Document of The World Bank Report No: ICR00002085 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37880 IDA-3788A) ON A CREDIT IN THE AMOUNT OF SDR 15 MILLION (US$ 20 MILLION EQUIVALENT) TO THE PLURINATIONAL STATE OF BOLIVIA FOR AN ADAPTABLE PROGRAM CREDIT DECENTRALIZED INFRASTRUCTURE FOR RURAL TRANSFORMATION IN SUPPORT OF THE FIRST PHASE OF THE DECENTRALIZED INFRASTRUCTURE FOR RURAL TRANSFORMATION PROGRAM November 23 , 2011 Latin America Sustainable Development Department Country Management Unit for Bolivia, Ecuador, Peru, and Venezuela Latin America and Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective September 17, 2011) Currency Unit = Bolivianos (Bs.) 1.00 Bs. = US$ 0.14 US$ 1.00 = 6.9 FISCAL YEAR January 1–December 31 ABBREVIATIONS AND ACRONYMS APC Adaptable Program Credit Klm Kilolumen CAS Country Assistance Strategy LAC Latin America and Caribbean CO2 Carbon Dioxide M&E Monitoring and Evaluation COTEL Cooperativa de Teléfonos de La Paz MFI Microfinance Institution CPAR Country Procurement Assessment Report MSC Medium-Term Service Contract EA Environmental Assessment NBI Index of unsatisfied needs (Necesidades Básicas Insatisfechas) EIRR Economic Intemal Rate of Return NCB National Competitive Bidding EMP Environmental Management Plan NGO Non Governmental Organization ENTEL Empresa Nacional de Telecomunicaciones NPV Net Present Value ERTIC Electrificación Rural y Tecnologias de O&M Operation and Maintenance Información y Comunicación ESMAP Energy Strategy Management Assistance OBA Output Based Aid Program FASU Universal service fund PCU Project Coordination Unit FNDR Fondo Nacional de Desarrollo Regional PHRD Policy and Human Resources Development Fund FIS Fondo de Inversión Social PLABER Plan Bolivia de Electrificación Rural FM Financial Management PPF Project Preparation Facility FMR Financial Monitoring Report PRONER Programa Nacional de Electrificación Rural FPS Fondo Productivo y Social PRONTER Programa Nacional de Telecomunicaciones Rurales FUNDETIC Fundación para el Desarrollo de Tecnologias de PRSP Poverty Reduction Strategy Paper Información y Comunicación GDC Grid Densification Component PV Photovoltaic GDP Gross Domestic Product QER Quality Enhancement Review GHG Greenhouse Gas RE Rural Electrification GOB Government of Bolivia SAC Sector Adjustment Credit GIZ Deutsche Gesellschaft für Internationale SHS Solar Home System (s) Zusammenarbeit GmbH HH Household SIC Sector Investment Credit ICB International Competitive Bidding SITTEL Superintendencia de Telecomunicaciones ICT Information and Communication Technologies SME Small and medium-sized enterprises IDA International Development Association SOE Statement of Expenditure IDB Inter-American Development Bank TOR Terms of Reference IDTR Infraestructura Descentralizada para la VMEAE Vice Ministry of Electricity and Alternative Transformación Rural Energy IPDF Indigenous People Development Framework VMEH Vice Ministry of Energy and Hydrocarbons IPDP Indigenous People Development Plan VMT Vice Ministry of Telecommunications IRR Internal Rate of Return WTP Willingness to pay Vice President: Pamela Cox Country Director: Susan Goldmark Sector Manager: Chandra Shekhar Sinha (acting) Project Team Leader: Lucia Spinelli ICR Team Leader: Fernando Lecaros BOLIVIA Decentralized Infrastructure for Rural Transformation CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ...............................................1 2. Key Factors Affecting Implementation and Outcomes ...............................................5 3. Assessment of Outcomes...........................................................................................11 4. Assessment of Risk to Development Outcome .........................................................13 5. Assessment of Bank and Borrower Performance ......................................................13 6. Lessons Learned ........................................................................................................14 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...........16 Annex 1. Project Costs and Financing...........................................................................17 Annex 2. Outputs by Component ..................................................................................19 Annex 3. Economic and Financial Analysis..................................................................21 Annex 4. Bank Lending and Implementation Support/Supervision Processes .............25 Annex 5. Beneficiary Survey Results............................................................................27 Annex 6. Stakeholder Workshop Report and Result 28 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR......................29 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders........................32 Annex 9. List of Supporting Documents .......................................................................33 MAP A. Basic Information Decentralized Country: Bolivia Project Name: Infrastructure for Rural Transformation Project ID: P073367 L/C/TF Number(s): IDA-37880,IDA-3788A ICR Date: 11/29/2011 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: APL Borrower: BOLIVIA Original Total XDR 15.00M Disbursed Amount: XDR 13.76M Commitment: Revised Amount: XDR 15.00M Environmental Category: B Implementing Agencies: Ministerio de Hidrocarburos y Energía Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/09/2002 Effectiveness: 12/18/2003 12/18/2003 08/09/2007 Appraisal: 03/10/2003 Restructuring(s): 01/27/2010 04/07/2011 Approval: 06/17/2003 Mid-term Review: 12/04/2006 Closing: 12/31/2007 05/27/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Information technology 33 5 Power 33 40 Renewable energy 34 55 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 20 20 Other rural development 40 50 Other urban development 20 15 Poverty strategy, analysis and monitoring 20 15 E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox David de Ferranti Country Director: Susan G. Goldmark Marcelo Giugale Sector Manager: Chandra Shekhar Sinha Danny M. Leipziger Project Team Leader: Lucia Spinelli Dana Rysankova ICR Team Leader: Fernando Lecaros ICR Primary Author: Fernando Lecaros ii F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to expand and improve delivery of electricity and ICT services through private-sector led mechanisms as a catalyst for the development of rural areas in Bolivia. Revised Project Development Objectives (as approved by original approving authority) The project development objective is to expand and improve delivery of electricity through private-sector led mechanisms as a catalyst for the development of rural areas in Bolivia. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Number of equivalent Photovoltaic (PV) Solar Home Systems (SHS) installed Value quantitative or 15000 10000 10174 Qualitative) Date achieved 12/18/2003 04/04/2011 05/27/2011 Comments (incl. % achievement) Indicator 2 : Number of Service Management Contracts for PV SHS; Value quantitative or 6 4 Qualitative) Date achieved 12/18/2003 05/27/2011 Comments (incl. % achievement) Indicator 3 : Number of new users connected under grid densification Value quantitative or 300 15000 20073 Qualitative) Date achieved 12/18/2003 04/04/2011 05/27/2011 Comments (incl. % achievement) Indicator 4 : Number of new cellular phone connections in rural areas Value quantitative or 25000 Dropped Qualitative) Date achieved 12/18/2003 07/16/2007 iii Comments (incl. % achievement) Indicator 5 : Rural population covered by new cellular phone services Value quantitative or 1000000 Dropped Qualitative) Date achieved 12/18/2003 07/16/2007 Comments (incl. % achievement) Number of new productive users of electricity under the PV SHS and Productive Indicator 6 : Uses components Value quantitative or 100 356 Qualitative) Date achieved 12/18/2003 05/27/2011 Comments (incl. % achievement) Indicator 7 : Tons of carbon dioxide abated Value quantitative or 14000 10000 11537 Qualitative) Date achieved 12/18/2003 04/04/2011 05/27/2011 Comments (incl. % achievement) Indicator 8 : Country Gateway fully operational by end of project Value quantitative or Completed Completed Qualitative) Date achieved 12/18/2003 05/27/2011 Comments (incl. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Number of equivalent Photovoltaic (PV) Solar Home Systems (SHS) installed Value (quantitative 4000 10000 10174 or Qualitative) Date achieved 12/18/2003 04/04/2011 05/27/2011 iv Comments (incl. % achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 11/25/2003 Satisfactory Satisfactory 0.00 2 06/04/2004 Satisfactory Unsatisfactory 0.35 3 11/30/2004 Satisfactory Unsatisfactory 0.60 4 04/25/2005 Satisfactory Moderately Satisfactory 0.60 5 11/21/2005 Satisfactory Satisfactory 0.80 6 06/23/2006 Moderately Satisfactory Moderately Satisfactory 2.10 Moderately Moderately 7 12/15/2006 2.24 Unsatisfactory Unsatisfactory Moderately Moderately 8 06/22/2007 3.44 Unsatisfactory Unsatisfactory Moderately 9 11/12/2007 Moderately Satisfactory 3.86 Unsatisfactory Moderately 10 06/11/2008 Moderately Satisfactory 5.13 Unsatisfactory 11 11/18/2008 Moderately Satisfactory Moderately Satisfactory 5.81 12 05/15/2009 Moderately Satisfactory Moderately Satisfactory 6.48 13 07/07/2009 Moderately Satisfactory Moderately Satisfactory 6.70 14 04/05/2010 Moderately Satisfactory Moderately Satisfactory 8.42 15 02/21/2011 Moderately Satisfactory Moderately Satisfactory 13.38 16 08/10/2011 Moderately Satisfactory Moderately Satisfactory 18.54 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 08/09/2007 Y MU MU 3.65 01/27/2010 N MS MS 8.16 Extension of closing date Reallocation of loan proceeds to 04/07/2011 MS MS 13.86 reassign funds from SHS to the densification component. v If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Moderately Unsatisfactory Against Formally Revised PDO/Targets Moderately Satisfactory Overall (weighted) rating Moderately Satisfactory I. Disbursement Profile vi 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal With an average nominal income of $1,460 (2010) equivalent to $4,820 at PPP1, and a poverty rate of 38 percent, Bolivia is the most economically challenged country in South America. Poverty is particularly severe in rural areas, where about 40 percent of the population lives in communities with fewer than 2,000 inhabitants (as compared to 26 percent for the Latin American region). Overall access to electricity services was estimated to be 77.1 percent in 2010, with 90.4 percent in urban areas and 50.8 percent in rural areas. Although the levels are still low, they have improved significantly since 2001 when overall access was estimated to be 64 percent and 24.5 percent in rural areas. The IDTR (Infraestructura Descentralizada para la Transformación Rural) project was conceived as an intervention that would improve rural infrastructure and thereby improve rural incomes. Bolivia has a population density of only 9 inhabitants per square km overall and, given its particularly rugged terrain, infrastructure costs are especially high. The provision of rural infrastructure is further complicated by two additional factors. First, the urban population and economic activity are concentrated along the corridor connecting the three largest cities (La Paz- Cochabamba-Santa Cruz), which makes it economically viable to provide high-quality infrastructure in that corridor. On the other hand, reaching peripheral areas is difficult and expensive. Second, the difficult mountainous terrain of the Altiplano (high plateau) and valley zones allows for low-cost hydro-electricity generation, but also increases infrastructure construction and operational costs; frequent floods and landslides exacerbate the problem. Although the electricity sector was reformed in the 1990s, its transformation had no direct effect on rural users. The capitalization program was designed for large systems typically serving urban areas; no regulatory framework was established for rural areas, and neither were expansion/service obligations. However, the Government set up a national rural electrification program (PRONER) which established guidelines for rural electrification projects, with private sector participation and under competitive conditions (e.g. by awarding contracts based on the least required subsidy criterion). It also entrusted the responsibility for rural electrification to municipalities and departments and allocated significant resources to these local governments for this purpose. The efficiency regarding the use of the latter funds was in doubt given the lack of rules for cost minimization and sustainability. Nonetheless, rural electrification increased from 16 percent in 1997 to 24.5 percent in 2001 and 50.8 percent in 2010. The telecommunications sector was also capitalized in the 1990s, and more explicit consideration was given to service in rural areas. The concession contracts awarded to the national long distance carrier and to three local service cooperatives incorporated rural service obligations, such as the installation and operation of public telephones in all conurbations between 350 and 10,000 people that fell within their service areas. In 2001 the Government established the National Rural Telecommunications Program (PRONTER) to cover both basic telephony and more advanced ICT services. Its main obstacle was lack of financing, despite the Government’s failed attempt to pass legislation to raise funds through a levy on the gross revenues of the telecommunications sector. The Government launched a new program for the electricity sector in 2002 (Plan Bolivia de Electrificación Rural—PLABER) with the purpose of incorporating lessons learned under 1 The World Bank, 2010 Little Data Book 1 PRONER and correcting some of its implementation weaknesses. PLABER included ensuring sustainability, minimum eligibility criteria for the projects, a menu of technological options, competitive and transparent subsidy allocations, user co-financing, private sector participation, and the promotion of productive uses. The IDTR project was designed in 2003 during the second Sánchez de Lozada administration, after a decade of strong economic growth which saw the reform of the power and telecommunications sectors. When designed, the IDTR project was consistent with the Bank’s working strategy/CAS for Bolivia. The importance of rural infrastructure to Bolivian development was recognized in the 1998 CAS, the subsequent PRSP, and the CAS Progress Report of 2001. The 1998 CAS was based on the three pillars of Opportunity, Equity, and Institutions; the CAS Progress Report, based on the PRSP, identified four strategic components: (a) expansion of income and employment opportunities, (b) capabilities building through improvements in primary education, preventive health care, and improved access to adequate housing, (c) increased security and protection for the poor, and (d) promotion of integration and social participation. Providing support for the PLABER electrification initiative and for the PRONTER rural telecommunications program was a good fit to the CAS, PRSP, and CAS Progress Report recommendations by (a) providing access to productivity-enhancing electricity and ICT services, (b) supporting improvements in education by providing these services for rural schools, (c) improving security through street lighting and communication facilities, and (d) by supporting integration through better lighting and communications facilities which provide access to the media. Given the project’s innovative design, which included the delivery of electricity and ICT services through Output Based Aid (OBA), it was originally designed as an Adaptable Program Credit with three phases, covering the periods 2003–2007 (APL 1), 2008–2010 (APL 2), and 2011–2013 (APL 3). 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project development objective was to expand and improve delivery of electricity and ICT services through private-sector led mechanisms as a catalyst for the development of rural areas in Bolivia. The performance indicators in the Credit Agreement included: (1) Number of equivalent Photovoltaic (PV) Solar Home Systems (SHS) installed; (2) Number of Service Management Contracts for PV SHS; (3) Number of new users connected under grid densification; (4) Number of new cellular phone connections in rural areas; (5) Rural population covered by new cellular phone services; (6) Number of new productive users of electricity under the PV SHS and Productive Uses components; (7) Tons of carbon dioxide abated; and (8) Country Gateway fully operational by end of project. The PAD included four additional policy reform indicators: (1) adoption and implementation of a new regulatory framework for rural electrification, establishing adequate and affordable regulatory and technical standards for rural areas, and facilitating private investment in rural electrification; (2) Establishment of a financing mechanism for sustainable rural electricity coverage expansion, with adequate sources of funding and transparent rules for efficient, effective and competitive use of public resources for rural electrification investment with private sector participation; (3) Operationalization of a rural telecommunication fund, with transparent and efficient rules for subsidy allocation, and identification of sustainable funding to implement the 2 rural ICT strategy; and (4) enactment of a new regulation for the telecommunication sector, with adequate regulatory and technical standards to facilitate private telecom investment in rural areas. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The project ran into implementation problems with the ICT component, which led to a first level restructuring in 2007. The revised PDO was: “The project development objective is to expand and improve delivery of electricity through private-sector led mechanisms as a catalyst for the development of rural areas in Bolivia”. The ICT components were dropped and the key indicators became: 1) Number of equivalent Photovoltaic (PV) Solar Home Systems (SHS) installed; (2) Number of Service Management Contracts for PV SHS; (3) Number of new users connected under grid densification; (4) Number of new productive users of electricity under the PV SHS and Productive Uses components; (5) Tons of carbon dioxide abated; and (6) Country Gateway fully operational by end of project. The two first policy reform indicators were retained (regulatory framework and establishment of a financing mechanism); the ICT-related policy indicators were dropped. A second-level restructuring took place in 2011 with the purpose of reallocating funds among project categories. 1.4 Main Beneficiaries The main direct beneficiaries and target population of the APL 1 project identified at preparation consisted of over 15,000 rural low-income households to receive electricity service, and over 25,000 new cell phone users in rural towns, in addition to farmers, small businesses, schools, clinics, and community centers in the project areas. The intention was to ultimately benefit the population in the rest of the country through the incorporation of lessons learned and replication in APL 2 and APL 3. Indigenous communities were also expected to be important beneficiaries of the project. Almost 80 percent of the population in the project areas identified themselves as indigenous in the 2001 census. Given that the project originally required a significant outlay of resources by beneficiaries, it was oriented towards the better off, but still poor, rural population, rather than users in the extreme poverty stratum. When the project was formally restructured in 2007 the target beneficiaries of the project became 10,000 equivalent Solar Home Systems (SHS) to benefit rural households, together with 15,000 customers to be connected through grid densification. The project was targeted to provide electricity to a total of 25,000 poor households benefiting around 125,000 people. In addition, SHS in schools and clinics were expected to benefit 30,000 people, resulting in a total of 155,000 beneficiaries. 1.5 Original Components (as approved) Project components, as classified in the original Credit Agreement, included: Part A: National Strategies for Rural Electrification and ICT. The component would assist the Vice Ministries of Energy and Communications in developing effective strategies to improve and accelerate electricity and ICT coverage expansion in rural areas. Part B: Rural Coverage Expansion. The component would support (1) Solar photovoltaic market development for a target of 15,000–20,000 users, (2) Grid densification strategy and funding of a pilot project to reduce the cost of new connections, (3) financing, together with the Government and the private sector, of around 25,000 new cellular lines to benefit a population of about 1 million, and (4) other energy and ICT small interventions, such as pico-hydro stations and limited financing for the expansion of coverage of TV and local radio stations. Part C: Productive and Social Uses. The component would identify, develop, facilitate and promote productive and social uses of the installed infrastructure: (1) Productive and Social Uses 3 of Solar Energy, oriented towards promoting non-obvious uses and those that require lesser known types of equipment, as well as adaptation of existing processes, (2) Productive and Social use of ICTs (together with Development Gateway) including the establishment of an internet platform, local content development, a community radio program, and a capacity building program. Part D: Promotion, Communication and Capacity-Building. This component was designed to complement the others by providing a common platform for community consultations, promotion campaigns and training of users in using the new infrastructure efficiently and productively. Part E: Project Management, Monitoring and Evaluation (M&E). In addition to management, this component was expected to focus on M&E by developing indicators and following their evolution throughout project execution. 1.6 Revised Components The project was restructured in 2007: Part B.3 (telephony) was in effect eliminated by assigning it a zero budget; Part B.2 (grid densification and pilot project) was assigned the bulk of the budget that had been cancelled for Part B.3. A final reallocation of loan proceeds was formally done in 2011. 1.7 Other significant changes The original closing date of the project was December 31, 2007. In October, 2007, the project was restructured to (a) eliminate the Telephone Coverage Expansion subcomponent, (b) reassign funds to the Grid Densification sub-component and other components, and (c) reduce the telecommunications technical assistance activities. The restructuring extended the closing date by 26 months, to June 30, 2009. The Grid Densification component in B.2 was redefined and expanded to use the additional allocation made for densification under the restructuring. A second extension was agreed, with a closing date of November 27, 2009 and an interim two month extension was agreed through January 27, 2010. A third extension was requested and agreed for an additional 17 months, leading to a final closing date of May 27, 2011 and a final reallocation of the proceeds of the credit. In the final restructuring there was also a change in the indicators regarding the technologies to be used in the project, but the total number of beneficiaries, 25,000, remained unchanged. The original and restructured funding allocations are reflected in the following table: Funding Allocations (SDR) Category Original Restructured Final (2007) (2011) (1) Works 750,000 100,000 121,900 (2) Goods and Non-consultant Services 400,000 1,000,000 1,117,800 (3) Expenditures under service management 8,900,000 10,200,000 11,117,700 4 contracts (Part B) Part B1 (Photovoltaic systems) 5,900,000 6,800,000 4,331,900 Part B2 (Grid Densification) 0 3,400,000 6,785,800 Part B3 (cellular phone expansion) 3,000,000 0 0 (4) Consultant Services 2,400,000 2,450,000 1,935,800 (5) Operating Costs 300,000 400,000 502,900 (6) Refunding of Project Preparation Advance 1,450,000 170,800 170,900 (7) Unallocated 800,000 379,200 0 (8) Grants to Beneficiaries (new) 0 300,000 33,000 Total 15,000,000 15,000,000 15,000,000 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Although at the time of project preparation the Bank had accumulated considerable experience in the implementation of both rural electrification and ICT projects involving private-sector participation, both in LAC and worldwide, the project assessment recognized that the project in Bolivia in general, and intervention in rural areas in particular, could confront unforeseeable obstacles. For example, economic and/or social instability were rated as high risk at appraisal, as well as political interference which could affect project implementation (modest risk), and the withdrawal of support for regulatory reforms and private sector participation (substantial risk). All three of these risks, which were correctly diagnosed at appraisal, materialized albeit with little chances of mitigation. The uncertainties associated with the project were one of the reasons for choosing the APL instrument, which would allow (a) learning and adapting from previous phases, and (b) eventually cancelling future phases of the project without compromising as many resources. The project was designed to minimize the risk of loss of resources by adopting an Output-Based Approach (OBA) through which payments to private or public operators are made against functioning services. At the time of project preparation this approach had been tested elsewhere in different Bank projects and it was consequently adopted for the project in question. Two major approaches had been tested elsewhere in connection with the provision of SHS: the fee for service approach, in which the operator owns the assets under a concession-type arrangement, and the dealer approach whereby the operator competes to sell the systems to the customer. The Bolivia IDTR project adopted a new SHS business model that sought to combine the strengths of the two approaches described before: Under this hybrid approach, known as Medium Term Service Contracts, subsidies are provided in return for obligations extending over a number of years to provide service and spare parts. 2.2 Implementation In order to understand the evolution of the project and its subsequent delays, it is important to recall the political developments after 2003. The credit was approved by the Board, as well as the Bolivian Congress in June 2003, under the Sánchez de Losada government; in October 2003 due to social unrest, the President resigned and Carlos Mesa, the vice-president, took over. The Mesa government lasted until June 2005 when the President resigned due to public outcry over natural gas policy as well as a federalist movement in the hydrocarbon-rich eastern provinces. Mesa was replaced by the head of the Supreme Court, Eduardo Rodríguez, as interim president until elections could be held in August. An act of Congress postponed them until December 2005, at which time Evo Morales won the election with an absolute majority. The new Government was inaugurated in January 2006, and has lasted until project closure in 2011. As a result of these 5 changes in power, the project was effectively implemented under four different governments all of which rotated or replaced project staff, particularly the project directors and the fiduciary staff; nevertheless, a core of qualified technical personnel was kept throughout the project. Changes in government and in authorities also implied rotations at the Ministerial level, especially for staff under the Legal and the Administrative Directions in the Ministry of Hydrocarbons and Energy. These two areas had a close interaction with the PCU as they were involved in approving contracts. Therefore, these changes in staff affected the relationship with the PCU and the processing of the project contracts. New authorities needed to be briefed over and over about the nature of the project and the particular type of procedures (such as World Bank Procurement Guidelines) that were applied for contracting, which led to delays in implementation. In addition to the delays introduced by changes in the Government, the project was not included in the National Budget in 2004, and as a result it was in effect paralyzed during its first year of implementation, with little chance from the start to achieve the initial closing date of December, 2007. The obstacles encountered by the telecommunications component are a good example of how political risks materialized. The component was expected to be implemented by launching a bidding process for putting in place the required installations in selected rural areas. A first bidding round was unsuccessful and a second one was initiated in 2005 but it was not finalized before the change in Government in January 2006. The new Government examined the bids and concluded they were not responsive in the sense that they did not conform to the minimum requirements of the intended project; the Bank agreed with this conclusion. The Bank and the Government agreed that the project would be restructured to reflect the impossibility of re- bidding and implementing the telecommunications component before the December, 2007 closing date. In fact, the Government eventually awarded the contract to one of the bidders, the local company (ENTEL) but without using IDA funding. Not much later, ENTEL was nationalized and the telecommunications regulator was disbanded. With respect to the ICT components of the project, the country development gateway was duly completed in 2007 and is in operation (2011). The SHS subcomponent encountered obstacles of a different nature. The component was supported by the Government and bidding for PV installations in rural areas was successful: four qualified bids were received (there were eleven pre-qualified companies) covering 14 geographic areas, and two contracts were awarded; one of them, awarded to a Spanish company, covered ten areas, and the other, awarded to a consortium led by a Bolivian NGO, covered the rest. The foreign company ran into implementation issues, particularly regarding marketing and communication, i.e. lack of familiarity with the local context and therefore engaging with potential customers effectively. Ultimately, for reasons not related to the project in Bolivia, the foreign company went into bankruptcy after having installed 3,695 systems. On the other hand, the consortium implemented its 4 contracts in a very satisfactory manner. Thus, various changes were made to the local company’s contracts which enabled them to expand the number of systems sold and eventually reach the 10,000 systems target. The project is still trying to formally close the contract with the foreign company. In addition, some obstacles were faced by the companies when trying to identify the demand, due to the amount of money (nearly US$ 400) beneficiaries were supposed to pay upfront in order to get the equipment. To solve this issue, local level governments intervened during project implementation; in some specific areas, the gobernaciones subsidized part of the users’ upfront payment. 6 The grid densification subcomponent was the great beneficiary of the project restructuring through the allocation of most of the resources formerly intended to cellular coverage. With the support of the distribution companies, the project was able to disburse most of its allocation through this component. It is worthwhile mentioning an innovative approach adopted by the Project to attract users to the SHS component: improved cookstoves, were integrated into the project as a bonus provided to households which purchased a SHS, therefore providing additional rewards in the way of health and gender benefits. This required development of a procurement model based on dissemination activities of the German cooperation organization GIZ, and developed in close collaboration with GIZ. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E was recognized early in the project as a key factor in following performance. A technical monitoring office was organized (Oficina Técnica de Monitoreo—OTM) with the purpose of overseeing (a) contracts between users and contractors, (b) contracts among contractors and the Ministry of Hydrocarbons and Energy (MHE), and (c) performance indicators and risks. In particular, with respect to the Output Based Aid (OBA) approach, OTM verified the outputs in order to pay for the subsidies, which were only tendered against households with electricity service. The OTM was organized with a unit director, a PV/SHS specialist, a grid densification specialist, and an information and geopositioning specialist; this staff was supported by eight field supervisors. The OTM was effective in channeling user complaints, providing mediation services in the case of conflicts and controlling quality, both at the installation and customer service levels. It also oversaw quality and contractor performance. The OTM was responsible for collecting project information, and controlling monitoring parameters. The OTM ensured that the Project was present and visible in the field, ensuring channels of communication with the users, and helping to strengthen communication with local officials. One of the substantial benefits created by the Project was the establishment of this office, which continues to operate. 2.4 Safeguard and Fiduciary Compliance Environmental Safeguards. SHS have a minimal environmental impact; grid densification schemes may involve interventions on public land and may be more invasive, but they are in general easily managed risks. The Project triggered OP 4.01 and was categorized B for environmental impact, therefore a partial Environmental Assessment (EA) was required before Appraisal. The EA included an Environmental Management Framework (EMF), to secure compliance with the Bolivian legal framework and the Bank’s safeguard policies. The main requirement under the EMF was the preparation of environmental management plans (EMPs) for each electricity and telecommunications sub-project. The EMF was complemented with specific guidelines for each step of implementation of the rural electrification sub-projects, including: i) selection of sites; ii) procedures for the construction stage; iii) procedures for the operations stage, and; iv) consultation with stakeholders. The EMPs were an inherent part of the preparation of each transaction, and its conclusions and recommendations were integrated into the contracts with service providers that were responsible to install, operate and maintain the electricity systems. The EMPs included specific procedures and actions to be developed by the service providers in order to prevent and mitigate the 7 identified environmental impacts and comprised programs for the management of solid wastes and residual water and control of emissions and noise. Although OPN 11.03 (Cultural Property) was not triggered, the EMP also included procedures for the management of archeological and cultural resources. The assessment of the Project’s compliance with OP 4.01 is summarized as follows: • The electric densification component demanded most of the monitoring effort for compliance with OP 4.01. The first bidding package was prepared in April of 2008 without including the environmental requirements indicated in the EMF, however most of the electric companies accepted the inclusion of the management plan with the associated costs in the contracts. At that stage, the Project was not staffed with an environmental safeguards specialist; therefore, these projects were subject to a safeguard compliance assessment only at the operations stage. • The Bank’s safeguards specialist was incorporated to the project team in January of 2010. The EMF guidelines were systematized and specific EMP compliance indicators were developed to improve the monitoring procedures. The ex-post assessment of the 2008 densification projects concluded that the monitoring reports did not contain all the data required under the EMPs; however, all the companies provided the missing information as required by the Project. The analyses of the monitoring reports allowed determining that the impacts were minor and have been adequately mitigated. The second bidding phase included the environmental procedures at all stages and compliance and monitoring of the management plans took place according to the EMF. Social Safeguards. The Project triggered OP 4.10 on Indigenous Peoples and OP 4.12 on Involuntary Resettlement. An Indigenous Peoples Planning Framework and a Resettlement Policy Framework were prepared. The Indigenous Peoples Planning Framework defined procedures and principles to ensure a process of free, prior, and informed consultation with the affected Indigenous Peoples' communities. The Resettlement Policy Framework defined procedures to avoid resettlement and to develop plans for the establishment of easements for distribution lines. During project supervision the Bank did not find evidence of any serious non-compliance with OP 4.10 or OP 4.12. The main issue recorded in Aide Memoires of supervision visits is the lack of adequate documentation on (i) the consultations carried out prior to the implementation of some of the grid densification subprojects; and (ii) the implementation of Indigenous Peoples Plans. This documentation was reconstructed after the fact and training activities were conducted to improve the documentation in these areas. Fiduciary a) Financial Management. The operation of financial management arrangements was considerably affected by adjustments and internal reorganization processes within the implementing entities; as well as high staff rotation not only in the Project Coordinating Unit, but also in the Ministry's Administrative and Finance Unit. Lack of experienced and qualified staff for prolonged periods resulted in outdated and inaccurate accounting records thereby affecting the quality of financial information and timely compliance with audit requirements. Although during the last years a more stable institutional environment was in place, the dynamics between the PCU and Ministry of Hydrocarbon and Energy were still difficult resulting in bureaucratic and cumbersome procedures. Project performance, as it relates to Financial Management, significantly improved towards the end, thus permitting an orderly project closing. 8 b) Procurement. The Project Coordination Unit was responsible for the procurement activities and the contracting process; responsibilities were handled in a satisfactory manner. The IDTR’s technical Unit was in charge of defining technical specifications, preparing terms of reference and contract contents, evaluating offers and bid proposals and managing each signed contract. Given the specificity of the procurement methods applied by the Project Unit, difficulties were faced when interacting with the Ministry authorities, not familiarized with World Bank Procurement Guidelines. Therefore, the signing of contracts was cumbersome. The performance is moderately satisfactory. 2.5 Post-completion Operation/Next Phase Equipment installed under the PV/SHS component has a guarantee of two years backed by warranty policies; this includes replacement of defective equipment. Maintenance of equipment is guaranteed for a period of four years after installation. In the case of the NGO contractor, its service contract extends until 2015. In the case of the foreign company, contractual guarantees were called for non-performance and the resources have been destined to contract maintenance with local entrepreneurs; a first bidding round was unsuccessful and a second round is underway, to be financed by Government resources. Regarding the payment of contractors during the operational phase, as this was not possible after the project closed, the contracts were amended in order to allow the maintenance guarantees mentioned above to be paid during the life of the project. No payments following project closure are expected to take place. Only a contractors’ guarantee is being held by the Bolivian authorities to assure contract compliance with maintenance requirements. In the case of the grid densification project, new users have been included into the mainstream of regulated distribution utility clients and benefit from the maintenance and service quality available to their customers. Reforms instituted under the project materialized under Supreme Decree 28567 which approved the rules and regulations for Rural Electrification, together with Bolivian norms for PV installations. Financing mechanisms for rural electrification materialized under Supreme Decree 29365 which approved the “Electricity for Dignified Living” program. These statutes have not been challenged and are expected to continue to provide an adequate framework for rural electrification. The project itself was a first phase of a three-phase APL. Triggers for moving to the second APL phase were included in the PAD. They comprised: Policy triggers: 1. Adoption and implementation of a new regulatory framework for rural electrification (RE), establishing adequate and affordable regulatory and technical standards for rural areas, and facilitating private investment in rural electrification; 2. Establishment of a financing mechanism for sustainable rural electricity coverage expansion, with adequate sources of funding and transparent rules for efficient, effective and competitive use of public resources for rural electrification investment with private- sector participation; 3. Operationalization of a rural telecommunication fund, with transparent and efficient rules for subsidy allocation, and identification of sustainable funding to implement the rural ICT strategy; (eliminated in the 2007 project restructuring) and 4. Enactment of a new regulation for the telecommunication sector, with adequate regulatory and technical standards to facilitate private telecom investment in rural areas (eliminated in the 2007 project restructuring). Investment triggers 9 1. At least 15,000 equivalent SHS installed; 2. Minimum of 25,000 new cellular phones users in 100 communities; (eliminated in the 2007 project restructuring) and 3. Fully operational Internet-based Country Gateway portal. The triggers related to cellular services and the telecom fund no longer apply after project restructuring in 2007. The wording of the second Policy trigger also changed with the restructuring. The new text reads as follows: “Establishment of a financing mechanism for sustainable rural electricity coverage expansion, with transparent rules for efficient, effective and competitive use of public resources for rural electrification investment with private sector participation.” The triggers associated with the regulatory framework, the mechanism for extending rural electricity coverage, the installation of SHS and the Internet portal were achieved under the restructured goals. However, the investment achievements were accomplished during the later months of project execution when a second phase of the APL could not be initiated. Nevertheless, given the positive results of the first phase, a request from the GOB was received and a new energy sector operation, mainly an IDTR follow-up project, is already under preparation. This new operation would consist of a free-standing SIL rather than a second phase of the original APL. In any case it should be emphasized that the triggers for a second phase were achieved under the restructured scenario, albeit at a late stage in the project’s execution. The following table summarizes the achievement of the triggers envisaged under the project’s restructured design. Triggers Actions / Fulfillment Adoption and implementation of a new Fulfilled. The Government proclaimed the regulatory framework for rural electrification Rural Electrification Rule Book (Supreme (RE), establishing adequate and affordable Decree 28557 dated December 2005) and the regulatory and technical standards for rural Bolivian norms for PV installations. areas, and facilitating private investment in rural electrification; Establishment of a financing mechanism for Fulfilled. The Government proclaimed the sustainable rural electricity coverage “Electricity to live with dignity” program expansion, with transparent rules for efficient, (Supreme Decree 29365 dated July 2008) effective and competitive use of public which establishes a common fund for universal resources for rural electrification investment access, and a financing system involving the with private sector participation. Government, Prefectures, Municipalities and the private sector. At least 15,000 of equivalent SHS installed; 94 percent fulfilled. 10,174 SHS systems were installed with an average 50Wp, equal to 14,130 equivalent SHS systems (1 equivalent system is 36Wp). 10 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The project’s outcomes, which translate into improved living conditions for the targeted rural population, continue to be relevant, particularly given current country priorities, where the Government’s programs have emphasized better welfare for rural and particularly indigenous people. There continues to be a large population which lacks electricity and the objectives of the project are still relevant. The project’s design, which was clearly oriented towards improving rural living conditions with private sector participation proved to be successful by delivering subsidies for SHS and grid densification; the latter, in particular, was enthusiastically embraced by many of the utilities in the country. Implementation of the project followed the original design for the electricity sector activities and was successful in adapting to changing circumstances regarding the withdrawal of the foreign company from SHS installations. While the telecommunications activities planned under the project were cancelled, they were largely completed under contracts financed outside the Project. The project was fully integrated with the Bank’s assistance strategy. In particular, the emphasis on rural and indigenous populations provided by the project reflects the Interim Strategy Note (2009) which led to a fast adaptation to the Morales Government’s priorities, as well as objectives such as (i) identifying shared goals and priorities, (ii) working with the fragile capacity of Government teams, (iii) continue the focus on shared priorities, (iv) to consider additional support for government teams in the preparation and implementation of projects, (v) avoid the fragmentation of projects and focus on a limited number of simple projects with clear objectives, well defined, measurable and realistic time frames for implementation, and (vi) continue to work to strengthen the long-term commitment of the World Bank in the country. 3.2 Achievement of Project Development Objectives As noted above, the restructured project development objective was to expand and improve delivery of electricity through private-sector led mechanisms as a catalyst for the development of rural areas in Bolivia. This was fully achieved through the support to institutional statutes which provide a frame of reference for future rural electrification, and the outputs related to the actual installation of over 10,000 SHS and the connection to the grid of over 20,000 customers, thereby benefiting around 120,000 people. The outputs by component are shown in detail in Annex 2 together with the achievement of indicators. 3.3 Efficiency The final estimates for the economic rates of return of the project are: 15 percent for SHS component, 50 percent for first phase grid densification, 36 percent for second phase grid densification. The SHS rate of return is lower than the estimate at the design stage (29 percent) because a more conservative assumption was used regarding the project’s useful life (25 years in the PAD, 15 years in Annex 3 of this ICR). In any case, these are very approximate figures given the variability of the basic assumptions (e.g. the luminance of kerosene lanterns/candles/flashlights as compared to those of solar-powered equipment and the consequent willingness to pay). There was no similar evaluation at the design stage regarding grid extension, 11 which was only expected to be a pilot project. Regarding the financial evaluation, given that this is a project based on providing subsidies, the financial cash flow should yield an IRR below acceptable values. In particular, the financial analysis for SHS would only yield cash benefits from replacing artisanal lighting, which does not capture the benefits of improved and additional lighting; consequently, there was no financial assessment either at the design stage or at the ICR level. 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall rating reflects, on the positive side, the achievement of the PDO and the benefits for the targeted rural population, and, on the negative side, the need to restructure the project to reflect the unsuccessful ICT developments, as well as the delays incurred in its execution, which took approximately double the time initially envisaged. Furthermore, the final implementation accomplishments took place during an intense last-minute effort with little time for close M&E. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Through its design and execution, the project was successful in improving living conditions for a large number of poor, rural households. The social impact associated with providing lighting to schools and health centers is also worthwhile noting. It has had positive gender consequences particularly through the improved cooking stoves, which reduce the burden on women regarding woodfuel collection and time spent in food preparation due to more efficient combustion. Reducing cooking fumes has important health consequences. Finally, the project interacted strongly with local communities and communal organizations thereby developing a sense of ownership among beneficiaries. (b) Institutional Change/Strengthening The support to the development of the rural electrification legal framework will have long term consequences in providing the frame of reference for achieving the Government’s rural strategy. (c) Other Unintended Outcomes and Impacts (positive or negative) Although not included in the project design, an opportune alliance with the German cooperation organization GIZ allowed the installation of about 7600 improved cookstoves for SHS users, thereby providing benefits in terms of health, gender, and deforestation by lowering time and effort needed for woodfuel collection and reducing CO2 emissions. The project was also instrumental in financing 14 solar refrigerators for vaccine preservation and public lighting installations (1,274 lamps) benefitting around 8,800 households. Other project outcomes include productive uses of SHS systems, including wool shearing equipment (240 users), poultry uses, store lighting, and over 100 users utilizing PV systems for powering tools. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not Applicable 4. Assessment of Risk to Development Outcome Overall Rating: Low. The improvements in living conditions for the beneficiaries of the project are not expected to change. In the case of the institutional component, the legal conditions for rural electrification have been set and they are not expected to change significantly in the medium or long term. The SHS have led to a better quality life for the beneficiaries and they are unlikely to revert to, for example, wick lamps or candles for lighting. The SHS systems require basic maintenance and battery replacement, which should be affordable for the stratum of beneficiaries which were targeted in the project. However, based on international experience, solar panels could deteriorate or break after the guaranteed maintenance period, and replacing them could entail a high cost to users; hence the risk could be assessed as moderate for this component; nevertheless, better and less expensive solar technology (so-called pico PV systems) has been 12 developed in the last few years, and users experiencing difficulties with their solar panels could easily shift to this more affordable alternative. The grid densification customers will continue to benefit from the regulated service, including maintenance, offered by the distribution companies, with negligible risk to the development outcome. The Internet portal which was put in place requires basic updating at only slight cost. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The project was carefully prepared by taking into account the particular needs of the rural population in Bolivia. The risk ratings were consistent with what actually transpired during project execution. However, the project design was too complex to be achieved in a 5 year period. In addition, the OBA contracts included an unrealistic 4-year post-installation maintenance guarantee that could not be achieved during the project’s implementation. This led to the amendment of the SHS contracts in 2010 to ensure adequate maintenance of the systems covered during the project’s lifetime. (b) Quality of Supervision Rating: Moderately Satisfactory During project execution the Bank maintained a constant presence with the project, with two or more supervisions a year, and provided help to overcome the different difficulties encountered, particularly the collapse of the foreign SHS contractor. However, the project team was not always complete due to the rotation of specialist staff, and ultimately the success of the project became dependent on the ability of the PCU director which, fortunately, managed to accomplish more during the last 15 months of execution than during the previous periods. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory The Bank performed adequately at all stages of project execution and supported the PCU team during the transitions from one government to another. It was responsive to project difficulties and provided opportune and constructive advice to advance the project; the project was redesigned (when it became apparent that the cellular phone component would not be executed) in such a way that it could reach its development objectives. However, the failings noted above regarding quality at entry and supervision warrant the overall rating. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory The changes in Government undoubtedly impacted project performance, and generated a generally unstable institutional environment; however, the successive governments always provided support for the project and its development objectives. For example, between 2002 and 2005 the PLABER program was established. (Plan Bolivia de Electrificación Rural) and the IDTR was conceived under that program. Latter on in 2008, the Electricity Program for Living with Dignity (Programa de Electricidad para Vivir con Dignidad) was issued as the National strategy to reach Universal Access by 2025. The IDTR was one of the program’s main components. 13 (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory Although the PCU experienced rotations mainly at the director level and fiduciary staff (FM and procurement), it managed to maintain a core of qualified staff and to advance the project, and it ultimately achieved the project’s goals as measured by performance indicators. The PCU learned that the level of supervision needed for this type of projects is intense and should take place in the field. All its supervision efforts were intensified during the last year of project execution. By the end of the project, the PCU also gained knowledge of how to handle the relationship with the different areas of the Ministry of Hydrocarbons and Energy involved in contract processing. The interaction with them became more frequent and project procedures became substantially streamlined. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory As noted, the borrower supported the project and its development objectives. However, the delays in execution, such as not including it in the 2004 budget and frequent staff rotation, held up benefits to the targeted population which could have been achieved earlier. 6. Lessons Learned Simplicity of design is paramount to successful implementation of rural projects. Rural projects should be carefully designed to minimize implementation difficulties. In this project, adopting a multisectoral approach, depending on two different ministries, unduly complicated project design (although at the time of preparation, multisectoral projects were being supported by the Bank). Projects requiring counterpart funds from beneficiaries should be carefully designed in terms of the target population. The IDTR shows how requiring a significant payment from the beneficiaries should be carefully evaluated when targeting recipients, which, in this case, were the better off among the rural poor. Addressing this type of difficulty can be achieved by actively seeking other sources of financing. In the IDTR case, the gobernaciones (local level jurisdictions) were incorporated in the project as partial financiers of beneficiaries for the upfront payment of SHSs. This new funding simplified the identification of the potential beneficiaries but also added to the complexity because new players were involved in the project. Procurement should be oriented towards reducing both cost and risk. During implementation, consideration should be given to spreading the risk of possible failure when several contractors are being envisaged, and procurement should be designed to allow for this approach. In hindsight, the contracts for SHS would have been spread among a larger number of contractors, thereby reducing the trauma induced by the failure of any single one. In fact, during proposal evaluation, consideration should be given to assessing proposals in terms of realistic proposals for implementation; in the case of the project, the foreign contractor’s proposal included goals which were considered too ambitious but could not be rejected when evaluating bids. In this sense, local knowledge should be a key factor in the evaluation criteria for proposals for this type of projects. Monitoring is essential to the implementation of complex projects with multiple beneficiaries such as the IDTR. M&E is essential to rural oriented projects in order to track 14 contractor performance and to assure that the benefits reach the target population. In the case of the project in question, the M&E office organized under the PCU (i.e. the OTM) is a good example of project supervision which allowed it to attain its development objective. It performed successfully by following basic good management principles, frequent and periodical visits to the project and its beneficiaries, communication with SHS service providers, and coordination with Distribution companies for grid densification. It is a good example of how to monitor rural electrification projects with substantial field work. The OBA approach ensures that benefits are delivered. OBA approaches are successful, as in the project in question; by assuring that subsidies are only paid against actual results, i.e. satisfactory electricity provision to users. The OBA approach of the project in conjunction with the hybrid model for delivering SHS through the Medium Term Service contracts constitutes a good example of an electrification strategy which maximizes benefits for a given subsidy and can be applied elsewhere. This approach should, however, be qualified given that it targets the better off population among the poor; if a program were to target the poorest strata, a different strategy would be required. The official institutional counterpart of the Bank should participate actively in project implementation. When designing the project and the operations manual in particular, consideration should be given to the possible bureaucratic obstacles which may be encountered, such as review by Government agencies (e.g. the Ministry involved) to detect sources of delay which can be addressed at the outset of the project. In a context of frequent changes in authorities, both at the PCU and the Ministry level, a standalone PCU which must apply specific procedures approved under the loan is often required to explain its role and justify its practices to the different, new, authorities. Given its semi- independence, and the special nature of its procedures, there is always a degree of distrust from new government authorities, which leads to project delay. In order to minimize this kind of situations, it would be desirable to involve the Bank’s institutional counterpart (e.g. Ministry of Finance or the like) from the outset, so that it can take a lead role in explaining the particularities of Bank operations to the line authorities, thereby ensuring continuity and avoiding delays in implementation. Maintaining flexibility during project execution is an important lesson, as exemplified by the project’s cooperation with other donors with similar interests; implementing a parallel activity to the GIZ cookstove initiative was an incentive to users for adopting SHS, particularly once the first stoves were installed and demonstrated within a community. Cooperation with other Government and local institutions is an important element for project success in rural initiatives. In the case of the project, provincial governments and municipalities were successfully involved to reach the target population. Again, the main lesson is to improve as much as possible on local knowledge and to support contractors for the project to be successful. Long term results evaluation requires M&E beyond project closure. Given the time elapsed between the installations of the SHS and the construction of the grid extension, and the preparation of this ICR, it is not yet possible to extract lessons as regards investments’ sustainability. Most SHS original batteries are still functioning and the PCU has no information of installed systems out of order. As indicated in section 4 of this document, and as discussed with some beneficiaries during field visits, they were totally aware of the need of replacing the battery and paying for it, and it is unlikely to expect SHS users to revert to wick lamps or candles for lighting. As for the densification users, if the beneficiaries do not have any affordability problem, no issues should take place. It is clear then that, in order to better assess and evaluate the 15 results of rural electrification projects, more time is needed. This type of projects generates changes in living conditions that affect the culture of beneficiaries that are located in very isolated areas with accessibility issues. An in-depth evaluation of the project’s impact requires time for users to get used to new technology and time and resources to implement statistically relevant surveys or field visits to these isolated areas. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The main suggestions include (a) having a local Bank liaison within the country, and (b) counting on permanent legal support for drafting contracts. Regarding the latter, contracts are designed by legal staff at the Ministry, who are not specialists in the type of project and have to contend with myriad other contracts, and become an important source of delays. The suggestion is reasonable as it would have enabled the PCU to provide the initial drafts to the Ministry and to adjust the contracts to project requirements. (b) Cofinanciers (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 16 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Original Final (2011) Component Disbursements Percentage Allocation Reallocation 1.National Strategies for RE 3.40 0.80 0.76 95 and ICT 2.1 Solar PV Installation and 13.93 8.75 7.29 83 Market Development 2.2 Grid 2.47 10.59 10.29 97 Densification 2.3 Cell Phone Coverage 8.20 0.0 0.0 0 Expansion 2.4 Other investments in 0.65 0.60 0.39 65 Rural Energy and ICT 3. Productive and 2.59 0.30 0.30 100 Social Uses 4. Promotion and 2.27 0.10 0.10 100 Training 5. Management 3.52 2.00 2.05 103 and M&E 6. Unallocated 1.77 0.0 0.0 0 Total Baseline 38.80 23.14 21.18 92 Cost Physical Contingencies 0.00 Price Contingencies 0.00 Total Project 0.00 23.14 21.18 92 Costs Front-end fee 0.00 0.27 0.27 100 PPF Front-end fee 0.00 IBRD Total Financing 0.00 23.14 21.18 92 Required 17 (b) Financing Appraisal Actual/Late Percentage Type of Estimate Restructur st Estimate of Source of Funds Cofinancin (USD ed Estimate (USD Restructur g millions) millions) ed Borrower 2.40 0.6 0.4 67 International Development 20.00 23.7 21.3 90 Association (IDA) Nordic Development Fund 6.00 0.00 0.00 .00 (NDF) Local Sources of Borrowing 10.40 .00 Country PHRD Project Preparation 0.70 0.70 0.70 100 Total 39.50 25.0 22.4 90 18 Annex 2. Outputs by Component Restructured Percent Component Original Output Actual Output completion 1. National Adopt and Unchanged for rural Achieved for 100% Strategies for Rural implement a electrification. ICT electrification Electrification and regulatory element dropped through ICT framework for rural promulgation of electrification. Supreme Decree National strategy for 28567 and rural Bolivian norms telecommunications for SHS, together with Supreme Decree 29365 for financing mechanisms 2.1 Solar PV Provide SHS to Target reset to SHS for 10,174 100% System Installation 15,000-20,000 new 10,000 new rural households and Market rural households households installed Development Six contracts for Unchanged Four contracts in 67% SHS services place, ten contracts rescinded due to bankruptcy of contractor 2.2 Grid Pilot project with a 15,000 households 20,073 users 134% densification minimum of 300 connected to the grid connected users 2.3 Telephone 25,000 new cellular Dropped Executed by the N.A. coverage expansion users Government through ENTEL Internet-based Unchanged Country Gateway Achieved 100% portal 3. Productive and Facilitate productive Unchanged 240 users of PV 100% Social Uses and social uses of systems for wool electricity shearing 14 users of PV systems for poultry industry 2 users of PV systems for store lighting Over 100 PV users for powering machine tools 19 Restructured Percent Component Original Output Actual Output completion 4. Promotion, Targeted ICT activities Community Communication and communication, dropped workshops and Capacity Building information and training for education programs beneficiaries on Completed for small rural the care and entrepreneurs and maintenance of communities equipment and developed and use of improved implemented cookstoves through a mix of implemented ICT tools 5. Project M&E activities in Unchanged M&E office 100% Management, M&E process organized Yearly, Mid-term Periodical reports 100% and final evaluation issued on project of key performance progress indicators and project development impact Other project outputs not contemplated in the initial design include 7,649 improved stoves at a cost of $288,393, 14 solar refrigerators for vaccine preservation at a cost of $103,000 in the Department of Pando, and public lighting, which encompassed the installation of 1,274 lamps (70W and 250W), in the municipalities of El Alto, Pucarani, and La Paz, benefitting 8,800 households. 20 Annex 3. Economic and Financial Analysis (including assumptions in the analysis) 1. Evaluation of SHS. SHS have two types of benefits: on one hand, they substitute the expense associated with traditional lighting devices, such as kerosene lamps, candles, and flashlights by solar panels whose running costs are practically negligible (replacement parts and replacement batteries are considered as maintenance costs and will be taken into account in the analysis). In addition to the savings over traditional lighting devices, PV systems provide much more light, and therefore they bring additional welfare benefits to the beneficiaries. The situation is explained in the following figure which schematically represents the demand for lighting: Figure 1 When using traditional lighting, users consume QK at price PK and the value of saved traditional energy resources is given by areas B+D. Once the consumer adopts a PV system, demand increases to QPV at price PPV, and the additional benefits associated with the extra lighting are given by areas C+E. A straight line approximation to the demand curve was used given the lack of quantifiable information regarding consumers’ preferences. The analysis will consider the case of a single PV customer with the following characteristics: Panel size: 55W Investment: Cost of PV system to user: $390 Subsidy provided by IDTR project: $580 Investment cost: $970 Periodical operations and maintenance costs: Maintenance: $5/year Battery replacement: $60 QK: 92 klm2-hour per year QPV: 560 klm-hour per year PK: approximately $0.50 per klm-hour PPV: $0.0 per klm-hour (i.e. running costs are only fixed maintenance costs) 2 klm = kilolumen 21 This yields the following benefits Replacement of traditional lighting: Areas B+D = QK(PK-PPV) + QKPPV = $46 which would approximately represent the expense of purchasing kerosene, wicks, candles, etc over a year. This is probably a conservative estimate. Benefits of additional lighting provided by a solar panel: Areas C+E = (PK-PPV)(QPV-QK)/2 + PPV(QPV-QK)= $117 Together with the maintenance and operations costs of the solar panel and its annex equipment, this yields the following cash flow over 15 years, a conservative life estimate. Table 1: Flow of Benefits for a SHS beneficiary (US$) Avoided Extra Capital Total Lighting Lighting Total Benefit Year Cost Battery O&M Cost Costs Benefit Benefits Flow 1 970 5 975 46 117 163 -812 2 5 5 46 117 163 158 3 5 5 46 117 163 158 4 60 5 65 46 117 163 98 5 5 5 46 117 163 158 6 5 5 46 117 163 158 7 5 5 46 117 163 158 8 60 5 65 46 117 163 98 9 5 5 46 117 163 158 10 5 5 46 117 163 158 11 5 5 46 117 163 158 12 60 5 65 46 117 163 98 13 5 5 46 117 163 158 14 5 5 46 117 163 158 15 5 5 46 117 163 158 15% The cash flow yields a conservative estimate IERR of 15% for the PV system. 2. Evaluation of grid densification. A similar analysis applies to this component as shown in Figure 2. New users replace kerosene lamps or alternative forms of lighting by electricity and start to consume considerably more (QE) given the lower price. PE is the electricity tariff. 22 Figure 2 The assumptions behind the analysis are: QK = equivalent consumption of electricity, assumed to be 60kWh per year; QE = lower strata consumption of connected households, around 600kWh per year; PK = equivalent price of electricity, assuming an expenditure of 60$ per year on kerosene, which yields an equivalent price of $1 per kWh PE = electricity tariff for residential households, which averages US¢6.1/kWh3. Although the electricity tariff is subsidized, the assumption for project evaluation is that the tariff covers the upstream costs (i.e. costs of generation and transmission) for any given client, and thereby project revenues represent a net gain for the distribution companies (with the IDTR subsidy). This is a conservative assumption, as the alacrity with which the distribution companies embraced the grid densification project is symptomatic of yielding a good financial return for them. This allows for a comparison of project costs against consumer surplus benefits. Project costs per client were approximately $570 per client during Phase I of the grid densification project, and $800 per client during Phase II. With these assumptions, the flow of benefits for an average grid densification client is shown in Table 2. 3 Source: LCR Power Snapshot, LCSEG, April 2011 23 Table 2: Flow of Benefits for an Average Grid Densification Beneficiary (US$) Capital Capital Avoided Phase I Phase II Cost Cost lighting Consumer Upstream Benefit Benefit Year Phase I Phase II costs surplus Costs Revenues Flow Flow 1 570 800 -570 -800 2 60 286.47 36.6 36.6 286.47 286.47 3 60 286.47 36.6 36.6 286.47 286.47 4 60 286.47 36.6 36.6 286.47 286.47 5 60 286.47 36.6 36.6 286.47 286.47 6 60 286.47 36.6 36.6 286.47 286.47 7 60 286.47 36.6 36.6 286.47 286.47 8 60 286.47 36.6 36.6 286.47 286.47 9 60 286.47 36.6 36.6 286.47 286.47 10 60 286.47 36.6 36.6 286.47 286.47 11 60 286.47 36.6 36.6 286.47 286.47 12 60 286.47 36.6 36.6 286.47 286.47 13 60 286.47 36.6 36.6 286.47 286.47 14 60 286.47 36.6 36.6 286.47 286.47 15 60 286.47 36.6 36.6 286.47 286.47 16 60 286.47 36.6 36.6 286.47 286.47 17 60 286.47 36.6 36.6 286.47 286.47 18 60 286.47 36.6 36.6 286.47 286.47 19 60 286.47 36.6 36.6 286.47 286.47 20 60 286.47 36.6 36.6 286.47 286.47 21 60 286.47 36.6 36.6 286.47 286.47 22 60 286.47 36.6 36.6 286.47 286.47 23 60 286.47 36.6 36.6 286.47 286.47 24 60 286.47 36.6 36.6 286.47 286.47 25 60 286.47 36.6 36.6 286.47 286.47 50% 36% This yields an economic IRR of 50 percent during phase I and an IRR of 36 percent during phase II. 24 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Dana Rysankova Senior Energy Specialist LCSEG TTL Eloy Vidal Senior Telecommunications Specialist Supervision/ICR Patricia H. de Baquero Senior Procurement Specialist MNAPR Karen Bazex Energy Specialist LCSEG Morten Blomqvist Operations Officer LCCBO Susan V. Bogach Sr Energy Econ. LCSEG TTL Bjorn-Soren Gigler Senior Governance Specialist WBIIN Maria Lucy Giraldo Senior Procurement Specialist LCSPT Megan Veronica Hansen Junior Professional Associate LCSEG Alvaro Larrea Senior Procurement Specialist LCSPT Lourdes Consuelo Linares Sr Financial Management Specia LCSFM Juan Navas-Sabater Lead ICT Policy Specialist TWICT Kilian A. Reiche Consultant AFTEG Lucia Spinelli Energy Spec. LCSEG TTL Alejandro Marcos Tapia Energy Spec. LCSEG Luis Tineo Senior Operations Officer GPOBA Eloy Eduardo Vidal Consultant TWICT Xiaoping Wang Senior Energy Specialist LCSEG Eduardo H. Zolezzi Consultant LCSEG Luis M. Vaca Soto Consultant LCSEG Jose Yukio Rasmussen Procurement Specialist LCSPT J. Marcelo Berthin Financial Management Specialist LCSFM Gabriela Arcos Environmental Specialist LCSEN Joaquin Aguilar Aranibar Consultant LSCUW Elena Segura Lawyer LEGLA Fabiola Altimari Lawyer LEGLA Pilar Larramendy Sr. Social Specialist LCSSO José Vicente Zevallos Sr. Social Specialist LCSSO 25 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY01 5 26.60 FY02 25 144.09 FY03 35 223.72 FY04 8 16.25 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00 Total: 73 410.66 Supervision/ICR FY01 0.00 FY02 0.00 FY03 0.00 FY04 11 103.65 FY05 15 78.63 FY06 29 126.60 FY07 34 175.62 FY08 45 136.01 FY09 36 0.00 Total: 170 620.51 26 Annex 5. Beneficiary Survey Results (if any) Not Applicable 27 Annex 6. Stakeholder Workshop Report and Results (if any) Not applicable 28 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Summary of Borrower’s ICR 1. Background According to the 2001 census, electricity coverage in Bolivia amounted to 64 percent at the national level, 90 percent in urban areas and 24.5 percent in rural areas. According to surveys conducted by the project, households using candles or batteries had a cost of Bs.1-2 per lumen- hour, compared Bs.0.05-0.10 per lumen hour in the case of PV systems or grid connections. The project sought to replace inefficient lighting sources by modern and less expensive systems. Project execution (2005-2011). The project became effective in December 2003, but was only able to initiate operations in 2005 due to lack of budgetary allocation for 2004. In 2005 two bidding processes were launched: PV systems for 15,000 users, and mobile telephony for 1 million users. The first bidding process, concluded in November 2005, allocated 14 contracts for a total US$9.9 million with the purpose of installing 17,761 SHS. The second bidding process, for US$4.5 million, was declared void; a second attempt was launched and was also declared non- responsive. In 2006 the Ministry of Services, Public Works and Dwellings signed a contract with ENTEL, the telecommunications company to improve coverage with its own resources. As a result, the telecom component of the IDTR project was reduced and its budget was reallocated to electrification. In 2008 a bidding process was launched to supply electricity services through short grid extensions in rural and peri-urban areas. As a result, 7,700 users were connected to the grid. In April 2010 a second phase of the grid densification component was launched, reaching 12,373 users. Performance indicators. The borrower’s ICR summarizes the project indicators and the completion rates indicated in Annex 2. 2. Activities associated with the electricity component PV systems. Due to the bankruptcy of one of the contractors for the SHS (Isofotón), the goals of the project were restructured to reach 10,000 users. The local company (Energética Aned Hansa consortium) installed 6,479 systems within its four contracts, together with 52 installations for health centers and schools at a contracted cost of US$4.2 million. After the bankruptcy of Isofotón, Energética took over some of the Isofotón customers. Eventually, 10,174 users benefitted from the SHS component. The results were constantly monitored by the Office of Technical Monitoring within the PCU; the contracts included maintenance and servicing provisions for four years. The systems installed are expected to be sustainable as local maintenance personnel have been trained for this purpose. Grid densification. The purpose of this component was to electrify users located outside the 100m obligatory service area of distribution companies in rural and peri-urban areas. This was carried out in two phases; in the first phase (using initial project resources and those liberated from the ICT component), with an average subsidy of US$400 per connection, 7,700 dwellings were connected. In a second phase bidding process was implemented with a variable subsidy scale in order to accomplish the goal of 15,000 connected dwellings. This resulted in proposals for connecting 12,325 dwellings with an average subsidy of US$590 per dwelling. The execution of this component was assisted by the participation of NRECA-International, which was hired by the project. The main problems encountered included a participation of only 10 out of 46 distribution companies due to the absence of technical capacity, the lack of adequate of planning capacity and identification of users. Problems were also encountered within communities who did not benefit from the project, despite being possible candidates. 29 Improved cookstoves. This was included in the contracts for SHS such that the project would provide free of charge improved cookstoves (cocinas Malena) whose technology had been developed by GIZ. A total of 7,649 cookstoves were installed at a unit cost of around US$38. The impacts of this element included improved health conditions and gender effects which improved the lifestyle of women, who are generally in charge of fuelwood collection and food preparation, as they consume less fuel than traditional stoves. Problems encountered included community resistance due to lack of knowledge about the project and the false expectation of a gas network, as well as migration of the population due to a drought. Productive uses of electricity. As a consequence of the installation of PV systems, productive uses were supported, including shearing facilities (240), lighting of poultry establishments (14) and use of electric tools (100 artisans). The sustainability is assured by the interest and ownership of beneficiaries with respect to their PV installations. Solar refrigeration. After several false starts, in 2008 an agreement with the Ministry of Health allowed the installation of 14 vaccine refrigeration units at a cost of around US$7,000 each, with a positive impact on delivery of health services. Public Lighting. As part of the productive uses of electricity, public lighting was supported for three municipalities, with the installation of 1,274 lamps benefitting around 9,000 families. 3. Activities associated with the telecommunications component Although the cellular telephony component was cancelled, the project supported the installation of community telephone centers, including computers and furnishings, together with two electronic libraries. Finally, the country gateway portal was developed (http://www.boliviaproductiva.bo) and is in service. 4. Execution of the purchase of goods and services. The main problems encountered were associated with the bureaucratic procedures which were subject to Ministry procedures that ignored World Bank rules. Drafting contracts could last up to six months, which required asking suppliers to extend their offers’ dates of validity. 5. Financial execution The project had to deal with constant changes in its management, including the absence financial staff during six months in 2009. This was overcome in January 2010. During 2011, with a consolidated team, together with an intense concentration, practically 100 percent of the goals were achieved. A particular operational difficulty consisted in the requirement to obtain Ministerial approval for travel of project staff, which delayed execution. Another difficulty encountered was the lengthy process of obtaining non-objections from the World Bank. 6. Conclusions and recommendations Project results were presented formally on May 26, 2011 when the Bank’s representative expressed his satisfaction with the project achievements. The project performance indicators were all complied with, and the project team requests implementing a second phase of the project taking into account the experience acquired with the first phase. In order for a second phase to be successful, it is recommended to keep the current team in place. Borrower’s comments on draft ICR In general terms, the report adequately reflects project execution, considering relevant aspects and obstacles encountered during implementation. However, it would be necessary to take into account the following aspects: 30 • In order to show the results and impacts achieved when concluding a project, it would be useful to consider continuing the impact evaluation during the grace period of the loan, and financing it from loan proceeds; this would allow a better demonstration of project results and impacts. • Given the instability of fiduciary and OTM staff due to changes made by the Bolivian Government, which led to project delays, it would be desirable to consider that the Bank hire this personnel directly, to be paid from loan proceeds. The team of the IDTR PCU thanks the Bank’s representatives for the financing and support provided to the Project, which enabled its successful execution. 31 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 32 Annex 9. List of Supporting Documents Proyecto Infraestructura Descentralizada para la Transformación Rural—IDTR, Convenio de Crédito AIF 3788-BO, Informe Final de Cierre, Julio 2011. Project Appraisal Document on a Proposed IDA Credit for an Adaptable Program Credit in support of the First Phase of the Decentralized Infrastructure for Rural Transformation Program (Bank report 25934), May 2003 Development Credit Agreement between Republic of Bolivia and International Development Association, June 2003. Amendment to the Loan Agreement, October 2007. Restructuring and Amendment of the Credit Agreement to Bolivia for the Decentralized Infrastructure for Rural Transformation Project—Project Paper, July 2007 33 MAP 34 35