The World Bank Report No: ISR15152 Implementation Status & Results Honduras Power Sector Efficiency Enhancement Project (PROMEF) (P104034) Public Disclosure Copy Operation Name: Power Sector Efficiency Enhancement Project (PROMEF) Project Stage: Implementation Seq.No: 11 Status: ARCHIVED Archive Date: 02-Oct-2014 (P104034) Country: Honduras Approval FY: 2009 Product Line: IBRD/IDA Region: LATIN AMERICA AND CARIBBEAN Lending Instrument: Specific Investment Loan Implementing Agency(ies): Key Dates Board Approval Date 22-Jan-2009 Original Closing Date 31-Dec-2013 Planned Mid Term Review Date 20-May-2013 Last Archived ISR Date 05-Apr-2014 Effectiveness Date 29-Jun-2010 Revised Closing Date 30-Jun-2015 Actual Mid Term Review Date 05-Jun-2013 Project Development Objectives Project Development Objective (from Project Appraisal Document) The project development objective is to improve ENEE's operational and financial performance, thus contributing to the sustainability of the power sector in Honduras. Has the Project Development Objective been changed since Board Approval of the Project? Yes No Component(s) Component Name Component Cost Improving ENEE's commercial and corporate resource management 18.50 Rehabilitating distribution networks 14.60 Strengthening ENEE's institutional capacity and corporate governance 6.20 Overall Ratings Previous Rating Current Rating Public Disclosure Copy Progress towards achievement of PDO Moderately Satisfactory Moderately Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating High High Implementation Status Overview Honduras is embarking on a period of rapid change in the energy sector. At the end of 2013, Honduras elected a new president. In January of 2014 the National Congress approved the new Electricity Law, providing the framework for a reformed energy system. Its main components are: - commencement of the unbundling of ENEE’s generation, transmission, distribution and commercialization of electricity by 2015, permitting private sector participation in operating functions currently controlled by ENEE; - the creation of a wholesale energy market managed by a newly created System Operator (Operador del Mercado Eléctrico OME), responsible for dispatch and supervising Page 1 of 7 The World Bank Report No: ISR15152 generation contracts, ensuring that the supply of electricity is sufficient and secure, calculating short-term marginal cost, executing the financial clearance of market operations, among others; - the import and export of electricity alongside the provisions of international treaties; and - the creation of a new regulator, CONAREE, responsible for defining the tariff setting methodology, approving final tariffs, setting technical standards, supervising bidding Public Disclosure Copy processes, preparing standard bidding documents and auditing variable costs declared by power producers, among others. As part of this reform, the National Congress, seeking to minimize ENEE’s financial losses, awarded two local banks the role of trustees (fidecomisos) and facilitators of international bidding processes to find operators for the distribution and transmission businesses of ENEE and to manage ENEE’s cash waterfall. In addition, the banks provided ENEE with much needed capital (upwards of $200 million) so that it could make partial arrears payments to private generators (IPPs), with whom ENEE now has outstanding arrears of $400 million. Going forward, the banks will play an important role in shaping the future organization of the sector. In this evolving sector context, especially with the contemplated unbundlling of ENEE, the Project faces significant implementation challenges. This is due, in particular, to the fact that the PROMEF investment program was designed around a vertically-integrated utility, not an unbundled sector with private participation across the entire value chain. Nonetheless, the World Bank and the PMU have undertaken every effort to ensure that Project investments are aligned with the structural reforms contemplated, and that the investments can deliver on their development objectives -- particularly commercial loss reduction. Reducing commercial losses is critical to the Government, more so now given that losses have increased from 20% in 2008 to 31.2% in 2013. The new Government inherited an alarming budget deficit, which reached 8 percent of GDP in 2013. ENEE is responsible for nearly half of the budget deficit; hence, resolving ENEE's woes challenges is fundamental to achieving the Government's fiscal consolidation efforts. PROMEF investments have the potential to reduce losses: accordingly, the new government has recently been more supportive of and engaged with the Project to ensure that it can overcome implementation challenges to deliver on its potential development benefits. Investments under the Project include the installation of automated meters and management software (Component 1); the rehabilitation of distribution networks (Component 2); and institutional strengthening/corporate governance (Component 3). Component 1: To date, 100% of automated "smart" meters (5,000 in total) have been installed. These meters have been installed to enable ENEE to control and monitor the consumption of consumers that represent 45% of energy billed. The modernization also includes efforts to upgrade ENEE's corporate facilities, data centers, and use of technology. The PIU has organized significant capacity building activities to train employees, and prepare them for change. Installation of the Integrated Management System continues but has faced significant delays. The Resource Management system (SAP) is in place and the remaining components (Commercial and Incident Management Systems) will be installed in October. The Bank is currently reviewing plans to remodel the distribution command centers in La Ceiba and San Pedro Sula. Component 2: This component includes the replacement of transformers which are contaminated with PCBs. As of today 1,000 transformers have been replaced. In addition, ENEE has purchased 31 heavy vehicles to support the effort to rehabilitate the country's national distribution network. In addition, ENEE will construct a permanent storage facility for the contaminated transformers. The Bank is currently reviewing the plans for the storage facility. Component 3: Under Component 3, ENEE has been working to bring its financial reporting up to date. Audited financial statements for 2012 have been prepared, and the audit report for 2013 has been submitted to the Bank and is under review. Public Disclosure Copy Disbursements: The amount of funds that are committed and foreseen in the public SEPA system amounts to $25.4 million. However around $2.7 million is earmarked already for specific costs, leaving around $300,000 only to be assigned. The team will decide with the PMU on how to allocate the remaining funds in the next month or so. While the evolving sector context has created new implementation challenges, given the recent improvement in implementation progress under Component 1, together the stronger commitment from the government to the Project, the team recommends maintaining implementation status as Moderately Satisfactory. Locations No Location data has been entered Page 2 of 7 The World Bank Report No: ISR15152 Results Project Development Objective Indicators Public Disclosure Copy Indicator Name Core Unit of Measure Baseline Current End Target Electricity losses per year in the project area Percentage Value 0.00 31.00 15.00 Date 31-Dec-2010 30-Jun-2014 30-Jun-2015 Comments Baseline = average value for The indicator was updated to the one year period preceding become a "core' indicator per implementation of the IMS Bank request. data on sub- indicators below was not collected previously so will need to be collected in the next supervision mission. For now 0 is entered so there is no error message. Total net injected generation Megawatt hour Value 0.00 0.00 0.00 (MWh) Sub Type Supplemental Electricity losses per year in the project area- Percentage Value 0.00 0.00 0.00 Technical Sub Type Supplemental Electricity losses per year in the project area- Percentage Value 0.00 0.00 0.00 Non-Technical Sub Type Supplemental Average interruption frequency per year in the Number Value 0.00 0.00 0.00 project area Date 31-Dec-2012 30-Jun-2014 Comments Baseline = value for the one Once the IMS is fully installed year period preceding ENEE will be able to establish Public Disclosure Copy implementation of the IMS the baseline. Customers served in the project area Number Value 0.00 0.00 0.00 Sub Type Supplemental Page 3 of 7 The World Bank Report No: ISR15152 Increase in the Cash Recovery Index (CRI) in Text Value 0 0 8% improvement from each of the three regional distribution sub- baseline networks Date 31-Dec-2012 30-Jun-2014 30-Jun-2015 Public Disclosure Copy Comments Baseline = value for the one Once the IMS is fully installed year period preceding ENEE will be able to establish implementation of the IMS the baseline. Annual decrease in system average Text Value 0 Improvement on an annual interruption duration index (SAIDI) basis Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments Baseline = value for the one Once the IMS is fully installed year period preceding ENEE will be able to establish implementation of the IMS the baseline. Annual decrease in system average Text Value Average of the three month NA Improvement on an annual interruption frequency index (SAIFI) period following basis implementation of the Incident Recording Management System (IRMS) in the whole company. Date 31-Dec-2012 30-Jun-2014 30-Jun-2015 Comments Once the IMS is fully installed ENEE will be able to establish the baseline. Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target Outcome 1: Improve ENEE's commercial Text Value 41,000 5,000 5,000 (46,000) management.Indicator: Number of AMRs Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 installed Comments The actual number of AMRs ENEE has installed AMR Goal achieved. installed prior to Project meters with the 5,000 high- launch was 41,000. These consumption clients Public Disclosure Copy were in San Pedro Sula representing 45% of billing. where theft was a 4,140 were purchased with particularlyacute problem proceeds from the loan. Outcome 1: Improve ENEE's commercial Text Value 0 1/3 systems in place; Systems in place and management.Indicator: ERP, IMS (commercial, satisfactorily working incident, resource management) in place Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments SAP ERP is in place; the Commercial/Incident Management System is not in Page 4 of 7 The World Bank Report No: ISR15152 place but is scheduled to be installed in October. Outcome 1: Improve ENEE's commercial Text Value 0 0 40% of total customers management.Indicator: Number of customers Public Disclosure Copy Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 in CMS and IRMS database Comments TBD once the IMS is fully installed. Outcome 1: Improve ENEE's commercial Text Value 0 163 CMS: 50 or as needed IRMS: management.Indicator: Number of ENEE 10 or as needed CRMIS: 20 employees trained to use the CMS, IRMS, and or as needed CRMIS Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments commercial = 65 Incidents = 28 SAP = 70 Outcome 1: Improve ENEE's commercial Text Value Baseline = value for the six 0 Improvement in the average management.Indicator: Number of customer month period preceding semiannual value compared claims related to billing implementation of the IMS to the previous six months Date 31-Dec-2012 30-Jun-2014 30-Jun-2015 Comments Propose to measure as the # To be monitored only once of claims the CMS and the IRMS are in place. Outcome 2: Rehabilitate distribution networks. Text Value 0 1000 1000 Indicator: Number of transformers replaced Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments Outcome 2: Rehabilitate distribution networks. Text Value 2008:0 350 350 Indicator: Number of PCB-containing Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 equipment replaced Comments Outcome 2: Rehabilitate distribution networks. Text Value 0 31 30 Indicator: Number of heavy vehicles acquired Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments Public Disclosure Copy Outcome 3: Strengthen ENEE's institutional Text Value Separate business units do Separate business units being Separate business units capacityIndicator: Setup and operation of not exist developed under current operational separate business units consulting contract with HQ solutions. Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments Page 5 of 7 The World Bank Report No: ISR15152 Outcome 3: Strengthen ENEE's institutional Text Value Distribution and Setup of the distribution and Distribution and capacityIndicator: Setup and operation of the Commercialization Unit does commercialization unit being Commercialization Unit Distribution and Commercialization unit not exist. considered under HQ operational solutions contract. Public Disclosure Copy Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 Comments Outcome 3: Strengthen ENEE's institutional Text Value No key staff in distribution and 0 Key staff selected and in capacityIndicator: Competitive selection of key commercialization unit place personnel in the distribution and Date 31-Dec-2008 30-Jun-2014 30-Jun-2015 commercialization unit (3 managers, 10 key Comments staff) Outcome 3: Strengthen ENEE's institutional Text Value Rate of acceptance of each No survey has been Improvement in the average capacityConsumer satisfaction and perception group (e.g. consumers, performed. annual value compared to the NGOs, civil society organizati previous year on) at time of first survey. Date 31-Dec-2012 30-Jun-2014 30-Jun-2015 Comments Data on Financial Performance (as of 19-Jun-2014) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P104034 IDA-45360 Effective 22-Jan-2009 27-Feb-2009 29-Jun-2010 31-Dec-2013 30-Jun-2015 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P104034 IDA-45360 Effective XDR 20.20 18.68 1.52 12.12 6.56 65.00 Disbursement Graph Public Disclosure Copy Page 6 of 7 The World Bank Report No: ISR15152 Public Disclosure Copy Key Decisions Regarding Implementation NA Restructuring History Level two Approved on 17-Jun-2010, Level two Approved on 04-Oct-2011, Level 2 CD Decision on 19-Dec-2013 Related Projects There are no related projects. Public Disclosure Copy Page 7 of 7