Document of
The World Bank

Report No: ICR00002455

IMPLEMENTATION COMPLETION AND RESULTS REPORT
(TF-92336 TF-94587)
ON
TRUST FUND GRANTS
IN THE AMOUNT OF US$14.5 MILLION
TO THE
WEST BANK AND GAZA
FOR AN
ELECTRIC UTILITY MANAGEMENT PROJECT
March 24, 2017
Energy Global Practice (GEEDR)

Middle-East & North Africa Region (MENA)

CURRENCY EQUIVALENTS

(Exchange Rate Effective 07/01/2016)

Currency Unit =

NIS1.00 = US$ 0.26

US$ 1.00 = NIS 3.85

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AFD / AgenceFrançaise de Développement
AMRs / Automatic Meters Reading Systems
COGAT / The Coordinator of Government Activities in the Territories
CPS / Country Partnership Strategy
DISCOs / Distribution Companies
DO / Development Objective(s)
EE / Energy Efficiency
EIB / European Investment Bank
EIRR / Economic Internal Rate of Return
ESPIP / Electricity Sector Performance Improvement Project
EUMP / Electric Utility Management Project
FCV / Fragility, Conflict, and Violence
GEDCO / Gaza Electricity Distribution Company
GIS / Geographic Information System
GWh / Giga Watt hour
HEPCO / Hebron Electric Power Company
HV / High Voltage
ICR / Implementation Completion and Results Report
ICT / Information and Communications Technology
IEC / Israel Electric Corporation Ltd.
IP / Implementation Progress
ISR / Implementation Status and Results Report
IT / Information Technology
JDECO / Jerusalem District Electric Company
KPIs / Key Performance Indicators
kWh / kilo Watt hour
M&E / Monitoring and Evaluation
MCs / Municipal Councils
MIS / Management Information System
MOF / Ministry of Finance
MS / Moderately Satisfactory
MTR / Mid-Term Review
MV / Medium-Voltage
MW / Mega Watt
NBF / Non-Bank Financed
NEDCO / Northern Electricity Distribution Company
NIS / New Israeli Shekel
NL / Net Lending
NPV / Net Present Value
OCC / Opportunity Cost of Capital
PA / Palestinian Authority
PAD / Project Appraisal Document
PDO / Project Development Objective(s)
PENRA / Palestinian Energy And Natural Resources Authority
PERC / Palestinian Energy Regulatory Commission
PETL / Palestinian Energy Transmission Company
PMU / Project Monitoring Unit
PPA / Power Purchase Agreement
PWC / Pricewaterhouse Coopers
RE / Renewable Energy
RP / Restructuring Paper
S / Satisfactory
SED / Securing Energy for Development
SELCO / Southern Electric Company
TA / Technical Assistance
TEDCO / Tubas Electricity Distribution Company
TF / Trust Fund
TOR / Terms of Reference
TSO / Transmission System Operator
TTL / Task Team Leader
VAT / Value-Added Tax
VCs / Village Councils
WB / West Bank
WB&G / West Bank & Gaza

Vice President:

/

Hafez M. H. Ghanem

Senior Global Practice Director:

/

Riccardo Puliti

Country Director:

/

Marina Wes

Sector Manager:

/

Erik Magnus Fernstrom

Project Team Leader:

/

Roger Coma Cunill

ICR Team Leader:

/

Emmanuel Py

WEST BANK AND GAZA
ELECTRIC UTILITY MANAGEMENT PROJECT
CONTENTS
Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Project Performance in ISRs
H. Restructuring
I. Disbursement Graph
1. Project Context, Development Objectives and Design
2. Key Factors Affecting Implementation and Outcomes
3. Assessment of Outcomes
4. Assessment of Risk to Development Outcome
5. Assessment of Bank and Borrower Performance
6. Lessons Learned
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
Annex 1. Project Costs and Financing
Annex 2. Outputs by Component
Annex 3. Special Annex on Net Lending and DISCOs’ Payment Performance
Annex 4. Economic and Financial Analysis
Annex 5. Bank Lending and Implementation Support/Supervision Processes
Annex 6. Beneficiary Survey Results
Annex 7. Stakeholder Workshop Report and Results
Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR
Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders
Annex 10. List of Supporting Documents
MAP

1

A. Basic Information

Country: / West Bank and Gaza / Project Name: / Electric Utility Management Project
Project ID: / P084461 / L/C/TF Number(s): / TF-92336 and TF-94587
ICR Date: / 03/24/2017 / ICR Type: / Core ICR
Lending Instrument: / SIL / Borrower: / Palestine Liberation Organization (for the benefit of the Palestinian Authority)
Original Total Commitment: / USD 12.0M / Disbursed Amount: / USD 14.5M
Revised Amount: / USD 14.5M
Environmental Category: B
Implementing Agencies:
Palestinian Energy And Natural Resources Authority - (PENRA)

B. Key Dates

Process / Date / Process / Original Date / Revised / Actual Date(s)
Concept Review: / 05/29/2007 / Effectiveness: / n/a / 09/30/2008
Appraisal: / 04/01/2008 / Restructuring(s): / n/a / 07/14/2009[1]
03/18/2011
09/04/2013
12/22/2015
Approval: / 05/15/2008 / Mid-Term Review / n/a / 12/08/2011
Closing: / 09/30/2013 / 09/30/2016

C. Ratings Summary

C.1 Performance Rating by ICR
Outcomes: / Moderately Satisfactory
Risk to Development Outcome: / Moderate
Bank Performance: / Moderately Satisfactory
Borrower Performance: / Moderately Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank / Ratings / Borrower / Ratings
Quality at Entry: / Moderately Unsatisfactory / Government: / Satisfactory
Quality of Supervision: / Moderately Satisfactory / Implementing Agency/Agencies: / Moderately Satisfactory
Overall Bank Performance: / Moderately Satisfactory / Overall Borrower Performance: / Moderately Satisfactory
C.3 Quality at Entry and Implementation Performance Indicators
Implementation Performance / Indicators / QAG Assessments (if any) / Rating
Potential Problem Project at any time (Yes/No): / No / Quality at Entry (QEA): / None
Problem Project at any time (Yes/No): / No / Quality of Supervision (QSA): / None
DO rating before Closing/Inactive status: / Satisfactory

D. Sector and Theme Codes

Original / Actual
Sector Code (as % of total Bank financing)
Central government administration / 10 / 10
Power / 90 / 90
Theme Code (as % of total Bank financing)
Infrastructure services for private sector development / 33 / 33
Access to urban services and housing / 34 / 34
Regulation and competition policy / 33 / 33

E. Bank Staff

Positions / At ICR / At Approval
Vice President: / Hafez M. H. Ghanem / Daniela Gressani
Country Director: / Marina Wes / A. David Craig
Sector Managers: / Erik Magnus Fernstrom / Jonathan Walters
Project Team Leader: / Roger Coma Cunill / SominMukherji
ICR Team Leader: / Emmanuel Py
ICR Primary Author: / Emmanuel Py

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

Original PDO[2] (from the Trust Fund Grant Agreement):

Reduce the fiscal burden of the power sector on the Recipient’s budgetary resources, through efficiency enhancement measures aimed at lowering deductions from clearance revenues for arrears owed to the IEC, including: (a) improved collection performance; (b) lower technical and non-technical losses; (c) reduction in payables to IEC on account of electricity purchases; (d) consolidation and increase in the number of electricity consumers; and (e) ensuring that NEDCO is fully operational.

Revised Project Development Objectives (as approved by original approving authority)

Revised PDO (from the Restructuring Paper, Sept. 4, 2013):

Establish and strengthen key energy sector institutions to enhance collection performance of electricity bill payments, and restore power distribution systems in conflict-affected areas.

(a) PDO Indicator(s)

Indicator / Baseline Value / Original Target Values (from approval documents) / Formally Revised Target Values[3] / Actual Value Achieved at Completion or Target Years
Indicator 1: / Net lending on account of power sector arrears to IEC was at US$240 million at the end of 2007; this will need to be reduced gradually to about US$40 million by the end of the project.
Value: / 917 million NIS ($240 million) / $40 million / Indicator canceled in Sept. 2013 / 1017 million NIS ($264 million)
Date achieved / 12/31/2007 / 09/30/2013 / 9/30/2016 / 12/31/2015 (latest data)
Comments /
  • The inclusion of the Gaza share of net-lending (55% on average) is a major design flaw of the original project because, since 2003, GEDCO no longer pays IEC, even indirectly through PENRA, thus, since then, all IEC sales to Gaza are paid through net lending, thereby rendering the project unaccountable for reducing the Gaza share of net lending.
  • In the case of the West Bank, between 2008 and 2013, the ratio of net lending to IEC purchases has been reduced by a factor of 3.See Annex 3 for the discussion on net lending and the achievements between 2008 and 2013.

Indicator 2: (Added in Sept. 2013) / At least three distribution utilities reach a 75% collection performance
Value: / No / None / Yes / Yes
Date achieved / 4/22/2008 / 9/30/2013 / 9/30/2016 / 9/30/2016
Comments / Achieved. Achieved by four West Bank’s DISCOs (JDECO: 90.5%, SELCO: 79.2%, HEPCO: 90.0%, and NEDCO: 98.4%).
Indicator 3: (Added in Sept. 2013) / PERC adopts a revised unified tariff for West Bank and Gaza
Value: / No / None / Yes / Yes
Comments / Achieved.The first unified tariff was issued by PERC in June 2011.
Indicator 4: (Added in Sept. 2013) / Establishment of PETL as evidenced by (i) Bank-approved business plan and (ii) nine staff recruited
Value: / No / None / Yes / Yes
Date achieved / 4/22/2008 / 9/30/2013 / 9/30/2016 / 9/30/2016
Comments / Achieved.
Indicator 5: (Added in Sept. 2013) / Establishment of NEDCO as evidenced by issuance of first invoice to residential customer
Value: / No / None / Yes / Yes
Date achieved / 4/22/2008 / 9/30/2013 / 9/30/2016 / 9/30/2016
Comments / Achieved.
Indicator 6: (Added in Sept. 2013) / Indicator Five: Direct Project Beneficiaries (number), of which female (%)
JDECO:
SELCO:
HEPCO:
GEDCO:
NEDCO:
Female (%) / 182,657
14,790
30,300
154,163
-
49% (female) / 193,875
40,000
35,266
180,453
63,148
None / 240,000
40,000
34,800
192,000
200,000
49% (female) / 245,202
28,857
45,660
221,792
101,029
52% (female)
Date achieved / 4/22/2008 / 9/30/2013 / 9/30/2016 / 9/30/2016
Comments / Original target achieved. Achievement rate of revised target was 91% against target (642,540 consumers against the aggregate target of 706,800). 52% rate of female consumers achieved.
Indicator 7: (Added in Sept. 2013) / Number of distribution transformers restored in Gaza
Value: / 0 / None / 51 / 51
Date achieved / 4/22/2008 / 9/30/2013 / 9/30/2016 / 9/30/2016
Comments / Achieved.
(b) Intermediate Outcome Indicator(s)
Indicator / Baseline Value / Original Target Values (from approval documents) / Formally Revised Target Values / Actual Value Achieved at Completion or Target Years
Date achieved / 4/22/2008 / 9/30/2013 / 9/30/2016 / 9/30/2016
Indicator 1: / Technical and non-technical losses
JDECO
SELCO
HEPCO
GEDCO
NEDCO
Weighted Average[4] / 19.8%
19.7%
17.5%
24.0%
12.2%
20% / 16.0%
16.0%
11.0%
14.0%
10.2%
14% / Indicator canceled in Sept. 2013 / 23.9%
32.9%
20.4%
26.2%
16.6%
23%
Comments / Not achieved. However the collection rate x (1 - losses) ratio - indicating the actual share of electricity received by West Bank’s DISCOs (contributing directly to net lending) that was paid by end-consumers - went up from 41% in 2007 to 64% in 2013 and to 75% in 2015, compensating by far increased losses (see Annex 3). This increase in losses around 2012-2013 might be due to: (i) increased non-technical losses (electricity theft) because of the significant IEC tariff increase (33%, from 0.33 NIS/kWh to 0.44 NIS/kWh in 2013); and (ii) increased losses because of the gradual taking over by the DISCOs (especially NEDCO and SELCO) of electricity operating assets of the municipalities and village councils in their areas (which had higher technical and non-technical losses because of worse technical conditions and poorer rural areas and/ or areas servicing refugee camps).
Indicator 2: / Collection performance
JDECO
SELCO
HEPCO
GEDCO
NEDCO
Weighted Average / 91%
41%
60%
24%
42%
64% / 98%
97%
71.4%[5]
39.4%
50.8%
75% / Indicator canceled in Sept. 2013 / 90.5%
79.2%
90.0%
65.0%
98.4%
85%
Comments / Achieved on average although JDECO and SELCO have not reached their individual targets.
Indicator 3: / Accounts payable to IEC (in months)
JDECO
SELCO
HEPCO
GEDCO
NEDCO
Weighted Average / 2.6
25.0
28.6
40.0
45.8
20.3 / 1.0
3.0
2.0
3.0
3.0
1.9 / Indicator canceled in Sept. 2013 / 15.36
8.75
2.4
n/a
2.2
8.5
Comments / Not achieved. However accounts payable to IEC improved overall between 2008 and 2015 in the West Bank despite a significant increase in electricity purchases from IEC (see Annex 3). Since Gaza/GEDCO no longer pays IEC, their accounts payable information is shown as n/a: not applicable.
Indicator 4: / Number of consumers
JDECO
SELCO
HEPCO
GEDCO
NEDCO
Total: / 182,657
15,000
30,420
154,163
50,648
432,888 / 193,875
40,000
35,266
180,453
63,148
512,742 / Indicator moved to PDO level in Sept. 2013 / 245,202
28,857
45,660
221,792
101,029
642,540
Comments / Exceeded.
Indicator 5: / Four substations are functional
Value: / 0% / 100%
(by 2012) / Indicator canceled in Sept. 2013 / 75%
(only 3 of the 4 substations are complete)
Comments / Partially achieved. The four-year delay in signing the contract for the EIB financed substations which only materialized in February 2012 was the main reason for the level-one restructuring. At closing on September 30, 2016, three of the four substations were complete. The fourth substation (in Ramallah) was 15% complete, and it is expected to be commissioned in July 2018.
Indicator 6: (Added in Sept. 2013) / Number of kilometers of 33 kV single core cable procured and delivered to JDECO
Value: / 0 / None / 214 / 214
Comments / Achieved.
Indicator 7: (Added in Sept. 2013) / Number of distribution transformers procured and delivered to GEDCO
Value: / 0 / None / 51 / 51
Comments / Achieved.
Indicator 8: (Added in Sept. 2013) / Establishment of PERC as evidenced by (i) PERC’s Board first meeting, (ii) adoption of employee manual and (iii) six staff recruited
Value: / No / None / Yes / Yes
Comments / Achieved.
Indicator 9: (Added in Sept. 2013) / Number of PETL employees completing training for substations’ operations and maintenance
Value: / 0 / None / 9 / 17
Comments / Exceeded.
Indicator 10: (Added in Sept. 2013) / Completion of assessment study on NEDCO’s organization and structure
Value: / No / None / Yes / Yes
Comments / Achieved.
Indicator 11: (Added in Sept. 2013) / Launching of awareness campaign on PERC’s role in the West Bank and Gaza
Value: / No / None / Yes / Yes
Comments / Achieved.
Indicator 12: (Added in Sept. 2013) / Upgrade of JDECO’s IT hardware and software
Value: / No / None / Yes / Yes
Comments / Achieved.
Indicator 13: (Added in Sept. 2013) / Completion of assessment study on potential for renewable energy development in West Bank and Gaza
Value: / No / None / Yes / Yes
Comments / Achieved.
Indicator 14: (Added in Sept. 2013) / Installation of Geographic Information System (GIS) in HEPCO
Value: / No / None / Yes / Yes
Comments / Achieved.

G. Ratings of Project Performance in ISRs

No. / Date ISR
Archived / DO / IP / Actual Disbursements
(USD millions)
1 / 12/15/2008 / Satisfactory / Satisfactory / 0.00
2 / 06/20/2009 / Satisfactory / Satisfactory / 0.25
3 / 12/15/2009 / Satisfactory / Satisfactory / 2.75
4 / 06/20/2010 / Satisfactory / Satisfactory / 5.00
5 / 11/24/2010 / Satisfactory / Satisfactory / 6.10
6 / 08/22/2011 / Moderately Satisfactory / Satisfactory / 7.55
7 / 03/05/2012 / Moderately Satisfactory / Satisfactory / 8.15
8 / 11/14/2012 / Moderately Satisfactory / Satisfactory / 11.34
9 / 12/23/2013 / Satisfactory / Moderately Satisfactory / 11.89
10 / 06/16/2014 / Satisfactory / Satisfactory / 12.22
11 / 12/10/2014 / Satisfactory / Satisfactory / 12.62
12 / 06/17/2015 / Satisfactory / Satisfactory / 13.64
13 / 12/22/2015 / Satisfactory / Satisfactory / 14.50
14 / 07/13/2016 / Satisfactory / Satisfactory / 14.50

H. Restructuring (if any) – see Section 1.7

Restructuring Date(s) / Board Approved PDO Change / ISR Ratings at Restructuring / Amount Disbursed at Restructuring in USD millions / Reason for Restructuring & Key Changes Made
PDO / IP
03/18/2011 / S / S / 7.18 / PDO level 2 restructuring:
Amendment of the scope of “Initial Start-up and Operating Expenditures” for PERC.
09/04/2013 / Yes / MS / S / 11.77 / PDO level 1 restructuring:
-Adjust components to reflect Bank-financed activities only.
-Revise the PDO and the project outcomes/ performance indicators to reflect the results of the Bank-financed activities only.
-Reallocate grant proceeds across categories.
-Eliminate the financial covenants related to the DISCOs.
-Extend the grant closing date to December 31, 2015.
12/22/2015 / S / S / 14.07 / PDO level 2 restructuring:
Second extension of the grant closing date to September 30, 2016 to use a balance of $432,367 in the designated account.

I.Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1.The Palestinian Authority (PA) was established in the occupied Palestinian Territories(the West Bank and Gaza) shortly after the Oslo Accords of 1993. The PA assumed civilian responsibility for most of the Palestinian residents: its security powers were limited, however, to the major urban centers (mostly what is designated as “Area A”[6]). Israel maintained full control of large tracts of land around settlements and primary movement axes, leaving 61 percent of the West Bank (“Area C”) outside the PA’s reach. Under the Oslo accords, this arrangement was intended as a temporary measure, but it still remains in force. It has since then been complicated by the take-over of the Gaza Strip by Hamasin June 2007, while its rival political party, Fatah, stays in control of the PA in the West Bank.

2.The Oslo Accords did not explicitly address the organization of the power sector in the territories. The status quo was maintained in the short-term, with the Israeli Electricity Department of the Civil Administration (ELDCA)having to ensure the existence of a broad electricity network reaching Palestinian cities, towns and villages. It then fell under the responsibility of the Palestinian regional councils to distribute electricity within their areas, which was provided to them in bulk by various providers (predominantly by IEC, the Israeli Electricity Corporation). However, the establishment of the PA, and effective Palestinian control over Area A provided an opportunity for the gradual build-up of a Palestinian Electricity Sector through the establishment of:

  • The Palestinian Energy and Natural Resources Authority (PENRA) in 1995 to oversee the energy sector development. Its Chairman has rank of an Energy Minister in the PA.
  • The progressive regrouping of electricity operating assets of Palestinian municipalities and village councils under electricity distribution utilities (the “DISCOs”).
  • The issuance of a Letter of Sector Policy for the Power Sector in 1997 that defined the strategic medium-term orientations for the sector, laying out an agenda of institutional reforms, and a first physical investment program.

3.The preparation of the Electric Utility Management Project (EUMP) benefited directly from the World Bank’s West Bank & GazaEnergy Sector Strategycarried out in 2007. It was a multi-donor funded project[7] which was prepared and implemented as the umbrella program to complete the implementation of therecommendations of theLetter of Sector Policy, and to further advance the development of an autonomous Palestinian Electricity Sector by:

  • Strengthening PENRA and the DISCOs, and supporting the establishment of NEDCO as the largest DISCO in the northern region of the West Bank.
  • Contributing to the establishment of: (i) a regulator, the Palestinian Energy Regulatory Commission (PERC) that would regulate the sector and the DISCOs; and (ii) a Palestinian Energy Transmission Company (PETL) that would eventually own, operate and develop the transmission network,and act as the single buyer of electricity from suppliers.
  • Financing the construction of four high-voltage (161kV) substations to allow the West Bank to be supplied at IEC’s high voltage tariff, which is lower than IEC’s flat tariff.
  • Reconfiguring the West Bank’s power distribution system to be served by the new 161kV substations, thus significantly reducing the number of connection points with IEC, and increasing the PA’s control over imported electricity from Israel in the West Bank.

4.Completion of this physical and institutional strengthening program and final negotiation of a PPA between IEC and PETL would ensure the existence of a more independent and institutionally robust Palestinian Electricity Sector under central authority from the PA with sector regulation by PERC, and ownership of transmission by PETL.In addition, this institutional arrangement would help to streamline the financial value chain in the energy sector by reducing leakages and increasing payments to suppliers.

5.At the time of Appraisal in 2008, the general condition of the power system in the West Bank and Gaza varied from barely adequate to deteriorated. IEC supplied electricity to Palestinian loads at 33kV or 22kV through IEC owned Medium Voltage (MV) lines. In most cases, the Palestinian utilities or municipalities did not have control of the supply through the transmission or the distribution lines that were served from the various 161kV substations or from various IEC connecting points. To that extent, the project was to finance four 161kV substations in the northern, central and southern areas of the West Bank in order to transfer supply from the existing 161kV substations controlled by IEC to the new ones to be owned and operated by PETL. A Commercial and Operating Agreement (PPA) would be signed between IEC and PETL and between PETL and the electric utilities respectively. The concept was to replace the majority ofthe existing scattered connection supply points, which were connected directly to IEC at the low to medium voltage level, to be served by these new 161kV substations. The project was to finance the reconfiguration of the distribution systems operated by the Palestinian utilities and served by these 161kV substations as well as the distribution rehabilitation needs and installation of prepaid meters. The project was also to create the Palestinian Energy Transmission Company (PETL) to own, operate and further develop the power transmission network in the West Bank and Gaza, including the new substations provided under the project. Under the PA’s policy, PETL was to enter into power purchase agreements with future independent power producers. It would be the only entity in the West Bank & Gaza authorized to buy power from power producers for sale to retail power users. By bringing bulk supply under the control of PETL, the PA could then apply pressure on any utility or municipal/ village council (MC/ VC) that did not pay IECfor its power. The project was also to provide essential technical assistance for the institutional and capacity building of the electric utilities and PENRA in the West Bank and Gaza, consulting services for the management of the project and promoting the development of renewable energy and adoption of energy measures.