Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 14795

PROJECT COMPLETION REPORT

FORMER SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA

THIRD POWER TRANSMISSION PROJECT(LOAN 2338-YU)

JUNE 30, 1995

Energy, Environment and Transport DivisionCountry Department IIEurope and Central Asia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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WEIGHTS AND MEASURESMetric System

ABBREVIATIONS

CC Common CriteriaCE Common ElementsDCN Data Communication NetworkEIB European Investment BankEMS Energy Management SystemFSFR Former Socialist Federal Republic (of Yugoslavia)JUGEL Union of the Yugoslav Electric Power IndustryLI Local InterfaceLRMC Long Run Marginal CostOPS Operational Planning SystemPCR Project Completion ReportRAP Republics and ProvincesRTCS Real Time Control SystemRTU Remote Terminal UnitSAL Structural Adjustment LoanSAR Staff Appraisal ReportTCS Telecommunication System MicrowaveWOAL Work Organization of Associated Labor

FOR OFFICIAL USE ONLY

THE WORLD BANKWashington, D.C. 20433

U.S.A.Office Of Director General

Operations EvaluationJune 30, 1995

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on the Former Socialist Federal Republic of YugoslaviaThird Power Transmission Project (Loan 2338-YU)

Attached is the Project Completion Report (PCR) on the Former Socialist Federal Republic ofYugoslavia: Third Power Transmission project (Loan 2338-YU, approved in FY84) prepared by theEurope and Central Asia Regional Office. Part II of the PCR was contributed by two of the eightBorrowers: Croatia and Slovenia.

The project objectives were to consolidate past efforts to improve coordination and financialsoundness of the power sector. It comprised: (i) a national load dispatch center, eight Republic/Provinceload dispatch centers, a microwave telecommunication system and ancillary equipment and buildings; and(ii) training of about 500 Yugoslav technicians to operate, maintain and further extend an energymanagement system.

The US$120 million composite loan was approved in July 1983 as eight separate Loans 2338-0-YJ to 233 8-7-YU to the power enterprises of the Republic/Provinces of the Former Socialist FederalRepublic of Yugoslavia. The project was not completed due to: (i) extraordinary delays in effectiveness, inestablishing the local agency for constructing the federal dispatch center, and in preparing the first set ofbidding documents; and (ii) the eventual disintegration of the country in 1992. After ten years of partialimplementation, only US$41.8 million was disbursed, and the balance was canceled. Investment planningcoordination did not occur and the electricity pricing targets were never met. The strengthening of theUnion of the Yugoslav Electric Power Industry was not realized, and the financial improvernents achievedunder earlier Bank loans were lost.

The Borrowers' performance was unsatisfactory: the commitment to most objectives was absent inthe Republics and only a small fraction of the physical and training components was implemented. Bank'sperformance was also unsatisfactory: mistakes in project design, poor procurement arrangements, andineffective supervision over the first four years were factors contributing to project failure.

The outcome of the project is rated as highly unsatisfactory, its institutional development asnegligible, and its sustainability as unlikely.

The PCR is of high quality and presents an excellent account of project implementation andoutcome.

No audit is planned.

Attachment ( 5

This document has a restricted distribution and may be used by recipients only in the performance of their official| duties. Its contents may not otherwise be disclosed without World Bank authorization. l

FSFR YUGOSLAVIATHIRD POWER TRANSMISSION PROJECT

PROJECT COMPLETION REPORT

TABLE OF CONTENTS

Page No.

Preface (i) - (ii)

Evaluation Summary (iii) - (vi)

PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. Project Identity 12. Background 13. Project Objectives and Description 24. Project Design and Organization 55. Project Implementation 86. Project Results 187. Sustainability 198. Bank Performance 199. Borrower Performance 1910. Project Relationship 2011. Consulting Services 2012. Cofinancing 2013. Project Documentation and Data 21

PART II PROJECT REVIEW FROM BORROWERS' PERSPECTIVE 22

PART III STATISTICAL INFORMATION. TABLES

A. Project Time Table Table 1 36B. Use of Bank Resources Table 2 37C. Disbursements Table 3 38D. Implementation Schedule Table 4 39E. Loan Disbursed by Category Table 5 40

PREFACE

This is a Project Completion Report (PCR) for the composite Loan 2338-YU ofUS$120.01 million approved by the Board on July 23, 1983 and made as eight separateLoans numbered 2338-0-YU to 2338-7-YU to the power enterprises of six republics and twoautonomous provinces (RAPs)2 of the Former Socialist Federal Republic of Yugoslavia(collectively called the Borrowers) with the Guarantee of the Federal Republic. The projectfinanced by this loan - described as the Third Power Transmission Project - was a sequel tothe successful First and Second Power Transmission Projects (Loans 836-YU of 1972 and1469-YU of 1977) under which a vast 380 kV national grid had been established. The lawof the country required that this national grid should be operated as a single technologicalunit. The project was intended to install, operate, and manage a modem computerizednational energy management system (EMS) for remote supervision and control of this grid atthe national, republic, and provincial levels to meet this legal and economic requirement. Atappraisal, the project cost was estimated at US$321 million. Also, a party to the loanagreement was the Union of Yugoslav Electric Power Industry (JUGEL) which, thoughlacking executive authority, was to install and operate the national EMS center. The projectwas to be financed by the Borrowers, the Bank, and, the European Investment Bank (EIB).In December 1982 the EIB made a loan of 67 million ECU for the Third PowerTransmission Project, which was scheduled to be completed by end December 1988.

The project was not completed. After ten years of project implementation the totaldisbursement was only US$41.78 million. The balance of the effective loan of US$115.02million was cancelled. The key project components were (i) the Real Time Control System(RTCS) on which there was a disbursement of about US$3.3 million on a small, initial,planning and training "zero" phase component (RTCS "O"), and (ii) the Microwave RadioTelecommunication System (TCS) on which there was no disbursement. The rest of the loandisbursement was on ancillary equipment (US$26.71 million), financing charges (US$9.06million), and consulting services (US$1.51 million). Failure to complete the project was dueto (i) an initial starting delay of one and half years on account of differences with one of theBorrowers - the power enterprise of Crne Gore (Montenegro) on the scope of its projectcomponent, and in meeting set conditions of loan effectiveness; (ii) a delay of five years in

1/ This was reduced at effectiveness in January 1985 to US$115.02 million,due to downsizing of facilities at the Crne Gore (Montenegro) regionalcenter.

2/ Bosnia-Hercegovina (2338-0), Crne Gore (Montenegro) (2338-1), Croatia(2338-2), Macedonia (2338-3), Slovenia (2338-4), and Serbia (2338-5)were the republics; Kosovo (2338-6) and Vojvodina (2338-7) were theautonomous provinces.

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establishing the Work Organization of Associated Labor (WOAL) for construction of theFederal (JUGEL) dispatch center and in getting project implementation clearances forcomponents of the project at local levels; (iii) a five to eight year delay in preparing the firstset of bidding documents for the key project components, viz. the RTCS and the TCS.(There were serious procurement difficulties with five bid packages issued in 1987-1988which led to cancellation of all five bids in March 1990, redefinition of the project and re-commencement of the procurement as a single RTCS package in May 1990); and (iv) thedisintegration of former Yugoslavia in 1992 which placed the project completion beyondreach. The Borrowers who had, at considerable effort, completed acceptable biddingdocuments for the RTCS and TCS systems by then urged project continuation. The EIBcancelled its loan in February 1992. The Bank Loan was kept open until the revised closingdate of December 31, 1993 agreed in March 1987, to enable completion of the smallplanning and training "O" phase of the redefined RTCS procured between 1991-1993. Thiswas possible only in two republics. No further work, even of bid invitation, was possible onthe main RTCS and TCS systems. Nine dispatch center buildings were constructed andancillary equipment installed.

This PCR has been prepared for the entire project as the project was conceived andimplemented as a single integrated project. There were eight separate loans for legal,financing, accounting, disbursement, and repayment purposes. The Preface, EvaluationSummary, and Parts I & III of the PCR were prepared by staff of the Energy andEnvironment Division, Central Europe Department. Part II, to be prepared by theBorrowers, had to be prepared in Sections for each of the eight Borrowers. Unfortunately,due to the disintegration of former Yugoslavia in 1992, reports on only two of thecomponents - dealing with the Croatian and Slovenian components - were received.Preparation of the PCR started in April 1994. The report is based on the Staff AppraisalReport No. 4193-YU, the President's Report, the PCR No 5390 for the Second PowerTransmission Project (Loan 1469-YU), Loan and Guarantee Agreements and theiramendments, and information available in the files.

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EVALUATION SUMMARY

1. The Third Power Transmission Project -also described as the energy managementSystem (EMS) Project - was financed by the composite Loan 2338-YU of 1983 made as eightseparate loans numbered 2338-0 to 2338-7 to power enterprises of the eight republics andprovinces (RAPs)3 of the former Yugoslavia. It envisaged establishment of nine new loaddispatch centers - one national (or federal) and eight republic/provincial- all equipped withstate-of-the-art, computerized, hierarchial (national/regional/area) systems for remotesupervision and control of the former Yugoslav power grid to enable it to operate as a singletechnological unit on the most economic basis. The project objectives were to consolidatepast efforts to improve coordination and financial soundness of the power sector and, inparticular, to assist the National Union of Yugoslav Power Industry - JUGEL (a) to exercisethe necessary central role for coordination of system expansion planning, implementation,supervision/control and operation of the Yugoslav Power System at the national level; (b)maximize its impact on sector development; and (c) play a larger role in the procurementprocess.

2. The project comprised the EMS (Part I) and Training (Part II). The EMS involved:(a) a national dispatch center at Belgrade to be constructed jointly by JUGEL and the eightBorrowers, and operated by JUGEL; and (b) eight republic/provincial load dispatch centers.Each was to have: (a) a predictive operation planning system (OPS); (b) a real time controlsystem (RTCS); and (c) a data communication network (DCN) system, which togetherconstituted the key project component. Additionally, a microwave radio relaytelecommunication system (TCS) was to be constructed to link these nine load dispatchcenters, the power stations, and other power system components to be controlled. Ancillaryitems of equipment and buildings constituted the rest of the Project. Part II comprised about1,000 man-months of instructor services for training about 500 Yugoslav technicians byparties contracting for the supply and installation of the above systems.

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3. The Bank loan agreement stipulated that all the project components should beprocured following ICB procedures, through thirteen, separate, identified contract packages,which pooled the requirements of all the nine dispatch centers.

4. Start of project implementation was delayed by: (a) one and a half years, up toeffectiveness in January 1985, due to differences with the enterprise of Montenegro (CrneGore) on the scope of its component and delays in meeting set conditions of loaneffectiveness; (b) five years in establishing the Work Organization of Associated Labor(WOAL) for construction of the federal (JUGEL) dispatch center, and in getting project

3/ See Footnote 2 of page 1 of the Preface.

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implementation clearances for the project components at republic/province levels and (c) fiveto eight years in preparation of bidding documents because of unsatisfactory consultancyarrangements and design changes on the TCS. Five separate bids were invited for the keycomponents -the OPS, the RTCS, and the DCN- during 1987-1988. During evaluation ofbids received it was found that the lowest evaluated bids for the two packages into which theOPS had been divided were mutually incompatible. This exposed a basic flaw in thepackaging of contracts (para. 3) where application software (OPS II) had been separated fromthe hardware (OPS I). Moreover, what should have been bid as a single contract for theentire RTCS, had been sub-divided into two separate sub-systems - viz the RTCS, and theDCN- introducing further problems of compatibility. After much consideration, theBorrowers could not arrive at any contract award recommendations and the five bids wereultimately cancelled in March 1990.

5. In July 1989, ECC of USA was appointed as the engineering consultant for theproject. With the assistance of ECC, the project was redesigned during April-May 1990 toincorporate the latest technological advances and to redefine the bid packages for the keycomponents. This resulted in: (a) a single bid for the RTCS system instead of the five bidsoriginally invited (para 4) for operations planning and real-time system control; and (b) areduction in investment cost by US$30 million. US$25.84 million of the loan amount wascancelled in 1991 at the request of the Borrowers. The implementation period was extendedup to the end of 1993. In order to derive some early benefits of operation planning andtraining in about two years, it was also decided in 1990 to invite bids initially for a small"zero" stage (RTCS "O"), estimated to cost about US$3.0 million (see para. 5.3.8), whichwould be compatible with the RTCS, and enable the Borrowers to derive some planningbenefits and training while awaiting implementation of the main RTCS.

6. The disintegration of former Yugoslavia into separate countries and commencement ofhostilities during 1991-1992 made it impossible to complete the project. The work on the"O" stage component of the RTCS continued, however, - after deletion of its JUGELcomponent- in Croatia and Slovenia. This small part of the project has now been completedin Croatia and Slovenia. Little work on the "O" stage has been done at the other dispatchcenters due to the political situation and U.N. sanctions. Prequalification was carried out forthe RTCS system. The RTCS and TCS systems were not put out to bid, though biddocuments were prepared and reviewed by the Bank. The dispatch center buildings wereconstructed and some ancillary equipments were procured. The key project componentswere not completed.

7. On the financial side, the existing cash generation covenants - which had beensuccessful in the past according to the PCR for the Second Power Transmission Project(Loan 1469-YU of 1977) - were replaced in 1983 by new covenants requiring tariffs basedon long run marginal costs (LRMC) using a common methodology to be agreed to by theBorrowers. This was a major departure from the appraisal mission's recommendation, whichwas to renew the cash-generation covenant. This change was made in the context of theBank's First Structural Adjustment Loan (SAL (I)) discussions which were going on

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concurrently. LRMC based tariffs - and the associated economic objectives - were notachieved because: (a) it required the Borrowers' agreement on a national long-terminvestment plan, which was not possible because of technical difficulties and lack ofagreement on project priorities between the Borrowers; and (b) the common methodology forcalculation of LRMC - clause 5.04(a) of the Loan Agreement - was not developed or agreed.Moreover, in 1985 Yugoslav authorities adopted an alternative system of pricing called theCommon Elements (CE) method - a mixture of some local costs, electricity prices prevailingin selected European countries and fuel price indices in former Yugoslavia. Furthermore,Clause 5.04(d) of the Loan Agreement required a utility, i.e. republic/provincial, perspectiveand was, in any case, inconsistent with the Bank's objective of attaining economies on anational scale (para 5.2.4). It was neither enforceable nor attempted to be enforced.Yugoslav authorities converted the CE approach in 1990 into a Common Criteria (CC)method of energy pricing, which the Bank accepted in the context of SAL II but insisted thatan approach, which also addressed the financial problems, be agreed as a second trancheSAL II condition. This was not achieved by the time that the second tranche of SAL II wascancelled. However, even the CE and CC electricity pricing targets were never met in time.In the prevailing period of rapid inflation, this seriously eroded the income of all eight powerenterprises. The absence of enforceable financial covenants may have been a contributingfactor in the loss of the financial gains made under the earlier loans to the former Yugoslavpower sector rather than in the improvements which were sought as an important projectobjective.

8. The economic justification of the project was reviewed by ECC and the Borrowers inthe context of redefining the project in 1990. It was noted that the feasibility report of 1981,and the SAR, had over-estimated the benefits of the project. Despite substantial investmentcost reductions in 1990 through redesign of the project, the ERR was revised downwardsfrom 16% to 10%. As the project was not completed the final economic rate of return couldnot be tested.

9. The following are the principal project lessons:

(i) The need for the state-of-the art EMS project for efficient control offormer Yugoslavia's power grid was never in doubt at the Bank oramong the Borrowers. This was demonstrated by the strenuous effortsmade by JUGEL and the Borrowers, particularly after 1987, toimplement the EMS project and by the fact that this effort continuedeven during the later period of hostilities among the countries intowhich former Yugoslavia had disintegrated. However, the problems ofobtaining and sustaining real commitment of all the diverse members ofsuch an interconnected power system must not be underestimated,especially in this case.

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(ii) Technologically complex projects such as the EMS project should notbe allowed to proceed to the implementation stage without continuousinvolvement of consultants with established minimum levels of provenexperience in RTCS systems and especially of its unique procurementrequirements (see paras 5.2.9 and 5.2.10);

(iii) During design of contract packaging of EMS systems, special careshould be taken to ensure compatibility, which should be a paramountconsideration;

(iv) Prequalification of bidders must be carried out on the basis of clearlyspecified minimum proven experience requirements and should neverbe waived;

(v) Loans for such extremely complex projects, particularly when itinvolves multiple borrowers, should not be presented to the Boardunless final bidding documents, acceptable to the Bank, have beenprepared for all the key contracts;

(vi) For technologically complex projects such as the EMS the standardBank procurement approach, devised for simple equipment, must not beused; a two-stage method of bidding should be used and the Bank'sindustrial formula for domestic preference incorporated instead of theformula indicated in its Procurement Guidelines.

(vii) To ensure financial soundness of power entities, financial covenantsshould focus on financial performance rather than economicmethodology, such as LRMC.

(viii) In such parallel financing schemes, the lending agencies should agree atthe start on the specific items which would be financed by therespective loans. This was not done under the project, leaving theBorrowers in doubt on such aspects as the procurement policies to befollowed for different items; and

(ix) The Bank's firm approach in recognizing past errors in project design,procurement, and consultancy arrangements and correcting themquickly during 1987-1990 were effective and ultimately appreciated bythe Borrowers. The Bank strongly supported a good project as long asthe objectives were within reach but when it became clear that theycould not be attained, the Bank was firm, and called for an end to theactivities.

PART I - PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. Project Identity

Name: Third Power Transmission Projectalso referred to as the Energy Management System (EMS)Project.

Loan No.: 2338-YU as eight loans numbered 2338-0-YU to 2338-7-YURVP Unit: Europe and Central AsiaCountry: Former Socialist Federal Republic of YugoslaviaSector: EnergySubsector: Power

2. Proiect Background.

2.1 The project was conceived in 1971 as the last phase of a three-part program to buildan integrated 380 kV power transmission system covering the whole of former Yugoslaviawith interconnections to several neighboring countries. Its forerunner - a load dispatchscheme - was included as Part II of the Second4 Power Transmission Project financedthrough Bank Loan 1469-YU of 1977 and envisaged nine dispatch centers (one federal, sixrepublic - one each for Bosnia-Hercegovina, Crne Gore (Montenegro), Croatia, Macedonia,Slovenia and Serbia - and two for the autonomous provinces of Kosovo and Vojvodina). Itsdesign was based on technology of the sixties and it was estimated to cost US$70.0 million.The scheme was expected to be financed by commercial and suppliers' credits. The Bank,however, financed a study which was a prerequisite for implementation of the load dispatchscheme. This study recommended that integrated operation and economic optimization of theformer Yiugoslav power system required a sophisticated, state-of-the-art, computerized energymanagement system (EMS), significantly different from the load dispatch centers plannedearlier. As the complete EMS system was estimated to cost about US$480.0 million, theBank required that the project be divided into two phases, with the first phase, costing aboutUS$315 million, to be completed during 1981-86. This recommendation was accepted by theYugoslav authorities. However, since they were unable to arrange financing, they requestedthe Bank and the European Investment Bank (EIB) to delete the load dispatch componentfrom the Second Power Transmission Project and to make the first phase of the EMS thecore of the Third Power Transmission Project. In 1982, the Bank and the EIB agreed to this

4/ The First Power Transmission Project was financed by Loan 836-YU of1972.

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request. The Yugoslav 380 kV grid was completed in 1984. The project, therefore,assumed great urgency and had high national priority.

3. Project Objectives and Description

3.1 Objectives

3.1. 1 As stated at para 44 of the President's Report, the project objectives were toconsolidate past efforts to improve coordination and financial soundness of the power sectorand, in particular:

(a) to assist the National Union of the Yugoslav Power Grid - JUGEL - to retainthe necessary central role for coordination of system expansion planning,implementation, supervision/control and operation of the Yugoslav PowerSystem (see para 3.1.2 (c));

(b) to maximize its impact on sector development (see para. 3.1.2); and

(c) to enable JUGEL to play a larger role in procurement matters (see para. 3.1.2(c)).

3.1.2 The sector objectives described in para. 3.1.1 (b) above were developed and agreedbetween the Bank and the Yugoslav Government authorities in the context of the FirstStructural Adjustment Loan (SAL I) made in 1983, a few months before the Loan 2338-YUfor the Third Power Transmission Project went to the Board. The principal objective was toreorient the investment program in the entire power sector - which continued to be developedon a parochial, republic and provincial basis - towards national priority activities as part of anew Government policy of rationalizing the energy sector announced in March 1983.According to the SAR, another objective was to find a better basis than the cash-generationfinancial covenant, agreed to under the Second Power Transmission Project - which, onaverage, was satisfactorily implemented - to raise prevailing electricity tariffs. Theobjectives at 3.1.1 (a) and (c) were based on Bank experience through earlier loans to thepower sector. To ensure that all these objectives were met, the legal documents of Loan2338-YU incorporated the following undertakings:

(a) Section 5.04 (a) of the Loan Agreement, replaced the cash-generation covenantunder the earlier power sector Loan 1469-YU (1977) with a provision toincrease electricity prices to a level which would not be less than the long-runmarginal cost (LRMC) of supply of electricity through adjustments on, at least,an annual basis over a five year period ending December 1987. This requiredan agreed national power investment plan and an agreed common methodologyamong the republics and provinces (RAPs) for calculating the LRMC. It was acondition of the loan (Section 5.04 (b) that the Borrowers should determine thiscommon methodology, in agreement with the Bank, no later than January 31,

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1984. The first of the upward price adjustments - a 15% increase in real termsover the April 1, 1983 level was a condition of effectiveness of the loan inaccordance with Sections 5.04(b) and 7.01 (a);

(b) Section 4.06 of the Loan Agreement sought to achieve economic optimizationof investment choices until completion of the project by requiring theBorrowers and JUGEL: (i) to annually update their medium term (3 year)plans of investment for generation, transmission and distribution to determinethe plan of investments to be made in the next calendar year (Section 4.06 (a)),and (ii) to exchange views by November 30th of every year with the Bankbefore finalization of such three year and annual (short-term) investment plans(Section 4.06 (b)); and

(c) Section 2.11 of the Loan Agreement designated JUGEL as the representative ofthe Bank for all purposes of loan management. Schedule 6 to the LoanAgreement set out the methodology for this management. Schedule 7 to theLoan Agreement detailed the coordination steps between the Borrowers and-JUGEL. It also specifically required that JUGEL's project management teamshould be designated by the Borrowers' Coordination Committee to act in itsname and on its behalf in matters related, inter alia, to procurement, expectingthereby to centralize and speed up the procurement process. Section (B) of thepreamble to the Loan Agreement noted the various agreements reached by thestage of Board presentation of the loan to empower JUGEL to: (i) harmonizedevelopment plans of the Borrowers, and (ii) construct the federal (JUGEL)dispatch center of the EMS project. Thus, JUGEL was expected to constructand operate the new federal level dispatch center.

3.2 Description

3.2.1 Part I of the project comprised:

(a) An Operational Planning System (OPS) for predictive power systemmanagement. This was to consist of a central computer facility at the federal(JUGEL) dispatch center and the eight remote terminal computer systems at therepublic/provincial dispatch centers;

(b) a Real-Time Control System (RTCS) for on-line power system management.This was to consist of: (i) Real-time process computer systems at the JUGELand eight republic/provincial dispatch centers, (ii) a Data CommunicationNetwork (DCN), (iii) Remote Terminal Units (RTUs) located at each majorpower station and sub-station to be controlled, and (iv) Local Interface (LI)units at RTU locations to link with power equipment being controlled;

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(c) a private, wide-band, microwave telecommunication system (TCS)interconnecting the nine dispatch centers and all other main operating facilities;

(d) telephone exchanges, telex networks, and teleprinters at all the nine dispatchcenters;

(e) civil works, power supplies, and related infrastructure at all dispatch centers;and

(f) engineering services (about 1,200 man-months).

3.2.2 Part II of the project comprised a comprehensive training program for about 500Yugoslav technicians, requiring about 1,000 man-months of instructor services.

3.2.3 The project was a fully integrated scheme. A common Loan Agreement bound all theeight Borrowers to common actions, but it was agreed that the Bank loan would bedistributed among the eight Borrowers in proportion to the estimated cost of the projectlocated within their respective Republics and Provinces, including a share of the cost of theJUGEL dispatch center at the Federal level. Given the complex nature of the project thiswas not easy to do and the preparation of the estimate was left to the engineering consultantresponsible for the feasibility study of the EMS (para 4.1.1). The eight loans weredesignated 2338-0 to 2338-7, to preserve their separate nature, but it was clearly understoodthat all Borrowers must act together and in unison at all times in project implementation.Schedule 7 to the Loan Agreement required that the EMS Coordination Committeeestablished on December 26, 1980 should continue to be maintained for ensuring this closecoordination throughout the project implementation period. Thus, it was clear from theoutset that this type of power system control project could not go forward in formerYugoslavia if one or two Borrowers opted out or failed to meet their agreed obligations.Lack of real commitment among all the diverse Borrowers was a recognized risk. It actuallyled to delays in project start-up (see para 5.2.2) and continued to be manifest throughout theearly implementation period.

4. Project Design and Organization

4.1 Project Design

4.1. 1 Project design of the EMS started with a conceptual study, referred to as T6, withinthe scope of a general management information study (MIS) carried out during 1978 underthe Second Power Transmission Project. Preliminary project reports on the EMS wereprepared in 1979 and 1980. The final feasibility study report, entitled "The Third PowerTransmission Project - Modernization and Further Development of the EMS and JointOperation in the Yugoslav Power System" was prepared in July 1981. JUGEL's staff andstaff of a special Coordination Committee set up on December 24, 1980 by power enterprisesof the Republics and Provinces (RAPs) provided the necessary power system data. The

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Bank had required that the final feasibility study should: (i) be based on a preliminarydesign and a detailed cost estimate, (ii) include a detailed project justification on the basis ofa least-cost comparison of alternative solutions, and (iii) provide a basis for phaseddevelopment in two stages. The Bank was also involved in the design through reviews ofdraft feasibility reports by internationally recognized independent EMS experts commissionedby the Bank. The final design report presented by JUGEL and its consultant includeddetailed recommendations on project execution and management, procurement, training, andthe engineering and it set out the nature and extent of foreign and local consulting servicesrequired. At the request of the Bank, the report also set out principles for allocation of theloan among the eight Borrowers for this extremely complex and integrated project.

4.1.2 An important feature of the project design - which had grave implications for projectimplementation (see para 5.3.3) - was the procurement strategy developed by the consultantswith the involvement of JUGEL, the Borrowers, the Bank and EIB and which was presentedin the Feasibility Study Report of 1981. It was based on the premise that there should becommon bidding for all nine dispatch centers and for each technical sub-system but it did notensure that they would be mutually compatible. The OPS and RTCS were further subdividedinto two - an essentially hardware component and the second for application software. It wasa condition of the Loan Agreement (Section 2.04 and Schedule 4) that contracts should: (a)provide for the Borrowers' and JUGEL's staff training and (b) be grouped into thirteenidentified contract packages, listed in Schedule 4 - all of them to be procured only throughinternational competitive bidding (ICB). The Bank's standard (A,B,C,) formula for domesticpreference was also included in Schedule 4. This was not suitable for the key procurementpackages (see paras 5.3.5 and 5.3.6).

4.1.3 The Staff Appraisal Report, No. 4193-YU of April 1983, faithfully reflects the 1981feasibility study report in all respects - including the Project Justification. Therefore, in thisPCR, it is necessary only to note a few points which were well established by the timenegotiations for the Bank loan took place in March 1983. First, computer technology waschanging fast; hence, existing technologies could become obsolete rapidly. Bid level designswhich had been commenced, had, therefore, to be completed quickly. The SAR noted in para3.15 thatuJUGEL was using consultants acceptable to the Bank (see para 4.1.1.) to preparebid level designs, specifications and bidding documents and would also continue to use themfor assistance in evaluation of bids, contract negotiations and construction supervision. Para3.20 of the SAR stated that prequalification of vendors/suppliers would be required to insurethat only qualified and experienced bidders submit bids. This did not happen (see para5.2.12). Second, it was understood that it was essential to ensure compatibility of hardwareand software. However, at negotiations in March 1983, the Bank reiterated the requirementof dividing the contracts to be financed under the loan, grouped into thirteen packages, (seepara 4.1.2). A request by the Borrowers to allow local procurement for small items wasdenied by the Bank on the ground that, because of the complex nature of the project and toensure procurement of compatible hardware and software, ICB should apply (see para. 9 ofthe minutes of negotiations). It is unfortunate that this very scheme of contract packaging,

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which was covenanted, opened the door to incompatible bids and caused the most criticaldifficulties in implementation of the project (paras 5.3.3 and 5.3.4).

4.2 Project Organization

4.2.1 As under the First and Second Power Transmission Projects (Loans 836-YU and1469-YU), project execution was arranged to be done "under the overall authority" of theCoordination Committee of the eight Borrowers. Eight project management teams were setup in the RAPs. The federal project management team, started out with a small nucleus ofstaff at JUGEL and was expanded only in 1988 after establishment of the federal level workorganization. JUGEL was designated as the "project coordinator" responsible for theCoordination Committee's engineering, procurement, construction and Bank relations work.On behalf of the Borrowers, JUGEL was to: (i) administer loan agreements and contracts,(ii) administer loan disbursements and repayments, (iii) report on progress of the project and(iv) jointly with the Borrowers, construct and operate the federal (JUGEL) EMS centers. Inthe continuing absence of any executive authority - under the Yugoslav constitution - JUGELcould discharge these responsibilities effectively only when: (i) it had actually built up itsown engineering, financial and administrative organization, and (ii) the Borrowers haddelegated all the necessary authority for day-to-day work. Legally, this required in thedecentralized, labor-controlled Yugoslav system, a number of "Self ManagementAgreements" on construction coordination of the EMS System and joint construction of thefederal dispatch center by JUGEL, and arrangements for securing local financing. Thesewere made conditions of negotiations and Board presentation, of loan effectiveness, and ofschedules 6 and 7 to the Loan Agreement.

4.2.2 On paper, the above constituted a workable system, awaiting only the actualestablishment of a work organization for construction of the JUGEL dispatch center.However, it did not take full account of several lessons learned from the implementation ofthe Second Transmission Project (PCR report no. 5390-YU, December 1984 para 8.04).These were that the:

(a) domestic financing constraints would seriously affect progress of such jointdevelopment projects in the power sector in former Yugoslavia;

(b) division of a technically integrated project into eight effectively separate loansto individual sovereign entities would require considerable skill in arriving atdecisions by consensus, administrative effort and time - thus imposing severeconstraints both on former Yugoslavia and on the Bank (these were vastlycompounded by the complex nature of the state-of-the-art EMS Project and theamendment of the Loan Agreement in January 1988 (para 4.2.3 which alteredJUGEL's role);

(c) reaI commitment of all the Borrowers to the project objectives was crucial forsuccess;

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(d) general reluctance in the former Yugoslav power sector to employ foreignconsultants; and

(e) fragmented nature of the power sector, its inverted pyramid philosophy ofdecision making and minimal accounting and financial reporting requirementswould have severe adverse impacts.

4.2.3 In the event, all of the weaknesses described in para. 4.2.2 except (a) - which wasnot an issue since the project did not proceed for other reasons - manifested themselves underthe EMS project. There was little progress in project implementation for the first four years(para 5.2.1) A tripartite review meeting of Yugoslav authorities, the EIB and the Bank heldon March 25-26, 1987 (see para. 5.2.15) reviewed, inter-alia, the organizational problemsencountered in this project. At this meeting the Borrowers informed the Banks of a subtle -but important - change in the organizational arrangements. The Self Management Agreementon Construction Coordination of the EMS and Joint Construction of May 5, 1985, referred toin Preamble B of the Loan Agreement, had been amended by them on March 4, 1987 tocover "Pooling funds for joint construction of JUGEL Dispatch Center and ImplementationCoordination of the EMS project". This weakened the construction responsibility of JUGEL,but it was accepted by the Bank at the March 1987 meeting and the Loan Agreement waslater modified to reflect this change in January 1988. Effectively this reverted JUGEL'sstatus to a mere coordination agency which had to get the agreement of all the Borrowers onevery minor detail of procurement. Schedule 7, though not amended, was by-passed. Thenew Work Organization was formally established in 1988 but the Banks' original objective ofstrengthening JUGEL had been lost.

4.2.4 In July 1988, at the request of the Coordination Committee, the Bank pointed outcontinuing weaknesses demanding urgent corrective action. These were the following:

(a) there was no single person with clear apex responsibility for supervising andreporting on project progress, and there was no progress reporting;

(bti there was no realistic implementation program;

(c) there was no updated project cost estimate or financing plan;

(d) since 1984 there was no experienced engineering consultant with provenexperience in engineering, procurement, installation and commissioning ofEMS systems - to provide guidance to JUGEL and the Borrowers;

(e) there were serious delays in payment, even on the only small "individual'consultancy contract under Bank financing at that time, due to the complexinstitutional arrangements for making foreign payments; and

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(f) communications with the Bank were poor on certain matters of substantialimportance, which could later cause difficulties in procurement matters (whichdid happen).

4.2.5 JUGEL and the Borrowers quickly responded, promising remedial action on all of theabove. The Coordination Committee set up a Task Force to try and address the institutionalproblems. In February 1989 JUGEL provided the first systematic progress report on theproject. This was also the last. Preparation of a detailed implementation programcommenced but was not continued. JUGEL's lack of executive authority - and now evenfunctional responsibility - was exposed. As events transpired, serious procurementdifficulties were encountered during 1988 - 1990. The project was redefined in 1990 (para5.3.5) requiring a fresh start on engineering and procurement of the key project elements.Throughout the implementation period JUGEL remained a weak and powerless organizationfollowing cumbersome procedures - as it had to act through a coordination committee onalmost every issue at all times - and deal with all the Borrowers on every contract as, ineffect, eight separate sub-contracts. The organization as it was ultimately set up was totallyinappropriate for this complex project.

5. Project Implementation

5.1 At appraisal the project was expected to be completed in five years. In fact, theimplementation period was extended to ten years but the project was not completed and thesector objectives were not met. To review this extraordinary result and draw appropriateconclusions it would be useful to examine the course of implementation by the following timeperiods - (i) the first four years until March 1987 (para 5.2) and (ii) the period thereafter1987-1993 (para 5.3)

5.2 The First Four Years - until March 1987

5.2.1 This was a very bleak period. The total disbursement on the Bank Loan by end ofMarch 1987 of US$3.788 million was entirely for finance charges (front-end fee pluscommitment charges) except for a small amount of US$79,650 paid to the foreign consultantin 1985. Bidding documents had not been prepared by the Borrowers and forwarded to theBank for its review for any of the thirteen packages referred to in para 4.1.2 by end ofMarch 1987. There were (a) delays in effectiveness of the loan; (b) major problems with theconsultancy arrangements; and (c) delays in establishing the Work Organization at the federallevel for project implementation, coordination etc. and these are reviewed in paras 5.2.2. to5.2.13

5.2.2. Delays in loan effectiveness due to problems of definition of project scope

Loan 2338-YU was approved by the Board on July 26, 1993 for an amount ofUS$120.0 million, the corresponding loan documents were approved by all the Borrowersand the loan was signed for this amount on October 5, 1983. However, the loan could not

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become effective until January 1985 primarily because the Guarantee Agreement could not beratified by the Federal Assembly. The Assembly insisted that the scope of the Crne Gore(Montenegran) component with a foreign cost of $10.5 million should be reduced to $5.52million, as the Montenegran power enterprise could not raise the required local finances.This problem had surfaced at negotiations in March 1983 when the Yugoslav delegationbrought Montenegro's financing problem to the notice of the Bank and specifically requestedthat: (a) the Montenegran component be reduced to cover only the critical requirements, and(b) the size of the other seven loans be correspondingly increased. The request was tumeddown by the Bank on the grounds that Montenegro was strategically located within theYugoslav 380 kV network and its component should, therefore, be implemented in full asplanned (para. I of the minutes of negotiations). Ultimately, faced with continued resistancefrom Montenegro, the Bank agreed to the Montenegro request. Loan 2338-1 was reducedfrom $10.5 million to $5.52 million through a loan amendment letter which alsocorrespondingly reduced the loan amount of 2338-YU to US$115.02 million. The GuaranteeAgreement was then ratified by the Yugoslav Federal Assembly in December 1984, and theloan finally became effective on January 14, 1985. It became evident that the importance ofthe project was not equally appreciated by all the Borrowers. This was an ominous sign forproject implementation and fulfillment of an anticipated risk.

Delays in meeting the conditions of effectiveness

5.2.3. There were two sets of conditions of effectiveness of the Bank loan. The first couldbe classified as "Long Run Marginal Cost (LRMC)" covenants with implications for thesector objectives. These are discussed in paras 5.2.4 to 5.2.7. The second set requiredBorrowers to submit evidence, satisfactory to the Bank, that all necessary agreements,approvals, contents or decisions - which required involvement of republic and provincialgovernments, constituent organization (BOALS), self-management communities of interestand local banks assisting in financing, had been reached. These were required to securefunds and ensure prompt project start-up. These aspects are discussed at para 5.2.8.

5.2.4 The LRMC covenants were: (i) Sections 5.04 (a) and (b) of the Loan Agreement,regarding;the LRMC based tariff, the common methodology to be adopted for calculatingLRMC and its pre-requisite, the agreed national power development plan; and (ii) Section7.01 (a) of the Loan Agreement - a condition of effectiveness - on the first LRMC basedupward power tariff adjustment required. A national power supply development plan wasnever developed by JUGEL and the Borrowers. The requirement of section 5.04 (b) that thecommon methodology for calculation of LRMC should be agreed no later than January 31,1984 was also not met. It should be pointed out that the relevant sections of the LoanAgreement - 5.04 (a) and 5.04 (d) required the LRMC calculation to be made for eachutility's plant - not for the national power system - and it was, therefore, not consistent withthe Bank's or the Yugoslav Federal Governments' objectives recalled at para. 3.1.2 above.It has been recorded that during March-April 1984 Bank staff and JUGEL planningauthorities carried out LRMC studies at the republic level using data provided by Serbia andthat some understandings had been reached with Serbian authorities on the methodology to be

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followed. It was agreed that more work was required to be done and that the Bank wouldprovide written guidelines and follow up. Agreement on the methodology of calculation ofLRMC between the Bank and all the Borrowers as required was never reached. However,the covenant was declared to have been met, evidently based on the progress of thediscussions thus far, which in retrospect proved overly optimistic. Discussions on LRMCmethodology continued fruitlessly for some time thereafter and were finally abandoned.

5.2.5 In 1985, former Yugoslavia passed a law on the System of Social Control of Pricesand the Social Plan for Yugoslavia (1986-1990) and its Long Term Measures for EconomicStabilization (LTMES). They introduced a new system of pricing of energy, which wascalled the "Common Elements" (CE). The JUGEL assembly adopted this method in lieu ofthe LRMC method it had agreed with the Bank. The CE method did not require a nationalpower development plan or calculation of LRMC. It was based instead on: (i) estimatedfinancial costs of power supply in former Yugoslavia; (ii) published prices of electricitysupply in selected European countries; and (iii) prevailing fuel price indices in formerYugoslavia. Details were provided to the Bank only late in 1987. By mid 1986, when noprogress had been made in developing a national power development plan or a commonmethod of calculation of LRMC and inflation was rampant, the Bank concluded that theimmediate priority was to increase electricity prices, irrespective of the criteria adopted.This was the right thing to do as the structure of electricity pricing in former Yugoslavia wasconsidered satisfactory and it was the level that required continuous adjustment. The Bankslowly moved towards accepting former Yugoslavia's CE methodology which later, in 1990,was modified as the "Common Criteria" (CC) approach. The "CC" approach for energypricing was accepted by the Bank's SAL II team in 1990.

5.2.6 The absence of a national power development plan throughout the projectimplementation period removed the basis for the dialogues intended under Section 4.06 of theLoan Agreement relating to economic optimization of investment choices on a national basis.This covenant was not met in form or spirit. In retrospect, this covenant was unrealisticgiven the realities of the political situation in 1983 in former Yugoslavia and the Bank's pastexperience in trying to achieve the same goal under the First and Second PowerTransmission Projects. Such assurances as were given by the Federal Government in thisregard in the context of SAL I were short-lived and were not followed up effectively afterthe SAL I disbursement was completed within a year.

5.2.7 With the abandonment of LRMC by the Yugoslavs in 1985, the effectivenesscondition of Section 7.01 (a) lost its main economic thrust. Though not expressly stated inthe Loan Agreement, a 15% increase in real terms over the tariff level prevailing in March1983 was agreed by the Bank to represent the first step in tariff increases. This increase wasmade by end of 1984 thus meeting this condition of effectiveness.

5.2.8 In order to comply with the conditions of effectiveness laid down under sections7.01(b) and (c) of the Loan Agreement, under the former Yugoslav system of selfmanagement, the Borrowers had to secure the consent of some 350 basic organizations of

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associated labor (BOALs) which were the constituent bodies of the Borrowers. A singleBOAL could block an entire agreement. JUGEL, with no enforcement authority, strove hardto obtain all the relevant authorizations. But all this was laborious and time consuming. Itwas only in January 1985 that Bank staff could certify that these conditions were, in fact,met.

The Work of Consultants for preparation of bid level designs and biddingdocuments

5.2.9 As reported in para 4.1.3. the joint venture of consultants, appointed under the secondPower Transmission Project was expected to continue with bid level designs and preparationof technical specifications for the OPS, RTCS, and DCN. Local consultants were assignedthe task of preparing the technical specifications and bidding documents for the TCS.Preparation of commercial sections of the bidding documents was not assigned to any of theconsultants at this stage.

5.2.10 The foreign consultant encountered difficulties in regard to payments in foreigncurrency and on the extent of participation required of its local partners. Performance ofwork of bid level designs and preparations of technical specifications was consequentlydelayed. Finally, this experienced consultant declined to participate beyond the stage ofpreparation of the technical specifications. Its involvement on the EMS project petered outin 1985. Until 1987 there were no foreign consultants and the work which was assigned tolocal consultants also floundered. This stood in contrast with the statement at para 3.19 ofthe SAR that "Complete bidding documents are expected to be available by May 1983 at thelatest. Bidding documents for the Microwave Contract Package (TCS), which will be thefirst to be bid (in January 1983), have been finalized". However, up to March 1987 nobidding documents had been submitted for Bank review.

Microwave Telecommunication System (TCS)

5.2.11 The finalized TCS bidding document (para 5.2.10) could not be used for invitation ofbids on alcount of a decision by the Federal Government in 1985 that the TCS should not bea private system for exclusive use of the power sector, - as designed by JUGEL, theBorrowers and the Bank - but should be integrated with the country's national (PTT)telecommunications system. This decision was appropriate. JUGEL, the Borrowers and thelocal consultants - working very slowly - struggled with the consequences of this decision formany years. It took eight more years to finalize the designs and prepare bidding documentswhich were ready for review by the Bank, late in 1991. When it was finally cleared forissue it was too late - due to the country's disintegration - to invite bids on that basis.

Prequalification of Vendors/Bidders.

5.2.12 As required (para 4.1.3) prequalification proceedings were undertaken by JUGELand the Borrowers for six of the thirteen contracts during 1983-1984. Lists of pre-qualified

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bidders were prepared in consultation with the Bank. No minimum levels of provenexperience were specified, however, for the crucial OPS, RTCS and DCN. As biddingdocuments were not ready until 1987 the prequalification done during 1983 to 1984 becameoutdated. At the tripartite review meeting held in March 1987, the prequalificationrequirement was eliminated with no other compensatory arrangements. This was a majorerror (para 5.2.17).

Establishment of the Work Organization for the Joint Construction of the JUGELdispatch center.

5.2.13 Notwithstanding the precautionary steps taken by the Bank during project preparationup to 1983, the important Work Organization for Construction Coordination of the EMSProject and Joint Construction of the JUGEL dispatch center was not established during thisperiod (see para 4.2.3). The efforts of the Bank were frustrated by the complexities of theformer Yugoslav institutional system and the evidently different priorities given to thisproject by the 350-odd basic constituent bodies. JUGEL and the technologically strongergroups pushed hard while the weaker, and financially backward, groups dragged their feet.None of the Borrowers were prepared, in the final analysis, to give JUGEL the functions,responsibilities and finances necessary to construct and operate the JUGEL dispatch center asconceived and agreed at project appraisal. The Bank tried to do its part during annualsupervision missions to overcome difficulties in this regard, but to no avail (para 4.2.3).

Construction of buildings for the nine dispatch centers

5.2.14 Acquisition of land and construction of new buildings for the republic and provincialdispatch centers proceeded during this period but at varying paces. In Montenegro, thiswork was considerably delayed by a dispute on the location of the center with claims by rivalcity groups. There was no agreement during this period on the site of the federal (JUGEL)dispatch at Belgrade.

The Tripartite - Yugoslav. Bank. EIB - meeting at Belgrade onMarch 24-25, 1987

5.2.15 The organizational, consultancy and procurement problems described in paras 5.2.5to 5.2.14 and the poor implementation record up to this point were discussed frankly at atripartite meeting of all Yugoslav authorities - including the Federal Government, theBorrowers, and JUGEL - the Bank and EIB at Belgrade on March 24-25, 1987. Thediscussion on the JUGEL organizational problem has been covered at para 4.2.3 above and isnot repeated here. After receiving assurances on the Borrowers' intention to speed upproject implementation of the project, the Banks agreed to its continuation subject tofulfillment of certain conditions. The Bank and the EIB required quick action by definitedates on: (i) organizational matters and actions to secure finances needed to start projectimplementation; and (ii) appointment of foreign and local consultants to speed up preparationof bidding documents for ICB. The Borrowers requested that grace and maturity periods of

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the loans be extended to reflect the four-year delay in implementation of the project. Thiswas not accepted by the Bank as it was against its policy but the EIB accommodated theBorrowers by cancelling the original loan and granting a new loan, which effectivelyextended grace and maturity periods by five years. The Bank agreed to consider: (i)modification of repayments within the original maturity period without affecting the averagelife of the loan; and (ii) a four-year extension of the project completion date. These weregiven effect to in an amendment to the Loan Agreement in February 1988 by reduction ofearlier maturities (repayment of which had commenced in March 1987) and increasing thelater ones (after 1992) while maintaining the original loan maturity schedule. Thisamendment also effected changes in regard to opening of special accounts, allowing limitednon-ICB procurement (requested by the Borrowers). However, these changes were ofminimal impact.

Appointment of an individual foreign consultant and procurement procedures

5.2.16 An important decision taken at the March 24-25, 1987 tripartite meeting was toappoint foreign and local consultants and ensure mobilization of their work in formerYugoslavia before May 31, 1987. Extension of the contracts of the local consultants was aformality. To meet the deadline in regard to foreign consultants some bending of the Bankprocurement procedures was necessary. In 1986 JUGEL and the Borrowers had proposed toappoint an individual foreign consultant to help with completion of preparation of the biddingdocuments and bid evaluation methodology. This was agreed to at the tripartite meeting.Thereafter, the junior partner of the foreign Joint Venture which carried out the MIS studyduring 1978-1982 was chosen without terms of reference and selection procedures by theBorrowers as their "individual" consultant and the Bank quickly agreed to the choice. Itsoon became evident, however, (see paras 5.3.3 and 5.3.4) that this firm did not have anyexperience in: (a) design of RTCS systems; or (b) procurement of the key components of theEMS project. This was, therefore, a poor decision by the Bank.

5.2.17 As the prequalification carried out earlier had expired (para 4.1.3 and 5.2.12) and anew round of prequalification would delay the project further, this important requirement waswaived by the Bank. This was another poor decision by the Bank. Post qualification, withminimum proven performance criteria, could have been introduced instead, but this was notdone.

5.2.18 Borrowers were advised to follow the Bank's sample bidding document of 1986 forgoods as a guide to preparation of the Commercial Conditions of contract, which was alsonot appropriate for this complex EMS procurement. Bidding documents for the key contracts- OPS, RTCS and DCN systems - were thus completed hastily and cleared equally hastily bythe Bank. The OPS bid invitation was issued in October 1987 and the RTS and DCN bids inJune 1988. The seeds of the serious procurement difficulties encountered in this project weresown at this time.

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5.3 Implementation Progress after March 1987

5.3.1 A building site for the JUGEL dispatch center, integral with the Serbian dispatchcenter at Belgrade, was selected during 1987. Building construction was assigned to theSerbian power enterprise (ZEP). As the two buildings were designed as a contiguous unitconstruction proceeded smoothly thereafter. The federal level Work Organization - thoughconsiderably weakened by the loan amendment of January 1988 (para 4.2.3), was finallyestablished in 1988. Recruitment of staff for the federal level project management teamcommenced but proceeded slowly.

5.3.2 Project implementation during this period was most affected by: (a) the continuingdelay in preparation of final bidding documents for the TCS system; and (b) procurementdifficulties that arose on the five key contract packages - OPS (I), OPS(II), RTS(I) and RTS(II) and the DCN. Work on the remaining seven contracts proceeded relatively smoothlywith no major problems. The causes for the delay in preparation of the TCS biddingdocument have been explained at paras 5.2.10 and 5.2.11. As stated at para 5.2.18, bidinvitations for the OPS system were issued in October 1987 and those for the RTS and DCNsystem in June 1988. After one and half years of bid extensions and evaluation, no contractaward recommendations could be made by JUGEL (para 5.3.3).

5.3.3 During November 4-6, 1987, Bank and EIB staff met with JUGEL staff at the officeof the individual consultant (5.2.16) at Brussels to review bid evaluation methodology. Amethodology was developed but was not formally sent to the Banks. At this meeting Bankstaff first noticed the problem of incompatibility inherent in separation of hardware andsoftware packages and explained that: (i) separate bids should be evaluated on their ownwithout reference to other bids, even if the bid invitations etc. were coincidental; (ii) thepotential problem of incompatibility of the lowest bids in each group should be resolved byimmediately issuing an amendment inviting a single bid - rather that two - for the OPSsystem; and (iii) this same precaution should be taken for the other two technical sub-systems(RTCS & DCN). JUGEL staff did not accept this Bank advice for the OPS on the groundsthat: (i) kids for the OPS had already been issued; and (ii) some bidders who were pre-qualified earlier (1983-1984) might object. They took Bank advice into account for theRTCS bids issued in June 1988. It was unfortunate that JUGEL and the Borrowers rejectedBank advice as it is now evident that the incompatibility problems ultimately made itimpossible for JUGEL and the Borrowers to complete bid evaluation and make contractrecommendations for any of the five bids for the key components.

5.3.4 The Bank concluded by end December 1987 that serious mistakes had been made in:(a) procurement packaging at the start of the project; (b) the appointment of an inexperiencedindividual foreign consultant in 1987; and (c) waiving the requirement of proven relevantexperience for both engineering consultants and bidders for design, supply installation andcommissioning of a complex EMS system. It then: (a) appointed an experienced specialistin design and construction of EMS systems as part of the Bank supervision teams during the

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next two years; (b) prescribed new minimum past proven experience requirements, to be metboth by engineering consultants and bidders for EMS project components; (c) preparedappropriate terms of reference for foreign engineering consultants services required; and (d)insisted that JUGEL and the Borrowers select and appoint a qualified engineering consultantfollowing established Bank procedures. Early in 1988 JUGEL and the Borrowers agreed toimplement all these Bank requirements. Despite the urgency, the invitation for consultancywas issued only in June 1988 and a qualified consultant was finally appointed only in July1989. It was the first time since the very early years of project preparation that there was acompetent, technical expert guiding the implementation of the project. It took a little timefor the consultant to settle in given the reluctance of JUGEL and the Borrowers to useforeign consultants, but the ice was broken soon and a constructive collaborative effortensued thereafter.

5.3.5 Several discussions took place in Belgrade and Washington during October 1988 andFebruary 1990 to try and resolve the procurement problem described in para 5.3.3. Thediscussions were on principles as no bid evaluation reports were received by the Bank. TheBank reiterated its advice, which EIB concurred with, that the best course would be to:(a) cancel all five bids; (b) redesign the key project component using the latest, proven,technology (thus saving investment costs and introducing needed flexibility); and (c) invitebids on the basis of a single RTCS contract combining all the OPS, RTCS and DCNfunctions. JUGEL and the Borrowers were more concerned initially with finding a solutionwithin the framework of the five separate bids which, in their view, would maximizeparticipation by Yugoslav bidders. Ultimately - after a tripartite review meeting inWashington in February 1990 - in March 1990 they took Bank advice described above andmoved rapidly to: (a) cancel all five bids; (b) redesign the project; (c) update projecteconomic justification; and (d) prepare new bidding documents. The availability, by thistime of an experienced foreign consultant and JUGEL's confidence in the consultant, enabledthe speedy and efficient correction action, which followed (para 5.3.6).

5.3.6 The JUGEL decision on redesign of the project (para 5.3.5), scrapping the originalphasing of the project key components, and re-bidding for an integrated RTCS system wasfollowed up by an important tripartite meeting at Belgrade in April 1990 to which, atJUGEL's request, the Bank sent its Chief Procurement Advisor and its EMS consultant.This meeting was a breakthrough in communications between the Bank and JUGEL and theBorrowers on the entire procurement aspect, which had dogged the project from the start.Two important changes were introduced. First the Bank's industrial formula was introducedin place of the 'A,B,C,' method for domestic preference. - covenanted in Schedule 4 of theLoan Agreement. JUGEL and the Borrowers understood that this method would enablemaximization of participation of competent local firms without compromising projectintegrity. Second, the two-stage bidding procedure - which was more appropriate for suchcomplex (design, supply and erect) tumrkey projects - was explained to JUGEL and theBorrowers and was accepted. Prequalification of bidders was reintroduced and evaluationmethodology was streamlined. Detailed clauses for introduction in the commercial biddingdocuments concerning domestic preference, currency, pricing, and two stage bidding were

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provided by Bank staff. These principles were adopted for the TCS system also. A soundbasis was thus laid for preparation of acceptable revised bidding documents for the RTCSand TCS systems.

5.3.7 The report on redesign of the EMS project prepared in April 1990 by JUGEL andthe Borrowers with the help of its foreign consultant - the ECC - was reviewed and acceptedby the Bank and EIB at a tripartite meeting held in Washington in July 1990. The reportindicated that the cost of the project would be about US$30.0 million lower than the projectcost of US$348.0 million estimated by JUGEL in February 1990. The Borrowers laterrequested that an amount of US$25.84 million out of the Bank loan be cancelled. This wasagreed to. It took more than a year, however, for the details of the cancellation to beworked out by the Borrowers and the cancellation was effected in 1991.

5.3.8 As part of the redesigned project JUGEL and the Borrowers, with the assistance oftheir consultant ECC, developed a small initial "zero phase," component of the RTCintended to be procured within a year. This was to be used for limited planning purposesand for training of Yugoslav technicians in the latest computer techniques. The proposal wasrecommended by the engineering consultants as this phase could proceed without pre-qualification and it could be ensured that the system would be compatible with the mainRTCS. This zero phase development proposal, expected to cost about US$3.0 million, wasagreed to by the Banks. JUGEL and the Borrowers moved forward on implementation ofthis small component.

5.3.9 Cancellation of bidding for the key project components - the OPS, RTCS and theDCN - and redesign of this part of the project in 1990 postponed the project completion dateto end of December 1995. Disbursements under the Bank loan at that time - mid 1990 - wasabout US$17.0 million. Under the new arrangernents agreed, less than half of the loan wasexpected to be disbursed by the loan closing date of December 1993. The principal concernof the Borrowers at this stage was that financing of the project through the existing Bankloan would result in the Borrowers paying substantial commitment fees on funds that wouldnot be needed until much later and also in negative net disbursements in some of the years,as repayments had been modified under the February 1988 loan amendment (para 5.2.15).JUGEL and the Borrowers sent a special delegation to meet the Bank management (the VicePresident EMENA) on August 7, 1990. The delegation: (a) appreciated that the Bank couldnot extend the existing Bank loan maturity period; and (b) requested, alternatively, that partof the existing Bank loan - in the order of US$60.0 to $70.0 million - be cancelled. At thesame time, the delegation sought assurances of a new loan in the order of US$40.0 to 50.0million during the second half of 1991 to cover financing requirements beyond December1993. This proposal was considered, but not accepted, by the Bank.

5.3. 10 The project now entered its most difficult phase. On the technical side, the projectdesign had been finally put on a sound basis. With competent engineering consultants andguidance of the Bank on procurement matters, preparation of technical specifications andbidding documents for the RTCS and TCS systems was completed and reviewed by the

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Bank. Prequalification for the RTCS was completed satisfactory. On the financial side therewas no solution in sight for the difficult problems ahead for the Borrowers (para 5.3.9). Thepolitical situation in former Yugoslavia had begun to deteriorate in 1991. The countrydisintegrated in 1992 with the formation of Slovenia and Croatia as separate countries.Implementation of the original project and achievement of the project objectives was nolonger possible. The EIB pulled out, cancelling its loan in February 1992.

5.3.11 The Bank reviewed the situation internally towards the beginning of 1992. Clearly,the original project objectives were now lost. Construction of the federal dispatch center wasalso no longer feasible. Finally, it informed the Borrowers on May 29, 1992 that: (a)continuation of the combined procurement of complex system control and telecommunicationsystems (and breaking them up into country components) would be neither appropriate norpossible without prior agreement (which was unlikely) among the countries involved; (b)financing under Loan 2338-YU would be continued only for those contracts now in progresswhose completion was expected in 1993; (c) the outstanding balance of the loan should becancelled; and (d) that payments on all contracts, up to and including RTCS ("O") should becompleted by end December 1993. The Bank did not accept the Borrowers' proposals toproceed with the implementation of the project on the basis of the bidding documentsprepared during 1990 and 1991.

5.3.12 In the end the Borrowers accepted the Bank decisions. The contract for the RTCS(0) component was amended, deleting its federal component. The rest of this smallcomponent was implemented in those new countries where it was legally and practicallypossible to complete the work. Ultimately this work could only be completed in Sloveniaand Croatia.

6. Project Results

6.1 Part I of the project was not completed. The physical implementation of the keycomponents - RTCS and the TCS - was not even started. Only a small training phase of theoperation planning system, developed in 1991 as part of the Redefined Project, wascompleted and that too, only in two republics, viz., Slovenia and Croatia. Some equipmentwas delivered to JUGEL and the other Republics, as allowed under UN sanctions provisions.Part II of the project (the comprehensive training program) was also not implemented. Theproject therefore had no technical impact at all on the operation of the former Yugoslavpower grid. Its sector objectives were also not achieved.

6.2 As the project was not physically implemented, it had no incremental impact on theentities' financial performance. The difficulties in getting the Borrowers to meet the LRMC-based financial covenants (para 5.2.4-5.2.7) or even the Common Elements (later CommonCriteria) - based levels as required by law, together with the continued reluctance on the partof the Federal and Republic governments on socio-political grounds to increase electricityprices in a timely and adequate manner, continued to affect adversely the financialperformance of the Borrowers. The Bank was further constrained in obtaining adequate

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performance because of the lack of enforceable covenants. In retrospect it appears that theidea of replacing the well tried and successful cash-generation covenant - which wasrecommended at appraisal and had been cleared by the Bank's Loan Committee - with animprecisely worded and untried LRMC covenant - far from consolidating past efforts mayactually have been another contributing factor in obtaining the opposite result. Importantlessons to be drawn are that: (a) a precisely stated financial covenant would have beenpreferable to a vaguely worded LRMC covenant; and (b) assurances given by Government inthe context of quick-disbursing structural adjustment loans were not effective in ensuringimplementation. Institutional improvements in financial organization and management weresecured only to a limited extent due to the absence of any formal institutional developmentcomponents for this purpose under the project.

Economic Results

6.3 A review of economic results has not been carried out in this PCR because the projectwas not completed. However, it must pointed out that the Redefined Project Report preparedby JUGEL and the Borrowers in 1990 noted that the 1989 Feasibility Study and the Bank'sSAR had overestimated the economic benefits of the project. Thanks to the reduction ofcosts the net project benefits were deemed to be positive, however. The ERR was re-estimated at 10% as against 16% at appraisal. Unfortunately, neither could be tested.

7. Sustainability

7.1 The question of sustainability of projects benefits is not relevant as the project was notphysically implemented. Sustainability of the limited institutional improvements can only bereviewed at a much later stage given the drastically altered political situation in formerYugoslavia.

8. Bank Performance

8.1 Bank Performance during project preparation and appraisal must be rated as mixed.On the Qne hand in the early eighties it correctly established the need, in the formerYugoslav context, for a modem computerized EMS dispatch system which even the separatecountries continued to press for after 1992, albeit in a different form as far as the JUGELcenter was concerned. The Bank ensured that one of the best known engineering firms waschosen to do the engineering work. It also enlisted the services of internationally knownindividual consultants on its project preparation missions for a second opinion. On the otherhand, in the design of the procurement aspect of the project during 1981-1982 the Bank didnot take into account the complex nature of the EMS which required a unified supply anderect - turnkey - concept, not that of supply of simple goods, which was the procedurefollowed from 1981-1987. The Bank also did not identify the errors made in the design ofcontract phasing by JUGEL and its consultants which did not ensure compatibility ofhardware and software being procured. These were compounded by errors made duringearly 1987 in: (a) waiving the prequalification requirements of bidders, with no relevant

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minimum post-qualification requirements specified; and (b) not insisting on an experiencedforeign consultant to be appointed and allowing instead an inexperienced individual consultantto take on the crucial tasks of preparing bidding documents, evaluation of bids and contractnegotiations. Though all these mistakes were fully corrected by strenuous Bank effortsduring 1988-1992, the Bank cannot escape the responsibility for the mistakes made on theengineering design and procurement aspects during 1981-1987.

8.2 Bank financial supervision was affected by the lack of enforceable covenants and ofwell-defined institutional development components. Furthermore, the overall weakaccounting and auditing framework did not meet internationally accepted standards andpractices. During implementation of the Second Power Transmission Project strong financialteams with three Bank Staff members took part in each supervision as was essential for suchlarge and complex projects involving numerous borrowers. This was not the case under thisproject, where adequate numbers of financial specialists were not deployed and supervisionof financial matters was at times handled by non-financial staff. Nevertheless, through itsperiodic supervision, the Bank was able to have a limited impact on the development of thepower enterprises' financial management and reporting practices, depending upon the degreeof receptivity to external assistance of the different borrowers.

8.3 Overall Bank supervision was neither intensive (see Part III, Table 2) nor wellfocused in the period 1983-1987. It was intensified and better focused, particularly on thetechnical aspects, during the later period of implementation (1988 to 1992). Considering thecomlexity of the project, the length of the implementation period and its continued problem-project status, the total supervision effort of the Bank of 324 staff weeks was justified.

9. Borrower Performance

9.1 Although the small nucleus staff of JUGEL were obviously committed to the successof the project and worked strenuously throughout, the commitment of the Borrowers variedand the Federal Government did not intervene with sufficient conviction to ensure that thisscheme, which had high national priority, was quickly and successfully implemented.Perhaps the greatest weakness of JUGEL and the Borrowers was their continued reluctance -demonstrated amply during the Second Power Transmission project - to employ foreignconsultants and to utilize their far more extensive and essential experience. Instead, JUGELand the Borrowers continued to rely on the assumed capability of local consultants, whichproved to be no substitute for experience, in state-of-the-art components. The benefits whichJUGEL and the Borrowers actually derived during the years 1990-1993 from the experiencedforeign consultant appointed late in the project implementation period convinced JUGEL andthe Borrowers of the price paid for their overconfidence in the early years. If so, the lessoncould have valuable implications for the future as the grid interconnections remain and somemodified EMS system may be eventually required.

9.2 The Borrowers' performance in meeting financial covenants was affected by thefactors described earlier. On the institutional side, limited improvements were achieved, and

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to varying extent, by the different borrowers. Grater improvements were constrained by theexternal environment -- the continuing socio-political restraints on timely and adequateincreases in electricity prices; the weaknesses in the prevailing accounting and auditingsystems; and the staffing and resource constraints of the local accounting and auditing service(SDK). The Borrowers' financial reporting continued to be weak, and there were frequentdelays in timely submission of audit reports. These aspects, however, were common to mostBank projects in former Yugoslavia at the time.

10. Project Relationship

10.1 The relationships between the Bank, JUGEL and the Borrowers on an extremelycomplex and difficult project - which maintained problem-project status throughout the tenyear implementation period - was generally satisfactory. Strains did develop during someperiods but acceptable solutions were found after strenuous efforts on the part of the Bankand the Borrowers to resolve most problems in a congenial atmosphere. The relationshipsbetween the Bank and the Borrowers became difficult in the later stages, as the Bank couldnot meet the most persistent requests of the Borrowers to their satisfaction, viz., relief fromrepayment of the Bank loan by extending the repayment period of the loan or cancelling theundisbursed part of Loan 2338-YU with the assurance of a new loan. This problem was firstbrought up in March 1987 and continued until 1991, as the project targets continued to slip.No solution to this problem was found and this did not help to improve the relationshipbetween the Bank and the Borrowers.

11. Consulting Services

11.1 The project suffered from poor engineering consulting services from Board approvalin 1983 to about 1989 when, after following standard Bank procedures for selection ofengineering consultants, a foreign firm which met precisely defined experience requirementswas finally chosen. This firm performed well, but its task could not be completed onaccount of the country's disintegration. The performance both of the inexperiencedindividual foreign consultant - who was hired for a short period during 1987-1989 - and ofthe local "onsultants - whose services were extended from the project preparation period -were less than satisfactory when judged by the results. The local consultants wereinexperienced and suffered from lack of guidance from an experienced foreign lead firm formost of the project implementation period.

12. Cofinancing

12.1 The EIB loan of 67 million ECU was made under parallel financing arrangements inDecember 1982, several months before the Bank loan was approved. Out of the EIB loanamount 13.887 million ECU was disbursed by July 1987. The balance of 53.113 ECU wasannulled in 1992. The Bank is not aware of the nature of the EIB disbursements - mainly3.934 million ECU to the power enterprise of Bosnia-Hercegovina and 9.271 million ECU tothe power enterprise of Croatia - which took place on September 12, 1986 prior to the first

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tripartite meeting of March 1987 (para 5.2.15), when preparation of the bidding documentsfor the thirteen ICB packages had not yet been completed.

12.2 The EIB loan provided that goods to be financed by EIB should be purchased "as faras it is appropriate and possible, by international competition open at least to the nationals offormer Yugoslavia, of the member states of the European Economic Community andSwitzerland". EIB favored contracts to be funded under its loan to be awarded to suppliersfrom EIB member countries. To accommodate EIB, without violating Bank ICB procedures,the Yugoslavs, EIB and the Bank agreed to follow phased bidding (i.e. the thirteen ICBpackages, para 4.1.2). EM was to finance the first contract(s) with the lowest evaluatedbid(s) coming from an EIB member country. In the event - considered unlikely - that nosupplier from an EIB country became the lowest evaluated bidder for any of the procurementpackages, EIB agreed that it would - though reluctantly - finance such contracts. The EIBloan was not set up to finance any consultancy services. As almost all of the EIBdisbursement took place prior to 1987 - when bidding for the first of the thirteen ICBpackages was invited - the conclusion must be that the disbursement was for works outsidethe scope of the project defined in the Loan Agreement.

12.3 This unusual parallel financing arrangement made it difficult for JUGEL and theBorrowers to even prepare a complete project financing plan and present it to the Banksduring supervision. The lesson to be drawn is that in such parallel financing schemes thelending agencies should always agree at the start of the project on the specific items to befinanced by the respective loans. This was not done under this project and it led touncertainties and misdirection of cofinancing provided for the project.

13. Project Documentation and Data

13.1 There was no field supervision of the project after mid 1992. As the project was notcompleted no completion mission was carried out. Data on the exact dates of completion ofthe ancillary items of the project are therefore not available. The PCR has been prepared onthe basis of the extensive data available in the Bank files.

4

13.2 No project cost data have been included for comparison with the SAR projections asthe project was not completed. It has to be pointed out that a meaningful comparison ofcosts would not have been possible in any case because the Bank's SAR did not containdetailed project cost estimates and the project cost summary in the main text of the SAR doesnot serve this purpose. The customary sections on Detailed Project Costs and Financingtherefore not included in this PCR.

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II. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVELoan No. 2338-2-YU (Croatia)

A. Introduction

2.01 The Loan Agreement to finance the construction of the Third Power TransmissionProject - the 320 kV Yugoslav national grid - Energy Management System, No. 2338-YU,was made on October 5, 1983 between IBRD and the power enterprises of the republics andprovinces of the Former Socialist Federal Republic of Yugoslavia (FSFR) for an amount ofUS$120,000,000.00. Out of this amount, under the Agreement No. 2338-2-YU, HrvatskaElektroprivreda was allocated 15.75%, or US$18,900,000.00.

2.02 The loan was approved on the basis of a feasibility study, and the guarantee for theloan was approved by FSFR, which was published in the FSFR Official Gazette in December1984.

2.03 Foreign currency guarantee no. 108 was issued by Zagrebacka Banka onOctober 19, 1984 for the utilization of the loan through Narodna Banka Jugoslavije,Belgrade.

B. Loan Utilization as at July 31. 1994

2.04

APPROVED SPENT BALANCEIA US$ US$ j US$

a) Materials, equipment & software 11,230,000.00 1,437,534.51 9,792,465.49

b) Construction work for DC ZJE 470,000.00 470,000.00

c) Consilting services & training 1,340,000.00 254,694.48 1,085,305.52

d) Interest and other charges 4,360,000.00 1,097,691.43 3,362,308.57

e) Front end fee 47,132.00 47,132.00

f) Contingent 1,452,868.00 1,452,868.00

[ TOTAL I 18,900,000.00 2,837,052.42 16,062,947.58

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2.05 By our letter of September 3, 1993, we cancelled a portion of the undisbursed loanin the amount of US$15,931,469.58 and reserved US$131,478.00 payable under ContractNo. 2130-25 of June 4, 1991 made with the supplier EMPROS SYSTEMSINTERNATIONAL USA, for completion of the work on the supply of real time controlsystem phase "O" (RTCS "O"), which was approved by your fax of November 29, 1993.

2.06 Under APPLICATION 1: payment of US$75,065.47 was made on April 7, 1994to SIEMENS ENERGY AUTOMATION INC., so that the remaining undisbursed portion ofthe loan amounted to US$56,412.53. Given that SIEMENS ENERGY AUTOMATION INC.has not completed the RTCS "O" project before the deadline for the utilization of theundisbursed portion of the loan, Hrvatska Elektroprivreda will have to finance the smoothcompletion of the project out of its own funds.

2.07 The utilized portion of the loan amounting to US$2,837,052.42 has been repaiduntil March 1, 1993. According to our data as at July 31, 1994, only the last withdrawal ofUS$75,965.47 (and interest accrued) remains to be repaid.

2.08 Due to the outbreak of the war, the following contracts entered into have not beencompleted:

Unioninvest Sarajevo (LI)Koncar Zagreb (RTU)Energy and Control Consultants (ECC) - Consulting services.

The situation today does not give rise to the hope that these contracts could be renewed orcompleted.

C. Effectiveness of the Relationship betweenHrvatska Elektroprivreda and IBRD

2.09 From today's perspective it is evident that the model of the project managementwas perniciously ineffective and bad for Hrvatska Elektroprivreda, and that it had extremelydestructive effects on all activities related to the completion of the Energy ManagementSystem (EMS), which had been financed and constructed to a significant extent by HEP itselfbefore 1985. HEP's intention in entering this project was to expand, modernize, andimprove the EMS already constructed, which, however, due to the total unpreparedness ofJUGEL and most of the power enterprises of the republics and provinces of the formerYugoslavia, resulted in the total blockade of all activities on modemization, expansion andimprovement of the HEP's EMS already constructed by that time.

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2.10 In our opinion, the principal reasons for such an evident failure and ineffectivenessof the project are the following:

* Adoption of a wrong model where 9 technically and financially integrated unitswere to be treated and managed as one project, but with 8 Borrowers. Thisunavoidably resulted in a number of negative consequences, which would have beendifficult to overcome even in a far more homogenous environment than that existingin the former Yugoslavia in 1983. The evident consequences of the model asadopted were:

- An extremely large and complex project was created with undefined method ofresponsibility and coordination, which was difficult to supervise and manage.

- The speed of the project was dependent on the (in)capability of the mostincapable Borrower, whose unpreparedness to make decisions or dischargeobligations for an ongoing phase slowed down the Project for all participants.

Project costs and damages were enormously increasing due to the total delay,which had to be borne by all participants irrespective of the fault for the delay.

* The Bank insisted on communicating with a staff service to be formally responsiblefor the management of the overall project, which was supported by JUGEL; butsuch model was not substantially realistic since each Borrower rightfully insistedthat it should maximally influence and control the progress of its own project itfinanced.

* The centralized powers JUGEL staff services disposed of in respect of withdrawalsfor and on behalf of all Borrowers made it possible to severely abuse these powers,which took place after the outbreak of the war of aggression Serbia waged. Wereiterate this case here even though it was brought to your attention in our letter ofNovember 25, 1992.

2.11 Due to the war of aggression, Hrvatska Elektroprivreda, by its decision ofAugust 28, 1991, ceased to finance the construction of the DC ZJE federal dispatch centerand notified the Bank thereof in its letter no. 3/1-2564/92/JK of March 9, 1992.Nevertheless, the Bank made a payment to JUGEL's account, and without our approval, forthe construction of DC ZJE:

Under Application 64 of July 30, 1992 US$ 3,574.77Under Applicationi 65 of September 11, 1992 US$14,299.02

Both above payments were made after U.S.A. Executive Order No. 12810 of June 5, 1992had become effective introducing sanctions against the Federal Republic of Yugoslavia

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(Serbia and Montenegro). Our request for your explanation of this omission has not beenanswered to date.'

2.12 We generally consider that the model of managing this project did not enable directcontacts to be made between the Bank and the Borrowers, so that the influence and initiativeby any Borrower was maximally attenuated by the complex management model of theproject. A fundamental right and obligation of each Borrower to exert influence on and beresponsible for its project was in this case suppressed, which led to very bad results of theproject. By contrast, the Bank insisted that JUGEL - the only entity without the capacity ofa Borrower - centrally manage the projects of all Borrowers.

2.13 We believe that future projects regardless of their complexity and number ofBorrowers can be managed successfully only if they are made with each Borrower separatelyand where the projects constitute a single technical solution then prior standards need to bedefined for their mutual interconnections, which is a normal procedure for interconnectingmore complex technical systems.

2.14 We suggest that a lesson be derived from this negative experience about thenecessity of the direct contact between the Bank and a Borrower with the Borrowerbeing directly technically and financially responsible for its own project.2

D. Utilization of EIB Loan and EIB - HEP Relationship

2.15 In 1987 Hrvatska Elektroprivreda withdrew ECU 9.2 million out of EIB loan, onaccount of the investments made until then in its own EMS. These funds unfortunately werenot utilized for EMS expansion, but rather at the time of the highest inflation for otherinvestments inside and outside HEP, so that from the EMS perspective they had no effect onthe project for which they were intended. HEP has regularly discharged its repaymentobligation, and the contacts between EIB and the Borrower under this loan were minimal.

I/ No explanation was required as the payments were made in accordance withprocedures agreed to by the Bank and Hrvatska Elektroprivreda in 1983, whichwere never formally rescinded. Requests for disbursement received by the Bankthrough the authorized agency, JUGEL, were accepted when they were receivedbecause the Loan Agreement continued to be in force.

2/ See para 4.2.1, Part I. According to the Loan Agreement signed byHrvatska Elektroprivreda, and other Borrowers, JUGEL was the responsibleproject coordinator. Direct contacts between the Bank and each Borrower werenot ruled out and, in fact, took place during Bank supervision. The lesson tobe learned, as stated at para 9.1, Part I, is that the problem of obtainingand sustaining real commitment to agreements reached should not beunderestimated.

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E. Project Implementation and Conclusions for the Future

2.16 RTCS "O' Project is the only project likely to be fully completed for HEP inaccordance with all the agreed modifications resulting from "force majeure." This is indeeda poor result, which is unfortunately the consequence of all circumstances and course ofevents which are systematically reviewed in the Bank's report.

2.17 HEP today operates an obsolete EMS, which was formally commissioned in 1985and which, in terms of technology, concept, and design, is 15 years old. HEP's EMS hasbeen maintained and expanded independent of the Loan 2338-2-YU so that we now disposeof a full EMS system for which HEP constructed its own AGC (Automatic GenerationControl) this year to substitute the previous central AGC function of JUGEL in the newcircumstances of the independent state.

2.18 In the proximate future, HEP will have to replace the existing obsolete EMS systemwith a new system as useful life of equipment installed 10 to 15 years ago expires. It iscertain that a support from the Bank would be very welcome to such project in the formsimilar to the loan we have not been able to utilize under the 2338-YU project through nofault of ours.

m:\wc\2338-2.pcr

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II. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVELoan No. 2338-4-YU (Slovenia)

A. Project Identity

2.01Name: Third Power Transmission Project, also referred to as the Energy Management

System (EMS) Project

Loan No: 2338-4-YUCountry: SloveniaBorrower: ELES - Elektro Slovenia, Public Enterprise for Transmission, Purchase, Import

and Export of Electric Energy, Ljubljana, Hajdrihova 2

as the legal successor of

EGS - Electric Power Economy of Slovenia, Maribor, Vetrinjska 2

B. Introduction

2.02 Loan Agreement IBRD 2338-YU, in the amount of US$120 million for the ThirdPower Transmission Project / Energy Management System Project, was signed on October 5,1983. The Guarantee Agreement was ratified by the Yugoslav Federal Assembly inDecember 1984.

2.03 The Borrower for the Slovene portion of the loan was the Electric PowerEconomy of Slovenia. The Slovene portion of the loan amounted to US$16.2 million underGuarantee No. 1571/84 of the Credit Bank of Maribor, dated February 2, 1984.

2.04 , The Project related to the above-mentioned loan has not been completed,therefore,f this report covers only the disbursement and partial implementation of Loan IBRD2338-4-YU. Due to the disintegration of Yugoslavia, the assessment of the implementationof the project and of the Borrower's (EGS-ELES) and Bank's (IBRD) performance duringevolution and implementation is divided into two parts, covering that period in which JUGELwas the only representative of loan management and that when the ELES became the Bank'sdirect partner.

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C. Report on Loan 2338-4-YU Disbursement

2.05 The approved and disbursed loan amounts are summarized in the following table:

(in US$)

| ____Approved | Disbursed | RCC and PIS IDC

Materials, equipment 9,630,000 6,139,558.58 5,445,315.39 694,243.19

Civil work, JDC 410,000 l

Consultants training 1,150,000 197,338.91 174,253.48 23,135.43

Loan charges 3,740,000 1,258,996.08 1,107,412.97 151,583.11

Front end fee 40,399 40,399.00 35,534.96 4,864.04

Unallocated 1,229,601

Special Account 1,120.41 1,120.41

TOTAL J 16,200,000 7,637,462.98 6,763,637.21 | 873,825.77

2.06 The funds from the loan were spent on:

(a) Telecommunication Equipment in RCC (Electric Power AutomaticTelephone Exchange, Facsimile Equipment, Telegraph Multiplexer,Teleprinters, Interphone System);

(b) Remote Terminal Units, Local Interface Devices, Measuring Converters,Systems for Local Control);

(c) Real Time Control System - Phase "O";

f (d) Foreign consultants; and

(f) Bank expenses.

The amount of US$8,562,537.02, which the EGS-ELES was unable to use, was cancelled bythe World Bank on April 27, 1994.

2.07 There are, therefore, only two main sub-systems to be implemented: the RealTime Control System - Phase 1 and the Telecommunication System. Equipment already inuse will be used with full effectiveness after the implementation of the RTCS I and TCS.Benefits for the Power Enterprise and National benefits will be achieved after completion ofthe entire anticipated EMS.

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2.08 The EGS started repayment on March 1, 1987, and continued loan repaymentafter 1991 (from 1992 the ELES rather than the EGS). The sum repaid, including maturityas of September 1, 1994, is US$ 6,745,125.52. The course of the loan repayment anddisbursement was in effect simultaneous because of the delay in project implementation. Theportion of the loan disbursed will comply with the Amortization Schedule to be repaid in1998, whereas the revised maturity amounts after 1994 will be considerably smaller thanwere originally scheduled.

D. About the Project

2.09 The beginning of the construction of the EMS dates back to 1976 when theSlovene Electric Power Economy accepted the Bases for Slovene EPS Control. The firstInvestment Program for the Slovene RCC was drawn up in July 1981. The activities detailedin this were later cancelled due to the Yugoslav EMS project.

2.10 According to the MIS Study, in Slovenia the Development Guidelines for theBusiness-Technical Area of the Integrated Information System (1IS) of the EGS which wereaccepted consisted of:

(a) the Energy Management System of the Slovene EPS; and(b) the Business Management System.

The Business Management System was successfully erected.

2.11 The main objective of the EGS was to install, operate, and manage a modemEnergy Management System for the Slovene EPS (EMS-SLO), as a constituent part of theYugoslav EMS, consisting of the Republic Control Center and the Pertinent InformationSystem (RCC and PIS), Area Control Centers, and Distribution Control Centers. The AreaControl Centers and Distribution Control Centers should have been connected through theDCN, but these centers were not the object of purchase under the EMS Project. Eachelectric ppwer facility should have been covered only once from a data acquisition point ofview, while all Control Centers obtain all necessary information through the uniform DCNnetwork.

2.12 The EGS joined the Yugoslav EMS project for reasons of Technologicaluniformity and expected a reduction of the overall project costs through coordinated projectrealization at JUGEL level.

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E. Project Review up to 1991

2.13 The Investment program for the RCC and PIS of EPS of Slovenia was drawn upin April 1983. In December 1983, it was approved by the EGS and in December 1984, bythe Self Management Community of the Slovene Power Sector. The investment wasregistered with the State Financial Inspection Body on April 25, 1985. The estimated cost ofthe Project was US$53,230,150, and it should have been executed by December 31, 1987.Construction began in May 1986.

2.14 Self-management procedures in Slovenia also prolonged the time from thedecision for investment implementation to investment registration. On the other hand, at thestart of the project, domestic funds were at the investors' disposal and the only obstacle wasJUGEL's unfinished documentation.

2.15 In 1987 and 1988, bidding documents were draw up and procurement procedureswere initiated through five separate tenders for the Operation Planning System (OPS), RealTime System (RTS), and Data Communication System (DCN). JUGEL's and Borrower'steams completed evaluations and made recommendations of contract awards according toprocurement methodology. The final decision on these five systems was never issued'because of Serbia's political interests, which later led to the break-up of Yugoslavia.

2.16 The lesson to be learned is that it is better to sign a contract and solve any minorproblems, than to run through another decision circle, which can take two or three years.2

In fact, four Control Data Corporation bids for the OPS I, RTS I, RTS II, and DCN wereevaluated as the best bids, while the OPS II did not reach the required level. The best bidfor the OPS II was from Combustion Engineering, which also fulfilled all OPS Irequirements. There is no doubt that RTS and DCN should have been awarded to CDC(e.g.: EMS project commissioned by the National Grid Co. in the U K) and OPS to CE.The compatibility between RTS and OPS was not critical, because requirements were onlyfor non-real-time data transfer. At that time, few applications in the world with different

I/ The Bank does not agree with the comments at 2/ and 3/. The Borroweragrees, at paras 2.15 and 2.17 above, that no final decision (on bid awardrecommendation for the five systems) was taken by the Borrowers and forwardedto the Bank. The problems were not, obviously, minor. How could a contractbe signed, in such a case, when no award recommendation had even been made?The reasons for the Bank's advice to cancel the five bid invitations have beengiven at paras 5.3.3-5.3.5, Part I. No further comments on para 2.16 arebeing offered by the Bank, as the results of bid analysis (para 2.15) werenever sent to the Bank.

2/ See footnote 1/.

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hardware for real-time and planning system existed. Not contracting the RTS and DCN,according to Bank advice, was the greatest mistake of the whole Project.3

2.17 The EMS Coordination Committee decided to cancel tenders and to redefine theEMS Project on March 15, 1990. The RTS, OPS, and DCN were merged into a new RTCSsub-system and new bidding documentation was drawn up. The RTCS was split at the initialzero phase and the main RTCS first phase. The bidding procedure for RTCSO wassuccessfully completed and the contract signed in June 1991.

2.18 The utmost efforts to prepare RTCS1 bidding documentation were made. Thedocumentation was completed and sent to the IBRD in 1991; however, because of thedisintegration of Yugoslavia, the documents were not approved.

2.19 The lesson to be learned is that splitting the RTCS and the zero and first phasescaused procedure duplication.4 The Borrower's manpower was shared; it would be muchbetter to focus all efforts on one complete tender. If the contract for the entire RTCS hadbeen signed before the disintegration of Yugoslavia, the RTCS system in Slovenia wouldhave been successfully completed.

F. Activities Analysis up to 1991

2.20 The above-mentioned period caused enormous delays in documentation design,post-evaluation procedures, and decision making. These are some of the major reasons forthe EMS project delays:

(a) EMS project execution was arranged to be carried out by the CoordinationCommittee of the eight Borrowers. The Coordination Committee has beenunable to ensure efficient and current project execution;

(b) The organizational structures of the EMS project teams in RAPs weredifferent, with varying numbers of members, disparate knowledge andunequal competence;

3/ See footnote 1/.

4/ The idea of splitting the RTCS into two phases was put forward at thetripartite meeting held in Washington, D.C. in February 1990 (paras 5.3.5 and5.3.8, Part I) by the Borrowers, and their Engineering Consultant, and it wasaccepted by the Bank. The Borrowers should have deployed the necessarymanpower to avoid delays on their side.

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(c) The Borrowers did not have opportunities of communicating with thecreditor;5

(d) At an early stage the majority of people trained for the EMS projectmanagement left the project;

(e) There were problems with project unification and reconciliation;

(f) New technology and a new type of equipment were incorporated into theconservative enterprise;

(g) Domestic consultants' expertise was insufficient for such a technologicallycomplex EMS project;

(h) Bidding and evaluation procedures were carried out almost withoutdifficulties up to the point when particular Republics' interests wereexpressed during the process of evaluating the best bid;

(i) Bank procedure for the approval of the Tender documents and evaluationfindings approval was overly long;6

(j) There was a lack of domestic investment funds, because of an inefficientpower tariff pricing system - insufficient support from the government; and

(k) A high inflation rate made use of any normal planning and investmentproject management methodology impossible.

5/ Leagning from the experiences under the First and Second PowerTransmission Projects - which also involved several Power Enterprises asseparate Borrowers - special arrangements for more efficient communicationsbetween the Borrowers and the Bank were made for the Third Power TransmissionProject, with JUGEL as the main coordinator. This did not rule outcommunications between the Borrowers and the Bank and they did take placeduring project supervision. It would not have been possible to considerimplementation of this complex project without a single coordinating agency,such as JUGEL, in Yugoslavia.

6/ This comment is not accepted. For the five main project components, bidevaluation in Yugoslavia was never completed. The question of delays due toBank procedures, therefore, did not arise on these five major contracts. Forthe other minor tenders, which were evaluated and cleared by the Bankaccording to Bank procedures, some difficulties arose due to non-adherence toBank procurement guidelines.

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G. Implementation Progress after June 1991

2.21 The changes that followed the independence of Slovenia in June 1991 had acertain impact on the conceptual and technical requirements of the Energy ManagementSystem of the Slovene Electric Power System, and especially on the financial and legal statusof the project.

2.22 In October 1992, Elektro-Slovenia took over the Project from the Slovene ElectricPower Economy with all obligations and competence related to investment accomplishment,current obligations concerning contracts, and obligations concerning the IBRD loan.

2.23 Up to December 31, 1991, the loan was disbursed through JUGEL; after that datethe EGS-ELES disbursed the loan directly via an LBS New York special account which madedisbursements current and accurate.

2.24 In 1993, the project was re-activated and the Bank approved current disbursementfor the completion of LI, RTU and the Electric Power Telephone Exchange.

G. Activities Analysis after 1991

2.25 After Slovenia became independent, all important state functions had to be re-established, including the reorganization of the electric power sector, and it took some timeto become accustomed to new conditions. From the time the ELES was founded to October1992, when the ELES took over the EMS project, project implementation ran at a slowerrate, but work on contracts that had already been signed was accomplished. While contractsfor the RTCS1 and TCS remained unsigned the undisbursed amount of the loan, to ourregret, could not be used.

2.26 During the period of investment, implementation cooperation with the WorldBank raly smoothly. Among other things, the Bank helped us in solving the problem withwar damage connected with Local Interface contracted with Unioninvest Sarajevo. Allproblems were solved and questions answered in direct contact over the telephone or throughfacsimile and mail, which had the effect of aiding rapid performance of the job.

-34-

H. Conclusion

2.27 Today the EMS project in Slovenia includes data acquisition in power facilities,part of the system control support and all ancillary equipment, including RCC building;however, the principal portions of the project - Real Time Control System Phase 1 andTelecommunication System - are missing.

2.28 Appraisement of the implementation of the project as a whole, from our point ofview, is negative. However, some positive achievements must be stressed. The Investors'team members, who have been working on the project for some time, and also domesticconsultants, have gained much valuable knowledge and experience in designing feasibilitystudies, investment programs, tender documentation, bidding procedures, evaluationprocedures, and processes in connection with foreign credit arrangements for largeinvestment projects.

2.29 In our opinion, the new technology has successfully been transferred in allcompleted sub-projects.

2.30 In order to assure continuation of the investment, the ELES has made the decisionto apply for a new loan or to renew the existing loan with one of the international banks.The ELES is particularly interested in applying for a loan with the current creditors of theproject. The Feasibility Study has been drawn up for the purpose of facilitating theacceptance of a satisfactory conclusion as to the provision or renewal, respectively, of loansfrom the international financial institutions.

I. Remarks on PCR Part I

2.31 General. JUGEL's power in connection with decision-making was actually muchhigher than was described in PCR Part I.

2.32 Point 3.1. The electricity tariffs were under the Federal and RAP's Governmentscontrol and the EGS as a power utility had minimal impact on price rises.

2.33 The EGS accepted as a general policy the economic optimization of theinvestment in the entire power sector and invested in power plants in Bosnia.

2.34 Point 5.3.10. The new RTCS bidding documentation was completed and sent tothe IBRD in 1991; however, because of the break-up of Yugoslavia, the documents were notapproved.

-35-

2.35 Invitations for tender for the TCS were published in 1990, the TechnicalEvaluation was completed in 1991, and the results were sent to the IBRD. Bank clearancewas not forthcoming for the same reason as in the case of the RTCS.

I. Remarks on PCR Part III

2.36 There should be additional tables7 with data on:

(a) Approved and disbursed amounts according to categories from Schedule 1 ofthe Loan Agreement for all Borrowers;

(b) All disbursements for JDC and Borrower's shares; and

(c) Planned and actually repaid amounts for all Borrowers.

7/ For (a): a table - No. 5 - on approved/final loan disbursements, byBorrower and Category, has been added in Part III. For (b) & (c), it is notfeasible at this stage to obtain information from all the Borrowers/JUGEL.

-36-Table 1

PART III

FSFR YUGOSLAVIA

THIRD POWER TRANSMISSION PROJECT

(Loan 2338-YU)

A. Proiect Time TablePlanned and Actual Dates of Proiect Time Table

ITEM PLANNED DATE ACTUAL DATE

First Presentation to Bank 1971

First Presentation Review Mission 1980 1980

Start of Appraisal 11/03/1981 11/03/1981

Completion of Negotiations 03/31/1983 03/31/1983

Board Approval 05/23/1983 07/26/1983

Effectiveness November 1983 01/14/1985

Project Completion 12/31/1988 NOT COMPLETED

Loan Closing Date 03/31/1989 extended to

12/31/1993

-37-Table 2

PART III

FSFR YUGOSLAVIA

THIRD POWER TRANSMISSION PROJECT(Loan 2338 - YU)

Use of Bank Resources

STAGE OF YEAR NO. OF NO. OF SPECIALIZATION RATINGPROJECT CYCLE PERSONS STAFFWEEKS REPRESENTED STATUS

Preparation FY82 3 26.0 ECO, LOF, FNA

Preparation/ FY83 4 12.6 LOF, FNA, EGRPreappraisal

Appraisal FY83 7 42.0 EGR, ECO, FNA,REA

Negotiation FY83 2 8.4 ECO, FNA

Negotiation FY83 2 1.2 ECO, FNA

Supervision1 FY83 1 0.4 EGR.2 FY84 5 20.9 EGR., ECO,

FNA, OPA3 FY85 3 16.2 ECO, FNA, OPA 34 FY86 6 36.4 EGR, ECO, FNA 35 FY87 13 26.9 EGR, ECO, FNA, 3

OPA6 FY88 15 49.1 EGR, ECO, FNA, 3

PA, OPA7 FY89 11 45.8 EGR, ECO, FNA, 3

OPA8 FY90 11 61.5 EGR, ECO, FNA, 3

OPA, PA9 FY91 15 47.3 EGR, ECO, FNA, 3

OPA, PAi° FY92 5 13.1 EGR, ECO 311 FY93 1 1.3 EGR 412 FY94 1 4.2 EGR

Project FY94 2 6.5 EGR, FNACompletionReport

EGR - Engineer

ECO - EconomistFNA - Financial Analyst

LOF - Loan Officer

OPA - Operations Assistant

PA - Procurement Advisor

REA - Research Assistant

-38-Table 3

PART III

FSFR YUGOSLAVIA

THIRD POWER TRANSMISSION PROJECT(Loan 2338-YU)

C. Estimated and Actual Schedule of Disbursements(US$ Million)

DATE ESTIMATED ACTUAL

12/31/1983 _

06/30/1984 3.7 NA

12V31/1984 8.5 NA

06/30/1985 17.3 1.50

12/31/1985 29.3 .50

06/30/1986 42.9 .54

12/31/1986 57.3 .58

06/30/1987 71.5 .62

12/31/1987 83.5 .56

06/30/1988 94.9 .61

12/31/1988 105.7 .49

06/30/1989 115.0 .60

12/31/1989 120.0 2.96

06/30/1990 _ 5.20

1231/1990 - 6.31

06/30/1991 _ 4.98

) 12/31/1991 8.40

06/30/1992 _ 2.47

12/31/1992 3.63

06/30/1993 _ 1.00

12/31/1993 -

03/31/1994 _ .83

Total Disbursed _ 41.78

Total Amount Cancelled6 79.22

Includes $4.98 million cancelled after signing but before effectiveness.

-39- Table 4

PART III

FSFR YUGOSLAVIA

THIRD POWER TRANSMISSION PROJECT(Loan 2338-YU)

D. Imolementation Schedule'

CONTRACT TENDER RELEASE CONTRACT SIGNING CONTRACTCOMPLEnON

No2 PLANNED ACTUAL PLANNED ACTUAL PLANNED ACTUAL

1. Microwave System (TCS) Jan. 31.1983 - Oct. 31. 1983 - Dec. 31.1986 -

2. Data CommunicationNetwork (DCN) Mar. 31, 1983 June 20. 1983 July 31. 1984 - April 20. 1987 -

3. Operation PlanningSystem - Phase I (OPS-.) Miy 31, 1983 October. 1987 Jan. 31. 1984 - April 30, 1985 -

4. Operation PlanningSystem - Phase r (OPS - I) June 15, 1983 October, 1987 Feb. 28. 1984 _ Nov. 30, 1985 -

5. JUGEL DC BUILDING' June 30, 1983 Jan. 1. 1984 Dec. 31, 1984 -

6. Remote TerminalUnits (RTUs) July 31, 1983 June 20. 1988 June 30. 1984 _ June 30. 1987 -

7. Real Time ControlSystem - Pbhc I (RTCS-I) July 31, 1983 June 20, 1988 SepL 31, 1984 June 30, 1984

8. Real Time ControlSystem (RTCS -11) SepL 30, 1983 June 20. 1988 OcL 31. 1984 _ OcL 31. 1987 _-

9. Diesel Engines Sept 30, 1983 June 20, 1988 April 15. 1984 1990 Feb. 15. 1985

10. Locad Interfaces (LTs) Oct 15. 1983 June 27. 1988 April 30. 1981 1990 Dec. 31. 1988

11. UnintcrruptiblePower Supplies Oct 31. 1983 June 20. 1988 Feb. 28. 1984 1989 Feb. 28. 1985

12. DC TelecommunicationEquipment Nov. 30, 1983 October. 1987 Mar. 31. 1984 July 25. 1988 Mar. 31. 1985

13. Building Facilities' Dec. 31. 1983 June 20. 1988 Jan. 1, 1984 Mar. 6, 1989 Dec. 31. 1984

1/ 13 Contracts listed in Schedule 4 of Loan Agreement.

2/ In the order of planned dates of release of Tender Documents; plannedstart of implementation Jan. 31, 1983; planned completion Oct. 31, 1987.

3/ Constructed by Serbian Power Enterprise - not financed by Loan 2338-YU;

Materials under item 13.

4/ Completed but exact dates are not available.

(Please note: All asteriks(*) are part of footnote 4)

5/ Airconditioning; Firefigthing equipment, building materials etc.

PART [I

FSFR YUGOSLAVIA

THIRD POWER TRANSMISSION PROJECT(Loan 2338-YU)

E. Loan Disbursed by Categories

Cat. Description 2338-0 2338-1 2338-2 |M2338-3 | 2338-4 | 2338-5 | 2338-6 | 2338-7 TotalI. ....L.... I ________________ I (Bosnia) (FSFR) (Croatia) (Macedonia) (Slovenia) (FSFR) (FSFR) (FSFR) Disbursed

I.a Materials & Equip. 4,018,666.57 1,365,300.18 1,512,599.98 2,624,816.44 6,139,558.58 7,080,021.16 1,822,305.86 2,146,694.81 26,709,963.58

I.b JDC Ponlion - - - - - - - -

l.c Consultants 227,826.40 121,333.04 254,694.48 135,900.84 197,338.91 302,794.61 179,940.47 88,177.70 1,508,056.45

I.d Loan Charges 1,725,398.56 501,635.73 1,097,691.43 841,553.81 1,258,996.08 2,036,113.00 599,527.82 706,585.82 8,767,502.25

I.e Front End Fee 53,865.00 26,185.00 47,132.00 29,925.00 40,339.00 59,102.00 21,297.00 21,347.00 299,252.00

I.f Special Account*/ 1,501,117.89 495,025.98 0.00 0.00 1,120.41 1,500,000.00 500,372.63 500,372.63 4,498,009.54

Unallocated

Total Disbursed 7,526.874.42 2,509,479.93 2,912,117.89 3,632,196.09 7,637,462.98 10,978,030.77 3,123,443.78 3,463,177.96 41,782,783.82

Owed lo

World Bank

by Borrower 1,501,117.89 495,025.98 0.00 0.00 1,120.41 1,500,000.00 500,372.63 500,372.63 4,498,009.54(Fax dated

07/14/94) ll1

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