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Document of
The World Bank
Report No: ICR00002478
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IDA-41970)
ON A
CREDIT
IN THE AMOUNT OF SDR 25.1 MILLION
(US$ 36 MILLION EQUIVALENT)
TO
BOSNIA AND HERZEGOVINA
IN SUPPORT OF THE THIRD PHASE OF THE US$ l,000 MILLION
ENERGY COMMUNITY OF SOUTH EAST EUROPE (APL) PROGRAM
April 16, 2013
Sustainable Development Department
South East Europe Country Unit
Europe and Central Asia Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective on March 31, 2013)
Currency Unit = KM
KM 1.00 = US$ 0.66
US$ 1.00 = KM 1.51
KM 1 = 100 Pfenings
FISCAL YEAR
January 1 to December 31
ABBREVIATIONS AND ACRONYMS
APL Adaptable Program Loan
BiH Bosnia Herzegovina
CAS Country Assistance Strategy
EBRD European Bank for Reconstruction and Development
ECSEE Energy Community of South Eastern Europe
EC Energy Community
EIB European Investment Bank
EPs Elektroprivredas
EPBiH Elektroprivereda Bosnia and Herzegovina
EPHZHB Elektroprivereda of the Croatian Community of Herzeg-Bosnia
EPRS Elektroprivereda Republika Srpska
EU European Union
FMIS Financial and Management Information System
HPP Hydropower plant
IDA International Development Association
ISO Independent System Operator
KfW Kreditanstalt für Wiederaufbau
PIU Project Implementation Unit
SCADA Supervisory control and data acquisition
SERC State Electricity Regulatory Commission
TPP Thermal power plant
Vice President: Philippe H. Le Houerou
Country Director: Ellen A. Goldstein
Sector Manager: Ranjit Lamech ECSSD
Project Team Leader: Mohinder Gulati ECSSD
ICR Team Leader: Mohinder Gulati ECSSD
BOSNIA AND HEREZEGOVINA
Energy Community of South East Europe (ECSEE) APL3-Bosnia and
Herzegovina Project
CONTENTS Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Project Performance in ISRs
H. Restructuring
I. Disbursement Graph
1. Project Context, Development Objectives and Design ............................................... 1
2. Key Factors Affecting Implementation and Outcomes……………………………...8
3. Assessment of Outcomes .......................................................................................... 15
4. Assessment of Risk to Development Outcome ......................................................... 19
5. Assessment of Bank and Borrower Performance ..................................................... 20
6. Lessons Learned ....................................................................................................... 21
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 21
Annex 1. Project Costs and Financing ...................................................................... 23
Annex 2. Outputs by Component .............................................................................. 26
Annex 3. Economic and Financial Analysis .............................................................. 29
Annex 4. Bank Lending and Implementation Support/Supervision Processes ..... 36
Annex 5. Beneficiary Survey Results ........................................................................ 37
Annex 6. Stakeholder Workshop Report and Results ............................................. 38
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ............. 39
Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ............... 41
Annex 9. List of Supporting Documents ................................................................... 42
A. Basic Information
Country: Bosnia and
Herzegovina Project Name:
Energy Community of
South East Europe
(ECSEE) APL3-Bosnia
and Herzegovina
Project
Project ID: P090666 L/C/TF Number(s): IDA-41970
ICR Date: 12/11/2012 ICR Type: Core ICR
Lending Instrument: APL Borrower: BOSNIA AND
HERZEGOVINA
Original Total
Commitment: XDR 25.10M Disbursed Amount: XDR 24.95M
Revised Amount: XDR 25.10M
Environmental Category: B
Implementing Agencies:
EPHZHB
EPRS
EPBiH
Co-financiers and Other External Partners: KfW European Bank for Reconstruction and Development (EBRD)
European Investment Bank (EIB)
B. Key Dates
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 11/30/2005 Effectiveness: 04/13/2007 04/13/2007
Appraisal: 04/04/2006 Restructuring(s): 11/23/2010
02/07/2011
Approval: 06/16/2006 Mid-term Review: 11/03/2009
Closing: 12/31/2010 06/30/2012
C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes: Moderately Satisfactory
Risk to Development Outcome: Moderate
Bank Performance: Satisfactory
Borrower Performance: Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry: Satisfactory Government: Satisfactory
Quality of Supervision: Satisfactory Implementing
Agency/Agencies: Satisfactory
Overall Bank
Performance: Satisfactory
Overall Borrower
Performance: Satisfactory
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): No
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
Sector Code (as % of total Bank financing)
Hydropower 30 30
Thermal Power Generation 25 25
Transmission and Distribution of Electricity 45 45
Theme Code (as % of total Bank financing)
Pollution management and environmental health 25 25
Regional integration 50 50
Regulation and competition policy 25 25
E. Bank Staff
Positions At ICR At Approval
Vice President: Philippe H. Le Houerou Shigeo Katsu
Country Director: Ellen A. Goldstein Orsalia Kalantzopoulos
Sector Manager: Ranjit J. Lamech Peter D. Thomson
Project Team Leader: Mohinder P. Gulati Iftikhar Khalil
ICR Team Leader: Mohinder P. Gulati
ICR Primary Author: Venkataraman Krishnaswamy
F. Results Framework Analysis
Project Development Objectives The countries of South East Europe, including Bosnia and Herzegovina, and the
European Commission are cooperating to develop a regional energy market, the Energy
Community of South East Europe (ECSEE) and integrate it into the internal energy
market of the European Union.
The objective of the project is to facilitate BiH's participation in ECSEE through
investments to: (i) improve dam safety; (ii) reduce adverse environmental impacts at
thermal power stations; (iii) replace ageing existing facilities and equipment at
hydropower and thermal power stations; (iv) rehabilitate distribution systems and
introduce distribution Supervisory Control and Data Acquisition (SCADA) systems, (v)
establish a market operation system, (vi) provide hardware and software to improve the
financial management information systems of the Elektroprivredas; and through technical
assistance to facilitate project implementation, and determine the best way to reduce
sulfur dioxide and nitrogen oxide emissions at a power plant.
Revised Project Development Objectives
No revision.
(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 :
Electricity market in South-East Europe is liberalized in accordance with the EC
Treaty (including derogations and subsequent modifications, if any) and a
regional electricity market is functioning.
Value
quantitative or
Qualitative)
Zero in most countries
All non-residential
consumers to be
liberalized by
07/01/2008 and all
consumers by
01/01/2015
All non-residential
consumers have
been liberalized on
target by BiH
Date achieved 01/01/2007 07/01/2008 &
01/01/2015 07/01/2008
Comments
(incl. %
achievement)
Achievement 100% in BiH. In 2011, share of non-residential consumers
(liberalized since July 2008) was 59% of total consumption. Such liberalization
has taken place in varying degrees in other SEE countries (ECS Annual Report
2012)
Indicator 2 : Electricity generation is maintained at or above base levels in corresponding
hydrological conditions
Value
quantitative or
Qualitative)
12800 GWh Equal or greater
than 12800 GWh
Achieved in all
years except 2007
Date achieved 12/31/2005 Every year from
2007 12/31/2011
Comments
(incl. %
achievement)
Achieved 100%. Target was achieved and notably exceeded in every year except
2007, when generation was 12,175 GWh owing to exceptionally adverse
hydrological conditions
Indicator 3 : Environmental Compliance is improved at:
1. Kakanj TPP; 2. Tuzla TPP; 3. Ugljevik TPP; and 4. Gacko TPP.
Value
quantitative or
Qualitative)
No, at all four power
plants
Yes, at all four
power plants
Yes, compliance at
the four power
plants has improved
as designed.
Date achieved 12/31/2005 06/30/2010 06/30/2012
Comments
(incl. %
achievement)
Achieved 100% Compliance improved as designed in respect of particulates
emission (Kakanj), safe ash and slag storage (Kakanj), reduction in water use and
pollution load of effluents (Gacko, Ugljevik,and Tuzla), cleaner coal handling
(Tuzla). See details at Section 2.4 of the ICR
Indicator 4 : Dam safety is improved at: 1. Grabovica HPP; 2. Salakovac HPP; 3. Jablanica
HPP; 4. Rama HPP; 5. Trebinje I1 HPP; 6. Visegrad HPP; and 7. Bocac HPP
Value
quantitative or
Qualitative)
No, in all seven dams Yes, in all seven
dams
Partly improved at
Jablanica,
Grabovic, and
Salakovac through
installation of dam
safety monitoring
systems. Water leak
in Rama reduced.
Other ongoing
works would be
completed mostly
in 2013 and partly
in 2014.
Date achieved 12/31/2005 06/30/2010 06/30/2012
Comments
(incl. %
achievement)
Achievement is about 40%. Likely to be 85 to 90% by mid-2013 and 100% by
early 2014. IDA funded TA helped to identify the remedial measures for dam
safety. Measures are being implemented through EIB funding and internal
resources of the utilities.
Indicator 5 : ISO has functional market operation system
Value
quantitative or
Qualitative)
No Yes
Partly yes by the
target date and also
IDA credit closing
date
Date achieved 12/31/2005 06/30/2009 06/30/2012
Comments
(incl. %
achievement)
Achievement is about 40%. Segmented markets (regulated and competitive)
coexist. State owned utilities dominate. ISO performs settlement function, but its
own governing arrangements have not yet been agreed among stake holders.
Appears unlikely to be resolved in the near future
(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 : Progress in implementation of components
Value
(quantitative
or Qualitative)
Disbursement
0%
Disbursement
100% 100% 99.4%
Date achieved 01/01/2007 06/30/2010 06/30/2012 06/30/2012
Comments
(incl. %
achievement)
Achievement is 99.4%, though somewhat delayed. Delays caused by the delay
in credit effectiveness and delay in certain procurement activities led to the
extension of closing date of IDA credit.
G. Ratings of Project Performance in ISRs
No. Date ISR
Archived DO IP
Actual
Disbursements
(USD millions)
1 03/14/2007 Satisfactory Satisfactory 0.00
2 04/03/2008 Satisfactory Moderately Satisfactory 0.00
3 01/05/2009 Satisfactory Moderately
Unsatisfactory 0.18
4 12/01/2009 Satisfactory Satisfactory 2.88
5 04/19/2010 Satisfactory Moderately Satisfactory 4.42
6 01/06/2011 Satisfactory Satisfactory 18.32
7 10/11/2011 Satisfactory Satisfactory 24.56
8 06/26/2012 Moderately Satisfactory Moderately Satisfactory 32.02
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
11/23/2010 S MS 15.59
Reallocation of proceeds,
extension of closing date,
revised implementation
schedule
02/07/2011 S S 18.80 Adding a small activity of solar
energy study
1
1. Project Context, Development Objectives and Design
1.1 Context at Appraisal
Recognizing the benefits of a regional, rather than national, approach to energy issues,
nations and territories1 in South East Europe signed in Athens the Treaty Establishing the
Energy Community of South East Europe (ECSEE)2 in October 2005, to enable the
creation of a regional energy market linked to the European market. The signatories
included Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Greece, Kosovo (UNMIK),
FYR Macedonia, Romania, Serbia and Montenegro, and Turkey. Electricity shortages
were already developing in the region, and were expected to increase without significant
investments. The establishment of a well-functioning regional electricity market with
consistent market rules and appropriate regulatory oversight was considered critical to
overcome the fragmentation of energy supply and to encourage the new investment
needed to meet these emerging demand-supply gaps on the basis of a regionally
optimized least cost options. And without such a regional framework even investments of
significant magnitude might leave gaps between supply and demand.
In addition to improving efficiency, a uniform region-wide institutional framework for
electricity trading largely based on the EU energy directives was expected to expand the
region’s generation mix, improve overall energy conservation and efficiency, reduce an
excessively high energy intensity of production compared to international norms, and
strengthen national institutions and adapt legislation and regulations to EU standards.
Also, the EC Treaty provided a mechanism to eventually bring energy related regional
environmental standards to a point consistent with the EU acquis communautaire,
including the application of EU directives to new generation plants. Recognizing the
importance of this EU sponsored program for the promotion of the regional electricity
market in South East Europe, the Bank supported it by approving in January 2005, a $1.0
billion horizontal APL facility to finance projects, which will facilitate the emergence of
the regional electricity market among these countries. By March 2006, six loans/credits
totaling $373 million had been approved under the Program for six countries. The IDA
credit of $36 million to Bosnia Herzegovina (BiH) was the seventh operation under the
Program.
The Dayton Peace Agreement following the 1992-95 Balkan conflicts established Bosnia
and Herzegovina as a state comprising two Entities, each with a high degree of
autonomy: the Republika Srpska (RS) and the Federation (FBiH). There were thus three
levels of executive power in BiH: the State level Council of Ministers and the two Entity
Governments. The State level Council of Ministers (through the Ministry of Foreign
Trade and Economic Relations) represented BiH in the Energy Community (EC) forums.
1 Kosovo is no longer a territory and has since become a country.
2 Subsequent to the effectiveness of the Athens Treaty in mid-2006 ECSEE was simply referred to as the
Energy Community (EC)
2
The power sector in BiH, which was originally part of the former Yugoslavian system,
was heavily damaged during the Balkans conflicts of 1992-95. The damaged generation,
transmission, distribution and dispatch facilities as well as the coal mines providing fuel
to the thermal power stations suffered from insufficient maintenance. At the beginning of
1996, more than half of the generating capacity had been put out of operation because of
direct damages, destroyed transmission lines or lack of coal. The 400 kV and 220 kV
transmission systems which interconnected BiH with other countries in the region were
almost completely out of operation. Emergency repairs in the power stations and coal
mines financed by donors including the Bank enabled production to recover to 7,340
GWh in 1996, compared to 12,613 GWh before the war in 1990. Further rehabilitation
enabled production to reach 10,429 GWh in 2000 (83% of the 1990 level). Production
varied during 2000-2005, largely based on hydrological variations, and was 12,826 GWh
in 2005.
The 220 kV and 400 kV transmission systems were rehabilitated partly under the Bank’s
Third Electric Power Reconstruction Project, and the whole of BiH was resynchronized
with the Union for Co-ordination of Transmission of Electricity in Europe (UCTE)3 on
October 10, 2004. Since several important regional transmission lines pass through BiH,
this development fulfilled an important precondition for establishing the regional market.
Priority investments for rehabilitation of part of the distribution systems were made to
respond to the population resettlement that occurred after the war. There were still some
damaged power system facilities remaining to be rehabilitated and there were continuing
large investment needs because of aging facilities.
In 2005 BiH was one of the few countries in the region with net export of 1,410 GWh of
electricity. Since the war, the power system in Bosnia and Herzegovina (BiH) had been
operated by three companies, EPBiH (Elektroprivreda Bosnia and Herzegovina),
EPHZHB (Elektroprivreda of the Croatian Community of Herzeg-Bosnia) and EPRS
(Elektroprivreda Republika Srpska), each primarily serving separate ethnic communities.
EPBiH and EPHZHB are under the jurisdiction of the Federation Government and EPRS
is under the jurisdiction of the RS Government. These companies were technically
competent and had also improved their financial performance substantially by 2006.
However, their operation as three small vertically integrated monopolies in three separate
irregularly shaped geographical areas gave rise to inefficiencies. The BiH power sector
was being restructured to reduce these inefficiencies and to comply with the provisions of
the EC Directive 2003/54 (electricity), which promotes competition in the electricity
sector. The restructuring was based on Action Plans for restructuring of the Electricity
Sector adopted by and coordinated between the Federation and Republika Srpska (RS)
Governments, with the State level Council of Ministers enacting related legislation for
aspects within its jurisdiction. In accordance with these Action Plans, three Electricity
Regulatory Commissions had been established (one at the State level to regulate
3 UCTE has since been absorbed into the much wider ENTSO-E of the EU.
3
transmission, and one in each Entity to regulate generation and distribution). An
Independent System Operator (ISO) and a National Transmission Company that owns
and operates all transmission facilities in BiH had been established and licensed by the
State Electricity Regulatory Commission (SERC). Under the Action Plans, the
Elektroprivredas (EPs) were to be further unbundled and reorganized, with separate
companies to be created for generation and distribution. BiH was thus in the process of
sector restructuring to fulfill its commitments under the EC Treaty.
During the period 1996-2001 the Bank had provided three IDA credits to BiH totaling
$95.6 million and mobilized considerable co-financing to finance projects with total costs
of $583.17 million aimed at rehabilitating generation, transmission and distribution
segments of the power sector as well as the related coal mines. Based on the experience
of the implementation of these three projects, the APL-3 project was put together for
further rehabilitation of hydro and thermal power projects, transmission and distribution
systems and carrying out environmental upgrades- all designed to improve system
security, safety, and environmental soundness and to facilitate regional power trade.
The key elements of the rationale for the Bank’s participation were: (a) to support the EC
program of facilitating the emergence of a regional electricity market; (b) to help BiH in
its investments needed for its participation in the market; and (c) mobilize considerable
amount of multilateral and bilateral co-financing needed for the related BiH projects. The
higher level objectives of the project were promotion of regional cooperation and
fostering of regional markets among the countries previously at war to ensure peace,
economic development and stability envisaged under the Stability Pact and EC treaty.
The project was also consistent with the Country Assistance Strategy (CAS) of October
2004 which accorded high priority for targeted investments in key social and economic
infrastructure, especially supporting the above mentioned higher level objectives.
1.2 Original Project Development Objectives (PDO) and Key Indicators
The countries of South East Europe, including Bosnia and Herzegovina, and the
European Commission are cooperating to develop a regional energy market, the Energy
Community (EC) and integrate it into the internal energy market of the European Union.
The objective of the project is to facilitate BiH’s participation in EC through investments
to: (i) improve dam safety; (ii) reduce adverse environmental impacts at thermal power
stations; (iii) replace ageing existing facilities and equipment at hydropower and thermal
power stations; (iv) rehabilitate distribution systems and introduce distribution
Supervisory Control and Data Acquisition (SCADA) systems, (v) establish a market
operation system, (vi) provide hardware and software to improve the financial
management information systems of the Elektroprivredas (EPs); and (vii) through
technical assistance to facilitate project implementation, and determine the best way to
reduce sulfur dioxide and nitrogen oxide emissions at a power plant.
The key indicators given in the PAD are: (a) the liberalization of the electricity markets
in South East Europe in accordance with the Energy Community Treaty (indicator under
4
the ECSEE APL Program of January 2005); (b) maintenance of annual electricity
generation by BiH at or above base levels (12,800 GWh) in every year in corresponding
hydrological conditions and assuming the avoidance of significant shutdowns of
equipment not covered by the project; (c) improved environmental compliance at the
Kakanj, Tuzla, Ugljevik and Gacko TPPs; (d) improved dam safety at the Grabovica,
Salakovac, Jablanica, Rama, Trebinje II, Visegrad and Bocac HPPs; and (e) the ISO
having a functional market operation system.
1.3 Revised PDO (as approved by original approving authority) and Key Indicators,
and reasons/justification
There were no revisions of the PDOs or key indicators.
1.4 Main Beneficiaries
The PAD does not explicitly identify beneficiary groups. Reliable electric supply and
enhanced energy security enabled by the project and the program were expected to
benefit all the electricity consumers. Dam safety improvements of HPPs and
environmental upgrades of TPPs reducing pollution of air and water were also expected
to benefit the population living nearby.
1.5 Original Components
The Project consisted of four parts, of which Parts A, B and C were for financing by IDA
and Part D was for financing by co-financiers (EBRD, EIB and KfW) through parallel
financing arrangements (Annex 1).
Part A: EPBiH
1. Environmental Upgrades
Investment in environmental upgrades: (a) TPP Kakanj – reconstruction of the
electrostatic precipitator for Unit 5, reconstruction of facilities for waste water treatment,
cultivation of the slag and ash waste dump, and rehabilitation of the equipment for
environmental monitoring; and (b) TPP Tuzla – replacement of the slag and ash
depositing system, and replacement of the coal deposit system and extension of water
treatment.
2. Financial Management Information System
Provision of hardware and software to improve the financial management information
system of EPBiH and assistance in implementation
3. Technical Assistance for Implementation of IDA-financed Components
Provision of technical assistance to the staff of the EPBiH PIU for implementation
activities related to the IDA-financed components, assistance in procurement and
supervision, and procurement training; and studies to develop the design for reduction of
sulfur dioxide and nitrogen oxide emissions at TPP Kakanj.
5
4. Technical Assistance for Dam Safety Components
Provision of technical assistance to the staff of the EPBiH PIU for: (i) studies to confirm
the design of the rehabilitation measures, help the PIU prepare the bidding documents for
the dam safety components, assist in the procurement process and evaluation of bids, and
monitor Project implementation; and (ii) the review and evaluation of dam operation and
maintenance procedures, including a review of existing dam safety plans, and assistance
in upgrading these as may be necessary.
Part B: EPHZHB
1. Financial Management Information System
Provision of hardware and software to improve the financial management information
system of EPHZHB, and assistance in implementation
2. Technical Assistance for Dam Safety Components
Provision of technical assistance to the staff of the EPHZHB PIU for: (i) studies to
confirm the design of the rehabilitation measures, help the PIU prepare the bidding
documents for the dam safety components, assist in the procurement process and
evaluation of bids, and monitor Project implementation; (ii) the review and evaluation of
dam operation and maintenance procedures, including a review of existing dam safety
plans, and assistance in upgrading these as may be necessary; and (iii) procurement
training.
Part C: EPRS
1. Environmental Upgrades
Investment in environmental upgrades: (i) TPP Ugljevik – rehabilitation of the waste
water treatment system, and rehabilitation of the air and water monitoring system; and (ii)
TPP Gacko – rehabilitation of the waste water treatment system; and replacement of the
ash and slag transportation system.
2. Equipment Upgrades
Investment in equipment upgrades: (i) TPP Ugljevik – replacement of monitoring and
automatic control system with digital control system; replacement of water cooling
system; and replacement of the 0.4 kV and 6 kV plant for its own electricity
consumption; and (ii) TPP Gacko – reconstruction of the 0.4 kV plant.
3. Financial Management Information System
Provision of hardware and software to improve the financial management information
system of EPRS, and assistance in implementation
4. Technical Assistance for Implementation of IDA-financed Components
Provision of technical assistance to the staff of the EPRS PIU for implementation
activities related to the IDA-financed components, assistance in procurement and
supervision, and procurement training.
6
5. Technical Assistance for Dam Safety Components
Provision of technical assistance to the staff of the EPRS PIU for: (i) studies to confirm
the design of the rehabilitation measures, help the PIU prepare the bidding documents for
the dam safety components, assist in the procurement process and evaluation of bids, and
monitor Project implementation; and (ii) the review and evaluation of dam operation and
maintenance procedures, including a review of existing dam safety plans, and assistance
in upgrading these as may be necessary.
Part D: Project Activities Financed by Co-financiers (EBRD, EIB, and KfW)
1. HPP Supporting Equipment
(a) HPP Supporting Equipment (EPBiH)
Investment in rehabilitation, replacement or enlargement of supporting equipment: (i)
HPP Grabovica – reconstruction of 220 kV switchgear; reconstruction of 35 kV facilities;
rehabilitation and modernization of dam monitoring systems; (ii) HPP Salakovac –
reconstruction of 220 kV switchgear; reconstruction of 35 kV facilities; rehabilitation and
modernization of dam monitoring systems; and (iii) HPP Jablanica – replacement of
primary equipment for the 35/0.4 Brana transformer station and the 35/0.4 entry building
transformer station.
(b) HPP Supporting Equipment (EPHZHB)
Investment in rehabilitation, replacement or enlargement of supporting equipment: (i)
HPP Capljina – 35 kV switchgear replacement; replacement of 220 kV voltage measuring
and current measuring transformers and surge arresters; replacement of 220 kV oil
cables; and excitation system replacement; and (ii) HPP Rama – 220 kV transmission
substation enlargement; and rehabilitation of one turbine, generator and block
transformer unit.
(c) HPP Supporting Equipment (EPRS)
Investment in rehabilitation, replacement or enlargement of supporting equipment: (i)
HPP Visegrad – replacement of 400 kV voltage measuring and current measuring
transformers; oil regulation system rehabilitation; and introduction of monitoring,
automatization and remote control systems for three 105 MW generating sets and other
high voltage equipment; (ii) HPP Bocac – reconstruction and rehabilitation of the 110 kV
plant; and replacement of Uninterrupted Power Supply, excitation systems, turbine
regulation for the 2x55 MW generating sets, water cooling system and the plant control
system.
2. HPP Works
(a) HPP Works (EPBiH)
Financing of civil works: (i) HPP Grabovica – repairs to address dam leakages; (ii) HPP
Salakovac - repairs to address dam leakages; and (iii) HPP Jablanica – installation of
monitoring system and rehabilitation of the “Kukovi” landslide.
(b) HPP Works (EPHZHB)
7
Financing of civil works at HPP Rama, consisting of rehabilitation of dam reinforced
concrete facing and dam grout curtain.
(c) HPP Works (EP RS)
Financing of civil works: (i) HPP Trebinje – repairs to address dam leakages; (ii) HPP
Visegrad – repairs to address dam leakages; and (iii) HPP Bocac – augmenting of
spillway capacity.
3. Distribution Systems (EPBiH, EPHZHB and EPRS)
Rehabilitation and construction of distribution lines, transformers and substations,
purchase of meters and equipment for installation.
4. Distribution SCADA (EPBiH, EPHZHB and EPRS)
Supply and installation of distribution Supervisory Control and Data Acquisition systems
(SCADAs), including the design and installation of the corresponding software and
hardware for each SCADA system, and the installation of all necessary additional
telecommunication facilities required for the operation of the distribution system
components of the SCADA.
5. Independent System Operator
Establishment of a market operation system for the Independent System Operator,
including the purchase and installation of related hardware and software
6. Other Technical Assistance
Provision of technical assistance required for the implementation of Project activities
under Part D of the Project, with the exception only of technical assistance related to dam
safety under Parts A.4, B.2 and C.5.
The project will enhance the ability of BiH to effectively participate in the regional
market through investments in safety, environmental and equipment upgrades at critical
power plants. Metering and other investments will enhance revenue realization and
communication capabilities associated with the distribution networks; and the installation
of a system for electricity market operation will upgrade the capability of the Independent
System Operator.
The components for IDA financing were to facilitate BiH’s participation in EC by low
cost investments that will maintain energy generation in the region, reduce the negative
impact of these power stations on the environment, and bring the financial systems of the
EPs up to the commercial standards needed for participation in EC.
1.6 Revised Components
In the context of delay in the loans and credits becoming effective and in the context of
higher costs encountered at the time bidding, some components have been fully financed
by the EPs themselves. A Solar Energy study was added as a new minor component for
8
EPHZHB, but was not pursued later. These are discussed in some detail in sections
1.7and 2.1 and mentioned in other sections also. Further details are also in Annex 1.
1.7 Other significant changes
The project was restructured twice (with Board approval) once in November 2010 and
the second time in February 2011. The first restructuring extended the closing date of the
Credit from December 31, 2010 to June 30, 2012, revised the implementation schedule
accordingly and reallocated the proceeds from the Credit among the various components
based on the results of procurement which had been completed to the extent of greater
than 93%. The extension of the closing date was necessitated by a delay of nearly 27
months in the credit becoming effective and in executing the Subsidiary Credit
Agreements (SCA) as a condition of disbursement. The delay in effectiveness was due to
the time needed for the re-constitution of the Parliament and the formation of new
governments following the elections held in October 2006 (three months after Credit
approval), and the need to secure parliamentary approval of the external borrowing. The
delay in executing SCA (relating to EPBiH and EPHZHB) was due to the time needed for
the Federation Parliament to approve them. This restructuring also took note of the desire
of EPBiH to review the technical designs of the reconstruction of the waste water
treatment plant at Kakanj thermal power plant to take advantage of the technological
advances since appraisal and apply a part of the allocations from the credit for carrying
out a new design and feasibility study and carry out the reconstruction with its own
resources. The remaining allocation for this component was reallocated for the
reconstruction of the Electrostatic Precipitator for unit 5 at Kakanj TPP.
The second restructuring authorized the use of a saving of about SDR 110,000 from the
Credit proceeds for carrying out a Solar Energy Potential Study as desired by EPHZHB.
This was handled separately as the request came too late to be accommodated in the first
restructuring. In the event the time between the restructuring and the revised closing date
of the Credit proved inadequate for finalizing the exact scope of the study and other
details needed for contracting and the EP decided to pursue a more elaborate study at a
later date.
One other change worth taking note of is the transfer of ownership of the coal/lignite
mines supplying fuel to EPBiH to EPBiH as a wholly owned subsidiary. This change has
adverse implications to EPBiH in terms of management, finances and labor issues, but
the EP seems to be coping with the situation.
The small allocation for procurement training was not used for this purpose as the staff of
the PIUs benefited from other regional training sessions organized by the Bank on
procurement and several other related topics.
2. Key Factors Affecting Implementation and Outcomes
2.1 Project Preparation, Design and Quality at Entry
9
The project was designed as a part of the APL supporting EU sponsored EC initiative
resulting in the ability for the project to secure additional allocation of IDA credit from
Regional IDA funds and extensive co-financing from EBRD, EIB and KfW. EBRD loan
of Euro 55 million for (distribution components) and EIB loan of Euro 103 million (for
rehabilitation of hydropower and thermal power plants, market operation, and
Distribution components) were signed on February 1, 2006 and December 22, 2006
respectively and became effective thereafter. However KfW assistance came in two
phases. In the first phase, loan and grant assistance totaling Euro 17 million (for HPP
Rama rehabilitation) was signed on June 23, 2008. In the second phase loan and grant
assistance totaling Euro 17 million (for distribution SCADA systems for EPs) was signed
in end October 2011 and had not yet become effective. Thus work on SCADA systems
had not commenced by the time IDA credit reached its extended closing date in June
2012.
Project components were selected following the priorities of the three EPs in relation to
system reliability, supply security, safety and environmental soundness to serve the
objectives of the EC Treaty. Adequate consulting support was provided for project
implementation and associated studies.
Appraisal appears to have been carried out on the basis of preliminary cost estimates
before preparing the level of designs normally needed for bidding and costing. Thus
when designs were developed and bidding carried out some of the components (such as
the Electrostatic precipitator at Kakanj TPP and Coal handling improvements at Tuzla
TPP) faced notable cost increases. Also, on account of the long delays in the credit
becoming effective and in the execution of the subsidiary credit agreements some of the
components (such as the improvements to ash and slag transportation system in Tuzla
TPP) were carried out by the EP using its own funds. EPBiH also decided to finance the
waste water treatment component as well as the all the auxiliary coal handling equipment
in the Tuzla TPP from its own funds because of the cost overrun in the coal handling
component. Similar events occurred in respect of some components under EIB financing
also.
Based on the lessons learnt from the earlier three power projects financed by IDA in BiH,
the number of co-financiers was kept low and the mode of parallel financing was adopted.
There were no cross default and cross effectiveness conditions in Credit agreements.
This was done to avoid problems facing one co-financier affecting the progress in the
components financed by others. The successful arrangement (under the earlier
operations) of using PIUs with highly qualified, experienced and competent staff and
their reporting directly to the General Director was continued. Adequate attention was
paid to plan the procurement packages for parallel financing (both for the investment and
technical assistance components) to make the process efficient, speedy and effective.
Adequate funds for supervision were planned.
The ownership of, and the commitment towards, the implementation of the project on the
part of the governments and three EPs were generally satisfactory throughout. Whenever
costs increased, the power companies and their respective governments readily agreed to
10
cover those with their own funds. Similarly they adopted with enthusiasm the use of
FMIS in all their units at their own expense, even though the project had a limited scope.
During appraisal three risks for the development objectives and one risk for the
component were identified and classified as modest or negligible.
The first identified risk of failure to secure adequate financing materialized to some
extent since there were delays in securing KfW financing for the SCADA component, but
the project’s parallel financing design was such that this did not adversely affect the
implementation of the other components financed by IDA, EIB and EBRD. Cost overrun
in relation to IDA financed components was managed by the power companies agreeing
to finance some of the components with their own funds.
The second identified risk of adverse impact on project implementation of the
administrative complexities and ethnic friction in BiH did not materialize to any
significant extent. The administrative complexity made the contracting for Dam safety
Study difficult, but it was managed well and the Study was carried out.
The third risk of the case filed in the constitutional court over the constitutionality of the
Law relating to the transmission company did not affect the formation, registering,
licensing and functioning of the national transmission company and ISO and their
independent operation. The companies carry out the daily transmission and system
operation functions, facilitating internal and external trade in electricity. However, the EC
Secretariat in its 2011 annual review report of implementation of Energy Community has
observed “the board of management of the transmission company is still not functional.
This long-standing situation indicates existence of permanent administrative obstacles
preventing or delaying the implementation of long-term network development planning
and of immediate major investments in infrastructure potentially required for compliance
with provisions for third-party access and connection to the transmission system.” The
EC Secretariat is following up on this. 4
The fourth identified risk of FMIS not being adopted fully in all the units of the three
power companies did not materialize at all. Based on the experience of introducing FMIS
on a pilot basis in certain units, all three companies showed a great deal of interest in
adopting the FMIS in all their units meeting the significant additional costs from their
own funds.
2.2 Implementation
The project was never classified as “a project at risk”, though it was classified as a
problem project once in its early days.
4 The Annual Review of Implementation 2011 of the EC Secretariat
11
Except for the initial delay of 27 months in the loan becoming effective, the project
implementation was smooth and some of the lost time was made up. In Kakanj TPP the
reconstruction of the electrostatic precipitator for Unit 5 had been completed successfully
reducing the particulates concentration from about 350mg/nm3 to about 20 mg/nm
3 well
below the national and EU norms5. Based on this EPBiH is installing a similar equipment
in Unit 6 as well using its own funds. The new design study for the wastewater treatment
at Kakanj TPP had been completed and bid documents based on these designs are being
issued for rehabilitation under its own financing. In Kakanj, Tuzla, Gacko, and Uglijevic
TPPs all works under IDA financing had been completed and items under the power
companies’ own financing are also making substantial progress. Environmental
monitoring systems have been upgraded for full transparency and have been made tamper
proof. The real time details are on public display round the clock. Supervision visits by
Bank environmental staff showed that the Bank approved environmental management
plans for the various components were fully implemented by the power companies and
their contractors.
As mentioned earlier the FMIS component in all three power companies was
implemented smoothly. Dam safety study was carried out by the three EPs recruiting the
consulting firm through joint procurement action and separate contracting with each EP.
The results of the study are being implemented under EIB financing and the same
consulting firm has been retained by the power companies to assist them during the
implementation phase. The study for the designs for the reduction of SOx and NOx in
Kakanj TPP had been completed and its recommendations would help EPBiH to pursue
further action in this respect. Brief details of the status and outputs of the IDA financed
components are given in Annex 2.
The distribution rehabilitation components financed by EBRD have been fully completed
and the distribution components financed by EIB have been mostly completed and they
have led to reduced system losses and increased sales and reliability of supply. On
account of the delay in funding, the implementation of the component relating to the
distribution SCADA systems (financed by KfW) commenced towards the end of 2012
and would perhaps take 24 to 30 months to complete.
Hydropower equipment rehabilitation components financed by EIB have been mostly
completed and led to increased and more reliable generation. However the rehabilitation
of the equipment at HPP Rama by KfW is still ongoing. In respect of the Dam safety
components financed by EIB, the works have been partially completed and full
completion is expected mostly in mid-2013 and partly in early 2014.
Brief details of the status of the components financed by EBRD, EIB, and KfW are
indicated in Annex 10.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
5 In the guarantee tests results as low as 20 mg/nm
3 were achieved.
12
The EC Program is being monitored by the Ministerial Council, Permanent High Level
Group, Task Forces and forums of the EC, ably and effectively supported by the EC
secretariat. The secretariat periodically evaluates country performance in relation to its
obligations under the EC treaty against agreed benchmarks and reports to the above
bodies. Implementation of the project was monitored by all four financiers through
quarterly progress reports, and audited Project Expenditure Reports of the three power
companies. These reports covered the components financed by IDA, as well as those
financed by EBRD, EIB and KfW. The financial performance of the three power
companies was monitored through the external audit reports by independent auditors
acceptable to IDA on the Annual Financial Statements of these utilities. Several
supervision missions and a Mid-Term review mission, as well as environment,
disbursement and procurement reviews helped to monitor and evaluate progress and
make adjustments through restructuring and through other types of corrective action.
While supervision missions were carried out by each financier according to their
preferred schedule, the Mid-Term review was carried out jointly.
The appraisal document included a Results Framework and Monitoring which contained
outcome indicators for the PDOs as well as intermediate and final results for the output
indicators. However except for the market liberalization level and annual power
generation level base line values were not indicated in quantitative terms. The base line
value for particulate concentration in the TPPs was indicated as 300 to 350 mg/m3 in the
body of the appraisal document in some other context.
2.4 Safeguard and Fiduciary Compliance
Environment
The Project triggered OP 4.01 on Environmental Assessment and OP 4.37 on Safety of
Dams and was assigned a Category B. Prior to the appraisal of the Project, Environmental
Management Plans (EMP) were prepared by each of the three power companies for their
respective activities, after full disclosure and public consultations. The EMPs were made
a part of the bidding documents and contractual documents, and the contractors for all
works have implemented fully and satisfactorily all provisions of the EMPs.
The main environmental impacts anticipated in the EMPs included noise from machine
operations, electric field impacts on workers, possible fires, dust from old equipment,
suspended matter in water, slag and slagging water, rock wool waste, packaging and
metal waste, old oil and removal of vegetation. For the operational phase environmental
issues identified included mud from waste water treatment, poor values of pH, sulfates
and suspended matter in waterways, reservoirs and mud disposal sites and leakage of ash.
The overall environmental impact of the project was positive as it helped implement the
EU-compatible environmental legislation and improve environmental performance of the
four thermal power plants in the country. The EMPs of the hydropower projects dealt
mainly with minor impacts associated with reconstruction works, while the scope of the
investments and therefore environmental impacts were more significant for the four TPPs.
13
Periodic reports were provided by the power companies on environmental performance
and EMP implementation. EPBiH also shared its Annual Environmental Reports with the
Bank team. A designated environmental specialist or team was appointed in each of the
TPPs as well as in the head office of the power companies. No complaints or unforeseen
issues arose during project implementation, in relation to EMP implementation or general
environmental impacts.
The specific investments in the four thermal power plants have helped improve
environmental performance through a decrease in air emissions (TPP Kakanj), have led
towards improvements in the efficiency of wastewater treatment (TPP Gacko, Ugljevik
and Kakanj), have decreased the quantities of water used for cooling (TPP Ugljevik) and
have improved transport of ash and slag (TPP Gacko) while improving the use of land
and better management of wastes (ash and slag disposal site in TPP Kakanj), enhancing
environmental monitoring or air emissions (TPP Kakanj) and better coal handling which
shall indirectly help improve environmental performance through improved combustion
of a more homogenous coal mix (TPP Tuzla).
The overall positive environmental impacts of the APL-3 project in Bosnia and
Herzegovina are multiple and cut across a number of environmental segments. For
example, wastewater collection and treatment is an issue that was tackled across three
Thermal Power Plants – Gacko, Ugljevik and to some extent Kakanj. In Gacko and
Ugljevik the existing systems were rehabilitated and modernized in order to improve
working efficiency, including water recirculation where possible, and the effluent. In
Ugljevik TPP the pollution load of the effluent as measured by population equivalent6 has
fallen by seven times from 33,668 in 2007 to 4,684 in 2012. In Gacko TPP the effluent is
now compliant with national regulations. Equally importantly the annual water
consumption by the plant has been reduced by 700,000 tons (or 700 million liters).
Reduction in water intake also correspondingly reduced discharge of pollutants in the
river.
The issue of waste generation from power production – specifically the ash and slag
represents one of the biggest footprints of thermal power plants on the environment. The
substantial quantities of ash and slag produced during combustion call for proper storage
at proper landfills. The APL3 project has financed the first phase of re-cultivation of an
ash and slag depot in TPP Kakanj that has been active now for almost 60 years. This
depot roughly stored some 6.0 million m3 of ash and slag. With the re-cultivation works
ash and slag is used as construction material to create level terraces (to prevent landslides
and to stabilize the mass) and then to plant vegetation on top. This activity will also
improve management of the depot and will enable it to remain active as an organized,
engineered and maintained disposal site for another 14.5 million m3 (sufficient for
another 40 years of operation) of waste that would have, otherwise, been taken to a new
depot location.
6 Under this measurement system the pollution load in the effluent of any plant is expressed in terms of
households/people producing effluents of equal pollution load.
14
The new ash and slag transport system at Gacko TPP has resulted in the elimination of
stoppage of the plant due to mal-operation of the system and has resulted in the power
plant producing 10 GWh more annually. This also represents a corresponding reduction
of the volume of effluent released into the river downstream.
The new environmental monitoring system that was financed in Kakanj provides tamper-
proof data of the air-borne emissions from the TPP for each block, and for the TPP as a
whole. The digital display of this data in the center of the town of Kakanj is active and
represents an outreach to keeping the local community informed of the environmental
impacts of the TPP.
The new hybrid filter at TPP Kakanj is the first of its kind in the Balkans. It combines an
electrostatic precipitator with a bag-house filter, and with this dual control of air
emissions the emissions of particulate matter has decreased from the previous high levels
(in the range of 350 to 500 mg/nm3
) to 21 mg/nm3
(compared to the Bosnian legal
standard of 100, and EU threshold of 50 mg/nm3).
Procurement
Procurement activities were carried out efficiently in accordance with agreed
arrangements generally conforming to the original or amended schedule. Certain
contracts had to be tendered again for lack of competition, but, on the whole, no major
delays or disagreements between the Bank and the borrower arose. The small allocation
in the credit for procurement training was not used, as the three EPs had procurement
staff that had adequate knowledge of the Bank procedures under the earlier three
operations and also benefited from regional training events organized by the Bank.
Procurement for the components financed by others, were carried out as per the
guidelines of the relevant financiers.
Financial Management and Disbursement
Financial Management and internal controls of the three utilities were found to be
satisfactory. External audits by independent auditors were carried out and the audited
annual financial statements and audited project accounts were submitted regularly by the
three utilities and were found acceptable to the Bank.
2.5 Post-completion Operation/Next Phase
Post-completion operation of the project facilities will be handled by the three EPs as a
part of their normal activities. Dam safety related investments as well as SCADA related
investments will be pursued by them using EIB/KfW funds and their own. They have
qualified and experienced technical, financial and commercial staff, as well as systems
and procedures appropriate to the trade. Legislative framework and independent
regulatory arrangements in place would enable them to function efficiently and
economically.
15
FMIS, introduced with enthusiasm in all parts of the three companies, is helping them to
improve their performance even more. The EPs have stated that “implementation of the
SAP system has brought the biggest changes in processes that cover the area of company
management – finance, accounting, investments and procurement. By introducing the
SAP it has become possible to get the business status of the company at any moment. The
unique ledger at the company level has been set up, and from 2012, the comprehensive
financial reports on the company business (balance sheet, income statement, cash flow
statement and statement of changes in equity) could be obtained directly from the
system.”
The lingering problem relates to the national transmission company and the ISO, the
governance arrangements of which still need to be agreed upon by the parties. Market
operations still lack adequate competition and this is being pursued in all the EC
countries by the EC secretariat and its governing bodies.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
The objectives of the program and the project continue to be highly relevant. Creating a
regional energy market and integrating it with the internal energy market of the EU is an
on-going process in the region, in which considerable regional energy trade is already
taking place. The project objectives of dam safety improvement, environmental
mitigation of thermal plant performance, rehabilitation of generation assets and
distribution network, market operation, and introduction of FMIS continue to be highly
relevant for the improved and reliable performance of the sector. The operation remains
important to the country as well as to the EC, and is consistent with the Bank’s focus in
its current Country Partnership Strategy (2012-2015) in environment sustainability, and
competitiveness and working together with EU. Flexibility of approach to design and
implementation through PIUs underpinned by adequate consulting support were
appropriate to achieve the objectives.
3.2 Achievement of Project Development Objectives
The emergence of a regional electricity market in South East Europe and its integration
with the EU energy market is a long term process and the achievement of the
development objectives under the APL-3 project would clearly support the overall
objective of facilitating the above process. Under the EC treaty all non-residential
consumers were to be liberalized (that is given the right to choose their electricity
supplier) by July 1, 2008 and all consumers were to be liberalized by Jan 1, 2015. BiH
has fully achieved the liberalization of all the non-residential consumers by the target
date. Such consumers accounted for about 59 percent of the total consumption in the
country in 2011. However, only two of the largest industrial consumers (accounting for
about 10 percent of the total consumption in 2010) and only the largest consumer
(accounting for about 8 percent of the total consumption in 2011) exercised their choice
and bought in the competitive wholesale market.
16
The objective of improving dam safety was to be achieved based on IDA TA funded
consultant reviewing the status and recommending measures to improve dam safety, and
related works being carried out under EIB funding. Consultant studies have been carried
out with a time lag and are being implemented. After the closing of IDA credit consultant
costs are being met by the EPs from their own funds. The completion of the installation
of improved dam monitoring systems and sophisticated equipment has enabled
continuous and efficient real time monitoring and early detection of any development that
could seriously affect dam safety at Jablanica, Grabovica, and Salakovac HPPs. Similar
results have been achieved in respect of Kukovi landslide threat. Repair of grout curtain
in Rama HPP had been completed and it has reduced water leaks to some extent. Work
relating to prevention of water leaks at Grabovica and Salakovac HPPs based on Dam
safety consultant’s recommendations is in progress and is expected to be completed in
April 2013. Repairs to the upstream RCC facing of the dam at Rama HPP, water leakage
works at Visegrad and Trebinje II HPPs are in progress and are expected to be completed
mostly in early 2013 and partly in early 2014. Construction of additional spillway
(including the tunnel, spillway and entryway) at Bocac HPP has made substantial
progress and is expected to be completed in April 2013. Thus while the objective had
been greatly facilitated by the IDA TA funded dam safety studies, it has been achieved to
the extent of about 40 percent by June 2012. The percentage of achievement is likely to
reach 85-90 percent by mid-2013 and 100 percent by early 2014.
The objective of reducing adverse environmental impact at the four major thermal power
stations has been achieved as designed. Except for the wastewater treatment
reconstruction work at TPP Kakanj (which is being pursued under EPBiH’s own
financing), all the environment related works funded under IDA credit and those
transferred to own funding by the EPs have been successfully completed and have
resulted in reducing particulate emission to Bosnian and EU standards (and even lower),
and reducing water pollution from the power plants to the Bosnian standards, and thus
achieve an enhanced level of environmental compliance by the country’s four major
TPPs at Kakanj, Tuzla, Ugljevik and Gacko. At Kakanj particulate emission was reduced
from 500 mg/NM3 to 21 mg/NM
3 and safe ash and slag storage was created for another
forty years. At Gacko water usage had been reduced by 700,000 million liters per year
and effluents conform to national standards. At Ugljevik pollution load of effluent (as
measured by population equivalent) has fallen by seven times from 33688 (2007) to
4,684 (2012). At Tuzla reconstruction of the coal handling system, use of ash and slag
transport through recirculation of water, and improvement of waste water treatment
facilities have significantly enhanced the environmental performance of the plant
(Relevant details of improvements are indicated in Annex 2 and also discussed in section
2.4).The study for the reduction of SOx and NOx at TPP Kakanj has been completed and
recommendations are being pursued by EPBiH.
The objective of replacement of the aging existing facilities and equipment at the HPPs
and TPPs has been substantially achieved as of June 2012. All thermal plant related work
(all under IDA funding) have been completed. The HPP equipment rehabilitation or
replacement at Grabovic, Salakovac, Jablanica, and Caplijna has been completed. Similar
17
work at Bocac and Visegrad had been partially completed and the balance is expected to
be completed in early 2013 (all funded by EIB and the EPs). The major equipment
replacement work at HPP Rama (funded by KfW) is ongoing. The various items of work
completed along with other items of work pursued by the EPs have led to increases in
production of electricity from 12,743 GWh in 2005 to 16,068 GWh in 2010. In 2011 it
fell slightly to 14,050 on account variations in the water flow in the rivers.
The objective of rehabilitating distribution systems has also been substantially achieved.
The level of rehabilitation achieved under the project (financed entirely by EBRD and
EIB) has led to notable reduction in distribution losses, and a notable improvement in
terms of reliability of supply, billing and collection as shown separately for each EP in
Annex 3. The installation of distribution SCADA systems, however, has been delayed
and implementation of this component is about to commence only now (October 2012).
The objective of establishing a market operation system is estimated to have been
achieved to the extent of about 40 percent by the target date of June 30, 2009. A trading
system (of sellers and buyers including several energy traders) operated by ISO exists.
All customers (except the residential consumers) with a share of 58.69 percent of total
consumption have become “eligible customers”, who can choose their supplier. However,
only one large customer (the aluminum smelter Aluminij accounting for about 8 percent
of total consumption) has exercised this choice in 2011.7 Though a competitive market
for eligible customers and regulated market for captive customers (tariff customers)
coexist, the competitive market has not gotten off the ground, since the state owned EPs
completely dominate the market and since the regulated tariffs are substantially lower
than the regional market prices. Despite the existence of independent regulatory bodies,
the tariffs barely cover the operational expenses (Further details in Annex 3). The
generation and distribution functions within the three EPs have not yet been unbundled.
Energy trades consist largely of trade among the three EPs and partly of export and
import trades.
It is worth noting that the wholesale market trade (that is trade among the three EPs and
other traders as well as cross border trades of surplus energy after meeting the needs of
tariff customers), is based on bilateral contracts which is influenced by supply and
demand variations and regional trade price variations. The only component in the project
with direct causal relevance to this objective, “installing a market operating system”
under EIB financing could not be implemented so far, as originally envisaged. The
governance arrangements for the National Transmission Company and the ISO could not
be fully agreed upon among the stakeholders. Disagreement among them appears
unlikely to be resolved soon.
The objective of providing hardware and software to improve the financial management
information system of the EPs has been fully achieved. The SAP system had been
7 The Annual Report of State Electricity Regulatory Commission, 2011
18
introduced by all three EPs in all their subsidiary companies, often meeting a major part
of the costs from their own funds, and they have now, or will very soon have, a well-
integrated FMIS operating smoothly enhancing the efficiency of their operations and
accountability.
3.3 Efficiency
The PAD noted that the project consisted of a large number of small investments and that
benefits were not quantifiable in respect of components relating to environmental
improvements, the market operation system, FMIS, and the Study for reduction of SOx
and NOx. Thus all the components funded under IDA credit (except the two components,
monitoring and automatic control system and replacement of the auxiliary power plant
and associated 0.4 kV and 6kV equipment at Ugljevik TPP) were not covered by the
quantitative analysis. Calculation of the EIRRs of the two components adopting current
estimates of capital costs (based on the actual costs incurred for all equipment and
facilities and a small provision for their installation during the next shut down of the
plant), same percentages of O&M costs and levels of reduction in generation losses as at
appraisal as well as the current export prices of electricity shows that the IRRs continue
to be robust at 58% and 24% compared to 54% and 21% at appraisal.
Some of the components financed by KfW and EIB are still being implemented. EBRD,
EIB and KfW do not appear to have re-estimated the EIRRs of their completed
components.
The main justification for such investments is their technical necessity and the least cost
manner in which the equipments were chosen, procured and installed. Cumulatively these
and a range of other investments and factors lead to increased generation. Many
components of the project have been completed and the rest are likely to be completed
soon. Cumulatively they are moving the country distinctly towards increased generation,
more reliable supply, and more efficient and environmentally sound operation. Thus
generation has increased, losses have come down, and billing and collection have reached
modern utility standards. The three EPs had been able to comply with the IDA covenants
relating to self financing ratio and debt service ratio in most of years and remain
financially stable. A detailed financial evaluation of the three EPs is given in Annex 3.
3.4 Justification of Overall Outcome Rating
Rating: Moderately satisfactory.
The overall objective of facilitating BiH’s participation in EC continues to be highly
relevant. The APL Program objective of market liberalization has been achieved in BiH
fully and on target. Of the six PDOs, two (environment and FMIS) have been achieved
fully, one has not yet been fully achieved (market operation), and the rest have been
mostly (distribution, rehabilitation of generation assets) or partly (dam safety) achieved.
Efficiency cannot be quantitatively estimated for most components, but is qualitatively
satisfactory. For the two components for which efficiency could be assessed
19
quantitatively, the ex-post internal rates of return remain as robust as the IRRs estimated
during appraisal. Under these circumstances an overall outcome rating of “moderately
satisfactory” is considered appropriate, if somewhat conservative.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development Increased generation and reliable and environmentally sound power supply will have an
overall favorable indirect impact on poverty reduction and social development in the
country. In addition people living in the areas close to the four major TPPs will have less
air and water pollution from these plants, with direct impacts on their health and welfare.
(b) Institutional Change/Strengthening
The effect of the introduction of SAP in all three EPs and their subsidiaries is already
being felt. The technical, financial, commercial and economic data flows within the
company and to the management has enhanced better coordination among these functions,
and the availability of real time integrated information will further improve performance
and management efficiency.
The inability of the EPs and the two entity governments to arrive at a consensus on the
governing arrangements for the national transmission company and the ISO is a major
problem which remains to be resolved.
The vertical integration of the mining company supplying coal with EPBIH is the only
other institutional change to be taken note of during the period of implementation of this
project. EPRS had similar arrangements even earlier. EPHZHB is an all-hydro utility and
has no coal supplier.
(c) Other Unintended Outcomes and Impacts (positive or negative)
None
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
There were no Beneficiary Surveys
4. Assessment of Risk to Development Outcome
Rating: Moderate.
Sustainable institutional arrangements are in place to complete the remaining works, and
carry out the O&M efficiently. The risk relating to the market operation component is
political, but is likely to be resolved based on economic imperatives of the neighborhood.
Taking this and dam safety element (which depends on the vagaries of the nature) into
account the risk to the Development Outcome is judged as moderate.
20
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory
Based on the experience gained in the earlier three operations, the Bank put together a
large project package to support the EU initiative relating to the EC, and mobilized
considerable cofinancing. While most of components were well investigated, preliminary
cost estimates had to be used in the context of the need to show support to the EC in a
timely manner. Better cost estimates of individual components emerged during the
procurement phase and the project was restructured. However, the results framework
could have been made clearer and could have included more of baseline data and
verifiable quantitative targets for all indicators.
(b) Quality of Supervision (including of fiduciary and safeguards policies)
Rating: Satisfactory
The frequency and comprehensiveness of supervision missions were adequate. The
staffing of missions included appropriate specialists in environment, procurement,
financial management, and hydropower dams. The mission documentation (such as Aide
Memoires) was comprehensive, indicating identified problems and approaches to solve
them. The problem solving approach and expert counseling were much appreciated by
the PIUs and the EPs. The Bank missions were sympathetic to the request of EPs for
adjusting the financing of the components, as the situation evolved, and carried out the
midterm restructuring to facilitate such changes. Cofinanciers carried out their own
supervision missions according to their preferred schedule focusing on their components.
The Mid Term review mission was jointly carried by all cofinanciers.
(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory
5.2 Borrower Performance
(a) Government Performance Rating: Satisfactory
The state and the two entity governments provided the needed political, administrative
and financial support for the implementation of the project. They showed a high degree
of ownership of the project objectives and overarching goal of regional market and its
eventual integration with the EU market. They could not however resolve the issue of
governance of the national transmission company and the ISO.
(b) Implementing Agency or Agencies Performance Rating: Satisfactory
The three EPs showed a high degree of ownership of the project and its objectives,
established PIUs staffed with competent and experienced personnel, mostly reporting
21
directly to the General Director of the EP. They carried out the project with due care and
diligence, made the best use of the consulting support provided, and more than made up
for the delays caused initially due to factors beyond their control. In the context of such
initial delays and when the costs became higher after bidding in certain cases, they
voluntarily transferred some components for their own financing. They provided their
audited annual financial statements and audited project accounts generally in a timely
manner. They introduced FMIS with great deal of enthusiasm and benefited by it.
(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory
6. Lessons Learned
The key lessons learned include:
In projects with multiple co-financiers, parallel co-financing arrangements as
against joint co-financing work better since delays in implementation of
components of any financer do not adversely affect implementation of
components financed by others.
In respect of such projects with parallel co-financing, the PDOs and key result
indicators should be specific and relatable only to the WBG financed components
and should not include the outcomes of components financed from other parallel
sources.
Parallel co-financing arrangements should not include any cross-effectiveness
and cross-default clauses.
Even intractable problems such as electricity theft, poor billing and collection can
be solved if the power utility management pays sustained attention, sets clearly
understood targets and enforces them with sanctions and rewards. In such a
situation, involvement of external financiers can help address political economy
constraints.
Implementation schedules for generation rehabilitation projects should take into
account the constraints in shutting down large generation units in relatively small
systems for a long duration to carry out the rehabilitation. They should be made of
discrete packages capable of being done during the regular planned shut down for
maintenance (normally about 3 to 4 weeks). Even then delays could occur, as it
did in EPRS, when the planned maintenance of thermal plants is postponed or
curtailed due to poor hydrological conditions.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/implementing agencies
No special issue has been raised
(b) Co-financiers
None
(c) Other partners and stakeholders
23
Annex 1. Project Costs and Financing
(a) Project Cost by Component (in USD Million equivalent)
Cost
During
Appraisal
($m)
Cost as
completed
or latest
estimates
($m)
Percentage
of
Appraisal
estimate
A. IDA Financed Components
EPBiH Kakanj TPP
ESP unit 5 3.17 5.18 163.4
Waste water treatment 1.24 0.08 6.5
Cultivate Ash and Slag Waste dump 1.56 1.31 84.0
Environmental Monitoring Equipment 0.62 0.78 125.8
Study for Reduction of SOx and NOx 0.62 0.32 51.6
EPBiH Tuzla TPP
Ash and slag transportation system 12.18 13.29 109.1
Coal handling and waste water treatment 7.29 13.56 186.0
EPBiH Financial Management Information System (FMIS) 1.00 1.56 156.0
EPBiH TA for implementation of IDA financed components 0.40 0.06 15.0
EPHZHB FMIS 1.00 0.53 53.0
EPRS Ugljevik TPP
Monitoring and automatic control system 3.04 4.04 132.9
wastewater treatment and monitoring systems 0.74 4.41 595.9
Water cooling system 1.05 2.57 244.8
Power plant for own electricity consumption 4.17 5.79 138.8
EPRS Gacko TPP
Waste water treatment system 2.86 5.51 192.7
Ash and slag transportation system 1.36 3.28 241.2
0.4 kV auxiliary services system 3.48 3.35 96.3
EPRS FMIS 1.00 1.32 132.0
EPRS TA for Implementation of IDA financed items 0.50 0.58 116.0
Dam Safety Components consulting for all 3 EPs 1.00 1.51 151.0
Procurement training 0.06 0 0.0
Base cost for IDA financed components 48.34 69.03 142.8
B. EBRD Financed Components
EPBiH Selected facilities of Distribution 19.43 26.73 137.6
EPHZHB Selected facilities of Distribution 19.43 24.7 127.1
EPRS Selected facilities of Distribution 17.03 21.48 126.1
Support for Implementation to all 3 EPs 2.00 0.22 11.0
Base cost for EBRD Financed components 57.89 73.13 126.3
C. KfW Financed Components
EPHZHB HPP Rama
24
Enlarge 220 kV switchgear 2.68 5.92 220.9
Replace Turbine, Generator and Bulk Transformer 19.34 27.67 143.1
Distribution SCADA systems for all 3 EPs 18.01 27.75 154.1
Implementation of KfW financed Components 1.30 0.31 23.8
Base Cost for KfW financed Components 41.33 61.65 149.2
D. EIB Financed Components.
EPBiH
HPP Grabovica:
220 kV Switchgear and 35 kV facilities 1.08 0.66 61.1
HPP Salakovac:
220 kV switchgear and 35 kV swichgear 2.01 2.53 125.9
HPP Jablanica:
Rehabilitate Monitoring for Kukovi Landslide 0.73 0.33 45.2
Reconstruct Brana &Entry building 35/0.4 kV TS 0.69 0.53 76.8
HPP Jablanica, Grabovica and Salakovac
Rehabilitate Dam monitoring systems 0.63 3.88 615.9
HPP Grabovica and Salakovac: Water leaks 0.47 3.33 708.5
Selected facilities of distribution 26.18 36.26 138.5
EPHZHB
HPP Capljina: Replace certain electrical equipment 3.08 4.12 133.8
HPP Rama: RCC facing and grout curtain 5.69 3.58 62.9
Selected Distribution facilities 10.47 14.05 134.2
EPRS
HPP Trebinje II : Repair of water leak 1.14 1.61 141.2
HPP Visegrad Repair of water leak 11.18 11.75 105.1
Repair 400 kV GIS switchgear, oil regulation and monitoring
systems for 3 generating sets 2.06 1.15 55.8
HPP Bocac
Augment spillway capacity 4.06 5.48 135.0
Reconstruct 110 kV plant, UPS, excitation system and
generating sets regulation 2.48 4.19 169.0
Selected Distribution facilities 23.22 22.43 96.6
ISO: Install Market operating system 6.09 0.0 0.0
Implementation of EIB financed components for all 3 EPs 2.60 0.05 1.9
Base cost for EIB financed Components 103.86 115.93 111.6
Total Base cost for all components 251.42 319.74 127.2
Physical contingencies 21.59 0 0.0
Price Contingencies 13.56 0 0.0
Total project costs 286.57 319.74 111.57
25
(b) Financing
Source of Funds Type of
Cofinancing
Appraisal
Estimate
(USD
millions)
Actual/Latest
Estimate
(USD
millions)
Percentage of
Appraisal
Borrower/Power Utilities .. 8.64 59.45 687.5
European Bank for Reconstruction
and Development Parallel 66.98 70.97 106.0
European Investment Bank Parallel 115.90 106.48 91.9
International Development
Association (IDA) Parallel 36.00 38.53 107.3
Germany: Kreditanstalt fur
Wiederaufbau (KfW) Parallel 44.89 44.20 98.5
Financing Gap 14.16 0 0
Note: Latest costs and funding have been calculated using the exchange rate
Euro 1 = $1.30
26
Annex 2. Outputs by Component (for IDA Financed Components) Component Output (for completed items)/
Status (for others)
Remarks (for ongoing
items) & other remarks
EPBiH
TPP Kakanj – reconstruction of the
electrostatic precipitator for Unit 5
Particulate matter emissions have been
reduced from the pre-project levels of 350
to 500 mg.NM3 to 20 mg/Nm
3 well below
national and EU standards
Similar improvements
were carried out at Unit
6 also using the
Utility’s own funds.
TPP Kakanj- reconstruction of
waste water plant
Instead of this, a new study was carried
out to identify technologically more
advanced solutions. Reconstruction based
on the new study using a water
recirculating system is being pursued
using utility’s own funds
This will substantially
reduce water pollution
from the power plant
and would also reduce
water consumption.
The experimental phase
has been completed
TPP Kakanj- re-cultivation of the
slag and ash waste dump
The slope of the ash dump has been
stabilized from uncontrolled slipping.
Enabled management and minimization of
pollution of downstream river, during
rains. Works (on the ash and slag depot
which stores already 6.0 million cubic
meters) have helped to improve disposal
practices and have enabled disposal of
additional 14.9 million cubic meters of
ash and slag thus allowing the site to be
used safely for another 40 years of
operation.
Improved
environmental
management of the coal
fired TPP
TPP Kakanj- rehabilitation of the
equipment for environmental
monitoring
Improved system ensures better quality of
data transfer, as well as continuous,
precise monitoring and analysis of all the
data for individual units as well as the
entire plant, in accordance with national
legislation, EU Directive for large
combustion plants (LCP Directive
2001/80/EC), and other standards in the
field of emissions.
The real time air
quality data is also on
display for the public to
see.
TPP Tuzla- Replacement of ash
and slag transportation system
Ash and slag transport system based on
recirculation of waste water has reduced
significantly the volume of water
consumption for this purpose.
Has been carried out
using utility’s own
funds
TPP Tuzla - Reconstruction of the
Coal handling system
Modernization of coal handling has led to
the better utilization of coal storage
capacities, improved the homogenization
of various types of coal, and reduced
internal transport costs. It has also
improved the quality of boiler operation in
units 3, 4 and 5, increasing energy
efficiency, reducing emission of harmful
products in flue gases, and reducing of
dust and noise.
TPP Tuzla – waste water treatment
system related to the above
This has become a part of the waste water
re-circulating system covering ash and
slag transport . This will ultimately lead to
a saving of 1000 to 1500 cubic meters of
water per day
It is being rehabilitated
using utility’s own
funds.
27
EP BiH –Financial and
Management Information System
It has helped in the overall improvement
of the operational and management
efficiency and effectiveness of the utility.
Based on the results of
the pilot introduction in
two business units the
utility is introducing it
in all business units
using its own funds
(about $6.3 million)
EPBiH Technical assistance for
reducing SOx and NOx in TPP
Kakanj
The recommendations for de-sulfurization
of units 6 and 7 in TPP Kakanj and the
proposed scenarios and economic
arguments will be helpful in determining
of future directions for the operation of
these plants in accordance with standards
of BiH and EU.
EP BiH- Dam Safety Study The consultant has recommended dam
safety measures for HPPs at Jablanica,
Grabovica and Salakovac. Engagement of
Consultants has contributed to a better
readiness and faster and more efficient
implementation of the dam safety
projects.
The investment phase is
being financed partly
by EIB and partly by
the utility.
EPHBHZ
Financial Management Information
System
Successful introduction in all business
units has helped in the overall
improvement of the operational and
management efficiency and effectiveness
of the utility.
Dam Safety Study Recommendations for HPP Rama are
being implemented under EIB financing
EPRS
Ugljevik TPP: Monitoring and
automatic control system
Equipment to be placed in the fields had
been installed. Equipment for process
control and monitoring is stored and
would be installed during the plant
shutdown in 2013 (second quarter).
When completed will
modernize and digitize
automatic plant control
system, improve plant
reliability and reduce
generation losses.
Ugljevik TPP: Rehabilitate
wastewater treatment and
monitoring systems
Under functional testing. Enables
treatment of waste water from the plant,
associated coal mine and the
desulphurization unit. Also enables
monitoring at all discharge points and thus
compliance with water pollution
regulations.
Measured in terms of
Population Equivalent
(PE), these works have
reduced the pollution
levels by about seven
times from 33,668 PE
in 2007 to 4684 PE in
2012.8
Ugljevik TPP: Reconstruction of
Water cooling system
Restored the temperature differential to
the original design value of 9.4oC and the
design efficiency of cooling. Cooling
tower became reliable even for winter
operation.
8 Under this measure pollution from the effluents of any plant is expressed as the number of
households/people that will produce an equivalent level of pollution.
28
Ugljevik TPP: Replacement of the
auxiliary power plant and
associated 0.4 kV and 6kV
equipment.
Improved the reliability of the main power
station and reduced generation losses.
Gacko TPP: Replacement of waste
water treatment systems
The effluent now conforms to the national
standards. Also resulted in a saving of 700
million liters of water per year and a
corresponding reduction in the effluent
discharge into the river downstream.
Gacko TPP: Replacement of Ash
and slag transportation system
Reduced particulate emission levels to
some extent and made handling of ash and
slag much more efficient. Since the new
system has eliminated stoppages due to
the old system additional generation of 10
GWh per year became possible.
Projected parameters
are reported to have
been met
Gacko TPP: Reconstruction of the
0.4 kV auxiliary system
Reduced TPP interruptions and made
generation more reliable.
EPRS Financial Management
Information System
It has helped in the overall improvement
of the operational and management
efficiency and effectiveness of the utility.
Based on the results of
the pilot introduction in
two business units in
this project, the utility
is introducing it in all
business units using its
own funds (of
about$ 11.7 million).
EPRS Dam Safety study Recommendations of the consultants are
being implemented partly under EIB
financing and partly under self-financing
to improve dam safety of Trebinje II,
Visegrad, and Bocac HPPs.
29
Annex 3. Economic and Financial Analysis
Economic Analysis
The PAD noted that the project consisted of a large number of small investments and that
benefits were not quantifiable in respect of components relating to environmental
improvements, the market operation system, FMIS, and the Study for reduction of SOx
and NOx. Thus all the components funded under IDA credit (except two) were not
covered by the quantitative analysis. These exceptions were (i) monitoring and automatic
control system; and (ii) replacement of the auxiliary power plant and associated 0.4 kV
and 6kV equipment, both at Ugljevik TPP. The first component has largely been
completed, but will become operational some time in 2013, after the installation of the
stored equipment when the plant is shut down for planned maintenance. The second one
has become operational and is providing excellent support for the plant reliability.
In the PAD the EIRR had been calculated for these two components based on the then
estimated capital costs, annual O&M costs, benefits in terms reduction in generation
losses caused by the two components and valuing the benefit at the export price of
electricity prevailing in 2006 as shown below:
Table A3.1: Summary of economic analysis in the PAD Component Capital
Cost in
$ m
Annual O&M
Cost in $ m
Annual Reduction
in Generation
Losses in GWh
2006 Price of
exported electricity
US Cents/kWh
EIRR
1 3.3935 0.0304 (about
0.09% of capital
cost)
59.346 4.8 54%
2 4.6470 0.0042 (about
0.009% of
capital cost
24.729 4.8 21%
The EIRRs have been re-estimated based on the current capital cost data9, annual O&M
expenses and reduction levels in generation losses following the same rates as in the
appraisal. The benefits have been valued at the export of electricity in mid-2012 as shown
below:
Table A3.2: Summary of economic analysis for the ICR Component Capital
Cost in
$ m
Annual O&M
Cost in $ m
Annual Reduction
in Generation
Losses in GWh
2006 Price of
exported electricity
US Cents/kWh
EIRR
1 4.04 0.03636 59.346 7.38 58%
2 5.79 0.005211 24.729 7.38 24%
9 These are actual costs incurred plus a small provision for the installation of the equipment already
procured and stored
30
It may be seen that based on the methodology adopted in the PAD, the IRRs of these two
components continue to be robust at 58% and 24% compared to 54% and 21% at
appraisal. Sensitivity analysis for capital cost and O&M cost increases by 10%, benefit
(GWh) reduction by 10%, and export price reduction by 10% indicate that even under a
combination of these factors EIRR remains at or above 48% for Component 1 and 20%
for component 2. Technically also, investments such as these, improving the reliability of
generation and reducing generation losses are imperative to the utility performance for
providing reliable supply.
Financial Performance of the three EPs
The financial performance of the EPs is influenced by the variations in their generation
mix, variations in their sales mix, price volatility in the wholesale market, and the level of
regulated tariffs for tariff consumers. Other factors influencing their performance include:
the levels of distribution system loss, and efficiency of billing and collection.
The hydrological conditions had been good in 2006, 2009 and 2010 and difficult in the
other years. The best year was 2010 and the worst year was 2011.
Table A3.3: Total and hydropower generation in BiH Item 2006 2007 2008 2009 2010 2011
Total generation in GWh 13,675 12,195 13,784 14,562 16,068 14,050
Share of Hydro (%) 43 33 34.6 42 49.5 30.8
EPHZHB has an all hydro system with no thermal generation, while EPBiH produces
about 65% and EPRS about 35% of the total thermal power generation in the country.
The latter two are affected by this factor directly through their higher generation costs.
EPHZHB is a net importer and is therefore indirectly affected by this factor.
The revenue from sales to tariff customers is fairly orderly, stable and predictable.
However, regulated tariffs have registered only a very modest increase over the period
with no cushion to withstand the effects of the above key variables. For example the
average revenue/kWh for tariff consumers in EPBiH moved from Pf 12.4 in 2006 to Pf
13 in 2011.
However sales of surplus electricity from each EP (after meeting the demands of tariff
consumers under the public supply obligations) in the wholesale market to other EPs,
traders and for export are based on bilateral contracts through negotiations or public
tendering. Volume of sales in the wholesale market varies as a function of hydrological
variations, as well as the demand in the domestic and regional market. The prices in the
market are greatly influenced by the regional market prices. During 2006-2011 regional
market prices per MWh have varied from Euro 60 in 2006 to a high of Euro 90 in mid-
2008 before declining to a low of Euro 40 in most of 2010. In 2011 prices moved
gradually to a range of Euro 50 to 55 during most of the year and reached Euro 60
31
towards the end of that year. Such volatility affects the revenues of EPBiH most and to a
lower extent EPRS.
Distribution system loss in the country has declined from a high of 14.23% in 2009 to
12.89% in 2011 which is the lowest level reached during the post-war years. Collection
ratios have attained industry standards of 98 to 99 percent of bills and are being
maintained at that level.
At the time of appraisal, tariffs were inadequate to cover the full amount of depreciation.
Nevertheless, all three EPs had been able to generate sufficient cash from their operations
to meet the two covenanted financial obligations associated with the IDA credits: i) a
self-financing ratio of no less than 40%; and ii) a debt service coverage ratio (DSCR) of
no less than 1.5 times.
EPBiH
A summary of EPBiH’s key financial and technical indicators and its historical financial
statements in the period 2006-11 are provided in Table A3.4 below. At appraisal, EPBiH
was in compliance with covenants relating to self-financing and debt service coverage.
In the period 2006-11, the company remained in compliance with the agreed financial
covenants except in 2010 when its cash receipts from operations fell well below Earnings
before interest, depreciation and amortization (EBIDA) due to changes in the working
capital.
Table A3.4: A summary of key financial and technical indicators of EPBiH
No Item 2006 2007 2008 2009 2010 2011
1 Generation Total (GWh) 6,401 6,593 7,340 6,993 7,290 7,352
2 Share of Hydropower (%) 24 19 22 25 31 17
3 Share of Thermal power (%) 76 81 78 75 69 83
4 Total sales in GWh 5,781 6,176 6,762 6,607 7,042 7,041
5 Share of Sales to Tariff consumers in
GWh (%) 67 66 63 61 60 61
6 Share of Sales to the Wholesale market
including export in GWh in total sales
(%) 33 34 37 39 40 39
7 Average revenue/kWh from sales to
Tariff consumers (Pf/kWh) 12.4 12.4 12.8 13.1 13 13.75
8 Average revenue/kWh from sales in the
wholesale market (Pf/kWh) 6.9 9.4 11.5 12.4 8.8 10
9 Profit after tax KM million -28 11 47 66 -22 1
10 System loss (%)
9.1 10.3 11.8 9.69 9.49
11 Collection to Billings Ratio (%) 100 99.5 100 99.4 99.3 100
12 Accounts Receivable in Days' Sales
(days) 50 44 43 49 39 50
13 Operating Ratio 1.07 1.00 0.95 0.94 1.04 1,01
14 Current Ratio 5.26 5.00 5.52 5.19 4.38 3.69
32
15 Debt Service Ratio (times) (1.5 times
or greater) 2.68 8.11 8.78 9.11 1.73 8.18
16 Self Financing Ratio (%) (40% or
greater) 80 107 102 130 9 76
17 Debt/ Equity Ratio 0.12 0.12 0.14 0.15 0.16 0.17
18 Return on equity (%) -ve 0.41 1.64 2.24 -ve 0.05 Memo Item *
Quantity of electricity purchased in GWh na na 21.6 15.127 72.856 29.444
Average purchase price Pf/kWh na na 6.81 11.67 5.83 13.54
* Short-term purchase (Intercompany purchase inside B&H, i.e. purchase between EPBiH and EPRS and EPHZHB) is not included.
EPBiH’s operating performance had improved notably during 2006-09. The company
became operationally profitable for the first time in many years during 2008-09 before
taking a downturn in 2010. Factors which contributed to the improvement include: (i)
higher prices received for sales in the wholesale market; ( ii) gradual tariff increase
among tariff customers; and iii) adequate coal supply to satisfy both domestic and
regional power demand. In 2010, the downturn in the company’s financial performance
was primarily due to a sharp fall in the wholesale market prices. EP BiH’s financial
performance is highly sensitive to changes in the wholesale prices among its non-tariff
customers. Several factors have contributed to this situation. They include:
High volatility in the wholesale market prices. The average regulated tariff/kWh grew
at a moderate rate of 1.2% annually from 12.4 Pf to 13.0 Pf during 2006-10, while the
wholesale price/kWh to non-tariff customers shot up by nearly 80% during 2006-09
from 6.9 Pf to 12.4 Pf before taking a 30% dive in 2010. The high volatility of the
wholesale market prices is due to the changing forces of supply and demand. In 2010
extremely favorable weather conditions led to record high outputs from the
hydropower plants. However, the worldwide economic recession led to a slowdown
in the domestic and regional consumption. Thus a large influx of low-cost
hydropower generation and a reduction in regional demand effectively drove down
the prices in the wholesale market. EP BiH, a net exporter, saw its bottom line suffer
as a result.
Growing percentage of its sales subject to market forces: the weight of sales to the
wholesale market as percentage of EP BiH’s total electricity sales had been growing
steadily over time, from 33% in 2006 to 40% in 2010.
Higher cost of generation due to a thermal-heavy generation mix: About 70% to 83%
of EPBiH’s generation mix is from thermal power plants and such thermal power is
more than twice as costly as the hydropower. Relative to EPHZHB and EPRS, it has a
higher cost of generation and 40 percent of its sales are subject to market forces. EP
BiH is therefore more vulnerable to downward swings in wholesale prices.
EPHZHB
33
A summary of key financial and technical indicators of EPHZHB during2006-11 is
provided in Table A3.5. At appraisal, EPHZHB was in compliance with the covenants
relating to self-financing and debt service coverage. The company remained in
compliance with both financial covenants since then, except in 2007 when its generation
output fell sharply due to highly unfavorable weather. In that year, EPHZHB’s operating
margin fell to a negative 18%. By the year end, it had a net cash loss of KM 2 million
from operations. For the year it recorded a total loss of KM 59 million. As a result, the
company was in breach with both financial covenants.
EPHZHB's own electricity production comes exclusively from hydropower. While this
has benefits in terms of lower operating expenses for hydropower generation, it also
subjects the company to the effects of variability in the hydraulic conditions. A net
importer, EP HZHB also needs to make up any shortfalls in its own generation with
purchases from the wholesale market at higher costs. The cost of purchased power is a
major component of the operational expenses of EPHZHB. Depending on the volume of
hydropower generation in the year, annual purchased power cost as a percentage of total
annual operational expenses ranged from 33 to 51 percent in most years while it shot up
to 61 percent in 2007. The situation in 2011 is somewhat similar and it made operational
loss. Thus, EP HBHZ’s financial performance closely mirrors the movement in the
outputs from its own hydropower plants.
Another factor affecting EPHZHB’s financial performance is the amount of sales to large
customers, such as Aluminij which could choose to remain as a tariff customer or buy
from suppliers of choice in the wholesale market. When they unexpectedly choose to
remain as tariff customers, EPHZHB is often forced to buy electricity in the wholesale
market often at higher prices. The regulatory agency is trying to ameliorate this problem
through some notice procedures.
Table A3.5: A summary of key financial and technical indicators of EP HZHB
No Item 2006 2007 2008 2009 2010 2011
1 Generation Total (GWh) 1,885 1,124 1,356 1,940 2,605 1,402
2 Share of Hydropower (%) 100 100 100 100 100 100
3 Share of Thermal power (%) 0 0 0 0 0 0
4 Total sales in GWh 3999.8 2928.7 2248.7 2324 3313.5 2785.5
5 Share of Sales to Tariff consumers
in GWh in total sales (%) 76.87 87.1 92.3 80.1 63.37 89.8
6
Share of Sales to the Wholesale
market including export in GWh
in total sales (%) 23.13 12.9 7.7 19.9 36.63 10.2
7 Average revenue/kWh from sales
to Tariff consumers (Pf/kWh) 9.46 10.71 12.99 13.24 12.67 12.11
8 Average revenue/kWh from sales
in the wholesale market (Pf/kWh) 7.14 8.03 0.17 9.84 9.42 9.33
9 Profit after tax KM million 1.00 -59 7.00 20 41 -15
10 System loss (%)
18.7 17.7 17.2 16.2 14.4
11 Collection to Billings Ratio (%) 98.2 99.7 98.3 98.7 98.7 98.2
34
12 Accounts Receivable in Days'
Sales (days) 84 85 79 71 67 84
13 Operating Ratio 1.00 1.18 0.97 0.93 0.89 1.03
14 Current Ratio 3.15 1.45 1.67 2.3 2.38 1.81
15 Debt Service Ratio (times) (1.5
times or greater) 9.34 0.05 4.78 6.39 8.69 4.03
16 Self Financing Ratio (%) (40% or
greater) 105 14 44 77 149 85
17 Debt/ Equity Ratio 0.19 0.25 0.28 0.32 0.33 0.35
18 Return on Equity (%) 0.10 -ve 0.76 2.20 4.34 -ve
EPRS A summary of key financial and technical indicators and details of historical financial
statements of EPRS during 2006-11 is provided in Tables A3.6. At appraisal, EP RS was
in compliance with the covenants relating to the self-financing and debt service coverage
ratios. The company has remained in compliance with both financial covenants since
then except in 2009 when its cash receipts from operations fell well below EBIDA due to
changes in the working capital. As a result, the company failed to comply with the self-
financing ratio covenant.
Compared with the other two power producers in the country, EPRS has a more favorable
generation mix with 34 to 53 percent coming from hydropower units. With more
hydropower in its generation mix and with about 40% of total sales for the wholesale
market and export, EPRS is less vulnerable to wholesale market price changes than
EPBiH. For example, when wholesale market prices took a dive in 2010, EPRS
remained operationally profitable.
The largest hydropower producer in the country, EPRS’s financial performance is also
closely linked to the weather conditions influencing hydropower output. In the period of
2006-2011, the correlation between the operating margin of the company and the overall
hydraulic condition was about 0.58. In the three years (2006, 2007 and 2011) when the
hydraulic conditions were the least favorable, EPRS registered operating losses.
Table A3.6: A summary of key financial and technical indicators of EPRS
No. Item 2006 2007 2008 2009 2010 2011
1 Generation Total (GWh) 5,390 4,454 5,084 5,623 6,165 5,295
2 Share of Hydropower (%) 48 40 38 46 53 34
3 Share of Thermal power (%) 52 60 62 54 47 66
4 Total sales in GWh 4,596 3,754 4,495 4,984 5,520 4,719
5 Share of Sales to Tariff consumers in
GWh in total sales (%) 57.07 72.54 64.18 59.75 55.25 65.78
6
Share of Sales to the Wholesale market
including export in GWh in total sales
(%)
42.93 27.46 35.82 40.25 44.75 34.22
35
7 Average revenue/kWh from sales to
Tariff consumers (Pf/kWh) 10.64 10.53 11.67 11.63 12.23 12.11
8 Average revenue/kWh from sales in the
wholesale market (Pf/kWh) 6.96 9.65 11.61 7.99 6.93 8.40
9 Profit after tax KM million 0 -16 33 36 36 6
10 System loss (%) 17.4 17.3 16.1 16.5 16.2
11 Collection to Billings Ratio (%) 103.3 100.7 101.4 100.5 99.28
12 Accounts Receivable in Days' Sales
(days) 85 79 71 67 84
13 Operating Ratio 1.04 1.08 0.97 0.98 0.98 1.03
14 Current Ratio 3.44 2.88 3.55 3.96 4.5 4.87
15 Debt Service Ratio (times) (1.5 times or
greater) 2.78 4.28 5.57 2.44 6.5 7.04
16 Self Financing Ratio (%) (40% or
greater) 128 113 94 24 94 104
17 Debt/ Equity Ratio 0.09 0.09 0.10 0.11 0.12 0.12
18 Return on equity (%) 0 -ve 0.90 0.97 0.95 0.16
GENERAL
Overall, the three utilities are doing well operationally in terms of increasing generation,
reducing system loss, improving collections and in reducing the level of accounts
receivable, though the performance varies somewhat among the various distribution
subsidiaries they own. Also they all have very low levels of long term debt in their capital
structure and low debt service liabilities. The debt equity ratios in the above tables have
been computed by dividing the total liabilities by the total equity. When only long term
debt is used the ratios will indicate even lower levels of leverage. Despite this major
advantage and a reasonably high level of operational efficiency, they are unable earn
even a modest return on their equity. They are managing to remain barely solvent through
export sales.
All of these developments highlight the need for the regulators to allow the tariffs to rise
to enable the utilities to earn at least some modest returns on the equity and to withstand
weather dependent major variations in hydropower outputs.
36
Annex 4. Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Title Unit Responsibility/
Specialty
Lending
Supervision/ICR
Bernard Baratz Consultant EASCS
Angelica A. Fernandes Consultant ECSO2
Vesna Francic Senior Operations Officer ECSS6
Sergio Augusto Gonzalez
Coltrinari Sr Power Engineer ECSS2
Mohinder P. Gulati Sector Leader ECSSD
Esma Kreso Environmental Specialist ECSS3
Ramon Lopez-Rivera Consultant ECSS2
Lamija Marijanovic Financial Management Specialist ECSO3
Kishore Nadkarni Consultant ECSS2
Shinya Nishimura Senior Energy Specialist ECSS2
Kjell Erik Gustaf Porle Consultant EASCS
Ireneusz M. Smolewski Senior Procurement Specialist ECSO2
Goran Tinjic Senior Operations Officer ECCBM
Natasa Vetma Senior Operations Officer ECSS3
(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
FY05 14.32
FY06 226.34
FY07 0.54
FY08 0.00
Total: 241.20
Supervision/ICR
FY05 0.00
FY06 0.00
FY07 70.19
FY08 94.65
FY09 115.79
FY10 177.94
FY11 108.29
FY12 114.08
Total: 680.94
39
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR
The ICRs provided by the three EPs gave details of implementation, actual costs incurred,
and results achieved. They provided details of the environmental improvements achieved
and their improved ability to comply with national and EU environmental regulations and
describe how the various rehabilitation components relating to hydro and thermal power
plants have led to increased generation capability and greater reliability of supply and
safety. They have described at some length the favorable impacts the distribution
rehabilitation components had on the reliability of the distribution systems and reduction
of system losses. They have also spoken highly of the efficacy of the introduction of the
SAP based FMIS in their utilities. They consider the Bank performance very satisfactory
stating, “The Bank has provided significant contribution in defining of priorities,
preparation and evaluation of projects, monitoring and supervision of individual contracts
and entire project as well as expert counseling during project realization. Through timely
and expert counseling, the Bank has helped in resolution of all issues that arose, and led
towards faster and more efficient project implementation. During the project
implementation, the Bank has organized training for PIU personnel in the areas of
procurement, environmental and social protection and financial management of World
Bank projects, with the aim of familiarizing them with the updated procurement
guidelines, environmental and social protection standards and procedures for
management of loan funds.”
They believe that the project objectives have been achieved and state that overall, the
goals established for each project component have been realized within planned and
approved budget. Components for mitigation of negative environmental effects of
thermal power plants have improved compliance with state and EU legislation relating to
environmental protection. Other components led to the improvement of technical
characteristics of the rehabilitated facilities. They also led to increased safety, reliability
and quality of supply of electricity to the customers. Losses within the distribution sector
have been decreased, and perhaps most significantly, integration of business processes
has been achieved through introduction of financial management information system. In
addition, the completion of projects for the control of seepage of water under the
hydropower dams will increase the safety of dams, and thus the overall readiness of
hydro power plants in the energy system.
Their list of lessons learnt from the project includes:
Acceptance of new technological solutions in the areas of environmental protection
has led to achievement of better ecological, production and financial results, as well
as fulfillment of requirements of international standards. Engagement professional consulting assistance is necessary for the preparation
and implementation of the projects of this type.
Implementation of SAP in some parts of the Company has proven a good business
practice as it contributed to better scoping of business processes within the company
and training of company personnel. This facilitated the introduction of SAP in the
other parts of the Company using the personnel trained earlier
40
Within the project, different types of contracts were used in accordance with the
policies and procedures of different financial institutions. This enabled new
employees within the company to acquaint themselves with procurement procedures
of different financial institutions, which reflect different prioritization of quality and
cost as compared to procurements done from company’s own funds, in accordance
with local procurement guidelines. The project has also enabled the company
personnel to acquire international experiences in project management and to come
across best available technologies. Finally, the company personnel have familiarized
themselves with new practices in financial management of complex, international
contracts.
41
Annex 8. Comments of Co-financiers and Other Partners/Stakeholders
No comments were received from EIB and KfW. EBRD wondered whether the
government performance could be rated as satisfactory. Given the complexity of the
political and administrative structures specific to BiH, and the prevailing historical
circumstances, we believe, that in relation to this project, the governmental performance
was reasonable except in relation to the governance arrangements for the National
Transmission Company and ISO.
42
Annex 9. List of Supporting Documents
ICR from EPBIH
ICR from EPRS
ICR related information from all three EPs
Audited financial statements for all three EPs for 2007-2011
Audited Project Expenditure statements for 2007-2011
Report on the experience in BiH in reduction of system losses and increase in collections
Quarterly progress and disbursement reports by the three EPs
Consultant Reports on Dam safety and in SOx and NOx reduction
Annual Reports of EPBiH, EPHZHB and EPRS available at their websites
Annual Reports of SERC available in its website
Reports relating to BiH available in the website of EC
43
Annex 10. Status of Components Financed by EBRD, EIB and KfW
No. Component Status Output/Remarks
A. Components Financed by EBRD
1 Distribution segment for
EPBiH: loan $24.7m.
Disbursements $24.58m
Completed by June
2011. Loan closed
Reduction in
Distribution Losses,
increase in sales, billing
and collection,
Improvement of
reliability of supply
through reduced
frequency and duration
of supply outages.
2 Distribution segment for EP
HZHB: Loan $24.7m Fully
disbursed
Completed by June
2011 Loan Closed
3 Distribution segment for
EPRS: Loan $22.1 m
Disbursements $ 21.628 m by
June 30, 2011.
Completed by June
2011 Loan Closed
B. Components Financed by EIB
1 Distribution and HPP
Rehabilitation for EPBiH :
EIB Loan $42.77m
Disbursed $30.11m
Of this $35.23 m is for distribution and
$7.54 m is for Hydro dam safety works.
1a: Distribution for EPBiH:
funding $35.23m
Disbursement $26.26 m
Substantially
completed; Full
completion by
September 2013
Same as for the EBRD
distribution
components
1b: HPP Grabovica: 220 kV
and 35 kV facilities
reconstruction EPBIH Own
funding
Completed
Increased generation
plant availability
1c: HPP Salakovac: 220 kV
and 35 kV facilities
reconstruction EPBiH own
funding
Completed
Increased generation
plant availability
1d: HPP Jablanica:
Reconstruct Brana and Entry
Building 35/0.4 kV TS EPBiH
funding
Completed
Increased generation
plant availability
1e: HPP Jablanica:
Rehabilitate Monitoring
System of Kukovi Landslide
EPBiH Own funding
Completed
Improved dam safety
1f: HPP Grabovica and
Salakovac Reduction of water
leakage
In Progress.
Completion by April
2013
Increased generation
and dam safety
1g: HPP Grabovica, Salakovac
and Jablanica: Continuous dam
monitoring system
Increased dam safety
44
2 Distribution, Rehabilitation of
HPP Capljina and Rama in EP
HZHB Total Funding $25.87m
See Status below for individual items
2a: Distribution for EPHZHB:
Disbursed about $13.94 m by
Sept 2011
Completed Same as for EBRD
funded Distribution
components
2b: HPP Rama RCC facing
and Grout Curtain
Grout Curtain work at
$3.762 m was
completed in end 2011.
Concrete facing work
was being tendered in
Sept 2011 ($3.6m).
However there was a
decision to retender the
contract in May 2012.
Completion date not
clear.
Grout Curtain repair
reduced a part of the
dam leakage.
2c: HPP Caplijina
Replacement of certain minor
equipment Disbursed $4.1m
Completed Increased reliability
and availability of
generation plant
3 Distribution for EPRS : EIB
loan $24.57m Disbursements
$22.49m as of June 30, 2012
(closing date Dec 31, 2013)
Completed Same as for EBRD
funded distribution
components
4 EPRS HPP Rehab and Dam
safety: EIB loan $30.81m
(including contingency)
Disbursement $19.5 m as of
June 30, 2012
Partially completed; Status: see below
4 a: Additional Spillway at
HPP Bocac
Contracting in June
2012; completion by
April, 2013
Increased dam safety
4 b: Plant control system at
HPP Bocac
Tendering in June
2012; Completion by
Oct, 2013
Increased Plant
reliability and
availability
4 c: Cooling system for
Generators at HPP Bocac
Nearing completion in
June 2012
Same as above
4 d: Uninterruptable Power
Supply System (UPS),
Generators Excitation Systems
and Turbines Governing
Systems and reconstruction of
110 kV switchgear at HPP
Bocac
Completed all but the
last item in 2010
The last item was
completed in early
2012
Increased Plant
reliability and
availability and actual
increased generation.
4 e: To reduce water leakage
beneath the dam of HPP
Contract negotiations in
June 2012 and
Will reduce water
leakage and improve
45
Visegrad from 15 to 4
m3/second
completion by March
2014
dam safety
4 f: Turbine regulation and
monitoring of generators at
HPP Visegrad
Contracting in progress
in June 2012.
Completion by October
2013
For improved plant
reliability and load
following
4 g: To control water seepage
under the Gorica Dam Gorica
(HPP Trebinje II)
Tender documents were
being finalized in June
2012. Completion by
end 2013
Will reduce water
leakage and improve
dam safety
C. Components Financed by KfW
1 HPP Rama in EPHZHB:
Funding $22.1m for Plant
rehabilitation covering:
Rehab of two generators
Replace two transformers
Procure an additional
runner
Extension of 220kV
switchgear
All contracts were
awarded by June 2011.
Works are in progress
and completion date not
reported. Will result in increased
generation.
2 Distribution SCADA for
EPBiH funding $9.52m. No
Disbursement yet.
The assistance was
approved in late 2012.
Work has not started.
Completion in about 24
to 30 months.
Will make distribution
operations more
efficient
3 Distribution SCADA for
EPHZHB Funding
Implementation has not
commenced yet
4 Distribution SCADA system
for EPRS: loan/grant of
$5.94m; No disbursement till
the end of 2012
The loan was becoming
effective in the third
quarter of 2012 and
implementation was
expected to start in the
last quarter of 2012:
Completion by end
2014
Adriat ic
Sea ALB
AN
IA
REPUBLIKA SRPSKA
REPUBLIKASRPSKA
FEDERATION OF BOSNIAAND HERZEGOVINA
Brcko Districtˇ
TE Gacko
HE GrabovicaHE Jablanica
HE Bocacˇ
TETuzla
TE Kakanj
HE Rama
TE Ugljevik
PHECapljina
HE Trebinje II
HE Visegradˇ
HE Salakovac
BOSNIA AND HERZEGOVINA
ENERGY COMMUNITY OFSOUTHEAST EUROPE (ECSEE)
APL3–BiH PROJECT
GSDPMMap Design Unit
OPERATIONAL AREAS OF PUBLIC UTILITIES:
ELEKTROPRIVREDA BiH
ELEKTROPRIVREDA RS
ELEKTROPRIVREDA HZHB
KOMUNALNO BRCKO
EXISTING PROJECT TRANSMISSION LINES:
400 kV
220 kV
110 kV
HYDRO POWER PLANTS
THERMAL POWER PLANTS
SUBSTATIONS
RIVERS
NATIONAL CAPITAL
INTER-ENTITY BOUNDARIES
INTERNATIONAL BOUNDARIES
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.
DECEMBER 2012
BOSNIA andHERZEGOVINA
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