Conformed Copy - C2214 - Economic Recovery Credit - Finland Grant Agreement

Ratings convey unsatisfactory project outcomes, unlikely sustainability, though institutional development impacts are modest. And, although the Bank performance is assessed as satisfactory, the Borrower's performance is rated unsatisfactory, given delays in resettlement implementation, inadequate and delayed tariff adjustments, and non-compliance with the minimum financial performance indicators. Several lessons address the following. There is need to improve the economic efficiency of individual private investments, with due consideration for a) a cohesive sectoral approach, with special attention to prudent investment planning, and financial management, as well as rigorous risk analysis and management; and, b) for rationalizing prices, and risk sharing arrangements within a competitive, and transparent framework. Moreover, it may not be realistic to expect power projects, developed with private funds under the "fast-tracked" independent power producer (IPP) Program, to be least cost in the "traditional" sense; the additional cost over the hypothetical "least-cost" alternative is the price to pay for mobilizing resources that would otherwise, not be available to the sector/country. This adds to the fact that conventional economic rate of return analysis, is poorly suited to an environment where higher-cost, sub-optimal investments are required to eliminate power shortages. The main economic benefits of the project, were reaped in the first few years, when power was scarce, and the value of avoiding outages was very high. Therefore, the quantification of benefits, and the estimation of the economic rate of return is critically dependent on the estimated value of unserved energy. Consequently, a major legislative action (e.g. power sector restructuring bill) critical for the development objective of the Project, should be a pre-condition for Board approval, rather than a dated covenant. Moreover, project design should include adequate implementation support for power sector restructuring. Lessons further highlight that there are no short cuts to a successful complex operation; above-average inputs of Bank resources, and broad staff skill mix for project design, appraisal and supervision are required.