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Document of

The World Bank

FOR OFFICIAL USE ONLY Report No: PAD2212

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF SDR 43.8 MILLION

(US$ 60 MILLION EQUIVALENT)

TO THE

ISLAMIC REPUBLIC OF AFGHANISTAN

FOR A

HERAT ELECTRIFICATION PROJECT 23 May 2017

Energy & Extractives Global Practice

South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 10, 2017)

Currency Unit = Afghani (AFN)

68.0788 AFN = US$1

US$1 = SDR 0.7333

FISCAL YEAR

July 1 – June 30 (World Bank) January 1 – December 31 (Government of Afghanistan)

Regional Vice President: Annette Dixon

Country Director: Shubham Chaudhuri

Senior Global Practice Director: Riccardo Puliti

Practice Manager: Demetrios Papathanasiou

Task Team Leader(s): Fanny Missfeldt-Ringius, Hung Tan Tran

ABBREVIATIONS AND ACRONYMS

ABC Aerial Bunched Cables

ACSR Aluminum Conductor Steel Reinforced Cable

ADB Asian Development Bank

AFMIS Afghanistan Financial Management Information System

AFN Afghanistan Afghani

ALCS Afghanistan Living Conditions Survey

APSDP Afghanistan Power System Delivery Project

ARTF Afghanistan Reconstruction Trust Fund

BAFO Best and Final Offer

BP Bank Procedures

CDC Community Development Council

CE Citizen Engagement

CEO Chief Executive Officer

CFP Chance Find Procedure

CHMP Cultural Heritage Management Plan

COC Code of Conduct

CPF Country Partnership Framework

CQS Consultant’s Qualification-based Selection

CSO Central Statistics Organization

CT Current Transformer

DA Designated Account

DABM Da Afghanistan Breshna Moasessa

DABS Da Afghanistan Breshna Sherkat

ECOP Environmental Code of Practice

EIRR Economic Internal Rate of Return

ESIA Environmental and Social Impact Assessment

ESMAP Energy Sector Management Assistance Program

ESMF Environmental and Social Management Framework

ESMP Environmental and Social Management Plan

FIRR Financial Internal Rate of Return

FM Financial Management

GDP Gross Domestic Product

GHG Greenhouse Gas

GoA Government of Islamic Republic of Afghanistan

GRM Grievance Redress Mechanism

GRS Grievance Redress Service

GWh Giga-Watt-hours

HEP Herat Electrification Project

H&S Health and Safety

IA Internal Audit

IDA International Development Association

IDP Internally Displaced People

IFR Interim Financial Report

ISAF International Security Assistance Force

ISDS Integrated Safeguards Data Sheet

km Kilometer

kV kilo-volt

kVA Kilo-Volt Ampere

kWh Kilo-watt hour

LV Low Voltage

M&E Monitoring and Evaluation

MEW Ministry of Energy and Water

MoF Ministry of Finance

MV Medium Voltage

MVA Mega-Volt Ampere

MW Mega-Watt

NATO North Atlantic Treaty Organization

NEPS North East Power System

NESP National Energy Supply Program

NGO Non-Governmental Organization

NPA National Procurement Agency

NPV Net Present Value

NRVA National Risk and Vulnerability Assessment

NSP National Solidarity Program

OP Operational Policy

OPGW Optical Ground Wire

PAD Project Appraisal Document

PAP Project Affected People

PDO Project Development Objective

PEFA Public Expenditure and Financial Accountability

PFM Public Financial Management

PFMRP Public Financial Management Reform Project

PID Project Information Document

PIU Project Implementation Unit

PPSD Project Procurement Strategy for Development

PT Potential Transformer

PV Photovoltaic

QBS Consultant’s Quality Based Selection

QCBS Consultants Quality and Cost-based Selection.

RAP Resettlement Action Plan

RFB Request for Bids

RFP Request for Proposals

RFQ Request for Quotations

RPF Resettlement Policy Framework

SAO Supreme Audit Office

SDU Special Disbursement Unit

SEPS South East Power System

SPD Standard Procurement Document

STEP Systematic Tracking of Exchanges in Procurement

TA Technical Assistance

TOR Terms of Reference

UNDP United Nations Development Program

USAID United States Agency for International Development

USD US Dollar

VfM Value for Money

The World Bank Herat Electrification Project (P162022)

Page 1 of 70

BASIC INFORMATION

Is this a regionally tagged project? Country(ies) Financing Instrument

No

Investment Project Financing

[✔] Situations of Urgent Need of Assistance or Capacity Constraints

[ ] Financial Intermediaries

[ ] Series of Projects

Approval Date Closing Date Environmental Assessment Category

13-Jun-2017 31-Jan-2022 B - Partial Assessment

Bank/IFC Collaboration

No

Proposed Development Objective(s) Provide access to electricity to households, institutions, and businesses in selected areas of Herat Province, Afghanistan.

Components

Component Name Cost (US$, millions)

Component 1: Electrification of Four Districts in Herat Province 20.00

Component 2: Grid Densification, Extension, and Off-grid Pilots in Herat Province 36.00

Component 3: Technical Assistance 4.00

Organizations

Borrower :

Ministry of Finance

Implementing Agency : Da Afghanistan Breshna Sherkat (DABS)


Page 2 of 70

PROJECT FINANCING DATA (IN USD MILLION)

[ ] Counterpart Funding

[ ] IBRD [ ] IDA Credit [ ] Crisis Response Window [ ] Regional Projects Window

[ ✔ ] IDA Grant [ ] Crisis Response Window [ ] Regional Projects Window

[ ] Trust Funds

[ ] Parallel Financing

FIN_COST_OLD

Total Project Cost: Total Financing: Financing Gap:

60.00 60.00 0.00

Of Which Bank Financing (IBRD/IDA):

60.00

Financing (in US$, millions)

FIN_SUMM_OLD

Financing Source Amount

IDA Grant 60.00

Total 60.00

Expected Disbursements (in US$, millions)

Fiscal Year 2017 2018 2019 2020 2021 2022

Annual 0.00 2.50 7.40 15.50 22.50 12.10

Cumulative 0.00 2.50 9.90 25.40 47.90 60.00

INSTITUTIONAL DATA

Practice Area (Lead)

Energy & Extractives


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Contributing Practice Areas

Climate Change Fragile, Conflict & Violence

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance Substantial

2. Macroeconomic High

3. Sector Strategies and Policies Substantial

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability High

6. Fiduciary Substantial

7. Environment and Social Moderate

8. Stakeholders Substantial

9. Other

10. Overall High


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COMPLIANCE

Policy

Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✔] No

Does the project require any waivers of Bank policies?

[ ] Yes [✔] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants

Sections and Description Within three months after the Project is effective, Project Implementing Entity shall hire additional financial

management staff, including one finance officer and one cashier, whose terms of reference shall be agreed

between the Project Implementing Entity and the Association.

Sections and Description Within three months after the Project is effective, Project Implementing Entity shall prepare and submit to the

Association for approval, a financial management manual to be used by all the development projects that are

implemented by the Implementing Entity.

Sections and Description Within three months after the Project is effective, the Project Implementing Entity shall hire an internal audit


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consultant who reports to the head of the internal audit of the Project Implementing Entity.

Sections and Description Within three months after the Project is effective, the Project Implementing Entity shall hire one international

safeguard specialist, whose terms of reference shall be agreed between the Project Implementing Entity and the

Association, to be part of the Project Implementation Unit.

Sections and Description Within three months after the Project is effective, the Project Implementing Entity shall prepare and submit to the

Association for approval, a procurement processing manual covering procurement processes and procurement

services standards for the Project Implementing Entity.

Sections and Description Within three months after the Project is effective, the Project Implementing Entity shall establish and thereafter

maintain throughout Project implementation, a Project grievance redress mechanism, with staffing and operating

procedures acceptable to the Association, for monitoring and addressing the concerns of people affected by the

Project and building public and stakeholder support for the Project.

Conditions

Type Description Effectiveness Subsidiary Agreement has been executed on behalf of the Recipient and the

Project Implementing Entity in substance and form satisfactory to the Association. Type Description Effectiveness Subsidiary Agreement has been duly authorized or ratified by the Recipient and

the Project Implementing Entity and is legally binding upon the Recipient and the Project Implementing Entity in accordance with its terms.

PROJECT TEAM

Bank Staff

Name Role Specialization Unit

Fanny Kathinka Missfeldt-Ringius

Team Leader(ADM Responsible)

Economist GEE06

Hung Tan Tran Team Leader Power Engineer GEE02


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Rehan Hyder Procurement Specialist(ADM Responsible)

Procurement GGO06

Muhammad Abbass Rahimi Procurement Specialist Procurement GGO06

Ahmed Shah Ahmadzai Financial Management Specialist

Financial Management GGO24

Abdul Baes Akhundzada Team Member Power Engineer GEE06

Abdul Hamid Quraishi Team Member Financial Analyst GEE06

Abdulaziz Faghi Peer Reviewer Power Engineer GEE03

Gunjan Gautam Team Member Power Engineer GEE06

Jie Li Team Member Economist GSU18

Juan Carlos Alvarez Team Member Senior Legal Counsel LEGES

Junko Funahashi Team Member Legal Counsel LEGES

Maryam Khadim Team Member Power Engineer GEE06

Mohammad Yasin Noori Safeguards Specialist Social Safeguards GSU06

Mohammad Zubair Stanikzai

Team Member Power Engineer GEE06

Obaidullah Hidayat Safeguards Specialist Environment GEN06

Paul Baringanire Peer Reviewer Power Engineer GEE05

Qingtao Yang Team Member Team Assistant GEE06

Richard Jeremy Spencer Peer Reviewer Economist GEE06

Syed Waseem Abbas Kazmi Team Member Financial Management GGO24

Victor Manuel Ordonez Conde

Team Member Finance Officer WFALA

Wahida Kakar Team Member Team Assistant SACKB

Extended Team

Name Title Organization Location

Anil Cabraal Renewable Energy Consultant

Margaret Wilson Economist Vancouver,Canada


Page 7 of 70

AFGHANISTAN

HERAT ELECTRIFICATION PROJECT

TABLE OF CONTENTS

I. STRATEGIC CONTEXT ...................................................................................................... 9

A. Country Context ................................................................................................................. 9

B. Sectoral and Institutional Context ................................................................................... 10

C. Higher Level Objectives to which the Project Contributes ............................................. 12

II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 12

A. PDO ................................................................................................................................... 12

B. Project Beneficiaries ......................................................................................................... 12

C. PDO-Level Results Indicators ........................................................................................... 13

III. PROJECT DESCRIPTION .................................................................................................. 13

A. Project Components ......................................................................................................... 13

B. Project Cost and Financing ............................................................................................... 15

C. Lessons Learned and Reflected in the Project Design ..................................................... 16

IV. IMPLEMENTATION ........................................................................................................ 17

A. Institutional and Implementation Arrangements ........................................................... 17

B. Results Monitoring and Evaluation ................................................................................. 17

C. Sustainability .................................................................................................................... 18

D. Role of Partners ................................................................................................................ 18

V. KEY RISKS ..................................................................................................................... 19

A. Overall Risk Rating and Explanation of Key Risks ........................................................... 19

VI. APPRAISAL SUMMARY .................................................................................................. 21

A. Economic and Financial (if applicable) Analysis .............................................................. 21

B. Technical ........................................................................................................................... 24

C. Financial Management (FM) ............................................................................................ 24

D. Procurement ..................................................................................................................... 25

E. Social (including Safeguards) ............................................................................................ 26

F. Environment (including Safeguards) ................................................................................ 29

G. Other Safeguard Policies (if applicable) .......................................................................... 30


Page 8 of 70

H. World Bank Grievance Redress ....................................................................................... 30

VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 31

ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 37

ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 42

ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...................................................................... 57

ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 59

ANNEX 5: SOLAR MINI-GRID PILOT PROJECTS ....................................................................... 67


Page 9 of 70

I. STRATEGIC CONTEXT

A. Country Context

1. Afghanistan’s development in the modern era has suffered from frequent periods of political upheaval, accompanied by recurring conflict. Recent years were notable for the involvement of an International Security Assistance Force (ISAF), created in 2001 by the United Nations Security Council to help maintain security in Afghanistan. The 13-year mission of ISAF, which was North Atlantic Treaty Organization (NATO) led, involved as many as 51 countries and 130,000 forces at its peak, and the aid and activity associated with their involvement supported a period of economic expansion with annual growth averaging 9.4 percent between 2003 and 2012. Beginning in 2012, the participating countries started to stand down their forces, and by late 2014, the NATO forces formally handed responsibility over to Afghan security personnel. This withdrawal of the international forces has created a gap in the Afghan economy. Since 2012, economic growth has slowed to 1.3 percent in 2014 and an estimated 1.5 percent in 2015.

2. Currently Afghanistan is one of the least developed countries in the world, with a per capita Gross Domestic Product (GDP) in 2014 of USD 634. The 2015 UN Human Development Index ranked it at 171 out

of 188 countries.1 The economy is based largely on services, which represent over 50 percent of GDP. Agriculture represents roughly 25 percent, while manufacturing (much of it based on food processing) and

mining constitute the balance. Based on the 2013-2014 Afghanistan Living Conditions Survey2 (ALCS), over 39 percent of the population lived in poverty – up from 36 percent in 2012, and unemployment stood at 22.6 percent of the labor force. There are also disparities in the incidence of poverty with poverty rates in rural areas approximately 10 percentage points higher than in urban centers. A significant gender imbalance remains as reflected in the average literacy rate (population above 14 years of age). While the Afghan average literacy rate is 35 percent countrywide, only 20 percent of female Afghans are literate.3

3. Slow growth, an unstable political situation, and ongoing insurgency create a challenging environment going forward. The country is already suffering from under-utilization of resources - both labor and capital. The problem is compounded by rapid population growth and the large number of young people who will be entering the labor force in the coming years as over 44 percent of the current population is under the age of 15. New sources of economic growth, including new employment opportunities, are needed to absorb the existing surplus of inputs, as well as new entrants to the labor pool.

1 United Nations Development Programme (UNDP), Human Development Report 2015, Work for Human Development, Statistical Annex 2 Central Statistics Organization (2016), Afghanistan Living Conditions Survey 2013-14. National Risk and Vulnerability Assessment (NRVA). Kabul, CSO 3 In Herat Province, female literacy is slightly higher than the national average at 26 percent of the population. From 2013-14 NRVA.


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B. Sectoral and Institutional Context

4. Electricity Supply and Demand: Power supply in Afghanistan is delivered through a combination of grid-based systems, mini-grids and stand-alone facilities. While 89 percent of households reported having access to some kind of electricity in the 2013-2014 ALCS, only 29.7 percent received their power from the grid, primarily in urban areas. According to Afghanistan’s Power Sector Masterplan (2013), overall electrification of the country will reach 65 percent by 2032 with an expected peak load of 3,500 Mega-Watt (MW). 5. Grid supply dominates for urban households with 89 percent reporting grid access, but it represents the primary supply source for only 11 percent of electrified rural households. Rural areas are dominated by mini grids and stand-alone systems, based primarily on solar and small hydropower plants. Over 5,000 micro hydro plants have been constructed under the National Solidarity Program (NSP) to provide supply to small groups of households in rural communities. Grid access across Afghanistan is also quite heterogeneous across the country’s 34 provinces (or “wilayat”) with some areas having no connections to the grid while others are well served – especially in urban areas. Herat, which has direct links to both Iran and Turkmenistan, enjoys a high level of connections in the capital city. However, areas outside the capital have little or no grid connection, despite the fact that the province as a whole has a reliable and ample source of electricity supply.

6. Households dominate the customer base, representing almost 93 percent of grid connections, while commercial customers represent just under 7 percent and government agencies less than 1 percent. Total supply from the grid in 2015-16 was 4,773 Giga-Watt-Hour (GWh), of which 3,767 GWh or 80 percent was imports. Uzbekistan was the main source of external supply (1,284 GWh), followed closely by Turkmenistan (1,184 GWh). Iran supplied 827 GWh and Tajikistan supplied 471 GWh. Domestic generation totaled 1,007 GWh, and was almost exclusively (96 percent) hydro.

7. Existing power system: In mid-2015 there were 12 hydropower plants in Afghanistan, not counting the over 5,000 off-grid NSP hydropower plants. The two largest among those are Naghlu Hydropower Plant at 100 MW installed capacity and Mahipar Hydropower Plant at 66 MW installed capacity. A new 42 MW hydro at Salma in Herat Province was commissioned in June 2016, and work continues on developing an additional 18 MW of capacity at the Kajaki Hydropower Plant in the south of the country. There are 9 thermal plants connected to the grid, with a total rated capacity of approximately 209 MW. Another 8 small plants with an aggregate capacity of 12 MW operate off grid. All of the thermal capacity is diesel fired. The power generation mix is run to minimize costs by favoring cheap power from abroad and the use of domestic hydropower over thermal and diesel power plants. The government plans to continue increasing import capacity through projects set out in the National Energy Supply Program (NESP).

8. The Afghan transmission system is highly fragmented, consisting of isolated grids or islands supplied by different power systems including different generating stations and different import sources. The power systems of the countries meeting Afghanistan's import needs operate asynchronously with one another and with Afghanistan (although the Turkmen system is synchronized with that of Iran). Importing power from these different countries means that Afghanistan must operate several separate power systems each synchronized with its neighboring supplier or with its own domestic supply (which itself is


Page 11 of 70

not synchronized). While imports have helped Afghanistan grow its electricity consumption over the last five years, asynchronous supplies limit the opportunities to interconnect to improve security of supplies and expand the power network in a rational way. 9. For operational purposes, the network is divided into three major working groups linking different supply sources to the grid: (i) the North East Power System (NEPS), which consists of multiple small islands and connects 17 load centers including Kabul, Mazar-e-Sherif, and Jalalabad with Tajikistan and Uzbekistan (at 220 kilo-Volt (kV), 110 kV, and 35 kV); (ii) the South East Power System (SEPS) consisting of Khandahar and linking with Kajaki (110 kV); and (iii) the Herat System linking with the Islamic Republic of Iran and the Republic of Turkmenistan (132 kV and 110 kV). Because the NEPS receives power from both Uzbekistan and Tajikistan, as well as a number of domestic generating stations, parts of the system operate in asynchronous mode.

10. Expanding and inter-connecting the grid is a top priority for the Government of the Islamic Republic of Afghanistan (GoA). Grid supply is typically more reliable than off-grid as alternative sources of generation are available if one fails. Generating stations can be located close to the source (essential with hydroelectric power) even if there is no demand nearby. In addition, an inter-connected grid allows the system to take advantage of differences in the timing of demands thereby reducing the total need for capacity and creating a higher system load factor. The recent commissioning of the Salma Hydroelectric Plant in Herat Province makes expansion of the grid in the region a timely initiative to absorb the seasonal capacity of this plant, to reduce imports, and to extend the benefits of grid supply to the local population.

11. Energy institutions. The Ministry of Energy and Water (MEW) oversees the energy sector in Afghanistan. Up until 2009, Afghanistan’s power utility was a department of the MEW under the name of Da Afghanistan Breshna Moasessa (DABM). Since the power utility was spun off, the MEW has been increasingly focused on policy, strategy, and planning issues. The MEW has taken the lead on the preparation of the NESP and the Power Sector Master Plan. The MEW is also leading the dialogue with Afghanistan’s neighbors and donors. The power utility, which is vertically integrated, was set up under the name of the Da Afghanistan Breshna Sherkat (DABS). DABS has been able to establish itself as a financially independent and commercially viable entity while remaining under state ownership. Initially, the DABS was only responsible for the daily operation of the transmission and distribution system, but it is increasingly also carrying out its own investment program.

12. The DABS is incorporated and governed by an independent board, which is constituted by different government agencies, with the Ministry of Finance (MoF) holding 45 percent of the ownership of the DABS, the MEW holding 35 percent, and 10 percent each with the Ministry of Economy and Ministry of Urban Development and Housing. The DABS’ financial performance has improved significantly since it was spun off from the MEW, and in 2014 it did not need subsidies from the government to support its operations. Over the past seven years, energy losses were reduced from 54 percent to 26 percent. The DABS nevertheless faces significant challenges, including overstaffing and under-qualification of staff; and poor customer management, billing, and collection. Further support to strengthen its institutional, financial, and human capacity is needed to improve the power system of the country.4

4 Under the name of “DABS Planning And Capacity Support Project” complementary TA is provided by the World Bank to DABS, alongside other donors such as ADB and USAID.


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13. Herat Province. This Project targets Herat Province for the following reasons: Firstly, it is the Province in Afghanistan with the second highest combined commercial and technical losses just following Kabul Province. Any improvement in the Herat system will positively affect the overall viability of DABS as a power utility. Secondly, Herat is a microcosm in terms of electricity network that within its own borders combines all challenges that the overall electricity network in Afghanistan experiences, such as a large dependency from imports and challenges of interconnecting the domestic (hydro-based) generation with the international system. While focusing on electrification of four distinct districts, the Project is also a test case for how electrification can be sustainably undertaken, including through off-grid pilots, and how an electricity network can be made to grow together over time.

C. Higher Level Objectives to which the Project Contributes

14. The proposed Project is expected to contribute to the Bank’s overall objectives of alleviating poverty and ensuring inclusivity of access to benefit all segments of the population. It is closely aligned with the 2016 Country Partnership Framework (CPF)5 for Afghanistan covering the period from 2017 to 2020, especially with the second of three pillars of the Framework, ‘Supporting Inclusive Growth’. Increasing power generation and access to electricity is one of five objectives under this pillar, and outcome indicators include increasing generation from domestic sources, increasing the supply of grid electricity, and increasing the number of households with access to the grid. The Project is also consistent with the first and third pillars – ‘Building Strong and Accountable Institutions’ which aims to build the capacity and self-reliance of government institutions and improve service delivery, and ‘Social Inclusion’ which is aimed at reducing differences among the population in terms of access to services and vulnerability to shocks.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

15. The Project Development Objective (PDO) is to provide access to electricity to households, institutions, and businesses in selected areas of Herat Province, Afghanistan.

B. Project Beneficiaries

16. The primary Project beneficiaries are the residents, businesses and community institutions located in the Chesht, Obe, Karokh and Pashtun-Zarghoon districts of Herat Province who are currently without access to the electricity grid. Total population in the mentioned four districts currently stands at approximately 270,000, of which 90,000 people with over 1,250 business enterprises and 350 community institutions (mosques, schools and health centers) can be covered under the Component 1 of this Project. With a provincial average of 6.4 persons per household, the number of households potentially benefitting from the Component 1 of Project is estimated at approximately 14,062. The DABS is also expected to benefit from the institutional training provided as part of the Technical Assistance Component, and from additional revenues associated with an expanded customer base.

5 FY2017–20, Country Partnership Framework (Report No. 108727-AF, Oct 2, 2016).


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17. As the Project is extended into additional areas within Herat Province, beneficiaries will include the residents, businesses and institutions in those areas. Because specific investments outside the four districts have not yet been identified, the number and type of beneficiaries is uncertain. However, assuming that the cost per customer of additional distributions networks is similar to the cost in the four districts, and that the make-up of the community is similar to that in the four districts, additional 22,000 households (140,800 persons) customers could be either connected or experience improved electricity services. At the end of the investment’s life funded under this Project in around 2040, it is expected that about 56,000 households will have gained access to electricity through this Project or an equivalent of 360,000 persons. 18. Within the communities, the Project should be of benefit to all genders and ages. Families will have better lighting to enable them to work, read and study after sunset. All members are also likely to have access to better health care as local health centers have better lighting and refrigeration for medications. Teachers and students will also potentially have access to better learning resources thanks to the use of computers. Easier charging of mobile phones will enhance access to social networks and on-line media, while easier access to television and radios will provide both learning opportunities and the capacity to stay informed about events outside the local community. Electric pumps can facilitate access to both drinking water and irrigation water. Finally, reliable access to electricity supply will support the entrepreneurial activities of both men and women, be they crafts, retail/commercial, or small to medium scale manufacturing.

C. PDO-Level Results Indicators

19. The following indicators will be used to track progress in achieving the PDO:

People provided with new or improved electricity service (230,800); and

Number of non-residential consumers provided with new or improved electricity service (1,600).

20. The target values for the indicators have been assessed at appraisal. The complete set of indicators and intermediate indicators can be viewed in Section VII of the PAD.

III. PROJECT DESCRIPTION

A. Project Components

21. Component 1 – Electrification of Four Districts in Herat Province (USD 20 million): This component supports investments for building a new 110 kV transmission line, and four 110/20 kV substations and medium and low voltage distribution networks in four districts of Herat Province. The scope of the work includes:

(a) Design, supply and installation of lattice towers, overhead conductors, optical ground wires

(OPGW), insulators, grounding arrangement, foundations and civil works and all necessary

fittings and equipment to construct a 25 kilometer (km) tapping transmission line to the new


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substation near Karokh from the existing 110 kV transmission line between the Salma Dam

and the existing Noor-ul-Jahad substation, near Herat city.

(b) Design, supply and installation of power transformers, auxiliary transformers, switchgear,

circuit breakers, surge arresters, current transformers (CTs), potential transformers (PTs),

protection arrangement, grounding arrangement, telecommunication, relay protection,

automation and dispatching systems and all necessary equipment and civil work to construct

four 110/20 kV substations each with the capacity of 10 Mega-Volt Ampere (MVA) in the

districts of Chesht, Obe, Karokh and Pashtun-Zarghoon of Herat Province.

(c) Supply of distribution transformers, overhead line and fittings, underground cables, aerial

bunched cables (ABC), protection equipment, and connections from the network to meter

boxes (including meter boxes, switches, breakers and other materials) for electrification of

households, businesses, schools, health centers and holy places in the districts of Chesht, Obe,

Karokh and Pashtun-Zarghoon of Herat Province. Installation of distribution networks will be

done by DABS.

22. Component 2 – Grid Densification, Extension, and Off-grid Pilots in Herat Province (USD 36 million): This component will extend grid as well as intensify and upgrade the existing grid to provide access to new or improved electricity service6 to other parts of Herat Province. Additionally, solar mini-grids and solar-hybrid mini-grids would be piloted in villages that are unlikely to obtain grid electricity in less than five years and where it is technically and economically justifiable. Specific subprojects will be identified and appraised during project implementation. Subprojects to provide electricity to Internally Displaced People (IDPs) and returnees will also be considered under Component 2. 23. Component 3 – Technical Assistance (USD 4 million): This component will finance technical assistance (TA) to ensure timely and quality completion of the Project, to enhance DABS capacity in procurement, engineering studies and project management, to enhance financial planning for the utility, and to prepare a foundation for further extension and integration of the grid in Herat Province. The overall scope of this component includes:

(a) Assistance to DABS for Project Implementation: This sub-component would provide expert

assistance to DABS in key aspects of project implementation including: project planning and

supervision, procurement, financial management (FM), and feasibility assessments for

candidate subprojects under Component 2.

(b) Supervision Consultant: Although DABS has established a Project Implementation Unit (PIU)

to manage World Bank projects, this sub-component would allow DABS to hire consultant(s)

to support the PIU in the supervision of the Project.

(c) Environmental and Social Safeguards Measures: Social and environmental impacts of the

Project are expected to be moderate, insignificant, reversible and easily manageable. An

environmental and social management framework (ESMF) and a Resettlement Policy

6 The definition of access to improved electricity service will be guided by the multi-tier matrix for measuring access to electricity, which is discussed in “Bhatia, Mikul; Angelou, Niki. 2015. Beyond Connections - Energy Access Redefined. Energy Sector Management Assistance Program (ESMAP) Technical Report; 008/15. World Bank, Washington, DC. Available at https://openknowledge.worldbank.org/handle/10986/24368.”


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Framework (RPF) have been adopted for the Herat Electrification Project (HEP). These

documents have been updated and will be applicable to the HEP. This TA component would

assist DABS in preparing an Environmental and Social Impact Assessments (ESIA), project-

specific and site-specific Environmental and Social Management Plans (ESMPs) and

Resettlement Action Plans (RAPs) where needed. The ESIA/ESMP and RAP will be subject to

consultation and No Objection by the World Bank. They will be disclosed before any land is

taken and before any civil work begins. The DABS team will be reinforced by two additional

local staff (one male and one female) to help manage safeguards from the DABS office in

Herat.

(d) Institutional Strengthening for DABS: This sub-component will provide technical support and

training to DABS personnel in areas where additional capacity building is required, particularly

in procurement and FM. In addition, training will be provided to build local capacity in the

Project areas to ensure the effective operation and maintenance of the new networks. Finally,

this component will support DABS in implementing awareness programs, especially targeted

to women, on electricity uses as well as on health and safety aspects of electricity use and

infrastructure.

(e) Studies for further Grid Extension: This sub-component will support a feasibility study to

investigate synchronization options and further grid extension studies in Herat Province

including geo-spatial analysis and load flow study of the system.

(f) Development of a Grid Code: This sub-component will support the review of existing

standards and procedures and the preparation of a Grid Code for the Afghan power system

consistent with best international practices.

(g) Financial Modelling for DABS: This sub-component will support development of a financial

planning model that can be used to prepare pro-forma financial statements, cash flow

projections, debt service obligations and financial ratios for DABS under alternative scenarios

relating to capital investment, investment financing, sales forecasts, tariffs and input costs.

The financial planning model will provide a sound basis for evaluating the potential for further

commercialization of DABS, including its capacity to borrow on terms that are more

commercial.

B. Project Cost and Financing

24. The proposed Project falls into the category of Investment Project Financing. Financial support will be in the form of an IDA Grant to the GoA in the amount of USD 60 million. The funds will be passed on to DABS by MoF based on a Subsidiary Agreement between MoF and DABS. The Project will be effective after the Subsidiary Agreement has been executed on behalf of the MoF and the DABS in substance and form satisfactory to IDA. The project cost estimate and financing plan are shown in Table 1, below.


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Table 1: Project Cost and Financing Plan

Project Components Project cost IDA

Financing Trust Funds

Counterpart Funding

Component 1 – Electrification of Four Districts in Herat Province

20 20 0 0

Component 2 – Grid Densification, Extension and Off-grid Pilots in Herat Province

36 36 0 0

Component 3 – Technical Assistance

4 4 0 0

Total Project Costs 60 60 0 0

Total Financing Required 60 60 0 0

C. Lessons Learned and Reflected in the Project Design

25. Afghanistan’s fragile security environment presents a serious challenge, and has done so for several years. Over the course of this time, both the Bank and the GoA have learned several lessons from implementing projects under these difficult circumstances. 26. Benefits must accrue to the local population. Among the most important lessons are that communities in the project area must believe that the Project will be of benefit to them in terms of quality of living and/or access to jobs and business opportunities. Communities need to be consulted during project preparation, project benefits need to be elaborated, and community wishes and concerns need to be taken into account. Through electrification of households and commercial and public customers, the Project will directly benefit the local population. During implementation of this Project, DABS personnel and their consultants will continuously consult with project-affected people (PAPs), both those impacted by construction of the transmission and distribution facilities and those who will enjoy better access to electricity.

27. Strong support from government. Another lesson is that this Project should be responsive to the Government’s priorities and reform program. This Project was initiated by a direct request from the President and enjoys strong support from the agencies involved in its planning and implementation. The Project is also consistent with the GoA’s goal of extending grid supply to unconnected areas.

28. Risk of cost overruns. There should be adequate planning for contingencies in case of unanticipated events (including a deterioration in security conditions) to deal with cost overruns. In the years between 2005 and 2016, a significant number of projects in the energy portfolio were affected by cost overruns as procurements concluded with higher-than-estimated costs. This was generally remedied by means of additional financing and often led to delays in project implementation. While some of these overruns were due to unusual price hikes in the (metal) market, the costing of projects often did not include adequate provisions for physical and price contingencies. The costing of this Project uses 25 percent of


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physical and price contingencies, which are considered adequate to respond to this risk.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

29. The overall responsibility of Project implementation will rest with DABS whose Chief Executive Officer (CEO) will delegate day to day management to the PIU for World Bank projects. DABS has an existing PIU, headed by a Project Director, for implementing all the World Bank projects with DABS as Implementing Entity. The Project Director of PIU will report to the Chief Financial Officer (CFO) of DABS. 30. Within the existing structure of the PIU, DABS has assigned a Project Manager for the Project. The Project Manager will be supported by a project implementation team, with members assigned from different departments within DABS. The team members will be responsible for providing the necessary support to the Project Manager for carrying out day to day implementation activities of the Project from their respective fields. Key team members with adequate qualification and appropriate skills have been identified or will be hired. They consist of electrical engineers, a procurement specialist, a financial management specialist, and safeguard specialists. Where needed, DABS will hire new staff with appropriate technical qualifications particularly for some of the specialized fields under the Project. The implementation arrangements are discussed in detail in Annex 2.

B. Results Monitoring and Evaluation

31. Monitoring of project implementation progress, as well as progress toward the achievement of Project objectives and results indicators will be carried out by the DABS. They will develop a monitoring framework and system in accordance with the DABS systems, collect data, establish baselines for indicators, and manage the monitoring and evaluation (M&E) aspects of the Project. 32. As noted earlier, the key Project monitoring indicators will include the following:

People provided with new or improved electricity service (230,800); and

Number of non-residential consumers provided with new or improved electricity service (1,600).

33. The indicator, “People provided with new or improved electricity service” shows the number of people that have been provided with access to new or improved electricity service. The baseline value for this indicator will be zero, and it will be measured every six months after effectiveness of the Project. The PIU of DABS is responsible for measuring this indicator. Access to new electricity service will be measured based on number of meter boxes that will be installed during implementation of the Project for residential customers. The definition of access to improved electricity service will be guided by a multi-tier matrix for measuring access to electricity. The multi-tier matrix is discussed in ESMAP’s technical paper, ‘Beyond Connections – Energy Access Redefined.’7 Considering the fact that this Project will extend national grid to Obe, Chesht, Pashton-Zarghon and Karokh districts of Herat Province, which are mainly rural areas, the

7 See footnote 4 for a full reference.


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following assumptions shall be used for measuring of this indicator:

i. Number of people per household (family size) will be considered as 6.4 (based on the 2013/14 National Risk and Vulnerability Assessment [NRVA]); and

ii. Number of meters per meter box will be considered at six, and each household is assumed to be connected through one meter.

34. Intermediate indicators for monitoring implementation progress includes:

i. Transmission line constructed under the Project; ii. Capacity of new substations constructed and commissioned;

iii. Grid Extension Study prepared; iv. Grid Code prepared; v. Additional distribution grid asset created;

vi. Off-grid pilots implemented; vii. Percentage of grievances satisfactorily resolved within stipulated timeframe;

viii. Percentage of Community Development Councils (CDCs) consulted on project activities affecting them in the project intervention areas;

ix. Number of girls’ schools with electricity service; and x. Awareness campaigns targeted to women on uses of electricity and safety aspects.

C. Sustainability

35. The long-term sustainability of the Project will derive from careful attention to: (i) ensuring that revenues from the services provided are sufficient to cover the costs of supply; (ii) ensuring a maintenance program sufficient to keep the assets in good operating order; and (iii) providing a reliable, high quality electricity supply sufficient to meet the demands of local customers. 36. Ensuring sufficient net revenues in turn will require that enough customers connect to the system to cover the fixed costs of supply (the lines and substations) as well as the variable costs of the electricity. The operator of the assets (DABS) also needs to manage billings and collections, and act to ensure that tariffs are adequate to cover costs. DABS will also bear the responsibility for operation and maintenance of the assets. Providing support for commercialization of DABS will help to ensure both financial and functional sustainability. Ensuring long-term supply to new and future customers will require integrated planning of both supply sources and the transmission/distribution network. An integrated system expansion plan for Herat Province is a key aspect of satisfying future demands.

D. Role of Partners

37. The Project complements the programs of other donors supporting the development of Afghanistan’s power sector, including the Government of India, the Asian Development Bank (ADB) and United States Agency for International Development (USAID).


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V. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

38. Table 2 below summarizes the Project’s risk ratings by major risk category.

Table 2: Risk Ratings Summary

Risk Category Rating

1. Political and Governance Substantial

2. Macroeconomic High

3. Sector Strategies and Policies Substantial

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability

High

6. Fiduciary Substantial

7. Environment and Social Moderate

8. Stakeholders Substantial

9. Other –

Overall Risk High

39. The overall risk rating for the Project is High, owing to concerns about the deteriorating macroeconomic situation and the limited institutional capacity for implementation and sustainability. These concerns are compounded by the fragile security situation and the risks this imposes on governance, both of the sector and the country.

40. Political and Governance Risk and Mitigation Measures: Both political and governance risks are Substantial. The high uncertainties in the operating environment of Afghanistan today are likely to affect project delivery. Escalating insurgency-related violence has increased the level of fragility in the political and governance environment while also affecting the ability of the government to deliver services and programs. The project provides for resources in terms of technical assistance to help DABS engage the local communities in order to lead the Project to a success.

41. Macroeconomic Risk and Mitigation Measures: The deteriorating macroeconomic situation, reflected in slow growth since 2012, may exacerbate the fragile security situation and the risks fragility imposes on governance, both of the sector and the country, and institutional capacity. High macroeconomic risk can amplify risks across the board and affect achievement of the PDO. The Project would be fully funded by an IDA Grant. As a result, it has limited direct exposure to macroeconomic volatility. However, the last mile connection has to be financed by the customer not only because this is DABS’ practice but also in order to ensure ownership. The state of the macro-economy can have an impact on the rate of last mile connection and the use of electricity by the customer. The contingencies allocated


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for Components 1 and 2 can provide additional resources to DABS and its contractors to work under fragile situations. DABS’ will be provided with technical assistance to ensure better engagement with the future customers.

42. Sector Strategies, Policy Risk, and Mitigation Measures: Substantial sector strategies and policy risks stem from the absence of technical standards and well-informed strategies for sector expansion and growth. Absence of grid code along with challenges in formulating clear strategies for grid expansion and grid synchronization, and for financing infrastructure investment by DABS are the key risks that can threaten the sustainability of the Project’s development outcomes. The DABS' low initial capacity results in uncertainties about the ability of the DABS to adopt good international utility practices in Herat Province. Component 3 under the Project will mitigate these risks by developing a grid code, studies for grid expansion and synchronization, and entity-level financial model and financial planning tools. 43. Institutional Capacity for the Implementation and Sustainability Risk and Mitigation Measures: This risk is High primarily as the volatile security situation in Afghanistan can affect the ability of DABS, contractors, and the World Bank to implement the Project and sustain the development outcomes. A deteriorating security environment could seriously affect project implementation, including supervision and the limited number of contractors and consultants willing to partake in the Project. An unstable environment will affect project implementation (by the DABS and contractors) and supervision (by the World Bank). More specifically, an insecure environment may: (a) create difficulties in securing and maintaining contractors, including potentially leading to the early termination or abandonment of assignments; (b) lead to delays due to limited movement and logistical problems for contractors to mobilize resources in the field and for DABS and Bank staff to go to the field to supervise and monitor the Project; and (c) increase the demand for additional financial resources to meet security needs. 44. While the security situation is beyond the control of the Bank, the Project proposes several risk mitigation measures. The Project’s contingency fund, supervision complemented by a third-party monitoring agent, and TA under the Project are expected to mitigate institutional capacity for implementation risks. The third-party agent, along the lines of the Afghanistan Reconstruction Trust Fund (ARTF) Supervisory Agent (SA), will report directly to the World Bank and work closely with government agencies and other stakeholders involved in project implementation. The SA program conducts periodic on-site visits to supervise and monitor project implementation, collects data and information related to the Project using advanced technology (including General Packet Radio Service), develops a monitoring database that captures and tracks project-related information, prepares comprehensive supervision reports, and maintains overall quality assurance. Finally, the TA under the Project will strengthen capacity of DABS to oversee contractor’s performance and sustainably operate the transmission and distribution systems.

45. Fiduciary Risks and Mitigating Measures: Fiduciary risks are Substantial. While the Project is not complex, the DABS has limited fiduciary capacity and experience with the World Bank’s fiduciary policies and guidelines. The agreed FM arrangements under the ARTF projects are not yet fully implemented by DABS. Market conditions, due to security concerns, in Afghanistan are challenging and can attract bids that are costly or do not meet the requirements. In the past, procurement delays have affected development objectives and outcomes of Bank’s projects. To avoid delays, procurement under Component 1 of the Project has been initiated; and bids are being evaluated. DABS has also committed to preparing


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procurement processing manual covering procurement processes and service standards for DABS. Similarly, in order to mitigate fiduciary risks, the DABS will prepare a financial management (FM) Manual for all World Bank operations. DABS is in the process of recruiting an internal auditor to strengthen its FM capacity. DABS has also committed to recruit an international procurement specialist to strengthen its capacity and streamline procurement processes through the World Bank’s Naghlu Hydropower Rehabilitation Project. To mitigate procurement delays, DABS has initiated, in advance, procurement for the main package of the Project. 46. Stakeholder Risks and Mitigation Measures: The stakeholder risk is rated as Substantial. Given the fragile situation in Afghanistan, local-level support and acceptance of project activities by local stakeholders is necessary for achieving the PDOs. Consultations with community and stakeholders on the Project’s design and implementation will mitigate this risk. Community stakeholders, including project affected people (PAP) and Project’s beneficiaries, will be regularly consulted during safeguards implementation and as part of citizen engagement (CE). Feedback from both men and women stakeholders will be sought. A Grievance Redress Mechanism (GRM) will be created within three months of effectiveness of the Project. A grievance redress committee will be instituted under the GRM. The committee will consist of the PAPs, representatives from the local government, nongovernmental organizations (NGOs), CDCs, and the DABS. The committee will be responsible for promptly addressing and resolving complaints filed by affected persons and maintaining a complaint record database to track complaints in a systematic manner.

VI. APPRAISAL SUMMARY

A. Economic and Financial (if applicable) Analysis

47. Economic Analysis/Economic Internal Rate of Return (EIRR): The key economic benefits of the Project are the increases in welfare that will accrue as households, businesses and institutions are connected to the grid and provided with a secure, cost-effective supply of electricity. Welfare increases are typically measured as increases in consumer surplus as a result of savings in the cost of meeting household needs for services such as lighting, information/entertainment, cooking, refrigeration, motor drives, etc. The savings could accrue thanks to the greater efficiency and/or lower cost of electric supply, as well as the ability to acquire additional services, which were not available/affordable in the absence of grid electricity. In instances where the tariff paid for the incremental electricity exceeds the marginal cost of supply there is also a benefit of increased producer surplus, measured as the difference between the incremental revenue received by the producer less the incremental supply costs incurred.

48. Other benefits that are more difficult to value but nonetheless valid include the potential to provide improved education and healthcare to the local population – although these require in addition that education and health institutions utilize the access to electricity to improve the quality and/or quantity of services delivered – and opportunities for income and employment growth as business enterprises grow their outputs. The Project should also lead to a reduction in emissions of greenhouse gases (GHG), by reducing the burning of fossil fuels in small generators used by commercial and industrial establishments, and by ensuring the full utilization of the output from the Salma Hydropower Project, thereby reducing the consumption of thermal-generated imports.


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49. Consumer surplus is measured by the area under the demand curve for households and institutions that benefit from the Project. Points on the demand curve for households generally include the price/quantity (P:Q) co-ordinates for kilo-watt hour (kWh) equivalents of services consumed in the absence of the Project (kerosene lighting, batteries for television and radios, self-generation) and the P:Q coordinates for electricity consumption after the Project is implemented. The slope of the curve through these points is difficult to discern but a limited number of empiric studies suggest that it is highly concave. In addition, DABS data on the relationship between consumption and tariffs among existing customers supports this hypothesis. A conservative approach to valuing the increase in consumer surplus was adopted for this study, which limited benefits to those accruing through savings in the cost of substitutes that would be consumed in the absence of the Project. 50. Regarding Component 1, project costs include the capital cost of connecting the additional customers in the districts of Chesht, Obe, Karokh and Pashtun-Zarghoon as well as the utility’s costs of supplying the new customers including operations and maintenance, customer service, and the cost of incremental electricity imports required to meet the increased demands. These incremental imports were assumed to come equally from Iran and Turkmenistan. 51. Details of the underlying assumptions related to avoided use of substitutes for each type of customer, as well as other benefits and costs of the Project are provided in Annex 4. The resulting findings for the economic viability of the electrification of the four districts are summarized as follows: Net Present Value (NPV) of USD 36.4 million at a 10 percent discount rate, NPV of USD 62.3 million at a 6 percent discount rate, and an estimated EIRR for the Project of 36.3 percent. This represents only the readily quantifiable net benefits of Component 1; it does not take into account benefits which are more difficult to measure and to value, such as:

benefits associated with better health care or education;

income and job-creation potential attached to economic growth made possible by businesses’ having access to electricity;

benefits associated with improved reliability and quality of service associated with grid supply as compared to the use of substitutes; and

distributional benefits as grid electricity supply is extended to the lower income areas outside city centers.

52. A sensitivity analysis was also carried out to determine the switching values of key input assumptions. The results are summarized in Table 3 below:

Table 3: Switching Values for Key Variables for Component 1 Switching Value for NPV at

Base 6% 10%

Capital Cost Multiplier 1 4.95 3.53

Cost of Imports ($/kWh) .061 .137 .128

Tariff Multiplier 1 .475 .532

Operating Costs - % of Sales 15.5% 65.7% 60.2%


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53. The cost estimate for the electrification of the four districts is well below the Project funds available for the extension of electricity supply in Herat Province. Because of the urgency of the Project, the specifics of the use of these additional funds has not been defined at this stage. However, the analysis of four districts provides a guide to the costs and benefits of extending grid access to other parts of the province, including intensifying coverage in Herat. 54. The analysis of the impact of additional investments assumed that the capital costs, customer mix and customer benefits would be the same for additional areas as for the four base districts. Implementation of Component 2 would begin one year after the start of Component 1.

Table 4: Impact of Additional Investments in Electrification

Customers Added Project EIRR NPV @ 10% (USD 000)

Total Investment** (USD 000)

10,000 37.4% 50,540 29,067

20,000 38.2% 64,662 38,026

40,000 39.1% 92,905 55,938

** including taxes and duties

55. Based on the total funding envelope available to the Project, as well as the estimated cost of Components 1 and 2, approximately 20,000 – 22,000 additional customers in other parts of the province will benefit the Project (under Component 2), raising the overall EIRR of the Project to 38.1 percent.

Financial Analysis:

56. The financial performance of DABS has been generally good. DABS has reported continuous positive net income since 2012, with a net margin of 10 percent in 2015 with no fuel subsidies. DABS revenue has doubled from AFN 7.94 billion in 2011 to AFN 15.4 billion in 2015. Similarly, DABS’ profit increased from AFN 539 million in 2011 to AFN 1.59 billion in 2015. DABS has a liquid balance sheet and generates sufficient cash to meet its short-term obligations and has a reasonable liquidity ratio (current ratio = 9.28, and cash ratio = 2.79 in 2015). DABS also passes on cost increases. The average tariff over recent years have increased allowing DABS to generate sufficient cash to cover its cost.

57. New investments have been primarily financed by the donors through on-lending arrangements through MoF. However, these sizeable new investments by DABS will be met by a significant increase in long-term borrowing and associated interest expenses. DABS had no debt service in 2010, but its long-term debt has grown since then to AFN 4.39 billion in 2015. However, the long grace period granted by GoA under its standard on-lending terms allows DABS to implement the investment program without diminishing its financial sustainability until the assets are operational. In the longer term, financing of much needed investments may strain the financial viability of the company, especially if tariffs fail to keep up with debt service obligations. TA under the Project will finance development of a financial planning model that will allow DABS management to study the impact of alternative scenarios with respect to capital investment, investment financing, demand growth, tariff levels, and the like. 58. Financial Internal Rate of the Return (FIRR): The financial analysis of the Project covering the districts of Chesht, Obe, Karokh and Pashtun-Zarghoon was carried out from the perspective of the


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implementing entity, DABS. Financial benefits were derived from increased tariff revenue resulting from additional sales of electricity. Financial costs included the capital costs of the Project, including taxes and duties, incremental operating and administrative costs, and incremental costs of importing electricity to meet the demands of the new customers. As with the economic analysis, incremental imports were assumed to come equally from Iran and Turkmenistan.

59. The FIRR for the electrification of the four districts is estimated at 22.3 percent. The NPV at a rate of 6% is estimated at USD 34.2 million. At a 10% rate, the NPV would be USD 17.8 million. Adding an additional 15,000 to 20,000 customers under Component 2 by the closing date of the IDA financing for the Project would increase the FIRR to between 25.2 and 25.8 percent. Adding an additional 40,000 customers under Component 2 over the lifetime of the Project would increase the FIRR to 23.4 percent. It would therefore appear that the extension of electricity supply is a financially attractive option.

B. Technical

60. The Project’s scope has been assessed as technically sound. It supports conventional investments in the power system to enhance delivery of electricity services that will include the construction of transmission line and new substations, intensification and upgrade of the existing grid, and supply of distribution equipment aiming to provide access to new or improved electricity service to customers, including low-income household, community centers and businesses.

61. The distribution line at some point will cross a wide river that can be handled with a special type of distribution tower, which is a common practice in distribution network extension. The Project in general presents no unusual construction or operational challenges. The technical specification and technology involved in the design and construction of the Project are well known and proven. In addition, the investment undertaken by the Project will be implemented according to internationally accepted technical criteria and standards.

C. Financial Management (FM)

62. DABS has experience of implementing the ARTF/Bank funded projects, but the agreed project FM actions are not yet fully implemented. The PIU established for existing Bank’s projects in DABS will be responsible for FM of the Project. The Project FM risk is rated “Substantial” and will be reassessed during supervision.

63. The FM arrangements are at two levels- the central level and implementing entity level. Country systems are used for budgeting, accounting, and funds flow, internal and external audit. At the central level, accounting and audit functions for the proposed Project will be undertaken by the MoF and the Supreme Audit Office (SAO), respectively. At the implementing entity level, the overall responsibility for project FM will rest with the PIU’s finance department. Two additional staff will be hired and the Bank team will provide relevant training for in-depth understanding of Bank requirements and adequate FM for the Project.

64. DABS will prepare and share with the Bank for approval, a FM manual comprising details on the financial management arrangements and disbursement procedures. The Project’s semi-annual internal


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audit will be conducted by DABS internal audit department and the Project will support an internal audit consultant. The PIU will prepare the Interim Financial Reports (IFRs) on a quarterly basis and submit to the Bank within 45 days of the close of the quarter. The annual project financial statements will be prepared by the MoF using the data from Afghanistan Financial Management Information System (AFMIS). The annual project external audit will be carried out by the SAO and the audited financial statements along with the management letter will be submitted to the Bank within six months of the close of the GoA’s fiscal year. 65. There are no overdue audit reports, no overdue interim financial reports (IFRs) and no ineligible expenditures under ongoing or closed projects implemented by DABS. Details on the FM arrangement are presented in Annex 2.

D. Procurement

66. Procurement for the proposed Project will be carried out in accordance with the Bank’s Procurement Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services dated July 1, 2016 hereinafter referred to as “Procurement Regulations”. The Project will be subject to the Bank’s Anticorruption Guidelines, dated October 15, 2006, and revised in January 2011 and as of July 1, 2016.

67. Since the Project is being prepared under the World Bank’s Operational Policy (OP) 10, paragraph

12, simplified Project Procurement Strategy for Development (PPSD)8; required in situations of urgent need of assistance, has been developed. Based on the PPSD, a procurement plan has been prepared which sets out the selection methods to be followed by DABS during project implementation for procurement of goods, works, non-consulting and consulting services financed by the Bank. The procurement plan presently represents the time slice of first eighteen months of project implementation and consists of the activities stated in Components 1 and 3. It will be updated at least annually or as required; to reflect the actual project implementation needs and improvements in institutional capacity, through Systematic Tracking of Exchanges in Procurement (STEP), the World Bank’s planning and tracking system.

68. The GoA has appointed DABS to be the implementing entity for the Project. Under this implementation arrangement, DABS has already established a PIU headed by the Project Director of the World Bank financed projects, and supported by procurement and FM specialists. The procurement specialists will brief the Procurement Directorate, which oversees all procurement at DABS, in regular intervals to provide an aggregate overview of the status of procurement under World Bank projects. 69. To mitigate the procurement risks, DABS will hire an international procurement specialist, familiar with the procurement policy and procedures and institutional development. The international procurement specialist will be hired through the Bank’s existing Naghlu Hydropower Rehabilitation Project. This specialist will work mainly on the capacity building, simplifying the roles and responsibilities of the PIU and Procurement Directorate, mechanism for utilization of procurement consultants and would provide procurement implementation support to all of the World Bank financed projects in DABS. Furthermore, within three months after effectiveness of the Project a procurement processing manual will be submitted by DABS to the Bank for approval. The procurement processing manual will cover

8 PPSD is a deliberative document and not annexed to PAD as PAD is classified as ‘Public’ after finalization


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procurement processes and procurement services standards for DABS. It will include measures to sequester the draft bid packages and the bid evaluators to safeguard confidentiality of bids and bid evaluation process. The service standards within the manual will guide DABS to manage procurement processes in timely and transparent manner. The manual will also provide guidance on conducting procurement audits of the Bank's operations. The procurement directorate will also be strengthened through periodic review of staff performance.

70. The procurement risk is ‘Substantial’.

E. Social (including Safeguards)

71. The social and environmental impacts of the Project are expected to be insignificant, reversible, and easily manageable. Most of the safeguards issues revolve around substations, drawing of in-grid low and medium voltage transmission lines, installation of lattice towers and erection of power poles for tapping transmission and distribution. The issues for substations pertain to securing of lands, changes to localized drainage patterns, removal of trees/vegetation in the land, and handling of chemicals during operations. A major issue with respect to stringing of transmission lines relates to interface with the local communities and ensuring safety. These issues are manageable as evident from several Bank assisted projects in Afghanistan. Social safeguards impacts would be caused by temporary and/or partially permanent loss of land and other assets. However, the overall social impacts are expected to be moderate. Selection of routes, particularly for installation of the new 110 kV transmission line, and 110/20 kV substations will be screened for land disputes to avoid the situation where investments would fuel such disputes. 72. DABS, which is expected to handle most of the investments, has ample previous experience with World Bank projects, and also has considerable knowledge and experience of addressing environmental and social related issues as it has implemented, or is currently implementing, several similar projects.

73. WB OP/BP 4.12, Involuntary Resettlement is triggered, as the Project will support investments in some densely populated areas. Temporary and/or partial permanent land/assets impacts are expected to happen during the execution phase, especially during installation of the new 110 kV transmission line, 110/20 kV substations and medium and low voltage distribution networks in surrounding communities. Since the social safeguards footprint details, including detailed technical designs for all sites, could not be predicted before appraisal a framework approach has been used. 74. The Environmental and Social Management Framework (ESMF will guide the preparation of ESIA, site-specific ESMPs, and RAPs where needed. The RPF sets out procedures for managing land acquisition, asset loss and resettlement, and will be applicable to the Project. The ESMF will also include guidelines, which will be applied for this Project, for identifying and assessing the impacts of potential investments on existing heritage structures and sites. 75. The preparation of the ESIA, ESMP and RAP will be completed, consulted by DABS, approved by the Bank, and disclosed before any land is taken and before any civil work begins. The RAP will be implemented, with any payments made to PAPs, before construction can start. Terms of Reference (TOR) for consulting services for ESIA and ESMPs will require inclusion of women in teams to facilitate


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consultations with women. Towards mainstreaming social and environment aspects, the implementing entity has appointed safeguards focal points, while the Project will also invest in building dedicated social and environmental capacity and enable development and application of ESMPs and Environmental Code of Practices (ECOP). In addition, one dedicated environmental specialist, one health and safety specialist, and one dedicated social specialist will be recruited to work at the regional DABS office in Herat to oversee the day-to-day implementation of the project at the construction sites.

76. To prepare the safeguards instruments for the Project, DABS has updated (i) an ESMF from the Afghanistan Power System Delivery Project (APSDP), which has a similar scope of activities, and therefore also similar potential environmental and social impacts; and (ii) an RPF for the “DABS Planning and Capacity Support Project” (DABS TA). These have been modified to suit the specifics for the Herat Electrification Project (HEP). The Project’s ESMF and RPF were cleared on May 1, 2017 and disclosed on the World Bank’s website on May 1, 2017. The appraisal-stage combined Project Information Document and Integrated Safeguards Data Sheet (ISDS) was disclosed on May 8, 2017. DABS disclosed a first version of the ESMF/RPF on April 10, 2017. Following clearance by the World Bank, DABS re-disclosed these safeguards documents in-country on DABS website on May 2, 2017 (https://main.dabs.af/esmf). 77. Citizen Engagement (CE): Within the proposed Project citizen engagement is based on a two-way interaction and dialogue between DABS and citizens in all four districts. CE for this Project includes stakeholder consultations, a multi-level GRM and beneficiaries’ feedback on draft design for all investment activities of the Project. Consultation with project beneficiaries and affected families will take place during the entire stage of project implementation. Particular emphasis will be placed on seeking the views of vulnerable groups, especially women. The ESMF and RPF include a detailed mechanism for consultation to make sure that there is a two-way interaction between citizen and DABS in place. The beneficiaries, including stakeholder groups, will have a chance to review key findings from draft design studies and their feedback on these studies will be considered, particularly for alternative analysis of routes of a new 110 kV transmission line, and four 110/20 kV substations which are expected to cause temporary and/or partial permanent land/asset impacts. During the implementation stage, the PIU will carry out beneficiary satisfaction surveys to evaluate their satisfaction with citizen engagement measures.

78. The ESMF details mechanism for grievance handling, including responsibilities of key stakeholders to address public concerns. The DABS-Herat team will be responsible for ensuring that an effective GRM is established for each site, which would include: (i) public awareness among beneficiaries on how to use GRM services, (ii) establishing of multiple channels and locations for submitting of grievances, and (iii) proper registration of all grievances related to project activities to enable tracking and review. The GRM will cover not only PAPs but will also allow for addressing contractor employee grievances and community grievances that are not limited to land acquisition alone.

79. Key CE indicators for the Project will include:

Percentage of grievances satisfactorily resolved within stipulated timeframe; and

Percentage of Community Development Councils (CDCs) consulted on project activities affecting them in the project intervention areas.

https://main.dabs.af/esmf


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80. Labor influx risk: Labor influx related risks under the Project are expected to be “Low” because the DABS provincial staff will mainly be responsible for installation works. The contractor(s) are also expected to use locally recruited labors. Recruitment of local unskilled labor and possible skilled labor has priority above Afghans coming from other places in the country. The recruitment process is to be handled in a transparent manner to ensure social peace. In addition, labor from outside, particularly from foreign countries, is unlikely to be involved in the Project. In summary, the labor influx impacts from the project activities can be managed through site-specific ESMPs that will include the employees’ Code of Conduct (CoC). The CoC, which all employees need to sign, will include that sex with minors is strictly forbidden and if detected leads to immediate dismissal. For contractors child labor is prohibited. 81. DABS’s social team is required to provide training to all workers on the CoC. The training will be applied to all the workers. The updated ESMF for this Project includes detailed screening and assessment to understand the significance and likelihood of potential impacts. It also provides the guideline to incorporate labor influx issues while compiling site specific ESMPs.

82. The site specific ESMP for each contract will incorporate measures to mitigate negative impacts of labor influx on local communities and vulnerable groups, such as risks of social conflict, increased risk of communicable diseases, traffic accidents, etc. DABS’s safeguards staff will be trained to address and resolve labor influx issues.

83. The contractors will prepare and implement their own Construction ESMP (CESMP) and a Health and Safety Plan (H&S Plan). For this purpose, they will employ an experienced Environmental Specialist and an experienced Health & Safety Specialist. The Contractors will also hire a social specialist or a liaison officer who speaks the local language to maintain communication with the communities. These specialists need to be full time onsite.

84. The dedicated safeguards specialists based at the Herat field office of DABS will be responsible for the adequate supervision of the Construction ESMPs and the H&S Plans. These specialists will be full time onsite. They will liaise with the DABS safeguards focal points at headquarters in case of questions. DABS will also recruit within three months of effectiveness an international safeguards specialist at headquarters to support the PIU at DABS.

85. OP/Bank Procedure (BP) 4.11, Physical Cultural Resources is triggered because the selected districts for investment under Component 1 have sites of significant physical cultural resources. Impacts envisaged may relate to the construction of a new 110 kV transmission line, substations and medium and low voltage distribution networks in four districts of Herat Province, where lesser-known monuments may be present. The possible discovery of archeological sites or random findings during implementation of the project activities will require measures to manage chance finds. 86. The ESMF includes screening provisions for evaluating potential impacts and provides specific guidance for the preparation of requisite cultural heritage management plans. A guideline for Chance Find Procedure (CFP) is also provided in accordance to the National Laws and regulations. The ESMF also includes generic TOR for assessing the impact on heritage sites and for preparing a Cultural Heritage Management Plan (CHMP).


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F. Environment (including Safeguards)

87. The Project triggers the Environmental Assessment (OP 4.01) and is classified as Environmental Category-B. Environmental impacts for civil works under Component 1 are related to works at substations, and installation of transmission and distribution lines. These works may require disposal of construction wastes, changes to localized drainage patterns, removal of trees/vegetation in the land, and handling of chemicals and transformer oil during operations. However, the environmental impacts are expected to be insignificant, limited to the sites, and easily manageable. Depending on the nature of each sites, DABS will be responsible for conducting the ESIA for the transmission line, preparing the subsequent ESMPs, and consulting and disclosing these documents prior to commencement of any civil works. The TOR for conducting the ESIA are enclosed in the ESMF. The ESMPs are required to be part of the bidding documents to legally ensure the compliance of the safeguard obligations.

88. The institutional capacity of DABS in Herat Province is comparatively low to implement and monitor safeguard requirements. Therefore, capacity building at the subnational levels is necessary, since the local DABS office will have an important role in project implementation and monitoring of safeguards compliance. However, the DABS headquarter office has several years of experience with World Bank financed/supported projects, through which relevant safeguard staff has received on-the-job training during preparation of safeguards instruments. The proposed Project's institutional and implementation arrangements will take advantage of existing institutional systems and strengthen DABS’ capacity in Herat.

89. Towards mainstreaming environment aspects, the implementing entity has appointed safeguards focal points, while the Project will also invest in building dedicated social and environmental capacity and enable development and application of specific ESMPs.

90. The Project reduces greenhouse gas emissions mainly by displacing diesel generation. Component 1 of the Project saves a total of 95,550 tons of carbon over the Project life or an average of 4,780 tons of carbon per year. Component 2 is estimated to add a further reduction in emissions equivalent to 161,400 tons over the Project life, or an average of 8,070 tons per year.

91. The Project has been screened for climate change and disaster risks using the World Bank’s Climate and Disaster Risk Screening Tools.9 The Project is facing low potential impacts from climate change and disaster risks. The risk exposure of Herat Province was assessed. Possible impacts of climate change and disaster risks on transmission and distribution infrastructure, which will be financed by the Project, and on the existing Salma Dam, a hydropower plant from which transmission line will evacuate power, were analyzed. Furthermore, the effect of non-physical components, such as feasibility studies, institutional capacity building, analysis of policy and regulations, and Afghanistan’s development context, on climate change and disaster risks were considered. Exposure of Herat Province to climate change risks is low. Exposure to disaster risk from earthquake is high. However, the non-physical components of the Project are expected to mitigate the impact of disaster risk. 92. Earthquakes are the key driver of risk; but appropriate engineering design, specifications, and construction alongside strengthened institutional capacity are expected to reduce risks to Project’s physical

9 WB’s Climate and Disaster Risk Screening Tools is available at https://wbclimatescreeningtools.worldbank.org/


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assets and operations. The Project in the current timeframe is not exposed to risks from extreme temperature, extreme precipitation and flooding, and strong winds. Currently, Herat is slightly exposed to drought. In the future timeframe (2030-2059) Herat can be slightly exposed to extreme temperature, extreme precipitation and flooding, and drought. However, the differences between current values of indicators pertaining to these risks and forecasted average values of these indicators in the future timeframe are not significant.

93. The risk of earthquakes in Herat is high, especially in Ghoryan and Adraskan. There is more than a 20 percent chance of potentially damaging earthquake occurring in the next 50 years. Absence of synchronized grid, conflict, and internal migration in Afghanistan can amplify climate change and disaster risks. The Project will support feasibility and engineering design studies, strengthen institutional capacity of DABS, and support studies for synchronizing the grid and for developing a grid code. Technical assistance (TA) provided through the Project, which will support standard practices in engineering, construction, and operations, is expected mitigate the risk from earthquake and climate anomalies.

G. Other Safeguard Policies (if applicable)

94. Not applicable.

H. World Bank Grievance Redress

95. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel, which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

.

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service

http://www.inspectionpanel.org/


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VII. RESULTS FRAMEWORK AND MONITORING

Results Framework

COUNTRY : Afghanistan Herat Electrification Project

Project Development Objectives

Provide access to electricity to households, institutions, and businesses in selected areas of Herat Province, Afghanistan.

Project Development Objective Indicators

Indicator Name Core Unit of Measure

Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection

Name: People provided with new or improved electricity service

Number 0.00 230800.00 Semi-annual

DABS

DABS

Description: Indicator monitors people provided with access to new or improved electricity service.

Name: Number of non-residential consumers provided with new or improved electricity service


DABS

DABS

Description: Indicator measures the number of non-residential consumers, including schools, institutions, businesses, etc., provided with access to new or improved


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electricity service.

Intermediate Results Indicators



Name: Transmission line constructed under the Project

Kilometers 0.00 25.00 Semi-annual

DABS

DABS

Description: Indicator measures the length of transmission line constructed under the Project.

Name: Capacity of new substations constructed and commissioned

Kilovolt-Amphere(KVA)

0.00 40000.00 Semi-annual

DABS

DABS

Description: Indicator measures capacity of new substations constructed and commissioned under Component 1 of the Project.

Name: Grid extension study prepared

Yes/No N Y Semi-annual

DABS

DABS

Description: Indicator for monitoring technical assistance under the Project.


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Name: Grid code prepared Yes/No N Y Semi-annual

DABS

DABS

Description: Indicator for monitoring technical assistance under the Project.

Name: Additional distribution grid asset created


DABS

DABS

Description: Indicator monitors additional grid asset created under Component 2 of the Project.

Name: Off-grid pilots implemented


DABS

DABS

Description: Indicator monitors implementation of off-grid pilots under Component 2 of the Project.

Name: Percentage of grievances satisfactoriy resolved within stipulated timeframe

Percentage 0.00 60.00 Semi-annual

DABS

DABS

Description: Indicator monitors citizen engagement under the Project.

Name: Percentage of CDCs consulted on project

Percentage 0.00 100.00 Semi-annual DABS DABS


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activities affecting them in the project intervention areas

Description: Percentage of CDCs in the project intervention areas who have been consulted regarding project activities. CDCs in project affected areas will be consulted the second year onwards. Indicator monitors citizen engagement under the Project.

Name: Number of girl schools with electricity service


DABS

DABS

Description: This indicator monitors gender action under the Project.

Name: Awareness campaigns targeted to women on uses of electricity and safety aspects


DABS

DABS

Description: Indicator monitors awareness programs, especially targeted to women, on electricity uses as well as on health and safety aspects of electricity use and infrastructure. This indicators helps in monitoring gender action under the Project.


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Target Values Project Development Objective Indicators FY

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target

People provided with new or improved electricity service

0.00 0.00 0.00 30000.00 150000.00 230800.00 230800.00

Number of non-residential consumers provided with new or improved electricity service

0.00 0.00 0.00 600.00 1600.00 1600.00 1600.00

Intermediate Results Indicators FY


Transmission line constructed under the Project

0.00 0.00 0.00 25.00 25.00 25.00 25.00

Capacity of new substations constructed and commissioned

0.00 0.00 0.00 20000.00 40000.00 40000.00 40000.00

Grid extension study prepared N Y Y Y Y Y Y

Grid code prepared N N Y Y Y Y

Additional distribution grid asset created N N N Y Y Y Y

Off-grid pilots implemented N N N Y Y Y Y


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Percentage of grievances satisfactoriy resolved within stipulated timeframe

0.00 0.00 60.00 60.00 60.00 60.00 60.00

Percentage of CDCs consulted on project activities affecting them in the project intervention areas

0.00 0.00 100.00 100.00 100.00 100.00 100.00

Number of girl schools with electricity service

0.00 0.00 0.00 1.00 3.00 5.00 5.00

Awareness campaigns targeted to women on uses of electricity and safety aspects

N Y Y Y Y Y Y


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Annex 1: Detailed Project Description

A1.1 The proposed Project has three components, two of which are investments in infrastructure and the third is a set of technical assistance (TA) assignments aimed at supporting project implementation and at advancing the GoA’s agenda for expansion of power supply throughout the country. The investments in infrastructure will extend grid electricity initially to the residents of four un-electrified communities located along an existing transmission line, and subsequently will extend supply to other parts of Herat Province where grid connection or off-grid mini-grids are determined to be technically, economically, and financially viable. A1.2 Herat Province is one of the larger and more prosperous regions of the country. Located in the west and adjacent to both Iran and Turkmenistan, it has benefitted from a prosperous agricultural sector as well as access to reasonably priced electricity supply imported from both neighbors. Its total population was estimated at 1.89 million in 2015, with over 70 percent located in rural areas. According to the 2013/2014 ALCS, 36 percent of employment was in agriculture, 27 percent in services, and 21 percent in construction. In the same survey, 60 percent of households reported having access to grid-based electricity supply. Apart from grid-connected customers, an additional one-third of the households reported having some form of off-grid supply, primarily based on renewables such as mini-hydro and small solar systems, raising the total proportion of houses having access to some form of electricity supply to 93 percent. A1.3 The design of the Project is driven by two factors. First, the recent commissioning of the Salma Hydroelectric Plant in Herat Province and its interconnection via a 110 kV line with the Nour-ul-Jehad substation at Herat City, offers the opportunity to connect communities located close to the line for a modest incremental cost. Four communities along the line have been identified that currently lack grid supply: Chesht, Obe, Karokh and Pashtun-Zarghoon; and the GoA believes that expansion of the grid into these districts is a timely initiative to absorb the seasonal capacity of the Salma Plant, slow the growth in imports and extend the benefits of grid supply to the local population. A1.4 Second, expanding and inter-connecting the electricity grid is a top priority for the GoA. Grid supply is typically more reliable than off-grid as alternative sources of generation are available if one fails. Generating stations can be located close to the source (essential with hydroelectric power) even if there is no demand nearby. In addition, an inter-connected grid allows the system to take advantage of differences in the timing of demands thereby reducing the total need for capacity and creating a higher system load factor. There are parts of Herat Province, which could be connected to the grid for a modest capital outlay, either because they are located close to existing transmission lines or because they have grown up as in-fill into areas previously electrified. Since the equipment and skills needed to connect these potential customers are the same as those needed for the initial four districts, an open-ended component has been added to the Project. This component will finance grid extension where it is economically and financially viable. Intensification and upgrade of existing grid is also considered under this component to provide access to improved electricity service to existing customers. Finally, the open-ended component will also support off-grid mini-grids based on technical, economic, and financial


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considerations. A1.5 The three Project components are as follows: Component 1 – Electrification of Four Districts in Herat Province (USD 20 million) A1.6 A primary source of supply to Heart Province is a substation located at Turkmenistan Border. From there, a 300mm2 aluminum conductor steel-reinforced cable (ACSR) 110kV transmission line runs through a substation at Nour-ul-Jehad, near Herat City, and then by a 240 mm2 ACSR line throuhg the four districts – Karokh, Pashtun Zarghoon, Obe, and Chesht – before terminating at the Salma Hydroelectric Plant. Under the Project a 25km 110kV, 200mm2 ACSR line is to be connected off the existing 110kV line (from a tapping point) to serve Karokh District through a new 110/20 kV substation. Also under the Project, an 8/10MVA 110/20kV substation will be provided for each of Karokh, Pashtun Zarghoon, Obe, and Chesht. The Project will also finance materials to construct distribution networks in each of the four areas. This component of the Project will target about 90,000 people. About 1600 non-residential consumer such as religious, health and educational institutions as well as businesses will be connected to network in the targeted area. A1.7 Details of the items to be financed under this component are provided below: LOT 1: Grid Substations

Lot 1 comprises the Supply and Installation of a 8/10MVA, 110/20kV, ONAN/ONAF10 substation in each of the four districts. Each substation will have a 110kV outdoor switchyard with SF6 circuit breakers11 and indoor vacuum metal-clad switchgear for the 20kV end of the substation. LOT 2: 110kV Lattice Tower Line

Lot 2 comprises the Supply and Installation of a 110kV single circuit ACSR “PANTHER” (200 mm2) overhead line with Optical Ground Wire (OPGW) to be tapped directly from the existing Nour-ul-Jehad to Salma Dam Line. This “tapping line” will be connected to the proposed Karokh District substation. The line will be 25 km long and will be constructed on lattice towers. The other three substations will be served directly from the existing Nour-ul-Jehad – Salma Dam 110kV line. LOT 3: Distribution Network

Lot 3 covers the Supply of an assortment of distribution materials comprising 20/0.4kV distribution transformers, concrete poles, overhead line hardware, ABC cables and service cables and meter boxes. A1.8 DABS shall be responsible for the installation of the distribution materials. Further details of Lot 3 are presented below:

Lot 3.1 - 20kV Network

10 ONAN: Oil Natural Air Natural; ONAF: Oil Natural Air Forced 11 SF6 circuit breakers: Sulfur Hexafluoride circuit breakers


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From each substation a network of 20kV lines, strung on concrete poles, will be constructed. The mains will be 120/20mm2 ACSR while the spurs will be of 70/12 mm2 ACSR.

Lot 3.2 – Medium Voltage (MV)/ Low Voltage (LV) Transformation

For transformation to LV a total of 135 no. 20/0.4 kV pole mounted distribution transformers, ranging in size from 50kVA to 400kVA, are included in the Project.

Lot 3.3 - LV Distribution and Meter Boxes

For LV distribution, various sizes of Aerial Bundled Conductors (ABC) are proposed. Provision is made for various quantities of NYY Copper wire service cables. Provision is also made for 6-unit meter boxes.

Component 2 – Grid Densification, Extension, and Off-grid Pilots in Herat Province (USD 36 million) A1.9 The ALCS found that the average household size in 2013/2014 was 6.4 persons, which would suggest that the total number of households in the Province was approximately 295,000. With 60 percent of households connected to the grid, the total grid connections would have been 177,000, leaving 118,000 households without grid supply. Component 1 proposes to provide grid supply to approximately 14,062 additional households, but this still leaves a substantial portion of households yet to be connected to the grid, not to mention schools, health centers, holy places and businesses. While some of these may be too remote to be connected economically, there are expected to be many communities where extension of grid supply, or intensification and upgrade of the existing grid will be a viable proposition for access to new or improved electricity service. Under this component, solar and solar-hybrid mini-grids would be piloted in villages that are unlikely to obtain grid electricity in less than five years and where it is technically and economically justifiable. Subprojects to provide electricity to Internally Displaced People (IDPs) and returnees will also be considered under Component 2. A1.10 Component 2 of the Project will therefore finance additional substations, transmission lines and distribution equipment that would be needed to connect additional communities and customers and to provide access to improved electricity service. Each subproject will be appraised prior to implementation to ensure that they meet following criteria: (i) The subproject will contribute to the objective of the project; (ii) Subproject’s safeguards documents have been prepared and disclosed, satisfactory to the Bank to be consistent with the ESMF; and (iii) Procurement and implementation plans are satisfactory to the Bank. A1.11 The Table A1.1 illustrates the potential for connections to households, community institutions, and businesses under the Project through investments undertaken under Components 1 and 2. It also gives an estimate of the share of the penetration of connections by the end of the Project for each of the components. Taken together they provide the input for the indicators presented in Section VII of this PAD.


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Table A1.1: Electricity Connections Targeted under the Project

Component 1 Number

Households 14,062

Population 90,000

Businesses 1,250

Community Institutions 350

Total potential customers 15,662

Component 2

Households 22,000

Population 140,800

Total potential customers 22,000

Component 1 and 2

Population 230,800

Community Institutions and Businesses 1,600

Component 3 – Technical Assistance (USD 4 million) A1.12 The Technical Assistance Component of the Project has 6 sub-components as follows:

(a) Assistance to DABS for Project Implementation: While DABS has had prior experience in

implementing World Bank projects, its capacities are still limited both in breadth and depth

of competency. This sub-component would provide expert assistance in key aspects of

project implementation including project planning and supervision, procurement, FM, and

feasibility assessments for candidate subprojects under Component 2.

(b) Supervision Consultant: Although DABS has established a PIU to manage World Bank

financed projects, this sub-component would allow them to hire consultants to support the

PIU in supervision of the Project.

(c) Environmental and Social Safeguards Measures: Social and environmental impacts of the

Project are expected to be small. An ESMF and RPF have been disclosed prior to appraisal, but

additional work is needed once transmission and distribution line routes and substation

locations are finalized both for the initial four districts and for sub-projects undertaken under

Component 2. This TA sub-component would assist DABS in preparing subproject-specific and

site-specific ESIAs, ESMPs and RAPs where needed. Additional safeguards specialists based in

Herat will also be financed under this sub-component.

(d) Institutional Strengthening for DABS: This sub-component would provide technical support and training to DABS personnel in areas where additional capacity building is required, particularly in procurement and FM. In addition, training will be provided to build local


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capacity in the Project areas to ensure the effective operation and maintenance of the new networks. This sub-component would also support DABS in implementing awareness programs, especially targeted to women, on efficient use of electricity as well as on health and safety aspects of electricity use and infrastructure. Women mobilizers will conduct awareness campaigns for women.

(e) Studies for further Grid Extension: This sub-component will support a feasibility study to

investigate synchronization options and further grid extension in Herat Province including

geo-spatial analysis and load flow studies of the system.

(f) Development of a Grid Code: It is the long-term ambition of the GoA to interconnect the various segments of the grid both with each other and with neighboring countries. This will require synchronization of the operations of the various power plants as well as arrangements to either synchronize or separate the operations of the Afghanistan Grid from that of neighboring countries. A Grid Code would facilitate integration of the grid by laying out the technical requirements and defining the parameters that must be met in order to ensure the safe and secure functioning of the electricity system. In support of these efforts, this sub-component would finance a review of existing standards and procedures and the preparation of a Grid Code for the Afghan power system consistent with best international practices.

(g) Financial Modelling for DABS: In mid-2017, DABS is operating on a relatively sound financial basis. However, if the GoA’s objectives for the electricity system are to be met, DABS will need to fund significant capital investments in the coming years, incurring investment financing commitments, incremental operating expenditures, and most likely debt service obligations, which could adversely affect cash flow. This sub-component would finance development of a spreadsheet-based financial planning model that can be used to prepare pro-forma financial statements, cash flow projections, debt service obligations and financial ratios for DABS under alternative scenarios relating to capital investment, investment financing, sales forecasts, tariffs and input costs. The financial planning model will also provide a sound basis for evaluating the potential for further commercialization of DABS, including its capacity to borrow on terms that are more commercial.


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ANNEX 2: IMPLEMENTATION ARRANGEMENTS

COUNTRY : Afghanistan

Project Institutional and Implementation Arrangements

A2.1 The overall responsibility of Project implementation will rest with DABS whose Chief Executive Officer (CEO) will delegate day to day management to the PIU for World Bank financed projects. DABS has an existing PIU, headed by a Project Director, for implementing all the World Bank financed projects with DABS as Implementing Entity. The Project Director of PIU will report directly to Chief Financial Officer (CFO) of DABS. The Project Director has responsibility for the Project, which includes: coordinating project work within the DABS; reporting to the DABS management on project progress and challenges; and cooperating with the Bank on the Project. The DABS is established under The Corporations and Limited Liabilities Law of the Islamic Republic of Afghanistan. The management of the DABS includes a CEO who is appointed by the Board of Directors, and the senior management group, which is composed of three members heading its three divisions: (a) the Chief Operating Officer (COO) is responsible for technical operations; (b) the Chief Commercial Officer (CCO) is responsible for billing, revenue collection, revenue protection, tariffs, and customer care; and Chief Financial Officer (CFO) is also responsible for FM, accounting, procurement, IT, and human resources. Additionally, there is a Project Management Office (PMO), which is responsible for implementation of new initiatives and projects. ThePIU, which supports all projects financed by the World Bank, interacts with all divisions. The following Figures A2.1 and A2.2 show the hierarchical structure for the implementation of World Bank operations at DABS.

Figure A2.1: Implementation Arrangement for WB Projects at DABS


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Figure A2.2: Implementation Arrangement of HEP

A2.2 Within the existing structure of the PIU, DABS has assigned a Project Manager for the Project. The Project Manager will be supported by a project implementation team, with members assigned from different department within DABS. The team members will be responsible for providing the necessary support to the Project Manager for carrying out day-to-day implementation activities of the Project from their respective fields. Key team members with adequate qualification and appropriate skills have been identified or will be hired. They consist of electrical engineers, procurement specialist, FM specialist, and safeguard specialists. Where needed, DABS will hire new staff with appropriate technical qualification particularly for some of the specialized fields under the Project. The project implementation team will be based partly in Kabul and partly in Herat; and work in close coordination with DABS’ Herat office.

Financial Management

A2.3 A Public Expenditure and Financial Accountability (PEFA) Assessment for Afghanistan was conducted in 2013. Afghanistan’s PEFA ratings portray a public sector where financial resources are largely being used for their intended purposes as authorized by the budget. However, the credibility of the budget is a concern, as ministries remain unable to utilize the budget fully; actual expenditure is about 85 percent of the budgeted expenditure. Bottlenecks in the budget execution system, no practice of budget ceilings for line ministries and approval of budget after two months from the start of the fiscal year are the major reasons for low budget utilization. The World Bank has a long-term engagement with Afghanistan to strengthen the country’s Public Financial Management (PFM) systems. The ongoing PFM Reforms II Project is supporting government agenda of PFM reforms in the areas of treasury management, procurement, internal controls and external audit as well as legislative oversight. The deployment of the country wide Afghanistan Financial Management Information System (AFMIS) to record and report government budget and expenditure is the pinnacle of these reforms.


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A2.4 Implementing Entity – DABS has previous experience of implementing ARTF financed projects; however, the agreed FM arrangements are not fully implemented yet. The overall fiduciary risk for the Project is rated Substantial. This rating will be reviewed during every implementation support mission and will be adjusted as necessary.

A2.5 There are no overdue audit reports or unsettled ineligible expenditure with respect to DABS.

A2.6 Fiduciary capacity. The overall responsibility for Project FM will rest with the Head of Finance of the PIU. Within three months after the Project is effective, DABS will hire additional staff including one finance officer and once cashier. The Bank FM team is providing the required trainings for in-depth understanding of Bank requirements and sound FM for the Project. A2.7 Planning and budgeting. Annual budgets for the Project will be prepared in line with MoF regulations and according to the Afghanistan fiscal year. The Project budget will be prepared on the basis of procurement plan and work plan. The annual budget will be broken by quarters for effective monitoring. The quarterly IFRs will compare actual expenditures to budgeted expenditures, and explain significant variances. For the current Afghan Fiscal Year12, MoF has allocated a budget of about USD 11.66 million for the Project which is adequate. A2.8 Internal control (including internal audit). The internal control mechanism at DABS is acceptable. There is proper segregation of duties. DABS will ensure timeliness of the processing cycle for allotments (Form B27s) and payment requests (Form M16s) that will be reviewed by the Bank during supervision.

A2.9 At present, a consolidated FM manual for the World Bank financed projects is not available at DABS. It has been agreed that within three months after the Project is effective, DABS will prepare and share with the Bank, a FM manual to be used by all development projects implemented by DABS. This manual will include details on the FM arrangements and disbursements procedures, including but not limited to staffing arrangements at various levels, reporting lines, allotment and payment processes, documents retention and control mechanism at various levels, oversight arrangements, service standards for document processing and documentation requirements for grants. At the central level, there is a Treasury Accounting Manual applicable across the government.

A2.10 Internal audit for the Project will be conducted semi-annually by the internal audit department of DABS. To augment the capacity of DABS internal audit department, within three months after the Project is effective, DABS will hire an internal audit consultant who will report to the DABS head of internal audit. The semi-annual internal audit reports will be submitted to the Bank throughout the project life.

A2.11 Fixed assets register will be maintained by the PIU for assets purchased from grant proceeds. Assets will be coded and a system of annual physical inventory will be maintained. All Project bank accounts (including the clearance accounts) will be reconciled by PIU at least on a monthly basis with AFMIS and DABS records.

12 Current Afghan Fiscal Year is 1396 and covers the period December 22, 2016 to December 21, 2017.


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A2.12 Accounting. All accounting is centralized in the AFMIS maintained by the MoF. Subsidiary records including bank book, cash book, contract register, asset register, record of grants’ transfers and utilization will be maintained by finance staff in PIU. Cash basis of accounting will be followed for the Project. A2.13 Financial reporting. The PIU will prepare and submit to the Bank quarterly Interim Financial Reports (IFRs) within 45 days of the close of the quarter of the government’s fiscal year. These reports will be submitted in form and substance agreed with the Bank. The IFRs will include Statement of Cash Receipts and Payments, Statement of Uses of Funds by Project Activity, bank and advances reconciliation, and the bank statements. Format of the IFRs will be agreed during the negotiations.

A2.14 External Audit of Project Financial Statements. The SAO, with the support of consultants, carries out the annual audit for all ARTF/Bank-funded projects. The same audit arrangements will also be used. SAO will submit to the Bank, annual audited project financial statements and management letter within six months of the close of the GoA’s fiscal year. The financial statements of the Project audit will be prepared by the MoF based on AFMIS records. A TOR for the audit of all World Bank projects is being reviewed by the Bank on a yearly basis.

A2.15 Funds flow/Disbursement arrangements. Project funds will flow through a segregated Designated Account (DA) for the Project to be set up for the Project in Da Afghanistan Bank (Central Bank) and controlled by the MoF. The currency of the DA will be US Dollars and the Project will follow report based disbursement arrangements. Advances into the DA will be provided for six months by the Bank based on projections/ forecast for the first two quarters. Subsequent IFRs will document expenditures against the advance received and will provide forecast for the following two quarters, based on which the amount of funds to be disbursed will be determined. The funds provided into the DA would be used to meet the Project’s eligible expenditures. For large foreign currency payments, the Project will use the direct payment method of disbursement. Further details of disbursement arrangements for the Project, including supporting documentation requirements are spelt out in the Disbursement Letter.

A2.16 All payments from the DA will be made through check or bank transfer. Requests for payments from DA funds will be made to the Special Disbursement Unit (SDU) in the Treasury Department of the MoF by the PIU. In addition to payments from the DA, request can also be submitted for direct payments from the grant. All withdrawal applications to the Bank, including advances and direct payment applications, will be prepared by the PIU and submitted to SDU.

A2.17 All Project expenditures are to be paid centrally. Petty/ operational cash imprest for the Project will be limited to a maximum USD 15,000 as per an earlier agreement between the Bank and MoF. Any increase to this limit, if justified, will have to be approved by the Bank explicitly and communicated to MoF. Such imprest funds will be subject to adequate petty cash management procedures (for custody, control, limits, physical cash verification, and replenishment). The custodian of the imprest cash will be the cashiers in DABS.

A2.18 Monitoring of fiduciary performance and implementation support plan. The fiduciary performance will be assessed through the following indicators: (a) timely and quality submission of quarterly IFRs; (b) maintenance of adequate books of records and supporting documents of project transactions; (c) timely submission of audited financial statements; (d) timely resolution of FM issues raised during Bank supervision, internal audit, external audit, and any other reviews; (e) maintenance of


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adequate internal controls; (f) timely processing of allotments/ payment requests and project expenditures; (g) adherence to service standards, etc. The Bank will carry out two FM reviews annually. The implementation support will include monitoring of fiduciary performance based on identified indicators, review of IFRs and audit reports, review of compliance with legal covenants, review of progress on agreed actions, and review of FM risks.

A2.19 Agreed Actions to be taken within three months of effectiveness of IDA Financing for the Project:

1. DABS to hire additional FM staff including one finance officer and one cashier. 2. DABS to prepare and share with the Bank for approval, a FM manual to be used by all development

projects implemented by DABS. 3. PIU to hire an internal audit consultant who will report to the DABS head of internal audit.

Disbursements

A2.20 DABS, as the implementing entity, will handle the disbursements under the Project in coordination with Afghanistan’s MoF. DABS will follow the World Bank Disbursement Guidelines for Investment Project Financing, dated February 2017, (“Disbursement Guidelines”). The following Disbursement Methods may be used under the Grant: • Reimbursement • Advance • Direct Payment

Special Commitment A2.21 Eligible expenditure categories are Goods, works, non-consulting services, consultants’ services, training, and incremental operating costs for the Project. Incremental operating costs covers the reasonable costs incurred by the DABS for implementation and management of the Project on the account of operations and maintenance of equipment and vehicles. This includes hiring of vehicles, office rent, costs of consumables, fuel, office utilities and supplies including IT support to PIU, bank charges, advertising expenses, salaries and salary supplements (including travel allowances) of local contractual and temporary staff (other than consultants procured under the Project), but excludes salaries, allowances, bonuses or honoraria of members of the GoA’s civil service. A2.22 There is a provision for retroactive financing under the grant for all eligible expenditure under the Project, up to an aggregate amount not exceeding USD 12 million, incurred after January 1, 2017. The Disbursement Deadline Date is four (4) months after the Closing Date of the Grant. The projected disbursement schedule for the Grant is presented in the Table A2.1 below.

Table A2.1: Disbursement Projection

Fiscal Year Estimated Disbursement (in US$)

2017 0

2018 2,500,000

2019 7,400,000


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2020 15,500,000

2021 22,500,000

2022 12,100,000

Sum 60,000,000

Procurement

A2.23 Background: Procurement for the proposed Project will be carried out in accordance with the Bank’s Procurement Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services dated July 1, 2016 hereinafter referred to as “Procurement Regulations”. The Project will be subject to the Bank’s Anticorruption Guidelines, dated October 15, 2006, and revised in January 2011 and as of July 1, 2016. A2.24 As per the requirement of the Procurement Regulations, a Project Procurement Strategy for Development (PPSD) has been formulated, based on which the procurement plan has been prepared which sets out the selection methods to be followed by the borrower during project implementation in the procurement of goods, works, and non-consulting and consulting services financed by the Bank. The procurement plan presently represents the time slice of first 18 months of Project implementation and consists of the activities stated in Components 1 and 3. It will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity, through Systematic Tracking of Exchanges in Procurement (STEP), the World Bank’s planning and tracking system.

Summary of PPSD: Contract Title Description &

Category

Estimated Cost US$

million/ Risk

Rating

Bank Oversight

Procurement Approach/ National

International Open

Limited Direct

Sole Source

Selection Methods: Pre/Post Qualification

SPD (RFP/RFB) Competitive Dialogue

Framework Agreement E-reverse Auction QCBS/QBS/CQS

Negotiation BAFO

Evaluation Method Rated

Criteria (VfM)

Lowest Evaluated

Cost

1. AF-DABS-8502-CW-RFB / Herat Electrification Project (3 Lots) Lot #1 - Four Substations of 110/20kV in four district of Herat Lot #2 - 110kV S/C tapping transmission line Lot # 3-Electrification of 20/0.4kV network in four districts of Herat

16 / High Prior International Open (evaluation underway)

RFB Lowest Evaluated Cost


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Contract Title Description &

Category

Estimated Cost US$

million/ Risk

Rating

Bank Oversight

Procurement Approach/ National

International Open

Limited Direct

Sole Source

Selection Methods: Pre/Post Qualification

SPD (RFP/RFB) Competitive Dialogue

Framework Agreement E-reverse Auction QCBS/QBS/CQS

Negotiation BAFO

Evaluation Method Rated

Criteria (VfM)

Lowest Evaluated

Cost

2. AF-DABS-14491-CS-

QBS / Beneficiary

satisfaction survey for

life of the Herat

Electrification Project

0.3 Prior National Open QBS Qualification

3. AF-DABS-14492-CS-CQS / Feasibility study on Shindand district of Herat Province (Assess the requirement of transmission line for providing power to Shindand district)

0.1 Post National Open CQS Consultant qualification

4. AF-DABS-14300-CS-CQS / Hiring of Consultancy Services firm for Grid Code Study

0.3 Prior International Open

CQS Consultant qualification

5. AF-DABS-11044-CS-INDV / Hiring of International Electrical Engineer to help DABS for supervising Electrical Projects funded by World Bank

0.35 Prior Open Individual

6. AF-DABS-14493-CS-INDV / International Environmental and Social Safeguard Specialist


7. AF-DABS-14494-CS-INDV / Hiring of International Health and Safety Specialist


Note: RFB – Request for Bids, RFP – Request for Proposals, SPD – Standard Procurement Document; BAFO = Best and Final Offer; VfM = Value for Money; QCBS=Quality- and Cost-Based Selection; CQS = Consultants' Qualification-based Selection; QBS

= Consultant’s Quality Based Selection.


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A2.25 Category-wise Procurement Layout: Procurement of goods: The Project includes mainly one goods package, which is advertised in advance as ‘Supply of Goods for the Electrification of 20/0.4kV network for Herat Province. Procurement of works: The Project includes two major Supply & Installation activities for Herat Province. Prequalification Not Applicable Domestic Preference. The provision of domestic preference will be applied in the evaluation of bids in accordance with Annex VI of the Procurement Regulations. Provisions for National Open Bidding for Goods, Works and Non-consulting:

1. Standard bidding documents approved by the Bank shall be used. 2. Invitations to bid shall be advertised in at least one (1) widely circulated national daily newspaper

and bidding documents shall be made available to prospective bidders, at least twenty-eight (28) days prior to the deadline for the submission of bids.

3. Bids shall not be invited on the basis of percentage premium or discount over the estimated cost. 4. Bidding documents shall be made available, by mail or in person, to all who are willing to pay the

required fee. 5. Foreign bidders shall not be precluded from bidding. 6. Qualification criteria (in case pre-qualifications were not carried out) shall be stated on the

bidding documents, and if a registration process is required, a foreign firm determined to be the lowest evaluated bidder shall be given reasonable opportunity of registering, without any hindrance.

7. Bidders may deliver bids, at their option, either in person or by courier service or by mail. 8. All bidders shall provide bid security or a bid security declaration form as indicated in the bidding

documents. A bidder’s bid security or the declaration form shall apply only to a specific bid. 9. Bids shall be opened in public in one place preferably immediately, but no later than one hour,

after the deadline for submission of bids. 10. Evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding

documents, in a format, and within the specified period, agreed with the Bank. 11. Bids shall not be rejected merely on the basis of a comparison with an official estimate without

the prior concurrence of the Bank. 12. Split award or lottery in award of contracts shall not be carried out. When two (2) or more bidders

quote the same price, an investigation shall be made to determine any evidence of collusion, following which: (A) if collusion is determined, the parties involved shall be disqualified and the award shall then be made to the next lowest evaluated and qualified bidder; and (B) if no evidence of collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence of the Bank;


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13. Contracts shall be awarded to the lowest evaluated bidders within the initial period of bid validity so that extensions are not necessary. Extension of bid validity may be sought only under exceptional circumstances.

14. Extension of bid validity shall not be allowed without the prior concurrence of the Bank: (A) for the first request for extension if it is longer than four (4) weeks; and (B) for all subsequent requests for extensions irrespective of the period in case of prior review.

15. Negotiations shall not be allowed with the lowest evaluated or any other bidders. 16. Re-bidding shall not be carried out without the Bank’s prior concurrence in case of prior review;

and 17. All contractors or suppliers shall provide performance security as indicated in the contract

documents. A contractor’s or a supplier’s performance security shall apply to a specific contract under which it was furnished.

Selection of consultants. The Project includes hiring of consulting services, firms or individuals, through Component 3. DABS PIU will support the procurement of consulting services adhering to the Procurement Regulations. Procurement Documents: Bank’s Standard Request for Bid (RFB) Plants dated July 2016 will be used for supply and installation contracts. Bank’s Standard Procurement Documents (SPDs) will also be used for the selection of consulting services, and the procurement of and works and goods for international procurement. National SBDs agreed with IDA, or satisfactory to Bank, will be used for the procurement of goods following National Open procurement Procurement Capacity and Risk Assessment of Implementing Agencies: Procurement Risk Assessment A2.26 The GoA has appointed DABS as the implementing entity for the Project. Under this implementation arrangement, DABS has already established a PIU for World Bank financed projects, headed by Project Director, and supported by procurement and FM specialists. A2.27 DABS own Procurement Directorate has about 25 staff with little expertise in procurement and contract management in accordance with World Bank policies and procedures. Procurement of three Bank financed projects are being carried out by the PIU and are routed through this Directorate for approval, where all the three projects are facing significant challenges. The Project will provide technical assistance to the PIU’s procurement department. DABS will prepare and submit to the Bank for approval, a procurement-processing manual covering procurement processes and procurement services standards for DABS. The procurement-processing manual will be prepared and submitted to the Bank within three months after the Project is effective. The procurement processing manual will cover measures to sequester the draft bid packages and the bid evaluators to safeguard confidentiality of bids and bid evaluation process. The service standards within the manual will guide DABS to manage procurement processes in timely and transparent manner. The manual will also provide guidance on conducting procurement audits of the Bank's operations.


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A2.28 The procurement challenges are mainly due to lack of capacity among the staff, unclear roles and responsibility of each employee and lack of proper planning mechanism for new procurement activities. Due to all these challenges and weak coordination between the PIU and Procurement Directorate, the existing projects are experiencing delays in procurement. The Procurement Directorate will be strengthened through periodic review of staff performance. A2.29 To mitigate the risk and in addition to the above-mentioned measures, DABS will hire an international procurement specialist familiar with the procurement policy and procedure and institutional development. The specialist shall be selected using Open Competitive Selection of Individual Consultants. This specialist will work mainly on the capacity building, simplifying the roles and responsibilities of Procurement Directorate and PIU, mechanism for utilization of procurement consultants and would provide procurement implementation support to all of the World Bank financed projects in DABS. A2.30 Bank procurement staff will provide procurement training to the DABS procurement staff if required. In accordance with the national Afghan procurement law the DABS will process their procurement through the National Procurement Authority (NPA). A2.31 The procurement risk under the Project is rated as “Substantial.”

Mitigation Measures: A2.32 Record keeping. All procurement records will be maintained by Procurement Directorate of DABS and the PIU. These include records pertaining to award of contracts, including bid notification, register pertaining to sale and receipt of bids, bid opening minutes, bid evaluation reports and all correspondence pertaining to bid evaluation, communication sent to/with the Bank in the process, bid securities, and approval of invitation/evaluation of bids. A2.33 Governance and Anticorruption (GAC) agenda All the contract opportunities and contract awards will be widely published on NPA, DABS and, when required, on UNDB websites. The DABS will set up a system to ensure that the staff/consultants who handled the procurement process/contract management/contract execution do not have an interaction with the consultants/contractors. This will be reviewed during supervision missions. Other actions are: (a) implementing agencies’ officials/staff to be alerted about any fraud and corruption issues; (b) bidders to be alerted against adopting fraud and corruption practices; (c) award contracts within the initial bid validity period, and closely monitor the timing; (d) take action against any corrupt bidder in accordance with law of the GoA; (e) preserve records and all documents regarding public procurement, in accordance with the Procurement Law provisions; (g) publish contract award information in UNDB online, NPA’s website and agencies’ websites within two weeks of contract award; (h) ensure timely payments to the suppliers/contractors/ consultants and impose liquidated damages for delayed completion; and (i) enforce a procurement filing system.

A2.34 Grievance Redress Mechanisms (Complaints handling): With regard to procurement complaints, DABS will be guided by provisions of Procurement Law-October 7, 2015 and Bank Regulations. DABS will inform the Bank as soon as a procurement complaint is received and of the outcome subsequently. DABS should have a system to register and monitor the receipt and resolution of complaints. The progress of such action will be reviewed by the Bank during implementation support missions.


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Oversight and Monitoring by the Bank. A2.35 DABS has been managing Bank financed projects but due to challenges mentioned above the prior review threshold of a High Risk Implementing Agency will apply. A2.36 All contracts not covered under prior review by the Bank will be subject to post review during implementation support missions and/or special post review missions, including missions by consultants hired by the Bank. The Bank may conduct, at any time, Independent Procurement Reviews of all the contracts financed under the grant. A2.37 Frequency of procurement supervision. Two missions a year, at an interval of six months, are envisaged for procurement supervision of the proposed Project. A2.38 Contract management. With the PIU for World Bank Projects will be responsible for overall project/contract management. Procurement Plan: A2.39 The Project will use the “Systematic Tracking of Exchanges in Procurement” (STEP), a World Bank planning and tracking system, which would provide data on procurement activities, and establish benchmarks. The procurement correspondences will be sent to the Bank through this tool. Initial training on the operation of the STEP system has been provided to the Procurement Specialists of DABS. Procurement Methods and Review Thresholds:

Expenditure Category

Contract Value (Threshold)

US $

Procurement Method

Contracts Subject to Prior Review US$

1. Works >5,000,000 Open International All

<4,000,000 Open National First Contract

<100,000 RFQ First Contract; if undertaken prior to first Open International or National Contracts

Regardless of value Direct Selection All

2. Goods & Non-consulting Services

>200,000 Open International All

<200,000 Open national First Contract and all subsequent contracts estimated to cost > 200,000

<100,000 RFQ First Contract; if undertaken prior to first Open International or National Contracts

Regardless of value Direct Selection All

3. Consulting Services (Firms)

All TOR and Training Programs to be prior reviewed by Association’s TTL regardless of value and review threshold

>300,000 QCBS/QBS /FBS/LCS First contract (remaining contracts > $ 300,000 shall be mandatorily post reviewed

<300,000 CQS, First contract


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Expenditure Category

Contract Value (Threshold)

US $

Procurement Method

Contracts Subject to Prior Review US$

25,000 Single Source Selection

All

≤25,000 Single Source Selection

First Contract only. Subsequent contracts shall have a technical sign-off of justification only on conditions: (i) if it was provided in approved Procurement Plan; and (ii) it is not representing a slice of an otherwise larger project; and (iii) it shall be mandatorily post reviewed regardless of the sample of selected contracts

Individual Consultants

> 100,000 Open Competition First contract

< 100,000 Limited Competition First contract

10,000 Single Source Selection, Contracts for Procurement

All.

≤10,000 Single Source Selection

First Contract only. Subsequent contracts shall have a technical sign-off of justification only on conditions: (i) if it was provided in approved Procurement Plan; and (ii) it is not representing a slice of an otherwise larger project; and (iii) it shall be mandatorily post reviewed regardless of the sample of selected contracts

ICB = International Competitive Bidding; NCB = National Competitive Bidding; QCBS=Quality- and Cost-Based Selection; CQS = Consultants' Qualifications-based Selection; FBS =Fixed-budget Based Selection; LCS = Least Cost Selection; RFQ = Request for Quotations; QBS = Consultant’s Quality Based Selection.

Environmental and Social (including safeguards)

A2.40 Environmental and social impacts of the Project are expected to be moderate, insignificant, reversible, and easily manageable. The safeguards issues revolve around substations, drawing of low and medium voltage transmission lines, installation of lattice towers, and erection of power poles for tapping transmission and distribution. Issues relating to the construction of substations and stringing of transmission lines relate to how to best interface with the local communities and how to ensure safety of workers and near-by residents. Since, the scope of the Project is diverse and the detailed alignments of the subprojects are unknown, a framework approach has been adopted by DABS. For the transmission line investments, DABS will have the responsibility to conduct the ESIA, prepare the subsequent ESMPs, consult and disclose these documents prior to commencement of any civil works. A sample TOR to conduct the ESIA is part of the project ESMF. The ESMF also comprises guidelines to prepare site specific ESMPs and a sample Environmental Code of Practices (ECOP). Social safeguards impacts would be caused by temporary and/or partially permanent loss of land and other assets. However, the overall social impacts are expected to be moderate. Selection of routes, particularly for installation of the new 110 kV transmission line, and 110/20 kV substations will be screened for land disputes to avoid the situation where investments would fuel such disputes.

A2.41 DABS, which is expected to handle most of the investments, has good previous experience with World Bank financed projects, and also has considerable knowledge and experience of addressing environmental and social issues as it has implemented, or is currently implementing, several similar


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projects. However, the DABS Herat Office has little experience in managing safeguards. Therefore, two safeguards persons will be recruited to support the implementation through DABS. In addition, DABS will also recruit within three months of effectiveness an international safeguards specialist at headquarters to support the PIU at DABS.

A2.42 WB OP/BP 4.12, Involuntary Resettlement is triggered as the Project will support investments in some densely populated areas. Temporary and/or partial permanent land/assets impacts are expected to happen during the execution phase, especially during installation of the new 110 kV transmission line, 110/20 kV substations and medium and low voltage distribution networks in surrounding communities.

A2.43 Since the social safeguards footprint details, including detailed technical designs for all sites could not be predicted before project appraisal a framework approach has been used. The ESMF will guide the preparation of the ESIA, site-specific ESMPs and RAPs where needed. The RPF sets out procedures for managing land acquisition, asset loss and resettlement, and will be applicable to the Project. The ESMF will also include guidelines for identifying and assessing the impacts of potential investments on existing heritage structures and sites. A2.44 The preparation of the ESIA, ESMP and RAP will be completed, consulted, approved by the Bank, and disclosed before any land is taken and before any civil work begins. The RAP will be implemented, with any payments made to PAPs, before construction can start. The TOR for consulting services for ESIA and ESMPs will require inclusion of women in teams to facilitate consultations with women. Towards mainstreaming social and environment aspects, the implementing entity has appointed safeguards focal points, while the Project will also invest in building dedicated social and environmental capacity and enable development and application of ESMPs and ECOP. In addition, one dedicated environmental and one dedicated social specialist will be recruited to work at the regional DABS office in Herat to oversee the implementation. A2.45 To prepare the safeguards instruments for this Project, DABS has updated: (i) an ESMF from the Afghanistan Power System Delivery Project (APSDP), which has a similar scope of activities, and therefore also similar potential environmental and social impacts; and (ii) an RPF for the “DABS Planning and Capacity Support Project” (DABS TA). These will be applicable to Herat Electrification Project (HEP). The Project’s ESMF and RPF were cleared on May 1, 2017 and disclosed on the World Bank’s website on May 1, 2017. The PID-ISDS was disclosed on May 8, 2017. DABS disclosed the documents on April 10, 2017 in-country on their website. Following World Bank clearance, they re-disclosed these safeguards documents in-country on DABS’ website on May 2, 2017.

A2.46 Citizen Engagement (CE): Within the proposed Project CE is based on a two-way interaction and dialogue between DABS and citizens in all four districts. CE for this Project includes stakeholder consultations, a multi-level GRM and beneficiaries’ feedback on draft design for all investment activities for the Project. Consultation with Project beneficiaries and affected families will take place during the entire stage of Project implementation. Particular emphasis will be placed on seeking the views of vulnerable groups, especially women. The ESMF and RPF include a detailed mechanism for consultation to make sure that there is a two-way interaction between citizen and DABS in place. The beneficiaries, including stakeholder groups, will have a chance to review key findings from draft design studies; and their feedback on these studies will be considered, particularly for alternative analysis of routes of a new 110 kV


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transmission line and four 110/20 kV substations which are expected to cause temporary and/or partial permanent land/asset impacts. The GRM will cover not only PAPs but will also allow for addressing of contractor employee grievances and community grievances that are not only limited to land acquisition alone.

A2.47 The ESMF details mechanism for grievance handling, including responsibilities of key stakeholders to address public concerns. The DABS-Herat team will be responsible for ensuring that an effective GRM is established for each site, which would include: (i) public awareness among beneficiaries on how to use GRM services, (ii) establishing of multiple channels and locations for submitting of grievances, and (iii) proper registration of all grievances related to project activities to enable tracking and review. GRM will be created within three months of effectiveness of the Project. A grievance redress committee, which will be instituted under GRM, will be responsible for promptly addressing and resolving complaints filed by affected persons and maintaining a complaint record database to systematically track complaints.

A2.48 Key CE indicators for the Project will include:

Percentage of grievances satisfactorily resolved within stipulated timeframe; and

Percentage of Community Development Councils (CDCs) consulted on project activities affecting them in the project intervention areas.

A2.49 OP/BP 4.11, Physical Cultural Resources is triggered because the selected districts for investment under Component 1 have the sites of significant physical cultural resources. Impacts envisaged may relate to the construction of a new 110 kV transmission line, substations and medium and low voltage distribution networks in four districts of Herat Province, where lesser-known monuments may be present. The possible discovery of archeological sites or random findings during implementation of the project activities will require measures to manage chance finds. A2.50 The ESMF includes screening provisions for evaluating potential impacts and provides specific guidance for the preparation of requisite cultural heritage management plans. A guideline for Chance Find Procedure (CFP) is also provided in accordance to the National Laws and regulations. The ESMF also includes generic TOR for assessing impact on heritage sites and for preparing a Cultural Heritage Management Plan (CHMP).

A2.51 The Project has been screened for climate change and disaster risks using WB’s Climate and Disaster Risk Screening Tools.13 The Project is facing low potential impacts from climate change and disaster risks. The risk exposure of Herat Province was assessed. Possible impacts of climate change and disaster risks on transmission and distribution infrastructure, which will be financed by the Project, and on the existing Salma Dam, a hydropower plant from which transmission line will evacuate power, were analyzed. Furthermore, the effect of non-physical components, such as feasibility studies, institutional capacity building, and analysis of policy and regulations, and Afghanistan’s development context, on climate change and disaster risks were considered. Exposure of Herat Province to climate change risks is low. Exposure to disaster risk from earthquake is high. However, the non-physical components of the Project are expected to mitigate the impact of disaster risk.

13 WB’s Climate and Disaster Risk Screening Tools is available at https://wbclimatescreeningtools.worldbank.org/


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A2.52 Earthquakes are the key driver of risk; but appropriate engineering design, specifications, and construction alongside strengthened institutional capacity are expected to reduce risks to the Project’s physical assets and operations. The Project in the current timeframe is not exposed to risks from extreme temperature, extreme precipitation and flooding, and strong winds. Currently, Herat is slightly exposed to drought. In the future timeframe (2030-2059) Herat can be slightly exposed to extreme temperature, extreme precipitation and flooding, and drought. However, the differences between current values of indicators pertaining to these risks and forecasted average values of these indicators in future timeframe are not significant.

A2.53 The risk of earthquake in Herat is high, especially in Ghoryan and Adraskan. There is more than a 20 percent chance of a potentially damaging earthquake occurring in the next 50 years. Absence of synchronized grid, conflict, and internal migration in Afghanistan can amplify climate change and disaster risks. The Project will support feasibility and engineering design studies, strengthen institutional capacity of DABS, and support studies for synchronizing the grid and for developing a grid code. The technical assistance provided through the Project, which will support standard practices in engineering, construction, and operations, is expected mitigate the risk from earthquake and climate anomalies.

Monitoring and Evaluation

A2.54 All monitoring will be conducted by DABS in accordance with Section VII of the PAD. DABS will provide quarterly update reports. Section VII presents the monitoring indicators, and Annex 1 derives the target value for the electricity connections to be achieved under the Project.

Role of Partners (if applicable)

A2.55 The Project complements programs of other donors supporting the development of Afghanistan’s power sector, including the Government of India, the Asian Development Bank (ADB) and United States Agency for International Development (USAID).


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ANNEX 3: IMPLEMENTATION SUPPORT PLAN

COUNTRY: Afghanistan

Strategy and Approach for Implementation Support

A3.1 The overall supervision complexity rating is Medium given the increase in security concerns in Afghanistan and the relatively low technical complexity of the Project. Table A3.1 summarizes supervision complexity.

Table A3.1. Supervision Complexity Matrix

Criterion Factors to Take into Consideration Low Medium High

Transaction volume

Total number of transactions over project lifetime

Total number of contract awards expected in a year

The size of the Project and the number of transactions and contract awards (both being low)

X

Geographic spread/scope and security factor

Number of provinces covered by the Project

Proportion of project provinces considered to be high risk (as defined by the Bank’s security team)

X

Implementing entity capacity

Experience of implementing entity

Number of implementing agencies

X

Governance risks Ownership and commitment; accountability and oversight; decision making; and fraud and corruption

X

Safeguards rating Safeguards category (A, B, C, or FI) X

Complexity/innovation Number of different specializations needed for supervision

X

Donor coordination Whether ARTF- or IDA-financed

Whether co-financed by other donors X


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A3.2 The Project is expected to have about five to six contracts. The contracts will mainly be ICB with several stage payments. From the safeguards perspective, the Project is Category B, with delegation to the Practice Manager. The Project is limited to only one Province, Herat Province.

Implementation Support Plan and Resource Requirements

A3.3 The Project supervision will be done jointly by Kabul-based staff and international staff based in Dubai and Washington, D.C. External technical expertise is needed and the technical experts are expected to have regular site visits. Procurement is supported by the Kabul-based procurement team for larger contracts above the procurement thresholds. A3.4 DABS is working with the Bank on four other operations. The entity is increasingly familiar with the Bank’s policies and procedures. However, close supervision from the Bank’s team with respect to procurement, FM, and safeguard issues under the Project is essential.

A3.5 Barring any security concerns, the team would need to go to Herat Province approximately once every 6 months. Due to security constraints, the entire team may not be able to go at all times as required. The team will therefore also rely on third party supervision of the site to ensure adequate implementation of the Project. Funding for third party supervision may need to be sought as it exceeds to normal supervision budget.


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Annex 4: Economic and Financial Analysis

Economic Analysis A4.1 The key economic benefits of the Project are the increases in welfare that will accrue as households and institutions are connected to the grid and provided with a secure, cost-effective supply of electricity. Welfare increases are typically measured as increases in consumer surplus as a result of savings in the cost of meeting household needs for services such as lighting, information/entertainment, cooking, refrigeration, motor drives and the like thanks to the greater efficiency and/or lower cost of electric supply, as well as the ability to acquire additional services which were not available/affordable in the absence of grid electricity. In addition to the welfare gains of customers, benefits accrue to the utility in the form of producer surplus, which is the difference between the incremental revenue received as a result of the Project and the incremental operating costs incurred. A4.2 Other benefits that are more difficult to value but nonetheless valid include the potential to provide improved education and healthcare to the local population – although these require in addition that education and health institutions utilize the access to electricity to improve the quality and/or quantity of services delivered – and opportunities for income growth and job creation as businesses grow their output. The Project should also lead to a reduction in emissions of greenhouse gases (GHG), by reducing the burning of fossil fuels by small generators used in commercial and industrial establishments, and by ensuring the full utilization of the output from the Salma Hydropower Project, thereby reducing the consumption of thermal-generated imports. A4.3 Consumer surplus is measured by the area under the demand curve for households and institutions that benefit from the Project. Points on the demand curve for households generally include the price/quantity (P:Q) co-ordinates for kWh equivalents of services consumed in the absence of the Project (kerosene lighting, batteries for television and radios, self-generation) and the P:Q coordinates for electricity consumption after the Project is implemented. The slope of the curve through these points is difficult to discern but a limited number of empiric studies suggest that it is highly concave. This is supported by DABS data on household consumption in relation to varying tariffs in different service areas. Figure A4.1 below plots the relationship between these two variables. Hence, for the current Project a conservative approach to valuing the increase in consumer surplus has been adopted which limits benefits to those accruing through savings in the cost of substitutes that would be consumed in the absence of the Project.


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Figure A4.1: Tariff versus Consumption – Residential Customers

A4.4 Demand Forecast: The feasibility study prepared for the Project focused on the electrification of four districts: Chesht, Obe, Karokh and Pashtun-Zarghoon. Data on the total population of these districts, together with the number of schools, health centers, holy places and business enterprises was provided by DABS. Population estimates were converted into households based on an estimated 7 persons per

household14. The resultant base estimates of potential initial new customers in each category is shown in Table A4.1 below.

Table A4.1: Potential Initial New Customers

District Households Schools Health Centers Holy Places Businesses

Chesht 4,887 20 1 91 622

Obe 4,366 8 3 114 231

Pashtun Zarghoon 4,394 5 1 42 180

Karokh 3,944 14 1 44 220

Total 17,591 47 6 291 1,253

A4.5 The feasibility study assumed that 70 percent of the potential new customers in each category would be connected in year zero of the Project. From years 1 to 5, demand was projected to grow at 10 percent per annum owing to increases in both the number of customers connected and their consumption. For the next 10 years, demand was projected to grow at a rate of 3 percent per year, at which point the number of new customers totaled 22,000. The customer base was frozen at that level as it was assumed that additional investment would be needed to serve more customers. A4.6 Substitution Benefits: With respect to the current consumption of substitutes, the ALCS provided data on household electricity access in Herat Province, which formed a basis for postulating a profile of household consumption of electricity in off-grid households. Table A4.2 below shows the breakdown of households in Herat Province that are not connected to the grid. Within the province, 40.5 percent of total households lack access to the grid. However, only 6.8 percent lack any access to electricity. Most of

14 This differs from the estimate of 6.4 persons per household derived from the ALCS. However, it provides a more conservative estimate of initial potential customers, which reduces the risk of overstating demand.

-

5

10

15

20

25

30

35

40

45

- 50.00 100.00 150.00 200.00 250.00

Ave

rage

Tar

iff

(AFS

/kW

h)

Residential Consumption (kwh/mo)


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the remaining households have access through other means – dominated by the use of renewables. On a national basis, two-thirds of the substitutes for grid access were solar, and it is reasonable to assume that solar also dominates among substitute sources in Herat Province. While there are undoubtedly some households using other substitutes such as kerosene lighting, batteries for radios and televisions, and some within the renewables category that receive their electricity from mini-hydro or possibly wind turbines, there were no reliable data on either the incidence or level of use of these alternatives. The dominance of solar at the national level suggested that using solar as a proxy for all household substitution was a reasonable and even conservative approach.

Table A4.2: Households without Grid Access – Herat Province

% of total HH % of HH without grid access

No electricity 6.8% 17%

Electricity through generator 1.4% 3%

Electricity through renewables 28.8% 71%

Electricity through battery 3.5% 9%

Total 40.5% 100%

A4.7 ALCS data was also used to group respondents into proxy income quintiles based on their ownership of electricity consuming assets. Based on these quintiles, it was determined that the two lowest quintiles dominated the use of renewables (78 percent and 59 percent respectively). The analysis therefore focused on the asset ownership and spending profiles of these two quintiles to develop a profile of their daily and monthly electricity use. The resultant profile – approximately 21 kWh per household per month – and monthly spending on electricity (AFN 566 per HH or USD 0.40 per kWh) correlated well with separate estimates of the cost of small solar systems available in the Afghan market, and was therefore used to represent households’ use of substitutes for electricity for purposes of calculating the substitution benefits of grid access. A4.8 There were no survey data available on the practices of the other categories of customers with respect to the use of substitutes for grid electricity. However, DABS was able to provide data on the monthly usage of some of the customer types for users connected to the Herat grid, including commercial customers, holy places and registered and unregistered businesses. For holy places, monthly consumption of off-grid institutions was assumed to be one half of the consumption of connected customers. Absent alternative data, the same consumption was used for schools. For health centers, estimated monthly consumption was drawn from a report by the National Renewable Energy

Laboratory15. Half of the currently off-grid health centers were assumed to use substitutes. In the case of holy places, schools, and health centers, the cost of substitutes was based on the cost of 1 MW solar panel system with 0.5 MW of battery storage – estimated at USD 0.488 per kWh. A4.9 For businesses, base case estimates assumed that all off-grid customers were equivalent in consumption to unregistered grid-connected companies, and that their use of substitutes was equivalent

15 Jiminez, A.C, Olsen, K., Renewable Energy for Rural Health Clinics, National Renewable Energy Laboratory, 1998


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to one-third of the consumption of on-grid customers. Their cost of substitutes was based on the cost of a small diesel generator – estimated at approximately USD 0.26/kWh. A4.10 Table A4.3 below summarizes the assumed monthly benefits from avoided use of substitutes for each class of customer.

Table A4.3: Summary of Substitution Benefits Consumption of

Substitutes (kWh/mo)

Cost of Substitutes (USD/kWh)

Tariff (USD/kWh)

Benefit (USD per month per customer)

Household 21 0.401 0.075 6.89

Holy Place 88 0.488 0.075 36.24

School 88 0.488 0.075 36.24

Health Center 46 0.488 0.075 18.86

Business 843 0.259 0.199 50.64

A4.11 Producer Surplus: Benefits also accrue to the supplier of the incremental services, in this case the utility DABS. Gross benefits consist of additional tariffs received. Net benefits are calculated by deducting the additional costs of supply including administrative and operating costs and the incremental cost of power purchases. The current (2016-2017) tariff levels for Herat Province were used to determine the total incremental tariff revenue. Administrative and operating costs were based on DABS recent financial performance where these costs averaged 15.5 percent of gross sales. The cost of incremental power purchases was based on current tariffs for imported power from Iran and Turkmenistan, adjusted for recent transmission and distribution losses in Herat Province (34.9 percent). Incremental power purchases were assumed to come equally from Iran (at a tariff of USD .06/kwh) and Turkmenistan (at a tariff of USD .02/kwh) giving a weighted average cost of USD 0.061/kWh including losses. A4.12 Other Benefits: Other benefits, as noted, include reductions in GHG emissions as a result of substituting grid electricity for self-generation using fossil fuels. As noted above, solar generation was assumed to be the displaced substitute for households, holy places, schools and health centers. However, some of the potential businesses customers were assumed, in the absence of the grid, to be using private generators fueled by either diesel or gasoline. Bringing these customers onto the grid would eliminate the GHG emissions caused by these private generators. However, since at the margin Herat relies on imports from Iran and Turkmenistan to supply its on-grid customers, the benefit of eliminating diesel generation would be offset to a degree by incremental generation in the largely thermal based systems of the supplying countries. The offsetting GHG emissions of Iran and Turkmenistan will depend on the thermal technology used, but for purposes of this analysis, emissions were assumed to be in the order of 412 tons/GWh – somewhat higher than the highest efficiency CCGT but less than alternative thermal technologies. Emissions from the diesel generators were estimated at 786 tons/GWh, giving a carbon saving of 374 tons/GWh. Total annual savings were based on the GWh of diesel generation avoided, multiplied by the mandated social cost of carbon of USD 30 per ton. A4.13 Project Costs: The Project cost for the base districts to be electrified under the Project is estimated to total USD 20 million, based on preliminary bids received plus potential bonuses to be paid for timely


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completion. These prices include taxes and duties which are estimated to total 12.4 percent16 (for Component 1) leaving a net economic cost of USD 17.9 million. Costs were estimated to be incurred over a three-year construction period. A4.14 NPV and EIRR: Based on the above-noted assumptions, the extension of electricity supply to the 4 districts of Chesht, Obe, Karokh and Pashtun-Zarghoon (under Component 1) has an NPV of USD 36.4 million at a 10 percent discount rate and an NPV of USD 62.3 million at a 6 percent discount rate. The Project’s estimated EIRR is 36.3 percent. This represents only the readily quantified net benefits of the Component 1. It does not include some potential economic and social benefits which are difficult to quantify and to value, including: - Benefits associated with better health care or education, - Income and job-creation potential attached to economic growth made possible by businesses’

having access to electricity, - Benefits associated with improved reliability and quality of service associated with grid supply as

compared to the use of substitutes, and - Distributional benefits as grid electricity supply is extended to the lower income areas outside city

centers. A4.15 Composition of NPV: Table A4.4 below shows the breakdown of the Project’s NPV between consumer surplus benefits, producer surplus benefits, carbon benefits and capital costs.

Table A4.4: Composition of NPV for Component 1 (US$ million)

Component NPV @ 6% % of total NPV @ 10% % of total

Consumer Surplus 22.7 36% 14.9 41%

Producer Surplus 53.9 87% 35.1 96%

Carbon Savings 1.3 2% 0.9 2%

Capital Cost -15.7 -25% -14.5 -40%

Total 62.3 100% 36.4 100%

A4.16 Switching Values: The sensitivity of the findings to changes in underlying assumptions was examined for a selection of key input variables, including the capital cost of the Project under Component 1, the cost of power imports, tariff levels, and the operating costs of the utility. The results are summarized in Table A4.5.

16 BRT varies between 3 percent and 8 percent, depending on company registration. Customs duties for the types of equipment to be procured under the Project are in the 5 to 8 percent range. The estimated combined figure of 12.4 percent is an average of these rates.


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Table A4.5: Switching Values for Key Variables of Component 1 Switching Value for NPV at

Base 6% 10%

Capital Cost Multiplier 1 4.95 3.53

Cost of Imports ($/kWh) .061 .137 .128

Tariff Multiplier 1 .475 .532

Operating Costs - % of Sales 15.5% 65.7% 60.2%

A4.17 The figures in Table A4.5 demonstrate that project returns are robust even with significant adverse changes in the level of key inputs. Capital costs and operating costs can increase by several times and returns will still exceed 10 percent. The cost of imported power can more than double, and/or the tariff level fall by almost half and the Project would continue to be economically viable. A4.18 Impact of Additional Investment in Electrification: The cost estimate for the electrification of the four districts is well below the project funds available for the extension of electricity supply in Herat Province. Because of the urgency of the Project, the specifics of the use of these additional funds has not been defined at this stage. However, the analysis of four districts provides a guide to the costs and benefits of extending grid access to other parts of the province, including intensifying coverage in the capital of Herat City. A4.19 The analysis of the impact of additional investments assumed that the capital costs, customer mix and customer benefits would be the same for additional areas as for the four base districts. Table A4.6 shows the impact on total Project returns of adding different levels of investment to the electrification component of the Project.

Table A4.6: Impact of Additional Investments in Electrification

Customers Added Project EIRR NPV @ 10% (USD 000)

Total Investment** (USD 000)

10,000 37.4% 50,540 29,067

20,000 38.2% 64,662 38,026

40,000 39.1% 92,905 55,938

** including taxes and duties A4.20 Based on the total grant funds available as well as the cost estimates for Components 1 and 3, it would appear that it would be possible to supply electricity to approximately 40,000 additional customers towards the end of the Project life, raising the overall EIRR of the Project to 39.1 percent. The GHG component of the NPV associated with 40,000 new customers would be USD 1,408,300 at a 10% discount rate.


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Financial Analysis A4.21 The financial analysis of the Project covering the districts of Chesht, Obe, Karokh and Pashtun-Zarghoon was carried out from the perspective of the implementing entity, DABS. Financial benefits were derived from increased tariff revenue resulting from additional sales of electricity. Financial costs included the capital costs of the Project, including taxes and duties, incremental operating and administrative costs, and incremental costs of importing electricity to meet the demands of the new customers. As with the economic analysis, incremental imports were assumed to come equally from Iran and Turkmenistan. A4.22 The Financial Internal Rate of the Return (FIRR) for the electrification of the four districts is estimated at 22.3 percent. The NPV at a rate of 6 percent is estimated at USD 34.2 million. At a 10 percent rate, the NPV would be USD 17.8 million. Adding an additional 40,000 customers under Component 2 over the lifetime of the Project would increase the FIRR to 23.4 percent. It would therefore appear that the extension of electricity supply is a financially attractive option. A4.23 The financial performance of DABS has been generally good. DABS has reported continuous positive net income since 2012, with a net margin of 10 percent in 2015 with no fuel subsidies. DABS revenue has doubled from AFN 7.94 billion in 2011 to AFN 15.4 billion in 2015, and likewise its profit increased from AFN 539 million in 2011 to AFN 1.59 billion in 2015. DABS has a liquid balance sheet and generates sufficient cash to meet its short-term obligations and shows reasonable liquidity ratio (current ratio = 9.28, and cash ratio = 2.79 in 2015). DABS also passes on costs increases and has been able to increase the average tariff over recent years allowing DABS to generate sufficient cash to cover its cost. A4.24 New investments have been primarily financed by the donors through on-lending arrangements through MoF. However, these sizeable new investments by DABS will be met by a significant increase in long term borrowing and associated interest expenses. DABS had no debt service in 2010, however, its long-term debt has grown since then to AFN 4.39 billion in 2015. However, the long grace period granted by GoA under its standard on-lending terms allows DABS to implement the investment program without diminishing its financial sustainability until the assets are operational. In the longer term, financing of much needed investments may strain the financial viability of the company, especially if tariffs fail to keep up with debt service obligations. TA under the project will finance development of a financial planning model that will allow DABS management to study the impact of alternative scenarios with respect to capital investment, investment financing, demand growth, tariff levels, and the like. A4.25 An overview of DABS financial performance is presented overleaf.


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Table A4.7: Financial Analysis of DABS – Financial Indicators

DABS Financial Indicators (March 2015) Unit

Operational Indicators

Electricity generated GWh 1,007.00

Imported electricity GWh 3,617.00

Other electricity GWh 38.00

Total electricity supplied GWh 4,662.00

Electricity dispatched GWh 4,376.00

Total electricity sold GWh 3,081.00

Overall return (Electricity sold/Total electricity supplied) % 66.1%

Losses/Electricity not sold % 29.6%

Number of customers No.

1,300,033.00

Number of staff No. 6,500.00

Turnover/employee (AFN '000s) 2,367.69

Number of customers/employee No. 200.01

Profit and Loss Statement

Turnover Annual in AFN bn 15.39

Electricity sold GWh 3,081.00

Electricity sold AFN bn 15.39

Operating costs AFN bn 14.95

EBITA (Earnings before Interest, Taxes and Amortization AFN bn 0.44

Income from grants AFN bn 1.51

Net result AFN bn 1.64

Ability for self-financing

Cash balance AFN bn 5.49

Debt service AFN bn 0.04

Debt coverage ratio % 11.53

Balance sheet

Equity AFN bn 37.92

Tangible assets AFN bn 44.27

Working capital AFN bn 16.35

Financial debt AFN bn 4.39 M


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Annex 5: Solar Mini-grid Pilot Projects

A5.1 Objective: The purpose of the solar photovoltaic (PV) pilot projects is to demonstrate the viability of using solar PV hybrid mini-grids to provide grid-quality electricity services to rural villages in Herat Province. It is not merely to demonstrate that such mini-grids can provide electricity services reliably and at economic least cost, but also to demonstrate that such schemes can be sustainably operated and managed by DABS over the long term. A5.2 Solar PV hybrid mini-grids would be piloted in villages that are unlikely to obtain grid electricity in less than five years, and where it is technically and economically justifiable. Economic justification is based on the solar PV hybrid being least cost compared to alternatives offering similar level and quality of services. A5.3 Since many households in Herat are already using solar PV home systems to meet their basic electricity needs, this pilot will focus on solar PV hybrid mini-grids that can meet higher level of household demands, and electricity needs of holy places, schools, clinics and businesses. A5.4 Solar PV Hybrid Mini-grid Options: Hybrid technology configurations may be solar PV with or without batteries and diesel generator with electricity distributed through single or three phase lines. If loads are many kilometers away and/or loads are large, then medium voltage distribution is necessary. A schematic is given in Figure A5.1 for a compact village where low voltage distribution is adequate. The distribution network and facility wiring will be to DABS standards so that when the grid reaches the village it can be connected directly without having to rebuild the distribution network.

Figure A5.1 Schematic of Solar PV-Battery-Diesel Hybrid

Bi-directional Inverter charger

individual users and loads

individual users and loads

PV Array(AC coupled)

PV Inverters(grid tie)

Storage Battery

LV Distribution backbone 415V

PV Array(DC coupled)

DC Charger(MPPT)

PV Array(AC coupled)

PV Inverter(grid tie)

AC Bus DC Bus

Power house

Diesel Generator

kWh Sent-out meter

-

+

-

+

-

+

-

+

-

+

-

+

-

+

-

+

Distributed generation


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A5.5 The villages suitable for a mini-grid are likely to be of average size.17 They are likely to have higher electricity demands, including from businesses and public facilities. If the villages are small, the likelihood is greater that stand-alone solar home systems may be more appropriate. If the villages are larger, then, they may be candidate for early grid connection. A5.6 Economic Viability: A HOMER modelling study was conducted for a median-scale village in Herat Province with the following loads and load profile (see Table A5.1 and Figure A5.2).

A5.7 The results are summarized in Table A5.2. In this example, solar PV-battery-diesel hybrid mini-grid is least cost compared to other alternatives, including a diesel-only option. In the least cost configuration, solar PV provides 62 percent of the electricity while the balance is from the diesel generator. The levelized economic cost of electricity is US$0.466 per kWh for full cost recovery.

Table A5.2 Economic Analysis Results for Hybrid Mini-grid Options for a 100-Household Village in Herat18

A5.8 When a village is being considered for a hybrid, the grid extension option should be also evaluated to verify that a mini-grid is a more suitable choice for that village. The option of extending the grid to the village using a MV transmission line will incur costs. Considering the additional cost of extending a MV line

17 A Socio-Economic Demographic Survey reported that in 2003-05 the median village size was 300-399 persons (11 percent of villages were in the median size category). 15 percent of villages had over 1000 persons and 10 percent less than 100 persons. With population increase, the number of persons in a “median” village would be greater. See http://afghanag.ucdavis.edu/country-info/Province-agriculture-profiles/unfr-reports/All-Afghanistan.pdf/at_download/file 18 Load assumptions are based on data in Table A3.1.

System PV (kW)

Battery

(kWh)

Diesel

Generator

(kW)

Initial Cost

(USD)

Diesel Fuel

Used (L/year)

Battery Life

(Years)

Solar Energy

Share

Economic Cost

of Electricity

(USD/kWh)

PV-Battery-Diesel 50 365 30 248,500 16,013 12.0 62% 0.466

PV-Battery- Minimal Diesel 150 365 30 363,500 9,814 11.7 92% 0.506

Diesel-Battery - 182 30 155,000 34,998 9.2 0% 0.613

PV-Battery 125 1,824 - 663,750 - 12.0 100% 0.755

PV-Diesel 100 - 50 240,000 42,607 - 63% 0.795

Diesel Only - - 50 75,000 64,596 - 0% 0.918

Mini-grid Electrification Options for 100 Household Village in Herat Province

Figure A5.2 Load Profile Assumed Table A5.1 Loads Assumed for Analysis

Households 25 100 30,000

Holy Place 90 2 2,160

School 90 1 1,080

Health Center 45 1 540

Business 800 7 67,200

Total Rounded 101,000

Monthly

Electricity (kWh)Number per

Village

Electricity

Demand

(kWh/year)

http://afghanag.ucdavis.edu/country-info/Province-agriculture-profiles/unfr-reports/All-Afghanistan.pdf/at_download/file


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to a remote area to serve a small load (in this example, ~300 kWh/day and a peak demand of ~50 kW), the transmission losses incurred and the cost of maintaining the line, a hybrid could be a better option. A5.9 Financial Viability: The hybrid mini-grid cost of electricity will be higher than providing grid electricity service at a tariff of US$0.075-0.199 (see Table A5.3). Cost of electricity for only operating and fuel costs, will require US$0.06/kWh and US$0.21/kWh respectively. Either, a higher tariff should be charged if consumers have the willingness and ability to pay, or if DABS tariff is to be charged, then it will require grant assistance. A5.10 Since, the electricity service is provided by DABS, it is justifiable to offer these mini-grid villages the same tariff as a grid-connected consumer. To do so, the cost of serving the hybrid mini-grid villages could be included in the DABS tariff application, to determine the tariff DABS will charge all their customers.19 This is no different from the way that other incremental generation, transmission and distribution investments are incorporated into the rate base to obtain the average tariff to be charged to consumers. A5.11 Business and Technology Models: The mini-grid is expected to be owned, operated and managed by DABS. However, DABS could consider alternative management arrangements such contracting a private company to operate and manage the hybrid mini-grid. Alternately, under agreement with DABS such services could be performed by a village organization should they have the capability and interest. A5.12 Implementation Arrangements: It is anticipated that DABS will undertake up to about 4 pilot solar hybrid minigrids in areas that are unlikely to be served by the grid within 5 years. The DABS will need to undertake the following:

Villages Selection: Select the pilot villages (including consultations with villagers and field surveys

and their network planning staff). Criteria could include: distance from grid, grid extension plans,

compact village to minimize distribution costs, potential for significant productive and public

service electricity demand, relative richer households (judging by their use of appliances, house

quality, income etc.).

Pre-investment: Undertake pre-investment study to confirm that a hybrid mini-grid is appropriate

and to specify the hybrid system and distribution network. The pre-investment investigation

would include, community consultation, load forecasting including productive uses, assessing

ability to pay, village distribution and power plant layout planning, system sizing and optimizing,

system and distribution network specification, environmental and social safeguards screening,

assess legal and other requirements, identification of land for acquisition, project costing,

economic and financial analysis, management and operations, risk assessment and mitigation.

The business model to be used has to be determined, such as (a) DABS-owned and private sector

19 There are precedents to this approach. In the World Bank-assisted Peru Rural Electrification Projects, distribution utilities provided solar PV services to their customers who could not be connected to the grid. These customers were charged the same tariff as grid-connected customers. The Peru electricity regulator, permitted the utility to include the cost of providing solar electricity in their tariff. This enabled the higher cost of solar electricity to spread across all customers, resulting in a negligible increase in tariff rate while providing affordable electricity services without discrimination. See: http://documents.worldbank.org/curated/en/325061468297302609/pdf/ICR23580P090110C0disclosed010230140.pdf

http://documents.worldbank.org/curated/en/325061468297302609/pdf/ICR23580P090110C0disclosed010230140.pdf


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management and operation; (b) DABS-owned and village management and operation; and (c)

DABS owned, operated and managed.

Tendering: Prepare the bid documents and tendering. It is expected that the World Bank Standard

Bidding Document for Procurement of Plant Design, Supply, and Installation will be used for

tendering.

Construction: Sign contract and supervise the construction, commissioning, and hand-over.

Management and Operations Contracting. Should the decision be to contract the private sector

or village to manage and operate the mini-grid, then an M&O contract will need to be signed. This

will require village consultations, requesting proposals from private companies, selecting the

company, and preparing and signing M&O contract.

Capacity building: DABS may need to provide training for operators and managers.

M&E: As this is a pilot, it is important to monitor, evaluate and report on the performance.

Lessons Learned: Document the lessons learned and if the pilots are successful, prepare guidelines

for scaling up the use of hybrid mini-grids in Herat and other provinces.

A5.13 Financing Requirements: The investment required depends on the specific project configuration. If the characteristics of village used for the economic analysis can be considered representative, then the investment cost of the four-pilot solar PV hybrid mini-grids will be about US$1 million. In addition, funds from Component 3 would be required for the technical assistance needed for implementing the hybrid mini-grids and for monitoring and evaluation.