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EXECUTIVE SUMMARY

The Rural Electrification Sub-Projects and Capacity Building Components on Renewable Energy Technology (RET) Matters are proposed for funding by the World Bank – International Bank for Reconstruction Development (WB-IBRD) and Global Environmental Facility (GEF), respectively. Primarily to provide sub-project financing for rural electrification sub-projects and reduce market barriers critical to implementation of key components of the Rural Power Project 2003-2009. The proposed components are envisaged to achieve the following:

• Rural electrification Sub-Project Component intends to address the market imperfections and DBP shall be used as the lender of RPP qualified participants.

• Strengthen the appraisal, selection, procurement related to renewable energy

technology subprojects within the Development Bank of the Philippines (DBP) and its sub-borrowers;

• Enhance supervision and monitoring of renewable energy technology subprojects

within DBP and its sub-borrowers. The Rural Electrification Components consists of the following:

• Decentralized Electrification o Small scale Energy Generation and Mini-grids o Stand-alone Renewable Energy Systems o Community Applications for Livelihood and Productive Uses

• Electric Cooperative Grid Subcomponents The Capacity Building Component consists of three (3) inter-related rural electrification capacity building activities that will have the combined impact of reducing market barriers critical to the immediate implementation of reduction of market barriers to the commercialization of renewable energy technologies suitable for off-grid electrification:

• Market Monitoring Activities Coordination • Public Information Program • Business Development Support

The total project financial requirement for Rural Electrification Sub-Projects is estimated at US$10 million (PHP 500 million) to be funded by the International Bank Reconstruction Development and US$1 million (PHP 50 million) by the GEF Trust Fund. The RPP Rural Electrification Sub-project and Capacity Building Components cover key activities that are expected to derive immediate reform impact. The project will generate benefits both at national and pilot site levels in terms of increased coverage of RET commercialization resulting from improved operational efficiency of ECs and new RET market players.

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In addition to the above components, RPP through the GEF shall provide seed money for its Partial Credit Guarantee Component. This will be implemented by the UNDP to improve access to long-term credit by suppliers and users of renewable energy systems. The activities of these Project components will complement and, in some instances, take off from other reform and investment activities in the RPP that were undertaken by other donor agencies, the Department of Energy (DOE) and the National Electrification Association (NEA). The APL 1 Project will be implemented over a period of five year. The timetable for investments and technical assistance activities for the first year is shown in Annex 5.

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1 Project Scope and Objectives

1.1 Background and Scope

1.1.1 The Rural Electrification and Capacity Building Components of DBP are the WB-IBRD and GEF’s response to the call for support in the implementation of reforms and priority investments to meet the needs of rural communities for adequate, affordable and reliable energy services in an efficient and sustainable manner.

1.1.2 In providing a more objective basis for the rural electrification reforms,

several diagnostics studies were undertaken by the DOE, including some efforts assisted by, among other institutions, the United Nations Development Programme (UNDP) and the WB. The results of these studies are synthesized in the RPP. Prepared in consultation with internal and external stakeholders, the RPP provides the framework for reforming the country’s energy services and reflects the visions, objectives, policies, strategies, investments and the resource requirements to implement the identified reform priorities of the DOE in the medium-term.

1.1.3 To fast-track the implementation of key elements of the RPP, the DBP is

proposing specific activities under the Rural Electrification and Capacity Building Components to be financed by the World Bank – International Bank for Reconstruction Development and GEF Trust Fund, respectively. The proposed activities will put up support to Rural Electrification Component to the immediate attainment of the RPP’s objectives. The activities will also test case upon which the effects of the reforms can be generated and assessed as basis for future implementation of other Adaptable Program Lending (APL) phases.

1.2 Project Objectives

1.2.1 To contribute to the achievement of the rural power project vision, the DBP has prepared a proposal for possible financing combined with technical assistance from the DOE. The project envisaged will put up funds critical to the immediate implementation of reduction of market barriers to the commercialization of renewable energy technologies suitable for off-grid electrification. Specifically, the project intends to support the achievement of the following objectives:

1. Rural electrification Sub-Project Component intends to address the

market imperfections and DBP shall be used as the lender of RPP qualified participants.

2. Strengthen the appraisal, selection, procurement related to

renewable energy technology subprojects within DBP and its sub-borrowers;

3. Enhance supervision and monitoring of renewable energy

technology subprojects within DBP and its sub-borrowers.

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2 Project Description

2.1 LOAN COMPONENT – Rural Electrification Sub-Projects

This component will provide loan financing for grid upgrading investments by selected ECs, and for off grid pilot subprojects implemented by the private sector. The financial and technical support to ECs may cover:

• upgrading and rehabilitation of the existing systems to reduce system losses and

improve operating efficiency; • removal of local constraints in the power distribution system to capture new consumers

within the grid service areas, and • institutional strengthening to address the lack of needed hardware, software, motor

vehicles, tools and equipment to transform utility management and improve employee productivity.

Feasibility studies on a pipeline of 10 potential EC subprojects have been substantially completed. Initially, the project will finance 12 upgrading and institutional strengthening investments by ILECO II and 9 similar investments in ILECO III.

The decentralized or off grid pilot subprojects to be supported would include: • small-scale energy generation and mini grids, implemented by the private

sector; • stand-alone renewable energy systems for individual users. This will consist

mainly of photovoltaic (PV) systems but in future phases may include small “wind home systems”, pico-hydro and renewable energy technologies (RETs).

• Community applications for livelihood and productive uses 2.1.1 Sub-Components

(1) EC Grid Sub-Component : Consistent with EPIRA, the ultimate objective of this sub-component is to attain the transformation of ECs into empowered, competitive, efficient and financially viable organizations. This sub-component includes support for the transformation of participating ECs through financially viable investments and other measures to ensure operational efficiency and institutional development.

(2) Decentralized Electrification. This sub-component project is intended

to increase electrification through piloting of various types of mechanisms that would attract private sector participation while minimizing the government subsidy for non-viable off-grid areas. This involves small scale energy generation and delivery of basic electric services to households, public centers (e.g. schools, health clinics) and

productive applications in the off-the-main grid areas using

decentralized power generation and electric power distribution delivery mechanisms, i.e. mini-grids as well as stand-alone systems.

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a. Small Scale Energy Generation

This project sub-component will group target barangays into “market packages” of sufficient critical mass for business operation. Depending on the characteristics of each package, one or more mini-grids may be installed. Several barangays may be linked into one mini-grid powered by a single hydro resource or the barangays could have their own micro-grids powered by small diesels. Qualified third parties would be allowed to provide energy services in the unserved franchise areas of the incumbent ECs (this is consistent with the provisions of EPIRA). These parties could be private rural energy service companies (RESCO), qualified NGOs or local cooperatives organized specifically for this purpose. APL 1 will pilot various types of service mechanism and adopt the most successful ones for subsequent phases. To the extent possible, the priority packages for project support are those that are commercially viable in themselves and require only non-financial incentives.

b. Stand-alone Renewable Energy Systems

For dispersed users that are not feasible to connect to the grids, direct purchase for various capacities of PV systems shall be made available through private vendors and NGOs. Recognizing the generally low incomes of dispersed users and the still high capital costs of PV systems, the project will provide, through GEF and government funds, subsidies to lower the cost to consumers, and financing to spread out the payments. The suppliers will offer small PV system options (e.g. 20-60 WP) sufficient to provide basic services to households. Competing vendors would be enticed to do business through incentives that include assistance in market development and capacity building, product promotions and other risk-reducing activities funded by the GEF grants. These grants would be supplemented with government subsidies to bring PV systems prices close to the willingness-to-pay levels of consumers. Further, to remove the barrier of credit access, this sub-component would provide a line of credit to financial intermediaries ( such as rural banks and micro-finance institutions) to enable them to provide consumer loans for the PV systems and financing of incremental working capital for dealers. In addition, GEF funding would support the provision of training in PV financing operations and partial risk guarantees for the suppliers and users of PV systems.

2.1.2 Conduct of Sub-Lending Program

Sub-Project Development The DBP PMO works with potential sub-lenders and/or sub-borrowers through various meetings, workshops and other promotions strategies to package the applicable sub-project credit facility. DBP PMO should seek technical advice from relevant offices, including technical and environmental structure advice and guidance from the Department of Energy, as required. Following a series of

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required analyses, which are included in the Feasibility Study of the sub-projects, the PMO / RMO prepares the Credit Application for approval to Loan Com . Sub-Project Implementation Actual implementation of approved project shall be done by each sub-borrower. Procurement of goods and services by clients shall follow commercial practices as outline in the Loan Agreement with the World Bank.

Sub-Project Monitoring

The PMO shall regularly monitor sub-projects financed by the RPP. Call visits shall be done prior to any release of progress billing by Project Proponents. Any adverse development or feedback shall be discussed with clients and remedies shall be identified and adopted at the earliest possible time to prevent possible defaults.

2.2 GRANT COMPONENT – Capacity Building on RET Matters

The Capacity Building Component consists of inter-related activities in the areas of market monitoring activities coordination, public information program, business development support and PMO support. These activities are intended to have the combined effect of improving the administration of rural electrification sub projects of RPP.

2.2.1 Sub-Components

A. Market Monitoring Activities Coordination

The main thrust of this activity is to strengthen RET market monitoring. This will be achieved by collecting retail and supplier price information, conducting consumer focus groups, conducting annual sample surveys in the project area, and reviewing customer satisfaction information from the results of end-user verifications and other sources.

The monitoring will provide information to support the design and evaluation of market development initiatives and to assist in monitoring the effectiveness of project interventions.

The following specific activities will be pursued in the identified project sites:

a. Development of Strategic and Medium Term Marketing Plans. A study

will be conducted under the GEF funding to establish and maintain competitive advantage in the rural electrification market. It will examine the specific market barriers elements affecting the wider adoption of RET and how each element affects the sub-project promotions, approvals & processes. Participation of relevant units of DBP will also be taken into consideration in developing effective strategies in reaching effective financing arrangements, to compete for sub-borrowers and to guide them

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through various phases of sub-project promotions and processes. This will be undertaken by an individual or a firm consultant who will take direction from the RPP PMO Head.

b. Development of various marketing studies to enhance market barriers

reduction measures. This will involve the design and conduct of various studies that will serve as a baseline support to the overall objective of the Capacity Building Component. This will be done by hiring consultants in coordination with the relevant DBP in-house departments, DOE and NEA.

B. Public Information Program

The main thrust of this activity is to actively promote the financing opportunities available under the RPP to the new players in the RET market, prospective borrowers and to the general public. Emphasis will be given on measures to comply with the GEF conditions and the support to be given by DBP through the GEF Grant Fund.

The following specific activities will be pursued to support this activity:

a. Conduct of Seminars, Workshops and Meetings to promote the Rural

Electrification Sub-Projects will be held in selected areas where identified prospective borrowers and potential Project participants will be invited. This would address one of the key barriers to private investments and credit access which is the lack of information on the nature of investment and financing activities, the availability of subsidies, and the potential return on investment on the relatively new RETs.

b. Establishment of Web-based information systems and other relevant

information and communications technology (ICT) infrastructure accessible to project promoters, developers and sub-borrowers that will

provide information on eligible equipment and suppliers, price data, key events, various documents to comply with the requirements of the bank’s sub-loan requirements. The systems to support these processes will, in turn, be supported by the DBP’s existing information technology infrastructure and system.

The ICT infrastructure will support the common information and communication service requirement of the project. Cutting across virtually all work processes, information systems, and applications, it will include electronic date interchange for secure communication among sub-borrowers, stakeholders and DBP key personnel, and video conferencing facilities.

c. Procurement of essential equipments in the conduct of project promotions

and market surveys such as all-weather vehicle to allow increased mobility to unserved remote areas, portable personal computers,

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projectors, promotion slides and other relevant paraphernalia necessary in promoting and conducting market surveys.

These activities will be conducted by DBP’s in-house promotions department or equivalent and a consultant who will be commissioned to design the promotions plan and its implementation.

C. Business Development Support

This will involve the strengthening of the principal borrower (DBP) and sub-borrowers (ECs, RESCO, etc.) on areas of RET sub-projects’ marketing, management and operation. These activities will provide assistance to both types of borrowers to adopt sound business practice, and also extend their business views. Training and technical assistance will be used to assist the borrower and prospective sub-borrowers to improve in the following areas: (a) financial management, procurement, contract management, accounting and auditing; (b) development of sales and after-service networks; (c) product development and quality control; (d) marketing (surveys, promotions, small demonstrations) and business development; and, (e) industry association/accreditation.

The following specific activities will be pursued to support this activity:

a. Conduct of Technical Trainings, Knowledge-Sharing and Transfer of

Technology on RET matters. This activity will involve the acquisition of specialized skills that will ensure the proper synchronization and timing of project activities and the generation of quality outputs and outcomes, in coordination and under supervision of the DBP PMO.

Support will be provided by sending the PMO key personnel to foreign and local trainings and study tours to learn about RET best practices in various key aspects of the project (i.e., modern marketing approaches, procurement, financial strengthening, sub-project appraisals, monitoring and evaluation, etc).

Further, to ensure knowledge sharing and transfer of technology, the following senior level experts will be hired: (a) project management advisers (in various areas such as appraisal, procurement & financial); (b) RET development specialist; (c) results monitoring and evaluation specialist and other long-term contractual staff support (i.e. facilitators, staff to support specialists).

b. RPP Sub-borrowers capacity building. This sub-activity involves the

conduct of capability enhancement activities to upgrade the capacity of the sub-borrowers to effectively coordinate and manage the implementation of the RPP’s sub-projects. In particular, sub-borrowers capacity improvements are required in the following areas:

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1. Management of the change process and promoting capability of sub-borrowers to adopt and adapt to the changing and new lending environment.

2. Sub-projects financial management, to include the proper

synchronization of fund sourcing and inflow with funds disbursement and program activities.

3. Management of the implementation and performance of the

various technical aspects of the sub-projects such that these are properly sequenced and synchronized, scoped and implemented in a timely manner, and quality outputs are produced.

4. Management of procurement, to ensure that all works, goods and

services are procured in accordance with the scheduled requirements of the sub-project, at the right quality and at reasonable cost.

5. Arrangements of environmental safeguards in compliance with the

World Bank’s guidelines. This shall be done in coordination with DOE-PMO.

d. Implementation of Computer-based Financial/Procurement Systems.

Information technology can enable the DBP-PMO to restructure operations and redefine its project management operations. These changes are necessary to increase efficiency in its operations and for the PMO to be more focused on its mandate of managing the program. However, the DBP’s current IT infrastructure, while providing operational support, needs expansion and enhancement to better support the transaction processing and information requirements of the PMO.

The Grant intends to finance the development and implementation of an integrated information systems network that will support RPP. Applications are the software components that directly provide information and automation support for the PMO’s work processes and include the following:

� Financial Management � Procurement � Records Management � Billing & Collection Management � Physical Assets Management

This proposal covers the installation of the identified ICT infrastructure, information system applications, development of data management capabilities and change management activities in the following offices of the DBP:

� PL- DBS � RMOs � Accounting Department

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� FCO

3 Key Performance Indicators

Overall Project performance will be evaluated at mid-term and at project closing using the following indicators:

Table 1: Key Performance Indicators

KPI June 30, 2006 December 31, 2009

Loan disbursements 40% 100%

New customers inrural areas provided with mini-grid electrical connection or individual RET services (incremental under the project)

4000 10,000

RET suppliers accredited by DOE and operating

2 4

New electrical mini-grid system established and operating

1 2

Participating ECs have achieved satisfactory financial performance as indicated by a debt service coverage ratio of at least 1.0 time

70% 85%

CO2 avoided per year at review year 6,000 tonnes 20,000 tonnes

4 Financing Plan

4.1 Table 3 shows the cost configuration for each sub-component of the Rural Electrification Sub-projects. The sub-components are further classified into four categories as follows:

Table 2: Types of Sub-Projects

Type Nature Beneficiaries Type A Small-scale energy generation

and mini-grid rural electrification project

RESCO, QTP, NGOs Cooperatives other than ECs LGUs

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Type Nature Beneficiaries Type B Stand-alone renewable energy

system rural electrification project, including the marketing, sale, purchase and installation of RET systems.

RET system purchaser with PFI financing RET system supplier with PFI or DBP financing

Type C Rural Electrifications Upgrade and Rehabilitation

Electric Cooperatives organized under Chapter 111 of the NEA

Type D Rural electrification project other than a Type A, Type B or Type C Sub-projects

Any eligible private sector proponent (i.e., PDU) LGUs

Table 3 Cost Configuration by Rural Electrification Sub-Projects Sub-Loans

Y1 Y2 Y3 Y4 Y5 Total

Type A, B, C & D Sub Project 1.73 2.46 2.95 1.98 .89 10Total Loan 1.73 2.46 2.95 1.98 .89 10

4.2 The set of activities falling under the Capacity Building Component was designed and scoped with full appreciation of the required integrated approach to the RPP. Therefore, it will be synchronized with the other RPP components and vice-versa. Total component’s requirement is estimated at US$1 million (PHP 50 million). Table 4 shows the cost configuration for each component’s activities.

Table 4: Grant Cost Configuration by Activity and Fund Source

Capacity Building

Activities

Goods

Consultancy

Services

Workshops &

Trainings Incremental

Costs

TOTAL Market & Project Monitoring Activities Coordination

US$ 75,000

PHP 4,125,000

US$49,000

PHP4,905,500

US$125,000

PHP6,250,000 Public Information Program

US$100,000 PHP5,500,000

US$ 65,000

PHP3,575,000

US$ 125,000

PHP6,875,000

US$ 53,000

PHP2,915,000

US$355,000

PHP17,750,000 Business Development & Project Support

US$100,000 PHP5,500,000

US$160,000

PHP8,800,000

US$125,000

PHP6,875,000

US$48,000

PHP2,640,000

US$420,000

PHP26,000,000

TOTAL COSTS

US$200,000 PHP11,000,000

US$300,000

PHP16,500,000

US$250,000

PHP13,750,000

US$150,000

PHP8,250,000

US$900,000

PHP49,500,000

5 Implementation Arrangement

5.1 The Rural Electrification and Capacity Building Components will be executed by the DBP through the RPP PMO.

5.2 Policy Decision Level

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An interagency Project Supervisory Committee (PSC) has been constituted to provide for policy direction, guidance and oversight supervision for policy and institutional reforms supported by the project. PSC will define the long-term goals, key priorities and strategies, and also decide on resource prioritization and allocation.

A Technical Working Group (TWG) acts as the Secretariat of the PSC and ensures coordination at the working level of all tasks involving different agencies.

5.3 Over-all Project Management

DBP established a Program Management Office that will oversee the implementation of the sub-projects identified in the RPP. The PMO is tasked to perform the following functions relative to the GEF Trust Fund:

a. Manages the entire capacity building component, including the

synchronization and reconciliation of the political, technical policy aspects, and ensures the timely execution and completion of activities, as well as the generation all activities outputs;

b. Prepare activities documents and undertake the acquisition and selection

of expertise, goods and services to execute the identified action programs; c. Monitor and periodically review program implementation and the

performance status of the activities; d. Ensure the efficient and effective management of all resources of the

Capacity Building Component. e. Perform such other functions as may be assigned by the PSC.

5.4 Project Preparation

5.4.1 The PMO shall undertake preparatory activities, in coordination with the concerned implementing offices, the WB and other stakeholders. It shall prepare the documents required prior to implementation (e.g. Terms of Reference, procurement guidelines, consultation and workshop materials, project documents, etc).

5.5 Project Implementation 5.5.1 The PMO, with assistance from the PSC, will administer day-to-day activities

related to project implementation including, among other matters, the preparation of project-related plans, procurement of necessary inputs, maintenance of financial reports, disbursement of funds, consultations with sub-borrowers and stakeholders, and preparation of progress reports.

5.6 Procurement

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5.6.1 The PMO Procurement Head will manage the procurement of goods and services required for project implementation.

5.6.2 The external evaluation of the procurement process will be undertaken by the

WB to ensure that the WB’s Guidelines on Procurement are followed. All procurement documents and requests for no objection will be submitted to the WB Office in Manila for screening.

5.6.3 The terms and conditions set forth in Schedule 1 of GEF Project Agreement and

Schedule 4 of the Loan Agreement (Rural Power Project No.7204-0-PH dated December 8, 2003) shall be observed for procurement of goods, works and

consulting services in consonance with the World Bank Guidelines.

5.7 Monitoring and Evaluation 5.7.1 The PMO will monitor the physical and financial performance of the Rural

Electrification and Capacity Building Components based on performance evaluation indicators, and the work and financial plans. The PMO will submit the necessary monthly reports, including the progress of the work of the contractors and consultants, and the physical as well as financial accomplishments to the WB, concerned oversight agencies and the PSC.

5.7.2 The PMO will facilitate the conduct of the WB and government review of the

activities, including the semi-annual missions and oversight portfolio review. The PMO will ensure that the reports on said monitoring activities are accurate and timely.

5.8 Disbursement, Financial Management and Auditing 5.8.1 The PMO will be responsible for the implementation of the project and the

payments of goods and services under the Project. The PMO will also ensure that the Loan and Grant proceeds will be used to finance project expenditures eligible under the WB-IBRD Loan Agreement and GEF Grant Agreement with the adequate supporting documents.

5.8.2 The PMO will keep the necessary documents related to the financial,

procurement and disbursement operations of the project, maintain reports pertaining thereto, and ensure that an external audit on the conduct of these activities is undertaken.

6 Procurement Plan

6.1 Procurement of goods will be based on the WB Guidelines: Procurement under International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) Credits (published in January 1995, revised January and August 1996, September 1997 and January 1999).

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Among the documents required are tender documents, issuance of bid documents, pre-qualification of contractors and contract.

6.2 Selection of consultants will be based on the WB Guidelines: Selection and

Employment of Consultants by the WB Borrowers (published in January 1997, revised September 1997 and January 1999).

6.3 The Bank’s Standard Request for Proposals (published in July 1997, revised April 1998, and July 1999) will be used in the selection of all consultants for the project. This document includes a standard Letter of Invitation, Information to Consultants, Terms of Reference for particular services, and Forms of Contract.

6.4 The Procurement of WB-funded components will include the following

packages, namely:

� Package 1 - National Competitive Bidding � Package 11 - International Competitive Bidding � Package 111 - National Shopping Procedure � Package 1V - National Competitive Bidding Consultancy Services

6.5 Table 5 reflects procurement items for components funded by the GEF. Details

of the Procurement Plan and Arrangements for GEF funded components are reflected in Annex 4-a.

Table 5. Procurement Plan GEF Funded Components

Procurement Method EXPENDITURE CATEGORY ICB NCB Other Total Cost

1. Goods 1.1 Systems & IT Requirements (Laptops & Paraphernalia) 1.2 Workshop equipments (Projectors, boards, etc) 1.3 Vehicle 1.4 Financial & Procurement Softwares

111,000

22,000

30,000

20,000

22,000

30,000

20,000111,000

QCBS QBS Other Total Cost 2. Consultancy 3.1 To develop marketing plans &

various supporting market surveys.

3.2 To conduct various baseline studies.

3.3 To develop media ads campaign materials.

3.4 To implement computerized Financial/Procurement Systems and assist in various financial matters during implementation.

60,976

30,488

36,585

30,488

60,976

30,488

36,585

30,488

7. Implementation Schedule

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7.1 Implementation schedule for GEF funded components is shown in Annex 4.

8. Monitoring and Evaluation

8.1 The set of activities under the RPP Capacity Building Component is expected to raise awareness on the existing credit facility available to new players on RET market and immediate reduction of market barriers on commercialization of RET. It is also expected to improve public perception of accessibility to DBP’s rural electrification credit facilities.

9. Critical Risks and Assumptions

9.1 Policy Assumptions 9.1.1 Table 6 below summarizes the identified specific risk factors and the

corresponding mitigation measures. The risks related to the creation of new markets and greenfield investments in decentralized electrification is considered high. On the other hand, the risks associated with the EC grid subcomponent, that has existing markets and operations, is substantially lower. Overall, the project risks are considered manageable.

Table 6. Critical Risk Factors

Risk Factor Risk Mitigation Measure From Outputs to Objective Regulatory risks, notably timeliness and adequacy in approval for tariff adjustments and universal charge for subsidy in off-grid electrification.

Upstream consultations with ERC; TA for rural electrification regulation; market assessment results on consumers’ willingness to pay incorporated in policy design; strategic communications on reforms and consumer education

Consumer willingness to pay for new electricity services through SHS or mini-grids.

Market assessment, including existing energy expenditures of households, provide benchmarks for setting affordable tariffs; stakeholder consultations and self selection by consumers in choices of service; output-based grants (from the government and GEF) as well as consumer credits for SHS to reduce up-front capital cost

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Risk Factor Risk Mitigation Measure From Components to Outputs Insufficient interest of private sector to invest in mini-grid market packages

Mitigation of regulatory risks as noted above; early and close consultations with key stakeholders and investment promotion workshops/roadshows; flexibility in Bank loan to support lower risk project

Inadequate participation of MFIs for the SHS subcomponent

Possible DBP lending to a wholesale MFI, capability building of MFIs, vendor finance scheme through partnerships between SHS suppliers and MFIs; GEF partial risk guarantee of SHS end-users

Inadequate participation of ECs and SHS suppliers

Consultations with ECs and SHS suppliers to generate their interest in participation; DBP already has a track record of lending to 15 ECs; 14 companies expressed interest in the SHS subcomponent and provided their business concept/plan to DOE

Project implementation delays Quality at entry assurances; front loading of capacity building activities, including implementation support

Inadequate local counterpart funding Agreement with the government on adequate and timely provision of local counterpart funding; adequate financial capacity of subproject sponsors as a selection criterion for subloan support

9.2 The success of the Capacity Building Activities will depend, to a large extent, on several oversight policy factors. This project component is designed and will be implemented with the following policy assumptions:

a) To the extent possible, participants’ commitment to the RPP will be

obtained in order for the reforms in administrative structure, staffing and operating systems to operate as envisioned in the RPP. Otherwise, reforms in these areas will be severely constrained by existing oversight policies.

b) The Capacity Building Component is designed under the assumption that

there are adequate government (DBP) counterpart funds to operate the activities as planned and on time. This will require an estimate of the financial requirements for the operation of the Capacity Building activities.

c) Several activities of reducing market barriers on commercialization of

RET may require legislation. The PMO will immediately implement capacity building activities that do not require legislation.

9.3 Project Synchronization Assumptions 9.3.1 The implementation of the RPP will be synchronized with other rural

electrification reform and investment projects to obtain maximum benefits from all reform activities.

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9.3.2 The DBP Capacity Building Component will be synchronized with the DOE, which will handle the US$8 million GEF Trust Fund.

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ANNEXES

Annex 1

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Annex 2

The Program Management Office Organizational Chart

Payment for PV Lease/Purchase of Rural Customers

Consumer Loan Repayment

Loans

Down Payment PV Products and Services

Government incentives and

GEF Grants

GEF Grant Bank Loan

Republic of the Philippines

DOE-PMO

Electric Cooperatives/ Other Rural

Electrification Project Sponsors

Rural Customers

Capacity Building **(GEF grant-funded)

DBP-PMO

Rural Banks, Micro-finance Institutions PV Companies

GEF grants for capacity building

Partial CreditRisk Guarantee*

Flow ofFlow of Funds Funds Note:* to be administered by an existing Guarantee Institution for sustainability** to be provided to all NRE stakeholders

Grant/subsidy

Loans

Grant/subsidy

Loans

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Annex 5

First Year Project Timetable

Program Management 1 Department Head

Finance & Procurement

Program Manager

Project Development & Funding

Project Evaluation, Implementation,

Monitoring & Supervision

RMOs

PL-DBS

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Subcomponent/Activity/Month Duration 1 2 3 4 5 6 7 8 9 10 11

PRE-OPERATION

Organization of PMO/Planning activities to set targets, lending parameters, prepare necessary application forms, materials, etc.

Done prior to loan

effectiveness A. SUB-PROJECT DEVELOPMENT &

IMPLEMENTATION

1. Market assessment study

2. Marketing and Promotion Continuing activity

3. Project Launching 1 day

4. Lending to first set of 2 Ecs

• Preparation/submission of loan application by ECs

4 weeks per EC

• Due diligence on proposals submitted 8 weeks/EC* • Loan Committee presentation/approval

• Loan documentation/legal requirements

• Preparation of bid documents by borrower/ NOL from Bank

2 weeks to get Bank NOL

• Bidding and procurement of materials

• Construction and supervision

5. Lending to next set of ECs/ other clients **

• First screening/accreditation of MFIs

• Second screening

• Preparation/submission of loan application by ECs

• Due diligence

• Loan Committee presentation/approval

• Loan documentation/legal requirements

• Preparation of bid documents by borrower/ NOL from Bank

• Bidding and procurement of materials

• Construction and supervision

B. SUB-PROJECT MONITORING

1. Project Monitoring and Evaluation

2. Other studies Schedule TBD

C. CAPACITY BUILDING ON RET MATTERS

1. Procurement of goods (computers, audio-visual aids, promo materials)

2. Development of promotional strategy

3. Workshops/Meeting with clients Continuing activity

4. Project inspection/ monitoring (surveys/field visits)

5. Staff Training/workshops/conferences Periodic based on training plan

Annex 6

Rural Power Project Sub-Loan Matrix

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Type of

Sub-loan

Name of Sub-Project Beneficiary/Eligible

Borrowers

Eligible Sub-loan Purposes

Qualifications Collaterals Loanable Amount

Loan Terms

Type A

Small-scale energy generation and mini-grid rural electrification project.

RESCO QTP NGOs Cooperatives other than ECs LGUs

Capital investment Working Capital Interest during Construction Consultant’s Services

Technically feasible Financially viable Environmentally sound in accordance with DBP Operational Manual

Real Estate Mortgage Chattel Mortgage Loan Guarantee Assignment of Revenues Internal Revenue Allotment (IRA) for LGUs Joint and Several Signatures

Principal not to exceed 90% of the total costs.

Not to exceed 15 years,inclusive of a maximum of five (5) years grace.

• • Stand-alone renewable energy system rural electrification project, including the marketing, sale, purchase and installation of RET systems.

RET system purchaser with PFI financing RET system supplier with PFI financing.

Subsidiary Loan-PFIs: Micro finance institutions Commercial Banks Rural Banks Thrift banks Credit Cooperatives Credit NGOs

Capital Investment Working Capital

Working Capital

Technically feasible Financially viable Environmentally sound in accordance with DBP Operations Manual

PFI has experience in managing & implementing a micro-finance program. Sound mgt, adequate systems & procedures. Adoption of Audit Manual or alternative. Qualified as per DBP Operational Manual.

Real Estate Mortgage Chattel Mortgage Loan Guarantee Assignment of Revenues Joint and Several Signatures (JSS)

Real Estate Mortgage Chattel Mortgage Loan Guarantee Assignment of Receivables with Recourse

Principal not to exceed 90% of the total costs.

Not to exceed 6years,inclusive of a maximum of six (6) months grace.

Not to exceed ten (10) years, inclusive of a maximum of six (6) months grace.

• Rural electrification project for

• improving power

supply system safety, reliability, efficiency and power service quality for existing customers, through rehabilitation and capacity upgrades of the existing supply system (including purchase of secondhand sub-transmission

Electric Cooperatives organized under Chapter 111 of the NEA

Capital Investment Working Capital Interest During Construction Period Consultants’ Services Acquisitions of existing sub-transmission lines of NPC not previously financed by the Bank

Technically feasible Financially viable Environmentally sound in accordance with DBP Operations Manual

Real Estate Mortgage Chattel mortgage Assignment of Receivables with Recourse Assignment of Power Purchase Agreement Loan Guarantee Joint and Several Signatures (JSS)

Principal not to exceed 90% of the total costs

Not to exceed 15 years,inclusive of a maximum of five (5) years grace.

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Type of

Sub-loan

Name of Sub-Project Beneficiary/Eligible

Borrowers

Eligible Sub-loan Purposes

Qualifications Collaterals Loanable Amount

Loan Terms

facilities)

• removing supply system constraints;

• encouraging

institutional development of Electric Cooperatives;

• providing the

necessary hardware, software, motor vehicles, tools and equipment to improve employee productivity, safety, and efficiency of customer service provision, to be carried out by the beneficiary.

Type

DRural electrification project other than a Type A, Type B or Type C Sub-projects.

Any eligible private sector proponent (i.e., PDU) LGUs

Capital Investment Working Capital Acquisition of existing sub-transmission lines of NPC not previously financed by the Bank

Technically feasible Financially viable Environmentally sound in accordance with DBP Operations Manual

Real Estate Mortgage Chattel mortgage Assignment of Receivables with Recourse Assignment of Power Purchase Agreement Loan Guarantee Joint and Several Signatures (JSS)

Principal not to exceed 90% of the total costs

Not to exceed 15 years,inclusive of a maximum of five (5) years grace.

Annex 7-a

Terms of Reference for Capacity Building Consultant Development of a Communications and Promotions Strategy for the DBP-PMO

Background

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The Project. The Rural Power Project (RPP) is the first phase of an Adaptable Program Loan (APL) by the World Bank to the Government of the Philippines (total program cost $233 million, of which $150 million is IBRD loan) rolled out in 4 phases over a total period of about 14 years. The initial four-year phase with total cost of $26.8 million would support the implementation of reforms and priority investments to meet the needs of rural communities for adequate, affordable and reliable energy services in an efficient and sustainable manner. This would include support for both increased access to electricity services and transformation of electric cooperatives (ECs) to more viable commercial entities, consistent with the Electric Power Industry Reform Act and Executive Order (EO) 119 on Restructuring Program for ECs. Role of DBP.The DBP is the borrower of the rural electrification loan and will onlend the proceeds to eligible sub-borrowers, mainly the ECs, private energy service companies and microfinance institutions. It will also manage the application of GEF grant funds allocated by the Project for its internal capacity building. The Department of Energy (DOE) will provide oversight for technical and policy aspects of the entire project and will manage the application of GEF grant funds allocated for technical assistance and capacity building outside of the DBP. Both institutions will organize within their respective structures a separate project management office (PMO) to take charge of the day-to-day operations of their respective subcomponents. Objective of the Assignment The purpose of this assignment is to determine the most effective ways for the DBP-PMO to actively promote the financing opportunities available under the Project to prospective borrowers and to the general public. The local consultant shall undertake the following tasks:

a) Develop multi-media approaches and materials to include, but not limited

to:

• Periodic workshops/seminars/meetings with prospective borrowers

• Dedicated Website on the DBP/RPP • Project brochures • Newspaper ads • Radio/TV commercials • Others

b) Conceptualize and take charge of Project Launching/Promotional Activity that DBP would initially undertake.

The Consultants should identify prospective borrowers/investors and then identify specific promotional activities, which may include the above list, that the DBP-PMO could undertake. For each recommended activity, the following should be specified and elaborated upon:

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• Content • Audience • Scale • Frequency over 5 years • Cost • Prospective contractors • Who within the DBP-PMO should be responsible for organizing

The Consultants should recommend what promotional equipment and materials (e.g., LED projectors, VCR/TV, etc) should be procured by the DBP-PMO and what should just be rented as the need arise. The procurement recommendation must provide number, specifications, estimated cost and potential sources. Finally, for the Project duration of 5years, travels by DBP staff related to promotions should be forecast and their cost estimated. The purpose is to determine what part of such costs would be charged to the regular DBP budget (e.g., staff salaries) and what part could be financed out of the GEF grant.

Main Deliverable A report that outlines a DBP Communications and Promotions Plan with analysis and detailed recommendations on specific promotions activities to be carried out by the DBP-PMO over the 5-year life of the RPP. Fee and Payment Schedule

The lump-sum fee of $ 10,000 will be disbursed as follows:

10% at contract signing; 20% upon submission of the Inception Report containing the results of the diagnostics report and a plan for next steps; 30% upon submission of a report on the results of the promotions task; 30% upon submission of the draft full report; 10% after WB/DBP acceptance of a final report incorporating their comments on the draft.

Annex 7-b

TERMS OF REFENCE

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FINANCIAL MANAGEMENT CONSULTANT

Background The Development Bank of the Philippines (DBP) has embarked on a comprehensive sub-lending effort to make the proposed reforms on rural electrification more effective and more efficient in the administration of Energy Sector in the country. To guide the implementation of proposed reforms and investment priorities, the Department of Energy(DOE) and the DBP adopted the Rural Power Project (RPP).

The DBP will play a critical role in the RPP Adoptable Program Lending (APL) since it will act as the borrower for the rural electrification component. In turn it will onlend the proceeds of the loan funds to eligible project sponsors. During the initial phase of the APL, new business approaches would be piloted to (a) bring in new players from the private sector to provide service to unelectrified and underserved barangays; (b) to transform ECs towards financial self-sufficiency over the longer term. Successful implementation of these pilot programs would be replicated and scaled up in subsequent phases of the APL. The implementation of the RPP and its sub-projects will involve management of funds from both local and foreign sources. To ensure the timely mobilization, allocation, disbursement and utilization of these funds, efficient computerized financial & procurement management systems for the PMO and sub-projects need to be established. Further, in the temporary absence of and subsequent training of FM Head and with the increasing need to oversee the day-to day Program activities, the DBP, with GEF funding assistance, will engage the services of Financial Management Consultant to undertake these activities.

Service and Scope of Work Overall Responsibility

The Consultant will have the responsibility of developing documents that are critical in the implementation of the Rural Power Program under the DBP sub-component. Particularly, the Consultant will be tasked to:

• implement a computerized Financial Management System for the DBP-GEF Trust Fund and the Rural Electrification Credit Facility to facilitate the recording of transactions and preparation of reports by DBP.

• assist in the strengthening of financial management system of RET, EC and MFI

borrowers to meet one of the project objectives.

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• assists the Program Head in the formulation of strategies, operating systems, supervision of day-to-day program management activities and in the conduct of financial and administrative supervision over the RPP

The Consultant will work directly with the DBP particularly in its Project Management Office, the unit that will be tasked to handle the Rural Power Project. It is expected that the Consultant will regularly confer with officials from DBP, DOE, World Bank and other related entities to ensure that the required procedures are followed.

Specific Responsibilities

1. Implementation of Computerized Financial and Procurement Systems

The Consultant shall supervise implementation of the computerized financial and procurement systems acceptable the DBP. The systems shall include the requirements set forth in the DBP RPP Financial Management System and Operations Manuals. It is also necessary to include the performance indicators as well as the compliance and performance monitoring that will be used by DBP in the implementation of the project. The Consultant shall also be responsible in coordinating the necessary activities with the relevant offices in putting in place the necessary financial and procurement systems.

2. Assist and train RPP Financial Team

The Consultant shall assist the RPP Financial Team in setting up the Financial Management System that will be utilized in the administration of the GEF-DBP Trust Fund and the World Bank Rural Power Project. The training that will be conducted must be responsive to the needs of the DBP and must be consistent with the World Bank guidelines and procedures. The period covered for training shall be from loan effectivity to the first World Bank Mission.

3. Capacity Building of RET and EC Borrowers on Financial Management

The Consultant shall assist the RPP Program Head in providing technical assistance to the RET, MFI, EC borrowers to strengthen the financial management system of the sub-projects and to synchronize the reporting needs to the overall requirements of the World Bank. This will include assessment of the existing financial management system, recommending actions that will further enhance the financial management efficiency and effectivity of the sub-projects.

4. Assists the Program Head in setting up the Program requirements.

The Consultant shall assist the Program Head in ensuring all requirements, term and conditions of both the Loan and Grant components are met (i.e., drafting of final financial, financing plans, project implementation plan, etc.). Further, the Consultant shall be responsible in drafting a list of all possible local and foreign training programs that is relevant to the Project.

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Outputs/Deliverables: The Consultant shall prepare and develop the following deliverables, which are acceptable to the Bank and the DBP:

• Design & Implementation Schedule of Computerized Financial and Procurement Systems for DBP PMO and Sub-Projects PMO.

� To recommend a minimum of three reliable business solutions

keeping in mind the Project needs, support and maintenance using the World Bank Accounting Software Evaluation Checklist.

� To recommend a minimum of three dependable and reputable software and hardware providers from where such solutions and paraphernalia would be procured.

� Drawing up the job descriptions for staff who will be directly involved with computers and software daily usage. Participate in the interviewing of candidates and give recommendations regarding their competence.

� To determine all the input and output requirements of the computerized FM system through discussions and meetings with those directly connected to the PMO and sub-projects.

• Weekly Accomplishment Reports in the day-to day supervision of FM

activities in the absence of the RPP FM Head. • Draft of various reports and documents necessary in setting up the RPP PMO:

� Coordination of opening of Special Accounts � Final RPP Financing and Financial Plan � Setting up necessary reporting and recording requirements in

accordance with the Financial Management System and Operations Manuals

• Sub-projects Financial Management System & Selection of External Auditors Guidelines acceptable to DBP and World Bank

• Others o Slides, presentation and workshop materials in the conduct of various

financial management trainings and seminars to the sub-projects o Revised Financial Management System Manual to adopt the

computerized environment of the RPP

Supervision and Reporting Responsibilities:

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1. The DBP-PMO shall be responsible for the overall supervision of the Consultant’s work. It shall mobilize technical support necessary to develop the required outputs expected from the Consultant. The DBP-PMO shall also secure World Bank’s review and approval of the outputs.

2. The Consultant shall report to the DBP-PMO to secure its guidance on the

direction, quality and pace of work. The Consultant’s outputs will be submitted for review prior to finalization.

Schedule and Estimated Costs: The services will be required for approximately five months to commence on August 1, 2003 at US$150/day, net of tax. Minimum Qualification: The Consultant should be an independent professional with strong financial management experience. Prior experience in serving in a similar capacity in World Bank-assisted projects will be a definite asset. More than 10 years of progressively responsible related experience is required.

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