Report No: ICR00001513 Public Disclosure Authorized

Document of The World Bank

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-36820 IDA-H3810 TF-50589)

ON AN INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT IN THE AMOUNT OF SDR 7.9 MILLION (US$10 MILLION EQUIVALENT)

AND AN ADDITIONAL INTERNATIONAL DEVELOPMENT ASSOCIATION GRANT IN THE AMOUNT OF

Public Disclosure Authorized SDR 1.6 MILLION (US$2.5 MILLION EQUIVALENT) TO THE REPUBLIC OF TAJIKISTAN

AND AN INTERNATIONAL FINANCE CORPORATION FINANCING CONSISTING OF: AN “A” LOAN IN THE AMOUNT OF US$4.5 MILLION AND AN EQUITY SUBSCRIPTION OF UP TO US$3.5 MILLION

TO THE

PAMIR ENERGY COMPANY

Public Disclosure Authorized FOR THE

PAMIR PRIVATE POWER PROJECT

IN THE REPUBLIC OF TAJIKISTAN

June 28, 2011

Sustainable Development Department Public Disclosure Authorized Central Asia Country Unit Europe and Central Asia Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2010)

Currency Unit = Somoni 1.00 = US$ 0.23 US$ 1.00 = 4.40 Somoni

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AKDN Aga Khan Development Network AKFED Aga Khan Fund for Economic Development CapEx Capital Expenditures (Pamir Energy Company‟s own funds) CAS Country Assistance Strategy FM Financial Management FMR Financial Management Report GBAO Gorno Badakshan Autonomous Oblast GoT Government of Tajikistan HPP Hydro Power Plant ICR Implementation Completion and Results Report IDA International Development Association IFC International Finance Corporation IFI International Financial Institution IFR Interim Financial Report KfW Kreditanstalt für Wiederaufbau LICUS Low Income Countries Under Stress M&E Monitoring and Evaluation O&M Operations and maintenance PAD Project Appraisal Document PEC Pamir Energy Company PIU Project Implementation Unit SECO State Secretariat for Economic Affairs (Switzerland) WBG World Bank Group

Vice President: Philippe Le Houerou Country Director: Motoo Konishi Sector Manager: Ranjit J. Lamech Project Team Leader: Imtiaz Hizkil ICR Team Leader: Imtiaz Hizkil

TAJIKISTAN Pamir Private Power Project

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 ...... 10 4. Assessment of Risk to Development Outcome ...... 13 5. Assessment of Bank and Borrower Performance ...... 14 6. Lessons Learned ...... 16 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 16 Annex 1. Project Costs and Financing ...... 18 Annex 2. Outputs by Component ...... 20 Annex 3. Economic and Financial Analysis ...... 23 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 32 Annex 5. Beneficiary Survey Results ...... 34 Annex 6. Stakeholder Workshop Report and Results ...... 35 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 36 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 48 Annex 9. List of Supporting Documents ...... 49 MAP IBRD 31770 ...... 50

A. Basic Information

Pamir Private Power Country: Tajikistan Project Name: Project IDA-36820,IDA- Project ID: P075256 L/C/TF Number(s): H3810,TF-50589 ICR Date: 06/29/2011 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: TAJIKISTAN Original Total XDR 7.90M Disbursed Amount: XDR 8.29M Commitment: Revised Amount: XDR 8.29M Environmental Category: B Implementing Agencies: Pamir Energy Company Cofinanciers and Other External Partners: Pamir Energy Company International Finance Corporation Aga Khan Fund for Economic Development (AKFED)

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/31/2001 Effectiveness: 03/31/2003 03/31/2003 07/31/2008 Appraisal: 03/18/2002 Restructuring(s): 12/29/2010 Approval: 06/27/2002 Mid-term Review: Closing: 12/31/2006 12/31/2010

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Satisfactory Overall Borrower Satisfactory

i Performance: Performance:

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 No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Power 100 100

Theme Code (as % of total Bank financing) Infrastructure services for private sector development 33 33 Pollution management and environmental health 33 33 Rural services and infrastructure 34 34

E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Johannes F. Linn Country Director: Motoo Konishi Dennis N. de Tray Sector Manager: Ranjit J. Lamech Peter D. Thomson Project Team Leader: Imtiaz Hizkil Raghuveer Y. Sharma ICR Team Leader: Imtiaz Hizkil ICR Primary Author: Peggy Janice Masterson

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the Project is, through private sector involvement, to improve the reliability and enhance the quantity of supply of electricity in the Gorno Badakshan Autonomous Oblast (GBAO) region in a financially, environmentally and socially sustainable way.

ii Revised Project Development Objectives (as approved by original approving authority) The Project Development Objective was not revised.

(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 Sign Concession Agreement between PamirEnergy and Government of Indicator 1 : Tajikistan Concession Agreement Private Private Value signed at appraisal (May Concessionaire Concessionaire quantitative or 24, 2002) for a term of 25 operating operating Qualitative) years. satisfactorily. satisfactorily. Date achieved 05/24/2002 12/31/2010 12/31/2010 Comments Target 100% achieved and expected to continue for duration of Concession (incl. % Agreement. achievement) Indicator 2 : Increased electricity sales in GBAO region 174,395 MWh in Value 200,000 2009; quantitative or 135,000 MWh/year MWh/year 163,215 MWh in Qualitative) 2010 Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments Target 82% achieved in 2010. Generation was slightly lower than envisaged in (incl. % view of lower demand. achievement) Residential consumers, especially the poorer section, consuming desired level of Indicator 3 : electricity. Value 22 hours/day in 22-24 hours/day in quantitative or 3 hours/day in winter winter winter Qualitative) Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments Target 100% achieved. The above electricity supply is to the main grid area, (incl. % which covers 80% of the electricity consumption in GBAO. Moreover, since achievement) 2008 PamirEnergy (PEC) has exported electricity to Afghanistan. Indicator 4 : PamirEnergy improving collection rates. Collections were Value Collection rates of 100.35% of sales quantitative or Collection rates of 40% 95% for the year ending Qualitative) December 31, 2010 Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments (incl. % Target exceeded. achievement)

iii (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 : Implementation of the agreed Environmental Management Plan Implementation of Implementation of Value Environmental the agreed the agreed (quantitative Management Plan Environmental Environmental or Qualitative) prepared at appraisal. Management Plan Management Plan is satisfactory. is satisfactory. Date achieved 06/30/2002 12/31/2010 12/31/2010 Comments Target 100% achieved. WB environmental specialist reviewed the (incl. % implementation of EMP during site visits in September 2009 and September achievement) 2010 and found it satisfactory. Maintaining the maximum average tariffs in US cents/kWh as agreed in the Indicator 2 : Concession Agreement. 3.00 US cents/kWh with a Value 3.25 US cents/kWh tariff formula (quantitative 0.4 US cents/kWh maximum average allowing or Qualitative) tariff adjustments for inflation Date achieved 01/01/2001 12/31/2010 01/01/2010 Comments Target 100% achieved. This tariff is higher than the 2009 tariff of 2.89 (incl. % cents/kWh and is likely to remain in line with the Concession Agreement in the achievement) future. Annually achieve the following financial performance targets: PamirEnergy Indicator 3 : maintains a minimum Debt Service Coverage Ratio of 1.2 Value Minimum Debt Debt Service (quantitative Not available at appraisal Service Coverage Coverage Ratio of or Qualitative) Ratio of 1.2 4.48 Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments (incl. % Target achieved. achievement) Minimum standards for service to individual customers: Voltage % change of Indicator 4 : nominal and Frequency Hz Voltage +/- 10% Value Voltage: 210-220 V of nominal; (quantitative Not available at appraisal Frequency 49-50 Frequency 50 Hz or Qualitative) Hz +/- 5% Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments (incl. % 100% achieved. Voltage and frequency were within the targeted range. achievement) Minimium standards for service to individual customers. Maximum duration of Indicator 5 : outage for rupture of conductor, foreign obstacle on line, failure of insulators,

iv breakage or failure of pole, fuse burn-out Value (quantitative Not available 24 hours Less than 10 hours or Qualitative) Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments (incl. % This indicator has significantly improved and exceeded the end of project target. achievement) Minimum standards for service to individual customers. Maximum duration of Indicator 6 : outage for failure of transformer, circuit breaker, or substation equipment, when spare parts must be obtained in Khorog Value (quantitative Not available 48 hours Less than 20 hours or Qualitative) Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments This indicator has significantly improved with maximum duration of outage (incl. % reduced to half the end of project target. achievement) Minimum standards for service to individual customers. Maximum duration of Indicator 7 : outage for transformer, circuit breaker or substation equipment failure when spare parts must be obtained outside the region. Value (quantitative Not available 30 days Less than 16 days or Qualitative) Date achieved 12/31/2002 12/31/2010 12/31/2010 Comments The maximum duration of outage has been reduced to almost half the end project (incl. % target. achievement) Indicator 8 : Technical losses in the transmission and distirbution network reduced. Not available at appraisal, Value although the financial (quantitative analysis indicated that 8% 19.9% or Qualitative) losses were estimated at 10% Date achieved 12/31/2002 12/31/2010 12/31/2010 This figure reflects both technical and non-technical losses as PamirEnergy Comments cannot calculate them separately. PEC reduced the total losses from 39% in (incl. % 2006 and 24% in 2009 to 19.9% in 2010, a significant improvement in total loss achievement) reduction.

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 11/26/2002 Satisfactory Satisfactory 0.00 2 06/25/2003 Satisfactory Satisfactory 0.00 3 12/31/2003 Satisfactory Satisfactory 0.00

v 4 06/28/2004 Satisfactory Satisfactory 0.00 5 12/17/2004 Satisfactory Satisfactory 4.46 6 06/24/2005 Satisfactory Satisfactory 6.75 7 06/30/2006 Satisfactory Satisfactory 10.71 8 06/29/2007 Satisfactory Satisfactory 11.11 9 06/30/2008 Satisfactory Satisfactory 11.11 10 12/29/2008 Satisfactory Satisfactory 11.21 11 12/28/2009 Satisfactory Moderately Satisfactory 11.67 12 12/20/2010 Satisfactory Moderately Satisfactory 12.65

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 Additional IDA Grant of SDR 1.6 million (US$2.5 million equivalent) was approved on July 31, 2008, to cover the costs associated with a financing gap 07/31/2008 N S S 11.21 caused by the unexpected need to restore and repair equipment and facilities at the Pamir I Hydro Power Plan, after a catastrophic flooding on February 5, 2007. Cancellation of SDR 768,000 (US$1.2 million equivalent) of the IDA Grant which were expected to remain unutilized at the Closing Date. PEC 12/29/2010 N S MS 12.65 managed to complete critical works through various procurement methods and several other financial sources. Less funds were spent than initially planned.

vi I. Disbursement Profile

vii

1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Tajikistan was the poorest country in the former Soviet Union, with an estimated income per capita of about US$160, and the Gorno Badakshan Autonomous Regions (GBAO) was the poorest region in Tajikistan. The Government had limited resources to provide basic public services for its population, let alone carry out public investment to prevent the decay of the extensive infrastructure inherited from the Soviet era. Tajikistan had an open economy with no effective borders with its CIS neighbors. Merchandise exports (two thirds of which were aluminum and cotton) accounted for 63 percent of GDP in 1999. Political and economic instability, geographic isolation and corruption had deterred foreign investors. Foreign direct investment to Tajikistan was extremely small -- US$10 million in 2000 and US$24 million in 2001. Tajikistan was one of the Low Income Countries under Stress (LICUS) group of countries.

The Bank Group‟s 1998 Country Assistance Strategy (CAS) emphasized a strategy that supported sustainable, employment-inducing investment, support for privatization with particular emphasis on infrastructure and improving the quality of social and institutional capacity. It emphasized assistance with repair of war damage, promoting privatization, assisting the most vulnerable and developing/restructuring rural infrastructure. The Project addressed these CAS goals, particularly those of privatizing infrastructure and developing rural infrastructure.

Tajikistan‟s energy resource endowment was predominantly hydro-electricity, with an estimated hydroelectric potential of about 40,000 MW, of which just over 4,000 MW had been exploited. The imbalance in energy resources created a deficit problem for Tajikistan, since hydropower potential was reduced in winter when glacial melt was least and demand was highest. As a result, Tajikistan imported electricity as well as fossil fuels in winter to meet energy needs. In 1999, energy imports totaled US$103 million (electricity, natural gas and petroleum derivatives), while exports (primarily electricity) amounted to just US$17.5 million. Tajikistan‟s power system was made up of three separate power systems: the northern, the southern and the Gorno Badakshan Autonomous Oblast (GBAO) electrical systems. The operational condition of the physical infrastructure had deteriorated significantly during the 1990s, resulting in very high network losses and requiring during winter the importation of even more energy to meet the demand. The Government maintained electricity tariffs at very low levels, with tariffs at about 0.7 US cents/kWh on average, and this level was insufficient to cover even the operating costs.

With assistance from the Asian Development Bank (ADB) the Government adopted a strategy for the energy sector to expand and diversify Tajikistan‟s energy system to supply reliable, efficient and affordable energy to more people, support poverty reduction, improve the standard of living and bring economic development to rural areas. Its sector policies were designed to (i) facilitate the development of a legal and regulatory framework for efficient operations; (ii) increase the level of electricity tariffs to full cost recovery; (iii) encourage private sector participation in the generation and supply of power (by enacting the Energy Law); and (iv) promote energy conservation.

Consistent with the overall sector policy framework, the Project was designed to cover the electricity system in the GBAO region. The Project would: (a) develop indigenous hydro resources to meet electricity demand, particularly in winter; (b) mobilize external resources, over 60 percent of them in risk capital, to expand the generation capacity and to rehabilitate the transmission distribution

networks; (c) bring private sector expertise to operate and manage part of the Tajik power system; and (d) agree on a 25-year tariff path, under a Concession Agreement.

As the electricity system of GBAO was virtually separate from the other systems in the country, over 70 percent of the energy in GBAO before the break-up of the Soviet Union was provided by diesel generators run on imported diesel fuel. Little attempt was made to develop locally available and relatively low cost hydropower. When Tajikistan became independent in 1991, diesel deliveries virtually ceased, and with them, a reliable electricity supply. GBAO was plunged into crisis, and became the poorest region of the poorest of all former Soviet Republics. Power capacity in the region was composed of several micro-hydroelectric plants and eleven small and medium-scale hydroelectric plants, two of which, Pamir I (14 MW) and Khorog (7.2 MW), accounted for 84 percent of installed capacity at that time. No functioning diesel capacity remained. The transmission and distribution system of GBAO was in very poor shape, having been largely destroyed in the civil war. Only 15 percent of the 435 km of 35 kV lines was still in service. Access was nearly universal, and the power system continued to provide electricity; however, outages were scheduled on a rotational basis, particularly during winter, and the power cuts had become more frequent and prolonged. There was no power in most districts of GBAO in winter.

In 1994, with funding from the US Government, and in cooperation with the Government of Tajikistan, the Aga Khan Development Network (AKDN) put into operation two of the planned four turbines at the Pamir I station (which had been planned and partially built at the end of the Soviet period), and Pamir I became operational with 14 MW out of its 28 MW designed output. Even with half of the designed capacity of the Pamir I station on line, 43 percent of residents had no electricity during the winter and 10 percent had no electricity at any time during the year, despite “enjoying” a connection to the grid. Winter temperatures in the GBAO fell as low as minus 30 centigrade. In many areas, schools and hospitals were forced to close in winter due to lack of heating. As a result, people resorted to cutting down the few trees in the area to keep from freezing in winter. The Department of Forestry estimated that from 1992-2002, 70 percent of the region‟s tree cover had been lost to firewood collection. In some cases, people cut down fruit trees for firewood, aggravating the food shortage in the spring. Indoor pollution was acute, the natural resource base was being degraded and economic activity was stifled.

In early 1999, the AKDN and the local administration of GBAO requested the International Finance Corporation (IFC) to review the feasibility of completing Pamir I, including an upstream regulating structure to ensure adequate winter flow, as the optimal solution to the energy crisis. The Project was developed jointly by IFC and the Aga Khan Fund for Economic Development (AKFED).

The Project was designed to reconcile the commercial objectives of private investors with the social objectives of the Government in an innovative way and had several unique features. It offered a viable model of how to provide infrastructure to the poorest communities. It combined private partnership with the concept of Output Based Aid, whereby aid (the Swiss grant funds, through a Trust Fund administered by IDA, TF-50589 of US$5 million) was provided to a privately owned and operated infrastructure service provider upon delivery of an output (e.g. electricity services) to targeted beneficiaries. It was also a successful example of IFC/IDA collaboration and was intended to serve as a model for Tajikistan as well as other countries.

Although the development impact was expected to be high, the Project was also a high-risk investment. It was intended to serve a community that was both extremely poor and heavily dependent on electricity. The challenge of project design was to ensure affordability.

1.2 Original Project Development Objectives (PDO) and Key Indicators The objective of the Project was, through private sector involvement, to improve the reliability and enhance the quantity of supply of electricity in the Gorno Badakshan Autonomous Oblast (GBAO) region in a financially, environmentally and socially sustainable way. Key indicators from the Supplemental Letter were:  Increased electricity sales in GBAO region from 135,000 MWh/year to 190,000 MWh/year in 2006 and 200,000 MWh/year in 2010;  Implementation of the Environmental Monitoring Management Plan (EMMP);  Maintenance of the maximum average tariffs in US cents/kWh as per the Concession Agreement between the Government and PamirEnergy;  Payment of bills for electricity consumption by Budget Organizations to PamirEnergy, in cash, within 30 days of billing; 1  PamirEnergy annual achievement of the following financial performance targets: debt service coverage ratio of 1.2; collection rates of 90 percent in 2006 and 95 percent by 2010;  Reduced interruptions of supply, voltage and frequency fluctuations;  Technical losses in the transmission and distribution network reduced to 8 percent;

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO and Key indicators were not revised.

1.4 Main Beneficiaries The benefits from the Project were expected to be primarily concentrated on consumers connected to the main grid in GBAO, and the isolated grid taking power from the Vanj hydropower plant.

The main benefits were to be derived from improving the electricity supply, particularly in winter, and subsequently enhancing the standard of living in one of the poorest regions in the world. The Public-Private Partnership approach with Output Based Aid would provide a model for delivering infrastructure services to poor consumers and enhance the country‟s opportunity to attract investments. Environmental and health benefits were expected from reducing fuel wood related emissions by increased use of clean hydropower for heating and cooking.

1.5 Original Components. The Project would generate and supply electricity under a 25-year Concession awarded to a private concessionaire, Pamir Energy Company (PEC). The Concession would involve taking control of the assets of Barki Tajik in GBAO, which served around 250,000 people. The Project comprised:

1 This indicator was in Para A2 of the PAD and in the Supplemental Letter, but was not in Annex 1 of the PAD.

 (a) Completion of the Pamir I Hydropower Plant to its original design capacity of 28 MW from the current 14 MW by installing units 3 and 4, along with an associated regulating structure at Lake Yashilkul;  (b) Rehabilitation of other hydro plants - Units 1 and 2 of Pamir I, Khorog, Vanj and Namangut;  (c) Rehabilitation and reinforcement of substations, transmission and distribution lines; and  (d) Technical Assistance to PEC for: Project Engineering and Implementation, Operations and Management and Environmental and Social Impact monitoring and mitigation. The Project was expected to cost US$24.4 million, including supply of equipment, construction/installation, consulting services and contingencies. Interest during construction amounted to US$2.0 million, for a total capital expenditure of US$26.4 million.

1.6 Revised Components The Project components were not revised, except that following the catastrophic flooding in February 2007, the description of the Project was revised to add “Emergency Assistance, provision of goods, works and consultants‟ services for Pamir 1 Power plant restoration and financial recovery”. Under the Additional IDA Grant to cover an unanticipated cost overrun due to the catastrophic flooding of Pamir I, the focus was on the rehabilitation of plant infrastructure and provision of parts and equipment to ensure the plant‟s long-term sustained operation and prevent further accidents.

1.7 Other significant changes In December 2006, the closing date was extended from December 31, 2006 to December 31, 2007, along with a reallocation among disbursement categories. Although key construction and equipment deliveries were completed satisfactorily in 2006, the extension of the closing date was needed to enable installation and testing prior to contractor payment.

In December 2007, an amendment to the Development Credit Agreement extended the closing date to December 31, 2008, to support the restoration of damage caused by catastrophic floods in February 2007. It included reallocating surplus funds from the SDR/Dollar exchange rate and revision of the project description to include “Emergency Assistance, provision of goods, works and consultants‟ services for Pamir 1 Power plant restoration and financial recovery”, and provided for audits by international independent auditors acceptable to the Association. The Project Agreement was amended at the same time to add the word “international” before independent auditors and revise the procurement methods.

Following Board approval of the Additional IDA Grant in July 2008, both the Development Credit Agreement and the Project Agreement were amended in November 2008 to include the additional IDA Grant of SDR 1.6 million (US$2.5 million equivalent). The project scope and development objective remained unchanged. Project management was based on existing arrangements, but relied on a newly formed Project Planning and Implementation Department with staff from the PIU of the original project. Incremental costs related to restoration of PEC operating capacity after flood damage were US$8.3 million, of which US$0.5 million had already been covered by surplus funds from the original Pamir Private Power Project. The financing plan was revised to include: SDR 1.6 million (US$2.5 million equivalent) from the IDA Grant, US$4.4 million from insurance and US$0.9 million from Pamir Energy‟s (PEC‟s) own funds. Disbursement arrangements were revised

to allow 100 percent financing for activities covered by the additional grant and to allow retroactive financing of up to 56 percent of the IDA grant amount for eligible expenditures incurred after June 7, 2007. Additional methods of procurement were added. The Closing Date was extended to December 31, 2010. The onlending terms to Pamir Energy were revised so that the repayment terms were 15 years (2013-2027) instead of 10 years, and the interest rates were revised.

2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry

Soundness of Background Analysis: There was extensive project preparation and design work before approval of the project. In 1999, IFC commissioned a consultant study to review alternative energy sources. This study confirmed that the proposed expansion of the Pamir hydroelectric plant was the most economic and the most environmentally acceptable alternative to provide electricity in the Project region. In late 1999, the consultant engineer conducted a detailed study of the Project that included: (i) an assessment of the construction costs and schedule; (ii) a review of environmental impacts; (iii) an assessment of the ability of consumers to pay appropriate electricity tariffs; and (iv) a brief audit of the electric utility services in GBAO. Based on the study, it was clear that the Project would need to include the upgrading of transmission and distribution, and the project company would also have to take over the supply functions (metering, billing and collection) to ensure a viable project. Consequently, AKFED and IFC decided to expand the project from a focus on generation to a full utility project and submitted a proposal in January 2000 to the Government of Tajikistan for the establishment of a private company to manage and expand the electricity supply system in GBAO. IFC drew on Swiss and IFC trust funds amounting to almost US$1 million and committed significant staff resources to structure the Project.

Assessment of Project Design: The project design was appropriate and innovative. IFC took the lead in (a) identifying the most effective solution over the short to medium term; (b) evaluating the ability of consumers in the region to pay for electricity; (c) developing a concession framework around which a privately-driven investment could be built; and (d) involving IDA in the Project. IDA‟s participation was crucial to the Project coming to fruition, as IDA‟s concessional financing was critical for the project‟s viability, i.e., to enable reliable electricity supply with a levelized tariff of about US 2.1 cents/kWh. IDA‟s involvement was designed to reconcile the commercial objectives of the private sector and the social objectives of keeping the electricity tariffs as low as possible. The Project would ensure that a significant private investment of US$26 million would occur in a country and region that found it difficult to attract private investors. IDA and IFC joint involvement was also critical in mobilizing financing from the Swiss Government to enable the Government of Tajikistan to meet its social protection obligations towards the Project, since a considerable proportion of the residential consumers would be unable to pay even the US 2.12 cents/kWh tariffs. By the time of IDA project preparation/appraisal, all of the major steps had been completed: engineering studies, an Environmental and Social Impact Assessment study which included extensive public consultations, evaluation of construction arrangements and project management alternatives; legal representation assistance to the Government; preparation of a

2 The weighted average tariffs were very low, about 0.08 US cents in 2007. The tariff level of 2.1 US cents for the entire country, except GBAO, served by Barki Tojik, has been realized only in the year 2010.

detailed Environmental Monitoring and Management Plan; and a design for a community outreach program to promote the capacity of communities to manage their power resources for the support of public services and for the benefit of community-based enterprises. All applicable World Bank Group safeguards policies and guidelines were considered and addressed during the environmental and social assessment of the Project. The initial project design was adjusted so as to be in compliance with WBG safeguard policies and guidelines and appropriate environmental and social impact mitigation measures were included.

Following extensive discussions between AKFED, IFC, IDA (whose involvement necessitated observance of the World Bank Procurement Guidelines) and the Government, the approach to project implementation during construction relied on the appointment of an experienced international engineering and construction management firm to be appointed as the Owner‟s Engineer to be responsible for detailed project design, selection of contractors, acquisition of material and supervision of construction. Considerable attention was paid to procurement packaging, as it was considered that the Project would not attract serious interest from international contractors, given its remote location.

Adequacy of Government’s Commitment, Stakeholder Involvement and Participatory Processes: The Government demonstrated its strong commitment to the Project and its objective (see Section 5.2 (a)). Stakeholders (Government, AKFED, IFC) were closely involved in the design and preparation of the Project as described above. An extensive participatory process was followed during project design and preparation to ensure community support, with 17 public hearings involving a broad cross section of the population.

Adequacy of Risk Assessment. The project team correctly described the Project as a high impact, high risk project; all risks were covered including market risks, revenue risks, technical risks implementation risks, operational risks, financing risks, economic risks, political risks, political stability risks and legal framework risks in the two page risk table in the PAD. The market risk of lower than expected demand, which was not expected to be an issue due to the severe shortages of electricity, materialized during Project implementation and a Financial Restructuring Plan had to be put in place to improve the financial performance of PEC.

2.2 Implementation

Work carried out prior to Pamir Energy‟s take-over of the Concession revealed that faulty metering was a significant problem. In 2003, PEC with assistance from IDA, decided to undertake a comprehensive Re-Metering Program over 18 months in order to reduce losses.

Activities of the original credit were implemented satisfactorily, and equipment deliveries under the original project were completed in December 2006, but additional time was required for installation and testing, so the Closing Date was extended to December 2007. The capacity of Pamir 1 HPP was doubled to 28 MW, winter water flow for generation was enhanced through a regulating structure at the upstream Lake Yashilkul, and other system assets were upgraded.

On February 5, 2007, catastrophic flooding severely damaged Pamir HPP-1 equipment and infrastructure, forcing the plant‟s shutdown, causing a 67 percent energy loss of PEC‟s power

generation capacity in the main grid and affecting over 18,000 consumers at the peak of the winter period. The flood affected the lower level of the power plant, housing the turbines, and the transformer yard outside the power house. The electric and electromechanical equipment in the hydropower plant were severely damaged. Electronic protection and control instrumentation and equipment were also damaged. Low and medium voltage switchgears and components of plant auxiliary services, eg., batteries, building services, communication channels, etc. required complete replacement. Of the four turbine-generator units, unit #2 was completely destroyed. Units #1, #3 and #4 were damaged to varying degrees. The flooding was deemed to have been caused by an airlock from a piece of ice from the sedimentation basin, which draws water from the River Gunt through the penstocks to the plant turbines. The ice airlock clogged the penstock, and subsequently, under the increasing water pressure, moved in and blew the head cover of unit #2, unleashing the flood in the power house, within 1-2 minutes.

PEC with support from AKFED reacted swiftly to address the problem and its aftermath on multiple fronts. The Government helped with emergency food and fuel supplies. World Bank and IFC teams arrived on site to help design an emergency action plan whose implementation led to recovering 67 percent of the plant‟s capacity. Rehabilitation efforts under the Additional IDA Grant approved in July 2008, focused on restoring the plant to its full capacity and sustainability, so that the original Project Development Objective could be achieved, and on implementing measures to prevent further occurrences of these problems and addressing longer term sustainability issues. At the time the Additional IDA Grant was approved, key engineering studies had been completed, and three of the four units at the plant had been permanently restored. Critical remaining activities included the restoration of unit #2, supply of spare parts and auxiliary equipment for the turbine generator units and finding a full solution to the issues of sedimentation and ice formation at the regulating basin of the plant in order to minimize the possibility of future accidents.

In late 2006/early 2007, the debt burden on PEC increased drastically as a result of losses and investment requirements which turned out to be much higher than estimated at appraisal. In order to alleviate the debt burden on the company, stakeholders agreed on a Financial Restructuring Plan in June 2008 that focused on continuing the operation of PEC on a commercial basis and addressing the issues of higher than anticipated losses and investment requirements. AKFED‟s existing subordinated debt and additional contribution were converted to equity, and IFC‟s existing senior loan was converted to equity. The existing on-lent IDA loan repayment terms were revised to a repayment term of 15 years (2013-2027) instead of 10 years. Some interest was written off and some was deferred. Stakeholders also agreed on measures to reduce losses, optimize operating costs, improve collections and enhance revenue within the full application of the authorization given in the Concession Agreement. The Financial Restructuring Plan ensured cash flow to the company to cover operating and capital expenses, enabling annual investments in critically needed network improvements.

Close supervision and ownership by IFC and AKFED contributed to greater accountability of PEC‟s management and timely implementation. Implementation of the Private-Public Partnership mechanism resulted in greater transparency and better operational performance in the utility.

Cancellation. Several restoration activities were implemented by PEC using its own and other funds, thus, leaving about US$ 1.2 million unutilized. Based on a request from the Government of

Tajikistan (the Borrower) SDR 768,000 (equivalent US$ 1.2 million) of the Grant was cancelled on December 29, 2010. The remaining undisbursed balance at closing (SDR 362,359.82, US$583,043.97 equivalent) of the original IDA Credit was canceled on May 5, 2011. The remaining undisbursed balance of the IDA Grant (SDR 80,223.07) was cancelled on January 10, 2011.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design. The Project included adequate development and outcome indicators to assess progress in meeting the project development objective and monitor the achievement of intermediate results. End of project targets were indicated for both outcome and intermediate/output indicators, but no baseline was given for the output indicator “technical losses in the transmission and distribution network reduced to 8 percent”.

M&E Implementation. PEC regularly collected data concerning the indicators, and the actual figures were compared to the target values and were available to IDA and PEC‟s stakeholders (GoT, AKFED (70 percent share) and IFC (30 percent share) in both the quarterly FMRs/IFRs and PEC‟s monthly progress reports, and an annual report each December.

M&E Utilization. PEC and its stakeholders utilized the reports for decision making when planning capital expenditures, measures to improve collections and reduce losses, and in the discussions and agreement on the PEC Financial Restructuring Plan.

2.4 Safeguard and Fiduciary Compliance Environment. The Project was subject to the Bank‟s OP 4.01 on Environmental Assessment, Natural Habitats (OD 4.04), Involuntary Resettlement (OD 4.30) and Safety of Dams (OP/BP 4.37), Projects on International Waterways (Op/BP/GP 7.50) (formal confirmation was issued by IDA that notification of riparians was not required), Policy on Child and Forced Labor (IFC), Environmental Health and Safety Guidelines for Electric Power Transmission and Distribution (IFC).

The Project was rated as a category B Project because it was a rehabilitation, upgrading and expansion of an existing power generation, transmission and distribution system. All applicable WBG safeguards policies and guidelines were considered and addressed during the environment and social assessments of the Project. The initial project design was adjusted to be in compliance with WBG safeguards policies and guidelines and appropriate environmental and social impact mitigation measures were included and monitored throughout the Project. A comprehensive Environmental Monitoring and Management Plan (EMMP) set out measures to ensure compliance with all the applicable Safeguards Policies during the construction and operation phases of the Project and Pamir Energy took all necessary measures to implement the EMMP in a timely manner. IDA fielded several environmental safeguard missions to review PEC‟s compliance with the EMMP, including two comprehensive safeguard reviews in September 2009 and September 2010, which concluded that the EMPP continued to be implemented satisfactorily, with no major deviations observed during the site visits.

Financial Management. The financial management arrangements at PEC, including accounting and reporting, internal control procedures, planning and budgeting, external audits, funds flow, organization and staffing arrangements were acceptable to the Bank. During 2002-2007 the FM ratings were consistently rated

Highly Satisfactory. During this period both the entity and project audits were carried out by auditors acceptable to the Bank, with timely submission of all the reports. However, due to changes in the national legislation for audit services (effective on March 3, 2007), which required the auditors to have local registration and local staff, PEC was unable to extend its contract with its auditors and had to recruit new auditors, which caused delays in the receipt of the audit reports for the year ending December 31, 2009. Subsequently, in 2009-2010 the FM ratings were downgraded to Moderately Satisfactory and remained such at the project closing mainly due to delays with submission of financial management and audit reports, which were received with a delay but were acceptable to the Bank.

Procurement. Procurement arrangements were considered satisfactory for the activities under the original Credit. All the planned procurement activities were completed on time and within budget. Procurement under the Project proved challenging, especially with International Competitive Bidding (ICB) and Limited International Bidding (LIB) packages. Interest from potential suppliers/contractors in project bids was weak, due to the remote location of Pamir HPP and transportation difficulties, especially in winter. Despite efforts to enhance interest of potential bidders, only two bidders participated in most of the tenders, and in one contract (supply of electrical and mechanical components), no bidder purchased bidding documents. Bid submission deadlines had to be frequently extended, and procurement often required re-bidding. Even for National Competitive Bidding, there were instances where PEC had to extend the submission deadlines and sought expressions of interest in neighboring countries. As per Bank recommendation, PEC even issued bidding documents for such potential contractors free of charge in order to maximize competition. A couple of procurements failed, either because the lowest evaluated responsive bid exceeded the cost estimate or no firm submitted bids. Because of the urgent need to maximize the production capability of the power plant during winter, the project team sought a waiver to sign a contract using Direct Contracting, for purchase of cement, or instead of re-bidding, the contract was financed by Aga Khan Development Network instead of from the IDA Credit. The Credit Agreement did not originally provide for the Direct Contracting method of procurement, but it was added later when the Credit Agreement was amended.

2.5 Post-completion Operation/Next Phase Pamir Energy Company (PEC), a special purpose company for the Project, and operating the 25-year Concession, was formed under the laws of the Republic of Tajikistan as a joint stock company, owned 70 percent by AKFED and 30 percent by IFC. The Concession Agreement was signed on May 24, 2002, by GoT and PEC and provides the policy, regulatory, technical, environmental, financial and operational framework for the Project, both during the construction and operational phases. Now that the construction phase has been completed, PEC will continue to manage all Government-owned electricity assets in GBAO for the remaining 16 years of the Concession Agreement. PEC, with the support of AKFED, has prepared a business plan for 2010-2015, based on a new financial model developed by PEC based on its experience of the last several years. Today Pamir I is a sustainable power plant. The investments made under the project are expected to have a lifetime of at least 25-30 years. PEC carries out several activities annually at Pamir I to further improve safety and reliability. Necessary budgets for plant maintenance are allocated annually. Staff have been trained and participate in annual intensive capacity building programs. PEC has

indicated that the performance indicators of other projects to be implemented by PEC will be similar to those under the IDA financed Project.

3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The Project remains highly relevant to Tajikistan‟s National Development Strategy for 2006-2015, whose key priorities include improving public administration, developing the private sector and attracting investment, and developing human potential. The 2007 power sector strategy developed by the Government of Tajikistan aims to ensure reliable electricity supply to meet the needs of the population and productive sectors to sustain growth and contribute to poverty reduction. The target is to become self-reliant by 2017 and gradually develop power exports and strengthen regional cooperation to increase electricity export revenues and generate a new source of growth. It fits into the “Production Block” on food security, agriculture, infrastructure, energy and industry of the Bank‟s Poverty Reduction Strategy for 2010-2012. The Project continues to be relevant to the goal of the Country Partnership Strategy for FY10-13, to improve the reliability of electricity and gas services and increase energy support potential. The Project was designed to reconcile the commercial objectives of the private sector and provide reliable power supply to the poorest mountainous region and the social objectives of keeping the electricity tariffs as low as possible; which continues to be relevant to both the Government strategy and the current CPS and Poverty Reduction Strategy.

3.2 Achievement of Project Development Objectives The Project Development Objective has been achieved. The Project generates and supplies electricity in the GBAO region under a 25-year Concession awarded to a private concessionaire, Pamir Energy Company (PEC). Before the Project daily power supply in GBAO was about 3 hours per day, especially in winter. PEC now provides around 24 hours of power supply per day in winter to customers of the main grid (over 70 percent of the total customers); this excludes some remote areas, where the power supply varies from 8 to 16 hours per day. The supply position is better than most areas in the rest of the country covered by Barki Tajik. The schools and hospitals can function properly in winter with available power supply. Annual supply of electricity has increased from 135,000 MWh/year in 2002 before the Project to 174,000 MWh/year in 2009. In 2010 consumption at 163,215 MWh was slightly lower than the end of project target due to lower demand. Instead of rationing, which was the norm before the Project, there is now a surplus of energy, which allows PEC to have a planned maintenance of units in capital repair at the same time, without affecting the reliable supply of energy. Collection rates have improved from 40 percent before the Project to about 100 percent of sales for the year ending December 31, 2010. Unit 2 at Pamir I HPP was commissioned in January 2011, and full plant capacity under the original project scope has been restored. PEC now delivers uninterrupted power supply in its main grid, manages the water flow from Lake Yashilkul, has resolved the issues with sedimentation and fragile ice, which led to the catastrophic flooding in February 2007, has improved the reliability of the electro-mechanical parts of the plant, and has improved the security of the plant (closed circuit television cameras). In 2010 anti-filtration measures were taken at Yashilkul regulating structure which made it possible to conserve more than 20 million m3 of water at the lake, which provides PEC enough water to deliver reliable energy to its customers, even if the winter lasted longer than usual. A dredging pump was procured in 2010, which solved the issue with sediments at Pamir I sedimentation basin. Now PEC does not have to stop the plant for one month every two years to remove the sediments, thus

substantially increasing availability of the units. Two ice blocking systems were built, which solved the issue of fragile ice getting into the basin and damaging the turbines and bearings. The social subsidy plan, financed by the government and the Swiss Grant, worked as envisaged through 2011, protecting the end consumers from higher tariffs. The project is sustainable with transformative benefits to the poorest region of Tajikistan and has set up a successful example of Public-Private Partnership in a difficult environment. It displaces the environmentally unfriendly use of diesel and fire wood for energy supply, as had been the practice in the past; has a well established mechanism to target subsidy delivery to the most vulnerable population; has set up a culture of commercial discipline among the consumers and obligation on part of the supplier to serve its consumers. Although the operational situation of PEC has improved, its consumers would need continued support with tariff subsidies and PEC would need softer onlending terms to continue its investment program in the remote areas (financing currently under consideration by KfW (Germany) and SECO (Switzerland) through the Government of Tajikistan.

3.3 Efficiency Detailed economic and financial analysis of the project was carried out at the appraisal stage to estimate the economic and financial efficiency and impact of the project. The economic costs and benefits of the project were calculated excluding taxes and subsidies. The projection of financial performance of PEC was done at the appraisal stage for 2002-2012.

Economic analysis: The main economic benefit of the project was the incremental electricity supplied to consumers as a result of power system investments. Specifically, improvements to the power system eliminated the significant winter and summer black-outs experienced by the customers. The main economic costs were the capital investments and the incremental operation and maintenance (O&M) costs.

The completion stage economic analysis of the project yielded an NPV of US$ 3.9 million and an EIRR of 12.2%, compared to the appraisal stage NPV of US$ 17.6 million and an EIRR of 19%. Reduction of economic return of the project is primarily due to a 19% investment cost over-run due to the catastrophic accident and 2003-2010 electricity sales below the levels projected at appraisal. Specifically, the total actual project costs were around US$ 31.4 million, compared to the appraisal stage estimate of US$ 26.4. The actual electricity sales in 2003-2010 were 35-40% lower than projected at appraisal (see Annex 3 for details). The overall economic return considering the other non quantified benefits such as positive environmental impact, improved quality of life (homes, schools and hospitals and businesses) would be significantly higher.

Financial analysis: The main financial benefit of the project is the incremental financial revenue that accrues to PEC due to incremental supply of electricity and higher tariffs. The financial benefits from incremental supply of electricity were estimated at the weighted average end-user tariffs. The financial costs are the capital investment costs and the incremental O&M costs.

The completion stage financial appraisal of investments yielded an NPV of US$ (2.3) million and an FIRR of 8.9%. The appraisal stage project company level financial analysis estimated the FIRR at 9.8% (see Annex 3 for details). The reason for financial under performance of PEC are the higher actual investment costs, and downward revision of electricity demand. The global economic

recession has also contributed to lowering the anticipated demand growth with the slowdown of economic activities.

Financial performance of PEC: The actual financial performance of the company in 2006-2009 was below the appraisal forecast, due to slower tariff increases than anticipated by the Concession Agreement, lower-than-projected electricity sales that reduced the operating cash flow of the company, almost two-fold depreciation of TJS/US$ exchange rate, and higher operating costs driven by over 10% average annual inflation in 2006-2009.

The company‟s operating income and cash flow became positive in 2009 and has improved. The company‟s ability to meet its short-term and long-term financial obligations improved. Specifically, in 2009, the company‟s highly liquid assets at hand were more than 14% of the short-term liabilities, improving from 5% in 2006.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory. Based on Sections 3.1-3.3, the overall outcome is rated as Satisfactory. The Project was relevant to the Government‟s National Development Strategy, the latest Poverty Reduction Strategy and the latest Country Partnership Strategy. The Project successfully met its development objective, has set up a replicable, successful example of a Public-Private Partnership, and was well justified based on reasonable economic and financial performance even after the global recession impacts on the economy.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Reliable energy supply changed the economic life of the poorest region of Tajikistan. Before the Project, shops and factories used to operate only in summer, as no energy was available in winter. Today shops, producers and businesses work year round, and consumers are accustomed to have energy available year round. According to studies in 2009, electricity supplied by hydropower is the cheapest and cleanest option for lighting, cooking and heating in GBAO, compared to wood, coal, diesel and other sources. Thus, improving the quantity and reliability of the energy supply in GBAO had a positive impact on poverty reduction. Before the Project women spent a considerable amount of time gathering wood for cooking and heating. Today they use electricity for cooking and heating and have more time for other interests. Indoor air pollution was a major problem before the Project due to the use of diesel fuel lamps for lighting, and wood for heating. The risk of illnesses due to indoor air pollution, especially for children, was either removed completely or minimized significantly. Having a reliable energy supply allowed Government and donors to equip schools with computers and other technologies. Today every school in GBAO has at least one computer and more children/youth are comfortable using the new technologies. Health facilities and hospitals can operate without rationing of electricity, which was common in the 1990s. Some hospitals in the region have received new electronic medical equipment from donors, which is used daily now that reliable electricity is the norm.

(b) Institutional Change/Strengthening The Project included a capacity building program that enabled PEC to improve its performance throughout Project implementation. The plan included the extensive use of consultants to initially

manage project implementation and advise local management going forward, as well as annual training programs. As part of the capacity building program the PEC General Director and two other key staff had a technical exchange with Sweden to learn how hydropower plants exposed to similar harsh winters coped with sedimentation and fragile ice and then implemented measures to resolve these issues for Pamir I and Khorog HPPs. It was an enormous challenge for PEC to turn around a historically loss making utility, operated and accepted as a free social good, in the poorest, most isolated region of the poorest country of the Former Soviet Union, by raising tariffs, increasing collections, and implementing construction projects at extremely high altitudes, while trying to maintain budgets, build human resources and deliver financial results. PEC met this challenge by identifying a qualified local manager who was able to deal with the local community and understand the nuances of local politics, while at the same time recognizing what is possible and leading organizational change. In the past the electricity in GBAO had always been subsidized and the population viewed energy as a free gift, which led to high losses, theft and unwillingness to pay, which resulted in limited power supply in Khorog and no power supply in the more remote areas. PEC began by installing meters at the generation plants and further down at the transmission and distribution network, including meters for end consumers. PEC established disconnection teams, a Customer Service Center, and a new billing system to make bills accurate. PEC introduced a bonus system for sales specialists, which increased collections as a percent of sales to more than 100 percent. As electricity supply became more reliable and bills became more accurate and understandable, people changed their behavior and began to view electricity theft as a crime instead of as a way to game the system. From the beginning, PEC made serious efforts to improve community relations, by visiting the communities so that residents could talk directly with the General Director; PEC worked with TV stations, radios, newspapers, distributed brochures and met with community leaders to improve PEC‟s reputation and relations with the communities. The lessons learned by PEC in Bank procurement procedures and developing procurement plans are being applied by PEC in procurement financed by its own funds.

(c) Other Unintended Outcomes and Impacts (positive or negative) In 2006, when energy rationing was common in GBAO, it was inconceivable that PEC would export electricity to Afghanistan, beginning in 2008. PEC now provides energy year round to over 1000 households in Afghanistan. As a result of the Project, PEC has become a benchmark company for Central Asia and other countries and is providing consulting services to Afghanistan, Uganda and Kyrgyzstan.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not Applicable

4. Assessment of Risk to Development Outcome Moderate, given that the financial performance of PEC is below the targeted level. On the positive side, the risk is offset by the Concession Agreement, which would continue to be in force for the next 16 years; the 70 percent equity in PEC held by AKFED and 30 percent by IFC, who would continue to work with PEC; and the significant improvements in increasing collections and reducing losses. The economic and financial analysis indicates that the financial health of the company has turned around to the positive, and with additional export opportunities to Afghanistan being realized, some of the impact of less than anticipated demand would be partially offset. Moreover, SECO is

considering providing additional grant funds to provide targeted subsidies to the vulnerable sections through 2014.

5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory IDA‟s performance in ensuring quality at entry was satisfactory. Preparation and appraisal was done jointly by IFC and IDA, with each organization providing specialist staff who made relevant contributions to the decisions and report preparation of the two organizations, without duplicating efforts. All applicable Bank group safeguards policies and guidelines were considered in the design and addressed during the environment and social assessment of the Project. A socio-economic survey conducted as part of the environment and social assessment of the Project estimated the average annual income for the typical project area family and the willingness to pay for energy. The initial project design was adjusted so as to be in compliance with World Bank Group safeguards policies and guidelines, and appropriate environmental and social impact mitigation measures were included. Seventeen public hearings engaging a wide range of the GBAO population including townspeople, rural villagers, teachers and hospital workers were conducted in October 2000. The legal framework governing the Project was substantial.3 The Concession Agreement was signed, the owners‟ engineer had been appointed and was working, and procurement activities had already begun prior to presentation to the Bank‟s Board of Executive Directors, and the project was adequately prepared and ready for implementation. The only shortcoming during preparation was that based on the information provided in the feasibility study, the IDA/IFC team assumed that most of the consumers were metered with working meters, and that non-technical losses including illegal connections and improper metering and billing appeared to be moderate (losses were estimated at 10 percent on the main grid and at 20 percent for the remote areas), which proved not to be the case after Project implementation began, and it was learned that the existing meters were inoperable or inaccurate. Actual losses reached 30 percent on the main grid and were even higher in the remote areas.

(b) Quality of Supervision Rating: Satisfactory IDA‟s performance during the implementation of the Project was satisfactory. Sufficient budget and staff resources were allocated, and the project was adequately supervised, with a comprehensive skills mix, and supervision was conducted jointly with IFC. Based on the supervision staff costs in Annex 4, a complex project such as Pamir Private Power Project requires significantly more resources than the average supervision coefficient. The Procurement and Financial Management functions were provided by field based staff, which greatly facilitated Project implementation. The

3 The legal framework included: the Concession Agreement between PEC and GoT; a Subscription Agreement between Pamir Invest S.A. and PEC, an Investment Agreement between IFC and PEC, A Shareholders Agreement between IFC, AKFED, Pamir Invest and PEC, a Project Funds and Share Retention Agreement between IFC and AKFED/Pamir Invest to provide financing for cost overruns; a Development Credit Agreement between IDA and the Government, a Project Agreement between IDA and PEC, and a Subsidiary Loan Agreement between the Government and PEC.

IDA team helped PEC develop a re-metering program to reduce losses. The IDA and IFC teams responded promptly to the two major crises that arose, the deteriorating financial situation of PEC during 2006-2008 by developing the Financial Restructuring Plan; and the unexpected catastrophic flooding in February 2007, which severely damaged the Pamir I Hydropower Plant. The Management comment on ISR No. 8, commented on the dedication of the IDA and IFC staff, who worked under extreme conditions (18 hour trip on bad roads, 16 hour workdays, sub-freezing temperatures at 10,000 feet altitude with no space heating, one meal a day, etc) in March 2007, to help bring much of Pamir capacity back on-line following the catastrophic accident. IDA also provided an Additional Grant to ensure that the restoration of Pamir I Hydropower Plant would be permanent instead of a temporary fix and that the original Project Development Objective could be achieved.

(c) Justification of Rating for Overall IDA Performance Rating: Satisfactory Based on IDA‟s performance during the lending and supervision phases as discussed above, the overall IDA Performance is rated as Satisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government participation in the planning and development of the Project was intensive. Ministers and senior civil servants participated on a sustained basis in the Working Group charged with negotiation of the Concession Agreement; the Cabinet and Presidential administration considered it in detail before giving Government approval; and Parliament ratified critical sections of the Concession Agreement. Government‟s contribution to this Public-Private Partnership Project included: (a) contribution of existing electricity assets in GBAO (including all generation, transmission and distribution facilities) to the Concession; (b) Government‟s request for IDA financing of US$10 million equivalent, at a time when the IDA allocation for Tajikistan was severely limited; (c) Government‟s agreement to use the interest rate spread (between the IDA Credit to Government and the Government‟s on-lending to PEC) to meet part of the costs of social protection; (d) Government‟s request for grant financing of about US$5 million from the Swiss Government to enable the Government to meet the remaining costs of social protection; and (e) Government provided rebates in various taxes to PEC.

During Project implementation, Government continued its support to the Project and to PEC. The good progress and satisfactory achievement of the Project objective has been based on strong political championship and alignment of vision and strategy among the key ministries (Ministry of Finance, Ministry of Energy and Industry, Ministry of Economic Development and Trade), whose keen interest and monthly reviews of implementation progress helped keep the project on track. As part of the Financial Restructuring Plan, the Government agreed to defer interest payments until 2011.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory PEC implemented the Project almost according to the original schedule, until the catastrophic accident in February 2007. It provided intensive monitoring and oversight of the Project by dedicated operational teams. It established a Health, Safety and Environment Unit at project

headquarters in Khorog to implement the Project‟s Environmental Management Plan. PEC‟s project management team constantly monitored Project progress, addressed bottlenecks and provided overall guidance to ensure that Project momentum was maintained. It initiated a metering program, improved collections, established a customer service department, improved community relations in the areas it serviced, and procured and installed the necessary equipment, both to rehabilitate the plant and to protect it against future accidents. PEC also initiated social projects to help the communities with other issues such as installation of a clean water pipeline and sponsorship of chess classes in the schools. From 2008-2010 PEC financed US$3.78 million of Project costs from its capital expenditure fund (compared to US$0.9 million planned when the Additional IDA Grant was prepared). The only shortcomings were: delayed submission of the audit report for the year ending December 31, 2009, and some delays in submission of revised IFRs – both the audit report and the IFRs were eventually received;4 and the failure to procure all the equipment planned to be financed by the additional IDA Grant before the Project Closing Date. Using its own funds and the Bank procurement guidelines, PEC managed to complete all the activities envisaged under the IDA grant, except for the remaining electrical equipment, resulting in cancellation of part of the grant. PEC has informed IDA that it will finance the remaining electrical equipment, estimated at US$440,000 in phases by 2012. PEC plans to announce the tender for electrical equipment shortly.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory Based on the ratings of Satisfactory under (a) and (b), the overall Borrower performance is rated Satisfactory.

6. Lessons Learned  Given the difficult environment in which the Project operated, the goals set for the Project and the limited resources available, high quality management is an important pre-requisite for success.  Importance of good community relations, including personal visits to the communities and listening to the consumers‟ concerns is critical for a successful public service entity.  A Public-Private Partnership can work, even in one of the poorest regions, by introducing improved governance, provided there is adequate commitment of Government, the private company, the Sponsor, and the IFIs.  A high risk project, with significant development impact is worth doing, but it will require significantly more resources, commitment from all parties, and a good project design and a motivated implementing agency.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies PEC provided its Implementation Completion Report and all other information requested by IDA. PEC proposed to rate the overall outcome as Highly Satisfactory and its own performance as implementing agency as Highly Satisfactory. The ICR team maintained both ratings as Satisfactory, given PEC‟s fragile financial situation, which could pose a moderate risk to the development

4 According to PEC, one of the reasons for the delay in audit reports was the treatment of the deferred interest rate and the recent changes in IFRs regarding treatment of the Concession assets.

outcome. IDA recognizes the need for softer onlending terms from GoT to PEC (current onlending rate is 6 percent), and the need for continued subsidies for the poorest segments of the population, in order to ensure PEC‟s continued financial viaibility.

The Ministry of Energy and Industry confirmed its agreement with the positive assessment of the Project by letter dated June 24, 2011 (Annex 7).

(b) Cofinanciers AKFED provided comments in Annex 8.

No comments were received from IFC.

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Additional Appraisal + Appraisal Percentage Financing Additional Estimate Actual (USD of Appraisal + Components Estimate Financing (USD millions) Additional (USD Estimate millions) Financing millions) (USD millions) A. Completion of Pamir I Hydro Plant and Associated Regulating 5.10 5.10 5.10 100 Structures: (i)Lake Yashilkul Regulating Structure A (ii) Tunnel, Penstock & Surge Tank; 7.50 7.50 7.50 100 Installation of Units 3 and 4 B. Rehabilitation of: Khorogh; Pamir I (units 2.90 2.90 2.90 100 1 and 2); Vanj and Namangut hydro plants C. Rehabilitation of: 35 kV Pamir-Khorog Transmission Line (incl. spare parts); 3.10 3.10 3.10 100 35 kV Substations (Biz, Rosh, Jomi, Navo, Pam Oro, DES and Spares) D. Technical Assistance 1.70 (i) Computerization, 1.70 1.70

Training,

Consulting 2.90 2.90 2.90 Services 100

(ii) Project Engineer &

Implementation 1.20 (iii) Operation & 1.20 1.20

Management Additional Financing to 7.80 4.95 63 Restore Pamir I

Total Baseline Cost 24.40 7.80 32.20 29.35 91

Physical Contingencies 0.00 0.00 0.00

Price Contingencies 0.00 0.00 0.00 Total Project Costs 24.40 7.80 32.20 29.35 91 Interest during 2.00 2.00 2.00 100 Construction 0.00 0.00 .00 Total Financing 26.40 7.80 34.20 31.35 92 Required

(b) Financing AF Appraisal Actual Appraisal Percentage Type of Estimate + AF (Original + Estimate of Source of Funds Cofinancin (USD Estimate AF.l (USD Appraisal g millions) (USD millions) and AF millions) Borrower (PEC internal funds) 0.20 0.90 1.10 0.20 18 Borrower (PEC CapEx, 4.40 4.40 4.40 3.78 86 including insurance) International Development 11.17 10.00 2.50 12.50 89 Association (IDA) International Finance 8.00 8.00 8.00 100 Corporation (IFC) AKFED 8.20 8.20 8.20 100

Total 26.40 7.80 34.20 31.35 92

Annex 2. Outputs by Component

Component A: Completion of Existing Pamir I Hydro Plant and Associated Lake Yashilkul Regulating Structure

Subcomponent A (i): Lake Yashilkul Regulating Structure. This subcomponent included civil works carried out by local contractors for an access road to the diversion/spillway area; a small channel at the spillway diversion area to temporarily lower the lake water level to an elevation of 3,717 m during construction; a control house and accommodation for operation and maintenance of the gates, including cement and steel. The regulating structure was constructed at the outlet of Lake Yashilkul, which had 2 natural outlets flowing over a very large rock-slide which formed the lake several centuries ago. The main natural outlet passed over sand, gravel and stones of the old rockslide along the left bank, and the secondary outlet passed over very large boulders near the right bank. A temporary diversion channel and a spillway at the location of the secondary outlet were constructed, and a permanent outlet regulating structure at the main natural outlet was also constructed. The objective was to regulate the lake outflow to increase the water available to the Pamir I Hydro Power Plant in winter, during the low flow period in the Gunt River and to retain the water in the summer.

Subcomponent A (ii): Rehabilitation of Pamir I Hydro Plant Infrastructure. This subcomponent comprised the civil works for the repairs/rehabilitation of tunnels, penstock and surge tank and related works and installation/repairs of Units 3 and 4 in the power plant, supply of cement and steel and supply of equipment for the installation of Units 3 and 4.

Component B: Rehabilitation of Khorogh, Pamir I (Units 1 and 2), Vanj and Namangut Hydro Plants.

 Rehabilitation works of Pamir I, Units 1 and 2 included general overhaul, new turbine governors, upgrading of control and protection system;  Khorog, included complete replacement of the turbine governing systems on all units, upgrading/replacement of broken instrumentation and monitoring devices, supply of 5 new turbine runners, redesign and replacement of turbine bearings and shafts, general through overhaul of turbines, generators and intake valves, upgrading/replacement of control and monitoring instrumentation, generating unit switchgear;  Re-Metering Program in Khorog provided over 6,000 sets of meters, which dramatically reduced losses in Khorog from as high as 60% to about 14%.  Vanj, included complete replacement of the control and protection system, complete replacement of the turbine governing system, supply of 2 new turbine runners, upgrading/replacement of broken instrumentation and monitoring devices, general thorough overhaul of turbines and generators, generating unit switchgear; and  Namangut, included complete replacement of the turbine governing systems on both units, upgrading/replacement of broken instrumentation and monitoring devices, supply of 2 new turbine runners, redesign and replacement of the turbine bearings and shafts, general thorough overhaul of turbines, generators and intake valves, and generating unit switchgear.

Component C: Rehabilitation of 35 kV Pamir-Khorog-Andarbak Transmission Line and 35 kV substations.

Supply of equipment and spare parts for:  Erection of a new 35 kV line between the Pamir I power station and the substation in Khorog;  Rehabilitation of the 35 kV line between Khorog and Rushan;  General rehabilitation of critical sections of other 35 kV and 10 kV lines within the main grid area.

Component D: Technical Assistance. Subcomponent D (i): Computerization, office equipment training. This component, financed by the co-financiers, included supply/installation of computerized systems, office equipment and training expenses.

Subcomponent D (ii): Consulting Services. This component was financed by PEC and IFC and covered the consulting services for project engineering, including procurement services as well as for the operation and management of the utility for a period of four years each to support project implementation and operations respectively.

SECO (Switzerland) financed a tariff protection program for vulnerable consumers, which protected the consumers against the necessary tariff increases.

Additional Financing Components:

In order to restore Pamir I to its design capacity following the flooding accident, the following items were procured under the Additional Financing:

 New excitation systems for all 4 units;  Small unit panel for all 4 units;  Spare relay, sensor and indicator for excitation, protection and control for Units 1, 2, & 4;  Compressor 140 liter per minutes/ 250-330 bar (complete set);  Drainage pumps;  Floating pumps with motor boat;  Mobile loader for removing sediments;  Mechanical spare parts for units, 1, 3, and 4, including turbine runner;  Plant control and dispatcher room upgrade, including CCTV cameras and circuits;  HF radio communication for Yashilkul and HPP1, VHF radio communication for HPP1, CR, SB, PH  Installation of protection shelter on the tunnel intake; (this procurement was cancelled as the current design was not effective and further study was required)  Repair old turbine runner and wicket gate;  Consultant services to develop specifications for system protection and control.

The only items that could not be procured before the Closing Date were electrical spare parts for Units 1,3, 4, and the installation of a protection shelter on the tunnel intake (which was cancelled because the current design was not effective). It was agreed that the electrical equipment (estimated at US$440,000) would be procured using PEC‟s CapEx funds, with tender documents to be issued in mid-2011, delivery of equipment planned for late 2011/early 2012, and installation during 2012.

The successful implementation of the components significantly improved the reliability and quantity of supply of electricity in the Gorno Badakshan Autonomous Oblast (GBAO) region. Electricity sales increased from 135,000 MWh/year in 2002 to 163,215 MWh/year in 2010, about 82 percent of the end project target due to lower than anticipated demand. Before the Project, most consumers received only 3 hours/day of electricity in winter; in 2010 over 70 percent of consumers received uninterrupted power supply, with the remaining consumers receiving from 8-16 hours/day of electricity in winter. Minimum service standards to consumers (maximum duration of outages, voltage fluctuations, frequency) improved significantly and reached or exceeded the end of project targets. Collection rates improved from 40% in 2002 to almost 100% in 2010. Technical and commercial losses were reduced from 39% in 2006 to 19.9% in 2010. PEC‟s management improved over the course of the project, developing better community relations, establishing a customer service unit, improving billing and initiating an individual metering program.

Annex 3. Economic and Financial Analysis

Detailed economic and financial analysis of the project was carried out at the appraisal stage to estimate the economic and financial efficiency and impact of the project. The economic costs and benefits of the project were calculated exclusive of taxes and subsidies and the assessment of the financial costs and benefits was done inclusive of taxes. The projection of financial performance of Pamir Energy Company was done at appraisal stage for 2002-2012.

Key assumptions: The economic and financial analysis of the project relies on the following key assumptions:

Power plant availability: The generation capacity availability estimates used for completion stage economic and financial appraisal of the project are in line with the appraisal stage assumptions. The forecast of the gross power generation used in the economic and financial analysis assumes 95% availability of generation capacity in 2011-2023. Specifically, the hydropower plants rehabilitated under the project have an average availability of around 97%. However, there are a number of smaller hydropower plants that were not included in the project and have lower availability.

Electricity demand: Electricity demand is estimated to be at 147,173 MWh. This figure is calculated based on actual electricity consumption data from 2010 and is adjusted to reflect the average of 2-hour daily outages in winter of 2010. The above data is used as the baseline to calculate the forecast electricity demand in 2011 – 2023. The average annual growth rate of electricity demand is assumed to be 4%.5

Transmission/distribution losses: The technical losses were assumed to reduce to 10% of net supply.

Minimum cash balance: 30 days of operating costs on a cash basis

Debt service projections: The projections for debt service requirements take into account the agreed terms and conditions of the Financial Restructuring Plan agreed between the project financiers, the Government and the company.

Table 1: Key assumption of economic and financial appraisal

Expected average annual TSom/US$ exchange rate 4.5 in 2011-2023 Incremental O&M 1.5% Annual system deterioration w/o project 10% Average estimated annual growth rate of electricity 4% sales in 2011-2023

5 Income elasticity of electricity demand is assumed at 0.8. Real GDP is taken as the proxy for income and is assumed to grow at an average annual rate of 5%. Tariffs are assumed unchanged.

Estimated marginal willingness-to-pay for electricity USc 3.25/kWh6

Assessment period 20 years VAT rate 20% Discount rate 10%

Economic analysis: Cost-benefit analysis was conducted to assess the economic impact of the project. The cost-benefit analysis was conducted by comparing “with project” and “without project” incremental costs and benefits. Assumptions were made as to how long the power system would operate if no investments were made. The appraisal stage economic analysis was conducted for three scenarios, assuming that the system would deteriorate at an annual rate of 5%, 10% and 20%. The 10% deterioration (i.e. the system will continue to function on a declining basis for another 10 years) was selected as the base-case scenario.

At completion, the economic and financial analysis was updated to incorporate the actual level of investments, power generation and sales, tariffs, losses and collections for the period of project implementation and revisions in forecasts. The economic analysis confirmed the positive impact of the project with the substantial increase in the supply of electricity to consumers.

The main economic costs are the capital investments and the incremental operation and maintenance (O&M) costs.

The main economic benefit of the project was the incremental electricity supplied to consumers as a result of power system investments. Specifically, improvements to the power system eliminated the black-outs that the customers were experiencing. This was driven by: (a) improved availability of hydropower plants, (b) reduced technical and commercial losses in the distribution and transmission networks and (c) reduced number of outages. The economic benefit of incremental electricity supply was valued at customers‟ estimated marginal willingness to pay (WTP) for electricity.

Under the base-case scenario for system deterioration, the appraisal stage economic analysis yielded an NPV of US$ 17.6 million and an EIRR of 19%. The completion stage economic analysis of the project yielded an NPV of US$ 3.9 million and an EIRR of 12.2% (see Table 1). Reduction of economic efficiency of the project is primarily due to the 19% investment cost over-run as a result of the catastrophic accident in 2007 and 2003-2010 electricity sales below the levels projected at appraisal, partly as a result of the impact of the global economic recession. Specifically, the total actual project costs were around US$ 31.4 million, compared to the originally planned US$ 26.4. Additionally, the actual electricity sales in 2003-2010 were 35-40% lower than projected at appraisal.

Financial analysis: Cost-benefit analysis was conducted to assess the financial impact of the project. The main financial benefit of the project is the incremental financial revenue that accrues to Pamir Energy Company due to incremental supply of electricity and higher tariffs. The financial benefits from incremental supply of electricity were estimated at the weighted average end-user tariffs. The

6 In the absence of unmet demand, the current tariff might be considered as an economically justified proxy for the customers‟ willingness to pay for electricity.

main financial costs of this sub-component are the capital investment costs and incremental O&M costs

The appraisal stage project company level financial analysis estimated the FIRR at 9.8%. The completion stage financial viability analysis of investments from the perspective of Pamir Energy Company was conducted for the base case scenario for system deterioration and yielded an NPV of US$ (2.3) million and an FIRR of 8.9% (see Table 2). The reason for estimated post-completion financial un-viability of investments are the higher actual investment costs and downward revision of electricity demand projections given that GBAO region currently has 24-hour/day power supply.

Financial performance of Pamir Energy Company: Overall, the company‟s financial performance was poor from 2006-2008 with improvement in 2009 due to: (a) 80% increase of average electricity tariff in 2006-2009; (b) increased power sales driven by improvements of key generation, transmission and distribution assets; (c) higher collection rates for electricity; (d) the implementation of the company‟s Financial Restructuring Plan agreed in June 2008; and (e) the prospects of continued electricity exports to Afghanistan. Export share is currently about 0.55%; however, this is a very dynamic market, and PEC expects that the volume of electricity export will increase significantly over the medium-term. The company‟s operating income and cash flow became positive in 2009. The company‟s ability to meet its short-term and long-term financial obligations improved. Specifically, in 2009, the company‟s highly liquid assets at hand were sufficient to pay for 14% of short-term liabilities, whereas in 2006, the company could pay only 5%. In 2009, the company‟s cash at hand was sufficient to pay 6% of interest due and principal repayments on outstanding debt. Nonetheless, softer onlending terms and continued subsidy payments would enable PEC to continue to invest in and maintain the GBAO power system.

In 2008, the Government of Tajikistan, IDA, IFC and AKFED agreed on the terms of Financial Restructuring of the company. According to the restructuring plan, the accrued interest expenses on the IDA credit were deferred till 2011 and the company committed to pay those in a 15-year period. The IFC and the company agreed to convert the IFC loan into a quasi-equity classified as non- interest bearing and unsecured IFC loan. Additionally, all of the interest due and unpaid was cancelled. Moreover, the subordinated debt owed to AKFED was converted into a non-interest bearing and unsecured loan with no fixed redemption date. Projections of the company‟s financial performance for 2010-2015 are presented in the Tables 3, 4 and 5.

Table 1: Project economic appraisal at completion Actual Forecast

2003 2004 2005 2006 2007 2008 2009 2010 2015 2018 2023

COSTS

Economic costs of investments US$ 5,000,000 6,015,307 7,319,182 3,442,636 64,013 1,333,731 1,548,928 1,545,880

Incremental O&M costs US$ 75,000 165,230 275,017 326,657 327,617 347,623 370,857 394,045 396,454 396,454 396,454

Total economic costs US$ 5,075,000 6,180,536 7,594,199 3,769,293 391,630 1,681,354 1,919,785 1,939,925 396,454 396,454 396,454

BENEFITS

Annual energy supply w/o project MWh 107,508 96,757 86,006 75,255 64,505 53,754 43,003 32,252 0 0 0 Annual energy supply w/ project MWh 112,914 95,606 111,490 111,561 114,413 140,671 144,920 144,113 172,172 193,670 235,629 Estimated aggregated annual demand MWh 147,173 147,173 147,173 147,173 147,173 147,173 147,173 147,173 172,172 193,670 235,629

Estimated unmet annual demand w/o project MWh 39,665 50,416 61,167 71,918 82,668 93,419 104,170 114,921 172,172 193,670 235,629

Estimated unmet demand w/ project MWh 34,259 51,567 35,683 35,612 32,760 6,502 2,253 3,060 0 0 0 Reduction in unmet demand 5,406 -1,151 25,484 36,306 49,908 86,917 101,917 111,861 172,172 193,670 235,629

Economic value of reduction in 7,657,93 unmet demand US$ 175,705 -37,405 828,225 1,179,932 1,622,022 2,824,807 3,312,300 3,635,472 5,595,577 6,294,263 3 - - - - 7,261,48 Net economic benefits US$ 4,899,295 6,217,941 6,765,974 2,589,360 1,230,393 1,143,454 1,392,515 1,695,547 5,199,123 5,897,809 0 NPV US$ 3,909,898

EIRR 12.2%

Table 2: Project financial appraisal at completion Actual Forecast

2003 2004 2005 2006 2007 2008 2009 2010 2015 2018 2023

COSTS

Financial costs of investments US$ 6,000,000 7,218,368 8,783,018 4,131,163 76,815 1,600,477 1,858,714 1,855,056

Incremental O&M costs US$ 90,000 198,276 330,021 391,988 393,140 417,148 445,028 472,854 475,744 475,744 475,744 Total financial costs US$ 6,090,000 7,416,644 9,113,039 4,523,151 469,955 2,017,625 2,303,742 2,327,910 475,744 475,744 475,744

BENEFITS

Annual energy sales w/o project MWh 107,508 96,757 86,006 75,255 64,505 53,754 43,003 32,252 0 0 0 Annual energy sales w/ project MWh 112,914 95,606 111,490 111,561 114,413 140,671 144,920 144,113 172,172 193,670 235,629 Estimated aggregated annual demand MWh 147,173 147,173 147,173 147,173 147,173 147,173 147,173 147,173 172,172 193,670 235,629

Estimated unmet annual demand w/o project MWh 39,665 50,416 61,167 71,918 82,668 93,419 104,170 114,921 172,172 193,670 235,629 Estimated unmet demand w/ project MWh 34,259 51,567 35,683 35,612 32,760 6,502 2,253 3,060 0 0 0 Reduction in unmet demand 5,406 -1,151 25,484 36,306 49,908 86,917 101,917 111,861 172,172 193,670 235,629

Financial value of increased sales US$ 45,954 -11,668 333,150 591,999 898,850 2,447,935 2,945,399 3,635,472 5,595,577 6,294,263 7,657,933 - - - - Net financial benefits US$ 6,044,046 7,428,312 8,779,889 3,931,152 428,894 430,310 641,657 1,307,562 5,119,832 5,818,518 7,182,189 - NPV US$ 2,303,532

FIRR 8.9%

Table 3: PEC balance sheet for 2006-2015 Actual Forecast ‘000 TSJ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ASSETS Non-current assets 57,252 55,749 67,943 66,924 67,593 68,269 68,952 69,641 70,338 71,041

Current assets 4,211 7,799 10,694 14,235 17,623 21,412 24,951 26,782 28,771 30,804 Cash and cash equivalents 2,757 5,519 5,965 6,389 9,165 12,234 14,793 15,023 16,315 17,415 Trade accounts receivables, net 872 658 1,477 3,035 3,200 3,400 3,600 3,800 3,900 4,100 Other current assets 232 759 1,076 3,078 3,458 3,800 4,500 5,800 6,200 6,800 Inventory 350 863 2,176 1,733 1,800 1,978 2,058 2,159 2,356 2,489

Total assets 61,463 63,548 78,637 81,159 85,216 89,682 93,903 96,424 99,108 101,845

LIABILITIES AND EQUITY Non-current liabilities 55,468 50,986 38,351 51,003 51,456 53,514 55,655 57,881 60,196 62,604 Long-term financing 55,468 50,986 38,351 51,003 51,456 53,514 55,655 57,881 60,196 62,604

Current liabilities 6,491 20,120 13,308 12,115 15,370 17,378 19,018 18,827 18,666 18,418 Current portion of long-term loans 4,264 13,639 10,824 10,187 11,075 11,623 12,088 12,571 13,074 13,597 Accounts payable 1,836 2,400 2,039 1,788 2,009 2,256 2,358 2,245 2,159 2,000 Other current liabilities 391 4,081 445 140 2,286 3,499 4,572 4,011 3,433 2,821

Equity (496) (7,558) 26,978 18,041 18,391 18,790 19,231 19,715 20,245 20,823 Share capital 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 35,919 Additional paid-in capital 163 163 163 163 163 163 163 163 163 163 Retained earnings (36,578) (43,640) (40,344) (49,281) (48,931) (48,532) (48,091) (47,607) (47,077) (46,499) Quasi capital - - 31,240 31,240 31,240 31,240 31,240 31,240 31,240 31,240

Total equity and liabilities 61,463 63,548 78,637 81,159 85,216 89,682 93,903 96,424 99,108 101,845

Table 4: PEC Income statement for 2006-2015 Actual Forecast ‘000 TJS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sales forecast (MWh) 144,113 147,173 153,060 159,182 165,550 172,172 Tariff forecast (TJS/kWh) 0.142 0.146 0.146 0.146 0.146 0.146 Revenue 6,301 7,884 12,676 18,254 20,509 21,524 22,385 23,280 24,212 25,180 Cost of sales (5,440) (6,007) (9,499) (9,304) (10,453) (10,971) (11,410) (11,866) (12,341) (12,834) Gross profit 861 1,877 3,177 8,950 10,055 10,553 10,975 11,414 11,871 12,346 Selling expenses (1,635) (1,110) (732) (2,018) (2,256) (2,368) (2,462) (2,561) (2,663) (2,770) General and admin expenses (5,302) (4,094) (5,861) (6,859) (6,973) (7,318) (7,611) (7,915) (8,232) (8,561) Impairment loss on PPE (11,151) (2,083) ------Impairment loss on accounts receivables and other current assets (287) (184) - - - Carbon credit income - 1,258 ------Insurance compensation for impairment loss - 2,083 ------Other income 23 24 696 154 173 182 189 196 204 212 Operating income (17,491) (2,229) (2,720) 227 1,000 1,049 1,091 1,135 1,180 1,227 Foreign exchange gain/(loss) (3,569) (571) 160 (8,546) - - - - - Gain from restructured debt - - 3,135 ------Financing costs (4,077) (4,262) (393) (618) (650) (650) (650) (650) (650) (650) Profit before tax (25,137) (7,062) 182 (8,937) 350 399 441 485 530 577 Net profit for the year (25,137) (7,062) 182 (8,937) 350 399 441 485 530 577

Table 5: PEC cash flow statement for 2006-2015 Actual Forecast ‘000 TJS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 OPERATING ACTIVITIES Net profit (25,137) (7,062) 182 (8,937) 350 399 441 485 530 577 Operating profit before changes in working capital and provisions (2,643) (848) 2,925 6,257 5,977 6,083 6,182 6,283 6,386 6,492 Working capital changes (Increase)/decrease in trade and other receivables (296) 214 (819) (1,558) (165) (200) (200) (200) (100) (200) (Increase)/decrease in inventories 140 (513) (1,313) 443 (67) (178) (80) (101) (197) (133) (Increase)/decrease in other current assets 72 (527) (1,516) (2,002) (380) (342) (700) (1,300) (400) (600) Increase/(decrease) in accounts payable (1,655) 564 (361) (251) 221 247 102 (113) (86) (159) Interest /commitment fee paid (2,655) (289) (292) (569) (650) (650) (650) (650) (650) (650) Net cash flow from operating activities (7,037) (157) (3,945) 1,683 4,996 4,985 4,677 3,940 4,999 4,885

INVESTING ACTIVITIES Purchase of PPE (1,349) (4,514) - - (2,500) (2,200) (1,100) (800) (800) (800) Prepayment for non-current assets - - (2,352) (1,546) Disposal of PPE 80 ------Capital expenditure for operating right - - (2,046) (3,007) (500) (500) (500) (500) (500) (500) Purchase of intangible assets (99) (32) - - (20) (16) (18) (10) (8) (85) Cash flow from investing activities (1,368) (4,546) (4,398) (4,553) (3,020) (2,716) (1,618) (1,310) (1,308) (1,385)

FINANCING ACTIVITIES Loan from IDA through Government 1765 264 344 1,713 800 800 - - - - Advance received from insurance - 7,173 8,463 ------Repayments of loans 0 0 (500) (2,400) (2,400) (2,400) Cash flow from financing activities 3,293 7,437 8,807 1,713 800 800 (500) (2,400) (2,400) (2,400)

Net increase/(decrease) in cash and cash equivalents (5,112) 2,734 464 (1,157) 2,776 3,069 2,559 230 1,291 1,100

Actual Forecast ‘000 TJS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Exchange rate effects 208 28 (18) 1,581 ------Cash and cash equivalents at the beginning of the year 7,661 2,757 5,519 5,965 6,389 9,165 12,234 14,793 15,023 16,315 Cash and cash equivalents at the end of the year 2,757 5,519 5,965 6,389 9,165 12,234 14,793 15,023 16,315 17,415

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Raghuveer Sharma TTL, Lead Financial Analyst ECSSD Anil Markandya Principal Economist Rene Mendonca Senior Power Engineer Nikolay Nikolov Operations Officer ECSSD Benedicta Oliveros-Miranda Procurement ECSPS Migara Jayawardena Sr. Infrastructure Specialist EASIN Ahmed Jehani Lead Counsel LEGEN Junko Funahashi Sr. Counsel LEGEN Hannah Koilpillai Sr. Finance Officer CTRFC Surekha Jaddoo Operations Analyst ECSSD Yukari Tsuchiya Program Assistant ECSSD Denis Clarke Chief Investment Officer IFC Paul Nickson Principal Power Engineer IFC Yukiyo Ikeda Investment Officer IFC Richard English Senior Environmental Specialist IFC Patricia Jungreis Sulser Principal Counsel IFC Yeages Cowan Counsel IFC Olim Khomidov Investment Officer IFC Teresa De Leon Team Assistant IFC Lourdes Dela Cruz Team Assistant IFC

Supervision/ICR Raghuveer Sharma Lead Financial Specialist SASDE TTL Imtiaz Hizkil Sr. Power Engineer ECSS2 TTL Sodyk Khaitov Consultant ECSS2 Nikolay Petrov Nikolov Sr. Energy Specialist AFTEG Mirlan Aldayarov Energy Specialist ECSS2 Christopher L. Rytel Consultant SASDE Jann Masterson Operations Officer ECSS2 Wolfort Pohl Sr. Environmental Specialist ECSS3 Shod Nazarov Financial Management Analyst ECS03 Yuling Zhou Sr. Procurement Specialist ECS02 Benedicta T. Oliveros Procurement Analyst ECS02 Sr. Financial Management John Otieno Ogallo ECS03 Specialist Hannah M. Koilpillai Sr. Finance Officer CTRFC Takhmina Mukhamedova Operations Analyst ECSS6 Yukari Tsuchiya Temporary ECSS2

(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 FY02 42 161.37 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 7.11 (AF) FY08 66.67 (AF)

Total: 42 235.15 Supervision/ICR FY02 0.00 FY03 47 189.54 FY04 36 129.63 FY05 27 148.05 FY06 14 105.82 FY07 33 202.55 FY08 31 191.60 FY09 115.56 FY10 138.91 FY11 92.08

Total: 188 1313.74

Annex 5. Beneficiary Survey Results Not applicable

Annex 6. Stakeholder Workshop Report and Results Not Applicable

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

English translation of Letter from Ministry of Energy and Industry Unofficial Translation

REPUBLIC OF TAJIKISTAN

MINISTRY OF ENERGY AND INDUSTRY REPUBLIC OF TAJIKISTAN

Rudaki, 22 Tel: (810992 -37) 221-69-97/221-88-89 Fax: (810992-37) 221-82-81 E-mail: [email protected]

To: World Bank Country Office Dushanbe Republic of Tajikistan

From: Mr. A. Sulaimonov Deputy Minister Ministry of Energy and Industry Dushanbe Republic of Tajikistan

Ref. No. 16/1676 June 24, 2011

The Ministry of Energy and Industry of the Republic of Tajikistan presents its compliments to the World Bank Country Office in Tajikistan and would like to express its gratitude for the continued and timely support rendered by the Bank to ensure further development of the country‟s energy sector.

The Pamir Private Energy Project (Pamir Energy Company), designed by the IFC, AKFED, with the assistance of the IDA and the Government of Switzerland through SECO, is considered to be one of the unique energy projects in the Republic of Tajikistan, which is implemented in cooperation with the private sector and is aimed at restructuring of the sector and further improvement of services provided to the population. It is good that over the last few years the Pamir Energy Company has made a significant progress in improving the power supply for the population of Gorno-Badakhshan Autonomous Oblast (GBAO).

The Government of the Republic of Tajikistan attaches great importance to energy sector development in mountainous regions of the country. The World Bank‟s financial assistance in the amount of US$10 million allocated for the implementation of the first public-private partnership project - the Pamir Energy Company and the subsequent US$2,5 million appropriated right after the destructive collapse and emergency situation at Pamir-1 hydropower plant was a vitally important step taken by the Bank to help the population of GBAO to successfully go through many hardships of that difficult period.

The Ministry of Energy and Industry of the Republic of Tajikistan acting in the capacity of the authorized representative of the Government of the Republic of Tajikistan in the Concession Agreement between the Republic of Tajikistan and Pamir Energy Company, which was signed by the parties on May 24, 2002, conducts a regular and systematic monitoring of the progress on the fulfillment of commitments under this agreement.

Official commissions comprising representatives of various republican ministries and committees visited the power facilities of the Company more than once in order to get a clear picture of the situation and check on the implementation status of the following tasks: fulfillment of the Environmental Management Plan, maximum normal (average) tariff maintenance, maintaining minimum standard of services rendered to individual consumers, energy loss reduction in transmission and distribution networks, improving reliability and sustainability of the entire system. It is gratifying to know that the aforementioned commissions have always noted positive changes in the operating activities of Pamir Energy.

It is worth mentioning that the Company has fully met its investment commitments with respect to completion of Pamir-1 HPP and other important energy facilities. The construction of Pamir-1 HPP was completed in 2005 as it was planned earlier, and the ceremony of launching the project was attended by the President of the Republic of Tajikistan Mr. Emomali Rakhmon personally.

As a result of the Company‟s activity the overall power generation increased by 30%. Owing to the financial assistance provided by the World Bank, the Company managed to install new electronic counters for all electricity consumers in Khorog city, which consumes more than a half of the energy volume generated in GBAO. Moreover, overall energy losses, which previously amounted to 60%, were substantially reduced in the networks thereby helping significantly improve the electricity supply of Khorog and other mountainous regions connected to the GBAO power grid.

Though today the project is successfully operating, however the implementation process went with difficulties. The Pamir-1 HPP failure in February 2007 was one of the serious obstacles faced by the project.

The Government of the Republic of Tajikistan, the Ministry of Energy and Industry of the Republic of Tajikistan in cooperation with other project participants, including the World Bank managed to raise funds required for speedy rehabilitation of the main station, which helped ensure stable electricity supply (in the normal mode) in winter season.

Since the initial estimates were rather optimistic, i.e. the volume of sales was expected to be much higher whereas the losses and expenditures were supposed to be smaller, then during the fifth year of the Company‟s operation Pamir Energy has already been totally enmeshed by financial difficulties. In this regard, in 2008 the Government of the Republic of Tajikistan, World Bank, IFC and AKFED implemented financial

restructuring of the Company. Due to this restructuring the Government of the Republic of Tajikistan agreed to grant a respite for the interest rate on the IDA sub-credit from 6% to 1,25% interest per annum till the end of 2011. At the same time the World Bank allocated additional financing in the amount of US$2,5 million to be spent for rehabilitation of Pamir-1 HPP after its failure in 2007.

Thanks to efficient management of World Bank-funded projects linked with execution of rehabilitation works Pamir Energy succeeded to ensure timely completion of works and significant saving of allocated resources.

It is evident that the Company‟s experience is very successful and noteworthy; therefore the Government of the Republic of Tajikistan is planning to use this experience extensively to facilitate further development of the power-supply system of the country. Despite some improvements in the operational activity of the Company, its financial indicators leave much to be desired. Today the Pamir Energy‟s capability to fulfill its sub-credit commitments before the IDA is a matter of deep concern. In this connection the Government Commission has visited the Pamir Energy Company in the beginning of June 2011 in order to check on the performance of the Company. The parties are planning to reconsider the interest rate on the IDA sub-credit during the third quarter of 2011.

The Ministry of Energy and Industry of the Republic of Tajikistan avails itself of this opportunity to express its thankfulness to the World Bank and really hopes that the Bank will continue supporting this and similar initiatives of the Republic of Tajikistan implemented in energy sector of the country.

With best regards,

A. Suleymanov Deputy Minister of Industry Ministry of Energy Republic of Tajikistan

Pamir Energy ICR

1. Key Factors Affecting Implementation and Outcomes (a) Project Preparation Project started in December 2002 and completed in December 2010 (b) Implementation Stage: Project consisted of two stage: 2002-2008 ($10 million initial funding) and 2009-2010 ($2.5 million additional funding). Procurement plans for both stages were implemented.

2. Monitoring and Evaluation The monitoring and evaluation process of the project was efficient and gave a valuable experience and knowledge to PEC personnel working with the project. PEC was constantly updating WB on the procurement and implementation process and the reports were evaluated by WB specialists. Several times, WB missions were arranged to PEC for the monitoring and evaluation of the progress of the project. WB gave good recommendations which were implemented or used to improve the efficiency of the project. WB was informed on each procurement process and implementation stage, and WB evaluated and responded on them. The results from the monitoring and evaluation is that  PEC delivers uninterrupted power supply in its main grid  manages the water flow from Lake Yashilkul  resolved the issues with sediments and frazil ice  improved the reliability of the electro-mechanical parts of the plant  improved the security of the plant (CCTV cameras)  and made possible to have surplus of energy even in peak hours of winter season.  3. (a) Transition arrangements for the project's future operation. Pamir I power plant rehabilitation completed successfully. Pamir I works on its full capacity and covers the demand of the area. Moreover, there are surplus of energy, which means that PEC can put one or two units for capital repair at the same time, without affecting the reliable energy supply. Today, Pamir I is a sustainable station. PEC carries out several projects annually at Pamir I to improve the safety and reliability of the plant further. Budgets necessary for the plant are allocated in full manner annually. Staff is trained and is going through intensive capacity building programs every year. The performance indicators of the projects similar to the project carried out by PEC through IDA funding could be several: - Operational impact (efficiency, maintenance periods, etc) - Financial impact (revenue, expenses, etc) - Economic impact (economic activities, workshops, communication and technologies, employment, etc) - Social impact (community pressure, gender equality, in-house emission, education, health, etc) - Environmental impact (clean energy, deforestation, etc).

The indicators should be analyzed through the years, based on household level, regional level, and other levels such as export, employment and etc. II. Outcomes (a) Achievement of Project Development Objectives The objectives of the project were to improve the energy supply in GBAO region, suffering from the deterioration of the whole network and small generating capacities. That covered the rehabilitation of the Pamir I power plant (the biggest plant of Pamir Energy), increase of its capacity, resolve the issue with water flow management, remove the issue with frazil ice and sediments, and deliver more energy to the end consumers.

The objectives of the project were reached. Pamir I rehabilitation completed in 2010, with the commission of the last unit of the plant in January 2011. Today, Pamir I can reach the full capacity and Pamir Energy has up to 4MW of surplus of energy in peak hours in winter. In remaining 17-18 hours of winter days, PEC has surplus up to 10MW.

A dam was built at Yashilkul Lake which improved the energy supply from Pamir I and Khorog power plants (cascades of plants). In 2010, anti-filtration measures were taken at Yashilkul dam which allowed economizing more than 20 million m3 of water at the Lake. That means that in case the winter would last more than usual, PEC would have enough water to deliver reliable the energy to its consumers.

Dredging pump was procured in 2010, which solved the issue with sediments at Pamir I sedimentation basin. PEC does not have to stop the plant once in 2 years for the whole month to clean the sediments. The machine can clean it anytime, without suspension of the plant. Two ice blocking systems were built which solved the issue with frazil ice getting into the basin and further to turbine. This issue brought many problems to PEC, including the lower water flow from the basin and damage to the turbines and bearings.

(b) Overarching Themes, Other Outcomes and Impacts Reliable energy supply resulted in the change in the whole economic life of the region. Previously, shops used to work only in summer time, and the small productions worked in summer as well, as no energy was available. Today, all shops work all year rounds, people are more busy with the commercial business all the year. Rationing would sound strange for the consumers in the main grid, as they are used to have energy all year round, and they appreciate the efforts of Pamir Energy and all partners.

The impact on environment was significant. In the end of 1990s, 70% of the forests and trees were cut in GBAO. Due to the lack of energy in the region, people were using woods for heating and cooking.

Today, with better energy provision to all regions (main grid receives uninterrupted supply all year round), the forests are recovering.

The clean energy provided by Pamir Energy replaced the pollution resulted from burning woods and coals (only few people afforded it and it was scarce).

(c) Poverty Impacts, Gender Aspects, and Social Development According to the studies in 2007, hydro energy is the cheapest option for cooking and heating in GBAO, compared to wood, coal, diesel and other sources. Thus, the energy had a positive impact on the poverty reduction. People pay less for clean energy and can spend the difference on other house holding needs.

Women spent more time with cooking and heating. Today, using electricity devices, they are able to devote more time for family, for education of the children, for other works at house, or work for public or commercial sector.

The in-house emission issue was resolved completely. People don‟t use diesel lamps for lighting, or wood for heating. Risks of sicknesses from the in-house emission, especially for children/babies, was either removed completely, or minimized significantly.

(d) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development):

The energy provision made possible for Government and donors to provide schools with computers and other technologies. Today, every school in GBAO had at least one computer and more children and youth are comfortable using the technologies, including printers and scanners.

Health facilities and hospitals can fulfill their duties, not depending on rationing of electricity as they used to be in the 1990s. Impact is significant. Some hospitals in regions received new medical technology from donors and use them every day for medical check of the patients.

(e) Unintended Outcomes and Impacts (positive and negative): Back in 2006, if you would tell people that PEC will export energy to Afghanistan in 2008, they would not understand you, simply because the rationing was in GBAO itself. However, the project allowed to have energy all year round, and it is already the third year that PEC is providing energy to Afghanistan all year round, now for more than 1000 households.

The project financed by WB is one of the main components that today PEC is becoming a benchmarking company for Central Asia and other countries. The experience of PEC now is appreciated in other countries, and PEC is now providing some consulting services to Afghanistan, Uganda, and Kyrgyzstan.

III. Rationale for Rating of Risk to Development Outcome Several factors have affected the satisfactory implementation and outcomes in the program supported by WB. Rating at Risks Comment that point Technical Expertise (e.g. Low The implementation of the project directly related to the experience of the Experience of the engineers and according measures were taken to improve that (e.g. engineers and key trainings outside and inside Tajikistan, consultants reports‟ analysis) personnel)

Rating at Risks Comment that point Implementation risk Low Pamir Energy went through different types of management and systems restructured (rehabilitation, new high quality leadership, relation with government, etc). Sustainability of Moderate AKFED has supported the drafting of a comprehensive PEC business plan investments for 2010 - 2014. PEC will not need additional investments after 2014 to be sustainable. Reputational Risk Low The project focuses not only on the improvement of electricity supply in the Pamir region but also on the improvement of the energy supply in neighbour Afghanistan. Moreover, with continuing PEC operational improvements, the project is becoming a model for the rest of the country and region. Political Risk Moderate Changes in policy and legal framework may adversely affect the project. Key elements of the framework is regulated in the Concession Agreement. PEC‟s continuing high levels of service provision provide local political support. Political Stability Low AKFED‟s deep roots in the region limit this risk to a large extent; proximity of boarder to Afghanistan: same ethnic group is living on both sides, friendly relations. PEC‟s energy provision to Afghanistan also creates goodwill between the two sides, and PEC will continue expanding this program. Support in financial Moderate WB and Government of Tajikistan provided high support in the difficulties sustainability of the company, and the financial restructuring outcomes are the strong evidence for that. Capacity building Low It was required for improving quality have taken longer than earlier programs anticipated

IV. Assessment of Bank and Borrower Performance Bank (a) Quality at Entry Bank performance is rated as satisfactory. The task team‟s consistent engagement and responsiveness is acknowledged by Government of Tajikistan and Pamir Energy. The Bank has maintained intensive dialogue with Government officials and Pamir Energy shareholders outside the energy sector, including finance and planning, which has helped to address many managerial issues within the context of the overall development and financing framework. At the operational level, consistent engagement has enabled effective review of progress and discussion on areas needing acceleration. Effective coordination has enabled better alignment between available technical expertise and resources and with the needs of the project. (b) Quality of Supervision The quality of the supervision was satisfactory. That allowed to have efficient management, planning, budgeting and implementation of the project components.

Borrower (a) Government Performance: Borrower performance is rated as satisfactory at all levels. At the Government level, the good progress and satisfactory achievement of objectives has been based on strong political championship, alignment of vision and strategy among the key Ministries. The Ministers‟ (Ministry of Finance,

Ministry of Energy and Industry, Ministry of Economic Development and Trade) keen interest and monthly reviews of implementation progress have helped keep the project on track.

(b) Implementing Agency or Agencies Performance: Implementing Agency (IA) performance is rated as satisfactory. The good progress and satisfactory achievement of objectives has been based on intensive monitoring and oversight by the dedicated operational teams. IA project management team constantly monitored the progress, addressed the bottlenecks, and provided overall guidance on the efficiency of the project components. The IA intensive monitoring and analysis has ensured that the project momentum is maintained, especially in timely implementation and delivery of inputs, and that decisions are based on information and analysis. The planned capacity building program enabled the project team to further improve their performance.

V. Lessons Learned

It will be good to draw Lessons under the following categories: Important factors for the success of a project: 1. Management Given the difficult environment in which the PamirEnergy project placed, the goals set for the project, and the limited resources available, high quality management was always a pre-requisite for success. The initial plan included the extensive use of consultants to initially manage the project implementation and advise local management going forward. The existing General Director was seen as a key player in the future of the company, and the sponsors planned on retaining him, while supporting him and the senior management team with training and close board supervision.

Tragically, early in the project, the General Director died in a car accident, and it was not apparent who could succeed him from the management team. The sponsors therefore attempted to utilize foreign managers. Identifying a qualified candidate who was qualified, prepared to live and work in Khorog, and capable of managing the utility and politics proved extremely difficult, and the company had a total of 4 General Directors in the initial 4 years. Following the accident in 2007, on the departure of the General Director at the time, AKFED identified a resident of GBAO, who has served as the company‟s General Director since.

The challenges the PamirEnergy project faced are hard in themselves to describe. To turn around a historically loss making utility, operated and accepted as a social good, in the poorest region of the poorest country of the former Soviet Union, in an isolated region of an isolated country, raising tariffs, increasing collections, and implementing construction projects at extremely high altitudes, while trying to maintain budgets, build human resources and deliver financial results. More attention should have been paid to the management of the company and to supporting development of local staff. Change in human resources has been, and continues to be, a top challenge of the company.

Identifying a qualified local manager has proven to be among the keys to the company‟s success in recent years. The ability to deal with the local community, understand the nuances of local politics, while at the same time recognizing what is possible and leading organizational change are all only really possible with a native of the environment in which one works. It is the sponsors‟ full intention to continue to develop local human resources in the management team, in order to accelerate

company change, spread the management burden, and ensure long term viability and growth for the company.

2. Collections The electricity in GBAO was always subsidized and people conceived energy as a gift. When Pamir Energy was established and tariffs increased, people still kept the attitude from old years, contributing to higher and higher debts and not willing to pay. Beside the issue of “willingness to pay”, the issue was also with collectors who did not have motivation to make efforts to collect the bills or finds thefts. All these led to high losses and thefts, resulting in limited power supply in Khorog and no power supply in regions.

Pamir Energy started with installation of meters on generation capacities and further down to transmission and distribution network, including meters for end consumers. Bills became more correct and people started realizing that bills should be paid. PEC established the disconnection teams, Customer Service Center and New Billing System to bring transparency and improve the collection rate and remove the issue of “willingness-to-pay” among consumers.

PEC introduced a bonus system for Khorog Sales specialists and that gave good results, making the collection % as of sales more than 100%. PEC is introducing the bonus system in regions to make the collection better and collect the outstanding debts from previous years. Trade days decreased from 159 days in 2009 to 99 days in 2010.

Using billing system, PEC shows the history of the last 12 months bills on each monthly bill of the consumers, so consumers see when and how much they have paid, reconcile the data with their meters. This improved significantly the collection and the image of the company. Previously, theft was normal and people were sharing with each other how to steal energy. Today, consumers see the theft a very bad behavior and sometimes, people calling PEC on the hot line to inform that some neighbor or person is stealing energy. Collection increased above 100% in 2010, and PEC is intending to collect not only the whole sales in 2011, but also more outstanding debts from previous years in 2011.

PEC learned that high quality service and incentive system for sales specialists can improve everything – sales, collections, image, transparency, and reputation of the company.

3. Ice, Sediments and Water Flow Ice, sediments and water management were always a big issue for Pamir I, Khorog and Namangut HPPs. Sediments and ice resulted in deterioration of turbine parts, reduction of available capacity of the plants (low generation), limited energy supply and rationing for the consumers, and high expenses for Pamir Energy while cleaning the sedimentation basin once in 2 years (Pamir I) and replacing and maintaining the units of all affected HPPs. Namangut HPP was stopped every years for 3-4 months, while in the last 4 years, it was not suspended at all due to the measures taken by PEC. However, substantial repair and maintenance is required.

PEC General Director and two other key staff visited Sweden to learn how to deal with fragile ice having similar harsh winter as in Pamir region. PEC implemented several pilot projects and since

2009, the sediments and fragile ice issue is being resolved (in 2009, sediments and fragile ice issue was minimized and in 2010, the issue was completely resolved for Pamir I and Khorog HPPs).

PEC took anti-filtration measures at Lake Yashilkul guaranteeing the stable water supply to Pamir I and Khorog HPPs during the winter. In 2010, PEC economized around 20 million m3 of waters in the lake due to the anti-filtration measures.

Intakes of Khorog HPP, Vanj HPP and Shujand HPP had issues with water flow and water management. In Khorog, the issue was resolved with the several projects on the channel intake. Shujand issue was partially resolved. In Vanj HPP, the intake is the most serious issue – there is always a bulldozer in the intake to enhance the intake constantly.

PEC procured dredging pump which removes the sediments from Pamir I sedimentation basin, without stoppage of the HPP for the whole month. PEC built two Ice blocking systems to prevent the ice penetration into the basin and further to the turbines. Fragile ice contains sediments as well, so the systems resolved partially also the sediments issue.

Better water flow management, measures against frazil ice and sediments improved the reliability of two main power plants, resulting in more energy supply in the region. Today, PEC has surplus of 4MW in winter peak times, while some 4 years ago, PEC had deficit in even non-peak hours of winter season.

4. Community Relations Before, community had a stereotype that energy should be cheap or free. With higher tariffs, some consumers did not want to pay for the energy they consumed (willingness-to-pay issue). Due to the lack of meters and high thefts, group metering was introduced which actually worsened the relation between the community and PEC. Issues with Government started as well. Theft accepted as a normal, and many people were sharing with each other how to steal the energy easier. PEC controllers/sales specialists were sometimes beaten by some aggressive consumers when they required the payment of the bills.

PEC started from visiting the community. People wanted to talk directly with General Director, and GD visited the community in person to hear them, to talk with them. There were bad words and threats, but PEC listened to people, agreed on some issues and moved forward. For example, PEC promised to improve the energy supply and install meters, while consumers will pay for their outstanding bills and will not steal energy.

PEC started to work with TV stations, radios, newspapers, distribute brochures and meet with community leaders to improve the PEC reputation and relation with the community. PEC launched the re-metering program and today, more than 83% of the energy goes through new electronic meters.

PEC launched Customer Service Center (first in Tajikistan) to respond immediately to consumers requests. Complains to CSC reduced from 1500/year in 2008 to 150/year in 2010. More than 95% of the requests to the center are coming with the issue of information or explanation of the bills or tariffs, not overcharging as it used to be.

PEC launched hot-line to which consumers can call and ask about their issues. Today, many consumers call to the hot-line and inform on some consumers that steal energy. People think that it is really bad and shameful to steal energy.

PEC launched social projects to help the community with other issues. For example, the clean water pipeline in Bogev village of Shugnan, or sponsorship of the chess classes in all Khorog schools, or sponsoring sportsmen in the regional or international competitions.

Today, PEC has high reputation in the community and is one of the best employers in the region. Individual approach is required to have efficient resolution for the issues raised among the consumers, or between company and consumers.

Meters are highly important for the reputation, image and trust to the company among consumers. Group metering brings dissatisfaction and makes the willingness-to-pay a serious issue. Dissatisfaction results in the creativity of the consumers in the way they steal energy and share with others.

Hotline is necessary to listen to consumers requests when they want to ask or share information confidentially. Customer Service Center is essential when you work with majority of the members of the community. People should know what they receive, how much they receive and what and how it should be paid for. Image and reputation of the company, relation between company and consumers is essential for having proper and prosper business.

Project Design: Project design process brought a good experience for the company. Pamir Energy gained skills on working together with WB specialists and prepare projects specification and procurement plans in accordance with WB policies and rules. As well, lessons learned how to deal more efficiently with Government agencies, and improve the relation between all stakeholders.

Implementation: During the implementation, the hotspots were identified and measures were taken to improve it. Projects were implemented not only from the technical point of view, but also other aspects/impacts of the projects were analyzed and were resolved. For example, while building the dam at the Lake Yashilkul, the environmental issues, fish population and impacts on pasture area were taken into consideration.  Monitoring: Several WB missions were arranged to Pamir Energy. The process of reporting, improvement of the reporting progress and compliance with the WB rules were beneficial for PEC. Constant monitoring of the project created a benchmark for some reporting, project design and preparation, implementation and monitoring improvement in the company. PEC made a huge step in efficiency and cost-effective analysis of the projects.  Procurement: It is a valuable knowledge in the creation, management and follow-up of the procurement plans, compliance with rules and policies. The experience of tenders announcement, working with

international suppliers and partners, negotiation with WB on the procurement and “no-objection” resulted in more efficient management of the projects. PEC uses the lessons learned in all procurement stages in the company, such as CapEx projects.

Comments on IDA’s ICR

Pamir Energy considers that the ICR should rate Outcome and Implementing Agency Performance as “Highly Satisfactory”. Pamir Energy has gained a valuable knowledge from the World Bank team in creation, management and follow up of the procurement plans, compliance with rules and policies, interacting with the World Bank on procurement and „no-objection‟, resulting in more efficient management of projects. The World Bank team has been always receptive and supportive indeed. It took timely and professional manner by the World Bank to enable Pamir Energy to finalize the project within the budget and in time. Despite the skepticism, GoT, WB and other stakeholders managed to mobilize the required resources to put back into operation three out of four units at Pamir I after the catastrophic flooding in February 2007 in the shortest possible time. The World Bank had also supported the remetering program in Khorog (over 6,000 sets of the meters with the budget of US$700,000) that enabled the company dramatically to reduce losses from as high as 60% down to as less as 14% in Khorog. This project is seen as a key in turning around situation in Khorog. Through the whole project, the World Bank provided technical advises on specification of the equipment and identifying solutions for the challenges. The World Bank technical support in resolving sediments and fragile ice issues at Pamir I were of the high asset. Pamir Energy looks forward to continued cooperation with and support from the World Bank during the process of the negotiation with the GoT in regards to IDA loan interest rate.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

I. Comments from Aga Khan Fund for Economic Development (AKFED)

PamirEnergy has been a challenging, but highly rewarding project. The task of turning a historically subsidized utility in an extremely poor environment, where energy was perceived as a social good, into an operationally sound and profitable company in several years was difficult, but the results have exceeded our expectations. PamirEnergy now provides the best energy supply in the country, and unlike any other area of Tajikistan, has excess energy even in winter, in spite of it being the coldest region of the country. Losses are lower, and collections are higher than any other area in the country, and the company continues to improve on both metrics. Tariffs were raised gradually, and the company is now in a position to generate small profits, while continuing to invest approximately $1 million in internally generated funds into annual, ongoing capital expenditure, in order to ensure high operational performance in the future, beyond the concession term. With new projects to sell into Afghanistan being developed, the financial outlook for the company will only improve. In sum, PEC took from the Government a subsidized, poorly operating and collapsing utility in the poorest region of the country, and will return to the Government the best performing, financially successful and completely sustainable utility. Taking this into consideration, we believe the project cannot be considered less than highly successful.

Annex 9. List of Supporting Documents

 Project Appraisal Document for Tajikistan Pamir Private Power Project, dated May 31, 2002 (Report No. 24068-TJ).  Concession Agreement between Government of the Republic of Tajikistan and Pamir Energy Company, dated May 24, 2002.  Aide memoires, Back-to-Office Reports, and Implementation Status Reports.  Project Progress Reports.  PEC‟s Implementation Completion Report, May 2011.  Legal Agreements related to the Project  Project Paper, Additional Financing, dated June 23, 2008.  Project Restructuring Paper, dated December 29, 2010.  Pamir Energy Operational Review, Monthly Report, December 2010.

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