• The project is rated relevant in view of its consistency with the Strategy of the Bank, the Borrower and other development partners. The project relevance today is further enhanced by its future role in the ZiZaBoNa regional power corridor. However, as regards quality-at-entry, the project is unsatisfactory. The project design has six main deficiencies related to risk and assumptions assessment, namely (i) it failed to acknowledge the looming Zambia supply shortage, (ii) it was based on over-estimated demand growth, (iii) it failed to commit NamPower to offtake at the planned supply level, (iv) other initiatives in the power sector were overlooked and it was assumed that the required supporting transmission and distribution projects in Western Zambia would take place naturally, (v) there were shortcomings with the configuration of the project as optimal supply option (given the multiple roles of the project) as well as (vi) specific environmental planning and management shortcomings

• The project is rated effective but there are shortcoming regarding the achievement of intermediate and long term results. All physical outputs have been achieved, although some design issues have been identified and the capacity provided for in the Power Purchase and Sales Agreement (PPSA) is significantly below the line capacity. The short-term results related to increased power transfer and sales to Namibia have either already been achieved or have good prospects of being achieved. The measures for improved electricity distribution in Western Zambia show that although more customers are connected, their quality of supply is lower. Similarly, the intermediate results for power trade are positive but not at the distribution level. These results reflect the fact that the power transfer and sales objectives became more prominent than the distribution-related objectives in the course of the project.

• The project experienced significant project implementation delays (approximately 57 months) that could have been avoided by prompt action and active management by the EA and the Borrower. Comparison with similar projects in the region shows that the project was not over-priced. The costeffectiveness of line operations is within or close to international norms. A high FIRR is projected due to unanticipated events, specifically the arrangement to wheel power for ZESA/NamPower. The FIRR is in excess of the Appraisal but there is only a small projected economic premium over-and-above the financial return. The project efficiency is rated unsatisfactory.

• Project sustainability is rated as satisfactory, even though there are some residual risks associated with social and institutional sustainability. There are good prospects in terms of policy and political sustainability as the GRZ has laid down the development path for the electricity sector. This entails the commercialisation of the sector (increased autonomy to and financial self-reliance of ZESCO, allowing private suppliers, independent regulatory oversight by the Energy Regulation Board (ERB) and handling of social objectives via Rural Electrification Agency (REA) within an integrated resource planning environment managed by GRZ (Ministry of Energy and Water Development). From a technical and environmental perspective there are no major risks. As far as financial sustainability is concerned, the FIRR assessment shows that once the NamPower supply agree ment is fully operational, the project financial returns are likely to be strong, providing an acceptable return on the initial investment. ZESCO has performed unsatisfactorily against the ERB’s Key Performance Indicators (KPIs) but the trend of the company’s financial performance shows some improvement.

• Nonetheless, social expectations in Western Zambia have not yet been met. Institutionally, there are project management capacity issues that need to be improved upon such as record keeping of operational performance and also documentation on the costing of the operation and maintenance of the interconnector, operation and maintenance at distribution level and maintenance planning and implementation. In addition, the project is not fully ringfenced from the rest of ZESCO and thus is exposed to the overall financial position of the company. Furthermore, top management turnover has been quite high in the recent years.

• Other development impacts which can reasonably be anticipated have yet to be realised due to project delays and the fact that the project was not properly aligned with the REA and ZESCO Distribution programmes (although some distribution initiatives are now being pursued under the recentlyapproved Rural Electrification Master Plan – REMP). However, the project implies the supply of “clean” (hydro) power to Western Zambia and the Eastern Caprivi region of Namibia rather than high carbon content charcoal and diesel-based generation. No communities were resettled away from their community and family or traditional land. The extent of the resettlement entailed moving individual family units, where necessary, out of the power line servitude (due to the health and safety risks), onto adjacent land. Communities were therefore not displaced, and were more than adequately compensated monetarily.

• The overall Borrower performance is unsatisfactory. Although the project has achieved its power transfer objectives and is being operated well, there were various shortcomings  related to the overall project management, including covenants complied with late, a project redesign mid-stream which did not take into account all integration components, delays in implementation and weak post-project monitoring and evaluation (M&E).

• The Bank performance is equally unsatisfactory. The Bank was not demanding of the project design and feasibility investigations, it did not manage the implications of the change in project design and did not intervene to manage delays during implementation. The Bank supervision assumed the project outcomes had been achieved without specifically confirming that it was indeed the case.

 

• Transmission projects can only achieve targets beyond short-term objectives of power transfer if they are backed up by the next links in the delivery chain (further transmission or distribution system);
   
• Transmission interconnector projects are complex. They involve many stakeholders, and are exposed to the electricity markets and exogenous factors of two or more countries so that their environment is particularly dynamic;

• The assessment of downstream demand and the contractual arrangement to secure that demand are crucial to secure commercial protection and off-take agreements;

• The elevation of this type of project to a category 1 would have ensured that a thorough EIA was conducted, identifying detailed and specific environmental and social aspects which would then have been adequately mitigated through a project and issues-specific Environmental and Social Management Plan (ESMP); 

• Understanding the interplay between the project and policy dialogue and sector reform (including policies on tariffs and cost-recovery) is essential to project sustainability;
• Availability of monitoring data and statistics on the performance of the transmission line helps improve Zesco efficiency and operational effectiveness; 

 

Recommendation(s) to the Bank and the Beneficiary:

• Transmission projects should be designed with identified supporting programmes for which responsibilities are clearly assigned. Transmission projects should be “stress tested” to establish whether the building blocks are in place to ensure that the longer-term objectives are realised. Also, the appraisal of similar projects should be more demanding in terms of the assessment of risks and assumptions, revision of preliminary designs at feasibility stage as well as the inclusion of adequate mitigation measures. It is recommended that the Bank thoroughly scrutinize feasibility studies and put increased focus on preparatory missions before appraisal

• The environment within which the project is carried out should be continuously monitored to determine whether crucial assumptions still apply. ,Where applicable the Bank and the Borrower should be willing to learn from mistakes made during formulation and in the course of the implementation and take responsibility to mitigate them. There should be regional oversight and guidance, and possibly also credit-enhancing tools (to offset risk that becomes unbearable for one party in the interconnector arrangements). This function can perhaps reside with SAPP.

• Future transmission projects as well as interconnector projects that involve local supply should also plan to provide for the distribution of reliable and affordable electricity at the local level in order to enhance socio-economic impact.

Recommendation(s) to the Bank:

• Given the importance and complexity of the PPSA concerning technical, commercial and legal issues, the Bank in future similar operations should consider the possibility of providing assistance to its regional member countries in drafting and negotiating PPSAs that are advantageous for all parties involved, based on a thorough risk assessment. Mechanisms for updating the risk assessment should be agreed by the Parties. The Bank’s supervision should put greater emphasis on the financial and contractual arrangements in place.

• Although in-country requirements may only require a PB, the Bank will safeguard its reputation by taking a more precautionary approach, and similarly align itself with international best practice on safeguard policy.

• Loan covenants and undertakings for similar operations should be further enhanced and coupled with complementary assistance such as Economic and Sector Work (ESW). It is also recommended that the Bank explore compulsory measures in order to enforce loan conditions that are key to project sustainability;

• Although the substations are managed and maintained in a satisfactory manner, future Bank’s operations may explore the reinforcement of institutional capacity in terms of tracking system and record keeping of operational data.