document of the world bank report no: icr00002334 ......term tonga energy road map term-a tonga...
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Document of
The World Bank
Report No: ICR00002334
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IDA-H6200)
ON A
GRANT
IN THE AMOUNT OF SDR 3.4 MILLION
(US$5.0 MILLION EQUIVALENT)
TO THE
KINGDOM OF TONGA
FOR AN
TONGA ENERGY SECTOR DEVELOPMENT POLICY OPERATION
June 27, 2012
Energy Unit
Timor-Leste, Papua New Guinea, and Pacific Islands Country Unit
Sustainable Development Department
East Asia and Pacific Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective JUNE 30 2011)
Currency Unit = pa‟anga (TOP)
TOP 1.00 = US$0.588
US$1.00 = TOP 1.70
FISCAL YEAR
July 1 – June 30
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank
AusAID Australian Agency for International Development
CAS Country Assistance Strategy
DPO Development Policy Operation
DSM Demand Side Management
ERO Economic Recovery Operation
GDP Gross Domestic Product
GoT Government of Tonga
IPP Independent Power Producer
ISR Implementation Status Reports
M&E Monitoring and Evaluation
NRBT National Reserve Bank of Tonga
OPR Operational Procurement Review
PAD Program Appraisal Document
PD Program Document
PDO Program Development Objective
PEFA Public Expenditure and Financial Accountability
PEFM Public Expenditure and Financial Management
PFM Public Financial Management
PER Public Expenditure Review
PRIF Pacific Region Infrastructure Facility
PV Photovoltaic
SDR Special Drawing Rights
TERM Tonga Energy Road Map
TERM-A Tonga Energy Road Map Agency
TERMC Tonga Energy Road Map Committee
TERM-IRFSP Tonga Energy Road Map Institutional and Regulatory Framework Strengthening
Project
TERM-IU Tonga Energy Road Map Implementation Unit
TESDPO Tonga Energy Sector Development Policy Operation
TGIF Tonga Green Initiative Fund
TPL Tonga Power Ltd
Vice President: Pamela Cox
Country Director: Ferid Belhaj
Sector Director: John Roome
Sector Manager: Charles Feinstein
Project Team Leader: Roberto G. Aiello
ICR Team Leader: Roberto G. Aiello
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KINGDOM OF TONGA
TN- ENERGY SECTOR DEVELOPMENT POLICY OPERATION
CONTENTS
Datasheet
A. Basic Information ....................................................................................................... 4
B. Key Dates ................................................................................................................... 4
C. Ratings Summary ....................................................................................................... 4
D. Sector and Theme Codes ............................................................................................ 5
E. Bank Staff ................................................................................................................... 5
F. Results Framework Analysis ...................................................................................... 6
G. Ratings of Program Performance in ISRs .................................................................. 9
H. Restructuring (if any) ................................................................................................. 9
1. Program Context, Development Objectives and Design .......................................... 10
2. Key Factors Affecting Implementation and Outcomes ............................................ 15
3. Assessment of Outcomes .......................................................................................... 21
4. Assessment of Risk to Development Outcome ......................................................... 27
5. Assessment of Bank and Borrower Performance ..................................................... 28
6. Lessons Learned........................................................................................................ 30
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 31
Annex 1. Bank Lending and Implementation Support/Supervision Processes ................. 32
Annex 2. Beneficiary Survey Results ............................................................................... 33
Annex 3. Stakeholder Workshop Report and Results ....................................................... 34
Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 35
Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 36
Annex 6. List of Supporting Documents .......................................................................... 37
Annex 7. MAP .................................................................................................................. 38
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A. Basic Information
Country: Tonga Program Name:
Tonga Energy
Development Policy
Operation
Program ID: P121877 L/C/TF Number(s): IDA-H6200
ICR Date: 06/26/2012 ICR Type: Core ICR
Lending Instrument: DPL Borrower: KINGDOM OF TONGA
Original Total
Commitment: XDR 3.40M Disbursed Amount: XDR 3.40M
Revised Amount: XDR 3.40M
Implementing Agencies:
Ministry of Finance and National Planning
Cofinanciers and Other External Partners:
B. Key Dates
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 06/24/2010 Effectiveness: 01/14/2011 11/10/2010
Appraisal: 08/27/2010 Restructuring(s):
Approval: 10/19/2010 Mid-term Review:
Closing: 06/30/2011 06/30/2011
C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes: Satisfactory
Risk to Development Outcome: Low or Negligible
Bank Performance: Satisfactory
Borrower Performance: Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry: Satisfactory Government: Satisfactory
Quality of Supervision: Satisfactory Implementing Agency/Agencies:
Satisfactory
Overall Bank Performance:
Satisfactory Overall Borrower Performance:
Satisfactory
5
C.3 Quality at Entry and Implementation Performance Indicators
Implementation Performance
Indicators QAG Assessments (if
any) Rating:
Potential Problem
Program at any time
(Yes/No):
No Quality at Entry
(QEA): None
Problem Program at any
time (Yes/No): No
Quality of
Supervision (QSA): None
DO rating before
Closing/Inactive status:
D. Sector and Theme Codes
Original Actual
Sector Code (as % of total Bank financing)
Central government administration 50 50
General energy sector 50 50
Theme Code (as % of total Bank financing)
Infrastructure services for private sector development 30 30
Other economic management 10 10
Public expenditure, financial management and
procurement 60 60
E. Bank Staff
Positions At ICR At Approval
Vice President: Pamela Cox James M. Adams
Country Director: Ferid Belhaj Ferid Belhaj
Sector Manager: Charles M. Feinstein Charles M. Feinstein
Program Team Leader: Roberto Gabriel Aiello Wendy E. Hughes
ICR Team Leader: Roberto Gabriel Aiello
ICR Primary Author: Sati Achath
Viju C. Ipe
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F. Results Framework Analysis
Program Development Objectives (from Project Appraisal Document) The development objectives are to contribute to reducing Tonga's fiscal deficit and to support the Government's efforts in implementing reforms in the energy sector which will contribute to achieving steady and stable growth in the medium term. Revised Program Development Objectives (if any, as approved by original approving authority)
The Program Development objectives were not revised. (a) PDO Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised
Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : TERM-C Membership expansion
Value (quantitative or Qualitative)
In adequate energy sector coordination and oversight
TERM-C membership expanded to include petroleum sector entities and fulfilling its mandate.
The TERM-C now includes all ministries and government entities in the petroleum sector, and is fulfilling its mandate.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
The TERM-IU established but was not Achieved. TERM-C is policy management and oversight body within the TERM Agency (TERM-A). For discussion of the specific mandate of TERM-C, see Sections 2.4 and 3.5bb).
Indicator 2 : TERM Implementation Unit (TERM-IU) staffing and resources
Value (quantitative or Qualitative)
Inadequate energy sector coordination and oversight
TERM Implementation Unit is adequately staffed and resourced
TERM-IU still has some temporary gaps in staffing and resources, which are being addressed.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Mostly achieved. At closing, the TERM-IU was in place and functioning, with some gaps in staffing. An interim director was appointed in Feb 2012. A permanent director will be recruited by July 2012.TERM (IU) is functioning adequately.
Indicator 3 : Monitoring and evaluation framework
Value Inadequate energy A monitoring and M&E framework in
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(quantitative or Qualitative)
sector data availability is a significant impediment to least cost planning
evaluation framework for progress in the energy sector (electricity and petroleum) reforms is in place
place and providing regular monitoring and reporting of energy sector data.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Achieved.
Indicator 4 : Tonga Power Ltd (TPL) audit reports
Value (quantitative or Qualitative)
Only incomplete financial data was available on the privately owned electricity utility that preceded the state-owned TPL. Audit accountability and oversight weak.
TPL FY09/10 audit report and subsequent audit reports submitted to auditor General's office on time.
FY09/10 audit report submitted on time, and with better quality than previous report. FY10/11 report (due after closing) also submitted on time.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Achieved. The FY08/09 audit, a prior condition for release of the single-tranche DPO, was submitted on time, but was limited by poor information inherited by TPL. More timely and better quality audits have improved transparency and accountability.
Indicator 5 : Transactions with independent power producers (IPPs)
Value (quantitative or Qualitative)
No transparent process to ensure cost-effective development of domestic renewable energy by IPPs.
Transactions involving private sector participation in the energy sector handled in a transparent manner, demonstrating adequate protection of the interests of electricity consumers in Tonga.
Transactions involving private sector participation in the energy sector handled transparently and in compliance with Tonga's new Public Procurement Regulations and budget disclosure requirements.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Achieved. improved fiscal transparency in the energy sector
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Indicator 6 : Price risk management
Value (quantitative or Qualitative)
No petroleum price risk management in place
Initial petroleum price risk management approach tested and evaluated.
Testing and evaluation of petroleum price risk management program is on track. Amended the petroleum pricing templates in general accordance with the recommendations of independent reviews.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Amended templates help reduce economic vulnerability to energy price fluctuations. Medium-term (3-yr) goals beyond DPO include an end-use efficiency program (5% gains) and generating 5% of electricity from domestic renewable energy sources.
Indicator 7 : Financial planning and management
Value (quantitative or Qualitative)
Procedures for budget preparation and execution not formally in place.
Corporate plans and annual management plans of key ministries, submitted as part of the preparation process for the FY11/12 and subsequent budgets.
Corporate and annual management plans submitted as part of FY11/12 budget preparation process.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Achieved. The GOT instituted a budget reporting system that tracks budget information, corporate plans and annual management plans, and reformed the budget calendar to help incorporate these inputs. Budget proposals are also made available to the public.
Indicator 8 : Procurement regulation
Value (quantitative or Qualitative)
Public procurement based on policy guidelines rather than formal regulations.
New Public Procurement Regulations in use by Government.
New regulations adopted and in use.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Achieved. At appraisal, the draft regulations were under review by the Law Committee (a prior condition for the DPO tranche). They were approved by the Cabinet in 2012 and are now in use, with ongoing support from the ADB.
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(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
Indicator 1 : Monitoring and evaluation framework
Value (quantitative or Qualitative)
Inadequate energy sector data availability is a significant impediment to least cost planning
A monitoring and evaluation framework for progress in the energy sector (electricity and petroleum) reforms is in place
M&E framework in place and providing regular monitoring and reporting of energy sector data.
Date achieved 08/30/2010 06/30/2011 06/30/2011
Comments (incl. % achievement)
Achieved
G. Ratings of Program Performance in ISRs
No. Date ISR Archived
DO IP Actual
Disbursements (USD millions)
H. Restructuring (if any)
Not Applicable
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1. Program Context, Development Objectives and Design
1.1 Context at Appraisal
Macroeconomic Background: Tonga is a small and remote island economy, with a per
capita income of approximately US$3,347 in 2010. Over the past 15 years, per capita
income has grown modestly, with average real annual growth of around 1.9 percent
exceeding population growth of about 0.5 percent. Economic activity has exhibited
significant fluctuations as underlying structural constraints, political disturbances, and
global economic developments have adversely affected growth. Although the economy
recovered strongly in FY2007/08, growth has subsequently slowed, initially due in large
part to the food and fuel price shocks and more recently as a result of the global
slowdown, which hurt remittance flows, tourism arrivals and exports. Tonga is highly
vulnerable to external economic shocks and natural disasters. Remittances account for a
large share of the GDP. Size and remoteness also have an impact on the cost of key
imports such as petroleum, exacerbating the risk to the economy from external shocks.
All these vulnerabilities have come into play in the recent past, taking a heavy toll on
Tonga‟s economy.
The knock-on effects of the global economic crisis (GEC) resulted in a 0.48 percent
contraction of Tonga‟s GDP in 2010. The main impact of the crisis was on remittances,
0074ourism receipts and value of exports. The current account deficit widened to 17.4
percent of GDP in FY2009/10 compared with 14.3 percent in the previous year.
However, the trade deficit and the international reserves position have improved
marginally in recent years. Inflation, following the trend of international oil and food
prices, reached 12 percent in mid-2008, fell to 1.2 percent by the end of 2009, but picked
up to around 4 percent in 2010. During FY2009/10 the National Reserve Bank of Tonga
(NRBT) lowered reserve requirements (from 10 percent to 5 percent), reduced the
interest rate on its repo1 facility (from 10 percent to 4½ percent), and stopped issuing
central bank bills. In the last three years, the global downturn has pushed government
finances into deficit equal to 3.3 percent of GDP in FY2008/09, and increased to 3.9
percent of GDP in FY2009/10. In both years, tax revenues were significantly lower than
in previous years. On the expenditure side, in the FY2010/11 budget, the government has
adopted realistic revenue forecasts and has extended its recent efforts to rationalize
expenditure. A Public Expenditure and Financial Accountability (PEFA) assessment was
first undertaken in Tonga in 2007 which indicated that the Public Financial Management
legal and regulatory framework in Tonga provides a solid basis for budgeting, spending
and accountability and there are clear rules and procedures in place and these tend to be
followed.
1 The term repo refers to a practice in which a bank or other financial institution buys securities with the
proviso that the seller repurchases the same securities for an agreed-upon price on a certain day more than
one day after the establishment of the agreement.
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Energy sector background
Petroleum: Petroleum is supplied to Tonga by two international oil companies, TOTAL
and Pacific Energy. Uata Shipping, „Otumotuanga‟ofa and other locally owned small
ferry companies are still used for fuel distribution in the Ha‟apai group of islands. LPG is
bulk supplied by Tonga Gas (a subsidiary of Fiji Gas, 51% owned by Origin Energy,
Australia), and marketed and distributed onshore by the GOT‟s Homegas Company.
Tonga faces a long supply chain from the refinery source. The outer islands are supplied
with products trans-shipped through Nuku‟alofa. The Niua's and 'Eua islands are
normally the only areas for which main products (gasoline, Automotive Diesel, and
kerosene) are supplied by drum. The Tonga Competent Authority regulates the retail
price of petroleum products, using a pricing template originally developed by the Pacific
Islands Forum Secretariat. The pricing template builds up the retail prices by taking the
Singapore price for fuel, then adding on shipping and storage fees and wholesale and
retail markups. In effect, the average price for the next month is determined by fuel
prices, shipping rates and margins two months prior. Wholesale and retail fuel prices
across Tonga vary, reflecting the higher transport costs to provinces distant from the main
island, Tongatapu.
Grid-connected Electricity: The Electricity Act 2007 provides the governance
framework for the grid-connected electricity sector in Tonga with generation and supply
by Tonga Power Limited (TPL) a state enterprise wholly owned by GOT. TPL operates
four grids in Tonga: the largest on Tongatapu, and three smaller grids on the main islands
of the Vava‟u and Ha‟apai island groups, and on the island of Eua. Electricity sector data
is quite limited at present. Improving data generation and collection is an activity
identified for early implementation under the Tonga Energy Road Map (TERM), a sector
strategy developed by Tonga in partnership with the World Bank and other donors and
formally adopted by the government in August 2010.
Off-Grid Electricity Supply: A Renewable Energy Bill was developed prior to the
TERM process and passed by parliament in 2009 to provide a legal framework to
promote the utilization of renewable energy in Tonga through the creation of an enabling
market environment. The bill created a Renewable Energy Authority within the Ministry
of Lands, Survey and Natural Resources to deal with matters concerning supply of
renewable energy. The „outer islands‟ of Tonga are a group of 26 islands, scattered
throughout the three primary island groups, which do not have reticulated diesel
generated electricity. The approach set out in the TERM is to supply all households in the
outer islands with electricity generated almost 100% by renewable energy sources,
currently being generated using diesel. However, since only 6% of Tonga‟s population
live on the outer islands, this will have little if any impact on reducing diesel use. The
focus of renewable energy generation has mainly been on solar energy.
Rationale for Bank assistance:
The Tonga Energy Development Policy Operation was consistent with the Tonga
Country Assistance Strategy (CAS). Key themes running through Bank Group
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engagement with Tonga include: (a) Supporting policy reform to strengthen growth
prospects and improve service delivery; (b) Generating opportunities through greater
global and regional integration; and (c) Building resilience against shocks. This operation
directly supported themes (a) and (c). The Tonga Energy Road Map sets out the
institutional, legal and policy areas of reform needed to reduce Tonga‟s vulnerability to
oil price shocks and achieve an increase in quality access to modern, quality energy
services, both of which are necessary to strengthen prospects for equitable growth and
improve service delivery. The focus of the TERM is on petroleum supply chain
efficiency, petroleum price risk management, increased efficiency in electricity supply
and diversifying Tonga‟s electricity supply and directly addresses the theme of building
resilience against shocks, specifically oil price spikes.
The operation was an integral part of the Bank‟s ongoing overall engagement in the
energy sector and it reinforced the importance of adhering to the objectives, principles
and strategy set out in the TERM. It highlighted the adoption of the TERM as a key prior
action of a budget support operation and reinforced the reality that the energy sector
issues addressed under the TERM are critical to overall macroeconomic growth and
stability. The approach and program set out in the TERM were also fully in line with the
institutional agenda on climate change, integrating energy efficiency and renewable
energy generation into the mainstream sector planning and policy framework, through the
focus on reducing vulnerability to oil price rise and shocks as a key factor in enhancing
national energy security.
1.2 Original Program Development Objectives (PDO) and Key Indicators (as
approved)
Program development objectives: The program development objectives are to
contribute to reducing Tonga‟s fiscal deficit and to support the Government‟s efforts in
implementing reforms in the energy sector which will contribute to achieving steady and
stable growth in the medium term.
Key indicators The key results indicators listed in Annex 1 of the Program Document (PD) are:
(a) TERM-C membership expanded to include petroleum sector entities and fulfilling
its mandate;
(b) TERM Implementation unit is adequately staffed and resourced;
(c) A monitoring and evaluation framework for progress in the energy sector
(electricity and petroleum) reforms is in place;
(d) TPL FY09/10 audit report and subsequent audit reports submitted to auditor
General‟s office on time;
(e) Transactions involving private sector participation in the energy sector handled in
a transparent manner, demonstrating adequate protection of the interests of
electricity consumers in Tonga;
(f) Initial petroleum price risk management approach tested and evaluated;
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(g) Corporate plans and annual management plans of key ministries, submitted as part
of the preparation process for the FY11/12 and subsequent budgets; and
(h) New Public Procurement Regulations in use by Government.
The PD Data Sheet had a different list of four KPIs (also included in Annex 1), that were
focused on five-year outcomes. These indicators were not intended to be treated as KPIs
to be achieved by the operation directly, nor could they be measured or treated as such
since the time frame was well beyond the closing date of the operation. Rather, they were
described as “medium term” goals toward which the operation “will contribute”:
(a) Petroleum imports for electricity generation relative to a "business as usual"
scenario are reduced by 15% in a cost-effective manner;
(b) Diversification of sources of electricity generation to improve energy security and
reduce impact of oil price on the price of electricity supply;
(c) Petroleum price risk management in place; and
(d) Fiscal consolidation achieved including reduction in risk of debt distress.
The Program Document (PD) originally approved lists these indicators as the ones for the
TESDPO. But it may be noted that the actual KPIs are the ones listed in Annex 1 of the
PD.
1.3 Revised PDO (as approved by original approving authority) and Key
Indicators, and Reasons/Justification
The PDOs was not revised.
1.4 Original Policy Areas Supported by the Program (as approved)
The broad policy areas supported included: (a) strengthening growth prospects and
improve service delivery; and (b) building resilience against shocks. The operation
supported policy and institutional measures that will help Tonga sustain its reform
momentum in the energy sector and implement recommendations from the 2010 Public
Expenditure and Financial Accountability Assessment. The operation also provided
short-term fiscal relief to address the budget deficit projected for FY10/11 as key
determinants of government revenue, particularly remittances, remain well below normal
levels as a result of the global economic slow-down. The operation included broad
actions related to: (a) Energy sector reform to reduce Tonga‟s vulnerability to oil price
rise and shocks, and to increase access to quality energy services; and (b) Public
Expenditure Financial Management reform (PEFM) which would formalize and make
legally binding the required procedures for a number of key PFM processes.
On the basis of strong ownership by GOT and harmonization with other development
partners the following prior actions for the disbursement of the full amount of the grant
were implemented: (a) The Tonga Energy Road Map (TERM) adopted by Cabinet; (b)
An intra-governmental mechanism to coordinate energy sector activities across
14
government was established and operationalized; (c) The Tonga Power Limited FY08/09
Audit Report submitted to the Auditor General‟s Office (d) Treasury Instructions to line
ministries issued by Ministry of Finance and Planning, and (e) Public Procurement
Regulations Submitted to the Law Committee
The project contributed to the implementation of the TERM in three phases. A summary
of the activities under each of the phases for implementation of the TERM is given
below.
TERM-Phase 0
The key activities for Phase 0 are:
Recommendations from the Petroleum Supply Chain and Price Hedging Study are
considered by GOT and decisions made on implementation and initial activities
launched.
Institutional, legal, policy and regulatory updates for petroleum and electricity
implemented, as per issues identified in the TERM.
Data gathering activities and data collection and monitoring system in place;
Environmental screening of the TERM to identify environmental considerations
of the planned activities in the TERM.
Analysis of environmental change impact on Tonga to identify any risks to long
term safety and security of energy infrastructure.
Initial end use efficiency/demand side management program launched and
development of data and analysis to design and implement more extensive end
use efficiency program underway.
Off-grid program launched.
Necessary TPL investments for safety, data acquisition and improved efficiency
launched.
Mechanism to channel available grant assistance to buy down the cost of
renewable energy generation and energy efficiency investments is in place (Tonga
Green Initiative Fund: “TGIF”).
TERM-Phase 1
Key activities indicated for Phase 1 are:
Implementation of second-generation end-use efficiency / DSM measures;
Implementation of up to about 1 megawatt on-grid solar PV. Most of this would
be installed on Tongatapu and could include at least one other island grid.
Elements including centralized, decentralized and possible battery storage would
be appropriate. Operation, maintenance and training contract in place;
Implementation of a Proof of Concept Coconut Oil Project. Operation,
maintenance and training contract in place;
Implementation of Landfill Gas IPP (if resource proved in Phase 0);
15
Review of initial experience with petroleum financial risk management and
implementation of modifications as required;
Transaction advisor for Phase 2 projects selected.
TERM-Phase 2
Phase 2 actions included:
A formal analysis of the data and findings from the Phase 1 projects. In particular,
the success of the loss-reduction programs and the DSM programs should be
assessed to identify shortfalls on target energy reductions. The load forecast will
be updated to drive the needs and timing of ongoing sector development. The
successes and problems with each of the Proof-of-Concept project will be
carefully evaluated. New grid system performance data will need analysis to
confirm what measures need to be taken and new technology added to ensure that
the most practical renewable energy alternative can be successfully integrated.
Any promising (but not yet commercial) technologies that have generated a track
record in Tonga or elsewhere during the Phase 0 and 1 implementation period,
could be evaluated at this point and considered for inclusion in Phase 2;
“Institutionalize” the data collection systems set up during Phase 1. The value of
databases is often to be found in their longevity and continuity so as the Tonga
economy and energy systems develop, the best data on what can be expected in
weather, ocean regimes and electric system performance will ensure that Tonga‟s
continuing efforts to use its domestic energy resources can progress in as timely a
manner as possible;
A full-scale development of renewable energy projects on an IPP basis, utilizing
the Tonga Green Initiative Fund designed and established in Phase 0. Sequencing
of the Phase 2 projects will be determined based on the key principles of the
TERM, set out at the beginning of this section.
1.5 Revised Policy Areas
The policy areas were not revised.
1.6 Other significant changes
There was no change in the operation‟s design, scope and scale, implementing
arrangements, or schedule during implementation.
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
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The Tonga Energy Sector DPO (TESDPO) was a single-tranche operation of SDR 3.4
million (US$5 million equivalent) approved by the Board of Executive Directors on
October 19, 2010. The loan agreement was signed on October 19, 2010 and declared
effective on November 11, 2010.
The operation was approved on the basis of completion of the following selected list of
prior actions, which were completed prior to disbursement of the single tranche on
December 10, 2010:
Energy Sector Reform
1. The Recipient has adopted the Tonga Energy Roadmap June 2010, by decision of its
Cabinet No. 739, dated August 20, 2010.
2. An intra-governmental mechanism to coordinate energy sector activities across
Recipient‟s administration is established and operationalized, pursuant to the terms
of the decision of Cabinet of November 25, 2009 and the minutes of the meetings of
the Tonga Energy Roadmap Committee dated February 12, 2010 and February 19,
2010.
3. The Tonga Power Limited FY08/09 Audit Report was submitted to the Recipient‟s
Auditor General‟s office.
Public Financial Management Reform
4. The Recipient‟s Ministry of Finance has issued treasury instructions pursuant to
Article 45 of the Recipient‟s Financial Management Act (2002), to the Recipient‟s
line ministries.
5. Recipient‟s Cabinet has approved the submission of the Public Procurement
Regulations to the Law Committee.
2.2 Major Factors Affecting Implementation
The implementation of the TESDPO was positively influenced by various factors,
including adequate Government commitment, sound background analysis, incorporation
of lessons learned from previous operations in Tonga, appropriate design of the
operation, and appropriate measures for mitigation of the risks identified. These factors
are discussed further below:
Adequacy of government's commitment, stakeholder involvement, and
participatory processes
The government commitment was adequate and satisfactory. The Ministry of Finance, at
the request of the Government of Tonga (GOT), effectively supported implementation of
policy reforms and programs outlined in the DPO.
Soundness of the background analysis underpinning the operation.
The main analytical underpinnings to the operation consisted of: the Tonga Energy Road
Map (TERM) sector strategy developed by the GOT in partnership with the Bank and
other development Partners. It addresses required improvements in the petroleum supply
17
chain and consideration of price hedging instruments, increased efficiency both in
electricity supply and use, development of grid-connected domestic renewable energy
resources, improved access to quality electricity services in remote areas, reduced
environmental impacts both locally and globally, enhanced energy security, and overall
sector financial viability. The TERM focuses on reducing cost and volatility in the price
of petroleum imports and on de-linking electricity production from petroleum to the
extent feasible. It also sets out priority actions in the areas of policy, legal, regulatory and
institutional arrangements, and sets out an investment program based on a least cost
approach for reducing reliance on diesel for power generation, with explicit consideration
given to managing risk through development of a portfolio of options to meet the demand
for electricity. The TERM also recommends a detailed program of actions with indicative
funding sources and costs for each element.
Lessons learned from previous operations.
Since Tonga became a member of the World Bank Group in 1985, the Bank has invested
in the Tonga Development Bank, Cyclone Emergency Recovery, and the health,
education, transport, telecommunication and energy sectors. Recent and planned Bank
Group support has focused predominantly on policy reforms to strengthen infrastructure
services, including through greater involvement by the private sector in addition to the
Economic Recovery Program. In the energy sector the Bank Group collaborated with the
GOT and other development partners in the development of the TERM. In addition to the
investments and activities described above, the Bank has also provided analytical support
that included:
Expenditure and Financial Accountability (PEFA) as a joint exercise by the
Government of Tonga and development partners including two experts engaged
by AusAID and the ADB/World Bank Focal Point in Tonga. An Operational Procurement Review (OPR) carried out in 2003.
A Macro-Fiscal Analysis paper jointly with the GOT to identify and explain
recent trends in revenue, expenditure and overall fiscal performance in 2010.
A Medium-Term Expenditure Mapping exercise jointly with the GOT in order to
provide a foundation for improving the quality of public spending. Two of the key lessons learned from the above operations that were relevant to the
energy sector DPO included:
The overarching priorities in the energy sector are to reduce Tonga‟s vulnerability
to oil price rise and price shocks and achieve an increase in quality access to
electricity services in an environmentally and financially sustainable manner.
Financial sustainability and transparency are important components of a longer
term strategy to attract credible private sector and maximize the benefits from
private sector involvement in the energy sector.
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These lessons were taken into account by the GOT in development and implementation
of this DPO.
Assessment of the operation’s design
The TESDPO‟s design was appropriate and reinforced the importance of addressing
energy sector weaknesses as a necessary condition for economic growth and stability by
adhering to the objectives, principles and strategy set out in the TERM. This operation
was an integral part of the Bank‟s ongoing overall Country Assistance Strategy (2011-
2014) and engagement in the energy sector. The operation, in particular, supported the
CAS‟s strategic objective of reducing reliance imported fuel that is highly vulnerable to
price volatility and increasing the affordability of energy. The operation has also served
as a vehicle to strengthen the Bank‟s dialogue with the GOT in areas of public
expenditure and financial management. It set the stage for a more robust engagement in
PEFM going forward, particularly in the area of joint public expenditure analysis which
will be especially important as the new Government works to rationalize expenditures
while maintaining and improving core service delivery functions in the medium term.
Relevance of the risks identified at appraisal and effectiveness of mitigation
measures
The operation faced the following risks and the respective mitigation measures adopted
are presented below:
The need to address immediate budget shortfalls could distract the new
administration from focusing on the implementation of critical energy sector
reforms, as per the TERM, needed to support medium term economic stability and
growth. Budget pressures could also result in insufficient resources being
available for the GOT‟s role in implementation of the TERM.
o Mitigating measure: To mitigate this risk, of budget shortfalls, the Bank
and other development partners developed budget support programs. The
IDA grant for the Economic Recovery Operation is a measure in this
direction.
Delays in implementation by the new and inexperienced administration and lack
of appreciation of the importance of focusing on energy sector reforms.
o Mitigating measures: Preparation of the energy Sector Investment
operation, strong development partner coordination around the
development of the TERM and the commitment to provide support in line
with implementation of the TERM. Other mitigation measures included
emphasis by the Bank and other development partners on maintaining the
focus on energy sector reforms, adhering to the principles set out in the
TERM, and stressing the wide range of benefits and importance of its
successful implementation.
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Natural Disasters and Climate Change negatively impact the expected benefits
associated with implementation of the planned energy sector reforms.
o Mitigating measures: Analyzed environmental and climate change impact
on Tonga to identify any risks to long term safety and security of energy
infrastructure
Poor progress on Public Financial Management reforms and lack of financial
transparency.
o Mitigating measures: Partnerships with the GOT and other development
partners in implementing improvements in the areas of public expenditure
and financial management.
Other positive factors:
The country moving from constitutional monarchy to democracy and the smooth
transition and the resulting political change affected implementation of the operation in a
positive way.
The Bank‟s opening of a liaison office in Tonga jointly with the Asian Development
Bank (ADB) was a great facilitator both in the design and roll out of the operation.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:
Design
The outcomes from the operation were monitored using the indicators outlined in Annex
1 of the Program Document (PD). Prior to the disbursement a set of prior actions were
developed for implementation. There were eight key performance indicators, six of
which focused on the energy sector, and two on public financial management reform.
The indicators for the energy sector were (a) expansion of the TERM-C membership to
include petroleum sector entities and fulfilling its mandate; (b) adequate staffing and
resources for the TERM Implementation unit; (c) a monitoring and evaluation framework
for progress in the energy sector (electricity and petroleum); (d) TPL FY09/10 audit
report and subsequent audit reports submitted to auditor General‟s office on time; (e)
transactions involving private sector participation in the energy sector handled in a
transparent manner, demonstrating adequate protection of the interests of electricity
consumers in Tonga, and (f) testing and evaluation of the initial petroleum price risk
management approach.
The above indicators were relevant to the PDO‟s and were attributable to the TESDPO.
Expansion of the TERM-C membership to include all ministries and entities involved in
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the energy sector was important in collective decision making and further development of
the TERM and its implementation. The TERM-IU was not adequately staffed and proper
staffing and allocation of adequate resources were crucial for success in TERM
implementation. Preparation and submission of audit reports for the TPL and
transparency regarding transactions involving private sector participation are indicators to
further improve the fiscal transparency of the energy sector and hence are very relevant in
the monitoring and evaluation. Development and evaluation of the petroleum price risk
management framework feeds into the long-run objective of a sustainable energy sector.
All of the above indicators were observable and were closely monitored.
The indicators for the public financial management reform were (a) corporate plans and
annual management plans of key ministries submitted as part of the preparation process
for the FY11/12 and subsequent budgets and (b) new Public Procurement Regulations in
use by Government. Corporate and annual management plans further strengthened the
annual budget development and planning process, while new procurement regulations
were designed to help ensure more accountability and transparency.
Implementation:
Monitoring and evaluation activities were carried out by the task team in partnership with
the Ministry of Finance on the basis of the agreed-up on activities and indicators. Since
this was a single-tranche operation, there were no Implementation Status Reports (ISRs).
However, the implementing agency provided all the information regarding disbursement
and utilization of the funds disbursed. The implementing agency also provided regular
and reliable documentation on progress in TERM implementation and the energy sector
reform program. Although they were not identified as intermediate indicators, monitoring
the detailed activities for implementing the three phases of the TERM provided a very
valuable means of tracking progress toward the KPIs and PDO, and their progress was a
reflection of both the general effectiveness of the TERM Committee and Implementation
Unit as well as their planning, procurement, and management performance.
Utilization
Appropriate data collected by the government on the indicators were evaluated and used
during supervision missions, and also for decision-making on policy work. The
information provided was used in dialogue with the government in further shaping the
Energy Road Map, development of institutions for TERM implementation, and follow-up
support projects in the energy sector. As detailed in Section 1.4, some of the activities in
the TERM implementation plan were explicitly designed to test approaches and feed
information back into subsequent phases, regulatory development, implementation
strategies, and fine-tuning of the TERM itself.
2.4 Expected Next Phase/Follow-up Operation (if any):
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The TESDPO was a single-tranche operation and there are still a number of challenges
that are fundamental to the development of the energy sector in Tonga. The follow-up
operations include:
TERM Institutional and Regulatory Framework Strengthening
Project (TERM-IRFSP): The proposed development objective is the
strengthening of the institutional and regulatory framework of the Tonga
Energy Road Map. It will provide assistance to strengthen the core
institutions and regulatory framework relating to TERM and it is a key
precursor for the ongoing and planned operations under the Energy Road
Map.
(i) Strengthening the Energy Sector Framework and Structure. This
component will be implemented by TERM-IU and will focus on strengthening the
functioning of the unit, and on technical assistance supporting the areas of energy
sector policy; environmental and social safeguards frameworks; petroleum price
risk management strategy; and developing a Communication Plan for TERM.
(ii) Preparing TPL for Renewable Energy Supply. This component will be
implemented by TPL and will focus on technical assistance for designing
upgrades to the networks and systems operations procedures and developing a
least-cost generation and associated network development plan for the period of
five years.
Tonga Economic Recovery Operation (ERO): In addition to
strengthening public financial management and fiscal policy, the ERO,
further supports structural reforms in the energy sector. The specific
policy actions in the energy sector include a reformed electricity tariff that
provides full cost recovery financial incentives for improving efficiency in
generation and distribution; regulatory framework for the petroleum
sector; and advancing public enterprise reforms in the energy sector like
transparency of accounts/audits of the TPL initiated as part of the DPO.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
The objectives of the TESDPO are clear, relevant to the Bank group‟s engagement in
Tonga. The operation served as an integral part of the Bank‟s on-going overall
engagement in the energy sector. It supported policy and institutional measures that
helped Tonga sustain its reform momentum in the energy sector and implement
recommendations from the 2010 Public Expenditure and Financial Accountability
Assessment. The operation also provided short-term fiscal relief to address the budget
deficit projected for FY10/11 as key determinants of government revenue, particularly
22
remittances, remain well below normal levels as a result of the global economic slow-
down.
The objectives and the implementation of the activities continue to be very relevant
through implementation of the TERM that sets out a ten year road map to reduce Tonga‟s
vulnerability to oil price shocks and achieve an increase in quality access to modern
energy services in an environmentally sustainable manner. As the objectives continue to
be relevant, the Bank continues to support activities in the energy sector through the
TERM-IRFSP and the ERO with an energy sector component. 3.2 Achievement of Program Development Objectives
The DPO had significant impact on the implementation of TERM by the GOT. All the
indicators suggest that the TESDPO has been successful in sustaining the reform
momentum in the energy sector and in implementing recommendations from the 2010
Public Expenditure and Financial Accountability Assessment. The operation also
provided short-term fiscal relief to address the budget deficit projected for FY10/11 as
key determinants of government revenue.
The two main objectives were to (a) help reduce Tonga‟s fiscal deficit, and (b) support
implementation of reforms in the energy sector. Both objectives were intended to
contribute to achieving steady and stable growth in the medium term.
Objective 1: Contribute to reducing Tonga’s fiscal deficit
The DPO was intended to provide budget support to implement the FY10/11 budget
when the country was undergoing transition to the new government and was facing fiscal
deficit and macroeconomic instability. The budget support contributed to providing the
resources necessary to implement the FY10/11 budget and thus facilitated the critical
energy sector program to remain front and center of the policy agenda in Tonga.
Had the budget not been provided through the TESDPO, the precarious fiscal deficit and
the macroeconomic instability could have diverted funds away from the energy sector
and thus could have derailed the energy sector reform programs. Thus the DPO supported
in sustaining the reform momentum in the energy sector. Adoption of the TERM and
implementation of a formal arrangement for coordination and oversight across the energy
sector set in motion actions to improve the efficiency, cost-effectiveness and transparency
of the sector institutions, investments and operation. The operation has also served as a
vehicle to strengthen the Bank‟s dialogue with the GOT in areas of public expenditure
and financial management, particularly in the area of joint public expenditure analysis.
Objective 2: Support the Government’s efforts in implementing reforms in the energy
sector.
The cornerstone of this operation was its support for the TERM which the GOT adopted
in August 2010. The TERM is a landmark energy sector policy developed through
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unprecedented cooperation between the GOT and its development partners and
coordination among the ministries/departments within the Tongan government. TERM
lays out a least cost approach and implementation plan to reduce Tonga‟s vulnerability to
oil price shocks and achieve access to modern energy services.
A summary of the achievement of outcome indicators targets is presented below:
An intra-governmental mechanism to coordinate energy sector activities
across Recipient‟s administration is established and operationalized,
pursuant to the terms of the decision of Cabinet of November 25, 2009 and
the minutes of the meetings of the TERM Committee dated February 12,
2010 and February 19, 2010.
The Tonga Power Limited FY08/09 Audit Report was submitted to the
Recipient‟s Auditor General‟s office.
The Recipient‟s Ministry of Finance has issued treasury instructions
pursuant to Article 45 of the Recipient‟s Financial Management Act
(2002), to the Recipient‟s line ministries.
Recipient‟s Cabinet has approved the submission of the Public
Procurement Regulations to the Law Committee.
3.3 Justification of Overall Outcome Rating
Rating: Satisfactory
As discussed in Section 3.2, the objectives of the TESDPO remain highly relevant to
Tonga‟s current priorities and the overarching themes in the Bank‟s CAS. The operation
contributed to strengthening and implementation of the TERM. The operation has also
served as a vehicle to strengthen the Bank‟s dialogue with the GOT in areas of public
expenditure and financial management, through more robust engagement in PEFM in the
area of joint public expenditure analysis. The dialogue led to the development and
implementation of the Tonga ERO, TERM-IRFSP and the associated Technical
Assistance projects.
The objectives of the TESDPO are clear, relevant to the Bank group‟s engagement in
Tonga. The operation served as an integral part of the Bank‟s ongoing overall
engagement in the energy sector. It supported policy and institutional measures that
helped Tonga sustain its reform momentum in the energy sector and implement
recommendations from the 2010 Public Expenditure and Financial Accountability
Assessment. The operation also provided short-term fiscal relief to address the budget
deficit projected for FY10/11 as key determinants of government revenue, particularly
remittances, remain well below normal levels as a result of the global economic slow-
down.
By contributing to reduction of the fiscal deficit and supporting reform in the energy
sector, the operation has helped Tonga establish a stronger foundation for achieving the
higher level objective of more stable and steady economic growth in the medium term.
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The objectives and the implementation of the activities continue to be very relevant
through implementation of the TERM that sets out a ten-year road map to reduce Tonga‟s
vulnerability to oil price shocks and achieve an increase in quality access to modern
energy services in an environmentally sustainable manner. As the objectives continue to
be relevant, the Bank continues to support activities in the energy sector through the
TERM-IRFSP and the ERO with an energy sector component.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
Poverty impact: The TESDPO generated indirect impacts on the poor by reducing
household expenditure on electricity services through reduced cost of supplying
electricity by way of improved end-use efficiency. Improvements in end-use efficiency
reduce the amount of electricity required to achieve a given level of electricity services
thus reducing household expenditures on electricity services. As the TERM
implementation progresses there will be further improvements in efficiency and such
impacts will become more perceptible.
The TERM implementation supported by this DPO also reduced volatility in prices of
diesel which in turn reduced fluctuations in electricity prices. Stability in prices for
electricity reduced variations in household expenditures for electricity services so that the
poor households facing a tight budget constraint could better plan for expenditures on
electricity services.
The Off-Grid Initiative which is being implemented as part of the TERM will provide
remote communities with access to electricity from renewable sources that are
sustainable and also provide for their varied power needs. This program will increase
economic activity of the outer islands communities through a novel “tiered approach”
which in turn will increase incomes and will have an impact on poverty.
The budget support helped the government, which was facing fiscal deficit, to continue
with the implementation of the social programs particularly in the health sector which
benefited the poor and lower income groups. In addition, the project also benefited the
education sector.
The TESDPO is expected to generate indirect impacts on the poor by supporting the
GOT‟s continued efforts on implementing the Tonga Energy Road Map (TERM), which
will lead to: reducing household expenditure on electricity services through reduced cost
of supplying electricity by way of improved end-use efficiency. Improvements in end-use
efficiency reduce the amount of electricity required to achieve a given level of electricity
services thus reducing household expenditures on electricity services. As the TERM
implementation progresses there will be further improvements in efficiency and such
impacts will become more perceptible.
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Gender Aspects: There are no perceptible gender aspects in the DPO.
Social Development: Implementation of the TERM supported by this DPO is expected to
have significant, direct positive social impacts in the medium term. Such social impacts
include access to off-grid electricity options from renewable sources to remote
communities which otherwise are not connected to the grid.
The budget support also helped the GOT to maintain its expenditure on social programs
when the government was facing fiscal deficit.
(b) Institutional Change/Strengthening
The operation‟s main contribution to institutional development was its help in creating
the TERM Agency (TERM-A) and the agency‟s main oversight and operational bodies,
the TERM Committee (TERM-C) and the TERM Implementation Unit (TERM-IU). The
ongoing assistance provided by the operation during the three-phase implementation of
the TERM to date, further consolidated these entities and strengthened their governance
through practical application of their roles and responsibilities, thereby building
institutional experience hand-in-hand with actual performance of their duties. Their main
roles and mandates are summarized below.
Institutional development for TERM implementation- The operation strengthened
the TERM governance structure through completion of the TERM and creation of
the TERM Agency (TERM-A). The GOT also constituted the TERM-C and
TERM-IU. A brief description of the roles and mandates of the above institutions
is presented below:
TERM Agency (TERM-A): In April 2012, the Cabinet approved the TERM-A as the apex
body responsible for energy matters under TERM. As a government agency, TERM-A
acts on behalf of the Cabinet, and is accountable directly to the Cabinet, in accordance
with the mandate given to it by the Cabinet.
TERM Committee (TERM-C: Within TERM-A the Tonga Energy Road Map Committee
(TERM-C) functions as the governing entity, and, as approved by the Cabinet, includes
the following mandates:
Consider the proposed institutional reformation and all energy sector related
projects, taking into consideration the whole of Government institutional
rationalization program.
Coordinate on Ministry cross cutting energy sector related issues ensuring an
integrated approach to the energy sector reformation program as outlined in
TERM.
Approve projects for the energy sector as detailed under the TERM, taking into
account the equitable distribution of development benefits and environmentally
sustainable development of the energy sector.
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Monitor the progress of the TERM implementation and meet with the GOT
Development Partners annually to review the TERM.
Oversee and approve the operation of TERM-IU, in particular to budget, staffing
and TERM-IU program implementation of TERM.
TERM-C is a dedicated and collective policy management oversight organization
(whilst independent of discreet energy related Ministries) in order to be able to
support the achievement of TERM objectives.
TERM Implementation Unit (TERM-IU): TERM-IU is the operating entity under TERM-
C directly implementing TERM. The Implementation Unit was given the following
mandate by TERM-C:
Implement TERM objectives as detailed in the TERM document, endorsed by
TERM-C and approved by Cabinet.
Source development partner funding for the operation of TERM-IU and TERM
projects for a period of not less than 5 years (3 years remaining from April 2012).
Recruit appropriate staff for TERM–IU (local and overseas technical expertise).
Coordinate the projects and different phases of TERM implementation.
Provide secretariat services to TERM-C.
The interim TERM-IU Director was appointed in February 2012 for a period of six
months. The substantive TERM-IU Director will be appointed by July 2012 for a term of
two years, and will be responsible for inter alia; quality, relevance, and coherence of the
work of the Unit as well as recruitment of key personnel for the IU; design and
implementation of the Unit‟s work program for the first two years; and monitoring and
regular reporting of the Unit‟s activities and outputs to the TERM-C. The Director of
TERM-IU is not a Member of TERM-C but presents and reports on relevant matters to
TERM-C during its normal meetings and provides secretariat support services, through
the TERM-IU, at TERM-C meeting.
In addition to the TERM-IU Interim Director, three core TERM-IU staffs are currently in
place, including an executive assistant to the Interim Director, an accountant and a
statistics officer. All administrative work relating to the functioning of TERM-IU and
secretariat support for TERM-C is currently being carried out by these staff, with more
staff envisaged to be recruited after the appointment of the permanent TERM-IU
Director.
Technical assistance: The operation laid the background for technical assistance for
policy, legal, regulatory adjustments; establishment of TGIF, data gathering, resource
assessments and technical studies; environmental screening, assessment of impact of
environmental change on energy infrastructure; and Strategic Environmental Impact
Assessment.
(c) Other Unintended Outcomes and Impacts (positive or negative, if any)
27
This operation, being the first DPO in Tonga, allowed the government to understand the
Bank‟s DPO type of instrument for policy dialogues. Based on this experience, the
government has now become very comfortable with DPOs which have become the
centerpiece of current policy dialogues.
4. Assessment of Risk to Development Outcome
Rating: Low or Negligible
The achievements of the TESDPO are highly sustainable. The operation has further
strengthened the TERM implementation and led to the two follow-up operations:
TERM Institutional and Regulatory Framework Strengthening Project
(TERM-IRFSP): The TERM-IRFSP will further support TERM implementation
by providing support to achieve the medium-term energy sector outcomes
identified in the TERM. The proposed development objective is the strengthening
of the institutional and regulatory framework of the Tonga Energy Road Map. It
will provide assistance to strengthen the core institutions and regulatory
framework relating to TERM and it is a key precursor for the ongoing and
planned operations under the Energy Road Map.
Economic Recovery Operation (ERO): In addition to strengthening public
financial management and fiscal policy, ERO will further support structural
reforms in the energy sector. The specific policy actions in the energy sector
include: (a) reforming electricity tariff that provides full cost recovery, financial
incentives for improving efficiency in generation and distribution; (b) regulatory
framework for the petroleum sector; and (c) advancing public enterprise reforms
in the energy sector like transparency of accounts/audits of the TPL initiated as
part of the DPO. The GOT has instituted measures for sustaining improved
efficiency, accountability and transparency of public finance management Some
of the measures implemented include:
a. Instituted an in-year budget reporting system that tracks key budget
information on a monthly and quarterly basis to strengthen budget execution
and has agreed to make the quarterly budget public.
b. Reformed budget calendar s as to make budget proposals available to the
public when tabled in the Legislative Assembly to improve transparency in
the process.
The Bank‟s continuing engagement in the energy sector and macroeconomic programs
and technical assistance are expected to further mitigate risks related to capacity
constraints.
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5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating: Satisfactory
The Bank‟s performance in the preparation and implementation of this DPO was
satisfactory. The operation focused on critical gaps and opportunities for interventions in
the energy sector by providing budget support to reduce the near-term fiscal deficit and
reinforcing the importance of implementation of energy sector reforms necessary to
reduce Tonga‟s vulnerability to oil price rise and shocks, which otherwise would pose a
significant risk to achieving stable growth in the medium term. The above objectives
were consistent with the development priorities of the government and the Bank‟s CAS.
During the preparation of the operation the Bank maintained intense dialogue with the
government and the key stakeholders and the operation was closely aligned with the
TERM approach in the energy sector. The operation was developed based on the
following analytical works:
Tonga Energy Road Map 2010-20, Report on Tonga Electric Supply System-a
load forecast; Renewable energy supply to the four island grids in Tonga; May
2010. World Bank / Pacific Region Infrastructure Facility (PRIF).
Demand-Side Management (DSM): Opportunities for improved efficiency in
converting delivered electricity to useful energy services. May 2010. Econoler
International. ADB.
Tonga Off-Grid Electrification Initiative, Final draft April 2010, IRENA and
Government of Tonga.
Opportunities for Improved Efficiency in Tonga Petroleum Supply Chain
Efficiency and Price Hedging Options. June 2010. Portland Ltd. World Bank /
Pacific Region Infrastructure Facility (PRIF).
Regulation of Tonga‟s Petroleum Sector. June 2010, World Bank.
(b) Quality of Supervision
Rating: Satisfactory
The Bank's performance during implementation of the project was satisfactory. Even
though there was no formal supervision since this was a one-tranche operation disbursed
on the basis of achievement of prior actions, there was implicit supervision of the
program during preparation of the follow-on operation, the Tonga Energy Road Map
Implementation Project. During this period, the task team focused on the development
impact of the operation, and played an active role in ensuring adequate transition
arrangements in line with the TERM.
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The task team focused on the project‟s development impact by providing budget support
and promoting resilience to oil price shocks. The Bank allocated sufficient budget and
staff resources, and the project was adequately supervised and closely monitored. The
task team regularly prepared and alerted GOT and PCU about issues found during project
execution and facilitated prompt corrective action. The Bank maintained very close
interaction with the GOT throughout the implementation of the DPO through frequent
missions and close interactions with the counterparts. The Bank‟s liaison office in Tonga
facilitated close dialogues with government officials on a regular basis.
(c) Justification of Rating for Overall Bank Performance
Rating: Satisfactory
On the basis of the above assessments of Bank performance in ensuring quality at entry
and in quality of supervision, overall Bank performance is rated Satisfactory.
5.2 Borrower Performance
Rating: Satisfactory
The Ministry of Finance and the Prime Minister‟s office took full ownership of the
operation and served as the implementation agency. As there is no meaningful distinction
between the government and the implementation agency, a rating is only provided for
overall borrower performance.
The Ministry of Finance, with adequate support from the Prime Minister‟s office served
as the implementing agency and took full ownership of the project development and
implementation. The Ministry of Finance furnished relevant documents accompanied by
explanatory notes to the Bank to validate program implementation. It took full
responsibility for overall coordination of supervision and monitoring of program
implementation. The overall support by the Prime Minister‟s office helped the
implementing agency, Ministry of Finance, in proper coordination and communication
across ministries in TERM development and implementation.
The Borrower‟s commitment and ownership of the operation and implementation of the
TERM was adequate and satisfactory. The Borrower‟s commitment was evident in their
successful implementation of the prior actions and interest in implementation of the
TERM and the follow-up TERM-IRFSP project. In 2011, the GOT established a TERM
Implementation Unit (TERM-IU) that is currently headed by a Director that reports
directly to the TERM Committee (TERM-C). TERM-C is to oversee and govern the
planning and implementation processes associated with the Roadmap. TERM-C is
chaired by the Office of the Prime Minister and includes all Chief Executive Officers
(CEOs) of GOT agencies that have an impact on the TERM, e.g., Ministry of Lands,
Surveys and Natural Resources; Ministry of Finance and National Planning (MFNP),
Ministry of Labor, Commerce and Industry (MLCI), Ministry of Environment and
Climate Change (MECC), and the Ministry of Public Enterprises (MPE).
30
The TERM-IU interim Director was appointed in February 2012 for a period of six
months. He was responsible for quality, relevance, and coherence of the work of the Unit
as well as recruitment of key personnel for the IU; design and implementation of the
Unit‟s work program for the first two years; and monitoring and regular reporting of the
Unit‟s activities and outputs to the TERM-C.
The Borrower worked closely with the Bank team in the design and implementation of
this TESDPO and TERM. The positive dialogue resulted in the development of the
follow-up TERM project in the energy sector. 6. Lessons Learned
The following lessons were learned from the development and implementation of this
DPO:
Sectoral development policy operations can be quickly mobilized and achieve
good results in the context of strong reform momentum. The Bank has the ability
to respond quickly to provide budget support when facilitated by strong
government ownership of a reform agenda. The government had a deep
commitment to a sector-specific reform agenda which formed a ready foundation
for the operation when the country needed budget support. The Bank‟s
engagement provided momentum in the right direction at a time when the reform
agenda could have gone off-track due to multiple challenges then facing the
governments. Given a strong government commitment for the reform agenda, the
Bank‟s engagement has assisted the GOT to clarify and sequence its reform
program and provided momentum to implement the reforms in a challenging
fiscal context. Country commitment and ownership are crucial for successful
program implementation.
Project level engagement can assist in identifying key priorities to be supported
through policy operations. The Bank had a very strong engagement in the energy
sector already, and drew on that engagement and related analytical work for the
FY11 Energy DPO, ERO and future operations. Thus this DPO operation
demonstrated how prior sector engagement and dialogue can provide vital
foundation for identifying key policy reforms that can drive further progress in
important sectors, dialogue and engagement. The project demonstrated that
opportunities for project level engagement can lead to progress in the Bank‟s
reengagement in a country like Tonga that was facing macroeconomic and fiscal
instability.
Close coordination and engagement with other development partners in
identification of policy priorities is useful in sectors where the Bank has limited
knowledge and engagement. The Bank at the time of project initiation did not
have sufficient presence and knowledge of the procurement and treasury
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instruction actions where other development partners had taken the lead. For
instance close coordination with ADB helped GOT in the procurement operations.
The importance of a total sector approach as opposed to isolated interventions in
the sector. Both Technical Assistance and investment support are more effective
when there are real plans and opportunities to put it into practice as in the case of
the development and implementation of the TERM.
In the case of a small country like Tonga there is a real value and efficiency in
packaging reforms in key sectors like energy. Since the capacity of line ministries
is limited, it is important to be realistic about the number of projects and policy
interventions that can be done/ implemented in small countries.
Preparation and implementation resources. Irrespective of the size of the country,
the level of effort of the Bank staff in development and implementation of
projects and policy operations is the same. In the case of a country like Tonga,
though the country is small, the staff time and effort involved in the operation is
close to those in larger economies.
When the Bank implements these types of operations in Pacific countries, there is
a demonstration effect on other neighboring countries and they also become
interested in having similar operations.
Government commitment. For a DPO to be successful a country‟s commitment is
crucial and it will not work just by exerting pressure by the Bank or other donors.
7. Comments on Issues Raised by Borrower/Implementing
Agencies/Partners (a) Borrower/Implementing agencies
To satisfy its obligation to provide the Bank with its own views of the project upon
completion, the borrower submitted a brief letter summarizing its assessment of the
operation (see Annex 4). The borrower also reviewed the final draft ICR and elected not
to provide comments specific to the ICR. The Bank has no comments on issues raised by
the borrower.
(b) Cofinanciers
N/A
(c) Other partners and stakeholders
N/A
32
Annex 1. Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Title Unit Responsibility/
Specialty
Lending
Kylie Coulson Sr. Financial Management
Specialist EAPFM Financial Management
Nicole Forrester Program Assistant EACNF Program Assistance
Virginia Horscroft Senior Economist EASPR Economics
Wendy E. Hughes Lead Energy Economist EASNS Energy Economics
Cristiano Costa e Silva
Nunes Senior Procurement Specialist EAPPR Procurement
Arun P. Sanghvi Consultant EASNS Consultant
Vivek Suri Lead Economist EASPR Economics
Ana Tuionuku Consultant EASNS Consultant
Supervision
(b) Staff Time and Cost
Stage
Staff Time and Cost (Bank Budget Only)
No. of staff weeks US$ Thousands
(including travel and consultant costs)
Lending
FY11 6.41 29.71
Total: 6.41 29.71
Supervision/ICR
FY11
FY12 5.10 19.20
Total: 5.10 19.20
33
Annex 2. Beneficiary Survey Results
N/A
34
Annex 3. Stakeholder Workshop Report and Results
N/A
35
Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR
36
Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders
N/A
37
Annex 6. List of Supporting Documents
Program Document: Kingdom of Tonga Energy Sector Development Policy Operation, Report
No. 56689-TO, September 15, 2010.
Project Information Document: Tonga Energy Development Policy Project, Report No. AB 5990,
September 9, 2010.
Financing Agreement: Tonga Energy Sector Development Policy Financing, October 19, 2010.
Program Document: Kingdom of Tonga-Economic Recovery Operation, October 21, 2001 Report
No. 64671.
Project Paper for small grant: Kingdom of Tonga- Tonga Energy Road Map Institutional and
Regulatory Framework Strengthening Project, June 8, 2012.
N I U A S
VAVA ' U
H A ' A PA I
TONGATAPU
E U A
Neiafu
Pangai
Ohonua
NUKU'ALOFA
Niuafo'ou
Fonualei
Vava'u
Vava'uGroup
Ha'apaiGroup
KotuGroup
NomukaGroup
Late
KaoTofua
Ha'anoOfolanga
Foa
Uiha
Nomuka
HungaTongaHunga
Ha'apai
Fonuafo'ou
TongatapuEua
UolevaLifuka
Toku
TafahiNiuatoputapu
Otu ToluGroup
Albert MeyerReef
S O U T H
P A C I F I C
O C E A N
18°S
16°S
20°S
18°S
20°S
176°W 174°W
176°W 174°W
172°W
TONGA
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 25 50
0 25 50 Miles
75 Kilometers
IBRD 33498
NOVEM BER 2004
TONGADIVISION CAPITALS
NATIONAL CAPITAL
REEFS
DIVISION BOUNDARIES
INTERNATIONAL BOUNDARIES
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