Document of The World Bank Report No: ICR00002334 ......TERM Tonga Energy Road Map TERM-A Tonga...

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Document of

The World Bank

Report No: ICR00002334

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-H6200)

ON A

GRANT

IN THE AMOUNT OF SDR 3.4 MILLION

(US$5.0 MILLION EQUIVALENT)

TO THE

KINGDOM OF TONGA

FOR AN

TONGA ENERGY SECTOR DEVELOPMENT POLICY OPERATION

June 27, 2012

Energy Unit

Timor-Leste, Papua New Guinea, and Pacific Islands Country Unit

Sustainable Development Department

East Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective JUNE 30 2011)

Currency Unit = pa‟anga (TOP)

TOP 1.00 = US$0.588

US$1.00 = TOP 1.70

FISCAL YEAR

July 1 – June 30

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank

AusAID Australian Agency for International Development

CAS Country Assistance Strategy

DPO Development Policy Operation

DSM Demand Side Management

ERO Economic Recovery Operation

GDP Gross Domestic Product

GoT Government of Tonga

IPP Independent Power Producer

ISR Implementation Status Reports

M&E Monitoring and Evaluation

NRBT National Reserve Bank of Tonga

OPR Operational Procurement Review

PAD Program Appraisal Document

PD Program Document

PDO Program Development Objective

PEFA Public Expenditure and Financial Accountability

PEFM Public Expenditure and Financial Management

PFM Public Financial Management

PER Public Expenditure Review

PRIF Pacific Region Infrastructure Facility

PV Photovoltaic

SDR Special Drawing Rights

TERM Tonga Energy Road Map

TERM-A Tonga Energy Road Map Agency

TERMC Tonga Energy Road Map Committee

TERM-IRFSP Tonga Energy Road Map Institutional and Regulatory Framework Strengthening

Project

TERM-IU Tonga Energy Road Map Implementation Unit

TESDPO Tonga Energy Sector Development Policy Operation

TGIF Tonga Green Initiative Fund

TPL Tonga Power Ltd

Vice President: Pamela Cox

Country Director: Ferid Belhaj

Sector Director: John Roome

Sector Manager: Charles Feinstein

Project Team Leader: Roberto G. Aiello

ICR Team Leader: Roberto G. Aiello

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KINGDOM OF TONGA

TN- ENERGY SECTOR DEVELOPMENT POLICY OPERATION

CONTENTS

Datasheet

A. Basic Information ....................................................................................................... 4

B. Key Dates ................................................................................................................... 4

C. Ratings Summary ....................................................................................................... 4

D. Sector and Theme Codes ............................................................................................ 5

E. Bank Staff ................................................................................................................... 5

F. Results Framework Analysis ...................................................................................... 6

G. Ratings of Program Performance in ISRs .................................................................. 9

H. Restructuring (if any) ................................................................................................. 9

1. Program Context, Development Objectives and Design .......................................... 10

2. Key Factors Affecting Implementation and Outcomes ............................................ 15

3. Assessment of Outcomes .......................................................................................... 21

4. Assessment of Risk to Development Outcome ......................................................... 27

5. Assessment of Bank and Borrower Performance ..................................................... 28

6. Lessons Learned........................................................................................................ 30

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 31

Annex 1. Bank Lending and Implementation Support/Supervision Processes ................. 32

Annex 2. Beneficiary Survey Results ............................................................................... 33

Annex 3. Stakeholder Workshop Report and Results ....................................................... 34

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 35

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 36

Annex 6. List of Supporting Documents .......................................................................... 37

Annex 7. MAP .................................................................................................................. 38

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A. Basic Information

Country: Tonga Program Name:

Tonga Energy

Development Policy

Operation

Program ID: P121877 L/C/TF Number(s): IDA-H6200

ICR Date: 06/26/2012 ICR Type: Core ICR

Lending Instrument: DPL Borrower: KINGDOM OF TONGA

Original Total

Commitment: XDR 3.40M Disbursed Amount: XDR 3.40M

Revised Amount: XDR 3.40M

Implementing Agencies:

Ministry of Finance and National Planning

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 06/24/2010 Effectiveness: 01/14/2011 11/10/2010

Appraisal: 08/27/2010 Restructuring(s):

Approval: 10/19/2010 Mid-term Review:

Closing: 06/30/2011 06/30/2011

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Low or Negligible

Bank Performance: Satisfactory

Borrower Performance: Satisfactory

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

Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments (if

any) Rating:

Potential Problem

Program at any time

(Yes/No):

No Quality at Entry

(QEA): None

Problem Program at any

time (Yes/No): No

Quality of

Supervision (QSA): None

DO rating before

Closing/Inactive status:

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 50 50

General energy sector 50 50

Theme Code (as % of total Bank financing)

Infrastructure services for private sector development 30 30

Other economic management 10 10

Public expenditure, financial management and

procurement 60 60

E. Bank Staff

Positions At ICR At Approval

Vice President: Pamela Cox James M. Adams

Country Director: Ferid Belhaj Ferid Belhaj

Sector Manager: Charles M. Feinstein Charles M. Feinstein

Program Team Leader: Roberto Gabriel Aiello Wendy E. Hughes

ICR Team Leader: Roberto Gabriel Aiello

ICR Primary Author: Sati Achath

Viju C. Ipe

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F. Results Framework Analysis

Program Development Objectives (from Project Appraisal Document) The development objectives are to contribute to reducing Tonga's fiscal deficit and to support the Government's efforts in implementing reforms in the energy sector which will contribute to achieving steady and stable growth in the medium term. Revised Program Development Objectives (if any, as approved by original approving authority)

The Program Development objectives were not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : TERM-C Membership expansion

Value (quantitative or Qualitative)

In adequate energy sector coordination and oversight

TERM-C membership expanded to include petroleum sector entities and fulfilling its mandate.

The TERM-C now includes all ministries and government entities in the petroleum sector, and is fulfilling its mandate.

Date achieved 08/30/2010 06/30/2011 06/30/2011

Comments (incl. % achievement)

The TERM-IU established but was not Achieved. TERM-C is policy management and oversight body within the TERM Agency (TERM-A). For discussion of the specific mandate of TERM-C, see Sections 2.4 and 3.5bb).

Indicator 2 : TERM Implementation Unit (TERM-IU) staffing and resources


Inadequate energy sector coordination and oversight

TERM Implementation Unit is adequately staffed and resourced

TERM-IU still has some temporary gaps in staffing and resources, which are being addressed.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Mostly achieved. At closing, the TERM-IU was in place and functioning, with some gaps in staffing. An interim director was appointed in Feb 2012. A permanent director will be recruited by July 2012.TERM (IU) is functioning adequately.

Indicator 3 : Monitoring and evaluation framework

Value Inadequate energy A monitoring and M&E framework in

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(quantitative or Qualitative)

sector data availability is a significant impediment to least cost planning

evaluation framework for progress in the energy sector (electricity and petroleum) reforms is in place

place and providing regular monitoring and reporting of energy sector data.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Achieved.

Indicator 4 : Tonga Power Ltd (TPL) audit reports


Only incomplete financial data was available on the privately owned electricity utility that preceded the state-owned TPL. Audit accountability and oversight weak.

TPL FY09/10 audit report and subsequent audit reports submitted to auditor General's office on time.

FY09/10 audit report submitted on time, and with better quality than previous report. FY10/11 report (due after closing) also submitted on time.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Achieved. The FY08/09 audit, a prior condition for release of the single-tranche DPO, was submitted on time, but was limited by poor information inherited by TPL. More timely and better quality audits have improved transparency and accountability.

Indicator 5 : Transactions with independent power producers (IPPs)


No transparent process to ensure cost-effective development of domestic renewable energy by IPPs.

Transactions involving private sector participation in the energy sector handled in a transparent manner, demonstrating adequate protection of the interests of electricity consumers in Tonga.

Transactions involving private sector participation in the energy sector handled transparently and in compliance with Tonga's new Public Procurement Regulations and budget disclosure requirements.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Achieved. improved fiscal transparency in the energy sector

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Indicator 6 : Price risk management


No petroleum price risk management in place

Initial petroleum price risk management approach tested and evaluated.

Testing and evaluation of petroleum price risk management program is on track. Amended the petroleum pricing templates in general accordance with the recommendations of independent reviews.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Amended templates help reduce economic vulnerability to energy price fluctuations. Medium-term (3-yr) goals beyond DPO include an end-use efficiency program (5% gains) and generating 5% of electricity from domestic renewable energy sources.

Indicator 7 : Financial planning and management


Procedures for budget preparation and execution not formally in place.

Corporate plans and annual management plans of key ministries, submitted as part of the preparation process for the FY11/12 and subsequent budgets.

Corporate and annual management plans submitted as part of FY11/12 budget preparation process.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Achieved. The GOT instituted a budget reporting system that tracks budget information, corporate plans and annual management plans, and reformed the budget calendar to help incorporate these inputs. Budget proposals are also made available to the public.

Indicator 8 : Procurement regulation


Public procurement based on policy guidelines rather than formal regulations.

New Public Procurement Regulations in use by Government.

New regulations adopted and in use.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Achieved. At appraisal, the draft regulations were under review by the Law Committee (a prior condition for the DPO tranche). They were approved by the Cabinet in 2012 and are now in use, with ongoing support from the ADB.

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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Monitoring and evaluation framework


Inadequate energy sector data availability is a significant impediment to least cost planning

A monitoring and evaluation framework for progress in the energy sector (electricity and petroleum) reforms is in place

M&E framework in place and providing regular monitoring and reporting of energy sector data.

Date achieved 08/30/2010 06/30/2011 06/30/2011


Achieved

G. Ratings of Program Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

H. Restructuring (if any)

Not Applicable

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1. Program Context, Development Objectives and Design

1.1 Context at Appraisal

Macroeconomic Background: Tonga is a small and remote island economy, with a per

capita income of approximately US$3,347 in 2010. Over the past 15 years, per capita

income has grown modestly, with average real annual growth of around 1.9 percent

exceeding population growth of about 0.5 percent. Economic activity has exhibited

significant fluctuations as underlying structural constraints, political disturbances, and

global economic developments have adversely affected growth. Although the economy

recovered strongly in FY2007/08, growth has subsequently slowed, initially due in large

part to the food and fuel price shocks and more recently as a result of the global

slowdown, which hurt remittance flows, tourism arrivals and exports. Tonga is highly

vulnerable to external economic shocks and natural disasters. Remittances account for a

large share of the GDP. Size and remoteness also have an impact on the cost of key

imports such as petroleum, exacerbating the risk to the economy from external shocks.

All these vulnerabilities have come into play in the recent past, taking a heavy toll on

Tonga‟s economy.

The knock-on effects of the global economic crisis (GEC) resulted in a 0.48 percent

contraction of Tonga‟s GDP in 2010. The main impact of the crisis was on remittances,

0074ourism receipts and value of exports. The current account deficit widened to 17.4

percent of GDP in FY2009/10 compared with 14.3 percent in the previous year.

However, the trade deficit and the international reserves position have improved

marginally in recent years. Inflation, following the trend of international oil and food

prices, reached 12 percent in mid-2008, fell to 1.2 percent by the end of 2009, but picked

up to around 4 percent in 2010. During FY2009/10 the National Reserve Bank of Tonga

(NRBT) lowered reserve requirements (from 10 percent to 5 percent), reduced the

interest rate on its repo1 facility (from 10 percent to 4½ percent), and stopped issuing

central bank bills. In the last three years, the global downturn has pushed government

finances into deficit equal to 3.3 percent of GDP in FY2008/09, and increased to 3.9

percent of GDP in FY2009/10. In both years, tax revenues were significantly lower than

in previous years. On the expenditure side, in the FY2010/11 budget, the government has

adopted realistic revenue forecasts and has extended its recent efforts to rationalize

expenditure. A Public Expenditure and Financial Accountability (PEFA) assessment was

first undertaken in Tonga in 2007 which indicated that the Public Financial Management

legal and regulatory framework in Tonga provides a solid basis for budgeting, spending

and accountability and there are clear rules and procedures in place and these tend to be

followed.

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proviso that the seller repurchases the same securities for an agreed-upon price on a certain day more than

one day after the establishment of the agreement.

http://financial-dictionary.thefreedictionary.com/Bank

http://financial-dictionary.thefreedictionary.com/Financial+Institution

http://financial-dictionary.thefreedictionary.com/Buys

http://financial-dictionary.thefreedictionary.com/Securities

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Energy sector background

Petroleum: Petroleum is supplied to Tonga by two international oil companies, TOTAL

and Pacific Energy. Uata Shipping, „Otumotuanga‟ofa and other locally owned small

ferry companies are still used for fuel distribution in the Ha‟apai group of islands. LPG is

bulk supplied by Tonga Gas (a subsidiary of Fiji Gas, 51% owned by Origin Energy,

Australia), and marketed and distributed onshore by the GOT‟s Homegas Company.

Tonga faces a long supply chain from the refinery source. The outer islands are supplied

with products trans-shipped through Nuku‟alofa. The Niua's and 'Eua islands are

normally the only areas for which main products (gasoline, Automotive Diesel, and

kerosene) are supplied by drum. The Tonga Competent Authority regulates the retail

price of petroleum products, using a pricing template originally developed by the Pacific

Islands Forum Secretariat. The pricing template builds up the retail prices by taking the

Singapore price for fuel, then adding on shipping and storage fees and wholesale and

retail markups. In effect, the average price for the next month is determined by fuel

prices, shipping rates and margins two months prior. Wholesale and retail fuel prices

across Tonga vary, reflecting the higher transport costs to provinces distant from the main

island, Tongatapu.

Grid-connected Electricity: The Electricity Act 2007 provides the governance

framework for the grid-connected electricity sector in Tonga with generation and supply

by Tonga Power Limited (TPL) a state enterprise wholly owned by GOT. TPL operates

four grids in Tonga: the largest on Tongatapu, and three smaller grids on the main islands

of the Vava‟u and Ha‟apai island groups, and on the island of Eua. Electricity sector data

is quite limited at present. Improving data generation and collection is an activity

identified for early implementation under the Tonga Energy Road Map (TERM), a sector

strategy developed by Tonga in partnership with the World Bank and other donors and

formally adopted by the government in August 2010.

Off-Grid Electricity Supply: A Renewable Energy Bill was developed prior to the

TERM process and passed by parliament in 2009 to provide a legal framework to

promote the utilization of renewable energy in Tonga through the creation of an enabling

market environment. The bill created a Renewable Energy Authority within the Ministry

of Lands, Survey and Natural Resources to deal with matters concerning supply of

renewable energy. The „outer islands‟ of Tonga are a group of 26 islands, scattered

throughout the three primary island groups, which do not have reticulated diesel

generated electricity. The approach set out in the TERM is to supply all households in the

outer islands with electricity generated almost 100% by renewable energy sources,

currently being generated using diesel. However, since only 6% of Tonga‟s population

live on the outer islands, this will have little if any impact on reducing diesel use. The

focus of renewable energy generation has mainly been on solar energy.

Rationale for Bank assistance:

The Tonga Energy Development Policy Operation was consistent with the Tonga

Country Assistance Strategy (CAS). Key themes running through Bank Group

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engagement with Tonga include: (a) Supporting policy reform to strengthen growth

prospects and improve service delivery; (b) Generating opportunities through greater

global and regional integration; and (c) Building resilience against shocks. This operation

directly supported themes (a) and (c). The Tonga Energy Road Map sets out the

institutional, legal and policy areas of reform needed to reduce Tonga‟s vulnerability to

oil price shocks and achieve an increase in quality access to modern, quality energy

services, both of which are necessary to strengthen prospects for equitable growth and

improve service delivery. The focus of the TERM is on petroleum supply chain

efficiency, petroleum price risk management, increased efficiency in electricity supply

and diversifying Tonga‟s electricity supply and directly addresses the theme of building

resilience against shocks, specifically oil price spikes.

The operation was an integral part of the Bank‟s ongoing overall engagement in the

energy sector and it reinforced the importance of adhering to the objectives, principles

and strategy set out in the TERM. It highlighted the adoption of the TERM as a key prior

action of a budget support operation and reinforced the reality that the energy sector

issues addressed under the TERM are critical to overall macroeconomic growth and

stability. The approach and program set out in the TERM were also fully in line with the

institutional agenda on climate change, integrating energy efficiency and renewable

energy generation into the mainstream sector planning and policy framework, through the

focus on reducing vulnerability to oil price rise and shocks as a key factor in enhancing

national energy security.

1.2 Original Program Development Objectives (PDO) and Key Indicators (as

approved)

Program development objectives: The program development objectives are to

contribute to reducing Tonga‟s fiscal deficit and to support the Government‟s efforts in

implementing reforms in the energy sector which will contribute to achieving steady and

stable growth in the medium term.

Key indicators The key results indicators listed in Annex 1 of the Program Document (PD) are:

(a) TERM-C membership expanded to include petroleum sector entities and fulfilling

its mandate;

(b) TERM Implementation unit is adequately staffed and resourced;

(c) A monitoring and evaluation framework for progress in the energy sector

(electricity and petroleum) reforms is in place;

(d) TPL FY09/10 audit report and subsequent audit reports submitted to auditor

General‟s office on time;

(e) Transactions involving private sector participation in the energy sector handled in

a transparent manner, demonstrating adequate protection of the interests of

electricity consumers in Tonga;

(f) Initial petroleum price risk management approach tested and evaluated;

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(g) Corporate plans and annual management plans of key ministries, submitted as part

of the preparation process for the FY11/12 and subsequent budgets; and

(h) New Public Procurement Regulations in use by Government.

The PD Data Sheet had a different list of four KPIs (also included in Annex 1), that were

focused on five-year outcomes. These indicators were not intended to be treated as KPIs

to be achieved by the operation directly, nor could they be measured or treated as such

since the time frame was well beyond the closing date of the operation. Rather, they were

described as “medium term” goals toward which the operation “will contribute”:

(a) Petroleum imports for electricity generation relative to a "business as usual"

scenario are reduced by 15% in a cost-effective manner;

(b) Diversification of sources of electricity generation to improve energy security and

reduce impact of oil price on the price of electricity supply;

(c) Petroleum price risk management in place; and

(d) Fiscal consolidation achieved including reduction in risk of debt distress.

The Program Document (PD) originally approved lists these indicators as the ones for the

TESDPO. But it may be noted that the actual KPIs are the ones listed in Annex 1 of the

PD.

1.3 Revised PDO (as approved by original approving authority) and Key

Indicators, and Reasons/Justification

The PDOs was not revised.

1.4 Original Policy Areas Supported by the Program (as approved)

The broad policy areas supported included: (a) strengthening growth prospects and

improve service delivery; and (b) building resilience against shocks. The operation

supported policy and institutional measures that will help Tonga sustain its reform

momentum in the energy sector and implement recommendations from the 2010 Public

Expenditure and Financial Accountability Assessment. The operation also provided

short-term fiscal relief to address the budget deficit projected for FY10/11 as key

determinants of government revenue, particularly remittances, remain well below normal

levels as a result of the global economic slow-down. The operation included broad

actions related to: (a) Energy sector reform to reduce Tonga‟s vulnerability to oil price

rise and shocks, and to increase access to quality energy services; and (b) Public

Expenditure Financial Management reform (PEFM) which would formalize and make

legally binding the required procedures for a number of key PFM processes.

On the basis of strong ownership by GOT and harmonization with other development

partners the following prior actions for the disbursement of the full amount of the grant

were implemented: (a) The Tonga Energy Road Map (TERM) adopted by Cabinet; (b)

An intra-governmental mechanism to coordinate energy sector activities across

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government was established and operationalized; (c) The Tonga Power Limited FY08/09

Audit Report submitted to the Auditor General‟s Office (d) Treasury Instructions to line

ministries issued by Ministry of Finance and Planning, and (e) Public Procurement

Regulations Submitted to the Law Committee

The project contributed to the implementation of the TERM in three phases. A summary

of the activities under each of the phases for implementation of the TERM is given

below.

TERM-Phase 0

The key activities for Phase 0 are:

Recommendations from the Petroleum Supply Chain and Price Hedging Study are

considered by GOT and decisions made on implementation and initial activities

launched.

Institutional, legal, policy and regulatory updates for petroleum and electricity

implemented, as per issues identified in the TERM.

Data gathering activities and data collection and monitoring system in place;

Environmental screening of the TERM to identify environmental considerations

of the planned activities in the TERM.

Analysis of environmental change impact on Tonga to identify any risks to long

term safety and security of energy infrastructure.

Initial end use efficiency/demand side management program launched and

development of data and analysis to design and implement more extensive end

use efficiency program underway.

Off-grid program launched.

Necessary TPL investments for safety, data acquisition and improved efficiency

launched.

Mechanism to channel available grant assistance to buy down the cost of

renewable energy generation and energy efficiency investments is in place (Tonga

Green Initiative Fund: “TGIF”).

TERM-Phase 1

Key activities indicated for Phase 1 are:

Implementation of second-generation end-use efficiency / DSM measures;

Implementation of up to about 1 megawatt on-grid solar PV. Most of this would

be installed on Tongatapu and could include at least one other island grid.

Elements including centralized, decentralized and possible battery storage would

be appropriate. Operation, maintenance and training contract in place;

Implementation of a Proof of Concept Coconut Oil Project. Operation,

maintenance and training contract in place;

Implementation of Landfill Gas IPP (if resource proved in Phase 0);

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Review of initial experience with petroleum financial risk management and

implementation of modifications as required;

Transaction advisor for Phase 2 projects selected.

TERM-Phase 2

Phase 2 actions included:

A formal analysis of the data and findings from the Phase 1 projects. In particular,

the success of the loss-reduction programs and the DSM programs should be

assessed to identify shortfalls on target energy reductions. The load forecast will

be updated to drive the needs and timing of ongoing sector development. The

successes and problems with each of the Proof-of-Concept project will be

carefully evaluated. New grid system performance data will need analysis to

confirm what measures need to be taken and new technology added to ensure that

the most practical renewable energy alternative can be successfully integrated.

Any promising (but not yet commercial) technologies that have generated a track

record in Tonga or elsewhere during the Phase 0 and 1 implementation period,

could be evaluated at this point and considered for inclusion in Phase 2;

“Institutionalize” the data collection systems set up during Phase 1. The value of

databases is often to be found in their longevity and continuity so as the Tonga

economy and energy systems develop, the best data on what can be expected in

weather, ocean regimes and electric system performance will ensure that Tonga‟s

continuing efforts to use its domestic energy resources can progress in as timely a

manner as possible;

A full-scale development of renewable energy projects on an IPP basis, utilizing

the Tonga Green Initiative Fund designed and established in Phase 0. Sequencing

of the Phase 2 projects will be determined based on the key principles of the

TERM, set out at the beginning of this section.

1.5 Revised Policy Areas

The policy areas were not revised.

1.6 Other significant changes

There was no change in the operation‟s design, scope and scale, implementing

arrangements, or schedule during implementation.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance

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The Tonga Energy Sector DPO (TESDPO) was a single-tranche operation of SDR 3.4

million (US$5 million equivalent) approved by the Board of Executive Directors on

October 19, 2010. The loan agreement was signed on October 19, 2010 and declared

effective on November 11, 2010.

The operation was approved on the basis of completion of the following selected list of

prior actions, which were completed prior to disbursement of the single tranche on

December 10, 2010:

Energy Sector Reform

1. The Recipient has adopted the Tonga Energy Roadmap June 2010, by decision of its

Cabinet No. 739, dated August 20, 2010.

2. An intra-governmental mechanism to coordinate energy sector activities across

Recipient‟s administration is established and operationalized, pursuant to the terms

of the decision of Cabinet of November 25, 2009 and the minutes of the meetings of

the Tonga Energy Roadmap Committee dated February 12, 2010 and February 19,

2010.

3. The Tonga Power Limited FY08/09 Audit Report was submitted to the Recipient‟s

Auditor General‟s office.

Public Financial Management Reform

4. The Recipient‟s Ministry of Finance has issued treasury instructions pursuant to

Article 45 of the Recipient‟s Financial Management Act (2002), to the Recipient‟s

line ministries.

5. Recipient‟s Cabinet has approved the submission of the Public Procurement

Regulations to the Law Committee.

2.2 Major Factors Affecting Implementation

The implementation of the TESDPO was positively influenced by various factors,

including adequate Government commitment, sound background analysis, incorporation

of lessons learned from previous operations in Tonga, appropriate design of the

operation, and appropriate measures for mitigation of the risks identified. These factors

are discussed further below:

Adequacy of government's commitment, stakeholder involvement, and

participatory processes

The government commitment was adequate and satisfactory. The Ministry of Finance, at

the request of the Government of Tonga (GOT), effectively supported implementation of

policy reforms and programs outlined in the DPO.

Soundness of the background analysis underpinning the operation.

The main analytical underpinnings to the operation consisted of: the Tonga Energy Road

Map (TERM) sector strategy developed by the GOT in partnership with the Bank and

other development Partners. It addresses required improvements in the petroleum supply

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chain and consideration of price hedging instruments, increased efficiency both in

electricity supply and use, development of grid-connected domestic renewable energy

resources, improved access to quality electricity services in remote areas, reduced

environmental impacts both locally and globally, enhanced energy security, and overall

sector financial viability. The TERM focuses on reducing cost and volatility in the price

of petroleum imports and on de-linking electricity production from petroleum to the

extent feasible. It also sets out priority actions in the areas of policy, legal, regulatory and

institutional arrangements, and sets out an investment program based on a least cost

approach for reducing reliance on diesel for power generation, with explicit consideration

given to managing risk through development of a portfolio of options to meet the demand

for electricity. The TERM also recommends a detailed program of actions with indicative

funding sources and costs for each element.

Lessons learned from previous operations.

Since Tonga became a member of the World Bank Group in 1985, the Bank has invested

in the Tonga Development Bank, Cyclone Emergency Recovery, and the health,

education, transport, telecommunication and energy sectors. Recent and planned Bank

Group support has focused predominantly on policy reforms to strengthen infrastructure

services, including through greater involvement by the private sector in addition to the

Economic Recovery Program. In the energy sector the Bank Group collaborated with the

GOT and other development partners in the development of the TERM. In addition to the

investments and activities described above, the Bank has also provided analytical support

that included:

Expenditure and Financial Accountability (PEFA) as a joint exercise by the

Government of Tonga and development partners including two experts engaged

by AusAID and the ADB/World Bank Focal Point in Tonga. An Operational Procurement Review (OPR) carried out in 2003.

A Macro-Fiscal Analysis paper jointly with the GOT to identify and explain

recent trends in revenue, expenditure and overall fiscal performance in 2010.

A Medium-Term Expenditure Mapping exercise jointly with the GOT in order to

provide a foundation for improving the quality of public spending. Two of the key lessons learned from the above operations that were relevant to the

energy sector DPO included:

The overarching priorities in the energy sector are to reduce Tonga‟s vulnerability

to oil price rise and price shocks and achieve an increase in quality access to

electricity services in an environmentally and financially sustainable manner.

Financial sustainability and transparency are important components of a longer

term strategy to attract credible private sector and maximize the benefits from

private sector involvement in the energy sector.

18

These lessons were taken into account by the GOT in development and implementation

of this DPO.

Assessment of the operation’s design

The TESDPO‟s design was appropriate and reinforced the importance of addressing

energy sector weaknesses as a necessary condition for economic growth and stability by

adhering to the objectives, principles and strategy set out in the TERM. This operation

was an integral part of the Bank‟s ongoing overall Country Assistance Strategy (2011-

2014) and engagement in the energy sector. The operation, in particular, supported the

CAS‟s strategic objective of reducing reliance imported fuel that is highly vulnerable to

price volatility and increasing the affordability of energy. The operation has also served

as a vehicle to strengthen the Bank‟s dialogue with the GOT in areas of public

expenditure and financial management. It set the stage for a more robust engagement in

PEFM going forward, particularly in the area of joint public expenditure analysis which

will be especially important as the new Government works to rationalize expenditures

while maintaining and improving core service delivery functions in the medium term.

Relevance of the risks identified at appraisal and effectiveness of mitigation

measures

The operation faced the following risks and the respective mitigation measures adopted

are presented below:

The need to address immediate budget shortfalls could distract the new

administration from focusing on the implementation of critical energy sector

reforms, as per the TERM, needed to support medium term economic stability and

growth. Budget pressures could also result in insufficient resources being

available for the GOT‟s role in implementation of the TERM.

o Mitigating measure: To mitigate this risk, of budget shortfalls, the Bank

and other development partners developed budget support programs. The

IDA grant for the Economic Recovery Operation is a measure in this

direction.

Delays in implementation by the new and inexperienced administration and lack

of appreciation of the importance of focusing on energy sector reforms.

o Mitigating measures: Preparation of the energy Sector Investment

operation, strong development partner coordination around the

development of the TERM and the commitment to provide support in line

with implementation of the TERM. Other mitigation measures included

emphasis by the Bank and other development partners on maintaining the

focus on energy sector reforms, adhering to the principles set out in the

TERM, and stressing the wide range of benefits and importance of its

successful implementation.

19

Natural Disasters and Climate Change negatively impact the expected benefits

associated with implementation of the planned energy sector reforms.

o Mitigating measures: Analyzed environmental and climate change impact

on Tonga to identify any risks to long term safety and security of energy

infrastructure

Poor progress on Public Financial Management reforms and lack of financial

transparency.

o Mitigating measures: Partnerships with the GOT and other development

partners in implementing improvements in the areas of public expenditure

and financial management.

Other positive factors:

The country moving from constitutional monarchy to democracy and the smooth

transition and the resulting political change affected implementation of the operation in a

positive way.

The Bank‟s opening of a liaison office in Tonga jointly with the Asian Development

Bank (ADB) was a great facilitator both in the design and roll out of the operation.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:

Design

The outcomes from the operation were monitored using the indicators outlined in Annex

1 of the Program Document (PD). Prior to the disbursement a set of prior actions were

developed for implementation. There were eight key performance indicators, six of

which focused on the energy sector, and two on public financial management reform.

The indicators for the energy sector were (a) expansion of the TERM-C membership to

include petroleum sector entities and fulfilling its mandate; (b) adequate staffing and

resources for the TERM Implementation unit; (c) a monitoring and evaluation framework

for progress in the energy sector (electricity and petroleum); (d) TPL FY09/10 audit

report and subsequent audit reports submitted to auditor General‟s office on time; (e)

transactions involving private sector participation in the energy sector handled in a

transparent manner, demonstrating adequate protection of the interests of electricity

consumers in Tonga, and (f) testing and evaluation of the initial petroleum price risk

management approach.

The above indicators were relevant to the PDO‟s and were attributable to the TESDPO.

Expansion of the TERM-C membership to include all ministries and entities involved in

20

the energy sector was important in collective decision making and further development of

the TERM and its implementation. The TERM-IU was not adequately staffed and proper

staffing and allocation of adequate resources were crucial for success in TERM

implementation. Preparation and submission of audit reports for the TPL and

transparency regarding transactions involving private sector participation are indicators to

further improve the fiscal transparency of the energy sector and hence are very relevant in

the monitoring and evaluation. Development and evaluation of the petroleum price risk

management framework feeds into the long-run objective of a sustainable energy sector.

All of the above indicators were observable and were closely monitored.

The indicators for the public financial management reform were (a) corporate plans and

annual management plans of key ministries submitted as part of the preparation process

for the FY11/12 and subsequent budgets and (b) new Public Procurement Regulations in

use by Government. Corporate and annual management plans further strengthened the

annual budget development and planning process, while new procurement regulations

were designed to help ensure more accountability and transparency.

Implementation:

Monitoring and evaluation activities were carried out by the task team in partnership with

the Ministry of Finance on the basis of the agreed-up on activities and indicators. Since

this was a single-tranche operation, there were no Implementation Status Reports (ISRs).

However, the implementing agency provided all the information regarding disbursement

and utilization of the funds disbursed. The implementing agency also provided regular

and reliable documentation on progress in TERM implementation and the energy sector

reform program. Although they were not identified as intermediate indicators, monitoring

the detailed activities for implementing the three phases of the TERM provided a very

valuable means of tracking progress toward the KPIs and PDO, and their progress was a

reflection of both the general effectiveness of the TERM Committee and Implementation

Unit as well as their planning, procurement, and management performance.

Utilization

Appropriate data collected by the government on the indicators were evaluated and used

during supervision missions, and also for decision-making on policy work. The

information provided was used in dialogue with the government in further shaping the

Energy Road Map, development of institutions for TERM implementation, and follow-up

support projects in the energy sector. As detailed in Section 1.4, some of the activities in

the TERM implementation plan were explicitly designed to test approaches and feed

information back into subsequent phases, regulatory development, implementation

strategies, and fine-tuning of the TERM itself.

2.4 Expected Next Phase/Follow-up Operation (if any):

21

The TESDPO was a single-tranche operation and there are still a number of challenges

that are fundamental to the development of the energy sector in Tonga. The follow-up

operations include:

TERM Institutional and Regulatory Framework Strengthening

Project (TERM-IRFSP): The proposed development objective is the

strengthening of the institutional and regulatory framework of the Tonga

Energy Road Map. It will provide assistance to strengthen the core

institutions and regulatory framework relating to TERM and it is a key

precursor for the ongoing and planned operations under the Energy Road

Map.

(i) Strengthening the Energy Sector Framework and Structure. This

component will be implemented by TERM-IU and will focus on strengthening the

functioning of the unit, and on technical assistance supporting the areas of energy

sector policy; environmental and social safeguards frameworks; petroleum price

risk management strategy; and developing a Communication Plan for TERM.

(ii) Preparing TPL for Renewable Energy Supply. This component will be

implemented by TPL and will focus on technical assistance for designing

upgrades to the networks and systems operations procedures and developing a

least-cost generation and associated network development plan for the period of

five years.

Tonga Economic Recovery Operation (ERO): In addition to

strengthening public financial management and fiscal policy, the ERO,

further supports structural reforms in the energy sector. The specific

policy actions in the energy sector include a reformed electricity tariff that

provides full cost recovery financial incentives for improving efficiency in

generation and distribution; regulatory framework for the petroleum

sector; and advancing public enterprise reforms in the energy sector like

transparency of accounts/audits of the TPL initiated as part of the DPO.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The objectives of the TESDPO are clear, relevant to the Bank group‟s engagement in

Tonga. The operation served as an integral part of the Bank‟s on-going overall

engagement in the energy sector. It supported policy and institutional measures that

helped Tonga sustain its reform momentum in the energy sector and implement

recommendations from the 2010 Public Expenditure and Financial Accountability

Assessment. The operation also provided short-term fiscal relief to address the budget

deficit projected for FY10/11 as key determinants of government revenue, particularly

22

remittances, remain well below normal levels as a result of the global economic slow-

down.

The objectives and the implementation of the activities continue to be very relevant

through implementation of the TERM that sets out a ten year road map to reduce Tonga‟s

vulnerability to oil price shocks and achieve an increase in quality access to modern

energy services in an environmentally sustainable manner. As the objectives continue to

be relevant, the Bank continues to support activities in the energy sector through the

TERM-IRFSP and the ERO with an energy sector component. 3.2 Achievement of Program Development Objectives

The DPO had significant impact on the implementation of TERM by the GOT. All the

indicators suggest that the TESDPO has been successful in sustaining the reform

momentum in the energy sector and in implementing recommendations from the 2010

Public Expenditure and Financial Accountability Assessment. The operation also

provided short-term fiscal relief to address the budget deficit projected for FY10/11 as

key determinants of government revenue.

The two main objectives were to (a) help reduce Tonga‟s fiscal deficit, and (b) support

implementation of reforms in the energy sector. Both objectives were intended to

contribute to achieving steady and stable growth in the medium term.

Objective 1: Contribute to reducing Tonga’s fiscal deficit

The DPO was intended to provide budget support to implement the FY10/11 budget

when the country was undergoing transition to the new government and was facing fiscal

deficit and macroeconomic instability. The budget support contributed to providing the

resources necessary to implement the FY10/11 budget and thus facilitated the critical

energy sector program to remain front and center of the policy agenda in Tonga.

Had the budget not been provided through the TESDPO, the precarious fiscal deficit and

the macroeconomic instability could have diverted funds away from the energy sector

and thus could have derailed the energy sector reform programs. Thus the DPO supported

in sustaining the reform momentum in the energy sector. Adoption of the TERM and

implementation of a formal arrangement for coordination and oversight across the energy

sector set in motion actions to improve the efficiency, cost-effectiveness and transparency

of the sector institutions, investments and operation. The operation has also served as a

vehicle to strengthen the Bank‟s dialogue with the GOT in areas of public expenditure

and financial management, particularly in the area of joint public expenditure analysis.

Objective 2: Support the Government’s efforts in implementing reforms in the energy

sector.

The cornerstone of this operation was its support for the TERM which the GOT adopted

in August 2010. The TERM is a landmark energy sector policy developed through

23

unprecedented cooperation between the GOT and its development partners and

coordination among the ministries/departments within the Tongan government. TERM

lays out a least cost approach and implementation plan to reduce Tonga‟s vulnerability to

oil price shocks and achieve access to modern energy services.

A summary of the achievement of outcome indicators targets is presented below:

An intra-governmental mechanism to coordinate energy sector activities

across Recipient‟s administration is established and operationalized,

pursuant to the terms of the decision of Cabinet of November 25, 2009 and

the minutes of the meetings of the TERM Committee dated February 12,

2010 and February 19, 2010.

The Tonga Power Limited FY08/09 Audit Report was submitted to the

Recipient‟s Auditor General‟s office.

The Recipient‟s Ministry of Finance has issued treasury instructions

pursuant to Article 45 of the Recipient‟s Financial Management Act

(2002), to the Recipient‟s line ministries.

Recipient‟s Cabinet has approved the submission of the Public

Procurement Regulations to the Law Committee.

3.3 Justification of Overall Outcome Rating

Rating: Satisfactory

As discussed in Section 3.2, the objectives of the TESDPO remain highly relevant to

Tonga‟s current priorities and the overarching themes in the Bank‟s CAS. The operation

contributed to strengthening and implementation of the TERM. The operation has also

served as a vehicle to strengthen the Bank‟s dialogue with the GOT in areas of public

expenditure and financial management, through more robust engagement in PEFM in the

area of joint public expenditure analysis. The dialogue led to the development and

implementation of the Tonga ERO, TERM-IRFSP and the associated Technical

Assistance projects.

The objectives of the TESDPO are clear, relevant to the Bank group‟s engagement in

Tonga. The operation served as an integral part of the Bank‟s ongoing overall

engagement in the energy sector. It supported policy and institutional measures that

helped Tonga sustain its reform momentum in the energy sector and implement

recommendations from the 2010 Public Expenditure and Financial Accountability

Assessment. The operation also provided short-term fiscal relief to address the budget

deficit projected for FY10/11 as key determinants of government revenue, particularly

remittances, remain well below normal levels as a result of the global economic slow-

down.

By contributing to reduction of the fiscal deficit and supporting reform in the energy

sector, the operation has helped Tonga establish a stronger foundation for achieving the

higher level objective of more stable and steady economic growth in the medium term.

24

The objectives and the implementation of the activities continue to be very relevant

through implementation of the TERM that sets out a ten-year road map to reduce Tonga‟s

vulnerability to oil price shocks and achieve an increase in quality access to modern

energy services in an environmentally sustainable manner. As the objectives continue to

be relevant, the Bank continues to support activities in the energy sector through the

TERM-IRFSP and the ERO with an energy sector component.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

Poverty impact: The TESDPO generated indirect impacts on the poor by reducing

household expenditure on electricity services through reduced cost of supplying

electricity by way of improved end-use efficiency. Improvements in end-use efficiency

reduce the amount of electricity required to achieve a given level of electricity services

thus reducing household expenditures on electricity services. As the TERM

implementation progresses there will be further improvements in efficiency and such

impacts will become more perceptible.

The TERM implementation supported by this DPO also reduced volatility in prices of

diesel which in turn reduced fluctuations in electricity prices. Stability in prices for

electricity reduced variations in household expenditures for electricity services so that the

poor households facing a tight budget constraint could better plan for expenditures on

electricity services.

The Off-Grid Initiative which is being implemented as part of the TERM will provide

remote communities with access to electricity from renewable sources that are

sustainable and also provide for their varied power needs. This program will increase

economic activity of the outer islands communities through a novel “tiered approach”

which in turn will increase incomes and will have an impact on poverty.

The budget support helped the government, which was facing fiscal deficit, to continue

with the implementation of the social programs particularly in the health sector which

benefited the poor and lower income groups. In addition, the project also benefited the

education sector.

The TESDPO is expected to generate indirect impacts on the poor by supporting the

GOT‟s continued efforts on implementing the Tonga Energy Road Map (TERM), which

will lead to: reducing household expenditure on electricity services through reduced cost

of supplying electricity by way of improved end-use efficiency. Improvements in end-use

efficiency reduce the amount of electricity required to achieve a given level of electricity

services thus reducing household expenditures on electricity services. As the TERM

implementation progresses there will be further improvements in efficiency and such

impacts will become more perceptible.

25

Gender Aspects: There are no perceptible gender aspects in the DPO.

Social Development: Implementation of the TERM supported by this DPO is expected to

have significant, direct positive social impacts in the medium term. Such social impacts

include access to off-grid electricity options from renewable sources to remote

communities which otherwise are not connected to the grid.

The budget support also helped the GOT to maintain its expenditure on social programs

when the government was facing fiscal deficit.

(b) Institutional Change/Strengthening

The operation‟s main contribution to institutional development was its help in creating

the TERM Agency (TERM-A) and the agency‟s main oversight and operational bodies,

the TERM Committee (TERM-C) and the TERM Implementation Unit (TERM-IU). The

ongoing assistance provided by the operation during the three-phase implementation of

the TERM to date, further consolidated these entities and strengthened their governance

through practical application of their roles and responsibilities, thereby building

institutional experience hand-in-hand with actual performance of their duties. Their main

roles and mandates are summarized below.

Institutional development for TERM implementation- The operation strengthened

the TERM governance structure through completion of the TERM and creation of

the TERM Agency (TERM-A). The GOT also constituted the TERM-C and

TERM-IU. A brief description of the roles and mandates of the above institutions

is presented below:

TERM Agency (TERM-A): In April 2012, the Cabinet approved the TERM-A as the apex

body responsible for energy matters under TERM. As a government agency, TERM-A

acts on behalf of the Cabinet, and is accountable directly to the Cabinet, in accordance

with the mandate given to it by the Cabinet.

TERM Committee (TERM-C: Within TERM-A the Tonga Energy Road Map Committee

(TERM-C) functions as the governing entity, and, as approved by the Cabinet, includes

the following mandates:

Consider the proposed institutional reformation and all energy sector related

projects, taking into consideration the whole of Government institutional

rationalization program.

Coordinate on Ministry cross cutting energy sector related issues ensuring an

integrated approach to the energy sector reformation program as outlined in

TERM.

Approve projects for the energy sector as detailed under the TERM, taking into

account the equitable distribution of development benefits and environmentally

sustainable development of the energy sector.

26

Monitor the progress of the TERM implementation and meet with the GOT

Development Partners annually to review the TERM.

Oversee and approve the operation of TERM-IU, in particular to budget, staffing

and TERM-IU program implementation of TERM.

TERM-C is a dedicated and collective policy management oversight organization

(whilst independent of discreet energy related Ministries) in order to be able to

support the achievement of TERM objectives.

TERM Implementation Unit (TERM-IU): TERM-IU is the operating entity under TERM-

C directly implementing TERM. The Implementation Unit was given the following

mandate by TERM-C:

Implement TERM objectives as detailed in the TERM document, endorsed by

TERM-C and approved by Cabinet.

Source development partner funding for the operation of TERM-IU and TERM

projects for a period of not less than 5 years (3 years remaining from April 2012).

Recruit appropriate staff for TERM–IU (local and overseas technical expertise).

Coordinate the projects and different phases of TERM implementation.

Provide secretariat services to TERM-C.

The interim TERM-IU Director was appointed in February 2012 for a period of six

months. The substantive TERM-IU Director will be appointed by July 2012 for a term of

two years, and will be responsible for inter alia; quality, relevance, and coherence of the

work of the Unit as well as recruitment of key personnel for the IU; design and

implementation of the Unit‟s work program for the first two years; and monitoring and

regular reporting of the Unit‟s activities and outputs to the TERM-C. The Director of

TERM-IU is not a Member of TERM-C but presents and reports on relevant matters to

TERM-C during its normal meetings and provides secretariat support services, through

the TERM-IU, at TERM-C meeting.

In addition to the TERM-IU Interim Director, three core TERM-IU staffs are currently in

place, including an executive assistant to the Interim Director, an accountant and a

statistics officer. All administrative work relating to the functioning of TERM-IU and

secretariat support for TERM-C is currently being carried out by these staff, with more

staff envisaged to be recruited after the appointment of the permanent TERM-IU

Director.

Technical assistance: The operation laid the background for technical assistance for

policy, legal, regulatory adjustments; establishment of TGIF, data gathering, resource

assessments and technical studies; environmental screening, assessment of impact of

environmental change on energy infrastructure; and Strategic Environmental Impact

Assessment.

(c) Other Unintended Outcomes and Impacts (positive or negative, if any)

27

This operation, being the first DPO in Tonga, allowed the government to understand the

Bank‟s DPO type of instrument for policy dialogues. Based on this experience, the

government has now become very comfortable with DPOs which have become the

centerpiece of current policy dialogues.

4. Assessment of Risk to Development Outcome

Rating: Low or Negligible

The achievements of the TESDPO are highly sustainable. The operation has further

strengthened the TERM implementation and led to the two follow-up operations:

TERM Institutional and Regulatory Framework Strengthening Project

(TERM-IRFSP): The TERM-IRFSP will further support TERM implementation

by providing support to achieve the medium-term energy sector outcomes

identified in the TERM. The proposed development objective is the strengthening

of the institutional and regulatory framework of the Tonga Energy Road Map. It

will provide assistance to strengthen the core institutions and regulatory

framework relating to TERM and it is a key precursor for the ongoing and

planned operations under the Energy Road Map.

Economic Recovery Operation (ERO): In addition to strengthening public

financial management and fiscal policy, ERO will further support structural

reforms in the energy sector. The specific policy actions in the energy sector

include: (a) reforming electricity tariff that provides full cost recovery, financial

incentives for improving efficiency in generation and distribution; (b) regulatory

framework for the petroleum sector; and (c) advancing public enterprise reforms

in the energy sector like transparency of accounts/audits of the TPL initiated as

part of the DPO. The GOT has instituted measures for sustaining improved

efficiency, accountability and transparency of public finance management Some

of the measures implemented include:

a. Instituted an in-year budget reporting system that tracks key budget

information on a monthly and quarterly basis to strengthen budget execution

and has agreed to make the quarterly budget public.

b. Reformed budget calendar s as to make budget proposals available to the

public when tabled in the Legislative Assembly to improve transparency in

the process.

The Bank‟s continuing engagement in the energy sector and macroeconomic programs

and technical assistance are expected to further mitigate risks related to capacity

constraints.

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5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry


The Bank‟s performance in the preparation and implementation of this DPO was

satisfactory. The operation focused on critical gaps and opportunities for interventions in

the energy sector by providing budget support to reduce the near-term fiscal deficit and

reinforcing the importance of implementation of energy sector reforms necessary to

reduce Tonga‟s vulnerability to oil price rise and shocks, which otherwise would pose a

significant risk to achieving stable growth in the medium term. The above objectives

were consistent with the development priorities of the government and the Bank‟s CAS.

During the preparation of the operation the Bank maintained intense dialogue with the

government and the key stakeholders and the operation was closely aligned with the

TERM approach in the energy sector. The operation was developed based on the

following analytical works:

Tonga Energy Road Map 2010-20, Report on Tonga Electric Supply System-a

load forecast; Renewable energy supply to the four island grids in Tonga; May

2010. World Bank / Pacific Region Infrastructure Facility (PRIF).

Demand-Side Management (DSM): Opportunities for improved efficiency in

converting delivered electricity to useful energy services. May 2010. Econoler

International. ADB.

Tonga Off-Grid Electrification Initiative, Final draft April 2010, IRENA and

Government of Tonga.

Opportunities for Improved Efficiency in Tonga Petroleum Supply Chain

Efficiency and Price Hedging Options. June 2010. Portland Ltd. World Bank /

Pacific Region Infrastructure Facility (PRIF).

Regulation of Tonga‟s Petroleum Sector. June 2010, World Bank.

(b) Quality of Supervision


The Bank's performance during implementation of the project was satisfactory. Even

though there was no formal supervision since this was a one-tranche operation disbursed

on the basis of achievement of prior actions, there was implicit supervision of the

program during preparation of the follow-on operation, the Tonga Energy Road Map

Implementation Project. During this period, the task team focused on the development

impact of the operation, and played an active role in ensuring adequate transition

arrangements in line with the TERM.

29

The task team focused on the project‟s development impact by providing budget support

and promoting resilience to oil price shocks. The Bank allocated sufficient budget and

staff resources, and the project was adequately supervised and closely monitored. The

task team regularly prepared and alerted GOT and PCU about issues found during project

execution and facilitated prompt corrective action. The Bank maintained very close

interaction with the GOT throughout the implementation of the DPO through frequent

missions and close interactions with the counterparts. The Bank‟s liaison office in Tonga

facilitated close dialogues with government officials on a regular basis.

(c) Justification of Rating for Overall Bank Performance


On the basis of the above assessments of Bank performance in ensuring quality at entry

and in quality of supervision, overall Bank performance is rated Satisfactory.

5.2 Borrower Performance


The Ministry of Finance and the Prime Minister‟s office took full ownership of the

operation and served as the implementation agency. As there is no meaningful distinction

between the government and the implementation agency, a rating is only provided for

overall borrower performance.

The Ministry of Finance, with adequate support from the Prime Minister‟s office served

as the implementing agency and took full ownership of the project development and

implementation. The Ministry of Finance furnished relevant documents accompanied by

explanatory notes to the Bank to validate program implementation. It took full

responsibility for overall coordination of supervision and monitoring of program

implementation. The overall support by the Prime Minister‟s office helped the

implementing agency, Ministry of Finance, in proper coordination and communication

across ministries in TERM development and implementation.

The Borrower‟s commitment and ownership of the operation and implementation of the

TERM was adequate and satisfactory. The Borrower‟s commitment was evident in their

successful implementation of the prior actions and interest in implementation of the

TERM and the follow-up TERM-IRFSP project. In 2011, the GOT established a TERM

Implementation Unit (TERM-IU) that is currently headed by a Director that reports

directly to the TERM Committee (TERM-C). TERM-C is to oversee and govern the

planning and implementation processes associated with the Roadmap. TERM-C is

chaired by the Office of the Prime Minister and includes all Chief Executive Officers

(CEOs) of GOT agencies that have an impact on the TERM, e.g., Ministry of Lands,

Surveys and Natural Resources; Ministry of Finance and National Planning (MFNP),

Ministry of Labor, Commerce and Industry (MLCI), Ministry of Environment and

Climate Change (MECC), and the Ministry of Public Enterprises (MPE).

30

The TERM-IU interim Director was appointed in February 2012 for a period of six

months. He was responsible for quality, relevance, and coherence of the work of the Unit

as well as recruitment of key personnel for the IU; design and implementation of the

Unit‟s work program for the first two years; and monitoring and regular reporting of the

Unit‟s activities and outputs to the TERM-C.

The Borrower worked closely with the Bank team in the design and implementation of

this TESDPO and TERM. The positive dialogue resulted in the development of the

follow-up TERM project in the energy sector. 6. Lessons Learned

The following lessons were learned from the development and implementation of this

DPO:

Sectoral development policy operations can be quickly mobilized and achieve

good results in the context of strong reform momentum. The Bank has the ability

to respond quickly to provide budget support when facilitated by strong

government ownership of a reform agenda. The government had a deep

commitment to a sector-specific reform agenda which formed a ready foundation

for the operation when the country needed budget support. The Bank‟s

engagement provided momentum in the right direction at a time when the reform

agenda could have gone off-track due to multiple challenges then facing the

governments. Given a strong government commitment for the reform agenda, the

Bank‟s engagement has assisted the GOT to clarify and sequence its reform

program and provided momentum to implement the reforms in a challenging

fiscal context. Country commitment and ownership are crucial for successful

program implementation.

Project level engagement can assist in identifying key priorities to be supported

through policy operations. The Bank had a very strong engagement in the energy

sector already, and drew on that engagement and related analytical work for the

FY11 Energy DPO, ERO and future operations. Thus this DPO operation

demonstrated how prior sector engagement and dialogue can provide vital

foundation for identifying key policy reforms that can drive further progress in

important sectors, dialogue and engagement. The project demonstrated that

opportunities for project level engagement can lead to progress in the Bank‟s

reengagement in a country like Tonga that was facing macroeconomic and fiscal

instability.

Close coordination and engagement with other development partners in

identification of policy priorities is useful in sectors where the Bank has limited

knowledge and engagement. The Bank at the time of project initiation did not

have sufficient presence and knowledge of the procurement and treasury

31

instruction actions where other development partners had taken the lead. For

instance close coordination with ADB helped GOT in the procurement operations.

The importance of a total sector approach as opposed to isolated interventions in

the sector. Both Technical Assistance and investment support are more effective

when there are real plans and opportunities to put it into practice as in the case of

the development and implementation of the TERM.

In the case of a small country like Tonga there is a real value and efficiency in

packaging reforms in key sectors like energy. Since the capacity of line ministries

is limited, it is important to be realistic about the number of projects and policy

interventions that can be done/ implemented in small countries.

Preparation and implementation resources. Irrespective of the size of the country,

the level of effort of the Bank staff in development and implementation of

projects and policy operations is the same. In the case of a country like Tonga,

though the country is small, the staff time and effort involved in the operation is

close to those in larger economies.

When the Bank implements these types of operations in Pacific countries, there is

a demonstration effect on other neighboring countries and they also become

interested in having similar operations.

Government commitment. For a DPO to be successful a country‟s commitment is

crucial and it will not work just by exerting pressure by the Bank or other donors.

7. Comments on Issues Raised by Borrower/Implementing

Agencies/Partners (a) Borrower/Implementing agencies

To satisfy its obligation to provide the Bank with its own views of the project upon

completion, the borrower submitted a brief letter summarizing its assessment of the

operation (see Annex 4). The borrower also reviewed the final draft ICR and elected not

to provide comments specific to the ICR. The Bank has no comments on issues raised by

the borrower.

(b) Cofinanciers

N/A

(c) Other partners and stakeholders

N/A

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Annex 1. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Kylie Coulson Sr. Financial Management

Specialist EAPFM Financial Management

Nicole Forrester Program Assistant EACNF Program Assistance

Virginia Horscroft Senior Economist EASPR Economics

Wendy E. Hughes Lead Energy Economist EASNS Energy Economics

Cristiano Costa e Silva

Nunes Senior Procurement Specialist EAPPR Procurement

Arun P. Sanghvi Consultant EASNS Consultant

Vivek Suri Lead Economist EASPR Economics

Ana Tuionuku Consultant EASNS Consultant

Supervision

(b) Staff Time and Cost

Stage

Staff Time and Cost (Bank Budget Only)

No. of staff weeks US$ Thousands

(including travel and consultant costs)

Lending

FY11 6.41 29.71

Total: 6.41 29.71

Supervision/ICR

FY11

FY12 5.10 19.20

Total: 5.10 19.20

33

Annex 2. Beneficiary Survey Results

N/A

34

Annex 3. Stakeholder Workshop Report and Results

N/A

35

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR

36

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders

N/A

37

Annex 6. List of Supporting Documents

Program Document: Kingdom of Tonga Energy Sector Development Policy Operation, Report

No. 56689-TO, September 15, 2010.

Project Information Document: Tonga Energy Development Policy Project, Report No. AB 5990,

September 9, 2010.

Financing Agreement: Tonga Energy Sector Development Policy Financing, October 19, 2010.

Program Document: Kingdom of Tonga-Economic Recovery Operation, October 21, 2001 Report

No. 64671.

Project Paper for small grant: Kingdom of Tonga- Tonga Energy Road Map Institutional and

Regulatory Framework Strengthening Project, June 8, 2012.

N I U A S

VAVA ' U

H A ' A PA I

TONGATAPU

E U A

Neiafu

Pangai

Ohonua

NUKU'ALOFA

Niuafo'ou

Fonualei

Vava'u

Vava'uGroup

Ha'apaiGroup

KotuGroup

NomukaGroup

Late

KaoTofua

Ha'anoOfolanga

Foa

Uiha

Nomuka

HungaTongaHunga

Ha'apai

Fonuafo'ou

TongatapuEua

UolevaLifuka

Toku

TafahiNiuatoputapu

Otu ToluGroup

Albert MeyerReef

S O U T H

P A C I F I C

O C E A N

18°S

16°S

20°S

18°S

20°S

176°W 174°W

176°W 174°W

172°W

TONGA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 25 50

0 25 50 Miles

75 Kilometers

IBRD 33498

NOVEM BER 2004

TONGADIVISION CAPITALS

NATIONAL CAPITAL

REEFS

DIVISION BOUNDARIES

INTERNATIONAL BOUNDARIES

Document of The World Bank Report No: ICR00002334 ......TERM Tonga Energy Road Map TERM-A Tonga...

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