Document of The World Bank...Project ID: P081406 L/C/TF Number(s): IBRD-71810 ICR Date: 04/29/2009...

Document of The World Bank

Report No: ICR0000901

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-71810)

ON A

LOAN

IN THE AMOUNT OF EURO 74.3 MILLION (US$ 82.0 MILLION EQUIVALENT)

TO

TRANSELECTRICA

FOR AN

ELECTRICITY MARKET PROJECT

April 22, 2009

Sustainable Development Department Central Europe and Baltics Country Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 2009)

Currency Unit = Leu (plural Lei) 1.00 = US$ 0.34 US$ 1.00 = 3 Lei

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ANRE - Autoritatea Nationala de Reglementare in domeniul Energie CAS - Country Assistance Strategy DAM - Day-Ahead Market EMP - Environmental Management Plan EU - European Union ICB - International Competitive Bidding ICR - Implementation Completion and Results Report ISR - Implementation Status Review OPCOM - Societatea Comercială Operatorul Pieţei de Energie Electrică PCCB - Piaţa Centralizată a Contractelor Bilaterale PRG - Partial Risk Guarantee QAG - Quality Assurance Group Transelectrica - Compania Nationala de Transport al Energiei Electrice TSO - Transmission System Operator

Vice President: Shigeo Katsu Country Director: Orsalia Kalantzopoulos

Sector Manager: Ranjit Lamech Project Team Leader: Doina Visa

ICR Team Leader: Kari Nyman

ROMANIA Electricity Market 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 .............................................. 33. Assessment of Outcomes ............................................................................................ 74. Assessment of Risk to Development Outcome......................................................... 105. Assessment of Bank and Borrower Performance ..................................................... 106. Lessons Learned ....................................................................................................... 127. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 13Annex 1. Project Costs and Financing.......................................................................... 14Annex 2. Outputs by Component ................................................................................. 16Annex 3. Economic and Financial Analysis................................................................. 18Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 19Annex 5. Beneficiary Survey Results ........................................................................... 21Annex 6. Stakeholder Workshop Report and Results................................................... 22Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR..................... 23Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders....................... 26Annex 9. List of Supporting Documents ...................................................................... 27

MAP

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A. Basic Information Country: Romania Project Name:

Electricity Market Project

Project ID: P081406 L/C/TF Number(s): IBRD-71810 ICR Date: 04/29/2009 ICR Type: Core ICR Lending Instrument: SIL Borrower: TRANSELECTRICA Original Total Commitment:

USD 82.0M Disbursed Amount: USD 94.1M

Environmental Category: B Implementing Agencies: Transelectrica OPCOM ANRE Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/23/2002 Effectiveness: 01/08/2004

Appraisal: 03/10/2003 Restructuring(s): 08/10/2006 04/11/2008

Approval: 06/12/2003 Mid-term Review: 06/30/2005 02/28/2005 Closing: 06/30/2008 12/31/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Highly Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Highly Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Highly Satisfactory

Overall Bank Performance: Satisfactory

Overall Borrower Performance: Highly Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

Highly Satisfactory

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Highly Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Power 100 100

Theme Code (Primary/Secondary) Regional integration Primary Primary Regulation and competition policy Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Shigeo Katsu Shigeo Katsu Country Director: Orsalia Kalantzopoulos Andrew N. Vorkink Sector Manager: Ranjit J. Lamech Hinderikus Busz Project Team Leader: Doina Visa Kari J. Nyman ICR Team Leader: Kari J. Nyman ICR Primary Author: Kari J. Nyman F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To develop a well-functioning wholesale electricity market with the aim of: (a) putting in place a transparent and predictable commercial and regulatory framework and a power exchange that will facilitate electricity trading within a competitive national, regional and eventually European market; and (b) improving the efficiency and reliability of the transmission system in order to support trading and supply electricity at least cost to consumers. A well-functioning wholesale electricity market is an integral component of Romania's strategy to attract and sustain private sector participation in power sector renewal, especially for the refurbishment of power distribution and generation assets, and to develop a more efficient and increasingly competitive power sector.

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Revised Project Development Objectives (as approved by original approving authority) (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 : Electricity Market: OPCOM Power Exchange is established and developed as reflected by its increasing share in Romania's total electricity supply.

Value quantitative or Qualitative)

OPCOM Power Exchange to be developed.

Power Exchange accounts for at least 15% of total supply in 2007.

OPCOM Power Exchange accounted for 22% in 2007 and 25% in 2008.

Date achieved 05/20/2003 06/30/2008 12/31/2008 Comments (incl. % achievement)

Original targets exceeded.

Indicator 2 : Service Regulation: Multi-year tariff regulation established for transmission (Transelectrica) and the power distribution companies.


Transelectrica and power distribution under ad-hoc short-term cost-of-service regulation.

Multi-year tariff regulation established for transmission and distribution.(Transelectrica) and the power distribution companies.

This objective was accomplished in December 2005 and repeated for the second 5-year regulatory period in December 2007.


This objective was accomplished. In addition, Transelectrica successfully listed and five discoms successfully privatized under this new regulatory framework.

Indicator 3 : Rehabilitation: Substations (Fundeni and Iernut) rehabilitated under the project are operational and their performance meets design parameters.


Two substations (Fundeni and Iernut) to be rehabilitated.

Two substations operational in line with design parameters including efficiency and reliability.

The two original substations (Fundeni and Iernut) completed by June 2008, two others (Bacau and Roman) by December 2008 and the fifth (Suceava) completed in March 2009.

Date achieved 05/20/2003 06/30/2008 12/31/2008

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Comments (incl. % achievement)

Original target exceeded - three additional substation (Bacau, Roman and Suceava) added to the project scope and completed.

(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 : Power Exchange accounts for at least 5% of total supply in 2005 and 10% in 2006 (and 15% in 2007).

Value (quantitative or Qualitative)

OPCOM Power Exchange to be developed.

At least 15% for 2007.

OPCOM Power Exchange accounted for 7% in 2005, 10% in 2006, 22% in 2007 and 25% in 2008.


Original targets exceeded each year.

Indicator 2 : Service Regulation: Transelectrica and the power distribution companies are under multi-year price-cap tariff regulation.


Transelectrica and power distribution under ad-hoc short-term cost-of-service regulation.

Transelectrica and the power distribution companies are under multi-year price-cap tariff regulation.

This objective was accomplished in December 2005.


Original target accomplished.

Indicator 3 : Rehabilitation of substations.


Two substations (Fundeni and Iernut) to be rehabilitated.

The two substations rehabilitated by June 2008.

The two original substations (Fundeni and Iernut) completed by June 2008 and two others (Bacau and Roman) completed and the fifth (Suceava) completed in March 2009.

Date achieved 05/20/2003 12/31/2008 12/31/2008 Comments Original targets exceeded.

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(incl. % achievement)

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual

Disbursements (USD millions)

1 12/04/2003 Satisfactory Satisfactory 0.00 2 12/04/2003 Satisfactory Satisfactory 0.00 3 05/28/2004 Satisfactory Satisfactory 0.00 4 11/09/2004 Satisfactory Satisfactory 5.34 5 03/23/2005 Satisfactory Satisfactory 7.87 6 06/21/2006 Satisfactory Satisfactory 42.49 7 05/05/2007 Highly Satisfactory Highly Satisfactory 57.46 8 06/26/2007 Highly Satisfactory Highly Satisfactory 59.38 9 12/10/2007 Highly Satisfactory Highly Satisfactory 65.39

10 06/03/2008 Highly Satisfactory Highly Satisfactory 82.05 11 12/18/2008 Highly Satisfactory Highly Satisfactory 93.46

H. Restructuring (if any)

ISR Ratings at RestructuringRestructuring

Date(s)

Board Approved

PDO Change DO IP

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

08/10/2006 N S S 43.57 Addition of components. 04/11/2008 N HS HS 74.95 Extension of the Closing Date.

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal After almost a decade of uneven reform efforts in the 1990s, the Government that took office in Romania in December 2000 began the reforms needed for a successful economic transition and accession to the European Union (EU). The 2001-2004 Country Assistance Strategy (CAS) presented two lending scenarios. Had Romania reverted to pursuing a hesitant pace of reforms, Bank Group assistance would have been very limited, centered on a few poverty-focused interventions (the low case). However, as Romania had accelerated its reforms by late 2002 (when the project was added into the CAS), the CAS was in the high case and the Bank Group was supporting a broad set of structural and sectoral reforms to accelerate growth through private sector development and the strengthening of public sector institutional capacity, and pave the way for Romania's eventual accession to the EU, in addition to an enhanced program of poverty-focused interventions. In the power sector, the Bank was supporting reforms in the sector's institutional, regulatory and governance framework and the Government's privatization agenda. The project would provide further support to reaching these objectives and facilitate Romania's accession to the EU.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project development objective was to develop a well-functioning wholesale electricity market with the aim of: (a) putting in place a transparent and predictable commercial and regulatory framework and a power exchange that will facilitate electricity trading within a competitive national, regional and eventually European market; and (b) improving the efficiency and reliability of the transmission system in order to support trading and supply electricity at least cost to consumers. A well-functioning wholesale electricity market is an integral component of Romania's strategy to attract and sustain private sector participation in power sector renewal, especially for the refurbishment of power distribution and generation assets, and to develop a more efficient and increasingly competitive power sector. The project was implemented by Transelectrica (Romania's grid company and power system operator), OPCOM (its subsidiary, Romania's power market operator), and ANRE (regulatory agency for electricity and heat). The following project output indicators were approved to monitor their performance in project implementation:

• The new electricity trading regime is designed, market designs are implemented, OPCOM is operating the day-ahead market through its Power Exchange and Transelectrica is operating the electricity balancing mechanism;

• ANRE has issued regulations and the first set of price-cap tariffs for transmission and distribution; and

• Transelectrica has commissioned the two substations rehabilitated under the project.

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The corresponding project outcome/impact indicators were approved:

• An initial set of long-term contracts (vesting contracts with declining volumes) are in place and registered with OPCOM by end-2004, OPCOM Power Exchange (a well-functioning spot market) is established by end-2004, accounting for at least 5% of total supply by end-2005, 10% by end-2006, and 15% by end-2007; and ancillary services are settled through Transelectrica's balancing mechanism;

• Transelectrica and the power distribution companies are providing “common-carrier” transmission services and distribution use-of-system services under price-cap tariff regulation by mid-2005; and

• Substations rehabilitated under the project are operational and their performance meets design parameters, so that power transmission interruptions and related supply curtailments in the Bucharest and Transylvania regions of the country are avoided.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification Project development objectives were not revised. Original key indicators were monitored; in addition other indicators were also used to complement them.

1.4 Main Beneficiaries The PAD stated that “all electricity consumers in the country will benefit from a more cost-effective and efficient power supply” and elaborated as follows: “A well-functioning power system is needed to attract investments and enhance the competitiveness of the Romanian economy. A well-functioning power market is necessary for attracting and sustaining private sector participation in the power sector, especially for the refurbishment of power distribution and generation assets, and facilitating electricity trading within a national, regional and eventually European market. Market liberalization is an EU requirement and therefore the development of a power market will also facilitate Romania's accession to the EU. All electricity consumers in the country will benefit from a more cost-effective and efficient power supply. Benefits can also be expressed effectively by considering the counter-factual, what would happen in the absence of the project. At the level of project investments, in the absence of the investment components at Fundeni and Iernut, the two existing substations, already beyond their economic life, would not be able to continue to provide reliable transmission service. Power supply to the capital and Transylvania regions of the country would be severely curtailed with the resulting loss of economic activity and adverse social impacts. Without a well-functioning electricity market, Romania's power reforms would be undermined in key areas (including privatizations, investments, efficiency improvements and competitiveness). Power supply would deteriorate, leading to loss of competitiveness and lower growth. In the absence of a well-functioning electricity market meeting EU's market liberalization requirements, Romania’s accession to the EU would be jeopardized.” This broad statement of benefits and beneficiaries was not revised during implementation - and remains valid in 2009.

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1.5 Original Components (as approved) The Project had three executing agencies and accordingly three parts: Transelectrica (Part A of the Project), ANRE (Part B) and OPCOM (Part C). The following five components were originally approved:

• Part A – Transelectrica: (1) Rehabilitation of the Fundeni and Iernut substations; (2) Engineering and Supervision Services; and (3) Institutional support (design, pilot testing and implementation of a real-time electricity balancing mechanism;

• Part B - ANRE: Establishment of a regulatory framework; and

• Part C - OPCOM: Design, pilot testing and implementation of the OPCOM Power Exchange.

1.6 Revised Components

The five original components listed in Section 1.5. were all retained in the project scope and implemented. Two components were added to the scope of the project during implementation.

The scope of Part A was expanded by adding a fourth component, to support the upgrading of Transelectrica's Gutinas - Bacau - Roman Nord – Suceava transmission system from 220 kV to 400 kV by financing the rehabilitation of the Bacau, Roman and Suceava substations. Gutinas substation was already under rehabilitation being financed by the Nordic Investment Bank (it was originally expected to be financed under the project). The transmission lines (the wires) had been built for 400kV operation from the beginning.

The scope of Part C was expanded by adding a second component, to support the development of OPCOM’s capability to provide market services to the regional electricity market in South East Europe.

1.7 Other significant changes The addition of the two new components listed in Section 1.6. into the project scope was made possible by the significant savings realized by Transelectrica in the procurement of the Fundeni and Iernut substations. [The original project was completed at Euro 64.9 million, at 67% of the original cost of about Euro 96.2 million.] Transelectrica requested that, instead of canceling the savings, it be allowed to use the savings to finance these new components. The request was examined during the project mid-term review and the proposed new components were found to be consistent with the objectives of the project. Transelectrica's formal proposal followed. It was approved by the Country Director and the loan agreement was amended in August 2006.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Transelectrica, OPCOM and ANRE prepared the project, with Bank support. Transelectrica engaged consulting firms, with its own funds, to help prepare feasibility studies for Fundeni and

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Iernut. The same consultants assisted with tender documents. ANRE, OPCOM and Transelectrica also received support from other sources, including ANRE from EU, DFID and USAID; OPCOM from EU; and Transelectrica from EU, EIB and EBRD. This support facilitated their project preparation work. The project objective was ambitious and the design was complex, with three executing agencies and five components. Quality at entry is rated highly satisfactory: (1) Feasibility studies, public consultations and environmental management plans (EMPs) were completed. EMPs were cleared by the Bank and placed in the InfoShop. Stakeholders participated in the public consultation process of project investments, which is a standard requirement under Romanian environmental policies and procedures. Transelectrica's EMPs document the consultations. Copies of draft EMPs were made available to the public at the project sites ahead of consultation meetings, and all landowners around the project sites were also contacted in person; (2) Contractor pre-qualification for Part A (Transelectrica's component) had been launched. Technical specifications were being prepared and tender documents were ready for release by the time the ongoing pre-qualification process was completed and the list of prequalified contractors was available; (3) Consultants for Part B (ANRE's component) were selected and fielded. Kick-off meetings took place during project appraisal in March 2003, ahead of the project approval by the Bank in June 2003; and (4) The request for expressions of interest for Part C (OPCOM’s component) had been issued and the submissions were received just before project approval. The request for proposals including final version of the terms of reference for OPCOM's technical assistance component was under preparation (and was ready for release by the time the consultant shortlist was finalized, during implementation). The Bank’s Quality Assurance Group (QAG) carried out a Quality of Entry Assessment in July 2003. The overall judgment: “The panel rated this project as highly satisfactory: This project is an excellent example of a quick response to an immediate request by the client for assistance in meeting the urgent need for transmission investments and support for development of its power market. Strong Government support at the highest levels insured both rapid processing and a high quality product. The Bank, on its part, was able to field an experienced team able to draw on the Bank’s global experience, particularly in the development of competitive power markets. This is an area in which the Bank has a strong competitive advantage and consequently, high value added. The project was appraised in a highly professional manner with all aspects receiving careful attention”.

2.2 Implementation Transelectrica's, OPCOM's and ANRE's implementation performance is rated highly satisfactory. The five original project components were implemented successfully and ahead of the original June 30, 2008 loan closing date:

• Part A: Fundeni and Iernut substations have been rehabilitated and commissioned. October 2005 floods in the Bucharest area affected Fundeni substation rehabilitation works. The project was brought back on track, successfully completed and commissioned in July 2007. Iernut substation was commissioned in June 2008. The pace of work was affected by constraints imposed by the National Dispatch Center which did not authorize necessary interruptions at the Iernut thermal power plant during the winter 2007-2008. Finally, Transelectrica launched its new electricity balancing mechanism in July 2005 and it is fully operational;

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• Part B: The new commercial code was finalized in November 2004. The price-cap tariff regulation for distribution and revenue-cap tariff regulation for transmission went in force from January 2005 for the first three-year regulatory period. They were renewed for the second five-year regulatory period from January 2008; and

• Part C: OPCOM launched its Power Exchange in July 2005 with a Day-Ahead Market. A Centralized Market (auction) for Bilateral Contracts (PCCB in its Romanian language abbreviation) was launched in December 2005. The results are highly encouraging and exceed original expectations: the power exchange is liquid and active and trading reached 1/4 of Romania’s total electricity supply for 2008.

Significant loan savings were achieved. Instead of cancellation, new components were added to the scope of the project and also implemented successfully:

• Part A: Two (Bacau and Roman) of three additional Transelectrica substations were completed in 2008; the third (Suceava) was in an advanced stage at the time of the December 31, 2008 loan closing and was completed in March 2009; and

• Part C: The deliveries and consulting services under the new OPCOM component were completed, developing OPCOM’s capability to offer services to the regional market and enabling OPCOM to negotiate the first actual service arrangement with Hungary.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Key performance indicators were discussed during preparation and confirmed at loan negotiations. Transelectrica prepared quarterly progress reports. A mid-term review was carried out in February 2005. The Bank supervised the project on a regular basis. These are standard arrangements. There were two additional features beyond the standard arrangements that are worth highlighting:

• It was recognized that the project was ambitious and complex and that its successful implementation would require careful coordination between ANRE, OPCOM, Transelectrica and the Government. An Electricity Market Coordination Committee, consisting of senior officials of the ministry in charge of energy, ANRE, OPCOM and Transelectrica, was assembled for this purpose. The Committee was formally established by Ministerial Order 231 on April 8, 2003. Close coordination was also maintained between the executing agencies, the Bank and EU – the project assisted the Government in meeting European Union’s requirements in the power sector and moreover, EU was funding ANRE's TA component, an integral part of the project, and ANRE's and OPCOM's IT systems under a closely-related parallel project; and

• The Bank supervised the project – regular supervision missions and follow-up visits in between formal supervisions - at least five times per annum throughout project implementation even after some components of the project had already been completed. All regular supervisions missions and some follow-up visits included both Romania country office and headquarter staff. Country office staff – which included the task team leader since July 2005 - interacted with the executing agencies as needed, at times on a daily basis.

2.4 Safeguard and Fiduciary Compliance

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Safeguard and fiduciary compliance was generally satisfactory throughout the 2003-2008 project implementation period. Environmental and social aspects were handled in a satisfactory manner and Transelectrica adopted the Bank’s approach for all of its projects (Section 3.5(c)). Finance/financial management and procurement were also satisfactory – Transelectrica's financial improvement was impressive (Section 3.5(b) - but nevertheless the following experiences with financial covenants and prequalification issues need to be documented.

Finance & Financial Management. Transelectrica was not able to comply with the current ratio covenant in 2006. The Bank maintained the “satisfactory” rating of Transelectrica's financial management and “complied with” rating for financial covenants, considering “moderately satisfactory” and “partially complied with” too negative ratings, given Transelectrica's overall performance – current ratio of 1.21 instead of the covenanted minimum of 1.3 was regarded as minor non-compliance which did not jeopardize the project or Transelectrica as a corporation/ongoing concern. Transelectrica complied with loan covenants in 2007 (based on audited statements) and is expected to have complied also in 2008 (based on latest estimates for 2008). The Audit Report Compliance System reported corporate accountability issues from the 2007 audit, from non-compliance with accounts receivable and self-financing covenants under an earlier Bank loan to Romania (a portion of which was transferred to Transelectrica upon sectoral restructuring). Transelectrica's self-financing ratio for 2007 was 29% (against the 30% covenanted minimum). Transelectrica continues to experience some challenges in bill collection and its receivables, at over three months, are in excess of the covenanted maximum of two months. These issues do not jeopardize the project or Transelectrica as a corporation/going concern; on the contrary, the project improved Transelectrica’s financial viability (Section 3.5(b)).

Procurement. Transelectrica carried out procurement in accordance with Bank guidelines, starting with prequalification. The prequalification requirements for the Fundeni substation included the capability to supply 400kV compact substation equipment. Four companies submitted their qualifications. At the bidding stage, three of the four were found not to be able to comply, contrary to their own prequalification submissions. This issue potentially threatened the project schedule very seriously. The Bank provided a way forward: the Bank allowed Transelectrica to remove the compact substation equipment from the scope of the main Fundeni contract and authorized Transelectrica to negotiate a Euro 4.66 million contract for that equipment with the one qualified supplier and carry out normal ICB for the rest (for which a Euro 15.18 million contract was eventually implemented).

2.5 Post-completion Operation/Next Phase Post-completion status and prospects are regarded to be fully satisfactory:

• Part A: All five substations have been commissioned and are in operation as integral parts of Transelectrica's transmission system. All five substations are existing operational substations and have the necessary management and operations and maintenance staff in place;

• Part B: The commercial code is in effect (with amendments as required based on operational experience since 2005). The price-cap tariff regulation for distribution and revenue-cap tariff regulation for transmission entered their second, five-year regulatory period in January 2008. The Bank is backstopping the implementation of the regulatory framework for distribution through a partial risk guarantee (PRG) which became

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effective in April 2005; and

• Part C: OPCOM Power Exchange is operational since July 2005. The operating results are highly encouraging and exceed original expectations: the Power Exchange is liquid and active and trading reached 1/4 of Romania’s total electricity supply for 2008.

Follow-up Bank operations with Transelectrica, OPCOM and ANRE are currently not envisioned. The Bank continues to support Romania’s electricity market under the ongoing Romania-Hidroelectrica/Lotru component (approved in January 2005) under the regional APL facility for the development of the Energy Community in South East Europe.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation Project objectives and design remain appropriate and relevant for Romania’s power sector reforms. The project was implemented in a highly satisfactory manner and facilitated Romania’s accession to the European Union in January 2007, for compliance with power sector aspects. Romania is a regional leader in the Energy Community – the regional energy market in South East Europe.

3.2 Achievement of Project Development Objectives Project objectives have been achieved and exceeded: a wholesale electricity market is functioning (the outcome), with outputs by OPCOM (the Power Exchange) and ANRE (the regulatory framework) as well as Transelectrica (the transmission system, including the rehabilitated substations). The OPCOM Power Exchange is liquid and active and trading reached 1/4 of Romania’s total electricity supply for 2008. The electricity market and related regulatory framework were instrumental for the privatization of five of Romania’s eight electricity distribution companies and significant investments in transmission by Transelectrica and in distribution in the five areas of the private distributors.

3.3 Efficiency The original project was completed ahead of the original June 30, 2008 loan closing date and substantially below original cost estimates - at a total cost of about Euro 64.9 million, 67% of the original cost of about Euro 96.2 million. Two new components were added to the project scope (to Parts A and C). They have been completed, at a total cost of about Euro 30.8 million. They brought the total cost of the project, as implemented, to about Euro 95.7 million, 1% below the cost of about Euro 96.2 million of the original (smaller) project. The Bank loan was denominated in Euro as it was expected that the contracts would be in Euro, which turned out to be the case. Annex 1 presents project cost estimates and actual costs and financing in Euro (in tables (a) and (b) as well as in US$ (in tables (c) and (d)). The US$ tables show the impacts of the depreciation of the US$ against the Euro. Although Transelectrica did not fully utilize the Euro 74.3 million Bank loan (US$82.0 million equivalent at the time of project approval), the Bank disbursed about Euro 71. 6 million (about $94.5 million equivalent).

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Reflecting the improvement in Transelectrica’s operational and financial performance during the project period, the time-slice analysis at the ICR stage, using Transelectrica’s actual figures for 2003-2007 yields higher rates than those projected at appraisal for the same period as summarized in Table 1 and explained in Annex 3: Table 1: Transelectrica’s Corporate FRR and ERR

Time-slice rates of return Financial (FRR) Economic (ERR) Appraisal Estimates 4.3% 9.7% ICR (from 2003-07 actuals) 12.0% 16.6%

3.4 Justification of Overall Outcome Rating Rating: Highly Satisfactory The highly satisfactory rating is fully justified as: (1) Project development objectives and design remain appropriate and highly relevant; (2) Project objectives have been exceeded; (3) Transelectrica’s actual corporate rates of return are higher than projected; and (4) The original project was completed ahead of the original June 30, 2008 loan closing date and substantially below the original cost estimates at 67% of the original cost. The new components added to the project scope were completed within their cost estimates and most of them ahead of the December 31, 2008 closing date of the loan (Suceava substation slipped to March 2009). Even after adding the cost of the two new components (Euro 30.8 million) the total cost of the project, as implemented, at about Euro 95.7 million, was 1% below the cost of about Euro 96.2 million of the original (smaller) project.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development All electricity consumers in Romania benefit from a more cost-effective and efficient power supply facilitated by the project (see Section 1.4). (b) Institutional Change/Strengthening The project involved substantial institutional strengthening particularly for two (OPCOM and ANRE) of its three executing agencies and financial turnaround of the third (Transelectrica): (1) OPCOM is now a fully-established market operator. The OPCOM Power Exchange is liquid and active and trading reached 1/4 of Romania’s total electricity supply for 2008. OPCOM is a model for the countries of South East Europe working to develop and integrate their national markets in the Energy Community; and (2) ANRE has consolidated its operations and has established a solid track record as the leading energy regulator in South East Europe. (3) Transelectrica was a well-functioning transmission system operator already at the start of the project in 2003. Along with the technical strengthening of its transmission system through project investments, the project led to Transelectrica adopting the Bank’s approach for dealing with the environmental assessment and impacts of transmission (discussed in section (c) below).

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The project improved Transelectrica's financial viability. The tariff system in place during project preparation was designed to enable Transelectrica to cover its costs and enable the company to earn a reasonable (modest) profit. Transelectrica’s 2002 balance sheet however showed accumulated losses (negative retained earnings) of Leu 151 million (about US$50 million). Transelectrica's financial position was nevertheless satisfactory, in part explained by the fact that Transelectrica was well capitalized when it was established in 2000. A new revenue-cap tariff methodology was designed and implemented by ANRE under the project. This state-of-the-art regulatory framework replaced the existing somewhat ad-hoc system in 2005. In parallel, a concession agreement was prepared for Transelectrica's public domain assets – mostly transmission line assets that Transelectrica uses in its operations but which are legally owned by the Government. It was executed on June 29, 2004 - one day before the June 30, 2004 covenanted deadline. The impacts are visible on Transelectrica's balance sheet, which at the end of 2007 shows accumulated retained earnings of Lei 431 million (about US$144 million) – a net change of almost US$194 million. Reflecting its overall satisfactory financial situation and performance, Transelectrica was successfully listed on the Bucharest Stock Exchange in 2006. Government sold 10% of its shares in Transelectrica in the market and subsequently transferred another 13.5 % to the Property Fund. Transelectrica is a part of the BET index of the Bucharest Stock Exchange tracking its 10 most liquid shares. (c) Other Unintended Outcomes and Impacts (positive or negative) In response to corruption allegations in some of the bilateral contracts of public generators, the Bank recommended and the Government decided for OPCOM to develop a Centralized Market (auction) for Bilateral Contracts (PCCB in its Romanian language abbreviation). It was launched in December 2005 and has become an integral component of the OPCOM Power Exchange. The Government made it mandatory in 2006 (Ministry of Economy Order 408/2006) for the five biggest public sector generators to use the PCCB auction platform for new bilateral contracts of public sector generators as and when their existing contracts expire, in order to promote competition and ensure full transparency. The PCCB platform is being used particularly by the three energy complexes. The other two intended users, Hidroelectrica and Nuclearelectrica, have so far used it less. Hidroelectrica had already executed large bilateral contracts and ANRE has reserved the major part of the remainder for the regulated market. Hidroelectrica operates actively in Transelectrica’s balancing market. ANRE has reserved most of Nuclearelectrica’s output to the regulated market. Nuclearelectrica sells the rest at the PCCB. As Hidroelectrica's existing bilateral contracts expire and as ANRE releases Hidroelectrica and Nuclearelectrica generation from the regulated market, these two generators are expected to utilize the PCCB platform more extensively. Another unexpected positive outcome was Transelectrica's decision to adopt the Bank’s approach for dealing with the environmental assessment and impacts of transmission through environmental management plans (EMPs) for all of its substation projects. EMPs were first prepared for Fundeni and Iernut (and Gutinas which was eventually funded by the Nordic Investment Bank) and subsequently for all Transelectrica projects, including the three substation projects that were added to the scope of Part A of the project in 2006.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Beneficiary surveys and/or stakeholder workshops have not been conducted for the ICR. OPCOM and its partners conducted ten major formal workshops and numerous other meetings with stakeholders for the preparation and implementation of the Romanian electricity market (seven workshops) and the Hungary-Romania market coupling (three workshops).

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4. Assessment of Risk to Development Outcome Rating: Moderate The project has been completed and the project development outcomes have been realized in a highly satisfactory manner. The risk that the development outcomes will not be maintained is rated as moderate:

• Part A: Project investments have been completed and commissioned and form an integral part of Transelectrica's transmission system. Transelectrica is a sound and financially viable utility, majority government owned and listed in the Bucharest Stock Exchange. The risk that the development outcome of Part A - efficient and reliable transmission system to support trading and supply electricity at least cost to consumer – would not be maintained is moderate. Moderate instead of negligible because Transelectrica experiences and expects increasing challenges, difficulties and delays in its projects involving land acquisition. These issues were not experienced in the project which did not involve land acquisition apart from a transfer of a small area of land from a public sector agency to Transelectrica for the Suceava substation;

• Part B: The commercial code is in effect. The tariff regulation for distribution and transmission entered the second, five-year regulatory period in January 2008. The Bank is backstopping the implementation of the regulatory framework for distribution through a partial risk guarantee (PRG) which became effective in April 2005. The risk that ANRE could not maintain its performance is rated moderate, as ANRE faces occasional political pressures and may continue to lose key staff; and

• Part C: The OPCOM Power Exchange started functioning in July 2005, almost four years ago. It is liquid and active and trading has reached 1/4 of Romania’s total electricity supply for 2008. The risk that OPCOM could not maintain its performance is negligible. However, OPCOM is subject to the regulatory risks and as those risks – Part B – are rated moderate, the risk to sustainability of Part C is therefore also rated moderate.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory Bank performance during identification, preparation and appraisal of the project was satisfactory. The Bank mobilized a large team (Annex 4) with all necessary skills including specialists in electricity markets, transmission utilities, engineering, procurement, environment, and finance/financial management – this was expensive but also appropriate given the size of the project and wide range of investments and technical assistance activities considered for financing,. The team included several staff with long experience in the energy, finance/financial management and environment sectors in Romania. The combination of solid skills and deep Romanian experience enabled the team to develop a good working relationship with the executing agencies

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and government officials and effectively contribute to the high quality project as well as to the Government’s new energy strategy (the Road Map, published in July 2003). QAG’s Quality of Entry review rated Quality at Entry as “highly satisfactory” and concluded that “The Bank, on its part, was able to field an experienced team able to draw on the Bank’s global experience, particularly in the development of competitive power markets. This is an area in which the Bank has a strong competitive advantage and consequently, high value added. The project was appraised in a highly professional manner with all aspects receiving careful attention”. (b) Quality of Supervision Rating: Satisfactory The Bank supervised the project – regular supervision missions and follow-up visits in between formal supervisions - at least five times per annum throughout project implementation even after some components of the project had already been completed. All regular supervisions missions and some follow-up visits included both Romania country office and headquarters staff. Country office staff interacted with the executing agencies as needed, at times on a daily basis. Task leadership was transferred to the Bucharest office in July 2005, to one of the core members of the Bank’s Romania energy team. Intensive supervision and continuous involvement by the Bank team helped ensure that the project components were successfully implemented. Effective supervision of project implementation was helped by the fact that the core team that appraised the project continued and remained largely unchanged throughout the supervision phase. Furthermore, over the course of the project implementation, the Bank team continued to be actively involved in Romania’s energy reform process, through policy dialogue, development policy lending and other energy operations. Based on the above supervision activities, the quality of supervision is rated satisfactory. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Satisfactory performance during identification, preparation and appraisal of the project (Section 5.1(a)) and satisfactory project supervision (Section 5.1(b)) add up to an overall satisfactory rating for Bank performance.

5.2 Borrower Performance (a) Government Performance Rating: Highly Satisfactory The three executing agencies of the project were all products of Romania’s energy sector reforms. ANRE started functioning in 1999 and Transelectrica and OPCOM were established in 2000. Project preparation coincided with the review and updating of Romania’s energy strategy. The Government published the new strategy, called the Road Map for the Energy Field, in July 2003. It provided the strategic direction for the electricity market (and thereby for OPCOM), Transelectrica as the transmission system operator, and for the project. The Government provided the sovereign guarantee for the Bank loan – the Borrower was Transelectrica. The Government established and subsequently participated in the Electricity Market Coordination

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Committee. A new Government came to power in Romania in 2005. It continued to support the functioning of Transelectrica, OPCOM and ANRE, including the implementation of the project. In October 2008, the Government approved an Ordinance which, when effective would create a large power holding company by bringing together Hidroelectrica, two of the three energy complexes and Electrica (including the three electricity distribution companies still in the public sector). The holding company would have potentially threatened the functioning of Romania’s electricity market. The new Government that came to power in 2009 cancelled its predecessor’s power holding company Ordinance. (b) Implementing Agency or Agencies Performance Rating: Highly Satisfactory The performance of all three executing agencies was highly satisfactory: (1) Part A – Transelectrica prepared a high quality project and implemented it on schedule and below original cost estimates; (2) Part B – ANRE prepared and implemented the new regulatory framework for the electricity market (the commercial code) and network companies including Transelectrica; and (3) OPCOM prepared, launched and successfully operates the OPCOM Power Exchange. These commendable accomplishments are discussed in earlier sections of this ICR and not repeated here. (c) Justification of Rating for Overall Borrower Performance Highly satisfactory performance by the Government (Section 5.2(a)) and highly satisfactory performance of all three executing agencies add up to an overall highly satisfactory rating for Borrower performance. Rating: Highly Satisfactory

6. Lessons Learned The main lessons learned from the design and implementation of the project as well as from its achievements are the following:

• The development of a functioning electricity market is a complex undertaking which Romania – the Government and the project’s three executing agencies – accomplished successfully with the support of the project. A clear strategy (the Road Map); competent and committed staff in three executing agencies; close coordination between the agencies, with the Government (including the Electricity Market Coordination Committee), and with the European Commission and the Bank; and support by highly qualified consultants with hands-on experience were the key ingredients for Romania’s success;

• A functioning electricity marker operator (OPCOM) was successfully developed with the support of the project. A clear strategy (the Road Map); strong support by Transelectrica (OPCOM’s owner); competent and committed staff at OPCOM; close coordination with ANRE, the Government, the European Commission and the Bank; and support by highly qualified consultants with hands-on experience were the key ingredients for OPCOM’s success;

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• A modern transmission and distribution regulatory framework was successfully developed by ANRE with the support of the project. The framework facilitated private investment in distribution and a significant improvement in Transelectrica's financial performance and its listing in the Bucharest Stock Exchange. A clear strategy (the Road Map); competent and committed staff at ANRE; consultations with stakeholders including the industry, the Government, the European Commission and the Bank; and support by highly qualified consultants with hands-on experience were the key ingredients for ANRE’s success;

• High quality preparation put the project’s three executing agencies in a good position for its successful implementation – this is self-evident but still a lesson worth noting;

• Competitively designed and organized competitive bidding among qualified contractors gave Transelectrica good performance at competent prices, well below original cost estimates – also self-evident but nevertheless a lesson worth noting; and

• Transelectrica experiences and expects increasing challenges, difficulties and delays in its projects involving land acquisition. To mitigate land acquisition delay risks, the Government could explore amendments to Romania's land acquisition framework for those energy projects (and infrastructure and other projects) which the Government deems to be priority projects of public/national interest. This can be done by streamlining procedures and updating the law in force, in order to avoid delays due to disputes settlement over compensation levels.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies

The Bank has no comments on the Borrower’s and the summary of OPCOM’s ICRs. They do not raise any issues. They are presented in Annex 5. (b) Co-financiers, Other Partners and Stakeholders [The Bank has no comments on the comments received from the European Commission. They are presented in Annex 8.] Commission and Bank staff cooperated during project preparation and implementation, including after the completion of the European Union-Phare funded work under Part B of the project. Such cooperation included dialogue on Romania’s plans for power sector restructuring.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in Euro Million equivalent)

Components Appraisal

Estimate (Euro millions)

Actual/Latest Estimate (Euro

millions)

Percentage of Appraisal

Investment Components 1. Rehabilitation Of Fundeni And Iernut Substations 77.24 53.50 69% 2. Rehabilitation Of Bacau, Roman And Suceava Substations

not included in the original scope 27.23 n/a

3. Engineering And Supervision 2.16 2.09 97% Technical Assistance Components 4. ANRE - Regulatory Framework 1.08 1.19 110% 5. OPCOM - Power Exchange 4.86 5.35 110%

6. OPCOM - Regional Exchange not included in the original scope 3.57 n/a 7. Transelectrica - Institutional Support 2.17 2.73 126%

Baseline Cost of Original Project (w/o 2 & 6) 87.50 64.86 74%

Total Baseline Cost 87.50 95.66 109% Physical Contingencies 5.03 0.00 Price Contingencies 3.62 0.00

Total Costs of Original Project (w/o 2 & 6) 96.16 64.86 67%

Total Project Costs 96.16 95.66 99% Front-end fee IBRD 0.74 0.82 110% Guarantee fee Government 0.00 1.86 n/a Interest During Construction 6.03 5.87 97%

Total Financing Required 102.93 104.21 101%

(b) Financing (in Euro Million equivalent)

Source of Funds Type of Cofinancing

Appraisal Estimate

(Euro millions)

Actual/Latest Estimate

(Euro millions)


Borrower 27.55 31.52 114% EC: PHARE grant 1.08 1.08 100% IBRD loan 74.30 71.62 96%

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(c) Project Cost by Component (in USD Million equivalent)

Components Appraisal

Estimate (USD millions)

Actual/Latest Estimate (USD

millions)


Investment Components 1. Rehabilitation Of Fundeni And Iernut Substations 85.24 69.55 82%

2. Rehabilitation Of Bacau, Roman And Suceava Substations

not included in the original scope 35.40 n/a

3. Engineering And Supervision 2.38 2.72 114% Technical Assistance Components 4. ANRE - Regulatory Framework 1.19 1.19 100% 5. OPCOM - Power Exchange 5.36 6.95 130%

6. OPCOM - Regional Exchange not included in the original scope 4.65 n/a

7. Transelectrica - Institutional Support 2.4 3.55 148%

Baseline Cost of Original Project (w/o 2 & 6) 96.57 83.96 87%

Total Baseline Cost 96.57 124.01 128%

Physical Contingencies 5.55 0.00 n/a

Price Contingencies 4.00 0.00 n/a Total Costs of Original Project

(w/o 2 & 6) 106.12 83.96 79%

Total Project Costs 106.12 124.01 117% Front-end fee IBRD 0.82 0.82 100% Guarantee fee Government 0 2.42 n/a Interest During Construction 6.66 7.63 115%

Total Financing Required 113.6 134.88 119%

(d) Financing (in USD Million equivalent)

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)


Borrower 30.41 39.22 129% EC: PHARE grant 1.19 1.19 100% IBRD loan 82.00 94.47 115%

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Annex 2. Outputs by Component

The project consisted of three parts and a total of five components. They have been completed, at a total cost of about Euro 64.9 million, 67% of the original cost of about Euro 96.2 million.

Two components were added during the implementation, expanding the scope to a total of seven components: three investment components and four technical assistance components. They have been completed, at a total cost of about Euro 30.8 million. They brought the total cost of the project, as implemented, to about Euro 95.7 million, 1% below the cost of about Euro 96.2 million of the original (smaller) project.

Investment Components

Transelectrica was the executing agency of the Investment Components (numbers 1-3 below refer to Annex 1, the cost estimates):

1. Fundeni and Iernut substations were rehabilitated as originally planned.

2. The scope of Part A of the project was expanded to support the upgrading of Transelectrica's Gutinas - Bacau - Roman Nord – Suceava transmission system from 220 kV to 400 kV by financing the rehabilitation of the Bacau, Roman and Suceava substations. These rehabilitations have been completed.

3. The rehabilitation of Fundeni and Iernut substations was supported by engineering consultants financed under the project.

Technical Assistance Components

ANRE, OPCOM and Transelectrica executed the Technical Assistance Components (numbers 4-7 below refer to Annex 1, the cost estimates). They supported various aspects of the preparation, implementation and commercial launch of Romania’s new electricity trading platform, a complex concept that consisted in a coherent set of rules and regulations, as well as the needed logistics aimed to ensure its operation. The Romanian wholesale power market shifted to a multi-market concept the main segments of which are: bilateral contracting (regulated and negotiated), a voluntary Day-Ahead Market and a mandatory Balancing Market accompanied by competitive contracting of ancillary services. The new platform started functioning in July 2005.

4. ANRE – Regulatory Framework.

A new commercial code for the electricity market was prepared and finalized in November 2004. Price-cap tariff regulation for distribution and revenue-cap tariff regulation for transmission were prepared and put in force from January 2005 for the first three-year 2005-2007 regulatory period. They were renewed for the second five-year 2008-2012 regulatory period from January 2008.

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5. OPCOM - Power Exchange

The Day-Ahead Market was designed by the end of 2004, pilot-tested during the first half of 2005, and launched on July 1, 2005. A centralized auction of bilateral contracts was launched in December 2005.

6. OPCOM - Regional Exchange

The scope of Part C was expanded to support the development of OPCOM’s capability to provide market services to the regional electricity market in South East Europe. This work was completed in December 2008. A market-coupling with Hungary, with market services provided by OPCOM, is expected to become functional in 2009.

7. Transelectrica - Institutional Support

In parallel with the design of OPCOM’s Day-Ahead Market, Transelectrica’s Balancing Market was designed, pilot-tested and launched on July 1, 2005.

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Annex 3. Economic and Financial Analysis The economic and financial analysis replicates the analysis in the PAD, using the 2003-2007 time-slice of Transelectrica’s investment program and operations. Investments include all investment including the project in the 2003-2007 period. Operating and maintenance (O&M) costs include all incremental O&M costs and benefits include all incremental revenues over the reference year 2002. Benefits and O&M costs are then frozen for a 20-year operating period of the time-slice investments. Revenues are the financial benefit and are used as a proxy for the economic benefit. O&M costs are used in the financial analysis and without any adjustments also in economic analysis. Actual investments are used in the financial analysis. In the economic analysis, VAT and other taxes, a total of 20%, are excluded. All figures are actuals from Transelectrica’s audited financial statements.

Investment Revenues O&M Incremental Incremental Net Benefits Net Benefits Revenues Costs (financial) (economic)

2002 837.9 689.6 2003 318.7 819.4 670.5 -18.5 -19.1 -318.1 -254.4 2004 461.5 1060.8 780.7 222.9 91.1 -329.7 -237.4 2005 563.7 1765.6 1425.2 927.7 735.6 -371.6 -258.9 2006 399.5 2503.8 2063.7 1665.9 1374.1 -107.7 -27.8 2007 285.8 2384.4 2019.7 1546.5 1330.1 -69.4 -12.2 2008 216.4 216.4 2009 216.4 216.4 2010 216.4 216.4 2011 216.4 216.4 2012 216.4 216.4 2013 216.4 216.4 2014 216.4 216.4 2015 216.4 216.4 2016 216.4 216.4 2017 216.4 216.4 2018 216.4 216.4 2019 216.4 216.4 2020 216.4 216.4 2021 216.4 216.4 2022 216.4 216.4 2023 216.4 216.4 2024 216.4 216.4 2025 216.4 216.4 2026 216.4 216.4 2027 216.4 216.4

FRR ERR 12.0% 16.6%

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty Lending Daniel Liviu Aizic Consultant - Finance Amarquaye Armar Program Manager ETWES Electricity markets Bernard Baratz Consultant EASTE Environment Nicholay Chistyakov Sr Disbursement Officer LOAFC Disbursements Laurentiu Ciocurlan Consultant - Finance Bogdan Constantin Constantinescu Sr Financial Management Specialist ECSPS FMS

Irina Kichigina Senior Counsel LEGEM Legal Luiz Maurer Senior Energy Specialist AFTEG Peer review Rene Mendonca Senior Power Engineer MNSSD Engineering George Alexandru Moldoveanu Information Assistant ECCRO Team support

Ana Otilia Nutu Consultant ECSSD Project support Kari J. Nyman Lead Specialist ECSSD TTL Nightingale Rukuba-Ngaiza Senior Counsel LEGAF Legal Aman Sachdeva Consultant AFTEG Finance Rozena Serrano Program Assistant ECSSD Team support Tjaarda Storm van Leeuwen Adviser AFTEG Peer review Leonid Vanian Sr Procurement Specialist ECSPS Procurement Doina Visa Senior Operations Officer ECSSD Deputy TTL

Supervision/ICR Daniel Liviu Aizic Consultant - Finance Amarquaye Armar Program Manager ETWES Electricity markets Bernard Baratz Consultant EASTE Environment Husam Mohamed Beides Sr Energy Specialist MNSSD Engineering Bogdan Constantin Constantinescu Sr Financial Management Specialist ECSPS FMS

Angelica A. Fernandes Procurement Analyst ECSPS Procurement Ramon Lopez-Rivera Consultant ECSSD Engineering George Alexandru Moldoveanu Information Assistant ECCRO Team support

Ana Otilia Nutu Consultant ECSSD Project support Kari J. Nyman Lead Specialist ECSSD Electricity markets Alexandra Livia Onofrei Program Assistant ECCRO Team support Rozena Serrano Program Assistant ECSSD Team support Leonid Vanian Sr Procurement Specialist ECSPS Procurement Doina Visa Senior Operations Officer ECSSD TTL

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(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY03 66 376.21 FY04 0.17

Total: 66 376.38 Supervision/ICR

FY03 0.08 FY04 23 96.42 FY05 13 62.80 FY06 20 85.70 FY07 21 93.27 FY08 18 109.38 FY09 11 50.00

Total: 106 497.65

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Annex 5. Beneficiary Survey Results Not applicable

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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 A. Transelectrica ICR [A copy of Transelectrica’s ICR will be attached to the ICR] B. OPCOM ICR This section presents only a few extracts from OPCOM’s two detailed reports on the completion of the original technical assistance for the OPCOM Power Exchange and the subsequent component to develop its capability to provide market services to the regional electricity market. Transelectrica’s ICR presents in Section A above the estimated and actual costs of these OPCOM components. Project Context At the start of the project OPCOM had less than three years experience in administrating Romania’s electricity “market”, meaning an arrangement where forecasts by OPCOM were replacing the demand side in price clearing process. The then existing “in house” developed trading system (Excel based) was more enthusiastic than highly professional. The initial spot market model was adapted to the starting conditions of a limited number of players and limited experience. Huge challenges were coming in early 2003 from the decision to change this model according to the stage of the market opening and increased experience. The issuance of “the Road Map in the Electricity Field”, strategy document demonstrated the capability of Romanian stakeholders to cooperate and to deal with difficulties, barriers and challenges. Submitted as a framework for the project, the Road Map became the reference document for the Romanian electricity market development and was also successfully used to close the Energy chapter of Romania’s EU accession negotiations and remained a valuable reference to the end of the project. The Technical Assistance Program A comprehensive package of technical assistance was formulated and implemented under the project, step by step, by the three main stakeholders ANRE, Transelectrica and OPCOM OPCOM’s technical assistance program for the development of the OPCOM Power Exchange covered:

• specific training to better understand its role, vision and mission as a power exchange in national and regional framework in phase I;

• initial and updated business plans in phase I and in phase II; • operational procedures, including market surveillance in phase I; • permanent diagnosis of the market in both phases; • technical assistance for the day-ahead market (DAM) platform implementation in phase

I; • computerized system to manage the collaterals in order to implement the counterparty

role in phase II;

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• just in time support in critical turning points and day-by-day operation during both phases;

• vision on new products development: intra-day and certificates (green, white, black) in phase II;

• flexible approach of the regional market integration: regional power exchange mixed with service provider in phase II; (beneficiary of detailed recommendations were also in this respect the Ministry, the Regulator and the TSO);

• on-the-job support in managing contacts and negotiations with regional partners: Bulgaria, Hungary in phase II, respectively regional power exchange;

• portable and fixed simulators for regional trading, extensions of the trading platform for regional trading updated according negotiations with Hungarian TSO and its subsidiary power exchange in the Regional power exchange phase; and

• Support for decision makers towards financial market and clearing house, including business plan in the Regional power exchange phase.

All in all, a comprehensive package of services well designed during preparation with full support of World Bank representatives and effectively implemented by OPCOM and its expert consultants. OPCOM’s Results The project objectives have been achieved. OPCOM is currently operating as a full Power Exchange. OPCOM ended 2008 with an overall market share of 25.17% out of Romania’ electricity consumption traded in the centralized electricity markets that is operating and calculated as electricity deliveries during 2008 (9.4% in the Day Ahead Market, 15.67% in the Centralized Market for Bilateral Contracts, 0.1% - the Centralized Market for Forward Bilateral Contracts), following a continuous and sound year by year increase since 2005. It should be also noted that at the end of 2008, the quantity of electricity already contracted through the Centralized Market for Bilateral Contracts operated by OPCOM and having the delivery during 2009 amounted around 20% out of the electricity consumption forecasted for 2009. Also, with the commercial start of OPCOM assuming the counterparty position in the trades concluded in the Day Ahead Market, the trades are safe, anonymous and liquid, with increased speed in payments flows, advantages for the market participants confirmed by the increase of the active participation.

OPCOM was short-listed and later selected as a winner by Mavir, the Hungarian TSO, to provide power market services to its newly incorporated Hungarian Power Exchange – HUPX. OPCOM managed to incorporate into this project requirements from HUPX, and also OPCOM was able to offer technical solution to HUPX development by the outputs of the Project, mainly by the portable simulator. By managing these two projects simultaneously (the project and HUPX discussions), OPCOM negotiated with HUPX its first commercial contract as a market service provider. The project has provided OPCOM the capability to offer regional services. It remains to OPCOM as a task to be further deployed the discovery of the most appropriated ways to promote regional integration by offering regional services including trading and market coupling. This will be done based on the concept developed within project “Technical and Institutional Capacity Building Assistance for the Development and Commercial Start-Up of the OPCOM Power Exchange”.

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World Bank Support OPCOM received the full support of the World Bank. The WB was not only financing the project but carefully supported OPCOM and other agencies during preparation and implementation by bringing their advice in critical sections of the project evolution. WB operated as the missing link between Romanian stakeholders by bringing them at the round table discussions, mitigating disputes and pushing forward. The challenges of preparing and contracting the project were successfully completed. Also, complex activities developed under the project were successfully completed. All these operations were appropriately prepared and deployed based on the consistent, continuous and professional support assured by the Bank. This lead to an outstanding overall result of the project, added with consistent experience acquired from the Bank. This allows us to rate Bank performance as highly satisfactory. This ICR mirrors the development and results of the project which evolved in line with Romanian electricity wholesale market development during 2003-2008.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

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Annex 9. List of Supporting Documents OPCOM Implementation Completion Report “Technical and Institutional Capacity Building Assistance for the Development and Commercial Start-Up of the OPCOM Power Exchange”, March 2009 OPCOM Implementation Completion Report “Development and Implementation of the Regional Power Exchange – OPCOM”, March 2009 Project Appraisal Report, May 2003 Implementation Status Reports (ISRs), 2003-2008

Document of The World Bank...Project ID: P081406 L/C/TF Number(s): IBRD-71810 ICR Date: 04/29/2009...

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Transcript of Document of The World Bank...Project ID: P081406 L/C/TF Number(s): IBRD-71810 ICR Date: 04/29/2009...