Document of The World Bank

Report No: 27134

IMPLEMENTATION COMPLETION REPORT(SCL-41990)

ON A

LOAN

IN THE AMOUNT OF US$ 145 MILLION

TO THE

KINGDOM OF THAILAND

FOR THE

METROPOLITAN DISTRIBUTION REINFORCEMENT PROJECT

December 24, 2003

Energy and Mining Sector UnitEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 1, 2003)

Currency Unit = Thai Baht (B) B1.0 = US$ 0.023

US$ 1.0 = B42.0

FISCAL YEAROctober 1 September 30

ABBREVIATIONS AND ACRONYMS

CAS - Country Assistance StrategyDEDE - Department of Alternative Energy Development and EfficiencyDO - Development ObjectiveDSM - Demand Side ManagementEGAT - Electricity Generating Authority of ThailandEIRR - Economic Internal Rate of ReturnEPPO - Energy Policy and Planning Office (formerly NEPO)ESCO - Energy Services CompanyESI - Electricity Supply IndustryESMAP - Energy Sector Management Assistance ProgramGEF - Global Environment FacilityICR - Implementation Completion ReportISO - Independent System OperatorJBIC - Japan Bank for International CooperationMEA - Metropolitan Electricity AuthorityMOE - Ministry of Energy MW - MegawattMWh - Megawatt HourNEPO - National Energy Policy OfficeNESDB - National Economic and Social Development BoardNSB - Non-core Service BusinessPAD - Project Appraisal DocumentPEA - Provincial Electricity AuthorityPPA - Power Purchase AgreementSAR - Staff Appraisal ReportSAIDI - System Average Interruption Duration IndexSAIFI - System Average Interruption Frequency IndexSCADA - Supervisory Control and Data AcquisitionSET - Stock Exchange of ThailandSFR - Self-Financing RatioSOE - State Owned EnterpriseTOU - Time of Use

Vice President: Jemal-ud-din KassumCountry Director Ian Porter

Sector DirectorSector Manager

Christian DelvoieJunhui Wu

Task Team Leader/Task Manager: Rebecca Sekse

THAILANDMetropolitan Distribution Reinforcement

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 35. Major Factors Affecting Implementation and Outcome 66. Sustainability 67. Bank and Borrower Performance 78. Lessons Learned 89. Partner Comments 910. Additional Information 9Annex 1. Key Performance Indicators/Log Frame Matrix 11Annex 2. Project Costs and Financing 14Annex 3. Economic Costs and Benefits 21Annex 4. Bank Inputs 25Annex 5. Ratings for Achievement of Objectives/Outputs of Components 27Annex 6. Ratings of Bank and Borrower Performance 28Annex 7. List of Supporting Documents 29Annex 8. Aide Memoire 31Annex 9. Borrower's Evaluation Report 33Annex 10. Demand Side Management (An Assessment by MEA) 38

Project ID: P037086 Project Name: Metropolitan Distribution ReinforcementTeam Leader: Rebecca C. Sekse TL Unit: EASEGICR Type: Core ICR Report Date: December 24, 2003

1. Project DataName: Metropolitan Distribution Reinforcement L/C/TF Number: SCL-41990

Country/Department: THAILAND Region: East Asia and Pacific Region

Sector/subsector: Power (100%)Theme: Infrastructure services for private sector development (P);

Administrative and civil service reform (P); Regulation and competition policy (S)

KEY DATES Original Revised/ActualPCD: 07/15/1996 Effective: 01/10/1998 12/31/1997

Appraisal: 00/00/0000 MTR:Approval: 06/24/1997 Closing: 12/31/2002 06/30/2003

Borrower/Implementing Agency: METROPOLITAN ELECTRICITY AUTHORITY/METROPOLITAN ELECTRICITY AUTHORITY (MEA)

Other Partners:

STAFF Current At AppraisalVice President: Jemal-ud-din Kassum Gautam KajiCountry Director: Ian C. Porter Khalilzadeh ShiraziSector Manager: Junhui Wu Jayashankar ShivakumarTeam Leader at ICR: Rebecca Sekse Darayes MehtaICR Primary Author: Darayes Bahadur Mehta;

Rebecca C. Sekse

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: H

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

The Project’s main objectives were to: (a) improve the reliability of the distribution system and contain losses, while meeting the projected rapid increase in electricity demand; (b) assist in the organizational restructuring of MEA leading to its commercialization and corporatization; and (c) introduce demand-side management capabilities in MEA's organization.

At appraisal in 1997, rapid growth in electricity demand was anticipated in Metropolitan Bangkok, while system reliability and efficiency were already beginning to erode. This required large investments in the distribution network to improve supply-side efficiency and deepening of efforts (commenced under the Bank’s GEF Project – TH-28637) to enhance demand-side efficiency. The stage had been set for commercialization of the three Thai electricity utilities and it was appropriate to initiate concrete steps for the restructuring and corporatization of MEA. The project objectives were thus aptly targeted to MEA’s needs. The development of electricity infrastructure was fully consistent with the Bank’s Country Assistance Strategy (CAS) to strengthen Thailand’s infrastructure base to help it regain international competitiveness. Commercialization of MEA was in line with the Bank’s and the Government’s sector strategy. While the Investment components of the Project were well within the implementing capacity of MEA, the expectation of achievement of the Policy components within a reasonable time frame was ambitious, but this turned out to be largely due to factors which could not have been foreseen at appraisal.

3.2 Revised Objective:

The original objectives remained unchanged.

3.3 Original Components:

The Project had the following main components: (see Annex 2 for details)

Investment Components: - These comprised strengthening of MEA’s network under the following heads: (a) transmission and distribution substation system; (b) transmission line systems; and (c) distribution system.

Policy Components: – (a) Major restructuring of MEA's organization leading to commercialization and corporatization of the entity, including: (i) unbundling of MEA's "Supply" and "Distribution" functions; (ii) establishment of a corporate center for central support functions; (iii) creation of business units for non-core functions; and (iv) establishment of subsidiary companies; (b) introduction of DSM capabilities in MEA's organization, comprising: (i) setting up of an Appliance Testing Laboratory; (ii) introduction of a system-wide Load Research program; (iii) implementation of a Load Control program; (iv) establishment of an Energy Services Company (ESCO); and (v) technical assistance for the four DSM components. Both, the Investment and the Policy components were closely linked to the Project’s objectives. Recognizing that MEA had no previous experience in implementing the Policy components: (a) the restructuring steps were staged to move MEA progressively towards corporatization and subsequent privatization; (b) the DSM initiatives were tailored to suit MEA’s technical capabilities and gradually develop commercial consciousness through the ESCO route; and (c) adequate consulting assistance was provided for both.

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3.4 Revised Components:

The 1997 economic/financial crisis led to a reversal in demand growth and forced MEA to slash its expansion program to maintain its financial stability. Accordingly, in 1999, MEA proposed to the Bank a substantial restructuring of the Project’s physical components, while continuing to maintain its development objectives and economic viability (EIRR). In the face of faltering demand, MEA requested the Bank to also review the Project’s rather stringent DSM program stipulations and agree to a more rational and manageable program. The Bank accepted MEA’s proposals and approved the restructured Project after securing a no-objection from its Board. The legal documents were amended accordingly. The revised physical components are given in Annex 2. A worthy addition was the Service Efficiency Improvement component using a SCADA system.

3.5 Quality at Entry:

The quality of entry of the Project is rated as satisfactory. The project objectives were consistent with the CAS and the Government’s sector policies. While the SAR identified the risks of construction delays, this became moot when the demand registered negative growths during the crisis years, 1997-99. Anticipation of delays in implementation of the Project’s policy components (commercialization, corporatization and development of DSM capabilities), was well founded, but the extent of difficulties encountered could not be foreseen. The Project fully complied with the Bank’s environmental and social safeguard policies.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

The overall outcome of the Project is rated as satisfactory. It would have been rated as highly satisfactory, except that the achievement of its Policy components merited only a satisfactory rating, falling short of SAR expectations. The achievement of the objective to improve the reliability of the distribution system and contain losses was admirably met, albeit with lower than expected demand growth, and is rated as highly satisfactory. This is warranted on the basis of MEA’s skillful reframing of the physical components and down-scaling of investments, as demand faltered (a task, more challenging than meeting demand growth), so that the Project’s economic viability was sustained and MEA’s overall financial position did not flounder.

Objective 1: Improve the reliability of the distribution system and contain losses, while meeting the projected rapid increase in electricity demand.

This objective was admirably met, with dramatic improvements in reliability indices, losses and manpower utilization (see Annex 1). While both, reliability and efficiency improvements, can in part be attributed to low demand growth, they were brought about significantly by improvements in operation and maintenance practices and by well-timed, well-positioned, and aptly-curtailed investments in distribution infrastructure, in consonance with system demand. Manpower utilization (per unit of demand) was improved, even with demand depression, due to personnel policies that stopped recruitment of non-technical staff and encouraged early separation.

Objective 2: Assist in the organizational restructuring of MEA leading to its commercialization and corporatization.

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This objective is expected to be largely met. MEA is currently proceeding earnestly with restructuring and commercialization, as a prerequisite to registering itself as the “MEA Public Company Ltd.” with the Ministry of Commerce in March 2004 and to privatize itself as a whole, by way of public offering of a portion of its equity in June 2004.

MEA organizational restructuring fell short of appraisal expectations. At appraisal the following steps were envisaged for the restructuring of MEA: Phase 1 – (i) Creation of Business Units: (Non Core Units for divestiture); (ii) unbundling of Core Distribution activities into “Supply” and “Distribution ” cost centers; (iii) creation of a corporate center of central support units ; and (iv) creation of an ESCO business unit. Phase 2 – (i) Conversion of “Supply” business unit into a profit center; and (ii) introduction of wholesale competition with MEA “Distribution” business unit having open access to bulk supply distributors and large retail consumers. While creating four Business Units for its Core and Non-Core operations (Management and Finance; Supply and Marketing; Engineering; and Operation and Business), MEA dropped the idea of spinning-off its Non-Core units, considering them too small to attract private interest. And, while unbundling its Core businesses into “Network” and “Supply” operations, it could do so only on an accounting basis (“Cost-Centers”). Network and Supply operations could function as separate legal entities (“Profit Centers”), only if the Government later decides to allow wholesale competition for bulk supply to distributors and large consumers, and subsequently retail competition as well. There are no signs of this happening in the near future.

The less-than-expected achievement of this objective is due to vacillations in government policy for sector reform, exacerbated to some extent by reluctance of the electricity utilities to espouse major structural changes that could lead to the breaking up of their empires. Thus, while the basic policy for reform, restructuring and privatization was maintained, its implementation course was checkered (see Section 10 below).

Objective 3: Introduce demand-side management (DSM) capabilities in MEA's organization.

Initially, implementation was quite seriously affected by the country’s financial/economic crisis. With demand declining and revenues falling, MEA management was (understandably) reluctant to commit resources to the DSM effort (which would have further eroded its revenues) and wished to drop this component. Due to the tardy progress in DSM, as also the deterioration in MEA’s financial performance, the Project’s DO rating was downgraded to U in 1999 and subsequently upgraded to S in 2001. Following Bank’s persuasion and agreement to reallocate some funds from the GEF Project (TH-28637), DSM was revived. The Bank also agreed to: (i) dropping testing facilities for Refrigerators and Air Conditioners as adequate private facilities for these were available in Thailand; (ii) deferring development of Load Control from MEA’s scope (to be taken up by MEA when the demand in its area picked up substantially), as EGAT was already implementing it; and (iii) moderating the demonstration of ESCO’s performance to five projects aggregating to about Baht 10 million.

With the aforementioned relaxations, the realization of this objective was fully accomplished. MEA: (i) undertook several consulting studies (see Annex 7); (ii) installed top class motor and ballast testing facilities at its testing center at Samsen and embarked on a marketing strategy for promoting their use; (iii) did commendable work on load research, collecting load data of 1,142 samples, producing customer and overall system load profiles and is now creating advanced applications to facilitate efficient utilization of electricity and reducing demand; (iv) assisted customers in availing of TOU tariff to reduce electricity bills; and (v) set up its ESCO Business Unit and contracted for five demonstration projects totaling about Baht 10 million.

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4.2 Outputs by components:

The restructured Project’s physical components were fully implemented within the six-months –extended loan closing date of June 30, 2003, and executed with high standards of quality, with due regard to environmental, social, aesthetical and safety considerations. Implementation delays were largely due to factors (way leave problems, traffic congestion, coordination with other metropolitan authorities) that were beyond MEA’s control.

4.3 Net Present Value/Economic rate of return:

At the time of appraisal in 1997, the economic justification of the Project was based on evaluating the EIRR of a time-slice of MEA’s investment program over the years 1997-2001. The EIRR was 20.4%. At the ICR stage in 2003, the EIRR was evaluated for time slices of MEA’s investment program: (i) over the 1997-2001 period; and (ii) over the 1997-2003 period, using the same methodology as at appraisal (see Annex 3). The EIRR’s of the two time slices are 13.5% and 19.8%, respectively. This illustrates that while the EIRR of MEA’s investment program immediately following the financial/economic crisis was adversely impacted, it still exceeded the viability threshold of 10%, and that subsequent recovery after the crisis was over was rapid. Both performances point to MEA maintaining a high degree of investment and performance efficiency.

4.4 Financial rate of return:

In spite of the 1997 economic/financial crisis, the financial objectives of the Project, as reflected by the covenanted financial ratios, were substantially achieved (see Annex 1); only on one occasion did MEA not comply with the financial covenants - SFR in FY99 was 2% instead of the covenanted 25%. As the overall financial health of MEA continued to remain sound, the Bank allowed a one-time relaxation of this covenant. From FY00 onwards, MEA’s financial performance improved dramatically as a result of: (i) prudent financial management; (ii) drastic reduction in capital investments; (iii) significant improvements in operating efficiency; and (iv) recouping foreign exchange losses from consumers through the tariff surcharge mechanism.

4.5 Institutional development impact:

The Project’s institutional development impact is rated as high. As a result of several consulting studies that MEA undertook (see Annex 7) in compliance with the Project’s and the Government’s mandates to commercialize and corporatize, a distinct business-oriented culture gradually emerged. This is expected to mature as MEA becomes a corporation and is listed on the SET. Due to the Government’s decision to select electricity utility Governors on a competitive basis and assign them time-bound performance-linked contracts, there have been discernable improvements in the efficiency of MEA’s managerial and technical operations. Though MEA was prepared to create “Network” and “Supply” “Profit Centers”, it had to stop short and do this only on a “Cost Center” basis, as wholesale competition was put on indefinite hold by the Government. As a distribution utility, MEA had to familiarize itself with the novel DSM concept early on, and consequently, delayed implementation of this program. However, from 2000 onwards, it had begun to implement the program and imbibed a DSM culture --institutionalizing the ESCO concept, creating an ESCO unit with a staff of 15, evolving novel methods of contracting/financing and getting on with implementation of several ESCO projects, albeit small to start with (see Annex 10).

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5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

Two factors can be cited: First - the1997 economic/financial crisis that struck Thailand, which led to a dramatic reduction in power demand and severely tested the financial strength of the utilities to cope and recover; and Second - Government concerns over the security of supply and pricing spike after the California Power crisis and the adverse reports about operation of the British Power Pool. This led the Government to drop the introduction of a competitive power market, as envisaged in the context of the energy sector reform agenda.

5.2 Factors generally subject to government control:

While committed to commercialization and privatization per se, the current Government had no compulsion to introduce complex industry restructuring devised by the previous Government in the face of utilities’ general reluctance. In deference to their wishes, the current Government has proposed corporatization and listing of the three utilities without breaking them up, but at an accelerated pace. Hence, creation of MEA’s Network and Supply Units as Profit Centers would be on an indefinite hold, but its listing on the SET would be completed by June 2004. At no time did the Government agree to raise tariffs or forego remittances when utilities could not meet Bank’s financial covenants, but this did not adversely affect MEA’s financial health significantly.

5.3 Factors generally subject to implementing agency control:

There were two significant factors: (i) initial lethargy of the organization in implementing the DSM component; and (ii) the general reluctance of MEA management, backed by MEA’s union (as was the case with all the three Thai electricity utilities) to undertake a major organizational restructuring.

5.4 Costs and financing:

The total estimated cost of the appraised Project was US$362 million and of the restructured Project US$331 million. The actual completion cost was US$293.4 million. The saving of US$37.6 million was due to much lower than expected equipment costs. In all, MEA cancelled US$59.3 million from the loan amount.

6. Sustainability

6.1 Rationale for sustainability rating:

Project overall sustainability is rated as likely. The Project has been constructed to excellent technical standards and there is no doubt about MEA operating and maintaining it competently. Further, with the introduction of a modern SCADA Control Center under the Project, MEA’s operational efficiency would be significantly enhanced. The physical sustainability of the Project is thus considered highly likely. With Government’s clear time-bound mandate (highly unlikely to be reversed) towards listing of the electricity utilities on the SET and preparations well under way by MEA to abide by this mandate, the sustainability of the commercialization and corporatization component of the Project is also rated as highly likely. The sustainability of the DSM component is rated as likely – while management of a corporatized and privatized MEA could be expected to take an entrepreneurial stance and actively support the ESCO

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program, competition with non-profit government organizations and private agencies currently enjoying government subsidy, could act as barriers to MEA’s ESCO program.

6.2 Transition arrangement to regular operations:

A summary of understandings between the Bank and MEA for reporting on the Project’s operational phase is presented below (see ICR Aide Memoire, Annex 8). MEA would furnish annually to the Bank, for the next five years, a summary report on the following:

• the utilization (MW and Mwh) of the substation facilities financed by the Project• the status of monitoring indicators for financial performance, reliability, losses and manpower

utilization• the utilization of the testing facilities (numbers of motors and ballasts tested)• the status of the ESCO program (number and value of projects undertaken), the load research

program and the load control activity• significant events in corporatization and listing• any events that may adversely affect the physical and policy components of the Project

7. Bank and Borrower Performance

Bank7.1 Lending:

The Bank’s performance in Project formulation is rated as fully satisfactory. Of particular note are: (i) its insistence on MEA laying out distinct steps for its corporatization and privatization - although the phasing and content of this component changed in actual practice, it exercised a continuing pressure on MEA to pursue this goal; and (ii) its convincing a reluctant MEA to get into the DSM business, as it was in the national interest (even if not in the utility’s narrow revenue interest) to improve the efficiency of electricity utilization in a rapidly developing metropolis.

7.2 Supervision:

The Bank fielded adequately staffed supervision missions. It displayed extreme flexibility during the financial/economic crisis. Yet, while sympathizing with the utility’s woes, especially on DSM, and permitting a rational degree of relaxations, it did not allow this component to lapse. Throughout, the Bank maintained a substantial level of dialogue, largely in an informal manner, with MEA and the Government on pricing, sector reform, restructuring and privatization. However, it realized that it could not and hence did not try to enforce rigid compliance with covenants on restructuring and corporatization, considering that MEA’s actions were often beyond its control, being mandated by Government policies which kept changing. The Bank performance is rated as fully satisfactory.

7.3 Overall Bank performance:

The Bank’s overall performance is rated as fully satisfactory.

Borrower7.4 Preparation:

The Borrower’s overall performance is rated as fully satisfactory. While its preparation of the physical components (based on several studies, see Annex 7) and devising the performance monitoring indicators

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and targets, is rated as highly satisfactory; its less-than-enthusiastic preparation of the restructuring and corporatization and the DSM components is rated as satisfactory.

7.5 Government implementation performance:

Government performance is rated as satisfactory. The previous Government aptly handled the utilities during the economic/financial crisis from which they emerged with sound positions. Its National Energy Policy Office conducted several far-reaching studies on restructuring of the Power Supply Industry, drafted the Energy Act, finalized the regulatory regime for the energy sector, formulated the Power Pool Model and secured Cabinet approval for its proposals. It introduced a new bulk supply tariff and reformed the tariff structure in preparation for Pool operations. When the current Government stepped in, it required (at the behest of the three Thai electricity utilities, especially EGAT) the entire Power Industry plan to be reviewed, particularly in regard to ushering-in of Pool operations by 2003. It later revised the original models of restructuring and corporatization of EGAT, MEA and PEA (which called for a considerable amount of un-bundling) and directed that the three utilities be privatized (as a whole) by listing on the SET.

7.6 Implementing Agency:

MEA’s overall performance in implementation is rated as satisfactory. Its performance in - major restructuring of the Project’s physical components in a timely manner, its adroitness in utilizing a portion of the savings for improving the system’s monitoring and control facilities, its tenacity in resolving land procurement and right-of-way issues and finally in devising novel ways of structuring and financing ESCO projects- is rated as highly satisfactory. Its implementation of the restructuring and corporatization component and the DSM component is rated as satisfactory.

7.7 Overall Borrower performance:

Overall, the Borrower’s performance is rated as fully satisfactory.

8. Lessons Learned

The following are key lessons learned from this Project:

• Preparation: Major restructuring, corporatization and privatization of a utility, should provide for flexibility, as such actions are often beyond the utility’s control, being subject to mandates which may change with a change of Government. Likewise, there should be flexibility in the design and implementation of components such as DSM, for which the utility has had no past experience and little desire to execute.

• Economic/Financial: Sudden economic/financial crisis in a country, could severely impact power demand and could render major distribution investments planned for high sustained growth levels, totally unviable. Under such conditions, utilities need to take timely and drastic measures to restructure their investment plans, exercise great financial discipline, and double efforts towards improving operational efficiency. Under these circumstances, the Bank would do well to take a flexible and sympathetic approach to government actions and desist from demanding rigid compliance with covenants.

• Power Sector Reforms: Introduction of complex power pool operations in a developing country needs to be thought through with care. Active support rather than reluctant acquiescence of the utilities is

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necessary to push through a complex reform agenda. The Bank could best play the role of advisor and facilitator for countries that have already embarked on the path of power sector reforms and should recognize that restructuring proposals cannot be cast in stone and could change as Government and utility thinking evolves.

9. Partner Comments

(a) Borrower/implementing agency:

MEA has accepted the findings of the ICR and thanked the Bank for its support. It has rated Bank’s performance as satisfactory. The Government has verbally conveyed that it has no comments on the ICR. The Borrower's evaluation report is found in Annex 9.

(b) Cofinanciers:

There were no cofinanciers for the Project per se. Japan Bank for International Cooperation (JBIC), who cofinanced MEA's Eighth Plan, has conveyed a few editorial corrections which have been incorporated in the report.

(c) Other partners (NGOs/private sector):

None

10. Additional Information

Course of Power Sector Reforms in Thailand

In early 2000, NEPO oriented the reform strategy for the Electricity Supply Industry (ESI) to the creation of a “Competitive Power Pool”, representing a departure over the earlier plan of unbundling EGAT and creating a Single Buyer sector structure. It proposed a gradual restructuring of EGAT, PEA and MEA to create an industry with wholesale competition by 2003. In regard to distribution, which acts as a natural monopoly, it was proposed that: (i) access to the wires and tariff levels will be subject to regulation; (ii) all but a few large consumers would purchase electricity from the Distribution Companies (DisCos) of regulated regional monopolies or Regulated Electricity Delivery Companies (REDCOs), and pay for this electricity either through the REDCOs, Supply Companies (SupplyCOs) or Competitive Retailers (RetailCos); and (iii) the retail supply function would be provided by DisCos/SupplyCos or by independent supply companies/RetailCos.

MEA reached agreement with the Government that it would become a REDCO: (i) providing both distribution and "grey area" services at regulated costs and cost-based prices, respectively; (ii) supplying electricity to customers only at spot market prices; (iii) adopting a decentralized approach to retail settlement; and (iv) operating independently of RetailCos and GenCos. MEA proposed restructuring in the following 3 stages: By FY00-01: (i) MEA would remain a state enterprise; (ii) the distribution and supply activities would be under REDCO with separate accounting functions and clear performance targets; and (iii) the non-core activities would be divided into four non-core service business (NSBs) and organized as autonomous business units within MEA. By FY02-03: ESSD and PDMO would be corporatized and partially privatized while the rest of the NSBs will remain with MEA. By FY03-onwards: If performance, efficiency and reliability targets are not achieved, MEA-REDCO would be considered for corporatization and the remaining NSBs, corporatized and partially privatized.

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In May 2001 the new Government initiated a complete review of the previous Government’s Power Sector policy and decided to postpone consideration of the Energy Act approved by the previous Cabinet. In parallel, EGAT (sensitized by the California Power Crisis) did some serious rethinking on the creation of a Power Pool by 2003 and advocated a "Third Party Grid Access" model, wherein ownership and operation of the grid would still be with EGAT but competitors would be allowed to use it, on non-discriminatory terms. In February 2001 the new Government announced an Agenda on Privatization, which called for listing 16 SOE’s on the SET, from 2001 to 2003 (EGAT in the third quarter and MEA and PEA in the fourth quarter of 2003).

A Ministry of Energy (MOE) was created on October 1, 2002 comprising five departments – Office of the Minister, Office of the Permanent Secretary, Department of Petroleum Resources, Department of Energy Business, Department of Renewable Energy and Energy Conservation and Energy Policy and Planning Office (EPPO) which replaces the erstwhile NEPO. Subsequently, a unanimous decision was taken by EGAT, MEA, PEA and the Government to move away from NEPO’s “Power Pool “ model. EPPO proposed a new model: (i) split EGAT into three PowerGens.; (ii) create an Independent System Operator (ISO); (iii) create a Transmission Company (GridCo); (iv) create an Independent Regulator; and (v) separate “network” and “retail” functions within MEA and PEA. Disagreeing with EPPO’s model, EGAT proposed an alternative model (i) up to 30% of total demand to operate in a "free market" under a Power Exchange; (ii) EGAT would maintain the generation functions, and ability to contract power under new PPAs for future GenCos; (iii) EGAT would maintain the transmission and system control functions; (iv) MEA and PEA could buy power only from EGAT; and (v) residential, commercial and small industrial consumers would purchase power from MEA and PEA. While MEA and PEA broadly supported EPPO’s model they strongly opposed EGAT’s model. To resolve the impasse between the utilities the Government called for a wider debate on the subject.

Government’s latest decision, after evoking the Power Pool (through Cabinet Resolution of September 9, 2003) is to hire a Consulting firm to assist it in studying the appropriate ESI model, and proceed with corporatization and listing of the three Thai electricity utilities on the SET.

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

1. Improve distribution system reliability and contain system losses at current levels:

.

1.1 Reduces System Average Interruption Frequency Index (SAIFI-L) Long Time Interruption 3.44 (PSR) 2.317 Industrial Area 2.94 (PSR) 2.091 City/Business Area 3.04 (PSR) 2.083 Suburban 5.37 (PSR) 3.3951.2 Reduce System Average Interruption Duration Index (SAIDI-L) Long Time Interruption 80.54 (PSR) 46.58 Industrial Area 67.91 (PSR) 29.21 City/Business Area 71.72 (PSR) 40.60 Suburban 124.72 (PSR) 75.981.3 Maintenance of system losses at current levels

less than 4.3% (SAR) 3.82%

2. Enhance operational efficiency2.1 Separation and Divestiture of non core activities

6/03 (SAR) The restructuring and corporatization plan was changed. See para 4 of main report.

2.2 Unbundling of core distribution activities into "supply" and "distribution" activities

6/03 (SAR)

2.3 Achieve "Excellent State Enterprise" status

12/1997 (PSR) MEA achieved the status requirements in 2002; this status is now obsolete as per Government's latest performance system.

1 or SAR as appropriateOutput Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

1. Enhance operational efficiency

1.1 Increased Mwh sales per employee 3,673 (PSR) - 2950 (SAR - for 2001) 3,725

1.2 Increased customers per employee 238 (PSR) - 170 (SAR - for 2001) 238

2. Introduce DSM Capabilities

2.1 Set up appliance testing laboratory 12/98 (SAR) 12/02

2.2 Set up Energy Service Company (ESCO)

12/98 (SAR) 12/02

2.3 Initiate Load Research 12/97 (SAR) 12/98

2.4 Increased number of applicanes tested

Refrigerators 100 (SAR) Dropped during project restructuring

Air conditioners 200 (SAR) Dropped during project restructuring

Motors 100 (SAR) 100 (target for 2003). Just started in 2003.

Ballasts 200 (SAR) 200 (target for 2004). Just started in 2003.

2.5 Increased number of ESCO staff 30 staff (SAR) 15 staff

2.6 Increased number of ESCO services rendered

5 services (PSR) 5 services

2.7 Increased number of premises covered by load research (cumulative)

1,250 premises (SAR) 1,142 premises

1 End of project

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MEA Financial Performance

Appraisal(in Million Baht)

Fiscal Year 1996 1997 1998 1999 2000 2001 2002Sales (Gwh)(Exc. Street Lighting) 31,546 34,071 36,688 39,485 42,407 45,683 48,536Average Tariff (B/kwh)(Excluded VAT) 1.75 1.76 1.78 1.79 1.80 1.81 1.82Operating Revenue 55,269 60,221 65,584 71,145 76,780 83,173 88,871Other Revenue 1,057 1,145 1,240 1,339 1,443 1,552 1,661Operating Expenses 54,298 59,091 63,643 68,750 73,919 79,961 85,421Other Expenses 659 713 1,313 1,916 2,640 3,431 4,125Government Remittances 1,111 1,312 1,311 1,456 1,615 1,628 1,574Exchange Gain (Loss) (241) (235) (235) (158) 0 0 0Net Income 2,111 1,984 2,345 2,529 2,714 2,522 2,130Fixed Assets 45,526 55,698 66,598 78,570 92,738 107,315 121,465Long-Term Debt 10,299 17,034 24,447 33,021 41,801 47,366 53,214

Primary RatiosRate of Return (%) 5.7 5.0 6.1 6.0 5.7 5.3 4.8Debt Service Coverage Ratio (times) 2.5 2.8 2.0 2.0 2.0 2.0 2.0Operating Ratio (%) 96.4 96.3 95.2 94.9 94.5 94.4 94.4Current Ratio 1.5 1.4 1.4 1.4 1.2 1.0 1.0Debt/Equity Ratio (times) 0.4 0.6 0.7 0.8 0.9 1.0 1.0Self Financing Ratio (%) 27.8 25.0 25.0 25.0 25.0 25.0 25.0

AppraisalCritical Financial Indicators (FY96-02) Min. Ave. Max.Energy Sales Growth Rate (%) 0.8 7.2 9.0Average Tariff (Baht/kwh) 1.9 1.9 2.0Remittance as Percentage of Profit (%) 30.0 30.0 30.0Self Financing Ratio (%) 25.0 25.4 27.8Debt Service Coverage Ratio (times) 2.0 2.2 2.8Debt Equity Ratio (times) 0.4 0.8 1.0

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Actual(in Million Baht)

Fiscal Year 1996 1997 1998 1999 2000 2001 2002Sales (Gwh) (Exc. Street Lighting) 31,004 32,246 30,987 29,500 31,327 33,694 34,676Avg. Tariff (B/kwh) (Excluded VAT) 1.74 1.79 1.80 1.80 1.80 2.42 2.41Operating Revenue 61,793 67,416 72,315 67,518 75,853 89,255 92,749Other Revenue 1,315 1,132 943 566 511 406 359Operating Expenses 57,783 63,259 68,753 63,888 72,157 82,662 87,230Other Expenses 573 634 985 917 1,820 1,946 1,786Government Remittances 1,445 2,222* 1,175 -- 864 1,697 1,638Exchange Gain, (Loss) 64 (511) (793) (4,214) (227) (278) 585Net Income 4,816 4,144 2,727 (935) 2,160 4,775 4,677Fixed Assets 35,940 47,527 55,904 60,200 63,401 66,907 71,117Long-term debt 9,269 14,835 18,982 25,694 28,910 31,387 29,660Primary Ratios Return on Assets % 8.53 6.51 3.76 (1.18) 2.55 5.26 4.98Debt Service Coverage 3.50 4.53 1.97 1.85 1.39 1.89 1.50Operating Ratio (%) 93.74 94.19 95.37 94.79 95.27 92.91 94.19Current Ratio 1.72 1.24 1.08 1.37 1.33 1.41 1.48Debt/Equity Ratio 0.42 0.67 0.80 1.02 1.09 1.06 0.91Self Financing Ratio (%) 61.86 64.23 33.29 2.21 37.73 37.62 25.62* The remittance of B2,222 mil. comprised B1,500 mil. for 1997 and another portion of B722 mil. for 1996.

Actual Critical Financial Indicators (FY96-02) Min. Ave. Max.Energy Sales Growth Rate (%) (6.6) 7.8 17.7Average Tariff (Baht/kwh) 1.7 2.2 2.4Remittance as Percentage of Profit (%) 35.0 39.0 45.0Self Financing Ratio (%) 2.2 37.5 64.2Debt Service Coverage Ratio (times) 1.4 2.4 4.5Debt Equity Ratio (times) 0.4 0.9 1.1

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Annex 2. Project Costs and Financing

Project Components

Original Investment Components:

(a) Transmission and distribution substation system- comprising: (i) a new 230/115 kV Onnuj transmission substation; (ii) additions at four existing 230/115 kV transmission substations (Thanontok, Nongjok, Jangwatana, Sainoi); (iii) construction of six new 69-115/12-24 kV distribution substations (Taweewattana, Jangron, Bangkae, Klongmai, Sainoi, Watbamphen); (iv) additions at five existing 69-115/12-24 kV distribution substations (Bangmod, Wangpetchaboon, Sri-Eiam, Huaykwang, Sainamtip); and (v) additions at and modification of four existing 69-115/12-24 kV distribution substations (Mochit, Prakanong, Paknam, Watlieb); (b) transmission line systems- comprising 47.3 circuit-km of transmission lines in Bangkoknoi and Chidlom areas; and (c) distribution system- comprising: (i) addition and modification of 1,280 circuit km of primary and 2,100 circuit km of secondary lines; (ii) installation of 1,350 MVA of distribution transformers; (iii) addition and replacement of 280,000 revenue meters; and (iv) addition of 205 MVAR of capacitors.

Revised Investment Components (Restructured Project)

(a) Transmission and distribution substation system- comprising: (i) additions at two existing 230/115 kV transmission substations (Nongjok, Sainoi); (ii) construction of six new 69-115/12-24 kV distribution substation (Ekachai, Bangkae, Ekamai, Kaset, Samyan and Nana); (iii) additions at six existing 69-115/12-24 kV distribution substations (Paknam, Bangkapi, Sapandam, Tongkung, Nonthaburi and Yen-akart); (b) transmission line systems- comprising 284 circuit-km of transmission lines in Bangkoknoi, Chidlom, Klongrangsit, Lardprao, South Thornburi, Teparak, Thanontok, Jangwatana, Samrong, Ratchadapisek, Bangkapi, Bangplee, Sainoi, Nongjok, Onnuj and Vibhavadi areas; and (c) distribution system- comprising: (i) addition and modification of 1,674 circuit km of primary and 3,144 circuit km of secondary lines; (ii) installation of 240 MVA of distribution transformers; (iii) addition and replacement of 276,970 revenue meters; and (iv) addition of 550 MVAR of capacitors; (d) Power Supply by underground cable in Chitralda area; and (e) Management and Service Efficiency Improvement with a new SCADA system.

Comparison of Original and Restructured Project Quantities

Project Component Appraisal RestructuredTransmission Substation 2,100 MVA 600 MVADistribution Substation 1,140 MVA 600 MVASub-transmission Line OH/UG 36.1/11.2 km 224/59.7 kmDistribution System Primary Line Secondary Line Distribution Transformers Revenue Meters Capacitors

1,280 km2,100 km1,350 MVA280,000205 MVAR

1,674 km3,144 km240 MVA276,970550 MVAR

Management & Services Improv. Nil SCADA SystemUnderground Cable Nil 65 km

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Restructured Project Cost - Estimated and Actual

Item Estimated Cost

(US$M)

Actual Cost (US$M)

Local Foreign Total Local Foreign TotalA. SubstationsAugmentation of Existing T/S Nongjok T/S 0.13 0.56 0.69 0.190 0.723 0.913 Sainoi T/S 0.13 0.56 0.69 3.423 0.703 4.126Construction of New D/S Ekachai Small D/S 0.88 1.00 1.88 1.317 0.033 1.350 Bangkae D/S 1.03 3.90 4.93 2.970 1.984 4.954 Ekamai D/S 1.03 3.90 4.93 2.107 1.181 3.288 Kaset D/S 1.03 3.85 4.88 4.461 1.033 5.494 Samyan D/S 1.03 4.00 5.03 2.136 1.935 4.071 Nana D/S 1.03 3.85 4.88 3.627 1.450 5.077 Watkampaeng D/S 1.03 3.85 4.88 1.863 2.947 4.810Augmentation of Existing D/S Yenarkart D/S 0.02 0.98 1.00 -0.279 2.088 1.809Modification of Existing D/S Paknam D/S 0.58 1.53 2.11 1.673 0.606 2.279 Tongkung D/S 0.58 1.53 2.11 1.637 0.511 2.148 Bangkapi D/S 0.58 1.97 2.55 1.675 0.660 2.335 Sapandam D/S 0.58 2.42 3.00 2.515 1.067 3.582Modification of Transmission and Distribution Substation 0.36 10.48 10.84 6.908 1.448 8.356Base Cost 9.96 44.38 54.34 36.223 18.369 54.592Price Contingency 1.72 3.88 5.60Physical Contingency 0.84 2.41 3.25Duties and Tax 5.06 - 5.06 1.785 - 1.785Subtotal 17.58 50.67 68.25 36.008 18.369 56.377

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Item Estimated Cost

(US$M)

Actual Cost (US$M)

Local Foreign Total Local Foreign TotalB. Transmission Lines Construction of T/L Bangkapi T/L 0.60 0.86 1.46 1.526 0.526 2.052 Bangplee T/L 0.12 0.13 0.25 0.324 0.183 0.507 Bangkoknoi T/L 1.69 1.85 3.54 7.265 8.602 15.867 Chidlom T/L 0.16 0.07 0.23 0.163 0.169 0.332 Klongrangsit T/L 0.71 0.53 1.24 0.677 0.318 0.995 Lardprao T/L 1.68 1.40 3.08 1.046 0.091 1.137 Nongjok T/L 0.81 1.94 2.75 1.512 1.163 2.675 South Thonburi T/L 3.31 2.90 6.21 5.719 0.651 6.370 Samrong Switching St. T/L 0.07 0.17 0.24 1.002 0.282 1.284 Ratchadapisek T/L 0.04 0.09 0.13 2.206 0.055 2.261 Teparak T/L 6.11 6.07 12.18 2.978 3.626 6.604 Thanontok T/L 3.23 2.47 5.70 8.573 1.756 10.329 Sainoi T/L 0.45 1.10 1.55 3.956 0.864 4.820 Jangwatana T/L 2.65 2.73 5.38 2.656 0.129 2.785 Onnuj T/L 0.93 1.54 2.47 3.084 0.562 3.646 Viphavadi T/L 13.68 3.38 17.06 10.404 1.333 11.737Reconductor and Uprating of T/L 2.05 5.01 7.06 10.218 0.844 11.062Base Cost 38.30 32.23 70.53 63.309 21.154 84.463Price Contingency 4.82 2.32 7.15Physical Contingency 2.28 1.73 4.01Duties and Tax 2.52 - 2.52 0.670 - 0.670Subtotal 47.92 36.28 84.21 63.979 21.154 85.133C. Distribution System

Construction and Modification of Primary Lines

46.97 14.25 61.22 43.209 10.876 54.085

Construction and Modification of Secondary Lines

11.07 9.15 20.22 16.052 6.024 22.076

Installation of Distribution Transformers

12.21 4.11 16.32 18.231 0.000 18.231

Installation of Revenue Meter 23.99 8.79 32.78 17.217 14.352 31.569Installation of Capacitors 3.41 4.60 8.01 1.587 3.164 4.751

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Item Estimated Cost

(US$M)

Actual Cost (US$M)

Local Foreign Total Local Foreign TotalBase Cost 97.65 40.90 138.54 96.296 34.416 130.712Price Contingency 2.04 0.74 2.78Physical Contingency 5.23 2.08 7.31Duties and Tax 4.96 - 4.96 2.075 - 2.075Subtotal 109.88 43.72 153.60 98.371 34.416 132.787D. Power Supply by Underground Cable System Program Chitrlada 1.75 4.98 6.73 3.134 3.172 6.306Base Cost 1.75 4.98 6.73 3.134 3.172 6.306Price Contingency 0.27 0.44 0.71Physical Contingency 0.14 0.27 0.41Duties and Tax 0.77 - 0.77 0.082 - 0.082Subtotal 2.93 5.69 8.62 3.216 3.172 6.388E. Management and Service Efficiency Improvement Program SCADA 0.14 8.00 8.14 0.812 8.572 9.384Base Cost 0.14 8.00 8.14 0.812 8.572 9.384Price Contingency 0.24 0.87 1.11Physical Contingency 0.12 0.44 0.56Duties and Tax 2.00 - 2.00 0.296 - 0.296Subtotal 2.50 9.31 11.81 1.108 8.572 9.680.F. Demand-Side Management Appliance Testing Laboratory 0.05 0.47 0.52 0.129 1.563 1.692 Load Research Equipment 1.08 0.54 1.62 0.250 0.511 0.761 Development of ESCO - 0.91 0.91 0.238 0.321 0.559Base Cost 1.13 1.92 3.05 0.617 2.395 3.012Price Contingency 0.30 0.69 0.99Physical Contingency 0.08 0.13 0.21Duties and Tax 0.27 - 0.27Subtotal 1.78 2.74 4.52 0.617 2.395 3.012

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Item Estimated Cost

(US$M)

Actual Cost (US$M)

Local Foreign Total Local Foreign TotalG. Total Project Cost Substations 9.96 44.38 54.34 36.223 18.369 54.592 Transmission Lines 38.30 32.23 70.53 63.309 21.154 84.463 Distribution System 97.65 40.90 138.54 96.296 34.416 130.712 Power Supply by Underground Cable System Program

1.75 4.98 6.73 3.134 3.172 6.306

Management and Service Efficiency Improvement Program

0.14 8.00 8.14 0.812 8.572 9.384

Demand-Side Management 1.13 1.92 3.05 0.617 2.395 3.012Base Cost 148.92 132.41 281.33 200.392 88.078 288.470Price Contingency 9.40 8.94 18.34Physical Contingency 8.69 7.07 15.76Duties and Tax 15.58 - 15.58 4.908 - 4.908Total 182.59 148.42 331.01 205.300 88.078 293.378

Consulting Studies(US$ Million)

Consulting Studies(exclusive of VAT)

Local Foreign Total

1. Privatization Strategies for MEA - 0.138 0.1382. Master Plan of MEA’s Institutional Development - 1.057 1.0573. Long Range Plan and Implementation Study - 0.843 0.8434. Feasibility Study & Conceptual Design in

Privatizing both business and separating them to be the Subsidiary Companies

0.096 - 0.096

5. Mobilization for Power Pool Trading 0.030 0.347 0.3776. MEA’s Project of Business Process Reengineering

for Efficiency and Development0.093 - 0.093

7. MEA Restructuring Master Plan and Resources Management Plan

1.692 - 1.692

8. Financial due diligence and coordinate corporatization plan in Phase 1

0.079 - 0.079

9. MEA accounting and tax systems in accordance with SET and IAS requirements

0.305 - 0.305

10. Strategies and change management plan and training courses

0.344 - 0.344

11. Legal due diligence 0.027 - 0.027Subtotal 2.664 2.385 5.050Duties and Taxes - - -

Total 2.664 2.385 5.050

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Financing Plans

MEA's Eighth Power Plan (Revised) (US$ Million)

Local Foreign Total PercentageIBRD - 85.68 85.68 10.76%Co-Financing:JBIC (former OECF) - 55.64 55.64 6.99%JBIC (former JEXIM) and NIB

- 91.82 91.82 11.53%

Domestic Borrowing:Government Saving Bank 19.14 - 19.14 2.40%MEA Bond 161.56 - 161.56 20.30%Internal Cash Generation 382.33 - 382.33 48.02%Total 563.03 233.14 796.17 100.00%

MEA's Eighth Power Plan (Original)Financing Plan(US$ Million)

Local Foreign Total PercentageIBRD - 145.00 145.00 14.84%Co-Financing:JBIC (former OECF) - 107.25 107.25 10.98%Buyer's Credit - 85.93 85.93 8.80%Domestic Borrowing: 292.50 - 292.50 29.94%Internal Cash Generation 346.24 - 346.24 35.44%Total 638.74 338.18 976.92 100.00%

Metropolitan Distribution Reinforcement Project(US$ Million)

Local Foreign Total PercentageIBRD - 85.683 85.683 29.21%Grant - 2.395 2.395 0.81%Other Borrowing 32.248 - 32.248 10.99%Internal Cash Generation and Inventory Depletion

173.052 - 173.052 58.99%

Total 205.300 88.078 293.378 100.00%

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Summary of Procurement Arrangements (Restructured Project)(US$ Million)

Estimated Actual Project Component ICB /a N.B.F /b Total ICB /a N.B.F /b Total Goods Substations 63.19

(42.20) - 63.19

(42.20) 54.59

(18.37) - 54.59

(18.37) Transmission Lines 81.69

(39.76) - 81.69

(39.76) 84.46

(27.95) - 84.46

(27.95) Distribution System 148.64

(39.65) - 148.64

(39.65) 130.71 (27.62)

- 130.71 (27.62)

Chitralda Underground 7.85 (5.68)

- 7.85 (5.68)

6.31 (3.17)

- 6.31 (3.17)

SCADA 9.81 (9.31)

- 9.81 (9.31)

9.38 (8.57)

- 9.38 (8.57)

Demand Side Mgmt. 4.25 4.25 (0.00)

- 3.01 (0.00)

3.01 (0.00)

- - - - Miscellaneous Duties and Taxes - 15.58 15.58 - 4.91 4.91 Total Cost 311.18

(145.00) 19.83 331.01

(145.00) 285.46 (85.68)

7.92 (0.00)

293.38 (85.68)

/a ICB – Financed by the Bank Loan (Amounts indicated within brackets) /b N.B.F. - Not Bank Financed

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Annex 3. Economic Costs and Benefits

The economic analysis of the Project is done on the same basis as at appraisal, evaluating a time slice of MEA’s investment program for 1997-2001. Following are the main assumptions:

Appraisal ICR

Base Year for constant prices1995 2001

Cost Streams – Capital Investments (excluding duties, taxes and IDC)

1997-2001 1997-2001

Incremental Operation and Maintenance Costs (as % of incremental capital costs)

2.5% 2.0%

Energy Cost (long run marginal cost of supply from EGAT, based on NEPO)

B1.45/kwh B1.72/kwh

Economic Benefit (revenue from sale of energy, including VAT)

B2.02/kwh B2.79/kwh

Incremental Sales for benefit evaluation as % of actual incremental sales

1997 60% 60%

1998 80% 80%

1999-2001 100% 100%

Losses as % of energy purchased 4.7% 3.96%

Unsupplied energy saving due to system reliability improvement

1997 0.8Gwh 0.8Gwh

2002-onward 8.0Gwh 8.0Gwh

Valuation of unsupplied energy B59/kwh B56/kwh

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Capital Investments (in million Thai Baht) Current Prices Constant Prices Year Foreign Local Total CPI

(Foreign) CPI (Local)

Foreign Local Total

1997 0.000 1425.323 1425.323 0.949 0.893 0.000 1595.245 1595.245 1998 712.969 2823.868 3536.837 0.961 0.966 741.855 2923.700 3665.555 1999 1062.546 2958.152 4020.698 0.970 0.969 1095.734 3053.570 4149.304 2000 1379.708 2904.441 4284.149 0.982 0.984 1404.543 2950.912 4355.455 2001 3286.796 1926.357 5213.153 1.000 1.000 3286.796 1926.357 5213.153

Electricity Sale Prices (B/kwh) Year Sale Price incl.VAT

(Current Prices) CPI (Local) Sale Price

(Constant Prices) 1997 2.1920 0.893 2.4533 1998 2.4522 0.966 2.5389 1999 2.4046 0.969 2.4822 2000 2.5479 0.984 2.5887 2001 2.7877 1.000 2.7877 The details of the economic analysis are given in Attachments 1 and 2 to this Annex. The EIRR for the Base Case (time slice of investments, 1997-2001) is 13.5% If the time slice of investments is extended by two years i.e., 1997-2003, the EIRR increases to 19.8%.

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Attachment 1:

Metropolitan Distribution Reinforcement ProjectEconomic Internal Rate of Return - 1997-2001 Time Slice

Money Values are in Million Bahts

Year Energy Revenue Extra Benefits from Total O&M Total Total Net Purchase Sale Cost Delivered Improved Investment Cost Cost Benefit Benefit(GWh) (GWh) Energy (GWh) Reliability

1996 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001997 778.76 747.91 1,345.07 1,834.87 0.80 44.80 1,595.24 31.90 2,972.22 1,879.67 -1,092.551998 0.00 0.00 0.00 0.00 2.40 134.40 3,665.55 105.22 3,770.77 134.40 -3,636.371999 0.00 0.00 0.00 0.00 4.00 224.00 4,149.30 188.20 4,337.51 224.00 -4,113.512000 364.68 349.87 629.87 905.69 5.60 313.60 4,355.45 275.31 5,260.64 1,219.29 -4,041.352001 2,833.09 2,720.90 4,893.31 7,584.97 7.20 403.20 5,213.15 379.57 10,486.04 7,988.17 -2,497.872002 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092003 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092004 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092005 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092006 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092007 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092008 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092009 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092010 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092011 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092012 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092013 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092014 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092015 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092016 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092017 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092018 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092019 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092020 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092020 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092021 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092022 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092023 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092024 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.092025 2,833.09 2,720.90 4,893.31 7,584.97 8.00 448.00 379.57 5,272.89 8,032.97 2,760.09

EIRR = 13.5%

Incremental

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Attachment 2:

Metropolitan Distribution Reinforcement ProjectEconomic Internal Rate of Return - 1997 -2003 Time Slice

Money Values are in Million Bahts

Year Energy Revenue Extra Benefits from Total O&M Total Total Net Purchase Sale Cost Delivered Improved Investment Cost Cost Benefit Benefit(GWh) (GWh) Energy (GWh) Reliability

1996 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001997 778.76 747.91 1,345.07 1,834.87 0.80 44.80 1,595.24 31.90 2,972.22 1,879.67 -1,092.551998 0.00 0.00 0.00 0.00 2.40 134.40 3,665.55 105.22 3,770.77 134.40 -3,636.371999 0.00 0.00 0.00 0.00 4.00 224.00 4,149.30 188.20 4,337.51 224.00 -4,113.512000 364.68 349.87 629.87 905.69 5.60 313.60 4,355.45 275.31 5,260.64 1,219.29 -4,041.352001 2,833.09 2,720.90 4,893.31 7,584.97 7.20 403.20 5,213.15 379.57 10,486.04 7,988.17 -2,497.872002 3,878.36 3,724.76 6,698.71 10,383.41 8.00 448.00 5,266.17 484.90 12,449.77 10,831.41 -1,618.372003 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 1,685.28 518.60 12,935.66 17,079.94 4,144.292004 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562005 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562006 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562007 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562008 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562009 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562010 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562011 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562012 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562013 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562014 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562015 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562016 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562017 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562018 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562019 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562020 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562020 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562021 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562022 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562023 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562024 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.562025 6,213.40 5,966.25 10,731.78 16,631.94 8.00 448.00 518.60 11,250.38 17,079.94 5,829.56

EIRR = 19.8%

Incremental

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation07/1996 2 POWER ENGINEER (1)

FINANCIAL ANALYST (1)

Appraisal/Negotiation02/1997 7 POWER ENGINEER (1)

FINANCIAL ANALYST (2)RESTRUCT. SPECLST (1)ENVIRONMEN. SPECLST (1)RESETTLEM. SPECLST (1)PROCUREM. SPECLST (1)

Supervision

05/01/1998 3 PRIN POWER ENGINEER (1); FINANCIAL ANALYST (1); INSTITUTION SPECIALIST (1)

S U

02/12/1999 4 PRIN POWER ENGINEER (1); FINANCIAL ANALYST (1); RESTRUCTURING SPECLST (1); DSM SPECIALIST (1)

S U

12/16/1999 5 PORTFOLIO MANAGER (1); FINANCIAL ANALYST (2); POWER CONSULTANT (1); RESTRUCT. SPECIALIST (1)

S S

11/22/2000 3 TEAM LEADER (1); FINANCIAL ANALYST (1); CONSULTANT (1)

S S

05/19/2001 3 TEAM LEADER (1); FINANCIAL ANALYST (1); PROGRAM ASSISTANT (1)

S S

11/23/2001 3 PORTFOLIO MANAGER (1); PROJECT ASSISTANT (1); FINANCIAL ANALYST (1)

S S

06/17/2002 3 TEAM LEADER (1); FINANCIAL ANALYST (1); DISBURSEMENT ANALYST (1)

S S

11/18/2002 3 ENERGY CONSULTANT (1); FINANCIAL ANALYST (1); PROGRAM OFFICER (1)

S S

ICRAugust 2003 2 POWER ENGINEER (1)

PROGRAM ASST. (1)S S

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 31.8 136.4Appraisal/Negotiation 21.9 99.5Supervision 42.8 252.6ICR 0.1 31.0Total 96.6 519.5

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

Restructuring and Corporatization:

1. Privatization Strategies for Metropolitan Electricity Authority (Thailand), prepared by KPMG Peat Marwick (December 1992)

2. Master Plan of MEA's Institutional Development, prepared by ESBI International Limited (26 July 1993)

3. Long Range Plan and Implementation Study, prepared by Southern Energy, Incorporated (SEI) (6 Nov. 1997)

4. Feasibility Study and Conceptual Design in privatizing both businesses and separating them to be the subsidiary companies, prepared by Krungthai Thanakit Public Company Limited : KTT (27 Nov. 1997)

5. Mobilization for Power Pool Trading, prepared by Utility Consulting International (UCI)6. Institutional Development Plan of MEA FY1997-2001, prepared by MEA7. MEA Corporate Plan FY1997-2001, prepared by MEA8. MEA’s Project of Business Process Reengineering for Efficiency and Development prepared by

Consortium of T.N. Information Systems Ltd., Diebold Deutschland GmBH Co.,Ltd. and Sutham Vanichseni and Associates (24 Nov. 2000)

9. MEA’s Privatization Plan, prepared by MEA (18 April 2002)

Demand Side Management:

Appliance Testing Lab1. Appliance Testing Laboratory Feasibility Study, prepared by KEMA Nederland B.V. (22 Oct. 1997)

ESCO1. Energy Service Company (ESCO) Feasibility Study, prepared by Hagler Bailly Services Inc. (20

Nov. 1997)2. Energy Service Company (ESCO) Development and Training at MEA, prepared by Schiller

Associates, USA (15 May 2002)

Load Research1. MEA’s Load Research Project, prepared by BERA Company Ltd. (26 Nov. 2002)

Technical:

1. Rationalization of Bulk Supply Tariff to MEA and PEA, Coopers and Lybrand, submitted to National Energy Police Office (NEPO), (June 1996)

2. Project Implementation Plan, Metropolitan Electricity Authority (October 1996)3. Thailand Power Pool and Electricity Supply Industry Reform Study – Phase I, prepared by

Consortium of Arthur Andersen; National Economic Research Associates; Barker, Dunn and Rossi; Cameron McKenna; Presko Shandwick, commissioned by NEPO

4. Environmental and Safety Consideration in Distribution System Design5. Development of Accounting, Financial, Budgeting and Inventory Management System, prepared by

SGV Na Thalang Co., Ltd.

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6. Urban Power Supply Common System Study MEA-ABB Subtransmission Network 115 kV-69 kV by ABB

7. Feasibility Study on Power Distribution System Improvement and Expansion Plan by JAICA8. Details of Restructured Project (MEA Report) – in Project File9. Economic Analysis Spread Sheets – in Project File

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Additional Annex 8. [Aide Memoire]

August 18, 2003

IBRD ICR MissionMETROPOLITAN ELECTRICITY AUTHORITY (MEA)

Metropolitan Distribution Reinforcement Project (Loan 4199-TH)

Introduction

1. A World Bank Mission composed of Darayes Mehta, (Consultant, Power) visited MEA on August 18, 2003 for preparation of the Implementation Completition Report (ICR) for the above mentioned project. This Aide Memoire presents the Mission's findings and agreements reached with MEA. The Mission wishes to thank MEA for its excellent cooperation.

Summary of Mission’s Findings

2. The following is a summary of the Mission’s findings: Physical Implementation.

3. Physical implementation of the Project is 100% complete as of the loan closing date of June 30, 2003. Installations visited by the Mission were found to be of high standards of quality and safety.

Disbursements.

4. The loan is expected to be fully disbursed (barring a small residual) within the 4-month grace period after closure, as permissible under Bank rules.

Performance Monitoring Indicators.

5. The performance monitoring indicators are very satisfactory and reflect a significant improvement in system reliability due to automation, better construction practices and sound maintenance management.

Financial Performance and Audit.

6. Overall, the financial performance of MEA during the Project implementation period FY98-03, has been satisfactory. For FY03, there is likelihood of non-compliance with the SFR (at 11.5%) and DSCR (at 1.3x) covenants. This matter is under discussion between MEA and the Government. MEA’ projections of financial performance for FY 2004-07 show compliance with the Bank’s financial covenants.

Electricity Supply Industry Restructuring and MEA Corporatization and Privatization.

7. While the restructuring of the Electricity Supply Industry is still under review by the three electric utilities and the concerned government bodies, MEA is proceeding with its corporatization and privatization plans which are on schedule to register it as the MEA Public Company Ltd. with the Ministry of

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Commerce in March 2004 and to privatize it as a whole by way of public offering in June 2004. The Mission discussed with MEA the consulting studies it had undertaken and how these had benefited MEA in its organizational development.

Demand Side Management.

8. The Mission discussed with MEA key actions that need to be taken to fully realize the objectives of the DSM component and ensure its sustainability. These include: (i) focusing attention on the commercial viability and sustainability of the Testing Facility and the ESCO Business; (ii) reviving the Load Control Program at the opportune time; and (iii) ensuring proper staffing of the ESCO Development Project Organization. MEA provided targets for its commercial DSM activities.

Economic Analysis

9. The Mission discussed in detail the methodology of performing the economic cost benefit analysis of the Project. Subsequent work done by MEA shows, prima facie, that the Project will continue to be economically viable with EIRR exceeding the 10% threshold. Further detailed analysis will be done by the Mission.

Agreements reached with MEA

10. The following agreements were reached with MEA.

Borrower’s Own Report

11. MEA will furnish to the Bank the Borrower’s Own Report on the Project, following the Bank’s ICR Guidelines, by September 30, 2003.

Bank’s ICR

12. The Bank will submit its ICR to MEA by November 15, 2003.

Operational Phase

13. MEA will submit annually to the Bank, for the next five years, a summary report on the following• the utilization (MW and Mwh) of the substations financed by the Project• the status of monitoring indicators for financial performance, reliability, losses and manpower

utilization• the utilization of the testing facilities (numbers of motors and ballasts tested)• the status of the ESCO program (number and value of projects undertaken), the load research

program and the load control activity• significant events in corporatization and listing of MEA• any events that may adversely affect the physical and policy components of the Project

Mr. Chalit RuengviseshGovernor Metropolitan Electricity Authority

Darayes MehtaConsultant, Power World Bank

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Additional Annex 9. Borrower's Evaluation Report

METROPOLITAN DISTRIBUTION REINFORCEMENT PROJECT(IBRD LOAN NO. 4199-TH)

Introduction

1. The Metropolitan Distribution Reinforcement Project represented an integral part of MEA’s Eighth Power Distribution System Improvement and Expansion Plan FY 1996 – 2001 covering part of expansion and reinforcement of MEA’s distribution work over the years 1997-2001. The Eighth Power Plan, approved on May 21, 1996, was in line with the Eighth National Economic and Social Development Plan FY 1997 - 2001. However, MEA reviewed and revised its Eighth Power Plan in order to effectively reflect the current demand and its investment plan resulting from the recession on economic crisis in Thailand. The Revised Eighth Power Plan was approved on June 8, 1999. As part of the Bank’s assistance program in the power sector in Thailand, the Loan No. 4199-TH in the amount of US$ 145 million equivalent was approved by the Bank’s Board of Directors on June 24, 1997. The Project was later restructured to be in line with the Revised Eighth Power Plan while the loan amount was still maintained at US$ 145 million. Co-financing of balance was provided by the OECF Loan in the amount of Yen 14,304 million. (The Loan was closed on January 27, 2003 as scheduled. The total disbursement was Yen 6,616.724 million.) The loan closing date was extended by one year to June 30, 2003.

A. Assessment of Project Objectives, Design, Implementation and Operation Experience

Project Objectives and Description

2. The Project’s main objectives were to: (i) improve the reliability of the distribution system and contain losses at current levels, while meeting the projected rapid increase in electricity demand; (ii) assist in the organizational restructuring of MEA leading to its commercialization and corporatization; and (iii) introduce demand-side management capabilities in MEA’s organization.

3. The objectives of the project have been satisfactorily achieved and remained unchanged throughout the project cycle despite significant modification of project scope. The revised component was made to obtain the least cost technically acceptable alternative to efficiently reflect the unforeseen load slump at the early project period in MEA service area, taking into consideration of its objectives particularly system reliability improvement. In view of institutional development and Demand Side Management capabilities, both of them had gradually evolved to finally meet its objectives by the end of the project.

4. The components of the project were: (i) construction and addition of subtransmission and distribution facilities including: (a) 230-69 kV transmission substations and transmission lines; (b) 115 kV, 69 kV and 24 kV transmission and distribution substations and associated lines; (c) power supply by underground cable; (d) miscellaneous equipment and materials; and (e) management and service efficiency improvement with a new SCADA system; and (ii) two consulting studies regarding: (a) strategies for corporatization and privatization of MEA’s activities; and (b) energy conservation strategic plan.

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5. The implementation of the project was highly satisfactory and the physical targets of the project had been successfully met, as the project was completed at the time of the extended project completion date, albeit one year behind original schedule as stated in the SAR.

6. During the project implementation, most of the work had been completed by the original closing date except for SCADA project and a few subtransmission line routes. Certain delays had been experienced mainly due to the uncontrollable factors including the poor coordination among related public and private utilities and the lengthy delay in obtaining permission from authorized entities, both public and private entities. The poor coordination among related public and private utilities, namely Telephone Organization of Thailand and Mass Communication Organization of Thailand as well as their concessionaries, e.g., TA, UCOM, AIS and UBC etc., was experienced in implementing SCADA project. As a result, the project implementation had been delayed for a certain period resulting in an overall project delay and subsequent extension of project completion by one year.

7. On the other side of implementation difficulties was the lengthy permission for subtransmission line construction from public utilities, namely Bangkok Metropolis Administration, Highway Department etc. significantly affected the project implementation delay. Additionally, the agreement among public utilities including MEA, to implement the project together to reduce cost, recurrence of construction problems, as well as traffic congestion, right of ways problems for subtransmission line construction, unintentionally delayed the construction and sometimes reduced the subtransmission line length constructed whenever there was any change with other utilities’ projects.

8. The overall completion of the whole project and comparison of the project scope at appraisal with the revised and actual project scope is shown in Attachment 1. Attachment 2 provided the loading levels of the substations built under the Project. B. Evaluation of the Borrower’s Own Performance

Implementation Record and Major Factors Affecting the Project

9. On the whole, the performance of the borrower (MEA) was found satisfactory. Although some work was significantly affected by the worst economic recession in the region, the project performance rating was generally successful, albeit one year behind schedule. In other words, the implementation of expansion activities as well as conversion of overhead lines to underground cable and SCADA projects was efficiently managed to satisfactorily meet the increasing power demand steadily picked up since 2000 in a least cost manner while maintaining acceptable levels of power distribution system efficiency and reliability.

10. On the financial front, MEA recorded satisfactory financial results and fully complied with all the Bank’s financial covenants required under the Bank loan during FY 1998 - 2003 with the exception of the SFR for FY 1999 which had been waived by the Bank considering favorable financial status of the whole entity.

11. During the project implementation, MEA had experienced several key lessons which would be taken into consideration in implementing the new project. Firstly, the poor coordination with related public and private utilities under the SCADA project, namely Telephone Organization of Thailand and Mass Communication Organization of Thailand as well as their concessionaries, e.g., TA, UCOM, AIS and UBC etc., was realized in removing their lines from MEA poles. Despite MEA’s great effort on coordination with mentioned utilities, not much progress had been made and MEA finally decided to deal with the

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problems using their own workforce. Although this problem had finally been resolved at an early stage, it certainly affected overall project implementation resulting in one-year-extension of the Project completion.

12. Secondly, it was a lengthy delay in obtaining construction permission from public utilities. For subtransmission line construction, the implementation had been delayed mainly due to additionally detailed requirements to be fulfilled before obtaining permission from related utilities, namely, Bangkok Metropolis Administration, Highway Department, Public Work Department etc. Despite its close coordination with the utilities concerned, MEA still experienced certain difficulties, which were largely attributed to the implementation delays to a certain extents. Moreover, the agreement among concerned public utilities to implement the project together to reduce cost, recurrence of construction problems as well as traffic congestion, right of ways problems for subtransmission line construction had considerably affected the line construction. The uncertainties of the other utilities’ construction projects such as highway construction not only forced MEA to delay the construction but sometimes also to reduce the line length to be lower than planned. In addition, under the said agreement, the duct bank construction had to be done simultaneously with relevant utilities’ road construction which was well ahead of schedule. This resulted in unforeseen obstruction for cable installation since most of the conduits had already been filled up with sticky sand and soil consuming a lot of time and workforce in removal. A useful lesson has been learnt to tightly seal caps at both ends of conduits ensuring that no more delay would be faced in the coming project. In view of permission from private entities, MEA also found difficulties and delay in arranging scheduled outages with large customers who denied any scheduled outages. As a consequence, a delay had been realized in modifying the system to accommodate sectionalized power supply for these groups of customers. It is worth noting that the technical arrangement on the continual power supply should be taken into account and well planned prior to the project implementation. 13. In regard to organization restructuring, the organization has eventually evolved throughout the project periods. By the way, as you may know, the restructuring has not been finalized as it is dependent on the outcomes of government policy on electricity supply industry reform and market conditions. In the meantime, MEA is proceeding with the government policy towards corporatization and privatization scheduled to be by March and June 2004 respectively. The restructuring of MEA has been carefully studied and designed under the assistance of experienced consultants with the intention of building important commercial capabilities in order to achieve a successful transition towards corporatization and subsequent privatization. On top of that, it is worth noting that this organization restructuring must also be flexible in responding the electricity supply industry reform to be finalized in the near future.

14. In respect of the DSM, as the DSM capabilities was firstly introduced in MEA distribution system for the first times, MEA had gained significant knowledge and experience in energy conservation through its establishment of ESCO project, Ballast and Motor Testing Laboratories and Load Research while the Load Control was agreed to be on hold should the substantial demand growth was to be materialized. Several key lessons with the strategic and operational implications had been experienced including marketing problem and limited numbers of skilled staff. All these major problems would be taken into account before setting up DSM businesses in MEA.

15. In implementing load research in distribution system, unexpected technical problems were arisen in data collecting process which delayed the project for such a time. However, the problems arisen formed a firm basis for load research in the future. As for the Testing Laboratory, although MEA, at initial stage, faced some difficulties and delay involving procurement of the testing equipment, it was satisfactorily resolved with the laboratory commencement not long after the schedule. The Ballast and Motor Testing Laboratories have already been established providing testing services of international standard. For the last but not least, the ESCO business, MEA undertook several useful consulting studies on ESCO feasibility

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and ESCO Development and Training. However, putting this into practice, MEA had been faced with all manner of problem. On the customer front, although the return on ESCO services had been recognized, this business was still found less attractive to customers. This was mainly due to the relatively low electricity tariff which stood in contrast to the high energy conservation equipment cost. Moreover, there was an unfamiliarity of customers on ESCO business particularly the paying back of savings realized. Normally, the customers were approached by suppliers for the installation energy conservation equipment. No cost would be charged except for the equipment cost paid once the customers were satisfied with the results. As a result, customers may be somehow reluctant to pay for the ESCO services. In light of MEA itself, inadequate information/ expertise on new energy conservation technologies particularly equipment as well as limited numbers of skilled staff rendered great effect towards ESCO business success. The other major difficulty confronted was the marketing of ESCO services and, in particular, closing deals. In many cases, the customers after being approached preferred to implement the projects on its own. Different strategies and operation had been developed during the project period with an intention to achieve the most suitable ESCO business style with Thai culture. All in all, the problem experienced on both testing laboratory and ESCO capabilities was identical, that was the marketing which MEA as a monopoly public utility had no first hand experience before. And this would be the focal point for MEA in setting up these businesses in MEA in the future. It is also worth noting that the success of DSM capabilities in Thailand is dependent on the government support reflecting in its policy and subsidy.

C. Evaluation of the Performance of the Bank

Bank Performance

16. Overall, the Bank’s performance from MEA’s viewpoint was satisfactory. During the project implementation, the Bank successfully maintained good working relationships with MEA. No significant disagreements with MEA on key procurement issues severely affected the implementation procedures, project costs and implementation schedule. Thanks to the Bank’s Field Office, the implementation support and rapid response to addressing needs were provided. With specialized knowledge and experience in particular field covering project management, finance, organization restructuring and DSM, the Bank missions were considered very beneficial in providing an excellent job in following up the project implementation, giving proposed remedial courses of actions whenever confronting delays or problems, providing constructive advice and practical recommendations on unacquainted DSM activities. Also, close monitoring of MEA financial status, to be complied with covenant, coupled with effective remedial courses well assisted MEA in improvement of its portfolio. More importantly, the project leader was fully authorized which was found key success of this project. His decisive actions taken on the overall project implementation was considered timely, adequate and responsive pushing the project well on progress despite a number of encountered problems.

D. Proposed Arrangements

Future Operation

17. The future operation of the project will be closely followed up by MEA’s Power System Maintenance Department and its district offices. MEA has a very capable operation and maintenance staff to efficiently and approximately operate and maintain its network. Comprehensive and well-documented operation and maintenance procedures are in place to ensure proper operation and maintenance of the new facilities. Any faulty equipment will be promptly replaced to ensure high system reliability.

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18. Since the project implementation commenced in FY 1996, MEA has made satisfactory improvements in: (i) reducing energy losses from 3.83% (1996) to 3.81% (2003) (due to the unavailability of data at the time of report preparation, this figure is then estimated to represent the total loss for 2003); (ii) increasing reliability in terms of both SAIFI and SAIDI indices; (iii) meeting the projected electricity demand throughout the project cycle; (iv) manpower utilization as evidenced by increasing average sales per employee from 2.39 kWh to 3.69 kWh and by increasing number of customers per employee from 145 customers to 237 customers. These improvements reflect the more commercial nature of its operation. The said indicators will be used to monitor our future operation of MEA.

19. Regarding MEA Corporatization and Privatization, MEA, with the assistance of experienced consultants in necessary fields including management, finance, legal, accounting and tax and change management, is on schedule to register itself as the MEA Public Company Ltd. with the Ministry of Commerce in March 2004 and to privatize itself as a whole by way of public offering in June 2004. As for the DSM capabilities, all components covering Load Research, Ballast and Motor Testing Laboratories as well as ESCO business will be continually implemented. As for the ESCO business, MEA has recently signed Minutes of Understanding with Bank Thai Public Company Limited agreeing to pilot ESCO business for a year. If the results demonstrated the effectiveness of ESCO business, close cooperation on the ESCO business establishment will be further promoted.

October 7, 2003

___________________________

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Additional Annex 10. Demand Side Management (An Assessment by MEA)

Background

In April 2002, the Cabinet passed a resolution approving the Energy Conservation Strategic Plan, FY2002-2011. During the plan period, energy conservation will be implemented in factories/buildings and residences, focusing on training and education. Rules, regulations and procedures on the application of the Energy Conservation Fund (ECF) will be improved. By the next ten years, power demand will decrease by 4.21% or 1,862.8 thousand tons of equivalent raw oil /year.

Currently, most of the energy conservation activities have been shouldered by the public sector including government agencies and power utilities

Ministry of Energy

• Department of Alternative Energy Development and Efficiency (DEDE), an executing agency for the energy audits and public/private building efficiency investments as well as public relations and training.

• Energy Policy and Planning Office, to deal with voluntary program including demonstrations/pilots, renewables and research and development.

The three power utilities EGAT, MEA and PEA have mutually formulated DSM Plan FY 2002-2006, laying out the framework for DSM implementation by each.

EGAT

DSM Office was established within EGAT to develop, implement and evaluate energyefficiency programs. Several programs were launched: § Energy Efficient Fluorescent Lamp Program, known as Thin Tube Program§ Refrigerator Efficiency Labeling Program§ Air Conditioner Efficiency Labeling Program§ Commercial Building Retrofit Program, known as Green Building Program§ High Efficiency Motor and Low Loss Ballast Program§ Energy Efficient Street Light Program using High Pressure Sodium Vapors§ Compact Fluorescent Lamp Program§ Cool Storage Program§ Pilot ESCO§ Green Leaf§ Brown Rice§ Small and Medium Enterprises§ Load Management Program through stand-by generation, interruptible load and time-of-use tariff

schemes§ Attitude Creation Program through public campaign Programs include a Green Learning Room in

public school

As of September 2001, EGAT has achieved 651 MW of peak demand savings and 3,665 GWh of energy savings, accounting for Baht 313.8 million.

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Currently, under the DSM Plan FY 2002-2006, EGAT will further implement 17 programs, as follows:

Program Savings Target Estimated Cost MW GWh 1. Residential Sector 311 1,939 1,003 • High Efficiency Refrigerator • High Efficiency Air

conditioner • Thin Tube Program • High Efficiency Ballast • High Efficiency Fan

2. Business Sector 265 278 201 • Cooling System • Load Management • Lightning System • Building Structure

3. Industrial Sector 56 292 496 • High Efficiency Motor • ESCO Development • SME Investment Cost

Reduction

Total 632 2,509 1,700 4. Others 465 • Green Room (rooms) • Brown Rice Level 5 (labels) • Analysis of power

consumption and promotion of energy conservation technology

• Current Controlling System

145 5,000,000

MEA

Metropolitan Electricity Authority (MEA), with support of the GEF grant managed by the World Bank has launched three major DSM programs in distribution sector including:

§ Establishment of Motor and Ballast Testing Laboratories§ Load Research Program§ Establishment of ESCO unit within MEA. At the beginning, MEA conducted audits of some

government buildings. To date, MEA has commissioned ESCO projects with private sector using its own funds. It is now proceeding with its next step of ESCO business with financing from the commercial sector.

In addition, it has implemented other projects including Power Factor Program and Double savings double profit Program.

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PEA

Under the current plan, PEA will be responsible for:

• Load Research Program• Establishment of Engineering Team for energy conservation consultancy Program• Energy and fuel savings Program

MEA’s ESCO Program

At the beginning of 2003, MEA developed a new strategy involving entering into a strategic partnership with Bank Thai PLC. Limited to jointly develop programs that meet shared goals of ESCO business. Under this partnership program, the commercial bank will extend credit directly to customers. While the bank will develop an affordable project financing package for energy efficiency investment, MEA will provide its expertise to convert technical energy audits conducted by third parties, mostly equipment vendors, into a commercially-viable, investment -ready project package, suitable for Bank financing.

An ESCO unit of about 15 staff, established within the Electrical System Service Department, will be responsible for - project assessment and management; equipment installation control and auditing; and performing technical feasibility study on energy conservation, proposing energy conservation measures as well as providing measurement and verification. Proposed financing under this project for the next five years is as follows:

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year Investment cost

60,000,000

100,000,000

110,000,000

121,000,000

133,000,000

Income1

4,800,000

8,000,000

8,800,000

9,680,000

10,640,000

Expenditure2

6,591,360

7,369,712

7,942,440

8,560,123

9,225,532

Equipment cost

1,000,000

20,000

20,000

20,000

20,000

Total expenditure

7,591,360

7,389,712

7,962,440

8,580,123

9,245,532

Profit

-2,791,360

610,288

837,560

1,099,877

1,394,468

Numbers are in Baht1. On MEA side2. Expenditure includes salary and operating cost

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Targets for Testing Laboratory over say the next five years.

The services will be performed by the Power Maintenance Department. The major objective of the testing service will be to develop business marketing strategies of the testing laboratories to ensure the laboratory’s sustainability. The target for the next five years is:

Load Research

There are 729 low voltage customers and 496 high voltage customers at the start of the beginning of the project and MEA’s first attempt would be to maintain this number. MEA would replace damaged meter reading equipment but avoid rotating it to new samples. MEA would make use of the existing TOU meters which also possess the load profile data and this data is also available in the PC's of the meter reading section of all the 14 District Offices. The Load Research center would down load profile data back to its servers using the MEA Intranet. It is expected that by 2004 onward when all the TOU meter load profiles have been collected, there will be approximately 3,000 additional samples to the existing system with 5% growth per year. MEA would apply the above mentioned Load Research data in its Load Research applications.

Load Control

To date, there exists a capacity surplus in MEA’s distribution network. In respect of losses, MEA is able to contain losses within 4%, without the load control. The TOU rate program which MEA is supporting and which is already working well, will provide sufficient incentives to the customers to reduce demand. MEA would, therefore, seriously consider load control after about 5 years. In the mean time EGAT would pursue its load control activities.

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