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Document of
The World Bank
Report No: ICR00003952
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IDA-43530,IDA-43540)
ON A
CREDIT
IN THE AMOUNT OF SDR 9.1 MILLION
(US$13.8 MILLION EQUIVALENT)
TO THE
REPUBLIC OF MOZAMBIQUE
FOR A
TRANSMISSION UPGRADE PROJECT
March 20, 2017
Energy and Extractives Global Practice
Country Department Southern Africa 2 (AFCS2)
Africa Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective January 18, 2017)
Currency Unit = Mozambican Metical
MZN 1.00 = US$ 0.014
US$ 1.00 = MZN 70.84
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AIDS Acquired Immunodeficiency Syndrome
APL Adaptable Program Loan
CAS Country Assistance Strategy
CPS Country Partnership Strategy
CREE Commission for Foreign Economic Relations
DAM Day Ahead Market
EdM Electricidade de Mocambique
ENDE Mozambique National Development Strategy
EIRR Economic Internal Rate of Return
ERR Economic Rate of Return
ESCOM Electricity Supply Corporation of Malawi
ESIA Environment and Social Impact Assessment
ESMAP Energy Sector Management Assistance Program
FIRR Financial Internal Rate of Return
FRR Financial Rate of Return
GDP Gross Domestic Product
GNI Gross National Income
GoM Government of Mozambique
GWh Gigawatt hours
HCB Hydroelectrica de Cahora Bassa
HIPC Heavily Indebted Poor Countries
HIV Human Immunodeficiency Virus
IBRD International Bank for Reconstruction and Development
ICR Implementation Completion and Results Report
ICT Information and Communications Technologies
IDA International Development Association
IEG Independent Evaluation Group
IP Implementation Performance
iii
ISR Implementation Status and Results report
kV Kilovolt
kVA kilovolt-ampere
MARR Minimum Acceptable Rate of Return
M&E Monitoring and Evaluation
MGDS Malawi Growth and Development Strategy
MoU Memorandum of Understanding
MVA Mega Volt Amp
MW Megawatt
MWh Megawatt hours
MZN Mozambican Metical (Mozambican currency)
NEP Malawi National Electricity Policy
NEPAD New Partnership for Africa’s Development
NPV Net Present Value
O&M Operations and Maintenance
PAD Project Appraisal Document
PARPA Action Plan for the Reduction of Absolute Poverty
PDO Project Development Objectives
PIU Project Implementation Unit
PPA Power Purchase Agreement
PPF Project Preparation Facility
PSA Power Supply Agreement
PVA Poverty and Vulnerability Assessment
QAG Quality Assurance Group
QEA Quality At Entry
QSA Quality of Supervision
ROR Run-of-River
RPF Resettlement Policy Framework
SADC Southern African Development Community
SAIFI System Average Interruption Frequency Index
SAPMP Southern African Power Market Program
SAPP Southern Africa Power Pool
SCADA System Control and Data Acquisition
SE4ALL Sustainable Energy for All
SIL Specific Investment Loan
STEM Short Term Energy Market
TTL Task Team Leader
TUP Transmission Upgrade Project
USD United States Dollar
WAPP West African Power Pool
XDR Special Drawing Right
iv
Vice President: Makhtar Diop
Senior Global Practice Director: Riccardo Puliti
Global Practice Director: Lucio Monari
Country Director: Mark R. Lundell
Acting Practice Manager: Lucio Monari
Project Team Leader: Zayra Romo
ICR Team Leader: Kabir Malik
ICR Authors: Kabir Malik, Bobak Rezaian
v
REPUBLIQUE OF MOZAMBIQUE
Transmission Upgrade Project
CONTENTS
Data Sheet
A. Basic Information .............................................................................................. vi
B. Key Dates .......................................................................................................... vi
C. Ratings Summary .............................................................................................. vi
D. Sector and Theme Codes .................................................................................. vii
E. Bank Staff ......................................................................................................... vii
F. Results Framework Analysis ........................................................................... viii
G. Ratings of Project Performance in ISRs .......................................................... xv
H. Restructuring (if any) ....................................................................................... xv
I. Disbursement Profile ...................................................................................... xvii
1. Project Context, Development Objectives and Design ................................................... 1
2. Key Factors Affecting Implementation and Outcomes .................................................. 9
3. Assessment of Outcomes .............................................................................................. 20
4. Assessment of Risk to Development Outcome ............................................................. 30
5. Assessment of Bank and Borrower Performance ......................................................... 32
6. Lessons Learned............................................................................................................ 37
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 39
Annex 1. Project Costs and Financing .............................................................................. 40
Annex 2. Outputs by Component...................................................................................... 42
Annex 3. Economic and Financial Analysis ..................................................................... 44
Annex 4. Bank Lending and Implementation Support/Supervision Processes ................. 50
Annex 5. Beneficiary Survey Results ............................................................................... 52
Annex 6. Stakeholder Workshop Report and Results ....................................................... 53
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 54
Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 61
Annex 9. List of Supporting Documents .......................................................................... 62
Annex 10. Map IBRD 33451 ............................................................................................ 63
vi
A. Basic Information
Country: Mozambique Project Name:
Mozambique
Transmission Upgrade
Project
Project ID: P084404 L/C/TF Number(s): IDA-43530,IDA-43540
ICR Date: 03/20/2017 ICR Type: Core ICR
Lending Instrument: SIL Borrower: Republic of
Mozambique
Original Total
Commitment: XDR 29.60M Disbursed Amount: XDR 9.10M
Revised Amount: XDR 9.10M
Environmental Category: B
Implementing Agencies:
Electricidade de Moçambique (EdM)
Cofinanciers and Other External Partners:
B. Key Dates
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 11/13/2006 Effectiveness: 04/01/2008 04/01/2008
Appraisal: 04/09/2007 Restructuring(s):
04/29/2013
11/21/2014
06/23/2015
06/17/2016
Approval: 07/17/2007 Mid-term Review: 02/15/2014 03/10/2014
Closing: 06/30/2013 08/31/2016
C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes: Moderately Satisfactory
Risk to Development Outcome: Moderate
Bank Performance: Moderately Unsatisfactory
Borrower Performance: Moderately Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry: Moderately
Unsatisfactory Government: Moderately Satisfactory
Quality of Supervision: Moderately
Unsatisfactory
Implementing
Agency/Agencies: Moderately Satisfactory
Overall Bank
Performance:
Moderately
Unsatisfactory Overall Borrower
Performance: Moderately Satisfactory
vii
C.3 Quality at Entry and Implementation Performance Indicators
Implementation
Performance Indicators
QAG Assessments
(if any) Rating
Potential Problem
Project at any time
(Yes/No):
Yes Quality at Entry
(QEA): None
Problem Project at any
time (Yes/No): Yes
Quality of
Supervision (QSA): None
DO rating before
Closing/Inactive status:
Moderately
Satisfactory
D. Sector and Theme Codes
Original Actual
Major Sector/Sector
Energy and Extractives
Energy Transmission and Distribution 100 100
Major Theme/Theme/Sub Theme
Economic Policy
Trade 40 40
Trade Facilitation 40 40
Private Sector Development
ICT 40 40
ICT Solutions 40 40
Regional Integration 20 20
E. Bank Staff
Positions At ICR At Approval
Vice President: Makhtar Diop Obiageli Katryn Ezekwesili
Country Director: Mark R. Lundell Mark D. Tomlinson
Practice
Manager/Manager: Lucio Monari Yusupha B. Crookes
Project Team Leader: Zayra Luz Gabriela Romo
Mercado Wendy E. Hughes
ICR Team Leader: Kabir Malik
ICR Primary Author: Kabir Malik
ICR co-Author: Abdolreza B. Rezaian
viii
F. Results Framework Analysis
Project Development Objectives (from Project Appraisal Document) The APL 2 development objective is to implement the Mozambique-Malawi transmission
interconnection (i) to increase access to diversified, reliable, and affordable supplies of energy;
and (ii) to expand Malawi and Mozambique’s opportunities to benefit from bilateral and regional
power trading on the Southern African Power Pool.
Revised Project Development Objectives (as approved by original approving authority) To reduce the frequency of electricity outages in Tete province.
(a) PDO Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised
Target
Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 : Average interruption frequency per year in the project area (Number, Core)
Value
quantitative or
Qualitative)
476
411
151
Date achieved 12/31/2013 08/30/2016 08/30/2016
Comments
(incl. %
achievement)
Achievement percentage is 719%. This measure is the actual reduction as a
percentage of the targeted reduction. A large portion of the decline occurred
prior to the commissioning of the transformer due to factors unrelated to
the project.
Indicator 2 : Customers served in the project area (Number, Core Supplement)
Value
quantitative or
Qualitative)
20527.00
86628.00
81276.00
Date achieved 11/01/2013 08/30/2016 08/30/2016
Comments
(incl. %
achievement)
93.8% of the target achieved.
Indicator 3 : Direct project beneficiaries (Number, Core)
Value
quantitative or
Qualitative)
0
86628.00
81276.00
Date achieved 11/01/2013 08/30/2016 08/30/2016
Comments
(incl. %
achievement)
93.8% of the target achieved. Growth in number of electricity customers in the
region was marginally below expectation, but the target is expected to be met
and exceeded in the near future.
ix
Indicator 4 : Female beneficiaries (Percent, Core Supplement)
Value
quantitative or
Qualitative)
0
51%
50%
Date achieved 11/01/2013 08/30/2016 08/30/2016
Comments
(incl. %
achievement)
Indicator 5 : Malawi: Volume of trading via interconnector (GWh).
Value
quantitative or
Qualitative)
0
273
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
Malawi did not sign the credit agreement. Thus, the 1st project restructuring
changed the PDO and cancelled the regional interconnector investments. All
associated indicators were dropped.
Indicator 6 : Mozambique: Volume of trading with Malawi via interconnector (GWh).
Value
quantitative or
Qualitative)
0
55
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 7 : Decreased capacity deficit in case of drought in Malawi (text)
Value
quantitative or
Qualitative)
0
No-off peak load
shedding
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 8 :
EDM incremental earnings from ESCOM payments associated with use-of-
transmission line
Value
quantitative or
Qualitative)
0
Exceeds EDM
debt service for
the interconnector
investment
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
This indicator was dropped during the 1st project restructuring.
x
achievement)
Indicator 9 :
SAIFI (System Average Interruption Frequency Index) for Matambo customers
(%)
Value
quantitative or
Qualitative)
4.5%
3.5%
Dropped
Date achieved 01/01/2013 12/31/2014 11/21/2014
Comments
(incl. %
achievement)
This indicator was dropped during the second restructuring and replaced by the
relevant sector core indicator.
Indicator 10 : Customers served in the project area (supplemental)
Value
quantitative or
Qualitative)
0
194000
Dropped
Date achieved 01/01/2013 12/31/2014 11/21/2014
Comments
(incl. %
achievement)
This indicator was a supplemental indicator to PDO indicator above. It was thus
dropped during the second restructuring along with the main PDO indicator and
replaced by the relevant sector core indicator.
(b) Intermediate Outcome Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised
Target Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 : ESIA final report completed and approved by GoM
Value
(quantitative
or Qualitative)
No ESIA
ESIA final report
completed and
approved by GoM
ESIA final report
completed and
approved by GoM
Date achieved 07/17/2007 06/30/2016 05/24/2016
Comments
(incl. %
achievement)
The final report was submitted to GoM for approval in December 2011. GoM
approval was finally received in June 2012.
Indicator 2 :
New 220/66/33 kV transformer installed and commissioned at Matambo
substation
Value
(quantitative
or Qualitative)
No transformer
80 MVA of new
transformation
capacity
commissioned
130 MVA
Transformer
delivered on site
and commissioned
Date achieved 01/01/2013 08/30/2016 08/30/2016
xi
Comments
(incl. %
achievement)
Targeted transformer capacity exceeded by 162.5% as a larger capacity
transformer was affordable within the project envelope. The transformer was
commissioned in July 2016, prior to project close.
Indicator 3 : Level of charge of the current Matambo transformer (percent)
Value
(quantitative
or Qualitative)
26%
70%
45%
Date achieved 07/17/2007 08/30/2016 08/30/2016
Comments
(incl. %
achievement)
Reduction target exceeded by 256%. The purchase of an additional transformer
helped split the load between two transformers and reduce stress on the original
("current") transformer.
Indicator 4 : New 220/33 kV, 25 MVA mobile substation delivered
Value
(quantitative
or Qualitative)
No transformer
50 MVA of new
transformation
capacity delivered
Transformer was
delivered and ready
for use
Date achieved 07/17/2007 08/30/2016 08/30/2016
Comments
(incl. %
achievement)
Target achieved. The new transformer at Tete is on site and is expected to be
commissioned in August 2017. The mobile substation was commissioned in
December 2016. (The project funded delivery, but not installation, of
this transformer).
Indicator 5 : Completion of survey for building interconnector (Malawi, Moz)
Value
(quantitative
or Qualitative)
Preliminary survey
completed
Detailed survey
completed
Dropped
Date achieved 12/31/2006 01/01/2008 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 6 : % of towers installed against planned installation (Malawi, Moz)
Value
(quantitative
or Qualitative)
0
Atleast 90%
Dropped
Date achieved 12/31/2006 12/31/2010 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 7 :
% expenditures against planned expenditures for building interconnector
(Malawi, Moz)
Value 0 At least 85% Dropped
xii
(quantitative
or Qualitative)
Date achieved 12/31/2006 12/31/2008 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 8 :
Site mobilization completed for the construction of Phombeya and upgrading of
Matambo substations (Malawi, Moz)
Value
(quantitative
or Qualitative)
none
Site mobilization
completed
Dropped
Date achieved 12/31/2006 12/31/2008 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 9 : % expenditures against planned expenditures at substations (Malawi, Moz)
Value
(quantitative
or Qualitative)
0
At least 85%
Dropped
Date achieved 12/31/2006 12/31/2008 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 10 :
Key agreements signed and adhered to (I) Wheeling, (ii) system operating, (iii)
maintenance, (iv) implementation agreements (Malawi, Moz)
Value
(quantitative
or Qualitative)
Agreements substantially
negotiated
Agreements
adhered to;
ESCOM payments
to EdM on time
Dropped
Date achieved 12/31/2006 12/31/2010 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 11 : ESCOM becomes operating member of SAPP
Value
(quantitative
or Qualitative)
None
ESCOM signs
SAPP agreement
among operating
members
Dropped
Date achieved 12/31/2006 12/31/2010 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
xiii
Indicator 12 : ESCOM signs a power trading agreement
Value
(quantitative
or Qualitative)
not signed
signed
Dropped
Date achieved 12/31/2006 12/31/2010 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 13 : ESCOM financial sustainability plan adopted and implemented (Malawi)
Value
(quantitative
or Qualitative)
None
Plan prepared,
adopted and
implemented
Dropped
Date achieved 12/31/2006 12/31/2007 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 14 : Cash coverage ratio (Malawi)
Value
(quantitative
or Qualitative)
0.81
At least 1.0
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 15 : Collection/generation ratio (Malawi)
Value
(quantitative
or Qualitative)
70%
at least 75%
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 16 : % task completed against planned timelines for studies (Malawi)
Value
(quantitative
or Qualitative)
0
at least 90 %
Dropped
Date achieved 12/31/2006 12/31/2010 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 17 : % completion of feasibility study against planned timelines for extending
connection to Northern Mozambique (Mozambique)
xiv
Value
(quantitative
or Qualitative)
none
Consultants
selected
Dropped
Date achieved 12/31/2006 12/31/2008 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 18 :
Decrease network faults due to failure of breaker operations in areas under
renovation in Malawi
Value
(quantitative
or Qualitative)
17
At least 10%
fewer faults from
baseline
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 19 : Reduction in number of excitation trips at generation stations
Value
(quantitative
or Qualitative)
19
At least 10%
fewer faults from
baseline
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 20 : Increased number of customers served out of Matambo
Value
(quantitative
or Qualitative)
15000
5% yearly increase
from baseline
Dropped
Date achieved 12/31/2006 12/31/2011 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
Indicator 21 : % expenditures against planned expenditures for building Matambo transformer
Value
(quantitative
or Qualitative)
0
At least 85%
Dropped
Date achieved 12/31/2006 12/31/2008 04/29/2013
Comments
(incl. %
achievement)
This indicator was dropped during the 1st project restructuring.
xv
G. Ratings of Project Performance in ISRs
No. Date ISR
Archived DO IP
Actual
Disbursements
(USD millions)
1 12/20/2007 Moderately Satisfactory Moderately
Unsatisfactory 0.00
2 06/02/2008 Moderately Satisfactory Moderately
Unsatisfactory 0.51
3 12/24/2008 Moderately
Unsatisfactory
Moderately
Unsatisfactory 1.94
4 06/23/2009 Moderately
Unsatisfactory
Moderately
Unsatisfactory 1.94
5 12/22/2009 Unsatisfactory Unsatisfactory 2.20
6 06/18/2010 Unsatisfactory Unsatisfactory 2.51
7 03/28/2011 Unsatisfactory Unsatisfactory 2.51
8 01/08/2012 Unsatisfactory Unsatisfactory 2.51
9 07/22/2012 Unsatisfactory Unsatisfactory 2.97
10 04/12/2013 Moderately Satisfactory Moderately Satisfactory 2.97
11 11/30/2013 Moderately
Unsatisfactory
Moderately
Unsatisfactory 3.12
12 05/30/2014 Moderately
Unsatisfactory Moderately Satisfactory 3.33
13 12/03/2014 Moderately Satisfactory Moderately Satisfactory 4.32
14 06/15/2015 Moderately Satisfactory Moderately Satisfactory 6.70
15 12/28/2015 Moderately Satisfactory Moderately Satisfactory 7.68
16 06/09/2016 Moderately Satisfactory Moderately
Unsatisfactory 9.39
H. Restructuring (if any)
Restructuring
Date(s)
Board
Approved
PDO Change
ISR Ratings at
Restructuring
Amount
Disbursed at
Restructuring
in USD
millions
Reason for Restructuring &
Key Changes Made DO IP
04/29/2013 Y MS MS 2.97
Failure of Malawi to sign
Financing Agreement.
Restructuring cancelled all
activities related to the regional
interconnector. The PDO was
changed to reflect the reduced
scope that focused on
transmission upgrade for
Mozambique. Closing date for
the project extended by one and
xvi
Restructuring
Date(s)
Board
Approved
PDO Change
ISR Ratings at
Restructuring
Amount
Disbursed at
Restructuring
in USD
millions
Reason for Restructuring &
Key Changes Made DO IP
a half years to 31 December
2014. (Level 1)
11/21/2014 N MU MS 4.32
Utilization of savings on request
of Government. Two additional
activities were added. PDO
indicators were refined to
incorporate core sector
indicators. Closing date
extended by one and a half
years to 30 June 2016. (Level 2)
06/23/2015 MS MS 6.70
Reallocation of funds among
disbursement categories. (Level
2)
06/17/2016 MS MU 9.39
Closing date extension by 2
months to enable completion of
activities. (Level 2)
If PDO and/or Key Outcome Targets were formally revised (approved by the original approving
body) enter ratings below:
Outcome Ratings
Against Original PDO/Targets Unsatisfactory
Against Formally Revised PDO/Targets Satisfactory
Overall (weighted) rating Moderately Satisfactory
1
1. Project Context, Development Objectives and Design
1.1 Context at Appraisal
Regional Context
1. In 2007, when the project was presented to the Board, the Southern Africa Region had
experienced sustained economic growth in recent years bolstered by the continued global economic
expansion, prudent macroeconomic policies, debt relief and sustained demand for commodities
amid favorable commodity prices. Estimated average rate of growth in real Gross Domestic
Product (GDP) for the region was about 5.5 percent. Accompanying growth in electricity demand
implied that the region was entering a period of power generation capacity shortage and additional
generation capacity was required. The new demand required large, regional generation projects that
would utilize the variation in energy resource endowments across countries in the region. As a
result, regional trade in electricity was expected to increase, highlighting the need to address
constraints in the regional transmission infrastructure.1
2. The Southern Africa region possessed the institutional infrastructure to support regional
trade. The Southern Africa Power Pool (SAPP) was created in 1995 by Southern African
Development Community (SADC) member countries by concluding an Intergovernmental
Memorandum of Understanding (MOU). The utilities of 12 Southern African countries, including
Malawi and Mozambique, were the original members of the SAPP. The interconnected national
grids of the member countries formed the regional SAPP network. The SAPP aimed to facilitate
regional co-operation in the development of energy resources and energy pooling to enable reliable
energy supply in an efficient manner.
3. Malawi, Angola, and Tanzania were the only countries not yet interconnected to the SAPP
network. Connection to the regional grid of non-connected SAPP member power systems was a
priority in terms of SAPP planning. In the 2006 SAPP Annual Report, the Mozambique-Malawi
Transmission Interconnection was explicitly noted as a priority for the regional pool.
4. Electricity on the SAPP was largely traded through medium-to-long term bilateral
contracts. A Short Term Energy Market (STEM) was in operation since its inception in 2001.
However due to a shortage of hydropower generation in the region due to the exposure of individual
countries to drought and floods, demand in the market was well above supply. Energy traded on
the STEM fell from 842 GWh in 2002, to 226 GWh in 2006, and 68 GWh in 2007.2 Therefore, at
the time, Mozambique was one of the only systems to have excess capacity due to the 2,075 MW
Hydroelectrica de Cahora Bassa (HCB) hydropower plant. In 2006, the Day Ahead Market (DAM)
had not yet been established by SAPP, with the trial version only commissioned in 2007, and the
operational model completed in January 2010.
1 The Mozambique – Malawi Interconnector Project was part of the World Bank’s wider Southern Africa
Power Market Adaptable Program Loan program, which aimed at assisting the Southern Africa region to (i)
generate savings through aggregation of loads with different load profiles, (ii) achieve efficient use of energy
resources by exploiting large scale power generation schemes that are viable only on the basis of large multi-
country markets, (iii) manage the risks of climate-related power shortages in hydro-dependent countries. 2 The Potential of Regional Power Sector Integration – Southern African Power Pool (SAPP) Transmission
& Trading Case Study. Submitted to ESMAP by Economic Consulting Associates, pp 29, 2009.
2
Malawi Context
5. At the time of project appraisal in 2006, Malawi was one of the poorest and most densely
populated countries in sub-Saharan Africa. The population density in 2006 was about 109 persons
per square kilometer, with a total population of about 12.9 million. The Malawi Poverty and
Vulnerability Assessment (PVA) at the time of appraisal showed that the percentage of the
population living below the poverty line was around 52 percent in 2004/05. The per capita Gross
National Income (GNI) was estimated at US$170.
6. Economic diversification through an increased share of the industrial sector was
constrained by high interest rates, transport and energy costs. 3 Under President Bingu wa
Mutharika, who came into office in 2004 and was re-elected for a second term in 2009, improved
macroeconomic management placed Malawi on a path for faster economic growth. The growth in
real Gross Domestic Product (GDP), which averaged 1.5 percent between 2001 and 2004, increased
to an average of around five percent between 2005 and 2006. However, the economy remained
largely agrarian, with agriculture contributing to 80 percent of the workforce and 80 percent of the
foreign exchange earnings. Malawi’s economic activities and exports were narrowly concentrated
on agricultural commodities (tobacco was the main export) and thus remained highly vulnerable to
rainfall and weather shocks, resulting in variable growth rates and low foreign exchange reserves.
7. The Malawi Growth and Development Strategy (MGDS), 2006-2011, explicitly mentioned
the Mozambique/Malawi interconnection project as contributing to the objective of improving
access to reliable and affordable electricity to stimulate economic growth. The six key focus areas
for the Government’s development strategy were: energy generation and supply; agriculture and
food security; infrastructure development, irrigation and water development; integrated rural
development; prevention and management of HIV AIDS; and improved governance. The 2006
Investment Climate Assessment carried out by the World Bank identified the quality of electricity
supply as the fourth most serious constraint for businesses.
8. The Electricity Supply Corporation of Malawi (ESCOM) was (and is) the sole electricity
utility in Malawi. ESCOM, a vertically integrated, government-owned electric utility, had about
175,000 customers and 284 MW of installed hydropower capacity in 2006 (with less than 260 MW
of capacity available for distribution at peak times, of which about 40 MW of capacity was
unavailable at the time due to damage resulting from flooding of the Shire river).4 The peak demand
was about 250 MW in 2006 with an expected growth of about five percent annually over the
following decade. Only about six percent of the population had access to electricity (this has
increased to about 10 percent by 2016).
9. Malawi was also vulnerable to a drought-induced power crisis due to its dependence on
run-of-river (ROR) hydropower plants on the Shire River (98 percent of the installed capacity).
ESCOM prepared an Integrated Resource Plan in 2005, which recommended further expansions of
domestic generation capacity situated on the Shire River and thus would not reduce the drought-
vulnerability of the power system. Climate change was expected exacerbate this vulnerability due
to increased drought stress in sub-Saharan Africa.5
3 Malawi Growth and Development Strategy (MGDS), 2006-2011. 4 Malawi now has an installed capacity of approximately 350 MW. 5 The issue of excess demand and drought-vulnerability has remained unaddressed since the time of the
project appraisal and since then the situation has deteriorated as the country continues to rely primarily on
3
10. In recognition of these issues, Malawi developed a power sector strategy that was designed
to put in place measures to mitigate the consequences of a severe drought, and increasing access to
reliable and affordable electricity supply. Key elements of Malawi’s strategy in 2006 included: (i)
implementation of the interconnector with the SAPP network by 2010 as the least-cost option for
mitigating the risk of drought-related power crisis, and facilitating the import of electricity as
needed and export electricity when available; (ii) expansion of low-cost domestic generation
capacity by 2011; (iii) further addition to available capacity of 30 to 50 MW by 2015. Based on the
Integrated Resource Plan for the Malawi Power Sector, further regional imports were expected to
be the least-cost option for this next increment of supply.
11. While identifying the Mozambique-Malawi interconnector as a key investment, the drive
for domestic power generation was strong at the time of appraisal. In the updated Integrated
Resource Plan, published in 2011, it is evident that Malawi has been planning to develop new
generation facilities based on its domestic hydro and coal resources.
12. Development of the power system was partly constrained by the relatively weak financial
situation and commercial performance in the power sector. ESCOM had not been achieving
financial sustainability and was unable to meet all cash flow requirements from its cash inflows. In
response, a Financial Sustainability Plan that included elements of improved efficiency and tariff
adjustments was proposed. This was expected to be funded by the project and was expected to
improve the capability of ESCOM for implementing the power sector strategy and for meeting the
associated financial obligations.6 Implementation of the plan was seen as critical to sustaining the
benefits of the interconnector and was thus included as a legal covenant in the project at appraisal.
Mozambique Context
13. Between 1996 and 2005, following the end of the war in 1992, Mozambique’s economy
grew at an average of eight percent per year. The poverty headcount index fell from 69 percent in
1996/97 to 54 percent in 2002/03, and GNI per capita was US$389 in 2006. Economic expansion
had been made possible by overall macroeconomic stability, sound policy reforms, and continuing
strong support from development partners.
14. Drivers of economic growth in Mozambique were infrastructure development, mining,
energy, manufacturing mega-projects, agriculture and, increasingly, tourism. These activities were
expected to facilitate rural development, a central theme of the country’s second Action Plan for
the Reduction of Absolute Poverty (PARPA II), defined by the council of ministers. The priorities
in the PARPA II were improved governance, increased human capital, and economic development.
A significant theme of the country’s economic development strategy was to ensure access to basic
services, such as water and electricity for rural communities, in order to promote economic growth.
15. The power sector in Mozambique was dominated by EdM, a vertically integrated,
government-owned electric utility. In 2006, EdM had installed hydropower capacity of 140 MW
(of which 86 MW was available) and 109 MW in thermal power stations (of which 82 MW was
available). Peak demand in Mozambique was 350 MW. EdM bought most of its power supply (300
hydropower. Certain parts of the country now experience eight hours of load shedding per day, and the
country has an estimated suppressed demand of 300 MW. 6 With delays in effectiveness of Malawi’s credit (and ultimate cancellation), a Public Private Infrastructure
Advisory Facility grant was obtained to support the ESCOM financial sustainability plan in 2009.
4
MW) from HCB in Tete province. Cahora Bassa had an installed capacity of 2,075 MW (5 x 415
MW), the majority of which was exported to South Africa and Zimbabwe.
16. Mozambique’s load growth was projected at eight percent in 2007, seven percent annually
from 2008 to 2010, and five percent thereafter. At the time Mozambique’s transmission grid was
already interconnected with Zimbabwe, South Africa, and Swaziland. About eight percent of the
population had access to electricity. Since then, electricity access in Mozambique has increased to
approximately 26 percent.
17. To meet the growth in domestic demand and planned new industrial demand, the
Government planned significant new generation and transmission infrastructure with considerable
private sector participation. The Government had begun the process of selecting private sector
strategic investors for three new generation projects and large transmission projects, which at the
time required investments of around US$4 billion. Through some of these projects, EdM had gained
technical and institutional capacity to implement large transmission projects, including
interconnectors.
18. At the time of appraisal, Mozambique had adopted a power sector strategy that focused on
(i) rapid expansion of access to electricity though grid intensification, grid extension, and off-grid
approaches; (ii) rehabilitation of existing hydropower plants; and (iii) development of new power
generation through private sector and public-private partnerships. These objectives were largely
achieved, as demonstrated by the improvements in the power system grid and scale-up of electricity
access in Mozambique.7
19. Mozambique’s strategy included a focus on expanding opportunities for power trade to
optimize the use of domestic hydro resources as well as bolster foreign exchange earnings. Key
interconnection routes included the Mozambique-Malawi transmission interconnector. It was
envisaged that, in the future, the Mozambique-Malawi interconnector could be extended east across
southern Malawi into northern Mozambique. This extension of the interconnection would
significantly improve the quality, quantity, and reliability of supply to the north of Mozambique,
where demand for power was growing. The extension of the power transmission line into northern
Mozambique was not thoroughly studied during project preparation in 2006. This was partly
because the rapid load growth in Nacala and Pemba areas in northern Mozambique was not
foreseen. This growth began at the time of the later gas discoveries in the north of Mozambique.
Therefore, at appraisal, extension of the line was envisaged for the future.
20. Despite the surplus in power generation, the transmission infrastructure in Mozambique
was not adequate for the high-volume power flows. Some regions in northern Mozambique
experienced low quality of supply. Aging equipment was often overloaded and needed to be
replaced. The requirements for grid improvements in Tete province were already known and
upgrades at the Matambo substation, serving the province, were envisaged as part of the
Mozambique-Malawi interconnector.
7 The national grid is extended to all 152 districts in the country and the peak demand for EdM has risen to
680 MW. Power generating capacity has also increased with the installation of new gas fired independent
power projects. The country now has a surplus capacity, which it sells to the region through the SAPP market.
5
Rationale for Bank Involvement
21. The Bank had committed to lend long-term support to both SADC and the New Partnership
for Africa’s Development (NEPAD) initiatives to promote electricity trade in the region, through
the approval of the Southern African Power Market Program (SAPMP) Adaptable Program Loan
(APL) in 2003. In this context, the Bank was requested by the Governments of Malawi and
Mozambique to finance the Mozambique- Malawi Transmission Interconnection Project.
22. The project was a key element in Malawi’s MGDS 2006-2011 for ensuring adequate,
affordable electricity to support expanded access and economic growth. The project benefited
Mozambique by providing a source of new revenues. It was also a key step in EdM’s medium-term
plans to improve the reliability of supply to Northern Mozambique. An additional benefit of the
interconnector was that Malawi would be able to sell off-peak energy that would otherwise be
spilled, either into the SAPP STEM or under short-term bilateral contracts with Mozambique or
other SAPP members. It was expected that Malawi would generate new revenues from such power
export, and nearby countries in the SAPP would potentially benefit from importing low-cost
electricity from Malawi.
1.2 Original Project Development Objectives (PDO) and Key Indicators
23. The project consisted of a US$48 million equivalent Credit to Malawi and a US$45 million
Credit to Mozambique. At the time of approval by the Board, the PDO was stated in the Financing
Agreement as follows:
24. “The objectives of the Project are to support the Recipient’s efforts to implement
Mozambique-Malawi Interconnector as part of the Southern African Power Pool, and to: (i)
increase access to diversified, reliable, and affordable supplies of energy; and (ii) expand
opportunities to benefit from Southern African regional power trading.”
25. The PDO in the Project Appraisal Document (PAD) was worded slightly differently: “To
implement the Mozambique-Malawi transmission interconnection (i) to increase access
to diversified, reliable, and affordable supplies of energy; and (ii) to expand Malawi and
Mozambique’s opportunities to benefit from bilateral and regional power trading on the Southern
African Power Pool.” As regional power trading encompasses bilateral trade, the PDOs were not
substantively different.
26. The key indicators for the above objective were the following:
Malawi: Volume of trading via interconnector (GWh).
Mozambique: Volume of trading with Malawi via interconnector (GWh).
Decreased deficit in case of drought in Malawi;
EdM incremental earnings from ESCOM payments associated with use-of-transmission
line.
1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and
reasons/justification
27. In April 2013, project was restructured for the first time, in order to drop the investments
associated with the regional (interconnector) transmission line. With the failure of Malawi to sign
its Credit Financing Agreement (more in Section 2 below), the focus of the restructured project
6
shifted to investments to upgrade Mozambique’s transmission infrastructure in the fast-growing
Tete province (transformer upgrade Matambo substation in Tete province was already part of the
original project). The restructuring was thus both “corrective” and “adaptive” in that it reoriented
the focus of the project based on the changed circumstances and improved implementation
performance.
28. As part of the restructuring, the PDO was revised to the following: “To reduce the
frequency of electricity outages in Tete province.” The project closing date was also extended by
18 months, from June 30, 2013 to December 31, 2014.
29. The achievement of the new PDO was directly linked to the transformer upgrade at
Matambo substation (the only transmission substation serving Tete province). With the change of
the PDO and the project scope, all results indicators for the activities related to the regional
infrastructure investments were dropped, and the restructured project only had one PDO level
indicator:
SAIFI (system average interruption frequency index) for Matambo customers;8
o Customers served in the project area (supplemental indicator).
30. In November 2014, the project was restructured a second time, with no change to the PDO.
This “opportunistic” restructuring was the result of savings under the main contract for the
Matambo transformer upgrade due to the competitive bidding process. This allowed for the
upsizing of the transformer at Matambo as well as the purchase of additional critical equipment for
the Tete region, namely the purchase of a second transformer for the Tete substation and a mobile
substation to enable critical repair and maintenance work without causing a shutdown. As part of
the restructuring, the closing date was extended by a further 18 months, to June 30, 2016. The PDO
indicators were updated to include core sector indicators (the existing PDO indicator was dropped
and replaced by a core sector indicator, and other core sector indicators were added). The
restructured project in the 2014 thus had the following PDO indicators:
Average interruption frequency per year in the project area;9
o Customers served in the project area (supplemental indicator).
Direct project beneficiaries;
o Female beneficiaries (supplemental indicator).
31. There were 16 intermediate indicators in the original project. These were all dropped in
2013 at the time of the first restructuring, and two revised intermediate indicators were added.
During the second project restructuring another two intermediate indicators were added.10 Target
values for existing indicators were not revised at any point in the project. The list of PDO and
intermediate indicators, along with targets and achievements, are presented in section F of the
datasheet.
8 SAIFI is a commonly used metric in the electricity sector. It is measured as the customer-weighted average
of “sustained interruptions” in year. This indicator was initially incorrectly defined in the restructuring paper
(details in section 2.3). 9 This was a core sector indicator that replaced the earlier SAIFI indicator. 10 The intermediate indicators included post restructuring are further discussed in section 2.3, in addition to
section F of the datasheet.
7
1.4 Main Beneficiaries
32. As stated in the PAD, the primary beneficiaries of the project included the businesses and
citizens [of Malawi and Mozambique] who would have increased and more reliable access to
electricity as a result of electricity trade between Mozambique and Malawi and the SAPP. By
implication, intermediate beneficiaries would also be the electricity utilities in the two countries –
ESCOM and EdM – who would gain from lower cost of power purchase and increased sales
revenues, respectively.
33. The main beneficiaries of the restructured project were not explicitly defined in the
restructuring paper. However, the number of customers served and “direct project beneficiaries”
were included in the results framework of the restructured project. As a result of this, the main
project beneficiaries are interpreted as:
The electricity customers in the Tete province, especially the households and businesses
that would benefit from a more reliable power supply.
EdM, through the strengthening of its network and a reduction in costly outages.
1.5 Original Components
34. The original components at project approval included the regional interconnection and
related transmission infrastructure upgrades.
35. Component A. (US$47.1 million for Malawi, US$43.5 million for Mozambique):
Construction of the transmission interconnection from the Malawi electricity grid to the
Mozambique electricity grid, thereby interconnecting Malawi with the Southern Africa Power Pool
network. On the Malawi side, this would include construction of approximately 76 kilometers of
220 kV transmission line, installation of a new 220 kV substation and the studies, works,
engineering, and project management support required to complete the interconnection. On the
Mozambique side, this would include construction of approximately 134 kilometers of 220 kV
transmission line, the extension of the existing Matambo substation, and the studies, works,
engineering, and project management support required to complete the interconnection.
36. Component B. (US$2.9 million for Malawi, US$1.7 million for Mozambique): Technical
assistance, capacity building, training and equipment necessary for ESCOM and EdM to strengthen
and expand power trading activities. For Malawi the activities included rehabilitation and
reinforcement studies for generation, transmission, and distribution; development of revised system
operating and maintenance procedures and practices; studies and equipment to support improved
ESCOM financial performance, and training in the areas of environmental and social management,
project management, electricity trading and system operation. For Mozambique the activities
included a feasibility study for extension of the interconnection to the northern region of
Mozambique and technical assistance and training in the areas of environmental and social
management, loss reduction, project management, electricity trading and system operation.
37. Component C. (US$9.9 million for Malawi, US$4.6 million for Mozambique):
Investments to replace worn-out, inadequate, or obsolete equipment to remove critical bottlenecks
in the networks which could impede the flow of traded electricity. For Malawi, investments would
include replacement of digital excitation equipment, circuit breakers and other switchgear, control
and protection equipment, and some critical communication links for better system operation
control. For Mozambique the project would support the provision of a new 220/66/33 kV power
8
transformer at the Matambo substation and connecting the new transformer to the 66 kV and 33 kV
systems.
1.6 Revised Components
38. In the first restructuring in 2013 the components were revised and focused on reducing the
frequency of outages in the Mozambique network in Tete province. Under the restructured project,
the only infrastructure investment was the installation of the transformer at Matambo substation
(part of component C in the original project).
39. Component A: Consulting Engineering Services (US$0.8 million, excluding
contingencies). This component included consulting services and provision of technical assistance
to assist EdM with engineering, technical, procurement, and environmental and social aspects
associated with the Matambo substation works.
40. Component B: Capacity Building and Technical Support to EdM (US$1.6 million,
excluding contingencies). This component continued to finance system planning and operation
studies for EdM, through the provision of technical advisory services and training, including inter
alia in environmental and social management, loss reduction, project management, system
operation and other areas. As part of this, Component B continued to support the Environment and
Social Impact Assessment (ESIA) for the proposed Mozambique Regional Transmission
Development Project (P108934).
41. Component C: Improved Transmission Infrastructure (US$10 million, excluding
contingencies). This component ensured that the Matambo substation had sufficient power
transformer capacity for the rapidly growing electricity loads in Tete province. The scope of work,
which had already been appraised as part of the original project preparation, covered the
rehabilitation and reinforcement of the existing 220 kV Matambo substation including the provision
of a new 220/66/33 kV (80/60/20 kVA) power transformer, the connection of the new transformer
to the 66kV and 33 kV busbars at the substation, and the carrying out of associated civil, control
and protection works at the substation.
42. As part of the second restructuring in 2014, the amounts allocated to Components A, B and
C were revised to US$0.12 million, US$1.58 million, and US$7.85 million, respectively, as a result
of savings experienced. A Component D was added to the project, with the savings allocated to it
to support: (i) reinforcement of the existing Tete Substation (downstream from Matambo),
including the provision of a new 66/33 kV, 50 MVA power transformer and respective switchgear;
and (ii) provision of a 220/33 kV, 25 MVA mobile substation to be used whenever there are faults
in the overloaded network.
1.7 Other Significant Changes
43. Funds reallocation. A third restructuring (level 2, simple) was implemented in June 2015
to reallocate resources between disbursement categories to meet project commitments related to
technical support to EdM on the works being performed at Matambo substation.
44. Project closing date extension. A fourth restructuring (level 2, simple) was implemented
in June 2016 to extend the project closing date from June 30, 2016 to August 31, 2016. This was
in part due to an unexpected delay in the shipment from China of a transformer for Tete because
9
the transformer was too heavy for the scheduled ship, which could have endangered the navigability
of the ship. In total, the project was extended by three years and two months.
2. Key Factors Affecting Implementation and Outcomes
2.1 Project Preparation, Design and Quality at Entry
Preparation
45. The Mozambique-Malawi Transmission Interconnection Project was developed as the
second phase of the Southern African Power Market Program (SAPMP). SAPMP was approved in
2003 as a 10-year, three-phase Adaptable Program Loan (APL) in response to the growing demand
for regional power grid integration, and the overall objective of facilitating the development of an
efficient regional power market and fostering regional integration.11
46. The overall objectives of the project were closely aligned with Malawi’s aim of
interconnecting itself to the southern region electricity power pool,12 and with Mozambique’s goal
of improving its integration into the regional economy by strengthening power trading in the SAPP
and the expansion of access to electricity through grid intensification and grid extension.13
47. The project was well prepared, and benefited from extensive consultations between EdM,
ESCOM, HCB, and the World Bank, with active participation of the Governments of Mozambique
and Malawi during bilateral and/or joint meetings throughout project preparation and design.
48. The PAD for the APL-1 (P069258, 2003) had identified specific triggers for the
International Development Association Board to consider in the subsequent phases of the APL.
The triggers for the Mozambique-Malawi Transmission Interconnection project (APL-2) were: (i)
completion and disclosure of the environmental assessments, resettlement action plans, and any
required mitigation plans for both Mozambique and Malawi portions of the project; (ii) completion
of bidding documents for major contracts; (iii) completion of an implementation agreement
between EdM and ESCOM; and (iv) completion of a power purchase agreement (PPA) between
ESCOM and the supplier of power.14 Therefore, satisfying these triggers was an integral part of
project preparation.
49. To this end, the Bank provided the Governments of Malawi and Mozambique with Project
Preparation Facility (PPF) funding of US$730,000 and US$510,000, respectively. These funds
were used for hiring consultants for the preparation of technical design, environmental and social
impact assessments, and the tender documents for the major components in each country. The
feasibility studies for the interconnector line and the corresponding transmission substations were
also completed.
50. On the technical side, project components and activities were agreed upon, and alternative
transmission line routes were evaluated. Four other key agreements—the project implementation
11 The first phase included the Democratic Republic of Congo-Zambia interconnector, and the third phase
envisages the Tanzania-Zambia interconnector. 12 Malawi Growth and Development Strategy 2006-2011, page 14. 13 Mozambique Poverty Reduction Support Strategy 2006-2009 (PARPA II). 14 SAPMP APL1 PAD, pages 12-13.
10
agreement, maintenance agreement, system operating agreement, and wheeling agreement— were
also substantially prepared during the preparation phase.
51. Lessons from prior regional cross-border transmission projects, such as the Costal
Transmission Backbone Project of the West African Power Pool) APL (P094917, 2005) and the
SAPMP-APL1 (October 2003), as well as lessons from previous power sector experiences in
Malawi were taken into account.
52. An important lesson from SAPMP APL-1 was to ensure that a firm PPA was in place
between ESCOM and the energy supplier. 15 Therefore, the signing of a firm power supply
agreement (PSA) between ESCOM and a power supplier was actively pursued by all parties
throughout project preparation. However, the PSA negotiations between ESCOM and HCB did not
lead to an agreement during their 2004-2007 discussions. The ‘take or pay’ clause of the agreement
was one of the key outstanding issues, which delayed the project preparation. Therefore, to move
the project processing forward, the Bank decided to drop this requirement prior to appraisal.
53. Even in the absence of a PSA, the Bank assessed a strong justification for the project for
Malawi based on improved energy security due to a diversification of energy supply and enabling
future trade in electricity though the SAPP. 16 The lack of a signed PSA implied that the costs and
quantities of available electricity to ESCOM were no longer firmly fixed or predictable and also
signaled the reservations of the Government of Malawi from fully committing to the project and
the risk of their future withdrawal. Since a PSA represents a commercial contractual agreement
between a buyer and seller, its absence meant that any party could pull out without any financial
consequences.
Design
54. The project design was simple and realistic, and consisted of the required activities for
achieving the PDO. The project activities were directly relevant to the achievement of the stated
objectives, as they would (a) establish the necessary transmission line interconnector and associated
substation links, (b) provide the necessary technical assistance to ESCOM and EdM to support the
sustainability of the project outcomes, and (c) help remove infrastructure bottleneck that could
impede power trade.
55. Technical design of the project was sound and based on proven technology. The design
was based on a feasibility study carried out by international consultants in 2005, and updated in
2007. A double circuit 220kV line was proposed as the most suitable alternative that could meet
the network stability requirements of such a long interconnection between the relatively vulnerable
grid systems of Malawi and Mozambique. The proposed interconnector was designed with
adequate transmission capacity to facilitate bilateral and regional power trade as intended.
56. Implementation arrangements were reasonably structured at three levels: (i) a joint
Mozambique-Malawi Project Steering committee; (ii) a joint EdM-ESCOM project coordination
committee; and (iii) separate PIUs at EdM and ESCOM, respectively. The project monitoring
15 See, for example, Minutes of Pretoria Meeting, November 26, 2004. 16 “While we still see some clear advantages to having a Power Supply Agreement in place, there is recognition that the
Government has reservations in this regard. We view the interconnector as an important project for Malawi both from
the point of view of energy security and in terms of promoting trade in electricity, and these considerations provide a
strong justification for proceeding with the project even in the absence of a PSA.” Excerpt from World Bank letter to the
Government of Malawi’s Minister of Finance, February 22, 2007.
11
arrangements were adequate for monitoring implementation progress, and the key indicators were
well designed to capture the project outcomes.
57. The economic case for the project was strong (based on the assumed energy costs). The
economic aspects of the proposed interconnector investments in Mozambique and Malawi were
analyzed over a 30-year period (2007-2037) resulting in an estimated a net present value (NPV) of
about US$361 million, and an economic internal rate of return estimated at 28 percent. Therefore,
the rates of return were shown to be robust and satisfactory.
58. However, the economic and financial analysis of the project during appraisal did not
adequately reflect the change in expected electricity flows in the absence of a firm PSA. The
analysis assumed that the price and quantity of electricity purchased by ESCOM would be fixed as
per the draft PSA, rather than variable (and uncertain) based on contemporaneous demand and
market prices. The analysis also did not consider the investment costs associated with components
B and C of the project, which included the Matambo substation.17
Government Commitment
59. Throughout preparation, there was adequate evidence of commitment and ownership of the
project by both Governments. The Governments of Mozambique and Malawi were signatories to
the SAPP inter-governmental MOUs, setting the framework for interconnectors and regional power
trade. The two Governments had also signed a bilateral agreement in 1998 to enable Malawi to
trade electricity with Mozambique, or any of the SAPP members through a high voltage
transmission interconnector. Both Governments had formally requested the Bank’s financial
support for the preparation and implementation of the proposed project in 2003-2004 (for PPFs)
and 2006 (for IDA funding), respectively.
60. Ministerial level representatives of both Governments were also active participants in the
Joint Project Steering Committee, which had contributed to the progress of project preparation
issues requiring Governmental approval. In addition, the Ministers of Finance and Energy of
Malawi and Mozambique had consistently expressed their respective Government’s support for the
project to the World Bank throughout preparation (and after Board approval).
61. However, there were also lingering concerns on the part of some government officials in
Malawi regarding (i) the “take or pay” clause in the PSA between ESCOM and HCB; and (ii) the
terms of the ‘Wheeling Agreement” between ESCOM and EdM, requiring fixed monthly payments
for the use of the Mozambique part of the interconnector. 18 These concerns were initially
considered as acceptable at the technical level but, over time, and particularly after the Board
approval of the project, they proved to be critical factors in the eventual decision of the Government
of Malawi not to sign the Financing Agreement.
17 PAD, Annex 9, footnote 41, page 72. 18 This payment was essentially a “financing payment” to EdM for the Mozambique portion of the line, which
was calculated based on a formula which compensated EdM for the capital investments, plus the five percent
on-lending interest paid by EdM to GoM, plus a six percent top-up to compensate EdM other costs incurred
during line operations, plus operations and maintenance costs of the Mozambique portion of the
interconnector line.
12
Adequacy of Risks Assessment and Mitigations
62. Key institutional and operational risks were adequately identified at appraisal and various
risk mitigation measures were adopted. The risk of ESCOM’s failure to service its debt on the on-
lent Credit was the only risk rated as substantial. The proposed mitigation was to ensure that both
ESCOM and the Government of Malawi were committed to the development and implementation
of a Financial Sustainability Plan, which would be designed to enable ESCOM to cover cash
operating costs and all debt service requirements. Technical risks associated with operation and
maintenance of the interconnector transmission line and power trade were to be mitigated by
providing technical assistance, training, and equipment for hot-wire maintenance, as well as
capacity development in power trading for ESCOM (EdM was already one of the major traders on
the SAPP STEM). Other risks were rated as moderate or low, and the overall project risk was rated
as Moderate.
63. The institutional project risks were correctly identified, but some country specific risks
were not anticipated. For example, although Malawi’s reluctance / refusal to sign the Financing
Agreement could not be reasonably foreseen by appraisal, there were some early signs of concern
since there had been ongoing debates in Malawi for some time on the priority of developing
domestic hydro generation plants on Shire River versus construction of the interconnector link to
Mozambique and SAPP. Nevertheless, no risks associated with the political economy issues (e.g.,
opposition to the project from certain sections due to perceived reliance on foreign sources of
energy, potential change in political buy-in to the regional interconnector, pressures from a change
in the political environment) were identified or discussed in the project documents. 19
64. Also, as ESCOM and HCB did not sign the PSA by the time of Board approval, the risk to
energy availability and financial viability of the project in the absence of a firm PSA, should have
been explicitly assessed in the project documentation.
65. The overall risk was rated as Moderate at entry. Had other risks, such as the lack of a
substantially agreed upon PSA (or a Term Sheet), and the reluctance of Malawi to enter into a take-
or-pay agreement been considered adequately, it may have resulted in a higher rating for the overall
risk and prompted appropriate mitigation measures.
66. A Quality Enhancement Review meeting was held on February 15, 2007, which provided
useful comments and suggestions to the team. The Quality Assurance Group (QAG) did not review
this project at entry. However, QAG did review this project as part of its Learning Review of
Regional Projects in October 2010, giving it an overall risk rating of high.
19 Notwithstanding Malawi’s specific reasons at the time for eventually giving priority to domestic power
generation development as opposed to the proposed interconnector, the sentiment seems to be more prevalent
among many countries. For example, a recent study of regional integration in Southern Africa finds that:
“One of the most challenging aspects of regional energy integration is whether power trade is deemed
politically acceptable, especially in importing countries (McKinsey & Company, 2015). For potential
importers, the main concern is security of supply. They need to have confidence that exporting countries
within a regional power trade arrangement will continue to supply electric power in a predictable and reliable
way, or not use it as a political or diplomatic pressure tool.” Vanheukelom. Jan and Talitha Bertelsmann-
Scott, 2016.
13
2.2 Implementation
67. After the Board approval of the project in July 2007, the Malawi portion of the Credit
required parliamentary approval before the Government could sign the Credit Agreement.
However, shortly after Board approval of the project, the parliament in Malawi was suspended for
over 18 months, and was subsequently dissolved until elections in May 2009.
68. By this time, various concerns had been raised by some key Malawi officials in relation to
the “take or pay” terms in the PSA between ESCOM and HCB, and the financial terms of the
Wheeling Agreement. There were also reservations expressed that the approval of the
interconnector may diminish Malawi’s chances for mobilizing the necessary financing for the
development of domestic generation projects, such as the proposed 64 MW Kapichira II plant on
the Shire River.
69. Several attempts were made by the World Bank – including a meeting with the President
of Malawi in 2009 – to address these concerns and to demonstrate the project’s importance for
Malawi’s security of power supply. However, in the end, after three years of mutual effort and
several extensions of the signing deadlines, the Government of Malawi informed the Bank that it
would not be signing the Financing Agreement. The Bank subsequently withdrew the Credit to
Malawi in July 2010.
70. While waiting for Malawi to sign the Credit, the implementation of major activities under
the Mozambique part of the project (aside from some consultancies) had been effectively on hold
due to the following factors:
(i) the disbursement cross-conditionality in Mozambique’s Financing Agreement, which
required the Malawi Credit to be effective before Mozambique could withdraw any funds
allocated for the interconnector part of the project; 20 and
(ii) the combined-packaging of the interconnector related substation extensions (under
Component A) and the local Matambo substation transformer upgrade (under Component
C) in a single bidding document, which effectively prevented the implementation of the
local portion of Matambo substation works from proceeding independently of the
interconnector related activities.
71. Due to these requirements, even though the procurement of the works contractor on the
Mozambique side was largely complete by 2009 – only awaiting signing – EdM had to wait for
Malawi’s decision to sign the Credit (or not) before moving forward.
72. Following the withdrawal of the Malawi Credit, processing of the restructuring was
delayed extensively as a result of internal Bank deliberations during FY11-FY12. The
Implementation Status and Results (ISR) just following Malawi’s withdrawal, and subsequent
ones, stated the intention to restructure the project to focus on the Matambo transformer and EdM
capacity building.21 However, the Bank’s internal deliberations on how to proceed in this case took
more than two and a half years to agree on and implement the restructuring option. Concerns
regarding overall portfolio quality and selectivity in resource allocation underpinned the discussion
on whether the project should be cancelled, restructured as a stand-alone project, or incorporated
20 See SAPMP APL-2 Financing Agreement, Schedule 2, part B.1.(b), page 15. 21 See ISRs sequence 6 to sequence 10, dated June 2010 through March 2013.
14
into another existing project. During this time (FY2011 and FY2012) no supervision budget was
allocated to the project, which also hindered the ability of the Bank team to implement the
restructuring (ISR Sequence 8).
73. In parallel with the restructuring deliberations, the Matambo substation contract was
revised to remove the interconnector related activities and re-bid. This process also took a
considerable amount of time from withdrawal of the Malawi credit to the commencement of the
rebidding – over two years.22 This delay too coincided with the lack of allocation of a supervision
budget for the project.
74. Up until the first restructuring, implementation progress had been slow and limited in
scope, and only about US$2.9 million out of the initial US$45 million Credit for Mozambique (or
6.4 percent) had been disbursed. By the end of this period (prior to the first restructuring), the ISR
ratings of the project were mostly unsatisfactory due to the withdrawal of Malawi Credit and
consequent inability to achieve the original PDO.
Project Restructuring
75. The project went through four restructurings in total, starting with a level one restructuring
and followed by three level two restructurings. The first restructuring made significant changes to
the project design and financing. It removed the project from the SAPMP APL series and created
a stand-alone Specific Investment Loan (SIL) operation for Mozambique. The project name was
changed to “Mozambique Transmission Upgrade Project (TUP).”
76. The restructuring cancelled the US$31.2 million (SDR 20.5 million) Mozambique’s
regional IDA allocation for the cross-border transmission components of the original project, and
retained only the activities unrelated to the cross-border transmission line, particularly the
reinforcement of the main transmission substation at Matambo in Tete province.23 This brought
total project commitment amount to US$13.8 million (SDR 9.1 million). The closing date of the
project was extended by 18 months, from June 30, 2013 to December 31, 2014.
77. The first restructuring paper highlighted the growing electricity demand in Tete province,
suggesting that there had been a 22 percent annual demand increase during the preceding four years
(equivalent to over 200 percent increase over four years), and emphasized the urgency of the
required transformer capacity upgrades to address the frequent network overloads and to meet the
growing electricity demand in the region. The focus of the restructured project was, therefore,
relevant in view of the demand for electricity.24
78. The procurement of the contractor for the supply and installation of the Matambo
substation transformer and the corresponding supervision consultancy suffered numerous delays,
but implementation progress improved after contract signing in May 2013 and September 2013,
respectively. These contracts totaled US$9.5 million (69 percent of the restructured amount). A
significant source of delays was the long time required for contract approval by the Commission
22 The contract was subsequently awarded in May 2013, almost three years after the withdrawal of the
Malawi credit. See section 2.4 (procurement) for more details. 23 The credit offer to Malawi was withdrawn in July 2010, after the Government of Malawi decided not to
sign the Financing Agreement. 24 However, adequate background analysis and a cost-benefit analysis of the investments were not provided
in the project restructuring paper.
15
for Foreign Economic Relations (CREE),25 resulting in an extension in the project closing date.26
Project implementation planning could have benefited from identifying this potential source of
delay and incorporating it into the procurement clearance schedule of major packages based on
CREE’s track record.
79. The period between the first and second restructuring coincided with a change of the World
Bank’s project Task Team Leader (TTL), with interim TTLs taking over during the transition
period. This impacted the continuity in supervision and coincided with delays in the signing of the
amended legal agreements and disbursements related to the Matambo rehabilitation contract.27
80. During the Mid-Term Review of the project in March 2014, the Government and EdM
requested the use of project savings of about US$4 million to incorporate additional activities that
were consistent with the PDO and could be completed within the extended project closing date,
including the purchase of an additional transformer for Tete, and a mobile substation for system-
wide use.
81. To incorporate new investments from the project savings, the second restructuring of the
project took place in November 2014. It included (i) a further 18 month extension of the closing
date to allow for completion of the delayed Matambo substation upgrades; (ii) addition of a new
project component, Component D (using the project savings to purchase a mobile substation and a
transformer for Tete substation); (iii) creation of one new disbursement category; (iv) reallocation
of funds among components and categories; and (v) alignment of project indicators with the core
sector indicators and adjustment of targets. The PDO and other aspects of the project remained
unchanged. The changes to project indicators are discussed further in Section 2.3 below.
82. The above considerations notwithstanding, project implementation showed noticeable
signs of gradual improvement. With all major contracts for the old and new activities already
signed, the main attention of EdM and the Bank team shifted to the monitoring of the manufacturing
and delivery schedules for the large transformers and the mobile substation, status of shipping
arrangements, and other implementation details. Various factors beyond the control of EdM or the
Bank continued to create implementation delays, including an unexpected delay in the shipment of
the Matambo substation transformer from Europe to Mozambique, failure of the mobile substation
equipment during factory acceptance testing, a fire at the contractor’s premises in Beira, and a delay
in shipping the transformer for Tete substation from China as the equipment was too heavy for the
assigned ship.
83. Given the above factors, a two-month extension of the closing date was approved by the
Bank, to allow sufficient time for the shipment of the remaining equipment, for which EdM would
otherwise be liable to cover US$2.7 million in costs, which neither EdM nor the Government of
Mozambique were in a position to cover if the project were closed.
84. By the project closing date, the new 220/66/33 kV transformer for Matambo substation
was installed and commissioned in July 2016 and has been in operation since. The 66/33 kV
transformer for the Tete substation was delivered to site as required, and according to EdM’s
25 CREE consists of ministers and is chaired by the Prime Minister. CREE approves contracts above US$1
million. 26 ISR sequence 11 (November 2013) mentions the approval delays from CREE and the resulting delays in
making the down payment to the contractor to commence works. 27 As noted in the Aide Memoire of October 5, 2015.
16
schedule, it is expected to be installed in mid-2017. The mobile substation was tested and delivered
to site, but it has not been used in actual operation as of the writing of this ICR. All studies and
other project outputs were delivered prior to the closing date.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
85. The four outcome indicators for the project at appraisal were simple, attributable, and
measureable towards the stated PDO. The included indicators were: (1) Malawi: volume of trading
via interconnector, (2) Mozambique: volume of trading via interconnector, (3) Decreased capacity
deficit in case of drought in Malawi, and (4) EdM incremental earnings from ESCOM payments
associated with the use of transmission line. .28 However, one shortcoming was that while the PDO
specifically mentioned “access to diversified, reliable, and affordable” electricity, there was no
PDO level indicator measuring affordability.
86. The intermediate indicators selected were also appropriate for expected outputs and
intermediate outcomes of activities under each project component (see section F of the datasheet
for details).
87. The designed results monitoring system was simple and based on measurable outputs. The
respective Project Implementation Units (PIUs) were responsible for collecting and consolidating
the project monitoring data.29 Thus the proposed data collection and reporting methods and
arrangements were appropriate.
Post-Restructuring M&E
88. During the first restructuring, the interconnector activities were dropped, the PDO was
changed, and the results monitoring framework was modified to reflect the reduction in project
scope. All the intermediary indicators were based on the delivery and/or installation of an output.
89. After the first restructuring, the new PDO level indicator was the ‘System Average
Interruption Frequency index’ (SAIFI), which is a standard industry indicator for measuring system
reliability. However, this indicator was defined incorrectly in the restructuring paper as “the total
number of sustained interruptions in a year divided by the total number of customers.” The baseline
value of was 4.5 percent, and the target value was 3.5 percent.30 Two intermediate indicators were
also added during the restructuring, linked to Components C and D, respectively: (i) completion of
ESIA for the proposed regional Transmission Development Project; and (ii) new 220/66/33 kV
transformer installed and commissioned at Matambo substation.
28 Similarly, EdM’s incremental earnings would demonstrate that Mozambique was benefitting from power
trade with Malawi. 29 Such as annual reports, annual audit reports, PIU quarterly interim financial reports, quarterly reports from
supervision consultants, etc. 30 The industry standard SAIFI definition is: the average number of outages that a customer would experience
during a predefined period of time. The SAIFI is an index calculated using the following formula: SAIFI =
∑(OiNi) / Nt , Where, ∑ = Summation function; Oi = the outage rate in area i, Ni = Number of customers
interrupted in area i; Nt = Total number of customers served.
17
90. The second restructuring replaced the SAIFI PDO indicator with the appropriate core
sector indicator31: “Average interruption frequency per year in the project area (Tete)”.32 A second
PDO indicator, the required core indicator, “Direct Project Beneficiaries” was also added. Two
additional intermediate indicators were also added for Components C and D, respectively, as
follows: (i) level of charge at of the current transformer at Matambo, and (ii) new 220/33 kV 25
MVA mobile substation delivered. The latter was to record the completion of the new activities,
while the former indicator was included to help better measure the impact of the new Matambo
transformer. Overall, with the inclusion of the core sector indictors and the additional intermediate
indicators (especially the measure of charge at the existing transformer) during the second
restructuring improved the quality of the results framework. The indicator on the level of charge at
the existing transformer both provides an indication on the level of stress on the existing
infrastructure prior to commissioning of the new transformer, as well as the new transformer’s its
immediate impact after commissioning – the level of charge fell from 98 percent just prior to
commissioning to 45 percent just after.
91. This PDO indicator as defined in the results framework after the second project
restructuring was simple and measureable, but not adequately attributable to the project or precisely
defined. As the baseline and target values suggest, the indicator measured the number of
interruptions in the Tete region. This potentially included interruptions related to both distribution
and transmission infrastructure (including the Matambo transformer). Thus improvements in the
indicator value could result from downstream distribution system investments by EdM to improve
system reliability, which were not related to the project. This shortcoming in the indicator is evident
in the fact that the indicator value substantially improved (as reported in the ISRs) even before the
commissioning of the transformer. In fact, the value just prior to commissioning was already below
the stated target value (the reported value in March 2016 was 191 compared to the original target
of 411, see discussion in Section 3.2 below).
92. Intermediate indicators included component-specific output indicators, including that for
the new activities added under component D. An intermediate outcome indicator for the impact of
Matambo transformer was also added. To facilitate any future performance indicator changes, the
Financing and Project Agreements were amended to remove the listings or references to specific
indicators. However, while Component B still included capacity building and training for EdM, the
only activities monitored were consultancy report outputs, and there were no monitoring indicators
(nor any specifically defined activities) for EdM’s institutional capacity building or staff training.
Implementation
93. Since the Mozambique-Malawi Transmission Interconnection project did not materialize,
the M&E system as described in the PAD was effectively never implemented.
94. For the restructured project, while formal quarterly or semi-annual monitoring reports were
not submitted to the Bank, updates to the results indicator matrix were collected during missions
and recorded in the ISRs and Aide-Memoires. However, the updates to the indicators were not
regular; e.g., the value of the interruption frequency PDO indicator was not updated between March
2013 and December 2015. This did not significantly impact project implementation given (i) the
31 Core sector indicators were introduced by the Bank after the project’s first restructuring. 32 This is essentially equivalent to the SAIFI for customers served by the new transformer at Matambo, where
there is only one area, or i=1 in the definition above.
18
limited set of (and slow moving) activities under the project; and (ii) the presence of the TTL in the
field with almost daily communication with EdM.
95. Overall, the clarification of indicator definitions and list of the required data after the
second restructuring, which left the project with two main PDO level indicators and four
intermediate level indicators, had a positive impact on improved monitoring data collection during
the final stages of implementation.
Utilization
96. Aside from reporting purposes in the Bank ISRs, there seems to have been no utilization
of the periodically collected monitoring data under the project. This is not surprising, given the
limited number of activities and as most of the post-restructuring indicators were related to outputs
that materialized only at or near the end of the project. Therefore, these data were not relevant to
any decisions or resource allocations during project implementation.
97. No specific M&E arrangements were envisaged for long-term monitoring of project
outcomes, as the required data were a sub-set of the overall operational data (financial, technical,
outages, etc.) collected by EdM.
2.4 Safeguard and Fiduciary Compliance
Social and Environmental Safeguards
98. The original project was classified as environmental category B (Partial Assessment) and
triggered three safeguard policies. Environmental Assessment (OP/BP 4.01), Involuntary
Resettlement (OP/BP 4.12), and Natural Habitats (OP/BP 4.04) were triggered due to investments
in the regional transmission interconnection. The cross-border transmission line corridor between
Mozambique and Malawi passed mostly through agricultural land and brush-land of low
biodiversity value, and the project was deemed as not causing any significant environmental and/or
social/resettlement impacts in either country. The restructured project (2013) was of considerably
reduced scope with the removal of the cross-border transmission line and significantly reduced the
risks of any negative environmental and social impacts of the project. The restructured project was
geographically limited to the northwest region of Mozambique, near Tete, and all physical
implementation occurred within the existing substation area. The restructured project was
nonetheless maintained as environmental category B.
99. A Resettlement Policy Framework (RPF) and Environmental and Social Impact
Assessment (ESIA) were carried out as a part of the original project preparation. The RPF and the
ESIA were disclosed in Mozambique and at the World Bank Infoshop on January 9 2007. With
project restructuring, no modifications were required to the safeguards instruments as restructured
activities were not expected to have any additional environmental and/or social implications and
the environmental management aspects were handled according to the standards described in the
safeguards instruments. The contractor's bidding documents and contract included the obligation
to implement the Environmental and Social Clauses (ESC), related to construction activities, as
described in the ESIA and RPF. The Supervising Engineer's contract also included the requirement
to supervise the adequate implementation of these ESC, in compliance with the World Bank Group
General Environmental, Health and Safety Guidelines. The EdM Environmental and Social Unit,
with considerable experience with World Bank safeguards policies and environmental and social
19
national legislation, continuously carried out supervision of the implementation of the ESIA and
RPF requirements and specifically the contractor ESC and contractor ESMP.
100. The project was compliant with all applicable safeguards policies, and the overall
safeguards rating remained satisfactory throughout project implementation.
Procurement
101. The procurement rating at project close was satisfactory. EdM was able to complete all
planned procurement successfully and in full compliance with the World Bank Procurement
Guidelines, despite the initial challenges arising from the withdrawal of the Malawi Credit and
delayed project restructuring.
102. Prior to the withdrawal of the Malawi Credit in 2010, the limited procurement capacity of
EdM, ESCOM, and the design consultant, responsible for preparing the bidding documents,
resulted in some delays. However, some delays were due to the disbursement cross-conditionality
requiring the effectiveness of the project in Malawi as a disbursement condition for the
interconnector related procurements in Mozambique (and vice versa). On the Mozambique side,
EdM had already completed the bidding process for two contracts by 2009 – the Mozambique
portion of the interconnection line, and the supply and install package for the Matambo substation
transformer (which was combined in a single contract with the interconnector related substation
extension). However, EdM could not award the contract until Malawi’s credit became effective.
103. After the withdrawal of Malawi’s Credit in July 2010, EdM cancelled the awarding of the
interconnector line contract, and had to remove all the interconnector related parts from the
Matambo substation works package. By this time, the validity period of these bids had lapsed (it
had been more than 19 months since the selection of the winning bid) and a reduced scope of works
could not be negotiated with the lowest evaluated bidder.33 In light of this, as advised by the Office
of the Regional Procurement Manager of the World Bank, EdM requested the cancellation of the
existing procurement process for the Matambo substation works and rebidding (International
Competitive Bidding) of the modified contract. This process, from the withdrawal of the Malawi
Credit until the commencement of rebidding, took over two years.34 During this period, all project
monitoring indicators were rated unsatisfactory by default to reflect the inability to achieve project
goals due to the withdrawal of the Malawi Credit (as indicated in the ISRs). This was the case until
the project was formally restructured in January 2013 to drop the regional activities.
104. Post restructuring in 2013 (and subsequently in 2014), contract procurement performance
improved despite suffering some delays as discussed in earlier sections of the ICR. Procurement
performance was mostly satisfactory throughout this period until project close.
33 The prices were more than two years old and the offers had been made in a period of market uncertainty
(before the global recession). 34 The contract was subsequently awarded in May 2013, almost three years after the withdrawal of the Malawi
Credit. The delay is not well documented in the project documents, and since there does not seem to have
been formal missions at the time, there are no Aide-memories for this period.
20
Financial Management
105. The overall financial management performance was rated Moderately Satisfactory
throughout most of the implementation period, except for the period between the withdrawal of the
Malawi Credit (July 2010) and the first restructuring of the project (April 2013), when the financial
management rating –along with almost all other ratings – were downgraded to Unsatisfactory (as
explained above). Financial management arrangements were implemented and maintained
adequately by EdM throughout the life of the project, and were compliant with the Bank’s policies
and procedures. The project assigned suitably qualified financial management specialists who had
the appropriate skills to manage the project’s accounting, financial reporting, and disbursement
issues. The interim financial reports and annual audit reports were prepared and submitted to the
World Bank on a regular basis. The audit reports were unqualified, and there were no major
financial management issues during the life of the project.
2.5 Post-completion Operation/Next Phase
106. The Government of Malawi completed the construction of the Kapichira II (64 MW)
hydropower generation plant in 2011. Nevertheless, the power shortages in Malawi continued as
the combination of load growth and drought exerted growing pressure on the electricity supply.
Recognizing the need for alternative sources of electricity supply in addition to domestic
generation, the Government of Malawi signed a new MoU with the Government of Mozambique
in 2013 for the construction of the Mozambique-Malawi interconnector. World Bank support for
this project is being pursued.
107. The original project’s design and preparations, including the PSA and Wheeling
Agreement negotiations, the feasibility study, safeguards assessments, technical design, and
procurement documents, as well as the lessons learned from this case will be directly relevant for
informing the design and preparation of the new project.
108. The works performed during the project will facilitate the implementation of the planned
interconnection with Malawi. As designed in the original project, the planned interconnector will
connect to the Matambo substation. With the extension of the 220kV busbar under the restructured
project, the new interconnector can be accommodated at 220kV without significant additional
works.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
Relevance of Objectives: Substantial
109. The project objective at appraisal was to implement the regional electricity transmission
interconnector between Malawi and Mozambique “to increase access to diversified, reliable, and
affordable supplies of energy” and to benefit from the ability to trade electricity on the SAPP. At
the time of appraisal, this was well aligned with both the short and long-term needs of the electricity
sector in both countries and also with the priorities of the regional power pool, to which both
countries were signatories (SAPP Annual Report, 2006). The overall objectives of the project were
closely aligned with Malawi’s aim of interconnecting to the southern region electricity power
21
pool,35 and with Mozambique’s goal of improving its integration into the regional economy by
strengthening power trading in the SAPP and the expansion of access to electricity through grid
intensification and grid extension.36 The MGDS formed the basis of World Bank support to Malawi
as mentioned in the Malawi Country Assistance Strategy (CAS) 2007-2010. The SAPP
interconnector was included as one of the planned activities to support outcome two of the CAS:
“Put in place foundation for longer term economic growth through improved infrastructure and
investment climate.” In the case of Mozambique, the interconnector was explicitly mentioned as
one of the activities aligned to Pillar 3 (strengthened economic growth potential) of the Country
Partnership Strategy (CPS).
110. The relevance of the original objectives to Malawi remain substantial. Energy supply
remains a key priority for Malawi and is mentioned as such in the latest MGDS (2011-2016). The
energy crisis in Malawi has worsened despite some growth in generation capacity. As Malawi is
facing increasing power deficit, the interconnection project is being discussed again between the
two countries.37
111. The development objectives of the restructured project remain relevant to the current needs
and priorities of the Mozambique electricity sector. Electricity demand in Tete, a mineral rich
province experiencing significant growth in economic activity, has been growing rapidly and has
put increasing strain on the electricity supply infrastructure in the region. Though the region
experienced a slight slow-down due to a fall in commodity prices, the rapid economic growth
driven by energy-intensive mining operations resulted in a 22 percent annual growth in electricity
consumption between 2010 and 2014, and continues to grow at a significant rate. As a result, Tete
city (the main load served by the Matambo sub-station), is considered a ‘growth pole’ for the sub-
region. The upgrade of existing infrastructure to meet this growing demand is of high priority to
EdM. EdM’s Master Plan (2011, updated 2014) gives special attention to demand growth in the
Tete province and the need for transmission (and distribution) infrastructure upgrades.
Mozambique’s latest National Development Strategy (2014) also stresses the importance of
increased rural electrification and provision of infrastructure (including electricity) to industries so
as to enable economic growth.
112. While the outages in Tete province have reduced in part due to EdM’s investments in
downstream distribution infrastructure improvements (unrelated to the project), the number of
outages remains high. With expected electricity demand growth, the strain on the existing
infrastructure, in the absence of the project, would be significant and would likely result in
increasing unreliability and outages. A sustained reduction in outages is likely to result in
significant benefits to households and businesses in the area. The reduction in electricity outages
and thereby an increase in the reliability of electricity supply in the Tete province therefore
continues to be of relevance to the electricity sector and the economy as a whole.
113. The latest Mozambique CPS (2012-2015) mentions the focus on transmission and
increasing electricity access and efficiency under Pillar 1 (Competitiveness and Growth). However,
there is no explicit mention of energy reliability issues on account of demand growth for the Tete
35 Malawi Growth and Development Strategy (MGDS) 2006-2011, page14. 36 Mozambique Poverty Reduction Support Strategy 2006-2009 (PARPA II). 37 The interconnector project has once again been resurrected and discussions are ongoing to prepare it. As
stated in the latest Malawi CAS (2013-2016), Malawi has signaled that reinstating the Malawi-Mozambique
energy interconnector has high priority to overcome the crippling power shortages.
22
region, or in general. In part, the relatively small and focused investment is unlikely to be explicitly
mentioned in the high-level national strategy.
114. Thus, overall, as the Tete region continues to experience rapid growth in demand for
electricity, the project objectives of reducing costly outages remain relevant to the current context.
Relevance of design and implementation: Substantial
115. The components and activities included in the original project were clearly linked to the
stated objectives. For the restructured project, despite initial shortcomings described below, the
included activities, together, were directly relevant for the stated objective of the restructured
project.
116. The investments supported by the original project were substantially relevant to the original
PDO, as they would establish the necessary transmission line interconnector and associated
substation links, provide the necessary technical assistance to ESCOM and EdM to support the
sustainability of the project outcomes, and help remove infrastructure bottleneck that could impede
power trade. Further, the technical design of the project was sound and based on proven technology.
The implementation strategy involved close coordination between at the project management and
ministerial level, which would be critical to ensure achievement of regional power trade
opportunities.
117. The restructured project cancelled the regional investments and retained only the Matambo
substation expansion. The purchase of the transformer for the Tete substation (and the mobile
substation) was added during the second project restructuring in 2014. The Matambo substation is
the only 220/66/33 kV substation serving the Tete province. The downstream Tete substation
(66/33 kV) serves a substantial proportion of the load in the province at Tete city. Both substations
are thus critical links in the supply chain for reliable electricity service to the rapidly growing
region. The upgrade and extension works supported by the project were relatively simple in design
and based on standard technology. The additional transformers at Matambo and Tete substations,
along with the mobile substation, increased the reliability (through redundancy: “n-1 reliability”)
and the capacity to supply electricity.
118. The shortcoming in the design of the restructured project was that the relevance of the
selected investment (the Matambo substation) to the stated objectives (the reduction in frequency
of outages) was not sufficiently justified or backed up by an updated assessment of the key
substation infrastructure bottlenecks in Tete province and their prioritization in relation to
outages.38 During restructuring (and in the original project) an assessment of the main source of
outages in Tete province, the split between distribution outages and transmission outages, or the
adequacy of related (downstream) system infrastructure in the region was not documented.
According to the EdM Master Plan’s demand forecast (2011) for Tete, the transformer at Tete
substation was already overloaded, suggesting that an upgrade at Tete substation may have been of
greater priority in order to reduce outages. In the absence of crucial background analysis for project
activities, it is hard to determine whether selected investments were the most relevant choice for
38 The Matambo substation was not evaluated as a part fo the economic analysis in the original PAD; and
there was no economic analysis in the restructuring paper either.
23
reducing outages.39 An additional shortcoming in the design of the restructured project was that the
main results indicator was not well defined and did not provide easily attributable information to
judge the achievements of the project (as discussed in Section 2.3) or whether the Matambo
transformer expansion, on its own, would have achieved the PDO target.
119. Project savings allowed a second restructuring to include the purchase of the additional
transformer for Tete substation and a mobile substation. The expansion in transformation capacity
was aligned with EdM’s Masterplan that identified inadequacy of transformer capacity at Tete
substation as a critical constraint to electricity supply in the province. The enhancement of the
capacity both eases the constraint on electricity supply and increases reliability by building
redundancy into the system and reducing the strain on existing infrastructure. The mobile
substation, similarly, can be deployed to back up the existing substations during planned
maintenance or breakdowns. The inclusion of the additional transformer seems to have had a
significant impact on prospective benefits delivered by the project, especially in terms of ability to
meet growing electricity demand (see Annex 3).
120. Overall, despite issues with project design during the first restructuring, especially with
regards to the justification for Matambo transformer, the utilization of project savings for the
purchase of the Tete transformer and mobile substation considerably increased the relevance of the
project activities to the stated objectives. Therefore, the overall relevance of project design and
implementation is rated as Substantial.
3.2 Achievement of Project Development Objectives
Rating: Substantial
Original PDO
121. The original PDO was not achieved as a result of Malawi withdrawing from the project
without signing the credit agreement. All activities associated with the regional interconnection
were dropped and the project was restructured to focus on transformer upgrade for Mozambique.
The achievement of the original PDO was thus negligible. Restructured PDO
122. The restructured PDO, “to reduce the frequency of electricity outages in Tete province,”
was substantially achieved. All project investments were successfully completed by project close:
installation of the 130 MVA (220/66/33kV) transformer, the upgrade of the System Control and
Data Acquisition (SCADA) system and 220kV busbar at Matambo substation, the procurement of
the 50 MVA (66/33 kV) transformer for Tete substation, and the procurement and delivery of the
25 MVA (220/33kV) mobile substation. The new transformer at Matambo was commissioned in
July 2016. The mobile substation was commissioned in December 2016. The new transformer at
Tete is on site and is expected to be commissioned in August 2017.
39 For example the Master Plan also mentions that some transmission lines were also expected to become a
constraint in the foreseeable future. Though additional line bays were added at Matambo to enable connection
of additional lines in the future.
24
123. In the results framework, the reduction in outages was measured by the PDO indicator:
“average interruption frequency per year.” By project close, the indicator had significantly declined
(as seen in the table below) implying that the average interruption frequency had reduced
significantly below the project target.
Baseline
Baseline at
restructuring Target Current
Achievement rate
(compared to
restructuring
baseline)
Average interruption
frequency per year in
the project area 230 453 411 151 719%*
(2007) (2013) (2016) (2016) * This measure the actual reduction as a percentage of the targeted reduction. The majority of the decline seemed to
occur prior to the commissioning of the transformer.
124. However, as discussed in Section 2.3, this indicator value is not attributable to this project.
The average outages had already decreased substantially a few months prior to the commissioning
of the Matambo transformer – and reduced further in the period after commissioning.40 This may
have been due to upgrades to the downstream distribution network in the province as a part of other
projects that EdM was implementing, or a temporary decline in electricity demand from large
mining customers who may have lowered their production activities in response to depressed
commodity prices.41
125. The reduction in the Tete province outages as demonstrated by the results indicator is also
consistent with the SAIFI indicator that EdM collects for the Central region (where Tete province
is situated). The Central region indicator was consistently increasing between 2011 and 2015 and
then registered a decline in 2016. While this could add to the indicative evidence of the impact of
Matambo, it is difficult to estimate the exact contribution of the Matambo transformer upgrade to
these results.
Central Region 2011 2012 2013 2014 2015 2016
SAIFI 81.06 67.22 74.44 80.2 103 55.8
126. Despite the shortcomings in the results indicator and very short window of observable
performance, it is possible to make an assessment of the real and potential impacts of project
investments since, (i) the causal link between the delivered equipment and the short and long term
reduction in outages related to the substation upgrades has a strong technical justification; and (ii)
alternative data on outages at Matambo and the Central Region (which includes Tete province) was
obtained for the ICR, coupled with the intermediate results indicator for the Matambo substation.42
40 ISR seq. 16 shows that the average interruption frequency was 199 in March 2016 and then fell to 151 in
October 2016 as shown in the Borrower’s ICR. 41 The World Bank-supported Mozambique Energy Development and Access Project (P108444) was
concurrently supporting distribution infrastructure, including distribution lines and transformers, in the Tete
province. 42 This is with the caveat that only a couple of months of data are available after commissioning. This is a
recurrent issue in estimating the impact of infrastructure projects, which require a longer timeframe of
observational data than an ICR affords.
25
127. The additional transformers at Matambo and Tete, along with the mobile substation, both
add to the transformation capacity at critical supply bottlenecks in the Tete province, and also create
“n-1” redundancy. Matambo is the only substation serving the Tete province (connecting it to the
220 kV transmission network) and the Tete substation downstream from Matambo, serves a
significant majority of the load in the province at Tete city. By project closing, the existing Tete
transformer was already overloaded, and the Matambo transformer too was operating at very high
charge levels, putting stress on the system (as shown by the intermediate indicator below). The
increased redundancy and capacity at both substations directly reduces both planned and unplanned
outages linked to the substations and eases capacity constraints on the supply of electricity in Tete
province.
128. Data collected by EdM and the intermediate results indicator further show the prospective
impact of project investments on outages. Data on outages at Matambo substation obtained from
EdM shows that between 2007 and 2015 there were an average of nine outages per year with an
average duration of three hours. This data can be used to estimate the reduction in outages that are
directly attributable to project investments.43 Furthermore, the intermediate indicator linked to the
transformer at Matambo shows that the target was exceeded substantially. The level of charge at
the existing transformer – signifying the amount of electricity passing through as compared to its
maximum capacity – fell from 98.1 percent in March 2016 to 45 percent in August 2016,
immediately after commissioning of the new transformer. This clearly shows that the existing
transformer was operating close to or even beyond its technical limit and the commissioning of the
new transformer has eased the stress on the existing transformer. This implies a lower likelihood
of future breakdowns leading to outages.
Indicator Baseline
Baseline at
restructuring Target Current
Achievement rate
(compared to
restructuring
baseline)
Level of charge of
the current Matambo
transformer 26% 86% 70% 45% 256%
2007 2013 2016 2016
129. The core indicator on the direct project beneficiaries was also 94 percent achieved. The
baseline was defined as zero prior to the commissioning of the Matambo transformer. After the
commissioning of the transformer, the indicator measured the number of electricity customers in
the Tete province (served by the Matambo substation). The project supported the installation and
purchase of transmission infrastructure, and did not directly support electricity connections.
However, by easing the capacity constraint on the electricity transformation capacity for the Tete
province, the project investments have enabled, and will enable an acceleration in new electricity
connections in the province. Thus while the beneficiary numbers fell marginally short of the target
at 94 percent, the target is expected to be achieved, and exceeded, in the near future.
43 While this is probably a conservative estimate of the impact of Matambo on the outages in the Tete
province, it was the only data made available that clearly isolates the impact of Matambo substation.
26
Indicator Baseline
Baseline at
restructuring Target Current
Achievement rate
(compared to
restructuring
baseline)
Direct Project
Beneficiaries 0 0 86,628 81,276 94%
2007 2013 2016 2016
*The direct project beneficiaries are measured as the number of customers served in the Tete
province. The indicator is the same as the indicator on the “number of customers served in the
project area” which is a supplemental indicator to the core PDO indicator on the average
interruption frequency.
130. The short and long term benefits of the Matambo substation upgrades can be more
specifically summarized as follows:
The previously existing 60 MVA transformer was overloaded and the situation was
deteriorating due to the increasing demand. Before the project, the Matambo substation (the
only transmission substation in Tete province) had only one 60 MVA transformer. This
transformer was significantly overloaded, with a nominal load of 58 MVA (98 percent). With
the addition of the 130 MVA transformer, the load of the 60 MVA transformer has dropped to
27 MVA (45 percent). It is expected that with regular maintenance and frequent inspections
the transformer should not be overloaded during its remaining useful life. The reduced load on
the old transformer is an immediate benefit of the new transformer installation.
The new transformer has provided improved system reliability through n-1 configuration.
The 60 MVA transformer was the only transformer in the Matambo substation. Any faults on
the transformer or auxiliary equipment, meant that all the customers would incur electricity
outages. The addition of a 130 MVA transformer gives the system the n-1 configuration it
requires, to provide enhanced reliability in the case of faults and the ability for the utility to
perform offline maintenance without causing any outages. This configuration is expected to
benefit the area for the next 20 years, the period in which the two transformers are expected to
operate in parallel.
The additional transformer provides the ability to accommodate the estimated load
growth until 2026. The demand forecast completed in 2012, as part of the Master Plan,
foresees a maximum demand of 82 MVA by the year 2026, for the Matambo substation, taking
into account all of the industrial projects forecast for the area. With the additional transformer
the substation is able to serve the province’s growing demand. This is an important factor to
consider as the project assisted the utility in achieving a significant part of the long-term
transformation requirements in the Tete province, which is of importance to the country due to
the growing mining activity.
The works performed during the project form a basis for the planned interconnector with
Malawi. The Mozambique-Malawi transmission interconnector is a project under preparation
with assistance from the Bank. With the extension of the 220 kV busbar under the project, the
new interconnector can be accommodated at 220 kV without significant additional works.
The installed SCADA system at Matambo substation gives the EdM remote control and
supervisory capabilities that they did not have before at that key substation. With this
recently installed system, the utility has better access to data and knowledge of the events
27
occurred in the substation. EdM will be able to integrate the substation and its equipment into
the SCADA system at their future National Control Centre, which is in the feasibility stage at
the moment.
131. Overall, all project activities were successfully completed and the technical impact of the
new equipment on current and future outages is well understood. As shown above all key results
indicator targets were also largely met and exceeded. After the commissioning of the new
transformer at Matambo substation, the level of charge at the existing transformer after
commissioning reduced substantially, signifying an immediate reduction in the strain on the
transformer capacity. Furthermore, additional data collected by EdM, on the substation specific
outages at Matambo, further indicate a reduction in outages due to project investments. Thus
despite the incomplete data for the outage reduction in the results framework, it is clear that the
project will lead to the reduction of substation related outages. For these reasons the achievement
of the PDO is rated as Substantial.
Overall rating
132. The overall rating for the project combines the evaluation of overall project relevance,
efficacy and efficiency. Based on the split evaluation methodology for restructured projects, the
project outcomes have been assessed for each of the three phases determined by the two significant
project restructurings. The performance in each phase is weighted by the proportion of actual
project disbursements to derive an overall rating for the project. Based on the outcome of the split
evaluation, the achievement of the PDO is rated as Moderately Satisfactory.44 The explanation is
provided in section 3.4 below.
(XDR) Pre-restructuring
Post First
Restructuring
(2013)
Post Second
Restructuring
(2014) Overall
Unsatisfactory Unsatisfactory Satisfactory
Moderately
Satisfactory
Rating 2 2 5 4.09
Disbursement Amount
($m) 1.88 0.88 6.34 9.10
Weight 20.7% 9.6% 69.6% 100.0%
Score 0.4 0.2 3.5
3.3 Efficiency
Rating: Modest
133. There was no economic analysis conducted at the time of the first restructuring, and thus it
is difficult to evaluate potential improvements in project efficiency compared to that expected at
project design stage. Furthermore, shortcomings in the results indicators along with the short time
frame since commencement of new equipment operation prevent a comprehensive evaluation of
ex-post project efficiency. Additional data obtained from EdM has been used to determine the
economic net benefits of the project.
44 This is consistent with the Modest rating for project relevance and efficiency.
28
134. Project investments were estimated to be economically viable with positive economic
returns accruing over the economic lifetime of the equipment installed. Benefits accrued from the
reduction in costly outages and the easing of the supply constraint to the fast growing demand in
the Tete region. Overall the project had an estimated Economic Internal Rate of Return (EIRR) of
36 percent and an NPV of US$147 million (at a six percent discount rate). The EIRR for the
Component C (Matambo substation) was estimated at seven percent (NPV of US$0.75 million),
and the EIRR for the Component D (Tete transformer and mobile substation) was 97 percent (NPV
of US$155 million).45The project was estimated to be financially unviable from the perspective of
EdM as cost of electricity supply exceeds the electricity tariffs for domestic customers (for details
see Annex 3).
135. The project as initially planned (at appraisal and first restructuring) was to install an 80
MVA transformer at Matambo substation in Tete province. However, cost efficiencies resulting
from the competitive procurement process resulted in savings. This allowed both the upsizing of
the transformer at Matambo to 130 MVA, and the purchase of another 50 MVA transformer at Tete
and a 25 MVA mobile substation. The addition of these investments added considerably to the
project benefits without raising total cost above the initially planned amount. This represents an
improvement in project cost efficiency compared with what was expected at appraisal (for this
activity) or the first restructuring.
136. In contrast to the efficient use of financial resources, the repeated delays and project
extensions negatively impacted overall efficiency in the achievement of project objectives.46 While
some of the delays may have been outside the control of the World Bank team or implementing
agency, an aggregate 38 month extension in the project closing date, for a relatively straightforward
investment project, is difficult to justify. In the end, the relatively simple project activities were
realized nine years after project approval in 2007.
137. Due to inordinate delays in completion of project activities, the project efficiency is rated
as Modest.
3.4 Justification of Overall Outcome Rating
Rating: Moderately Satisfactory
138. The PDO of the restructured project was “to reduce the frequency of electricity outages in
the Tete province.” The overall outcome rating takes into account the relevance, efficacy, and
efficiency of the investments and achievement of outcomes. The split evaluation methodology is
applied to assess each stage of the project marked by the first and second restructuring.
45 Based on available data, the benefits from the Matambo transformer upgrade were quantified considering
only a reduction in outages at the substation (from data obtained from EdM). This is thus a conservative
estimate of the net benefits as it does not account for the reduction in other associated outages – e.g. incidence
of load shedding of customers in Tete province caused by transformer capacity constraints. As the Tete
substation is downstream of the Matambo substation, benefits from capacity expansion at Tete assumed no
capacity constraints at Matambo. Therefore, the quantified benefits from Tete expansion are attributable, in
part, to Matambo transformer investment. 46 As future benefits are discounted at the social discount rate, delays in completion of project activities and
thus accrual of associated benefits reduces the present value of the stream of benefits. All else equal, this
implies a reduction in project efficiency as measured by the NPV.
29
139. The project at appraisal was well designed and highly relevant for both countries, despite
certain shortcomings discussed in previous sections. However, with the withdrawal of Malawi from
the project without any progress towards the PDO, this phase is rated as Unsatisfactory.
140. After the first restructuring, the PDO was relevant to the country context; however,
implementation progress was slow with limited progress towards the PDO, requiring further project
extensions. The relevance of the selected project investments to the PDO was inadequately justified
in the project paper. Furthermore, the results framework had shortcomings, with the main PDO
indicator being incorrectly defined and not fully attributable to project investments. The phase is
thus rated Unsatisfactory.
141. After the second restructuring close implementation supervision helped make substantial
progress towards the PDO and all project activities were successfully completed, albeit with some
delays requiring a final, two-month project extension. Project savings were utilized for additional
infrastructure investments which increased the benefits delivered by the project. Certain
shortcomings (inadequately attributable results indicators) led to challenges in comprehensively
judging the impact of the investments. However, once all the equipment is operational, prospective
future impacts are clearly understood from a technical perspective. Therefore, this phase is rated as
Satisfactory.
142. In the end, the project which was initially designed as a regional interconnector had to be
restructured into a modest but locally significant substation upgrade and equipment procurement
project. The use of project restructurings to utilize project savings ensured the delivery of all project
investments.
143. Combing the ratings from each of the phases and weighting by the disbursement
proportions in each phase gives an overall rating of Moderately Satisfactory.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
144. The investment supported by the project helped (and will continue to help) ease critical
supply constraints to a fast growing region of Mozambique. While none of the investments were
consumer-facing, new and existing electricity consumers were the intended final beneficiaries of
the improved electricity service in the region. The number of electricity consumers in the region
has increased since the project baseline – from 20,527 (2007) to 81,276 (2016).47 The increased
transformation capacity and subsequent reliability resulting from the project, according to EdM,
has also accelerated electricity connections in the region.
145. There is no background data or impact evaluation available on poverty and gender impacts
of the project. However, based on numerous studies that link improved access to reliable electricity
to growth and job creation (e.g. Dinkelman 2011, Fisher-Vanden et al 2015, and IEG48), similar
47 The rate of electricity access has steadily increased in the past years and had reached about 15 percent as
of 2014 (EdM Annual Report, 2014). 48 “Lack of access to electricity is a major constraint to economic growth and increased welfare in developing
countries. This has been reemphasized by the United Nations and the World Bank Group as co-chairs of the
global Sustainable Energy for All (SE4All) initiative, which was launched in 2011, with the goal of achieving
30
long-term impacts are expected from the project. A World Bank literature review of the impact of
power outages finds that the reduction in outages is especially beneficial for productive users –
such as firms and irrigation (World Bank, 2016). Based on this and other studies, it is expected that
increased access to reliable electricity supply from the project will improve productivity of firms,
lead to job creation, and improve the well-being of households previously relying on low quality,
expensive, and unhealthy alternative sources for lighting and phone charging.
146. According to the results framework, an expected 50 percent of the beneficiaries are women.
But there is no specific data available to judge the accuracy of this number or estimate differential
impacts on women or female-headed households in the project target areas.
(b) Institutional Change/Strengthening
147. Although Component B of the project included capacity building and training for EdM,
there is no indication that any specific institutional capacity building or staff training activities were
carried out under the project. The project monitoring arrangements also did not include a specific
indicator for monitoring capacity building and training for EdM. It is therefore difficult to assess
the impact of Component B on EdM’s capacity improvement efforts. However, the ICR team
recognized that under the Bank-funded Electricity Development and Access Project (P108444),
which was being implemented in parallel with this project, EdM had prepared a training program
for capacity building and for developing specific technical skills. This program covered business
process management, planning, design and construction of transmission lines, operation and
maintenance of switchgear, and environmental and safeguards training.
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
148. No survey or workshop was held as a part of the ICR. The ICR benefitted from extensive
discussion with the implementing agency staff and management and current and former World
Bank TTLs.
4. Assessment of Risk to Development Outcome
Rating: Moderate
149. The objective of the restructured project was: “to reduce the frequency of electricity
outages in Tete province.” The key indicator was: “Average interruption frequency per year in the
project target area.”
150. The new transformer and other equipment at Matambo substation have significantly
improved the reliability of the power system in Tete province. Furthermore, the new transformer at
Matambo provides n-1 redundancy for the substation, thereby decreasing the risk (and impact) of
any potential outages. The 25 MVA mobile substation further improves the reliability by enabling
the backup of 220/33 kV transformers at Matambo or elsewhere. The 50 MVA transformer at Tete
substation will play a complementary role in reducing outages in its service area in Tete city.
universal access to energy within the next 15 years, along with improving energy efficiency and increasing
the use of renewable energy. Providing access to electricity is also integral to the Bank Group’s corporate
goals of increasing shared prosperity and ending extreme poverty by 2030.” IEG: World Bank Group Support
to Electricity Access, FY2000-2014, page xiv, 2015.
31
151. Considering the significant transformer capacity increase and the introduction of n-1
redundancy at Matambo substation, the main risks to sustaining the reduction in outages in the Tete
province are (i) delays or shortcomings in the installation of the transformer at the Tete substation,
and (ii) the financial inability of EdM to undertake adequate investments in maintenance,
refurbishment and upgrade of project investments and complementary downstream infrastructure.
152. The project supported the purchase of the transformer at Tete substation from project
savings. Due to inadequate time and resources, the project only supported the purchase of the
transformer and not its installation. It was agreed that EdM would use its own resources to fund the
installation of the transformer. The contract for the engineering services consultant under another
ongoing Electricity Development and Access Project was amended to include support for the
procurement and implementation of the supply and installation of the transformer at the Tete
substation and the mobile substation. This arrangement will allow continuity in implementation
and the timely installation of the equipment purchased under this project.
153. The weak financial position of EdM could constrain timely investments in the necessary
sub-transmission and distribution system maintenance and refurbishments in Tete province.49
Sustaining the decrease in outages in the Tete province depends on (i) the adequacy of capacity
compared to the growth in electricity demand in the province; (ii) the timely maintenance of
installed infrastructure; and (iii) the adequacy of complementary and downstream infrastructure.
The equipment financed by the project is standard technology that EdM has the capacity to operate
and maintain. Routine maintenance of the equipment is within the existing maintenance budgets
for EdM. However, given the overall poor financial situation of EdM, there is a risk that there may
be insufficient funds if replacement or significant repairs are needed for older equipment. Similarly,
resource constraints may prevent timely investments in refurbishment or capacity expansion of
critical complementary and downstream infrastructure. If the downstream infrastructure is poorly
maintained or inadequate for meeting the growing demand, the system may become constrained
despite the adequate transformer capacity at Matambo, resulting in increased outages.50
154. On the demand side, while the outage reduction targets may be achieved in the short term,
EdM’s fast expanding customer base in Tete region (reportedly around 22 percent over the past
several years) as well as the growing demand from the returning mining and other industries could
quickly increase the demand and go beyond the additional capacity provided under this project.
Recently, there has been a slight reduction in peak demand due to reasons unrelated to this project
(e.g., closure of mines and businesses as a result of declining commodity prices in Tete, etc.). The
projected demand growth in Tete province for the next five to 10 years is also well within the excess
capacity of the new installed transformers at Matambo (see table below). However, a recovery in
commodity prices, continuing economic growth, population increase due to new residents
migrating into the province for economic reasons, could increase pressure of the electricity
infrastructure.
49 ISR (Sequence 16) mentions a deterioration in the financial position of EdM as a potential risk to the timely
installation of the transformer at Tete substation. 50 According to EdM’s Master Plan: “The 66 kV line from Matambo to Tete has a thermal limit of about 60
MVA, thus limiting the long term supply capacity and reliability of supply. The load forecast for Tete is 50
MW in 2026 for the base case and in addition there is the load to be supplied in the Manje area. There is
hence a need for new lines coming in to the area.”
32
Forecast Peak Load (MW) Low Medium High
Sub-station 2011 2016 2021 2026 2011 2016 2021 2026 2011 2016 2021 2026
Matambo 5.6 148.6 60.6 57.6 5.6 167.6 81.6 71.6 5.6 167.6 81.6 71.6
Manje 3.6 4 4.9 6.1 3.6 4.5 6 7.8 3.6 4.9 27 49.7
Tete 19.3 24.1 32.9 41.7 19.3 27.2 38.3 50.1 19.3 29.6 41.8 57.8
Total (Tete+Manje) 22.9 28.1 37.8 47.8 22.9 31.7 44.3 57.9 22.9 34.5 68.8 107.5
Coinc. Peak 19.2 26.6 37.2 48.6 19.2 26.6 37.2 48.6 19.2 26.6 37.2 48.6
Total (Tete+Manje+Matambo) 28.5 176.7 98.4 105.4 28.5 199.3 125.9 129.5 28.5 202.1 150.4 179.1
155. The addition of the new 130 MVA transformer and the refurbishment of the switchgear
and other improvements at Matambo substation financed by this project have already provided the
necessary (although in the long run not sufficient) condition for achieving the project’s
development objective “to reduce the frequency of electricity outages in Tete province”. Other risks
beyond the scope of this project (such as increased demand, which could overload the weaker parts
of the distribution infrastructure, leading to unplanned outages) could, however, affect the
achievement of the development outcome in the long run.
156. Therefore, based on these considerations, the risk to development outcomes of the project
is assessed as Moderate.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating: Moderately Unsatisfactory
157. The appraised project design was well aligned with stated country goals and priorities (as
described in Section 3.1 above). The financing of the cross-border interconnector and associated
investments was underpinned by strong economic justification – as shown in the economic analysis.
The supply of electricity from Mozambique to Malawi through the proposed interconnector was
seen as a least-cost alternative for Malawi to meet the growing electricity demand and mitigating
the significant drought-related risk of a large supply shock.
158. The project design also included measures to mitigate potential risk of implementation
delays, coordination risks, potential infrastructure bottlenecks, and financial risks. Given the need
for joint implementation between Malawi and Mozambique, the implementation plan that was a
part of the project design, put in place a three-tiered coordination mechanism to mitigate
coordination risks – a joint project steering committee (Ministry level), joint project coordination
committee (utility management level), and regular interaction at the project management level
(PMU level).51 In addition, drawing on lessons learned, project preparation advance was utilized
51 The Financing Agreement explicitly mentions each of these committees along with the requirement that
the “Recipient” and respective utilities shall maintain active participation in the respective committees.
33
so that the technical designs were almost complete and major procurement packages for the
interconnector were in an advanced stage of readiness at the time of project effectiveness.52 Risk
assessment at the time of appraisal clearly identified financial risk, especially for the intended buyer
of the electricity – ESCOM (Malawi). The risk mitigation measures included in project design were
in the form of a financial sustainability plan for ESCOM (Malawi), and financial covenants for
both the utilities. Given the dependence of project investments in one country on the timely
completion of the investments in the other, cross-conditionality of Credit effectiveness was built
into the disbursement conditions of the project. Lastly, the signings of four key agreements – that
would underpin the trade of electricity between the two countries – were included as conditions of
effectiveness.53
159. The PAD did not discuss the risk associated with the failure of the two countries to reach
an agreement on key parameters of power trading. It also did not list the risk of political opposition
to the interconnector stemming from the prioritization of the development of domestic energy
resources over perceived dependence on foreign energy sources. In the end, these were the reasons
why Government of Malawi did not sign the Financing Agreement.54 While the political turmoil
in Malawi shortly after project approval may not have been foreseen, there did seem to be
indications of Malawi’s reservations regarding the wheeling agreement and the PSA. Late in project
preparation, reservations were expressed regarding the “take-or-pay” clause of the PSA. There were
similar concerns about the terms of the wheeling agreement. These risks should have been
adequately discussed in the PAD and appropriate mitigation measures identified.
160. The PDO at appraisal was stated as increased access to “diversified, reliable and affordable”
energy. However, the PDO level results indicators did not include measures for “reliable” and
“affordable” which would have made it difficult to adequately judge the achievement of the PDO.
Reliability indicators were however included as a part of the intermediate indicators, linked to
Component C.
161. The project economic analysis at appraisal did not adequately reflect the justification of the
project based on its value as an “insurance” against drought. Despite ESCOM’s unwillingness to
sign a firm PPA, the baseline economic analysis was rested on the assumption of firm power
purchase. Furthermore, the cost-benefit analysis of Matambo substation upgrade (part of
Component C in the appraised project) was not included in the economic analysis. Despite the
stated criticality of Matambo substation upgrade in meeting the rapidly growing demand in the Tete
region, the benefits for this component were not presented in the economic analysis in the PAD.
While it may be the case that costs associated with this component were considerably smaller than
those for the regional transmission interconnector, the cost and benefits from the investment should
have been explicitly modeled. With the benefit of hindsight, this is an important omission as it was
the only investment component that was retained in the restructured project and an economic
analysis was not conducted at that time either. As a result, there is no baseline that the economic
analysis in the ICR can be compared to.
52 The finalization of technical designs was seen as a cause of delay in the earlier project in the same project
series (i.e., APL-1, P069258). 53 The four agreements were (i) Implementation Agreement, (ii) Maintenance Agreement, (iii) System
Operating Agreement (included the PSA), (iv) Wheeling Agreement. These were later converted form
condition of effectiveness to a disbursement condition for the regional investments, on request of
Mozambique, to allow progress on other components. 54 In a letter to the World Bank in November 2009 the President of Malawi stated the interconnector was the
country’s “second priority” behind the development of “own energy production capacity”.
34
162. Finally, implementation delays may have been avoided by splitting the procurement
package for Matambo substation into separate lots for the interconnector (regional) and transformer
expansion (national). As designed, the procurement package for the Matambo substation combined
the expansion works (additional transformer) with the extension works for the interconnector. As
a result, and due to the cross-conditionality of any interconnector related works in one country
commencing only after project effectiveness in the other, work on substation expansion critical for
Mozambique’s Tete province was stalled while waiting for Malawi to sign the Financing
Agreement – this led to considerable delays in the completion of the substation expansion.
163. Taking into consideration the above factors, the Bank Performance at entry is rated as
Moderately Unsatisfactory.
(b) Quality of Supervision
Rating: Moderately Unsatisfactory
164. Regular project supervision was undertaken throughout the duration of the project. A total
of 16 ISRs, over the roughly nine-year project life, documented the progress made and the key
issues to be addressed at regular intervals. The task team leader was based in Maputo for the most
of the implementation period and this allowed regular communication with the client.
165. Prior to the withdrawal of Malawi from the project the task team proactively followed up
with ESCOM and EdM to address outstanding issues regarding associated key legal agreements.55
The task team along with World Bank senior management also held high-level discussions with
senior government officials to present the merits of the interconnection project in the context of
Malawi’s energy needs and address stated concerns.56 While waiting for Malawi to sign the Credit,
the task team ensured that activities on Mozambique’s part of the project were able to progress to
the extent possible, including a timely amendment to convert effectiveness cross-conditionality for
Mozambique into a disbursement condition for the regional component disbursement category.
166. The project was restructured multiple times to enable adaptations to the changing
circumstances so as to maximize development impact of available funds. As a result, the project
was able to support more investments than planned during the first restructuring, and all activities
were successfully completed by project close.
167. A review of the project documentation and timelines suggests that there were some
shortcomings in certain phases of implementation.
168. The decision on the course of action following the Malawi’s withdrawal in 2010 was very
protracted as different options were discussed between the task team and regional senior
management. The final decision to proceed with restructuring was made in January 2013, almost
2.5 years later. In parallel, while progress was made on procurement for the Matambo substation,
the time taken to decide to restart the procurement process, the lack of allocation of Bank budget
during Fiscal Year 2012 (documented in the ISRs), the uncertainty regarding the restructuring, all
55 Numerous updates are documented through official correspondences, internal memos, aide-memoires and
ISRs. 56 The sector manager of the WB energy team met with the President of Malawi in September 2009 to address
stated concerns regarding the project.
35
potentially contributed to the delayed start of the substation works (contract award was in May
2013) which later required multiple project extensions.
169. After restructuring, the new PDO of the project was “To reduce the frequency of electricity
outages in Tete province”. A more outcome oriented PDO definition, such as “improved reliability
of electricity services in Tete province” may have been more appropriate and would have better
lent itself to meaningful evaluation. Also, the project beneficiaries of the restructured project were
not defined explicitly in project documentation.
170. In addition to the delays, the first restructuring paper did not re-appraise the retained
activities as they were appraised as a part of the original project. No thorough background analysis
was presented to justify the choice of investments based on the latest available information. Also
there was no economic analysis presented on the Matambo substation extension. As the economic
analysis in the PAD did not present a separate cost-benefit analysis for this activity, the analysis
should have been undertaken to justify the investment based on most recent data (it had been almost
six years since appraisal). Related to this, the associated results indicator which was added during
the first restructuring was both incorrectly defined and not appropriate for measuring the
attributable impact of the investment.57
171. The World Bank performed well to deliver all outputs under the restructured project and
make use of restructuring to successfully utilize savings in a timely manner, However, despite
substantially achieving intended outcomes of the restructured project, the significant delays in
deciding on the first restructuring, inadequate analytical underpinning for the selection of
investment, and inadequate monitoring framework reduced the overall effectiveness of World Bank
implementation performance. Taking this into consideration, the Bank Performance of Supervision
is rated Moderately Unsatisfactory.
(c) Justification of Rating for Overall Bank Performance
Rating: Moderately Unsatisfactory
172. The overall Bank performance is rated as Moderately Unsatisfactory. The Bank team
provided supervision support to adapt to changing circumstances and utilize project savings.
However, there were significant shortcomings in terms of delays, inadequate analytical
underpinning, and inadequate monitoring framework, which reduced the overall effectiveness of
World Bank implementation performance.
57 This is discussed in detail in Section 2.3. The impact of this during project supervision was minimal as
impacts would only materialize after the transformer commenced operations, which was expected after
project close. As utilities collect the relevant information as a part of their day-to-day operations, this data
was requested and used for the analysis in the ICR.
36
5.2 Borrower Performance
(a) Government Performance
Rating: Moderately Satisfactory
173. As the Government of Malawi never signed the Credit Agreement, they were never
officially a borrower for the project. Therefore only the performance of Mozambique is evaluated.
174. The Government of Mozambique supported the project throughout. The Government
expediently moved forward after project approval. The project was approved in July 2007, and
Mozambique signed the Financing Agreement in September 2007 and achieved effectiveness in
February 2008. With delays on the Malawi side in signing, the Government of Mozambique
requested a waiver of the effectiveness cross-conditionality to enable the Mozambique Credit to
become effective and to progress on activities on their side. All other effectiveness conditions were
met in a timely manner. The Government also participated in the steering committee meetings with
Malawi counterparts, but failed to reach an agreement on the key commercial parameters of the
interconnector which resulted in the project not going forward as originally designed and the
original PDO not being achieved.
175. The Government of Mozambique had a limited role under the restructured project, but was
committed to the restructured PDO. The Government requested and supported the project
restructurings and the utilization of savings which were important in making sustained progress
towards the PDO. The delays in obtaining approval from CREE and the slight delay in signing the
amended subsidiary loan agreement as a result of the addition of activities under Component D
resulted in some project delays.
176. Overall, while the original project never got off the ground due to a breakdown of
commercial negotiations, the Government of Mozambique actively supported the restructured
project and the timely utilization of project funds. Thus, on balance, the Government performance
is rated as Moderately Satisfactory.
(b) Implementing Agency or Agencies Performance
Rating: Moderately Satisfactory
177. The sole implementing agency of the restructured project was the electricity utility of
Mozambique, EdM was effectively able to implement all planned activities by project closure, and
was also able to utilize project savings to undertake additional investments. Project reporting
requirements were mostly met, and interim financial reports and audited reports were submitted in
a timely manner for the most part.
178. While project activities were completed, there were some shortcomings in procurement
and implementation that led to delays in completion. The procurement for the Matambo contract
suffered several delays (due to delays on the part of both the World Bank and EdM) and works
only commenced in January 2014. This resulted in the project closing date requiring extension.
There were also issues raised regarding contract management and supervision. There were
documented delays in clearing invoices, which led to further delays. One issue was the absence of
a centralized or dedicated PIU within EdM, for the project. It is the standard practice of EdM to
have designated project teams fully integrated into the EdM staffing structure. As a result, the
designated project manager also is responsible for other projects/tasks. While this has certain
37
advantages in general, it reduced the ability to focus on project supervision. It is also not clear
whether EdM was able to meet the financial covenant of the Current Ratio threshold (at least 1.3)
during the last two years of the project.58
179. Due to the reasons outlined above the Implementing Agency Performance is rated as
Moderately Satisfactory.
(c) Justification of Rating for Overall Borrower Performance
Rating: Moderately Satisfactory
180. At completion the project substantially achieved its targets albeit with delays. In light of
this and the issues outlined above, the Overall Borrower Performance is rated as Moderately
Satisfactory.
6. Lessons Learned
181. The following key lessons were learned from the project:
Mutually agreed and transparent terms of electricity trading should be established as a
prerequisite for the implementation of a dedicated transmission interconnector.
182. Development of dedicated transmission interconnectors such as the Mozambique-Malawi
interconnector (in the absence of further connections between Malawi and other countries) requires
that the primary beneficiary country (Malawi) and the primary supplier of electricity reach
agreement on a fair, transparent, and firm PPA to ensure the long-term availability of supply at
predictable prices. This is critical for ensuring that both parties can agree on the rules of the game
and be able to estimate the total cost of delivered power (and the cost effectiveness of the
interconnector alternative for the country buying the power) along with the revenue resulting from
the project for the seller.
A thorough assessment of political economy context, especially with regard to perceived
trade-off between self-reliance and imports is essential for regional electricity trade
projects.
183. The interconnector project was assessed to be strong on technical grounds and the
counterparts at the technical level seemed convinced of the project’s merits. This was expected to
be sufficient for the project to be supported by all stakeholders (or at least not opposed). However,
ultimately, Malawi withdrew from the project due to the concerns raised about the project by
stakeholders in the highest levels of the Government and also given the internal abrupt changes on
the administration of the country right after the project was brought to the Board. An assessment
of the political economy risks—opposition of some stakeholders to perceived risks of reliance on
foreign sources of energy versus domestic resource development, potential change in political buy-
in to the regional interconnector from a change in the political environment—could have led to the
identification of some stakeholder concerns and potentially helped mitigate them in a timely
58 The documents do not report on this adequately. The last couple of Aide Memoires say that the information
was not provided by EdM and a one of the later ISRs claims that the ratio of 1.3 was not met but it was above
1, as stipulated in a parallel Bank project that was ongoing at the time.
38
manner. In general, for regional projects involving cross-border coordination and commitments,
an assessment of the political environment in each country along with national priorities and the
regional context within which they are developed is critical to the success of the project.
To the extent that it is technically feasible, the project design should maximize
opportunities for mutually beneficial trade.
184. A strong value proposition for both countries can improve the buy-in for both sides. With
both countries having greater ‘skin in the game’, the negotiations on the terms of electricity trading
can take place on a more equal footing. Greater balance in the accrual of benefits, increases the
likelihood of being able to reach a mutually agreed upon cost-sharing/pricing arrangement. In this
case, with the failure to sign the PSA, the benefit was too uncertain. The other expected benefits
from the sale of power during off-peak periods by Malawi to Mozambique, and the extension of
the line onward into Northern Mozambique, were also too uncertain to tangibly impact the
negotiations. A more balanced accrual of benefits, e.g., from more certainty in the onward line
extension, might have changed the negotiating positions, and allowed reaching a mutually
agreeable sharing of costs.
Timely restructuring can significantly improve implementation outcomes.
185. Experience of this project, as also confirmed by many other Bank projects in the energy
and other sectors, shows that timely restructuring of the project can make a significant improvement
in project implementation and delivery of results, as demonstrated by the two significant back-to-
back project restructurings under this project.
Advance preparation of key technical studies, safeguards assessments, and major
procurement packages can significantly speed up implementation.
186. As demonstrated by this project, the advance preparation of the interconnector feasibility
study was a key input for the project’s successful and timely technical design and its subsequent
modifications. The preparation and timely disclosure of the safeguards assessments were critical in
identifying areas in need of further attention (such as mine clearing) or reassuring all stakeholders
of the limited scope of the project’s environmental and social impact. Advanced readiness of major
bidding packages for the project could help jump start early progress of procurement activities
under any project. The procurement package for the largest component of the interconnector in
Mozambique was in an advanced stage of readiness by project approval and was progressing fairly
quickly, but was delayed for reasons discussed in earlier sections of the ICR.
Adequately planning for government clearance requirements for large procurement
contracts could speed up implementation.
187. Potential procurement and implementation delays can be mitigated through the ex-ante
assessment of government procurement clearance requirements and procedures for large contracts
and, if and when feasible, by negotiating arrangements for a fast-track review and clearance of
World Bank-funded procurement packages. Such an assessment should preferably be carried out
at the country portfolio level to ensure that any bottlenecks affecting the timely clearance of major
contracts financed by the Bank are identified and addressed. In the absence of this, a sector-specific
assessment could be conducted and a project-specific agreement on a feasible timeframe for the
clearance of major procurement packages could be a part of project appraisal and formalized in the
Project Manual. This could help set a benchmark that can be useful during supervision.
39
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/implementing agencies
The Borrower’s ICR is attached in Annex 7.
(b) Cofinanciers
There were no co-financiers for the project.
(c) Other partners and stakeholders
Not applicable.
40
Annex 1. Project Costs and Financing
(a) Project Cost by Component (in USD Million equivalent)59
Components Appraisal Estimate
(USD millions)
Estimate at 2013
Restructuring
(USD millions)
Percentage of
Appraisal
Malawi
A - Transmission Interconnector 42.82 NA -
B – Capacity Building for
ESCOM 2.78 NA -
C – Improved Transmission
Infrastructure 9.10 NA -
D – Tete Substation Upgrades and
Mobile Substation NA NA -
Total Baseline Cost 54.70 0.00 -
Physical Contingencies 3.80 0.00 -
Price Contingencies 1.90 0.00 -
Total Project Costs 59.960 0.00 -
Front-end fee PPF 0.00 0.00 -
Front-end fee IBRD 0.00 0.00 -
Total Financing Required 59.9 0.00 -
Mozambique
A – Transmission Interconnector 39.34 0.8 -
B – Capacity Building for EdM 1.68 1.6 100
C – Improved Transmission
Infrastructure 4.11 10.0 243
D – Tete Substation Upgrades and
Mobile Substation NA NA -
Total Baseline Cost 45.13 12.4 27
Physical Contingencies 3.11 0.91
29
Price Contingencies 1.58 0.45
28
Total Project Costs 49.81 13.8 28
Front-end fee PPF 0.00 0.00 -
Front-end fee IBRD 0.00 0.00 -
Total Financing Required 49.81 13.8 28
59 From Annex 5 of the PAD (includes government contributions) 60 This sums to US$60.4 million, however is stated as US$59.9 million in the PAD. The difference is
probably due to rounding error.
41
(b) Project Cost by Component post-2014 restructuring
Components
Estimate at
2013
restructuring
(USD millions)
Estimate at
2014
restructuring
(USD millions)
Actual/Latest
Estimate (USD
millions)
Percentage of
Appraisal (at
2014
restructuring)
Mozambique
A – Consulting Engineering
Services 0.8 0.12 0.12 100
B – Capacity Building for EdM 1.6 1.58 1.58 100
C – Improved Transmission
Infrastructure 10.0 7.85 8.2 110
D – Tete Substation Upgrades and
Mobile Substation NA 3.90 3.5 90
Total Baseline Cost 12.4 13.45 13.4 100
Physical Contingencies 0.91 0.00 0.00 0
Price Contingencies 0.45 0.00 0.00 0
Total Project Costs 13.8 13.45 13.4 100
Front-end fee PPF 0.00 0.00 0
Front-end fee IBRD 0.00 0.00 0
Total Financing Required 13.8 13.45 13.4 100
(b) Financing
Source of Funds Type of
financing
Appraisal
Estimate
(USD
millions)
Estimate at
2013
restructuring
(USD
millions)
Estimate at
2014
restructuring
(USD
millions)
Actual/Latest
Estimate
(USD
millions)
Percentage
of
Appraisal
Malawi
Borrower 11.9 NA - - -
International
Development
Association (IDA)
48.0 NA - - -
Total 59.9 NA - - -
Mozambique
Borrower 4.8 0.00 0.00 0.00 100
International
Development
Association (IDA)
45.0 13.8 13.45 13.4 100
Total 49.8 13.8 13.45 13.4 100
42
Annex 2. Outputs by Component
2013 Restructuring (1) 2014 Restructuring (2)
Original
Component
Original
cost
Restructured
Component
Restr.
Cost
Restructured
Component
Restr.
Cost
Final Status Remarks
Component A:
Mozambique-
Malawi
interconnection
39.3 Component A:
Consulting
engineering
services
0.8 Component A:
Consulting
engineering
services
0.12 Completed The interconnection component was dropped
due to the failure of Malawi to sign the Credit.
The component was revised during the first
restructuring in 2013 to include only
consultancy services. After project
restructuring, this component included just a
single contract for the Consulting Engineer to
supervise the installation of the power
transformer at Matambo substation.
Component B:
Capacity building
and technical
support for
upgrade and
expansion to
support power
trading
1.68 Component B:
Capacity building
and technical
support to EdM
1.6 Component B:
Capacity
building and
technical support
to EdM
1.58 Completed. The principal activity undertaken via this
component was the ESIA and RPF for the
proposed Mozambique Regional Transmission
Development Project (P108934), which is now
under preparation. The final report was
submitted to the Government of Mozambique
for approval in December 2011. Government
approved in June 2012. Final disbursements
were made and the contract was closed.
Component C:
Improved
infrastructure to
support electricity
trading
4.11 Component C:
Reinforcement to
support Matambo
substation
10.0 Component C:
Reinforcement to
support
Matambo
substation
7.85 Completed Under this component, a new 130 kVA
transformer was commissioned on July 10,
2016. The targeted level of reduction in
average outages was exceeded. However, the
reduction in outages started prior to
commissioning of the new transformer. The
latest available indicator data suggests that
outages may have declined after
43
commissioning of the transformer, but the data
is not available for a long enough period after
the transformer was commissioned to make a
definitive assessment.
Component D:
Reinforcement of
the Tete
Substation and
Mobile
Substation
3.9 Completed Both the additional 50 MVA transformer and
25 MVA mobile substation had passed tests
and were shipped to site. The transformer was
delivered in June 2016 and is expected to be
commissioned in August 2017. The mobile
substation was delivered in July 2016 and was
commissioned in December 2017. The late
addition of the investments and limited
resources available from project savings, meant
that the project only funded the acquisition of
the equipment but not the installation.
44
Annex 3. Economic and Financial Analysis
Economic Analysis
At Appraisal
1. The economic analysis at appraisal for this project assessed the benefits to both Malawi
and Mozambique (evaluated over a 30 year period) as a result of the envisioned transmission
interconnection funded by US$105 million in IDA financing. The economic benefits were derived
from the incremental two-way flow of energy between the two countries. During times of peak
demand in Malawi, energy would be imported from Mozambique and during off-peak hours, a
limited amount of energy would be exported from Malawi into Mozambique. The incremental
energy flow between the countries was valued at the cost of unserved energy in 2007, estimated to
be USc16.0/kWh. The economic cost was taken as the value of the capital expenditure funded by
IDA over the three-year implementation period and the operations and maintenance (O&M) cost,
assumed to 2.5% of total investment costs annually. Based on the approach and assumptions, the
NPV was estimated to be US$361 million at the economic cost of capital of 10 percent and the
ERR to the project was 28 percent, (NPV of US$69 million and EIRR of 26.1% for Mozambique,
and NPV of US$292 million and EIRR of 29.3% for Malawi).
2. The economic analysis done at appraisal only modeled the benefits from electricity trade
from the interconnector and did not explicitly present the benefits from transmission infrastructure
strengthening in Mozambique (Component C in the appraised project). As the project was
eventually restructured and the interconnection component dropped, this economic analysis is thus
no longer relevant. No economic or financial analysis was included in the restructuring paper either.
Revised
3. The PDO of the restructured project was the reduction of outages in the Tete province. The
economic analysis at completion identified that the main benefits of the project would be: (i)
reduction in outages at the Matambo substation in Tete province and (ii) incremental local demand
served in Tete province.
Matambo Substation
4. The economic analysis at completion identified that the main benefit of this component
would be reduction in outages in Tete province, as a result of a new 130 MVA transmission level
transformer, valued at the opportunity cost of electricity interruptions of USc25/kWh.61
5. Outage data of Matambo substation from 2007-2015 was used to determine an average
annual outage duration of 25.4 hours. The number of outages was assumed to steadily increase
from 2015 at the demand growth rate. The amount of energy not served due to outages was
based on the demand forecast for Tete province derived from the EdM Masterplan,
discussed under the Tete substation component below.
61 Cost of power supply interruptions for the different parts of Mozambique – EdM’s 2014 Final Master Plan
Update Report
45
6. Once the transmission level transformer at Matambo is commissioned, it is assumed that
outages at this substation would cease for ten years and then begin to slowly increase as electricity
demand growth starts to exceed the transformer capacity and equipment starts to deteriorate. On
the cost side, the economic capital cost, discounted taxes from the final contract amount and totaled,
US$ 11.7 million. O&M was assumed to 2.5% of the capital cost.
7. Based on the approach and assumptions, at a discount rate of 6%, the baseline NPV was
estimated to be US$ 0.75 million and the ERR was 7%. It is important to note that the existing
transformer at Matambo, installed in 1982, is past the typical life of a transformer, however,
benefits from increasing resiliency of the grid by adding a transformer and avoiding the adverse
consequences of equipment failure have not been captured here. Furthermore, this is a highly
conservative estimate as it only considers the impact on outages occurring at the substation but
does not account for reduced incidents of load shedding for Tete customers related to the increase
in electricity supply capacity to the province.
Year Cost (USD Million) Benefits Net Benefits
Economic
Capital Cost O&M Cost Total Cost
Value of Increased Demand
Served Due to Reduction in
Outages @ Opp. Cost
Total
Benefits
2014 1.92 0.03 1.95 0.00 0.00 -1.95
2015 3.34 0.09 3.43 0.00 0.00 -3.43
2016 3.10 0.15 3.25 0.00 0.00 -3.25
2017 0.00 0.15 0.15 0.13 0.13 -0.02
2018 0.00 0.15 0.15 0.16 0.16 0.01
2019 0.00 0.15 0.15 0.20 0.20 0.05
2020 0.00 0.15 0.15 0.24 0.24 0.09
2021 0.00 0.15 0.15 0.29 0.29 0.14
2022 0.00 0.15 0.15 0.35 0.35 0.21
2023 0.00 0.15 0.15 0.43 0.43 0.28
2024 0.00 0.15 0.15 0.52 0.52 0.38
2025 0.00 0.15 0.15 0.64 0.64 0.49
2026 0.00 0.15 0.15 0.78 0.78 0.63
2027 0.00 0.15 0.15 0.92 0.92 0.77
2028 0.00 0.15 0.15 1.11 1.11 0.96
2029 0.00 0.15 0.15 1.23 1.23 1.08
2030 0.00 0.15 0.15 1.35 1.35 1.21
2031 0.00 0.15 0.15 1.49 1.49 1.34
2032 0.00 0.15 0.15 1.63 1.63 1.49
2033 0.00 0.15 0.15 1.79 1.79 1.64
2034 0.00 0.15 0.15 1.96 1.96 1.81
2035 0.00 0.15 0.15 2.13 2.13 1.98
2036 0.00 0.15 0.15 2.32 2.32 2.17
2037 0.00 0.15 0.15 2.52 2.52 2.37
2038 0.00 0.15 0.15 2.73 2.73 2.58
2039 0.00 0.15 0.15 2.95 2.95 2.80
2040 0.00 0.15 0.15 3.18 3.18 3.03
NPV @ 6% 0.75
EIRR 7%
MARR (6%) 2040
46
Tete Substation
8. The economic analysis at completion identified that the main benefit of this component
would be the incremental local demand served in Tete province, as a result of a new 50 MVA
transformer, valued at the willingness to pay (WTP) for electricity of USc15.2/kWh.62
9. The benefits of the economic analysis at completion are based on the demand forecast for
Tete province, estimated using actual demand data from EDM’s annual reports and demand
projections from EDM’s Master Plan for Tete province. Demand was forecasted from 2015 – 2040
at a compound annual growth rate of 11%. In addition, based on the capacity of the equipment
installed and the forecasted peak demand, it was estimated that demand served due to the addition
of a new transformer at Tete substation would become constrained after a certain number of years.
From 2021 onwards the installed equipment would be overloaded and not be able to meet increasing
peak demand (MW), however, the volume of demand met (MWh) would keep increasing, as the
substation would be able to serve an increasing volume of demand that is below the threshold of
the peak capacity of the substation (during off-peak hours). It is important to note that the benefit
from decreased outages due to the addition of Tete transformer are not captured due to lack of data.
10. On the cost side, the economic capital cost, discounted taxes from the final contract amount
and totaled, US$ 3.3 million. It is important to note that this cost also includes procurement of a
mobile substation which will be used to decrease outages, as power can be routed through the
mobile substation while a transformer is undergoing maintenance. O&M was assumed to be 2.5%
of the capital cost, and the cost of supplying incremental demand was assumed to the average cost
of electricity supplied in Mozambique in 2016, USc7.0/kWh. EDM’s snapshot half year report for
2016 determines that the average cost of electricity generation is USc4.46/kWh with an additional
USc2.5/kWh of transmission costs, as noted in EDM’s Master Plan, to yield a delivered cost of
electricity supply at the substation level of USc7.0/kWh.
11. Based on the approach and assumptions, at a discount rate of 6%, the baseline NPV was
estimated to be US$ 155 million and the ERR was 97%.
62 Willingness to pay for electricity weighted by the number of customers in each category – EdM’s 2014
Final Master Plan Update Report
47
Project Economic Analysis
12. At the project level, combining the Matambo and Tete components, yields a baseline NPV
of US$ 147 million and an ERR of 36%, with the project reaching the hurdle rate, also referred to
as the minimum acceptable rate of return, of 6% in 2020. This implies that the project is already
economically viable, just based on the benefits delivered in the first 5-6 years of operation. These
results are favorable and demonstrate that the project had a positive impact even after a significant
change in the scope of the project.
Year Cost (USD Million) Benefits Net Benefits
Economic
Capital Cost O&M Cost
Cost of
Incremental
Supply Total Cost
Value of Increased
Demand Served @
WTP
Total
Benefits
2015 0.66 0.02 0.00 0.68 0.00 0.00 -0.68
2016 2.64 0.08 0.00 2.72 0.00 0.00 -2.72
2017 0.00 0.08 2.45 2.54 5.36 5.36 2.82
2018 0.00 0.08 3.43 3.51 7.48 7.48 3.98
2019 0.00 0.08 4.49 4.57 9.81 9.81 5.24
2020 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2021 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2022 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2023 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2024 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2025 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2026 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2027 0.00 0.08 5.65 5.73 12.34 12.34 6.61
2028 0.00 0.08 5.74 5.82 12.54 12.54 6.72
2029 0.00 0.08 8.23 8.31 17.97 17.97 9.66
2030 0.00 0.08 10.97 11.05 23.96 23.96 12.91
2031 0.00 0.08 13.98 14.07 30.55 30.55 16.48
2032 0.00 0.08 17.29 17.38 37.78 37.78 20.40
2033 0.00 0.08 20.92 21.00 45.70 45.70 24.70
2034 0.00 0.08 24.88 24.96 54.35 54.35 29.39
2035 0.00 0.08 29.19 29.28 63.78 63.78 34.50
2036 0.00 0.08 33.89 33.97 74.04 74.04 40.06
2037 0.00 0.08 38.99 39.07 85.17 85.17 46.10
2038 0.00 0.08 44.51 44.59 97.24 97.24 52.64
2039 0.00 0.08 50.48 50.56 110.28 110.28 59.72
2040 0.00 0.08 56.92 57.00 124.35 124.35 67.34
NPV @ 6% 154.77
EIRR 97%
MARR (6%) 2018
48
Year Cost (USD Million) Benefits Net Benefits
Economic
Capital Cost O&M Cost
Cost of
Incremental
Supply Total Cost
Value of Increased
Demand Served @
WTP
Value of Increased
Demand Served Due
to Reduction in
Outages @ Opp. Cost
Total
Benefits
2014 1.92 0.03 0.00 1.95 0.00 0.00 0.00 -1.95
2015 4.00 0.11 0.00 4.11 0.00 0.00 0.00 -4.11
2016 5.74 0.23 0.00 5.97 0.00 0.00 0.00 -5.97
2017 0.00 0.23 2.45 2.68 5.36 0.13 5.49 2.81
2018 0.00 0.23 3.43 3.66 7.48 0.16 7.65 3.99
2019 0.00 0.23 4.49 4.72 9.81 0.20 10.00 5.28
2020 0.00 0.23 5.65 5.88 12.34 0.24 12.57 6.70
2021 0.00 0.23 5.65 5.88 12.34 0.29 12.63 6.75
2022 0.00 0.23 5.65 5.88 12.34 0.35 12.69 6.81
2023 0.00 0.23 5.65 5.88 12.34 0.43 12.77 6.89
2024 0.00 0.23 5.65 5.88 12.34 0.52 12.86 6.98
2025 0.00 0.23 5.65 5.88 12.34 0.64 12.98 7.10
2026 0.00 0.23 5.65 5.88 12.34 0.78 13.12 7.24
2027 0.00 0.23 5.65 5.88 12.34 0.92 13.25 7.38
2028 0.00 0.23 5.74 5.97 12.54 1.11 13.66 7.68
2029 0.00 0.23 8.23 8.46 17.97 1.23 19.20 10.74
2030 0.00 0.23 10.97 11.20 23.96 1.35 25.32 14.12
2031 0.00 0.23 13.98 14.21 30.55 1.49 32.04 17.82
2032 0.00 0.23 17.29 17.52 37.78 1.63 39.41 21.89
2033 0.00 0.23 20.92 21.15 45.70 1.79 47.49 26.34
2034 0.00 0.23 24.88 25.11 54.35 1.96 56.30 31.19
2035 0.00 0.23 29.19 29.42 63.78 2.13 65.91 36.49
2036 0.00 0.23 33.89 34.12 74.04 2.32 76.36 42.24
2037 0.00 0.23 38.99 39.22 85.17 2.52 87.69 48.47
2038 0.00 0.23 44.51 44.74 97.24 2.73 99.96 55.22
2039 0.00 0.23 50.48 50.71 110.28 2.95 113.23 62.52
2040 0.00 0.23 56.92 57.15 124.35 3.18 127.53 70.38
NPV @ 6% 146.76
EIRR 36%
MARR (6%) 2020
49
Financial Analysis Methodology, Assumptions and Results
Original
13. The financial analysis at appraisal assessed the financial performance of the utilities in
Mozambique and Malawi. The financial analysis at appraisal was reconstructed based on a simpler
cost- benefit approach to assess the financial performance of the project instead of the sector.
Similar to the original economic analysis, the original financial analysis could not be revised at
completion due to restructuring.
Revised
14. The reconstructed financial analysis at completion assessed the revenues for EDM, from
incremental electricity sales because of the project, at the average electricity sales price in 2016 of
USc6.6/kWh. On the cost side, the capital cost was assumed to be the final contract amount for the
Matambo and Tete components, US$13.4 million. O&M and cost of electricity supply were the
same as in the economic analysis.
15. Based on the approach and assumptions, at a weighted average cost of capital for EdM of
5%, the baseline NPV was estimated to be negative and the FRR could not be calculated. The
negative financial net benefits is due the electricity tariffs for domestic consumers being lower than
the cost of electricity supply.
50
Annex 4. Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Title Unit Responsibility/
Specialty
Lending
Wendy E. Hughes Task Team Leader AFTG1 Team Leader
Dan R. Aronson Consultant (Social Development
Specialist) AFRDE Social Development
Sylvester Kofi Awanyo Lead Procurement Specialist OPSPF Procurement
Arbi Ben Achour Consultant (Environment Safeguards
Specialist) GSU11 Environment
Jyoti Bisbey Infrastructure Finance Special GCPPP Infrastructure Finance
Antonio L. Chamuco Sr. Procurement Specialist GGO07 Procurement
Adelia Ninete Matias Chebeia Temporary (Team Assistant) GPSJB ACS Support
Sunil Kumar Khosla Lead Energy Specialist GEE02 Energy
Marius Koen Lead Financial Management Specialist GGO21 Financial
Management
Esther Angellah Lozo Executive Assistant AFMMW ACS Support
Joel J. Maweni Energy Adviser GEE09 Energy
Reinaldo Goncalves Mendonca Consultant (Power Engineer) GEE05 Power Engineering
Robert Mills Senior Economist AFTG1 Economics
Fanny Kathinka Missfeldt-
Ringius Senior Energy Economist GEE06 Energy Economics
Donald Herrings Mphande Lead Financial Management Specialist GGO31 Financial
Management
Somin Mukherji Sr Financial Analyst GEEDR Financial Analysis
Edith Ruguru Mwenda Senior Counsel LEGAM Legal
Diep Nguyen-Van Houtte Consultant (Operations Officer) AFCMW Quality Review
Samuel A. O'Brien-Kumi Senior Energy Economist AFTG1 Energy Economics
Robert A. Robelus Consultant (Environment Safeguards
Specialist) GEN05 Environment
Joao Tinga Financial Management Specialist GGO26 Financial
Management
Augustine Kudawoo Wright Temporary (Program Assistant) GEEES ACS Support
Supervision/ICR
Wendy Hughes Task Team Leader AFTG1 Team Leader
Robert Mills Task Team Leader AFTEG Team Leader
Reto Thoenen Energy Specialist AFTEG Team Member
Sara Nso Consultant (Energy Specialist) AFTEG Energy
Antonio L. Chamuco Senior Procurement Specialist GGO07 Procurement
Salma Chande Program Assistant AFCS2 ACS Support
Mtchera J. Chirwa Infrastructure Specialist AFTU1 Team Member
Elvis Langa Financial Management Specialist GGO26 Financial
Management
Jonathan Nyamukapa Sr. Financial Management Specialist AFTME Financial
Management
Arbi Ben Achour Consultant (Social Development
Specialist) GSU11 Social Development
Reinaldo Goncalves Mendonca Consultant (Power Engineer) GEE05 Power Engineering
51
Robert A. Robelus Consultant (Environment Specialist) GEN05 Environment
Augustine Kudawoo Wright Temporary (Program Assistant) GEEES ACS Support
Maria Isabel Neto Task Team Leader GEE01 Team Leader
Zayra Romo Task Team Leader GEE01 Team Leader
Gulgoren A. Cansiz Consultant GEE01 Team Member
Francesca Fusaro Consultant GEE01 Team Member
Maria Meer Program Assistant GEEX2 ACS Support
Kabir Malik Economist, ICR Lead Author GEE01 ICR Author
Abdolreza Bobak Rezaian Consultant (Energy Specialist & ICR
co-Author) GEE01 ICR co-Author
Claudio Buque Energy Specialist GEE01 Team Member
Allison Berg Sr. Operations Specialist GEE08 Team Member
Asad Ali Ahmed Operations Analyst GEESO Team Member
Raima Oyeneyin Sr. Program Assistant GEE08 Team Member
(b) Staff Time and Cost
Stage of Project Cycle
Staff Time and Cost (Bank Budget Only)
No. of staff weeks USD Thousands (including
travel and consultant costs)
Lending
FY04 8.83 45.80
FY05 16.20 124.97
FY06 13.89 111.35
FY07 70.11 378.44
FY08 12.23 79.77
Total: 121.26 740.33
Supervision/ICR
FY08 13.23 89.79
FY09 25.39 99.93
FY10 16.76 82.79
FY11 5.60 21.48
FY12 13.63 57.74
FY13 12.96 74.88
FY14 6.14 36.53
FY15 7.15 61.64
FY16 11.27 100.48
FY17 12.19 72.85
Total: 124.32 698.11
54
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR
Southern Africa Power Market (APL2): Extension of Matambo 220kV Substation Project
IMPLEMENTATION COMPLETION REPORT
Submitted to the World Bank by
EDM’s Project Implementation Unit
2nd November 2016
Introduction.
This report concerns the Southern Africa Power Market (APL2): Extension of Matambo 220kV
Substation Project. The Project Agreement between IBRD and The Government of Mozambique
(GoM), through Electricidade De Moçambique EP – EDM as implementing Entity, dated 21st
September 2007, for the original project and 15th November 2013 after project amended restated
financing agreement, sets out the requirements for this report. Specifically, Section II.A.2.(c)
provides that EDM prepare and furnish to the Ministry of Finance and the World Bank not later
than four (4) months after the Closing Date:
(i) a report of such scope and in such detail as the Bank shall reasonably request, on the
execution of the Project, the performance by EDM of its obligations under this
Agreement and the accomplishments of the purpose of the Loan, and
(ii) a plan designed to ensure the substantiality of the Project’s achievements.
1. Assessment of objective, design, implementation, and operational experience.
The Project’s development objective was to reduce outages in the Tete province.
Th project investments in transformer capacity expansion, sought to increase supplies to the Town
and Province of Tete to cope with load growth as well to refurbish certain switchgear and control
and protection equipment within the substation to improve operational efficiency and flexibility.
2. Assessment of outcome against the objectives.
Our overall assessment of the extent to which the operation's major relevant objectives were
achieved, (or are expected to be achieved) efficiently, is:
Satisfactory. There were minor shortcomings in the operation’s achievement of its objectives, in
its efficiency, or in its relevance.
This rating is based on the following criteria.
2.1 Achievement of objectives. The objectives were fully achieved as follows.
Frequency of electricity outages in Tete province were reduced from 414 outages in 2006 to 151
outages in October 2016. This was an assessment of a shorter duration. In the longer term, the
outages are expected to reduce to the minimum possible by summarizing it to planned shutdowns
for network maintenance.
The new130MVA transformer capacity was added in additional to the existing 60MVA
capacity transformer. This required to enable increasing of supplies to the Town and
Province of Tete to cope with load growth. The new transformer capacity of 130MVA was
energized on 3rd July 2016 and loaded on 10th July 2016.
55
Specific plant such as certain switchgear as well as Substation control and protection
equipment were refurbished while New 66kV and 33kV Busbars were constructed and full
SCADA system installed within the substation to improve operational flexibility,
efficiency and reliability;
2.2 Efficiency. The operation has achieved, or is expected to achieve a return higher than the
opportunity cost of capital, and is the least cost alternative.
The initial plan was for the installation of an 80MVA transformer; however, a bigger
130MVA transformer was supplied for the same cost (except minimal additional
installation cost); in this case there was an assessment of the demand for electricity made
to determine the size of the transformer needed. There was also an assessment of the Tender
prices for the 80MVA and 130MVA transformers. The assessment showed that the price
for the 130MVA transformer was not much higher and based on the load forecasts in the
Master Plan a 130MVA transformer would be required to accommodate the load growth
until 2026. From the assessments made it was concluded that 130 MVA was the appropriate
size for the growth of consumption that occurred in the city and province of Tete.
The optical fiber in the OPGW from Matambo to Tete had breaks and had not been
operational; this was repaired in the process to allow Tete to be fully controllable from
Matambo;
The 33kV feeder to Changara had not been operating with its own breaker; it was
additionally providing independent switch bay from one of the spare, thereby improving
flexibility;
2.3 Relevance. The operation’s objectives, design, and implementation are fully consistent with the
country’s current development priorities and with current country and sectoral assistance strategies
and corporate goals.
The relevance of the initial regional project was aligned with Mozambique electricity
strategy in order to facilitate the exchange of power between the two countries and making
Mozambique to be able to sell energy to Malawi and create a redundancy in the supply of
energy to the northern region of Mozambique in the event of a failure of the current north
- central transmission line from the Cahora Bassa dam through the Matambo substation to
the north of Mozambique.
The relevance of the initial regional project for the Mozambique-Malawi interconnection
project was seen as a solution to Malawi's current challenges in supplying electricity by
encouraging and developing new sources and opening up the market to potential investors.
The relevance of the project post restructuring to the electricity plans was to respond to the
great demand of electric energy in the city and province of Tete facing the appearance of
several industries due to the discovery of mineral coal mines.
The relevance of the project post restructuring to the development plans was to enable the
construction of medium voltage lines that could not be built before due to the limitation of
the source, in this case the Matambo substation that has medium voltage outgoing feeders
and also sub-transmission outgoing feeders that feed other substations.
56
The impact of the Project is very large in the Tete region because EDM is already making
more new customer connection since this new transformer is in service.
Other overhead MV distribution lines that could not be built due to limited availability are
being designed and extended to more neighborhoods in the city of Tete.
New district headquarters are already benefiting from the power supplied from the new
transformer.
The Mozambique Electricity Master Plan has an objective to facilitate implementation of
power projects on a rational basis. Work was carried out in an economically efficient and
environmentally sustainable manner.
The design implemented included some spare bays for connection of more feeders to
increase access to efficiently priced electricity to the affected communities and to be able
to cater for future demand;
3. Evaluation of own performance during preparation and implementation, with special
emphasis on lessons learned that may be helpful in the future.
Our assessment of the extent to which the Government and implementing agencies ensured quality
of preparation and implementation, and complied with covenants and agreements, toward the
achievement of development outcomes, is as follows.
3.1 For the Government overall:
Highly Satisfactory. There were no shortcomings in Government performance.
There was commitment at Government level for providing enabling environment including
supportive macro, sectorial, and institutional policies (legislation, regulatory and pricing
reforms, etc.).
The government played a very important role in the preparation phase, such as the
mobilization of local governments for public consultation regarding project
implementation issues, issuance of project environmental impact licenses, among other
activities.
In the preparation phase the government also provided a matrix of the strategic energy plan
and the overall plan for the energy sector.
In the implementation phase it also played an important role in the issuance of entry visas
to the foreign technicians of the Consultant as well as the Contractor. Issuance of DIRE for
foreign resident technicians of both firms.
In the restructuring of the regional project after Malawi withdrew.
3.2 For implementing agency
Satisfactory. There were minor shortcomings such as getting the clearance on the duty exemption
for the materials/equipment’s imported under the project due to low performance of others
stakeholders involved in the implementing agency’s performance. Throughout the implementation
of the project, EDM exhibited;
Ownership and commitment to achieving development objectives (timely meetings);
57
Adequacy of beneficiary/stakeholder consultations and involvement (timely meetings with
HCB, VALE, ICVL, and other stakeholders);
Readiness for implementation, implementation arrangements and capacity, and
appointment of key staff;
Timely resolution of implementation issues by resolving issues related to provision of
information and coordination of shut downs;
Fiduciary (financial management, governance, provision of counterpart funding,
procurement, reimbursements, compliance with covenants);
Adequacy of monitoring and evaluation arrangements, including the utilization of M&E
data in decision-making and resource allocation;
Relationships and coordination with donors/ partners/stakeholders;
Adequacy of transition arrangements for regular operation of supported activities after
Loan/Credit closing.
3.4 Lessons learned
The need for carrying more detailed studies during project initiation to avoid scope creep
and emergence of numerous variations. During the project numerous outages were planned
for installation of substation equipment. These outages were not in line with the planned
substation outages for the year. This caused some delays in implementation as the
Contractor had to wait for the dates of the planned outages to continue with the Works
Including appropriate clauses in the EPC contract to be able to deal with issues of delays
in schedule by Contractor. There were significant delays in the installation, caused by a fire
in the Contractor’s warehouse. This lead to equipment damages, this equipment had to be
re-manufactured as the Insurer’s cost. EDM had to pay and incur the delays related to
additional Factory Acceptance Tests and delivery of equipment.
4. Evaluation of the performance of the World Bank, including the effectiveness of their
relationship, with special emphasis on lessons learned.
4.1 World Bank: Quality at entry. Our assessment of the extent to which services provided by the
Bank ensured quality at entry of the operation is as follows.
Highly Satisfactory. There were no shortcomings in identification, preparation, or appraisal.
The World Bank team was always ready to help implementation agency both with its
technicians based in Mozambique as well as from abroad.
It has always been helpful in overcoming a delicate subject matter of the Procurement
project, clarifications regarding addenda and variations orders submitted by the Consultant
or Contractor.
Always warned about the financial status of the project. The World Bank local team made
possible EDM's financial department technicians be linked to the Project, financial status
via Client Connection system so that the technicians could best follow the financial health
of the Project.
58
The World Bank team traveled to the site on service missions and warned about the risks
the project was exposed. These risks included delays in 130MVA transformer delivery, due
to additional logistic requirements in transporting equipment from Richards Bay Harbour
in South Africa, through Zimbabwe and into Mozambique. There was a long waiting period
at Richards Bay, caused by the Xenophobic crisis, because police escorts were not available
to escort the transformer from South Africa to Zimbabwe border.
4.2 World Bank: Implementation. Our assessment of the extent to which the Bank supported
effective implementation through appropriate supervision (including ensuring adequate transition
arrangements for regular operation of supported activities after loan/credit closing) is as follows.
Highly Satisfactory. There were no shortcomings in the proactive identification of opportunities
and resolution of threats.
5. Description of proposed arrangements for future operation. Plan to ensure the
sustainability of the Project’s achievement.
5.1 Future arrangements.
Arrangements to achieve or maintain the same development outcome include:
- The infrastructure and equipment installed during the TUP project will meet the electricity
demand in Tete province for the next 10 years. The Matambo substation extension is sufficient to
maintain the development outcomes until 2026.
- In addition to the new equipment installation, maintenance of the equipment in accordance to
international best practices will be done in order to maintain the network operational and prevent
unplanned outages.
- To maintain the objectives beyond the foreseeable 10 years, the Utility will have to regularly
update their development plans for the province and monitor the demand growth to ensure that
unforeseen growths are addressed before they reach the capacity of the existing equipment.
5.2 Risk to development outcome.
Our assessment of the risk, at present, that development outcomes (or expected outcomes) will not
be maintained (or realized) is:
Negligible to Low;
Changes that may occur that would be detrimental to the ultimate achievement of the operation’s
development outcome include:
- Rapid demand growth due to construction activity in large infrastructure projects;
- Inability of existing transmission lines to support the forecasted load growth.
The likelihood is negligible to low that some of these changes may occur. The equipment sizing
was done based on the recommendations from a recent transmission and distribution master plan,
which covered the domestic, commercial and industrial load growth in the province up to 2026.
Other factors, such as equipment failures pose a low risk, since the extension was done using a new
transformer and auxiliary equipment, procured through an international competitive process.
Transmission infrastructure constraints may be experienced if the load grows beyond their capacity,
this infrastructure was not upgraded at this stage, EDM will have to monitor the load growth in
future to ensure that the capacity of the lines do not hinder the performance of the network.
The impact on the operation’s development outcomes of some or all of these changes materializing
is significant. The Matambo substation is essential for the supply of electricity to Tete City and the
surrounding industrial areas. If these negative changes materialize the network will be constrained
and the quality of supply will be reduced. High load growths and insufficient transmission capacity
in the region can cause outages which negatively impact the population and businesses in Tete
province.
59
6. Results
Project Development Objective Indicators PHINDPDOTBL
Average interruption frequency per year in the project area (Number, Core)
Baseline Actual (Previous) Actual (Current) End Target
Value 230.00 199.00 151.00 411.00
Date 17-Jul-2007 31-Mar-2016 30-Aug-2016 30-Aug-2016
PHINDPDOTBL
Customers served in the project area (Number, Core Supplement)
Baseline Actual (Previous) Actual (Current) End Target
Value 20527.00 72633.00 81276.00 86628.00
PHINDPDOTBL
Direct project beneficiaries (Number, Core)
Baseline Actual (Previous) Actual (Current) End Target
Value 0.00 0.00 81276.00 86628.00
Date 01-Nov-2013 14-Dec-2015 30-Aug-2016 30-Aug-2016
Comments
PHINDPDOTBL
Female beneficiaries (Percentage, Core Supplement)
Baseline Actual (Previous) Actual (Current) End Target
Value 0.00 0.00 50.00 51.00
Overall Comments
60
Intermediate Results Indicators PHINDIR ITBL
ESIA final report completed and approved by GoM (Text, Custom)
Baseline Actual (Previous) Actual (Current) End Target
Value No ESIA -- ESIA final report completed and approved by GoM
ESIA final report completed and approved by GoM
Date 17-Jul-2007 30-Nov-2013 24-May-2016 30-Jun-2016
PHINDIR ITBL
New 220/66/33 kV transformer installed and commissioned at Matambo substation (Text, Custom)
Baseline Actual (Previous) Actual (Current) End Target
Value No transformer Transformer on site fully and fully assembled
130 MVA Transformer delivered on site and commissioned
80 MVA of new transformation capacity commissioned
Date 01-Jan-2012 11-Dec-2015 30-Aug-2016 30-Aug-2016
PHINDIR ITBL
Level of charge of the current Matambo transformer (Percentage, Custom)
Baseline Actual (Previous) Actual (Current) End Target
Value 26.00 92.00 45.00 70.00
Date 17-Jul-2007 21-Nov-2014 30-Aug-2016 30-Aug-2016
PHINDIR ITBL
New 220/33 kV, 25 MVA mobile substation delivered (Text, Custom)
Baseline Actual (Previous) Actual (Current) End Target
Value No transformer Transformer undergoing tests
Transformer was delivered and ready for use
50 MVA of new transformation capacity delivered
Date 17-Jul-2007 11-Dec-2015 30-Aug-2016 30-Aug-2016
62
Annex 9. List of Supporting Documents
1. Project Appraisal Document: Southern African Power Market Program (SAPMP) APL-1,
Sept. 2003.
2. Project Appraisal Document: Southern African Power Market Program (SAPMP) APL-2,
June 2007.
3. Project Appraisal Documents: Costal Transmission Backbone Project of the West African
Power Pool (WAPP) APL Program, June 2005.
4. Electricity de Mozambique (EdM). Annual Statistical Report, 2014.
5. Malawi Growth and Development Strategy 2006-2011
6. Malawi Growth and Development Strategy 2011-2016
7. Malawi National Electricity Policy (NEP, 2003)
8. Mozambique Poverty Reduction Support Strategy 2006-2009 (PARPA II)
9. Mozambique National Development Strategy 2014 (ENDE)
10. Malawi CAS: 2007-2010
11. Malawi CAS: 20013-2016
12. Mozambique CPS: 2008-2011
13. Mozambique CPS: 2012-2015
14. SAPP Annual Report, 2006.
15. Quarterly Progress Report, Extension of Matambo 220KV substation project, April –
June 2015.
16. Quarterly Progress Report, Extension of Matambo 220KV substation project, December
2015.
17. Norconsult, 2014. Final Master Plan Update Report, Master Plan Update Project, 2012 –
2027, Technical Assistance for Electricity de Mozambique (EdM).
18. Dikelman, Taryn, 2011. The Effects of Rural Electrification on Employment: New
Evidence from South Africa, American Economic Review, Vol. 101, No. 7, (pp. 3078-
3108)
19. Karen Fisher-Vanden, Erin T. Mansur, Qiong (Juliana) Wang, 2015. Electricity shortages
and firm productivity: Evidence from China's industrial firms, Journal of Development
Economics, Volume 114, May 2015, Pages 172–188.
20. ICR Guidelines: August 2006, (updated 2011).
21. Project Restructuring Papers, 2013, 2014, 2015, and 2016.
22. ISR Seq1-Seq16: Mozambique Transmission Upgrade Project.
23. Other Project Documentation: Financing Agreements, Aide Mémoires, Office memos,
Official Correspondences.
24. Vanheukelom. Jan and Talitha Bertelsmann-Scott, 2016. The Political Economy of
Regional Integration in Africa, The Southern African Development Community (SADC).
25. World Bank, 2016. Background Paper for the Guidance Note on Energy Project
Appraisal Documents: Literature Review