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Philippines: Bacon Manito Geothermal Power Project (Loans 29690 and 29691-PH)

The Implementation Completion Report (ICR) on the Philippines Bacon Manito Geothermal Power Project (Loans 29690 & 29691-PH, approved in FY88) prepared by the East Asia and Pacific Regional Office with annexes contributed by the Borrower. Loan 29690-PH, for US$41 million, to the Philippine National Oil Company (PNOC) was fully disbursed and closed in December 1993, as planned. Loan 29691-PH, for US$59 million, to the National Power Corporation (NPC) was closed on December 31, 1995, two years behind schedule. US$3.9 million was canceled. The ICR includes evaluations by both borrowers, but contains no comments by the Government of Italy, which financed the power plant with a loan of US$74.7 million equivalent on concessional terms.

The objectives of the project were: (i) to build a 110 MW power production facility at the Bacon Manito geothermal steam field; (ii) to assess and delineate other geothermal resources on the island of Luzon; (iii) to upgrade and extend NPC's power generation and distribution grid; and (iv) to support institutional building and financial recovery of NPC. The project components were: (i) drilling additional wells and installing steam gathering surface facilities in the Bacon Manito geothermal field (by PNOC) to increase steam production capacity from 70 MW to 110 MW; (ii) construction of a 110 MW power generation facility and associated transmission lines to evacuate the power (by PNC); (iii) drill 18 exploration wells in various potentially productive areas (by PNOC); (iv) construction of power lines and communication links needed to strengthen other portions of the transmission system in Luzon (by PNC); and (vi) implementation of studies for future system investments and for cost estimating.

The project's physical objectives were substantially achieved although a considerably higher cost than projected. NPC needed to drill many more wells than originally planned to reach the steam generation requirements for a sustained production of 110 MW; and the final cost was about 2.5 times higher than estimated at appraisal. Construction of the power plant was delayed by over two years, primarily as a result of delays in receiving Italian cofinancing and costs were 54 percent more than estimated at appraisal. Transmission line expansion sub-components were delayed by up to four years, and costs were increased by 25 percent. Even with these cost overruns, the economic rate of return (ERR) was still a satisfactory 13.7 percent (down from the appraisal estimate of 19.5 percent), primarily because substantial tariff increases were implemented during the period. Only half of the originally planned exploration wells were drilled and none produced viable steam prospects. The rehabilitation of the 50 MW thermal power plant is not mentioned in the ICR.

The project's institutional objectives were substantially achieved. The project allowed the Bank to serve as a catalyst geothermal-based power generation in the Philippines particularly in relation to facilitating a framework pricing arrangement for the sale of steam from PNOC's geothermal field to PNC's power plant, which will facilitate future geothermal projects by the private sector. NPC was able to increase tariffs in support of its financial recovery and has laid the groundwork for privatization. Other sub-components (e.g. the Management Information System and the training center) are still in the process of being implemented.

The Operations Evaluation Department (OED) rates the project outcome as satisfactory, project sustainability as likely, and institutional development impact as substantial. Bank performance is rated as satisfactory. These ratings are consistent with those in the ICR. The ICR is comprehensive, covering all important aspects of project implementation; it is rated satisfactory.

The major lessons from this project are: (i). when cofinancing supports a critical project element, the borrower and Bank need to establish some mechanisms to ensure that this cofinancing will become available on schedule, and these arrangements should be in place prior to Board approval; and (ii) the borrower's procurement procedures need to be thoroughly reviewed during appraisal to ensure that they do not become a cause of implementation delays. No audit is planned at this time.

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