Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 4 1899-DO PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized ON A PROPOSED LOAN IN THE AMOUNT OF US$42.0 MILLION EQUIVALENT TO THE DOMINICAN REPUBLIC FOR AN Public Disclosure Authorized ELECTRICITY DISTRIBUTION REHABILITATION PROJECT April 18, 2008 Sustainable Development Department Caribbean Country Management Unit Latin America and the Caribbean Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective December 3 1,2007) Currency Unit = Dominican Republic Peso (RD$) 33.75RD$ = US$l FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CDE Corporacion Dominicana de Electricidad (the former Dominican Electricity Corporation) CDEEE Corporacion Dominicana de Empresas ElCctricas Estatales (state-owned utility holding company) CNE Cornision Nacional de Energia (National Energy Commission - in charge of policy making) C RI Cash Recovery Index =(kWh billed by EDEskWh purchased by EDEs)*(RD$ paid by consumers to EDEs/RD$ billed by EDEs to consumers) EDEs Empresas Distribuidoras de Electricidad ( the three regional distribution companies) EGEHID Empresa de Generacion Hidroelectrica Dominicana (state-owned hydgrogeneration company) EdeEste Empresa Distribuidora de Electricidad del Este S.A. (privately-owned EDE for eastern DR) EdeNorte Empresa Distribuidora de Electricidad del Norte S.A.(state-owned EDE for northern DR) EdeSur Empresa Distribuidora de Electricidad del Sur S.A. (state-owned EDE for southern DR) ETED Empresa de Transmision del Estado Dominicano (state-owned transmission company) FDI Foreign Direct Investment FONPER Fondo Patrimonial de las Empresas Reformadas (Equity Fund for Companies) GDP Gross Domestic Product IDB Inter-American Development Bank IFR Interim Financial Reports IMF International Monetary Fund IPP Independent Power Producer LAC Latin America and Caribbean oc Organism0 Coordinador del Sistema ElBctrico Interconectado (responsible for load dispatch) OFID OPEC Fund for International Development PAEF Programa Nacional de Apoyo a la Elimination del Fraude ElBctrico (anti-fraud program) PRA Programa Nacional de Reduccibn de Apagones (National Program for Reduction of Blackouts) PPA Power Purchase Agreement PROTECOM Oficina de Proteccion a1 Consumidor de Energia E16ctrica (Consumer Protection Agency for Power) SEH Secretaria de Estado de Hacienda SEMARN Secretaria de Estado de Medio Ambiente y Recursos Naturales (Secy. of State for Environment) SIE Superintendencia de Electricidad (Office ofthe Superintendent of Electricity) TA Technical Assistance UERS Unidad de Electrification Rural y Suburbana (Rural and Suburban Electrification Unit) Vice President: Pamela Cox Country Director: Yvonne M. Tsikata Country Manager Christina Malmberg Calvo Sector Manager: Philippe Benoit Task Team Leader: Lucio Monari FOR OFFICIAL USE ONLY DOMINICAN REPUBLIC Electricity Distribution Rehabilitation Project CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE .............................................................. 1 . A. Country and sector issues................................................................................................ - 1 - B. Rationale for Bank involvement ..................................................................................... - 6 - C. Higher level objectives to which the project contributes ............................. 11. PROJECT DESCRIPTION.................................................................................. .......- 7 - A. Lending instrument ......................................................................................................... - 7 - B. Project development objective and key indicators.......................................................... - 7 - C. Project components ......................................................................................................... - 8 - D. Lessons learned and reflected in the project design........................................................ - 8 - E. Alternatives considered and reasons for rejection .......................................................... - 9 - 111. IMPLEMENTATION ..................................................................................... .............- 9 - A. Partnership arrangements ................................................................................................ - 9 - B. Institutional and implementation arrangements ............................................................ - 10 - C. Monitoring and evaluation of outcomeshesults............................................................ - 10 - D. Sustainability ................................................................................................................. - 10 - E. Critical risks and possible controversial aspects ........................................................... - 11 - F. Loadcredit conditions and covenants ........................................................................... - 1 1 - IV. APPRAISAL SUMMARY ......................................................................................... - 12 - A. Economic and financial analyses .................................................................................. - 12 - B. Technical ....................................................................................................................... - 13 - C. Fiduciary ................................. .................................................................................. 14 - D. Social ............................................................................................................................. - 14 - E. Environment................................................................................................................ ..- 15 - F. Safeguard Policies ......................................................................................................... - 15 - G. Policy Exceptions and Readiness .................................................................................. - 15 - This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 1: Sector Background.................................................................................................. 16 . Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .............. 22 . Annex 3: Results Framework and Monitoring ..................................................................... 23 . Annex 4: Detailed Project Description ................................................................................... 30 . Annex 5: Project Costs ............................................................................................................ 36 . Annex 6: Implementation Arrangements .............................................................................. 37 . Annex 7: Financial Management and Disbursement Arrangements .................................. 42 . Annex 8: Procurement Arrangements ................................................................................... 55 . Annex 9: Economic and Financial Analysis .......................................................................... 62 . Annex 10: Safeguard Policy Issues......................................................................................... 80 . Annex 11: Project Preparation and Supervision .................................................................. 83 . Annex 12: Documents in the Project File .............................................................................. 84 . Annex 13: Statement of Loans and Credits............................. .............................................. 85 . Annex 14: Country at a Glance .............................................................................................. 86 . Annex 15: Map IBRD 35856 ................................................................................................... 88 . DOMINICAN REPUBLIC ELECTRICITY DISTRIBUTION REHABILITATION PROJECT PROJECT APPRAISAL DOCUMENT LATIN AMERICA AND CARIBBEAN LCSEG Date: April 18,2008 Team Leader: Lucio Monari Country Director: Yvonne M. Tsikata Sectors: Power (1 00%) Sector ManagedDirector: Philippe Charles Themes: Infrastructure services for private Benoit sector development (P) Project ID: PO89866 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan [XI Loan [ ] Credit [ ] Grant [ 3 Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 42.00 Proposed terms: Commitment-linked payable in 30 years, including 5 years of grace and level DrinciDal reDavment: at six-month LIBOR Dlus fixed mead. Borrower 4.90 6.40 10.50 International Bank for Reconstruction and 16.50 25.50 42.00 Development Other Financiers 37.30 61.50 99.60 Total: 58.70 93.40 152.10 Borrower: CDEEE, Dominican Republic Responsible Agency: EdeNorte, Dominican Republic EdeSur, Dominican Republic EdeEste, Dominican Republic 4nnual 5.00 10.50 10.50 10.50 5.50 0.00 0.00 0.00 0.00 Cumula 5.00 15.50 26.00 36.50 42.00 0.00 0.00 0.00 0.00 Live Project implementation period: Start May 31,2008 End: May 31,2012 Expected effectiveness