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The World BankElectricity Supply Accountability and Reliability Improvement Project (P133446)

REPORT NO.: RES30134

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

ELECTRICITY SUPPLY ACCOUNTABILITY AND RELIABILITY IMPROVEMENT PROJECT

APPROVED ON JULY 15, 2014

TO

KYRGYZ REPUBLIC

ENERGY AND EXTRACTIVES

EUROPE AND CENTRAL ASIA

Regional Vice President: Cyril E Muller Country Director: Bolormaa Amgaabazar

Senior Global Practice Director: Riccardo PulitiPractice Manager/Manager: Sameer Shukla

Task Team Leader: Paivi Koljonen

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ABBREVIATIONS AND ACRONYMS

CCGT Combined Cycle Gas TurbineCMS Corporate Management SystemCO2 Carbon dioxideCRMS Corporate Resource Management SystemEIRR Economic Internal Rate of ReturnEMP Environmental Management PlanERP Enterprise Resource PlanningESARIP Electricity Supply Accountability and Reliability Improvement ProjectESMP Environmental and Social Management PlanFIRR Financial Internal Rate of ReturnGHG Greenhouse GasIBRD International Bank for Reconstruction and DevelopmentIP Implementation PerformanceISA International Standard of AccountingIFRS International Financial Reporting StandardKfW Kreditanstalt für WiederaufbauKGS Kyrgyz SomKVA Kilovolt-AmpherekWh Kilo Watt hourLRAIC Long-Run Average Incremental Costmcm Thousand cubic metersMIS Management Information SystemMWh Mega Watt hourNPV Net Present ValueOMS Outage Management SystemPAD Project Appraisal DocumentPDO Project Development ObjectivePPP Purchasing Power ParityVAT Value Added Tax


BASIC DATA

Product Information

Project ID Financing Instrument

P133446 Investment Project Financing

Original EA Category Current EA Category

Partial Assessment (B) Partial Assessment (B)

Approval Date Current Closing Date

15-Jul-2014 31-Dec-2019

Organizations

Borrower Responsible Agency

Kyrgyz Republic Severelectro OJSC

Project Development Objective (PDO)

Original PDOThe proposed development objective is to improve the reliability of electricity supply in the project area and strengthen the governance of Severelectro’s operations.OPS_TABLE_PDO_CURRENTPDOSummary Status of Financing

Ln/Cr/Tf Approval Signing Effectiveness ClosingNet

Commitment Disbursed Undisbursed

IDA-55150 15-Jul-2014 07-Apr-2015 29-Dec-2015 31-Dec-2019 13.75 4.60 7.98

IDA-H9720 15-Jul-2014 07-Apr-2015 29-Dec-2015 31-Dec-2019 11.25 10.17 0

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?No


I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

Background

1. The Electricity Supply Reliability and Accountability Project was approved by the Board of the World Bank on July 15, 2014. The Financing Agreements (Credit 55150-KG and Grant H9720-KG) were signed on April 7, 2015 and became effective 18 months later, on December 29, 2015. The Project has three components and is implemented by the largest electricity distribution company in Kyrgyz Republic, Severelectro. The project components are:

2. Component 1. Distribution Infrastructure Strengthening. This component helps improve power supply reliability and reduce losses in the distribution network by supporting priority investments to strengthen the distribution infrastructure of Severelectro. The component finances construction of three medium-voltage distribution substations in Bishkek and smart meters for high consumption customers in the largest cities in Chui district.

3. Component 2. Customer Service and Corporate Management System Improvement. This component finances incorporation by Severelectro of management information tools to improve quality of services provided to its customers and to enhance overall efficiency, transparency and accountability of its performance in all business areas. As per the original project design1, the specific Management Information Systems (MISs) and their technical and functional specifications were not determined at appraisal but were meant to be decided based on needs assessments during implementation and currently include the following:

(a) Commercial Management System (CMS): The CMS, financed by KfW, provides: (i) integrated management of the commercial cycle (metering, reading, billing, collection, and receivables accounting); and (ii) on-line management of a customer database.

(b) Outage Management system (OMS)2: The OMS complements the CMS. It supports customer services by improving network operations, aimed at ensuring good quality in power supply to customers. The OMS allows SE’s existing Service Quality Centers to better respond to client claims and complaints related to outages and other anomalies in electricity supply and ensure better quality of supply by automating the detection of distribution faults.

(c) Corporate Resource Management System (CRMS): The CRMS, usually identified as Enterprise Resource Planning system (ERP), is a non-utility specific information tool that supports efficient and transparent execution of processes and activities related to the following corporate functions: accounting; asset management; financial; human resources; procurement and logistics; project management; business planning and intelligence; and information management.

(d) Geographic Information system (GIS), Assets Management System (AMS), and Meter Data Management Software (MDMS. The GIS will help create and maintain a reliable database of customers and network assets while the AMS will support efficient maintenance of Severelectro’s network infrastructure and other assets. The MDMS will optimize management of the data provided by the 170,000 smart meters installed by

1 See Project Appraisal Document (Report No: PAD832)2 Referred to as Incidents Recording and Management System (IRMS) in the PAD.


Severelectro with financing from KfW and this Project for the purposes of revenue protection through reduction of non-technical losses (detection of frauds and other irregularities in consumption) and improving the accuracy of billing.

4. Component 3. Institutional Strengthening and Project Implementation Support. This component provides support for three key activities for the smooth implementation of the Project and sustainability of project outcomes: (a) strengthening of company-wide procurement processes; (b) improvement of corporate financial management capacity and business processes; and (c) support for project management, including monitoring and evaluation of project results and incremental operating expenses of the Project Implementation Unit (PIU).

Overall Project Status

5. Progress towards achievement of the Project Development Objective (PDO) is Moderately Satisfactory, while Implementation Progress (IP) is Moderately Unsatisfactory.

6. The DPO and IP ratings were downgraded to Moderately Satisfactory and Moderately Unsatisfactory respectively in November 2015 because of long delay in effectiveness and finalizing key procurement packages for substations and smart meters under Component 1 and Management Information Systems (MIS) under Component 2. The procurement delays were particularly unfortunate because the Project schedule was based on the use of advance procurement. Thus, the Project failed to achieve the Intermediate Results Indicators for two key activities, the MIS and smart meters, during the second year of implementation.

7. Following effectiveness on December 29, 2015, implementation started improving. The Project did not, however, make progress on the procurement of the ERP, which was a key element of the Management Information Systems. Hence, while the ratings for Component 1 and Component 3 were upgraded in December 2016, Component 2 was downgraded to Unsatisfactory due to lack of progress in procurement of the ERP. The overall ratings for PDO and IP have been retained at MS and MU respectively until now because the Project did not meet the targets for key results indicators.

Status by Component

Component 1. Distribution Infrastructure Strengthening

8. Distribution Substations. Construction of the substations were delayed because two of the locations changed after Board approval. Following the allocation of new land plots for the two substations by the Bishkek Municipality, Severelectro carried out new safeguards assessments for these sites. They did not highlight any major issues and the Environmental Monitoring Plans (EMPs) were disclosed in October 2016. The construction of the substations started in December 2016. Two of the substations were completed in November 2017 and the completion of the third is scheduled for July 2018 following the installation of the underground transmission cable that will connect it to the distribution grid. The installation of the cable fell behind schedule because it required two rounds of tendering since the first round resulted in higher than budgeted prices. There was also a delay in receiving approvals by the municipality for the cable’s final design and routing. The cable has now been manufactured, tested, and shipped to Severelectro. Civil works will start shortly and are scheduled to finish by July 2018.

9. Smart meters. The contract for the supply of 20,000 smart meters for high-consumption consumers was awarded in March 2016 and installation by Severelectro was completed by early 2017. Due to the lower than budgeted price of the first batch of the meters, an additional 20,000 meters were procured of which 19,000 were satisfactorily installed by


January 2018. The remaining 1,000 will be installed over the coming year. Under a separate KfW-financed project, Severelectro has installed 130,000 smart meters for lower consumption consumers.

Component 2. Customer Service and Corporate Management System Improvement

10. Outage Management System (OMS). The OMS was to be financed by IDA, but Severelectro decided to develop it in-house. The system is operational and has improved the quality of customer service by speeding-up the restoration of service due to failure of equipment (transformers, feeders, etc.). Severelectro’s IT department is finalizing improvements to its functionalities as recommended by the Bank team during the mid-term mission.

11. Commercial Management/Billing System (CMS). The CMS is at the final stage of optimization and will “go live” for all residential customers in Bishkek without smart meters by June 2018, i.e., the CMS will generate their June bills. Non-residential customers will be incorporated a few months later. To enhance the system’s integrity and accuracy, Severelectro has decided to incorporate a mobile phone application for meter readings and transfer of the readings to the billing module. The approach of using mobile phones with a software application is a more advanced solution than the “Hand-Held-Units” that the mid-term mission recommended for Severelectro, while providing the same functionalities. Technical specifications for the application are being finalized and procurement is expected to be completed by June 2018. The CMS was financed by KfW while the mobile application is financed by IDA.

12. Enterprise Resource Planning System (ERP). The procurement process for the ERP started in mid-2016 and was cancelled after the Government informed the Bank in September 2017 of its changed priorities for the sector, which included the decision to install a single ERP for all the energy sector entities. To increase efficiency, the Government wants to procure a standardized ERP for all the energy companies using a uniform technology platform and finance the system from other sources than IDA. Accordingly, the Government requested the cancellation of the ongoing procurement of the ERP under the Project. While the Energy Holding Company is preparing the call for bids to incorporate an ERP for all the energy sector companies, Severelectro decided to move faster by upgrading its existing ERP (developed by a Russian company 1S) with its own financing. The ERP is now operational.

13. While the ERP that Severelectro decided to adopt may not be as comprehensive as envisaged at appraisal, it does cover the critical corporate functions of financial management and accounting. In addition, when considering all the MISs that are included in Component 2, the Project will strengthen the governance of the Implementing Entity’s operations as stated in the PDO. Hence, the end-of-project target for the existing indicator that monitors the achievement of the PDO “Data generated through MISs available to SE management, regulatory authority and Government; selected data available to customers” is unaffected by the change in the financing source for the ERP.

14. Geographic Information system (GIS), Assets Management System (AMS) and Meter Data Management Software (MDMS). The GIS, AMS and MDMS were identified during implementation as important Management Information Systems to improve Severelectro’s commercial operations and complement the ERP. The determination was based on an assessment of Severelectro’s needs as per the Project’s design. Severelectro has already engaged a consultant to develop the technical specifications and bidding documents for the GIS. The system would be operational before the Project’s closing date. For the AMS and MDMS, the Bank team has provided Severelectro with examples from other countries along with sample bidding documents to help it to determine the technical functionalities best suited for the company’s needs. The final designs and implementation arrangements will be discussed during the next supervision mission in May 2018.


Component 3. Institutional Strengthening and Project Implementation Support3

15. Corporate Financial Management Strengthening. This sub-component improves the company’s financial accountability and reporting transparency through implementation and compliance with International Financial Reporting Standard (IFRS), equipping Severelecto’s staff with knowledge and expertise in financial reporting, enhancing institutional functions and reporting lines, assisting the company in addressing qualifications in the previous years’ audit reports, and preparing Severelectro for International Standards on Auditing (ISA) of its financial statements for the financial year ending December 31, 2018. A financial consultant has assisted Severelectro to develop the capacity of its accounting function, align its accounting policy with IFRS and improve the quality of financial statements, and the underlying accounting records. Severelectro now publishes its audited annual financial statements on the Company’s website. In addition, the Project is assisting Severelectro with the necessary steps to prepare the company for an ISA-based audit4. Hence, in March 2018, Severelectro entered into a contract with an audit firm to assist its management in assessing the company’s current accounting policies and procedures, identify gaps and weaknesses, and propose required changes with the objective for the company to be ready for an ISA-based audit by a reputable firm endorsed by the World Bank.

16. Corporate Procurement Strengthening. In March 2017, Severelectro hired an international consultant to assist the company with the preparation of standard bidding documents for design, supply, installation and commissioning of specially engineered plant and equipment, required for the company’s operations. The consultant has completed all the deliverables under the assignment, including: (a) assessment of the current public procurement framework in the Kyrgyz Republic; (b) preparation of standard bidding documents for design, supply and installation of plant and equipment; and (c) training of Severelectro and Government staff in the use of these bidding documents. Government approved the bidding documents through "Order 141-p" in October 2017.

Environmental and Social Safeguards

17. The Project has no environmental and social issues that should be addressed in the course of the restructuring. Severelectro has addressed all environmental and resettlement issues related to the construction of the substations satisfactorily. In addition, it has remedied all minor issues related to workers’ health and safety matters during the operation of the substations that the mid-term mission brought to their attention. The remaining civil works include the laying of about 3 km of 100 kV underground cable line for which an Environmental and Social Management Plan (ESMP) was developed and consulted upon by the Borrower and cleared by the Bank in March 2017. Severelectro prepared a draft RAP and sent it to the Bank for review in June 2017. Its finalization has, however, been delayed because the routing was changed during the detailed design work, which in turn delayed the required permits from the local authorities. The agreed deadline for the final RAP was January 31, 2018 but is now expected to be finalized by May 2018, following completion of the ongoing consultations and in any case before civil works can start.

Rationale

18. This is the first restructuring of the Project. The restructuring is required to update the financing arrangement for the ERP and finetune the results framework to incorporate better data that is now available from Severelectro.

3 Financing included US$0.47 million from the ECA Capacity Development Trust Fund.4 The procedures will include: proper inventory count as of the balance sheet date as per IAS 2; reconciliation of accounts receivable and payable with respective counterparts; identification and valuation of fixed assets; internal controls testing; correction of qualifications of prior year audits etc.


19. The restructuring will update the cost and financing estimates, update and correct the baselines and annual targets for some of the results indicators to align them better with the Project’s outcomes, clarify the description of Component 1 and update the economic and financial analyses.

20. The Government requested, in a letter dated September 22, 2017, excluding the ERP from the IDA financing and reallocating the released funds to finance other activities meeting the project goals. During the mid-term review of the Project in November 2017, the Bank team reviewed the project status and agreed with the Government on the modifications discussed in the next section.

II. DESCRIPTION OF PROPOSED CHANGES

Updating of Cost Estimate and Financing Plan

21. The total project cost estimate is largely unchanged (US$25.9 vs US$25.5 at appraisal) but the component costs have changed slightly based on actual contract costs to completion, exchange rate fluctuations, and some re-prioritization of the activities by the Recipient given the exclusion of the ERP from the IDA financing. These changes do not require any reallocation between disbursement categories because the Project only has one category.

22. The Project’s financing plan will change to include co-financing by Severelectro. Severelectro will provide co-financing of about $3.26 million equivalent5, which includes financing for the ERP, spare parts for the substations, equipment for substation maintenance, equipment for cable-line maintenance, calibration equipment for the meters, and customs duties and VAT for the remainder of the project period. Table 1 shows the revised cost and financing plan.

5 This includes financing Severelectro has received from KfW for the CMS. The final amount depends on the available IDA financing, which fluctuates with the US$/SDR exchange rate.


Table 1. Estimated cost and financing – Proposed compared to Appraisal estimates

Proposed Appraisal

Component Estimated costUS$ million

IDA financingUS$ million

Severelectro financing

US$ million

Estimated costUS$ million

IDA financingUS$ million

Component 1: Distribution Infrastructure Strengthening 19.25 18.8 0.46 16.0 16.0

Component 2: Customer Service and Corporate Management System Improvement

5.5 3.0 2.5 7.0 7.0

Component 3: Institutional Strengthening and Project Management Support

1.126 0.8 0.3 2.47 2.0

Total costs 25.87 23.0* 3.26 25.47 25.00* Based on SDR/US$ exchange rate of November 27, 2017. Including US$400,000 for contingencies.

Updating the Results Framework

23. PDO-level indicator 1 (Electricity losses per year in the project area). This indicator will be renamed as follows: “Electricity losses per year in Severeletro's distribution network”. The reason for this change is that Severelectro reports network losses for its entire network while data for “the project area” is hard to compile because the “project areas” for the substations and the smart meters do not coincide. The substations were constructed in the city of Bishkek while the smart meters were installed in the Chui district. The restructuring will also drop the sub-indicators for technical and non-technical losses and retain only the total network losses because Severelectro has informed the Bank that it currently cannot reliably split the data into technical and non-technical7.

24. In addition, the restructuring will restate the baseline and adjust the annual targets for this indicator. As stated in the PAD, the baseline and target values were considered unreliable at appraisal and the PAD recommended revising them during implementation when new data becomes available8. 25. Due to the installation of smart meters and more rigorous measuring techniques based on load flow analysis, Severelectro is now able to assess the level of total network loses more accurately than before. In addition, regular network rehabilitation and upgrading along with the installation of smart meters helped to reduce losses even before the Project started. The appraisal values were conservative estimates based on the best available data at that time and are no longer representative9.

6 Estimate is based on actual expenses so far, including actual cost of consultancy contracts, and projected expenses to project closing. 7 The economic and financial analyses, which use the model developed during appraisal, have split the losses into technical and non-technical using the Bank team’s and Severelecto’s calculations.8 The PAD states: “However, in the absence of adequate MISs, the reliability of baseline data and associated target values remains a keychallenge (e.g. technical and commercial electricity losses, duration of outages). Therefore, the baseline data and target values may need to be revised during project implementation…”9 The appraisal estimate of total losses were 22 percent in the 2014 base year, reducing to 18 percent by the end of the project in 2019. The February 2018 document “The State of the Kyrgyz Energy Sector”, prepared by the Bank’s energy team quoted official data estimating Severelectro’s total losses to be about 17 percent in 2014 and 13 percent in 2017. However, the document urged careful interpretation of the data as the numbers may be optimistic. Based on information received from Severelectro, the restructuring has estimated the total losses at 15 percent for 2016 (the revised base year), declining to 13 percent by end-2019. These numbers will need to be monitored and updated, as required, during the remaining implementation period.


26. The restructuring has therefore adjusted the loss data based on the new information obtained from Severelectro. The baseline year will be set for 2016 (2014 originally), which is the year when implementation started following effectiveness in December 2015. The values for the baseline and the annual targets for subsequent years will take into account the reduction in losses that Severelectro has been able to achieve with the help of the KfW-financed smart metering project and the company’s own investments, which were not considered when the Project was appraised.

27. PDO-level indicator 2 (Total net injected generation). This indicator will be deleted because it is redundant. It is used to calculate network losses.

28. PDO-level indicator 3 (Duration of outages per 1,000 customers reduced). The definition of this indicator will be corrected to read “Average duration of outages in Severelectro's network (minutes/1,000 customers)”. PAD refers to hours/1,000 customers while the correct definition is “average minutes/1,000 customers”. The baseline and annual targets will be revised based on official data and updated forecast.

Clarification of Component Descriptions

29. Component 1 – Distribution infrastructure strengthening. The restructuring will clarify that, in addition to substations, this component will also finance the connection of the substations to the national grid, including an underground transmission cable for the Bishkek substation without which the substation would not be operational. This clarification is consistent with the description of Component 1 in the Financing Agreement, which refers to improving power supply reliability and will therefore not trigger an amendment of the Financing Agreement.

Appraisal Summary Change in Economic and Financial Analysis

30. The economic and financial analyses of the Project were updated to evaluate the flow of economic and financial benefits and costs associated with the restructuring of the Project, which envisages increase in installed smart meters from 20,000 to 40,000 under Component 1 and will include financing the installation of Geographic Information System (GIS), Assets Management System (AMS) and a Metering Data Management (MDM) system, as part of the Management Information Systems. All economic costs and prices are exclusive of inflationary effects and applicable taxes and duties.

Project economic analysis

31. The main economic benefits of the Project, associated with Component 1 (Distribution Infrastructure Strengthening) and Component 2 (Customer Service and Corporate Management System Improvement), at the restructuring stage are similar to the benefits estimated at the appraisal stage and include:

a) Reduction of technical losses: Investments in rehabilitation, reinforcement and upgrading of currently undersized and overloaded distribution networks will allow for reduction of technical losses from the revised baseline value of 13 percent in 2016 to target value of 12.0 percent in 2018. This reduction of technical losses would help avoid generation costs and additional investments in transmission and distribution. The economic cost of avoided electricity supply was evaluated using long-run average incremental cost (LRAIC) of power supply assumed to be equal to the levelized cost of energy supplied by a 250MW Combined Cycle Gas Turbine (CCGT), calculated at plant gate price of natural gas of US$256/mcm in Kyrgyz Republic as of December 2017 and estimated at US$0.082/kWh, including transmission and distribution margin of US$0.025/kWh.


b) Improved reliability of power supply: The infrastructure rehabilitation and upgrading is expected to reduce the average duration of power outages from the revised baseline value of 16 minutes per 1,000 customers in 2017 to 15 minutes per 1,000 customers in 2019, which will result in an increase of power available to Severelectro’s customers as they will be able to consume power during periods in which they currently suffer interruptions in supply. The economic value of this energy not served was evaluated using the assessed willingness-to-pay of US$0.069/kWh from the project appraisal stage.

c) Economic savings from reduced consumption: The installation of 40,000 smart meters and the MISs and strengthening of governance is expected to reduce non-technical losses from the revised baseline value of 2.0 percent to 1.0 percent in 2018. Most of the benefits have already been realized in 2017, when the number of installed meters was around 35,000. As the global and regional experience of power sector reforms indicates, about one third of this non-technical loss reduction will translate to reduced power consumption, which is valued at the LRAIC of US$0.082/kWh.

32. The main economic costs of the Project include investment costs, incremental operating and maintenance expenses and welfare losses associated with the reduced consumer surplus resulting from reduction of power consumption, as explained above. The reduced consumption is valued at the expected average end-user electricity tariff of 152 tiyin/kWh or US$0.022/kWh10 for 2018.

a) Greenhouse Gas (GHG) emission reduction: Over the project evaluation period the reduction of power consumption and by consequence the avoided power generation will result in GHG emission reduction by 56kgCO2. The power grid emission factor is assumed to be 0.08tCO2/MWh. Following the recommendation of the World Bank Guidance on Shadow Price of Carbon in Economic Analysis (November 2017), the Project economic Net Present Value (NPV) and Economic Internal Rate of Return (EIRR) were evaluated for low and high estimates of the carbon price starting at US$40 and US$80, respectively, in 2020 and increasing to US$50 and US$100 by 2030.

b) Results: The economic analysis of the Project, exclusive of avoided CO2 emission benefits, yielded an economic NPV of US$17.6 million and an EIRR of 30.9 percent. The EIRR is higher than the appraisal estimate of 18.5 percent, which is predominantly explained by the use of the LRAIC herein to evaluate technical loss reduction vs. the use of short-run marginal cost of power supply at appraisal. The LRAIC is the estimated cost of meeting the forecast electricity demand with required investments in new generation, transmission, and distribution, thus it is considered a better estimate of the avoided long-term cost of power supply. The economic analysis of the Project, inclusive of avoided CO2 emission benefits, yielded an economic NPV and EIRR of US$19.1 million and 33.2 percent respectively using the low estimate of the carbon price and an economic NPV of US$20.7 million and an EIRR of 35.6 percent using the high estimate of the carbon price.

c) Sensitivity analysis: Sensitivity analysis confirmed the robustness of the estimated project economic returns to 20 percent less than expected reduction in technical losses and the increase of the investment cost by 20 percent. The results of the sensitivity analysis suggest that the Project remains economically viable even if both parameters change simultaneously.

Project Financial Analysis

10 Converted at USD/KGS exchange rate of 69.0 as of December 31, 2017.


33. The Project’s financial benefits include: (i) savings as a result of lower power purchases valued at average purchase cost of electricity for Severelectro; and (ii) additional revenue generated due to increased sales from the portion of non-technical losses that will be converted to additional billing valued at the average end-user electricity tariff. In the base case, both the purchase cost of electricity and average end-user electricity tariff are assumed to grow at forecast rate of inflation11 for Kyrgyz Republic. The USD/KGS foreign exchange rate is forecast using the Purchasing Power Parity (PPP) approach.

34. The main financial costs of the Project are the investment costs and incremental O&M costs, both estimated inclusive of applicable taxes and duties.

35. Financial cost and benefit streams were discounted at the rate of 4.87 percent, which is equal to the weighted average cost of financing of Components 1 and 2, assuming Severelectro’s co-financing in the amount of US$2.96 million. The cost of Severelectro’s own funds was assumed at 20 percent, the estimated cost of its equity.

36. The financial analysis of the Project yielded a negative financial NPV of US$6.7 million and a negative Financial Internal Rate of Return (FIRR) of 4.0 percent compared to the original NPV of US$11.9 million and FIRR of 13.6 percent. This is because of the revision of electricity loss reduction expectations, which are lower than those at the appraisal stage. The electricity loss reduction estimates were revised downward as Severelectro has reported significant reduction in commercial losses in recent years deriving from a KfW-financed smart metering project. 37. Sensitivity analysis was conducted to ascertain the effect of no end-user electricity tariff increase and a 20 percent increase in investment cost on the financial viability of the Project. The switching-value analysis indicates that annual non-technical losses would need to decrease from the currently estimated 2.0 percent to 0.3 percent or technical losses would need to decrease from the currently estimated 12.5 percent to 11.0 percent for the Project to reach break-even financial return.

11 Source: World Economic Outlook, October 2017


III. SUMMARY OF CHANGES

Changed Not Changed

Change in Results Framework ✔

Change in Components and Cost ✔

Change in Disbursement Estimates ✔

Other Change(s) ✔

Change in Economic and Financial Analysis ✔

Change in Implementing Agency ✔

Change in DDO Status ✔

Change in Project's Development Objectives ✔

Change in Loan Closing Date(s) ✔

Cancellations Proposed ✔

Reallocation between Disbursement Categories ✔

Change in Disbursements Arrangements ✔

Change in Overall Risk Rating ✔

Change in Safeguard Policies Triggered ✔

Change of EA category ✔

Change in Legal Covenants ✔

Change in Institutional Arrangements ✔

Change in Financial Management ✔

Change in Procurement ✔

Change in Implementation Schedule ✔

Change in Technical Analysis ✔

Change in Social Analysis ✔

Change in Environmental Analysis ✔

IV. DETAILED CHANGE(S)

OPS_DETAILEDCHANGES_RESULTS_TABLE

RESULTS FRAMEWORK

Project Development Objective Indicators PDO_IND_TABLE


Electricity losses per year in Severeletro's distribution networkUnit of Measure: PercentageIndicator Type: Custom

Baseline Actual (Current) End Target Action

Value 15.00 14.50 13.00 New

Date 30-Jun-2016 31-Dec-2017 31-Dec-2019

Average duration of outages in Secerelectro's network (minutes/1000 customers)Unit of Measure: MinutesIndicator Type: Custom


Value 16.00 16.00 15.00 New

Date 30-Jun-2016 31-Dec-2017 31-Dec-2019

Share of customers satisfied with SE's services increasedUnit of Measure: PercentageIndicator Type: Custom


Value 0.00 0.00 10.00 No Change

Date 30-Oct-2015 30-Nov-2017 31-Dec-2019

Share of female customers satisfied with SE’s services increasedUnit of Measure: PercentageIndicator Type: Custom Supplement



Share of customers from low income groups satisfied with SE’s services increasedUnit of Measure: PercentageIndicator Type: Custom Supplement




Reliable operational and financial data available to the management of SE and key external stakeholdersUnit of Measure: TextIndicator Type: Custom


Value n/a

Some data generated through MIS (Commercial Management System, Outage Management System) is available.

Data generated through MISs available to SE management, regulatory authority and Government; selected data available to customers

No Change

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Electricity losses per year in the project areaUnit of Measure: PercentageIndicator Type: Custom


Value 22.00 22.00 18.00 Marked for Deletion

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Total net injected generationUnit of Measure: Megawatt hour(MWh)Indicator Type: Custom Supplement



Electricity losses per year in the project area- TechnicalUnit of Measure: PercentageIndicator Type: Custom Supplement



Electricity losses per year in the project area- Non-TechnicalUnit of Measure: PercentageIndicator Type: Custom Supplement




Duration of outages per 1,000 customers reducedUnit of Measure: HoursIndicator Type: Custom



Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Intermediate IndicatorsIO_IND_TABLE

Capacity addedUnit of Measure: Kilovolt-Amphere(KVA)Indicator Type: Custom


Value 0.00 32000.00 54000.00 No Change

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Meters installedUnit of Measure: NumberIndicator Type: Custom


Value 0.00 35000.00 38000.00 Revised

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

MISs incorporated and operationalUnit of Measure: TextIndicator Type: Custom

Baseline Actual (Current) End Target ActionValue None Commercial

Management/Billing System (CMS) nearing completion. Outage

MISs in use as evidenced by 95% of: (i) customers metered and billed using CMS;

No Change


Management System (OMS) is in use through four distribution Operations Centers is and helping to speed-up the restoration of service due to equipment failures. ERP system is being upgraded.

(ii) commercial complaints attended using CMS; and (iii) complaints for outages using IRMS

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Direct project beneficiariesUnit of Measure: NumberIndicator Type: Custom


Value 0.00 217000.00 527000.00 No Change

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Female beneficiariesUnit of Measure: PercentageIndicator Type: Custom Supplement



IFRS appliedUnit of Measure: TextIndicator Type: Custom


Value None

Alignment of accounting policies with IFRS is ongoing and staff is in training.

Financial Statements are in accordance with IFRS and audited by independent private auditor acceptable to the Bank

No Change

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

Transparency and fairness in procurement improved


Unit of Measure: TextIndicator Type: Custom


Value None

Assessment of the current public procurement framework in Kyrgyz Republic and preparation of standard bidding documents for design, supply and installation of plant and equipment completed. Ministry of Finance approved the single stage Standard Bidding Documents (SBD) through "Order 141-p" in October 2017. Two-stage SBDs for design, supply and installation of plant and equipment and training of procurement staff on the use of the new bidding documents is ongoing.All procurement is through e-Government and tenders are advertised on Secerelectro's website.

Tenders through e-Government Procurement issued, and 100% of invitation for bid and contract award results (following competitive tenders) are published on SE’s website

No Change

Date 28-Feb-2014 30-Nov-2017 31-Dec-2019

OPS_DETAILEDCHANGES_COMPONENTS_TABLE

COMPONENTS

Current Component Name

Current Cost

(US$M)Action Proposed

Component NameProposed

Cost (US$M)

Distribution Infrastructure Strengthening 16.00 Revised Distribution Infrastructure

Strengthening 19.25


Customer Service and Corporate Management System Improvement

7.00 RevisedCustomer Service and Corporate Management System Improvement

5.50

Institutional Strengthening and Project Implementation Support 2.47 Revised

Institutional Strengthening and Project Implementation Support

1.12

TOTAL 25.47 25.87

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE

DISBURSEMENT ESTIMATES

Change in Disbursement EstimatesYes

Year Current Proposed

2015 0.00 0.00

2016 442,126.93 442,126.93

2017 4,719,301.73 4,719,301.73

2018 9,000,000.00 11,287,368.00

2019 9,500,000.00 7,000,000.00

2020 1,338,571.33 2,228,773.00