing at an average annual rate of 3 percent since 2002. Additionally, new settlements are planned to be connected to the grid (detailed in subsequent sections of the document). To meet the demand, PEC constructed several small HPPs and expanded the grid to bring electricity service to around 227,000 people. Within the described context of fragility, it is important to ensure that grid-connected customers receive adequate electricity supply. Therefore, PEC will need to construct new generation capacity to meet the increase of electricity demand. The least-cost analysis conducted by PEC identified the 11 MW Sebzor HPP, with estimated annual electricity generation of 74.5 million kWh (28 percent of current supply by PEC) and construction cost10 of US$33.7 million, as the least economic cost option for meeting the projected domestic demand until 2040 and the export demand from Badakhshan province of Afghanistan. See Annex 2 for details. 17. PEC, with support from an international consulting firm, carried out detailed feasibility study and geotechnical site investigation works for Sebzor HPP. There are some additional site investigation works that need to be carried before the detailed design and the bidding documents for supply of equipment and civil 8 Difference between the cash revenues and main accrual-based costs, which include cost of energy from IPPs, O&M costs, debt service, and taxes. 9 Different from number of electricity service customers. 10 Base capital cost + 10 percent physical and price contingency + cost of project management consultant. Page 11 of 91 The World Bank Rural Electrification Project (P170132) works can be finalized, and the project construction can be tendered. 18. Sebzor HPP will generate significant social and economic benefits for both Tajikistan and Afghanistan. It will create improved opportunities for economic activities, improve the quality of public services, and generate additional revenues for PEC from exports of electricity further strengthening the financial standing of PEC and, thus, ensuring long-term reliable electricity supply in GBAO. The same benefits would accrue to conflict-affected areas of Afghanistan given that bordering communities currently do not have access to electricity. About 47,000 customers (370,000 people) in Badakhshan province of Afghanistan are expected to directly benefit from exports of electricity from Sebzor HPP. Details are presented in Annex 2. 19. Investments in power transmission will be required to connect the power plant to the network and to further increase the reliability and capacity of the power transmission network. Specifically, connection of Sebzor HPP to the power network of GBAO would require construction of 18 km overhead power transmission line (OHL) from Sebzor HPP to Khorog substation with an estimated cost of US$2 million and the 110 kV substations at Pamir, Khorog and Sebzor HPPs with an estimated cost of US$2.4 million. Reliability of electricity supply in GBAO would also critically depend upon completion of a 110 kV OHL from Khorog substation to Qozideh substation, which is located near the border with Badakhshan province of Afghanistan. About ten km of the line has already been constructed by PEC and there is a need to complete the remaining 63 km. The total cost of the investment is estimated at US$8 million. 20. The total cost of electricity transmission and distribution investments on the Afghan side to bring electricity service to 370,000 people are estimated at about US$100 million. The Government of Afghanistan plans to request development partners to support those investments. 21. Challenge #2: 43,126 people (0.5 percent of population) in GBAO and Khatlon regions do not have access to electricity service. In parts of Khatlon, bordering Afghanistan, there are 74 settlements with total population of 31,460 without access to electricity. Those settlements could not be connected to the grid due to severe financial difficulties of BT. Specifically, BT collects in cash only 18 percent11 of its total required revenues due to below cost-recovery tariffs and other inefficiencies. This cash shortage does not allow to fully finance the required connection expenditures. 22. In GBAO, 61 settlements with total population of 11,666 are not connected to electricity service. Those settlements are in remote mountainous areas in the region, which is also the service area of PEC, where access has historically been a challenge. Most of the settlements are scattered over a vast territory in the eastern part of GBAO, while a few of the settlements are in the western part, close to existing PEC grid. Before Tajikistan’s independence, those areas were primarily supplied with diesel-based portable generator sets. This approach became prohibitively expensive given the increase in unit costs of diesel-based electricity generation once the generous fuel subsidies provided under the Soviet Union disappeared. 23. Access to affordable and sustainable heating is a challenge in GBAO, where electricity is the main source of heating. Climate conditions in the Murghab and Rushan regions of GBAO are particularly more challenging than other parts of the country due to higher number of heating months and lower average temperatures -6 оС, which considerably affect the heating needs. In addition, due to the remoteness of these locations, there are very limited energy supply options. Currently, solid fuels, which are transported from various parts of the country, are used for heating purposes. Therefore, the solid fuel-based heating is expensive due to high transportation costs. 11 Corporate Financial Model of BT. Part of the Government Program for Financial Recovery of BT in 2019-2025. Page 12 of 91 The World Bank Rural Electrification Project (P170132) 24. The grid-connected consumers have been relying on electric heating as it is the least-cost option and will remain so in the short to medium-term. Once target settlements in GBAO are electrified, it is expected that most households will switch to electric appliances for space heating. Specifically, based on the assessment of technically feasible heating options, electric heaters, individual oil-based radiators and electrical boilers have the lowest levelized cost of heating (LCOH)12 for most of the districts in GBAO. Most of the households that will be switching to electric heating will likely be using individual oil-based electric heaters. This was also observed by PEC in previous electrification projects in other parts of GBAO. While the current heating and cooking practices using the dung and teresken mixture will remain the lowest cost option by a small margin, electric options will be more favorable in the Murghab district due to the depleting teresken and other environmental and social aspects. 25. Currently, the lifeline tariff structure in GBAO provides for subsidized tariffs during winter, which allows households to use electric heating. The winter tariff (November-March) for consumption of up to 360 kWh/month is less than US$0.0048/kWh, which is five times lower than the tariff during other months. Currently, this subsidized tariff mechanism is funded by the interest differential between the original 6 percent on the SDR7.9 million IDA credit (under the Subsidiary Agreement between PEC and MOF) and the revised 1.25 percent was to be paid into an escrow account by PEC, as envisaged by the Concession Agreement, over the period 2012-2020. 26. After the Concession Agreement expires, the Target Social Assistance (TSA) Program will be used for mitigating the social impacts of any tariff increases that may take place. Further cross-subsidization may not be viable because it will require a significant increase in tariffs of commercial and other consumers, which may not be feasible. 27. The affordability of heating is less of an issue in Khatlon region. In Khatlon region, the winter weather conditions are significantly milder compared to GBAO, with average winter temperatures of about 3 оС. Currently, the households rely on coal and firewood, and it is expected that those heating options will continue to prevail in the short to medium-term given their cost-competitiveness compared to electricity. In Khatlon, the residents have larger access to firewood and the cost of coal is lower than in GBAO. It is expected that electricity will be primarily used for general household needs and only partially be used for heating given that other sources of heating are more cost-competitive. 28. Most of the residential and public buildings in GBAO are not energy-efficient, which is an impediment for long-term reliable and affordable heating in the region. The walk-through audits of a sample of public buildings and residential houses that were conducted by PEC during project preparation suggest that major EE retrofits would be required to make the buildings energy-efficient. Specifically, the typical residential house requires insulation of walls, the floor, and the roof given that the buildings use clay brick walls, wooden beams for the roof, and no insulation on the floor. In addition, some of the buildings have damages in the walls or the roof. The same issues apply to the sample of audited public facilities, kindergartens and hospitals, where walls and roofs lack insulation, and the windows are not energy efficient. 29. The development partners’ programs are structured to address the identified key challenges. Several development partners – KfW, EU, SECO, USAID, and the World Bank – have structured their projects and programs to help the Government address the identified challenges. Specifically, a financing envelope of about US$85.8 million has been designed with participation of the following partners (the details are 12LCOH = Discounted cost of the unit of heating (kWh equivalent) considering the capital cost and variable O&M expenses of a heating technology over its useful economic lifetime. Page 13 of 91 The World Bank Rural Electrification Project (P170132) presented in Table 3 of Section E). • US$31.7 million from the Bank to finance electrification of settlements in GBAO and Khatlon regions. This would also include some awareness raising for EE; development of mechanisms to promote use of energy-efficient appliances; and pilot retrofits of public facilities to demonstrate the sizeable energy savings that can be realized. • US$22.513 million and US$19.1 million EU and KfW respectively for construction of Sebzor HPP. • US$9.5 million from SECO for construction of 18 km overhead transmission line to connect Sebzor HPP to the network through Khorog substation; energy efficiency; disaster risk management and resiliency in power system of GBAO. • US$3 million from USAID for technical assistance in integrated electricity access planning and preparation/implementation of capital investment projects for off-grid solutions; operation and maintenance of non-hydro renewable energy (RE) projects; and support to PEC in accessing commercial financing. Relevance to Higher Level Objectives 30. Benefitting from top-up IDA financing for Tajikistan under the IDA-18’s Risk Mitigation Regime (RMR), the proposed Project would contribute to Focus Area 1 (Human Capital and Resilience) of the World Bank Group Country Partnership Framework (CPF) for the Republic of Tajikistan for the period of FY2019–23. An RMR allocation in the amount of US$98.7 million will finance activities under a preventative approach, the Resilience Strengthening Program (RSP), that will address risks associated with fragility, conflict and violence (FCV) that constrain development progress in Tajikistan. At the same time, the proposed Project will also contribute to the CPF Focus Area 3 (Enabling Private-Sector Growth and Creating Markets), from the sector- specific perspective. 31. The RSP targets challenges, and reinforces sources of resilience, for the most-at-risk social groups— women and youth—from different angles. Through the RSP, RMR resources have been allocated to the most-at-risk geographic areas, notably the southern regions of GBAO and those of Khatlon that border Afghanistan. The RSP will create complementarities along three thematic clusters of interventions: (i) support the creation of economic opportunities for vulnerable groups at the market-facing end of the agriculture value chain and in commerce and export-related services; (ii) social and economic empowerment of at-risk- groups, including training, awareness building, and dialogue at the community-level and between communities and local government; and (iii) investments in demand-based, local service infrastructure, including social services and on-and off-grid electricity supply and energy investments for the electrification of previously unconnected communities in the Afghanistan–Tajikistan border areas of GBAO and Khatlon. The RSP will be operationalized through three complementary investment lending operations, namely: (a) the proposed Project covering activity cluster (iii); (b) the proposed Socio-Economic Resilience Strengthening Project (SERSP) covering activity clusters (ii) and (iii); and (c) the proposed Rural Economy Development Project (REDP) to predominantly cover activity cluster (i). 32. All three RSP projects contribute to the World Bank Group’s Twin Goals, specifically the goal to eradicate poverty, through efforts to address income poverty (under REDP) and nonmonetary factors that contribute to poverty, such as lack of social infrastructure, livelihoods, and basic life skills (under SERSP), and 13 At US$/EUR closing exchange rate on May 1, 2019. 1EUR1 = US$1.121. FX Rate Net. https://fx-rate.net. Page 14 of 91 The World Bank Rural Electrification Project (P170132) lack of reliable access to electricity (under REP). The three projects include interventions targeted to address gender gaps and include opportunities for civic engagement. 33. The proposed Project is complementary to both SERSP and REDP. Communities that will benefit from electrification under the Project will be able to access complementary investments, such as electric water pumps and electric heating for kindergartens under SERSP Component 1 to improve the overall quality of services in targeted areas. Under Component 2, SERSP will provide basic start-up support to youth beneficiaries and help connect them with value chains and opportunities offered by REDP. 34. The RSP is consistent with the Government’s strategies on preventing violent extremism. In 2011, Tajikistan adopted the Regional Joint Action Plan for the Implementation of the United Nations Global Counter-Terrorism Strategy in Central Asia. In November 2016, it enacted the National Strategy of the Republic of Tajikistan on Preventing Extremism and Terrorism for 2016–2020. To implement the strategy, a list of 13 priority objectives were identified, including: (i) eliminating socio-economic conditions conducive to radicalization and violent extremism that lead to terrorism; (ii) preventing extremism and radicalization among adolescents and youth; (iii) decreasing the vulnerability of women to extremist propaganda and ensuring their full participation in the development and implementation of policies to this end; (iv) facilitating the participation of civil society and the private sector in countering extremism and terrorism; and (v) reinforcing international and regional cooperation. Progress toward operationalizing this strategy has been achieved through the contributions of multiple ministries and government agencies. Signature activities under the 2017 “Year of Youth” umbrella, which aimed at combatting violent extremism, included measures to promote civic and economic participation, cultural and social inclusion, and empowerment of youth. The 2018 Dushanbe Declaration emphasized the importance of regional and international coordination and cooperation and the need to address and prevent the root causes of grievances and conflict, which could lead to violent extremism, radicalization and terrorism, particularly among youth, and in close cooperation with civil society. 35. The proposed Project is also consistent with the National Development Strategy for 2016-2030, which prioritizes energy sector development as one of the strategic goals. The Government’s energy sector development strategic goal focuses on providing reliable, adequate, and affordable electricity in a socially, economically, and environmentally sustainable manner. Thus, the Project would contribute to the provision of electricity supply in an economically and environmentally sustainable manner considering the focus on construction of renewable energy (RE) based generation capacity and connection of consumers to BT network, where 95 percent of electricity is generated and supplied by HPPs with almost no emissions. 36. In line with corporate mandates, the Project contributes to the World Bank Group’s (WBG) commitments to support and scale up climate action and increase the climate-related share of development financing. The Project will help to address gender challenges around voice and agency, employment, and access to services. Citizen engagement will be promoted at various stages of Project implementation, including mechanisms to take into account the feedback from key stakeholders in Project related matters. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 37. The project development objectives is to provide electricity access to target settlements in GBAO and Page 15 of 91 The World Bank Rural Electrification Project (P170132) Khatlon regions of Tajikistan. PDO Level Indicators 38. The achievement of the PDO will be measured using the following indicators: • Result Indicator 1 (CRI): People provided with new or improved electricity service (Number); • Result Indicator 2 (Custom): Average annual daily duration of electricity supply for target settlements in GBAO connected to micro-grids (hours). B. Project Components 39. The project is structured around two components, with subcomponents, as follows: 40. Component 1: Provision of electricity access to target settlements in GBAO region (US$25.2 million IDA grant). This component will have the following sub-components. 41. Sub-component 1.1: Construction of micro-grids, and connection of consumers to micro-grids and centralized distribution network of PEC (US$23.8 million IDA grant). This sub-component will finance the provision of electricity supply to 61 settlements in GBAO region with a total population of about 11,666. The investments will cover: (a) construction of electricity generation infrastructure, which will include micro-grids comprised of Solar PV, small hydro, wind, and battery energy storage systems (BESS); (b) distribution infrastructure, including expansion of 10 and 0.4 kV distribution lines and distribution transformers; and (c) connections and internal wiring for households to alleviate consumer affordability barriers, which will be agreed through consultative processes with project beneficiaries. 42. The proposed RE based micro-grids will allow target settlements to have an average of 14 hours of electricity service per day for six years after the commissioning of micro-grids. Further increase to 24-hour supply would require significant additional investments in power generation capacity, which currently cannot be secured. PEC plans to build additional generation capacity, using external financing, to add new capacity to meet the additional electricity demand of those consumers. 43. The identification of the least-cost electrification solution for each settlement was based on the geospatial analysis with detailed evaluation of hourly demand profiles of consumers, potential of RE resources, and the capital and O&M costs of relevant technologies. For RE based micro-grid solutions, the exact locations will be determined at the detailed design stage, during the early phases of project implementation. 44. Provision of electricity access is expected to generate significant social and economic benefits in the form of expanded opportunities for economic activities, improved healthcare and social services, etc. Moreover, all target communities are considered fragile given their socio-economic conditions; therefore, electricity access would significantly reduce the fragility risks in this region. 45. Sub-component 1.2: Project implementation support to PEC, technical assistance for additional geological site investigation works for Sebzor HPP, and promotion of energy efficiency (US$1.4 million IDA grant). This will include financing of: (a) Project Management Consultant (PMC) costs to support PEC with preparation of bidding documents for procurement of goods and works required for micro-grids and connection of settlements to PEC’s distribution network; carrying of tenders for procurement of contractors to construct the micro-grids and connect the settlements to the distribution grid; supervision of construction works for micro-grids; and compliance with environmental and social requirements; (b) geological site Page 16 of 91 The World Bank Rural Electrification Project (P170132) investigation works for Sebzor HPP, including geological mapping, Spaceborne Synthetic Aperture Radar (SAR) Interferometry Analysis, horizontal and vertical core recovery boreholes, exploratory trenches, seismic refraction survey, testing of physical and mechanical properties of soils and rock samples (the details are presented in Annex 2); (c) awareness raising program to promote the use of cleaner and efficient electric appliances as well as to educate the local communities about the benefits of energy efficiency renovation in buildings (i.e. building envelope insulation, EE windows, etc.); (d) technical assistance to PEC for the development of a financing mechanisms to support the local communities to purchase efficient appliances; (e) piloting EE measures in selected public buildings, especially elementary schools, boarding schools and health centers in order to demonstrate the cost-efficiency benefits of EE investments, as well as improved comfort and well-being of building occupants; (f) monitoring and evaluation costs related to efficiency of citizen engagement and addressing gender gaps under the Project; and (g) incremental operating costs of PEC. Mitigation Co-benefits and Adaptation to Climate Change 46. The Project will help implement measures to address mitigation and adaptation priorities. Climate action priorities include: (a) promotion, development and diversification of renewable energy sources, and (b) the integration of climate resilience and adaptation measures into the planning and development of power sector. 47. Construction of 100 percent renewable energy-based electricity generation infrastructure under Component 1, which will include micro-grids comprised of solar PV, small hydro, wind, and BESS as well as associated distribution infrastructure, will increase RE-based generation and integrate new RE generation capacity into the grid. This component is thus eligible for counting mitigation co-benefits under Category 1.1 and 1.3 of the MDB Joint Methodology of Climate Finance. Specifically, in the absence of the project, target settlements that currently do not have access to electricity would continue to rely on coal, firewood, and local shrubs for their heating and cooking needs. Therefore, the Project would help to reduce CO2 emissions from those solid fuels. This benefit of avoided increase in CO2 emissions was valued based on the low range of the social cost of carbon from the World Bank’s Guidance Note on Shadow Price of Carbon in Economic Analysis (Nov. 12, 2017). It is estimated that electrification interventions in GBAO under the Project will lead to reduction in emissions of about 30,338 tons equivalent of carbon dioxide (tCO2e)14 vs. the baseline during the economic life of the Project. 48. In addition to the direct climate co-benefits resulting from electrification of targets settlements in GBAO, this Component will also indirectly contribute to the mitigation co-benefits derived from the construction of the 11 MW Sebzor HPP. It is estimated that this HPP will reduce emissions by 1.42 million tCO2e/year during its assumed lifetime of 35 years, which is equal to the useful economic life of electro-mechanical equipment.15 Therefore, this component will help Tajikistan achieve its NDC target for CO2 reduction. 49. Component 1 of the Project will also help to address the climate vulnerability risk due to expected increase in the frequency of extreme winds, floods, landslides, and mudflows. The climate vulnerability risk would be mitigated by designing the micro-grids and distribution infrastructure in a way to withstand the observed maximum winds in the specific locations. Additionally, the vulnerability of micro-grid infrastructure 14 This estimate only takes into consideration the emission reductions from the avoided use of coal consumed by households for cooking and heating purposes. It has been assumed that coal consumption will be reduced by 30 percent because households will still continue relying on coal for heating (Khatlon) and cooking purposes (both Khatlon and GBAO). 15 Given that the Project will only finance additional geological site investigations for Sebzor HPP, this benefit has not been valued in the economic analysis of the Project. Page 17 of 91 The World Bank Rural Electrification Project (P170132) to landslides will be mitigated during the detailed design stage. Specifically, the locations of specific RE based generation plants (e.g. solar PV and wind) would be finalized considering the sample-based geological tests to evaluate the properties of the soil and rocks. The incremental cost of implementing these adaptation measures is about US$0.3 million and is included in the cost of Component 1. 50. Component 2: Provision of electricity access to target settlements in Khatlon region (US$6.5 million IDA grant). This component will have the following sub-components. 51. Sub-component 2.1: Connection of target settlements to the centralized distribution network of BT (US$6 million IDA grant). This sub-component will finance connection to the electricity distribution network of 74 settlements, bordering Afghanistan, in the Khatlon region. The total population of the target settlements is about 31,460 people. The investments will cover the cost of distribution infrastructure, including construction of 35/10/0.4 kV distribution lines, installation of additional distribution transformers in existing substations, and connection of households and public facilities. For all target settlements, access to energy services will be ensured by connecting the settlements to BT’s centralized network because this is the least economic cost solution considering the proximity of the target settlements to the power distribution network. Most of the settlements are located within 0.5-2 km range from the distribution system. 52. Sub-component 2.2: Project implementation support to BT (US$0.5 million IDA grant). This sub- component will finance the cost of: (a) PMC to help BT with preparation of bidding documents for works to connect target settlements to its distribution grid; carrying out of tenders for procurement of contractors to connect the settlements to the distribution grid of BT; technical supervision of grid-connection activities; and compliance with environmental and social requirement; and (b) monitoring and evaluation costs related to measuring availability of electricity service, efficiency of citizen engagement and addressing gender gaps under the Project. Adaptation to Climate Change 53. Although no additional generation capacity will be built under Component 2 of the project, the investments in distribution infrastructure, which include installation of additional transformers in existing substations, are expected to contribute to a reduction of technical losses in the existing system, thus contributing to the efficiency of electricity distribution and resulting in climate co-benefits. In addition, the expansion of the distribution system will be planned to withstand climate-related hazards such as flooding and snow cover, which are prevalent in some of the target areas in Khatlon. The incremental cost of implementing these adaptation measures is about US$0.2 million. Page 18 of 91 The World Bank Rural Electrification Project (P170132) Project Financing 54. The total Project cost is US$31.7 million. It will be financed with a US$31.7 million IDA grant from the RMR Window. Table 1: Financing sources Project cost (US$ IDA Financing (US$ IDA Financing as Project Components million) million) % of Total Component 1. Provision of Electricity Access to 25.2 25.2 100% Target Settlements in GBAO Region Component 2. Provision of Electricity Access to 6.5 6.5 100% Target Settlements in Khatlon Region Total Project Costs 31.7 31.7 100% Total Financing Required 31.7 31.7 100% C. Project Beneficiaries 55. The proposed Project is expected to generate benefits for residents of target settlements in GBAO and Khatlon regions of the country: a. 31,460 people in 74 settlements in Khatlon’s poorest regions along the border with Afghanistan. The provision of electricity service in these rural areas will replace their consumption of diesel, coal, as well as other non-conventional energy sources (local shrubs, dung) used for lighting, cooking and heating. b. 11,666 people in 61 settlements in GBAO. The residents of those settlements will benefit from an average of 14 hours of electricity supply during a day, which will help to improve their comfort level, increase accessibility of services that they were deprived of due to lack of electricity (e.g. television, radio, internet, telephone services). 56. Additionally, provision of electricity services can have a profound impact on those communities through improved public services and the creation of a growth-enabling environment and economic opportunities, which will be supported through the two complementary operations, SERSP and REDP. Based on experience and on direct communication with the target households, new economic activities are expected to include processing and preserving food (e.g. milk, meat, fish) and other animal products (e.g. leather, wool); opening of local convenience stores and other businesses (e.g. barbers, welders, carpenters); and developing infrastructure for tourism (e.g. guest houses), especially in GBAO. D. Results Chain 57. The challenges that the Project intends to address, Project components, outputs, intermediary and long- term outcomes are summarized in the Figure 1. Page 19 of 91 The World Bank Rural Electrification Project (P170132) Figure 1. Results Chain. Activities Outputs Outcomes • RE micro-grids built • 35 settlements connected to 11,666 people in GBAO provided • Distribution grid of PEC micro-grids with new electricity service expanded to new • 26 settlements connected to PEC settlements distribution grid Distribution grid of BT expanded 74 settlements connected to BT 31,460 people in Khatlon to new settlements distribution grid provided with new electricity service E. Rationale for Bank Involvement and Role of Partners 58. The Bank is well-suited to support the Government’s preparation of Sebzor HPP project because it has a competitive advantage in preparation of HPP projects both globally and in Tajikistan. The deep technical expertise as well as application of rigorous E&S standards allowed to prepare and successfully implement various HPP projects of different sizes. Moreover, the Bank has profound knowledge and experience of exceptional worth in the case of Tajikistan’s hydropower sector, which includes: (a) support in preparation and implementation of the on-going 3,000 MW Nurek Hydropower Rehabilitation Project; and (b) comprehensive technical-economic assessment studies for Rogun HPP Project. 59. The Bank has an established track record in electrification projects, primarily in Africa and South East Asia. The project design has drawn the experience and lessons learnt from these projects, including the importance of institutional strengthening for sustainability of investments. Moreover, the Bank is well positioned to help the client develop and implement non-hydro based RE projects, including battery storage systems, which are relatively new, but could potentially generate significant knowledge spill-over and other non-tangible benefits for the client. 60. Role of partners. The Project is part of the larger power sector development interventions by development partners, which are supporting other investments essential for long-term reliability of electricity supply in GBAO and broader regional benefits in Afghanistan. The proposed interventions by all development partners are well-coordinated and planned in a way to allow PEC to effectively implement them. The specific agreements reached by development partners on their specific roles were confirmed in Page 20 of 91 The World Bank Rural Electrification Project (P170132) the joint letter to the Government, dated February 25, 2019, and signed by KfW, EU, SECO, USAID, and the Bank. 61. The proposed Project will leverage US$62 million of financing. The Bank is supporting the preparatory work for several main activities, including additional technical studies required for Sebzor HPP and other technical work. Preliminary agreements were reached with development partners to finance Sebzor HPP, the power transmission line to connect the Sebzor HPP to the power network, and several other important investment and activities. The leveraging effect will be augmented further with planned construction of transmission line in Badakhshan province of Afghanistan (to connect to Qozideh substation in Tajikistan) and the electricity distribution infrastructure required to supply the households. The total cost of those investments is estimated at US$100 million and the Government of Afghanistan plans to request development partners’ support. Table 2: Planned Operations to Improve Energy Supply Reliability in GBAO and Expand Regional Trade.16 Project Project Cost17 World KfW EU SECO USAID (US$ millions) Bank Construction of Sebzor HPP 41.6 - 19.1 22.5 - - Construction of an 18 km OHL to connect 9.518 - - - 9.5 - Sebzor HPP to the network through Khorog substation; energy efficiency; disaster risk management and resiliency in power system of GBAO Construction of 63 km Khorog-Qozideh 8.0 No financing secured yet OHL to Afghan border Electricity service provision for target 31.7 31.7 - - - - settlements in GBAO and Khatlon Technical assistance in integrated 3.0 - - - - 3.0 electricity access planning and preparation/implementation of capital investment projects for off-grid solutions; operation and maintenance of non-hydro RE projects; and support to PEC in accessing commercial financing. Total 93.8 31.7 19.1 22.5 9.5 3.0 62. Regular donor coordination meetings were held during Project preparation and will continue to happen during implementation on a bi-monthly basis or more often as needs arise. The Working Group of the Development Coordination Council (DCC), which has proven to be an effective mechanism, will be used as the platform for such coordination. The DCC is comprised of representatives of Asian Development Bank (ADB), Aga Khan Development Network, European Union (EU), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Islamic Development Bank (IsDB), KfW, United Nations Development Program (UNDP), United States Agency for International Development (USAID), and World Bank, is a coordination platform, which enables all development partners of the Government to better 16 Sebzor HPP, 18 km OHL, and the 63 km OHL are considered Associated Facilities to the Project and the implementation of the ESS for these Associated Facilities will be included as part of the Bank’s regular implementation review . 17 Includes Project Management Consultant Costs. 18 Closing US$/EUR rate on May 1, 2019: 1EUR1 = US$1.121. FX Rate Net. https://fx-rate.net. Page 21 of 91 The World Bank Rural Electrification Project (P170132) coordinate their efforts in helping the Government address the power sector challenges. F. Lessons Learned and Reflected in the Project Design 63. The project draws extensively upon the lessons of previous Bank engagement in the power sector of Tajikistan and other similar projects supported by the World Bank. a. Comprehensive and detailed preparatory work is essential for success of HPP projects . Successful implementation of HPP projects requires robust geo-technical preparatory work to minimize the risks related to structural integrity of civil works to be constructed and achievement by HPP of design performance. b. New technologies, such as battery energy storage systems (BESS), are becoming increasingly cost- competitive in combination with Solar PV and/or Wind to improve reliability of electricity supply . The recent advances and cost reductions in solar PV and BESS have led to a surge in solar PV and RE based micro-grids in several countries around the world, especially in remote locations where diesel supply is logistically challenging and prohibitively expensive. In the case of GBAO, the remoteness of the target settlements adds an additional barrier to the availability and cost of diesel, while the high altitude (above 3,500 masl) reduces the efficiency of the combustion process as much as 50 percent. These factors make the combination of PV and battery micro-grids an even more attractive opportunity to provide electricity access. c. Micro-grids should be deployed where they are the least-cost electrification method. They are mostly suited for villages that: (a) are relatively remote and therefore unlikely to be served by the national grid; (b) are relatively densely populated; and (c) have expected loads that justify the micro- grid investments as opposed to deploying individual household systems. This usually requires a certain size (for example, 100 households plus) and sufficient existing or potential business and institutional loads.19 In the case of GBAO, the high heating loads (both for HH and public buildings) and the absence of viable alternatives for heating (and cooking), make the use of micro-grids the only feasible solution even in smaller communities. Micro-grid potential should ideally be confirmed through detailed feasibility studies. Although micro-grids are typically applied in remote locations, sometimes they can be used as a temporary solution (pre-electrification) in areas where the grid may eventually arrive. In that case, the micro-grids should apply technical standards that would allow future interconnection with the main grid.20 For GBAO, a geospatial analysis has been carried out to identify the least-cost electrification solutions to meet the projected load for the next 20 years and detailed feasibility studies to size and design the specific solutions for each settlements will be carried out in the first few months of project implementation. d. Generation capacity for micro-grids should be extended in small increments to minimize costs. It is preferable to add generation capacity to RE based micro-grids sufficient for meeting the electricity demand for about 5-7 years. There may be reductions in cost of the RE technologies used in micro- grids, which the energy companies will not be able to capitalize on if significant investments are made upfront. e. Strengthening of implementing entity capacity in O&M for off-grid innovative technology-based energy supply solutions is essential for long-term sustainability of investments. The experience of the Bank in various power sub-sectors (electricity generation, transmission, and distribution) clearly 19 Kenya Off-Grid Solar Access Project for Underserved Communities (KOSAP), Project Appraisal Document. July 2017. 20 Ibid. Page 22 of 91 The World Bank Rural Electrification Project (P170132) suggests that extensive and regular training of key operational staff of power utilities to be responsible for assets is the key to sustainability. In this particular case, given that PEC is new to solar PV, wind, and BESS technologies, the Project will ensure that suppliers and installation contractors provide required capacity-building and training to PEC technical staff. f. Sufficient budget for project implementation support is critical for electrification projects . The Bank’s experience with electrification projects suggests that technical supervision of such projects can be time-intensive and would require significant consultant input. Settlements to be electrified are typically scattered around large geographical territory, and, occasionally, are in difficult-to-access areas similar to GBAO. Therefore, the proposed Project would allocate around 6 percent of total estimated capital cost to implementation support consultancy. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 64. The Project will have two implementing entities – PEC and BT. PEC will be responsible for implementing the electrification of settlements in GBAO region (Component 1), while BT will be responsible for implementation of electrification of target settlements in Khatlon region (Component 2). Pamir Energy Company 65. PEC has experience in implementation of Bank-financed projects and has a strong technical in-house team. In 2003-2005, the company successfully completed rehabilitation of major power plants in GBAO such as Pamir I HPP (28MW) and Khorog HPP (9MW). In 2007, PEC implemented a successful metering program in GBAO as part of the Bank-financed Energy Loss Reduction Project. In 2008, under the Additional Financing for Energy Loss Reduction Project, PEC also implemented emergency rehabilitation of Pamir I HPP after flooding damaged the plant. 66. Component 1 of the Project will be implemented by PEC’s Business Development Unit (BDU), which is staffed by 15 people, including engineers as well as procurement, financial and monitoring and evaluation experts. The BDU has significant experience in implementation of donor-financed projects, including construction of the 1.5 MW Tajikistan HPP (KfW) and the 450 kW Khatfat HPP (USAID, Agha Khan Foundation), Technical Loss Reduction Project (SECO), and Cross-Border Energy in Shugnan District Project (USAID, Agha Khan Foundation, the Government of Norway and the Government of Germany through Pakistan Afghanistan Tajikistan Regional Integration Program Foundation) as well as construction of Tekharv (400 kW) and Andarbak HPPs in Vanj district and Savnob HPP (59 kW) in Rushan district through its own financing. The BDU will be supported by the Unit in charge of human resources (HR), currently responsible for safety, environmental and social issues, as well as by the Disaster Risk Reduction team. Barqi Tojik 67. BT will be responsible for implementation of Component 2 of the Project. The State Unitary Enterprise “Energy Sector Project Management Unit (ESPMU)21 will support BT to carry out the Project activities, 21 Through a government decree in 2006, the PMU was administratively separated from Barqi Tojik and renamed State Project Management Unit (PMU) for Power Rehabilitation Projects in Tajikistan. This Energy Sector PMU reports to the President of Tajikistan, the Ministries of Finance, and Economy and Investment, the Chairperson of Barqi Tojik, and the State Statistical Agency of Tajikistan. Page 23 of 91 The World Bank Rural Electrification Project (P170132) including procurement, FM, technical supervision, and M&E. To that end, BT will enter into Implementation Agreement with ESPMU. This approach was used in several other projects financed by development partners, including the World Bank (IDA), Asian Development Bank, European Investment Bank, and others.22 It operates under the control of the Government of Tajikistan. It is presently staffed by about 80 people trained in all aspects of PMU operations, including accounting, tax, and technical disciplines as well as safeguards specialists (environmental and social). ESPMU has handled projects totaling more than US$3 billion and managed IDA-supported projects with BT as the executing agency; it has demonstrated its efficiency in financial management (FM), procurement, and recordkeeping. BT executing agency staff are involved in decision making and, in any training, provided by equipment suppliers and engineering, procurement, and construction contractors. Figure 2: Funds Flow and Legal Agreements. Source: Bank team. 68. An institutional capacity assessment of ESPMU was conducted for the CASA-1000 project and it was recently reassessed during preparation of the CASA-1000 CSP project. Given its track record, the ESPMU will manage all aspects of the electrification of target settlements in Khatlon, ensuring overall compliance with the provisions of the POM. This will include ensuring effective procurement of supply and installation services, supporting the development of subproject technical design and tender packages and implementation (safeguards, community engagement, procurement, construction, supervision, handover), as well as performing all fiduciary tasks and all necessary coordination of institutional support with oblasts and districts, and consolidated reporting and project management tasks outlined in the Project Operational 22ESPMU has been responsible for implementation of the ongoing CASA-1000 project (World Bank, EBRD, IsDB, EIB and USAID), Wholesale Metering and Transmission Reinforcement Project (ADB), Rehabilitation of Electricity Transmission and Distribution Facilities in Khatlon and Dushanbe Regions (ADB), Rehabilitation of Golovnaya HPP (ADB), and several other projects financed by ADB, EXIM Bank of China, IsDB and KfW. Page 24 of 91 The World Bank Rural Electrification Project (P170132) Manual (POM). The implementation modality for the citizen engagement aspects of the Project will be developed prior to effectiveness and included in an approved POM. A subsidiary agreement will be signed between the Ministry of Finance (MOF) and BT prior to effectiveness. 69. The Supervisory Board of BT is the main management body and is responsible for operational, financial, and other strategic issues. The Supervisory Board is chaired by the Prime Minister and includes the Minister of Energy and Water Resources, MOF, Minister of Economic Development and Trade, Minister of Justice, Chairman of the State Committee on Investments and State Property Management, and the Chairman of BT. B. Results Monitoring and Evaluation Arrangements 70. Monitoring of project implementation progress and results indicators, as well as progress toward achievement of the PDO will be the responsibility of BT and PEC. For Component 1, PEC will be responsible for providing updates on the number of people receiving new electricity service and intermediate results indicators related to GBAO. For Component 2, BT will provide data on the number of people receiving electricity service and other intermediate results indicators related to Khatlon region. 71. BT and PEC will prepare and submit quarterly project semi-annual progress reports to the World Bank in conjunction with the World Bank’s implementation support review no later than 45 days after the end of the period covered by such report. They will also provide data on relevant gender indicators. The technical data will be collected by both implementing entities with the use of internal remote monitoring systems and inputs from implementation support consultants to be hired for assisting with technical supervision of construction works and other activities related to the Project. The semi-annual reports will include details on the implementation of the associated facilities, namely the Sebzor HPP, the 18 km Sebzor-Khorog OHL, and the 63 km Khorog-Qozideh OHL. 72. The Results Framework (RF) and Monitoring section includes annual intermediate targets for project indicators. The Bank will conduct implementation support reviews at least on a semi-annual basis during implementation to assess the Project’s performance. In addition, an Implementation Completion and Results report evaluating the overall performance of the Project will be prepared and submitted by the Recipient and the Bank no later than six months after project closing. C. Sustainability 73. The sustainability of the investments will be secured through the following: • Robust analysis to determine technically viable and economically least-cost solutions for electrification. Electrification solutions have been identified based on a comprehensive geospatial plan and detailed inventory of non-connected settlements in the target regions, including number of households, total population, estimated load and projected demand increase; solar, wind and hydro resource data; and data on costs of the different technology options. In addition, the quality standards to be set in the tendering documents for the stand-alone systems and micro-grid systems will be based on international best practice. Finally, strict standards will also be established for operation and maintenance of the systems, both for BT and PEC and their subcontractors. • Inclusion of the project investment costs and adequate level of O&M costs in the end-user tariffs for PEC and BT. In case of PEC, the electricity tariff methodology allows to fully reflect in the cost of supply the incremental O&M costs associated with maintenance of assets. Currently, the tariffs are not at full cost-recovery levels because of subsidy provided to consumers (in the form of lower tariff up until 360 kWh of monthly consumption) by PEC, which it is not able to recover its subsidy Page 25 of 91 The World Bank Rural Electrification Project (P170132) reimbursement from MOF as per their earlier agreement. However, this is not expected to impact the sufficiency and timeliness of O&M expenditures given that, historically, sufficient budget has been allocated and PEC does not have a cash shortage. It is noteworthy that PEC tariffs have been regularly adjusted to account for changes in the cost of electricity service, including depreciation of TJS vs US$, which is essential from the perspective of sustainable debt service.23 Currently, BT tariffs are about 83 percent of that necessary for cost-recovery. To ensure that tariffs are increased to the level necessary for cost-recovery, and that BT does not have a cash deficit, the government plans annual tariff increases until 2025. These increases will be implemented under the Program for Financial Recovery of BT for 2019-2025. The successful implementation of this Government Program would ensure that BT has adequate financial resources to carry out timely O&M for new investments under this Project. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis Technical Analysis 74. Identification of Additional Site Investigation Needs for Sebzor HPP. The additional site investigation needs were identified based on the detailed review of the Feasibility Study for the plant; Final Report for Geological Explorations; and PEC’s consultant’s proposal for additional site investigation. Overall, the documents were found to be of adequate quality covering the key technical, hydrology, topographical, economic, and financial aspects. During preparation the Bank team made several recommendations to PEC to prepare additional notes with details regarding several geo-technical aspects of the Project, which were found to be adequate. The independent review of the documents made available by PEC and other additional clarifications enable to establish the scope of the additional site investigation works that would be required before the detailed design of the power plant can be finalized. The scope of the works has already been agreed with PEC and is contained in Annex 2. 75. Analyses of options for provision of electricity service to target settlements in GBAO and Khatlon. The analysis of potential supply options for target settlements was carried out considering the technical feasibility of potential solutions and the principle of economic cost minimization following the principles of least economic cost planning (LCP). The approach used for LCP was rigorous and followed the industry-accepted approach of minimization of total capital and O&M costs of electricity supply to meet the projected electricity demand given the constraints (e.g. cost of un-served energy). All input data was found to be robust and corroborated. Specifically, the cost data for generation technologies was obtained from reputable international consulting firms and suppliers in projects at comparable locations and adjusted for logistical challenges. The capacity factors, which are one of the most important inputs into such technical analysis, for solar PV and wind generation technologies was derived based on the hourly irradiation and wind speed data observed during a Typical Meteorological Year (TMY). The generation profiles for HPPs were based on observed generation from existing HPPs constructed on rivers where new HPP projects are planned. This is due to unavailability of data on historical water flows of main rivers. 76. Technical solutions and costs for connecting target settlements to centralized distribution networks. The preliminary designs for grid connections of target settlements in both GBAO and Khatlon were developed 23For the purposes of this Project, the cost of electricity service refers to cash requirement. It is estimated as the total cash required to fully pay for the cost of purchased energy, O&M, debt service, and taxes. Page 26 of 91 The World Bank Rural Electrification Project (P170132) considering the technical standards and regulations applicable to such connections (in terms of maximum load and voltage). The estimated costs are based on the actual costs of such works under similar contracts signed by PEC and BT in 2015-2017 with adjustments for terrain specificities and changes in the cost of materials. Economic and Financial Analysis of the Project 77. This section summarizes the key results from economic and financial analyses of the project as well as assessment and projection of financial standing of PEC and BT. The details are presented in Annex 4. Economic Analysis 78. The economic analysis of the Project included: (a) least-cost justification for proposed electrification solutions; and (b) evaluation of incremental costs and benefits of identified electrification solutions, which included both components of the Project covering off-grid electrification solutions and connection of target settlements to the distribution networks of PEC and BT. 79. Least-Cost Justification for Options to Meet Projected Electricity Demand. The Project to be evaluated was recommended from various project sizes and configurations that were assessed through detailed least- cost planning (LCP) analysis to identify electrification solutions for target settlements in PEC and BT service areas. First, the electricity demand was projected for target settlements using the historical data on consumption of similar settlements that are connected to electricity service. Second, the list of technically feasible technologies24 was identified to meet the projected electricity demand in target settlements. Third, optimization was carried out to determine the combination of technologies to minimize the economic cost of electricity supply to target settlements. 80. Economic Costs. The economic costs include the Project construction cost, implementation consultant cost, and incremental O&M costs required for the new micro-grids and grid-connections of settlements, including household-level wiring. The construction costs include the expected Project Design, Supply, and Installation (PDSI) costs of the micro-grids and grid-connections. The Project construction costs were forecast according to the years in which they are expected to be incurred during the construction period. The Project O&M costs include incremental O&M over the expected working life of the project facilities, which is assumed to be 20 years – the period for useful economic life of BESS, which is the shortest among all other equipment to be installed under the Project. The economic analysis was conducted exclusive of the taxes and duties. 81. Economic Benefits. The main economic benefits of the Project are: (a) the economic value of electricity service for target settlements; and (b) reduction of CO2 emissions from switching to electricity-based heating and partial switching to electricity-based cooking. 82. The economic value of electricity to be consumed by target settlements was estimated at the willingness-to-pay (WTP), which was assumed to equal US$0.08. The WTP for electricity was estimated based on the demand function showing how the quantity of electricity demanded by the consumer varies with the price of electricity faced by the consumer. 83. The reduction of CO2 emissions was valued based on the partial displacement of coal in Khatlon and GBAO by electricity for cooking and heating needs. Once target settlements have access to electricity, they are likely to switch to electricity-based heating based on the historical evidence from PEC when it was connecting new households to the its grid. As mentioned earlier, this switch takes place because in the short to medium-term electricity remains least cost option for heating considering the current lifeline tariff 24 Interconnection with the grid; small hydro; solar PV; wind; and BESS. Page 27 of 91 The World Bank Rural Electrification Project (P170132) structure in place in GBAO. Thus, the analysis conservatively assumes that coal consumption will reduce by around 30 percent considering that coal may still be used for cooking in GBAO as well as heating and cooking in Khatlon. 84. The social cost of carbon, used to evaluate the benefits from reduction in GHG emissions, is based on the low range from the World Bank’s Guidance Note on Shadow Price of Carbon in Economic Analysis (Nov. 12, 2017). The Project will lead to 30,338 tCO2e reduction in emissions vs. the baseline during economic life of the Project. Therefore, the Project will generate climate mitigation co-benefits and, thus, support Tajikistan in fulfilling their NDC commitments to UNFCCC Paris Agreement. 85. Results: The economic analysis of the Project yielded an economic Net Present Value (NPV) of US$4.0 million and Economic Internal Rate of Return (EIRR) of 7.1 percent exclusive of the social cost of avoided CO2 emission and an economic NPV of US$4.7 million and EIRR of 7.5 percent inclusive of the social cost of avoided CO2 emissions. The discount rate for economic analysis was assumed to be 5.3 percent consistent with the World Bank guidelines.25 It was estimated as the difference between long-term real per capita GDP growth26 multiplied by two. 86. Sensitivity Analysis: Sensitivity analysis was conducted to assess the robustness of the estimated Project economic returns to changes in the main evaluation variables. The Project viability is sensitive to the estimated WTP. Table 3: Economic: Results of Sensitivity Analysis. Economic analysis NPV (million US$) EIRR (%) Base-case exclusive of social cost of carbon 4.0 7.1 a. 20 percent higher construction cost 1.1 5.8 b. 20 percent lower-than-projected WTP for electricity (2.4) 4.1 c. Combination of (a) and (b) (5.2) 3.0 Base-case inclusive of social cost of carbon 4.7 7.5 a. 20 percent higher construction cost 1.9 6.1 b. 20 percent lower-than-projected WTP for electricity (1.7) 4.5 c. Combination of (a) and (b) (4.5) 3.3% Source: Estimated based on data from Least-Cost Planning. Rationale for public sector provisioning/financing 87. The public financing of the proposed project is justified for the following reasons. a. Currently, BT is not able to borrow long-term commercial resources given its financial distress. The key activities to make BT financial sustainable and capable of accessing commercial financing would be carried out under the Government’s Program for Financial Recovery of BT for 2019-2025. This operation will help to increase the customer base of BT and, thus, increase of the net operating revenues equal to difference between additional revenues from newly-connected customers and the cost of supplying those customers, which is primarily comprised of the fixed network O&M. Thus, the proposed Project would contribute to long-term financial viability of BT and is MFD-enabling. b. Currently, PEC would not be able to attract commercial resources to finance construction of Sebzor HPP and other grid-connected or off-grid RE solutions given the large size of those investments 25 Guidance on the Discounting Costs and Benefits in Economic Analysis of World Bank Projects, World Bank, May 9, 2016. 26 Real GDP projections: World Economic Outlook, Oct. 2018, IMF; Population growth forecast: UN Population Survey, Oct. 2019. Page 28 of 91 The World Bank Rural Electrification Project (P170132) compared to its balance sheet. PEC is in adequate financial standing and with some additional revenues, would be prepared to start borrowing commercially. This project is MFD-enabling for PEC given that additional export revenues would strengthen the balance sheet of PEC and reduce the risks for commercial lenders. It should also be noted that commercial financing for new investments may realistically be considered after the banking sector distress in Tajikistan is overcome. Otherwise, the lending rates would remain prohibitively high and maturities too short for such capital investment projects. Value added of the Bank's support 88. The Bank has an established track record with similar electrification projects, primarily in Africa and South East Asia. The project will draw on the experience and lessons learnt from these projects, including the importance of institutional strengthening for sustainability of investments. 89. Moreover, the Bank is well positioned to help the client develop and implement non-hydro based RE projects, including battery storage systems, which are relatively new, but could potentially generate significant knowledge spill-over and other non-tangible benefits for the client. Financial Analysis of PEC 90. PEC’s financial performance in 2014-2018 has been adequate. Revenues from sales of electricity grew by an average of 17 percent annually over the period of 2014-2018, despite the relatively flat consumption. This was driven by Tajik somoni’s steep depreciation against US$ via US$ indexed tariffs. Dollar tariffs serve as a hedge against foreign currency risks associated with purchases of imported equipment and materials required for operating and maintenance costs. Operating costs increased in proportion to the Somoni revenues causing the operating profit margin to remain in the range of 16-20 percent throughout the period. The liquidity of PEC in 2016, as measured by the current ratio, was 1.25, and cash balances equaled 55 percent of PEC’s current liabilities. Though the Company has been highly leveraged with its short-term and long-term liabilities being at around 100 percent of its assets, it has been current on all its liabilities. Debt-to-EBITDA ratio was 2.94 in 2016 (4.39 in 2014). 91. PEC is projected to remain in adequate financial standing in 2019-2025. The profitability of PEC will vary in the range of 20-27 percent during 2020-2025. It is projected the total debt will reduce to less than 30 percent of its total assets by 2025, and debt-to-EBITDA ratio will improve to 1.21. The ratio of current assets to current liabilities will improve and be at healthy 3.88 without receivables from MOF (6.15 with the receivables from MOF). 92. Financial Covenant for PEC. The analysis of the financial performance of PEC suggests that no specific covenants are required except for the covenants on debt service coverage ratio, which would require PEC to continue exercising prudent borrowing practice to maintain the long-term indebtedness at reasonable level. Thus, except as the Bank shall otherwise agree, PEC shall, commencing not later than the Effective Date, not incur any short-term or long-term debt unless a reasonable forecast of its revenues and expenditures shows that its estimated net revenues for each fiscal year during the term of the debt to be incurred shall be equal to at least 1.2 times the estimated debt service requirements in such year on all debt of the PEC, including the debt to be incurred. 93. Use of profits derived from the use of grant funds. PEC is obliged to use the corresponding profits from investments financed by the grant under this Project for the new capital expenditures to supply electricity to consumers in GBAO and related operating expenses. The mechanism for determining benefits and/or losses from investments financed by the grant funds under this Project will be provided in the POM. Page 29 of 91 The World Bank Rural Electrification Project (P170132) Financial Analysis of BT 94. The financial condition of BT deteriorated in the period from 2013 to 2017 due to: (a) unsustainable and increasing debt levels and surging local currency denominated debt service costs driven by large depreciation of TJS; (b) low cash collections; and (c) below cost recovery end-user electricity tariffs. 95. As of the end-2017, BT’s total liabilities exceeded its total assets. Operating losses persisted in the period of 2013-2017 leading to complete erosion of equity in 2015. Accumulated losses of the BT reached TJS10,732 million (US$1,217 million), out of which TJS 5,437 million were losses from domestic currency depreciation. Over the observed period, Tajik somoni lost about half of its value against US$, which explained about 70 percent of the total increase of BT’s financial debt. 96. As of the end-2017, total liabilities of BT stood at TJS20,663 million (US$2,343 million), about 61 percent of which were borrowings from IFIs. The ability to sustain those loans was considerably impaired by absence of corresponding revenue allowance in the tariffs and under-collection of receivables. BT failed to make both principal and interest payments on them. By the end of 2017, it had already accrued TJS2,197 million (US$250 million) of interest payable and incurred penalties on overdue loans in total amount of TJS2,657 million (US$301 million). In addition, BT has TJS1,618 million (US$183 million) very expensive dollar denominated commercial debt from a local bank, which costs the company about TJS372 million (US$42 million) per annum in interest expense. 97. In 2017, BT earned TJS2,113 million (US$239 million) from sales of electricity. The Company supplied 13,549 GWh of electricity to domestic consumers and exported 1,410 GWh to Afghanistan and Kyrgyz Republic. As of the end-2017, the collection rate for billed electricity was still below the industry average, at around 84.1 percent. The Company had 94 days receivables outstanding. 98. End-user electricity tariffs remain below the cost-recovery levels, which do not allow the company to finance even the required recurrent expenditures. The expected average end-user tariff for 2017 is estimated at 20 percent of cost-recovery level. The cost-recovery tariff was assessed following the cash needs approach. This was done through assessment of the amount of cash revenue that BT requires to fully finance the recognized recurrent expenses (accrual-based items in the financial statements), which include the O&M costs, administrative costs, capital repairs from own funds, pension liabilities, debt service, and taxes. It also assumes gradual repayment of accrued liabilities (i.e. interest payables, overdue loans and payables to Sangtuda-1 and Sangtuda-2 HPPs for purchased electricity) over an eight-year period starting 2018. It should be noted that concept of cash-based cost of service is different from the concept of economically efficient cost of supply and does not take into account the return on invested capital and investments required to meet the long-run forecast electricity demand. 99. Financial standing of BT is projected to gradually improve due to implementation of the Program for Financial Recovery. The Program for Financial Recovery of BT for 2019-202527 assumes several important financial and operational measures aimed at increasing the cash revenues from sales and reduction of costs. Those measures include: increase of end-user tariffs; revision of subsidiary agreements between MOF and BT to align with the terms of original financing as provided to the Republic of Tajikistan; roll-out of Advanced 27 Approved by the Government on April 15, 2019. Page 30 of 91 The World Bank Rural Electrification Project (P170132) Electricity Metering Infrastructure (AMI) to improve metering and billing; efficient working capital management; and introduction of sound corporate governance principles. 100. Implementation of the Government Program will allow BT to generate more cash from operations. EBITDA margin will increase to 55 percent by 2025, and the liquidity will improve.28 Revision of subsidiary agreements will reduce the debt service costs of BT and free up additional cash for repayment of its overdue liabilities. BT is expected to gradually repay its current and overdue financial liabilities using incremental operating cash flows from financial recovery measures. It is estimated that by 2024, BT will have fully repaid its overdue debt (principal plus interest) to MOF, overdue payables to Sangtuda-1 and Sangtuda-2 and local commercial debt. Thus, by the end of 2025 the debt-to-assets ratio will have come down to 0.95, net debt (i.e. total financial debt net of cash balance) will stand at 4 time of earnings before interest, tax and depreciation (EBITDA),29 and operating cash flow will be more than 2 times its debt service requirements (DSCR). Details are presented in Annex 4. 101. Financial Covenant for BT. The Project Agreement with BT would require that, except as the Association shall otherwise agree, BT, commencing not later than the Effective Date, not incur any short-term or long- term debt unless a reasonable forecast of its revenues and expenditures shows that its estimated net revenues for each fiscal year during the term of the debt to be incurred shall be equal to at least the estimated debt service requirements in such year on all debt of BT, including the debt to be incurred B. Fiduciary Financial Management 102. The overall FM residual risk rating of the project is assessed as substantial. BT through the ESPMU and PEC through its Business Development Unit (BDU)/Project Implementation Department, will be responsible for financial management function under the project. Overall, FM arrangements at both implementing agencies are adequate to implement the project and meet the minimum requirements of the Bank’s Policy and Directive on Investment Project Financing. However, the following actions will need to be in place before the project implementation, within 30 days after project effectiveness: (i) FM/accounting staff, acceptable to the Bank, shall be hired to support the Chief Accountant in both IAs on daily basis; and (ii) the accounting system in both IAs shall be updated and have inbuilt controls to ensure data security, integrity and reliability, and the functionality of automatic generation of IFRs. Additionally, by project effectiveness, the FM sections of the POM, acceptable to the Bank, shall be developed and approved. 103. With regard to the FM Covenants to be included in the Disbursement and Financial Information Letter (DFIL), the following should be noted: (i) interim unaudited financial reports (IFRs) formats have been agreed with the BT ESPMU and PEC and will be submitted to the Bank within 45 days after the end of the calendar quarter; and (ii) the project’s and entity’s annual audited financial statements (under PEC only as audit of BT’s annual financial statements is already a requirement under Nurek Hydropower Rehabilitation Project) are to be submitted to the Bank within 6 months after the end of the audit period. An audit will be carried out by independent auditors acceptable to the Bank (funded out of the project); the terms of reference will be pre-agreed with the Bank. Two separate designated accounts (DAs) will be opened in a commercial bank/ financial institution acceptable to the World Bank. Details with respect to disbursements will be included in the Disbursement and Financial Information Letter. 28 The ratio of current assets to current liabilities, inclusive and exclusive of penalties on overdue loans will be 0.63 and 1.19 respectively. 29 A proxy for operating cash flow. Page 31 of 91 The World Bank Rural Electrification Project (P170132) Procurement 104. Procurement under the project will be governed by the World Bank’s Procurement Regulations for IPF Borrowers (July 2016, revised November 2017 and August 2018) (Procurement Regulations), and will also be subject to the Bank’s Anti-Corruption Guidelines (dated July 2016). The Project Procurement Strategy for Development (PPSD) has been prepared by BT and PEC with the support of the Bank team. Based on PPSD, the optimal procurement approaches have been determined and Procurement Plan for the first 18 months of the project implementation has been prepared (see Annex 3). 105. The Implementing agencies have experience in the procurement and execution of contracts for goods, civil works and consulting services specific to the energy sector over the past years. However, both entities have no experience with new World Bank procurement procedures; have limited contract monitoring and management skills as this function was mainly assigned to the external consultants; and the existing capacity may not be sufficient to handle the increasing volume of procurement activities in the multiple projects implemented in parallel. This constitutes a capacity risk for the project implementation that will need to be timely and adequately addressed particularly through training of BT, ESPMU and PEC staff on the WB procurement Policy and Regulations as well as the Standard Procurement Documents. The World Bank would support further strengthening of BT, ESPMU, and PEC contract management capacity. 106. The overall procurement risk under the project is currently assessed as Substantial. The key issues and risks concerning procurement include: (i) insufficient bidder interest due to operational context, small value of contracts and bids to be offered based on new technology solutions; (ii) evaluated prices of bids exceeding the estimate and cost overrun; (iii) procurement and implementation delays; and (iv) overall high public procurement risk environment. 107. Given the above risks and based on the lessons learned from previous projects, the following measures are proposed to strengthen implementation capacity and ensure effective project implementation: • Outreach to potential bidders and pre-bid conferences will be organized to seek feedback on key proposed economic/financial and other technical qualification requirements under the key packages; • Careful procurement planning and optimization of the packages; • Advance preparation of bidding documents, including the construction design; • Start-up and intensive procurement trainings for staff of participating agencies; • Preparation of Project Operational Manual with a detailed description of procurement processes; • Involvement of an experienced PMC in the review of the design and implementation activities; • Putting in place an efficient contract management system. . C. Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 Yes Projects in Disputed Areas OP 7.60 No . D. Environmental and Social 108. The social and environmental risks are both rated as Substantial. On the social front, the project is expected to result in positive impacts due to increasing the number of people with access to power resulting in enhanced Page 32 of 91 The World Bank Rural Electrification Project (P170132) employment and livelihood opportunities. However, a variety of risks are evident, most of which are rather contextual and external to the project. But these will have a bearing on the project as it manifests in risks related to security and safety. Apart from this, involuntary resettlement compounds the situation. On securing lands, the implementation of the RPF and RAPs will need to be monitored closely to ensure full compliance with the standard in the remote areas being targeted by the project. Reaching out to remote and poorer households will depend upon the provision of appropriate technologies and out reach capacity of the client which currently is quite inadequate. The project environmental risk is rated Substantial because of the greenfield nature of the associated facilities planned for Component 1 - the Sebzor HPP and the related transmission lines; and Component 2's large number of rural electrification activities in remote and potentially fragile areas. The limited capacity of the implementing agencies in the understanding and application of the Bank's ESF and relevant Standards was also considered. During preparation and implementation, planned activities in and around protected areas such as the Tajik National Park (UNESCO World Heritage Site) and other critical habitats or cultural landmarks will be carefully reviewed. BT and PEC will ensure qualified Environmental and Social specialists are assigned to Project implementation at all times. BT and PEC’s quarterly reports to the Bank will include a section detailing the on- going implementation of each of the relevant ESSs – these reports will include details on the implementation of the associated facilities, namely the Sebzor HPP, the 18 km Sebzor-Khorog OHL, and the 63 km Khorog-Qozideh OHL. The Bank will conduct semi-annual implementation review missions that will include field visits to active and completed construction sites under Components 1 and 2, including the associated facilities. 109. Following the request from the Minister of Energy and Water Resources (letter No. 17-862, dated April 18, 2019), the notifications to riparian countries – Uzbekistan, Afghanistan, and Turkmenistan – related to the Sebzor HPP project was sent by the Bank. No responses were received from Uzbekistan and Afghanistan by the deadlines specified in the respective notification letters. Turkmenistan responded by objecting to the construction of Sebzor HPP stating that the issue will need to be resolved within the framework of international law. The salient features of Sebzor HPP and the description of the impacts of this power plant on the water flows of Shokhdara river, which is triburary of Amu Darya considered a transboundary river, are presented in the Annex 5. 110. Social impacts. The Project will not lead to tariff increases because the resources are provided as grants. This means that PEC and BT will not be obliged to request tariff increases to recover the cost of the capital investments. Nevertheless, it should be noted that there is an adequate social protection system in place for electricity consumers in GBAO until 2027. All newly-connected households receiving electricity service will also be subject to the prevailing PEC tariff structure. This means that they will benefit from the winter subsidy scheme in the form of a reduced block tariff during the coldest months (December-February) and pay TJS0.259 TJS/kWh (2.75 USc/kWh) during the rest of the year. The customer subsidy mechanism based on consumption blocks was reformed in 2014, with the support of grant funding from the Swiss government. The revised tariff structure based on consumption blocks provided a subsidy to households consuming less than 360 kWh, as a so-called lifeline tariff. 111. To finance the customer subsidy mechanism, the interest differential between the original 6 percent on IDA credit (under the subsidiary agreement with MOF) and the original rate of 0.75 percent was to be paid into an escrow account by PEC, as envisaged by the Concession Agreement, over the period of 2012-2020. The proceeds were to be used to cover the subsidy costs from 2014 till the end of the concession period, which would then be reimbursed by the MOF. Subsequently, the impacts from any potential electricity tariff increases will be mitigated through TSA Program of the Government. Page 33 of 91 The World Bank Rural Electrification Project (P170132) Table 4: PEC Electricity Tariff Structure for Residential Consumers. Period Electricity price blocks Dirham/kWh US$/kWh 0 – 190 kWh/month 0.88 0.097 Private houses / From November to 191 – 220 kWh/month 2.65 0.291 residential March 221 – 360 kWh/month 4.41 0.485 consumers >361 kWh/month 25.90 2.75 From April to October 0 – ∞ kWh/month 25.90 2.75 Source: PEC. 112. Vulnerable customers in Khatlon would receive compensation through the TSA program. It should be noted that the level of compensation since the 2016 tariff increases has not be sufficient to mitigate the impacts of tariff increases. Additional fiscal allocation to TSA Program may come from the following sources: (a) Savings in debt service costs under sovereign-guaranteed loans and credits. Currently, BT pays only negligible amount of debt service to MOF under subsidiary agreements, which were used to on-lend the international financiers’ resources to BT. With improvement in financial standing of BT, it will be able to make timely payments, which will free up some resources at the state budget. (b) Increased tax revenues from BT given larger revenues due to tariff increases. 134. The Bank is working with Government counterparts on alternative mitigation measures similar to PEC – a block tariff structure, which would allow to protect the socially vulnerable customers without creating additional fiscal costs for the Government. The roll-out of such tariff structure would be feasible as BT makes progress with introduction of improved metering and billing systems in all regions. There are planned activities, supported by various development partners, to roll out advanced metering and billing systems to cover the main cities, which account for around 60 percent of the total electricity consumption in the country. .. E. Climate and Disaster Risk Screening 113. The project has been screened for climate and disaster risks using the Bank’s online screening tool at https://climatescreeningtools.worldbank.org. Major climate risks and natural hazards that are likely to affect the country’s sustainability include extreme weather events (including high temperatures, dust storms, avalanches, heavy rainfall, hail), negative effects for freshwater resources through changes in precipitation frequency and melting of glaciers, negative changes to natural resources, which include changes to climatic patterns, increased drought and changes in habitat as well as an increase in earthquakes. A major part of Tajikistan is vulnerable to floods and mudflow hazards, which occur frequently across the country. National actions on climate change are reflected in the “National Action Plan for Climate Change Mitigation”, Tajikistan’s Second National Communication to the United Nations Framework Convention on Climate Change and recent study conducted by GERES30 on “Climate Vulnerability and Capacity Assessment”. 114. The project addresses one of the country’s priority sectors for climate change mitigation, namely energy. Based on the climate and disaster risk screening conducted for the project, the following hazards are classified as High Risk for regions of Tajikistan targeted by the Project: (i) floods expected to occur at least once in the next 10 years, especially in the GBAO region; and (ii) a potentially damaging earthquake with a 20 percent probability to occur in the next 50 years. To mitigate the risks posed by floods and earthquakes, the Project planning decisions, 30 Groupe Energies Renouvelables, Environnement et Solidarités. Page 34 of 91 The World Bank Rural Electrification Project (P170132) design, and construction methods will take into account the level of river flood and earthquake hazard in the specific locations, especially for the power generation and grid infrastructure. For physical structures, such as off- grid generation plants and distribution grid equipment, checks for seismic resilience will form part of standard approval processes, but effective oversight will be required to ensure that materials conform to the specifications, and that construction is properly supervised. The risk of floods and their damage to energy generation and distribution infrastructure will also need to be mitigated through protective infrastructure, as appropriate, and further assessment by flood risk experts depending on the level of hazard present in specific geographical locations. Those mitigation measures were included in the capital costs of solar PV, small hydro, and wind power plants (to be combined in micro-grids) and the power distribution infrastructure to connect the target households. F. Citizen Engagement 115. The engagement of the local population and other civil society stakeholders (civil society, media, mahallas, community-based organizations, and the general public) is essential to the success of the Project – to ensure smooth collaboration between project staff and local communities and to enhance project outcomes. Both PEC and ESPMU will establish or expand community engagement units responsible for establishing an effective interface with target communities. They will be staffed with facilitators accustomed to working with communities. At the outset, a number of information and awareness-raising events will be held to communicate key project information. This will be followed by several citizen engagement activities implemented regularly throughout the project. 116. Specifically, (i) in Year 1, community consultations will be held in each village to engage communities in the needs-based decision-making over project solutions (e.g. needs and preferences regarding technologies); (ii) open information and feedback desks will be established in each municipality during year 1 in order to provide citizens with an immediately accessible venue to obtain information on the project, provide feedback, or raise concerns; (iii) user perception surveys will focus on obtaining qualitative feedback from target areas on the level of satisfaction with electricity improvements in the electricity in households, public facilities and at the village level. These will be carried out twice during the Project’s lifecycle – at mid-term and closing. After the mid-term survey the Project will disseminate the results to target communities and on the project websites and explain the steps taken to address community feedback; and (iv) a consolidated grievance redress mechanism (GRM) and log will be maintained by PEC and BT. The GRM will be open to feedback on any project-related issues, the appropriate responsibilities of community liaison officers, contractors, supervision consultants, and respective departments of PEC and BT will be assigned to record, process, and provide meaningful responses and/or resolution to feedback received. Lastly, (v) starting in year 1, an annual report card will be rolled out in all participating communities to obtain feedback on the effectiveness of the (above) project information and citizen engagement activities – this will include an opportunity for communities to discuss how engagement processes might be improved. 117. To build the capacity of communities involved in the project, community awareness-raising workshops will be organized by PEC and BT in collaboration with experts and/or local NGOs. The focus of these workshops will be demand-led – communities can propose the focus of the workshops (e.g. energy efficiency, energy pricing) and an annual action plan of events will be formulated with a nominated community group (e.g. youth leaders) mobilized for this purpose. These citizen engagement activities are included in the Stakeholder Engagement Plan (SEP) and will be described in detail in the Project Operational Manuals, prior to effectiveness. To the extent possible, the citizen engagement approaches will follow those developed for the CASA-1000 Community Support Project, also implemented by ESPMU. A number of gender-disaggregated beneficiary feedback indicators are included in the results framework, including a measure on the effectiveness of citizen engagement. Page 35 of 91 The World Bank Rural Electrification Project (P170132) G. Gender 118. A gender gap analysis was carried out during project preparation to identify the main areas that could be supported under the Project’s Gender Action Plan (GAP). The project will contribute to closing some of the gender gaps identified in the gender analysis with particular emphasis in bolstering electrification with livelihoods training to close the gender gap in labor participation. The GAP includes the following actions: a. Improve access to electricity for female-headed households in target communities and facilitate their access to on-grid or off-grid electricity connections in the form of micro-grids and household level supply sources. The number of female-headed households in Tajikistan has increased as higher numbers of Tajik men migrate to Russia for work. According to the 2017 Demographic and Health Survey (DHS), 20 percent of households in Tajikistan are headed by women. Many female-headed households rely on remittances as the only source of income. Approximately one in three migrants’ wives find themselves left alone as their migrant husbands abandon their families at home and start a new life and new families.31 Due to a lack of access to modern energy sources and affordability issues, reliance on solid fuels such as wood has negative consequences for women. According to the 2017 DHS, 23 percent of rural households use solid fuels for cooking. Reliance on solid fuels particularly impact women’s time-poverty, health and physical well-being. In Tajikistan women and children are responsible for collecting, preparing, and storing alternative fuels, which could contribute to women’s time poverty and women and girls experience the physical strain of fuel collection.32 Women and girls disproportionately bear the health burdens associated with reliance on traditional fuels. However, according to 2017 DHS, in most rural households where there is higher reliance on solid fuels, 86 percent of households cook in a separate building with solid fuels and 5 percent cook outdoors, which could limit exposure to hazardous air pollutants. In addition to respiratory issues, women also face risks of injury such as burns due to use of solid fuels for various purposes including heating and cooking. The Project will use an intermediate results indicator to monitor the percentage of female-headed households who receive electricity connections (baseline of 0 and target of 100 percent). The baseline value is zero as the project is targeting settlements that lack electricity connections and target is 100 percent. While the baseline and target values are the same for male-headed households, this particular intervention is likely to dramatically improve the lives of female-headed households given the consequences of reliance on solid fuels for their physical health, time-poverty, health and well-being. b. Enhance women’s income generating opportunities and their participation in the energy sector through livelihoods training. The provision of an electricity connection to female-headed households will reduce the time they spend collecting solid fuels, thus increasing their availability for income-generating opportunities, and will increase the scope of possible income-generating opportunities given the new electricity connections. To take advantage of these opportunities, the task team will be seeking project resources and requesting Energy Sector Management Assistance Program (ESMAP) resources for the following activities to: (i) conduct a gender assessment on women’s energy needs impacts of lack of access to electricity connections on their ability to engage in economic activities, their productivity, and income levels, and livelihood opportunities that could derive from electrification and (ii) hire NGOs to provide women with tailored livelihoods training aiming to increase the use of new electricity connections for productive purposes drawing on the findings of the assessment. These trainings will also aim to improve women’s productivity and income levels through supporting women to enhance the quality of their 31 IOM, 2009.”Abandoned wives of Tajik labor migrants: IOM Study on the socio-economic characteristics of abandoned wives of Tajik labor migrants and their survival capabilities.” 32 Tajikistan Demographic and Health Survey 2017. Page 36 of 91 The World Bank Rural Electrification Project (P170132) products, improve their business skills to run their enterprise, and market their products or services successfully. Through these actions, the Project seeks to address the large and widening gender gap in paid employment.33 By age 25, 70 percent of women have become inactive, meaning they are doing unpaid work at home, compared with 20 percent of men who become inactive at that age. Over 43 percent of Tajik women engage in unpaid home-based work, yard work, and caregiving compared with only 9 percent of men.34 The percentage of households headed by women is growing—often driven by labor migration.35 Women cope by taking on traditionally male-led responsibilities, including household maintenance and budgeting and the tending of fields and animals, on top of their traditional roles as caregivers to children and the elderly. These additional duties limit their participation in educational and income-earning activities outside the home. The Project will use intermediate results indicators to monitor the percentage of women who completed the livelihoods training who have engaged in income- generating activities as a result of the training (baseline of 0 and target of 20 percent). Further, to increase the impact of livelihoods training, the Project will connect all graduates of the trainings to the grant opportunities offered by REDP and additional training and livelihoods opportunities (i.e., livelihoods tools and equipment) offered by SERSP. REDP will offer grants through a grant competition and SERSP will offer livelihoods tools and equipment to youth who complete bootcamps, training and business proposals that an evaluation committee deems as viable. c. Improve gender equality in implementing energy companies, PEC and BT. The Project will finance a review the HR policies of PEC and BT to determine if these policies could be implemented in a more gender- inclusive manner. The project will work with the energy companies to explore opportunities to provide career development workshops and trainings to women employees of these companies and to raise awareness of the managerial staff about addressing unconscious gender biases. Furthermore, the overall policies and strategies will be reviewed and revised so as to address the needs of women in energy, specifically those in rural areas. d. The Project implementing entities will reach out to women and ensure their participation in the consultation and stakeholder engagement processes. The Project will ensure that women’s feedback and concerns are reflected in the decision- making process for the provision of on-grid and off-grid energy solutions (i.e. installation, operation, maintenance, etc.) provided that security standards and other financial and technical criteria are met. e. The Project will use gender-sensitive communication and consumer awareness-raising activities targeting women, such as meeting with women’s groups, using media channels typically used by women, and tailoring messages in ways that will be accessible for women. In addition, communication and outreach activities will also be conducted in places and at times that are convenient for women. V. GRIEVANCE REDRESS SERVICES 119. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s 33 Women’s labor force participation declined from 46 to 27 percent between 2003 and 2013. The participation rate among men is 63 percent, according to World Bank, Tajikistan Systematic Country Diagnostic (Washington, DC: World Bank, 2018). 34 Statistical Agency under the President of the Republic of Tajikistan, Labor Force Survey (2016). 35 Asian Development Bank, Gender Assessment (2016). Page 37 of 91 The World Bank Rural Electrification Project (P170132) independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non- compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress- service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org VI. KEY RISKS . 120. The overall risk of the Project is rated as Substantial considering the individual risk ratings discussed below. 121. Political and Governance Risk is High given that accountability and transparency issues, and weak civil society oversight, may affect the project. Tajikistan's anti-corruption framework, which includes the Law of the Republic of Tajikistan on Combating Corruption (2008), Anti-Corruption Strategy in the Republic of Tajikistan 2013- 2020 (2013), and the Code of Ethics for Civil Servants (2004), will help mitigate governance risks. To increase demand for accountability, the Country Partnership Framework (CPF) for FY2019-23 aims to engage civil society in all aspects of the Bank's portfolio, enabling Civil Society Organizations (CSOs) to gain experience in preparing, implementing and monitoring government programs. The project will provide further mitigation through due diligence on the cost estimates (review by international consultants of the cost estimates from the feasibility study) and a robust procurement process. 122. Macroeconomic Risk is Substantial given Tajikistan’s high vulnerability to external and domestic shocks, low policy buffers, and weak macroeconomic and fiscal frameworks. Those risks may impact the timely implementation of the project due to their direct or indirect impacts on the implementing entities – BT and PEC. The macroeconomic risk to the project would be partially mitigated through improved overall macroeconomic condition driven by acceleration in economic growth and slight improvement in the balance of payments, which reduces the downward pressure on local currency (Tajik Somoni, TJS) with direct implications for financial standing of BT, which has all of its long-term debts denominated in foreign exchange (FX). Additionally, the implementation of the new electricity tariff methodology for BT would help to ensure that FX fluctuation related costs are passed through to end-user tariffs. It should also be noted that the economic growth has accelerated since 2016, the macroeconomic and external balances have slightly improved, and the Government is in advanced discussions with IMF for a 3-year program, which would help to ensure that overall macroeconomic and fiscal policies are prudent. The impact of macroeconomic risks on PEC is very limited given that end-user tariffs in GBAO are fixed in US$ and adjusted annually to reflect any deprecation/appreciation of TJS. 123. Sector Strategies and Policy Risk is Substantial given inadequacy and year-to-year variability of BT revenues due to non-predictable tariff increases, possible further devaluation of TJS that reduces the cash available to service foreign currency denominated debt, and variability of collection rates for electricity. This may impact the financial sustainability of the Project and BT’s overall operations. This risk will be mitigated through implementation of the Government Program for Financial Recovery of BT for 2019-2025 (dated April 15, 2019). The Government Program, among other things, will be introducing new electricity tariff methodology, which would allow for inclusion of justified O&M costs into the tariff. The Government has demonstrated its commitment to financial recovery of BT by enacting three tariff increases since 2017. Additionally, ADB is preparing a policy-based lending operation with delivery by the end of 2019, which would specify critical power sector measures as prior actions. The 3-year IMF program has some actions related to energy sector, such as Page 38 of 91 The World Bank Rural Electrification Project (P170132) adoption of new tariff methodology. 124. Technical Design of Project Risk is Substantial given lack of familiarity of PEC with Solar PV, Wind, and BESS technologies. The technical design related risks will be mitigated by ensuring that experienced PMC, to be hired by PEC, provides the required advice and support to PEC in reviewing and deciding on technical designs to be submitted by its contractors. 125. Institutional Capacity for Implementation Risk is Substantial given lack of resources at BT to ensure thorough technical supervision of Project activities. Therefore, BT has designated project implementation groups that have gained experience in implementation of complex IFI funded projects (e.g. Nurek, CASA-1000), and the Project would rely on those team to implement this project. Moreover, PMC under the Project would help BT and PEC to conduct technical supervision of the project and will help resolve technical issues. 126. Fiduciary Risk is Substantial because both the FM and Procurement Risks are Substantial . The FM risk is Substantial due BT’s lack of appropriate policies and procedures for recognition of revenues and receivables for electricity sales and some other issues identified by the auditor of FY2017 financial statements. The FM capacity risks will be mitigated by activities envisaged under Government Program for Financial Recovery of BT for 2019- 2025, which includes number of activities to further strengthen financial management and internal audit capacity of BT. The Procurement Risk is Substantial given lack of experience at PEC with procurement of off-grid RE based electrification solutions. 127. The Environmental and Social Risk is Substantial since BT/ESPMU and PEC have no experience in implementation of investment operations as per requirements of new Environmental and Social Framework (ESF), and limited prior experience in implementing land acquisition as per requirements of the World Bank. The risk would be mitigated through development of appropriate safeguards documents, their incorporation into the bidding documents for construction works, diligent implementation by the client, and active stakeholder engagement. Page 39 of 91 The World Bank Rural Electrification Project (P170132) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Tajikistan Rural Electrification Project Project Development Objectives(s) The project development objective is to provide electricity access to target settlements in GBAO and Khatlon regions of Tajikistan. Project Development Objective Indicators Indicator Name Measure Baseline End Target People provided with new or improved electricity service Number 0 43,126 People provided with access to electricity under the project by household connections Number 0 43,126 (grid or off-grid). Average annual daily duration of electricity supply to target settlements in GBAO connected Hours 0 14 to micro-grids Intermediate Results Indicators by Components Component 1: Provision of electricity access to target settlements in GBAO region Number of settlements electrified in GBAO Number 0 61 Number of micro-grids constructed in GBAO Number 0 35 Number of household connections completed in GBAO Number 0 2,401 Generation capacity of energy constructed or rehabilitated MW 0 7.36 Hydropower generation capacity constructed under the project MW 0 0.76 Renewable energy generation capacity (other than hydropower) constructed under the MW 0 6.6 project Geological site investigation works for Sebzor HPP completed Yes/No No Yes Financing mechanisms developed to promote up-take of energy efficient appliances in Yes/No No Yes Page 40 of 91 The World Bank Rural Electrification Project (P170132) Indicator Name Measure Baseline End Target GBAO At least one energy efficiency retrofit of a public facility completed Yes/No No Yes Percentage of citizens in GBAO who believe that the Project has established effective Percentage 0 40% engagement processes Percentage of grievances recorded by the Project in GBAO and resolved within one-month Percentage 0 100% period Percentage of female-headed households in GBAO connected to electricity service Percentage 0 100% Percentage of women who engage in income-generating activities in GBAO due to Project Percentage 0 20% interventions Completion of review of HR policies of PEC for gender-inclusivity Text No Yes Component 2: Provision of electricity access to target settlements in Khatlon region Number of settlements electrified in Khatlon Number 0 74 Number of household connections completed in Khatlon Number 0 4,840 Percentage of citizens in Khatlon who believe that the Project has established effective Percentage 0 40% engagement processes Percentage of grievances recorded by the Project in Khatlon and resolved within one- Percentage 0 100% month period Percentage of female-headed households in Khatlon connected to electricity service Percentage 0 100% Percentage of women who engage in income-generating activities in Khatlon due to Percentage 0 20% Project interventions Completion of review of HR policies of BT for gender-inclusivity Text No Yes Page 41 of 91 The World Bank Rural Electrification Project (P170132) Monitoring & Evaluation Plan: PDO Indicators Methodology for Responsibility for Data Indicator Name Definition/Description Frequency Datasource Data Collection Collection This indicator will measure Implementation PEC and BT semi- People provided with new or improved the progress with provision of Semi-annual support consultant annual progress PEC and BT electricity service access to target settlements reports reports to the Bank This indicator will measure Average annual daily duration of electricity the progress with availability PEC semi-annual Technical reports supply to target settlements in GBAO of electricity service to target Semi-annual progress reports to PEC from PEC connected to micro-grids settlements connected to the Bank micro-grids Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Responsibility for Data Indicator Name Definition/Description Frequency Datasource Data Collection Collection Component 1: Provision of electricity access to target settlements in GBAO region This indicatorwill measure the Implementation PEC semi-annual Number of settlements electrified in GBAO progress with electrification of Semi-annual support consultant progress reports to PEC target settlements in GBAO reports the Bank This indicator will measure the progress with construction of Implementation PEC semi-annual Number of micro-grids constructed in GBAO micro-grids required for Semi-annual support consultant progress reports to PEC electrification of target reports the Bank settlements in GBAO This indicator will measure the Implementation PEC semi-annual Number of household connections progress with connection of Semi-annual support consultant progress reports to PEC completed in GBAO households to micro-grids and reports the Bank centralized networks in GBAO This indicator will measure the Implementation PEC semi-annual Generation capacity of energy constructed progress with construction of Semi-annual support consultant progress reports to PEC or rehabilitated new electricity generation reports the Bank capacity to serve the target Page 42 of 91 The World Bank Rural Electrification Project (P170132) settlements This indicator will measure the progress with completion of PEC semi-annual Geological site investigation works for specific geological site Technical reports of Semi-annual progress reports to PEC Sebzor HPP completed investigation works required PEC consultants the Bank for finalization of detailed design for Sebzor HPP This indicator will measure the Financing mechanisms developed to PEC semi-annual progress with establishment of Technical reports of promote up-take of energy efficient Semi-annual progress reports to PEC mechanisms for promotion of PEC consultant appliances in GBAO the Bank EE This indicator will measure the PEC semi-annual At least one energy efficiency retrofit of a Technical reports of progress with improvement of Semi-annual progress reports to PEC public facility completed PEC contractor EE in public facilities the Bank This indicator will monitor of Annual PEC and BT semi- Survey PEC Percentage of citizens in GBAO who believe citizen engagement activities in annual Project that the Project has established effective GBAO progress reports to engagement processes the Bank Percentage of grievances recorded by the This indicator will monitor Quarterly GRM reports of PEC GRM reports of PEC PEC Project in GBAO and resolved within one- efficiency of GRM for Project and BT month period activities in GBAO This indicator will measure the progress with connection of PEC to submit Percentage of female-headed households in female-headed households to Annual Surveys respective survey PEC GBAO connected to electricity service micro-grids in GBAO and results to the Bank centralized distribution networks in GBAO This indicator will measure the Annual Surveys PEC to submit PEC efficiency of training programs survey results to the Percentage of women who engage in to improve livelihoods of Bank income-generating activities in GBAO due to women. The target was chosen Project interventions based on: (a) discussions with the client; and (b) feasibility given that this Project is not Page 43 of 91 The World Bank Rural Electrification Project (P170132) transferring assets to female- headed households for income-generating activities. This indicator will measure Completion of review of HR policies of PEC progress with review of PEC HR Report of the PEC report to the Annual PEC for gender-inclusivity policies to ensure they ensure consultant Bank inclusivity of women. Component 2: Provision of electricity access to target settlements in Khatlon region This indicator will measure the Implementation BT semi-annual Number of settlements electrified in Khatlon progress with electrification of Semi-annual support consultant progress reports to BT target settlements in Khatlon reports the Bank This indicator will measure the Implementation BT semi-annual Number of household connections progress with connection of Semi-annual support consultant progress reports to BT completed in Khatlon households to centralized reports the Bank network in Khatlon Percentage of citizens in Khatlon who BT semi-annual This indicator will monitor of believe that the Project has established Annual Project progress Survey BT citizen engagement activities effective engagement processes reports to the Bank Percentage of grievances recorded by the This indicator will monitor Project in Khatlon and resolved within one- efficiency of GRM under the Quarterly GRM reports of BT GRM reports of BT BT month period Project This indicator will measure the progress with connection of BT to submit Percentage of female-headed households in female-headed households to Annual Surveys respective survey BT Khatlon connected to electricity service centralized distribution results to the Bank network in Khatlon This indicator will measure the efficiency of training programs to improve livelihoods of Percentage of women who engage in women. The target was chosen BT to submit survey income-generating activities in Khatlon due Annual Surveys BT based on: (a) discussions with results to the Bank to Project interventions the client; and (b) feasibility given that this Project is not transferring assets to female- Page 44 of 91 The World Bank Rural Electrification Project (P170132) headed households for income-generating activities. This indicator will measure Completion of review of HR policies of BT for progress with review of BT HR Report of the BT report to the Annual BT gender-inclusivity policies to ensure they ensure consultant Bank inclusivity of women. Page 45 of 91 The World Bank Rural Electrification Project (P170132) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: Tajikistan Rural Electrification Project Strategy and Approach for Implementation Support 1. This Implementation Support Plan (ISP) for the Tajikistan Rural Electrification Project describes how the Bank will assist the client in achieving the PDO of the project. In particular, the ISP places emphasis on accomplishing the following objectives: (a) providing necessary technical advice to the client and bringing international experience and good practices to promote successful implementation; (b) ensuring that Project investments meet World Bank technical standards; (c) oversight and capacity building support for the implementing entities, especially PEC as it will be responsible for the deployment of innovative off-grid electrification solutions; and (d) ensuring that the required fiduciary, social, and environmental safeguards are put in place and implemented according to the Legal Agreement and other project documents. 2. The project will be implemented over a period of six years. The ISP also includes support to the implementing agencies prior to project effectiveness, to advance in project design activities. 3. Technical implementation support. Experienced energy specialists and engineers will be engaged in the provision of technical supervision support during project implementation. Specialists will cover the following areas of expertise: hydropower, geology, power distribution, renewable energy and off-grid electrification, and energy efficiency. This group of experts will be closely engaged with the implementing agencies and provide oversight over the additional site investigation works for Sebzor HPP, review of detailed settlement-level feasibility studies for electrification investments, the review of procurement documents for selection of contractors to connect the target settlements to the grid and construct micro-grid. Finally, energy efficiency and communication experts will advise PEC in the design of awareness raising campaigns, the design of financing schemes for efficient appliances, and the design and implementation of EE pilots. Technical implementation support missions will be carried out three times a year during the first 18 months of project implementation, followed by semi-annual missions. The project team will also carry out site visits to electrified communities in Khatlon and GBAO during implementation. 4. FM implementation support. As part of its project implementation support and supervision missions, the Bank will conduct risk-based financial management implementation support and supervisions within a year from the Project effectiveness, and then at appropriate intervals. During the Project implementation, the Bank will supervise the Project’s financial management arrangements in the following ways: (a) review the Project’s semi-annual IFRs as well as the entities’ and the Project’s annual audited financial statements and auditor’s management letters and remedial actions recommended in the auditor’s management letters; and (b) during the Bank’s on-site missions, review the following key areas: (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement arrangements and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving project resources. As required, a Bank-accredited Financial Management Specialist will participate in the implementation support and supervision process. 5. Procurement implementation support. Implementation support activities are proposed based on the project procurement risks identified and include: providing procurement trainings for staff of participating agencies; prior/post review of procurement documents and providing timely feedback to the IAs; providing Page 46 of 91 The World Bank Rural Electrification Project (P170132) detailed guidance on the Procurement Regulations; review of the POM including detailed chapter on procurement; support IAs in preparation of a conference for potential bidders; monitoring procurement and contract management processes through STEP. 6. Environmental and social. The Bank’s environmental and social specialists will provide support to PEC and BT to ensure smooth implementation of the Project activities in consistency with the applicable Environmental and Social Standards of the Bank. Regular site visits will be carried out to monitor the compliance of the contractors with good construction practices and other requirements to be specified in site-specific EMPs. Additionally, the social specialists will be reviewing the consistency of land acquisition with the requirements of the RPF and RAPs to be prepared for construction of micro-grids and connection of power distribution lines to connect the settlements to power distribution networks of PEC and BT, The Bank task team will provide guidance in, and review, key environmental and social monitoring documents, such as ESMPs, RAPs, RAP Completion Reports, and quarterly progress reports and support PEC and BT in meeting its commitments set out in ESCP. The task team will also regularly engage with the other development partners regarding the performance of BT and PEC and their contractors during construction of Associated Facilities to this Project, namely the Sebzor HPP, the 18 km Sebzor-Khorog OHL, and the 63 km Khorog-Qozideh OHL. Implementation Support Plan and Resource Requirements 7. The proposed implementation support requirements are described in Tables 1.1 and 1.2. Completion of additional site investigation works for Sebzor HPP and the design and implementation of innovative off-grid electrification solutions (e.g. solar hybrid micro-grids) by PEC will require substantial level of implementation support. Technical specialists and consultants of the Bank will provide implementation support. Table 1: Annex 1: Implementation Support Requirements. Resource Time Focus Skills Needed Partner Role Estimate Pre-effectiveness • Finalizing additional site • Geology, hydropower US$300,000 - and first 18 investigation works for engineer, and months of Sebzor; hydromechanical implementation • Detailed design and engineer; feasibility studies for • Micro-grids, solar PV, electrification solutions; wind, small hydro, • Preparation of tender and BESS specialists; documents for electrification • Procurement; solutions; • Environmental and • Review of the E&S Social; requirements in • Energy economist; procurement documents and • Financial analyst; overall implementation of • FM. E&S requirements; • Review of economic justification of electrification sub-project designs; • Update of the financial standing of PEC; Review of audit reports and support to address recommendations from the audits. Page 47 of 91 The World Bank Rural Electrification Project (P170132) 18-72 months of • Monitoring the • Power engineer; US$200,000/year - implementation implementation of grid • Micro-grid specialist, expansion for connection of solar PV, wind, small new settlements; hydro, and BESS • Monitoring the construction specialists; of micro-grid sub-projects; • Environmental and • Monitoring implementation Social; of E&S requirements; and • Procurement; monitoring implementation • FM. of gender action plan. Table 2: Annex 1: Skills Mix Required Skills Needed Number of Staff Number of Trips Comments Weeks Team leaders 60 12 Headquarter (HQ) and Country Office (CO) based Off-grid electrification specialist 20 12 HQ based Solar PV and BESS specialist 15 3 International consultant Wind power specialist 10 3 International consultant Hydropower engineer 10 6 International consultant Geologist 4 2 International consultant Hydromechanical specialist 3 2 International consultant Power engineer 25 6 HQ based Energy economist 3 1 HQ based Financial analyst 6 4 HQ based Environmental specialist 6 6 HQ based Social specialist 6 6 HQ based Procurement specialist 20 - Country office based FM specialist 6 - Country office based Page 48 of 91 The World Bank Rural Electrification Project (P170132) ANNEX 2: Detailed Project Description COUNTRY: Tajikistan Rural Electrification Project 1. The proposed project is structured around two components, with sub-components, as follows: 2. Component 1: Provision of electricity access to target settlements in GBAO (US$25.2 million IDA grant). This component will have the following sub-components. 3. Sub-component 1.1: Construction of micro-grids, and connection of consumers to micro-grids and centralized distribution network of PEC (US$23.7 million IDA grant). This component will finance provision of electricity supply to 61 settlements in GBAO region with total population of about 11,666. The investments will cover: (a) construction of electricity generation infrastructure, which will include micro-grids comprised of Solar PV, small hydro, wind, and BESS, and construction of electricity distribution infrastructure, including construction of 10/0.4 kV distribution lines and distribution transformers, to supply electricity from RE projects to consumers, including internal wiring for households; and (b) construction of 35/10/0.4 kV distribution lines and substation level upgrades to connect some of the target settlements, which are close to the network; including internal wiring for households in order to alleviate consumer affordability barriers. 4. Rationale for electrification. The electrification of the communities is priority given the significant social and economic costs of the lack of access to clean, safe, and affordable energy sources. A baseline assessment of the impact of lack of electricity on the socio-economic conditions of populations in Vanj and Rushan36 districts of GBAO (bordering Afghanistan) found that people use battery-powered flashlights, candles and kerosene/diesel flashlight to meet their lighting needs. As for cooking and heating, households rely heavily on firewood. Collection of firewood is the major task that all household members are engaged throughout the year both in warm and cold seasons, with men being responsible, although women and children are also engaged. Collection of firewood is a time-consuming activity (6-7 hours per day) preventing adults from engaging in other productive activities and children from attending school. It is also a detrimental work that has a significant impact on health and. As the major source of firewood are the mountains, people must walk long distances to the source and climb, as well as carry the fuelwood on their back, which causes exhaustion and pain and, in some cases, serious injuries and even death from falls while climbing. In addition, people reported health issues linked to constant exposure from indoor smoke released from burning biomass and solid fuels, including lung problems, headaches, loss of vision, as well as digestive system problems due to consumption of half cooked food. The environment has also been severely affected as firewood scarcity has led to deforestation and desertification, whereby all fruit trees have been cut and massive usage of eurotia, a local shrub, has led to soil erosion. 5. In addition to collecting firewood, the local population Vanj and Rushan districts also buys firewood for heating and cooking purposes. The expenditures incurred are very large, with residents spending on overage TJS898 (US$96) and a maximum of TJS3,000 (US$320) on purchasing this type of fuel in the winter months. The households surveyed reported that more than half of their total household income was spent on purchasing firewood, coal, gas and diesel. In addition, lack of power also hinders the activities of local entrepreneurs such as blacksmiths, carpenters, shop and canteen owners, etc. and make conditions in schools too harsh for 36Baseline Assessment of the Impact of Lack of Electricity on the Socio-Economic Conditions of Populations in Badakhshan Province of Afghanistan and Badakhshan Tajikistan. Aga Khan Foundation, 2017. Page 49 of 91 The World Bank Rural Electrification Project (P170132) children to attend, especially during the cold winter months. 6. The situation in Vanj and Rushan can be extrapolated to the other GBAO districts. However, in the mountainous district of Murghab, with an average elevation of 3,500 meters above sea level (masl), the conditions faced by the population are even more severe as the winters are longer and colder (temperatures can reach -40°C) and the sources of energy supply are scarcer. For space heating, water heating and cooking, all households and public buildings are currently using solid fuels, primarily coal. Due to the high altitude, low oxygen levels reduce the efficiency of solid fuel combustion requiring longer cooking times and more combustible fuel for heating and cooking compared to lower altitude settlements. 7. Technical approach to determine optimal combination of generation technologies to electrify the target communities. Identification of the least-cost electricity supply technologies for each settlement was carried out through geospatial analysis with detailed evaluation of hourly demand profiles of consumers, potential of RE resources, and the capital and O&M costs of technologies. The analysis concluded that electricity demand in target settlements can be met with combination of solar PV, wind, small hydro, and BESS technologies as well as grid-extension solutions. The diesel-based generation was not evaluated to be part of the least-cost solutions because: (a) unit cost of energy from diesel was relatively high given almost 45 percent loss of power output due to high elevation – the target settlements are located 3,500 meters above sea level, and social cost of carbon; and (b) there are significant logistical challenges involved in ensuring the required amount of diesel in target settlements. For RE based micro-grid solutions, the exact locations will be determined at the detailed design stage by the contractor to be responsible for design, supply, and installation of micro-grids. Those contractors will also be responsible for construction of electricity distribution infrastructure, including construction of 10/0.4 kV distribution lines and distribution transformers, to connect the households in those 35 settlements to micro-grids, including household level wiring to alleviate affordability constraints. The economically least cost options for meeting electricity demand in 35 of the target settlements are presented in the following table. Table 1: Annex 2: Least Cost Options for Electrifying Target Settlements. Investment No. Settlement Hydro (kW) Wind (kW) PV (kW) BESS (kW) (million US$) 1 Rangkul 3.25 0 797 480 480 2 Alichur 2.99 0 680 561 336 3 Tokhtamish 1.41 0 0 770 503 4 Chorsun 0.04 0 9 5 5 5 Gushun 0.05 17 0 0 0 6 Yodged 0.83 275 0 0 0 7 Bashkumbez 1.30 0 302 232 162 8 Bulunkul 0.67 0 169 93 84 9 Chichikde 0.41 0 87 87 47 10 Chushteppa 0.08 0 19 16 9 11 Gulbazqul 0.02 0 0 12 8 12 Jagigir 0.12 0 26 24 17 13 Karakul 1.91 0 323 533 337 14 Kishto 0.05 0 11 10 6 15 Kizilorum 0.12 0 28 22 13 Page 50 of 91 The World Bank Rural Electrification Project (P170132) Investment No. Settlement Hydro (kW) Wind (kW) PV (kW) BESS (kW) (million US$) 16 Koshogil 0.08 0 18 14 9 17 Mamadzoir 0.14 0 33 25 18 18 Okbeik 0.18 0 42 29 22 19 Oqtal 0.10 0 20 21 13 20 Qaraturuq 0.29 0 67 52 34 21 Shatput 0.23 0 0 124 82 22 Shaymoq 1.85 0 397 380 262 23 Subashi 0.16 0 35 33 22 24 Bodomdara 0.01 0 2 1 1 25 Achirkh 0.11 35 0 0 1 26 Bizhravd 0.03 9 0 0 1 27 Darjomch 0.66 220 0 0 0 28 Devlokh 0.05 15 0 0 0 29 Dzhizev 0.07 23 0 0 0 30 Midenchid 0.04 12 0 0 1 31 Ravmed 0.30 101 0 0 4 32 Ravsharv 0.02 8 0 0 0 33 Vranchan 0.06 0 0 34 24 34 Zarchiv 0.02 0 0 12 9 35 Pshikharv 0.14 45 0 0 1 Total 17.76 760 3,065 3,570 2,511 Source: Geospatial and least-cost planning analysis based on data from PEC and international cost benchmarks. 8. The remaining 26 settlements will be connected to power distribution network given that this would be economically least-cost option and they are located in the western part of GBAO in relatively close proximity to existing network. The estimated cost of those connections is about US$6 million. PEC prepared detailed cost estimate for each settlement, which includes the cost of materials, conductors, transformers and other equipment, internal household-level wiring, meters, and works. The costs are reasonable and commensurate with the costs of recently completed similar distribution expansion/household-connection projects implemented by PEC. Table 2: Annex 2: Settlements to be Connected to PEC Centralized Grid. No. Settlement 1 Ubag 2 Zaych 3 Dursher 4 Poi Mazor 5 Vavani Bolo 6 Vavani Poyon 7 Sumgat 8 Langar 9 Khekhik 10 Dorzh Page 51 of 91 The World Bank Rural Electrification Project (P170132) 11 Barchidev 12 Nisur 13 Roshorv 14 Yapshor 15 Rukhch 16 Khidjez-2 17 Dasht 18 Chadud 19 Ravivd 20 Razukh 21 Roznver 22 Zurzmoi dasht 23 Dashti shtam 24 Nimos 25 Otjatga 26 Shirgin 9. Sub-component 1.2: Project implementation support to PEC, technical assistance for additional geological site investigation works for Sebzor HPP, and promotion of energy efficiency (US$1.4 million IDA grant. This will include financing of: a. PMC costs to support PEC with preparation of bidding documents for procurement of goods and works required for micro-grids and connection of settlements to PEC distribution network; carrying of tenders for procurement of contractors to construct the micro-grids and connect the settlements to the distribution grid; supervision of construction works for micro-grids; and compliance with environmental and social requirements. b. Geological site investigation studies for Sebzor HPP. These additional studies will need to be completed as inputs to detailed design and ensure that proposed technical solutions take into account the risks from natural disasters such as land-slides, rock fall, debris flow, and avalanches. The key site investigation studies will include: - Geological-geomorphological study with remote sensed data. A detailed geological- geomorphological map (1:5’000) of the project area extending from the river level up to the mountain crest should be compiled by a qualified geomorphologist. The study should be focused on the detection of slope instabilities and completed through photointerpretation of available Digital Terrain Models (DTM) – FS survey, High Mountain Asia by National Aeronautics and Space Administration (NASA), Advanced Spaceborne Thermal Emission and Reflection Radiometer (ASTER), orthophotos and satellite images and field surveys. This will help to identify the risk associated to landslides, rock fall, debris flow and avalanches along the alignment of GRP pipe. - Spaceborne Synthetic Aperture Radar (SAR) Interferometry Analysis. SAR systems offer a relatively fast and low cost mean to detect on going land deformations over large areas, even in remote locations such has the Shakhdara Valley. Differential SAR interferometry is a consolidated technique for the mapping of ground displacements, which makes use of two or more SAR images acquired from slightly different orbit configurations and at different times to exploit the phase difference of the signals. For evaluating the stability condition of the Chagev and other minor landslides it is recommended to contract a qualified remote sensing company and proceed in two-phase analysis: Page 52 of 91 The World Bank Rural Electrification Project (P170132) Phase 1: Selection of about 10 radar scenes captured in the last 10-15 year with different time frames before and after events that could have caused ground deformation such as earthquakes and exceptional rain and snowfall. The images will be used to calculate differential SAR interferograms (DInSAR) from which it would be possible to detect the existence, position and extension of unstable areas. In case there is evidence of critical conditions for the project it is recommended to proceed with phase 2. Phase 2: Interferometric Point Target (IPTA) analysis on a large number of radar scenes (up to 100) in order to retrieve a map of the spatial distribution of the average rate of movement in the satellite line-of-sight direction and time series of the displacement. InSAR Interferometry results should be verified on field by the geomorphologist in charge of the geological survey and the verified landslide integrated into the geological maps. No standard is available for InSAR analysis and its execution should be discussed with the contracted company, in any case a reference paper on Landslide detection in Nepal is given in Annex 2. - Detailed geological mapping. This will be a field activity that will define the types of soils and rocks along the project area and it must be extended up to the mountain top in order to verify the results of the geological-geomorphological study. It requires the absence of snow on the ground, therefore it can be completed only in summer-fall months. - Vertical and inclined core recovery boreholes with in-situ test. Boreholes are needed to define the ground stratigraphy at the final position of the main structures. They will be also used for the execution of in situ test such as Standard Penetration Test and the retrieval of soil and rock samples for laboratory testing. At selected location piezometric pipes could be installed for groundwater monitoring. - Exploratory trenches with in-situ test. Exploratory trenches should be excavated along the pipeline alignment in order to evaluate the ground condition and estimate the boulder occurrence. They will also be used to retrieve representative samples of coarse soils to be tested at the laboratory. - Pumping Test. Pumping or Lefranc test should be conducted within boreholes at the weir and the power house in order to define the ground permeability and the amount of water that could flow within the excavations. - Seismic refraction surveys. Seismic refraction profiles with at least 24 channels seismograph and 5- 10 meters of spacing should be executed at the desander, power house and surge arrangement to verify the variation of soil strength with depth and the position of the soil/bedrock contact. - Laboratory tests of soil and rock samples. Soil samples will be examined at the laboratory to define the soil type by classification test. Undisturbed samples of fine deposits should also be tested for shear strength and deformability. Rock samples will be tested to define the uniaxial compressive strength. c. Promotion of EE. This would include: (a) awareness raising program to promote the use of cleaner and efficient electric appliances as well as to educate the local communities about the benefits of energy efficiency renovation in buildings (i.e. building envelope insulation, EE windows, etc.); (b) technical assistance to PEC for the development of a financing mechanisms to support the local communities to purchase efficient appliances; and (c) piloting EE measures in selected public buildings, especially elementary schools, boarding schools and health centers in order to demonstrate the cost-efficiency benefits of EE investments as well as improved comfort and well-being of building occupants. Page 53 of 91 The World Bank Rural Electrification Project (P170132) d. Monitoring and evaluation costs related to efficiency of citizen engagement and addressing gender gaps under the Project; and e. Incremental operating costs of PEC. Box 1: Profile and Benefits of Sebzor HPP Sebzor HPP will be located in the south-western part of GBAO. The HPP will allow to ensure sufficient electricity supply to meet the projected electricity demand in GBAO until 2035 and also enable to export surplus generation to the neighboring Afghanistan. Specifically, the project is expected to generate 74 million kWh of energy per year, with 60 percent to be consumed domestically in GBAO by existing consumers already connected to the network and the new consumers to be connected under this Project. The exports to Afghanistan will take place under long-term PPA signed with Afghanistan power utility – Da Afghanistan Breshna Sherkat (DABS). The feasibility study, which was commissioned by PEC, confirmed that the HPP is technical feasible and economically viable. Sebzor will be a run-of-the-river HPP with a 2.8 km glass-reinforced plastic (GRP) pipeline culminating in two 220 m penstocks feeding into a powerhouse with three generating units. Electricity from Sebzor HPP will be supplied to the network via an 18 km 110 kV line connected to PEC’s grid. The Sebzor HPP site is situated on an elevation of about 2,500 masl, and the project sites (intake, waterways, powerhouse, etc.) are relatively easy to access, mostly via existing roads. The other key structures of this HPP will include the construction of: (a) weir, (b) water intake structure; (c) sand trap; (d) surge arrangements; (e) power house; and (f) electric works. Afghanistan is interested in increasing electricity imports from PEC to supply its border regions, and the Government plans to request ADB to finance the electricity transmission line to connect to Tajikistan network so that energy from Sebzor HPP can be received, and also finance distribution investments at the level of communities. The required investments are expected to be implemented by a new project company that will operate the Badakhshan network in Afghanistan under 30-year Concession Agreement. The total cost of those investments is estimated at US$100 million. The discussion of securing EUR40 million is in advanced stage among the Government of Afghanistan, European Commission (EC) and the Aga Khan Development Network (AKDN), and the funds are expected to be approved in early 2020. The Government of Afghanistan also plans to request ADB to support those investments. The HPP will generate significant social and economic benefits for both Tajikistan and Afghanistan. It creates improved opportunities for economic activities, improve the quality of public services, and generate additional revenues for PEC from exports of electricity, which will improve the financial viability of PEC, thus contributing to ensuring long-term reliable electricity supply. The same benefits would accrue to conflict-affected areas of Afghanistan given that bordering communities currently do not have access to electricity. About 47,000 customers (370,000 people) in Badakshan province of Afghanistan are expected to directly benefit from exports of electricity from Sebzor HPP in the medium to long-term. 10. Component 2: Provision of electricity access to target settlements in Khatlon (US$6.5 million IDA grant). This component will have the following sub-components. 11. Sub-component 2.1: Connection of target settlements to the centralized distribution network of BT (US$6 million IDA grant). This sub-component will finance connection of 74 settlements, bordering Afghanistan, in the Khatlon region to the electricity distribution network. The total population of the target settlements is about 12,200 people. The investments will cover the cost of distribution infrastructure, including construction of 35/10/0.4 kV distribution lines, installation of additional distribution transformers; as well as connections for households and public facilities (e.g. hospitals, schools, kindergartens) to the metering point. For all target settlements, access to energy services will be ensured by connecting the settlements to BT’s centralized network because this is the least economic cost solution considering the proximity of the target Page 54 of 91 The World Bank Rural Electrification Project (P170132) settlements to the power distribution network. Most of the settlements are located within 0.5-2 km range from the distribution system. 12. Sub-component 2.2: Project implementation support to BT (US$0.5 million IDA grant). This sub- component will finance; (a) PMC costs to support BT with preparation of bidding documents for procurement of goods and works required for connection of settlements to BT distribution network; carrying of tenders for procurement of contractors to connect the settlements to the distribution grid; supervision of construction works for connection works; and compliance with environmental and social requirements; and (b) services required for M&E. Page 55 of 91 The World Bank Rural Electrification Project (P170132) Table 2: Annex 2: Conceptual Design Parameters and Estimated Cost of Connections of Target Settlements in Khatlon Region. Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ Shamsiddin Shohin District АС- 21,80 1 Gring Langardara 1.4 АC-70/11 19,820.7 27,749.0 160 1 2,074.1 2,074.1 1.1 23,983.0 53,806.1 50/8 2.7 АС- 21,80 2 Kavluj Dashtijum 4.0 АC-70/11 19,820.7 79,282.8 160 1 2,074.1 2,074.1 3.0 65,408.1 146,765.0 50/8 2.7 АС- 21,80 3 Diyho Dashtijum 4.5 АC-70/11 19,820.7 89,193.2 160 1 2,074.1 2,074.1 3.0 65,408.1 156,675.4 50/8 2.7 АС- 21,80 4 Rokhi Nav Dashtijum 2.5 АC-70/11 19,820.7 49,551.8 160 1 2,074.1 2,074.1 1.2 26,163.2 77,789.1 50/8 2.7 АС- 21,80 5 Qumrogh Dashtijum 6.0 АC-70/11 19,820.7 118,924.2 160 1 2,074.1 2,074.1 1.7 37,064.6 158,062.9 50/8 2.7 Shahristo АС- 21,80 6 Dashtijum 4.0 АC-70/11 19,820.7 79,282.8 160 1 2,074.1 2,074.1 2.0 43,605.4 124,962.3 n 50/8 2.7 Kulako, АС- 21,80 7 Langardara 1.7 АC-70/11 19,820.7 33,695.2 160 1 2,074.1 2,074.1 2.0 43,605.4 79,374.7 Khambel 50/8 2.7 АС- 21,80 8 Urgli Sarichashma 1.0 АC-70/11 19,820.7 19,820.7 160 1 2,074.1 2,074.1 2.5 54,506.8 76,401.6 50/8 2.7 АС- 21,80 9 Korgaron Sarichashma 3.0 АC-70/11 19,820.7 59,462.1 160 1 2,074.1 2,074.1 0.4 8,721.1 70,257.3 50/8 2.7 АС- 21,80 10 Safebod 1.8 АC-70/11 19,820.7 35,677.3 160 1 2,074.1 2,074.1 0.5 10,901.4 48,652.7 50/8 2.7 АС- 21,80 11 Sheli Bolo 2.0 АC-70/11 19,820.7 39,641.4 160 1 2,074.1 2,074.1 0.3 6,540.8 48,256.3 50/8 2.7 37 Third-level administrative divisions similar to communities. Page 56 of 91 The World Bank Rural Electrification Project (P170132) Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ Bogi АС- 21,80 12 Dashtijum 1.0 АC-70/11 19,820.7 19,820.7 160 1 2,074.1 2,074.1 0.5 10,901.4 32,796.2 Mullo 50/8 2.7 АС- 21,80 13 Sarireg Dashtijum 1.0 АC-70/11 19,820.7 19,820.7 160 1 2,074.1 2,074.1 0.7 15,261.9 37,156.7 50/8 2.7 Khami АС- 21,80 14 Langardara 3.0 АC-70/11 19,820.7 59,462.1 160 1 2,074.1 2,074.1 1.8 39,244.9 100,781.1 Maglab 50/8 2.7 Kalandoro АС- 21,80 15 Langardara 3.0 АC-70/11 19,820.7 59,462.1 160 1 2,074.1 2,074.1 2.5 54,506.8 116,043.0 n 50/8 2.7 АС- 21,80 16 Darelon Sarichashma 1.5 АC-70/11 19,820.7 29,731.1 160 1 2,074.1 2,074.1 1.4 30,523.8 62,328.9 50/8 2.7 АС- 21,80 17 Zrang 5.0 АC-70/11 19,820.7 99,103.5 160 1 2,074.1 2,074.1 0.3 6,540.8 107,718.4 50/8 2.7 АС- 21,80 18 Irgailuq Shurobod 2.5 АC-70/11 19,820.7 49,551.8 160 1 2,074.1 2,074.1 2.7 58,867.3 110,493.1 50/8 2.7 АС- 21,80 19 Cheptura 3.0 АC-70/11 19,820.7 59,462.1 160 1 2,074.1 2,074.1 0.5 10,901.4 72,437.6 50/8 2.7 Kuhdoma АС- 21,80 20 Shurobod 2.0 АC-70/11 19,820.7 39,641.4 630 1 4,774.2 4,774.2 7.0 152,618.9 197,034.5 n 50/8 2.7 АС- 21,80 21 Rogien Shurobod 2.3 АC-70/11 19,820.7 45,587.6 400 2 3,182.8 6,365.6 7.5 163,520.3 215,473.5 50/8 2.7 АС- 21,80 22 Faizobod Shurobod 1.5 АC-70/11 19,820.7 29,731.1 630 1 4,774.2 4,774.2 5.2 113,374.0 147,879.3 50/8 2.7 Hairkoron АС- 21,80 23 Shurobod 2.2 АC-70/11 19,820.7 43,605.5 630 1 4,774.2 4,774.2 4.5 98,112.2 146,491.9 -2 50/8 2.7 Hairkoron АС- 21,80 24 Shurobod 1.2 АC-70/11 19,820.7 23,784.8 400 1 3,182.8 3,182.8 3.5 76,309.5 103,277.1 -3 50/8 2.7 АС- 21,80 25 Javonon Shurobod 1.7 АC-70/11 19,820.7 33,695.2 630 1 4,774.2 4,774.2 5.3 115,554.3 154,023.7 50/8 2.7 Page 57 of 91 The World Bank Rural Electrification Project (P170132) Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ Kurbonov АС- 21,80 26 Shurobod 1.2 АC-70/11 19,820.7 23,784.8 630 1 4,774.2 4,774.2 6.0 130,816.2 159,375.2 Turk 50/8 2.7 АС- 21,80 27 Kaftar Dogiston 1.7 АC-70/11 19,820.7 33,695.2 400 1 3,182.8 3,182.8 3.7 80,670.0 117,548.0 50/8 2.7 АС- 21,80 28 Karbalo Dogiston 1.8 АC-70/11 19,820.7 35,677.3 630 1 4,774.2 4,774.2 5.2 113,374.0 153,825.5 50/8 2.7 29 Zu Shurobod 30 Navobod Shurobod TOTAL: 67.5 1,337,897.3 29 80,784.3 76.0 1,657,005.2 3,075,686.8 Pharkhor district Mavzei АС- 21,80 1 Gulshan 3.5 АC-70/11 19,820.7 69,372.5 250 2 2,488.7 4,977.4 2.7 58,867.3 133,217.1 Urtabuz 50/8 2.7 АС- 21,80 2 Surkhob Galaba 1.5 АC-70/11 19,820.7 29,731.1 400 1 3,182.8 3,182.8 1.8 39,244.9 72,158.7 50/8 2.7 АС- 21,80 3 Kizil-Su Galaba 1.6 АC-70/11 19,820.7 31,713.1 250 1 2,488.7 2,488.7 1.6 34,884.3 69,086.1 50/8 2.7 АС- 21,80 4 Laman I.Tojikiston 1.7 АC-70/11 19,820.7 33,695.2 400 1 3,182.8 3,182.8 2.7 58,867.3 95,745.3 50/8 2.7 Mavzei АС- 21,80 5 Pharkhor 2.0 АC-70/11 19,820.7 39,641.4 400 1 3,182.8 3,182.8 2.6 56,687.0 99,511.2 Urtabuz 50/8 2.7 АС- 21,80 6 Alovuddin Pharkhor 0.65 АC-70/11 19,820.7 12,883.5 400 1 3,182.8 3,182.8 2.6 56,687.0 72,753.3 50/8 2.7 АС- 21,80 7 Archa Dehkonarik 0.7 АC-70/11 19,820.7 13,874.5 400 1 3,182.8 3,182.8 1.8 39,244.9 56,302.2 50/8 2.7 Page 58 of 91 The World Bank Rural Electrification Project (P170132) Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ Nekmanza АС- 21,80 8 Gairat 1.6 АC-70/11 19,820.7 31,713.1 250 1 2,488.7 2,488.7 2.4 52,326.5 86,528.3 r 50/8 2.7 АС- 21,80 9 Istiqlol Zafar 1.4 АC-70/11 19,820.7 27,749.0 400 1 3,182.8 3,182.8 1.7 37,064.6 67,996.4 50/8 2.7 АС- 21,80 10 Pingoni Dehkonarik 1.8 АC-70/11 19,820.7 35,677.3 400 1 3,182.8 3,182.8 2.6 56,687.0 95,547.1 50/8 2.7 АС- 21,80 11 Zoli Zar Dehkonarik 0.65 АC-70/11 19,820.7 12,883.5 160 1 2,074.1 2,074.1 1.3 28,343.5 43,301.1 50/8 2.7 Davlatobo АС- 21,80 12 Gulshan 2.0 АC-70/11 19,820.7 39,641.4 400 2 3,182.8 6,365.6 5.5 119,914.9 165,921.9 d 50/8 2.7 АС- 21,80 13 Tojikiston Gairat 1.0 АC-70/11 19,820.7 19,820.7 630 1 4,774.2 4,774.2 2.25 49,056.1 73,651.0 50/8 2.7 АС- 21,80 14 Sakhovat Zafar 2.0 АC-70/11 19,820.7 39,641.4 630 1 4,774.2 4,774.2 2.5 54,506.8 98,922.4 50/8 2.7 АС- 21,80 15 Tojikiston Gairat 0.5 АC-70/11 19,820.7 9,910.4 250 2 2,488.7 4,977.4 2.5 54,506.8 69,394.5 50/8 2.7 АС- 21,80 16 Frunze Gairat 0.25 АC-70/11 19,820.7 4,955.2 630 1 4,774.2 4,774.2 2.7 58,867.3 68,596.7 50/8 2.7 Kukhande АС- 21,80 17 Vatan 0.4 АC-70/11 19,820.7 7,928.3 400 1 3,182.8 3,182.8 1.6 34,884.3 45,995.4 r 50/8 2.7 АС- 21,80 18 Kazok Vatan 0.5 АC-70/11 19,820.7 9,910.4 400 1 3,182.8 3,182.8 1.5 32,704.1 45,797.2 50/8 2.7 Bahoristo АС- 21,80 19 Vatan 1.2 АC-70/11 19,820.7 23,784.8 250 1 2,488.7 2,488.7 1.5 32,704.1 58,977.6 n 50/8 2.7 АС- 21,80 20 Lolazor Vatan 0.7 АC-70/11 19,820.7 13,874.5 400 1 3,182.8 3,182.8 0.6 13,081.6 30,138.9 50/8 2.7 АС- 21,80 21 Puchkok Darkad 1.0 АC-70/11 19,820.7 19,820.7 400 1 3,182.8 3,182.8 0.6 13,081.6 36,085.1 50/8 2.7 Page 59 of 91 The World Bank Rural Electrification Project (P170132) Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ TOTAL: 26.7 528,221.7 24 75,194.00 45.05 982,211.6 1,585,627.3 Khamadony District АС- 21,80 1 Margob Kahramon 0.7 АC-70/11 19,820.7 13,874.5 250 4 2,488.7 9,954.8 2.6 56,687.0 80,516.3 50/8 2.7 АС- 21,80 2 Zafarobod Panchob 0.7 АC-70/11 19,820.7 13,874.5 250 1 2,488.7 2,488.7 1.2 26,163.2 42,526.4 50/8 2.7 АС- 21,80 3 Mehvar Chubek 0.6 АC-70/11 19,820.7 11,892.4 400 1 3,182.8 3,182.8 1.65 35,974.5 51,049.7 50/8 2.7 Mehnatob АС- 21,80 4 Mehnatobod 0.3 АC-70/11 19,820.7 5,946.2 160 1 2,074.1 2,074.1 1.2 26,163.2 34,183.6 od 50/8 2.7 Tagi АС- 21,80 5 Kahramon 0.9 АC-70/11 19,820.7 17,838.6 160 2 2,074.1 4,148.2 1.9 41,425.1 63,412.0 Namak 50/8 2.7 АС- 21,80 6 S. Gadoi-1 Panchrud 1.1 АC-70/11 19,820.7 21,802.8 400 1 3,182.8 3,182.8 1.9 41,425.1 66,410.7 50/8 2.7 АС- 21,80 7 Guliston Kahramon 0.3 АC-70/11 19,820.7 5,946.2 160 1 2,074.1 2,074.1 1.0 21,802.7 29,823.0 50/8 2.7 Darai АС- 21,80 8 Kahramon 0.6 АC-70/11 19,820.7 11,892.4 630 1 4,774.2 4,774.2 1.0 21,802.7 38,469.3 Kaloth 50/8 2.7 АС- 21,80 9 Sarkokul Chubek 1.5 АC-70/11 19,820.7 29,731.1 160 1 2,074.1 2,074.1 1.2 26,163.2 57,968.4 50/8 2.7 АС- 21,80 10 Sairob Panchob 0.3 АC-70/11 19,820.7 5,946.2 250 1 2,488.7 2,488.7 0.9 19,622.4 28,057.3 50/8 2.7 АС- 21,80 11 Tokiston Panchob 1.5 АC-70/11 19,820.7 29,731.1 400 3 3,182.8 9,548.4 6.2 135,176.7 174,456.2 50/8 2.7 Page 60 of 91 The World Bank Rural Electrification Project (P170132) Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ АС- 21,80 12 S. Gadoi-2 Panchrud 0.4 АC-70/11 19,820.7 7,928.3 250 1 2,488.7 2,488.7 1.0 21,802.7 32,219.7 50/8 2.7 Darai АС- 21,80 13 Kahramon 0.7 АC-70/11 19,820.7 13,874.5 160 1 2,074.1 2,074.1 0.4 8,721.1 24,669.7 Kalotnazdi 50/8 2.7 АС- 21,80 14 Pushkin Kahramon 1.2 АC-70/11 19,820.7 23,784.8 400 2 3,182.8 6,365.6 2.1 45,785.7 75,936.1 50/8 2.7 Guliston АС- 21,80 15 Mehnatobod 0.7 АC-70/11 19,820.7 13,874.5 400 1 3,182.8 3,182.8 1.2 26,163.2 43,220.5 Shurtang 50/8 2.7 Furudgoh АС- 21,80 16 0.2 АC-70/11 19,820.7 3,964.1 250 1 2,488.7 2,488.7 1.0 21,802.7 28,255.5 Shahrak 50/8 2.7 Tursunzod АС- 21,80 17 (stadium) 0.3 АC-70/11 19,820.7 5,946.2 400 1 3,182.8 3,182.8 1.2 26,163.2 35,292.3 a Shahrak 50/8 2.7 АС- 21,80 18 Orieno Chubek 0.5 АC-70/11 19,820.7 9,910.4 630 1 4,774.2 4,774.2 1.9 41,425.1 56,109.7 50/8 2.7 АС- 21,80 19 Navobod Mehnatobod 1.0 АC-70/11 19,820.7 19,820.7 400 2 3,182.8 6,365.6 1.2 26,163.2 52,349.5 50/8 2.7 Navobod- АС- 21,80 20 Mehnatobod 0.7 АC-70/11 19,820.7 13,874.5 400 2 3,182.8 6,365.6 1.1 23,983.0 44,223.1 Gulobod 50/8 2.7 Hayoti АС- 21,80 21 Chubek 0.4 АC-70/11 19,820.7 7,928.3 400 1 3,182.8 3,182.8 1.7 37,064.6 48,175.7 nav 50/8 2.7 АС- 21,80 22 Nazdi Turdiev 0.9 АC-70/11 19,820.7 17,838.6 400 3 3,182.8 9,548.4 2.1 45,785.7 73,172.7 50/8 2.7 АС- 21,80 23 Surkhob Dashtigulo 1.9 АC-70/11 19,820.7 37,659.3 630 1 4,774.2 4,774.2 2.6 56,687.0 99,120.6 50/8 2.7 TOTAL: 17.4 344,880.2 34.0 100,784.4 38.3 833,953.3 1,279,617.9 Page 61 of 91 The World Bank Rural Electrification Project (P170132) Construction of OHL -10(6) kV Installation of PTS -10(6)/0,4 kV Construction of OHL -0,4 kV TOTAL: Name of Cost Name of of № settlemen Cost of jamoats37 Pow Conduc constr t Length, constructi Aggregate Unit cost Cost in Lengt Aggregate Conductor type er, ea tor uction USD km on of 1 cost, US$ in US$ US$ h, km cost, US$ kVA type of 1 km, US$ km, US$ TOTAL for Settlements in Khatlon Province TOTAL: 111.6 2,210,999.1 87.0 256,762.7 159.3 3,473,170.1 5,940,931.9 Page 62 of 91 The World Bank Rural Electrification Project (P170132) ANNEX 3: Financial Management, Disbursements, and Procurement COUNTRY: Tajikistan Rural Electrification Project Financial Management 1. The FM arrangements of BT ESPMU and PEC were reviewed as part of financial management assessment for the project and have been assessed as acceptable for the project’s implementation. The project FM assessment undertaken in April 2019 confirmed that: (i) the FM/accounting staff at both IAs has experience in the Bank-financed projects; (ii) the internal control and filing systems in place are overall adequate; (iii) results from the latest annual audit of the Bank-financed projects implemented by BT ESPMU and PEC were satisfactory, and (iv) the IFRs on the Bank-financed projects were mostly received on time and in general found to be acceptable to the Bank. Nevertheless, the following action plan, was agreed with the BT and PEC, and will need to be implemented to incorporate additional financial management requirements for the proposed project. The agreed plan consists of capacity building actions that have to be in place before project implementation starts. The overall FM risk for the proposed project is Substantial. The actions in the following table are not legal covenants. Action Responsibility Deadline Hire additional FM/accounting staff, acceptable to Within 30 days after BT ESPMU/PEC the Bank, to manage the increased workload. project effectiveness Develop the FM part of Project Operational Manual By effectiveness (POM), acceptable to the Bank, to reflect the FM BT ESPMU/PEC arrangements and controls under the Project. Finalize the upgrade of the existing accounting Within 30 days after BT ESPMU/PEC system. project effectiveness 2. Under the project, the BT ESPMU and PEC will be responsible for the preparation of the annual budget and consolidating annual project budgets based on procurement plans. Both Agencies are capable to prepare relevant budgets. The final plans and budgets are approved by the PEC and BT. The annual budget is based on the procurement plan, which is regularly updated by the procurement specialist. All changes in procurement plan are reviewed and agreed in advance with the Bank, and only then the changes are incorporated in the annual budget. It was agreed that for the project needs, additional FM/accounting staff, acceptable to the Bank, will be hired to support the Chief Accountant in both IAs on daily basis (within 30 days after project effectiveness). 3. For financial reporting purposes, the BT and PEC will use cash basis IPSAS (for the project reporting) and IFRS (for the entity reporting). The accounting policies and procedures are documented in the accounting policy manuals of BT and PEC. The accounting at BT ESPMU is automated, using 1C and accounting software. PEC is using Iscala EPR modules which includes General Leger, Account Payable, Inventory, Cash and Bank Book. For Payroll, PEC is using 1C software. The software has the capability to produce interim financial reports in accordance with formats to be agreed with the Bank. All transactions recorded on a cash basis of accounting and the supporting documentation will be maintained in files for ready access by auditors and during implementation support missions of the World Bank. The systems have been used for the previous Bank-financed projects and will be upgraded to meet the requirements Page 63 of 91 The World Bank Rural Electrification Project (P170132) for accounting and reporting and needs to be completed before the project implementation (within 30 days after project effectiveness). 4. BT ESPMU and PEC has overall adequate internal control system in place for implementation of the project, including adequate segregation of duties among the FM/accounting staff. There is also audit committee reported to the PEC’s Board of Directors. The internal control function at BT will be further strengthened under the Government Program for Financial Recovery of BT. Thus, for the needs of this project, it was agreed that by project effectiveness, the FM Manual that is part of POM will be developed and approved and will reflect the FM arrangements and controls under the project. 5. Project management-oriented Interim Un-audited Financial Reports (IFRs) will be used for the project monitoring and supervision. The format of the IFRs has been confirmed during assessment and includes: (i) Project Sources and Uses of Funds, (ii) Uses of Funds by Project Activity, (iii) Designated Account Statements, (iv) A Statement of the Financial Position, and (v) SOE Withdrawal Schedule. These financial reports will be submitted to the World Bank within 45 days of the end of each quarter, with the first reports under the proposed Project being submitted after the end of the first quarter of initial disbursement. 6. BT’s current auditing arrangements are satisfactory to the Bank (there are no pending audits of the Entity and projects implemented by BT, and no major issues have arisen in the latest audit of the project implemented by BT), the PEC’s audit report for Recipient’s FY2017 was not yet finalized, it’s under the review of PEC’s Board of Directors and shareholders approval. The audit of the entity (PEC) and the project will be conducted: (i) by independent private auditors acceptable to the Bank, on terms of reference (TOR) acceptable to the Bank, and (ii) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC). 7. The annual audits of the entity (PEC) and the project financial statements will be provided to the Bank within six months since the end of each fiscal year; and for the project also at the project closing. If the period from the date of effectiveness of the grant to the end of the Recipient’s fiscal year is no more than six months, the first audit report may cover financial statements for the period from effectiveness to the end of the second fiscal year. The Recipient has agreed to disclose the audit reports for the project and the entity (PEC) within one month of their receipt from the auditors and acceptance by the Bank, by posting the reports on its official web site. Following the Bank's formal receipt of these reports from the Recipient, the Bank will make them publicly available according to World Bank Policy on Access to Information. The cost of the audit will be financed from the proceeds of the project. 8. BT ESPMU and PEC will establish two separate Designated Accounts (DAs), in USD, specifically for this Project, in the commercial bank/financial institution, which is acceptable to the bank. The Project’s DA will be managed by the BT and PEC. The SOE based disbursement method will be applied for the Project. Disbursements 9. Project funds will flow from the Bank, either: (i) via the DA to be maintained in the CB/financial institution, which will be replenished on the basis of SOEs or full documentation; or (ii) on the basis of direct payment withdrawal applications and/or special commitments, received from the BT/PEC. Withdrawal applications documenting funds utilized from the DA will be sent to the Bank at least every three months. The following disbursement methods may be used under the Project: Reimbursement, Page 64 of 91 The World Bank Rural Electrification Project (P170132) Direct payment and Special Commitment. The DA’s ceiling is proposed to be established at US$1,000,000 for PEC and US$300,000 for BT as reflected in the Disbursement and Financial Information Letter (DFIL). Detailed instructions on withdrawal of loan proceeds are provided in the DFIL. 10. Project funds would be transferred electronically to a Transit Account opened at the same commercial bank/financial institution for immediate payments in local currency, based on expenditures already incurred or immediately to be incurred. All payment orders would be approved by the BT Chairman/PEC General Director, or their designate, and the Finance and Corporate Services Director/Chief Accountant after being verified by the FM specialist. 11. Payments in foreign currency would be made either from the Designated Accounts or directly from the Grant Account as Direct Payment depending on the threshold for such payments, as would be determined in the DFIL. Withdrawal applications for Direct Payments would be electronically submitted to the MOF where they will be reviewed and signed by person authorized to sign withdrawal applications on behalf of the Recipient. Procurement 12. The procurement arrangements under the Project will be governed by the New Procurement Framework for IPF Regulations for Borrowers (dated July 2016, revised August 2018). The procurement processes will be carried out through the Systematic Tracking of Exchanges in Procurement (STEP) online platform. The Project will be implemented in accordance with the agreed procedures as outlined in Regulations for Borrowers, Procurement Plan and Project Procurement Strategy for Development (PPSD), which describes all major procurement-related aspects. GSE prepared a draft Project Procurement Strategy for Development (PPSD), which contains among others, brief description of the project; procurement approach for key goods and works contracts, and consultancy services; market analyses for proposed goods, works, and consulting services; assessment of procurement risks and mitigation measures; stakeholder analyses procurement schedule; and draft procurement plan. It also contains robust market analysis, operational context, client assessment, social aspects, and procurement risk analysis. 13. Procurement Capacity. The procurement risk is assessed as Substantial. PEC and BT ESPMU have no experience in application of the Bank’s New Procurement Framework. Nevertheless, the Implementing agencies have experience in the procurement and execution of contracts for goods, civil works and consulting services specific to the energy sector over the past years. However, both entities have no experience with new World Bank procurement procedures; have limited contract monitoring and management skills as this function was mainly assigned to the external consultants; and the existing capacity may not be sufficient to handle the increasing volume of procurement activities in the multiple projects implemented in parallel. This constitutes a capacity risk for the project implementation that will need to be timely and adequately addressed particularly through training of BT ESPMU and PEC staff on the WB procurement Policy and Regulations as well as the Standard Procurement Documents. The World Bank would closely support BT contract management capacity. 14. Main procurement packages and procurement arrangements. The largest packages under the Project are: a. Construction of micro-grids based on RE technologies (US$17.8). Two options are currently under consideration: (a) plant design, supply, and install (PSDI) contract using Request for Bids (RFB) without prequalification; and (b) design and supply contract combined with separate civil works Page 65 of 91 The World Bank Rural Electrification Project (P170132) contract. The final decision whether to combine design, supply, and installation under single responsibility contract covering all of the settlements will be made after bidder conference to be held in September 2019 and considering the feedback and potential interest from bidders. b. Connection of target settlements to PEC distribution network (US$6 million). This will be carried out through separate design and supply and civil works contracts. The contract is quite small and will not attract EPC contractors. c. Connection of target settlements to BT distribution network (US$6 million). This will be carried out through PSDI contract using RFB without prequalification. 15. The use of RFB is justified because: (a) the installation of micro-grids is fairly standardized type of works; therefore, single-stage bidding is warranted and there is no need for bidders to offer customized solutions; and (c) there is no need to introduce criteria for quality in the evaluation. It would be sufficient if bidders meet the specified minimum technical criteria and comply with economic/financial qualification criteria. 16. SWOT analysis carried out for BT and PEC with respect to the proposed project and related procurement approach and is summarized in the table below. Table 1: Annex 3: Summary of SWOT Analyses for Procurement Approach. Strengths Weaknesses • Relevant project implementation experience with • Relatively slow decision/approval/coordination projects of similar nature. process and internal procedures due to multiple • Project director (expatriate) and technical staff stakeholders involved. (expatriate and local) permanently based in PEC • Work load for procurement staff and project site. management will increase due to multiple • Project divided into lots will ensure that the project is projects implemented in parallel. completed on time and is of the required quality. • Potential disruption in the supply chain of potential bidders due to logistical challenges of the country. Opportunities Threats • Increased competition among existing and new • Limited competition due to remoteness of the players entering the Tajik market in view of the project area. ongoing construction of Rogun HPP. • The project has been financed from various • Introduction of new technologies in hydropower development partners, which may delay the sector. project due to non-commitment by any one • Intensifying of local market (supply, transportation, development partner. works, services). • Potential disruption in the supply chain of • Lower maintenance costs during the operational potential bidders due to logistical challenges of phase. the country. • The project financing through grants will ensure the • Perceived insecurity due to proximity to sensitive financial sustainability of PEC international borders. 17. Market analysis. PEC has not implemented large-scale development of micro-grids based on solar PV, wind, and BESS. Moreover, BESS are a new technology for Tajikistan with no track record of procuring such systems. The potential bidders for design, supply, and installation of off-grid RE were identified considering the interest from such companies in other Central Asian countries – primarily Kazakhstan and Uzbekistan. The market analysis identified 15 companies, which are likely to participate in the tender for Page 66 of 91 The World Bank Rural Electrification Project (P170132) construction of micro-grids. The value of the contract for micro-grid solutions is estimated at US$18.7 million and may attract EPC contractors active in the region. 18. Both PEC and BT have experience with hiring contractors for repair and replacement of electricity distribution infrastructure in the rural areas. Based on the experience from previous similar projects, tenders attracted primarily domestic companies given relatively low values of contracts for such works. The average value of the contracts typically does not exceed US$0.3 million. Therefore, it does not generate interest from large international companies specializing in such works. Even if multiple lots are included in one procurement package, the total size would still be low given: (a) limited budget of BT available for such rehabilitation and upgrade works given its dire financial condition; and (b) small size of the distribution network in GBAO. The market analysis identified about 13 local companies that may carry out such works. 19. Based on PPSD, the optimal procurement approaches have been determined and Procurement Plan for the first 18 months of the project implementation has been prepared. Table 2: Annex 3: Draft Procurement Plan. Contract title, Estimated Bank Procurement Selection Evaluation Dates/Start Description and cost (US$) oversight approach methods: method: or Category Completion Design, supply, and Substantially installation of micro- Request for Bid responsive Start -Jun. Prior International grids in GBAO, - (RFB) with post and lowest 2020 review / Open Procurement of Works qualification evaluated cost Connection of target Substantially settlements to the responsive Start -Jan. distribution network and Post Internationall RFB with post - and lowest 2020 consumer-level wiring in review / Open qualification evaluated GBAO cost Procurement of Works Connection of target Substantially settlements to the responsive Start -Jan. distribution network and Post International RFB with post - and lowest 2020 consumer-level wiring in review / Open qualification evaluated BT cost Procurement of Works Piloting of energy Substantially efficiency in public responsive Start -Jan. Post National / RFB with post facilities; Procurement - and lowest 2020 review Open qualification of works evaluated cost International Prior Start – Jun. PMC for PEC - /National / QCBS review 2019 Open Geological- Post International Start – Jun. - FBS geomorphological study review / Open 2019 Spaceborne Synthetic Post International Least-Cost Start – Jun. - Aperture Radar (SAR) review / Open Selection 2019 Page 67 of 91 The World Bank Rural Electrification Project (P170132) Interferometry Analysis International Horizontal and vertical Post Start – Jun. - /National / RFQ core recovery boreholes review 2019 Open Seismic refraction Post International Start – Sep. - FBS survey review /Open 2019 Testing of physical and International Post Start – Nov. mechanical properties of - /National/Op FBS review 2019 soils and rock samples en Development of International financing mechanisms Post Start – Sep. - /National/Op QCBS for energy efficiency and review 2019 en awareness-raising International Prior Start- Jun. PMC for BT - /National / QCBS review 2019 Open Incremental operating - SOE costs of PEC Page 68 of 91 The World Bank Rural Electrification Project (P170132) ANNEX 4: Economic and Financial Analyses COUNTRY: Tajikistan Rural Electrification Project Economic Analysis of the Project 1. The economic analysis of the Project included: (a) least-cost justification for proposed electrification solutions; and (b) evaluation of incremental costs and benefits of identified electrification solutions, which included both components of the Project covering off-grid electrification solutions and connection of target settlements to the distribution networks of PEC and BT. 2. Least-Cost Justification for Options to Meet Projected Electricity Demand: The Project to be evaluated was recommended from various project sizes and configurations that were assessed through detailed least-cost planning (LCP) analysis to identify electrification solutions for target settlements in PEC and BT service areas. First, the electricity demand was projected for target settlements using the historical data on consumption of similar settlements that are connected to electricity service. Second, the list of technically feasible technologies was identified to meet the projected electricity demand in target settlements. Third, optimization was carried out to determine the combination of technologies to minimize the economic cost of electricity supply to target settlements. 3. The method used to estimate power supply options for each community in the project area consists of calculating the least cost arrangement of technologies that can supply the demand for electric power given their current power consumption profiles, the future growth estimates and the availability of each resource in the area under examination. 4. The least cost solution was found by creating a model for each community that describes the available technologies, the available resources in each place, the cost and characteristics of each technology and as mentioned above, the consumption profiles. The model calculated the least cost option to meet the demand, by installing enough capacity in the planning horizon, 20 years, such that most of the needs are met. If the demand was not met, there was a penalty of US$80/MWh that the model used to gauge whether it was worthwhile to install one more unit of generation. The model was run in World Bank Energy Modeling Team implementation called EPM, which runs on the General Algebraic Modeling System (GAMS), a high-level modeling system for mathematical programming and optimization. The model used a mixed-integer programing algorithm to find the optimal allocation of resources given the discrete nature of some of the plant’s capacities. 5. The year was divided in months and several representative days per month were selected to calculate the supply/demand balance in each of the hours in those days. The calculation was extrapolated to all the hours in a month. The selection of the representative days was done by analyzing the available generation capacity for each technology in each location. 6. There were 61 communities analyzed, each one with a consumption profile and demand growth estimate, and depending on their location, data that was provided from surveys. The analysis suggested that grid-connection was economically justified for 26 communities and off-grid electrification options should be pursued for remaining 35 communities. 7. Regarding the generation options, the list of available generation technologies is listed in the Table Page 69 of 91 The World Bank Rural Electrification Project (P170132) below. Photovoltaic, wind and hydro power plants are among the possible alternatives for each community. There is an option of storing power generated during low consumption periods and excess generation. For example, the advantage of accumulating diurnal photovoltaic generation enables the evening consumption in the community. In case of the hydro power projects, as this technology is site specific, the characteristics for each project is independently listed below. A generic potential power generator using diesel is considered as an alternative when possible. Data for these projects has been obtained from the country institutions participating in the analysis. Table 1: Annex 4: Generation Technologies. Type Community Region Capacity Technology Capex FOMperMW VOM Life MW $/MW $/MW/year Year Hydro ROR Gushun Darvaz 0.017 Water 3.42 20,000 - 40 Hydro ROR Yoged Darvaz 0.275 Water 3.00 20,000 - 40 Hydro ROR Devlokh Rushan 0.015 Water 3.97 20,000 - 40 Hydro ROR Dzhizev Rushan 0.023 Water 3.56 20,000 - 40 Hydro ROR Ravmed Rushan 0.101 Water 4.40 20,000 - 40 Hydro ROR Bizhravd Rushan 0.009 Water 5.77 20,000 - 40 Hydro ROR Midenchid Rushan 0.012 Water 4.42 20,000 - 40 Hydro ROR Achirkh Rushan 0.035 Water 12.26 20,000 - 40 Hydro ROR Darjomch Rushan 0.220 Water 3.80 20,000 - 40 Hydro ROR Ravsharv Rushan 0.008 Water 3.70 20,000 - 40 Hydro ROR Pshikharv Vanj 0.045 Water 3.84 20,000 - 40 Wind - Wind 3.47 30,000 - 30 PV - Solar 1.94 13,000 - 30 Storage - Battery 0.35 18,000 0.001 20 8. The hydro power plants were assumed to generate at a level proportional to the water flow in the river, and it has a characteristic seasonal variation. In each season, the hydro generators produced at an average capacity factor in each month. Table 2 below show the monthly maximum capacity based on river flow data. 9. The profiles of Solar PV and Wind are location-specific and were taken from historical observations for a typical meteorological year. With the information of how these resources change over the year on an hourly basis, generation profiles were built on MW basis to describe the resource availability. An example of these generators availability over the year is shown in Table 3. 10. The periodicity of different resources, determines the selection of a month as a modeling time unit. A cluster analysis is used to determine the seven representative days that summarize that month’s resource availability given the wind and solar resources availability within a month. 11. General economic and system performance statistics were calculated to describe the solution for each community, summarized mainly by the capital expenses and the amount of resulting unserved demand. Table 2: Annex 4: Monthly maximum available capacity percentage based on river discharge for each hydro project in nearest community. Community 1 2 3 4 5 6 7 8 9 10 11 12 Gushun 3.6 3.6 4.6 18.8 49.4 100.0 84.2 28.6 14.8 7.2 4.9 3.9 Yoged 3.6 3.6 4.6 18.7 49.2 100.0 84.0 33.8 14.8 7.2 4.9 3.9 Page 70 of 91 The World Bank Rural Electrification Project (P170132) Community 1 2 3 4 5 6 7 8 9 10 11 12 Pshikharv 10.3 9.5 8.7 11.1 28.1 53.0 100.0 84.5 47.1 20.6 12.6 10.3 Devlokh 11.4 10.9 12.2 14.7 26.5 47.9 100.0 88.2 56.3 22.7 15.6 13.4 Dzhizev 11.5 10.9 12.2 14.7 26.5 47.9 100.0 88.3 56.2 22.8 15.5 13.4 Ravmed 11.4 10.9 12.2 14.7 26.5 48.0 100.0 88.1 56.4 22.7 13.8 13.4 Bizhravd 11.4 10.9 12.2 14.7 26.5 48.0 100.0 88.3 56.3 22.7 15.6 13.5 Midenchid 11.4 11.0 12.2 14.8 26.6 48.0 100.0 88.5 56.4 22.7 15.6 13.5 Achirkh 3.3 3.1 6.1 10.0 27.8 61.1 100.0 77.8 55.6 33.3 11.1 4.4 Darjomch 9.9 8.3 10.5 16.6 44.2 66.3 100.0 71.8 49.7 27.6 17.1 13.9 Ravsharv 7.3 5.5 8.2 10.9 22.7 81.8 100.0 90.9 45.5 18.2 10.0 8.2 Table 3: Annex 4: Annual wind and solar distribution of maximum availability in Rangkul (example). Resource / 1 2 3 4 5 6 7 8 9 10 11 12 Month # Solar 31% 22% 82% 79% 100% 76% 88% 79% 86% 82% 54% 42% Wind 76% 76% 59% 63% 79% 48% 73% 83% 57% 78% 87% 67% Analysis of Incremental Economic Costs and Benefits of the Project 12. Economic Costs. The economic costs include the Project construction cost, implementation consultant cost, and incremental O&M costs required for the new micro-grids and grid-connections of settlements, including household-level wiring. The construction costs include the expected Project Design, Supply, and Installation (PDSI) costs of the micro-grids and grid-connections. The Project construction costs were forecast according to the years in which they are expected to be incurred during the construction period. The Project O&M costs include incremental O&M over the expected working life of the project facilities, which is assumed to be 20 years – the period for useful economic life of BESS, which is the shortest among all other equipment to be installed under the Project. The economic analysis was conducted exclusive of the taxes and duties. 13. Economic Benefits. The main economic benefits of the Project are: (a) the economic value of electricity service for target settlements; and (b) reduction of CO2 emissions from switching to electricity- based heating and partial switching to electricity-based cooking. 14. The economic value of electricity to be consumed by target settlements was estimated at WTP, which was assumed to equal US$0.08.38 The WTP for electricity was estimated based on the demand function showing how the quantity of electricity demanded by the consumer varies with the price of electricity faced by the consumer. At one end of this function, a consumer is expected to be willing to pay a high price for consuming a little amount of electricity because the consumer will apply this quantity to the uses that have highest value to the consumer. The total amount of electricity that the consumer demands is set by the point at which the demand function reaches the actual price paid for electricity, which is the point on the demand function at which the WTP drops to the level of the electricity price. 15. The reduction of CO2 emissions was valued based on the partial displacement of coal in Khatlon and GBAO by electricity for cooking and heating needs. Once target settlements have access to electricity, they are likely to switch to electricity-based heating based on the historical evidence from PEC when it was connecting new households to the its grid. As mentioned earlier, this switch takes place because in 38 “Tajikistan’s Winter Energy Crisis: Electricity Supply and Demand Alternatives,” The World Bank, 2013. Page 71 of 91 The World Bank Rural Electrification Project (P170132) the short to medium-term electricity remains least cost option for heating considering the current lifeline tariff structure in place in GBAO. In Khatlon, there will not likely be a complete shift to electricity-based heating given that tariffs for residential consumers will be higher. Thus, the analysis conservatively assumes that coal consumption will reduce by around 30 percent. 16. The social cost of carbon, used to evaluate the benefits from reduction in GHG emissions, is based on the low range from the World Bank’s Guidance Note on Shadow Price of Carbon in Economic Analysis (Nov. 12, 2017). The Project will lead to 30,338 tCO2e reduction in emissions vs. the baseline during economic life of the Project. Therefore, the Project will generate climate mitigation co-benefits and, thus, support Tajikistan in fulfilling their NDC commitments to UNFCCC Paris Agreement. 17. Results: The economic analysis of the Project yielded an economic Net Present Value (NPV) of US$4.0 million and Economic Internal Rate of Return (EIRR) of 7.1 percent exclusive of the social cost of avoided CO2 emission and an economic NPV of US$4.7 million and EIRR of 7.5 percent inclusive of the social cost of avoided CO2 emissions. The discount rate for economic analysis was assumed to be 5.3 percent consistent with the World Bank guidelines.39 It was estimated as the difference between long-term real per capita GDP growth40 multiplied by two. 18. Sensitivity Analysis: Sensitivity analysis was conducted to assess the robustness of the estimated Project economic returns to changes in the main evaluation variables. The Project viability is sensitive to the estimated WTP. Table 4: Annex 4: Economic: Results of Sensitivity Analysis. Economic analysis NPV (million US$) EIRR (%) Base-case exclusive of social cost of carbon 4.0 7.1 a. 20 percent higher construction cost 1.1 5.8 b. 20 percent lower-than-projected WTP for electricity (2.4) 4.1 c. Combination of (a) and (b) (5.2) 3.0 Base-case inclusive of social cost of carbon 4.7 7.5 d. 20 percent higher construction cost 1.9 6.1 e. 20 percent lower-than-projected WTP for electricity (1.7) 4.5 f. Combination of (a) and (b) (4.5) 3.3% Source: Estimated based on data from Least-Cost Planning. Financial Analysis of PEC 19. Revenues from sales of electricity grew by an average of 17 percent annually over the period of 2014-2018, despite the relatively flat consumption. This was driven by Tajik somoni’s steep depreciation against US$ via US$ indexed tariffs. Dollar tariffs serve as a natural hedge against foreign currency risks associated with electricity purchases from Barqi Tojik and its financing costs. Operating costs increased in proportion to the Somoni revenues causing the operating profit margin to remain in the range of 16-20 percent throughout the period. 39Guidance on the Discounting Costs and Benefits in Economic Analysis of World Bank Projects, World Bank, May 9, 2016. 40Real GDP projections: World Economic Outlook, Oct. 2018, IMF; Population growth forecast: UN Population Survey, Oct. 2019. Page 72 of 91 The World Bank Rural Electrification Project (P170132) Firgure 1. Revenues vs. US$/TJS Figure 2. Historical and Projected exchange rate. Profitability. 60 10 100% 8 80% Sales (in millions) 40 6 US$/TJS 60% 4 40% 20 2 20% 0 - 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2014 2015 2016 2017 2018 Total sales in US$ Gross margin Total sales in TJ somoni EBIT margin adj. for unusual items Source: Based on audited financial statements of PEC for 2014-2018. 20. In 2014, a support mechanism was put in place to subsidize the electric heating cost during the winter months from November to March for low-income households in GBAO. Block tariffs have been introduced to support residential consumers consuming up to 360 kWh. Specifically, customers in the first block (0-190 kWh) are subsidized at the rate of 2.65 US cents/kWh, customers in the second block (191- 220kWh) are subsidized at the rate of 2.45 US cents/kWh, and customers in the third block (221-360KWh) - at the rate of 2.25 US cents/kWh. Consumption above 360kWh receives no support. In 2018, 72 percent of the residential customers in GBAO benefitted from the support scheme. 21. To support the subsidy mechanism, the interest differential between 6% and 1.25 percent on PEC’s IDA credit would be paid into an escrow account by PEC, as envisaged by the Concession Agreement, over the period of 2012-2020 and used to cover the subsidy costs till the end of the concession period, which would then be reimbursed by the MOF. However, PE has not received any reimbursement since 2013 and accumulated US$1.86 million of receivables from the Government as of the end of 2018. 22. Continuously accumulating dues from the MOF have reduced the receivables turnover from 82 days of sales in 2014 to an estimated 152 days41 in 2018. In 2016, the receivables from MOF accounted for 40 percent of PEC’s gross receivables. Slower payments for electricity and lower collections have also contributed to deterioration of working capital turnover. Specifically, the Khorog Water Supply Company has been very slow with its payment for the monthly electricity bills, which has increased the receivables to TJS2.05 million. The average collection rate from commercial and budgetary organizations was 91.46 percent and 85.56 percent respectively. 23. The liquidity of PEC in 2016, as measured by the current ratio, was 1.25, and cash balances equaled 55 percent of PEC’s current liabilities. Though the Company has been highly leveraged with its short-term and long-term liabilities being at around 100 percent of its assets, it has been current on all its liabilities. Debt-to-EBITDA ratio was 2.94 in 2016 (4.39 in 2014). 41 Bank team estimate. Page 73 of 91 The World Bank Rural Electrification Project (P170132) Forecast of Pamir Energy’s financial performance 24. The profitability of Pamir Energy will vary in the range of 20-27 percent and will stabilize at 20 percent by 2026. The total debt is projected to reduce to less 30 percent of its total assets by 2026, and debt-to- EBITDA ratio will improve to 1.21. The ratio of current assets to current liabilities will improve and be at healthy 3.88 without receivables from MOF (6.15 with the receivables from MOF). 25. Projection of Pamir Energy financial performance was carried out for the period of 2017-2026 based on the following assumptions: • Electricity demand by PEC’s customers would grow by 2 percent annually except for 2023, when Sebzor HPP is commissioned. Commissioning of Sebzor HPP will cause the consumption to grow by 9 percent or 18 GWh in 2025; • Annual generation of 11 MW Sebzor HPP is estimated to be 74.5 GWh; • End-user tariffs and export tariffs will remain at the level of 2018; • PE will continue subsidizing the winter consumption at the same rates; • Operating expenses, except for power purchase costs and depreciation/amortization expenses, would grow in proportion to sales at constant percentage of sales revenues; • Electricity purchase costs were estimated using the US dollar denominated purchase tariffs and purchase amounts of 2018 for the entire projection period; • Financing costs were projected based on the respective repayment schedules of its liabilities; • Receivables turnover were assumed not to change, and the inventory and payables turnover were assumed equal to about 60 days of direct plus T&D costs of the Company; • Disbursements for new capital investments and associated incremental O&M costs were assumed as follows: Table 5: Annex 4: Capital Cost Disbursement Assumptions. US$ million 2021 2022 2023 2024 2025 Off-grid RE and connection to the grid 4.00 7.00 8.00 5.00 0.70 Sebzor HPP and 18 km evacuation line 8.00 12.00 16.00 - - 110 kV Khorog-Qozideh line - 2.00 4.00 2.00 - Total CAPEX 12.00 21.00 28.00 7.00 0.70 O&M @ 1.5% of CAPEX 0.015 0.32 0.42 0.10 0.01 Financial Analysis of BT 26. The financial condition of BT deteriorated in the period from 2013 to 2017 due to: (a) unsustainable and increasing debt levels and surging local currency denominated debt service costs driven by large depreciation of TJS; (b) low cash collections; and (c) below cost recovery end-user electricity tariffs. 27. As of the end-2017, BT’s total liabilities exceeded its total assets. Operating losses persisted in the period of 2013-2017 leading to complete erosion of equity in 2015. Accumulated losses of the BT reached TJS10,732 million (US$1,217 million), out of which TJS 5,437 million were losses from domestic currency depreciation. Over the observed period, Tajik somoni lost about half of its value against US$, which explained about 70 percent of the total increase of the Company’s financial debt to MOF and Orienbank. Page 74 of 91 The World Bank Rural Electrification Project (P170132) Figure 3: Annex 4: Dynamics of BT’s Financial Liabilities vs. USD/TJS exchange rate. 16,000 10.00 14,000 9.00 12,000 Million TJS 8.00 10,000 USD/TJS 8,000 7.00 6,000 6.00 4,000 5.00 2,000 - 4.00 2013 2014 2015 2016 2017 Total debt (in TJS) Total debt (in USD) USD/TJS (end-of-period) Source: Corporate Financial Model of BT. 28. As of the end-2017, total liabilities of BT stood at TJS20,663 million (US$2,343 million), about 61 percent of which were borrowings from IFIs. The ability to sustain those loans was considerably impaired by absence of corresponding revenue allowance in the tariffs and under-collection of receivables. BT failed to make both principal and interest payments on them. By the end of 2017, it had already accrued TJS2,197 million (US$250 million) of interest payable and incurred penalties on overdue loans in total amount of TJS2,657 million (US$301 million). In addition, BT has TJS1,618 million (US$183 million) very expensive dollar denominated commercial debt from a local bank, which costs the company about TJS372 million (US$42 million) per annum in interest expense. 29. The situation with payables, which account for about 10 percent of its total liabilities, also deteriorated. In particular, payables for electricity purchases from IPPs, Sangtuda-1 and Sangtuda-2 HPPs, rose to TJS1,855 million (US$201 million). BT struggles to make payments to those IPPs in timely manner because the cost of electricity from those IPPs is higher than the end-user electricity tariff and those IPPs primarily supply electricity during the months of April-October (surplus energy season) when the other lower cost HPPs, owned by BT, can generated at significantly lower cost and spill water given low summer demand and lack of export opportunities. 30. In 2017 total current liabilities of TJS9,869 million (US$1,119 million) accounted for 48 percent of total liabilities. Current assets were only 15% of that amount. This represented a significant reduction in the liquidity, as measured by the ratio of current assets to current liabilities, which was at 0.39 in 2013. 31. Nonetheless, the relatively stable operating costs before depreciation during the period of 2013- 2015 and 14 percent average annual growth of sales revenue, driven by end-user tariff increases, lead to substantial improvement of EBITDA margin (18 percent in 2017 vs. 2 percent in 2013) and net debt42-to- EBITDA ratio of the company (222 times EBITDA in 2013 vs. 50 times EBITDA in 2017). 42 Net debt = total liabilities – cash and cash equivalents. Page 75 of 91 The World Bank Rural Electrification Project (P170132) Figure 4: Annex 4: EBITDA Margin and Net Debt/EBITDA Margin. Source: Corporate Financial Model of BT. 32. The steady increase in the operating profit of BT was interrupted by about 60 percent increase in cost of electricity purchase in 2016. This was caused by 26 percent increase in the real cost of purchase of electricity, though the impact of somoni depreciation accounted for 73 percent of total change in electricity purchase cost between 2013 and 2017. Figure 5: Annex 4: EBITDA Margin and Net Debt/EBITDA Margin. 300 200 100 TJS million 100 28 108 15 4 73 4 74 1 - 2015 2016 2017 Additional purchase in the current year FX rate impact on the current year's purchase amount Source: Corporate Financial Model of BT. 33. In 2017, BT earned TJS2,113 million (US$239 million) from sales of electricity. The Company supplied 13,549 GWh of electricity to domestic consumers and exported 1,410 GWh to Afghanistan and Kyrgyz Republic. 34. As of the end-2017, the collection rate for billed electricity was still below the industry average, at around 84.1 percent. The Company had 94 days receivables outstanding. The aluminum producer, TALCO, is the largest debtor to BT with its total debt of TJS399 million (US$45 million). Table 6: Annex 4: Bill Collection Rates by Customer Categories in 2017. Customer category Bill collection rate Industry, excl. TALCO 94.9 TALCO 96.8 Budgetary organizations, housing and 83.7% Page 76 of 91 The World Bank Rural Electrification Project (P170132) Customer category Bill collection rate communal enterprises and electric transport Pumps and pumping stations 61.4% Residential consumers 76.9% Average 84.1% Source: BT. 35. End-user electricity tariffs remain below the cost-recovery levels, which do not allow the company to finance even the required recurrent expenditures. The expected average end-user tariff for 2017 is estimated at 20 percent of cost-recovery level. The cost-recovery tariff was assessed following the cash needs approach. This was done through assessment of the amount of cash revenue that BT requires to fully finance the recognized recurrent expenses (accrual-based items in the financial statements), which include the O&M costs, administrative costs, capital repairs from own funds, pension liabilities, debt service, and taxes. It also assumes gradual repayment of accrued liabilities (i.e. interest payables, overdue loans and payables to Sangtuda-1 and Sangtuda-2 HPPs for purchased electricity) over an eight-year period starting 2018. It should be noted that concept of cash-based cost of service is different from the concept of economically efficient cost of supply and does not take into account the return on invested capital and investments required to meet the long-run forecast electricity demand. Table 7: Annex 4: Cost-recovery Tariff Projections. In TJS million 2018 2019 2020 2021 2022 2023 2024 2025 Cash cost of sales 1,474 1,617 1,738 1,869 2,079 2,236 2,405 2,587 Cost of purchased electricity 922 997 1,082 1,175 1,275 1,385 1,503 1,632 Materials 293 348 370 394 489 520 553 588 Salary and related expenses 108 115 122 129 137 145 153 163 Taxes 44 44 44 44 44 44 44 44 Other 106 113 120 127 134 142 151 160 Cash selling expenses 358 376 395 415 437 460 484 510 Cash admin expenses 94 99 104 109 114 120 126 133 Finance costs 2,598 2,425 2,359 2,270 2,266 1,853 1,874 1,898 Current interest on MOF loans 440 398 278 226 244 231 200 170 Current interest on Orienbank loans 398 329 256 177 92 - - - Current period principal repayment on 584 488 578 581 603 669 695 721 MOF loans Current period principal repayment on 346 358 371 386 401 - - - Orienbank loans Repayment of overdue interest on MOF 293 304 315 327 340 353 366 380 loans Retirement of delinquent MOF loan 301 312 324 336 349 363 376 391 principal Retirement of overdue payables to 236 236 236 236 236 236 236 236 Sangtuda-1,2 Profit - - - - - - - - Required revenue 4,524 4,517 4,595 4,663 4,900 4,678 4,901 5,146 Cost recovery end-user tariff (diram/kWh) 38.97 38.53 38.81 39.09 40.53 38.31 39.72 41.25 Source: Corporate Financial Model of BT. 36. Forecast of Financial Performance of BT. Financial performance of BT was forecast for two Page 77 of 91 The World Bank Rural Electrification Project (P170132) scenarios. The BAU Scenario is the scenario without implementation of the Government program for Financial Recovery of BT. The Financial Recovery Scenario is based on the agreed-upon targets to be achieved by BT as reflected in the Action Plan for Financial Recovery, including increase of end-user average tariff, improvements in collection rates, and other efficiency improvements. The key assumptions for each of the forecast scenarios are presented below. Projected Financial Performance of BT: BAU Scenario 37. The projections of financial performance of BT were made on assumptions that: (a) End-user electricity tariffs will remain flat starting from 2019 onward; the actual tariff increase of about 15 percent in 2018 has already been factored into the model. (b) Bill collection rate will remain at 85 percent over an eight-year period. (c) Technical losses will stay at their current level. (d) Domestic supply of electricity will increase by 1 percent during the projection period. (e) Exports to Afghanistan and Pakistan are forecast to increase by 2,800 GWh starting from 2022, when cross-border transmission facilities with Afghanistan and Pakistan under CASA-1000 project become operational. (f) Electricity will be sold to Afghanistan and Pakistan at marginal prices of USc5.11/kWh and USc5.16/kWh respectively (g) The following volumes and tariffs for exports to Uzbekistan: Table 8: Annex 4: Export Volume and Tariff Assumptions. 2019 2020 2021 2022 2023 2024 2025 Volume (GWh) 2,000 2,000 2,500 3,000 3,200 3,200 3,200 Tariff (USc/kWh) 0.020 0.025 0.026 0.027 0.028 0.028 0.028 Source: BT. (h) BT will purchase 2,600 GWh of electricity from Sangtuda-1 and Sangtuda-2. (i) Prices of electricity purchased from Sangtuda-1 and Sangtuda-2 will growth at annual rate of 4 percent and 5 percent respectively. (j) The exchange rate of Tajik somoni against US dollar will change by the differential between Tajik and US inflation rate in accordance with PPP approach. (k) The BT will not accumulate new penalties on overdue loans. 38. In BAU Scenario, BT will continue to struggle with insufficient liquid assets to meet its current liabilities. In 2025 the ratio of current assets to current liabilities is estimated to be 0.26. Low collection ratio will lead to further build-up of overdue receivables, which may exceed 300 days of sales by 2025. This will result in continued non-payment to electricity suppliers and to the MOF on its long-term liabilities at least till the start of exports to Afghanistan and Pakistan under CASA-1000. Total debt of BT, including payables to Sangtuda-1 and Sangtuda-2 as well, will reach TJS29,104 million (US$2,383 million) or 140 percent of its assets. Losses from the foreign exchange rate changes will eat up any operating profit; total cumulative loss over the eight-year forecast period is estimated to be TJS8,539 million (US$835 million), and the cash deficit will widen to TJS16,393 million by 2025 from TJS10,433 million in 2017. Page 78 of 91 The World Bank Rural Electrification Project (P170132) Projected Financial Performance of BT: Financial Recovery Scenario 39. Under this scenario, the projections of financial performance of BT were made on assumptions that: (a) End-user electricity tariffs will increase by 15 percent annually during 2019-2021 and 8% thereafter. (b) Bill collection rate will remain at 85 percent over the period 2018-2020 and start increasing to reach 95 percent by 2025. (c) Technical losses will reduce by 0.50 percentage point annually. (d) Overdue receivables will be recovered. (e) All grants on-lent by the MOF to BT on credit terms will be converted to grants in 2019. (f) In 2020, half of subsidiary agreements of BT with MOF will be revised to mirror the terms of borrowing by MOF from IFI, and the other half will be revised in 2021. (g) Domestic supply of electricity will increase by 1 percent during the projection period (h) Exports to Afghanistan and Pakistan are forecast to increase by 2,800 GWh starting from 2022, when cross-border transmission facilities with Afghanistan and Pakistan under CASA-1000 project become operational. (i) Electricity will be sold to Afghanistan and Pakistan at marginal prices of USc5.11/kWh and USc5.16/kWh respectively. (j) The following volumes and tariffs for exports to Uzbekistan: Table 9: Annex 4: Export Volume and Tariff Assumptions. 2019 2020 2021 2022 2023 2024 2025 Volume (GWh) 2,000 2,000 2,500 3,000 3,200 3,200 3,200 Tariff (USc/kWh) 0.020 0.025 0.026 0.027 0.028 0.028 0.028 Source: BT. (k) BT will purchase 2,600GWh of electricity from Sangtuda-1 and Sangtuda-2. (l) Prices of electricity purchased from Sangtuda-1 and Sangtuda-2 will growth at annual rate of 4 percent and 5 percent respectively. (m) The exchange rate of Tajik somoni against US dollar will change by the differential between Tajik and US inflation rate in accordance with PPP approach. (n) The BT will not accumulate new penalties on overdue loans. 40. Increase of end-user tariffs, gradual improvement of collection rates, more efficient working capital management and reduction of technical losses will help BT generate more cash from operations. EBITDA margin will increase to 55 percent by 2025, and the liquidity will improve.43 Revision of on-lending term of the MOF will reduce the debt service costs of the BT and free up additional cash for repayment of its overdue liabilities. Commencement of electricity exports under CASA-1000 project will also significantly contribute to improvement of financial standing of BT starting from 2022. The exports will increase from 43The ratio of current assets to current liabilities, inclusive and exclusive of penalties on overdue loans will be 0.63 and 1.19 respectively. Page 79 of 91 The World Bank Rural Electrification Project (P170132) current level of 1,421 GWh to more than 5,900 GWh per year, including the existing exports to Afghanistan. Specifically, exports under CASA-1000 project are expected to generate additional US$145 million of income per year. BT will gradually repay its current and overdue financial liabilities using incremental operating cash flows from financial recovery measures. It is estimated that by 2024 BT will have fully repaid its overdue debt (principal plus interest) to MOF, overdue payables to Sangtuda-1 and Sangtuda-2 and debt to Orienbank. As a result, by the end of 2025 the debt-to-assets ratio will have come down to 0.95, net debt (i.e. total financial debt net of cash balance) will stand at 4 time of earnings before interest, tax and depreciation (EBITDA),44 and operating cash flow will be more than 2 times its debt service requirements (DSCR). Table 10: Annex 4: Projected Financial Ratios under Financial Recovery Scenario. 2019 2020 2021 2022 2023 2024 2025 Gross margin 40% 45% 49% 60% 60% 60% 61% EBITDA margin 34% 40% 45% 56% 57% 57% 56% Current ratio 0.15 0.19 0.18 0.22 0.30 0.49 1.21 Debt-to-assets 1.43 1.30 1.28 1.19 1.08 0.95 0.81 DSCR 0.10 0.14 0.24 0.44 0.57 0.83 1.34 Source: Corporate Financial Model of BT. 44 A proxy for operating cash flow. Page 80 of 91 The World Bank Rural Electrification Project (P170132) Table 11: Annex 4: Projected Balance Sheet of PEC Historical Projected TJS '000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Current assets Trade accounts 6,620 9,914 15,267 18,220 23,168 27,246 31,530 36,008 40,670 45,521 50,575 57,133 receivable Inventory 3,074 2,841 11,984 4,700 4,949 4,868 4,851 4,990 5,529 6,278 7,110 7,942 Other current assets 1,905 2,410 2,508 2,508 2,508 2,508 2,508 2,508 2,508 2,508 2,508 2,508 Cash and cash 6,152 23,230 23,458 21,503 19,553 20,727 23,967 34,108 43,499 50,181 53,937 58,271 equivalents 17,751 38,395 53,217 46,931 50,178 55,349 62,857 77,614 92,206 104,488 114,131 125,853 Non-current assets Intangible assets 60,106 57,030 59,328 64,019 53,405 44,554 37,172 31,016 25,881 21,597 18,025 15,044 Prepayments for non- 4,807 14,993 15,837 - - - - - - - - - current assets 64,913 72,023 75,165 64,019 53,405 44,554 37,172 31,016 25,881 21,597 18,025 15,044 Total assets 82,664 110,418 128,382 110,950 103,583 99,903 100,029 108,630 118,087 126,085 132,155 140,897 Current liabilities Accounts payable 4,577 4,054 11,619 4,700 4,949 4,868 4,851 4,990 5,529 6,278 7,110 7,942 Deferred revenue 3,975 24,916 20,300 9,333 6,499 5,141 5,206 5,278 5,357 5,441 5,533 5,633 Advance from - 16,952 7,362 - - - - - - - - - insurance Current portion of 2,110 1,265 1,150 634 694 752 818 890 968 1,053 1,145 1,244 deferred revenue from below market rate under IDA Loan Agreement Advance received 74 5,440 9,948 6,860 3,965 2,548 2,548 2,548 2,548 2,548 2,548 2,548 under Grant Agreements Advances from 1,791 1,259 1,840 1,840 1,840 1,840 1,840 1,840 1,840 1,840 1,840 1,840 customers Current portion of long- 8,559 6,034 6,798 10,623 11,202 11,592 7,356 7,641 7,935 8,237 8,550 8,874 term borrowings Current portion of 3,929 5,174 5,829 6,549 6,849 7,087 7,356 7,641 7,935 8,237 8,550 8,874 principal under IDA loan Accrued interest 4,630 860 969 4,074 4,353 4,505 - - - - - - Other current liabilities 1,656 2,650 3,773 3,773 3,773 3,773 3,773 3,773 3,773 3,773 3,773 3,773 18,767 37,654 42,490 28,430 26,423 25,373 21,186 21,683 22,593 23,729 24,966 26,222 Non-current liabilities Non-current portion of 11,424 9,609 8,732 7,243 6,880 6,367 5,791 5,126 4,355 3,467 2,455 1,304 deferred revenue Long-term borrowings 50,255 73,578 78,941 78,321 69,520 58,782 52,089 46,842 41,677 36,076 30,042 23,553 IDA loan 47,143 56,911 58,295 61,893 57,876 52,802 47,450 41,651 35,318 28,423 20,953 12,875 IDA grant 6,209 8,177 9,213 8,287 6,066 3,586 928 - - - - - Accrued interest 10,438 18,940 21,315 16,803 13,600 9,568 9,931 10,317 10,714 11,121 11,543 11,982 Market rate discount (11,524) (8,822) (8,402) (7,243) (6,880) (6,367) (5,791) (5,126) (4,355) (3,467) (2,455) (1,304) on IDA loan Market rate discount (2,011) (1,628) (1,480) (1,419) (1,141) (807) (430) - - - - - on IDA grant 61,679 83,187 87,673 85,564 76,400 65,149 57,880 51,968 46,031 39,543 32,496 24,856 Shareholder equity Share capital 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 Quasi capital 31,240 31,240 31,240 31,240 31,240 31,240 31,240 31,240 31,240 31,240 31,240 31,240 Additional paid-in 163 163 163 163 163 163 163 163 163 163 163 163 Page 81 of 91 The World Bank Rural Electrification Project (P170132) Historical Projected TJS '000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 capital Accumulated loss (65,104) (77,747) (69,105) (70,367) (66,564) (57,943) (46,361) (32,345) (17,862) (4,511) 7,369 22,495 2,218 (10,425) (1,783) (3,045) 758 9,379 20,961 34,977 49,460 62,811 74,691 89,817 Total shareholder equity 82,664 110,416 128,380 110,948 103,581 99,901 100,027 108,628 118,085 126,083 132,153 140,895 and liabilities Source: Corporate Financial Model of PEC. Page 82 of 91 The World Bank Rural Electrification Project (P170132) Table 12: Annex 4: Projected Income Statement of PEC. Historical Projected TJS '000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales of electricity Residential customers 13,887 16,840 19,854 19,022 21,206 22,464 23,867 25,378 26,972 28,651 30,433 34,952 Commercial organizations 5,364 6,655 8,724 11,066 13,152 13,882 14,697 15,573 16,495 17,464 18,490 20,952 Budgetary organizations 6,572 9,453 12,722 14,005 15,497 16,357 17,317 18,350 19,436 20,578 21,787 24,688 Government grants 2,265 2,103 3,286 3,679 3,931 4,068 4,223 4,386 4,555 4,728 4,908 5,094 Clients in Afghanistan 729 935 1,292 1,317 1,784 1,883 1,993 2,112 2,237 2,369 2,508 3,115 Carbon credit income 740 83 - - - - - - - - - - Total sales 29,557 36,069 45,878 49,090 55,571 58,655 62,097 65,799 69,696 73,791 78,126 88,802 Direct costs Amortization (4,751) (5,190) (5,578) (5,915) (5,632) (4,697) (3,917) (3,267) (2,725) (2,273) (1,896) (1,581) Staff costs and related taxes (2,426) (3,237) (3,916) (4,208) (4,764) (5,028) (5,323) (5,641) (5,975) (6,326) (6,698) (7,613) Power purchased (1,472) (2,066) (2,600) (1,894) (1,697) (1,756) (1,822) (1,893) (1,966) (2,040) (2,118) (2,198) Maintenance (1,042) (1,026) (679) (1,285) (1,454) (1,535) (1,625) (2,353) (5,264) (9,242) (13,516) (15,697) (9,691) (11,519) (12,773) (13,301) (13,546) (13,015) (12,688) (13,153) (15,929) (19,881 (24,228) (27,090) ) Gross profit 19,866 24,550 33,105 35,789 42,025 45,639 49,410 52,645 53,767 53,910 53,899 61,712 Transmission and distribution expenses Staff costs and related (4,739) (6,317) (8,335) (8,919) (10,096) (10,656) (11,282) (11,954) (12,662) (13,406 (14,194) (16,133) expenses ) Maintenance (1,382) (2,105) (1,335) (2,196) (2,486) (2,624) (2,778) (2,944) (3,118) (3,301) (3,495) (3,973) Amortization (2,771) (3,027) (3,937) (4,175) (3,975) (3,315) (2,765) (2,306) (1,923) (1,604) (1,338) (1,116) (8,892) (11,449) (13,607) (15,289) (16,557) (16,595) (16,825) (17,204) (17,704) (18,312 (19,027) (21,222) ) General and administrative expenses Staff costs and related (2,860) (3,815) (5,306) (5,677) (6,427) (6,784) (7,182) (7,610) (8,061) (8,534) (9,036) (10,270) expenses Insurance expenses (1,042) (1,210) (1,590) (1,701) (1,926) (2,033) (2,152) (2,280) (2,415) (2,557) (2,708) (3,078) PR and advertisement (742) (1,094) (803) (1,193) (1,351) (1,426) (1,510) (1,600) (1,694) (1,794) (1,899) (2,159) Operating leasing (482) (619) (604) (646) (732) (772) (818) (866) (918) (971) (1,029) (1,169) Amortization (338) (369) (997) (1,057) (1,007) (839) (700) (584) (487) (406) (339) (283) Bad debts (538) (593) (508) - - - - - - - - - Communication (210) (530) (511) (547) (619) (653) (692) (733) (776) (822) (870) (989) Training of staff (520) (451) (611) (654) (740) (781) (827) (876) (928) (983) (1,040) (1,183) Bank charges (154) (346) (348) (372) (422) (445) (471) (499) (529) (560) (593) (674) Maintenance of vehicles (275) (319) (23) (305) (345) (365) (386) (409) (433) (459) (486) (552) Health safety environmental (276) (316) (382) (409) (463) (488) (517) (548) (580) (614) (651) (739) expenses Professional services (248) (300) (379) (406) (459) (485) (513) (544) (576) (610) (645) (734) Business trips (175) (249) (146) (156) (177) (187) (198) (209) (222) (235) (249) (283) Stationery (114) (94) (114) (122) (138) (146) (154) (163) (173) (183) (194) (221) Security charges - (75) (319) (341) (386) (408) (432) (458) (485) (513) (543) (617) Legal fees and fines (42) (54) (87) (93) (105) (111) (118) (125) (132) (140) (148) (168) Provision for impairment of (254) - - - - - - - - - - - inventory Other (394) (308) (104) (111) (126) (133) (141) (149) (158) (167) (177) (201) (8,664) (10,742) (12,832) (13,792) (15,423) (16,056) (16,809) (17,653) (18,567) (19,549 (20,606) (23,319) ) Other income Page 83 of 91 The World Bank Rural Electrification Project (P170132) Historical Projected TJS '000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Business interruption income - 4,005 9,466 7,362 - - - - - - - - - insurance Income from below market 2,572 2,660 988 - - - - - - - - - rate Grant Interest income from bank 135 73 663 - - - - - - - - - deposits Other 518 839 907 - - - - - - - - - 3,225 7,577 12,024 7,362 - - - - - Profit from operations 5,535 9,936 18,690 14,069 10,045 12,988 15,776 17,788 17,496 16,049 14,265 17,170 Foreign exchange gain/(loss) FX gain from cash and 564 3,456 3,037 - - - - - - - - - deposits FX gain from others 22 59 41 - - - - - - - - - FX loss from loans (7,497) (22,036) (11,199) (12,430) (3,512) (2,465) (2,410) (2,166) (1,898) (1,645) (1,395) (1,123) FX loss from others (30) (197) (457) (2,668) (1,431) (626) (535) (386) (397) (407) (423) (439) (6,941) (18,718) (8,578) (15,099) (4,943) (3,091) (2,945) (2,552) (2,295) (2,052) (1,817) (1,562) Finance cost Interest on loans (646) (775) (906) (1,018) (960) (884) (805) (719) (640) (561) (476) (383) Cost of market rate discount (3,984) (3,084) (568) 786 (339) (392) (443) (502) (78) (85) (92) (100) on loans (4,630) (3,859) (1,474) (233) (1,298) (1,277) (1,248) (1,221) (718) (646) (568) (483) (Loss)/profit before tax (6,036) (12,641) 8,638 (1,262) 3,803 8,621 11,582 14,016 14,483 13,351 11,880 15,126 Tax expense - - - (Loss)/profit after tax (6,036) (12,641) 8,638 (1,262) 3,803 8,621 11,582 14,016 14,483 13,351 11,880 15,126 Source: Corporate Financial Model of PEC. Page 84 of 91 The World Bank Rural Electrification Project (P170132) Table 13: Annex 4: Projected Cash Flow Statement of PEC Projected TJS '000 2017 2018 2019 2020 2021 2022 2023 2024 2025 Cash flow from operating activities Net income (1,262) 3,803 8,621 11,582 14,016 14,483 13,351 11,880 15,126 Adjustment to NI: Amortization 11,146 10,613 8,851 7,382 6,157 5,135 4,283 3,573 2,980 Bad debts - - - - - - - - - Provision for impairment of inventory - - - - - - - - - Business interruption income - (7,362) - - - - - - - - insurance FX gain/(loss) 15,099 4,943 3,091 2,945 2,552 2,295 2,052 1,817 1,562 Income/cost from market rate (786) 339 392 443 502 78 85 92 100 discount Change in working capital Inventory 7,284 (249) 81 16 (139) (538) (750) (832) (831) Trade and other receivables (2,953) (4,948) (4,078) (4,284) (4,478) (4,662) (4,851) (5,054) (6,558) Trade and other payables (6,919) 249 (81) (16) 139 538 750 832 831 Advance received under Grant (3,088) (2,895) (1,417) - - - - - - Agreements Net cash flow from operating activities 11,159 11,856 15,460 18,068 18,748 17,329 14,920 12,308 13,210 Cash flow from investing activities Acquisition of concession and intangible - - - - - - - - - assets Net cash flow from investing activities - - - - - - - - - Cash flow from financing activities Repayment of IDA loan (6,551) (6,850) (7,089) (7,357) (7,643) (7,937) (8,239) (8,552) (8,877) Repayment of IDA grant (2,488) (2,601) (2,692) (2,794) (965) - - - - Repayment of accrued interest (4,075) (4,354) (4,506) (4,677) - - - - - Net cash flow from financing activities (13,113) (13,80 (14,286) (14,828) (8,608) (7,937) (8,239) (8,552) (8,877) 6) Net cash flow (1,955) (1,950) 1,174 3,240 10,140 9,392 6,681 3,757 4,333 Cash balance in the beginning of the 23,458 21,503 19,553 20,727 23,967 34,108 43,499 50,181 53,937 period Cash balance at the end of the period 21,503 19,553 20,727 23,967 34,108 43,499 50,181 53,937 58,271 Source: Corporate Financial Model of PEC. Page 85 of 91 The World Bank Rural Electrification Project (P170132) Table 14: Annex 4: Projected Balance Sheet of BT. In TJS thousand 2018 2019 2020 2021 2022 2023 2024 2025 ASSETS Non-current assets PP&E 12,769,418 12,977,325 13,551,540 14,062,813 14,562,023 14,378,609 14,321,170 14,285,225 Intangible assets 510 510 510 510 510 510 510 510 Non-current advances paid 695,546 695,546 695,546 695,546 695,546 695,546 695,546 695,546 Non-current investments 182,401 182,401 182,401 182,401 182,401 182,401 182,401 182,401 Other non-current assets 109 109 109 109 109 109 109 109 Total non-current assets 13,647,984 13,855,891 14,430,106 14,941,379 15,440,589 15,257,175 15,199,736 15,163,791 Current assets Inventory 694,874 753,299 804,292 865,436 947,556 1,012,792 1,077,869 1,148,906 Trade and other accounts 890,070 1,070,255 1,047,074 794,243 981,096 1,024,757 1,105,279 1,186,592 receivable Advances paid 109,740 109,740 109,740 109,740 109,740 109,740 109,740 109,740 Tax prepayments 59 59 59 59 59 59 59 59 Cash and cash equivalents 133,523 34,368 29,500 40,418 60,524 58,400 40,742 40,013 Total current assets 1,828,266 1,967,721 1,990,665 1,809,896 2,098,975 2,205,747 2,333,688 2,485,310 TOTAL ASSETS 15,476,250 15,823,612 16,420,770 16,751,276 17,539,564 17,462,922 17,533,424 17,649,101 LIABILITIES AND EQUITY Equity Share capital 505,216 505,216 505,216 505,216 505,216 505,216 505,216 505,216 PP&E revaluation reserve 4,218,496 4,218,496 4,218,496 4,218,496 4,218,496 4,218,496 4,218,496 4,218,496 Reserve capital 24,302 24,302 24,302 24,302 24,302 24,302 24,302 24,302 Accumulated deficit (13,185,86 (11,575,823) (9,612,522) (9,496,862) (8,037,939) (6,210,203) (3,958,892) (1,378,977) 1) TOTAL EQUITY (8,437,847) (6,827,809) (4,864,508) (4,748,848) (3,289,925) (1,462,189) 789,122 3,369,037 Non-current liabilities Non-current borrowed funds 10,333,305 8,140,892 8,628,844 8,776,181 8,644,080 8,838,675 9,001,314 9,163,362 Deferred income non-current 511,183 732,086 1,337,806 1,658,470 1,796,528 1,926,855 2,044,489 2,151,329 portion Non-current trade and other 912,149 912,149 912,149 912,149 912,149 912,149 912,149 912,149 payables Total non-current liabilities 11,756,637 9,785,127 10,878,799 11,346,800 11,352,757 11,677,679 11,957,952 12,226,840 Current liabilities Trade and other accounts 3,397,223 4,011,159 4,358,388 4,254,079 3,616,162 2,933,332 1,885,471 491,138 payable Advances received 106,649 106,649 106,649 106,649 106,649 106,649 106,649 106,649 Taxes payable 65,674 65,674 65,674 65,674 65,674 65,674 65,674 65,674 Income tax payable - - - - - - - - Current borrowed funds 5,792,761 5,887,660 5,738,099 5,589,253 5,550,579 4,004,107 2,590,887 1,252,093 Deferred income current 6,503 6,503 6,503 6,503 6,503 6,503 6,503 6,503 portion Other payables and accrued 2,788,649 2,788,649 131,166 131,166 131,166 131,166 131,166 131,166 expenses Total current liabilities 12,157,460 12,866,293 10,406,479 10,153,324 9,476,733 7,247,431 4,786,350 2,053,223 Page 86 of 91 The World Bank Rural Electrification Project (P170132) In TJS thousand 2018 2019 2020 2021 2022 2023 2024 2025 TOTAL LIABILITES 23,914,097 22,651,421 21,285,278 21,500,124 20,829,489 18,925,111 16,744,302 14,280,063 TOTAL EQUITY AND LIABILITIES 15,476,250 15,823,612 16,420,770 16,751,276 17,539,564 17,462,922 17,533,424 17,649,101 Source: Corporate Financial Model of BT. Page 87 of 91 The World Bank Rural Electrification Project (P170132) Table 15: Annex 4: Projected Income Statement of BT. In TJS thousand 2018 2019 2020 2021 2022 2023 2024 2025 Revenue Domestic 2,044,914 2,375,167 2,758,757 3,204,296 3,495,246 3,812,615 4,158,800 4,536,419 Export 512,033 805,796 939,784 1,136,359 2,498,433 2,690,233 2,791,811 2,897,213 Total revenue 2,556,947 3,180,964 3,698,541 4,340,655 5,993,679 6,502,847 6,950,611 7,433,632 Cost of sales Depreciation of fixed assets (299,426) (305,190) (314,461) (327,328) (339,306) (343,049) (340,194) (339,087) Cost of purchased electricity (922,117) (997,488) (1,082,331) (1,175,322) (1,274,784) (1,384,772) (1,503,003) (1,631,520) Materials (292,955) (348,028) (370,384) (406,082) (488,853) (525,327) (558,776) (594,368) Salary and related expenses (108,192) (114,684) (121,565) (128,858) (136,590) (144,785) (153,473) (162,681) Taxes (44,000) (44,000) (44,000) (44,000) (44,000) (44,000) (44,000) (44,000) Other (106,470) (112,858) (119,629) (126,807) (134,415) (142,480) (151,029) (160,091) Total cost of sales (1,773,160) (1,922,248) (2,052,369) (2,208,397) (2,417,948) (2,584,414) (2,750,475) (2,931,746) Gross margin 783,787 1,258,716 1,646,171 2,132,259 3,575,731 3,918,434 4,200,136 4,501,886 Selling expenses Depreciation of fixed assets (197,293) (201,091) (207,200) (215,678) (223,570) (226,036) (224,155) (223,426) Salary and related expenses (185,327) (196,447) (208,234) (220,728) (233,971) (248,010) (262,890) (278,664) Inventories (83,191) (88,182) (93,473) (99,082) (105,026) (111,328) (118,008) (125,088) Service expenses (33,537) (35,550) (37,683) (39,944) (42,340) (44,881) (47,573) (50,428) Other (55,716) (55,716) (55,716) (55,716) (55,716) (55,716) (55,716) (55,716) Total selling expense (555,065) (576,986) (602,305) (631,147) (660,624) (685,971) (708,343) (733,322) G&A expenses Taxes other than income tax (51,932) (55,047) (58,350) (61,851) (65,562) (69,496) (73,666) (78,086) Salary and related expenses (20,243) (21,457) (22,745) (24,110) (25,556) (27,089) (28,715) (30,438) Professional expenses (4,718) (5,001) (5,301) (5,619) (5,956) (6,314) (6,693) (7,094) Depreciation of fixed assets (8,490) (8,654) (8,917) (9,282) (9,621) (9,727) (9,646) (9,615) Commission of the bank (258) (258) (258) (258) (258) (258) (258) (258) Other (16,876) (16,876) (16,876) (16,876) (16,876) (16,876) (16,876) (16,876) Total G&A expense (102,516) (107,293) (112,447) (117,995) (123,830) (129,760) (135,853) (142,366) Operating margin 126,206 574,437 931,419 1,383,117 2,791,277 3,102,703 3,355,940 3,626,198 Net loss on foreign (1,040,819) (541,120) (622,790) (664,813) (658,226) (629,774) (562,816) (485,822) exchange operations Finance income Write-off/grant conversion (6,988) 2,627,327 2,653,203 (4,547) (4,679) (139,852) (4,982) (5,171) of MoF loan Finance expenses Interest expense (837,258) (810,026) (705,165) (580,815) (451,449) (232,229) (200,429) (169,784) Penalties on loans (694,664) - - - - - - - Total financial expenses (1,531,922) (810,026) (705,165) (580,815) (451,449) (232,229) (200,429) (169,784) Profit before tax (2,453,523) 1,850,618 2,256,667 132,942 1,676,923 2,100,847 2,587,713 2,965,420 Tax expense - (240,580) (293,367) (17,283) (218,000) (273,110) (336,403) (385,505) Net income (2,453,523) 1,610,038 1,963,301 115,660 1,458,923 1,827,737 2,251,310 2,579,916 Source: Corporate Financial Model of BT. Page 88 of 91 The World Bank Rural Electrification Project (P170132) Table 16: Annex 4: Projected Cash Flow Statement of BT. In TJS thousand 2018 2019 2020 2021 2022 2023 2024 2025 Cash flow from operating activities Net income (2,453,52 1,610,038 1,963,301 115,660 1,458,923 1,827,737 2,251,310 2,579,916 3) Adjustments to net income: Depreciation 505,209 514,935 530,577 552,287 572,497 578,813 573,996 572,128 Net loss from change in FX rate 1,040,819 541,120 622,790 664,813 658,226 629,774 562,816 485,822 Write-off/grant conversion of MOF 6,988 (2,627,32 (2,653,203) 4,547 4,679 139,852 4,982 5,171 loan 7) Interest expense 837,258 810,026 705,165 580,815 451,449 232,229 200,429 169,784 Change in working capital: (Increase)/Decrease in receivables (346,017) (180,185) 23,182 252,831 (186,853) (43,661) (80,522) (81,313) CFO after change in receivables (409,266) 668,606 1,191,811 2,170,952 2,958,921 3,364,744 3,513,011 3,731,508 (Increase)/Decrease in inventory (101,448) (58,425) (50,993) (61,145) (82,120) (65,235) (65,077) (71,037) CFO after change in inventory (510,713) 610,181 1,140,819 2,109,807 2,876,801 3,299,509 3,447,934 3,660,471 Increase/(Decrease) in payables 1,186,071 542,395 256,511 (211,522) (744,037) (773,879) (1,123,499 (1,440,681 ) ) Cash flow from operating activities 675,357 1,152,576 1,397,330 1,898,285 2,132,764 2,525,630 2,324,436 2,219,789 Cash flow from investing activities Purchase of PP&E and intangible (783,573) (722,841) (1,104,792) (1,063,561) (1,071,706) (395,398) (516,557) (536,183) assets Cash flow from investing activities (783,573) (722,841) (1,104,792) (1,063,561) (1,071,706) (395,398) (516,557) (536,183) Cash flow from financing activities MOF loans received 783,476 722,762 1,104,626 1,063,408 1,071,555 395,331 516,461 536,084 MOF loans repaid - - - - (641,270) (2,425,784 (2,259,203 (2,157,476 ) ) ) Repayment of overdue interest on - (420,335) (931,159) (951,829) (256,294) - - - MOF loans Repayment of current interest on (205,513) (640,689) (278,024) (225,834) (244,092) (232,229) (200,429) (169,784) MOF loans Orienbank loans received - - - - - - - - Orienbank loans repaid - - (371,427) (675,236) (901,552) - - - Repayment of current interest on (397,694) (411,530) (427,141) (354,981) (207,357) - - - Orienbank loans Grants received under PforR - 220,903 605,719 320,665 138,058 130,327 117,634 106,840 Cash flow from financing activities 180,270 (528,889) (297,406) (823,806) (1,040,952) (2,132,355 (1,825,537 (1,684,335 ) ) ) Net cash flow 72,054 (99,155) (4,868) 10,918 20,106 (2,124) (17,658) (729) Cash balance in the beginning of the 61,469 133,523 34,368 29,500 40,418 60,524 58,400 40,742 period Cash balance at the end of the 133,523 34,368 29,500 40,418 60,524 58,400 40,742 40,013 period Source: Corporate Financial Model of BT. Page 89 of 91 The World Bank Rural Electrification Project (P170132) ANNEX 5: Operational Policy 7.50 with Respect to Sebzor HPP and Small Hydros COUNTRY: Tajikistan Rural Electrification Project 1. The Project finances small hydro investments and studies related to the design of the Sebzor Hydropower Project (HPP) on the Shokhdara River, which is a tributary of the Amu Darya River. At the request of the Republic of Tajikistan (letter No. 17-862, dated April 18, 2019), the Bank sent notification letters to the riparian states - Afghanistan and Uzbekistan on April 25, 2019 and Turkmenistan on May 21, 2019 on behalf of the Republic of Tajikistan. No responses were received from Afghanistan and Uzbekistan by the deadline of May 24, 2019. On June 11, 2019 (letter No. 06/184438), the Government of Turkmenistan sent a letter objecting to the construction of the Sebzor Hydropower Station stating “that this issue should be decided by generally accepted norms of international law.” Considerations Concerning the Generally Accepted Norms of International Law 2. There is no treaty between Tajikistan and Turkmenistan which would regulate their relationship and conduct concerning notification and construction of small hydropower investments. Therefore, customary international law, also referred to as “generally accepted norms of international law,” applies to the legal relationship between these two countries. 3. According to customary law, riparian states have to notify other watercourse states in case of risk of “significant adverse effects.” The notification requirements, according to OP/BP 7.50, go above and beyond what is required by the customary international law. They are triggered based on any type of water use or risk of pollution, not applying any threshold of impact. This is based on the Articles of Agreement and the Bank’s recognition that it shall act in the interests of all its member states. It is for this reason that the riparian countries of the Amu Darya, including Turkmenistan, were notified of the Project. 4. The use of the waters of international waterways within the territory of a riparian state is guided by the customary principles of equitable and reasonable utilization and the due diligence obligation not to cause significant harm to other riparian states. When assessing equitable and reasonable utilization of a watercourse, the state planning a new measure takes into account the effects of the use on other riparian states and is under the due diligence obligation to take all appropriate measures to prevent the causing of significant harm on other watercourse states. According to the International Law Commission, “significant” means that the impact is detectable and can be established by objective evidence. Factual considerations have to be taken into account to assess significant harm to other riparian countries. Technical Considerations and Key Conclusion 5. The small hydro investments and Sebzor HPP will not change the hydrological conditions of tributaries to and of the Amu Darya river. The 10.5 cubic meters of water per second to be diverted by the low weir (5-meters high) of the Sebzor HPP will be returned to the Shokhdara river, within the boundaries of Tajikistan, through the powerhouse tailrace after about 3 kilometers. The Project parameters recommended by the Feasibility Study were reviewed as part of the draft Environmental and Social Impact Assessment Report (ESIA), which was publicly disclosed on April 26, 2019. The small hydro investments for micro-grids under sub-component 1.1 will also be run-of-river and of much smaller scale than Sebzor HPP, with no impact on the downstream riparian states. 6. Therefore, given the nature and location of the proposed Project activities, it is the considered view of the task team that these proposed investments would not adversely affect the quality or quantity of water flows of Page 90 of 91 The World Bank Rural Electrification Project (P170132) the Amu Darya river to other riparians or adversely affect other riparians’ possible water use. As there is no impact on downstream riparian countries from the planned small hydro and Sebzor HPP investments, the activities financed by the Project comply with generally accepted norms of international law. Page 91 of 91