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Document of

The World Bank

Report No: ICR00003952

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-43530,IDA-43540)

ON A

CREDIT

IN THE AMOUNT OF SDR 9.1 MILLION

(US$13.8 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MOZAMBIQUE

FOR A

TRANSMISSION UPGRADE PROJECT

March 20, 2017

Energy and Extractives Global Practice

Country Department Southern Africa 2 (AFCS2)

Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 18, 2017)

Currency Unit = Mozambican Metical

MZN 1.00 = US$ 0.014

US$ 1.00 = MZN 70.84

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AIDS Acquired Immunodeficiency Syndrome

APL Adaptable Program Loan

CAS Country Assistance Strategy

CPS Country Partnership Strategy

CREE Commission for Foreign Economic Relations

DAM Day Ahead Market

EdM Electricidade de Mocambique

ENDE Mozambique National Development Strategy

EIRR Economic Internal Rate of Return

ERR Economic Rate of Return

ESCOM Electricity Supply Corporation of Malawi

ESIA Environment and Social Impact Assessment

ESMAP Energy Sector Management Assistance Program

FIRR Financial Internal Rate of Return

FRR Financial Rate of Return

GDP Gross Domestic Product

GNI Gross National Income

GoM Government of Mozambique

GWh Gigawatt hours

HCB Hydroelectrica de Cahora Bassa

HIPC Heavily Indebted Poor Countries

HIV Human Immunodeficiency Virus

IBRD International Bank for Reconstruction and Development

ICR Implementation Completion and Results Report

ICT Information and Communications Technologies

IDA International Development Association

IEG Independent Evaluation Group

IP Implementation Performance

iii

ISR Implementation Status and Results report

kV Kilovolt

kVA kilovolt-ampere

MARR Minimum Acceptable Rate of Return

M&E Monitoring and Evaluation

MGDS Malawi Growth and Development Strategy

MoU Memorandum of Understanding

MVA Mega Volt Amp

MW Megawatt

MWh Megawatt hours

MZN Mozambican Metical (Mozambican currency)

NEP Malawi National Electricity Policy

NEPAD New Partnership for Africa’s Development

NPV Net Present Value

O&M Operations and Maintenance

PAD Project Appraisal Document

PARPA Action Plan for the Reduction of Absolute Poverty

PDO Project Development Objectives

PIU Project Implementation Unit

PPA Power Purchase Agreement

PPF Project Preparation Facility

PSA Power Supply Agreement

PVA Poverty and Vulnerability Assessment

QAG Quality Assurance Group

QEA Quality At Entry

QSA Quality of Supervision

ROR Run-of-River

RPF Resettlement Policy Framework

SADC Southern African Development Community

SAIFI System Average Interruption Frequency Index

SAPMP Southern African Power Market Program

SAPP Southern Africa Power Pool

SCADA System Control and Data Acquisition

SE4ALL Sustainable Energy for All

SIL Specific Investment Loan

STEM Short Term Energy Market

TTL Task Team Leader

TUP Transmission Upgrade Project

USD United States Dollar

WAPP West African Power Pool

XDR Special Drawing Right

iv

Vice President: Makhtar Diop

Senior Global Practice Director: Riccardo Puliti

Global Practice Director: Lucio Monari

Country Director: Mark R. Lundell

Acting Practice Manager: Lucio Monari

Project Team Leader: Zayra Romo

ICR Team Leader: Kabir Malik

ICR Authors: Kabir Malik, Bobak Rezaian

v

REPUBLIQUE OF MOZAMBIQUE

Transmission Upgrade Project

CONTENTS

Data Sheet

A. Basic Information .............................................................................................. vi

B. Key Dates .......................................................................................................... vi

C. Ratings Summary .............................................................................................. vi

D. Sector and Theme Codes .................................................................................. vii

E. Bank Staff ......................................................................................................... vii

F. Results Framework Analysis ........................................................................... viii

G. Ratings of Project Performance in ISRs .......................................................... xv

H. Restructuring (if any) ....................................................................................... xv

I. Disbursement Profile ...................................................................................... xvii

1. Project Context, Development Objectives and Design ................................................... 1

2. Key Factors Affecting Implementation and Outcomes .................................................. 9

3. Assessment of Outcomes .............................................................................................. 20

4. Assessment of Risk to Development Outcome ............................................................. 30

5. Assessment of Bank and Borrower Performance ......................................................... 32

6. Lessons Learned............................................................................................................ 37

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 39

Annex 1. Project Costs and Financing .............................................................................. 40

Annex 2. Outputs by Component...................................................................................... 42

Annex 3. Economic and Financial Analysis ..................................................................... 44

Annex 4. Bank Lending and Implementation Support/Supervision Processes ................. 50

Annex 5. Beneficiary Survey Results ............................................................................... 52

Annex 6. Stakeholder Workshop Report and Results ....................................................... 53

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 54

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 61

Annex 9. List of Supporting Documents .......................................................................... 62

Annex 10. Map IBRD 33451 ............................................................................................ 63

vi

A. Basic Information

Country: Mozambique Project Name:

Mozambique

Transmission Upgrade

Project

Project ID: P084404 L/C/TF Number(s): IDA-43530,IDA-43540

ICR Date: 03/20/2017 ICR Type: Core ICR

Lending Instrument: SIL Borrower: Republic of

Mozambique

Original Total

Commitment: XDR 29.60M Disbursed Amount: XDR 9.10M

Revised Amount: XDR 9.10M

Environmental Category: B

Implementing Agencies:

Electricidade de Moçambique (EdM)

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 11/13/2006 Effectiveness: 04/01/2008 04/01/2008

Appraisal: 04/09/2007 Restructuring(s):

04/29/2013

11/21/2014

06/23/2015

06/17/2016

Approval: 07/17/2007 Mid-term Review: 02/15/2014 03/10/2014

Closing: 06/30/2013 08/31/2016

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Unsatisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Moderately

Unsatisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately

Unsatisfactory

Implementing

Agency/Agencies: Moderately Satisfactory

Overall Bank

Performance:

Moderately

Unsatisfactory Overall Borrower

Performance: Moderately Satisfactory

vii

C.3 Quality at Entry and Implementation Performance Indicators

Implementation

Performance Indicators

QAG Assessments

(if any) Rating

Potential Problem

Project at any time

(Yes/No):

Yes Quality at Entry

(QEA): None

Problem Project at any

time (Yes/No): Yes

Quality of

Supervision (QSA): None

DO rating before

Closing/Inactive status:

Moderately

Satisfactory

D. Sector and Theme Codes

Original Actual

Major Sector/Sector

Energy and Extractives

Energy Transmission and Distribution 100 100

Major Theme/Theme/Sub Theme

Economic Policy

Trade 40 40

Trade Facilitation 40 40

Private Sector Development

ICT 40 40

ICT Solutions 40 40

Regional Integration 20 20

E. Bank Staff

Positions At ICR At Approval

Vice President: Makhtar Diop Obiageli Katryn Ezekwesili

Country Director: Mark R. Lundell Mark D. Tomlinson

Practice

Manager/Manager: Lucio Monari Yusupha B. Crookes

Project Team Leader: Zayra Luz Gabriela Romo

Mercado Wendy E. Hughes

ICR Team Leader: Kabir Malik

ICR Primary Author: Kabir Malik

ICR co-Author: Abdolreza B. Rezaian

viii

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The APL 2 development objective is to implement the Mozambique-Malawi transmission

interconnection (i) to increase access to diversified, reliable, and affordable supplies of energy;

and (ii) to expand Malawi and Mozambique’s opportunities to benefit from bilateral and regional

power trading on the Southern African Power Pool.

Revised Project Development Objectives (as approved by original approving authority) To reduce the frequency of electricity outages in Tete province.

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target

Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1 : Average interruption frequency per year in the project area (Number, Core)

Value

quantitative or

Qualitative)

476

411

151

Date achieved 12/31/2013 08/30/2016 08/30/2016

Comments

(incl. %

achievement)

Achievement percentage is 719%. This measure is the actual reduction as a

percentage of the targeted reduction. A large portion of the decline occurred

prior to the commissioning of the transformer due to factors unrelated to

the project.

Indicator 2 : Customers served in the project area (Number, Core Supplement)

Value

quantitative or

Qualitative)

20527.00

86628.00

81276.00

Date achieved 11/01/2013 08/30/2016 08/30/2016

Comments

(incl. %

achievement)

93.8% of the target achieved.

Indicator 3 : Direct project beneficiaries (Number, Core)

Value

quantitative or

Qualitative)

0

86628.00

81276.00

Date achieved 11/01/2013 08/30/2016 08/30/2016

Comments

(incl. %

achievement)

93.8% of the target achieved. Growth in number of electricity customers in the

region was marginally below expectation, but the target is expected to be met

and exceeded in the near future.

ix

Indicator 4 : Female beneficiaries (Percent, Core Supplement)

Value

quantitative or

Qualitative)

0

51%

50%

Date achieved 11/01/2013 08/30/2016 08/30/2016

Comments

(incl. %

achievement)

Indicator 5 : Malawi: Volume of trading via interconnector (GWh).

Value

quantitative or

Qualitative)

0

273

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)

Malawi did not sign the credit agreement. Thus, the 1st project restructuring

changed the PDO and cancelled the regional interconnector investments. All

associated indicators were dropped.

Indicator 6 : Mozambique: Volume of trading with Malawi via interconnector (GWh).

Value

quantitative or

Qualitative)

0

55

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)

This indicator was dropped during the 1st project restructuring.

Indicator 7 : Decreased capacity deficit in case of drought in Malawi (text)

Value

quantitative or

Qualitative)

0

No-off peak load

shedding

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)


Indicator 8 :

EDM incremental earnings from ESCOM payments associated with use-of-

transmission line

Value

quantitative or

Qualitative)

0

Exceeds EDM

debt service for

the interconnector

investment

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %


x

achievement)

Indicator 9 :

SAIFI (System Average Interruption Frequency Index) for Matambo customers

(%)

Value

quantitative or

Qualitative)

4.5%

3.5%

Dropped

Date achieved 01/01/2013 12/31/2014 11/21/2014

Comments

(incl. %

achievement)

This indicator was dropped during the second restructuring and replaced by the

relevant sector core indicator.

Indicator 10 : Customers served in the project area (supplemental)

Value

quantitative or

Qualitative)

0

194000

Dropped

Date achieved 01/01/2013 12/31/2014 11/21/2014

Comments

(incl. %

achievement)

This indicator was a supplemental indicator to PDO indicator above. It was thus

dropped during the second restructuring along with the main PDO indicator and

replaced by the relevant sector core indicator.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1 : ESIA final report completed and approved by GoM

Value

(quantitative

or Qualitative)

No ESIA

ESIA final report

completed and

approved by GoM

ESIA final report

completed and

approved by GoM

Date achieved 07/17/2007 06/30/2016 05/24/2016

Comments

(incl. %

achievement)

The final report was submitted to GoM for approval in December 2011. GoM

approval was finally received in June 2012.

Indicator 2 :

New 220/66/33 kV transformer installed and commissioned at Matambo

substation

Value

(quantitative

or Qualitative)

No transformer

80 MVA of new

transformation

capacity

commissioned

130 MVA

Transformer

delivered on site

and commissioned

Date achieved 01/01/2013 08/30/2016 08/30/2016

xi

Comments

(incl. %

achievement)

Targeted transformer capacity exceeded by 162.5% as a larger capacity

transformer was affordable within the project envelope. The transformer was

commissioned in July 2016, prior to project close.

Indicator 3 : Level of charge of the current Matambo transformer (percent)

Value

(quantitative

or Qualitative)

26%

70%

45%

Date achieved 07/17/2007 08/30/2016 08/30/2016

Comments

(incl. %

achievement)

Reduction target exceeded by 256%. The purchase of an additional transformer

helped split the load between two transformers and reduce stress on the original

("current") transformer.

Indicator 4 : New 220/33 kV, 25 MVA mobile substation delivered

Value

(quantitative

or Qualitative)

No transformer

50 MVA of new

transformation

capacity delivered

Transformer was

delivered and ready

for use

Date achieved 07/17/2007 08/30/2016 08/30/2016

Comments

(incl. %

achievement)

Target achieved. The new transformer at Tete is on site and is expected to be

commissioned in August 2017. The mobile substation was commissioned in

December 2016. (The project funded delivery, but not installation, of

this transformer).

Indicator 5 : Completion of survey for building interconnector (Malawi, Moz)

Value

(quantitative

or Qualitative)

Preliminary survey

completed

Detailed survey

completed

Dropped

Date achieved 12/31/2006 01/01/2008 04/29/2013

Comments

(incl. %

achievement)


Indicator 6 : % of towers installed against planned installation (Malawi, Moz)

Value

(quantitative

or Qualitative)

0

Atleast 90%

Dropped

Date achieved 12/31/2006 12/31/2010 04/29/2013

Comments

(incl. %

achievement)


Indicator 7 :

% expenditures against planned expenditures for building interconnector

(Malawi, Moz)

Value 0 At least 85% Dropped

xii

(quantitative

or Qualitative)

Date achieved 12/31/2006 12/31/2008 04/29/2013

Comments

(incl. %

achievement)


Indicator 8 :

Site mobilization completed for the construction of Phombeya and upgrading of

Matambo substations (Malawi, Moz)

Value

(quantitative

or Qualitative)

none

Site mobilization

completed

Dropped

Date achieved 12/31/2006 12/31/2008 04/29/2013

Comments

(incl. %

achievement)


Indicator 9 : % expenditures against planned expenditures at substations (Malawi, Moz)

Value

(quantitative

or Qualitative)

0

At least 85%

Dropped

Date achieved 12/31/2006 12/31/2008 04/29/2013

Comments

(incl. %

achievement)


Indicator 10 :

Key agreements signed and adhered to (I) Wheeling, (ii) system operating, (iii)

maintenance, (iv) implementation agreements (Malawi, Moz)

Value

(quantitative

or Qualitative)

Agreements substantially

negotiated

Agreements

adhered to;

ESCOM payments

to EdM on time

Dropped

Date achieved 12/31/2006 12/31/2010 04/29/2013

Comments

(incl. %

achievement)


Indicator 11 : ESCOM becomes operating member of SAPP

Value

(quantitative

or Qualitative)

None

ESCOM signs

SAPP agreement

among operating

members

Dropped

Date achieved 12/31/2006 12/31/2010 04/29/2013

Comments

(incl. %

achievement)


xiii

Indicator 12 : ESCOM signs a power trading agreement

Value

(quantitative

or Qualitative)

not signed

signed

Dropped

Date achieved 12/31/2006 12/31/2010 04/29/2013

Comments

(incl. %

achievement)


Indicator 13 : ESCOM financial sustainability plan adopted and implemented (Malawi)

Value

(quantitative

or Qualitative)

None

Plan prepared,

adopted and

implemented

Dropped

Date achieved 12/31/2006 12/31/2007 04/29/2013

Comments

(incl. %

achievement)


Indicator 14 : Cash coverage ratio (Malawi)

Value

(quantitative

or Qualitative)

0.81

At least 1.0

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)


Indicator 15 : Collection/generation ratio (Malawi)

Value

(quantitative

or Qualitative)

70%

at least 75%

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)


Indicator 16 : % task completed against planned timelines for studies (Malawi)

Value

(quantitative

or Qualitative)

0

at least 90 %

Dropped

Date achieved 12/31/2006 12/31/2010 04/29/2013

Comments

(incl. %

achievement)


Indicator 17 : % completion of feasibility study against planned timelines for extending

connection to Northern Mozambique (Mozambique)

xiv

Value

(quantitative

or Qualitative)

none

Consultants

selected

Dropped

Date achieved 12/31/2006 12/31/2008 04/29/2013

Comments

(incl. %

achievement)


Indicator 18 :

Decrease network faults due to failure of breaker operations in areas under

renovation in Malawi

Value

(quantitative

or Qualitative)

17

At least 10%

fewer faults from

baseline

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)


Indicator 19 : Reduction in number of excitation trips at generation stations

Value

(quantitative

or Qualitative)

19

At least 10%

fewer faults from

baseline

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)


Indicator 20 : Increased number of customers served out of Matambo

Value

(quantitative

or Qualitative)

15000

5% yearly increase

from baseline

Dropped

Date achieved 12/31/2006 12/31/2011 04/29/2013

Comments

(incl. %

achievement)


Indicator 21 : % expenditures against planned expenditures for building Matambo transformer

Value

(quantitative

or Qualitative)

0

At least 85%

Dropped

Date achieved 12/31/2006 12/31/2008 04/29/2013

Comments

(incl. %

achievement)


xv

G. Ratings of Project Performance in ISRs

No. Date ISR

Archived DO IP

Actual

Disbursements

(USD millions)

1 12/20/2007 Moderately Satisfactory Moderately

Unsatisfactory 0.00


Unsatisfactory 0.51

3 12/24/2008 Moderately

Unsatisfactory

Moderately

Unsatisfactory 1.94


Unsatisfactory

Moderately

Unsatisfactory 1.94

5 12/22/2009 Unsatisfactory Unsatisfactory 2.20





10 04/12/2013 Moderately Satisfactory Moderately Satisfactory 2.97


Unsatisfactory

Moderately

Unsatisfactory 3.12


Unsatisfactory Moderately Satisfactory 3.33





Unsatisfactory 9.39

H. Restructuring (if any)

Restructuring

Date(s)

Board

Approved

PDO Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD

millions

Reason for Restructuring &

Key Changes Made DO IP

04/29/2013 Y MS MS 2.97

Failure of Malawi to sign

Financing Agreement.

Restructuring cancelled all

activities related to the regional

interconnector. The PDO was

changed to reflect the reduced

scope that focused on

transmission upgrade for

Mozambique. Closing date for

the project extended by one and

xvi

Restructuring

Date(s)

Board

Approved

PDO Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD

millions

Reason for Restructuring &

Key Changes Made DO IP

a half years to 31 December

2014. (Level 1)

11/21/2014 N MU MS 4.32

Utilization of savings on request

of Government. Two additional

activities were added. PDO

indicators were refined to

incorporate core sector

indicators. Closing date

extended by one and a half

years to 30 June 2016. (Level 2)

06/23/2015 MS MS 6.70

Reallocation of funds among

disbursement categories. (Level

2)

06/17/2016 MS MU 9.39

Closing date extension by 2

months to enable completion of

activities. (Level 2)

If PDO and/or Key Outcome Targets were formally revised (approved by the original approving

body) enter ratings below:

Outcome Ratings

Against Original PDO/Targets Unsatisfactory

Against Formally Revised PDO/Targets Satisfactory

Overall (weighted) rating Moderately Satisfactory

xvii

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Regional Context

1. In 2007, when the project was presented to the Board, the Southern Africa Region had

experienced sustained economic growth in recent years bolstered by the continued global economic

expansion, prudent macroeconomic policies, debt relief and sustained demand for commodities

amid favorable commodity prices. Estimated average rate of growth in real Gross Domestic

Product (GDP) for the region was about 5.5 percent. Accompanying growth in electricity demand

implied that the region was entering a period of power generation capacity shortage and additional

generation capacity was required. The new demand required large, regional generation projects that

would utilize the variation in energy resource endowments across countries in the region. As a

result, regional trade in electricity was expected to increase, highlighting the need to address

constraints in the regional transmission infrastructure.1

2. The Southern Africa region possessed the institutional infrastructure to support regional

trade. The Southern Africa Power Pool (SAPP) was created in 1995 by Southern African

Development Community (SADC) member countries by concluding an Intergovernmental

Memorandum of Understanding (MOU). The utilities of 12 Southern African countries, including

Malawi and Mozambique, were the original members of the SAPP. The interconnected national

grids of the member countries formed the regional SAPP network. The SAPP aimed to facilitate

regional co-operation in the development of energy resources and energy pooling to enable reliable

energy supply in an efficient manner.

3. Malawi, Angola, and Tanzania were the only countries not yet interconnected to the SAPP

network. Connection to the regional grid of non-connected SAPP member power systems was a

priority in terms of SAPP planning. In the 2006 SAPP Annual Report, the Mozambique-Malawi

Transmission Interconnection was explicitly noted as a priority for the regional pool.

4. Electricity on the SAPP was largely traded through medium-to-long term bilateral

contracts. A Short Term Energy Market (STEM) was in operation since its inception in 2001.

However due to a shortage of hydropower generation in the region due to the exposure of individual

countries to drought and floods, demand in the market was well above supply. Energy traded on

the STEM fell from 842 GWh in 2002, to 226 GWh in 2006, and 68 GWh in 2007.2 Therefore, at

the time, Mozambique was one of the only systems to have excess capacity due to the 2,075 MW

Hydroelectrica de Cahora Bassa (HCB) hydropower plant. In 2006, the Day Ahead Market (DAM)

had not yet been established by SAPP, with the trial version only commissioned in 2007, and the

operational model completed in January 2010.

1 The Mozambique – Malawi Interconnector Project was part of the World Bank’s wider Southern Africa

Power Market Adaptable Program Loan program, which aimed at assisting the Southern Africa region to (i)

generate savings through aggregation of loads with different load profiles, (ii) achieve efficient use of energy

resources by exploiting large scale power generation schemes that are viable only on the basis of large multi-

country markets, (iii) manage the risks of climate-related power shortages in hydro-dependent countries. 2 The Potential of Regional Power Sector Integration – Southern African Power Pool (SAPP) Transmission

& Trading Case Study. Submitted to ESMAP by Economic Consulting Associates, pp 29, 2009.

2

Malawi Context

5. At the time of project appraisal in 2006, Malawi was one of the poorest and most densely

populated countries in sub-Saharan Africa. The population density in 2006 was about 109 persons

per square kilometer, with a total population of about 12.9 million. The Malawi Poverty and

Vulnerability Assessment (PVA) at the time of appraisal showed that the percentage of the

population living below the poverty line was around 52 percent in 2004/05. The per capita Gross

National Income (GNI) was estimated at US$170.

6. Economic diversification through an increased share of the industrial sector was

constrained by high interest rates, transport and energy costs. 3 Under President Bingu wa

Mutharika, who came into office in 2004 and was re-elected for a second term in 2009, improved

macroeconomic management placed Malawi on a path for faster economic growth. The growth in

real Gross Domestic Product (GDP), which averaged 1.5 percent between 2001 and 2004, increased

to an average of around five percent between 2005 and 2006. However, the economy remained

largely agrarian, with agriculture contributing to 80 percent of the workforce and 80 percent of the

foreign exchange earnings. Malawi’s economic activities and exports were narrowly concentrated

on agricultural commodities (tobacco was the main export) and thus remained highly vulnerable to

rainfall and weather shocks, resulting in variable growth rates and low foreign exchange reserves.

7. The Malawi Growth and Development Strategy (MGDS), 2006-2011, explicitly mentioned

the Mozambique/Malawi interconnection project as contributing to the objective of improving

access to reliable and affordable electricity to stimulate economic growth. The six key focus areas

for the Government’s development strategy were: energy generation and supply; agriculture and

food security; infrastructure development, irrigation and water development; integrated rural

development; prevention and management of HIV AIDS; and improved governance. The 2006

Investment Climate Assessment carried out by the World Bank identified the quality of electricity

supply as the fourth most serious constraint for businesses.

8. The Electricity Supply Corporation of Malawi (ESCOM) was (and is) the sole electricity

utility in Malawi. ESCOM, a vertically integrated, government-owned electric utility, had about

175,000 customers and 284 MW of installed hydropower capacity in 2006 (with less than 260 MW

of capacity available for distribution at peak times, of which about 40 MW of capacity was

unavailable at the time due to damage resulting from flooding of the Shire river).4 The peak demand

was about 250 MW in 2006 with an expected growth of about five percent annually over the

following decade. Only about six percent of the population had access to electricity (this has

increased to about 10 percent by 2016).

9. Malawi was also vulnerable to a drought-induced power crisis due to its dependence on

run-of-river (ROR) hydropower plants on the Shire River (98 percent of the installed capacity).

ESCOM prepared an Integrated Resource Plan in 2005, which recommended further expansions of

domestic generation capacity situated on the Shire River and thus would not reduce the drought-

vulnerability of the power system. Climate change was expected exacerbate this vulnerability due

to increased drought stress in sub-Saharan Africa.5

3 Malawi Growth and Development Strategy (MGDS), 2006-2011. 4 Malawi now has an installed capacity of approximately 350 MW. 5 The issue of excess demand and drought-vulnerability has remained unaddressed since the time of the

project appraisal and since then the situation has deteriorated as the country continues to rely primarily on

3

10. In recognition of these issues, Malawi developed a power sector strategy that was designed

to put in place measures to mitigate the consequences of a severe drought, and increasing access to

reliable and affordable electricity supply. Key elements of Malawi’s strategy in 2006 included: (i)

implementation of the interconnector with the SAPP network by 2010 as the least-cost option for

mitigating the risk of drought-related power crisis, and facilitating the import of electricity as

needed and export electricity when available; (ii) expansion of low-cost domestic generation

capacity by 2011; (iii) further addition to available capacity of 30 to 50 MW by 2015. Based on the

Integrated Resource Plan for the Malawi Power Sector, further regional imports were expected to

be the least-cost option for this next increment of supply.

11. While identifying the Mozambique-Malawi interconnector as a key investment, the drive

for domestic power generation was strong at the time of appraisal. In the updated Integrated

Resource Plan, published in 2011, it is evident that Malawi has been planning to develop new

generation facilities based on its domestic hydro and coal resources.

12. Development of the power system was partly constrained by the relatively weak financial

situation and commercial performance in the power sector. ESCOM had not been achieving

financial sustainability and was unable to meet all cash flow requirements from its cash inflows. In

response, a Financial Sustainability Plan that included elements of improved efficiency and tariff

adjustments was proposed. This was expected to be funded by the project and was expected to

improve the capability of ESCOM for implementing the power sector strategy and for meeting the

associated financial obligations.6 Implementation of the plan was seen as critical to sustaining the

benefits of the interconnector and was thus included as a legal covenant in the project at appraisal.

Mozambique Context

13. Between 1996 and 2005, following the end of the war in 1992, Mozambique’s economy

grew at an average of eight percent per year. The poverty headcount index fell from 69 percent in

1996/97 to 54 percent in 2002/03, and GNI per capita was US$389 in 2006. Economic expansion

had been made possible by overall macroeconomic stability, sound policy reforms, and continuing

strong support from development partners.

14. Drivers of economic growth in Mozambique were infrastructure development, mining,

energy, manufacturing mega-projects, agriculture and, increasingly, tourism. These activities were

expected to facilitate rural development, a central theme of the country’s second Action Plan for

the Reduction of Absolute Poverty (PARPA II), defined by the council of ministers. The priorities

in the PARPA II were improved governance, increased human capital, and economic development.

A significant theme of the country’s economic development strategy was to ensure access to basic

services, such as water and electricity for rural communities, in order to promote economic growth.

15. The power sector in Mozambique was dominated by EdM, a vertically integrated,

government-owned electric utility. In 2006, EdM had installed hydropower capacity of 140 MW

(of which 86 MW was available) and 109 MW in thermal power stations (of which 82 MW was

available). Peak demand in Mozambique was 350 MW. EdM bought most of its power supply (300

hydropower. Certain parts of the country now experience eight hours of load shedding per day, and the

country has an estimated suppressed demand of 300 MW. 6 With delays in effectiveness of Malawi’s credit (and ultimate cancellation), a Public Private Infrastructure

Advisory Facility grant was obtained to support the ESCOM financial sustainability plan in 2009.

4

MW) from HCB in Tete province. Cahora Bassa had an installed capacity of 2,075 MW (5 x 415

MW), the majority of which was exported to South Africa and Zimbabwe.

16. Mozambique’s load growth was projected at eight percent in 2007, seven percent annually

from 2008 to 2010, and five percent thereafter. At the time Mozambique’s transmission grid was

already interconnected with Zimbabwe, South Africa, and Swaziland. About eight percent of the

population had access to electricity. Since then, electricity access in Mozambique has increased to

approximately 26 percent.

17. To meet the growth in domestic demand and planned new industrial demand, the

Government planned significant new generation and transmission infrastructure with considerable

private sector participation. The Government had begun the process of selecting private sector

strategic investors for three new generation projects and large transmission projects, which at the

time required investments of around US$4 billion. Through some of these projects, EdM had gained

technical and institutional capacity to implement large transmission projects, including

interconnectors.

18. At the time of appraisal, Mozambique had adopted a power sector strategy that focused on

(i) rapid expansion of access to electricity though grid intensification, grid extension, and off-grid

approaches; (ii) rehabilitation of existing hydropower plants; and (iii) development of new power

generation through private sector and public-private partnerships. These objectives were largely

achieved, as demonstrated by the improvements in the power system grid and scale-up of electricity

access in Mozambique.7

19. Mozambique’s strategy included a focus on expanding opportunities for power trade to

optimize the use of domestic hydro resources as well as bolster foreign exchange earnings. Key

interconnection routes included the Mozambique-Malawi transmission interconnector. It was

envisaged that, in the future, the Mozambique-Malawi interconnector could be extended east across

southern Malawi into northern Mozambique. This extension of the interconnection would

significantly improve the quality, quantity, and reliability of supply to the north of Mozambique,

where demand for power was growing. The extension of the power transmission line into northern

Mozambique was not thoroughly studied during project preparation in 2006. This was partly

because the rapid load growth in Nacala and Pemba areas in northern Mozambique was not

foreseen. This growth began at the time of the later gas discoveries in the north of Mozambique.

Therefore, at appraisal, extension of the line was envisaged for the future.

20. Despite the surplus in power generation, the transmission infrastructure in Mozambique

was not adequate for the high-volume power flows. Some regions in northern Mozambique

experienced low quality of supply. Aging equipment was often overloaded and needed to be

replaced. The requirements for grid improvements in Tete province were already known and

upgrades at the Matambo substation, serving the province, were envisaged as part of the

Mozambique-Malawi interconnector.

7 The national grid is extended to all 152 districts in the country and the peak demand for EdM has risen to

680 MW. Power generating capacity has also increased with the installation of new gas fired independent

power projects. The country now has a surplus capacity, which it sells to the region through the SAPP market.

5

Rationale for Bank Involvement

21. The Bank had committed to lend long-term support to both SADC and the New Partnership

for Africa’s Development (NEPAD) initiatives to promote electricity trade in the region, through

the approval of the Southern African Power Market Program (SAPMP) Adaptable Program Loan

(APL) in 2003. In this context, the Bank was requested by the Governments of Malawi and

Mozambique to finance the Mozambique- Malawi Transmission Interconnection Project.

22. The project was a key element in Malawi’s MGDS 2006-2011 for ensuring adequate,

affordable electricity to support expanded access and economic growth. The project benefited

Mozambique by providing a source of new revenues. It was also a key step in EdM’s medium-term

plans to improve the reliability of supply to Northern Mozambique. An additional benefit of the

interconnector was that Malawi would be able to sell off-peak energy that would otherwise be

spilled, either into the SAPP STEM or under short-term bilateral contracts with Mozambique or

other SAPP members. It was expected that Malawi would generate new revenues from such power

export, and nearby countries in the SAPP would potentially benefit from importing low-cost

electricity from Malawi.

1.2 Original Project Development Objectives (PDO) and Key Indicators

23. The project consisted of a US$48 million equivalent Credit to Malawi and a US$45 million

Credit to Mozambique. At the time of approval by the Board, the PDO was stated in the Financing

Agreement as follows:

24. “The objectives of the Project are to support the Recipient’s efforts to implement

Mozambique-Malawi Interconnector as part of the Southern African Power Pool, and to: (i)

increase access to diversified, reliable, and affordable supplies of energy; and (ii) expand

opportunities to benefit from Southern African regional power trading.”

25. The PDO in the Project Appraisal Document (PAD) was worded slightly differently: “To

implement the Mozambique-Malawi transmission interconnection (i) to increase access

to diversified, reliable, and affordable supplies of energy; and (ii) to expand Malawi and

Mozambique’s opportunities to benefit from bilateral and regional power trading on the Southern

African Power Pool.” As regional power trading encompasses bilateral trade, the PDOs were not

substantively different.

26. The key indicators for the above objective were the following:

Malawi: Volume of trading via interconnector (GWh).

Mozambique: Volume of trading with Malawi via interconnector (GWh).

Decreased deficit in case of drought in Malawi;

EdM incremental earnings from ESCOM payments associated with use-of-transmission

line.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and

reasons/justification

27. In April 2013, project was restructured for the first time, in order to drop the investments

associated with the regional (interconnector) transmission line. With the failure of Malawi to sign

its Credit Financing Agreement (more in Section 2 below), the focus of the restructured project

6

shifted to investments to upgrade Mozambique’s transmission infrastructure in the fast-growing

Tete province (transformer upgrade Matambo substation in Tete province was already part of the

original project). The restructuring was thus both “corrective” and “adaptive” in that it reoriented

the focus of the project based on the changed circumstances and improved implementation

performance.

28. As part of the restructuring, the PDO was revised to the following: “To reduce the

frequency of electricity outages in Tete province.” The project closing date was also extended by

18 months, from June 30, 2013 to December 31, 2014.

29. The achievement of the new PDO was directly linked to the transformer upgrade at

Matambo substation (the only transmission substation serving Tete province). With the change of

the PDO and the project scope, all results indicators for the activities related to the regional

infrastructure investments were dropped, and the restructured project only had one PDO level

indicator:

SAIFI (system average interruption frequency index) for Matambo customers;8

o Customers served in the project area (supplemental indicator).

30. In November 2014, the project was restructured a second time, with no change to the PDO.

This “opportunistic” restructuring was the result of savings under the main contract for the

Matambo transformer upgrade due to the competitive bidding process. This allowed for the

upsizing of the transformer at Matambo as well as the purchase of additional critical equipment for

the Tete region, namely the purchase of a second transformer for the Tete substation and a mobile

substation to enable critical repair and maintenance work without causing a shutdown. As part of

the restructuring, the closing date was extended by a further 18 months, to June 30, 2016. The PDO

indicators were updated to include core sector indicators (the existing PDO indicator was dropped

and replaced by a core sector indicator, and other core sector indicators were added). The

restructured project in the 2014 thus had the following PDO indicators:

Average interruption frequency per year in the project area;9

o Customers served in the project area (supplemental indicator).

Direct project beneficiaries;

o Female beneficiaries (supplemental indicator).

31. There were 16 intermediate indicators in the original project. These were all dropped in

2013 at the time of the first restructuring, and two revised intermediate indicators were added.

During the second project restructuring another two intermediate indicators were added.10 Target

values for existing indicators were not revised at any point in the project. The list of PDO and

intermediate indicators, along with targets and achievements, are presented in section F of the

datasheet.

8 SAIFI is a commonly used metric in the electricity sector. It is measured as the customer-weighted average

of “sustained interruptions” in year. This indicator was initially incorrectly defined in the restructuring paper

(details in section 2.3). 9 This was a core sector indicator that replaced the earlier SAIFI indicator. 10 The intermediate indicators included post restructuring are further discussed in section 2.3, in addition to

section F of the datasheet.

7

1.4 Main Beneficiaries

32. As stated in the PAD, the primary beneficiaries of the project included the businesses and

citizens [of Malawi and Mozambique] who would have increased and more reliable access to

electricity as a result of electricity trade between Mozambique and Malawi and the SAPP. By

implication, intermediate beneficiaries would also be the electricity utilities in the two countries –

ESCOM and EdM – who would gain from lower cost of power purchase and increased sales

revenues, respectively.

33. The main beneficiaries of the restructured project were not explicitly defined in the

restructuring paper. However, the number of customers served and “direct project beneficiaries”

were included in the results framework of the restructured project. As a result of this, the main

project beneficiaries are interpreted as:

The electricity customers in the Tete province, especially the households and businesses

that would benefit from a more reliable power supply.

EdM, through the strengthening of its network and a reduction in costly outages.

1.5 Original Components

34. The original components at project approval included the regional interconnection and

related transmission infrastructure upgrades.

35. Component A. (US$47.1 million for Malawi, US$43.5 million for Mozambique):

Construction of the transmission interconnection from the Malawi electricity grid to the

Mozambique electricity grid, thereby interconnecting Malawi with the Southern Africa Power Pool

network. On the Malawi side, this would include construction of approximately 76 kilometers of

220 kV transmission line, installation of a new 220 kV substation and the studies, works,

engineering, and project management support required to complete the interconnection. On the

Mozambique side, this would include construction of approximately 134 kilometers of 220 kV

transmission line, the extension of the existing Matambo substation, and the studies, works,

engineering, and project management support required to complete the interconnection.

36. Component B. (US$2.9 million for Malawi, US$1.7 million for Mozambique): Technical

assistance, capacity building, training and equipment necessary for ESCOM and EdM to strengthen

and expand power trading activities. For Malawi the activities included rehabilitation and

reinforcement studies for generation, transmission, and distribution; development of revised system

operating and maintenance procedures and practices; studies and equipment to support improved

ESCOM financial performance, and training in the areas of environmental and social management,

project management, electricity trading and system operation. For Mozambique the activities

included a feasibility study for extension of the interconnection to the northern region of

Mozambique and technical assistance and training in the areas of environmental and social

management, loss reduction, project management, electricity trading and system operation.

37. Component C. (US$9.9 million for Malawi, US$4.6 million for Mozambique):

Investments to replace worn-out, inadequate, or obsolete equipment to remove critical bottlenecks

in the networks which could impede the flow of traded electricity. For Malawi, investments would

include replacement of digital excitation equipment, circuit breakers and other switchgear, control

and protection equipment, and some critical communication links for better system operation

control. For Mozambique the project would support the provision of a new 220/66/33 kV power

8

transformer at the Matambo substation and connecting the new transformer to the 66 kV and 33 kV

systems.

1.6 Revised Components

38. In the first restructuring in 2013 the components were revised and focused on reducing the

frequency of outages in the Mozambique network in Tete province. Under the restructured project,

the only infrastructure investment was the installation of the transformer at Matambo substation

(part of component C in the original project).

39. Component A: Consulting Engineering Services (US$0.8 million, excluding

contingencies). This component included consulting services and provision of technical assistance

to assist EdM with engineering, technical, procurement, and environmental and social aspects

associated with the Matambo substation works.

40. Component B: Capacity Building and Technical Support to EdM (US$1.6 million,

excluding contingencies). This component continued to finance system planning and operation

studies for EdM, through the provision of technical advisory services and training, including inter

alia in environmental and social management, loss reduction, project management, system

operation and other areas. As part of this, Component B continued to support the Environment and

Social Impact Assessment (ESIA) for the proposed Mozambique Regional Transmission

Development Project (P108934).

41. Component C: Improved Transmission Infrastructure (US$10 million, excluding

contingencies). This component ensured that the Matambo substation had sufficient power

transformer capacity for the rapidly growing electricity loads in Tete province. The scope of work,

which had already been appraised as part of the original project preparation, covered the

rehabilitation and reinforcement of the existing 220 kV Matambo substation including the provision

of a new 220/66/33 kV (80/60/20 kVA) power transformer, the connection of the new transformer

to the 66kV and 33 kV busbars at the substation, and the carrying out of associated civil, control

and protection works at the substation.

42. As part of the second restructuring in 2014, the amounts allocated to Components A, B and

C were revised to US$0.12 million, US$1.58 million, and US$7.85 million, respectively, as a result

of savings experienced. A Component D was added to the project, with the savings allocated to it

to support: (i) reinforcement of the existing Tete Substation (downstream from Matambo),

including the provision of a new 66/33 kV, 50 MVA power transformer and respective switchgear;

and (ii) provision of a 220/33 kV, 25 MVA mobile substation to be used whenever there are faults

in the overloaded network.

1.7 Other Significant Changes

43. Funds reallocation. A third restructuring (level 2, simple) was implemented in June 2015

to reallocate resources between disbursement categories to meet project commitments related to

technical support to EdM on the works being performed at Matambo substation.

44. Project closing date extension. A fourth restructuring (level 2, simple) was implemented

in June 2016 to extend the project closing date from June 30, 2016 to August 31, 2016. This was

in part due to an unexpected delay in the shipment from China of a transformer for Tete because

9

the transformer was too heavy for the scheduled ship, which could have endangered the navigability

of the ship. In total, the project was extended by three years and two months.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

Preparation

45. The Mozambique-Malawi Transmission Interconnection Project was developed as the

second phase of the Southern African Power Market Program (SAPMP). SAPMP was approved in

2003 as a 10-year, three-phase Adaptable Program Loan (APL) in response to the growing demand

for regional power grid integration, and the overall objective of facilitating the development of an

efficient regional power market and fostering regional integration.11

46. The overall objectives of the project were closely aligned with Malawi’s aim of

interconnecting itself to the southern region electricity power pool,12 and with Mozambique’s goal

of improving its integration into the regional economy by strengthening power trading in the SAPP

and the expansion of access to electricity through grid intensification and grid extension.13

47. The project was well prepared, and benefited from extensive consultations between EdM,

ESCOM, HCB, and the World Bank, with active participation of the Governments of Mozambique

and Malawi during bilateral and/or joint meetings throughout project preparation and design.

48. The PAD for the APL-1 (P069258, 2003) had identified specific triggers for the

International Development Association Board to consider in the subsequent phases of the APL.

The triggers for the Mozambique-Malawi Transmission Interconnection project (APL-2) were: (i)

completion and disclosure of the environmental assessments, resettlement action plans, and any

required mitigation plans for both Mozambique and Malawi portions of the project; (ii) completion

of bidding documents for major contracts; (iii) completion of an implementation agreement

between EdM and ESCOM; and (iv) completion of a power purchase agreement (PPA) between

ESCOM and the supplier of power.14 Therefore, satisfying these triggers was an integral part of

project preparation.

49. To this end, the Bank provided the Governments of Malawi and Mozambique with Project

Preparation Facility (PPF) funding of US$730,000 and US$510,000, respectively. These funds

were used for hiring consultants for the preparation of technical design, environmental and social

impact assessments, and the tender documents for the major components in each country. The

feasibility studies for the interconnector line and the corresponding transmission substations were

also completed.

50. On the technical side, project components and activities were agreed upon, and alternative

transmission line routes were evaluated. Four other key agreements—the project implementation

11 The first phase included the Democratic Republic of Congo-Zambia interconnector, and the third phase

envisages the Tanzania-Zambia interconnector. 12 Malawi Growth and Development Strategy 2006-2011, page 14. 13 Mozambique Poverty Reduction Support Strategy 2006-2009 (PARPA II). 14 SAPMP APL1 PAD, pages 12-13.

10

agreement, maintenance agreement, system operating agreement, and wheeling agreement— were

also substantially prepared during the preparation phase.

51. Lessons from prior regional cross-border transmission projects, such as the Costal

Transmission Backbone Project of the West African Power Pool) APL (P094917, 2005) and the

SAPMP-APL1 (October 2003), as well as lessons from previous power sector experiences in

Malawi were taken into account.

52. An important lesson from SAPMP APL-1 was to ensure that a firm PPA was in place

between ESCOM and the energy supplier. 15 Therefore, the signing of a firm power supply

agreement (PSA) between ESCOM and a power supplier was actively pursued by all parties

throughout project preparation. However, the PSA negotiations between ESCOM and HCB did not

lead to an agreement during their 2004-2007 discussions. The ‘take or pay’ clause of the agreement

was one of the key outstanding issues, which delayed the project preparation. Therefore, to move

the project processing forward, the Bank decided to drop this requirement prior to appraisal.

53. Even in the absence of a PSA, the Bank assessed a strong justification for the project for

Malawi based on improved energy security due to a diversification of energy supply and enabling

future trade in electricity though the SAPP. 16 The lack of a signed PSA implied that the costs and

quantities of available electricity to ESCOM were no longer firmly fixed or predictable and also

signaled the reservations of the Government of Malawi from fully committing to the project and

the risk of their future withdrawal. Since a PSA represents a commercial contractual agreement

between a buyer and seller, its absence meant that any party could pull out without any financial

consequences.

Design

54. The project design was simple and realistic, and consisted of the required activities for

achieving the PDO. The project activities were directly relevant to the achievement of the stated

objectives, as they would (a) establish the necessary transmission line interconnector and associated

substation links, (b) provide the necessary technical assistance to ESCOM and EdM to support the

sustainability of the project outcomes, and (c) help remove infrastructure bottleneck that could

impede power trade.

55. Technical design of the project was sound and based on proven technology. The design

was based on a feasibility study carried out by international consultants in 2005, and updated in

2007. A double circuit 220kV line was proposed as the most suitable alternative that could meet

the network stability requirements of such a long interconnection between the relatively vulnerable

grid systems of Malawi and Mozambique. The proposed interconnector was designed with

adequate transmission capacity to facilitate bilateral and regional power trade as intended.

56. Implementation arrangements were reasonably structured at three levels: (i) a joint

Mozambique-Malawi Project Steering committee; (ii) a joint EdM-ESCOM project coordination

committee; and (iii) separate PIUs at EdM and ESCOM, respectively. The project monitoring

15 See, for example, Minutes of Pretoria Meeting, November 26, 2004. 16 “While we still see some clear advantages to having a Power Supply Agreement in place, there is recognition that the

Government has reservations in this regard. We view the interconnector as an important project for Malawi both from

the point of view of energy security and in terms of promoting trade in electricity, and these considerations provide a

strong justification for proceeding with the project even in the absence of a PSA.” Excerpt from World Bank letter to the

Government of Malawi’s Minister of Finance, February 22, 2007.

11

arrangements were adequate for monitoring implementation progress, and the key indicators were

well designed to capture the project outcomes.

57. The economic case for the project was strong (based on the assumed energy costs). The

economic aspects of the proposed interconnector investments in Mozambique and Malawi were

analyzed over a 30-year period (2007-2037) resulting in an estimated a net present value (NPV) of

about US$361 million, and an economic internal rate of return estimated at 28 percent. Therefore,

the rates of return were shown to be robust and satisfactory.

58. However, the economic and financial analysis of the project during appraisal did not

adequately reflect the change in expected electricity flows in the absence of a firm PSA. The

analysis assumed that the price and quantity of electricity purchased by ESCOM would be fixed as

per the draft PSA, rather than variable (and uncertain) based on contemporaneous demand and

market prices. The analysis also did not consider the investment costs associated with components

B and C of the project, which included the Matambo substation.17

Government Commitment

59. Throughout preparation, there was adequate evidence of commitment and ownership of the

project by both Governments. The Governments of Mozambique and Malawi were signatories to

the SAPP inter-governmental MOUs, setting the framework for interconnectors and regional power

trade. The two Governments had also signed a bilateral agreement in 1998 to enable Malawi to

trade electricity with Mozambique, or any of the SAPP members through a high voltage

transmission interconnector. Both Governments had formally requested the Bank’s financial

support for the preparation and implementation of the proposed project in 2003-2004 (for PPFs)

and 2006 (for IDA funding), respectively.

60. Ministerial level representatives of both Governments were also active participants in the

Joint Project Steering Committee, which had contributed to the progress of project preparation

issues requiring Governmental approval. In addition, the Ministers of Finance and Energy of

Malawi and Mozambique had consistently expressed their respective Government’s support for the

project to the World Bank throughout preparation (and after Board approval).

61. However, there were also lingering concerns on the part of some government officials in

Malawi regarding (i) the “take or pay” clause in the PSA between ESCOM and HCB; and (ii) the

terms of the ‘Wheeling Agreement” between ESCOM and EdM, requiring fixed monthly payments

for the use of the Mozambique part of the interconnector. 18 These concerns were initially

considered as acceptable at the technical level but, over time, and particularly after the Board

approval of the project, they proved to be critical factors in the eventual decision of the Government

of Malawi not to sign the Financing Agreement.

17 PAD, Annex 9, footnote 41, page 72. 18 This payment was essentially a “financing payment” to EdM for the Mozambique portion of the line, which

was calculated based on a formula which compensated EdM for the capital investments, plus the five percent

on-lending interest paid by EdM to GoM, plus a six percent top-up to compensate EdM other costs incurred

during line operations, plus operations and maintenance costs of the Mozambique portion of the

interconnector line.

12

Adequacy of Risks Assessment and Mitigations

62. Key institutional and operational risks were adequately identified at appraisal and various

risk mitigation measures were adopted. The risk of ESCOM’s failure to service its debt on the on-

lent Credit was the only risk rated as substantial. The proposed mitigation was to ensure that both

ESCOM and the Government of Malawi were committed to the development and implementation

of a Financial Sustainability Plan, which would be designed to enable ESCOM to cover cash

operating costs and all debt service requirements. Technical risks associated with operation and

maintenance of the interconnector transmission line and power trade were to be mitigated by

providing technical assistance, training, and equipment for hot-wire maintenance, as well as

capacity development in power trading for ESCOM (EdM was already one of the major traders on

the SAPP STEM). Other risks were rated as moderate or low, and the overall project risk was rated

as Moderate.

63. The institutional project risks were correctly identified, but some country specific risks

were not anticipated. For example, although Malawi’s reluctance / refusal to sign the Financing

Agreement could not be reasonably foreseen by appraisal, there were some early signs of concern

since there had been ongoing debates in Malawi for some time on the priority of developing

domestic hydro generation plants on Shire River versus construction of the interconnector link to

Mozambique and SAPP. Nevertheless, no risks associated with the political economy issues (e.g.,

opposition to the project from certain sections due to perceived reliance on foreign sources of

energy, potential change in political buy-in to the regional interconnector, pressures from a change

in the political environment) were identified or discussed in the project documents. 19

64. Also, as ESCOM and HCB did not sign the PSA by the time of Board approval, the risk to

energy availability and financial viability of the project in the absence of a firm PSA, should have

been explicitly assessed in the project documentation.

65. The overall risk was rated as Moderate at entry. Had other risks, such as the lack of a

substantially agreed upon PSA (or a Term Sheet), and the reluctance of Malawi to enter into a take-

or-pay agreement been considered adequately, it may have resulted in a higher rating for the overall

risk and prompted appropriate mitigation measures.

66. A Quality Enhancement Review meeting was held on February 15, 2007, which provided

useful comments and suggestions to the team. The Quality Assurance Group (QAG) did not review

this project at entry. However, QAG did review this project as part of its Learning Review of

Regional Projects in October 2010, giving it an overall risk rating of high.

19 Notwithstanding Malawi’s specific reasons at the time for eventually giving priority to domestic power

generation development as opposed to the proposed interconnector, the sentiment seems to be more prevalent

among many countries. For example, a recent study of regional integration in Southern Africa finds that:

“One of the most challenging aspects of regional energy integration is whether power trade is deemed

politically acceptable, especially in importing countries (McKinsey & Company, 2015). For potential

importers, the main concern is security of supply. They need to have confidence that exporting countries

within a regional power trade arrangement will continue to supply electric power in a predictable and reliable

way, or not use it as a political or diplomatic pressure tool.” Vanheukelom. Jan and Talitha Bertelsmann-

Scott, 2016.

13

2.2 Implementation

67. After the Board approval of the project in July 2007, the Malawi portion of the Credit

required parliamentary approval before the Government could sign the Credit Agreement.

However, shortly after Board approval of the project, the parliament in Malawi was suspended for

over 18 months, and was subsequently dissolved until elections in May 2009.

68. By this time, various concerns had been raised by some key Malawi officials in relation to

the “take or pay” terms in the PSA between ESCOM and HCB, and the financial terms of the

Wheeling Agreement. There were also reservations expressed that the approval of the

interconnector may diminish Malawi’s chances for mobilizing the necessary financing for the

development of domestic generation projects, such as the proposed 64 MW Kapichira II plant on

the Shire River.

69. Several attempts were made by the World Bank – including a meeting with the President

of Malawi in 2009 – to address these concerns and to demonstrate the project’s importance for

Malawi’s security of power supply. However, in the end, after three years of mutual effort and

several extensions of the signing deadlines, the Government of Malawi informed the Bank that it

would not be signing the Financing Agreement. The Bank subsequently withdrew the Credit to

Malawi in July 2010.

70. While waiting for Malawi to sign the Credit, the implementation of major activities under

the Mozambique part of the project (aside from some consultancies) had been effectively on hold

due to the following factors:

(i) the disbursement cross-conditionality in Mozambique’s Financing Agreement, which

required the Malawi Credit to be effective before Mozambique could withdraw any funds

allocated for the interconnector part of the project; 20 and

(ii) the combined-packaging of the interconnector related substation extensions (under

Component A) and the local Matambo substation transformer upgrade (under Component

C) in a single bidding document, which effectively prevented the implementation of the

local portion of Matambo substation works from proceeding independently of the

interconnector related activities.

71. Due to these requirements, even though the procurement of the works contractor on the

Mozambique side was largely complete by 2009 – only awaiting signing – EdM had to wait for

Malawi’s decision to sign the Credit (or not) before moving forward.

72. Following the withdrawal of the Malawi Credit, processing of the restructuring was

delayed extensively as a result of internal Bank deliberations during FY11-FY12. The

Implementation Status and Results (ISR) just following Malawi’s withdrawal, and subsequent

ones, stated the intention to restructure the project to focus on the Matambo transformer and EdM

capacity building.21 However, the Bank’s internal deliberations on how to proceed in this case took

more than two and a half years to agree on and implement the restructuring option. Concerns

regarding overall portfolio quality and selectivity in resource allocation underpinned the discussion

on whether the project should be cancelled, restructured as a stand-alone project, or incorporated

20 See SAPMP APL-2 Financing Agreement, Schedule 2, part B.1.(b), page 15. 21 See ISRs sequence 6 to sequence 10, dated June 2010 through March 2013.

14

into another existing project. During this time (FY2011 and FY2012) no supervision budget was

allocated to the project, which also hindered the ability of the Bank team to implement the

restructuring (ISR Sequence 8).

73. In parallel with the restructuring deliberations, the Matambo substation contract was

revised to remove the interconnector related activities and re-bid. This process also took a

considerable amount of time from withdrawal of the Malawi credit to the commencement of the

rebidding – over two years.22 This delay too coincided with the lack of allocation of a supervision

budget for the project.

74. Up until the first restructuring, implementation progress had been slow and limited in

scope, and only about US$2.9 million out of the initial US$45 million Credit for Mozambique (or

6.4 percent) had been disbursed. By the end of this period (prior to the first restructuring), the ISR

ratings of the project were mostly unsatisfactory due to the withdrawal of Malawi Credit and

consequent inability to achieve the original PDO.

Project Restructuring

75. The project went through four restructurings in total, starting with a level one restructuring

and followed by three level two restructurings. The first restructuring made significant changes to

the project design and financing. It removed the project from the SAPMP APL series and created

a stand-alone Specific Investment Loan (SIL) operation for Mozambique. The project name was

changed to “Mozambique Transmission Upgrade Project (TUP).”

76. The restructuring cancelled the US$31.2 million (SDR 20.5 million) Mozambique’s

regional IDA allocation for the cross-border transmission components of the original project, and

retained only the activities unrelated to the cross-border transmission line, particularly the

reinforcement of the main transmission substation at Matambo in Tete province.23 This brought

total project commitment amount to US$13.8 million (SDR 9.1 million). The closing date of the

project was extended by 18 months, from June 30, 2013 to December 31, 2014.

77. The first restructuring paper highlighted the growing electricity demand in Tete province,

suggesting that there had been a 22 percent annual demand increase during the preceding four years

(equivalent to over 200 percent increase over four years), and emphasized the urgency of the

required transformer capacity upgrades to address the frequent network overloads and to meet the

growing electricity demand in the region. The focus of the restructured project was, therefore,

relevant in view of the demand for electricity.24

78. The procurement of the contractor for the supply and installation of the Matambo

substation transformer and the corresponding supervision consultancy suffered numerous delays,

but implementation progress improved after contract signing in May 2013 and September 2013,

respectively. These contracts totaled US$9.5 million (69 percent of the restructured amount). A

significant source of delays was the long time required for contract approval by the Commission

22 The contract was subsequently awarded in May 2013, almost three years after the withdrawal of the

Malawi credit. See section 2.4 (procurement) for more details. 23 The credit offer to Malawi was withdrawn in July 2010, after the Government of Malawi decided not to

sign the Financing Agreement. 24 However, adequate background analysis and a cost-benefit analysis of the investments were not provided

in the project restructuring paper.

15

for Foreign Economic Relations (CREE),25 resulting in an extension in the project closing date.26

Project implementation planning could have benefited from identifying this potential source of

delay and incorporating it into the procurement clearance schedule of major packages based on

CREE’s track record.

79. The period between the first and second restructuring coincided with a change of the World

Bank’s project Task Team Leader (TTL), with interim TTLs taking over during the transition

period. This impacted the continuity in supervision and coincided with delays in the signing of the

amended legal agreements and disbursements related to the Matambo rehabilitation contract.27

80. During the Mid-Term Review of the project in March 2014, the Government and EdM

requested the use of project savings of about US$4 million to incorporate additional activities that

were consistent with the PDO and could be completed within the extended project closing date,

including the purchase of an additional transformer for Tete, and a mobile substation for system-

wide use.

81. To incorporate new investments from the project savings, the second restructuring of the

project took place in November 2014. It included (i) a further 18 month extension of the closing

date to allow for completion of the delayed Matambo substation upgrades; (ii) addition of a new

project component, Component D (using the project savings to purchase a mobile substation and a

transformer for Tete substation); (iii) creation of one new disbursement category; (iv) reallocation

of funds among components and categories; and (v) alignment of project indicators with the core

sector indicators and adjustment of targets. The PDO and other aspects of the project remained

unchanged. The changes to project indicators are discussed further in Section 2.3 below.

82. The above considerations notwithstanding, project implementation showed noticeable

signs of gradual improvement. With all major contracts for the old and new activities already

signed, the main attention of EdM and the Bank team shifted to the monitoring of the manufacturing

and delivery schedules for the large transformers and the mobile substation, status of shipping

arrangements, and other implementation details. Various factors beyond the control of EdM or the

Bank continued to create implementation delays, including an unexpected delay in the shipment of

the Matambo substation transformer from Europe to Mozambique, failure of the mobile substation

equipment during factory acceptance testing, a fire at the contractor’s premises in Beira, and a delay

in shipping the transformer for Tete substation from China as the equipment was too heavy for the

assigned ship.

83. Given the above factors, a two-month extension of the closing date was approved by the

Bank, to allow sufficient time for the shipment of the remaining equipment, for which EdM would

otherwise be liable to cover US$2.7 million in costs, which neither EdM nor the Government of

Mozambique were in a position to cover if the project were closed.

84. By the project closing date, the new 220/66/33 kV transformer for Matambo substation

was installed and commissioned in July 2016 and has been in operation since. The 66/33 kV

transformer for the Tete substation was delivered to site as required, and according to EdM’s

25 CREE consists of ministers and is chaired by the Prime Minister. CREE approves contracts above US$1

million. 26 ISR sequence 11 (November 2013) mentions the approval delays from CREE and the resulting delays in

making the down payment to the contractor to commence works. 27 As noted in the Aide Memoire of October 5, 2015.

16

schedule, it is expected to be installed in mid-2017. The mobile substation was tested and delivered

to site, but it has not been used in actual operation as of the writing of this ICR. All studies and

other project outputs were delivered prior to the closing date.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

85. The four outcome indicators for the project at appraisal were simple, attributable, and

measureable towards the stated PDO. The included indicators were: (1) Malawi: volume of trading

via interconnector, (2) Mozambique: volume of trading via interconnector, (3) Decreased capacity

deficit in case of drought in Malawi, and (4) EdM incremental earnings from ESCOM payments

associated with the use of transmission line. .28 However, one shortcoming was that while the PDO

specifically mentioned “access to diversified, reliable, and affordable” electricity, there was no

PDO level indicator measuring affordability.

86. The intermediate indicators selected were also appropriate for expected outputs and

intermediate outcomes of activities under each project component (see section F of the datasheet

for details).

87. The designed results monitoring system was simple and based on measurable outputs. The

respective Project Implementation Units (PIUs) were responsible for collecting and consolidating

the project monitoring data.29 Thus the proposed data collection and reporting methods and

arrangements were appropriate.

Post-Restructuring M&E

88. During the first restructuring, the interconnector activities were dropped, the PDO was

changed, and the results monitoring framework was modified to reflect the reduction in project

scope. All the intermediary indicators were based on the delivery and/or installation of an output.

89. After the first restructuring, the new PDO level indicator was the ‘System Average

Interruption Frequency index’ (SAIFI), which is a standard industry indicator for measuring system

reliability. However, this indicator was defined incorrectly in the restructuring paper as “the total

number of sustained interruptions in a year divided by the total number of customers.” The baseline

value of was 4.5 percent, and the target value was 3.5 percent.30 Two intermediate indicators were

also added during the restructuring, linked to Components C and D, respectively: (i) completion of

ESIA for the proposed regional Transmission Development Project; and (ii) new 220/66/33 kV

transformer installed and commissioned at Matambo substation.

28 Similarly, EdM’s incremental earnings would demonstrate that Mozambique was benefitting from power

trade with Malawi. 29 Such as annual reports, annual audit reports, PIU quarterly interim financial reports, quarterly reports from

supervision consultants, etc. 30 The industry standard SAIFI definition is: the average number of outages that a customer would experience

during a predefined period of time. The SAIFI is an index calculated using the following formula: SAIFI =

∑(OiNi) / Nt , Where, ∑ = Summation function; Oi = the outage rate in area i, Ni = Number of customers

interrupted in area i; Nt = Total number of customers served.

17

90. The second restructuring replaced the SAIFI PDO indicator with the appropriate core

sector indicator31: “Average interruption frequency per year in the project area (Tete)”.32 A second

PDO indicator, the required core indicator, “Direct Project Beneficiaries” was also added. Two

additional intermediate indicators were also added for Components C and D, respectively, as

follows: (i) level of charge at of the current transformer at Matambo, and (ii) new 220/33 kV 25

MVA mobile substation delivered. The latter was to record the completion of the new activities,

while the former indicator was included to help better measure the impact of the new Matambo

transformer. Overall, with the inclusion of the core sector indictors and the additional intermediate

indicators (especially the measure of charge at the existing transformer) during the second

restructuring improved the quality of the results framework. The indicator on the level of charge at

the existing transformer both provides an indication on the level of stress on the existing

infrastructure prior to commissioning of the new transformer, as well as the new transformer’s its

immediate impact after commissioning – the level of charge fell from 98 percent just prior to

commissioning to 45 percent just after.

91. This PDO indicator as defined in the results framework after the second project

restructuring was simple and measureable, but not adequately attributable to the project or precisely

defined. As the baseline and target values suggest, the indicator measured the number of

interruptions in the Tete region. This potentially included interruptions related to both distribution

and transmission infrastructure (including the Matambo transformer). Thus improvements in the

indicator value could result from downstream distribution system investments by EdM to improve

system reliability, which were not related to the project. This shortcoming in the indicator is evident

in the fact that the indicator value substantially improved (as reported in the ISRs) even before the

commissioning of the transformer. In fact, the value just prior to commissioning was already below

the stated target value (the reported value in March 2016 was 191 compared to the original target

of 411, see discussion in Section 3.2 below).

92. Intermediate indicators included component-specific output indicators, including that for

the new activities added under component D. An intermediate outcome indicator for the impact of

Matambo transformer was also added. To facilitate any future performance indicator changes, the

Financing and Project Agreements were amended to remove the listings or references to specific

indicators. However, while Component B still included capacity building and training for EdM, the

only activities monitored were consultancy report outputs, and there were no monitoring indicators

(nor any specifically defined activities) for EdM’s institutional capacity building or staff training.

Implementation

93. Since the Mozambique-Malawi Transmission Interconnection project did not materialize,

the M&E system as described in the PAD was effectively never implemented.

94. For the restructured project, while formal quarterly or semi-annual monitoring reports were

not submitted to the Bank, updates to the results indicator matrix were collected during missions

and recorded in the ISRs and Aide-Memoires. However, the updates to the indicators were not

regular; e.g., the value of the interruption frequency PDO indicator was not updated between March

2013 and December 2015. This did not significantly impact project implementation given (i) the

31 Core sector indicators were introduced by the Bank after the project’s first restructuring. 32 This is essentially equivalent to the SAIFI for customers served by the new transformer at Matambo, where

there is only one area, or i=1 in the definition above.

18

limited set of (and slow moving) activities under the project; and (ii) the presence of the TTL in the

field with almost daily communication with EdM.

95. Overall, the clarification of indicator definitions and list of the required data after the

second restructuring, which left the project with two main PDO level indicators and four

intermediate level indicators, had a positive impact on improved monitoring data collection during

the final stages of implementation.

Utilization

96. Aside from reporting purposes in the Bank ISRs, there seems to have been no utilization

of the periodically collected monitoring data under the project. This is not surprising, given the

limited number of activities and as most of the post-restructuring indicators were related to outputs

that materialized only at or near the end of the project. Therefore, these data were not relevant to

any decisions or resource allocations during project implementation.

97. No specific M&E arrangements were envisaged for long-term monitoring of project

outcomes, as the required data were a sub-set of the overall operational data (financial, technical,

outages, etc.) collected by EdM.

2.4 Safeguard and Fiduciary Compliance

Social and Environmental Safeguards

98. The original project was classified as environmental category B (Partial Assessment) and

triggered three safeguard policies. Environmental Assessment (OP/BP 4.01), Involuntary

Resettlement (OP/BP 4.12), and Natural Habitats (OP/BP 4.04) were triggered due to investments

in the regional transmission interconnection. The cross-border transmission line corridor between

Mozambique and Malawi passed mostly through agricultural land and brush-land of low

biodiversity value, and the project was deemed as not causing any significant environmental and/or

social/resettlement impacts in either country. The restructured project (2013) was of considerably

reduced scope with the removal of the cross-border transmission line and significantly reduced the

risks of any negative environmental and social impacts of the project. The restructured project was

geographically limited to the northwest region of Mozambique, near Tete, and all physical

implementation occurred within the existing substation area. The restructured project was

nonetheless maintained as environmental category B.

99. A Resettlement Policy Framework (RPF) and Environmental and Social Impact

Assessment (ESIA) were carried out as a part of the original project preparation. The RPF and the

ESIA were disclosed in Mozambique and at the World Bank Infoshop on January 9 2007. With

project restructuring, no modifications were required to the safeguards instruments as restructured

activities were not expected to have any additional environmental and/or social implications and

the environmental management aspects were handled according to the standards described in the

safeguards instruments. The contractor's bidding documents and contract included the obligation

to implement the Environmental and Social Clauses (ESC), related to construction activities, as

described in the ESIA and RPF. The Supervising Engineer's contract also included the requirement

to supervise the adequate implementation of these ESC, in compliance with the World Bank Group

General Environmental, Health and Safety Guidelines. The EdM Environmental and Social Unit,

with considerable experience with World Bank safeguards policies and environmental and social

19

national legislation, continuously carried out supervision of the implementation of the ESIA and

RPF requirements and specifically the contractor ESC and contractor ESMP.

100. The project was compliant with all applicable safeguards policies, and the overall

safeguards rating remained satisfactory throughout project implementation.

Procurement

101. The procurement rating at project close was satisfactory. EdM was able to complete all

planned procurement successfully and in full compliance with the World Bank Procurement

Guidelines, despite the initial challenges arising from the withdrawal of the Malawi Credit and

delayed project restructuring.

102. Prior to the withdrawal of the Malawi Credit in 2010, the limited procurement capacity of

EdM, ESCOM, and the design consultant, responsible for preparing the bidding documents,

resulted in some delays. However, some delays were due to the disbursement cross-conditionality

requiring the effectiveness of the project in Malawi as a disbursement condition for the

interconnector related procurements in Mozambique (and vice versa). On the Mozambique side,

EdM had already completed the bidding process for two contracts by 2009 – the Mozambique

portion of the interconnection line, and the supply and install package for the Matambo substation

transformer (which was combined in a single contract with the interconnector related substation

extension). However, EdM could not award the contract until Malawi’s credit became effective.

103. After the withdrawal of Malawi’s Credit in July 2010, EdM cancelled the awarding of the

interconnector line contract, and had to remove all the interconnector related parts from the

Matambo substation works package. By this time, the validity period of these bids had lapsed (it

had been more than 19 months since the selection of the winning bid) and a reduced scope of works

could not be negotiated with the lowest evaluated bidder.33 In light of this, as advised by the Office

of the Regional Procurement Manager of the World Bank, EdM requested the cancellation of the

existing procurement process for the Matambo substation works and rebidding (International

Competitive Bidding) of the modified contract. This process, from the withdrawal of the Malawi

Credit until the commencement of rebidding, took over two years.34 During this period, all project

monitoring indicators were rated unsatisfactory by default to reflect the inability to achieve project

goals due to the withdrawal of the Malawi Credit (as indicated in the ISRs). This was the case until

the project was formally restructured in January 2013 to drop the regional activities.

104. Post restructuring in 2013 (and subsequently in 2014), contract procurement performance

improved despite suffering some delays as discussed in earlier sections of the ICR. Procurement

performance was mostly satisfactory throughout this period until project close.

33 The prices were more than two years old and the offers had been made in a period of market uncertainty

(before the global recession). 34 The contract was subsequently awarded in May 2013, almost three years after the withdrawal of the Malawi

Credit. The delay is not well documented in the project documents, and since there does not seem to have

been formal missions at the time, there are no Aide-memories for this period.

20

Financial Management

105. The overall financial management performance was rated Moderately Satisfactory

throughout most of the implementation period, except for the period between the withdrawal of the

Malawi Credit (July 2010) and the first restructuring of the project (April 2013), when the financial

management rating –along with almost all other ratings – were downgraded to Unsatisfactory (as

explained above). Financial management arrangements were implemented and maintained

adequately by EdM throughout the life of the project, and were compliant with the Bank’s policies

and procedures. The project assigned suitably qualified financial management specialists who had

the appropriate skills to manage the project’s accounting, financial reporting, and disbursement

issues. The interim financial reports and annual audit reports were prepared and submitted to the

World Bank on a regular basis. The audit reports were unqualified, and there were no major

financial management issues during the life of the project.

2.5 Post-completion Operation/Next Phase

106. The Government of Malawi completed the construction of the Kapichira II (64 MW)

hydropower generation plant in 2011. Nevertheless, the power shortages in Malawi continued as

the combination of load growth and drought exerted growing pressure on the electricity supply.

Recognizing the need for alternative sources of electricity supply in addition to domestic

generation, the Government of Malawi signed a new MoU with the Government of Mozambique

in 2013 for the construction of the Mozambique-Malawi interconnector. World Bank support for

this project is being pursued.

107. The original project’s design and preparations, including the PSA and Wheeling

Agreement negotiations, the feasibility study, safeguards assessments, technical design, and

procurement documents, as well as the lessons learned from this case will be directly relevant for

informing the design and preparation of the new project.

108. The works performed during the project will facilitate the implementation of the planned

interconnection with Malawi. As designed in the original project, the planned interconnector will

connect to the Matambo substation. With the extension of the 220kV busbar under the restructured

project, the new interconnector can be accommodated at 220kV without significant additional

works.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Relevance of Objectives: Substantial

109. The project objective at appraisal was to implement the regional electricity transmission

interconnector between Malawi and Mozambique “to increase access to diversified, reliable, and

affordable supplies of energy” and to benefit from the ability to trade electricity on the SAPP. At

the time of appraisal, this was well aligned with both the short and long-term needs of the electricity

sector in both countries and also with the priorities of the regional power pool, to which both

countries were signatories (SAPP Annual Report, 2006). The overall objectives of the project were

closely aligned with Malawi’s aim of interconnecting to the southern region electricity power

21

pool,35 and with Mozambique’s goal of improving its integration into the regional economy by

strengthening power trading in the SAPP and the expansion of access to electricity through grid

intensification and grid extension.36 The MGDS formed the basis of World Bank support to Malawi

as mentioned in the Malawi Country Assistance Strategy (CAS) 2007-2010. The SAPP

interconnector was included as one of the planned activities to support outcome two of the CAS:

“Put in place foundation for longer term economic growth through improved infrastructure and

investment climate.” In the case of Mozambique, the interconnector was explicitly mentioned as

one of the activities aligned to Pillar 3 (strengthened economic growth potential) of the Country

Partnership Strategy (CPS).

110. The relevance of the original objectives to Malawi remain substantial. Energy supply

remains a key priority for Malawi and is mentioned as such in the latest MGDS (2011-2016). The

energy crisis in Malawi has worsened despite some growth in generation capacity. As Malawi is

facing increasing power deficit, the interconnection project is being discussed again between the

two countries.37

111. The development objectives of the restructured project remain relevant to the current needs

and priorities of the Mozambique electricity sector. Electricity demand in Tete, a mineral rich

province experiencing significant growth in economic activity, has been growing rapidly and has

put increasing strain on the electricity supply infrastructure in the region. Though the region

experienced a slight slow-down due to a fall in commodity prices, the rapid economic growth

driven by energy-intensive mining operations resulted in a 22 percent annual growth in electricity

consumption between 2010 and 2014, and continues to grow at a significant rate. As a result, Tete

city (the main load served by the Matambo sub-station), is considered a ‘growth pole’ for the sub-

region. The upgrade of existing infrastructure to meet this growing demand is of high priority to

EdM. EdM’s Master Plan (2011, updated 2014) gives special attention to demand growth in the

Tete province and the need for transmission (and distribution) infrastructure upgrades.

Mozambique’s latest National Development Strategy (2014) also stresses the importance of

increased rural electrification and provision of infrastructure (including electricity) to industries so

as to enable economic growth.

112. While the outages in Tete province have reduced in part due to EdM’s investments in

downstream distribution infrastructure improvements (unrelated to the project), the number of

outages remains high. With expected electricity demand growth, the strain on the existing

infrastructure, in the absence of the project, would be significant and would likely result in

increasing unreliability and outages. A sustained reduction in outages is likely to result in

significant benefits to households and businesses in the area. The reduction in electricity outages

and thereby an increase in the reliability of electricity supply in the Tete province therefore

continues to be of relevance to the electricity sector and the economy as a whole.

113. The latest Mozambique CPS (2012-2015) mentions the focus on transmission and

increasing electricity access and efficiency under Pillar 1 (Competitiveness and Growth). However,

there is no explicit mention of energy reliability issues on account of demand growth for the Tete

35 Malawi Growth and Development Strategy (MGDS) 2006-2011, page14. 36 Mozambique Poverty Reduction Support Strategy 2006-2009 (PARPA II). 37 The interconnector project has once again been resurrected and discussions are ongoing to prepare it. As

stated in the latest Malawi CAS (2013-2016), Malawi has signaled that reinstating the Malawi-Mozambique

energy interconnector has high priority to overcome the crippling power shortages.

22

region, or in general. In part, the relatively small and focused investment is unlikely to be explicitly

mentioned in the high-level national strategy.

114. Thus, overall, as the Tete region continues to experience rapid growth in demand for

electricity, the project objectives of reducing costly outages remain relevant to the current context.

Relevance of design and implementation: Substantial

115. The components and activities included in the original project were clearly linked to the

stated objectives. For the restructured project, despite initial shortcomings described below, the

included activities, together, were directly relevant for the stated objective of the restructured

project.

116. The investments supported by the original project were substantially relevant to the original

PDO, as they would establish the necessary transmission line interconnector and associated

substation links, provide the necessary technical assistance to ESCOM and EdM to support the

sustainability of the project outcomes, and help remove infrastructure bottleneck that could impede

power trade. Further, the technical design of the project was sound and based on proven technology.

The implementation strategy involved close coordination between at the project management and

ministerial level, which would be critical to ensure achievement of regional power trade

opportunities.

117. The restructured project cancelled the regional investments and retained only the Matambo

substation expansion. The purchase of the transformer for the Tete substation (and the mobile

substation) was added during the second project restructuring in 2014. The Matambo substation is

the only 220/66/33 kV substation serving the Tete province. The downstream Tete substation

(66/33 kV) serves a substantial proportion of the load in the province at Tete city. Both substations

are thus critical links in the supply chain for reliable electricity service to the rapidly growing

region. The upgrade and extension works supported by the project were relatively simple in design

and based on standard technology. The additional transformers at Matambo and Tete substations,

along with the mobile substation, increased the reliability (through redundancy: “n-1 reliability”)

and the capacity to supply electricity.

118. The shortcoming in the design of the restructured project was that the relevance of the

selected investment (the Matambo substation) to the stated objectives (the reduction in frequency

of outages) was not sufficiently justified or backed up by an updated assessment of the key

substation infrastructure bottlenecks in Tete province and their prioritization in relation to

outages.38 During restructuring (and in the original project) an assessment of the main source of

outages in Tete province, the split between distribution outages and transmission outages, or the

adequacy of related (downstream) system infrastructure in the region was not documented.

According to the EdM Master Plan’s demand forecast (2011) for Tete, the transformer at Tete

substation was already overloaded, suggesting that an upgrade at Tete substation may have been of

greater priority in order to reduce outages. In the absence of crucial background analysis for project

activities, it is hard to determine whether selected investments were the most relevant choice for

38 The Matambo substation was not evaluated as a part fo the economic analysis in the original PAD; and

there was no economic analysis in the restructuring paper either.

23

reducing outages.39 An additional shortcoming in the design of the restructured project was that the

main results indicator was not well defined and did not provide easily attributable information to

judge the achievements of the project (as discussed in Section 2.3) or whether the Matambo

transformer expansion, on its own, would have achieved the PDO target.

119. Project savings allowed a second restructuring to include the purchase of the additional

transformer for Tete substation and a mobile substation. The expansion in transformation capacity

was aligned with EdM’s Masterplan that identified inadequacy of transformer capacity at Tete

substation as a critical constraint to electricity supply in the province. The enhancement of the

capacity both eases the constraint on electricity supply and increases reliability by building

redundancy into the system and reducing the strain on existing infrastructure. The mobile

substation, similarly, can be deployed to back up the existing substations during planned

maintenance or breakdowns. The inclusion of the additional transformer seems to have had a

significant impact on prospective benefits delivered by the project, especially in terms of ability to

meet growing electricity demand (see Annex 3).

120. Overall, despite issues with project design during the first restructuring, especially with

regards to the justification for Matambo transformer, the utilization of project savings for the

purchase of the Tete transformer and mobile substation considerably increased the relevance of the

project activities to the stated objectives. Therefore, the overall relevance of project design and

implementation is rated as Substantial.

3.2 Achievement of Project Development Objectives

Rating: Substantial

Original PDO

121. The original PDO was not achieved as a result of Malawi withdrawing from the project

without signing the credit agreement. All activities associated with the regional interconnection

were dropped and the project was restructured to focus on transformer upgrade for Mozambique.

The achievement of the original PDO was thus negligible. Restructured PDO

122. The restructured PDO, “to reduce the frequency of electricity outages in Tete province,”

was substantially achieved. All project investments were successfully completed by project close:

installation of the 130 MVA (220/66/33kV) transformer, the upgrade of the System Control and

Data Acquisition (SCADA) system and 220kV busbar at Matambo substation, the procurement of

the 50 MVA (66/33 kV) transformer for Tete substation, and the procurement and delivery of the

25 MVA (220/33kV) mobile substation. The new transformer at Matambo was commissioned in

July 2016. The mobile substation was commissioned in December 2016. The new transformer at

Tete is on site and is expected to be commissioned in August 2017.

39 For example the Master Plan also mentions that some transmission lines were also expected to become a

constraint in the foreseeable future. Though additional line bays were added at Matambo to enable connection

of additional lines in the future.

24

123. In the results framework, the reduction in outages was measured by the PDO indicator:

“average interruption frequency per year.” By project close, the indicator had significantly declined

(as seen in the table below) implying that the average interruption frequency had reduced

significantly below the project target.

Baseline

Baseline at

restructuring Target Current

Achievement rate

(compared to

restructuring

baseline)

Average interruption

frequency per year in

the project area 230 453 411 151 719%*

(2007) (2013) (2016) (2016) * This measure the actual reduction as a percentage of the targeted reduction. The majority of the decline seemed to

occur prior to the commissioning of the transformer.

124. However, as discussed in Section 2.3, this indicator value is not attributable to this project.

The average outages had already decreased substantially a few months prior to the commissioning

of the Matambo transformer – and reduced further in the period after commissioning.40 This may

have been due to upgrades to the downstream distribution network in the province as a part of other

projects that EdM was implementing, or a temporary decline in electricity demand from large

mining customers who may have lowered their production activities in response to depressed

commodity prices.41

125. The reduction in the Tete province outages as demonstrated by the results indicator is also

consistent with the SAIFI indicator that EdM collects for the Central region (where Tete province

is situated). The Central region indicator was consistently increasing between 2011 and 2015 and

then registered a decline in 2016. While this could add to the indicative evidence of the impact of

Matambo, it is difficult to estimate the exact contribution of the Matambo transformer upgrade to

these results.

Central Region 2011 2012 2013 2014 2015 2016

SAIFI 81.06 67.22 74.44 80.2 103 55.8

126. Despite the shortcomings in the results indicator and very short window of observable

performance, it is possible to make an assessment of the real and potential impacts of project

investments since, (i) the causal link between the delivered equipment and the short and long term

reduction in outages related to the substation upgrades has a strong technical justification; and (ii)

alternative data on outages at Matambo and the Central Region (which includes Tete province) was

obtained for the ICR, coupled with the intermediate results indicator for the Matambo substation.42

40 ISR seq. 16 shows that the average interruption frequency was 199 in March 2016 and then fell to 151 in

October 2016 as shown in the Borrower’s ICR. 41 The World Bank-supported Mozambique Energy Development and Access Project (P108444) was

concurrently supporting distribution infrastructure, including distribution lines and transformers, in the Tete

province. 42 This is with the caveat that only a couple of months of data are available after commissioning. This is a

recurrent issue in estimating the impact of infrastructure projects, which require a longer timeframe of

observational data than an ICR affords.

25

127. The additional transformers at Matambo and Tete, along with the mobile substation, both

add to the transformation capacity at critical supply bottlenecks in the Tete province, and also create

“n-1” redundancy. Matambo is the only substation serving the Tete province (connecting it to the

220 kV transmission network) and the Tete substation downstream from Matambo, serves a

significant majority of the load in the province at Tete city. By project closing, the existing Tete

transformer was already overloaded, and the Matambo transformer too was operating at very high

charge levels, putting stress on the system (as shown by the intermediate indicator below). The

increased redundancy and capacity at both substations directly reduces both planned and unplanned

outages linked to the substations and eases capacity constraints on the supply of electricity in Tete

province.

128. Data collected by EdM and the intermediate results indicator further show the prospective

impact of project investments on outages. Data on outages at Matambo substation obtained from

EdM shows that between 2007 and 2015 there were an average of nine outages per year with an

average duration of three hours. This data can be used to estimate the reduction in outages that are

directly attributable to project investments.43 Furthermore, the intermediate indicator linked to the

transformer at Matambo shows that the target was exceeded substantially. The level of charge at

the existing transformer – signifying the amount of electricity passing through as compared to its

maximum capacity – fell from 98.1 percent in March 2016 to 45 percent in August 2016,

immediately after commissioning of the new transformer. This clearly shows that the existing

transformer was operating close to or even beyond its technical limit and the commissioning of the

new transformer has eased the stress on the existing transformer. This implies a lower likelihood

of future breakdowns leading to outages.

Indicator Baseline

Baseline at


Achievement rate

(compared to

restructuring

baseline)

Level of charge of

the current Matambo

transformer 26% 86% 70% 45% 256%

2007 2013 2016 2016

129. The core indicator on the direct project beneficiaries was also 94 percent achieved. The

baseline was defined as zero prior to the commissioning of the Matambo transformer. After the

commissioning of the transformer, the indicator measured the number of electricity customers in

the Tete province (served by the Matambo substation). The project supported the installation and

purchase of transmission infrastructure, and did not directly support electricity connections.

However, by easing the capacity constraint on the electricity transformation capacity for the Tete

province, the project investments have enabled, and will enable an acceleration in new electricity

connections in the province. Thus while the beneficiary numbers fell marginally short of the target

at 94 percent, the target is expected to be achieved, and exceeded, in the near future.

43 While this is probably a conservative estimate of the impact of Matambo on the outages in the Tete

province, it was the only data made available that clearly isolates the impact of Matambo substation.

26

Indicator Baseline

Baseline at


Achievement rate

(compared to

restructuring

baseline)

Direct Project

Beneficiaries 0 0 86,628 81,276 94%

2007 2013 2016 2016

*The direct project beneficiaries are measured as the number of customers served in the Tete

province. The indicator is the same as the indicator on the “number of customers served in the

project area” which is a supplemental indicator to the core PDO indicator on the average

interruption frequency.

130. The short and long term benefits of the Matambo substation upgrades can be more

specifically summarized as follows:

The previously existing 60 MVA transformer was overloaded and the situation was

deteriorating due to the increasing demand. Before the project, the Matambo substation (the

only transmission substation in Tete province) had only one 60 MVA transformer. This

transformer was significantly overloaded, with a nominal load of 58 MVA (98 percent). With

the addition of the 130 MVA transformer, the load of the 60 MVA transformer has dropped to

27 MVA (45 percent). It is expected that with regular maintenance and frequent inspections

the transformer should not be overloaded during its remaining useful life. The reduced load on

the old transformer is an immediate benefit of the new transformer installation.

The new transformer has provided improved system reliability through n-1 configuration.

The 60 MVA transformer was the only transformer in the Matambo substation. Any faults on

the transformer or auxiliary equipment, meant that all the customers would incur electricity

outages. The addition of a 130 MVA transformer gives the system the n-1 configuration it

requires, to provide enhanced reliability in the case of faults and the ability for the utility to

perform offline maintenance without causing any outages. This configuration is expected to

benefit the area for the next 20 years, the period in which the two transformers are expected to

operate in parallel.

The additional transformer provides the ability to accommodate the estimated load

growth until 2026. The demand forecast completed in 2012, as part of the Master Plan,

foresees a maximum demand of 82 MVA by the year 2026, for the Matambo substation, taking

into account all of the industrial projects forecast for the area. With the additional transformer

the substation is able to serve the province’s growing demand. This is an important factor to

consider as the project assisted the utility in achieving a significant part of the long-term

transformation requirements in the Tete province, which is of importance to the country due to

the growing mining activity.

The works performed during the project form a basis for the planned interconnector with

Malawi. The Mozambique-Malawi transmission interconnector is a project under preparation

with assistance from the Bank. With the extension of the 220 kV busbar under the project, the

new interconnector can be accommodated at 220 kV without significant additional works.

The installed SCADA system at Matambo substation gives the EdM remote control and

supervisory capabilities that they did not have before at that key substation. With this

recently installed system, the utility has better access to data and knowledge of the events

27

occurred in the substation. EdM will be able to integrate the substation and its equipment into

the SCADA system at their future National Control Centre, which is in the feasibility stage at

the moment.

131. Overall, all project activities were successfully completed and the technical impact of the

new equipment on current and future outages is well understood. As shown above all key results

indicator targets were also largely met and exceeded. After the commissioning of the new

transformer at Matambo substation, the level of charge at the existing transformer after

commissioning reduced substantially, signifying an immediate reduction in the strain on the

transformer capacity. Furthermore, additional data collected by EdM, on the substation specific

outages at Matambo, further indicate a reduction in outages due to project investments. Thus

despite the incomplete data for the outage reduction in the results framework, it is clear that the

project will lead to the reduction of substation related outages. For these reasons the achievement

of the PDO is rated as Substantial.

Overall rating

132. The overall rating for the project combines the evaluation of overall project relevance,

efficacy and efficiency. Based on the split evaluation methodology for restructured projects, the

project outcomes have been assessed for each of the three phases determined by the two significant

project restructurings. The performance in each phase is weighted by the proportion of actual

project disbursements to derive an overall rating for the project. Based on the outcome of the split

evaluation, the achievement of the PDO is rated as Moderately Satisfactory.44 The explanation is

provided in section 3.4 below.

(XDR) Pre-restructuring

Post First

Restructuring

(2013)

Post Second

Restructuring

(2014) Overall

Unsatisfactory Unsatisfactory Satisfactory

Moderately

Satisfactory

Rating 2 2 5 4.09

Disbursement Amount

($m) 1.88 0.88 6.34 9.10

Weight 20.7% 9.6% 69.6% 100.0%

Score 0.4 0.2 3.5

3.3 Efficiency

Rating: Modest

133. There was no economic analysis conducted at the time of the first restructuring, and thus it

is difficult to evaluate potential improvements in project efficiency compared to that expected at

project design stage. Furthermore, shortcomings in the results indicators along with the short time

frame since commencement of new equipment operation prevent a comprehensive evaluation of

ex-post project efficiency. Additional data obtained from EdM has been used to determine the

economic net benefits of the project.

44 This is consistent with the Modest rating for project relevance and efficiency.

28

134. Project investments were estimated to be economically viable with positive economic

returns accruing over the economic lifetime of the equipment installed. Benefits accrued from the

reduction in costly outages and the easing of the supply constraint to the fast growing demand in

the Tete region. Overall the project had an estimated Economic Internal Rate of Return (EIRR) of

36 percent and an NPV of US$147 million (at a six percent discount rate). The EIRR for the

Component C (Matambo substation) was estimated at seven percent (NPV of US$0.75 million),

and the EIRR for the Component D (Tete transformer and mobile substation) was 97 percent (NPV

of US$155 million).45The project was estimated to be financially unviable from the perspective of

EdM as cost of electricity supply exceeds the electricity tariffs for domestic customers (for details

see Annex 3).

135. The project as initially planned (at appraisal and first restructuring) was to install an 80

MVA transformer at Matambo substation in Tete province. However, cost efficiencies resulting

from the competitive procurement process resulted in savings. This allowed both the upsizing of

the transformer at Matambo to 130 MVA, and the purchase of another 50 MVA transformer at Tete

and a 25 MVA mobile substation. The addition of these investments added considerably to the

project benefits without raising total cost above the initially planned amount. This represents an

improvement in project cost efficiency compared with what was expected at appraisal (for this

activity) or the first restructuring.

136. In contrast to the efficient use of financial resources, the repeated delays and project

extensions negatively impacted overall efficiency in the achievement of project objectives.46 While

some of the delays may have been outside the control of the World Bank team or implementing

agency, an aggregate 38 month extension in the project closing date, for a relatively straightforward

investment project, is difficult to justify. In the end, the relatively simple project activities were

realized nine years after project approval in 2007.

137. Due to inordinate delays in completion of project activities, the project efficiency is rated

as Modest.

3.4 Justification of Overall Outcome Rating

Rating: Moderately Satisfactory

138. The PDO of the restructured project was “to reduce the frequency of electricity outages in

the Tete province.” The overall outcome rating takes into account the relevance, efficacy, and

efficiency of the investments and achievement of outcomes. The split evaluation methodology is

applied to assess each stage of the project marked by the first and second restructuring.

45 Based on available data, the benefits from the Matambo transformer upgrade were quantified considering

only a reduction in outages at the substation (from data obtained from EdM). This is thus a conservative

estimate of the net benefits as it does not account for the reduction in other associated outages – e.g. incidence

of load shedding of customers in Tete province caused by transformer capacity constraints. As the Tete

substation is downstream of the Matambo substation, benefits from capacity expansion at Tete assumed no

capacity constraints at Matambo. Therefore, the quantified benefits from Tete expansion are attributable, in

part, to Matambo transformer investment. 46 As future benefits are discounted at the social discount rate, delays in completion of project activities and

thus accrual of associated benefits reduces the present value of the stream of benefits. All else equal, this

implies a reduction in project efficiency as measured by the NPV.

29

139. The project at appraisal was well designed and highly relevant for both countries, despite

certain shortcomings discussed in previous sections. However, with the withdrawal of Malawi from

the project without any progress towards the PDO, this phase is rated as Unsatisfactory.

140. After the first restructuring, the PDO was relevant to the country context; however,

implementation progress was slow with limited progress towards the PDO, requiring further project

extensions. The relevance of the selected project investments to the PDO was inadequately justified

in the project paper. Furthermore, the results framework had shortcomings, with the main PDO

indicator being incorrectly defined and not fully attributable to project investments. The phase is

thus rated Unsatisfactory.

141. After the second restructuring close implementation supervision helped make substantial

progress towards the PDO and all project activities were successfully completed, albeit with some

delays requiring a final, two-month project extension. Project savings were utilized for additional

infrastructure investments which increased the benefits delivered by the project. Certain

shortcomings (inadequately attributable results indicators) led to challenges in comprehensively

judging the impact of the investments. However, once all the equipment is operational, prospective

future impacts are clearly understood from a technical perspective. Therefore, this phase is rated as

Satisfactory.

142. In the end, the project which was initially designed as a regional interconnector had to be

restructured into a modest but locally significant substation upgrade and equipment procurement

project. The use of project restructurings to utilize project savings ensured the delivery of all project

investments.

143. Combing the ratings from each of the phases and weighting by the disbursement

proportions in each phase gives an overall rating of Moderately Satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

144. The investment supported by the project helped (and will continue to help) ease critical

supply constraints to a fast growing region of Mozambique. While none of the investments were

consumer-facing, new and existing electricity consumers were the intended final beneficiaries of

the improved electricity service in the region. The number of electricity consumers in the region

has increased since the project baseline – from 20,527 (2007) to 81,276 (2016).47 The increased

transformation capacity and subsequent reliability resulting from the project, according to EdM,

has also accelerated electricity connections in the region.

145. There is no background data or impact evaluation available on poverty and gender impacts

of the project. However, based on numerous studies that link improved access to reliable electricity

to growth and job creation (e.g. Dinkelman 2011, Fisher-Vanden et al 2015, and IEG48), similar

47 The rate of electricity access has steadily increased in the past years and had reached about 15 percent as

of 2014 (EdM Annual Report, 2014). 48 “Lack of access to electricity is a major constraint to economic growth and increased welfare in developing

countries. This has been reemphasized by the United Nations and the World Bank Group as co-chairs of the

global Sustainable Energy for All (SE4All) initiative, which was launched in 2011, with the goal of achieving

30

long-term impacts are expected from the project. A World Bank literature review of the impact of

power outages finds that the reduction in outages is especially beneficial for productive users –

such as firms and irrigation (World Bank, 2016). Based on this and other studies, it is expected that

increased access to reliable electricity supply from the project will improve productivity of firms,

lead to job creation, and improve the well-being of households previously relying on low quality,

expensive, and unhealthy alternative sources for lighting and phone charging.

146. According to the results framework, an expected 50 percent of the beneficiaries are women.

But there is no specific data available to judge the accuracy of this number or estimate differential

impacts on women or female-headed households in the project target areas.

(b) Institutional Change/Strengthening

147. Although Component B of the project included capacity building and training for EdM,

there is no indication that any specific institutional capacity building or staff training activities were

carried out under the project. The project monitoring arrangements also did not include a specific

indicator for monitoring capacity building and training for EdM. It is therefore difficult to assess

the impact of Component B on EdM’s capacity improvement efforts. However, the ICR team

recognized that under the Bank-funded Electricity Development and Access Project (P108444),

which was being implemented in parallel with this project, EdM had prepared a training program

for capacity building and for developing specific technical skills. This program covered business

process management, planning, design and construction of transmission lines, operation and

maintenance of switchgear, and environmental and safeguards training.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

148. No survey or workshop was held as a part of the ICR. The ICR benefitted from extensive

discussion with the implementing agency staff and management and current and former World

Bank TTLs.

4. Assessment of Risk to Development Outcome

Rating: Moderate

149. The objective of the restructured project was: “to reduce the frequency of electricity

outages in Tete province.” The key indicator was: “Average interruption frequency per year in the

project target area.”

150. The new transformer and other equipment at Matambo substation have significantly

improved the reliability of the power system in Tete province. Furthermore, the new transformer at

Matambo provides n-1 redundancy for the substation, thereby decreasing the risk (and impact) of

any potential outages. The 25 MVA mobile substation further improves the reliability by enabling

the backup of 220/33 kV transformers at Matambo or elsewhere. The 50 MVA transformer at Tete

substation will play a complementary role in reducing outages in its service area in Tete city.

universal access to energy within the next 15 years, along with improving energy efficiency and increasing

the use of renewable energy. Providing access to electricity is also integral to the Bank Group’s corporate

goals of increasing shared prosperity and ending extreme poverty by 2030.” IEG: World Bank Group Support

to Electricity Access, FY2000-2014, page xiv, 2015.

31

151. Considering the significant transformer capacity increase and the introduction of n-1

redundancy at Matambo substation, the main risks to sustaining the reduction in outages in the Tete

province are (i) delays or shortcomings in the installation of the transformer at the Tete substation,

and (ii) the financial inability of EdM to undertake adequate investments in maintenance,

refurbishment and upgrade of project investments and complementary downstream infrastructure.

152. The project supported the purchase of the transformer at Tete substation from project

savings. Due to inadequate time and resources, the project only supported the purchase of the

transformer and not its installation. It was agreed that EdM would use its own resources to fund the

installation of the transformer. The contract for the engineering services consultant under another

ongoing Electricity Development and Access Project was amended to include support for the

procurement and implementation of the supply and installation of the transformer at the Tete

substation and the mobile substation. This arrangement will allow continuity in implementation

and the timely installation of the equipment purchased under this project.

153. The weak financial position of EdM could constrain timely investments in the necessary

sub-transmission and distribution system maintenance and refurbishments in Tete province.49

Sustaining the decrease in outages in the Tete province depends on (i) the adequacy of capacity

compared to the growth in electricity demand in the province; (ii) the timely maintenance of

installed infrastructure; and (iii) the adequacy of complementary and downstream infrastructure.

The equipment financed by the project is standard technology that EdM has the capacity to operate

and maintain. Routine maintenance of the equipment is within the existing maintenance budgets

for EdM. However, given the overall poor financial situation of EdM, there is a risk that there may

be insufficient funds if replacement or significant repairs are needed for older equipment. Similarly,

resource constraints may prevent timely investments in refurbishment or capacity expansion of

critical complementary and downstream infrastructure. If the downstream infrastructure is poorly

maintained or inadequate for meeting the growing demand, the system may become constrained

despite the adequate transformer capacity at Matambo, resulting in increased outages.50

154. On the demand side, while the outage reduction targets may be achieved in the short term,

EdM’s fast expanding customer base in Tete region (reportedly around 22 percent over the past

several years) as well as the growing demand from the returning mining and other industries could

quickly increase the demand and go beyond the additional capacity provided under this project.

Recently, there has been a slight reduction in peak demand due to reasons unrelated to this project

(e.g., closure of mines and businesses as a result of declining commodity prices in Tete, etc.). The

projected demand growth in Tete province for the next five to 10 years is also well within the excess

capacity of the new installed transformers at Matambo (see table below). However, a recovery in

commodity prices, continuing economic growth, population increase due to new residents

migrating into the province for economic reasons, could increase pressure of the electricity

infrastructure.

49 ISR (Sequence 16) mentions a deterioration in the financial position of EdM as a potential risk to the timely

installation of the transformer at Tete substation. 50 According to EdM’s Master Plan: “The 66 kV line from Matambo to Tete has a thermal limit of about 60

MVA, thus limiting the long term supply capacity and reliability of supply. The load forecast for Tete is 50

MW in 2026 for the base case and in addition there is the load to be supplied in the Manje area. There is

hence a need for new lines coming in to the area.”

32

Forecast Peak Load (MW) Low Medium High

Sub-station 2011 2016 2021 2026 2011 2016 2021 2026 2011 2016 2021 2026

Matambo 5.6 148.6 60.6 57.6 5.6 167.6 81.6 71.6 5.6 167.6 81.6 71.6

Manje 3.6 4 4.9 6.1 3.6 4.5 6 7.8 3.6 4.9 27 49.7

Tete 19.3 24.1 32.9 41.7 19.3 27.2 38.3 50.1 19.3 29.6 41.8 57.8

Total (Tete+Manje) 22.9 28.1 37.8 47.8 22.9 31.7 44.3 57.9 22.9 34.5 68.8 107.5

Coinc. Peak 19.2 26.6 37.2 48.6 19.2 26.6 37.2 48.6 19.2 26.6 37.2 48.6

Total (Tete+Manje+Matambo) 28.5 176.7 98.4 105.4 28.5 199.3 125.9 129.5 28.5 202.1 150.4 179.1

155. The addition of the new 130 MVA transformer and the refurbishment of the switchgear

and other improvements at Matambo substation financed by this project have already provided the

necessary (although in the long run not sufficient) condition for achieving the project’s

development objective “to reduce the frequency of electricity outages in Tete province”. Other risks

beyond the scope of this project (such as increased demand, which could overload the weaker parts

of the distribution infrastructure, leading to unplanned outages) could, however, affect the

achievement of the development outcome in the long run.

156. Therefore, based on these considerations, the risk to development outcomes of the project

is assessed as Moderate.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Moderately Unsatisfactory

157. The appraised project design was well aligned with stated country goals and priorities (as

described in Section 3.1 above). The financing of the cross-border interconnector and associated

investments was underpinned by strong economic justification – as shown in the economic analysis.

The supply of electricity from Mozambique to Malawi through the proposed interconnector was

seen as a least-cost alternative for Malawi to meet the growing electricity demand and mitigating

the significant drought-related risk of a large supply shock.

158. The project design also included measures to mitigate potential risk of implementation

delays, coordination risks, potential infrastructure bottlenecks, and financial risks. Given the need

for joint implementation between Malawi and Mozambique, the implementation plan that was a

part of the project design, put in place a three-tiered coordination mechanism to mitigate

coordination risks – a joint project steering committee (Ministry level), joint project coordination

committee (utility management level), and regular interaction at the project management level

(PMU level).51 In addition, drawing on lessons learned, project preparation advance was utilized

51 The Financing Agreement explicitly mentions each of these committees along with the requirement that

the “Recipient” and respective utilities shall maintain active participation in the respective committees.

33

so that the technical designs were almost complete and major procurement packages for the

interconnector were in an advanced stage of readiness at the time of project effectiveness.52 Risk

assessment at the time of appraisal clearly identified financial risk, especially for the intended buyer

of the electricity – ESCOM (Malawi). The risk mitigation measures included in project design were

in the form of a financial sustainability plan for ESCOM (Malawi), and financial covenants for

both the utilities. Given the dependence of project investments in one country on the timely

completion of the investments in the other, cross-conditionality of Credit effectiveness was built

into the disbursement conditions of the project. Lastly, the signings of four key agreements – that

would underpin the trade of electricity between the two countries – were included as conditions of

effectiveness.53

159. The PAD did not discuss the risk associated with the failure of the two countries to reach

an agreement on key parameters of power trading. It also did not list the risk of political opposition

to the interconnector stemming from the prioritization of the development of domestic energy

resources over perceived dependence on foreign energy sources. In the end, these were the reasons

why Government of Malawi did not sign the Financing Agreement.54 While the political turmoil

in Malawi shortly after project approval may not have been foreseen, there did seem to be

indications of Malawi’s reservations regarding the wheeling agreement and the PSA. Late in project

preparation, reservations were expressed regarding the “take-or-pay” clause of the PSA. There were

similar concerns about the terms of the wheeling agreement. These risks should have been

adequately discussed in the PAD and appropriate mitigation measures identified.

160. The PDO at appraisal was stated as increased access to “diversified, reliable and affordable”

energy. However, the PDO level results indicators did not include measures for “reliable” and

“affordable” which would have made it difficult to adequately judge the achievement of the PDO.

Reliability indicators were however included as a part of the intermediate indicators, linked to

Component C.

161. The project economic analysis at appraisal did not adequately reflect the justification of the

project based on its value as an “insurance” against drought. Despite ESCOM’s unwillingness to

sign a firm PPA, the baseline economic analysis was rested on the assumption of firm power

purchase. Furthermore, the cost-benefit analysis of Matambo substation upgrade (part of

Component C in the appraised project) was not included in the economic analysis. Despite the

stated criticality of Matambo substation upgrade in meeting the rapidly growing demand in the Tete

region, the benefits for this component were not presented in the economic analysis in the PAD.

While it may be the case that costs associated with this component were considerably smaller than

those for the regional transmission interconnector, the cost and benefits from the investment should

have been explicitly modeled. With the benefit of hindsight, this is an important omission as it was

the only investment component that was retained in the restructured project and an economic

analysis was not conducted at that time either. As a result, there is no baseline that the economic

analysis in the ICR can be compared to.

52 The finalization of technical designs was seen as a cause of delay in the earlier project in the same project

series (i.e., APL-1, P069258). 53 The four agreements were (i) Implementation Agreement, (ii) Maintenance Agreement, (iii) System

Operating Agreement (included the PSA), (iv) Wheeling Agreement. These were later converted form

condition of effectiveness to a disbursement condition for the regional investments, on request of

Mozambique, to allow progress on other components. 54 In a letter to the World Bank in November 2009 the President of Malawi stated the interconnector was the

country’s “second priority” behind the development of “own energy production capacity”.

34

162. Finally, implementation delays may have been avoided by splitting the procurement

package for Matambo substation into separate lots for the interconnector (regional) and transformer

expansion (national). As designed, the procurement package for the Matambo substation combined

the expansion works (additional transformer) with the extension works for the interconnector. As

a result, and due to the cross-conditionality of any interconnector related works in one country

commencing only after project effectiveness in the other, work on substation expansion critical for

Mozambique’s Tete province was stalled while waiting for Malawi to sign the Financing

Agreement – this led to considerable delays in the completion of the substation expansion.

163. Taking into consideration the above factors, the Bank Performance at entry is rated as

Moderately Unsatisfactory.

(b) Quality of Supervision


164. Regular project supervision was undertaken throughout the duration of the project. A total

of 16 ISRs, over the roughly nine-year project life, documented the progress made and the key

issues to be addressed at regular intervals. The task team leader was based in Maputo for the most

of the implementation period and this allowed regular communication with the client.

165. Prior to the withdrawal of Malawi from the project the task team proactively followed up

with ESCOM and EdM to address outstanding issues regarding associated key legal agreements.55

The task team along with World Bank senior management also held high-level discussions with

senior government officials to present the merits of the interconnection project in the context of

Malawi’s energy needs and address stated concerns.56 While waiting for Malawi to sign the Credit,

the task team ensured that activities on Mozambique’s part of the project were able to progress to

the extent possible, including a timely amendment to convert effectiveness cross-conditionality for

Mozambique into a disbursement condition for the regional component disbursement category.

166. The project was restructured multiple times to enable adaptations to the changing

circumstances so as to maximize development impact of available funds. As a result, the project

was able to support more investments than planned during the first restructuring, and all activities

were successfully completed by project close.

167. A review of the project documentation and timelines suggests that there were some

shortcomings in certain phases of implementation.

168. The decision on the course of action following the Malawi’s withdrawal in 2010 was very

protracted as different options were discussed between the task team and regional senior

management. The final decision to proceed with restructuring was made in January 2013, almost

2.5 years later. In parallel, while progress was made on procurement for the Matambo substation,

the time taken to decide to restart the procurement process, the lack of allocation of Bank budget

during Fiscal Year 2012 (documented in the ISRs), the uncertainty regarding the restructuring, all

55 Numerous updates are documented through official correspondences, internal memos, aide-memoires and

ISRs. 56 The sector manager of the WB energy team met with the President of Malawi in September 2009 to address

stated concerns regarding the project.

35

potentially contributed to the delayed start of the substation works (contract award was in May

2013) which later required multiple project extensions.

169. After restructuring, the new PDO of the project was “To reduce the frequency of electricity

outages in Tete province”. A more outcome oriented PDO definition, such as “improved reliability

of electricity services in Tete province” may have been more appropriate and would have better

lent itself to meaningful evaluation. Also, the project beneficiaries of the restructured project were

not defined explicitly in project documentation.

170. In addition to the delays, the first restructuring paper did not re-appraise the retained

activities as they were appraised as a part of the original project. No thorough background analysis

was presented to justify the choice of investments based on the latest available information. Also

there was no economic analysis presented on the Matambo substation extension. As the economic

analysis in the PAD did not present a separate cost-benefit analysis for this activity, the analysis

should have been undertaken to justify the investment based on most recent data (it had been almost

six years since appraisal). Related to this, the associated results indicator which was added during

the first restructuring was both incorrectly defined and not appropriate for measuring the

attributable impact of the investment.57

171. The World Bank performed well to deliver all outputs under the restructured project and

make use of restructuring to successfully utilize savings in a timely manner, However, despite

substantially achieving intended outcomes of the restructured project, the significant delays in

deciding on the first restructuring, inadequate analytical underpinning for the selection of

investment, and inadequate monitoring framework reduced the overall effectiveness of World Bank

implementation performance. Taking this into consideration, the Bank Performance of Supervision

is rated Moderately Unsatisfactory.

(c) Justification of Rating for Overall Bank Performance


172. The overall Bank performance is rated as Moderately Unsatisfactory. The Bank team

provided supervision support to adapt to changing circumstances and utilize project savings.

However, there were significant shortcomings in terms of delays, inadequate analytical

underpinning, and inadequate monitoring framework, which reduced the overall effectiveness of

World Bank implementation performance.

57 This is discussed in detail in Section 2.3. The impact of this during project supervision was minimal as

impacts would only materialize after the transformer commenced operations, which was expected after

project close. As utilities collect the relevant information as a part of their day-to-day operations, this data

was requested and used for the analysis in the ICR.

36

5.2 Borrower Performance

(a) Government Performance


173. As the Government of Malawi never signed the Credit Agreement, they were never

officially a borrower for the project. Therefore only the performance of Mozambique is evaluated.

174. The Government of Mozambique supported the project throughout. The Government

expediently moved forward after project approval. The project was approved in July 2007, and

Mozambique signed the Financing Agreement in September 2007 and achieved effectiveness in

February 2008. With delays on the Malawi side in signing, the Government of Mozambique

requested a waiver of the effectiveness cross-conditionality to enable the Mozambique Credit to

become effective and to progress on activities on their side. All other effectiveness conditions were

met in a timely manner. The Government also participated in the steering committee meetings with

Malawi counterparts, but failed to reach an agreement on the key commercial parameters of the

interconnector which resulted in the project not going forward as originally designed and the

original PDO not being achieved.

175. The Government of Mozambique had a limited role under the restructured project, but was

committed to the restructured PDO. The Government requested and supported the project

restructurings and the utilization of savings which were important in making sustained progress

towards the PDO. The delays in obtaining approval from CREE and the slight delay in signing the

amended subsidiary loan agreement as a result of the addition of activities under Component D

resulted in some project delays.

176. Overall, while the original project never got off the ground due to a breakdown of

commercial negotiations, the Government of Mozambique actively supported the restructured

project and the timely utilization of project funds. Thus, on balance, the Government performance

is rated as Moderately Satisfactory.

(b) Implementing Agency or Agencies Performance


177. The sole implementing agency of the restructured project was the electricity utility of

Mozambique, EdM was effectively able to implement all planned activities by project closure, and

was also able to utilize project savings to undertake additional investments. Project reporting

requirements were mostly met, and interim financial reports and audited reports were submitted in

a timely manner for the most part.

178. While project activities were completed, there were some shortcomings in procurement

and implementation that led to delays in completion. The procurement for the Matambo contract

suffered several delays (due to delays on the part of both the World Bank and EdM) and works

only commenced in January 2014. This resulted in the project closing date requiring extension.

There were also issues raised regarding contract management and supervision. There were

documented delays in clearing invoices, which led to further delays. One issue was the absence of

a centralized or dedicated PIU within EdM, for the project. It is the standard practice of EdM to

have designated project teams fully integrated into the EdM staffing structure. As a result, the

designated project manager also is responsible for other projects/tasks. While this has certain

37

advantages in general, it reduced the ability to focus on project supervision. It is also not clear

whether EdM was able to meet the financial covenant of the Current Ratio threshold (at least 1.3)

during the last two years of the project.58

179. Due to the reasons outlined above the Implementing Agency Performance is rated as

Moderately Satisfactory.

(c) Justification of Rating for Overall Borrower Performance


180. At completion the project substantially achieved its targets albeit with delays. In light of

this and the issues outlined above, the Overall Borrower Performance is rated as Moderately

Satisfactory.

6. Lessons Learned

181. The following key lessons were learned from the project:

Mutually agreed and transparent terms of electricity trading should be established as a

prerequisite for the implementation of a dedicated transmission interconnector.

182. Development of dedicated transmission interconnectors such as the Mozambique-Malawi

interconnector (in the absence of further connections between Malawi and other countries) requires

that the primary beneficiary country (Malawi) and the primary supplier of electricity reach

agreement on a fair, transparent, and firm PPA to ensure the long-term availability of supply at

predictable prices. This is critical for ensuring that both parties can agree on the rules of the game

and be able to estimate the total cost of delivered power (and the cost effectiveness of the

interconnector alternative for the country buying the power) along with the revenue resulting from

the project for the seller.

A thorough assessment of political economy context, especially with regard to perceived

trade-off between self-reliance and imports is essential for regional electricity trade

projects.

183. The interconnector project was assessed to be strong on technical grounds and the

counterparts at the technical level seemed convinced of the project’s merits. This was expected to

be sufficient for the project to be supported by all stakeholders (or at least not opposed). However,

ultimately, Malawi withdrew from the project due to the concerns raised about the project by

stakeholders in the highest levels of the Government and also given the internal abrupt changes on

the administration of the country right after the project was brought to the Board. An assessment

of the political economy risks—opposition of some stakeholders to perceived risks of reliance on

foreign sources of energy versus domestic resource development, potential change in political buy-

in to the regional interconnector from a change in the political environment—could have led to the

identification of some stakeholder concerns and potentially helped mitigate them in a timely

58 The documents do not report on this adequately. The last couple of Aide Memoires say that the information

was not provided by EdM and a one of the later ISRs claims that the ratio of 1.3 was not met but it was above

1, as stipulated in a parallel Bank project that was ongoing at the time.

38

manner. In general, for regional projects involving cross-border coordination and commitments,

an assessment of the political environment in each country along with national priorities and the

regional context within which they are developed is critical to the success of the project.

To the extent that it is technically feasible, the project design should maximize

opportunities for mutually beneficial trade.

184. A strong value proposition for both countries can improve the buy-in for both sides. With

both countries having greater ‘skin in the game’, the negotiations on the terms of electricity trading

can take place on a more equal footing. Greater balance in the accrual of benefits, increases the

likelihood of being able to reach a mutually agreed upon cost-sharing/pricing arrangement. In this

case, with the failure to sign the PSA, the benefit was too uncertain. The other expected benefits

from the sale of power during off-peak periods by Malawi to Mozambique, and the extension of

the line onward into Northern Mozambique, were also too uncertain to tangibly impact the

negotiations. A more balanced accrual of benefits, e.g., from more certainty in the onward line

extension, might have changed the negotiating positions, and allowed reaching a mutually

agreeable sharing of costs.

Timely restructuring can significantly improve implementation outcomes.

185. Experience of this project, as also confirmed by many other Bank projects in the energy

and other sectors, shows that timely restructuring of the project can make a significant improvement

in project implementation and delivery of results, as demonstrated by the two significant back-to-

back project restructurings under this project.

Advance preparation of key technical studies, safeguards assessments, and major

procurement packages can significantly speed up implementation.

186. As demonstrated by this project, the advance preparation of the interconnector feasibility

study was a key input for the project’s successful and timely technical design and its subsequent

modifications. The preparation and timely disclosure of the safeguards assessments were critical in

identifying areas in need of further attention (such as mine clearing) or reassuring all stakeholders

of the limited scope of the project’s environmental and social impact. Advanced readiness of major

bidding packages for the project could help jump start early progress of procurement activities

under any project. The procurement package for the largest component of the interconnector in

Mozambique was in an advanced stage of readiness by project approval and was progressing fairly

quickly, but was delayed for reasons discussed in earlier sections of the ICR.

Adequately planning for government clearance requirements for large procurement

contracts could speed up implementation.

187. Potential procurement and implementation delays can be mitigated through the ex-ante

assessment of government procurement clearance requirements and procedures for large contracts

and, if and when feasible, by negotiating arrangements for a fast-track review and clearance of

World Bank-funded procurement packages. Such an assessment should preferably be carried out

at the country portfolio level to ensure that any bottlenecks affecting the timely clearance of major

contracts financed by the Bank are identified and addressed. In the absence of this, a sector-specific

assessment could be conducted and a project-specific agreement on a feasible timeframe for the

clearance of major procurement packages could be a part of project appraisal and formalized in the

Project Manual. This could help set a benchmark that can be useful during supervision.

39

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

The Borrower’s ICR is attached in Annex 7.

(b) Cofinanciers

There were no co-financiers for the project.

(c) Other partners and stakeholders

Not applicable.

40

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)59

Components Appraisal Estimate

(USD millions)

Estimate at 2013

Restructuring

(USD millions)

Percentage of

Appraisal

Malawi

A - Transmission Interconnector 42.82 NA -

B – Capacity Building for

ESCOM 2.78 NA -

C – Improved Transmission

Infrastructure 9.10 NA -

D – Tete Substation Upgrades and

Mobile Substation NA NA -

Total Baseline Cost 54.70 0.00 -

Physical Contingencies 3.80 0.00 -

Price Contingencies 1.90 0.00 -

Total Project Costs 59.960 0.00 -

Front-end fee PPF 0.00 0.00 -

Front-end fee IBRD 0.00 0.00 -

Total Financing Required 59.9 0.00 -

Mozambique

A – Transmission Interconnector 39.34 0.8 -

B – Capacity Building for EdM 1.68 1.6 100


Infrastructure 4.11 10.0 243


Mobile Substation NA NA -

Total Baseline Cost 45.13 12.4 27

Physical Contingencies 3.11 0.91

29

Price Contingencies 1.58 0.45

28

Total Project Costs 49.81 13.8 28

Front-end fee PPF 0.00 0.00 -

Front-end fee IBRD 0.00 0.00 -

Total Financing Required 49.81 13.8 28

59 From Annex 5 of the PAD (includes government contributions) 60 This sums to US$60.4 million, however is stated as US$59.9 million in the PAD. The difference is

probably due to rounding error.

41

(b) Project Cost by Component post-2014 restructuring

Components

Estimate at

2013

restructuring

(USD millions)

Estimate at

2014

restructuring

(USD millions)

Actual/Latest

Estimate (USD

millions)

Percentage of

Appraisal (at

2014

restructuring)

Mozambique

A – Consulting Engineering

Services 0.8 0.12 0.12 100

B – Capacity Building for EdM 1.6 1.58 1.58 100


Infrastructure 10.0 7.85 8.2 110


Mobile Substation NA 3.90 3.5 90

Total Baseline Cost 12.4 13.45 13.4 100

Physical Contingencies 0.91 0.00 0.00 0

Price Contingencies 0.45 0.00 0.00 0

Total Project Costs 13.8 13.45 13.4 100

Front-end fee PPF 0.00 0.00 0

Front-end fee IBRD 0.00 0.00 0

Total Financing Required 13.8 13.45 13.4 100

(b) Financing

Source of Funds Type of

financing

Appraisal

Estimate

(USD

millions)

Estimate at

2013

restructuring

(USD

millions)

Estimate at

2014

restructuring

(USD

millions)

Actual/Latest

Estimate

(USD

millions)

Percentage

of

Appraisal

Malawi

Borrower 11.9 NA - - -

International

Development

Association (IDA)

48.0 NA - - -

Total 59.9 NA - - -

Mozambique

Borrower 4.8 0.00 0.00 0.00 100

International

Development

Association (IDA)

45.0 13.8 13.45 13.4 100

Total 49.8 13.8 13.45 13.4 100

42

Annex 2. Outputs by Component

2013 Restructuring (1) 2014 Restructuring (2)

Original

Component

Original

cost

Restructured

Component

Restr.

Cost

Restructured

Component

Restr.

Cost

Final Status Remarks

Component A:

Mozambique-

Malawi

interconnection

39.3 Component A:

Consulting

engineering

services

0.8 Component A:

Consulting

engineering

services

0.12 Completed The interconnection component was dropped

due to the failure of Malawi to sign the Credit.

The component was revised during the first

restructuring in 2013 to include only

consultancy services. After project

restructuring, this component included just a

single contract for the Consulting Engineer to

supervise the installation of the power

transformer at Matambo substation.

Component B:

Capacity building

and technical

support for

upgrade and

expansion to

support power

trading

1.68 Component B:

Capacity building

and technical

support to EdM

1.6 Component B:

Capacity

building and

technical support

to EdM

1.58 Completed. The principal activity undertaken via this

component was the ESIA and RPF for the

proposed Mozambique Regional Transmission

Development Project (P108934), which is now

under preparation. The final report was

submitted to the Government of Mozambique

for approval in December 2011. Government

approved in June 2012. Final disbursements

were made and the contract was closed.

Component C:

Improved

infrastructure to

support electricity

trading

4.11 Component C:

Reinforcement to

support Matambo

substation

10.0 Component C:

Reinforcement to

support

Matambo

substation

7.85 Completed Under this component, a new 130 kVA

transformer was commissioned on July 10,

2016. The targeted level of reduction in

average outages was exceeded. However, the

reduction in outages started prior to

commissioning of the new transformer. The

latest available indicator data suggests that

outages may have declined after

43

commissioning of the transformer, but the data

is not available for a long enough period after

the transformer was commissioned to make a

definitive assessment.

Component D:

Reinforcement of

the Tete

Substation and

Mobile

Substation

3.9 Completed Both the additional 50 MVA transformer and

25 MVA mobile substation had passed tests

and were shipped to site. The transformer was

delivered in June 2016 and is expected to be

commissioned in August 2017. The mobile

substation was delivered in July 2016 and was

commissioned in December 2017. The late

addition of the investments and limited

resources available from project savings, meant

that the project only funded the acquisition of

the equipment but not the installation.

44

Annex 3. Economic and Financial Analysis

Economic Analysis

At Appraisal

1. The economic analysis at appraisal for this project assessed the benefits to both Malawi

and Mozambique (evaluated over a 30 year period) as a result of the envisioned transmission

interconnection funded by US$105 million in IDA financing. The economic benefits were derived

from the incremental two-way flow of energy between the two countries. During times of peak

demand in Malawi, energy would be imported from Mozambique and during off-peak hours, a

limited amount of energy would be exported from Malawi into Mozambique. The incremental

energy flow between the countries was valued at the cost of unserved energy in 2007, estimated to

be USc16.0/kWh. The economic cost was taken as the value of the capital expenditure funded by

IDA over the three-year implementation period and the operations and maintenance (O&M) cost,

assumed to 2.5% of total investment costs annually. Based on the approach and assumptions, the

NPV was estimated to be US$361 million at the economic cost of capital of 10 percent and the

ERR to the project was 28 percent, (NPV of US$69 million and EIRR of 26.1% for Mozambique,

and NPV of US$292 million and EIRR of 29.3% for Malawi).

2. The economic analysis done at appraisal only modeled the benefits from electricity trade

from the interconnector and did not explicitly present the benefits from transmission infrastructure

strengthening in Mozambique (Component C in the appraised project). As the project was

eventually restructured and the interconnection component dropped, this economic analysis is thus

no longer relevant. No economic or financial analysis was included in the restructuring paper either.

Revised

3. The PDO of the restructured project was the reduction of outages in the Tete province. The

economic analysis at completion identified that the main benefits of the project would be: (i)

reduction in outages at the Matambo substation in Tete province and (ii) incremental local demand

served in Tete province.

Matambo Substation

4. The economic analysis at completion identified that the main benefit of this component

would be reduction in outages in Tete province, as a result of a new 130 MVA transmission level

transformer, valued at the opportunity cost of electricity interruptions of USc25/kWh.61

5. Outage data of Matambo substation from 2007-2015 was used to determine an average

annual outage duration of 25.4 hours. The number of outages was assumed to steadily increase

from 2015 at the demand growth rate. The amount of energy not served due to outages was

based on the demand forecast for Tete province derived from the EdM Masterplan,

discussed under the Tete substation component below.

61 Cost of power supply interruptions for the different parts of Mozambique – EdM’s 2014 Final Master Plan

Update Report

45

6. Once the transmission level transformer at Matambo is commissioned, it is assumed that

outages at this substation would cease for ten years and then begin to slowly increase as electricity

demand growth starts to exceed the transformer capacity and equipment starts to deteriorate. On

the cost side, the economic capital cost, discounted taxes from the final contract amount and totaled,

US$ 11.7 million. O&M was assumed to 2.5% of the capital cost.

7. Based on the approach and assumptions, at a discount rate of 6%, the baseline NPV was

estimated to be US$ 0.75 million and the ERR was 7%. It is important to note that the existing

transformer at Matambo, installed in 1982, is past the typical life of a transformer, however,

benefits from increasing resiliency of the grid by adding a transformer and avoiding the adverse

consequences of equipment failure have not been captured here. Furthermore, this is a highly

conservative estimate as it only considers the impact on outages occurring at the substation but

does not account for reduced incidents of load shedding for Tete customers related to the increase

in electricity supply capacity to the province.

Year Cost (USD Million) Benefits Net Benefits

Economic

Capital Cost O&M Cost Total Cost

Value of Increased Demand

Served Due to Reduction in

Outages @ Opp. Cost

Total

Benefits

2014 1.92 0.03 1.95 0.00 0.00 -1.95

2015 3.34 0.09 3.43 0.00 0.00 -3.43

2016 3.10 0.15 3.25 0.00 0.00 -3.25

2017 0.00 0.15 0.15 0.13 0.13 -0.02

2018 0.00 0.15 0.15 0.16 0.16 0.01

2019 0.00 0.15 0.15 0.20 0.20 0.05

2020 0.00 0.15 0.15 0.24 0.24 0.09

2021 0.00 0.15 0.15 0.29 0.29 0.14

2022 0.00 0.15 0.15 0.35 0.35 0.21

2023 0.00 0.15 0.15 0.43 0.43 0.28

2024 0.00 0.15 0.15 0.52 0.52 0.38

2025 0.00 0.15 0.15 0.64 0.64 0.49

2026 0.00 0.15 0.15 0.78 0.78 0.63

2027 0.00 0.15 0.15 0.92 0.92 0.77

2028 0.00 0.15 0.15 1.11 1.11 0.96

2029 0.00 0.15 0.15 1.23 1.23 1.08

2030 0.00 0.15 0.15 1.35 1.35 1.21

2031 0.00 0.15 0.15 1.49 1.49 1.34

2032 0.00 0.15 0.15 1.63 1.63 1.49

2033 0.00 0.15 0.15 1.79 1.79 1.64

2034 0.00 0.15 0.15 1.96 1.96 1.81

2035 0.00 0.15 0.15 2.13 2.13 1.98

2036 0.00 0.15 0.15 2.32 2.32 2.17

2037 0.00 0.15 0.15 2.52 2.52 2.37

2038 0.00 0.15 0.15 2.73 2.73 2.58

2039 0.00 0.15 0.15 2.95 2.95 2.80

2040 0.00 0.15 0.15 3.18 3.18 3.03

NPV @ 6% 0.75

EIRR 7%

MARR (6%) 2040

46

Tete Substation

8. The economic analysis at completion identified that the main benefit of this component

would be the incremental local demand served in Tete province, as a result of a new 50 MVA

transformer, valued at the willingness to pay (WTP) for electricity of USc15.2/kWh.62

9. The benefits of the economic analysis at completion are based on the demand forecast for

Tete province, estimated using actual demand data from EDM’s annual reports and demand

projections from EDM’s Master Plan for Tete province. Demand was forecasted from 2015 – 2040

at a compound annual growth rate of 11%. In addition, based on the capacity of the equipment

installed and the forecasted peak demand, it was estimated that demand served due to the addition

of a new transformer at Tete substation would become constrained after a certain number of years.

From 2021 onwards the installed equipment would be overloaded and not be able to meet increasing

peak demand (MW), however, the volume of demand met (MWh) would keep increasing, as the

substation would be able to serve an increasing volume of demand that is below the threshold of

the peak capacity of the substation (during off-peak hours). It is important to note that the benefit

from decreased outages due to the addition of Tete transformer are not captured due to lack of data.

10. On the cost side, the economic capital cost, discounted taxes from the final contract amount

and totaled, US$ 3.3 million. It is important to note that this cost also includes procurement of a

mobile substation which will be used to decrease outages, as power can be routed through the

mobile substation while a transformer is undergoing maintenance. O&M was assumed to be 2.5%

of the capital cost, and the cost of supplying incremental demand was assumed to the average cost

of electricity supplied in Mozambique in 2016, USc7.0/kWh. EDM’s snapshot half year report for

2016 determines that the average cost of electricity generation is USc4.46/kWh with an additional

USc2.5/kWh of transmission costs, as noted in EDM’s Master Plan, to yield a delivered cost of

electricity supply at the substation level of USc7.0/kWh.

11. Based on the approach and assumptions, at a discount rate of 6%, the baseline NPV was

estimated to be US$ 155 million and the ERR was 97%.

62 Willingness to pay for electricity weighted by the number of customers in each category – EdM’s 2014

Final Master Plan Update Report

47

Project Economic Analysis

12. At the project level, combining the Matambo and Tete components, yields a baseline NPV

of US$ 147 million and an ERR of 36%, with the project reaching the hurdle rate, also referred to

as the minimum acceptable rate of return, of 6% in 2020. This implies that the project is already

economically viable, just based on the benefits delivered in the first 5-6 years of operation. These

results are favorable and demonstrate that the project had a positive impact even after a significant

change in the scope of the project.


Economic

Capital Cost O&M Cost

Cost of

Incremental

Supply Total Cost

Value of Increased

Demand Served @

WTP

Total

Benefits

2015 0.66 0.02 0.00 0.68 0.00 0.00 -0.68

2016 2.64 0.08 0.00 2.72 0.00 0.00 -2.72

2017 0.00 0.08 2.45 2.54 5.36 5.36 2.82

2018 0.00 0.08 3.43 3.51 7.48 7.48 3.98

2019 0.00 0.08 4.49 4.57 9.81 9.81 5.24

2020 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2021 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2022 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2023 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2024 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2025 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2026 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2027 0.00 0.08 5.65 5.73 12.34 12.34 6.61

2028 0.00 0.08 5.74 5.82 12.54 12.54 6.72

2029 0.00 0.08 8.23 8.31 17.97 17.97 9.66

2030 0.00 0.08 10.97 11.05 23.96 23.96 12.91

2031 0.00 0.08 13.98 14.07 30.55 30.55 16.48

2032 0.00 0.08 17.29 17.38 37.78 37.78 20.40

2033 0.00 0.08 20.92 21.00 45.70 45.70 24.70

2034 0.00 0.08 24.88 24.96 54.35 54.35 29.39

2035 0.00 0.08 29.19 29.28 63.78 63.78 34.50

2036 0.00 0.08 33.89 33.97 74.04 74.04 40.06

2037 0.00 0.08 38.99 39.07 85.17 85.17 46.10

2038 0.00 0.08 44.51 44.59 97.24 97.24 52.64

2039 0.00 0.08 50.48 50.56 110.28 110.28 59.72

2040 0.00 0.08 56.92 57.00 124.35 124.35 67.34

NPV @ 6% 154.77

EIRR 97%

MARR (6%) 2018

48


Economic

Capital Cost O&M Cost

Cost of

Incremental

Supply Total Cost

Value of Increased

Demand Served @

WTP

Value of Increased

Demand Served Due

to Reduction in

Outages @ Opp. Cost

Total

Benefits

2014 1.92 0.03 0.00 1.95 0.00 0.00 0.00 -1.95

2015 4.00 0.11 0.00 4.11 0.00 0.00 0.00 -4.11

2016 5.74 0.23 0.00 5.97 0.00 0.00 0.00 -5.97

2017 0.00 0.23 2.45 2.68 5.36 0.13 5.49 2.81

2018 0.00 0.23 3.43 3.66 7.48 0.16 7.65 3.99

2019 0.00 0.23 4.49 4.72 9.81 0.20 10.00 5.28

2020 0.00 0.23 5.65 5.88 12.34 0.24 12.57 6.70

2021 0.00 0.23 5.65 5.88 12.34 0.29 12.63 6.75

2022 0.00 0.23 5.65 5.88 12.34 0.35 12.69 6.81

2023 0.00 0.23 5.65 5.88 12.34 0.43 12.77 6.89

2024 0.00 0.23 5.65 5.88 12.34 0.52 12.86 6.98

2025 0.00 0.23 5.65 5.88 12.34 0.64 12.98 7.10

2026 0.00 0.23 5.65 5.88 12.34 0.78 13.12 7.24

2027 0.00 0.23 5.65 5.88 12.34 0.92 13.25 7.38

2028 0.00 0.23 5.74 5.97 12.54 1.11 13.66 7.68

2029 0.00 0.23 8.23 8.46 17.97 1.23 19.20 10.74

2030 0.00 0.23 10.97 11.20 23.96 1.35 25.32 14.12

2031 0.00 0.23 13.98 14.21 30.55 1.49 32.04 17.82

2032 0.00 0.23 17.29 17.52 37.78 1.63 39.41 21.89

2033 0.00 0.23 20.92 21.15 45.70 1.79 47.49 26.34

2034 0.00 0.23 24.88 25.11 54.35 1.96 56.30 31.19

2035 0.00 0.23 29.19 29.42 63.78 2.13 65.91 36.49

2036 0.00 0.23 33.89 34.12 74.04 2.32 76.36 42.24

2037 0.00 0.23 38.99 39.22 85.17 2.52 87.69 48.47

2038 0.00 0.23 44.51 44.74 97.24 2.73 99.96 55.22

2039 0.00 0.23 50.48 50.71 110.28 2.95 113.23 62.52

2040 0.00 0.23 56.92 57.15 124.35 3.18 127.53 70.38

NPV @ 6% 146.76

EIRR 36%

MARR (6%) 2020

49

Financial Analysis Methodology, Assumptions and Results

Original

13. The financial analysis at appraisal assessed the financial performance of the utilities in

Mozambique and Malawi. The financial analysis at appraisal was reconstructed based on a simpler

cost- benefit approach to assess the financial performance of the project instead of the sector.

Similar to the original economic analysis, the original financial analysis could not be revised at

completion due to restructuring.

Revised

14. The reconstructed financial analysis at completion assessed the revenues for EDM, from

incremental electricity sales because of the project, at the average electricity sales price in 2016 of

USc6.6/kWh. On the cost side, the capital cost was assumed to be the final contract amount for the

Matambo and Tete components, US$13.4 million. O&M and cost of electricity supply were the

same as in the economic analysis.

15. Based on the approach and assumptions, at a weighted average cost of capital for EdM of

5%, the baseline NPV was estimated to be negative and the FRR could not be calculated. The

negative financial net benefits is due the electricity tariffs for domestic consumers being lower than

the cost of electricity supply.

50

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Wendy E. Hughes Task Team Leader AFTG1 Team Leader

Dan R. Aronson Consultant (Social Development

Specialist) AFRDE Social Development

Sylvester Kofi Awanyo Lead Procurement Specialist OPSPF Procurement

Arbi Ben Achour Consultant (Environment Safeguards

Specialist) GSU11 Environment

Jyoti Bisbey Infrastructure Finance Special GCPPP Infrastructure Finance

Antonio L. Chamuco Sr. Procurement Specialist GGO07 Procurement

Adelia Ninete Matias Chebeia Temporary (Team Assistant) GPSJB ACS Support

Sunil Kumar Khosla Lead Energy Specialist GEE02 Energy

Marius Koen Lead Financial Management Specialist GGO21 Financial

Management

Esther Angellah Lozo Executive Assistant AFMMW ACS Support

Joel J. Maweni Energy Adviser GEE09 Energy

Reinaldo Goncalves Mendonca Consultant (Power Engineer) GEE05 Power Engineering

Robert Mills Senior Economist AFTG1 Economics

Fanny Kathinka Missfeldt-

Ringius Senior Energy Economist GEE06 Energy Economics

Donald Herrings Mphande Lead Financial Management Specialist GGO31 Financial

Management

Somin Mukherji Sr Financial Analyst GEEDR Financial Analysis

Edith Ruguru Mwenda Senior Counsel LEGAM Legal

Diep Nguyen-Van Houtte Consultant (Operations Officer) AFCMW Quality Review

Samuel A. O'Brien-Kumi Senior Energy Economist AFTG1 Energy Economics

Robert A. Robelus Consultant (Environment Safeguards

Specialist) GEN05 Environment

Joao Tinga Financial Management Specialist GGO26 Financial

Management

Augustine Kudawoo Wright Temporary (Program Assistant) GEEES ACS Support

Supervision/ICR

Wendy Hughes Task Team Leader AFTG1 Team Leader

Robert Mills Task Team Leader AFTEG Team Leader

Reto Thoenen Energy Specialist AFTEG Team Member

Sara Nso Consultant (Energy Specialist) AFTEG Energy

Antonio L. Chamuco Senior Procurement Specialist GGO07 Procurement

Salma Chande Program Assistant AFCS2 ACS Support

Mtchera J. Chirwa Infrastructure Specialist AFTU1 Team Member

Elvis Langa Financial Management Specialist GGO26 Financial

Management

Jonathan Nyamukapa Sr. Financial Management Specialist AFTME Financial

Management

Arbi Ben Achour Consultant (Social Development

Specialist) GSU11 Social Development

Reinaldo Goncalves Mendonca Consultant (Power Engineer) GEE05 Power Engineering

51

Robert A. Robelus Consultant (Environment Specialist) GEN05 Environment

Augustine Kudawoo Wright Temporary (Program Assistant) GEEES ACS Support

Maria Isabel Neto Task Team Leader GEE01 Team Leader

Zayra Romo Task Team Leader GEE01 Team Leader

Gulgoren A. Cansiz Consultant GEE01 Team Member

Francesca Fusaro Consultant GEE01 Team Member

Maria Meer Program Assistant GEEX2 ACS Support

Kabir Malik Economist, ICR Lead Author GEE01 ICR Author

Abdolreza Bobak Rezaian Consultant (Energy Specialist & ICR

co-Author) GEE01 ICR co-Author

Claudio Buque Energy Specialist GEE01 Team Member

Allison Berg Sr. Operations Specialist GEE08 Team Member

Asad Ali Ahmed Operations Analyst GEESO Team Member

Raima Oyeneyin Sr. Program Assistant GEE08 Team Member

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including

travel and consultant costs)

Lending

FY04 8.83 45.80

FY05 16.20 124.97

FY06 13.89 111.35

FY07 70.11 378.44

FY08 12.23 79.77

Total: 121.26 740.33

Supervision/ICR

FY08 13.23 89.79

FY09 25.39 99.93

FY10 16.76 82.79

FY11 5.60 21.48

FY12 13.63 57.74

FY13 12.96 74.88

FY14 6.14 36.53

FY15 7.15 61.64

FY16 11.27 100.48

FY17 12.19 72.85

Total: 124.32 698.11

52

Annex 5. Beneficiary Survey Results

Not Applicable

53

Annex 6. Stakeholder Workshop Report and Results

Not Applicable

54

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

Southern Africa Power Market (APL2): Extension of Matambo 220kV Substation Project

IMPLEMENTATION COMPLETION REPORT

Submitted to the World Bank by

EDM’s Project Implementation Unit

2nd November 2016

Introduction.

This report concerns the Southern Africa Power Market (APL2): Extension of Matambo 220kV

Substation Project. The Project Agreement between IBRD and The Government of Mozambique

(GoM), through Electricidade De Moçambique EP – EDM as implementing Entity, dated 21st

September 2007, for the original project and 15th November 2013 after project amended restated

financing agreement, sets out the requirements for this report. Specifically, Section II.A.2.(c)

provides that EDM prepare and furnish to the Ministry of Finance and the World Bank not later

than four (4) months after the Closing Date:

(i) a report of such scope and in such detail as the Bank shall reasonably request, on the

execution of the Project, the performance by EDM of its obligations under this

Agreement and the accomplishments of the purpose of the Loan, and

(ii) a plan designed to ensure the substantiality of the Project’s achievements.

1. Assessment of objective, design, implementation, and operational experience.

The Project’s development objective was to reduce outages in the Tete province.

Th project investments in transformer capacity expansion, sought to increase supplies to the Town

and Province of Tete to cope with load growth as well to refurbish certain switchgear and control

and protection equipment within the substation to improve operational efficiency and flexibility.

2. Assessment of outcome against the objectives.

Our overall assessment of the extent to which the operation's major relevant objectives were

achieved, (or are expected to be achieved) efficiently, is:

Satisfactory. There were minor shortcomings in the operation’s achievement of its objectives, in

its efficiency, or in its relevance.

This rating is based on the following criteria.

2.1 Achievement of objectives. The objectives were fully achieved as follows.

Frequency of electricity outages in Tete province were reduced from 414 outages in 2006 to 151

outages in October 2016. This was an assessment of a shorter duration. In the longer term, the

outages are expected to reduce to the minimum possible by summarizing it to planned shutdowns

for network maintenance.

The new130MVA transformer capacity was added in additional to the existing 60MVA

capacity transformer. This required to enable increasing of supplies to the Town and

Province of Tete to cope with load growth. The new transformer capacity of 130MVA was

energized on 3rd July 2016 and loaded on 10th July 2016.

55

Specific plant such as certain switchgear as well as Substation control and protection

equipment were refurbished while New 66kV and 33kV Busbars were constructed and full

SCADA system installed within the substation to improve operational flexibility,

efficiency and reliability;

2.2 Efficiency. The operation has achieved, or is expected to achieve a return higher than the

opportunity cost of capital, and is the least cost alternative.

The initial plan was for the installation of an 80MVA transformer; however, a bigger

130MVA transformer was supplied for the same cost (except minimal additional

installation cost); in this case there was an assessment of the demand for electricity made

to determine the size of the transformer needed. There was also an assessment of the Tender

prices for the 80MVA and 130MVA transformers. The assessment showed that the price

for the 130MVA transformer was not much higher and based on the load forecasts in the

Master Plan a 130MVA transformer would be required to accommodate the load growth

until 2026. From the assessments made it was concluded that 130 MVA was the appropriate

size for the growth of consumption that occurred in the city and province of Tete.

The optical fiber in the OPGW from Matambo to Tete had breaks and had not been

operational; this was repaired in the process to allow Tete to be fully controllable from

Matambo;

The 33kV feeder to Changara had not been operating with its own breaker; it was

additionally providing independent switch bay from one of the spare, thereby improving

flexibility;

2.3 Relevance. The operation’s objectives, design, and implementation are fully consistent with the

country’s current development priorities and with current country and sectoral assistance strategies

and corporate goals.

The relevance of the initial regional project was aligned with Mozambique electricity

strategy in order to facilitate the exchange of power between the two countries and making

Mozambique to be able to sell energy to Malawi and create a redundancy in the supply of

energy to the northern region of Mozambique in the event of a failure of the current north

- central transmission line from the Cahora Bassa dam through the Matambo substation to

the north of Mozambique.

The relevance of the initial regional project for the Mozambique-Malawi interconnection

project was seen as a solution to Malawi's current challenges in supplying electricity by

encouraging and developing new sources and opening up the market to potential investors.

The relevance of the project post restructuring to the electricity plans was to respond to the

great demand of electric energy in the city and province of Tete facing the appearance of

several industries due to the discovery of mineral coal mines.

The relevance of the project post restructuring to the development plans was to enable the

construction of medium voltage lines that could not be built before due to the limitation of

the source, in this case the Matambo substation that has medium voltage outgoing feeders

and also sub-transmission outgoing feeders that feed other substations.

56

The impact of the Project is very large in the Tete region because EDM is already making

more new customer connection since this new transformer is in service.

Other overhead MV distribution lines that could not be built due to limited availability are

being designed and extended to more neighborhoods in the city of Tete.

New district headquarters are already benefiting from the power supplied from the new

transformer.

The Mozambique Electricity Master Plan has an objective to facilitate implementation of

power projects on a rational basis. Work was carried out in an economically efficient and

environmentally sustainable manner.

The design implemented included some spare bays for connection of more feeders to

increase access to efficiently priced electricity to the affected communities and to be able

to cater for future demand;

3. Evaluation of own performance during preparation and implementation, with special

emphasis on lessons learned that may be helpful in the future.

Our assessment of the extent to which the Government and implementing agencies ensured quality

of preparation and implementation, and complied with covenants and agreements, toward the

achievement of development outcomes, is as follows.

3.1 For the Government overall:

Highly Satisfactory. There were no shortcomings in Government performance.

There was commitment at Government level for providing enabling environment including

supportive macro, sectorial, and institutional policies (legislation, regulatory and pricing

reforms, etc.).

The government played a very important role in the preparation phase, such as the

mobilization of local governments for public consultation regarding project

implementation issues, issuance of project environmental impact licenses, among other

activities.

In the preparation phase the government also provided a matrix of the strategic energy plan

and the overall plan for the energy sector.

In the implementation phase it also played an important role in the issuance of entry visas

to the foreign technicians of the Consultant as well as the Contractor. Issuance of DIRE for

foreign resident technicians of both firms.

In the restructuring of the regional project after Malawi withdrew.

3.2 For implementing agency

Satisfactory. There were minor shortcomings such as getting the clearance on the duty exemption

for the materials/equipment’s imported under the project due to low performance of others

stakeholders involved in the implementing agency’s performance. Throughout the implementation

of the project, EDM exhibited;

Ownership and commitment to achieving development objectives (timely meetings);

57

Adequacy of beneficiary/stakeholder consultations and involvement (timely meetings with

HCB, VALE, ICVL, and other stakeholders);

Readiness for implementation, implementation arrangements and capacity, and

appointment of key staff;

Timely resolution of implementation issues by resolving issues related to provision of

information and coordination of shut downs;

Fiduciary (financial management, governance, provision of counterpart funding,

procurement, reimbursements, compliance with covenants);

Adequacy of monitoring and evaluation arrangements, including the utilization of M&E

data in decision-making and resource allocation;

Relationships and coordination with donors/ partners/stakeholders;

Adequacy of transition arrangements for regular operation of supported activities after

Loan/Credit closing.

3.4 Lessons learned

The need for carrying more detailed studies during project initiation to avoid scope creep

and emergence of numerous variations. During the project numerous outages were planned

for installation of substation equipment. These outages were not in line with the planned

substation outages for the year. This caused some delays in implementation as the

Contractor had to wait for the dates of the planned outages to continue with the Works

Including appropriate clauses in the EPC contract to be able to deal with issues of delays

in schedule by Contractor. There were significant delays in the installation, caused by a fire

in the Contractor’s warehouse. This lead to equipment damages, this equipment had to be

re-manufactured as the Insurer’s cost. EDM had to pay and incur the delays related to

additional Factory Acceptance Tests and delivery of equipment.

4. Evaluation of the performance of the World Bank, including the effectiveness of their

relationship, with special emphasis on lessons learned.

4.1 World Bank: Quality at entry. Our assessment of the extent to which services provided by the

Bank ensured quality at entry of the operation is as follows.

Highly Satisfactory. There were no shortcomings in identification, preparation, or appraisal.

The World Bank team was always ready to help implementation agency both with its

technicians based in Mozambique as well as from abroad.

It has always been helpful in overcoming a delicate subject matter of the Procurement

project, clarifications regarding addenda and variations orders submitted by the Consultant

or Contractor.

Always warned about the financial status of the project. The World Bank local team made

possible EDM's financial department technicians be linked to the Project, financial status

via Client Connection system so that the technicians could best follow the financial health

of the Project.

58

The World Bank team traveled to the site on service missions and warned about the risks

the project was exposed. These risks included delays in 130MVA transformer delivery, due

to additional logistic requirements in transporting equipment from Richards Bay Harbour

in South Africa, through Zimbabwe and into Mozambique. There was a long waiting period

at Richards Bay, caused by the Xenophobic crisis, because police escorts were not available

to escort the transformer from South Africa to Zimbabwe border.

4.2 World Bank: Implementation. Our assessment of the extent to which the Bank supported

effective implementation through appropriate supervision (including ensuring adequate transition

arrangements for regular operation of supported activities after loan/credit closing) is as follows.

Highly Satisfactory. There were no shortcomings in the proactive identification of opportunities

and resolution of threats.

5. Description of proposed arrangements for future operation. Plan to ensure the

sustainability of the Project’s achievement.

5.1 Future arrangements.

Arrangements to achieve or maintain the same development outcome include:

- The infrastructure and equipment installed during the TUP project will meet the electricity

demand in Tete province for the next 10 years. The Matambo substation extension is sufficient to

maintain the development outcomes until 2026.

- In addition to the new equipment installation, maintenance of the equipment in accordance to

international best practices will be done in order to maintain the network operational and prevent

unplanned outages.

- To maintain the objectives beyond the foreseeable 10 years, the Utility will have to regularly

update their development plans for the province and monitor the demand growth to ensure that

unforeseen growths are addressed before they reach the capacity of the existing equipment.

5.2 Risk to development outcome.

Our assessment of the risk, at present, that development outcomes (or expected outcomes) will not

be maintained (or realized) is:

Negligible to Low;

Changes that may occur that would be detrimental to the ultimate achievement of the operation’s

development outcome include:

- Rapid demand growth due to construction activity in large infrastructure projects;

- Inability of existing transmission lines to support the forecasted load growth.

The likelihood is negligible to low that some of these changes may occur. The equipment sizing

was done based on the recommendations from a recent transmission and distribution master plan,

which covered the domestic, commercial and industrial load growth in the province up to 2026.

Other factors, such as equipment failures pose a low risk, since the extension was done using a new

transformer and auxiliary equipment, procured through an international competitive process.

Transmission infrastructure constraints may be experienced if the load grows beyond their capacity,

this infrastructure was not upgraded at this stage, EDM will have to monitor the load growth in

future to ensure that the capacity of the lines do not hinder the performance of the network.

The impact on the operation’s development outcomes of some or all of these changes materializing

is significant. The Matambo substation is essential for the supply of electricity to Tete City and the

surrounding industrial areas. If these negative changes materialize the network will be constrained

and the quality of supply will be reduced. High load growths and insufficient transmission capacity

in the region can cause outages which negatively impact the population and businesses in Tete

province.

59

6. Results

Project Development Objective Indicators PHINDPDOTBL

Average interruption frequency per year in the project area (Number, Core)

Baseline Actual (Previous) Actual (Current) End Target

Value 230.00 199.00 151.00 411.00

Date 17-Jul-2007 31-Mar-2016 30-Aug-2016 30-Aug-2016

PHINDPDOTBL

Customers served in the project area (Number, Core Supplement)


Value 20527.00 72633.00 81276.00 86628.00

PHINDPDOTBL

Direct project beneficiaries (Number, Core)


Value 0.00 0.00 81276.00 86628.00

Date 01-Nov-2013 14-Dec-2015 30-Aug-2016 30-Aug-2016

Comments

PHINDPDOTBL

Female beneficiaries (Percentage, Core Supplement)


Value 0.00 0.00 50.00 51.00

Overall Comments

60

Intermediate Results Indicators PHINDIR ITBL

ESIA final report completed and approved by GoM (Text, Custom)


Value No ESIA -- ESIA final report completed and approved by GoM

ESIA final report completed and approved by GoM

Date 17-Jul-2007 30-Nov-2013 24-May-2016 30-Jun-2016

PHINDIR ITBL

New 220/66/33 kV transformer installed and commissioned at Matambo substation (Text, Custom)


Value No transformer Transformer on site fully and fully assembled

130 MVA Transformer delivered on site and commissioned

80 MVA of new transformation capacity commissioned

Date 01-Jan-2012 11-Dec-2015 30-Aug-2016 30-Aug-2016

PHINDIR ITBL

Level of charge of the current Matambo transformer (Percentage, Custom)


Value 26.00 92.00 45.00 70.00

Date 17-Jul-2007 21-Nov-2014 30-Aug-2016 30-Aug-2016

PHINDIR ITBL

New 220/33 kV, 25 MVA mobile substation delivered (Text, Custom)


Value No transformer Transformer undergoing tests

Transformer was delivered and ready for use

50 MVA of new transformation capacity delivered

Date 17-Jul-2007 11-Dec-2015 30-Aug-2016 30-Aug-2016

61

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

None

62

Annex 9. List of Supporting Documents

1. Project Appraisal Document: Southern African Power Market Program (SAPMP) APL-1,

Sept. 2003.

2. Project Appraisal Document: Southern African Power Market Program (SAPMP) APL-2,

June 2007.

3. Project Appraisal Documents: Costal Transmission Backbone Project of the West African

Power Pool (WAPP) APL Program, June 2005.

4. Electricity de Mozambique (EdM). Annual Statistical Report, 2014.

5. Malawi Growth and Development Strategy 2006-2011

6. Malawi Growth and Development Strategy 2011-2016

7. Malawi National Electricity Policy (NEP, 2003)

8. Mozambique Poverty Reduction Support Strategy 2006-2009 (PARPA II)

9. Mozambique National Development Strategy 2014 (ENDE)

10. Malawi CAS: 2007-2010

11. Malawi CAS: 20013-2016

12. Mozambique CPS: 2008-2011

13. Mozambique CPS: 2012-2015

14. SAPP Annual Report, 2006.

15. Quarterly Progress Report, Extension of Matambo 220KV substation project, April –

June 2015.

16. Quarterly Progress Report, Extension of Matambo 220KV substation project, December

2015.

17. Norconsult, 2014. Final Master Plan Update Report, Master Plan Update Project, 2012 –

2027, Technical Assistance for Electricity de Mozambique (EdM).

18. Dikelman, Taryn, 2011. The Effects of Rural Electrification on Employment: New

Evidence from South Africa, American Economic Review, Vol. 101, No. 7, (pp. 3078-

3108)

19. Karen Fisher-Vanden, Erin T. Mansur, Qiong (Juliana) Wang, 2015. Electricity shortages

and firm productivity: Evidence from China's industrial firms, Journal of Development

Economics, Volume 114, May 2015, Pages 172–188.

20. ICR Guidelines: August 2006, (updated 2011).

21. Project Restructuring Papers, 2013, 2014, 2015, and 2016.

22. ISR Seq1-Seq16: Mozambique Transmission Upgrade Project.

23. Other Project Documentation: Financing Agreements, Aide Mémoires, Office memos,

Official Correspondences.

24. Vanheukelom. Jan and Talitha Bertelsmann-Scott, 2016. The Political Economy of

Regional Integration in Africa, The Southern African Development Community (SADC).

25. World Bank, 2016. Background Paper for the Guidance Note on Energy Project

Appraisal Documents: Literature Review

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Annex 10. Map IBRD 33451

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