document of the world bank...the bicol region by replacing or repairing critical electricity...

Document of The World Bank

Report No: ICR00001003

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-48870)

ON A

LOAN

IN THE AMOUNT OF US$12.94 MILLION

TO THE

NATIONAL POWER CORPORATION

WITH GUARANTEE OF THE REPUBLIC OF THE PHILIPPINES

FOR A

BICOL POWER RESTORATION PROJECT

June 30, 2009

Philippines Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective March 9, 2009)

Currency Unit = PHP

PHP 1.00 = US$ 0.021 US$1.00 = PHP 48.58

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ABC Approved Budget for the Contract

ACSR Aluminum conductor steel reinforced

BPRP Bicol Power Restoration Project

CAS Country Assistance Strategy

CNC Certificate on Non-Coverage

COA Commission on Audit

DOE Department of Energy

DOs Development Objectives

DPL Development Policy Lending

ECC Environmental Compliance Certificate

EIA Environmental Impact Assessment

EIRR Economic Internal Rate of Return

ERC Energy Regulatory Commission

ERS Emergency Restoration Structures

EPIRA Electric Power Industry Reform Act

GOCC Government-Owned and Controlled Corporation

GWh Gigawatt-hour

IBRD International Bank for Reconstruction and Development

ICB International Competitive Bidding

ICC Investment Coordination Committee

IEC Information, Education & Communication

kV Kilovolt

km Kilometer

LARP Land Acquisition and Resettlement Plan

MCM Thousand Circular Mils (wire Gauge)

MW Megawatt

NCB National Competitive Bidding

NCIP National Commission on Indigenous People

NEDA National Economic and Development Authority

NPC National Power Corporation

NGCP National Grid Corporation of the Philippines

PAGASA Philippine Atmospheric, Geophysical, and Astronomical Services Administration

PBD Philippine Bidding Document

PHP Philippine Peso

PSALM Power Sector Assets and Liabilities Management

QAG World Bank Quality Assurance Group

ROW Right of Way

PHRD Policy and Human Resources Development

SAIDI System Average Interruption Duration Index

SAIFI System Average Interruption Frequency Index

SISI System Interruption Severity Index

TransCo National Transmission Corporation

Vice President: James W. Adams

Country Director: Bert Hofman

Sustainable Development Leader: Mark C. Woodward

Project Team Leader: Salvador Rivera

ICR Team Leader: Salvador Rivera

PHILIPPINES

Bicol Power Restoration Project

CONTENTS

Data Sheet ........................................................................................................................ i

1. Project Context, Development Objectives, and Design .............................................. 1

2. Key Factors Affecting Implementation and Outcomes .............................................. 3

3. Assessment of Outcomes .......................................................................................... 10

4. Assessment of Risk to Development Outcome ......................................................... 13

5. Assessment of Bank and Borrower Performance ..................................................... 14

6. Lessons Learned ....................................................................................................... 16

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 17

Annex 1. Project Costs and Financing .......................................................................... 19

Annex 2. Outputs by Component ................................................................................. 20

Annex 3. Economic Analysis ........................................................................................ 22

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 23

Annex 5. Beneficiary Survey Results ........................................................................... 24

Annex 6. Stakeholder Workshop Report and Results ................................................... 25

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .................... 26

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 27

Annex 9. List of Supporting Documents ...................................................................... 28

MAP

i

A. Basic Information

Country: Philippines Project Name: Bicol Power Restoration Project

Project ID: P106262 L/C/TF Number(s): IBRD-48870

ICR Date: 06/30/2009 ICR Type: Core ICR

Lending Instrument: ERL Borrower: NATIONAL POWER CORPORATION (NPC)

Original Total Commitment:

USD 12.9M Disbursed Amount: USD 11.7M

Environmental Category: B

Implementing Agencies: National Transmission Corporation (TransCo)

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 06/22/2007 Effectiveness: 05/21/2008

Appraisal: 07/17/2007 Restructuring(s):

Approval: 02/07/2008 Mid-term Review:

Closing: 07/30/2008 09/30/2008 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Low or Negligible

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

ii

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

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):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Power 100 100

Theme Code (as % of total Bank financing)

Natural disaster management 100 100 E. Bank Staff

Positions At ICR At Approval

Vice President: James W. Adams James W. Adams

Country Director: Bert Hofman Bert Hofman

Sector Manager: Mark C. Woodward Junhui Wu

Project Team Leader: Arturo S. Rivera Arturo S. Rivera

ICR Team Leader: Arturo S. Rivera

ICR Primary Author: Arturo S. Rivera F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project's development objective was to support the stabilization of power supply in the Bicol region by replacing or repairing critical electricity transmission infrastructure damaged by typhoons in 2006. Revised Project Development Objectives (as approved by original approving authority) There were no revisions of the project development objectives and key indicators throughout the project implementation period.

iii

(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 : Reestablishment of capability to deliver an additional 50 GWh of unsupplied energy in region.

Value quantitative or Qualitative)

232 MW Max Demand 251 MW MD 254 MW MD

Date achieved 11/30/2006 07/31/2008 12/31/2008 Comments (incl. % achievement)

Percentage of Target: >100%

Indicator 2 : Improved power system reliability; reduction in SISI minutes lost Value quantitative or Qualitative)

17 minutes 15 minutes 0.22 minutes


Percentage of Target: >100%

(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 : New towers and line materials for the Naga-Labo 230 kV transmission line (Package A)

Value (quantitative or Qualitative)

56 56 56


Percentage of target: >100%

Indicator 2 : New towers and line materials for the Tiwi Plant C-Naga 230 kV transmission line (Package B)


32 32 32


Percentage of target: >100%

iv

Indicator 3 : New towers and line materials for the Tiwi Plant-A-Daraga, Naga-Daraga, and BacMan-Daraga 230 kV transmission lines (Package C)


30 30 30


Percentage of target: 100%

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 10/21/2008 Satisfactory Satisfactory 9.45 H. Restructuring (if any) Not Applicable

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1.1.1 Country Background. The Philippines power sector has been evolving rapidly over the past few years. Since the enactment of the Electricity Power Industry Reform Act (EPIRA) in 2001, and with its mandate to restructure the electricity supply industry and privatize the National Power Corporation (NPC), significant efforts have been made to increase investment in modernizing generation and transmission facilities. The complex process of privatization of generation and transmission assets led by the Power Sector Assets and Liabilities Corporation (PSALM) and the National Transmission Corporation1 (TransCo), both created under EPIRA continues with perceptible progress and in close collaboration with development partners. 1.1.2 Given the vulnerability of transmission assets to natural calamities, it has become increasingly evident that private sector investments must be accompanied by the application of higher technical standards for transmission assets. This is especially true in the Philippines, which is highly prone to typhoons that have become more severe in recent years. The Bicol region, with a population of over 5 million, was hit by two super-typhoons (named Milenyo and Reming) with wind speeds over 200 km/hr in the last quarter of 2006. The blackout resulting from the typhoons had a considerable adverse economic impact on the Bicol region. The economic cost of the blackout and continued power deficit, excluding revenue losses to the National Transmission Corporation (TransCo) and the electricity cooperatives, was in excess of US$250 million, more than 10 times the cost of the system restoration and strengthening investments that the project supported. 1.1.3 Rationale for Bank Assistance. For over 20 years, the Bank has assisted the government in power sector development and efforts to promote increased access to electricity for rural communities. The Bank has been actively involved in dialogue on power sector reform, particularly the preservation of the transmission system assets during the transition period prior to planned operation by a private concessionaire. During this period of institutional change, power sector institutions such as TransCo looked to the Bank to assist it in responding to the constraints that it faced in its ability to raise funds for new investments and asset preservation. 1.1.4 At the time of project identification, there were two streams of activity in the power sector that were relevant to the Bank’s ability to contribute to sector development. First, on a physical investment plane, TransCo was implementing a recovery strategy that focused not only on repair of the damage to the TransCo system, but also on critical reinforcement of transmission infrastructure in the Bicol region and other typhoon-prone areas in the transmission system, combined with emergency measures to reduce power outages in the event of further damage from typhoons. In parallel, it was recognized that with the increasing incidence of super typhoons in the Southern Luzon-Visayas corridor, greater attention would have to be paid to 1 The turnover of TransCo to the new concessionaire, National Grid Corporation of the Philippines (NGCP), took effect on January 15, 2009, with a 25-year contract to operate, manage, maintain, and upgrade the national grid of 21,329 circuit-km in Luzon, Visayas, and Mindanao.

2

improving design standards for wind resistance by the transmission towers through an overall tower-strengthening program that would increase system preparedness. 1.1.5 Second, on a policy plane, the project was an important element in the ongoing sector reform and privatization process initiated with the creation of PSALM, which would take ownership of all NPC generation assets, and TransCo, which would assume NPC’s transmission functions. Bank participation introduced a measure of comfort to investors to demonstrate that not only was the process deserving of full support, but also that the institutional arrangements were strong. The overall promotion of private interest in the power sector through the Bank’s intervention was seen as a perceptible contribution to efforts to remove infrastructure barriers constraining economic growth; this was consistent with the objectives of economic growth and social inclusion outlined in the current Country Assistance Strategy (CAS). The Bank’s strategy also supported the country’s efforts toward ensuring the availability of countrywide reliable and accessible power supply, and electrification of unenergized barangays. 1.1.6 Most importantly, the project met the eligibility criteria for rapid response as specified in OP8.00 for the financing of investments necessary to repair actual or imminent damage resulting from natural or man-made disasters.

1.2 Original Project Development Objectives (PDO) and Key Indicators 1.2.1 The projects development objective was to support the stabilization of power supply in the Bicol region by replacing electricity transmission steel towers and line materials damaged by typhoons in 2006. The key project outcome indicators were (i) re-establishment of the system with capability to deliver an additional 50 GWh of electricity through the construction of 118 new 230 kV towers; and (ii) improved power system reliability in Bicol, which was to be demonstrated by a reduction of 10 minutes in system minutes lost, which was better than the target of 15 minutes. The output indicator was a restored transmission system installed with accelerated contracting.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification 1.3.1 There were no revisions of the project development objectives or the key indicators.

1.4 Main Beneficiaries

1.4.1 The project had several stakeholder-beneficiaries: (i) Luzon grid-wide beneficiaries of reliable electricity through a restored and strengthened interconnected system; (ii) immediate beneficiaries in the Bicol region who benefited from restoration of electricity, and increased reliability of power; (iii) TransCo, which benefited from improved safety, reliability, and efficiency of a stabilized power transmission system; (iv) the private sector, which gained confidence in power sector investments through the Bank’s lead; and (v) the overall economy, which benefited from reduction in the economic costs of power outages and deficits, especially commercial activities dependent on regular power supply. A non-material beneficiary was the privatization process as the project came at a critical time in organizational restructuring, when a

3

clear and well-implemented investment was important in being able to improve investor confidence in the power sector.

1.4.2 The primary target group comprised the residents of Bicol who had suffered power shortages owing to the typhoon. At the time the typhoon struck, about 5 million Bicolanos in 3,359 barangays (out of 3,410) were being served by power from the grid. 1.5 Original Components 1.5.1 The project comprised two components: (i) a restoration subproject comprising of four packages of investments in equipment and installation to repair typhoon damage to the 230 kV and 500 kV transmission systems serving the Bicol region; and (ii) a preparedness subproject that comprised investments in 11 emergency restoration structures (ERS) and consulting services to assess reinforcement needs of the transmission system, thereby reducing potential damage and power disruption from future typhoons. The Bank-financed investments covered only supply and installation of the 118 steel towers and line materials to replace those damaged in the 230 kV system in Bicol. TransCo financed an additional 7 towers to replace those damaged in the 500 kV transmission system. The preparedness component was undertaken and expanded by the private concessionaire as a part of its Transmission Development Plan (TDP) in January 1, 2009, with an estimated value of about US$7.8 billion over the life of the concession.

1.6 Revised Components 1.6.1 There was no major revision of the project components during project implementation.

1.7 Other Significant Changes 1.7.1 There were no significant changes in project design, scope and scale, implementation arrangements, and funding allocations, except for (i) delays in implementation of Package A (Naga-Labo) project activities caused by right-of-way (ROW) issues encountered at Tower 196 that necessitated extension of the project closing date by two months to September 30, 2008; (ii) non-utilization of consulting services and acquisition of the 11 ERS due to the imminent privatization by way of concession of TransCo, with the new concessionaire better positioned to strengthen the entire grid and determine the need and location of needed ERS as part of structured program; and (iii) reconstruction by TransCo of 10 500kV towers instead of 7.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design, and Quality at Entry Background analysis 2.1.1 At the time of project preparation, the power sector in the Philippines was going through a major restructuring and privatization process. PSALM, created as part of EPIRA to take ownership of all NPC generation assets, liabilities, IPP contracts, real estate, and other disposable assets, would take on NPC’s borrower obligations once the transfer of debt and assets

4

was completed as part of the ongoing privatization and reform process. TransCo, in the form of a private concessionaire, would take over all transmission and sub-transmission activities. 2.1.2 In the transmission sector, the government had thrice unsuccessfully tried to attract bidders for the TransCo Concession since it was conceived in 2002. The lack of success had initially been due to the fact that the regulatory framework for the transmission business had not been finalized, together with the lack of a transferable franchise and perceived inadequacy of draft transaction documents in addressing investor concerns. The regulatory asset value of the nation’s transmission network was assessed at US$3.2 billion, making the Concession the largest privatization endeavor for power transmission business in any developing country. 2.1.3 In light of the risk of an untested regulatory regime and the broad country and political risks perceived by potential investors in the Philippines’ power sector, the government requested the Bank to make a Partial Risk Guarantee (PRG) available for bidders to make the transaction more financeable. Together with ADB, the Bank offered a PRG up to US$250 million with a possible tenor of 20-years to all the bidders as an option. The PRG covered country regulatory and policy risks, and would protect the Concessionaire against the risk of non-payment by PSALM/government of the termination payment triggered by certain events. 2.1.4 Within this context, PSALM conducted competitive bidding for the award of the TransCo Concession in November 2007. PSALM received two very competitive proposals on a bid date in December 2007, whereby bid prices far exceeded the regulatory asset value of the Transco assets. A consortium of local and foreign investors was selected as the winning bidder with a US$3.95 billion bid. The concessionaire took over TransCo operations in January 2009. 2.1.5 At the sectoral level, the project was expected to assist in the process of removing barriers to achieving the objectives of economic growth and social inclusion through infrastructure development as outlined in the CAS. Further, by financing investments that would help to preserve the assets of the transmission system, the project would also indirectly support one of the three main platforms for achieving the CAS objective, a strategy to promote private sector investment. Assessment of project design 2.1.7 The project objectives and design were well-defined and responded directly to the country’s priorities in the power sector. More importantly, the project was designed to be highly responsive in its approach to the emergency nature of the project by placing all design components within a very tight schedule and a rapidly changing sector institutional context, applying a high level of retroactive financing, flexible procurement arrangement, rapid bid evaluation and awards, minimizing loan conditionalities other than those essential to proper project management, and most notably, coordinating very closely with an implementing agency. 2.1.8 Bid evaluation, awards and project processing. Preliminary discussions with the government on this emergency support operation started immediately after the November 2006 Typhoon. Given the emergency nature of the situation, it was agreed that TransCo would proceed with advance contracting of critical restoration packages. At TransCo’s request, the

5

Bank reviewed and provided its concurrence on the bidding documents and bid evaluation reports for three supply and installation contracts in March 2007. Following a reconnaissance mission in May, 2007, the Government submitted an official request to the Bank to finance the project including additional components. Based on this request the Bank carried out its project appraisal in July and proposed to focus the project only on those key restoration components. Processing delays arose due to three main factors: (i) a long decision process among government agencies on the scope of IBRD’s funding; (ii) the uncertain outcome at that time of the ongoing sector’s privatization efforts and, reflecting that uncertainty, TransCo’s uncertainty as to inclusion of possible preparedness components in the project scope. These were eventually financed by the government and the private concessionaire; and (iii) delays in presentation to the Bank’s Board due to governance issues on another project. While these factors were beyond the project team’s control, they did not prevent timely implementation in the ground. 2.1.9 Provision of retroactive financing. To partially cover these delays, an eighty percent of the loan amount was provided as retroactive financing to cover disbursements pre-funded by TransCo under the three contracts already reviewed and concurred by the Bank. This exception to the 40 percent retroactive financing limit was allowed under OP 8.00 (Rapid Response to Crises and Emergencies), and approved in accordance with OP 6.00 (Bank Financing). 2.1.10 Flexibility in procurement arrangements. The procurement of all three contracts that covered the retroactive disbursements was conducted through National Competitive Bidding (NCB) procedures, using the Philippines Bidding Document (PBD) for procurement of goods, as harmonized with the Bank. Under non-emergency conditions, ICB procedures would have been used to award these contracts. However, the Bank agreed to raise the applicable NCB threshold for the Philippines so that the contracts could be procured through NCB procedures. This action was consistent with OP 8.00 (Rapid Response to Crises and Emergencies) which provides for “increased flexibility for simplified procurement methods.”

2.1.11 Further, the Bank also agreed to the imposition of the approved budget for the contract (ABC) as a ceiling on bid prices under those tenders, after the implementing agency concerned, the National Transmission Company (TransCo) had demonstrated its compliance with the conditions set by the Bank for accepting that measure. Given that the applicable procurement method was NCB, which is conducted in accordance with the procurement legislation of the Philippines, no waiver to the Bank’s Procurement Guidelines was required. 2.1.12 Responsiveness to institutional challenge. Project design took into consideration the added complexity that sector institutions were facing in the transition arrangements under EPIRA. NPC was the borrower for the project. TransCo, created under EPIRA to assume NPC’s transmission functions, implemented the project as it was the only agency mandated to assume that responsibility. During project implementation, the transfer of debt and assets to PSALM was completed. Recognizing that legal arrangements would change during the transition process, the Loan Agreement between IBRD and NPC was designed to allow an amendment that would change the borrower from NPC to PSALM and corresponding amendments and consents obtained from the government and TransCo. Given the emergency nature of the project and the need for speedy implementation, no financial covenants were introduced except those related to proper financial management of the project.

6

2.1.13 Facilitation of the privatization process. The formulation of the project was very timely. The privatization process had been going through some difficulty owing to a succession of failed bids and there was evident a need to generate confidence among private investors in generation as much as transmission. The project, together with parallel Bank support in the privatization process, increased the comfort level to accelerate private sector interest in the privatization process. 2.1.14 Environmental and social factors were fully addressed in project design. The project was categorized as B owing to the fact that although the scale of the project was relatively large, it was not expected to have any significant and irreversible negative impacts on environment, natural habitats and forest as the transmission towers would be aligned along the existing transmission line rights of way (ROWs) to reduce intrusion onto private property. The Environmental Management Plan and Certificate of Non-coverage were promptly issued by the Department of Environment and Natural Resources because only small-scale and site-specific impacts were expected from the project. It was established that none of the transmission towers in the ecologically sensitive Quezon National Park would be affected. The environmental impact assessment (EIA) and environmental impact and management plan (EIMP) adequately provided for the mitigation of those minor impacts, and was made readily available to the public on TransCo’s website and library, as well as at its field offices and the Department of Environment and Natural Resources. 2.1.15 In terms of social impact, the project anticipated the involuntary resettlement of only 47 households (45 houses and 35 structures), whose compensation was managed by TransCo consistent with Bank safeguards requirements detailed in the Land Acquisition and Resettlement Plan (LARP). The LARP was developed in full consultation with project-affected persons, with the final document being readily available in TransCo’s central and field offices. There were some differences between TransCo and landowners on compensation levels that took close negotiation to resolve, but agreement was reached in a relatively short time with no substantive impact on project outcomes. 2.1.16 During the resettlement planning process, a review by the National Commission on Indigenous Peoples (NCIP) of project-affected persons, their properties and location, together with tenurial documentation covering those properties showed that none of the ancestral domains in Tiwi or Buhi barangays would be affected by the project. As no indigenous populations were affected, the Bank’s Indigenous People’s Policy was not triggered. Government commitment and stakeholder involvement 2.1.18 The project demonstrated several features that led to successful implementation of the project: (i) institutional readiness in staff capabilities and resources, especially in a post-typhoon crisis situation; (iii) recognition of the need to use the project to strengthen private sector interests that would reduce public sector allocation in the power sector; and (iii) understanding of a long-term vision in the need for system sustainability with a tower strengthening program. Stakeholder involvement was demonstrated by (i) close and continuing collaboration among government, TransCo and the Bank on both sector and project-related issues; and (ii) full

7

participation of project-affected persons in the resettlement planning and implementation processes. 2.1.19 TransCo staff was knowledgeable, responsive and proactive in its relationship with the project processing team — a critical element given the emergency nature of the project. Project management training for NPC/TransCo staff, conducted in the United States, had earlier been provided with Bank financing. TransCo’s significant efforts to facilitate project processing were clearly evident. In February 2007, TransCo notified the Philippines’ Energy Regulatory Commission (ERC) of its intention to apply the Force Majeure provisions in the ERC’s transmission wheeling rules. These rules permitted TransCo to obtain urgently needed funds to restore the capacity of its damaged transmission lines. TransCo supported its application to ERC with certification from the Department of Science and Technology that unusually strong typhoons had caused the damage. Subsequently, both the National Economic and Development Authority (NEDA) and the Environmental Management Bureau (EMB) supported TransCo’s application in March 2007, on an exceptional basis, so that it could seek funds for the proposed project. 2.1.20 The need for immediate response to the emergency required full involvement of TransCo in facilitating the procurement process. TransCo took the initiative in ensuring that Bank standards were fully applied in project procurement Adopting and applying Bank parameters ensured that there were no divergences in procurement practices and enabled the Bank process and implement the project rapidly, as well as providing confidence needed to support the high level of retroactive financing provided for the project. 2.1.21 The project benefited from active involvement of project-affected persons in the resettlement planning phase. The LARP followed Bank guidelines in informing all affected households that compensation would be provided for (i) all properties affected or damaged by toppled towers and fallen transmission line conductors, including those within the working areas of the new towers and those affected by stringing works; (ii) properties affected by slight changes in ROW corridor due to repositioning of some of the towers. Disturbance compensation was also granted to relocatee-households. During the processing period, information was provided through consultations that covered all affected persons. Working closely with landowners and tenants, TransCo was responsive to their demands by agreeing to full and immediate payment and compensation adjusted for increased land values owing to improvements. Risk assessment 2.1.22 The principal risks identified at the time were institutional (inability of Transco to complete the project on time and within cost), external (the possibility of typhoons during implementation that would create more damage prior to project completion), and financial (the possibility of higher costs owing to further typhoon damage; the perception of high levels of corruption in the country; non-compliance with internal controls; and anomalies in accounts). 2.1.23 The institutional risk was assessed as low given that construction was expected to be well advanced by the time the loan was approved, and it was considered unlikely that there would be

8

any institutional risks that would affect the progress of the works. Implementation proved that assumption to be correct for activities that were fully within TransCo’s control. The only exogenous difficulty related to the right-of-way issue and early rainy season that was resolved with a slight delay in project completion. 2.1.24 The exogenous risk of typhoons that would affect project construction and cause delays was real and significant, given that construction would take place during the typhoon season. While it was not possible to predict that there would be no typhoons, risk mitigation was considered adequate given that TransCo had the capability to temporarily restore power swiftly, and that the company was studying measures to prevent or minimize future damage in critical wind zones. The financial risk of higher costs of completion was assessed as moderate with cost estimates including a 10 percent contingency. 2.1.25 The only relevant country issue at the time was the perceived high corruption in the country. This was correctly assessed to be of moderate risk since it was mitigated by involvement of TransCo’s internal audit team, and the fact that small number of contract packages financed by the project were reviewed and cleared by the Bank team. 2.1.26 Internal control anomalies (errors and delays in reconciling accounts and adjusting balances, and outstanding balances) were recognized as financial risks related to transactions prior to the reorganization of NPC in 2003. At the time, those issues were being addressed by NPC/TransCo in coordination with the Commission on Audit (COA) with an internal audit team intended to include the project in its scope of work, with reviews every calendar semester during project implementation. The risk was correctly assessed as moderate as TransCo’s system of internal controls was assessed by the Bank and determined to be adequate. A task force formed from the current internal audit team was assigned to verify, reconcile and record the adjustments. The accounting risk was correctly assessed as low considering that the project would be considered as a separate work order under which separate financial reports would be generated. With that reporting structure, only one location and a few contracts, financial management was relatively easy in project implementation.

2.2 Implementation 2.2.1 The project was implemented as designed, with only minor variation orders to cover items not included in the original contract. The project completion date was extended by two months to September 2008 owing to continued negotiation on some ROW issues, and a transmission line section that could only be energized after the temporary power supply bypass by another power restoration activity had closed. The issues were resolved promptly, and did not affect final outputs or outcomes. Owing to the fast disbursement and short gestation of the project, only two supervision missions were required, and there was no mid-term review. Project implementation was facilitated by close and active working arrangements between the Bank and TransCo. The supervision missions validated progress with visits to all project areas, and reported adequate progress on all components. On TransCo’s side, the number of TransCo-financed reconstructed 500 kV towers increased from 7 to 10, exceeding the Bank’s targets. The non-utilization of government funds for the 11 ERS had no substantive impact on project outcomes as it was undertaken by the private concessionaire’s TDP.

9

2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 2.3.1 NPC/TransCo has had a fully-staffed monitoring and evaluation group for many years, so the institutional basis of the monitoring and evaluation (M&E) system was satisfactory. The project M&E system selected sound basic indicators to track outputs and outcomes, based on effectiveness in providing a stable supply of electricity; hence the key indicators related to responsiveness to maximum demand and reduction in system interruptions. While TransCo was responsible for overall reporting, the project management groups were responsible for data collection, data collection instruments and field reports. Reports on contract activities were produced on a quarterly basis, as were occupational health and safety, demand estimates monthly, and the System Interruption Severity Index (SISI), produced annually. The SISI, a key indicator, showed a tremendous improvement in system reliability during typhoons, with interruptions decreasing from a high of 3,258 MW-minutes/MW in December 2006 (typhoon Reming) to less than a minute in October 2008 (typhoon Pablo). There were no fatalities reported during the project period. Although the environmental impacts and management plan required regular environmental monitoring reports to be produced, there were no significant mitigative measures recommended owing to the minor impacts ascribed to the project. As the project was of a restorative nature and completed in a short time, there were no substantive or mid-course corrections recommended as a consequence of findings by monitoring teams.

2.4 Safeguard and Fiduciary Compliance 2.4.1 Given that this was an emergency operation in response to a natural disaster, OP/BP 8.00 authorized the Bank to apply rapid response instruments. The overall financial management system developed for the project was appropriate and satisfactory, reflecting innovative approaches used for an emergency situation that nonetheless satisfied Bank requirements, with no deviations or waivers from Bank policies and procedures on financial management and disbursement. The system had four key features: (i) use of national competitive bidding, subject to conditions agreed by TransCo; (ii) agreement to the imposition of Approved Budget for the Contract as a ceiling on bid prices; (iii) fast-track procurement, with Notices of Award and contract signing within two months of issuance of bid documents; (iv) exemption of eligibility screening on a highly exceptional basis. The number of contracts was kept small at three packages. The high level of retroactive financing at 80 percent was justified after careful assessment of TransCo’s contract and financial management capabilities. Although the borrower was NPC, the Bank, recognizing the ongoing privatization process, agreed with PSALM that the project would be implemented by TransCo under a project agreement. 2.4.2 The project complied with all Bank applicable safeguards policies on environmental assessment, natural habitats, indigenous peoples and involuntary resettlement. Given that the transmission lines were rebuilt within the original ROW, there were only minor construction-related impacts to consider, with no modification to the natural environment that would need to be replaced by establishing biodiversity offsets. Project implementation was made more efficient with TransCo having an Environmental Management Division led by a highly qualified division manager with an adequately-staffed complement of environmental and social development

10

specialists in its central and field offices. TransCo is also an ISO 140012 certified company, with its own Corporate Social Responsibility and Environmental Stewardship Program. The institution has a fully functioning environmental management system in place. 2.4.3 On resettlement, full compensation was provided to all project-affected households. Of 47 households with 35 dwelling and related structures potentially identified for relocation and compensation, only 29 structures were actually valued, compensated and relocated in consultation with displaced persons. Notably, together with current entitlements, payment was made for outstanding ROW claims that had not been settled since the original construction of the affected transmission lines. 2.4.4 There were no ancestral domains affected by the project; hence, the Bank’s Indigenous People’s Policy was not triggered. The project benefited from Transco’s well-established Right of Way Management and Social Engineering Divisions, which were assigned the responsibility for resettlement issues and had staff experienced in handling mitigating measures for involuntary resettlement and issues pertaining to indigenous peoples. 2.5 This project was an integral part of a recovery strategy that focused not only on repair of the damage to the TransCo system but also on critical reinforcement of transmission infrastructure in the Bicol region and other typhoon-prone areas in the transmission system, combined with emergency measures to reduce power outages in the event of further damage from the typhoon season. The first aspect was dealt with by expeditious restoration of services. The second aspect requires TransCo to focus on higher levels of preparedness in typhoon conditions, particularly super typhoons. The Bank supported TransCo in installing towers that were capable of withstanding wind speeds of 270 km/hr in Zone I for the Bicol-Visayas corridor and 240 km/hr for other typhoon-prone areas. Given that most of the transmission lines vulnerable to typhoons can meet wind speeds of only 165-180 km/hr, TransCo has indicated that it would initiate an overall tower-strengthening program through the new concessionaire, particularly in the country’s critical high-wind zones. The Bank should continue strategic dialogue with TransCo’s new concessionaire, NGCP, on possible opportunities to support strengthening the transmission and particularly sub-transmission systems in typhoon-prone areas.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design, and Implementation 3.1.1 The project was designed and implemented to directly support sector development efforts that are top priority in the Philippines today, particularly removing transmission constraints to increase the reliability and quality of power supply. The project demonstrated how a project can be designed and implemented to meet these key priorities, particularly as an emergency operation. The successful experience under the project demonstrates how the Bank, government

2 ISO 14001 refers to the global environmental management standard that requires organizations to (i) identify and control the environmental impact of its activities, products or services; (ii) improve its environmental performance continually; and (iii) implement a systematic approach to setting environmental objectives and targets, to achieving these and to demonstrating that they have been achieved.

11

and implementing agency can effectively and efficiently work together in responding to and recovering from natural calamities.

3.2 Achievement of Project Development Objectives 3.2.1 The project fully achieved its development objective of supporting the stabilization of power supply in the Bicol region by replacing electricity transmission steel towers and line materials damaged by typhoons in 2006. The key project outcome indicators were (i) re-establishment of the system with capability to deliver an additional 50 GWh of electricity with the construction of 118 new 230 kV towers; and (ii) improved power system reliability in Bicol, demonstrated by a reduction in system minutes lost to 10 minutes or less, which was better than the target of 15 minutes. The output indicator was a restored transmission system installed with accelerated contracting. To achieve that objective, the project ensured that supply of electricity to all consumers was restored to pre-typhoon levels. In December 2008, maximum demand in the region reached 254 MW, exceeding the outcome target of 251 MW set at appraisal. The replacement of 118 towers that met higher technical specifications fulfilled the project’s objective of meeting additional electricity requirements. 3.2.2 The improvement in Bicol’s power system reliability in Bicol attributable to the reconstruction of the towers was evidenced by a reduction in System Interruption Severity Index (SISI) minutes lost to below 10 minutes, which exceeded the project target of 15 minutes. In 2006, typhoon Reming, packing maximum sustained wind (MSW) of 195 km/hr and wind gusts over 230 km/hr caused an outage in Bicol of 3,258 SISI minutes. During the same year, typhoon Milenyo, packing MSW of 130 km/hr and wind gusts up to 160 km/hr caused an outage of 966 SISI minutes. In June 2008, when only 2 of the 3 Packages financed by the Bank under the project had been completed, typhoon Frank hit the Bicol region with MSW of 140 km/hr and wind gusts up to 170 km/hr (similar to the strength of Milenyo). Although not all transmission lines damaged by past typhoons had been fully restored, outage was reduced to 66 SISI minutes. After project completion, typhoon Pablo hit Bicol in October 2008. Although Pablo’s intensity (MSW of 65 km/hr and wind gusts of 80 km/hr) was half that of Milenyo, outage was essentially negligible at 0.22 SISI minutes. Annex 2 provides details of project outputs that reflect the linkages between the outputs and the positive outcomes described in this section.

3.3 Efficiency 3.3.1 The economic benefit expected to be achieved by the project was the minimized economic cost of unsupplied energy after replacing existing damaged towers with permanent structure built to higher standards that would withstand super typhoons. The assumptions were (i) the probability of a super typhoon similar to Reming in 2006 that caused a two-day blackout at 200 GWh demand level, with a continued 50 GWh deficit lasting two days; (ii) an economic cost of supply at about US$5 per GWh, not taking into account revenues lost to TransCo; (iii) the towers would have a structurally sound life of 20 years; and (iv) the total project cost would be about US$25 million, including all project components, ROW and resettlement costs, and contingencies. Using the same methodology, post-project completion analysis shows that the project would achieve higher economic internal rates of return (EIRRs) of about 16-100 percent, which were above the appraisal estimates of 12-80 percent. The assumptions for benefits are

12

conservatively estimated for two reasons: (i) they reflect only the observable loss of economic benefits resulting from unsupplied energy and do not account for the loss of unobserved benefits such as the loss of consumer surplus due to suppressed demand; and (ii) the amount of electricity unsupplied may be on the low side given that major service interruptions could last more than a few days. Annex 3 provides details of the overall project economic analysis.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory 3.4.1 The project fully met its development objectives. The project directly addressed the country’s immediate power restoration needs, which complemented sectoral long-term priorities, and was aligned to the Bank’s overall country strategy outlined in the CAS. All target outcome and output indicators were met or exceeded. Although there were delays in project preparation, delays in project completion of two months did not have a substantive impact on project outcomes. Commendably, the problems associated with ROW issues and transmission line linkages were resolved relatively quickly with close attention by TransCo’s experienced staff. The performance indicators showed marked improvement in the transmission system after project completion. The project was highly efficient, with recalculated rates of return above appraisal estimates. 3.4.2 The positive demonstration effect of the Bank’s support for the power sector at a time of sector restructuring further justifies the project’s overall highly satisfactory rating. There are three notable dimensions of that demonstration effect: (i) the Bank’s ability to work closely with government, implementing agency and other stakeholders in moments of national crisis without any dilution of its fiduciary and safeguards requirements; (ii) the Bank’s ability to respond quickly in restoring the damage caused by a natural disaster; and (iii) the level of comfort that the Bank was able to provide to private sector interests at a time of sector restructuring.

3.5 Overarching Themes, Other Outcomes, and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 3.5.1 Bicol is the second poorest region (after the Autonomous Region of Muslim Mindanao) in the country, with half the population below the poverty line of just over US$200 a year. Given Bicol’s vulnerability to typhoons and its high proportion of poor, there is a high possibility that many residents run the risk of sliding into deeper poverty after a major disaster. Hence, the need to have sustainable infrastructure is of great importance in ensuring that a good level of social and economic development is maintained, and that adequate advantage is taken of commercial opportunities in key areas such as rice cultivation, abaca production, fisheries and aquaculture, small and micro-enterprises, tourism, etc. The project provided several economic benefits to the local populations, including improved electricity supply that had a positive impact on commercial and agricultural enterprises, and thus employment.

13

(b) Institutional Change/Strengthening 3.5.2 The principal institution involved in the project was TransCo, which was created out of NPC. TransCo ensured that procurement was accelerated, permits obtained expeditiously, and implementation prompt. At the time of project design and implementation, the Bank Group was actively involved in dialogue on power sector reform, the project complemented that involvement in the preservation of the transmission system’s assets during the transition period prior to planned operation by a private concession. In this period of institutional change, TransCo was constrained in its ability to raise funds for any new investments. 3.5.3 Overall, institutional responsiveness and adaptability was demonstrated in the short period of time within which the project was formulated, notably four months to contract awards. Although project processing took 14 months from project identification, appraisal, negotiation to board approval, this was due to extenuating circumstances due to a management decision to withhold Board presentation until governance issues on a transport sector loan to the Philippines had been resolved. (c) Other Unintended Outcomes and Impacts 3.5.4 There were no other unintended outcomes and impacts caused by the intervention or project.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 3.6.1 Beneficiary surveys and stakeholder workshops were not required under the project. However, close consultations were held with affected persons and civil society groups as part of the environmental and social safeguards compliance process.

4. Assessment of Risk to Development Outcome Rating: Low 4.1 Overall, the risks to the project’s development outcome were low. The physical risk, that of vulnerability of the transmission towers to typhoons, especially super typhoons, was mitigated by the construction of towers to higher technical standards, which also marks the initiation of a structured tower strengthening program by the new concessionaire that may require further Bank financing. The financial risks were mitigated by having a reliable transmission system that ensured steady financial inflows to TransCo. Social risks related to displacement and resettlement were mitigated by the fact that there were only a few structures to be relocated, and that agreement on compensation was reached through full consultation and participation of affected persons. Environmental risks were minor and taken into account in the environmental management plan. The implementation risks were low owing to the participation of an effective and experienced institution, TransCo, which collaborated closely with the Bank and adopted its standards of governance, and the full commitment of the government to the emergency restoration project. The non-implementation of Component 2 (consultancies and ERS) did not affect project development outcomes as it was considered that given the pace of the privatization

14

process, the component was better left to the new concessionaire, which intended to develop preparedness measures and ERS siting throughout the grid.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 5.1.1 During the identification and preparation stages, the Bank ensured that the project design was responsive to borrower requirements and appropriate to the implementation capability of the implementing agency to enable the project to achieve its development objectives. In spite of uncertainties on the Governments agencies on the scope of Bank’s borrowing, the Bank responded to the critical restoration demands through accelerated project preparation such as advance contracting and retroactive financing as per emergency situations. Together with the simplified procurement methods employed, the Bank ensured that fiduciary arrangements and controls were adequate. The Bank addressed safeguard concerns suitably with a high degree of participation and consultation. The Bank recognized that the project was of considerable importance to ongoing sector reform and privatization efforts, and the need to encourage further confidence of private sector interests in the privatization process. (b) Quality of Supervision Rating: Satisfactory 5.1.2 Given that the project was fast-disbursing and of short gestation (4 months between effectiveness and closing), only two supervision missions were required, with no mid-term review and one Implementation Status Report (ISR) rated S. As the Bank had established a close working relationship with the implementing agency, it was possible to monitor the implementation of the project effectively. Particular attention was paid to the performance of the project management groups (PMGs). The quality of supervision was enhanced with the participation of specialists in financial management, procurement, environment and social safeguards. The ICR mission in Ferbuary 2009, was well-staffed and visited all project areas with representatives from the PMGs. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 5.1.3 The Bank’s performance was assessed on the basis of (i) achievement of outcomes within a very tight schedule for both processing and implementation; (ii) quality of project preparation, which covered not only the degree of collaboration among the Bank, implementing agency and Government, but also speed and a high degree of analytical rigor in project formulation; and

15

(iii) careful supervision during implementation to ensure that the project met its objectives. The rating reflects however delays in project processing from identification to Board approval.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 5.2.1 The project demonstrated the full commitment and exemplary capability of government agencies to expedite project formulation, collaborate effectively, and resolve all issues that might affect Bank financing for the project. Counterpart funds were provided expeditiously, procurement activities processed with timely approvals, financial management conditions adhered to, safeguards fully complied with, and Bank guidance sought as required. The government also provided full support in implementation within a very tight schedule. (b) Implementing Agency or Agencies’ Performance Rating: Satisfactory 5.2.3 TransCo performed very well as the project implementing agency. TransCo had had experience in implementing Bank-financed projects. The most relevant past project was the 1995 Bank-financed restoration work on the 500 kV Naga-Tayabas transmission line damaged by civil unrest, under which TransCo’s project management performance was satisfactory. TransCo has also demonstrated its capabilities in other multilateral-financed projects. 5.2.4 Apart from TransCo’s successful implementation of the project, it made commendable efforts during project preparation that enabled the Bank to provide its full support and lending to the project, including retroactive financing. Those efforts included (i) close attention to and coordination with diverse group of government agencies and industry participants that allowed all legal and procedural requirements to be met noteworthy given that the industry institutions, including TransCo, were undergoing transformation under the sector’s restructuring under EPIRA; and (ii) timely and close coordination with the Bank during its procurement processes, including bid tendering, evaluation, and award. During implementation, TransCo’s focus on maintaining the project schedule was strong, especially the resolution of land acquisition issues associated with the ROW. TransCo diligently controlled the cost of variation orders for items not originally covered under contract. Cost overruns were significantly below the allowance for contingencies estimated at appraisal. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 5.2.5 Overall borrower performance was rated as satisfactory given achievement of outcomes within a very tight schedule, from project preparation to implementation. Complementing the Bank’s assistance in developing and implementing the project, the key drivers in achieving

16

project outcomes and successful implementation is the collaborative performance of government and the implementing agency.

6. Lessons Learned 6.1 While it is a general tenet that project quality is a reflection of project readiness, the need for strong upstream collaboration becomes even more critical in an emergency project. The project provides a good example of how borrowers and the Bank can efficiently and effectively work together to respond to emergency situation, based on a clear assessment of its capacity and agreed processes, resulted in fast and generally problem-free implementation. There are four aspects that shaped the success of the project: (i) effective collaboration with a receptive institution; (ii) Bank flexibility and responsiveness, but applied with careful assessment of agency capabilities, and clear application of Bank financial and governance requirements; (iii) effective safeguards management; and (iv) complementarity of Bank assistance with sector reform processes. 6.2 Close collaboration with a receptive institution: although there was no flexibility in the choice of TransCo as the implementing agency — given its clear mandate as being responsible for transmission assets — the project team ensured that key institutional abilities were fully reflected in collaborative arrangements. While the project was under preparation, the emergency situation required TransCo to initiate procurement processes with the engagement of a contractor and commencement of civil works, even when Bank funding was not yet in place. To ensure that the project would qualify for Bank funding, TransCo closely coordinated with Bank procedures, including adherence to the requirement to obtain No Objection Letters and waivers from the Bank when necessary. The Bank’s due diligence on procurement processes concluded that TransCo had competent units (Bids and Awards Committee, with a Technical Working Group) and established procedures responsive to Bank requirements. 6.3 Bank flexibility and responsiveness with careful assessment of agency capabilities, and clear application of Bank financial requirements. The Bank provided a high level of retroactive financing, but only after careful assessment of institutional capabilities. The Bank determined that TransCo had (i) the institutional strength to be able to respond effectively to the Bank’s requirements; and (ii) the capacity to clear all national procedural requirements without delay. Moreover, the Bank exercised flexibility in procurement and disbursement arrangements by applying simplified procurement procedures, including application of NCB rather than ICB, imposition of the Approved Budget as the contract ceiling, and agreement that eligibility screening would not be applied owing to the impossibility of uploading a complete set of the bid documentation. Nonetheless, in carrying out due diligence on procurement capabilities, the Bank did require TransCo to comply with a set of requirements in addition to Philippines Bidding Documents to ensure compliance with Bank requirements. 6.4 Ensuring appropriate levels of governance: the perception of high levels of corruption in the country required that the project ensured appropriate levels of governance. At the same time, it was important to avoid conditionalities that might impede speedy implementation. The key lesson related to governance is that even in an emergency situation, it is necessary to ensure early in project processing that accountabilities are clear in the institutional structure, and that

17

appropriate financial controls are set in place — all of which predicate successful project outcomes. The first aspect was addressed through careful review of TransCo’s procurement processes, and determination of flexible arrangements that met Bank standards. The second was also a result of careful early assessment, but with the recognition that (i) there was a well-staffed internal audit team that would bring the project within its ambit; and (ii) the Commission on Audit was working with TransCo to address anomalies in accounts that would be resolved prior to Bank appraisal of the next potential project with TransCo. Another noteworthy aspect was that the number of contract packages was kept small. 6.5 Effective upstream safeguards management is important. Land acquisition in any project often raises complex issues. In an emergency project, the possibility of such issues makes project implementation more vulnerable to delays and even stoppages. The key to success is that early in processing, detailed assessments have to be carried out, problems identified, and solutions developed. It was recognized that the project did need to expedite clearance and settlement of right-of-way (ROW) issues to avoid any delays. While assessment, consultation, information dissemination, negotiation, and payments were expedited for the most part, the legacy of pending claims came up in some cases in which tower occupancy fees had not been paid during original construction. Pending claims associated with one tower eventually did cause a delay in project completion of about two months, but this did not have a substantive impact on overall project implementation. TransCo’s range of options in dealing with land acquisition and ROW issues, from the payment of occupancy fees to full purchase of properties, allowed for flexibility in resolving problems. Nontheless, there still remain national-level issues in land valuation techniques, tenurial documentation, and transaction costs in property and land titling that are beyond the scope of the project, but simplification and careful review of which have been recommended to acquiring agencies. Overall, the lesson is that even in emergency situations, resettlement planning cannot be overlooked. 6.6 It is possible, even in emergency situations, to establish effective complementarity with sector reform processes. By investing in a project even with an ongoing privatization process, the project helped to strengthen investor confidence in the sector and institutions associated with the sector — TransCo (later to become NGCP) and PSALM both benefited from investment by a major multilateral that has essentially provided a good measure of comfort to prospective private sector interests.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies (see Annex 7) 7.1 The comments on the draft ICR were obtained from (i) NEDA (representing the government) in an email that was coursed through NGCP; and (ii) TransCo/NGCP (the implementing agency). These are attached in Annex 7. Comments on Issues Raised by the Government 7.2 The issues raised by government on the draft ICR pertained to (i) safeguard compliance; (ii) achievement of the development objectives; and (iii) project sustainability. All pertinent

18

issues were considered and included in the report. Two concerns were highlighted. First, government recommended, as part of the project’s lessons learned, that land acquisition issues should be resolved prior to signing of the loan agreement to prevent delays in project completion It was also recommended that TransCo, and implementing agencies in general, streamline ROW acquisition policies, systems and procedures in both emergency and non-emergency operations. 7.3 Second, project sustainability was emphasized, particularly aspects such as operation and maintenance. It was recognized that the project addressed physical sustainability in constructing towers to higher specifications that were capable of withstanding super typhoons. As to long-term sustainability, the project contributed to the government’s efforts at asset preservation by financing a crucial investment and providing the demonstration effect necessary to promote confidence among private sector investors in the power sector. Confidence was further strengthened when TransCo was turned over to the new concessionaire, NGCP, on January 15, 2009. Comments on Issues Raised by the Implementing Agency 7.4 The issues raised by the implementing agency on the draft ICR pertained to (i) risk assessment; (ii) assessment of government performance; and (iii) the economic analysis. All pertinent issues were considered and included in the report. The comment on the economic analysis by the implementing agency was that the total capital cost used in the economic analysis was higher than the project cost at appraisal. For the purpose of the economic analysis, the economic and financial costs of capital investments could vary due to shadow prices, taxes and other factors. Nonetheless, with the higher cost used in the economic analysis, the projected economic internal rate of return (EIRR) still exceeded the 15 percent minimum government threshold. (b) Co-financiers (NA) (c) Other partners and stakeholders (NA)

19

Annex 1: Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent)

Foreign Local Total Foreign Local TotalPart 1: Restoration of the Bicol Transmission System (Transmission Towers and Materials) Package A: Naga-Labo 230 kV Transmission Line 2.94 2.54 5.48 2.94 2.40 5.34 97 Package B: Tiwi Plant C-Naga 230 kV Transmission Line 2.72 1.76 4.48 2.72 2.16 4.87 109 Package C: Three 230 kV Transmission Lines Tiwi Plant A-Darage Naga-Daraga Daraga-Bacman 1.77 1.71 3.48 1.77 1.87 3.64 105 Package D: Seven 500 kV Towers 1.00 0.94 1.94 2.55 1.53 4.08 210 Subtotal Part 1 8.43 6.95 15.38 9.99 7.95 17.94 117Part 2: System Strengthening & Improved Emergency Preparedness Package E1: Emergency Restoration Structures (ERS) 1.16 0.53 1.70 0.00 0.09 0.09 5 Package E2: Consulting Services 0.39 0.11 0.50 - - - Package F: Right-of-Way Costs 0.00 0.68 0.68 0.00 0.70 0.70 103 Package G: Relocation Costs 0.00 0.18 0.18 0.00 0.04 0.04 24 Subtotal Part 2 1.55 1.50 3.05 0.00 0.83 0.83 27 TOTAL BASELINE COSTS 9.98 8.45 18.43 9.99 8.78 18.77 102Contingencies (10%) 0.99 0.84 1.84 - - - -Subtoal Project Costs 10.98 9.29 20.27 9.99 8.78 18.77 93Part 2 RVAT (12%) 0.00 0.82 0.82 - - -Part 2 Import Duties 0.00 0.48 0.48 - - - TOTAL PROJECT COSTS 10.98 10.59 21.57 9.99 8.78 18.77 87Front-end fee PPF - - - - - -Front-end fee IBRD - - - - - - TOTAL FINANCING REQUIRED 10.98 10.59 21.57 9.99 8.78 18.77 87

(b) Financing (in US$ million equivalent)

IBRD (Part 1 A, B, C including taxes and 10% contingencies) 91TransCo Own Financing (Part 1 D & Part 2, ROW and Relocation) 82 TOTAL FINANCING 87

Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal

Components

Type of Cofinancing

AppraisalEstimate

Actual/LatestEstimate

Percentageof Appraisal

11.717.05

18.77

Source of Funds

12.948.63

21.57

20

Annex 2: Outputs by Component 1. The key output indicators of the project include the accelerated contracting for the 230 kV towers, with tendering starting in April 2007. Accelerated contracting included targets to place contracts for all three components (Packages A, B, and C) within three months from tendering and for the works to be completed 6 months. 2. Due to the emergency nature of the project, bid tendering was further accelerated and bid documents were issued on January 29, 2007. Notices of Award and contract signing with the winning bidder were completed within two months (March 29, 2007). Vis-à-vis completing the works in six months, there were delays. All three work packages were originally programmed to be completed by November 27, 2007. Before the Banks loan became effective, the schedules of the three packages were revised to be completed by January 26, 2008. Two factors accounted for the short delay in project completion: (i) transmission line sections that could not be de-energized to make way for repairs since these sections were also being used as bypass for other power restoration projects; and (ii) ROW issues, particularly those related to pending payments for earlier acquisition. The output and intermediate outcome indicators are shown below: Output Indicators Bid Tender-Award (Months)

Components Appraisal Target Actual Actual/Target (In percent)

Package A 3 2 67 Package B 3 2 67 Package C 3 2 67

Work Completion (Months)

Components Appraisal Target Actual Delay

(Months) Package A 1/26/2008 9/30/2008 8 Package B 1/26/2008 6/30/2008 5 Package C 1/26/2008 4/30/2008 3

Intermediate Outcome Indicators

Number of Towers

Components Appraisal Target Actual Actual/Target (In percent)

Package A 56 56 100 Package B 32 32 100 Package C 30 30 100

21

3. From these project outputs, the following outcomes in system performance improvement in the Bicol region were realized. Bicol System Performance during Typhoons

October 2006 December 2006 June 2008 October 2008 Typhoon Name Milenyo Reming Frank Pablo Maximum Sustained Wind (kph) 130 195 140 65 Maximum Wind Gusts (kph) 160 230 170 80 Bicol System Performance: SISI (minutes) 965.86 3,257.86 66.03 0.22 Frequency of Tripping per 100 ckm 1.15 0.74 0.60 0.08 SAIDI 7,113.34 26,062.30 186.01 0.65 SAIFI 0.63 1.08 0.61 0.11 System Availability (%) 83.39 70.30 99.35 100.00

22

Annex 3. Economic Analysis 1. The economic benefit to be achieved by the project is the minimized economic cost of unsupplied energy after replacing temporary, emergency structures — incapable of withstanding high wind speeds — with permanent structures more resistant to typhoon damage, in order to prevent further loss of supply that could result from future typhoons. This benefit would be obtained not only in the Bicol region in Southern Luzon but also in the Northern Luzon area, because damage to the Southern portion of the transmission system can disrupt the Northern portion due to the build up of reactive power. Furthermore, the electricity grid that supplies the Bicol region also forms part of the main 230 kV grid, feeding the main load center in Manila, and any interruption of this supply could seriously hinder the economy. 2. The economic analysis was conducted for the completion report on the same basis as at appraisal, with the exception that the actual project cost, including all project components, right-of-way and relocation costs, and contingencies is US$18.8 million, as compared to US$21.57 million that was estimated at appraisal. The reduction in actual project cost was mainly caused by effective cost control and, apart from TransCo’s reconstruction of ten 500kV towers instead of only 7 estimated at appraisal, TransCo did not pursue its own investments in emergency preparedness, which included procurement of consultant services and the 11 ERS as standby equipment for future emergencies, because the new concessionaire would soon assume those tasks under its mandate for maintaining the entire grid. These reductions in investment by TransCo have no effect on the core investments of the project that would require additional changes in the assumptions or methodology. 3. More favorable returns. Comparing the costs and benefits over a period of 20 years, the estimated economic internal rates of return (EIRRs) are more favorable than appraisal expectations. With sensitivity analysis considering higher and lower probabilities to the 1 percent probability (from PAGASA) of a destructive typhoon hitting the Bicol region as well as 50 percent reduction in the assumed economic cost of supply per GWh, the estimated EIRRs at appraisal ranged 12 – 80 percent. After project completion, the EIRRs are now estimated at 16 – 100 percent. A comparison of EIRRs, by probability scenario and with lower economic cost of supply, is shown below: Summary EIRRs for the Project

Capital Costs (US$

million)

Net Benefits: EIRR (%)

Scenario 1

Low (Prob=1%)

Base Scenario 2

Low (Prob=0.5%)

Base Scenario 3

Low (Prob=1.5%)

Base Appraisal Estimate 21.57 26% 53% 12% 26% 40% 80% Actual/Latest Estimate 18.8 33% 67% 16% 33% 50% 100%

23

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Names Title Unit Lending Preselyn Abella Financial Management Specialist EAPCO Edward Daoud Senior Finance Officer LOAFC Victor Dato Infrastructure Specialist EASTE Christopher J. De Serio Senior Program Assistant EASTE Demilour Reyes Ignacio Program Assistant EACPF John R. Irving Consultant EASTE Victoria Florian S. Lazaro Operations Officer EASSO Rene SD. Manuel Senior Procurement Specialist EAPCO Galina Menchikova Program Assistant EASTE Gia Mendoza Program Assistant EACPF Jose F. Molina Sr. Financial Officer/Debt Cap BDM Maya Gabriela Q. Villaluz Senior Operations Officer EASRE Ferdinand D. Vinuya E T Consultant EASTE

Supervision/ICR Preselyn Abella Financial Management Specialist EAPCO Edward Daoud Senior Finance Officer LOAFC Victor Dato Infrastructure Specialist EASTE Demilour Reyes Ignacio Program Assistant EACPF John R. Irving Consultant EASTE Jose R. Escay Consultant EASTE Victoria Florian S. Lazaro Operations Officer EASSO Rene SD. Manuel Senior Procurement Specialist EAPCO Galina Menchikova Program Assistant EASTE Gia Mendoza Program Assistant EACPF Jose F. Molina Sr. Financial Officer/Debt Cap BDM Maya Gabriela Q. Villaluz Senior Operations Officer EASRE Ferdinand D. Vinuya E T Consultant EASTE

(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of Staff Weeks USD Thousands (including travel and consultant costs)

Lending FY07 8 39.57 FY08 26 125.81

Total: 34 165.38 Supervision/ICR FY07 0.00 FY08 2 11.19 FY09 4 0.00

Total: 6 11.19

24

Annex 5. Beneficiary Survey Results NA

25

Annex 6. Stakeholder Workshop Report and Results NA

26

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 1. There are three sets of comments submitted by the Government (NEDA) and TransCo (implementing agency) structured as follows: 1.1 Overall Rating. TransCo requested a reconsideration of the “Satisfactory” rating as reflected. Referring to item 2 Key Factors Affecting Implementation and Outcomes, government commitment and stakeholder involvement, under item 2.1.8, it states that “This project demonstrated the full commitment and exemplary capability of government to expediently and cohesively work together during crisis situations which led to the design of the project and borrowing from the Bank.” The statement seems to speak well regarding the government’s performance, thus, why the “Satisfactory” rating only. 1.2 Overall Project Cost. Annex 3 Economic Analysis, under item 2, we suggest to replace the figure from US$23.5 million to US$21.57 million. Refer to Page 12, Annex 1. Project Cost and Financing, under column Appraisal Estimate wherein the total financing required as reflected is US$21.57. 1.3 Lessons Learned and ROW. NEDA recommended to include as lessons learned the need to have ROW issues sorted out as much as possible in advance of project signing, even in the event of emergency operations. 1.4 Sustainability. NEDA also suggested to have further elaboration on the Project’s sustainability issues. Bank Team Response: The team fully agrees with points 1.2, 1.3, and 1.4 and has incorporated the relevant revisions in the final text. Concerning point 1.1, the team does feel that the government’s commitment was exemplary but also must recognize that Bank’s ICR rating guidelines and standards still dictate a “satisfactory” rating in this cases such as this.

27

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders NA

28

Annex 9. List of Supporting Documents Country Assistance Strategy Progress Report 06/21/2007 Emergency Operation Project Paper No. 40137-PH Loan Agreement Mission Aide Memoirs and Management Letters Quarterly Progress Report No. 3 prepared by TransCo PCR for Packages A and B prepared by TransCo PCR for Package C prepared by TransCo Transmission Development Plan, 2008.