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Document of The World Bank

Report No: ICR00001819

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-35690 IDA-3569A TF-54487)

ON A

CREDIT

IN THE AMOUNT OF SDR 145.7 MILLION (US$183 MILLION EQUIVALENT)

TO THE

UNITED REPUBLIC OF TANZANIA

FOR A

SONGO SONGO GAS DEVELOPMENT AND POWER GENERATION PROJECT

CR. 3569-TA

September 30, 2011

Energy Group Sustainable Development Department Country Department AFCE1 Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective August 22, 2011)

Currency Unit = T Sh T Sh 1621.50 = US$1

US$1.00 = SDR 1.61077

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance Strategy CO2 Carbon dioxide DAWASA Dar es Salaam Water and Sewage Authority DCA Development Credit Agreement EIB European Investment Bank EIRR Economic Internal rate of Return ENPV Economic Net present Value EPC Engineering/procurement/construction ESMP Environmental and Social Management Plan ESCAP Energy Sector Capacity Assistance Project EWURA Energy and Water Utilities Regulatory Authority FIRR Financial Internal Rate of Return FNPV Financial Net Present Value GDP Gross domestic product GoT Government of Tanzania HFO Heavy fuel oil ICB International competitive bidding ICR Implementation Completion and Results Report ICSID International Center for the Settlement of Investment Disputes IDA International Development Association IPTL Independent Power Tanzania Limited kWh Kilowatt hour MEM Ministry of Energy and Minerals MOF Ministry of Finance MOID Ministry of Infrastructure Development Mmcfd Million of cubic feet per day MW Megawatt PAD Project Appraisal Document PAE PanAfrican Energy Corporation PAT PanAfrican Energy Tanzania Limited PDO Project development objective PMU Project management unit PPA Power purchase agreement

PPP Public-private partnership PSA Production Sharing Agreement QAG Quality Assurance Group RF Results Framework RIDS Resettlement Infrastructure Development Scheme RVP Regional vice president SDR Special drawing right SONGAS Songas Limited TANESCO Tanzania Electric Supply Company Limited TANROADS Tanzania National Roads Agency TEDAP Tanzania Energy Development and Access Project TPDC Tanzania Petroleum Development Corporation TTL Task team leader URT United Republic of Tanzania WVES Wayleave Village Electrification Scheme

Vice President: Obiageli K. Ezekwesili

Acting Country Director: Mercy M. Tembon

Sector Manager: Lucio Monari

Project Team Leader: Robert Schlotterer

ICR Team Leader: Robert Schlotterer

TANZANIA Songo Songo Gas Development and Power Generation 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 ............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 73. Assessment of Outcomes .......................................................................................... 164. Assessment of Risk to Development Outcome ......................................................... 215. Assessment of Bank and Borrower Performance ..................................................... 226. Lessons Learned ....................................................................................................... 257. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 26Annex 1. Project Costs and Financing .......................................................................... 27Annex 2. Outputs by Component ................................................................................. 28Annex 3. Economic and Financial Analysis ................................................................. 31Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 35Annex 5. Beneficiary Survey Results ........................................................................... 37Annex 6. Stakeholder Workshop Report and Results ................................................... 38Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .................... 39Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 42Annex 9. List of Supporting Documents ...................................................................... 43

Annex 10. Summary of Project Restructuring History………………………………..44 Annex 11. Environmental and Social Issues during Implementation…………………46

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A. Basic Information

Country: Tanzania Project Name: TZ-Songo Gas Dev & Power Gen (FY02)

Project ID: P002797 L/C/TF Number(s): IDA-35690,IDA-3569A,TF-54487

ICR date: 08/23/2011 ICR Type: Core ICR

Lending instrument: SIL Borrower: GOT

Original total commitment:

XDR 145.7M Disbursed Amount: XDR 127.3M

Revised amount: XDR 127.3M

Environmental Category: A

Implementing Agencies: Songas Ltd. ;TANESCO; Ministry of Energy and Minerals

Cofinanciers and Other External Partners: European Investment Bank, Pan African Energy B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept review: 12/17/1993 Effectiveness: 11/27/2001 11/27/2001

Appraisal: 06/18/1996

Restructuring(s):

06/08/2004 12/26/2007 12/18/2009 12/15/2010

Approval: 10/09/2001 Mid-term Review: 02/03/2004

Closing: 03/31/2006 12/31/2010 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to development outcome: Low or Negligible

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: Satisfactory Government: Moderately Satisfactory

Quality of supervision: Moderately SatisfactoryImplementing Agency/Agencies:

Moderately Satisfactory

Overall Bank Performance:

Moderately SatisfactoryOverall Borrower Performance:

Moderately Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential problem project at any time (Yes/No):

No Quality at Entry (QEA):

Satisfactory

Problem project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before closing/inactive status:

Satisfactory N/A N/A

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 5 5

Oil and gas 44 44

Other social services 2 2

Power 49 49

Theme Code (as % of total Bank financing)

Climate change 20 20

Infrastructure services for private sector development 20 20

Other social development 20 20

Rural services and infrastructure 20 20

State-owned enterprise restructuring and privatization 20 20 E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: Mercy Miyang Tembon James W. Adams

Sector Manager: Lucio Monari M. Ananda Covindassamy

Project Team Leader: Robert Schlotterer Karen T. Rasmussen

ICR Team Leader: Robert Schlotterer N/A

ICR Primary Authors: Karan Capoor Robert Schlotterer

N/A

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The main project development objective (PDO) was to develop Tanzania’s natural gas reserves to produce least-cost power generation for domestic and industrial use in an

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environmentally sustainable and efficient manner. The project aimed to promote private sector ownership and management of generation in the gas and power sectors. In addition, it was going to encourage increased access for the poor by developing financially sustainable rural energy schemes to presently unserved areas along the pipeline corridor. As discussed below, the original three PDO outcome indicators were refined during a 2007 restructuring. The targets of three of the four revised indicators (indicators 1, 2 and 3) were achieved and exceeded. Indicator 4 related to electrification in unserved areas along the gas pipeline corridor was partially achieved (about 53% at project closing). In addition, nineteen out of twenty intermediate outcome indicators were achieved by project closing. Intermediate outcome indicator 7 was partially achieved (1,831 of the targeted 3,435 households were electrified). Revised Project Development Objectives (as Approved by Original Approving Authority) The PDOs were not changed during project implementation. Through a restructuring approved by the Regional Vice President in December 2007, certain changes were undertaken to the results framework. Most of the originally envisaged activities had been completed in 2007 and the associated targets were achieved, and new activities had been added leading to a revised results framework wherein the PDO and intermediate outcome indicators had been refined to better measure the outcomes of the project. The original PDO indicators were: (i) domestic gas consumption for electricity and commercial production (Mmcf/d), (ii) local foreign and private investment in energy and gas infrastructure: increasing US$5 million per year from 2004, and (iii) enabling environment established to promote gas and/or electricity exports. The three original PDO outcome indicators were refined since this restructuring to the following four indicators: (i) weighted average energy cost for power generated in Ubungo for domestic and industrial use (US$ per kWh); (ii) domestic gas consumption for electricity generation and cement production (Mmcfd); (iii) new private entities invest capital and own and operate project in the gas and power sectors; and (iv) percentage of electrification in unserved areas along the corridor of the gas pipeline. (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: Weighted average energy cost for power generated in Ubungo for domestic and industrial use (US$/kWh)

Value quantitative or qualitative)

US$0.13/kWh

- UEP capacity charges significantly reduced - IPTL Plant converted to

UEP Capacity charges have been significantly reduced (current cost=US$0.064/kWh)

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natural gas firing Date achieved 11/27/2001 12/31/2009 12/31/2010

Comments (incl. % achievement)

Original Targets achieved with an average cost value of US$0.064/kWh at closing, which is far below the originally targeted US0.092/kWh. This PDO indicator was added in the 2007 restructuring to better measure the PDO objective “to develop Tanzania’s natural gas reserves to produce least-cost power generation” and to complement indicator 2 below.

Indicator 2: Volume of domestic gas consumption for electricity & production (Mmcfd) Value quantitative or qualitative)

NIL 30 75 in total

Date achieved 11/27/2001 03/31/2006 12/31/2010 Comments (incl. % achievement)

Targets achieved since 2007 and exceeded at closing. Gas processing volume at closing stood at 75mmcf/d

Indicator 3: New private entities invest capital and own and operate project in the gas and power sector


Limited contractual engagement with private sector in the power and gas sectors.

New private entities invested capital and own and operate project in the gas and power sectors.

New private entities invested capital and own and operate project in the gas and power sectors.

Date achieved 11/27/2001 12/31/2009 12/31/2010


Targets achieved many years ago, and up to closing date there has been growing involvement of private sector in power and gas sector: (i) Songas Ltd. owns 190 MW gas generation capacity, (ii) Songas Ltd. and PAN AFRICAN own Gas processing Plan on Songo Songo Island, (iii) IPTL owns HFO power plant since 2001, (iv) TWIGA CEMENT Ltd. Dar es Salaam invested in its own 3 MW captive power plant since 2007, using gas from Songas facility, (v) Artumas Energy owns a 12 MW gas-fired power plant and private electrification scheme in Mtwara, and (vi) several independent private producer projects are in the making, including Ruhudji HPP 360 MW (Hydro) and Singida Wind Power 100 MW. This revised indicator replaced the original indicator measuring “local foreign and private investment in energy and gas infrastructure: increasing US$5 million per year from 2004”, since private investments in the sector by far exceeded the original target at the time of the second restructuring in 2007.

Indicator 4: Percentage of electrification in unserved areas along the corridor of the gas pipeline


NIL

Resettlement infrastructure component (RIDS) and electrification scheme (WVES) completed

RIDS 100% completed WVES 100% completed

Date achieved 11/27/2001 12/31/2009 12/31/2010 Comments (incl. %

Resettlement infrastructure development scheme completed in 2008. Wayleave infrastructure completed to in December 2010. This new indicator was

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achievement) included in the 2007 revised RF to measure expected outcomes of Component B.

(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: Gas processing plant and ancillary infrastructure constructed Value (quantitative or qualitative)

0 Gas plant and infrastructure completed.

Gas plant and infrastructure completed.


Target achieved since 2005. Gas plant and infrastructure completed and operational.

Indicator 2: Pipeline from Songo Songo Island to Dar es Salaam constructed (km)

Value (quantitative or qualitative)

0

207 km landline and 25 km undersea pipeline constructed.

232 km landline and 25 km undersea pipeline constructed.


Target achieved since 2005.

Indicator 3: Volume of gas production for power generation (Mmcfd) in Songas facility Value (quantitative or qualitative)

0 30 59


Target of 30mmcf/d achieved in 2006. Target currently exceeded.

Indicator 4: Number of gas turbines rehabilitated and converted to gas firing Value (quantitative or qualitative)

0 4 4



Indicator 5: Generation capacity, additional Bank (MW) Value (quantitative or qualitative)

0 7.5 7.5


Somanga Power station commissioned in August 2010. Target achieved.

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achievement) Indicator 6: Electricity transmission lines, additional Bank (km). Value (quantitative or qualitative)

0 274 291


Target achieved and exceeded in 2010.

Indicator 7: Households with electricity, additional Bank (number). Value (quantitative or qualitative)

0 3,435 1,831


Target has not been achieved by closing date. The number of 1,831 includes 1,464 connections realized under the WVES at closing and the remaining balance relates to new connections in the RIDS and on Songo Songo Island.

Indicator 8: Water points built, Bank (number) Value (quantitative or qualitative)

0 88 88


Target achieved since November 2007.

Indicator 9: Water piping rehabilitated, Bank (km) Value (quantitative or qualitative)

0 3 3



Indicator 10: Improved water supply, Bank (number of additional people) Value (quantitative or qualitative)

0 4,000 4,000



Indicator 11: Roads constructed, Bank (km) Value (quantitative or qualitative)

0 12.8 12.8


Target achieved since November 2007. This relates to the roads on the RIDS.

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achievement) Indicator 12: Telecommunication lines, additional Bank (km) Value (quantitative or qualitative)

0 1.2 1.2


Target achieved since November 2007. This has been part of the RIDS.

Indicator 13: Wellhead SS no.6 closed and decommissioned


Not done.

Closing and decommissioning of wellhead no.6 completed

Wellhead no.6 closed and decommissioned


Target achieved since April 2008.

Indicator 14: Power system master plan Value (quantitative or qualitative)

Concept in 2004 Power system master plan completed.

Power system master plan completed.


The final report was delivered and approved by Government of Tanzania in September 2008. Target achieved.

Indicator 15: Technical studies for improving operational efficiencies of TANESCO Value (quantitative or qualitative)

New activity in 2007 Studies completed. Studies completed.


All studies were duly completed and final deliverables handed over by project closing date. Target achieved.

Indicator 16: Financial and tariff advisory to TANESCO Value (quantitative or qualitative)

New activity in 2007 Advisory support provided.

Advisory support provided.


Tariff application submitted on May 28, 2010. Follow-up work completed. Target achieved.

Indicator 17: Advisory support to TANESCO for preparation of public/private G, T, & D; bidding documents for next Gas IPP


New activity in 2007 Advisory support provided.

Advisory support provided.

Date achieved 12/26/2007 12/31/2009 12/31/2010

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Final report delivered and approved in December 2010. Target achieved.

Indicator 18: Feasibility study for LPG extract Value (quantitative or qualitative)

New activity in 2007 Feasibility study completed.

Feasibility study completed.


Target achieved.

Indicator 19: Tanzania Petroleum Development Corporation (TPDC) production sharing agreement (PSA) database developed


New activity in 2007 Database for PSAs is functional.

Database for PSAs is functional.



Indicator 20: Amount of capacity charges to TANESCO for buying electricity from Songas Value (quantitative or qualitative)

New activity in 2007 US$11 million US$12.3 million


Target achieved and exceeded at closing date.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 05/01/2002 Satisfactory Satisfactory 7.04 2 12/16/2002 Satisfactory Satisfactory 18.25 3 05/16/2003 Satisfactory Satisfactory 22.69 4 11/26/2003 Satisfactory Satisfactory 60.72 5 05/28/2004 Satisfactory Satisfactory 91.59 6 12/15/2004 Satisfactory Satisfactory 109.82 7 04/23/2005 Satisfactory Satisfactory 110.44

8 12/04/2005 Moderately

Unsatisfactory Moderately Satisfactory 112.60

9 06/30/2006 Moderately

Unsatisfactory Moderately

Unsatisfactory 118.86

10 12/28/2006 Moderately Satisfactory Moderately Satisfactory 122.48 11 06/25/2007 Moderately Satisfactory Moderately Satisfactory 125.93

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12 12/14/2007 Moderately Satisfactory Moderately Satisfactory 128.56 13 05/31/2008 Moderately Satisfactory Moderately Satisfactory 130.47 14 12/17/2008 Satisfactory Satisfactory 132.54 15 06/10/2009 Moderately Satisfactory Moderately Satisfactory 134.13 16 12/09/2009 Satisfactory Satisfactory 178.42 17 06/22/2010 Satisfactory Satisfactory 180.66 18 03/16/2011 Satisfactory Satisfactory 184.23

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

06/08/2004 N S S 91.65

Added new component D to scale up gas-fueled power generation and extension of original closing date to October 31, 2007

12/26/2007 N MS MS 128.66

Added new component E to support the Ubungo Expansion Project Capacity Charge Reduction and extension of project closing date to December 31, 2009

12/18/2009 N S S 178.42 Extension of project closing date to December 31, 2010.

12/15/2010 N S S 182.24 Partial credit cancellation and drop of one component

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I. Disbursement Profile

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1. Project Context, Development Objectives, and Design

1.1 Context at Appraisal Country and Macroeconomic Context 1. At the start of project appraisal in 1997, the United Republic of Tanzania (URT) was

10 years into its transition from a socialist to a free market economy, and in 1995 the country transitioned to a multiparty system and the first multiparty elections were held, moving the country toward being a fully democratic society. Economic reforms in Tanzania began in 1986, and by the early 1990s household surveys indicated that higher economic growth was reducing poverty. However, in the mid-1990s Tanzania’s reform program fell off track, resulting in high budget deficits, increased inflation, and low economic growth. In parallel, corruption increased significantly. In 1995 the Government of Tanzania (GoT) committed itself to a renewed effort on economic reform and expressed its determination to reestablish more positive relations with its donors and partners in development.

2. Following this turning point, the GoT embarked on a comprehensive economic

stabilization program and introduced deep institutional and structural reforms, focusing on improving economic governance, providing an enabling environment for private sector activities, and enhancing public service delivery for poverty reduction. Growth consequently increased between 1996 and 2000, averaging about 4 percent. In line with the Government’s priorities, a new World Bank Country Assistance Strategy (CAS) was approved in 2000, when this project completed its appraisal. The project proposed to support the following Tanzania CAS’ objectives: (i) private sector and infrastructure development, to support the GoT’s objective of making private sector the engine of growth; (ii) sustainable rural development, to improve the livelihood of the majority of the poor who live in rural areas; and (iii) public sector reform and institution building, to increase the effectiveness of public service delivery and improve governance.

Sector Context 3. In the 1990s, when this project was prepared, Tanzania’s power sector faced several

issues and constraints. The main constraint at that time, with an impact on the country’s economic growth, was a severe shortage of supply caused by a lack of an adequate hydro-based and thermal-based power generation mix. Between 1992 and 2000 there had been several major shortages of electricity caused by poor rainfall in Tanzania’s then predominantly hydroelectric system, and there was no sufficient available back-up thermal generation. At the onset of the Songo Songo project, Tanzania had not yet explored any of its own natural gas resources, despite having been discovered in 1974 and, as such, one of the availability constraints of the thermal generation included the high costs of imported fuel oil for thermal operations.

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4. Another constraint at the time of final appraisal was TANESCO’s inefficient operations and weak commercial performance. Despite a cost-reflective tariff at that time, TANESCO had been unable to cover its operational and maintenance costs and debt service requirements. Revenue shortfalls had been due largely to weak operational performance and poor collection rates. Consequently, TANESCO’s overall performance had been poor, and the utility was unable to meet the growing demand for electricity or to significantly increase service coverage.

5. As TANESCO’s financials were too constrained to contribute substantially to an

increasing sector investment plan, the GoT in the 1990s tried to unlock additional donor finances to bridge the increasing investment funding gap. However, at that time donor financial resources were also limited, and the development of private sector projects had been constrained by Tanzania’s weak balance of payments situation and TANESCO’s poor commercial performance. Need, however, was not limited, as the access-to-electricity rate was low, at only about 7 percent of the population. With only 7 percent of the population having access to energy, the necessary investment to meet the expected annual growth in the demand for power and to increase access to electricity during 2000–2010 was estimated in excess of US$500 million for generation, transmission, and distribution facilities.

Rationale for Bank Involvement 6. Prior to this project, the Bank had provided significant financial support to the power

sector to assist Tanzania in meeting its power generation and other sectoral investment needs and to improve TANESCO’s operational and financial performance. In spite of these efforts, the reliability and quality of power supply had been major impediments to sustained investment and growth in Tanzania. Broad-based economic growth in rural areas had been particularly constrained by the lack of infrastructure. In line with the Government’s power sector strategy, International Development Association (IDA) support had been redirected through this project, with the objective to address some of the power sector’s major constraints consistent with the Government’s overall strategy at that time. The project consequently had been designed to take advantage of private sector management and technical expertise in the operation of the gas infrastructure system, and in promoting the development of a commercial market for gas.

1.2 Original Project Development Objectives (PDO) and Key Indicators 7. The development objectives of the project were to (i) develop the borrower’s natural

gas reserves to produce least-cost power generation for domestic and industrial use in an environmentally sustainable and efficient manner; (ii) promote private sector ownership and management of the gas and power sectors; and (iii) encourage increased access of the poor to electricity supply by developing financially and institutionally sustainable rural power schemes to presently unserved areas along the corridor of the gas pipeline.

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8. The original key outcome indicators were as follows: (i) domestic gas consumption for electricity generation and cement production (Mmcfd): Increasing from project commercial start in September 2003 from 24 Mmcfd to about 30 Mmcfd in 2006; (ii) level of (domestic and foreign) private investment in energy and gas infrastructure: Increasing annually from 2004 by US$5 million; and (iii) creation of an enabling environment to promote efficient gas utilization: Establishing a transparent pricing mechanism for gas production and transport; providing open access to the pipeline for future gas producers and users; and regulating by contract to produce efficient transactions (until a gas regulatory function would be warranted).

9. In order to achieve the above objectives, the following actions were proposed at the onset: Songas, a limited liability majority privately owned and managed company, was established to develop, construct, own, and operate the project’s gas and power infrastructure. Songas was responsible for processing gas within the gas field at Songo Songo Island and transporting it by pipeline to Dar es Salaam to supply the Ubungo Power Plant (112 MW upgraded to 125 MW under the project), the Twiga cement plant at Wazo Hill, and other commercial gas users. Power produced at Ubungo was to be made available for sale to Tanzania Electric Supply Company Limited (TANESCO). Ownership of the Ubungo Power Plant was to be transferred to Songas, and its debt to be assumed by Songas in exchange for issuance of shares.

10. Under the project, a private sector joint venture consortium between PanAfrican

Energy Corporation Limited (PAE) and the Tanzania Petroleum Development Corporation (TPDC) was established. It was responsible for developing and marketing gas to commercial and industrial users and for developing opportunities for exports to neighboring countries. Under the terms of the contractual agreements, Songas was obligated to transport gas to end users, applying a transparent transportation-pricing mechanism. Almost all of the revenues resulting from incremental gas sales (above those to the Ubungo Power Plant) would accrue to (i) TANESCO, and thus power consumers in the form of a reduced transportation charge, which would decrease the capacity payments to be made by TANESCO to Songas; (ii) the Government in the form of additional gas fees; and (iii) PAE and TPDC for the production and sale of gas in accordance with the terms of the production sharing agreement.

1.3 Revised PDOs (as approved by original approving authority) and Key Indicators, and Reasons/justification 11. The PDOs were not changed during the project implementation. However, there are

small differences between the the PDO in the PAD compared to the Development Credit Agreement (DCA). These differences are a matter of syntax, not substance. Through the December 2007 restructuring, certain changes were made to the results framework as most of the originally envisaged activities had been completed in 2007, and new activities had been added through the restructuring in December 2007.

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12. The refined PDO outcome indicators since this restructuring read as follows: (i) weighted average energy cost for power generated in Ubungo for domestic and industrial use (US$/kWh); (ii) domestic gas consumption for electricity generation and cement production (Mmcfd); (iii) new private entities invest capital and own and operate project in the gas and power sectors; and (iv) percentage of electrification in unserved areas along the corridor of the gas pipeline.

1.4 Main Beneficiaries 13. As identified in the PAD, principal beneficiaries were (i) the existing and potential

new consumers of electricity on the interconnected power grid system; (ii) the villages along the gas pipeline route; and (iii) the potential businesses and industries which may switch to use gas for commercial purposes. It was also expected that the project would benefit the Tanzanian public at large through increased fiscal revenues and by displacing imported fuels with indigenous gas.

1.5 Original Components Component A 14. Songas (Main) Project Component (total US$273.5 million as follows: IDA US$161.5

million EIB US$44 million AES Corporation 1 US$50 million, and CDC US$18 million): This component supported the project objectives of developing the borrower’s natural gas reserves to produce least-cost power generation as well as to promote private sector ownership and management of the gas and power sectors. The Songas component supported a gas-to-electricity public-private partnership (PPP), which included (i) the development of the Songo Songo Islands natural gas field, (ii) the construction of a 70 Mmcfd gas processing plant, (iii) the construction of a 25 kilometer marine gas pipeline and a 207 kilometer on-shore gas pipeline, (iv) the privatization (by Songas), conversion-to-natural gas, as well as operation of the 112 MW (former TANESCO owned) Ubungo Power Plant, and (v) the supply of gas to the Twiga cement plant.

Component B 15. Environment, Social and Project Monitoring Component (total US$13.54 million as

follows: IDA US$11.83 million and GoT US$1.71 million): This component financed the main environmental and social mitigation measures of the project that were not already financed by the project’s private investors supported by component A. One main social mitigation measure of this project was the provision of water and electricity to people affected by the project. This component supported the project’s objective of encouraging increased access of the poor to electricity supply by

1 The AES Corporation’s equity funding in this component was taken over by CDC in 2003, when AES Corporation sold its interests in the project.

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developing financially and institutionally sustainable rural power schemes to presently unserved areas along the corridor of the gas pipeline. The component originally included three main subcomponents:

B.1 Wayleave Village Electrification Scheme (WVES)

16. As part of the compensation and social mitigation package of the project,

infrastructure development of the affected villages was to be facilitated through this subcomponent. About 25 villages along the pipeline were to be provided with a total of 1,600 solar home systems. In addition, the existing national power grid was to be extended to reach 5 villages located near the northern end of the pipeline, to provide electricity to a further 135 homes and industries. Finally, gas laterals were to be extended in form of a Build-Own-Operate gas-based generation scheme by the private sector, to the townships of Kilwa, Masoko, Utete, lkwiriri and Bungo/Kibiti, where 500 kW gas-fired power stations had to be erected for supply of electricity to a total of 3,300 customers, of whom 2,100 did not have access to electricity before (in Kilwa Masoko and Ikwiriri, existing diesel stations operated by TANESCO were to be converted to run on gas).

B.2 Resettlement Infrastructure Development Scheme (RIDS)

17. This subcomponent related to the financing of the project’s resettlement initiatives.

The Government had designated Kinyerezi and Sala Sala (located in the Dar es Salaam outskirts) as resettlement sites for the families displaced along the gas pipeline route. The Government intended to upgrade and provide roads, install water supply systems and provide electricity access within these resettlement areas. Through those IDA co-funded measures under the project the resettled families were to benefit from infrastructure facilities that were at least equal but mainly better than those in their former locations.

B.3 Environmental Management Plan Compliance & Monitoring Advisors

18. This subcomponent mainly supported the monitoring by the Ministry of Energy and

Minerals (MEM) of the implementation of the project’s Environmental and Social Management Plan (ESMP) that was to be executed by Songas Ltd. under component A. The subcomponent financed a set of consultants assisting the MEM on behalf of the Government to establish and execute an appropriate compliance and monitoring program with regard to implementation of the ESMP. This included establishing a database and filing system appropriate for monitoring compliance with environmental and social safeguard policies and training and capacity building of Government staff. The consultants were to periodically visit the various construction sites and worked closely with the Government’s counterpart team from TANESCO, the MEM and TPDC.

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Component C 19. MEM Capacity-Building Component (total US$8.17 million, funded wholly by IDA):

This component financed various technical assistance measures, training and equipment provided under the project to assist the MEM to strengthen its sector policy making function and to assist the MEM with the environmental, social and contractual oversight to be carried out in connection with the proposed project.

1.6 Revised Components 20. The original project components A and C were not revised.. However some activities

(in component B especially) were revised without change in objectives taking into account a lack of private sector interest in the build-own operate gas-based generation scheme proposed under subcomponent B.1 and a failure to attract qualifying bids for the Solar Home Systems under the same subcomponent. In addition important cost savings under component A led to several project restructurings introducing new project components as follows:

New Component D 21. First Project Restructuring: May 2004, Board Level: The project’s DCA was

amended to add a new project component D— conversion of 10 Wartsila 38 generation sets from heavy fuel oil to gas firing. The new component proposed to finance the conversion of an existing, private-sector-owned power plant (Independent Power Tanzania Limited, or IPTL) to gas-firing ability. This restructuring was processed together with a closely related new emergency investment loan to the power sector (Cr.39160), which is the main reason why those changes were processed at Board level. (For further details, see under Section 2.2.)

Change in Scope of Subcomponent B.1 22. Around the time of the first restructuring in May 2004, this subcomponent’s

implementation was significantly delayed. The outcomes of the related procurement processes for (i) the 1,600 solar home systems for 25 villages and (ii) gas-based generation scheme to 5 villages showed that the private sector was not interested in carrying out those activities on a build-own-operate basis as originally planned. Consequently, an alternative institutional structure was proactively developed under this subcomponent whereby TANESCO would implement the gas-based generation scheme with a single 7.5MW power station making use of natural gas from the Songo Songo gas pipeline.

New Component E 23. Second Project Restructuring: December 2007, RVP Level): The project’s DCA was

amended a second time to add new project component E (Ubungo Expansion Project Capacity Charge Reduction). This proposed to support TANESCO’s expansion of

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power generation capacity by reducing the capacity charges payable to Songas under the Ubungo Expansion Project. As in component D, this restructuring made use once again of the remaining substantial project savings under the project, this time after the original component A was fully implemented. The restructuring made use of project savings of US$43 million to reduce the cost of power purchases TANESCO incurred under the power purchase agreement with Songas Ltd. This restructuring was also consistent with the PDO, and since it was thereby only a reallocation of proceeds, this restructuring was approved at the RVP level. In addition, and to maximize the use of available project savings through this restructuring, several new technical assistance measures were also introduced, mainly providing financing for certain strategic and sectoral studies of TANESCO. Those technical assistances were included under the original components B and C.

1.7 Other Significant Changes 24. Major project changes are described in section 1.6 above. These were approved

through various restructurings that are summarized in annex 10.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Project Preparation 25. This project was prepared over a relatively long time frame, with close to eight years

between concept stage approval (December 1993) and Board approval (October 2001). The main reasons for this longer than usual preparation time frame was a three year “preparation standstill period” called by the Bank, due to issues in the Tanzania power sector around another (non-Bank financed) independent power producer (IPP) project. Since this other project underwent an arbitration proceeding and its outcomes had some important effects on the overall power sector finances that were also relevant for the due diligent process under this project, the Bank put the preparation process on hold. Despite this longer time frame, the project preparation was continuously monitored, and underpinning background analyses were updated in the context of several management review meetings, including (i) two project appraisals (one in June 1996 and a reappraisal in September 2000); (ii) three Regional Operations Committees (ROC meetings in September 1993, May 1996 and April 2001); and (iii) two Operations Committee (OC meetings in November 1993 and September 1995).

26. Project preparation of the main component A (the gas and power generation

infrastructure component) was well prepared and supported by a large number of technical, financial, economic, environmental, and social studies.

27. Key lessons learned as noted in the original PAD were duly incorporated in the

design of the project as follows:

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a) Importance of fundamental reform to ensure power sector financial viability.

Through the capacity building in component C, the project supported the GoT in its sector reform efforts at the time. The largest subcomponent under component C was for the financing of technical, economic, and legal advisors to the MEM, provided throughout the lifetime of the project.

b) Importance of commercializing energy sector operations and promoting private sector participation: Through the introduction of a competitively selected private investor under component A, the GoT made efficient use of the private sector’s ability to design, build, and operate an important additional unit to power generation after securing a well-structured financial package with the support of the IDA and the European Investment Bank (EIB). The design of the main project component as a public private partnership helped to improve the efficiency and performance of the thermal power generation sector, with the Songas owned and operated plant regularly being at the top of the thermal generation dispatch orders by TANESCO since commercial operation began in 2004.

c) Importance of making investment decisions based on technical, financial, and

economic merits consistent with macroeconomic and sector development objectives. The preparation of this project followed a comprehensive least-cost planning analysis that confirmed that the power development program based on Songo-Songo gas was the least-cost for Tanzania. This is also underlined by the fact that up to project closure there have not been any contractual disputes between the GoT and the private investor, while other power generation projects entered into arbitration proceedings, some of which were ongoing at project closing.

d) Importance of establishing an experienced, knowledgeable team to manage

project implementation and adequate training to counterpart staff: The implementation of the project’s component A relied from the onset on the expertise of a private sector company, which established a strong technical and commercial team. The project design effectively leveraged the private sector’s knowledge and experience for a technology that was new to Tanzania as the project supported the first gas-processing, pipeline, and gas power generation facility in country. Component A was duly implemented with only a nine-month delay, which is partially attributed to certain changes of the procurement strategy that ultimately led to significant cost savings. While this lesson was applied well for component A, there were some important delays in setting up an adequate GoT team responsible for the implementation of component B (see also section 2.2).

28. Overall the project was well prepared, given the complexity of its undertakings in a

new energy subsector for the country. Preparation of component A was very comprehensive and solid, which ultimately was proven by the timely implementation of this component. Component B was prepared by applying the same lessons learned

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as used for the preparation of component A, by focusing on the promotion of private sector participation, but in retrospect this preparation approach was proved not to be feasible.

Project Design 29. The development and utilization of a new domestic gas infrastructure for Tanzania

required strong technical and commercial expertise that could ensure timely and reliable construction, operation, and maintenance of the new energy resource. Those requirements were addressed by the design of component A, relying on the private sector’s expertise, which was well integrated in a comprehensive set of contractual arrangements between the public and private sectors. Through this design choice, the development outcome of component A was achieved if not exceeded.

30. For certain subcomponents under component B, the design choice was only partially

proven satisfactory. The original design of the Wayleave Village Electrification Scheme (WVES) under this component was based on the assumption that the private sector could be attracted to this rural electrification scheme. However, this concept was proven unsustainable during project implementation, and the design of this subcomponent was substantially changed. The new approach worked well, and the expected outcomes of this activity were partially achieved by project closing, but only after a much longer than expected implementation period.

Assessment of Risks 31. Overall the project risk was rated as Substantial at appraisal. Several risk factors were

assessed and mitigation measures considered as follows:

a) Government commitment to power sector reform is not maintained. This risk was assessed as Modest, and the following mitigation measures were proposed: (i) a government-agreed power sector reform plan under implementation by mid-September 2001; (ii) adequate progress toward unbundling and divestiture by end-2003; and (iii) institutional and technical support provided for the establishment of EWURA under a separate IDA credit. This risk did not materialize, since the GoT ultimately pursued a comprehensive power sector reform, which set up an independent regulatory agency (EWURA), established a new electricity act, and pursued a private sector management contract for TANESCO. The unbundling efforts initiated with the management contract eventually stalled, since the management contract was not extended and TANESCO fell back under public management. While certain reform efforts were thereby not leading to the expected results, they had no negative consequences on the project’s outcome.

b) Interim steps prior to completion of the privatization program to improve TANESCO’s operational and financial performance do not materialize, thereby jeopardizing Songas’ financial viability. This risk was rated Substantial but did not materialize as the proposed mitigation measure of the establishment and

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funding of a revolving liquidity facility efficiently back-stopped some late payments by TANESCO under the PPA.

c) A stable macroeconomic environment (and liberalized foreign exchange regime)

is not maintained. This risk was rated Substantial but did not materialize. Tanzania made significant progress during the project’s implementation time to achieve and maintain macroeconomic stability, becoming one of the best performers in sub-Saharan Africa. The economic growth had been around 7 percent since 2000. Sound macroeconomic policies, market-oriented reforms, and debt relief had ensured a positive environment for Tanzania’s steady economic growth, which also benefited the implementation of this project.

d) Gas and power infrastructure system construction delays with cost overrun, system not operated and maintained in line with international power and gas industry practice. This risk was rated Modest at appraisal and did not occur. While there was a nine month completion delay, it did not lead to any cost increases under the originally planned budget. There were neither issues of operation nor maintenance occurring during operation.

e) Adequate managerial, technical and financial capacity in place to ensure WVES’ commercial viability. This risk was rated Modest. Proposed mitigation was private sector run gas-based electricity and solar home schemes under the WVES subcomponent. As already described, this original design of the subcomponent involving the private sector had to be fundamentally revised. Consequently this risk materialized and the mitigation measures foreseen were proven insufficient to avoid a substantial delay in implementation of this subcomponent.

Quality at Entry 32. In 2002 a Quality Assurance Group (QAG) review was done for the quality at entry

of the project. Overall, the quality at entry assessment of the project was rated Satisfactory by QAG, mainly justified by a strong project rationale and acknowledgment that preparation was done by a strong task team that was able to keep up with a very complex and sometimes uncertain deal over a long period of time.

33. The ICR team comes to the same rating conclusion, mainly given (i) the adequacy of appraising the country context, (ii) background studies and analysis of the energy sector, and (iii) alignment of the project and its development objectives with the objectives of the GoT at the time of preparation. The design of component A with a strong focus on private sector involvement proved to be strong, leading to a timely implementation and achievement of project outcomes in 2004. At the same time, the design of the WVES subcomponent under component B in retrospect was proven wrong and the original misconception led to important delays of the project’s closing date, which could have been avoided by a more careful preparation of this subcomponent. However, given the relatively small size of this subcomponent and taking into account that the ultimate outcomes of this electrification scheme were

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substantially achieved by project closing, the overall quality at entry rating remains Satisfactory.

2.2 Implementation 34. The Songo Songo Gas Development and Power Generation Project (hereafter Songo

Songo project, or the project) was approved on October 9, 2001, and became effective on November 27, 2001. The project was restructured three times with closing dates extended accordingly to complete components B and the new components D (later dropped) and E. These restructurings were also used to utilize savings of about US$78 million achieved through competitive procurement under component A.

35. The implementation of component A was overall satisfactory and without major delays. The gas-processing plant and converted power generation assets were commissioned in 2004 with only a nine-month delay. While the total project cost estimates for component A were indicated with US$274 million at the time of appraisal in 2001, the final costs contracted under this component amounted to only US$232 million. Including formerly planned but un-used contingency amounts and interest during construction, the total cost savings under the IDA credit in 2004 amounted to about US$78 million at the then applicable SDR exchange rate.

36. The significant cost savings were achieved through a modified procurement strategy.

The initial project costs used at project appraisal in 2001 were based on bid prices received during an initial tendering of the equipment carried out in 1997. While this initial tendering was cancelled after the project was put on hold in 1997, during the final appraisal of the project in 2001, the task team used the former bid prices received as the applicable cost estimates. This approach was confirmed by the Quality Enhancement Review in 2001 as being adequate. When the new tendering was carried out in 2001, the project’s sponsors decided to change the bid strategy for the gas infrastructure packages by allowing qualified contractors to make combined offers for the gas pipeline and the gas production/processing facilities. This revised strategy resulted in significantly lower prices than estimated at appraisal, which ultimately led to the important cost savings under this project.

37. While the implementation of component A was overall swift and in accordance with

the original plan, component B’s implementation faced several challenges throughout the project’s lifetime and was one of the main reasons for the extension of the original project closing date by an aggregate of more than four and half years. At the onset of project implementation, the responsible project management unit (PMU) for this component situated at the MEM was set up with a significant delay of more than a year, due to a slower than expected hiring process by the MEM. This initial delay of the PMU establishment consequently had an impact on the implementation schedules of all other activities supported by the IDA credit in components B and C.

38. The second major implementation issue that arose under component B was the

required redesign of the WVES subcomponent (see previous section). When the revised concept for this subcomponent was agreed between the Bank and the GoT in

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2003, implementation responsibility was given to TANESCO, which immediately set up a special implementation unit. Despite this new implementation arrangement, now designed as a TANESCO-owned infrastructure, the implementation process continued being delayed. Consequently during the Mid-Term Review in 2004, the Bank team suggested to TANESCO that it outsource certain WVES components situated on Songo Songo Island to Songas Ltd., which then assumed the implementation of the water and electrification infrastructure on the island. In addition, the Bank agreed with GoT on a revised and accelerated implementation plan of the remaining WVES components. It was only at the end of 2005, four years after the project’s original approval date, that all major contracts for the WVES were procured and under implementation. At that time already 90 percent of the original activities supported by the project were duly completed under component A. However, cancelling component B and closing the project was not an option given its importance for the livelihoods of the affected beneficiaries.

39. While the construction of the WVES work started in early 2006, additional hurdles further delayed the implementation of this subcomponent, including some unforeseen changes to the power plant site conditions in Somanga and an unexpected realignment of road works adjacent to the electrification lines, which required additional compensation for rerouting of the line.

40. The implementation of another subcomponent under component B, the Resettlement

Infrastructure Development Scheme (RIDS) experienced a similar delay that had mainly the same root causes earlier outlined for the WVES, including (i) an initial delay caused by the set up of the MEM PMU, (ii) slower than anticipated procurement execution, and (iii) several construction issues during implementation. The RIDS subcomponent was completed in 2008 and further assessment of its impacts are described under section 2.4 below and annex 11.

41. The implementation of component C was initially delayed by the late set up of the

PMU supported by component B. At the same time, implementation of the main activities accelerated during the original lifetime of the project and additional capacity-building measures were added to this component when the project was further restructured in 2007, and these were duly implemented by the final project closing date.

42. The formerly mentioned significant project savings realized under component A led

to two important restructurings of the project in 2004 and 2007, which resulted in the introduction of two new components: component D in 2004 and component E in 2007.

43. When component D was introduced to the project in 2004, the power sector in

Tanzania faced a major power generation shortage crisis, which was caused by the fact that TANESCO was unable to pay for expensive fuel oil imports for thermal generation assets to mitigate important hydropower generation shortfalls. To lower its generation and power purchase costs, TANESCO wanted to increase the use of natural gas provided by Songas for the operation of existing thermal generation assets,

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which led to the introduction of this component. Subsequently, the preparatory studies for the design of the conversion were duly implemented and the supported works were ready to be procured. However, the implementation of this component could not start since the gas supply capacities of the project-supported Songo Songo infrastructure had already reached its maximum level, and it was therefore uncertain if sufficient gas supplies would become available. While processing capacities were ultimately increased, by optimizing the operation regime of the existing infrastructure, the associated IPTL plant’s private owners subsequently got into a legal dispute with TANESCO under its power purchase agreement and filed an ICSID arbitration case. Those legal disputes continued up to the project’s closing date, which ultimately led the GoT to request that this component be dropped and to use the cancelled credit proceeds under the IDA’s new investment lending reform procedures to transfer those amounts to another IDA-supported energy sector project. This transfer was approved through the last project restructuring in December 2010.

44. In 2003, because of the continued delays in increasing energy access as well as the continuing power crisis, GoT requested the use of project savings for the addition of component D, and also requested the preparation of another component under this project supporting important transmission and distribution rehabilitation works for Tanzania, in line with the wider objective of this project to improve the power sector’s overall performance. Various preparation studies for this potential new component were subsequently undertaken and financed under component C. In 2006 TANESCO faced yet another power generation shortage crisis, which further impacted TANESCO’s financial performance when it again had to rely on expensive thermal emergency generation measures at a time when retail tariffs had remained unchanged for several years. At that time the Bank revisited its ability to further support TANESCO and the sector with additional financial assistance, and the decision was taken in 2007 to prepare a separate, new project supporting the earlier requested transmission and rehabilitation efforts. The separate IDA project approved in 2007 was the Tanzania Energy Development and Access Project (TEDAP).

45. At that time the newly available savings amounts, earlier earmarked for the transmission and distribution rehabilitation works under this project, were proposed to be used for a capacity charge buy down (as described under section 1), which led to the creation of component E under this project. This component was implemented within one year.

2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 46. The M&E design was appropriate for the project and included relevant outcome and

measurable intermediate indicators with baseline targets. Through an RVP-approved restructuring in December 2007 certain changes were undertaken to the results framework considering that (i) most of the originally envisaged activities had been completed in 2007 and (ii) new activities had been added through the restructuring in

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December 20072. The revised results framework (RF) also refined the PDO indicators and intermediate outcome indicators to better measure the outcomes of the project. In the revised RF, the team also anticipated the new Bank core indicators and reformulated the wording in some of the indicators subsequently cleared by the Africa Region’s Core Operations Services (AFTOS; formerly AFTQK).

47. Quality data was collected by TANESCO and Songas throughout project implementation. Data reporting on component A was done effectively by the Songas. After the restructuring of component B, the quality of the reporting was also satisfactory. Data collection for components C and E was satisfactory. Component D was cancelled and data was not collected.

2.4 Safeguard and Fiduciary Compliance Safeguards 48. Overall compliance with applicable safeguard policies (OP4.01, OP4.36, OP4.11,

and OP4.12) is considered satisfactory. Since 1993, 29 environmental and social research studies, investigations, and impact assessments have been conducted to identify possible negative impacts associated with the activities supported by this project. The private sponsor had prepared environmental and social assessments and a management plan report that synthesize the related impacts of the project and provided a detailed environmental and social management plan (ESMP) for eliminating or mitigating and monitoring these impacts. There were limited environmental impacts on forests, fauna, and seagrass beds along the marine part of the pipeline. The major impacts of this project related to resettlement and land acquisition. The conversion of the Ubungo Power Plant from a liquid fuel to a gas-firing operation had a positive environmental impact. The environmental impact assessment and the ESMP were consistent with the requirements for a category "A" project under IDA Guidelines. Key environmental and social safeguards issues that arose during implementation are described in annex 11.

Fiduciary 49. Financial management and procurement aspects of the project were continuously

rated Satisfactory or Moderately Satisfactory throughout project implementation. Overall, financial management covered adequately the project’s accounting and reporting arrangements, internal control procedures, planning and budgeting,

2 The original PDO indicator measuring the processed gas output under component A was kept, but also complemented but a second indicator relating to the outcomes of component A and the expected outcomes of components D and E, which all contributed to lower than existing costs to TANESCO under its power purchases. The original PDO indicator relating to private sector investments was also kept but reformulated since the original target values of US$5 million private sector investment per year starting in 2004 had been achieved and exceeded by 2007, when more than US$30 million had already been invested in the sector. The PDO indicator relating to component B was refined and aligned to the Bank’s expected energy CORE indicators regarding rural electrification.

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counterpart funding, funds flow arrangement, external audit reporting arrangements, and project accounting staff issues.

50. In addition, all project components were implemented following the Bank’s applicable procurement guidelines for works, goods and services. This included procurements under component A, which was implemented by the private sector, through the application of World Bank procurement guidelines for the provision of major works and goods under this component. The important cost savings under component A were generated after the project’s sponsors decided to change the bid strategy for the gas infrastructure packages by allowing qualified contractors to make combined offers for the gas pipeline and the gas production/processing facilities. This change in the procurement strategy was reviewed and approved by the Bank’s authorities.

2.5 Post-completion Operation/Next Phase 51. The infrastructure financed by component A has been well operated and maintained

since 2005 by Songas Ltd. The current contractual provisions in place between Songas, the GoT, and TANESCO obligate the private company to continue ensuring proper operation, availability, and maintenance during the next 13 years. The necessary funds for the operation and maintenance of the gas-processing plant and power generation assets are sourced from the gas and power sales revenues.

52. The infrastructures, financed by component B (mainly the RIDS and WVES) are duly completed. With regard to the WVES infrastructure of the 7.5 MW Somanga power station and related transmission lines, this equipment underwent a substantial overhaul during commissioning and has only recently started operation. TANESCO acquired a set of spare parts for this infrastructure at the start of operation and will finance future maintenance and overhaul expenditures from its corporate budget. TANESCO staff had also been adequately trained for the operation of the Somanga power station, and as the national grid operator it is well qualified in the operation and maintenance of the grid infrastructure supported by the project. The RIDS infrastructure has been duly handed over to the district authorities of Kinyerezi and Sala Sala and future maintenance of the roads and water infrastructure will be carried out by TANROADS and DAWASA, respectively. With regard to the Songo Songo Island community jetty rehabilitation works, the financing of this outstanding activity has been secured through the World Bank Tanzania Transport Sector Support Project (TSSP).

53. The project’s component C significantly strengthened institutional capacity in

government agencies and in the private sector through multiple technical assistances, which had all been duly implemented by project closing. The experience gained by agencies such as the TPDC allowed them to implement or prepare other projects in an effective manner with several potential successful transactions in the making.

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54. The success of component A led to a further expansion of gas production and further investment in generation capacity as well as related investments elsewhere. Songas Ltd. recently received approval by the regulatory authority EWURA and the GoT to expand its processing facilities by two additional trains, which will double the current capacities. The institutional strengthening in the national natural gas sector, mainly supported through component C, has been well received, and the enhanced sector framework led to additional projects and private investments in Tanzania’s mineral resources sector. The domestic market for natural gas in Tanzania is still small but it has a good potential for growth. During the project’s implementation there have been significant offshore gas discoveries. It is expected that the deep offshore gas development will be a game changer for Tanzania, with first production in approximately 10 years.

55. While the Songo Songo project provided satisfactory support to the development of

the full value chain of the initial natural gas resources discovered at the time of project preparation, the private sector is preparing a gas upstream development for the offshore discoveries based on export of liquefied natural gas (LNG). The Government needs to start building additional capacity immediately to make timely policy decisions on using these promising large quantities of gas resources. The World Bank, therefore, recently has been requested by the GoT to support its efforts in building additional capacity in this new environment of deep-offshore gas exploration. The Bank’s Africa Energy Team (AFTEG) in collaboration with the Sustainable Energy Group–Oil, Gas, and Mining Division (SEGOM) recently started preparation of a follow-on project to the Songo Songo project supporting a comprehensive technical assistance program (ESCAP project), which builds on the overall good results and outcomes resulting from this closed project.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design, and Implementation 56. The Songo Songo Gas Development and Power Generation Project made a significant

difference. The objectives of this project were well aligned with GoT’s CAS objectives at the time of original appraisal supporting the former CAS objective of the promotion of sustainable growth. In the context of the current Tanzania CAS which pursues the promotion of inclusive and sustainable private sector-led growth and the provision of infrastructure and deliver services including increased access to electricity, the objectives of this project remain highly relevant today. In addition, during the implementation of the project in 2003/2004 and 2006 as well as this year (2011) the power generation from hydropower resources has been severely curtailed by regional drought. As a result, if it wasn’t for the Songo Songo project there would be even more severe shortages of electricity today and an even more significant impact on the sector’s finances if the country’s thermal generation assets were to rely entirely on costly imported fuel.

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57. The Government also commented positively on the project’s relevance. According to the Government, “The project has been able to provide reliable power supply to the country at the time when the petroleum prices in the world market were rising and increased in volatility, and coupled with bad hydrology in the country that made contribution from hydropower low.”

58. Consequently, the continuing high relevance of the Objectives also reflects positively

on the overall design of the project by choosing the private sector’s efficiency for the implementation of the main component A. While it is acknowledged that the design of the WVES subcomponent under component B should have followed a different approach from the onset, the subsequent adaptation measures proactively pursued during implementation have led to an overall satisfactory outcome. Relevance of design is rated substantial.

3.2 Achievement of Project Development Objectives 59. The achievement of the PDOs is overall rated Satisfactory. The outcomes achieved

with regard to the project’s objective in developing the borrower’s natural gas reserves to produce least-cost power generation have clearly been realized, and outputs assessed at project closing strongly exceeded the targets made at preparation. While the original target value for this PDO indicator was set at 30 Mmcfd, the target value achieved at closing was around 75Mmcfd. The achievement of this objective of the project can therefore be rated as Highly Satisfactory. The second objective, of promoting private sector ownership and management of the gas and power sectors, has been achieved as well and has led to a Satisfactory outcome, with outputs that are in line with expectations. Finally, the third objective, which aimed at encouraging increased access of the poor to electricity supply in presently unserved areas along the corridor of the gas pipeline, has also been achieved, though taking into account that one of the output targets with regard to rural electricity connections was only partially met, this objective’s achievement is rated Moderately Satisfactory. Further justification of those ratings is given in Annex 12, by describing the main outputs and their contribution to the PDO outcomes.

Development of the Borrower’s Natural Gas Reserves to Produce Least-cost Power 60. Thirty years after the first discovery of natural gas in Tanzania, through the support of

this project the first natural gas processing and transport infrastructure became operational in Tanzania, in 2004. In addition, in that same year Tanzania was able to make use of this natural gas for power generation purposes, thereby significantly reducing the operational costs of thermal power generation supply in country. Furthermore, soon after the start of the operation the natural gas production by the project’s facilities further increased and in the last two years of the project’s implementation phase regularly exceeded the outcome indicators of domestic gas consumption for electricity generation and cement production as previously mentioned.

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61. The view of the GoT is that the Songo Songo project performed well during the six years of operation. The project also stimulated gas markets; 35 local industries were connected for gas, replacing the use of heavy fuel oil and other types of petroleum fuels. From the environmental perspective, the project has significantly reduced air pollution by reducing the amount of carbon dioxide in the atmosphere. It has been estimated that 1.8 million and 0.73 million tons of CO2 were reduced from power generation and local industries respectively since 2004 and up to December 2010.

Promotion of private sector ownership and management of generation in the gas and power sectors 62. During the implementation phase of this project, from 2001 until closure in 2010,

other private investors have invested in both the petroleum, natural gas, and power subsectors. According to the GoT, in the upstream petroleum and gas sector, GoT and TPDC managed to enter into 23 production sharing agreements (PSAs) with exploration companies, and this culminated in more natural gas discoveries both onshore and offshore—including those in deep water. In addition, and while component A was still under implementation, Songas Ltd. also decided to expand its power generation capacities initially funded through Songas equity. Songas currently operates 189 MW of natural-gas-fired generation assets in Tanzania. Finally, following the PPP model structure of this project, the GoT in 2006 also managed to attract a private investor, Artumas Ltd., for the early development of another gas field in Mtwara, which to date supplies a gas-fired power generation station of 12 MW with an isolated grid serving the cities of Mtwara and Lindi as well as several rural villages. Just by applying the investment of US$35 million made by Artumas Ltd. up to 2006, the original PDO outcome indicator of US$15 million in new private investments was already met and exceeded by the original closing date. In conclusion, the successful structuring and implementation of this project helped to create an enabling environment to promote efficient gas utilization and power generation. This environment ultimately led to an increased level of (domestic and foreign) private investment in the energy and gas infrastructure.

Encourage increased access of the poor by developing financially sustainable rural energy schemes to presently unserved areas along the pipeline corridor:

63. While the very positive outputs under component A were clearly leading to a

successful outcome of the first two objectives, the achievement of the third objective needs some more detailed explanation. At original approval in 2001, the key performance indicators that were to measure achievement of this objective related to the electrification initiatives under the WVES subcomponent under component B. While the main outputs under the WVES related to the number of people connected to electricity services in townships (target of 3,300), other planned outputs also included the provision of 30 water wells, 1,600 solar home systems and 2MW of gas based generation assets installed. As previously mentioned the WVES subcomponent subsequently underwent a significant design change and expected output targets were adapted to this new design and further refined during the project restructuring in 2007.

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After the restructuring output indicators related to the WVES kept the original target of people connected, the number of water wells and increased the amount of gas based generation assets from 2MW to 7.5MW. At the same time the output target of the 1,600 solar home systems was no longer measured due to the design change. At project closing those revised main output targets were all achieved except for the number of targeted people with access to electricity. This output target was only partially achieved at closing with 1,464 customers for the WVES and a total number of connections of 1,831. The main reason for this lower output target is explained by the late completion of the related electrification infrastructure as further explained in annex 2. Taking into account that most outputs were achieved and that a financially and institutionally rural power scheme was ultimately built as per the original PDO, but also acknowledging that one main output target was only partially achieved, the ICR team concludes that the achievement of this objective is Moderately Satisfactory.

3.3 Efficiency 64. Efficiency is rated substantial, based on excellent economic and financial results but

also taking into account the four year extension needed to complete component B. The economic analysis of the project is detailed in annex 3. Table 1 below shows the economic internal rate of return (EIRR) and the net present values (NPVs) estimated during project appraisal as reflected in the PAD and at the time of the preparation of this ICR. The result shows that the project is still economically viable and has contributed to improve the economic welfare in Tanzania.

Table 1: ENPV/EIRR and FNPV/FIRR for Component A

ENPV (at 12%) EIRR FNPV (at 12%) FIRR

Estimation in PAD 179 Mil 26% 63 Mil 21%

Estimation in ICR 423 Mil 35% 166 Mil 20%

65. In comparison with the estimation in the original PAD, the project has achieved better

economic results than projected during original appraisal. The Financial Rate of Return (FIRR) has been slightly lower than expected at original appraisal, which can be explained mainly by the reduced capacity charges the private company received after the capacity buy-down was applied and financed through this project’s component E. Overall the project has generated substantial economic and financial benefits. More detailed information about those outcomes is given in annex 3.

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3.4 Justification of Overall Outcome Rating Rating: Satisfactory 66. The overall outcome rating is Satisfactory, based on high relevance of objectives,

substantial relevance of design, satisfactory achievement of outcomes, and substantial efficiency.

3.5 Overarching Themes, Other Outcomes, and Impacts Poverty Impacts, Gender Aspects, and Social Development

67. Because of the relationship between power supply, economic development, and

poverty alleviation, the project intended to contribute to the reduction of poverty by unlocking an important and genuine new source for power generation. While the power cuts that occurred during the various generation shortage crises had an impact on the country’s economic growth, those negative impacts would have been even larger without the project’s implementation. It is therefore likely that the project’s main component positively contributed to poverty alleviation.

68. In addition, while the implementation of the rural electrification scheme was sub-

optimal, the activities under component B nevertheless contributed positively to the improvement of the lives of the affected people in the project’s wayleave. According to the Government, “The project has improved socio-economic life in rural areas especially for those electrified villages and township whereby the nature of income generation had shifted from non-electricity dependent to electricity dependent such as seafood processing and storage in Island and part of Kilwa Masoko.” Similar positive effects could also be recorded after the completion of the RIDS, which has brought benefits to affected people along the wayleave and resettlement areas whereby 13 kilometers of roads, 24 kilometers of water distribution lines, 1.2 kilometers telecommunication line, and 18 kilometers of power lines were put in place.

Institutional Change/Strengthening 69. Various studies financed under component C show that the project positively

contributed to the strengthening of the gas sector regulatory framework. Since 2006 the regulatory authority EWURA has been fully functional and assumes regulatory responsibility for the gas and petroleum sector’s mid and downstream activities. At the project’s closure the MEM had also prepared and submitted for approval a new gas act, which currently is under review by the attorney general. Moreover the project also helped in strengthening the capacities in the various project-implementing agencies and mainly within the MEM. The Bank approved a MEM capacity-building program in two groups in November 2004. Between 2004 and 2005, 42 employees successfully attended various courses in the region and abroad. MEM also financed a portion of TANESCO’s capacity-building program by using proceeds from the MEM components B and C. At the same time it must be noted that most of those institutional-strengthening measures supported by the project were

21

implemented with a certain delay limiting the project’s impact on the sector framework in the earlier years of implementation.

Other Unintended Outcomes and Impacts (positive or negative)

70. As mentioned previously, the volumes of natural gas processed for power generation

and industrial usage increased significantly and at a much faster pace than originally anticipated. Because of the availability of gas, many businesses expanded capacity and made investments that might otherwise not have occurred. This also meant increased employment and other ancillary benefits, which were not originally foreseen by the project, at least not in that magnitude.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 71. There was no beneficiary survey done in the context of this ICR. However, during

the ICR mission, the ICR team interviewed a random sample of beneficiaries of the Wayleaves’ rural electrification program, and it was reported that the introduction of access to electricity and water in the villages had made a tremendous difference to the well-being of the villagers.

4. Assessment of Risk to Development Outcome Rating: Negligible to Low 72. The risk to the development outcome of this operation is overall Low. With regard to

the natural gas and power supply objective, it is clear that the project has supported installation of the gas processing facilities, gas transportation infrastructure, and power generation assets that will sustain their operation over the long term as agreed in the contractual agreements between the private sector company and the GoT. Further, measures are being taken to increase the use of natural gas in country, including new deep-sea off-shore drilling projects undertaken by several private sector companies. It has been proposed that those new exploration efforts will be supported by the Bank through various technical assistance measures in form of a follow-on project, currently under preparation. In that sense the exploration, production, and usage of natural gas in Tanzania is now a core element in Tanzania’s energy and industrial sector.

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5. Assessment of Bank and Borrower Performance

5.1 Bank Performance Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 73. A quality-at-entry review was performed by the QAG in 2002. The QAG report

issued in August 2002 came to the conclusion that the overall quality at entry for this project can be rated as Satisfactory, as discussed in para. 32. At the same time the ICR team noted that the QAG report raised an important number of follow-up questions and recommended a stage two review. However, the task team at that time responded with comments to the QAG report that gave detailed answers and additional information to the issues raised by the QAG. Since a stage two review did not occur in the follow-up to the original report, the ICR team assumes, that the additional information and answers given at that time were considered satisfactory.

74. While an overall Satisfactory rating is justified, given the positive project outcomes and timely implementation of the project for most of the activities, the ICR team also noted that the efforts made by the task team at preparation with regard to the main activities under component B could, in retrospect, have been stronger. The fundamental redesigning of the WVES subcomponent demonstrates that his activity was not ready for implementation at the original Board approval. Equally, the ICR team reviewed the preparation of component D and notes that the component was ultimately cancelled, implementation not having started after several years. The ICR team comes to the conclusion that the preparation of component B was still Moderately Satisfactory and the preparation efforts for component D were overall satisfactory. This assessment with regard to component D is based on the fact that the ultimate reasons hindering the implementation of this component are related to legal disputes that were outside the Bank’s control and that, in the ICR team’s view, were not necessarily foreseeable at the time of approval to this component D.

Quality of Supervision Rating: Moderately Satisfactory 75. The quality of supervision is judged less than satisfactory mainly due to certain

shortcomings in supervision relating to component B and to a smaller extent with regards to component C. Since the project closing date was ultimately extended by a total of four years, bringing the implementation time frame to over eight years under the leadership of as many as four different World Bank task team leaders over the duration. Significant changes in team composition throughout a long implementation period were certainly one of the causes for delays in the Bank’s responsiveness to implementation issues under both components. In addition, certain delays on the implementation of component B might also have been avoided had supervision been

23

more intense and closer to the ground in the early years of implementation. In this regard, the Bank eventually made the right decision by putting in place a resident task manager for the sector starting in 2006.

76. Given the long duration, and complexity of the project, it is remarkable that overall there were no major issues with the fiduciary and safeguards policies, which were adhered to and supervised relatively well by the Bank team. It is also acknowledged that with regard to component A and component E the Bank team facilitated a smooth implementation of those components. The various task teams also demonstrated proactivity and flexibility with regard to the important cost savings that arose under component A and adaptability with reference to component B. Ultimately, close to all targets were met and in some cases exceeded by project closure.

Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 77. In view of the Bank performance at entry and during supervision, but also weighing

the importance of supervision in this project slightly higher, the ICR rates the overall performance of the Bank as Moderately Satisfactory.

5.2 Borrower Performance Government Performance Rating: Moderately Satisfactory 78. The government performance hereunder is assessed based on the performance by

central government stakeholders of the project, including mainly the MEM but also the MOF as borrower on behalf of the United Republic of Tanzania. While the MEM also held an important role in the implementation of the project, the MEM’s project implementation performance is rated in the following section with regard to the assessment of the day-to-day management of the project by the PMU.

79. The Government’s commitment to the development objectives was overall strong during the preparation phase and also during most of the implementation phase. Further evidence that the Government remained committed to the project throughout the implementation phase is that at project closing, except for component D, all activities had been duly completed and most of the project outcomes were achieved with mainly satisfactory results. The MOF provided good support to the project, including certain tax exemptions and adequate counterpart funding, though sometimes with certain delays in taking action.

80. At the same time there were a number of areas of improvement that result in a

Moderately Satisfactory rating. With regard to the MEM, there was a significant delay of more than a year in setting up the PMU. In addition, during the

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implementation of the WVES’ transmission lines there was also an important delay due to disagreement between different government departments regarding the crossing of the Rufiji River by using a road bridge. While there were several initiatives and interactions between the MEM and the Ministry of Infrastructure Development (MOID), this issue was only resolved by the prime minister at the behest of the Bank after a two year delay.

81. There was also a mismatch between the tariff regime for rural electrification and affordability of the connection for rural poor. Tanzania has a unified countrywide tariff, and people in rural areas pay the same tariff as more affluent people in Dar es Salaam. Finally, the IPTL project preceded the Songo Songo project and was to be a private-sector-led emergency power generation project using heavy fuel oil. The Government’s design of this project was flawed as both the tariff and the cost of fuel proved to be too onerous very soon after the plant was commissioned against the advice of the Bank. As a result the project fell into dispute and continues to be under litigation at present.

Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 82. The project was implemented mainly by Songas Ltd. (component A) and the PMU

under the leadership of the MEM (components B and C). In addition, TANESCO increasingly assumed an implementation role within the WVES subcomponent under component B and after the restructuring of 2007 with regard to several technical assistances in component C and full responsibility for the execution of the buy-down financed by component E. While Songas Ltd. has legally not been directly a borrower of the IDA credit (credit was passed on to Songas by the MOF and MEM), the private company played an important role in implementing the main part of the project. Consequently Songas’s implementation performance is also taken into account in this implementing agency assessment and later in the overall borrower performance.

Songas Ltd. Implementing Agency Performance

83. Songas Ltd. managed to successfully implement a technically complex project with only a very minor delay. Throughout the implementation process, Songas ensured great efficiency in implementation, which also led to important cost savings under the overall project, following a strategic change in the procurement process. In addition, Songas Ltd. duly followed the World Bank procurement guidelines and managed to maintain high level of transparency and information provision throughout this large procurement, involving several high value lots. The company was also prepared to take over certain WVES activities from MEM situated on Songo Songo Island, including the construction of the water and electrification infrastructure on the Island. Overall the ICR Team therefore assesses the implementation performance by Songas Ltd. as Satisfactory.

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GoT Implementing Agencies Performance 84. Both GoT implementing agencies faced serious procurement capacity constraints

throughout the project, which led to delays in the hiring of advisors and subsequently also delayed the implementation of the various, works, goods, and services financed by the project under component B and component C. Despite additional assistance from the Bank through the financing of additional trainings and advisories to both implementing agencies, the procurement functions at the PMU and later at TANESCO improved only slowly over the years.

85. The delays that occurred in the set up of the PMU then also had an impact on the

timely submission of project monitoring reports and lack of capacity to prepare timely and complete quarterly progress supervision reports in early years. In addition, when the PMU situated at MEM transferred the implementation responsibility of the WVES to TANESCO, coordination issues occurred and led to a suboptimal transition, which created further delays. Similar coordination issues between the MEM and TANESCO were noticed with regard to the handling of payment requests from contractors employed on the WVES infrastructure.

86. The overall performance by the GoT implementing agencies is therefore rated as

Moderately Unsatisfactory, taking into account the lack of timely actions in several cases that led to substantial delays that could otherwise have been avoided.

Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 87. Taking into account both overall ratings attributed to the Government’s and the

implementing agencies’ performance, the overall performance of the borrower is rated as Moderately Satisfactory.

6. Lessons Learned 88. The following lessons were among the most significant:

a) The skill sets required for the power generation and gas components are different

from the skill sets required to design and implement rural electrification. Component A dealt with large corporate entities, heavy engineering, and technologically sophisticated approaches. The experience and skills required to design and implement a project such as this are quite different from those required for rural electrification where the TTL deals with small-scale investments, and rudimentary technologies and intense social issues. Comingling the two components into one project under one TTL raises the question of a mismatch of skills.

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b) Project implementation planning must acknowledge different time frames needed for different types of project components. There is a strong imperative to complete large, capital-intensive projects on time, otherwise losses and penalties could be significant, whereas small-scale rural and rural electrification projects by their very nature involve social issues and several different constituencies and are likely to take much longer. Thus it is important that in future projects, the Bank examines closely the rationale of comingling these types of components under the same project.

c) Social services and infrastructures for new sites where affected people are going to be relocated need to be in place before the process of relocation takes place. Due to the delayed completion of the RIDS certain project affected people preferred to sell their assigned plots rather than moving to an incomplete resettlement site.

d) For innovative project implementation structures that have not been previously tested a market sounding before or during appraisal should be envisaged. The initial shortcomings of the design of component B may have been avoided, if the Task Team had been able to test the interest of the private sector on those electrification schemes during appraisal.

e) Optimization of procurement strategies can lead significant project saving. The application of innovative procurement strategies led to substantial cost savings under component A.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners Borrower and Implementing Agencies 89. The borrower in its own ICR report raised the issue that approvals by the World Bank

on procurement were not granted in time, thus contributing to delays in project implementation. While the ICR team could not verify the statistics of all the procurement decisions under the project, it is likely that there may have been delays on some procurement cases, especially before the TTL was relocated to the country office.

Cofinanciers 90. None. Other Partners and Stakeholders 91. None.

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Annex 1. Project Costs and Financing

Table A1.1 Project Cost by Component (in USD million equivalent)

Components Appraisal Estimate

(USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

SONGAS 244.28 232.15 95 ENVIRONMENTAL AND SOCIAL

11.72 24.76 211

MEM CAPACITY BUILDING 7.47 7.05 94 IPTL PLANT CONVERSION TO GAS FIRING

0.00 22.00* NA

REDUCTION OF CAPACITY CHARGES FROM UEP

0.00 42.33 NA

Total Baseline Cost 263.47 328.29** 125

Physical Contingencies

26.89

0.00

0

Price Contingencies

4.82

0.00

0 Total Project Costs 295.18 328.29 111

Front-end fee 0.00 0.00 NA Interest during construction 17.55 0.00 0

Total Financing Required 312.73 328.29 105

* This component was cancelled in the December 2010 restructuring and funds were reallocated to TEDAP. ** This variations reflect fluctuations in the SDR to US$ exchange rate.

Table A1.2 Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower Parallel 0.00 2.00 NA UK: Commonwealth Development Corporation

Parallel22.00 22.00 100

EC: European Investment Bank Parallel 41.00 51.00 124*** International Development Association (IDA)

Parallel183.00 205.10 120***

Foreign Private Commercial Sources (unidentified)

Parallel50.00 48.19 96

*** This variations also reflect fluctuations in the SDR, EUR and other financing currency exchange rates to the US$ rate.

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Annex 2. Outputs by Component COMPONENTS MAJOR OUTPUTS

Component A: Gas Infrastructure

This main component in terms of project cost has been complete since 2005: the gas-processing plant, gas pipeline, and power plant have been constructed, and gas-fired thermal power is being produced. The component’s outcome indicators have been exceeded since original Board approval, as the gas-processing plant is producing more gas than originally anticipated. The Songo Songo Island gas infrastructure and the pipeline to Dar es Salaam have become a major backbone in Tanzania’s power generation mix, since Songo Songo Island gas is providing the necessary fuel to run up to 60% of the country´s generation dispatch.

The gas-processing plant at Songo Songo Island has been operating in the past 24 months (mid-2009 to mid-2011) on average beyond its full-crated capacity of 70 Mmcfd. The plant operated around 75 Mmcfd at project closing and the maximum processing volume in 2010 was reached on September 10, 2010 with a total volume of 92 Mmcfd. This included a processed volume of 75.98 Mmcfd for power generation and an additional 16.39 Mmcfd of gas for Tanzanian industries (including 3.96 Mmcfd of protective gas for Twiga cement and 0.2 Mmcfd for one additional industry generating its own power: TCC).

Component B: Social and Environmental and M&E

B.1. Wayleave Village Electrification Schemes

Around the time of the first restructuring in May 2004, subcomponent B.1’s implementation was significantly delayed. The outcomes of the related procurement processes for (i) the 1,600 solar home systems for 25 villages and (ii) gas-based generation scheme to five villages showed that the private sector was not interested in carrying out those activities on a build-own-operate basis as originally planned. Consequently, an alternative institutional structure was developed under this subcomponent whereby TANESCO would implement the gas-based generation scheme with a single 7.5 MW power station making use of natural gas from the Songo Songo gas pipeline. This subcomponent, as amended, was duly completed before the end of the project on December 31, 2010. Main outputs included the following: Somanga Power Station: The power plant was completed in

August 2010 and early commissioning of all three units occurred at that time. Shortly after commissioning, the contractor of the electrical equipment, Renco Spa, discovered that due to the long storage of the electrical equipment on site,3 all three units needed some operation and maintenance work. The overhaul of all three units started in a phased manner in fall 2010. Phasing

3 The equipment had been “mothballed” on the site between 2008 and 2010, awaiting the completion of the delayed civil works for over two years.

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was programmed in such a way that the plant could be kept running at all times to satisfy the maximum demand on the plant, which was about 1.8 MW (1 unit) at peak at project closing. The complete overhaul was finalized in mid-2011. The initial low level of load is due to the delay in new connections, as explained in the following.

Gas based 33kv and LV transmission linesto Singino-Bungu-Utete towns (Gas Based Electrification Scheme): The few remaining stringing works on the mainland’s electrification infrastructure were completed just before the closing date in December 2010, and the entire Wayleaves’ transmission and distribution infrastructure was energized before project closing. Due to the late commissioning of the power station, customer numbers and new connections had not reached levels as set by the project target values. According to TANESCO, customers had been reluctant in the former years to pay the connection fee and get connected to the grid without having comfort that the related Somanga Power Station would be completed. However, in the few months before closing, the numbers of connected customers started to improve and had reached a level of 1,464 for the WVES and 1,831 overall at closing. Overall the utility is confident that the number of customers can be steadily increased.

Songo Songo Island Wayleaves Infrastructure and Village Jetty rehabilitation: The villagers currently benefit from newly built water pumps and electricity.

B.2. Resettlement Infrastructure Development Schemes (RIDS)

The Government designated Kinyerezi and Salasala (located in the Dar es Salaam outskirts) as resettlement sites for the families displaced along the gas pipeline route. This subcomponent was completed and was handed over in October 2008. Infrastructure measures (roads, water access points, etc.) are in place and in good condition. It should be noted that most of the formerly resettled people from the pipeline wayleave have sold their properties to move to other areas of Dar es Salaam, since the infrastructure upgrade works were delayed for some years. At the same time, the people still residing in the area now benefit from a very good infrastructure and seem to be satisfied with their new location. Similar conclusions and many more good recommendations about the overall performance of the RIDS have now been provided by the social assessment report (Community Livelihood and Impact Assessment and Socio-Economic Survey) of those infrastructures. This report was delivered before the closing of the project and was funded by the project.

B.3. Environmental Management Plan Compliance and Monitoring

Advisors

This subcomponent mainly supported the monitoring by the Ministry of Energy and Minerals (MEM) of the implementation of the project’s Environmental and Social Management Plan (ESMP) that was executed by Songas Ltd. under component A. The subcomponent financed a set of consultants assisted the MEM on behalf of the Government to establish and execute an appropriate compliance and monitoring program with regard to implementation of the ESMP. This included establishing a database and filing system appropriate for monitoring compliance with environmental and social safeguard policies and training and capacity building of

30

government staff. The consultants periodically visited the various construction sites and worked closely with the Government’s counterpart team from TANESCO, the MEM, and TPDC.

Component C: Capacity Building

This component financed various technical assistance measures, training, and equipment provided under the project to assist the MEM in strengthening its sector policymaking function and to assist the MEM with the environmental, social, and contractual oversight to be carried out in connection with the proposed project. All MEM’s procured consultancies have been fully implemented by the project closing date and final deliverables were submitted before December 31, 2010. Equally, all contracts under this component related to TANESCO technical studies were also fully implemented before the project closing date, and final deliverables have been submitted as well in time.

Component D: TEGETA Power Plant (cancelled)

Subsequent to the introduction of component D during the first restructuring of the project in May 2004, related preparatory studies for the design of the conversion were duly implemented and the supported works were ready to be procured. However, at that time in 2006 the implementation of this component could not start since the gas supply capacities of the project’s supported Songo Songo infrastructure had already reached its maximum level and it was therefore uncertain if sufficient gas supplies would become available. While additional gas-processing volumes were ultimately secured, the associated IPTL plant’s private owners subsequently entered into a legal dispute with TANESCO under the related power purchase agreement of the IPTL plant and filed an ICSID arbitration case. Those legal disputes continued up to the project’s closing date, which ultimately led the GoT to request the drop of this component and use the cancelled credit proceeds under the IDA’s new investment lending reform procedures to transfer those amounts to another IDA-supported energy sector project, which faced a significant funding gap. Through the fourth restructuring of this project on December 16, 2010, the World Bank approved the GoT’s request to cancel this component (project funds of DR 17.2 million—about US$27 million at the time of cancellation).

Component E: Reduction of Capacity Charges from UEP

This component was fully implemented in August 2009 and according to TANESCO and Songas it had accumulated savings under TANESCO’s capacity charges to Songas Ltd. of about US$12 million by the closing date.

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Annex 3. Economic and Financial Analysis 1. At the time of appraisal, net economic and financial benefits, in terms of net present

value (the economic internal rate of return, or EIRR) and financial internal rates of return (FIRR), were estimated for the project’s main component implemented by Songas and supporting the construction and operation of the gas-processing facilities and Ubungo Power plant conversion (component A). This annex adopts similar methodologies to those used in the ex-ante economic and financial analysis, subject to the availability of data.

2. For this ex-post economic and financial analysis, some key assumptions are made. Where realized data could not be obtained or was insufficient, the analysis relied on a combination of actual and estimated figures. The assumptions adopted are described in such instances.

A. Financial Analysis Assumptions Made 3. The key assumptions used in the calculation of the FIRR are the following:

a) The actual investments in the infrastructures supported by component A amount to US$312 million. It is important to note that the investment includes a further addition of the capacity expansion originally financed by Songas equity and later bought down by the proceeds of component E.

Table A3.1 Breakdown of Investment Costs for underlying works component A

All Values in US$ million Use of Funds

Source of Funds

Songas Component 143 Debt 190 68 MW Gas Power Plant 56 IDA 124

Already Funded Costs - Well Servicing Costs +

ABB/EPP Take Over Costs

64 EIB 51

Swedish Loan 15

Additional Misc Development Cost including Project Management Cost + Pass-Through Cost

34 Equity 123

IDC 15 Total Investment Cost 312 312

b) As per the original financial analysis, the investments under component B and component C have not been considered as their benefits have were not considered at appraisal.

c) The revenue is generated from the 112 MW gas power plant which supplies an average of 725 GWh per year and the gas processing plant which also supplies the

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Twiga cement plant with an 1,444mmcf per year of the natural gas equivalent of 34,000 tons of HFO.

d) The Songas purchase tariff is adjusted from 2007 due to the capacity charge reduction caused by the capital buy-down of US$ 43 million, thereafter maintained. This capital buy-down results in the capacity charge reduction, approximately to US$ 0.036/kWh in 2010.

e) Commercial operation date of the Project is on July 2004, which was delayed from 2003.

f) Additional investment of Turbine No. 5 and No. 6 for 68 MW Gas Power Plant was made in the amount of US$56 million and the revenue was generated from 2005 onwards also included in the financial analysis.

g) The IDA credit by the Government was on-lent to Songas (20 years tenor including 3.5 years grace period at the interest rate of 7%) and EIB loan also is supposed to be on-lent to Songas (20 years including the 4 grace years period at the interest rate of 7%).

h) A discount rate of 12% has been used to calculate the financial net present value (FNPV).

B. Economic Analysis Assumptions Made

4. The assumptions made for the financial analysis were also applied for the economic

analysis. In addition, certain complementary assumptions were made for the assessment of the economic analysis.

5. The additional key assumptions used in the calculation of the EIRR are:

a) At original appraisal, the economic benefits were assumed to be measured by (i) an additional incremental gas to power generation capacities from the 38 MW gas power plant; (ii) fuel cost savings from gas to electricity power generation by using natural gas, (iii) additional fuel cost savings by supplying 4mmcf/d of gas to the Twiga Cement Plant, replacing HFO with natural gas for the operation of the kiln, and (iv) the repayment installments of the IDA and EIB loans to Government on-lent to Songas.

b) The economic costs assumed at original appraisal were the (i) borrowing costs of the IDA and EIB facilities to the GoT; (ii) capacity charge payments; (iii) variable operating costs; and (iv) the incremental distribution cost.

c) Ex-post, a few changes have been made to the cost-benefit analysis. The main changes in the economic benefits assumptions are (i) the higher than anticipated capacity additions of gas to power generation, which were increased by 68 MW instead of the originally assumed 38MW; and (ii) the much higher actual fuel prices for HFO (US$ 317/ton) than the originally assumed prices of US$ 116/ton.

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d) The major changes in the economic costs are (i) the reduced capital expenditure from the reduced borrowing amount of EIB and IDA loan compared to the values applied at appraisal stage4; and (ii) the reduced electricity purchase costs (capacity and variable charges) from US$ 0.09~0.12/kWh at the appraisal to US$ 0.6/kWh after the capital buy-down.

e) A discount rate of 12% has been used to calculate the economic net present value (ENPV).

C. Overall Results of the Financial and Economic Analysis

6. The results of the updated economic and financial analysis and initial results

estimated at the original appraisal in 2001 are as follows:

Table A3.2 Results of Updated Economic and Financial Analysis

ENPV (at 12%) EIRR FNPV (at 12%) FIRR

Estimation in PAD 179 Mil 26% 63 Mil 21%

Estimation in ICR 423 Mil 35% 166 Mil 20%

7. In comparison with the estimation in the original PAD, the above table shows that the

Project has achieved a higher EIRR and a similar level of FIRR. From the simulation and analysis of each of the assumptions, this can be explained by the following positive and negative factors: a) Positive factors

There was a cost savings of about $42 million in EPC costs due to the lower costs for the gas infrastructure and pipeline, than estimated at appraisal. EPC cost savings had a very positive impact on the economic and financial viability of the Project.

The economic benefits in form of the fuel cost savings generated through replacing HFO fuel with natural gas for the power plant and the cement plant under this project have been significantly higher than assumed at appraisal. While the Task Team at appraisal assumed an average price for HFO of U$ 116/ton the actual average cost for HFO during implementation up to project closing has been about US$ 317/ton. This fuel cost savings enhanced significantly the EIRR beyond the levels assumed at appraisal stage.

The revenue generated from the additional 30 MW power plant units that were built with Turbine No. 5 and Turbine No. 6 had a positive impact on the project’s financial return. The underlying analysis assumed the revenues

4 Those reductions arose from the reduced investments costs due to the project costs savings under component A.

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generated from the 180MW Songas plant, while at appraisal the total size of the plant was only estimated with a total capacity of 150 MW.

b) Negative factors

The revenues generated by Songas were reduced after 2007 due to the capacity charge reduction caused by the capital buy-down of US$ 43 million. At the appraisal stage, the tariff including the capacity payment was projected at 0.092~0.120 US$/kWh. However, the actual costs are around US$/kWh0.06 after capital buy-down. This reduction in revenue contributed to the slight reduction in the FIRR. This is the main reason why the FIRR is projected to be at a similar level estimated during project appraisal.

While the commercial operation date was slightly delayed, the impact was relatively limited.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

Table A4.1 Task Team Members Names Title Unit

Lending Karen Rasmussen Task Team Leader AFTEG Alfred Gulstone Lead Power Engineer AFTEG Junhui Wu Sr. Power Engineer AFTEG Paul Kriss Economist AFTEG Paivi Koljonen Sr. Economist AFTEG Chrisantha Rathnayake Sr. Power Engineer/Consultant AFTEG Mac Cosgrove-Davies Sr. Energy Specialist AFTEG Mourad Belguedj Lead Petroleum Specialist/Consultant SEGOM Robert A. Robelus Sr. Environmental Specialist AFTWR Elizabeth Adu Chief Counsel LEGAF Naima A Hasci Sr. Social Scientist ECSS4 Iraj Talai Sr. Financial Management Specialist AFTFM Mercy Mataro Sabai Sr. Financial Management Specialist AFTFM Gulam Dhalla Financial Analyst/Consultant AFTEG Ramon Lopez-Rivera Power Engineer/Consultant AFTEG Elisabeth Pendleton Sr. Counsel (at preparation) LEGAF Steve Gaginis Sr. Disbursement Officer LOAG Helena Mamle Kofi Procurement Analyst AFTEG Pascale Tegwa Procurement Analyst AFTPC Janine Speakman Program Assistant AFTEG

Supervision Karen Rasmussen Task Team Leader AFTEG Robert Schlotterer Task Team Leader AFTEG Philip Beauregard Sr. Counsel LEGAF Mourad Belguedj Consultant SEGOM Alexander Birikorang E.T. Consultant AFTFM Bella Lelouma Diallo Sr. Financial Management Specialist AFTFM Reynold Duncan Program Coordinator AFTEG Pankaj Gupta Sector Manager FEUFS Thanh Lu Ha Sr. Program Assistant AFTEG Naima A Hasci Sr. Social Scientist ECSS4 Muthoni W. Kaniaru Sr. Counsel LEGFI Ralph Ake Karhammar Sr. Energy Specialist AFTEG Gisbert Joseph Kinyero Procurement Specialist AFTPC Helena Mamle Kofi Procurement Analyst AFTEG Baruany Elijah A. T. Luhanga Consultant AFTEG Reinaldo G. Mendonca Consultant AFTEG Said R. Mikhail Sr. Power Engineer/Consultant AFTEG Donald Paul Mneney Sr. Procurement Specialist AFTPC

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Mohua Mukherjee Sr. Energy Specialist SASDE Raima Oyeneyin Language Program Assistant AFTEG Robert A. Robelus Consultant AFTWR Vedasto Rwechungura Consultant SEGOM Mercy Mataro Sabai Sr. Financial Management Specialist AFTFM Ruth T. Selegebu Team Assistant AFCE1 Helen Z. Shahriari Sr. Social Scientist AFTCS Gloria Sindano Program Assistant AFCE1 Vildan Verbeek-Demiraydin Senior Results Management Specialist SDNOK Thomas E. Walton Environmental Consultant EASNS ICR Robert Schlotterer ICR Team Leader AFTEG Karan Capoor ICR Primary Author AFTEG Helen Z. Shahriari Sr. Social Scientist AFTCS Maria Alexandra Planas Energy Consultant AFTEG Dukjoong Kim Financial Analyst AFTEG Elliott Hurwitz Consultant AFTEG Sudhee R. Sen Gupta Consultant AFTEG Thanh Lu Ha Sr. Program Assistant AFTEG Ruth T. Selegebu Team Assistant AFCE1

Table A4.2 Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of Staff Weeks USD Thousands (including travel and consultant costs)

Lending FY92 – FY02 Total: 69 1,652.62

Supervision/ICR FY02 21 157.09 FY03 54 370.61 FY04 50 294.01 FY05 55 320.59 FY06 74 289.12 FY07 63 159.77 FY08 18 129.75 FY09 31 138.55 FY10 18 89.96 Total Supervision/ICR FY02 – FY10:

385 1,949.45

Lending+ Supervision Total: 453 3,602.07

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Annex 5. Beneficiary Survey Results Not applicable.

38

Annex 6. Stakeholder Workshop Report and Results Not applicable.

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Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR 1. Initially the Songo Songo Gas Development and Power Generation Project had three

major components: (i) the Songas component (Songo Songo Gas to Electricity Project) implemented by the sponsor, CDC Globeleq Tanzania as part A of Credit Development Agreement No. 3569 TA; (ii) the socioeconomic monitoring and environmental compliance component implemented by the Ministry of Energy and Minerals (MEM) as part B; and (iii) the capacity-building component also implemented by the MEM as part C. In 2000 the MEM prepared the project implementation plan (PIP), which covered parts B and C of the Credit Development Agreement No. 3569 TA implemented by the Government of the United Republic of Tanzania (GoT) under the supervision of the project monitoring unit (PMU) of the MEM. Between 2004 and 2008 two components—Tegeta Power Plant (IPTL Conversion of 10 Wartsila engines from Heavy Fuel Oil to gas firing) and the refinancing for the Ubungo Expansion Project—were introduced. The later enabled the reduction of the project’s capacity charge. However, the conversion of IPTL was shelved due to court cases and absence of the lenders’ consent. The refinancing supported by component E resulted in a significant reduction of the capacity charge, approximately US$1.0 million per month.

2. The borrower, acting through the MEM, has supervised all components of the project

preparation, implementation, and operation for six years. In 2009 Songas celebrated the fifth anniversary of producing electricity using natural gas up to 189 MW with 90 percent availability. The financial impact of the gas-to-power project for the major consumers has been assessed and indicates significant positive savings from using natural gas as fuel in place of liquid petroleum fuels.

3. The Songas component included (i) tie-in of two onshore wells (SS3 and SS4) and

three offshore wells (SS5, SS7, and SS9) through installation of two gas flow lines of four-inches in diameter ( SS3 and SS4) and three flow lines of 6-inches in diameter (SSS, SS7, and SS9), respectively; (ii) installation of gas-processing plant capable of processing 70 million cubic feet per day; (iii) construction of 25 kilometer marine pipeline of 12-inches in diameter stretching from Songo Songo Island to the landfall site at Somanga Fungu; (iv) development of the Songo Songo Island infrastructure; (v) construction of 207 kilometer onshore pipeline of 16-inches in diameter stretching from Somanga Fungu to Ubungo Complex; (vi) installation of integrated communication systems of fiber optics on the onshore portion of the pipeline; (vii) rehabilitation of Ubungo power plant; and (viii) construction of 8-inches in diameter spur line to Wazo Hill, 16 kilometers north of Ubungo. Songas commissioned the Wazo Hill lateral on July 15, 2004, and the main project on July 20, 2004.

Social and Environmental Issues 4. More efforts were made on component B of the project involving socioeconomic

infrastructure development. The Wayleave Village Electrification Scheme (WVES)

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and the Resettlement Infrastructure Development Scheme were completed and provide water, electricity, and roads services as planned. Implementation of the MEM component experienced serious delays.

5. However, due to passage of time and the market responses, the original concepts,

scope of work, and stakeholders under WVES and the Resettlement Infrastructure Development Scheme (RIDS) had to be modified, e.g., for construction of tarmac roads instead of gravel roads in the resettlement areas and a change from installation of stand-alone generation sets to one generation plant at Somanga Fungu Power Station.

6. Management of WVES faced a number of challenges, which included the MEM

having to transfer control of the management of the project to TANESCO except for making payments to consultants and contractors. In November 2004, the World Bank advised the MEM to transfer management functions of WVES to TANESCO and recommended that interim arrangements should be made while contractual arrangements were being sorted out. Despite the agreement reached, no contract was signed until February 2008. Procurement cycles were lengthy, and approvals by the World Bank on procurement were not granted in time, thus contributing to delays in project implementation.

Contract Compliance 7. Generally the parties complied with the basis and financial agreements. This category

included the services of consultants in capacity building in monitoring the entire project.

Capacity Building 8. The World Bank approved the MEM capacity-building program in two batches in

November 2004. Between 2004 and 2005, 42 employees successfully attended various courses within Tanzania, in the region, and abroad, costing the equivalent of US$497,243. The MEM also financed a portion of TANESCO´s capacity-building program by using proceeds from the MEM program at US$198,810.

Conclusion 9. The opinion of the GoT is that the Songo Songo Natural Gas to Power Project has

performed well during its six-year period of operation. The project has been able to provide reliable power supply to the country at the time when the petroleum prices in the world market were rising and experiencing increased volatility, and when low hydrology conditions in the country led to reduced hydropower output.

10. The project also stimulated gas utilization and gas markets; by December 2010 35

local industries had been connected for gas use to replace the use of heavy fuel oil and other types of petroleum fuels.

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11. From an environmental perspective, the project has significantly reduced air pollution

by reducing the amount of carbon dioxide in the atmosphere. It has been estimated that 1.8 million and 0.73 million tons of CO2 were reduced from power generation and local industries, respectively, since 2004 to December 2010.

12. In the rural areas, the project has improved socioeconomic life, especially for those

electrified villages and townships, where income generation has shifted from activities not dependent on electricity to activities that are electricity dependent, such as seafood processing and storage in Island and Kilwa Masoko.

13. WVES and the RIDS implementation have brought benefits to affected people along

the wayleave and resettlement areas. Thirteen kilometers of roads, twenty-four kilometers water distribution lines, one kilometer of telecommunication lines, and eighteen kilometers of power lines were put in place.

14. The private investors have shown keenness to invest in both the petroleum and power

subsectors of the economy. In the petroleum upstream, GoT and TPDC have managed to enter into 23 production sharing agreement with a number of exploration companies. This has culminated in more natural gas discoveries both onshore and offshore, including in deep water.

15. The MEM is very grateful to TANESCO, TPDC, PAT, the World Bank, EIB, Songas,

government agencies, local government, and other stakeholders for the support given during the implementation of all the components of the project.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable.

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Annex 9. List of Supporting Documents

WB Country Assistance Strategy (2000) Economic and Financial Models 2001, 2007 European Investment Bank: Project Completion Report and Annex (2005) WB Aide-Memoires and Back To Office Reports of supervision missions from

2003-2011 WB Implementation Status Reports Poverty Reduction Support Credits Government of Tanzania’s Implementation Completion Results Report WB Project Appraisal Document (2001) WB Memorandum of the President for 2004 Restructuring (May 14, 2004) WB Restructuring Paper (2007) WB Closing Date Extension (2009) WB Restructuring Paper (2010) QAG report (August 23, 2002) Environmental and Social Management Plan (December 4, 2000) Environmental and Social Management Plan: Implementation Summary and Next

Steps Community Livelihood and Impact Assessment and Socio Economic Survey—

Final Report (December 2010) Songas Limited-Songo Songo Island Village Jetty—As-built Construction and

Future Upgrade Works

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Annex 10. Summary of Project Restructuring History 1. Major project changes as described in section 1.6 of the report were approved through

the restructurings that are summarized below. These restructurings further led to certain project proceeds reallocations and cancellations (see table A10.1 for details).

i. First restructuring (Board level), May 2004, added component D to scale up gas-fueled power generation and extension of original closing date to October 31, 2007

ii. Second restructuring (RVP level), December 2007, added new component E and extension of project closing date to December 31, 2009

iii. Third restructuring (RVP level), December 2009, approved extension of project closing date to December 31, 2010

iv. Fourth restructuring (RVP level), December 2010, approved partial credit cancellation and drop of one component.

2. The ICR team also analyzed the reasons and justifications given for the accumulated

extension of the project closing date by more than four years, also analyzing whether any project extensions were purely given to make use of important project savings.

3. First it has to be noted that the initial restructuring of 2004 did not require an extension of the original closing date, which remained unchanged at that time. The first closing date extension was approved in March 2006 to allow for the completion of the main activities under component B, which just had started implementation after the WVES subcomponent underwent a substantial design change. The second major extension of the project closing date then was approved in December 2007 extending the closing date up to December 2009. The justification given at that time was to facilitate the implementation of incomplete activities under the original component B and the formerly introduced component D and also to allow for the implementation of the new activities introduced to the project in the Restructuring of December 2007 to be fully implemented. Finally the closing date extension by another 12 months from December 2009 to December 2010, was justified by allowing for full completion of component B activities, that were about 90% complete at the time of extension and implementation of component D.

4. In the ICR team’s view the justifications approved with each project closing date extension do not reveal evidence that the project closing date was only extended to make use of project savings.

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Table A10.1 Songo Songo Project Reallocations

Category Original allocation

(SDR)

Sept. 8, 2004Reallocation

(SDR)

Feb. 27, 2008

Reallocation (SDR)

Nov. 25, 2010

Reallocation and

Cancellation (SDR)

(1)Works under a) Part A of the Project b) Part B.1 of the Project c) Part B.6 of the Project

300,000 300,000

417,500 87,650

400,000

434,68583,888

0

(2)

Supply and Installation of Equipment under d) Part A of the Project e) Part B.1 of the Project f) Part B.2 of the Project g) Part D of the Project

120,000,0006,000,000

200,000

95,000,0008,000,0004,000,000

14,000,000

75,915,225 9,980,000 5,700,000

14,000,000

75,915,22510,213,6393,938,779

0

(3)

Goods and Equipment a) Part C.4 (b) of the Project b) Part C.6 (b) of the Project

200,000 200,000 235,084

95,000 235,639

0

(4)Consultants’ Services and Training 8,000,000 15,000,000 4,250,000 4,067,337(5)Refunding of Project Preparation Advance 1,200,000 1,200,000 591,734 591,734(6) Unallocated 8,000,000 8,000,000 277,807 0

(7)

Consultants Services and Training under a) Parts B.2 through B.5, C.1, C.2, C.4, and

C.6 of the Project b) Parts B.1, C.3, C.5, and D of the Project

2,250,000

4,300,000

609,844

5,306,814

(8)UEP Output-based Payment under Part E of the Project

27,200,000 27,127,449

TOTAL 145,700,000 145,700,000 145,700,000 128,525,033

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Annex 11. Environmental and Social Issues during Implementation

Environmental: 1. Overall the project has been executed in compliance with the World Bank’s

Environmental Safeguard Policies and Environmental, Health and Safety Guidelines. In addition, during implementation of the project, the Bank-supported Ubungo Power Plant received ISO certification for environmental management (14001) and health and safety (18001). During implementation of component A, the conditions of an earlier drilled but unused gas well (Wellhead 6) deteriorated due to corrosion, and for safety reasons it was recommended to decommission and seal this well. This mitigation measure was ultimately supported by the project, and the wellhead was closed in 2008. In addition, after commissioning of the gas-processing plant on Songo Songo Island, local villagers complained that the operation of the offshore wells had a negative impact on their seaweed production. The project subsequently supported a study by an independent consultant who did not find any evidence on negative impacts arising from the gas-processing activities on seaweed production.

Social: 2. The implementation of the project resulted in some 3,100 affected households, which

includes 2,945 households in the WVES who were affected in various degrees, including loss of crops, land (including farm land), and some structures, including a number of houses. Out of those 3,100 households, 155 needed to be physically resettled from the pipeline corridor to two sites designated for this purpose on the outskirt of Dar es Salaam—Kinyerezi and Sala Sala. In addition, 38 households were resettled along the rural section of the pipeline wayleave between Somanga Fungu and the outskirts of Dar es Salaam. The resettlement action plan, prepared in 1997, and its addendum of 2000 described the basis of compensation. In 2010 a second addendum was prepared due to changes in the WVES.

3. In the last year of implementation the project financed a community livelihood and impact assessment and socioeconomic survey (social impact assessment), which concluded that the RAP and its addenda were comprehensively implemented as per its reviewed scope. At the same time this social impact assessment also made some recommendations for follow up actions that the task team agreed upon with TANESCO and MEM at the final supervision mission. With respect to cultural properties, people were compensated for cemeteries and grave yards in the entire project areas and they were also paid for reburial ceremony. Details of social impacts and mitigations follow:

a) Wayleave Village Electrification Scheme: Even though the majority of affected

people were those living along the wayleave, the level of impact was not major. The main impact considered farmland and crops, with few households compared to the total number of affected households. During the design, the choice of the pipeline route was considered carefully to minimize impact on structures and

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areas with perennial crops. The average land loss due to the project in the wayleave ranges between a quarter to half an acre. In most places the pipeline passed either through abandoned or unused farms. In general, according to the social impact assessment report, the compensation along the wayleave was fully and fairly paid. In 2010 a second addendum to the RAP was prepared due to changes in the routing of the transmission line in a 40 kilometer stretch between Manzese and Somanga along the WVES, affecting six villages. The rerouting mainly was a result of a road upgrade in a certain section, causing 95 additional affected people. The impact was mainly on crops and farmland. However, 15 houses were also affected. The related documents have been disclosed in the Infoshop and the country. During the final supervision mission and after project closing, the task team was informed that some newly affected people had complained about their compensations through the grievance mechanism. The task team agreed with the GoT to follow up on this issue even after project closing. In addition, an assessment shortly before closing found that while all of the villages on the WVES now have access to electricity, the number of connections was still limited at the time of project closing since the power station supplying the new electrification scheme was commissioned only a few months before the project’s close in 2010.

b) Songo Songo Island: Songo Songo village has substantially benefited from this

project. Prior to the project, the quality of water in the village was very poor and all villagers relied on one source of water, which was an uncovered well in poor condition. Under a community development project, Songas provided the villagers with clean drinking water from communal stands located in different distribution points in the village. Waterborne disease, according to the social impact assessment, dropped by about 80 percent after the construction of the water project. In addition, more than 100 households have been legally connected and utilize electricity generated from natural gas obtained from the island, while there had not been any electricity before the project. However, there are several households that have made illegal connections, while many more are yet to be connected to electricity. Issues about whether Songo Songo villagers should pay for electricity continue to hamper the expansion of this service to many people, thus forcing some to take risky decisions to make illegal connections. In the last supervision mission the task team received confirmation from TANESCO that this issue will be addressed in the near future. The major issue of the project on the island was the replacement of the Songo Songo community jetty with a new one. The new jetty, though, had to be upgraded due to inadequate length and height and upon the request from the community. Since the upgrade of the jetty could not be implemented in the

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remaining lifetime of this project, this outstanding activity was transferred to the Bank-financed Tanzania Transport Sector Support Project (TSSP) through an additional financing. In preparation of this transfer an impact assessment was undertaken to understand the issues related to the new jetty in order to improve it based on the community’s needs (completed in April 2010).

c) Resettlement Infrastructure Development Schemes (Kinyerezi and Sala Sala):

These sites were unplanned areas where 155 households were already residing, before another 155 households, residing in the pipeline wayleaves were to be resettled to these areas. So after resettlement the areas were supposed to host up to 310 households. Under the project, needed infrastructure such as roads, water, electricity, and telephone lines were constructed in these settlements. However, since the infrastructure construction was lengthy (finished in 2008, about seven years after the start of the project), only 10 households resettled in Sala Sala out of 88 who were supposed to move there. The rest sold their plots and resettled in other areas. The situation was similar in Kinyerezi. In addition, in Kinyerezi, at the time of the social impact assessment, 75 affected people still needed to be provided with land plots, though they had been duly compensated already.5 This is a good lesson to learn for future Bank’s projects. When physical resettlement is involved, issues of speed in preparing the resettlement site and the possibility that people may sell their land due to increased value as a result of the site preparation should be considered carefully, and proper measures should be in place to ensure that people will be resettled to the designated resettlement sites.

5 Compensation was paid to affected people as per World Bank requirements and Tanzanian law. In addition to compensation in monetary terms, plots were allocated to the people who were affected by the project wayleave. In addition, the social impact assessment states that GoT officials indicated that those who were not allocated a plot will be given plots in another ongoing government project of surveying plots in Kinyerezi.