|1. Project Data:
ICR Review Date Posted:
|Eg-el Tebbin Power
Project Costs(US $M)
Loan/Credit (US $M)
|Energy and Mining
Cofinancing (US $M)
Board Approval Date
|Infrastructure services for private sector development (100% - P)|
||ICR Review Coordinator:
|2. Project Objectives and Components:|
The objectives of the project, as stated in the Loan Agreement (Schedule 2, p.11) “are to assist the Borrower in enhancing energy supply in a sustainable manner and strengthening the power sector performance.”
The Project Appraisal Document (page 7) states that “the project development objectives are to: (i) assist the GOE (Government of Egypt) in enhancing the provision of energy supply in a sustainable manner, through investment in new generation capacity, and (ii) help the GOE strengthen sector performance by engaging in policy dialogue and supporting measures aimed at improving financial performance, the functions of the regulator and energy efficiency.”
The statement of objectives in the Loan Agreement is used in this evaluation, while taking into account specific intermediate outputs specified in PAD, namely, financial performance, the functions of the regulator, and energy efficiency.
b. Were the project objectives/key associated outcome targets revised during implementation?
A. The El Tebbin Power Plant (Planned: $449.6 million, Actual: $704.99 million – the Bank’s finance was $259.6 million at appraisal)
This component supported the construction of a 700 MW power plant comprising two units of 350 MW steam turbines and boilers using natural gas as the main fuel and residual oil (mazout) as the emergency back-up fuel on an existing site. This component includes (i) demolition of existing plant and site preparation works; (ii) two units of 350 MW steam turbine-generators; (iii) two units of steam generators (boilers); (iv) electrical equipment including transformers and switchyard; (v) auxiliary mechanical equipment including pumps and drives, heat exchangers and de-aerators, and critical and non-critical piping and valves; (vi) a water and wastewater treatment plant; (vii) the implementation of the Environmental Management Plan (EMP), including environmental monitoring equipment; (viii) distributed control systems and instrumentation, (ix) engineering and project management services including design, procurement and construction supervision as well as commissioning, testing and start-up of the Project; (x) civil works, yard tanks and medium and low voltage switchgear; (xi) insurance; and (xii) transmission lines to interconnect to the national power grid.
B. Technical Assistance Component (Planned: $2.45 million, Actual: $0.25 million – the Bank’s finance was $0.7 million at appraisal)
This component was to fund (i) an automated financial management system at the Egyptian Electricity Holding Company (EEHC) to ensure better monitoring and reporting of the financial position of the sector and to allow for the use of financial information as a decision-making tool for management; (ii) a review of the current tariffs relative to costs in order to develop options for future tariff changes, including the design and application of time-of- use tariffs; and (iii) energy efficiency improvements by (a) the design of a load management program, based on an assessment of data collected on consumption patterns of industrial and large commercial customers; (b) upgrade of Long Run Marginal Cost (LRMC) software; and (c) feasibility assessment of an “Interruptability” Scheme.
d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
The power plant cost increased from $449.6 million to $705 million due to (i) a general increase in global steel prices; (ii) a general increase in power equipment prices due to strong demand from Asia; and (iii) a currency mismatch between the Bank loan and Bank-financed expenditures.. However, the amount of the Bank loan remained the same by reducing the Bank-financed procurement packages from twelve to four. The Borrower financed the remaining packages from the state-owned National Bank of Egypt (NBE) ($100.66 million), OPEC Fund ($27.55 million) and Cairo Electricity Production Company ($317.18 million). The project closing date was extended twice, first from April 30, 2011 to October 30, 2011 and then from October 30, 2011 to April 30, 2012. The ICR reported three reasons for this delay: (i) political and public unrest in Egypt; (ii) delay in the supply of spare parts for steam turbine generators; and (iii) additional time required to finalize closing out activities of the four Bank-financed contracts.
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives:
The project objectives were substantially relevant to the key objectives of the GOE and the Bank’s objectives at the project appraisal and remain relevant at project closing. The FY06-FY09 Country Assistance Strategy (CAS), which was extended until FY11, stated its objectives as (i) facilitating private sector development; (ii) enhancing the provision of selected public goods; and (iii) promoting equity (para 61). One of the focus areas of the 2nd objective was the power sector, with specific reference to the El Tebbin Power Project.
Given the political and economic uncertainties due to the collapse of the regime in Egypt in January 2011, the Bank Group presented an Interim Strategy Note (ISN) as an indicative program of support over an 18- month period from June 2012 through December 2013. The ISN states that “the Bank plans to continue supporting the Government efforts to secure reliable energy supply through conventional and renewable sources and introduce institutional reform” (para 53). The project supports the ISN’s first pillar of improving economic management, and its second pillar of job creation.
Therefore, the relevance of objectives is substantial on the basis of their consistency with the CAS and the ISN. Misalignment between the project objectives and the actual project components are discussed in Section 8 below.
b. Relevance of Design:
The design had two elements. The first was to increase the energy supply by building El Tebbin Power Plant with 700 MW capacity. The second was to strengthen the power sector's performance by means of engaging in policy dialogue and improving financial performance, the functions of the regulator, and energy efficiency.
- The causal chain linking the building of the El Tebbin Power Plant with increasing the energy supply is complete and logical. The demolition of the old power plant with three 15- MW steam turbines and two 23- MW gas turbines (erected in 1958 and 1979, respectively) and the construction of a more efficient 700 MW power plant support the fast- growing demand of electricity in Egypt.
- On the other hand, the linkage between the outcome of strengthening power sector performance and the project components is not clear. In particular, no specific project components aimed to strengthen the function of regulator are designed. Given the limited scope and time-frame, it was too ambitious to formulate the objective of strengthening power sector performance.
|4. Achievement of Objectives (Efficacy) :|
(a) Enhancing the provision of energy supply in a sustainable manner, through investment in new generation capacity. Modest.
- The 700MW El Tebbin Power Plant was completed successfully by the project’s closing date of April 30, 2012, but only 350 MW of that capacity is presently in operation because the Unit 1 steam turbine and generator had tripped and caught fire on October 26, 2012, which caused plant shutdown for both Units. The cause of the accident is under investigation at the time of this ICR review.
- Total generating capacity was increased nominally to 27,049 MW by June 2011 (originally planned to 26,679 MW by 2010). However, half of the 700 MW added through the project is out of commission at the time of this ICR Review.
- El Tebbin Power Plant demonstrated high efficiency (8,005 Btu per kWh, compared to EEHC’s overall average of about 8,400 Btu per kWh).
The objective of enhancing the provision of energy supply in a sustainable manner has only partially been achieved since the 700 MW incremental capacity was intended to replace decades-old plants of about 90 MW (3 units of 45 MW each and 2 units of 23 MW each) in order to keep pace with accelerating growth in electricity demand.
Unit 2 has been fully operational since January 2013 after the repair but unit 1 is still under repair. The estimated cost of repair is not expected to exceed US$50 million and there are manufacturer's warranty and insurance arrangements in place to help cover costs once responsibilities have been assigned. According to the project team, the plant is expected to resume in full capacity in the second quarter of the calendar year 2014.
(b) Strengthening the power sector performance. Modest.
Though some of the final and intermediate outputs were observed as elaborated below especially for energy efficiency, there is only weak evidence that project activities achieved the objective of strengthening the power sector's performance.
- Financial ratios did not achieve the target; debt service coverage ratio was 1.1 in FY2011 (target >1.4) and current ratio was 0.5 in FY 2011 (target > 1). A new automated financial management system, which was planned to be installed to enable the use of financial information as a decision-making tool for management, was not implemented either. Although the tariff increase, which started before the project, continued until 2009, financial performance of EEHC has not improved.
Functions of the regulator
- The regulator has provided inputs to facilitate the TA on time of use tariff and prepared the cost of electricity supply studies. However, the Law to strengthen the regulator’s role is still pending.
- Several outputs were observed: (i) time-of-use tariffs study was executed by TA and such tariffs were introduced for the first time in Egypt; (ii) the study on the development of a load management program was completed; and (iii) the software models for LRMC and demand response (load management and interruptible scheme) were concluded.
- The initial time of use electricity tariff structure became effective in January 2010 but the ICR reported that this tariff structure did not lead to significant reduction in peak power demand because the difference between peak and non-peak tariff was too small. The tariffs were revised in January 2012 to enhance the effectiveness in reducing peak demand, and a second round of discussions are taking place with the industrial customers who account for one third of electricity consumption.
- According to the project team, Ministry of Electricity has developed a National Energy Efficiency Action Plan approved by the Government in 2012 and is now establishing an Energy Efficiency unit responsible for implementation of the NEEAP and establishing energy efficiency regulations and targets.
The power plant was successfully constructed to operate at its full 700 MW capacity as envisaged in PAD. However, the plant cost increased from $449.6 million to $705 million, and the project closing date was extended for one year from April 30, 2011 to April 30, 2012. The ICR reported that the final cost of El Tebbin project were similar to those of the thermal power plants constructed at the same or slightly later period in Egypt (Cairo West: 700MW for $729 million / Ain Sokhna 1300MW for $1700 million). However, it is not clear whether the power plant costs in the Egyptian market are comparable with those in other countries.
During the meeting with the project team, it was clarified that the methodology as well as the associated assumptions for ERR calculation in Egypt power sector have been reviewed and refined through the subsequent thermal power projects in Egypt, and the methodology used in the El Tebbin project is the latest one. The ICR estimated the ex-post economic rate of return (ERR) to be 18.4% compared to 19.9% at appraisal, using the new evaluation variables available at the ICR stage, such as revised project cost and higher economic cost of natural gas. The ICR also conducted sensitivity analysis for various scenarios and reported that even in the worst case, project economic return is always well above the hurdle rate of return.
It should be noted that the methodologies of ERR calculation between PAD and ICR are quite different, and ERRs in PAD and ICR are not easily comparable. The following discrepancies are observed between PAD and ICR.
- The PAD assumed 25 years plant operation life, whereas the ICR assumed 30 years.
- The ways to calculate economic benefit are different between the PAD and the ICR. The economic benefit for the future years is much higher in the ICR than in the PAD.
- O&M costs have been reduced in the ICR significantly compared to the PAD but no explicit explanation was made.
- Change in plant availability due to plant outage and heat rate degradation, both of which were considered in PAD, were not taken into account in the ICR.
Using the ICR methodology, adding the estimated US450 million cost of repair (to the actual project economic capital cost US$608 million) and the 2 year disruption of Unit 1, the ERR decreases to 15.6 percent.
Using the PAD methodology and assumptions, the ERR including the fire scenario decreases to 10.8 percent. This ERR is substantially lower than the original 19.9 percent.
The project’s efficiency is rated modest, considering the the loss of net benefits due to the closure of Unit 1 because until there is firm evidence that Unit 1 is back in operation and yielding its expected net benefits, the ICR’s ERR calculation is theoretical. The ERR would need to be updated upon Unit 1’s re-commissioning.
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated