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Implementation Completion Report (ICR) Review - Kazakhstan Moinak Electricity Transmission Project


  
1. Project Data:   
ICR Review Date Posted:
06/27/2014   
Country:
Kazakhstan
PROJ ID:
P114766
Appraisal
Actual
Project Name:
Kazakhstan Moinak Electricity Transmission Project
Project Costs(US $M)
   
L/C Number:
L7738
Loan/Credit (US $M)
 48.0  44.73
Sector Board:
Energy and Mining
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
 
 
 
Closing Date
12/31/2012 04/30/2013
Sector(s):
Power (95%), Public administration- Energy and mining (5%)
Theme(s):
Infrastructure services for private sector development (100% - P)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Mamundi G. Sri-Ram Aiyer
Robert Mark Lacey Christopher David Nelson IEGPS1

2. Project Objectives and Components:

a. Objectives:
According to the Loan Agreement, Schedule 1, and the PAD, the project objective is “to increase and improve the supply of electricity to business enterprises and households in southern Kazakhstan in an economically and environmentally sustainable manner”.

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components:
There were three components:

Component A: Construction of Transmission Lines-- (Costs: Appraisal US$45.8 million; Closing US$44.0 million).

A1. Construction of a 97.3 km long 220 kV single-circuit overhead transmission line (OHTL) from the Moinak Hydroelectric Power Plant (MHPP) to Shelek substation; Construction of two 220kV transmission lines from 220kV MHPP Switchyard to MHPP (circuit 1-0.484 km, circuit 2-0.553 km).
A2. Construction of a 227.78n km long 220kV single-circuit OHTL from MHPP to Robot substation.

Component B: Modernization of Substations-- (Costs: Appraisal US$21.1 million; Closing US$18.8 million).

B1. Construction of 220/110 kV outdoor switchyard to transfer power from MHPP to Kazakhstan Electricity Grid Operating Company (KEGOC) transmission lines.
B2. Modernization of 220 kV Robot substation.
B3. Modernization of 220 kV Shelek substation.

Component C: Consulting and Technical Services-- (Costs: Appraisal US$2.5 million; Closing US$2.5 million).

C1. Procurement and project management, including preparation of bidding documents, construction supervision and quality control.
C2. Technical services, which include support for selection of transmission routes, engineering surveys and construction supervision of turn-key contracts.

None of the components was revised during project implementation.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project cost. At appraisal the total project cost was estimated at US$ 69.6 million, including a US$0.2 million IBRD Front End fee. The financing required was estimated at UD$ 73.4 million, including interest during construction. The Borrower, KEGOC, was to finance US$ 25.4 million from its own resources.
The final project cost was US$65.6 million (including the IBRD front end fee of US$ 0.2 million), 5% below the appraisal estimate. The final cost of the transmission lines was US $44.0 million, 4% below the appraisal estimate of US$ 45.8 million; substations cost US $18.8 million, 11% below the appraisal estimate of US$ 21.1 million. Consultancy and technical services cost US $2.5 million, as estimated at appraisal. There were no significant changes in the scope of the project.
Financing. US$44.7 million (97%) of the IBRD loan of US$46 million was disbursed. At closing, the unutilized US$ 3.27 million of the Bank loan was cancelled. There were no other external sources of financing.
Borrower contribution. The Borrower’s contribution of US$ 20.8 million was some 88% of the amount of US$ 23.6 million anticipated at appraisal.
Dates. The Closing Date of the IBRD loan was extended by 4 months from December 31, 2012 to April 30, 2013 to allow KEGOC to complete testing of the MHPP before acceptance from the contractor.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:
High.

    The project’s objectives are relevant to the strategy of the government, which had chosen to invest significant efforts in support of the modernization and expansion of the power sector in order to address growing constraints to reliable power supply. The Moinak Hydroelectric Power Plant (MHPP) was included in the 2010-2014 State Program of Accelerated Industrial and Innovative Development in the country.
    The objectives are relevant to the March 2012 Country Partnership Strategy (CPS) for the Fiscal Years 2012-2017. The CPS highlights as one of the country’s priority development goals the development of infrastructure connectivity to reduce economic distance. The CPS lists as one of the outcomes improving energy transmission to poor areas, by building on investments in transmission, focusing on the development of the country’s vast renewable energy resources, particularly wind and hydro power, into the national grid, and strengthening key regional power interconnections to alleviate severe network bottlenecks. The objectives were also consistent with the CPS of 2004, and updated in a Progress Report dated May 1, 2008 to cover the period through 2010. One of its key pillars was “investing in human capital and infrastructure”, given that the major segments of infrastructure (i.e., roads and power transmission networks) did not meet the needs of a rapidly expanding economy.

b. Relevance of Design:
Substantial.
There is a clear causal chain between the activities designed to be supported by the project and the expected attainment of the development objectives. The investment in the physical facilities, namely construction of transmission lines and modernization of substations combined with consulting and technical services (among others, to support selection of transmission routes that are least-cost and environmentally neutral) are aimed at increasing the supply of electricity from the MHPP (already nearing completion) to the Southern Region. This would not only increase the available supply of electric power but also improve quality and reliability, thereby enabling a reduction in load shedding and power outages that affect business and households. Thus, the design enables supply of electricity in an economically and environmentally sustainable manner. Design was optimized by choosing to link MHPP supply to the Southern Region, as the length of the transmission line from MHPP is far shorter than the national system’s average.
The lending instrument (a Specific Investment Loan) was appropriate, while the three-component design that was selected was simple and tried before in similar electric power transmission projects. Also, under previous projects with KEGOC, turnkey contracts for construction of transmission lines and substation rehabilitation had proved to be an efficient approach to implementing projects in a cost-effective manner without overburdening the company’s supervision capacity. The project was critical to transmission of power from the MHPP, and thus had strong support from GOK.


4. Achievement of Objectives (Efficacy) :

The project’s development objectives were: “To increase and improve the supply of electricity to business enterprises and households in southern Kazakhstan in an economically and environmentally sustainable manner.
Outputs and Outcomes:
The supply of electricity to southern Kazakhstan was increased by providing the facilities needed to evacuate electricity generated by MHPP. The first high voltage line began operation in November 2011 and the second in August 2012—within 2 months of the original schedule. The project has specifically resulted in several benefits listed in the ICR. Thus, MHPP’s 300 MW of additional generating capacity has contributed to the reduction of the regional power deficit of Kazakhstan’s Southern Region.
1. Increased Supply of Electricity--rated High: The Southern Region is expected to be provided with 1000 GWh pa of hydro-electric power, much of which will be used to cover peak demand, which was hitherto unmet. MHPP has provided some 430 GWh of power in its first 6 months of full capacity operation.

2. Improved Supply of Electricity—rated High: In terms of quality of supply, there has been no load shedding in the Almaty power region since the project came on stream. While this is to a considerable extent attributable to the availability of MHPP, the expansion of the North-South transmission line, which had been a limiting factor in the past, also contributed to the elimination of load shedding.

3. Economic Sustainability—rated Substantial: The difficulty of fully accessing MHPP’s cost data makes an evaluation of the project’s contribution to the change in the average cost of power in the region difficult. A moderate downward pressure is plausible, according to the ICR, since MHPP hydro-electric power is produced at a lower cost than the alternatives, including power supplied from the North over larger distances. KEGOC has contracted with MHPP for 350 MWh of additional output (to make up for its transmission losses) at a price significantly lower than the cost would have been from power plants in Kazakhstan’s Northern region

While the project did not contain any institutional strengthening component, the Bank’s engagement with KEGOC and GOK in the electric power sector over several years, including the ongoing Alma Electricity Transmission project, has contributed significantly to KEGOC’s operational and institutional strengthening. According to the ICR (page 13), Kazakhstan has become a model for other countries in the region, having created an efficient, profitable and commercially oriented power system operator, a reasonably effective sector regulator and a competitive power market, with a sound overall institutional and legal framework. Full recovery of justifiable costs including the cost of new investments are ensured by the Law on Natural Monopolies, and KEGOC’s tariffs were approved by the Agency for Regulation of Natural Monopolies on a cost-plus basis and included a 10 percent rate of return. Also, the provisions of the Guarantee Agreement signed by the Government of Kazakhstan ensures that the transmission tariff would be maintained at levels sufficient to cover KEGOC’s longer term cash flow requirements—transmission tariff increases of about 10 percent per year have already been approved for the next three years. All this contributes to financial sustainability.

4. Environmental Sustainability—rated High: IMHPP is physically closer to the Southern Region. MHPP’s annual output of about 1000 GWh of electric power would replace the equivalent amount of energy generated by coal-fired plants, thereby saving about 1.2 million tons of CO2 emissions, contributing to the environmental element of the development objectives. MHPP was expected to reach this level of output by the end of its first year of operation, i.e., end 2013. Indeed, economic efficiency and environmental sustainability are both served as hydro power is cheaper and more environmentally beneficial than other sources.

5. Efficiency:

The project was implemented on time and under budget in spite of a tight implementation schedule that needed to be closely coordinated with completion of the MHPP (since operation of MHPP and construction of the transmission lines were mutually dependent.
The economic rate of return (ERR) for the entire project estimated by the ICR, using projections as of October 2013 is 16%, including the monetized value of the CO2 emission savings, and 13.6% if CO2 savings are excluded—this compares with the appraisal estimate of 17.1% including CO2 savings. The financial internal rate of return (FIRR) to KEGOC from the transmission component alone, according to the ICR is 20.8%--high because KEGOC receives the same price for a kWh transmitted regardless of where the electricity is generated or consumed--the transmission line is shorter than KEGOC's average.
The assumptions that the ERR calculations are based upon are considered reasonable (electricity valued at consumer’s willing ness to pay; unserved demand reduced to zero; use of actual production figures in 2012 and projections for 2013; use of KEGOC’s assumption about peak demand requirements (in months where power utilization is assumed to exceed and average 100 MW, it is assumed that all outputs is used to cover peak demand). Efficiency is rated Substantial.

a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:


Rate Available?
Point Value
Coverage/Scope*
Appraisal:
Yes
17.1%
0%
ICR estimate:
Yes
16%
0%

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

The relevance of the project objectives is rated High, based on the country’s needs and priorities in the infrastructure and energy sectors, and overall economic development. Based on the clarity of the links between inputs, outputs and outcomes, and of the results framework the relevance of design is rated Substantial. The planned outputs and outcomes were fully achieved or exceeded, with the project having been completed below the estimated costs and having achieved substantial economic and financial benefits. Efficacy of three of the four sub objectives, increased supply of electricity, improved supply of electricity, and environmental sustainability are rated High, while that of the fourth objective, economic sustainability, is rated substantial. Efficiency is rated Substantial. Thus the overall project outcome is rated Satisfactory.

a. Outcome Rating: Satisfactory

7. Rationale for Risk to Development Outcome Rating:

As mentioned earlier, MHPP was expected to reach its full output by the end of 2013, the first full year of operation. The dialog between the Bank and GOK on the electric power sector continues under two further transmission projects agreed upon according to the current FY12-17 CPS. The risk factors are listed below.

Technical: The technology introduced through this project is well established, tried and tested in Kazakhstan and elsewhere, and is relatively straightforward. Furthermore, KEGOC’s staff is qualified and fully trained, and has operated earlier facilities such as those of the earlier North South Transmission project. Thus, the likelihood of the project not achieving its development outcomes due to technical risks is low.

Financial: KEGOC’s overall financial position is sound, and it had no difficulty financing its share of project costs. The Agency for Regulation of Natural Monopolies (ARNM) has consistently approved tariff increases to cover KEGOC’s full operating and investment costs. Although it cannot be totally ruled out that future requests for tariff increases may not be approved at the level requested, transmission tariff increases of about 10% per annum have been regularly approved for the subsequent three years. Therefore, the likelihood of not achieving the development outcomes due to financial risks is also low.

Environmental: The project’s Environmental Assessment rating of ‘B’ appropriately reflected the initial assessment that the environmental risks were limited in scope and manageable. KEGOC fully complied with the requirements of all environmental protection covenants. Therefore, the likelihood of not achieving developments due to environmental risks is low.

Governance/Institutional: KEGOC had held discussions with the Bank on possible support for a Third North-South Electricity Transmission Project, which is included in the Bank’s 2012-2017 Country Partnership Strategy. That would strengthen the national power network and improve the reliability of electricity supply in Southern Kazakhstan, while also providing the basis for sustaining the dialog with the government on further sector reforms. KEGOC has benefitted in the past from strong and capable management, which has had the support of government agencies responsible for overall policy setting. As a result, the commercial focus of KEGOC has been “exemplary” (ICR, page 14) with minimal political interference. In February 2012, KEGOC informed the Bank that it had been included in the government’s “People’s Initial Public Offering (IPO)” program for selected major state owned enterprises, whereby shares (from 5-15%) would be floated on the stock market. The exact timing of the float is still to be determined. While this is expected to strengthen the corporate governance practices, the IPO may introduce some element of uncertainty as to how KEGOC will be managed in the future. Nonetheless, given the low percentage of shares offered, the likelihood of not achieving development outcomes due to governance/institutional risk is low.

a. Risk to Development Outcome Rating: Negligible to Low

8. Assessment of Bank Performance:

a. Quality at entry:
Project preparation was short and efficient. It took 10 months from Concept Review to Board. The project benefitted from sound technical, economic and financial analyses, and used tried and tested technologies. Project design was optimized, as MHPP requires a substantially shorter transmission line than the national system’s average, reducing capital and operating costs.

The Bank mobilized a team with all the necessary skills including expertise in electricity markets, engineering, procurement, environment and financial management. The PAD (p 9) says KEGOC’s implementation financial management and procurement capacity were adequate. This was demonstrated by its performance under prior and ongoing Bank financed transmission projects. As stated in the PAD (p 39), the Bank team recommended the hiring of a project management consultant, and the use of a turnkey approach for the major contract to minimize the additional work for KEGOC’s implementation team.

The Bank’s environmental specialist identified the limited environmental impacts and verified that the environmental management plan (EMP) had adequate arrangements for mitigation and monitoring of the environmental impacts, and that the public consultations during project preparation were adequate. The technical, environmental and social risk assessments were thorough, and identified adequate risk mitigation measures (PAD, pp16-21).

The Bank considered the Borrower’s suggestion that prequalification criteria be restricted to contractors who had performed similar contracts in countries other than their own countries of origin, but decided to proceed on the basis of the Bank’s Guidelines for Procurement, so that the process remained open to a broader cohort. This led to some unanticipated difficulties during implementation (see Section 11 b below)

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:
The Bank team undertook supervision mission missions regularly during the three years of implementation. Delays in the implementation schedule and the need to make up for lost time were recurring themes of ISRs and Aide Memoires. The majority of the procurement issues were handled by the regional field office. The EMP and its adherence were regularly monitored, and there were two FM/fiduciary missions. A collaborative relationship was maintained with GOK and KEGOC, and the Bank was regarded as a trusted partner, as indicated in the Borrower’s Comments on the ICR (Annex 7, ICR).


Although the Bank provided rigorous implementation support from a fiduciary perspective, according to the ICR, the Borrower was not able to complete the Land Acquisition Plan (LAP) in a timely manner to secure the Bank’s formal approval. However, prior approval of the LAP by the Bank to ensure compliance with the Bank’s OP 4.12 would have meant delaying work on the transmission line construction.. Therefore, the Borrower was alerted to this, and the Bank team worked with the Borrower to approve a LAP acceptable to the Bank, which included retroactive measures to ensure that all project-related compensation was in compliance with OP 4.12. The ICR states that all compensation was completed prior to loan closing.

As mentioned, the prequalification process did not eliminate potentially inexperienced contractors. The Bank team was fully aware of the delay in preparation of detailed design packages, but delays were overcome after KEGOC undertook arrangements for their completion by hiring additional consultancy capacity.

The Bank agreed to extend the Closing Date from December 31, 2012 to April 30, 2013 in mid-December 2012, as a first and only extension requested by the Borrower. Although construction works were fully completed and contract was to close by end December 2012, KEGOC required additional time to properly review and accept the works, carry out guarantee tests, and equally important, obtain signed acceptance certificates from a number of relevant GOK agencies. The final payment could only be processed after the acceptance certificate was signed. Thus, the Closing Date extension met the needs of the implementing agency without compromising project performance.

Quality of Supervision Rating: Moderately Satisfactory

Overall Bank Performance Rating: Moderately Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:
The government accorded high national and regional priority to the MHPP. It was included in the 2010-2014 State Program of Accelerated Industrial and Innovative Development in the country. The project was assessed and cleared by the Ministries of Energy and Mineral Resources, Environmental Protection, Economy and Budget Planning, and Ministry of Finance. Thus, the project enjoyed strong support from the government. The Bank team coordinated with the key government agencies on the project’s design, processing schedule and implementation plan. The government monitored project implementation at the highest levels, with a site visit by the Prime Minister, and ensured timely financing and support for the speedy construction of the MHPP.

Government Performance Rating: Satisfactory

b. Implementing Agency Performance:
The Implementing Agency was KEGOC. It obtained the approval of the “State Experts” and support of the relevant ministries for the feasibility study, environmental impact assessment, and the project’s financing plan during preparation. KEGOC had a fully staffed, effective Project Management Unit (PMU) with much experience implementing Bank financed transmission projects. In order to ensure that the project was implemented in the shortest time possible, KEGOC hired an international consultant to assist with preparation and evaluation of bidding documents, and employed a turnkey contractor to ensure adequate coordination of all design and construction activities. KEGOC provided financing for the Robot and Shelek substations and for the switchyard at MHPP, and ensured that these were completed on the agreed timetable.

The project faced initial implementation delays, because the turnkey contractor had difficulties in mobilizing the requisite team to complete detailed design on time, and because of difficulties completing contracts with local sub-contractors. These were highlighted in supervision reports, and, following consultations between the Bank team and KEGOC, delays were overcome after KEGOC took over the task of completing detailed designs. The contractor was pressed continually by KEGOC to speed up implementation activities to meet the tight timetable for the transmission line, which undertook key tasks in the early stages to avoid a serious slippage. Thus it took remedial measures when the project was getting off track following the turnkey contractor’s initially inadequate performance.

    KEGOC developed an Environmental Management Plan (EMP) in compliance with Bank requirements and prevailing Kazakhstan legislation. It implemented an effective environment monitoring system that included appropriate quarterly reports to identify problems as they arose, while also working closely with the contractors to ensure that the whole project was implemented on schedule. Two Bank financial management missions found that accounting and auditing procedures were well designed and implemented at both the project and corporate levels. The government and KEGOC ensured that the project remained in full compliance with the Bank’s fiduciary requirements and ensured that the project delivered the expected development objectives on time. All audit reports were ‘clean’, there were no environmental issues and affected farmers were compensated for the short-term use of their land and for purchase of land permanently acquired for the project.

    In all KEGOC was highly proactive, efficient and effective in decision-making, which contributed to the timely implementation of the project, below the original cost estimates.

Implementing Agency Performance Rating: Highly Satisfactory

Overall Borrower Performance Rating: Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:
The outcome indicators were well designed to reflect project objectives and outcomes, except for one—reduction in the average wholesale price of electricity. That was reexamined during supervision, determined to have little relevance, and was dropped. Intermediate outcome indicators were adequate to monitor implementation progress and included: (i) timely completion of tender documents; (ii) contracts awarded in accordance with the deadline of the project’s Procurement Plan (PP); and (iii) exact items of equipment delivered, installed and commissioned in accordance with the PP.
The PAD Annex on Project Monitoring includes a quantitative indicator for measuring the project’s impact on reducing the region’s power deficit: the GWh amount generated by MHPP. The indicated target was 1027 GWh, reasonable for determining the deficit reducing impact of the MHPP and project transmission facilities. It also contains a load shedding indicator, to be reduced to zero after project completion from a baseline that was subsequently determined to be 80MW. Load shedding is also affected by factors other than the increase in MHPP generation capacity -- the increased electricity supply from the Northern region after completion of the second North-South Interconnector enabled elimination of load shedding before MHPP power supply became available, and this was recognized in M&E design. Baseline data were included in the PAD for the four quantitative measures that wereto be tracked, namely the reduction of power deficit in the southern region, load shedding in the Almaty power region, average wholesale price of electricity, and CO2 emissions based on demand growth to be met by thermal generation (PAD Annex 3)

b. M&E Implementation:
Progress indicators were consistently used to keep track of and identify problems in implementation progress. The slippages in implementation of procurement packages were identified on all supervision missions and agreement was reached on needed efforts to speed up the process and bring it in line with the procurement plan, which, in turn, was closely tied to the MHPP completion schedule.

At completion, KEGOC was to continue to collect information covering transmission of power from MHPP, and the amount of load shedding in the Southern Region, as part of its regular data collection process.

a. M&E Utilization:
Intermediate outcome indicators were used to ensure that project implementation remained on schedule. The value of MHPP output continues to be collected. The quantitative indicators related to increased capacity available during peak demand periods have been achievedKEGOC is to continue to providing operation data for the MHPP and electricity supply in the Southern region for the Bank’s monitoring of project performance.

M&E Quality Rating: High

11. Other Issues:

a. Safeguards:
The project triggered OP 4.01 (Environmental Assessment), OP/BP 4.12 (Involuntary Resettlement), and OP/BP 4.37 (Dam Safety).

    Environmental Management (OP/BP 4.01): The project was classified as Category B, as its potential impacts were expected to be for a limited duration and extent. Key issues included the regular construction matters associated with the movement of machines, material and workers, dust, noise, engine exhaust and disposal of solid non-hazardous wastes largely from packaging and land preparation. KEGOC prepared an EMP, held public consultations and subsequently posted the EMP on its public website and disclosed it in the Bank’s InfoShop. “The project is in full compliance with the environmental assessment regulations of the Borrower and World Bank environmental safeguard policies” (ICR, page 9).
    Involuntary Resettlement (OP/BP 4.12): KEGOC acquired about 14 ha of land for permanent use and some 555 ha for temporary use, all agricultural and razing land, with a total of 316 affected persons. According to the ICR (page 9), none had to resettled and all received reasonable cash compensation. A Land Acquisition Policy Framework was prepared during project preparation. However, construction of the transmission line started prior to the Bank’s formal approval of the Land Acquisition Plan (LAP), and the Borrower was alerted to this. The Bank team worked with the Borrower to approve a LAP acceptable to the Bank and which included relevant retroactive measures to ensure that all project-related compensation was in line with OP/BP 4.12. This was completed prior to Loan Closing.
    Dam Safety (OP/BP 4.37): Although MHPP was not formally part of the Bank financed transmission project, it was considered a “connected” project, thus triggering the safeguard. The Bank hired an independent dam safety expert to perform a due diligence assessment of the MHPP design, construction and envisaged operation. The assessment found that the dam was designed by qualified engineers. The design drawings were of high quality with sufficient details and quantitative assessments to confirm the dam’s safety. The Bank therefore concluded that the dam was consistent with the OP/BP (ICR, page 9).

b. Fiduciary Compliance:
Project procurement was implemented in accordance with the Bank’s Procurement and Consultant Guidelines and with the provisions in the Loan Agreement. Procurement review missions were carried out regularly by the Bank team. KEGOC’s administration of the procurement process was tight and well done for the turnkey contract, whose eventual value was some US$ 2.7 million below the original cost estimate. There were no reported cases of misprocurement.
The Bank considered the Borrower’s suggestion that prequalification criteria be restricted to contractors who had performed similar contracts in countries other than their own countries of origin, but decided to proceed on the basis of the Bank’s Guidelines for Procurement, so that the process remained open to a broader cohort. In the event, the process failed to eliminate companies with limited experience in turnkey contracts with a tight schedule. The eventually selected contractor had difficulty in mobilizing the full team needed to meet the project’s extremely tight implementation schedule. To avoid the delay, the implementing agency, in consultation with the Bank team, took over some tasks including arrangements for detailed designs and identification of local subcontractors.

Financial management. The PAD (Annex 7) states that according to the Transparency International’s Corruption Perception Index (CPI) of 2007 and 2008, there is a perception of high corruption in Kazakhstan. However, the company that will implement the project has maintained strong governance structures that ensure compliance with corporate rules and policies as well as strong financial management arrangements.

KEGOC’s financial management procedures had been reviewed regularly as part of supervision of all ongoing Bank financed transmission operations and considered fully satisfactory. Noteworthy elements were:
--a sound project accounting system integrated with the corporate accounting system;
--an experienced and skilled project management team including qualified FM staff;
--timely and regular submission of satisfactory interim financial reports to the Bank;
--timely submission of satisfactorily audited project and corporate financial statements;
--effective internal control procedures that ensured completeness and accuracy of financial transactions.

Procedures followed under this project also included (i) regular reviews of compliance with the internal control framework; (ii) regular monitoring of activities of the Designated Accounts, including timely reconciliation of Designated Accounts with bank statements; (iii) quarterly submission of project Interim Financial Reports; (iv) audit of project financial statements by independent auditors on terms acceptable to the Bank; and (v) regular FM supervision reviews.
Project financial supervision missions were carried out in 2010, 2011 and 2012. All missions confirmed the adequacy of the financial management system, including sound internal controls, and that KEGOC and the project were in full compliance with the Loan Agreement’s financial covenants, and that there were no issues with counterpart funds. KEGOC’s financial statements and project statements for 2010, 2011 and 2012 were audited by independent auditors acceptable to the Bank. The auditors issued an unqualified (clean) opinion on the consolidated entity and project financial statements.

c. Unintended Impacts (positive or negative):
A positive outcome easily overlooked is that electricity blackouts and brown outs adversely affect poor households and those run by females. Stability of electricity supply will have a positive benefit in terms of gender and poverty as well.
As mentioned in Section 4 above, the project did not contain any institutional strengthening component. However, the Bank’s engagement with KEGOC and GOK in the electric power sector over several years, including the ongoing Alma Electricity Transmission project, has contributed significantly to KEGOC’s operational and institutional strengthening. Kazakhstan has become a model for other countries in the region, having created an efficient, profitable and commercially oriented power system operator, a reasonably effective sector regulator and a competitive power market, with a sound overall institutional and legal framework.

d. Other:
None



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Satisfactory
Satisfactory
 
Risk to Development Outcome:
Negligible to Low
Negligible to Low
 
Bank Performance:
Moderately Satisfactory
Moderately Satisfactory
 
Borrower Performance:
Satisfactory
Satisfactory
 
Quality of ICR:
 
Exemplary
 
NOTES:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:
The following lessons are taken from the ICR with some adaptation of language: Early consultation with civil society and NGOs can help avoid project implementation problems. In this project, during preparation, it proved to be critically important to hear from the NGO community and take into account their concerns in the final project design. The concerns related to initial routing of the 2 transmission lines, and a timely re routing decision ensured that the lines did not encroach upon GOK-defined Specially Protected Natural Areas.

The development of a relationship of trust and confidence is key in projects of a relatively specialized nature involving sector reforms and institutional change. In this case the continued involvement of the same Bank staff over a few projects has led to the modernization of the electric power sector in Kazakhstan that is far ahead ofother Former Soviet Union countries.

Even projects with limited land acquisition and no relocation of people require adequate attention from the outset from the Bank team. The lack of consistent involvement of a qualified social scientist experienced with land acquisition issues both during preparation and implementation resulted in delays in approving the Land Acquisition Plan (LAP), and risked the project becoming out of compliance with the relevant safeguard covenant in the Loan Agreement. This lesson also highlights the importance of early technical assistance and capacity building with in the client’s institutions.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR provides adequate detail on objectives, outputs and outcomes. The document is analytical and arrives at conclusions that are largely supported by evidence, with clear explanations for the ratings. Overall, the ICR is both internally consistent and consistent with OPCS guidelines. The economic and financial assumptions informing the efficiency analysis are clearly set out.

a. Quality of ICR Rating: Exemplary

(ICRR-Rev6INV-Jun-2011)
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