D _tocunt ofThe World Bank

FOR OFfCjL USE Ofty

Repot NM 11496

PROJECT COM%lETI011 PEPORT

POWE I(LOAN 2 212-ZIII)

DECJER 28, 1992

MICROPICHE COPY

Report No.: 11496 ZIM Type: (PCR-Title: POWER I (LN. 2212-ZIM)Author: MAUPRIVE Z, M.Ext. :31709 Room:T9069 Dept.:OEDD3

Indus;try and Energy Operations Divjsj 0 rSoutber Af riea 3Departmentfrica Legiona_ Office

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PROJECr COMPLE!'ION REPORT

ZEMBABWE

POWER I(Lan 2212-ZIM)

Currency Equivaleits

US$1.00 = Z$2.4Z$1.00 - US$0.4$1.00 100 Zimbabwe cents (Zi)

ACRONYMS AND ABBREVIATIONS

CAPC - Central Africa Power CorporationERR - Economic Rate of ReturnESC - Electricity Supply CommissionIFC - International Fmance CorporationPCR - Project Completion ReportUDI - Unilateral Declaration of IndependenceZESA - Zimbabwe Electricity Supply Authority

FSCAL YEAR

Ju 1 - June 30

FOR OFFICIAL USE ONLY

THE WORLD BANKWashlngo, D.C. 20433

U.SA

Office of the Directorv-eeraloperations Evaluation

December 28, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on ZimbabwePower I Pro1ect (Loan 2212-ZIM)

Attached is a copy of the report entitled "Project Completion Reporton Zimbabwe - Power I Project (Loan 2212-ZIM)" prepared by the Africa RegionalOffice with Part II contributed by the Borrower.

This project assisted the Zimbabwe power sector during the firstyears of the country's independence. In the course of its implementation, arestructuring of the main power utility took place involving the integration ofthe municipal utilities. The operation achieved its physical objectives, theinstallation of a 600 MW extension of a coal-fired steam power plant and ofassociated transmission facilities. Training and management assistance througha foreign utility was only partly successful because of conflicts between theexpatriate assistance team and the local staff. A tariff study led to arestructuring of the rates. However, tariff levels remained below those requiredto meet the Bank's revenue covenant. All in all, the project outcome rates assatisfectory. Sustainability hinges on financial policy reform and appropriateautonomy for the Zimbabwe Electricity Supply Authority.

The Project Completion Report provides an accurate and informativeaccount of project implementation. OED will audit this project, the first Bankpower project in the country after a 25-year hiatus.

This doctmnt has a restricted distribution and may be uswd by recipients only in the performance oftheir off iciL duties. Its contents may not otherwise be disclosed without Iword Bank authorization.

FOR OMCIAL USE ONLY

ZIMBABWE

PROJECr COMPLETION RUEPORT

POWER IaI&mfZI

TABIE OF CX}

Page No.

Preface .................................... iEvaluation Sunmary .............. ...................... ii

L PROJECr REVIEW FROM THE BANK'S PERSPECTIVE. 1

A ProjectIdentity. B. Background .1C. Project Objectives and Desciption .2D. Project Concept, Desigt and

Organization. 3E mplementation of Hwangeg I .F. Implementation of Additional

Project Components. 6G. Prqect Results. 7HL Project Sustainbflity .10L Bank Performance .11J. Borrower Performance . 1K. Project Relationship .12L Performance of the Consultants .12M. Project Documentation and Data .13

IL PROJECr REVEW FROM BORROWERS ... 14

Cotnnents on Part I ................................... 14Batks Performance .................................... 14l s Performance ................................... 15

Technical Environment ................................... 15Project Implementation ................................... 16Iessons Learned ................................... 17

IIL STAIISTICALINFORMATION .............................. 18

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

PROJECT COMPLETION REPORT

ZIMBABWE

POWER I

This is the Project Completion Report (PCR) for the Power I Proiect inZimbabwe, for which Loan 2212-ZIM in the amount of US$105 million equivalent wasapproved on December 7, 1982. The loan was closed on June 30, 1990, three years behindschedule. It was fully disbursed and the last iiisbursement was on January 11, 1991.

The PCR was prepared by the Industry and Energy Operations Division,Southern Africa Department (Preface, Evaluation Summary, Parts I and III), and theBorrower (Part II).

Preparation of this PCR was started during the Bank's final supervision mission ofthe project in 1990, and is based, inter alia on the Staff Appraisal Report; the Loan,Guarantee, and Project Agreements; supervision reports; correspondence between the Bankand the Borrower, and internal Bank memoranda.

PROJECr COMPLETION REPORT

ZIMBABWE

POWER I'L- 221&ZIM

EVALUATION SNMMARY

The Project and Its Objectv

1. The Power I loan was the first Bank energy loan to Zimbabwe after Independence in1980. The loan was to the Electricity Supply Commission (ESC), which was later incorporatedinto a national power utility, the Zimbabwe Electricity Supply Authority (ZESA). Its mainobjectives were to: (a) increase power supply to the interconnected Zimbabwe/Zambia powergrid to matth demand growth projected at 7% per year, (b) train indigencis power utilitystaff, and (c) introduce appropriate energy prices.

2. To meet these objectves, Power I: (a) expanded the Hwange coal-fired thermal powerstation by the addition of a 440MW Stage I generating plant (b) reinforced the station'sconnection to the Zimbabwe grid, (c) financed electricity tariff and energy pricing studies; and(d) constucted tining facilities for the ESC and finced traing for its engineering staffand operations support

3. Following the establishment of ZESA in 1985, the uncommitted loan balance resultingfrom savings in the project's foreign exchange cost was used to meet newly-evident investmentpriorities in the power subsector related to the project's original objectives. These were mainlyrehabilitation of the power distribution system and critical spares and equipment upgrades forthe Hwange I Power Station.

Imlemenation

4. The first unit of Hwange II was commissioned in August 1986, eight months behindschedule. This modest delay was due to inadequate management and coordination of the manycontractors and to government bureaucracy. In US Dollars, Hwange U's cost was 25% belowthe original estimate; in Zimbabwe Dollars it was 65% above. MTis was due mainly to a sharpdevaluation of the Zimbabwe Dollar during implementation. ESCs inexperience in large-scaleproject management and the reorganization and Africanization of the power subsetorcontnrbuted to inadequate supervision by the Borrower.

S. Implementation of the project's transmission, distribution, training, operations supportand studies components was largely satisfactory, although most components experienced somedelay, primarily due to the Borrower's limited implementation capacity.

Prject Resuls

6. Power demand grew more slowly than forecast, so Hwange H was buflt two yearsearlier than required and displaced lower-cost imported hydro power for this period. Howver,due to below-average rains throughout the 1980s and early 1990s, Hwange UI has proved to be

in

the next least-cost hnvestment in generatig capacity. On average, the station has not achievedlits target output of 5500 GWh/year and availablitity of at least 80%, output having averagedabout 4900 GWhVear and avilability about 75% for the past four yeas Mhis s due to acombination of design weaknesses, inadequate ancillary plant capacity and operator erswThese problems are being reduced through an on-going upgade program and continued stafftraiing under Power IL Neverthelss, the project's estimated ex-post economic rate of returnof 13.1% is slightly above the appraisal estimate of 12.2%, due to savings in the powerinvestment program.

7. The Borfwer's institutional capability has been augmented by the project's trainingand operations support components. However, these benefits have been reduced byGovernment salary controls, which have reduced staff retention, and its insistence on rapidAfricanization of the power subsector, which eliminated operations support prematurely. Thestudies component has not rationalized energy prices because of Government's unillto fully pass on cost increases to consumers

LAsn Lint

IbThe following lessons emerge for the technical aspects of similar projects:

(a) Costsaving short-cuts in initial design and spares provision, motivated in partby foreign exchange scarcity, have reduced Hwanges performance. Basic designstandards and spares provision for large, complex projects of this type shouldnot be compromised in order to minimize initial cost.

(b) Errors were made in materials selection for the fuel feed system due toindequate knowledge of coal characteristics on the part of the Engineer andBorrower. Overall, station technology was unduly complicated for a countrywith limited project management and power station operator skills. Care mustbe taken to select technologies that are appropriate to the operating conditionsof the country and the capability of the implementing agent. Sufficienttechnical expertise must be provided to design the layout and equipment sothat the plant wilt operate reliably in local conditions.

(c) A relatively inexperienced implementing agent, subject to political pressure tominimize reliance on expatriate assistance, was incapable of adequatelysupervising the Engineer for such a complex project or operating the plantreliably after its completion. The Bank should carefully assess the Borowerssupervision and operations capability for complex projects and insist onadequate expatriate assistance where necessary. It should also supervisecomplex projects more intensively than was the case with Power I, particularlyduring the initial stages.

9. On the policy aspects, the project illustrates once again that financial conditionality isnot an effective means of achieving covenanted financial performance if tariffs are set by aGovernment that is motivated more by short-term political considerations than the Borrower'slong-term commercial viability. The recommendations of pricing studies are also less licely tobe implemented when such studies are completed late in the project cycle when the Bank'spolicy leverage is proportionately weaker.

PROJECT COMPLETION REPORT

ZMBABWE

POWER Ia :B 221

PART k PROJECT REVIEW FROM TE BANKSP

A P,oect Idemtity

Name Power I ProjectLoan Number : 2212-ZIMRVP AfricaCountty ZimbabweSector EnergySubsector : Electric Power

B Backgound

1. Zimbabwes industrial, agricultural and mining sectors are among the most highlydeveloped in southern Africa (excadding South Africa). In consequence, Zimbabwe is one of thesub-region's largest consumers of energy, about 15% of which is supplied in the form ofelectricity. The Government's main objectives in the energy sector are to facilitate economic andsocial development by meeting energy demand reliably and at minimum cost. To this end, it hassought to develop the considerable ydro-electric potential of the Zambezi river, which it shareswith Zambia, and the power potential of its large-scale coal deposits.

2. By 1980, following 10 years during which electricity consumption grew by an average of9o per year, demand was approaching the 987 MW capacity of the interconnected Zimbabweangenerating system and projected import availability from Zambia. Consultants retained by theGovernment to determine the least cost power development program forecast that Zimbabweandemand would increase by an average of 7% per year and Zambian demand by about 4% peryear through the 198Ds. Based on these forecasts, they recommended a generation developmentsequence for Zimbabwe consisting of completion of the 480MW Stage I of the Hwange coal-firedthermal power station by 1983, construction of which had begun in 1973 and was suspended in1975, followed by construction of a 440MW Hwange II station, for commissioning by 1986 Thisrecommended development sequence was accepted by the Government and the Bank and formedthe basis for planning the Power I project.

3. Power I was the sixth in a series of Bank lending operations for development of theinterconnected power systems of Zambia and Zimbabwe. The fint operation in 1952 financedurban electrification in what was then Southern Rhodesia. The second, third, fourth and fifthcofinanced construction of the binational Kariba hydroelectric complex on the Zambezi rnver,consisting of 666 MW on the Zimbabwean side and 600 MW on the Zambian side, and extensionof the interconnected bulk transmission system. Through this series of projects, the Bank wasable to facilitate development of the ZambezPs hydro-electric potential and promote least-costexpansion and improved operation of the power systems servmng the two countries By helpingto provide adequate, reliable and relatively low cost supplies of power, this lending program

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contributed materially to the economic development of Zambia and Zimbabwe and toimprovement in the living standard of the people of both countries.

4 Implementation of the Power I Project coincided with a major restructring of the powerindusty in Zimbabwe. Until 1985, a binational company, the Central Africa Power Corporation(CAPC) owned and operated the Kariba hydroelectric complex on the Zambezi, the major sourceof g-neration for the interconnected Zambia/Zimbabwe power system, and the high voltagetransmission network in both countries. ITe Electricity Supply Commission 'SSC), a publicly-owned utility, operated the thermal generating stations in Zimbabwe and was responsible forpower distnbution outside the four cities of Bulawayo, Harare, Mature and Gweru, within wbichdistribution was handled by the city administrations. In 1985, the Zimbabwe electricity SupplyAuthority (ZESA) was established, initially with the same facilities and responsibilities as theESC, including the just-completed Hwange I Power Station and implementation of the Power IprojecL In 1986 and 1987, ZESA progressively took over responsibility for CAPCs generationand transmission facilities in Zimbabwe and for power distibution throughout the oountry.

C Project Objectiv and Description

5. The main objecves of the Power I Project were to: (a) inc,ease power generatingcapacity to match forecast demand; (b) strengthen the capability and performance of theinstitutions responsible for power supply-, and (c) increas domestic resource mobiliation in theenergy sector and promote economic pricing of energy.

6 As originally designed, it consisted of the following components

(a) expansion of Hwange Power Station by the addition of two ; 20MW generating unitsand associated boilers, pipeworkd etc.;

(b) construction of 350 km of 330kV power transmission line and associated switchgearto reinforce the connection of the power station to the Zimbabwe grid;

(c) engineering consultants' services for the preparation of bid documents, bid evaluationand construction supervision;

(d) electricity tarff and energy pricing studies; and

(e) training facilities, training courses and technical assistance for the power companies

7. Due to a sharp appreciation of the US dollar during implementation and the sourcing ofmore procurement in Zimbabwe than initially plamed, the actual US dollar cost of the projectas originally defined was about US$100 million less than the appraisal forecast and its cost inZimbabwe do!lars about Z$140 milion more. At the request of the borrwer, the Bank addedthe following related components to utilize the resulting uncommitted portion of the IBRID oan:

(a) spare parts, overhaul and upgrade services for Hwange Power Station and purchaseof a power station training simulator; and

(b) distnbution materials and vehicles.

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D. Projec C e Depg and r

8. Decisions on the scope and timing of the project's major physical components - extensionof Hwange Power Station and construction of related transmission facilities - were based onpower load forecasts for Zambia and Zimbabwe and a least cost Zimbabwe power systemexpasion program prepared by the Government's power planning consultants and accepted byboth the Government and the Bank Consequently, there was a clear understanding of theproject's rationale and objectivem on the part of the Government, the Bank and the Borrower,the Electricity Supply Commission.

9. Tne consultants' report had concluded that, based on a forecast of just under 7% perannum demand growth on the interconnected power system during the 1980s, the system wouldbe short of capacity by July, 1985. From an analysis of the economic cost of altemativegeneration project sequences, including a thorough review of import options, extnsions to theKanrba South and Kaniba North Power Stations were determined to be the next least-costadditions to system generating capacity. However, these projects could not be commissionedbefore 1987 at the earlest It was concluded that an extension to the coal-fired Hwange I PowerStation (Hwange II) was the only candidate generation scheme that could possibly be completedby the target in-service date of mid-1985. Hwange II was therefore recommended to theGovernment for immediate implementation and selected as the main component of the project.

10. It was decided to employ an engineering consultant to manage detailed preparation andmplementation of the generation and transmission component of the project, based onexperience with previous generation projects in Zimbabwe and the region. Mmis was fullyunderstood and accepted by the parties concemed. The scope and content of the training andtechnical assistance component was based on a review by the Bank of the staff complements andskills of the power companies relative to their task of operating and planning the power systemand also appears to have been weil understood and accpted.

11. The desigp of Hwange II was simplified and its technical risk reduced by the fact that itwas to be an extension of the Hwange I Power Station which, at the time of project preparation,was already at an advanced stage of construction. The adjacent Wankie Colliery was in a positionto suppl the additional coal required by Hwange II from its existing open pit operation (thedraglne was parally financed by IPC). Much of this coal would have been dumped as waste inorder to reach higher quality cooking coal at the bottom of the seam had there not been a marketfor additional lower-quality coal at Hwange II. Ihe economic cost of the additional coal wastherefore ver low and its use reduced spontaneous combustion in the opencast mine. The watersupply facilities consructed for Hwange I were judged to have sufficient capacity to meet theneeds of Hwange I, which avoided construction of new water supply facilities. Reflectingadvances in coal-fired power station technology since the design of Hwange I in the 1960s,Hwange I would feature larger 200-220MW units, with a consequent gain in thermal efficiency.

12. Some decisions were made on the station's design which have negatively affected itsperformance. For example, as a cost-saving measure, it was decided to utilize the Hwange Icooling towers for cooling Hwange n also. Experience has shown that the capacity of thosetowers is not sufficient for the two stations, with the result that some equipment is not cooled todesign temperatureL Hwange H also utilizes the coal handing facity built for Hwange LAlthough its capacity is adequate for both stations, the facility is of outdated design and poorquality and is subject to breakdown. Most seriously, two coal mMs, each capable of supplying

60% of the boiler fuel requirement at capacity, were installed on each boiler. These have provedunreVlXble, due partly to the abrasive quality of the coal, and frequent outages have beenexperienced. With only 60% of required milling capacity available when one mill is out, theoutage of one mill has forced the bailer and hence the turbine it serves to be derated to amaximum of 60% of capacity. This has substantially reduced station output and could have beenavoided at relatively modest cost by installation of a third milH per boiler. The water treatmentplant has proved incapable of adequately removing silica from the feed water, leading to build-upof damaging silica deposits, reduced cooling efficiency and increased maintenance. Contrary tousual practice, it was decided to install only a single station transformer, again to save cost.Consequently, the station has no stand-by electricity supply for start-up purposes in the event ofNilure of this one unit. These and other compromises in design, made primarily for cost-savingreasons, have reduced both the availability and operational performance of the station. Theyilustrate the risk of introducing new and relatively complex power generation technology into aresource-constrained environment such as Zinbabwe.

13. With the benefit of hindsight, it is evident that the power demand forecasts over-estimatedfuture demand growth by a considerable margin. Demand on the interconnectedZimbabwe/Zambia power system during the period 1980-85 in fact grew at an averagu rate of justover 2% per annum, compared to the nearly 79o per annum forecast. The prmary cause of thissubstantial over-estimation of demand was the use of what proved to be very optimisticassumptions for economic growth in Zambia and Zimbabwe. Contrary to the consultant's forecastof continued expansion, copper production in Zambia, and hence power consumption in thedominant mining industry, declined over the 1980-85 period. Due to falling copper exports andsimultaneous world recession, the Zambian economy and hence power consumption stagnated.In 1981, the Zimbabwean economy, and hence power demand, expanded rapidly followingindependence and the lifting of sanctions. However, in 1982 the international recession and athree-yar drought hit the Zimbabwean economy. Zimbabwe's real GDP declined in 1982 and1983 and stagnated in 1984 and 1985, compared to the consultant's forecast of 5% annual growthon average through the 1980s.

14. Due to the optimistic demand forecast, the Hwange II station was commissioned at a timewhen Zambia had about 300MW of surplus low-cost hydropower avaflable for export toZimbabwe. The commissioning of Hwange II in 1986 was thus about two years premature.

15. While the timing of the Hwange scheme was not optimal, its selection as the nextgeneration project on the interconnected system was correct, although not for the reason thatoriginally led to that decision. Hwange It was orginally selected on the grounds that it was theonly large-scale candidate generation plant that could be in service by the time of the forecastpower capacity shortfall in mid-1985. Planning studies concluded that a sequence of generationinvestments consistng of the Kaniba North and South Extensions followed by Hwange I was theleast-cost means of satisfying demaA, but the Kariba extensions could not be in service before1987, which would leave a substantial capacity shortfal.

16. However, since 1980, the Zambezi river basin has experienced a period of unusually lowrainfall, which has reduced the average river flow and hence the volume of water available inLake Kariba for power generation. As a result, the assumed average long-term annual firmenergy capability of the Kanba complex has been reduced substantially from about 10,000GWhto about 8,500GWh, which in turn has reduced the potential output and economic benefit of theKaniba North and South Bank Extension projects. These projects are now viewed solely as

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potential sources of reserve and very limited peaking capacity, not as potential sources of firmenergy. In this limited role, their construction during the 1980s would not have been consistentwith least-cost expansion of the ZambialZimbabwe power system.

Implementation aof Hwange EI

17. By the time of appraisal, most aspects of the detailed design of the Hwange II scheme hadbeen completed, construction of Hwange I was underwa, and contracts had bee.n awarded forthe Hwange E boilers, turbo-generators and high-pressure pipework (to be funded by suppliers'credits). This made feasible a relatively short project implementation period of four years, withtarget commissioning dates of December 1985 for Unit 1 and March 1986 for Unit 2.

1& Unit 1 was actually commissioned in August 1986 and Unit 2 in Dccember 1986, eightmonths behind the appraisal target. Four factors contributed significantly to the delay (a) theborrower's unfamiliarity with the Bank's procurement and disbursement procedures, which causedsome delays in procurement of both services and equipment, particularly at the early stages of theproject; (b) inadequate coordination between the supervising engineer and the civil workscontractor, which caused some key dates on the critical path to be missed; (c) unclear and slowwork permit regulations for expatriate contract staff; and (d) difficulties in arfanging transportof heavy plant to the site, which resulted in late delivery.

19. As this was the first Bank project to be implemented by the borrower, limitedunderstanding of the Bank's complex procurement procedures and consequent delays inprocurement were not unexpected. The tight implementation timetable, and the borrower'spreference for using contractors already working on Hwange I for similar work on Hwange II,were both an incentive to short-circut the Bank's rigorous procurement procedures. Theresulting delays principally affected contract awards for the cH works and erection of the stationstucture. Although the resulting hold-up in contract award was, in the case of one erectioncontract, over six months, the net impact of procurement delays on project completion wasrelatively minor, totalling only about 1-2 months.

20. Inadequate schedule coordination between the supervising engineer and the civil workscontractor led to the contractor initially being denied adequate site access, which disrupted thestart of the civil works program. At its peak in 1985, the resulting slippage amounted to aboutone year, although some of that time was later made up. The problem of unclear and slow workpermit regulations for expatriate staff contributed to the problem by slowing mobilization of thesupervising engineer's project team. The limited project management experience of theimplementing agency meant that its oversight of the supersing engineer was less than adequ te.Perhaps because only one supervision mission was mounted dunng the first year of projectimplementation, the Bank was also slow to identify and hence to address the problem.

21. Arrival of the large stators and transformers at the site was about six months behindschedule. Their transport was originally planned to be by road trailer from a South African portvia Botswana. The planned route was surveyed and found to be feasible. However, due to anunrelated politim.J problema, the Government of Botswana refused to grant the necessaw permit.After a period of ultimately fruitless negotiation, an alternative route direct from South Africato Zimbabwe was surveyed and utilized. The resulting delay in delivery of the equipment did nothowever materially affect project completion because of delas in other project components

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22. Apart from the problems noted above, implementation of the Hwange II scheme - theproject's major component - was largely satisfactory. The relatively modest eight monthcompletion delay was not excsive for a large-scale project of this type involving a new borrower,particularly when account is taken of the fact that the borrower was simultaneously embroiled ina major reorganization. Due to the slower-than-forecast growth in power demand, the delay didnot result in a shortage of power and hence imposed no significant economic cost on Zimbabwe.

23. Measured in United States Dollars, the foreign exchange cost of Hwange I was US$180.5million, its local cost US$99.1 million and its total cost US$279.6 million. These actual US$ costswere substantially below the appraisal estimates of US$233.4 million foreign, US$140.8 local andUS$374.2 totaL Sharp appreciation of the U.S. dollar against both a basket of world currenciesand the Zimbabwe dollar during the implementation period was the primary cause of thesubstantial US dollar cost savings, which were equivalent to 25% of the original cost estimate.However, expressed in Zimbabwe dollars, Hwange's actual cost of Z$424.5 million was 65% abovethe appraisal forecast, due largely to greater-than-forecast devaluation of the Zimbabwe dollar,particularly against the strong US dollar, to delays in construction and to inadequate cost controlThese major deviations of actual from forecast costs illustrate dramatically the scope for error inand hence the uncertainty of cost estimation in a single currency on a major multi-year projectat a time of exchange rate instability such as the mid-1980s.

F. mlmettn of Additoa Project Components

24. The establishment in 1985 of the national power utility, ZESA, made it feasible to reviewfor the first time the investment needs of the power system as a whole. At the same time, theBank's understanding of the power system was being considerably enhanced throughimplementation of the Hwange II project. The combination of these two parallel processes ledto the identification by ZESA and the Bank of two additional areas of the power system in needof priority investment that had not been evident during the rapid preparation of this prqect.These were Hwange Stage I, which needed upgrading and improved spares provision, and thedistribution system, investment in which had been cut back by the Municipal ElectricityDepartments pending their reorganization into ZESA. With respect to Hwange I, the station wasexperiencing a number of operating problems as a result of cost savings and limited technicaloptions available during constrction. The most serious of these concerned the coal mills, thepoor performance of which was substantially reducing generation. Another problem area was theash dam, which posed an enviroinental and safety rik In addition, ZESA was persistentlyunable to obtain from the Govermnent sufficient foreign exchange to finance major overhauls ofthe Hwange plant or to establish an adequate inventory of critical spares. In the area ofdistribution investment, knowledge of the pending establishment of ZESA had prompted themunicipalities to economize on investment in the power distribution system. Consequently, 7!-SAwas faced with a bacldog of thousands of requests for connection or additional supply and witha severe shortage of materials and operational vehicles.

25. In combination, the shortage of foreign exchange for investment in these critfcal areas ofthe power system was seen by ZESA and the Bank as likely to seriously threaten achievmentof the objectives of the Power I project. It was therefore decided to allocate the unused portionof the Power I loan after completion of Hwange I, about US$25 million in total, to finance: (a)selective upgrade projects at Hwange I power station; (b) major overhauls at Hwange during the1987-89 period-, (c) the purchase of critical spares for the Hwange I boilers, generators andturbines; and (d) distribution materials and vehicles It was simultaneously decided to extend the

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loan closing date, initially by one yea to June 1988 and finaly by a total of three years to June1990, to complete procurement of the additional items.

26. Procurement of these additional items began in 1988 and was completed in 1990, aboutone year behind the original schedule. Tbis schedule was, in retrospect, unrealistic in view of thelarge number of items to be procured, the smaU size and limited experience of ZESA'sprocurement staff and their relative unfamiliarity with the Bank's procurement procedures forgoods and with the technical specifications of some of the specialist equipment being purchased.Problems were encountered with the procurement of veicles due to misunderstanding of andconflict between the Government's and the Bank's vehicle procurement regulations. IheGovernment regulations mandated that vehicles be procured from local assemblers, whichconflicted with the Bank's reqairement for procurement to be on a least-cost basis byinternational tender, with 15% preference to local suppliers provided the local content exceeded20% of the sales price. ZESA's initial evaluation of tenders followed the Govemment procedureand consequently was rejected by the Bank. MTe tenders were then re-evaluated using the Bank'sguidelines. With the benefit of 15% preference, local assemblers were found to be the leastevaluated cost source of standard small vehicles and international bidders of the specialistvehicles Contract award on the basis of the revised evaluation was then agreed between theGovernment and the Banlk

G. Project Resub

27. The project actieved its primary objective of increasing power generation capacity inZimbabwe by completing the 440MW Hwange Stage I Power Station in late 1986. Although thestation was completed about 8 months behind schedule, slower than forecast growth in Zambianpower demand allowed Zimbabwe to continue importing sufficient power from Zambia during1986 to fully satisfy its demand until the station was complete. In fact Zambia still hadconsiderable surplus hydro power avaflable for export to Zimbabwe when the station wascommssioned, which generation from Hwange II effectively displaced. On strict least-costdevelopment of the interconnected power system, Hwange I was therefore completed earlierthan required due to overestimation of the growth in Zimbabwean and Zambian power demandduring the 1980s. Given the low economic cost of power station coal, which must be removed toaccess higher-quality cooking coal, and the consequent low marginal economic cost of generationat Hwange, the least-cost strategy for Zimbabwe, once the station was complete, was to substituteHwange II generation for imports. Part of the economic cost of the station's prematureconstruction was therefore borne by Zambia through the resulting reduction in its exports ofsurplus hydro power to Zimbabwe. The principal economic cost to Zimbabwe was the benefitforegone from the potential alternative uses of the resources used to construct Hwange II earlierthan necessary.

28. The performance of Hwange II was relatively poor in FY87/88, when its availabilityaveraged 60%, compared to a target of at least 80%. Performance improved substantially in thetwo following years, when availability averaged 80%. Growing operator famfliarity with the plant,elimination of some teething problems and improved spares and equipment provision fundedunder the project accounted for the bulk of the improvement. The station's moderateperformance and unexpectedly high operating and maintenance costs suggest that, in preparingthe project, the difficulties of operating a complex and relatively unfamiliar generation technologyin a location far distant from sources of expert services and spares and in a situation of foreignexchange scarcity were underestimated. Performance was also affected by reliance on multiple

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sources of finance, which led to compromises on specifications and to installation of equipmentfrom a large number of different suppliers that was not always fully compatible.

29. The project's second objective was to help address the manpower requirements of thepower sector, principally through the construction and partial equipment of the Harare NationalElectricity Training Center, foreign training of power engineers and the provision of expatriateengineers for operation of the Hwange plant. The provision of expatriate engineers to assist ininitial operation of the Hwange plant was undoubtedly necessar, in view of the plant's technicalcomplexity and the unfamiliarity of the borrowers engineering staff with some aspects of thetechnology. Howeer, the benefits of this operations support, in terms of plant performance,operator training and the establishment of sound procedures and good documentation were notup to expectations. This was partly due to the inadequate technical and industrial relations skillsof some members of the operations support team. The industrial relations problems wereexacerbated by resentment on the part of the Zimbabwean engineers, some of whom wereunwiling to take orders from expatriate advisers and perceived that their opportunities forpromotion were lessened by the advisers' presence. Rapid turnover of some of the advisory staffalso lessened their effectiveness. The decision of ZESA in 1990 to terminate all operationssupport earlier than had been planned was partally justified by these problems, but neverthelesswas a risky move, as the national station engineering staff; on average, were still relativelyinexperienced. The decision may have contributed to some of the station's subsequent technicalproblems and is currently being reconsidered by ZESA management.

30. The Harare Training Center was completed in 1987, about two years behind scheduleBy 1990, its student intake was up to 270 per year, somewhat below capacity but about doublethe number of power engineering staff in formal training in the mid-1980s. In the same year, 85engineers received training from the expatriate experts funded under the project. In terms ofincreasing the number of trainees, the project broadly achieved its manpower objectives.However, the power sector remains short of skilled personnel, particularly in engineering andaccounting. A major cause of this has been government control of parastatal salaries, which haskept salaries in ZESA below those of comparable jobs in the private sector and resulted in a highrate of turnover of experienced staff. The project did not explicitly recognize or address thisproblem of uncompetitive salaries. Had it attempted to do so, the probability of success wouldhave been low because it applied to the whole parastatal sector and was therefore unlikely to besolved by a single sector operation. It is now being addressed under the SAL, which providesboth greater leverage and a more appropriate framework for tackling such broad issues ofgovernment policy.

31. The project's third objective was to improve energy resource mobilization and economicuse through the rationalization of energy prices, based on an energy pricing study. A high-qualitypricing study was completed in early 1986 and extensively debated in Zimbabwe. Implementationof its electricity tariff remmendations was complicated and delayed by the major reorganizationof the power sector that occurred durng the 1984-87 perod and resulted in the establshmentof ZESA. A national power taiff was finally introduced in 1988, which rectified the most seriousstructural deficiencies in the previous tariffs. However, on political grounos, the tariffs of thelargest consumers were not fuMly adjusted to cover ZESA's financial costs. In 1989, ZESA wasnot allowed a tariff increase, and the government delayed implementation of the tariff increasesrequested by ZESA in both 1990 and 1991. This policy of tariff restraint prevented ZESA fromachieving the project's 30% investment self-financing target, amended to 40% under the Power

II project in 1989. The actual self-financing ratios achieved were zero in FY88 and FY90 and18% in FY89. In 1990, taiffs were about 30%o below an updated estimate of economic cost.

32. The study found gasoline prices to be above economic cost, assuming a shadow foreignexchange rate of up to 100%, but diesel oil and kerosene prices to be below economic cost evenat a lower shadow rate of 50o. It recommended that diesel prices be raised to full import parityat a shadow rate of 100% and that kerosene prices be raised to the financial cost of supply.*These recommendations have not been implemented. On coal prices, the study recommendedchanging the pricing of power station coal from a fixed price per tonne basis to a two-partformula: an agreed minimum quantity on a take-or-pay basis and additional quantities on a per-tonne basis. This recommendation has been implemented. The project therefore did not fullyachieve its objective of rationalizing all energy prices. This was due to a combination of thepolitically sensitivity of the required changes and the relatively weak leverage of the Bank on theGovernment, which was not the borrower. The lessons are that pricing should be addressedearlier in the project cycle, preferably before implementation, and that a project loan is not aneffective vehicle for achieving policy changes in a whole sector.

33. The project's fourth objective was to improve the organization and planning of the powersector. By supporting the establishment of ZESA and of a Corporate Planning Unit withinZESA, it has achieved this objective. ZESA has developed considerable generation andtransmission planning capability and now effectively coordinates planning of the power sector.

34. The objecives of the project were expanded during implementation to include financingmajor maintenance and improving the operating performance of Hwange Power Station andselective reinforcement and extension of the power distribution system. While the perod ofanalysis is short, availability data for Hwange over the past four fiscal years (Table 1) suggestsome improvement has been achieved, particularly if allowance is made for the fact that onegenerator was out of service for much of FY90 due to a transformer failure. ZESA was also ableto expand and modernize its distribution maintenance fleet with the vehicle funds provided underthe project and to undertake some modest investments to rehabilitate parts of the ageingunderground urban distribution systems and to marginally extend the systems. The vehic.le andundergrouLrJ cable investments have contributed to the maintenance of a relatively high level ofdistribution system reliability and the extension investments have helped to alleviate a smallportion of the backlog of requests for new power supply. The project therefore appears to haveachieved its supplementary objectives.

Table 1: Availability of Hwange Power Station(Percentages)

FY88 FY89 FY90 FY91

71.9 82.1 72.3 87.8

35. The economic rate of return estimated at appraisal was 12.2%. Using a similarmethodology, the rate of return on completion is estimated to be 13.1%. Relative to theappraisal estimates, actual electricity demand growt, and consequently investment in the power

- 10 -

system over the 1981-91 period, have both been substantially below forecast. However, in termsof their impact on the ERR, the deviations from forecast of the costs and benefits have in effectroughly canceled each other out, leaving the ERR close to the appraisal estimate.

IL PojeSt

36. The below-target performance of Hwange Power Station, inadequate provision of foreignexchange for consumables and spares, and the possibility of continued government restraint onpower tariffs and parastatal salaries raise questions about the sustainability of the projectZESA's financial performance has been consistently inadequate, due largely to govement delayof or reduction in tariff increases. This has left ZESA persistently short of operating and capitalinvestment resources. In the context of preparing the SAL, agreement was reached with thegovernment that parastatals will in future be allowed to operate on commercial lines. It has beenagreed that a diagnosis of ZESA's performance and means to improve it will be done during 1992at the latest, and that a more 'hands off' system of govermment oversight wiUl be implemented.If carried through fully, these changes promise to give ZESA considerably greater freedom tocharge appropriate tariffs and to offer competitive salaries, and should thereby adeviate at leastsome of its persistent cash flow and staffing problems.

37. The performance of Hwange Power Station has shown signs of improvement over the1987-91 period. This has been due in large part to the devotion of about US$25 million of IBRDfunds from the Power I and Power II projects to major maintenance, spare parts andconsumables, selective upgrade of problem equipment, such as the coal mills, and timely provisionof supplier's services. These funds have effectively substituted for inadequate governmentallocations of foreign exchange to ZESA. For the future, Hwange will need regular inputs offoreign exchange for maintance spares, consumables and an equipment upgrade programcosting at least US$20 million over the next five years alone. On average, these required foreignexchange inputs will be in the range of US$10-15 million per year in 1990 prices Unless thestructural adjustment program is both sustained and successful, there is a risk that ZESA will notbe able to obtain this quantity of foreign exchange from the central bank and wil not bepermitted to continue funding the expenditures with IBRD borrowing. In that event, Hwangewould be unlikely to achieve its target performance.

38. Operator performance and the retention of skilled engineers and experenced techniciansat Hwange poses additional threats to a sustained improvement in the station's performance.There is currently a shortage of qualified and experienced thermal power station engineers onZESA's staff and particularly at Hwange. This is due to a combination of rapid growth ingeneration engineering staff needs during the 1980s, the phasing out of expatriate engineers in1990, and to relatively unattractive salares due to government wage control With funding fromPower II, ZESA has taken the constructive step of concluding service contracts with the suppliersof major equipment at Hwange, which should compensate to some degree for the loss ofexpatriate engineers. It is also expanding its engineering training programs. An essential furtherstep is salaiy improvement, which will require the government to eliminate its de facto wagecontrol. Ihis must be a component of the operations agreement that the government hasindicated it will negotiate with ZESA as part of the Structural Adjustment Program.

- IL -

L Bank Perfiomanoe

39. Bank participation in the project was critical to completion of the financing plan forHwange II and thus to construction of the station close to the orginal schedule. Considering thatthis was the first IBRD power loan to Zimbabwe after a lonr hiatus in lending due to UDI, andthat the borrower was unfamiliar with Bank procedures, Bank implementation performanceappears to have been largely satisfactory. Some delays in procurement due to the bofrower notfollowing Bank procedure might have been lessened by more intensive supervision and detailedbriefing on procurement procedures at the early stages of the project. More intensive supervisionat the site might also have helped to identify and rectify some of the problems with coordinationof the civil and electrmechanical work that emerged during the construction phase.

40. Hwange II was already committed and part of the financing arranged before the Bankbecame actively involved in the project. Consequently there was little incentive or opportunityfor the Bank to question at this late stage the demand forecasts for Zambia and Zimbabwe,which subsequently were to prove extremely optimistic and on which the timing of Hwange II wasbased. Relative to historc trends, and in the immediate aftermath of independence, the forecastdemand growth for Zimbabwe presumably seemed relatively conservative - 7% per year,compared with 9% per year during the 1970s So even a more critical review would probably nothave led the Bank to reject the forecast.

41. The inaccwacy in the cost estimate also appears to have been an unavoidable error, as itwas due to large currency fluctuations that were extremely difficult to predict. The substantialforeign cost saving in US Dollars that resulted worked in Zimbabwe's fivor by leaving a largesurplus in the IBRD loan which the government, ZESA and the Bank were able to agree to usefor statutory overhauls, critical spares and selective upgrading at Hwange and for priorityinvestments in the distribution system, which were essential to maintain adequate'and reliablepower supply and hence for achievement of the project's objectives. These additionalexpenditures on Hwange proved particularly beneficial during the lengthy interruption in Zambianimports that occurred in 1989 and 1990, due to a major fire at the Kafue Gorge Power Station,when Hwange was required to operate at maximum attainable capacity over an extended period.They are doing so again in the 1990s with reduced hydro generation due to the drought.

J. Borrower Performam

42. Design oversight was a responsibility that the borrower was unfortunately not wellequipped to execute in view of its lack of experience with the design and operation of large-scalethermal power stations. Thus its input to the design was less active and informed than wasnecessary.

43. The borrower's performance on project implementation appears to have been relativelygood, particularly as Hwange I was under construction simultaneously with Hwange II and thepower subsector was undergoing a fundamental reorganization durng the latter stages of theprojecL All the detailed work of supervising Hwange I was of course performed by consultants,which left the borrower responsible for consultant oversight and liaison with the financiers.

44. Delays in obtaining work permits for expatrate staff and in customs clearance were theresult of cumbersome government regulations, not inefficiency on the part of the borrower.Delays in the transport of heavy plant to the site were due partly to poor relations between the

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Governments of Zimbabwe and Botswana, through whose territory the plant was originally to beshipped.

45. A review of the Hwange I's operational performance over the 1987-91 period suggeststhat the borrower's performance in operating the station has not been fully satisfactory.However, the assessment must take account the complexity of the task and the environment inwhich it has been performed. The Hwange station's target annual output was S50OGWh. Themaximum output achieved to date was 5100GWh in FY91. Some of the performance shortfallhas been due to the design problems and foreign exchange shortages mentioned above, whichwere out of the borrower's control. The performance of the expatriate operations supportengineers in the areas of maintenance documentation, operations planning and staff training wasalso below expectations. Some of the shortfall has however been due to avoidable operatorerrors by ZESA staff, such as those that caused serious damage to a generator transformer, todelays in identifying and dealing with technical problems, and to inadequate maintenance, whichare ultimately the responsibility of the borrower.

46. The principal lesson to be learned is that projects involving technologies as complex asHwange II are difficult to implement successfully in an environment such as Zimbabwe, wherelocal experience with the technologies is limited, foreign exchange is scarce and often tied, whichleads to technical compromises in design and delays in problem solving, and where supportservices are geographically distant. While the operations support component was designed toovercome the borrower's operational inexperience, it was not fully successful in this regard.

K. Project Relationship

47. Bank-Borrower cooperation in project implementation was generally satisfactory,particularly when account is taken of its complexity and the newness of the relationship.Procurement delays might have been reduced by an early and more thorough briefing of theborrower on the Bankes procurement procedures, which has since been done.

48 Bank cooperation with the government was less successful. Agreement could not bereached to implement the recommendations of the energy pricing study fuUly and in a timelymanner. The Government did not sanction power tarff increases sufficient for ZESA to satisfythe project's financial conditionality. Nearly nine years after the target date, the Ministry ofEnergy still does not have a capable power system planner on its staff. However in contrast, thegovernment did move relatively quickly and effectively, with the Bank's help to reorganize thepower sector and to establish a national power utility, which has contributed to improved sectoralorganization and planning.

L Perfrmance of the Consltant

49. While the performance of the Engineering Consultant was judged to be satisfactory inmany respects, the borrower commented that project monitoring and progress reporting were notas thorough as it wished, which meant that complete and up-to-date cost reports and projectionswere not available on a timely basis. Change orders and contractors' claims were also not ahlaysdealt with expeditiously. Cooperation and communication between the consultant and the civilworks contractor was not judged to be fully satisfactory and to be the cause of some delay incompletion of the civil works. These issues were addressed during project supervision.

_ 13 -

50. In view of the heavy reliance on tied funding, the scope for design amendments and forsupplementary expenditure at the initiative of the consultant was very limited, so it is notreasonable to hold the consultant responsible for the station's design weaknesses. On the otherhand, it is not evident that the consultant identified and pressed for action on the designweaknesses that have subsequently affected station performance, such as the inadequate capacityof the coal mlls and cooling system and poor design of the coal milling plant.

* 51. Allowing for the station's design problems, the limited financial means to correct them,political pressures to promote newly-trained station staff prematurely, and the shortage of slalledlocal staff, the performance of the operations support consultant responsible for station

* management until Pcember 1990 is judged to have been satisfactory overall. However, theconsultant's performance was criticized by the Borrower in several areas, particularly the qualityof training provided, employee relations and the adequacy of maintenance documentation. Whilethese criticisms may be justified, the Borrower may have contributed to them throughinsufficiently close supervision, acquiescence to early promotions and other worker demands, andthrough delayed payment for some of the services.

K Project Dcmenat and Data

52. The provisions of the Loan Agreement covered most of the major sectoral policy issuesand areas of borrower performance relevant to project implementation, such as the achievementof adequate financial performance, employment of sufficient qualified staff, use of appropriatexperts, etc. Monitormg of the financial cvenants and enforcement of the related action

timetable were hampered first by the lack of separate accounts for the Municipal ElectricityDepartments and then by the reorganization of the power subsector that occurred mid-waythrough project implementation. A unified accounting system had to be developed for the newutility, which was a demanding and time consuming activity for ZESA's financial staff. It causedconsiderable delay in the production of financial reports and in asset revaluation, which limitedthe Bank's ability to monitor ZESAIs financial situation. This in turn delayed efforts to correctZESA's inadequate financial performance during the last four years of project implementation.

53. The inability of the borrower to retain qualified staff, due primariy to Government controlover salaries, was not addressed effectively through the loan conditionality. General language inthe Loan Agreement calling for the utility to employ adequate numbers of qualified staff was notof itself sufficient to alter public sector-wide Government policy. This continued problemreduced both the effectiveness of project implementation and the scale of project benefits.

* S4. The Staff Appraisal Report provided a satisfactory framework for guiding implementationof the project as originally defined. The components added later following the completic- ofHwange II were agreed and costed jointly by the borrower and the Bank and defined in a sideletter to the original legal documents

55. The data required for preparation of the PCR were available from the borrower.However, considerable effort was required by the last supervsion mission to prepare the final costestimate due to the borrower's inadequate cost recording system. In future projects, costrecording systems need to be more carefully set up and closely monitored.

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PROJECT COMPLETION REPORT

ZD.BABWE

POWER I

,La 2212-IND)

PART IL PROJECT REVIEW FROM BORROWER'S PERSPECIVE

Comments an Part I

56. Pra. 16: Annual firm energy Erom the Kariba Complex was reduced to 6000 GWh witheffect from August 1990 due to lower Kanba Lake leveL It is reliably learnt that this will befurther reduced to 5000 GWh from August 1992 to July 1993 because of the poor rains.

57. P.a. 23: The increase in the project cost could also be attributed to the delays inconstruction and the less than adequate provisions in agreements entered into between ZESAand the contractor, which led to abnormal increases in costs.

5& Para 31: ZESA has negotiated with Wankie Cofliezy a new coal pricing formula whichhas two main components, a fixed monthly cost and a variable direct cost on a per ton basis. Thisformula, which came into effect in July 1991, ensures that the Colliery's fixed costs are coveredand offers an incentive to ZESA not to order coal quantities below a certain minimum

Bank's Performance

59. The performance of World Bank in managng the Power I Project was satisfactory overaL'The time taken to approve contracts and for processing of applications for withdrawals andspecial commitments was consistent throughout the duration of the loa-

60. The processing of disbursement applications was only delayed where applications wereinaccurately completed or lacked proper supporting documentation. The Bank was quick to pointout such inadequacies for ZESA to rectify.

61. The Bank was very responsive to queries on the status of applications submitted to it.This was quite helpful in keeping suppliers informed about the status of their payments.

62 The Bank was cooperative in ensuring that the unutilized loan balance of US$40 milionwas not forfeited when the loan expired in June 1988. The Bank agreed to six monthlyetensions of the loan until the final drawing in January 1991. These extensions enabledpayments to be made to suppliers despite delays in placing orders or delays in delivery bysuppliems. At one stage, the World Bank even agreed to effect disbursements agaimst bankersguarantees provided by suppliers so that all the loan monies could be utilized within the validityperiod of the loan. As a result, ZESA was able to purchase vital spares for Hwange PowerStation, vehicles for opera ons, distnbution material and communications equipment.

- 15 -

63. To meet the high demand for electricity in Zimbabwe, the Zimbabwe Govnmentapprved the construction of Hwange Power Station Stage I in 1972. This was the fist thermalpower station to be built in Zimbabwe since the mid 19SOs.

64. Ihe station was built in two stages The construction of Stage I commenced in 1973, wassuspended in 1975 and resumed in 1980. Consequently, Stage I represents technologies of thelate 1960s. In contrast, Stage II, which received Government appnl in 1982, icpot moremodem design practices. Stage It consists of 2 x 220 MW units which were commissioned in1986.

65. hbe commissioning of the two units made the country self sufficient in electrical energy.Imports from Zambia were then suspended, but subsequently resumed in November 1987, foreconomic reasons. It was now posslble to economicaily dispatch the system without compromisingthe reliability and security.of the system.

66. In 1987, a shap deterioration in the performance of Hwange Power Station was noted.Three independent teams of consultants were commissioned to carry out technical audits. Theserevealed a consistent set of inhbiting factors to performance, including design shortfal,particularly with respect to inadequate capacity of ancillary plant components and systems likethe cooling water system and the station electical supplies; unsatisfactory plant layout for access,In-service inspections and maintenance; improper materials selection in relation to the availablecoal quality; inadequate technical and managerial skills; cumbersome institutional procedures forthe acquisition of essential resources; an inadequate technological base int he country to supportthe technologies in use at the station; and the persistent chronic shortage of imported spare partsand chemicals.

Techni E-

67. It must be noted that the Hwange Project was the first major project for both ZESA andthe post independence Govermment. Within ZESA, which was in the process of transformationto comply with the new order, certain organizational changes had to be implemented and thisobviously had some repercussions on the project. The electricity industry restructuring exercisemidway through the Project also introduced new ideas and methods which obviously affectedsome of the established in-house systems and procedures. Put differently, it is true that theProject was affected by the continued changes of ZESA in-house project staff

6& To aid the ZESA staff in the Construction Division, in-house technical support staff wereemployed from overseas utilities, notably from Electricity Supply Board, Ireland, from October1983. They worked on the construction and commisioning of the Hwange Stage 2 project withan equal number of Zimbabwean understudies.

69. During the design and erection of Stage 2, approximately 30 ZESA engineers, divided intothree groups, spent six months on a training and plant familiarization course with the CentralElectricity Generating Board in Britain and a subsequent six months with the main consultantsfor the project, at their offices in Newcastle-Upon-Tyne. Part of this latter six months was spent

- 16 _

giving the post graduate engineers a grounding in the elements of power station design andproject management work A number of ZESA staff were also trained in project financialmanagement.

70. During plant commissioning at Hwange, a group of four ZESA station commissioningengineers worked under station management and alongside the consultant's commissioning stafETwo ZESA engineers from the Construction Ditision worked on site during this period onerecion and progress monitoring work with the consultant's stafE

71. The net result of this training, and working alongside the main consultant's staff and stafffrom oveseas utilities in all aspects of power statuon design, erection, commissioning and projectmanagement has resulted in a major technology transfer to the ZESA staff which will be ofbenefit to ZESA and to Zimbabwe even if some of these trained staff leave ZESA. The projectalso provided valuable experience for local contracting firms both in their works and on site.

Project Implementation

72. There were delays i commencement of the construction program due to revisions in theseismic design. The premise for early design was that, when Lake Kariba's level stabilized, seismicactivity would not be sustained. This did not happen and critical sections of the Stage 2 workshad to be re-designed to the higher loading.

73. The construction program was tight with not enough float for interface between end oferection and commencement of commissioning activities. The programmed date of commissioningof the first Stage 2 unit was in March 1985, when construction only started in 1982.

74. There was delay in delivery of turbo-set stations due to lack of suitable road transporterand problems in organizing a route for these heavy loads.

75. Ihe turbine house crane was erected in time but commissioning was delayed due to latecommissioning of the crane rails associated with the superstructure delays. In addition, clearancewith ZESA's insurance company and contractors insurance delayed the lifting of new plant overStage I plant.

76. The switch-gear and cabling contract became critical in meeting the requirements ofcommissioning the auxiliary plant of the turbo-set contract. In particular, Boiler Feed Pumpswere required to carry out the acid wash of the boiler and first firing thereoo The cold functiontests on the boiler auxiliaries and burner management were all relatively late.

77. The units were originally designated as 2X200 MW, but on receipt of bids, Ansado statedthat the turbo sets on offer were capable of 220MW. The consultant checked the capacity of theboilers and found that, with some modifications to the boiler auxiliary plant, the units could beuprated. This plan was adopted.

78 During comnmissioning of Unit 5, the HP cylinder developed serious steam leaks at about217 MW. Investigation and repair took three months. At this time, it also transpired that theturbo sets would not meet the maximum capacity rating of 220 MW. The contractor was thengiven access to Unit 6 to carry out modifications to the impulse nozzles before the unit was boxedup. These modifications should have been done in the works before the turbines were delivered.

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Similar work was done on Unit 5. During the modification to uprate the turbines to 220MW, itwas discovered that the inner .P. casings had cracks. These were ground off and the guaranteeswere extended up to 1992.

Lgssons Leanwd

79. Unavoidable delays were introduced by the seismic code change, but all other delays couldhave been avoided by:

- Better planning and design works.*- lmely award of contracts to avoid access problems.

Better coordination of the work of various contractors.- Better transport arrangement for the heavy loads.- Better construction programming of the switchgear and cabling contracts

to meet the conmmissioning programs of the main boiler and turboset contracts- Better contract pricing strategy to limit escalation in project costs. A firm CIF

price is preferred.

80. The project involved over 50 contractors and subcontractors and a total of 15 loans in 8wrrencies. In cost terms this was usefui, in that it introduced international competitiveness, but

it required exceptional project management sklls from both the consultant and the client.However, to some extent, the avaflable skills were inadequate and ZESA did not adequatelysupervise the consultant. The addition of in-house technical support staff from overseas utdlitiesdid somewhat alleviate the situation.

81. The ¶bsence of qualified and experienced ZESA staff at the initial design stage of theproject and during the manufacture, erection, and commissioning stages curtailed technologytransfer. This led to operation and maintenance difficulties.

82. At commissioning, the project had some serious design shortfalls and it is necessary tocarry out follow-on work to strengthen plant performance and reliability. Th is partly as a resultof cost cutting measures, liUmited involvement of the client in the design stage and inadequatesupervision of the contractors by the consultant. It is therefore vety important for a client to beactively involved in all the stages of designing and implementing a major project such as this one.

83. Though ZESA instituted monthly progress meetings from early 1983 to identify the rolesand responsibilities during implementation, site labor records were only included from August1985, a delay which could have been avoided.

84. Developing countries need to provide adequate resources to support the technology ofthe projects they embark on. Critical evaluation of the technology so imported in the context ofavailable resources is also important.

85. Fnancing institutions should be encouraged to finance post commissioning resourcerequirements in the form of operational and maintenance support.

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PROJEC COMPLETION REPORT

ZIMBABWE

POWER I>anm 212.ZIM)

PART EL STATISTICAL INFORMATION

1. Rdated Bank Lams

LoanjKcdit Year ofTie P Appwval Sab comments

Power I Transmission 1988 70% dis- Physical implementationand distri- bursed and ccessfuL Continued problemsbution neaing with inadequate tariffs and staffextension completion retention.sector man- in mid-power develop- 1992ment, upgradingof generationfacilities

2. Project Tmetabl

Date Date DateBem Ped Revied AcS

IdentificationExecutive Project Summary 10-80 - 10-07-80

Preparation 11-80 - 11-24-80Appraisal Mission 8-81 11i-81 11-09-81Loan/Credit Negotiations 8-82 - 08-02-82Board Approval 12-7-82 - 12-07-82Loan/Credit Signature 02-83 - 02.09-83Loan/Credit Effectiveness 06-83 07-83 07-07-83Loan/Credit Closing 06-87 10-87, 3-88 06-90

11-89Loan/Credit Completion 12-87 10-87, 03-88 06-90

11-89

Note: The delays in loan closing and project completion resulted from the decision late in theoriginal project cycle to extend its scope. This required: (a) agreement on the extended scopecomponents and procurement methods; (b) preparation of tender documents, bid evaluation andcontracts; and (c) manufacture, shipment, and installation of the additional components In

- 19 -

combination, these processes extnded the project completion date by 2% yers ZESAXs skilshortages, initial unfamiliariwith the Bank's procurement procedures and some inconsitenciesbetween the Bank's ptocedures and those of the Government Tender Board, especiallyconcerning vehicle procurement, delayed the process of tendering and contract award. Thelearning experience has facilitated the implementation of the Power II Project.

3. Cumulative Estlmate and Actual Disbursement* (US$ 000)

Year 1983 1984 1985 1986 1987 1988 1989 1990 1991

Apprais 16.0 203 54.0 14.7Estimate

Actual 11.2 132 10.0 13.5 9.0 10.7 36.6 1.0

Actualas% 55% 24% 68%of Esdmate

Date of FmalDisbumsement January 11, 1991

- 2o -

4. Project Implementation

AppraisalIndicators Estimate Actual

Generation

Contract awards/civil works November 1982 December 1982Construction starts December 1982 Jamay 1983Erection starts September 1983 September 1983Commissioning of 1st unit End December 1985 August 1986Commissioning of 2nd unit End March 1986 December 1986

Transmission Line

Iavitation to bid October 1982 August 1982Bid evaluation January 1983 November 1982Contract awards February 1983 February 1983Completion of the 330-kV

transmission line November 1985 December 1985

Studies

Completion of energypricing study June 30, 1984 January 1986

Training & Technical Assnce

Completion of taining school December 31, 1984 June 1987

5. Project Costs and Flnowing(USS mittion)

A. Project Costs

FIRST POWER PROJECTSory of Cost Estlnte

Description Originsl Cost Estftte Actuml Cost EstfmltPilion USS Million ZMS itllion US$ Uiltion Zi

L F T L F T L F T L f T1. Civit Sorks 29.2 6.9 36.1 20.1 4.8 24.9 3T.3 5.9 43.2 56.3 8.5 64.82. oitlers, Turbo

generators, piping 21.9 97.5 119.4 15.1 67.3 82.4 21.3 101.6 122.9 32.0 152.9 184.8

3. Other mech4nicalpLant 7.8 17.1 24.9 5.4 11.8 17.2 2.0 13.2 15.3 3.0 19.9 22.9

4. Other electricalptant 6.9 14.6 21.5 4.8 10.0 14.8 4.3 15.4 19.7 6.5 23.1 29.S

5. Transmissionline 26.0 28.4 54.4 17.9 19.6 37.5 14.8 6.7 23.5 22.3 11.8 34.0

6. Engineering 6.6 10.8 17.4 4.6 7.4 12.0 4.0 11.5 1S.S 6.3 17.3 23.57. Technical 3.6 10.9 14.5 2.5 7.5 10.0 15.2 24.2 39.5 25.3 39.6 64.8Assistance and T

6. Studies 0.3 1.5 1.8 0.2 1.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0Sub Total 102.3 187.7 290.0 70.6 129.4 200.0 99.1 180.5 279.6 151.5 M2.9 24.S

9. Contfgencies

Physicat 6.9 11.6 18.5 4.7 8.0 12.T 0.0 0.0 0.0 0.0 0.0 0.0Price 31.6 34.1 65.7 21.8 23.5 45.3 0.0 0.0 0.0 0.0 0.0 0.0

Sub Total 38.5 45.7 84.2 26.5 31.5 58.0 0.0 0.0 0.0 0.0 0.0 0.0TOTAL COST 140.8 233.4 374.2 97.1 160.9 258.0 99.1 180.5 279.6 151.5 M2.9 424.5

10. Nwange Spares 0.0 0.0 0.0 0.0 0.0 0.0 16.8 23.0 39.8 37.4 51.0 88.411. Distribution 0.0 0.0 0.0 0.0 0.0 0.0 2.3 13.S 1S.8 5.2 17.3 22.512. Vehicles 0.0 0.0 0.0 0.0 0.0 0.0 1.1 3.9 s.7 3.8 8.8 12.613. Train Si.uator 0.0 0.0 0.0 0.0 0.0 0.0 0.4 1.0 1.4 0.9 2.2 3.0

TOTAL 0.0 0.0 0.0 0.0 0.0 0.0 21.2 41.3 62.6 47.2 79.2 126.5CtAND TOTAL 140.8 233.4 374.2 97.1 160.9 258.0 120.3 221.9 342.2 198.7 352.2 550.9

*. .4

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B. Project Fhancng 1

So,ure Planned % Final %Loan Aggrenent (US$'OOO)

1BRDJIDA Expenditure Categories 105,000 23 105,000 23

Co-Financing Institutions 40,400 9 21,000 4

Other External Sources 182,800 40 195,960 46

Domestic 130,200 28 104,920 25

TOTAL 458,400 100 426,880 100

1 Including interest during construction

6. Project Results

A. Direct Benefits

FY 87 FY 90AppraW Acual Appras Actual

Sales (GWH) 10,681 8,181 12,964 8,852Max. Demand (MW) 1,880 1,342 2,278 1,538Hwange Generation (GWH) 5,500 3,442 5,500 4,102Average Tariff (Zc/kWh) 4.5 4.8 5.3 5.7

Comments:

Sales and system maximum demand did nt increase as rapidly as forecasL This wasprimarily the result of ecoitomic growth being much lower than fDrecast due to a combination ofworld recession, drought, and inappropriate government policies. Generaion by Hwange PowerStation was also substantially less than forecast in FY87 and FY90. In FY87, this was primarilydue to delayed completion of the Hwange Stage ll facility. In FY90, it was primarily due tooperating problems and equipment failure, particularly the loss of one generation transformer formost of the year, due to operator error. Average ariffs inraed slightly more rapidly tanforecast, due mainly to faster-than-projected devaluation of the Zimbabwe dollar, which inreaseddebt service costs.

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B. Economic Impact

Appraia ActualEAnmate (At lhnal Development)

* Rate of Rdurn 12.2% 13.1%

Underlying Assumptions:

1. All costs are expressed in 1982 constant prices.

2. Capital costs consist of the 1982-93 power investent program. Due to slower-han-forecastdemand growth and revision of the least cost development program, the esdmated actualinvestment program is substtally smaller and has radically different composition from theappraisal estimate.

3. Ihe period of analysis was 39 year in the appraisal estimate and 35 years in the actualesimate.

4. In the appraisal estimate, costs of local unskilled labor, local street and cement and coal wereshadow priced. No inputs were shadow priced in the actual estmate.

5. The appraisal estmate included residual values for generation investments subquent toHwange I and I. As no new generation facilities actually were or will be built betweenHwange H and the end of the investment program period (1993), no residual values wereincluded in the actual esdmated benefits stream.

Comments:

Actual benefits and costs are estimaed to be substnty less than the appraisal esmates dueto the over-estimation of demand and hence of the required investment program. The similarproportionate down-sizing of both the benefit and cost streams resulted in an estimated acueconomic rate of return very close to the appraisal esimate.

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C. Studies

Studies Purpoe Sat Impact

Energy Pricing ntoduce energy Completed Cal: co ed two tier pricingprices that would of power coal intoduced.encourage use ofenegy with lowesteconomic cost Electrici: National tariff introduced

10188 with lower cost recovery fromlarge consumers than recomded.

Zeboumi Reommended increases indiesel and kerosene prices notimlmne.

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7. Statwb of CW4ennt

Loan Covenant Status of Covenmnts/Compliance

3.02(a) ESC shall contf" to mptloy yes.engineering consultants for

* preparation of bid documents,evaluation of bids nd supervision ofconstruction. _-

3.02(b) ESC shall employ appropriat experts Yes, untit Rasnge operationsto provice technical assistance to support terminated in Decembermover sector utilities. 1990.

3.03 ESC shall appoint a project Yes.coordinator for construction.

5.02 ESC shall have its accounts audited No. Accounts have genorallyand furnish certified financial been aubmitted 2-4 months late.statements to the Bank not later thensix months after the end of eachfiscal year. _

5.04(a) ESC shall provide adequate assistance No. Comptiance In rYK andto the Guarantor in meeting its FY8, but not in later years.obligation to produce ftAds frominternal sources to contribute towardaverage capital expenditures of 30SIn FY84 AND 502 IN fy85 and 301,thereafter.

505(b) ESC shall not incur any debt if the No. Compliance only in FY84total debt incurred and outstanding and FY5.is greater than one and one-halftimes the capital and surplus of theESC.

Guarantee Aareement ___

3.01 The Governrent shall, by June 30, Vot fulty. Study cowpleted1984, complete an energy pricing 1/86. NMet recommendations notstudy and upon receipt of Bank's implemented.comments, shall iplement therecommendation by July 1. 1985. _

4.02 The Governrent shall maintain and Power planming adviserstrengthen the power sector platning appointed 11/85 through 11/8?.unit and shall eploy advisors to No successor appointed.

___________ assist the unit by June 30 1983.

4.06 The Government shll take or cause to No. Goverrment habe taken all measures required for consistently held tarifff below

* the Power Sector Utilities to provide the level necsary for ZESA tofunds from internl sources to emplty with the financialcontribute toward average capital covenants.expenditures an amount equal to 30XIn Y64 and 501 in 1985 nd 30Xthefeafter. _

4.07(b) Te GovernIent shall ensure that the No.Power Sector Utility does not incurany debt if the total debt incurredand outstandin is greater than oneand one half times the capital ndsurplus of the Power SectorUtilities.

4.08 The Government shall ensur that the Broadly less. Najor priorityPower Sector Utilities are provided inveStments have been funded.with funds required for carrying out Foreign xchange for operationsthe development program. has been in ad ate.

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8. Us of 8W ginak e

$to" inp.ft - st -* = =_-

1ea - _98 1983- 1-984 -~ e91 *ss' ''J.L 196 ,m 19s 1991 1992

Presaration 40.6 20.3

AoDraisat = 47.4 .5 - - - - - - -

Negatatiera= 4.6 22.1

Supervisfan 31.5 20.7 16.2 15.6 6.4 5.3 23.S 4.8

PCR, _; _ _ _ _ _ _ __1.4 1.6

B. Supervlsion Mision

DaysNumber of (All People

Year Persons Specialization Combined)

1983 2 1 Engineer 201 Finanancial Analyst

1984 2 1 Enconomist 101 Financial Analyst 20

1985 1 Power Engineer 10

2 Power Enginee 10Financa Analyst

4 Power Engineer isFimancial AnalystEconmistTraing Specit

1986 3 Power Engin 1Fmancial AnalystEconomist

1987 2 Power Enginee wDisbursement Office

1988 1 Economist S

S Energy Ecnomis (2) 20Financial AnalystPower Engies (2)

1989 2 Energy Economist 10Power Economist