nauru: electricity supply security and sustainability project...nauru utilities corporation...

Completion Report

Project Number: 46455-002 Grant Numbers: 0414, 0424, and 0443 October 2019

Nauru: Electricity Supply Security and Sustainability

Project

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – Australian dollars (A$)

At Appraisal At Project Completion (13 September 2014) (29 December 2017)

A$1.00 = $0.91 $0.78 $1.00 €1.00

= =

A$1.10 $1.29

A$1.28 $1.19

ABBREVIATIONS

ADB – Asian Development Bank CEO − chief executive officer DMF

DSC EIRR EU FIRR IMF IEE kV kWh MW NUC O&M SAIDI SAIFI

– – – – – − – – – – – – − –

design and monitoring framework design and supervision consultant economic internal rate of return European Union financial internal rate of return International Monetary Fund initial environmental examination kilovolt kilowatt-hour megawatt Nauru Utilities Corporation operation and maintenance System Average Interruption Duration Index System Average Interruption Frequency Index

TA technical assistance

NOTES

(i) The fiscal year (FY) of the Government of Nauru and its agencies ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 30th June 2018.

(ii) In this report, “$” refers to United States dollars unless otherwise stated.

Vice-President Ahmed M. Saeed, Operations 2 Director General Ma. Carmela D. Locsin, Pacific Department (PARD) Director Lotte Schou-Zibell, Pacific Liaison Coordination Office, PARD

Team leader Pivithuru Indrawansa, Senior Infrastructure Specialist, PARD Team members Vinoo Jose, Senior Operations Assistant, PARD Camilla Solomon, Country Coordination Officer, PARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 2

A. Project Design and Formulation 2

B. Project Outputs 3

C. Project Costs and Financing 4

D. Disbursements 4

E. Project Schedule 5

F. Implementation Arrangements 5

G. Technical Assistance 6

H. Consultant Recruitment and Procurement 6

I. Gender Equity 7

J. Safeguards 7

K. Monitoring and Reporting 8

III. EVALUATION OF PERFORMANCE 8

A. Relevance 8

B. Effectiveness 9

C. Efficiency 9

D. Sustainability 10

E. Development Impact 11

F. Performance of the Borrower and the Executing Agency 11

G. Performance of Cofinanciers 12

H. Performance of the Asian Development Bank 12

I. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 13

A. Issues and Lessons 13

B. Recommendations 14 APPENDIXES

1. Design and Monitoring Framework 16

2. Chronology of Main Events 19

3. Project Cost at Appraisal and Actual 20

4. Disbursement of Grant Proceeds 23

5. Contract Awards of Grant Proceeds 26

6. Project Implementation Schedule 29

7. Completion Report⎯Nauru: Tariff and Subsidy Policy Reform 30

8. Status of Compliance with Covenants 31

9. Assessment of Project Impacts and Benefits 41

10. Economic Analysis 51

11. Financial Analysis 54

12. Status of Implementing ADB TA Recommendations 57

BASIC DATA A. Grant Identification

1. Country Republic of Nauru 2. Grant number and financing

source 0414 - ADF 0424 - European Union 0443 - Government of Australia Government of Nauru (counterpart)

3. Project title Electricity Supply Security and Sustainability Project

4. Recipient Ministry of Finance 5. Executing agency Ministry of Finance 6. Amount of grants Original Financing

Grant 0414: $2,000,000 Grant 0424: $2,700,000 (equivalent)

Additional Financing Grant 0443: $4,736,000 (equivalent)

7. Financing modality Project Grant B. Grant Data

1. Appraisal – Date started – Date completed

10 January 2014 31 October 2014

2. Grant negotiations – Date started – Date completed

5 September 2014 (Grants 0414/0424) 28 August 2015 (Grant 0443) 5 September 2014 (Grants 0414/0424) 28 August 2015 (Grant 0443)

3. Date of Board approval 07 November 2014 (Grants 0414/0424) 16 October 2015 (Grant 0443)

4. Date of grant agreement

09 February 2015 (Grants 0414/0424) 06 November 2015 (Grant 0443)

5. Date of grant effectiveness – In grant agreement – Actual – Number of extensions

10 May 2015 (Grants 0414/0424) 04 February 2016 (Grant 0443) 16 April 2015 (Grants 0414/0424) 08 January 2016 (Grant 0443) None

6. Grant completion date – Appraisal – Actual

30 June 2016 (Grants 0414/0424) 30 March 2017 (Grant 0443) 29 December 2017

7. Grant closing date – In grant agreement – Actual – Number of extensions

31 December 2016 (Grants 0414/0424) 30 September 2017 (Grant 0443) 30 June 2018 (Grants 0414/0443) 30 September 2018 (Grant 424) 2

8. Financial closing date – Actual

23 October 2018

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9. Disbursements a. Dates

Grant Initial Disbursement Final Disbursement

Time

Interval

0414-NAU 22 September 2015 05 September 2018 35.43 months

0424-NAU 22 September 2015 10 October 2018 36.59 months

0443-NAU 10 June 2016 29 June 2018 24.63 months

Grant Effective Date Actual Closing Date Time

Interval

0414-NAU 16 April 2015 30 June 2018 37.47 months

0424-NAU 16 April 2015 30 September 2018 40.47 months

0443-NAU 08 January 2016 30 June 2018 28.74 months

Source: Asian Development Bank.

b. Amounts: Individual Grants, Government Contribution, and Overall

(1) Grant 0414 ($ million)

Category

Original Allocation

(1)

Revised Allocation at

Additional Financing

(2)

Last Revised

Allocation (3)

Amount Canceled

(4)

Net Amount Available (5=3–4)

Amount Disbursed

(6)

Undisbursed Balance (7 = 5–6)

Generator contract Roof replacement contract Design and supervision Consultants

1.28 0.32 0.18

1.28 0.32 0.18

1.07 0.85 0.08

0.00 0.00 0.00

1.07 0.85 0.08

1.06 0.85 0.09

0.00 0.00 0.00

Unallocated 0.22 0.22 0.00 0.00 0.00 0.00 0.00 Total 2.00 2.00 2.00 0.00 2.00 2.00 0.00 Source: Asian Development Bank.


Category

Original Allocation

(1)



(2)

Last Revised

Allocation (3)

Amount Canceled

(4)

Net Amount Available

(5=3-4)

Amount Disbursed

(6)



1.73 0.43 0.24

1.73 0.43 0.24

1.76 0.27 0.11

0.00 0.00 0.00

1.76 0.27 0.11

1.76 0.27 0.11

0.00 0.00 0.00

Unallocated 0.30 0.30 0.00 0.56a 0.00 0.00 0.00 Total 2.70 2.70 2.14 0.56 2.14 2.14 0.00

a Dummy contract cancelled at the grant closing. Source: Asian Development Bank.

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Category

Original Allocation

(1)



(2)

Last Revised

Allocation (3)

Amount Canceled

(4)


(5=3-4)

Amount Disbursed

(6)



0.00 0.00 0.00

4.43 0.00 0.07

4.63 0.00 0.22

0.00 0.00 0.00

4.63 0.00 0.22

4.63 0.00 0.22

0.00 0.00 0.00

Unallocated 0.00 0.24 0.00 0.00 0.00 0.00 0.00 Total 0.00 4.74 4.85 0.00 4.85 4.85 0.00


(4) Government of Nauru Contribution ($ million)

Category

Original Allocation

(1)



(2)

Last Revised

Allocation (3)

Amount Canceled

(4)


(5=3-4)

Amount Disbursed

(6)



0.00 0.00 0.00

0.00 0.00 0.00

2.57a 0.00 0.00

0.00 0.00 0.00

2.57 0.00 0.00

2.57 0.00 0.00

0.00 0.00 0.00

Government in-kind contributionb Unallocated

0.84 0.04

1.20 0.00

1.20 0.00

0.00 0.00

1.20 0.00

1.20 0.00

0.00 0.00

Total 0.84 1.20 3.77 0.00 3.77 3.77 0.00 a Covers A$3.289 million equivalent monetary contribution by the Government of Nauru to meet the project’s financing gap (cost overrun). b Government in-kind contribution in the form of taxes and duties foregone through exemption. Source: Asia Development Bank.

(5) Overall ($ million)

Category

Original Allocation

(1)



(2)

Last Revised

Allocation (3)

Amount Canceled

(4)


(5=3-4)

Amount Disbursed

(6)



3.00 0.76 0.40

7.42 0.76 0.49

10.17a 1.11 0.43

0.00 0.00 0.00

10.17 1.11 0.43

10.03a 1.11 0.42

0.00 0.00 0.00

Government in-kind contributionb Unallocated

0.84 0.54

1.20 0.77

1.20 0.67

0.00 0.67c

1.20 0.00

1.20 0.00

0.00 0.00

Total 5.54 10.64 13.58 0.67 12.76 12.76 0.00 a Includes $2.57 million equivalent (A$3.289 million) monetary contribution by the Government of Nauru. b Government in-kind contribution in the form of taxes and duties foregone through exemption. c Dummy contract cancelled at grant closing. Source: Asian Development Bank.

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate

Original Project At Additional

Financing Actual

Foreign exchange cost 4.70 9.44 8.99 Local currency cost 0.84 1.20 3.77a

Total 5.54 10.64 12.76

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a Includes $1.20 million in-kind contribution and $2.57 million equivalent (A$3.289 million) monetary contribution by the Government of Nauru. Source: Asian Development Bank.

2. Financing plan ($ million)

Cost Appraisal Estimate


Financing Actual

Financed by ADB 2.00 2.00 2.00

Financed by the EU 2.70 2.70 2.14

Financed by the Government of Australia 0.00 4.74 4.85

Financed by the Government of Nauru (recipient)

0.84a 1.20a 3.77b

Total implementation cost 5.54 10.64 12.76

ADB = Asian Development Bank, EU = European Union. a Government in-kind contribution in the form of taxes and duties foregone through exemption. b Includes $2.57 million equivalent (A$3.289 million) monetary contribution by the Government of Nauru. Source: Asian Development Bank.

3. Cost breakdown by project component ($ million)

Component Appraisal Estimate


Financing Actual

Generators and 11 kilovolt switchgear Roof replacement

3.23 0.79

8.01 0.79

10.03a 1.11

Design and supervision consultants Government in-kind contributionb Unallocated

0.41 0.57 0.54

0.50 0.57 0.77

0.42 1.20 0.00

Total 5.54 10.64 12.76 a Includes $2.57 million equivalent (A$3.289 million) monetary contribution by the Government of Nauru. b Government in-kind contribution in the form of taxes and duties foregone through exemption. Source: Asian Development Bank

4. Project schedule

Item

Appraisal Estimate

Original Project

At Additional Financing

Actual

Design and supervision consultant contract Date of contract signing March 2015 March 2015 29 April 2015 Completion of engineering designs May 2015 July 2015 12 October 2015 Contract completion December 2016 December 2016 30 June 2018

Roof replacement contract Date of award October 2015 January 2016 16 March 2016 Completion of work March 2016 July 2016 8 February 2017

Generators and 11 kilovolt switchgear Date of award December 2015 February 2016 8 April 2016 Completion of equipment installation, commissioning

August 2016 February 2017 29 December 2017


5. Project performance report ratings

Implementation Period Single Project Rating From 16 April 2015 to 30 June 2015 On Track From 1 July 2015 to 30 September 2015 Potential Problem From 1 October 2015 to 31 December 2015 Actual Problem From 1 January 2016 to 31 March 2016 On Track

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Implementation Period Single Project Rating From 1 April 2016 to 30 June 2016 From 1 July 2016 to 30 September 2016 From 1 October 2016 to 31 December 2016

On Track On Track On Track

From 1 January 2017 to 31 March 2017 Potential Problem From 1 April 2017 to 30 June 2017 From 1 July 2017 to 30 September 2017 From 1 October 2017 to 31 December 2017

Potential Problem Potential Problem On Track

From 1 January 2018 to 31 March 2018 On Track From 1 April 2018 to 30 June 2018 From 1 July 2018 to 30 September 2018 From 1 October 2018 to 31 December 2018

On Track On Track On Track


D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Members

Investment fact-finding 9−12 July 2014 1 4 a Inception 6−10 June 2015 1 5 a Midterm review 12−17 June 2016 1 5 a Review Review

22−25 October 2017 25−27 January 2018

1 1

3 3

a a

Completion review 23−25 May 2019 3 3 a, b, and c

a = project officer, b = project analyst, c = economic and financial evaluation consultant. Source: Asian Development Bank.

I. PROJECT DESCRIPTION 1. Nauru is a Pacific island country with a population of about 13,000 people.1 It is the world’s smallest island nation, and one of the most remote. The Government of Nauru’s long-term National Sustainable Development Strategy for 2005–2025 envisions “a future where individual, community, business and government partnerships contribute to a sustainable quality of life for all Nauruans.”2 The strategy’s energy sector goals include the establishment of a reliable, affordable, secure, and sustainable energy supply to meet the country’s socioeconomic development needs. 2. Based on the government’s development strategies, the Nauru Utilities Corporation (NUC), Nauru’s sole electricity utility, has developed an energy road map as an implementation plan for achieving the government’s energy sector goals.3 One ambitious target has been to increase the share of renewable energy generation for the NUC power grid system to 50% by 2020. Nauru, however, has no hydro or geothermal energy resources, making solar its primary potential renewable energy source. Other green options—wind, bioenergy, and ocean energy—need further investigation. As of 2014, renewable energy was contributing only about 1% to its power supply. The other 99% was being supplied by diesel generators (footnote 2). 3. Given that solar power generation and battery technology remained at an early stage of development, it was clear that base load power in the country would have to remain reliant for the foreseeable future on fossil fuels (diesel). However, NUC’s existing generation capacity was not meeting the country’s total 10.75-megawatt (MW) electricity demand due to underinvestment in and poor maintenance of generation and distribution assets. The installed nameplate capacity of NUC’s eight generation units was about 12 MW, but available capacity from the generating units totaled only 3.70 MW. Three units were inoperable, and the capacities of the other five had been significantly de-rated. Total peak load was only 3.75 MW. Scheduled power supply curtailments were constant, and unscheduled outages very frequent. The fact that NUC’s powerhouse was in poor condition structurally only added to the country’s energy insecurity. 4. The consequences of a failing power system were extensive. The high cost of power generation imposed a major burden on the government’s annual budget—the government’s fuel subsidy to NUC amounted to about 24% of the government’s FY2012 budget of $29.5 million. Given the poor service delivery, most of NUC’s consumers, commercial customers in particular, were disconnecting from the grid and using high-cost independent generation units. Losing these major power consumers hurt NUC revenues, and government funds had to be diverted to prop up its operations. Expensive independent generation meanwhile was having negative impacts on Nauru’s development and the quality of life of all of its people. 5. The government requested development partner support to reduce the risk of catastrophic total failure of Nauru’s power system. The Asian Development Bank (ADB) responded in 2014 by approving the Electricity Supply Security and Sustainability Project to be financed with a $2.0 million grant from ADB and equivalent of $2.7 million (€2.0 million) of cofinancing through a grant

1 Based on an International Monetary Fund (IMF) news release and statement by the International Monetary Fund

(IMF) executive director for Nauru on IMF Article IV consultation in 2017. 2 Government of Nauru. 2009. National Sustainable Development Strategy, 2005−2025. Nauru. The strategy was first

published in 2005 and reviewed in 2009. 3 NUC. 2014. Nauru Energy Road Map, 2014–2020. Nauru.

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from the European Union (EU).4 In February 2015, the government and ADB signed a Special Fund grant agreement for the ADB financing and an externally financed grant agreement for the EU financing. The original grants closing date for both ADB and the EU financing was 31 December 2016.

6. As per the design and monitoring framework (DMF), the project’s intended impact was increased economic activity in Nauru (footnote 4). The government expected that all NUC customers will enjoy a more reliable electricity supply and fewer outages when the project was completed. This in turn will enable the NUC to resume supplying commercial and industrial customers that had abandoned the grid to generate power independently. The project’s outcome was to be increased reliability, lower cost, and greater sustainability of power generation in Nauru. A 50% drop in power outages was targeted for December 2016, and generation efficiency was to increase from 3.4 kilowatt-hours (kWh) per liter of fuel consumed to 4.1 kWh per liter. The project’s intended outputs were supplying and installing a new, medium-speed, 2.6–3.0 MW diesel generator; repairing and/or replacing existing roof and structural reinforcements of NUC’s powerhouse; and ensuring efficient project implementation.

7. Additional financing. In September 2015, ADB approved additional financing in the form of a A$6.40 million grant ($4.74 million) solely from the Government of Australia to enhance the project objectives by installing a second new medium-speed 2.6–3.0 MW diesel generator and an 11-kilovolt (kV) switchgear.5 NUC expected the additional financing and expanded project scope to help further shorten unplanned power blackouts and establish uninterrupted 24-hour electricity supply. It projected that the project will enable NUC to resume electricity supply to more disengaged and unserved commercial and industrial customers, as well as increase peak load by 20% by 2018 from 3.75 MW to 4.5 MW.

8. The cofinancing grants from the EU and the Government of Australia were fully administered by ADB.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 9. ADB designed and formulated the project to help meet the government’s energy sector goal under its National Sustainable Development Strategy for 2005–2025 (para. 1). The project is also aligned with NUC’s energy road map objective of securing the reliability and efficiency of NUC base load generation. The project was included in ADB’s country operation business plan, 2014–2016 for Nauru.6 10. The project design was appropriate, addressed the government’s energy sector needs and plans, and fit well alongside the energy sector support from other development partners. The EU’s Nauru development program included help for NUC in upgrading its distribution system, improving network capacity and reliability, and reducing system loss. The Government of Australia was providing assistance to NUC to meet recurrent costs, finance the procurement of generation

4 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Grant, Technical

Assistance Grant, and Administration of Grant to Nauru for the Electricity Supply Security and Sustainability Project. Manila.

5 ADB. 2015. Additional Financing: Electricity Supply Security and Sustainability Project in Nauru. Manila. 6 ADB. 2016. Country Operations Business Plan: Nauru, 2014−2016. Manila.

https://www.adb.org/sites/default/files/project-document/149083/46455-002-rrp.pdf

https://www.adb.org/sites/default/files/project-document/149083/46455-002-rrp.pdf

https://www.adb.org/projects/documents/nauru-electricity-supply-security-and-sustainability-af-sep-2015-mcs

https://www.adb.org/documents/nauru-country-operations-business-plan-2014-2016

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and distribution assets, and cover the expense of engaging expatriate management personnel including NUC’s chief executive officer (CEO).

11. The project included project preparatory technical assistance (TA) and associated TA (footnote 4).7 Project preparatory TA work was sound and included a participatory approach to formulation that adequately addressed the technical, economic, financial, governance, environmental, social safeguards, and other necessary due diligence. The associated TA sought to ensure post-project sustainability by advising NUC on the appropriate reforms for electricity subsidies and setting tariffs. The level of NUC staff and other stakeholder engagement and participation during project formulation, design, and implementation was encouraging. Their ownership of the project was evident throughout.

12. The one major project change during implementation was the addition, through additional financing, of the installation of a second similar generator to the one initially planned (para. 7). This enhanced the relevance of the project design by aiming to further shorten unplanned power blackouts and to ensure uninterrupted 24-hour electricity supply. The project was relevant at appraisal, at additional financing and at completion. The financing modality was appropriate.8

B. Project Outputs 13. The original project’s outputs at appraisal included (i) putting new diesel-fired generation into service, to be achieved by installing a new, medium-speed, 2.6–3.0 MW diesel generator, together with related auxiliary equipment and training of NUC staff on operation and maintenance (O&M), and (ii) repairing and/or replacing existing roof and structural reinforcement of the NUC powerhouse. Output 1 was expanded with the additional financing to include the installation of the second similarly rated diesel generator, along with the switchgear. The third output was efficient project implementation. The project team achieved this by engaging a design and supervision consultant (DSC) during project implementation. The outputs were originally to be achieved by 30 June 2016 and were extended to 31 December 2016 at additional financing. 14. The project team delivered the project outputs fully and successfully. Two new medium-speed, each 2.85 MW diesel generators were installed in the NUC powerhouse, together with the switchgear and other related auxiliary equipment, and commissioned after a 12-month delay on 29 December 2017 (para. 20). DSC and generator contractor trained the NUC personnel, who are now capable of effective O&M of these new assets without external support. The planned repairs and replacement of the existing roof and the structural reinforcement of NUC’s powerhouse were completed on 8 February 2017 with 1-month delay. Asbestos material was removed from the powerhouse and safely disposed of. NUC implemented the project successfully with the support of the DSC, whose services were completed on 30 June 2018. The comparison of actual achievements with the project’s DMF is in Appendix 1. Appendix 2 provides a chronology of the main events during project processing and implementation.

7 The project team prepared project preparatory technical assistance.

https://www.adb.org/projects/documents/electricity-supply-security-and-sustainability-pptar 8 The project was entirely financed with grant financing in accordance with ADB’s policy on classification and

graduation of developing member countries. Nauru, classified as a group A country, was eligible for full concessional assistance from ADB based on (i) gross national income per capita; and (ii) its lack of creditworthiness, as assessed by IMF (footnote 1).

https://www.adb.org/projects/documents/electricity-supply-security-and-sustainability-pptar

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C. Project Costs and Financing 15. At appraisal, the project cost was estimated at $5.54 million, to be financed with $2.00 million from ADB, the equivalent of $2.70 million from the EU, and the equivalent of $0.84 million in government counterpart financing (comprising in-kind contributions of $0.57 million and tax and duty exemptions of $0.27 million). The overall project cost estimate increased by $5.10 million to $10.64 million after approval of the additional financing. Of this additional amount, the Government of Australia provided the equivalent of $4.74 million and the government contributed $0.36 million in tax and duty exemptions. 16. The actual final cost of the expanded project at completion was $12.76 million, $2.12 million or 19.8% more than $10.64 million of the overall estimates after additional financing. The resulted cost overrun was due to higher-than- expected bid prices for the two diesel generators and the government’s decision to meet the elevated costs rather than return to the project’s original scope of adding the single generator. Based on the country’s and NUC’s acute need for greater power generation capacity, the government met the financing gap through its budget.9 NUC identified the unanticipated high bid prices to be due to external factors and the logistical constraints associated with Nauru’s remoteness. 17. The project required three minor changes during implementation to introduce additional cost categories and reallocate grant proceeds to align with disbursement requirements and to mitigate exposure to currency fluctuations.10 Details of the project costs are in Appendix 3.

D. Disbursements 18. The cumulative contract commitments at completion were $11.56 million—$8.99 million from grant financing and equivalent $2.57 million (A$3.29 million) from the government’s monetary contribution. ADB disbursed the grant financing following ADB’s Disbursement Handbook (2017, as amended from time to time), using direct payment procedures. The government directly disbursed the government funds. 19. The disbursement projections made at project effectiveness were not realistic. The disbursement period was extended by 21 months from the original closing date of 31 December 2016 to actual closing on 30 September 2018. The project’s first disbursement was made on 22 September 2015 for the first two grants, followed by another on 10 June 2016 for the third grant. Final disbursements were made on 5 September 2018, 10 October 2018, and 29 June 2018 under each grant. Implementation delays caused prolonged disbursement, not due to institutional or capacity-related issues (para. 20). The project’s contract disbursements and commitments are in Appendixes 4 and 5.

9 The total monetary contribution met by the government was equivalent to $2.57 million (A$3.29 million). This resulted

from total equivalent grant financing available to meet contract commitments at completion in (i) the EU financing reduced by $0.56 million to equivalent $2.14 million from $2.7 million at approval, and (ii) the Government of Australia financing increased by $0.11 million to equivalent $4.85 million from $4.74 million at approval. The variations in grant financing at completion were mainly due to the impact of the foreign currency exchange rates at disbursements and gains from investment income.

10 The project financing under three grants and the disbursement under three contracts were denominated in several currencies. ADB agreed by the government created additional cost categories, and reallocated funds to enable disbursements to come as much as possible from accounts denominated in matching currencies.

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E. Project Schedule 20. Implementation was delayed by 18 months from the original completion date of 30 June 2016 or by 12 months from the completion date at the additional financing on 31 December 2016 until the two new generators were commissioned on 29 December 2017. Grant closing was delayed by 22 months, from 31 December 2016 as originally planned or by 16 months from 30 June 2017 as planned at additional financing until the actual financial closing of all grants on 23 October 2018.11 Several factors slowed down the project’s implementation. The lengthy government approval process, which required cabinet approval before grant signing, as well as by the extended time needed to meet grant effectiveness conditions led to an initial 5-month gap between project approval on 7 November 2014 and project effectivity on 16 April 2015. There was a 1-month delay in engaging DSCs. The invitation for bids in procurement of the generators was postponed by 3 months from July 2015 to October 2015 by a delay in confirming the additional financing from the Government of Australia for the second generator.12 To benefit from economies of scale, NUC procured the two generators through a single contract. This procurement was delayed from February 2016 to April 2016, and the logistical constraints associated with Nauru’s location and, often unsafe marine cargo handling facilities delayed the supply and commissioning of the generators by a further 7 months. Unloading challenges required that generators be shipped first from India to Brisbane in Australia by a larger vessel and then transferred to a barge for the remaining sea voyage to Nauru. 21. Financial closing in October 2018 came 10 months after the generator commissioning in December 2017. Time was needed for reconciliation of the grant financing, which involved multiple currencies, and to complete contractor payments. The final disbursement had to be delayed until the final tranche of the EU grant was received in September 2018.13 The project schedules at appraisal and as implemented are in Appendix 6. F. Implementation Arrangements 22. NUC generally applied the implementation arrangements, which proved adequate for delivering the intended outputs and achieving the project outcome. No major change or unexpected events occurred after project approvals. The Ministry of Finance was the executing agency, and the NUC the implementing agency. The project steering committee appointed by the government to advise and oversee implementation convened periodically to identify and remedy issues and provided guidance to NUC. 23. The government established a project management unit under NUC into which the consulting services were integrated. The DSC provided particular assistance in the development of tender-level designs, specifications, and procurement. NUC’s CEO directed the day-to-day implementation of the project components. NUC’s financial controller supported him in disbursing contract payments and in preparing audit reports, and the generation manager supported him in

11 ADB approved the first extension of the grant closing date to 30 June 2018 in August 2016. In June 2018, ADB

granted the second extension to 30 September 2018. 12 The Government of Australia confirmed its intention to provide A$6.4 million to procure the second generator on 25

May 2015. ADB and NUC were discussing with the Government of Australia for financing the second generator since May 2014. Given the Government of Australia’s confirmation of its intention to finance was received (25 May 2015) after approval of the project in November 2014, ADB processed an additional financing for Australia cofinancing and ADB approved it in October 2015.

13 Per ADB’s request on 29 June 2018, the EU confirmed the release of the final tranche of EU financing on 31 August 2018.

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technical matters during the installation and commissioning of the generators. The DSC’s scope of services did not include support to NUC in long-term in-country contract supervision especially during the rehabilitation of the powerhouse building and installation and commissioning of the generators.14 NUC’s CEO’s direct supervision of the contract implementation and the generation manager’s technical oversight successfully mitigated the contract supervision risk. G. Technical Assistance 24. ADB approved the project preparatory TA on 28 November 2013, and it became effective on 10 January 2014. The consulting firm engaged under the project preparatory TA conducted the required due diligence with a clear understanding of Nauru’s energy sector needs and NUC’s electricity generation gaps. Project due diligence covered the preparation of the preliminary scope for powerhouse repairs and replacement; a specification and investment plan for supply, installation, and commissioning of the generating units and related auxiliary equipment; the development of environmental and social safeguards and governance requirements; and the development of financial and economic assessments. These initial assessments helped in achieving the project’s performance targets and justified the use of required financing for the ensuing project. 25. The TA for tariff and subsidy policy reform that was included in the project as associated TA became effective with project approval on 7 November 2014. The consultant firm engaged under the TA mobilized on 14 October 2015 and completed services by 30 June 2017. The TA closed on 31 October 2017 after a 16-month delay. The TA was rated successful in the TA completion report approved on 13 June 2018. The report considered the TA (i) relevant, because its design remained appropriate and aligned with the government and ADB plans to improve long-term sustainability of Nauru’s utilities sector; (ii) effective, because it provided realistic recommendations for improving cost-recovery revenue following international good practice; (iii) efficient, since its intended outcomes were being achieved progressively with strong NUC commitment; and (iv) likely sustainable, because NUC had already begun implementing TA recommendations and was committed to carrying out the recommended medium- and long-term reforms. The published TA completion report is in Appendix 7. H. Consultant Recruitment and Procurement 26. Consultant recruitment. DSC recruitment was completed in April 2015, using ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time), the quality- and cost-based selection method, and an 80:20 quality–cost ratio. NUC signed the consultant contract on 29 April 2015, and it became effective on 8 May 2015. The DSCs’ engagement was delayed by 1 month. Other than amending the procurement plan to apply quality- and cost-based selection rather than the fixed budget selection method envisaged at appraisal, the agreed procedures did not change. No disagreements were recorded between the government, NUC, and ADB regarding consultant selection. 27. Procurement. The original contract award projections were not realistic given the initial delays in signing the grant agreement, declaring grant effectiveness, engaging consultants, preparing bidding documents, extending bid closing date, evaluating bids, and awarding contracts (para. 20). NUC procured two contracts (works and a plant) following ADB’s Procurement Guidelines (2013, as amended from time to time) through international competitive bidding using

14 DSC’s supervision scope was limited to intermittent country supervision at milestone events for certification of the

work done.

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the single-stage, one-envelope bidding procedure. NUC and ADB advertised the civil works contract for powerhouse rehabilitation works on 12 October 2015 and awarded on 16 March 2016, with contract signing on 24 March 2016. NUC and ADB advertised the plant contract for supply, installation, and commissioning of the two medium-speed diesel generators and 11kV switchgear on 12 October 2015 and awarded on 8 April 2016, with contract signing on 3 May 2016. The contract awards suffered an overall 2-month delay against projections at approval of the additional financing. There were no issues encountered in packaging the contract, preparing bidding documents, advertising bids, issuing addenda, bid receipts, bid opening and evaluating bids. However, NUC and the successful bidder for the generator contract had to undergo extensive negotiation before the awarding of the contract to agree on the required scope of civil works, measures to mitigate challenges in the logistics and the generator delivery schedule. 28. Performance of consultants and contractors. DSC’s performance is rated satisfactory as they fulfilled the terms of reference and delivered all outputs required under the contract. DSC successfully mitigated all technical challenges during roof and generator designs, introduced good practices in project management, and supported NUC during implementation supervision (paras. 57−58). The roof and generator contractor performance are rated satisfactory. All works were completed to relevant contract specifications despite delays mainly due to Nauru’s remoteness (para 20). DSC and NUC inspected the completed work at the commissioning and have not identified defects at the end of defects notification period. The quality of work is rated satisfactory. I. Gender Equity 29. The confined nature of the works presented limited, if any, opportunity for gender-sensitive designs or enhanced participation of women in the project and therefore the project was classified no gender elements, and a gender action plan was not required. J. Safeguards 30. Environmental safeguards. The project was classified category B for environment following ADB’s Safeguard Policy Statement (2009). Project preparatory TA prepared the project’s initial environmental examination (IEE), including an environmental management plan, as part of the project’s due diligence. ADB disclosed it on its website in July 2014, updated based on the detailed designs by the DSC in September 2016. The IEE and updated IEE identified the small construction footprint, the limited and temporary nature of the project’s potential adverse environmental impacts from the powerhouse building rehabilitation and the installation and commissioning of the generators, and clearly articulated mitigation measures to lessen them. With DSC support, NUC submitted the semiannual safeguards and environmental monitoring reports to ADB and these were also disclosed on ADB’s website. NUC or DSC did not record any environmental issues during implementation and at the close of the project, and did not note any outstanding environment- related issues. 31. Involuntary settlement and indigenous peoples. The project was classified category C for both involuntary settlement and indigenous peoples. The project did not involve any land acquisition or physical or economic displacement or relocation of people. The rehabilitation and installation works were confined to NUC’s powerhouse, which is located on land already leased to the government. Given that the social safeguards were not triggered, a resettlement plan was not required and the project team prepared a due diligence report. As the project did not affect any distinct and or vulnerable group of indigenous peoples within the Nauruan population, an indigenous peoples plan was not required.

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32. NUC and DSC implemented the project’s communication plan and grievance redress mechanism and provided assistance to any person affected by or concerned with an aspect of the project to have their issue resolved. NUC, supported by DSC, monitored the grievance redress mechanism throughout project implementation and reported in ADB review missions and in the semiannual safeguards monitoring reports. K. Monitoring and Reporting 33. All grant covenants were complied with. The exception involved some delays in submitting audited project and entity financial statements and management letters. The audited financial statement for FY2014/15 did not contain a management letter (para. 34). None of the covenants were modified, suspended, or waived. NUC and ADB assessed all covenants stipulated in legal agreements as relevant and appropriate. NUC, supported by the DSC, provided monthly and quarterly progress reports to ADB in a satisfactory manner that included the status of compliance with grant covenants and the DMF. NUC was proactive in carrying out all project implementation tasks, including procurement, financial management, quality control, and environmental compliance. NUC implemented the reforms recommended under the project’s associated TA. The government restructured the size and form of its subsidy to the utility and revised the retail electricity tariff to reflect NUC’s cost of power generation and service delivery (Appendix 7). The list of covenants and their compliance status is in Appendix 8. 34. NUC assigned initially the government’s Department of Audit and subsequently an external auditor for conducting yearly financial audits of the project and its own accounts. Given that there were no disbursements, submitting audited financial statements of project accounts for the FY2014/15 was deferred. Although submission of audit reports and auditor’s opinions to ADB were sometimes delayed, they were found to be in order, and the unqualified audit opinions were acceptable. Non-submission of a management letter for the FY2014/15 is not a noncompliance as there were no project disbursements during the referenced year. The government provided the counterpart funding required for the project in full and ensured that project implementation was effective and of good quality. ADB assessed NUC’s financial management capabilities at fact-finding as reasonable overall.

III. EVALUATION OF PERFORMANCE A. Relevance 35. The project is rated highly relevant at appraisal, at completion and during foreseeable future (para. 65). The project’s outcome of increased reliability, lower cost, and greater sustainability of power generation was strategically aligned with the Nauru development priority to provide a reliable, affordable, secure, and sustainable energy supply to meet the country’s socioeconomic development needs. It aligned with ADB’s country and sector strategies, including corporate priorities associated with strategic agendas and drivers of change. The project outcome supplemented the designs of development partner programs in Nauru’s energy sector. 36. The project design was appropriate. The integration of the new generators and 11kV switchgear to synchronize effectively with the existing system was innovative and had a transformative effect. The supervisory control and data acquisition system installed under the generator contract as part of the auxiliary equipment enabled networked data communication and graphical user interfaces for high-level process supervisory management. NUC included it based on a careful assessment of the short- and medium-term requirements for NUC to achieve its corporate goals.

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37. The financing modality was the correct one, given the country’s economic and financial constraints (footnote 8). The indicators and targets at various levels in the DMF were well-considered at appraisal and required no material changes during implementation, except to accommodate the expansion of the project scope with the additional financing. The DMF data sources and reporting mechanisms were well-suited to providing the data necessary to assess the achievement of DMF targets. The project’s cost overrun was due not to weak design but to Nauru’s remoteness and the logistical constraints created by Nauru’s poor maritime transport facilities under changing climate conditions. B. Effectiveness 38. The project is rated highly effective. Based on data 6 months after completion, it had substantially achieved or surpassed the four targets set as DMF outcome indicators. All output targets were met as well. 15 Implementation was delayed, but for reasons that were beyond the project’s direct control (para. 20). 39. The target for a 50% reduction in the frequency and duration of unplanned generation outages by June 2018 was far exceeded. The frequency of outages, as measured by the System Average Interruption Frequency Index (SAIFI), was reduced by 91%—46 interruptions per customer in 2018, compared with the 490-indicator baseline in 2015.16 The duration of outages, as measured by the System Average Interruption Duration Index (SAIDI) was shortened by 94%—from 67,476 minutes in 2015 to 3,948 minutes in 2018.17 The fuel efficiency of NUC’s generators increased to 4.0 kWh per liter of consumed diesel from the 2013 DMF baseline of 3.4 kWh per liter—98% of the 4.1 kWh per liter DMF target. NUC’s tariffs were covering 100% of the operational costs, compared with the 2012 baseline of 20%. This was twice the DMF target of 50%. Peak load had increased by 41% to 5.30 MW from the baseline of 3.75 MW in 2014—more than double the 20% target set in the DMF. As envisaged, NUC had resumed electricity supply to 721 unserved commercial, industrial, government, and residential customers by June 2018, up from its total depleted customer base of 2,604 customers in June 2015 to 3,325 in 2018. This 28% increase helped raise annual electricity sales by 45% to 27.3 million kWh in 2018 from 18.8 million kWh in 2015. A comparison of NUC’s service level before and after the project is in Appendix 9. 40. Installing two new generators ensured N-2 power supply security for NUC by 2019. It increased NUC’s ability to remain secure and reliable without serious consequences to uninterrupted electricity supply from any emergency breakdown of the generating units.18 C. Efficiency 41. The project is rated highly efficient as (i) the post-completion economic internal rate of return (EIRR) is higher than 18%, (ii) the assessments to all sensitivity tests are robust, (iii) the benefits have been produced at least cost, and (iv) the process efficiency is rated highly. The

15 Per DMF, the project completion was originally envisaged in June 2016 and the project outcomes were targeted in

December 2016, 6 months after project completion. Accordingly, achieving the actual project’s outcomes is assessed at June 2018, 6 months after the actual completion of the project in December 2017.

16 SAIFI is the average number of interruptions a customer experiences. It is calculated as the total number of customer interruptions versus the total number of customers served. SAIFI is measured in units of interruptions per customer.

17 SAIDI is the average outage duration for each customer served and is calculated as the sum of all customer interruptions versus the total number of customers served. SAIDI is measured in minutes.

18 N-2 security of supply is achieved if the generation rated capacity is able to continue to meet the total grid demand when two largest generators are taken out for planned or unplanned maintenance.

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post-completion economic analysis conducted in May 2019 assesses the project as economic. The ex-post base case EIRR is calculated as 26% and with net present value of A$7.38 million at 12% discount rate. This compares with the ex-ante (with additional cofinancing) project reappraisal estimate of EIRR of 46% and economic net present value of $17.41 million, also at a 12% rate of discount. Given the fragility of Nauru’s economy, uncertainty in the country’s future energy demand and historic fluctuations in international fuel prices sensitivity tests conducted for reduced energy demand (10% across all categories of customer) and increased costs of both fuel and lubricants (at 10% increase) demonstrate EIRR assessments are robust leading to only a 1% reduction, to an EIRR of 25%. Energy demand from year 2020 will have to fall by 80% each year for the net present value to fall to zero (switching value). Appendix 10 provides more details of the post-completion economic analysis. 42. ADB in assessing the post-completion economic analysis included the cost overrun of $2.12 million that was covered by the government in the analysis and determined it does not affect overall viability. The delay in commissioning the generators and completing construction is considered to be outside the control of NUC or the contractor given logistic constraints coupled with Nauru’s remoteness. Process efficiency is incorporated in the recalculated EIRR. D. Sustainability 43. The project is rated likely sustainable over its anticipated 25-year economic life as the project’s positive effects meet, and the financial internal rate of return (FIRR) exceeds the opportunity cost of capital. The post-completion FIRR in May 2019 recalculates at 21% with financial net present value of $15.1 million at a 2.4% opportunity cost of capital. This compares with the original appraisal estimate of a FIRR of 11.5% and a financial net present value of $3.9 million using a financial discount rate equal to an estimated weighted average cost of capital of 7.32%. Appendix 11 provides more details of the post-completion financial analysis. 44. The NUC’s greatly strengthened technical, financial, and management capabilities since 2014 explains the discrepancy between the rates of return at appraisal and at completion. The appraisal estimates could not benefit from the actual technical and financial parameters available today. NUC has managed to capture much of the anticipated increase in revenues from increased customer base and increased electricity consumption leading to an increased FIRR (para. 40). Revenues are set to further increase and FIRR could increase to an estimated 38% once potential new big customers such as phosphate mining crusher, new prison, and regional processing centers will be connected to the NUC grid. The continued increase in residential and government electricity sales will also influence higher FIRR. 45. The greatly improved NUC’s technical, financial, and management will secure the corporation’s future financial sustainability. The project has improved the immediate environment of the power plant and NUC’s proposed investments in renewable energy will further strengthen environmental sustainability.19 The project’s sustainability will greatly depend on (i) the future growth of Nauru’s limited and fragile economy and therefore the future demand for energy, (ii) the continued responsible ownership and management of NUC,20 (iii) the further increase in and maintenance of tariff levels, and (iv) future fuel and lubricant prices.

19 NUC’s current program includes escalation of solar generation systems and connection to the grid. Total solar

generation connected to the grid increased to 1.18 million kWh in 2018, compared with 0.23 million kWh in 2015. ADB is currently processing 6 MW solar power expansion project enabling NUC to achieve its 50% share of renewable energy targets by 2020.

20 Many of the project’s success factors were heavily influenced by the NUC’s incumbent expat CEO.

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E. Development Impact 46. The project’s development impact is rated highly satisfactory. The project has had no negative effects, and its positive development impacts clearly exceeded the expectations at approval. The target for reducing the frequency and duration of unplanned generation outages was surpassed 6 months after project completion (para. 41). 47. Socioeconomic impact. A May 2019 consumer survey showed that Nauruans believe the increased reliability of the country’s electricity supply the project provided has enhanced the quality of their lives. All the country’s residents now enjoy an uninterrupted, all-day power supply, allowing them to make full use of refrigerators, washing machines, fans, and cooking stoves and thereby significantly improving their daily lives. Food often went bad in refrigerators before the project due to power outages, and many were forced into the expensive habit of shopping for groceries every day. They also often faced the high costs of replacing household electrical equipment damaged by an erratic and fluctuating electricity supply.

48. Business and service sector operations have also benefitted through rising revenues and declining operating costs, including the unnecessary cost of fueling and operating small generators to produce electricity off the grid. A 16% reduction in Nauru’s fuel imports recorded in the 6 months after the project was completed can be attributed mainly to widespread abandonment of these highly inefficient small generators by consumers reconnecting to the improved NUC power supply.21 The end of the need for extra spending to offset the deleterious effects of a failing power system has increased consumer purchasing power and raised revenue for Nauru businesses. The country’s overall health services have been improved and made more reliable through the uninterrupted grid electricity supply the project has enabled for Nauru’s only hospital. The off-grid generating unit the hospital had been required to operate due to the frequent blackouts before the project often did not function well due to poor maintenance, and most of the hospital’s equipment had been made prematurely dysfunctional by the need to constantly switch between grid and off-grid electricity supplies and abrupt outages. 49. Institutional impact. The associated TA provided a significant impact by strengthening NUC’s long-term sustainability through the development of the appropriate policy options to rebalance power tariffs and ensure that NUC’s power sale revenues cover the cost of servicing its customers (Appendix 7). NUC’s financial, operational, and governance performance was improved. The TA helped eliminate cross-subsidies that had been embedded between consumer classes and between NUC’s distinct areas of operations. It also determined options for subsidizing basic lifeline power service to disadvantaged residential customers.

F. Performance of the Borrower and the Executing Agency 50. The performances of the government as the recipient, the Ministry of Finance as the executing agency, and NUC as the implementing agency are all rated highly satisfactory. The government displayed strong project ownership. It supported the executive and implementing agencies in complying with grant covenants in a timely manner, approved contract awards promptly, and provided the required counterpart financing when needed. By swiftly approving the equivalent of $2.57 million in supplemental counterpart financing to fill the financing gap after the inclusion in the project scope under additional financing of a second generator unit, the government played a critical role in awarding the generator contract without delay (footnote 9).

21 ADB. 2018. New Generators Provide Reliable, Affordable Electricity in Nauru. https://www.adb.org/results/new-

generators-provide-reliable-affordable-electricity-nauru

https://www.adb.org/results/new-generators-provide-reliable-affordable-electricity-nauru


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The Ministry of Finance was prompt in approving and submitting withdrawal applications to ADB once it received them from NUC. Contractors had no serious complaints about on-time payment. The planning and aid division of the Ministry of Finance did all that was necessary to facilitate coordination between ADB and the government. 51. NUC played a vital role in managing the project from its inception in 2014. Strong ownership shown by NUC’s CEO and the general manager for generation ensured effective project management and full delivery of the outputs. NUC’s decision to outsource the auditing of both the project accounts and its own corporate accounts strengthened its corporate transparency and led to audited financial statements that satisfied ADB’s standards. NUC helped the government ensure that all grant covenants were fully complied with, and that safeguard and other fiduciary requirements were met, including those for the timely provision of the government’s in-kind contributions. G. Performance of Cofinanciers 52. The overall performance of the EU and the Government of Australia as the project’s cofinanciers is rated highly satisfactory. Their contributions were timely even though their grants together with the ADB grant did not fully cover the final project cost. The EU’s contribution helped finance the generator, roof replacement, and DSC contracts; that of the Government of Australia was used for the generator and DSC contract payments. Apart from the delayed confirmation of financing by the Government of Australia, which aided pushing back the physical completion date by 3 months (para. 20), no approval, disbursement, procurement, safeguard, or monitoring issues arose. The cofinanciers acted promptly, especially in their timely disbursements of funds to ADB’s account. They were active participants in project missions conducted by ADB and sound working partners during project implementation with both ADB and NUC. The cofinancing grants leveraged in achieved project outcomes especially on reducing frequency and duration of unplanned generation outages and increasing fuel efficiency. H. Performance of the Asian Development Bank 53. ADB’s performance is rated highly satisfactory. Its analytical work during the project preparatory, processing, consultant selection, detailed design, procurement, implementation, and project closing stages was effective. ADB provided adequate support to the government during the signing of the original and additional financing grant agreements and in achieving grant effectiveness. ADB kept itself fully informed on all aspects of the project at all times. This included environmental and other safeguard matters. ADB’s help for the government and NUC in complying with grant covenants, achieving project milestone targets, and understanding anticorruption and safeguard policies was satisfactory in both quality and timeliness. Project progress reports to meet internal and external requirements were comprehensive, accurate, and prepared on schedule. The high quality of ADB’s detailed analytical reports to the EU led to timely disbursements of EU project cofinancing. ADB’s prompt response in the annual partner performance assessment report assisted the Government of Australia in assessing how well implementing partners deliver the services required in the aid program and in informing its future funding decisions. ADB reacted promptly and adequately to facilitate contract awards, disbursements, and project closing. ADB’s efforts to mitigate foreign exchange losses were commendable (footnote 10). ADB fielded six joint review missions during the project. Its efforts to build and maintain collaborative relationships with the government, the executing and implementing agencies, project stakeholders, the cofinanciers, and other development partners were highly productive.

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54. In addition to administrating the project, ADB monitored and followed up on the implementation of the recommendations prepared under the project’s associated TA and by previous ADB TA projects (Appendix 12).22

I. Overall Assessment 55. The project is rated highly successful overall. Its achievements exceeded expectations, and it is highly likely that the outcome and impact will be sustained over the project’s economic life. The project remains relevant after completion. No significant negative effects have occurred or are likely to occur. The ratings for each of the project performance indicators are in Table 1.

Table 1: Overall Ratings

Criteria Rating Relevance Highly relevant Effectiveness Highly effective Efficiency Highly efficient Sustainability Likely sustainable Overall Assessment Highly successful

Development impact Highly satisfactory Recipient and executing agency Highly satisfactory Performance of ADB Highly satisfactory

ADB = Asian Development Bank. Source: Asian Development Bank estimates.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons 56. The project encountered several technical, financial, institutional difficulties, and other issues; and learned several lessons during processing and implementation. 57. Technical difficulties. Integrating the new generators with the existing power station’s fuel and electrical systems posed technical challenges. To avoid complications, DSC and NUC incorporated buffer tanks into the design specification to isolate the new generators from the existing system. The primary electrical challenge was related to the compatibility of the earthing arrangements for the new system and the existing one. The solution was to introduce step-down transformers between the new generators and switchgear, as well as to adjust one of the existing generator’s neutral earthing arrangements. Nauru’s natural environment is known to be hard on generators and to shorten their life. To address this issue, the design specified that the generators be fully enclosed to protect them from the inhospitable conditions. This required the inclusion of a tower in the design to provide water cooling for the generators. 58. Nauru’s current port was not equipped to discharge the large generators from a full-size vessel. This obstacle was bypassed by transporting the generators on a ship from India to Brisbane, Australia where they were discharged and reloaded for the remainder of the voyage on to a sea barge that the existing port facilities could handle. Nauru workers were employed when possible, but expatriate staff were often engaged because the required skills were in short supply

22 ADB. 2011. Technical Assistance to Nauru for Regulatory and Governance Reform for Improving Water and

Electricity Supply. Manila; and ADB. 2014. Technical Assistance to Nauru for Institutional Strengthening of the Nauru Utilities Corporation. Manila.

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in Nauru. DSC’s diligent work during tender-level designs and NUC’s collaborative approach in consultation and communication with DSC staff helped resolve these technical issues promptly.

59. Financial difficulties. The logistics and difficulties in project implementation in Nauru were unknown to many of the bidders and was a major reason for higher-than-expected bid prices in procuring contracts. NUC received few bids for the powerhouse and generator contracts despite wide media advertisement and procurement notices on ADB’s and NUC’s websites. This difficulty was overcome through rigorous negotiation with the successful bidders for each contract.

60. Management difficulties. The NUC had little background in managing major undertakings of this type. The support provided under the project by the DSC and the use of experienced contractors successfully mitigated the project’s implementation difficulties. NUC’s expatriate CEO, the general manager for generation, and the financial controller also provided significant support in the project’s successful implementation. 61. Lesson: High costs in a small, remote, and logistically challenged country. Nauru’s extremely remote location; poor port facilities; and limited accommodation, equipment, and human resources can drive up project costs. Despite wide circulation of the invitation for bids, NUC received only two bids for the respective contracts, and the bid prices were higher than had been anticipated. Additional funds had to be found to deliver the expected outputs (footnote 9). When processing a project in Nauru and countries with similar specific challenges, it is important to factor the increased likelihood of comparatively high bid prices into contingencies. 62. Lesson: Importance of strong relationships with the governments. ADB’s good relationship management and the positive interactions and high degree of trust between ADB staff and the government were important in reaching an agreement on the additional government financing. This financing was needed to award the generator contract with no change in the planned scope despite higher-than-expected costs. 63. Lesson: Careful financial management of multicurrency projects. Funding and disbursements for the project were made in several currencies, and this had potential and real negative impacts due to adverse shifts in foreign exchange rates. To mitigate the risks, ADB did not convert cofinancing grant funds it received in the euro and Australian dollar into United States dollars. Instead, by twice reallocating the originally assigned use of grant proceeds between the contracts, funding in each currency was disbursed as much as possible to make payments required by contracts denominated in the same currency, thus avoiding extra costs or losses due to foreign exchange conversions or fluctuations (footnote 10). This innovative approach to managing and mitigating foreign exchange risks in projects funded in more than one currency is considered to be a good practice worthy of adoption in future projects. However, this requires careful management of funds throughout project implementation and prompt reallocation of grant proceeds to avoid payment delays to contractors. 64. Other good fund management practice adopted in the project was the use of investment income gains from Australian financing in meeting ADB’s administration fee and bank charges (footnote 9). This assisted disbursing all grant financing for eligible contract payments and reduced the level of actual financing gap. B. Recommendations 65. To align with NUC’s ambitious targets for increasing the share of renewable energy generation in the system, it is recommended that NUC consider replacing current diesel

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generation with renewable energy sources, but that it retains the diesel generation units at least as standby sources to ensure stability and reliability of the power supply (para. 2 and footnote 19). The project did not include improvements to NUC’s transmission and distribution system. It is recommended that a future energy project include a component to improve transmission and distribution system, reduce system losses, and further enhance NUC’s efficiency. The project did not include gender elements (para. 29). It is recommended that future projects explore including more proactive gender design features, in alignment with ADB Strategy 2030 operational priorities and corporate targets on gender.23 Possible entry points could include monitoring of benefits to the population and service users (disaggregated by sex); increasing the participation of women in construction and O&M; and supporting more women in technical and leadership roles.

66. NUC’s operations sustainability is greatly reliant on the retention of a capable CEO (para. 60). Many of the project’s success factors were heavily influenced by the incumbent expat CEO (footnote 20). Continuation of a suitably skilled individual for the NUC’s CEO position is recommended in short to medium term to sustain project’s and NUC’s success. NUC’s financial sustainability and increase of its revenue is mainly dependent on the potential grid connectivity by phosphate mining crusher, new prison, and regional processing centers (para. 44). A comprehensive and strategic business development plan is needed to materialize these connections to ensure NUC’s sustainable financial growth. 67. Future monitoring. The project’s associated TA required NUC to establish a capital reserve fund and put in place a tariff regulation system enabling NUC to distribute its cost of the revenue requirement among NUC’s electricity and water customers (paras. 25 and 49; Appendix 7). In addition, previous ADB TA projects recommended several reforms to strengthen NUC’s institutional capabilities (footnote 22). It is recommended that the implementation of these recommendations be monitored through ADB’s succeeding projects with NUC (footnote 19). Monitoring checklists and implementation status of these recommendations are in Appendix 12.

68. Covenants. While most of the grant covenants were project-related and in effect during the project’s implementation, it is recommended that those covenants in the project agreement that enabled an improvement in NUC’s financial autonomy be maintained after completion to further enhance NUC’s operations. As a secondary result of the project, NUC has outsourced auditing of the entity financial accounts since 2016. It is recommended that this practice be continued to enhance NUC’s transparency in financial management and its overall operations.

69. Further action or follow-up. Given that the project has been successfully completed, and the outputs fully delivered, no specific follow-up action is required. However, as NUC’s sustainability is mostly dependent on the continued responsible ownership and management of NUC, it is recommended that ADB follow up on succession plans to eventually fill the key managerial positions currently held by expatriates (para. 66 and footnote 20).

70. Additional assistance is not required to complete any project component or to improve project performance and sustainability. However, to achieve NUC’s ambitious renewable energy target, ADB is currently processing a project for installing a 6 MW solar power plant. This will enable NUC to achieve 50% renewable energy share in NUC’s generation system (footnote 19). 71. Timing of the project performance evaluation report. Given that the project is successfully completed with all its outputs fully delivered and outcomes substantially achieved, the project performance evaluation report could be prepared now.

23 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila.

https://www.adb.org/sites/default/files/institutional-document/435391/strategy-2030-main-document.pdf

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Results Chain Performance Indicators with

Targets Baselines Data Sources and

Reporting Mechanisms Risks Achievements at Completion

Outcome Cessation of delivery of government-subsidized fuel to NUC while NUC unable to generate revenue to purchase fuel on commercial basis.

a. (i) Frequency of unplanned outages (SAIFI)

2015=490; 2018=46 interruptions per customer

(reduced by 91%)

(ii) Duration of unplanned outages (SAIDI)

2015=67,476; 2018=3,948 minutes (reduced by

94%).

b. Fuel (Diesel) consumption 2013=3.4kWh/l;

2018=4.0kWh/l (98% of the target)

c. 2012=Tariffs cover 20% of the operational cost

2018= Tariffs cover 100% of the operational cost

d.

(i) Peak Load 2014=3.75MW; 2018=5.3MW Increase by 41%

(ii) Resumed to unserved customers: 2015 2018

Residential 2,201 2,740

Commercial 335 402 Government 41 53

Industrial 27 30

Total 2,604 3,325

Increased by 28%

(iii) Electricity sales 2015 - 18.79 million kWh 2018 – 27.35 million kWh Increased by 46%

Increased reliability, lower cost, and greater sustainability of power generation in Nauru.

a. Frequency and duration of unplanned generation outages reduced by more than 50%a (January-September 2015 baseline) b. Fuel efficiency of NUC’s generators increased to 4.1 kWh/liter of diesel consumed (2013 baseline: 3.4 kWh/liter of diesel consumed) c. Tariffs cover 50% operational costs (2012 baseline: tariffs cover 20% operational costs) d. Peak load is increased by 20% in 2018 and resume electricity supply to currently unserved commercial and industrial customers. (2014 baseline: 3.75 MW)

NUC service logs NUC service logs NUC annual audited financial statements NUC service logs and audited financial statements for increase in revenue

Outputs

Output 1

1a. By December 2016:

Appendix 1 17




New diesel-fired generation put into service

Two new each 2.6-3.0 MW diesel-fired generations and 11kV switchboard commissioned.

(2014 baseline 2014: not installed)

1a. Progress/Completion Reports of design and supervision consultants; Acceptance Report of NUC

Site preparation delayed due to unforeseen complications.

Both generators were commissioned and became operational since 29 December 2017. Rated outputs of the installed generators are 2 x 2.85 MW=5.7 MW.

Output 2

Repair and/or replacement of existing roof and structural reinforcements of NUC’s powerhouse

2a. By December 2016:

Roof will be repaired.

(2014 baseline: roof is in poor condition and leaks during rain)

2a. Progress and completion reports of DSC; acceptance report of NUC

More extensive repair requirements discovered; hazardous material problems exceed expectations.

Replacement and repairs to Powerhouse building was completed on 8 February 2017.

Output 3

Efficient project implementation.

3a. PMU meets target contract awards and disbursements. Works are completed on schedule.

3a. Progress and completion reports of DSC; acceptance report of NUC

Engaging DSC was completed on 29 April 2015 and services were completed on 30 June 2018.

Works were delayed by 12 months for reasons outside the control of DSC.

Key Activities and Milestones

1. New generation units and 11 kV switchboard 1.1 Establish specifications by August 2015 1.2 Tender and award contract by February 2016 1.3 Deliver to Nauru by October 2016 1.4 Install and commission by December 2016

2. Powerhouse roof and structure repairs 2.1 Inspect powerhouse and confirm repair scope and contract specifications by August 2015 2.2 Tender and award contract by February 2016 2.3 Complete repair work by August 2016

3. Project management services 3.1 Establish PMU within NUC by September 2014 3.2 Short-list DSCs by November 2014 3.3 Award DSC contract by April 2015 3.4 Field DSCs by June 2015

18 Appendix 1




Inputs

ADB European Union Government of Australia Government of Nauru

$2,000,000 $2,700,000 $4,736,000 $1,200,000

Assumptions for Partner Financing

Not applicable.


Appendix 2 19

CHRONOLOGY OF MAIN EVENTS

Date Event

28 November 2013 Reconnaissance mission

22 November 2013 Concept paper

7 July 2014 Fact finding mission

18 August 2014 Management/Staff review meeting

5 September 2014 Grant negotiations

17 October 2014 Board circulation

7 November 2014 Board approval

16 April 2015 Grant effectiveness

25 December 2014 Advertisement for consultant selection (expression of interest)

29 April 2015 Consultant contract signing

17 June 2015 Concept paper for additional financing

14 August 2015 Staff review – additional financing

16 August 2015 Grant negotiations – additional financing

24 September 2105 Board circulation – additional financing

16 October 2015 Board approval – additional financing

8 January 2016 Grant effectiveness – additional financing

12 October 2015 Advertisement for roof replacement contract (invitation for bids)

12 October 2015 Advertisement for generator contract (invitation for bids)

16 March 2016 Roof replacement contract award

24 March 2016 Roof replacement contract signing

8 April 2016 Generator contract award

3 May 2016 Generator contract signing

8 February 2017 Roof replacement contract completion

29 December 2017 Generators contract completion (project physical completion)

30 June 2018 Consultant contract completion

30 September 2018 Grant closing

23 October 2018 Financial closing (project closing)


20 Appendix 3

PROJECT COST AT APPRAISAL AND ACTUAL ($'000)

Appraisal Estimate

Original Project Appraisal Estimate

Additional Financing Actual

Item Foreign

Exchange Local

Currency Total Cost Foreign

Exchange Local

Currency Total Cost Foreign

Exchange Local

Currency Total Cost

A. Investment Costs 1. Generator Contract

a. Generators b. 11 kV Switchboard c. Delivery, Site works and Installation d. Commissioning, testing and training

2.87 1.80 0.00 0.97 0.10

0.14 0.00 0.00 0.12 0.02

3.01 1.80 0.00 1.09 0.12

7.51 3.60 1.42 1.94 0.23

0.27 0.00 0.00 0.20 0.07

7.46 3.60 1.42 2.14 0.30

7.45

3.73 11.18

2. Roof Replacement Contract 0.47 0.28 0.75 0.47 0.28 0.75 1.11 0.04 1.15 3. Design and supervision consultants 0.41 0.00 0.41 0.47 0.00 0.47 0.42 0.01 0.43 Subtotal (A) 3.74 0.42 4.16 8.13 0.55 8.68 8.98 3.78 12.76 B. Government Contribution 1. In-kind 0.00 0.57 0.57 0.00 0.57 0.57 0.00 0.00 0.00 2. Taxes and duties (10% ad valorem on

imported goods and materials) 0.00 0.27 0.27 0.00 0.63 0.63 0.00 0.00 0.00

Subtotal (B) 0.00 0.84 0.84 0.00 1.20 1.20 0.00 0.00 0.00 Total Base Cost 3.74 1.26 5.00 8.13 1.75 9.88 0.00 0.00 0.00

C. Contingencies 1. Physical 0.37 0.04 0.42 0.37 0.04 0.41 0.00 0.00 0.00 2. Price 0.09 0.02 0.12 0.33 0.02 0.35 0.00 0.00 0.00 Subtotal (C) 0.46 0.06 0.54 0.70 0.06 0.76 0.00 0.00 0.00 Total (A+B+C) 4.20 1.32 5.54 8.83 1.81 10.64 8.98 3.78 12.76

Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank.

Appendix 3 21

Project Cost by Financier

Table A3.2: Project Cost at Appraisal (Original Project) by Financier

ADB EU Government of Nauru

Total Cost

Amount % of Cost Category Amount

% of Cost Category

Amount

% of Cost Category Amount

Item

A. Investment Costs

1. Generator Contract 1.28 39.60% 1.73 53.40% 0.23a 7.10% 3.23 2. Roof Replacement Contract 0.32 40.40% 0.43 54.60% 0.04a 5.00% 0.79 3. Design Supervision Consultant 0.18 42.50% 0.24 57.40% 0.01a 0.10% 0.41

Subtotal (A) 1.78 19.08% 2.39 54.00% 0.28 6.10% 4.43 B. Government Contributions

1 Admin costsb, logistics, site works 0.00 0.00%

0.00% 0.57c 100.00% 0.57 Subtotal (B) 0.00 0.00% 0.00 0.00% 0.57 100.00% 0.57 Total Base Cost (A+B) 1.78 35.50% 2.39 47.70% 0.84 16.80% 5.00

C. Contingencies 0.23 42.60% 0.31 57.41% 0.00 0.00 0.54 Total Project Cost (A+B+C+D) 2.00

2.70

0.84 5.54

% Total Project Cost

36.10%

48.74% 15.16%

a Government contribution in the form of taxes and duties exemption; b Including annual audit costs of $0.01 million; c Government contribution in-kind Note: Figures may not sum precisely due to rounding Source: Asian Development Bank.

Table A3.2: Project Cost at Appraisal (Additional Financing) by Financier

ADB EU Government of Australia Government of Nauru

Total Cost

Amount

% of Cost

Category Amount

% of Cost

Category Amount

% of Cost

Category

Amount

% of Cost

Category Amount

Item

A. Investment Costs

1. Generator and 11kV Contract 1.28 19.79% 1.73 26.72% 3.01 46.52% 0.45a 6.97% 6.46 2. 11kV Switchgear Contract 0.00 0.00% 0.00 0.00% 1.42 91.62% 0.13a 8.38% 1.55 3. Roof Replacement Contract 0.32 40.40% 0.43 54.53% 0.00 0.00% 0.04a 5.07% 0.79 4. Design Supervision Consultant 0.18 35.45% 0.24 47.86% 0.07 14.68% 0.01a 2.01% 0.50

Subtotal (A) 1.77 19.08% 2.39 25.75% 4.50 48.39% 0.63 6.78% 9.30 B. Government Contributions

1 Admin costsb, logistics, site works 0.00 0.00%

0.00% 0.00 0.00% 0.57c 100.00% 0.57 Subtotal (B) 0.00 0.00% 0.00 0.00% 0.00 0.00% 0.57 100.00% 0.57

22 Appendix 3

ADB EU Government of Australia Government

of Nauru Total Cost

Amount

% of Cost

Category Amount

% of Cost

Category Amount

% of Cost

Category

Amount

% of Cost

Category Amount

Item

Total Base Cost (A+B) 1.77 17.98% 2.39 24.27% 4.50 45.60% 1.20 12.16% 9.87

C. Contingencies 0.23 29.44% 0.31 39.75% 0.24 30.81% 0.00 0.00 0.77 Total Project Cost (A+B+C+D) 2.00

2.70

4.74

1.20 10.64

% Total Project Cost

18.80%

25.39% 44.53% 11.28%

a Government contribution in the form of taxes and duties exemption; b Including annual audit costs of $0.01 million; c Government contribution in-kind Note: Figures may not sum precisely due to rounding Source: Asian Development Bank.

Table A3.3: Project Cost at Completion by Financier

ADB EU Government of

Australia Government

of Nauru Total Cost

Amount % of Cost Category Amount


% of Cost Category

Amount


Item

A. Investment Costs

1. Generator and 11kV (EUR) 0.42 15.38% 1.53 56.04% 0.78 28.57% 0.00 2.73

2. Generator and 11kV (AUD) 0.65 8.90% 0.23 3.15% 3.85 52.74% 2.57 35.21% 7.30 3. Roof Replacement Contract 0.84 75.68% 0.27 24.32% 0.00

0.00 1.11

4. Design Supervision Consultant 0.09 21.43% 0.11 26.19% 0.22 52.38% 0.00 0.42 Subtotal (A) 2.00 17.31% 2.14 18.51% 4.85 41.96% 2.57 22.23% 11.56

B. Government Contributions

1 Admin costs, logistics, site works 0.00

0.00

0.00

1.20 100.00% 1.20

Subtotal (B) 0.00 0.00% 0.00 0.00% 0.00

1.20 100.00% 1.20

Total Base Cost (A+B) 2.00 15.67% 2.14 16.77% 4.85 38.01% 3.77 29.55% 12.76 C. Contingencies 0.00

0.00

0.00

0.00 0.00% 0.00

Total Project Cost (A+B+C) 2.00

2.14

4.85

3.77 12.76 % Total Project Cost

15.67%

16.77% 38.01% 29.55%

Appendix 4 23

DISBURSEMENT OF GRANT PROCEEDS

Table 4.1: Annual and Cumulative Disbursement of ADB Grant Proceeds ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total Amount

($ million) % of Total 2014 2015 0.04 2% 0.04 2.0% 2016 0.91 45.5% 0.95 47.5% 2017 0.57 28.5% 1.52 76.0% 2018 0.48 24.0% 2.00 100.0% Total 2.00 100.0% ADB=Asian Development Bank. Source: Asian Development Bank.

Figure 4.1: Projection and Cumulative Disbursement of ADB Grant Proceeds ($ million)


0.00

0.50

1.00

1.50

2.00

2.50

2014 2015 2016 2017 2018

$ m

illio

ns

Years

Figure 4.1: Projections and Cumulative Disbursements

of ADB Grant Proceeds

Projected Cumulative Disbursements Actual Cumulative Disbursements

24 Appendix 4

Table 4.2: Annual and Cumulative Disbursement of EU Grant Proceeds ($ million)


Year Amount


($ million) % of Total 2014 0.00 - 2015 0.05 2.3% 0.05 2.3% 2016 0.60 28.2% 0.65 30.5% 2017 1.45 67.9% 2.11 98.4% 2018 0.03 1.6% 2.14 100.0% Total 2.14 100.0% ADB=Asian Development Bank. Source: Asian Development Bank.

Figure 4.2: Projection and Cumulative Disbursement of EU Grant Proceeds ($ million)


0.00

0.50

1.00

1.50

2.00

2.50

3.00

2014 2015 2016 2017 2018

$ m

illio

ns

Years

PCR Figure 4.2: Projections and Cumulative Disbursements

of EU Grant Proceeds


Appendix 4 25

Table 4.3: Annual and Cumulative Disbursement of Australia Grant Proceeds ($ million)


Year Amount


($ million) % of Total 2014 2015 0.00 - 0.00 - 2016 0.70 14.4% 0.70 14.4% 2017 2.98 61.5% 3.68 75.9% 2018 1.17 24.1% 4.85 100.0% Total 4.85 100.0% ADB=Asian Development Bank. Source: Asian Development Bank.

Figure 4.3: Projection and Cumulative Disbursement of Australia Grant Proceeds ($ million)


0.00

1.00

2.00

3.00

4.00

5.00

6.00

2015 2016 2017 2018

$ m

illio

ns

Years

Figure 4.3: Projections and Cumulative Disbursements

of Australia Grant Proceeds


26 Appendix 5

CONTRACT AWARDS OF GRANT PROCEEDS

Table 5.1: Annual and Cumulative Contract Awards of ADB Grant Proceeds ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount


($ million) % of Total 2014 0.00 0.00 2015 0.08 4% 0.08 4.0% 2016 1.87 93.5% 1.95 97.5% 2017 0.00 1.95 97.5% 2018 0.05 2.5% 2.00 100.0% Total 2.00 100.0% ADB=Asian Development Bank. Source: Asian Development Bank.

Figure 5.1: Projection and Cumulative Contract Awards of ADB Grant Proceeds ($ million)


0.00

0.50

1.00

1.50

2.00

2.50

2014 2015 2016 2017 2018

$ m

illio

ns

Years

Figure 5.1: Projection and Cumulative Contract Awards

of ADB Grant Proceeds

Projected Cumulative Contract Awards Actual Cumulative Contract Awards

Appendix 5 27

Table 5.2: Annual and Cumulative Contract Awards of EU Grant Proceeds

($ million) Annual Contract Awards Cumulative Contract Awards

Year Amount


($ million) % of Total 2014 0.64 30.3% 0.64 30.3% 2015 2.05 96.0% 2.70 126.2% 2016 0.00 0.0% 2.70 126.2% 2017 -0.56a -26.2% 2.14 97.5% 2018 0.00 0.0% 2.14 100.0% Total 2.14 100.0% ADB=Asian Development Bank. a The EU financing reduced by $0.56 million to equivalent $2.14 million from $2.70 million at approval due to impact of the foreign

currency exchange rates at disbursements. Source: Asian Development Bank

Figure 5.2: Projection and Cumulative Contract Awards of EU Grant Proceeds

($ million)


0.00

0.50

1.00

1.50

2.00

2.50

3.00

2014 2015 2016 2017 2018

$ m

illio

ns

Years

Figure 5.2: Projections and Cumulative Contract

Awards of EU Grant Proceeds


28 Appendix 5

Table 5.3: Annual and Cumulative Contract Awards of Australia Grant Proceeds ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount


($ million) % of Total 2015 0.00 - 0.00 - 2016 4.64 95.7% 4.64 95.7% 2017 0.00 0.0% 4.64 95.7% 2018 0.21 4.3% 4.85 100.0% Total 4.85a 100.0% ADB=Asian Development Bank. a The Government of Australia financing increased by $0.11 million to equivalent $4.85 million from $4.74 million at approval due to

gains from investment income. Source: Asian Development Bank.

Figure 5.3: Projection and Cumulative Contract Awards of Australia Grant Proceeds ($ million)


0

1

2

3

4

5

6

2015 2016 2017 2018

$ m

illio

ns

Years

Figure 5.3: Projections and Cumulative Contract

Awards of Australia Grant Proceeds


Appendix 6 29

PROJECT IMPLEMENTATION SCHEDULE


Activities

Design and Supervision Consulting Services

Shortlist and Request for Proposal

0.2% 100% 0.2%

Evaluate, Sign Contract and Mobilization

0.3% 100% 0.3%

Generator Contract

Preparing bidding documents

0.2% 100% 0.2%

Tendering

0.1% 100% 0.1%

Tender Evaluation

0.2% 100% 0.2%

Contract negotiation

0.1% 100% 0.1%

Contract Signing

0.1% 100% 0.1%

Design and Manufacturing

24.5% 100% 24.5%

Factory Testing, packaging and shipping preparation

2.3% 100% 2.3%

Shipping to Nauru

11.2% 100% 11.2%

Offloading

2.3% 100% 2.3%

Generator Installation (by Generator Supplier)

Contractor priliminary site visit

0.7% 100% 0.7%

Contractor siteworks

12.3% 100% 12.3%

Selection of subcontractors

0.2% 100% 0.2%

Procurement of installation materials and equipment

2.9% 100% 2.9%

Preparation of Generator Foundations

4.2% 100% 4.2%

Installation of generator, auxiliaries, BOP

15.1% 100% 15.1%

Electrical and pipework modifications and additions

3.1% 100% 3.1%

Generator Tests, Commissioning - By Generator Supplier

Installation testing

1.0% 100% 1.0%

Overall commissioning

1.0% 100% 1.0%

Load Tests and heat runs

1.0% 100% 1.0%

New units in service

0.1% 100% 0.1%

Opersation, maintenance and training of NUC staff

2.3% 100% 2.3%

Powerhouse Roof Removal and Replacement

Preparing bidding documents

0.2% 100% 0.2%

Tendering

0.1% 100% 0.1%

Tender evaluation and negotiation

0.2% 100% 0.2%

Contract signing

0.1% 100% 0.1%

Materials procurement and delivery

3.2% 100% 3.2%

Setup onsite

1.0% 100% 1.0%

Roof panel removal and replacement

4.3% 100% 4.3%

Removal of Redundant Generator Plants by NUC

Disconnection of electrical and mechanical connections

0.3% 100% 0.3%

Removal and pipeworks and cables

0.4% 100% 0.4%

Removal of redundant engines, generators and auxiliaries

1.5% 100% 1.5%

Cleanup

0.5% 100% 0.5%

Water and Oil Collection and Seperation by NUC

Procurement and Installation

2.2% 100% 2.2%

Scheme in operation

0.1% 100% 0.1%

Environmental Monitoring

Environmental and safeguards monitoring

0.5% 100% 0.5%

100.0% 100.0%

Overall Project Implementation Plan

Implemenattion Progress

Q2 Q3 Q4

2017

Q1 Q2 Q3 Q4

Actual

Progress

Weighted

Progress

Assigned

weight

2015

Q1 Q2 Q3 Q4

2016

Q1

30 Appendix 7

COMPLETION REPORT⎯NAURU: TARIFF AND SUBSIDY POLICY REFORM Project Number: 46455-003 Technical Assistance Number: 8754 June 2018 This report is accessible through following link. https://www.adb.org/sites/default/files/project-documents/46455/46455-003-tcr-en.pdf

https://www.adb.org/sites/default/files/project-documents/46455/46455-003-tcr-en.pdf

Appendix 8 31

STATUS OF COMPLIANCE WITH COVENANTS GRANT NUMBER 0414-NAU (SF)

Section Covenant Status/Comments

4.01 In the carrying out of the Project and operation of the Project facilities, the

Recipient shall perform, or cause to be performed, all obligations forth in

Schedule 4 of the Grant Agreement (see below).

Complied

4.02 The Recipient shall enable ADB's representatives to inspect the Project,

the Goods and Works, and any relevant records and documents.

Complied

ADB: - Attended Inception Visit - Reviewed bidding documents - Attended bid opening - Represented at negotiations as an

observer - Visited site during construction and

installation at review missions

4.03 ADB shall disclose the annual audited financial statements for the Project

and the opinion of the auditors on the financial statements within 30 days of

the date of their receipt by posting them on ADB’s website.

Complied, audited project financial

statements for the FY 2015/16, 2016/17,

2017/18 (up to October) disclosed in

ADB website.

4.04 The Recipient shall take all actions which shall be necessary on its part to

enable NUC to perform its obligations under the Project Agreement and

shall not take or permit any action which would interfere with the

performance of such obligations.

Complied

4.05 (a) The Recipient shall exercise its rights under the Subsidiary Grant

Agreement in such a manner as to protect the interests of the Recipient

and ADB and to accomplish the purposes of the Grants.

(b) No rights or obligations under the Subsidiary Grant Agreement shall be

assigned, amended, or waived without the prior concurrence of ADB.

Complied

SCHEDULE 4

Execution of Project; Financial Matters

Implementation Arrangements

1 The Recipient and the Project Executing Agency shall ensure that the

Project is implemented in accordance with the detailed arrangements set

forth in the PAM. Any subsequent change to the PAM shall become effective

only after approval of such change by the Recipient and ADB. In the event of

any discrepancy between the PAM and this Grant Agreement, the provisions

of this Grant Agreement shall prevail.

Complied

2 The Recipient shall ensure that the PMU, established as part of the NUC, is

provided with such staff and resources as necessary for the efficient

implementation of the Project.

Complied.

3 The Recipient and the Project Executing Agency shall ensure that to the

extent possible under the prevailing laws of the Recipient, the staff members

who will receive training under the Project will be retained in their current

positions and will not be transferred unnecessarily, so that the Project can

benefit from their skills.

Complied; No change of staff has

occurred.

Environment

4 The Recipient shall ensure, or cause the Project Executing Agency and

Project Implementing Agency to ensure, that the preparation, design,

construction, implementation, operation and decommissioning of the Project

and all Project facilities comply with (a) all applicable laws and regulations of

the Recipient relating to environment, health and safety; (b) the

Environmental Safeguards; and (c) all measures and requirements set forth

Complied.

Measures in the IEE and EMP were

included in the bidding documents. The

implementation of the environment

safeguards requirements was

monitored in accordance to approved

32 Appendix 8

in the IEE, the EMP, and any corrective or preventative actions set forth in a

Safeguards Monitoring Report.

CEMP and reported through bi-annual

safeguards monitoring reports.

Indigenous Peoples and Involuntary Resettlement

5 The Recipient shall ensure that the Project does not have any indigenous

peoples or involuntary resettlement impacts, all within the meaning of SPS.

In the event that the Project does have any such impact, the Recipient shall

take all steps required to ensure that the Project complies with the

applicable laws and regulations of the Recipient and with SPS.

Complied. The project did not involve

any land acquisition or physical or

economic displacement or relocation of

people. The rehabilitation and

installation works were confined to

NUC’s powerhouse which is located on land already leased to the government.

Given the social safeguards were not

triggered, a resettlement plan was not

required and the project prepared a due

diligence report. As the project did not

affect any distinct and or vulnerable

group of indigenous peoples within the

Nauruan population, an indigenous

peoples plan was also not required.

Human and Financial Resources to Implement Safeguards Requirements

6 The Recipient shall make available, or cause the Project Executing Agency

to make available, necessary budgetary and human resources to fully

implement the EMP.

Complied. The implementation of EMP

was carried out by the contractor staff

per approved CEMP. NUC provided

necessary staff to monitor

implementation of the CEMP in daily

basis.

Safeguards - Related Provisions in Bidding Documents and Works Contracts

7 The Recipient shall ensure, or cause the Project Executing Agency and

Project Implementing Agency to ensure, that all bidding documents and

contracts for Works contain provisions that require contractors to:

(a) comply with the measures relevant to the contractor set forth in the IEE

and the EMP, and any corrective or preventative actions set forth in a

Safeguards Monitoring Report;

(b) make available a budget for all such environmental measures;

(c) provide the Recipient with a written notice of any unanticipated

environmental or resettlement risks or impacts that arise during construction,

implementation or operation of the Project that were not considered in the

IEE and the EMP;

(d) adequately record the condition of roads, agricultural land and other

infrastructure prior to starting to transport materials and construction;

And

(e) Reinstate pathways, other local infrastructure, and agricultural land to at

least their pre-project condition upon the completion of construction.

Complied.

(a) EMP and IEE were included in the

bidding documents and contractors

were required to prepare and

implement CEMP. NUC submitted

environment safeguards monitoring

reports to ADB bi-annually.

(b) Contracts included necessary budget

for implementation of environment

safeguards measure.

(c) None required.

(d) The generators were transported to

powerhouse from a landing barge

berthed at a causeway. The condition

of road assets was assessed before

and after generators were

transported. No adverse impacts

were recorded.

(e) Nothing required.

Safeguards Monitoring and Reporting

8 The Recipient shall do the following or cause the Project Executing Agency

and the Project Implementing Agency to do the following:

(a) submit semi-annual Safeguards Monitoring Reports to ADB and disclose

relevant information from such reports to affected persons promptly upon

submission;

Complied:

(a) NUC submitted semi -annual

safeguards monitoring reports as

required and were disclosed in ADB

web site.

Appendix 8 33

(b) if any unanticipated environmental and/or social risks and impacts arise

during construction, implementation or operation of the Project that were not

considered in the IEE and the EMP, promptly inform ADB of the occurrence

of such risks or impacts, with detailed description of the event and proposed

corrective action plan; and

(c) report any actual or potential breach of compliance with the measures

and requirements set forth in the EMP promptly after becoming aware of the

breach.

(b) None required.

(c) None reported.

Labour Standards

9 The Recipient shall ensure that the bidding documents under the Project will

include specific provisions to comply with all: (a) applicable labour laws and

core labour standards on (i) prohibition of child labour as defined in national

legislation for construction and maintenance activities, (ii) equal pay for

equal work for equal value regardless of gender, ethnicity or caste, and (iii)

elimination of forced labour; and (b) requirement to disseminate information

on sexually transmitted diseases including HIV/AIDS to employees and local

communities surrounding the project areas.

Complied; specific clauses were

included in the bidding documents.

Counterpart Support

10 The Recipient and the Project Executing Agency shall make available all

counterpart funds required for timely and effective implementation of the

Project, including any funds required to meet additional costs arising from

unforeseen circumstances.

Complied. NUC provided all in-kind

contributions as agreed and the

government provided necessary

counterpart funds to fill financing gap

facilitating award of the generator

contract without any undue delay.

Operation & Maintenance

11 For each of 2016 and 2017, the Recipient shall ensure that sufficient funds

are allocated and released to NUC on a timely basis to provide funds for

environmental monitoring.

Complied. Required funds and

resources were available with NUC

when required.

12 For each of 2016 and 2017, the Recipient shall ensure that sufficient funds

are allocated and released to NUC on a timely basis to provide funds for the

operation and maintenance support from the generation unit vendor.

Complied; Required funds and

resources were available with NUC.

Reform Measures

13 The Recipient and the Project Executing Agency shall undertake a review of

the following sector-wide policy reform areas: (a) restructuring of the size

and form of subsidy to NUC, whether direct financial or in-kind, including fuel

subsidy; (b) revision of retail electricity tariff to reflect NUC’s cost of power generation and service delivery; (c) identification of financially

disadvantaged households and targeted provision of subsidy to those

households for basic electricity service; (d) mechanism to improve electricity

tariff collection efficiency, including installation and refurbishment of

consumer meters; and (e) corporate governance restructuring of NUC with

the goal of commercial viability and serving shareholder interests.

(a) Initially subsidy was delivered

through purchase of diesel fuel by

Government. This was tracked in

NUC’s financial reports. The tariff review TA recommended tying subsidy

to energy sales and this is being

implemented by NUC.

(b) incorporated in the annual budget

since FY 2016/17.

(c) incorporated in the budget since FY

2016/17.

(d) mechanisms to improve electricity

tariff collection efficiency included (i)

putting more customers on pre-paid

metering, (ii) reducing post-paid

metering errors through improvements

in meter readings and accounting, (iii)

Improving the billing process of post-

paid bills, (iv) improving collection of

outstanding debts. Annual Report 2018

confirms collection of outstanding debt

34 Appendix 8

was A$3,897,797. These strategies

assisted reducing NUC’s system losses from 40% in 2015 to low 22% in 2018.

(e) NUC now has a full Board replacing

the Advisory Board.

14 The Recipient shall ensure and shall cause the Project Executing Agency

and the Project Implementing Agency to ensure, that bulk meters are

installed and operationalized for each of the generation units at the

powerhouse and for the main distribution feeder lines.

Complied; Energy from each generator

is metered and also from each feeder.

15 The Recipient shall ensure, and shall cause the Project Executing Agency

and the Project Implementing Agency to ensure, that a system for the

following is put in place and operationalized: (a) accurate accounting of

NUC’s electricity generation; (b) accounting of NUC’s self-consumption of

electricity; (c) accurate accounting of NUC’s fuel consumption for electricity generation; and (d) measurement of NUC’s fuel consumption efficiency for electricity generation.

(a) A monthly report on energy

generation and sales is now in place

and this is provided to the Board each

month;

(b) A meter is installed for the office and

energy for water production is also

metered;

(c) There is a meter on the main fuel

line from the fuel tank farm and each

generator has its own fuel meter. The

monthly energy report contains fuel

consumption and specific fuel

consumption is a KPI on the Balanced

Scorecard that is updated monthly for

the Board;

(d) Specific fuel consumption is

monitored daily by operations and

provide monthly to the Board in the

energy report.

Governance and Anticorruption

16 The Recipient, the Project Executing Agency, and the Project Implementing

Agency shall (a) comply with ADB’s Anticorruption Policy (1998, as

amended to date) and acknowledge that ADB reserves the right to

investigate directly, or through its agents, any alleged corrupt, fraudulent,

collusive or coercive practice relating to the Project; and (b) cooperate with

any such investigation and extend all necessary assistance for satisfactory

completion of such investigation.

Complied; no investigations required.

17 The Project Executing Agency and the Project Implementing Agency shall

ensure that the anticorruption provisions acceptable to ADB are included in

all bidding documents and contracts, including provisions specifying the right

of ADB to audit and examine the records and accounts of the executing and

implementing agency and all contractors, suppliers, consultants, and other

service providers as they relate to the Project.

Complied; anticorruption provisions

were included in bidding documents

and also in all the contracts.

18 The Recipient, the Project Executing Agency, and the Project Implementing

Agency shall announce the Project and business opportunities associated

with the Project on their websites. Such announcements, when dealing with

contracts awarded, shall at least disclose (a) the list of participating bidders,

(b) the name of the winning bidder, (c) the amount of the contracts awarded,

and (d) the goods and services procured. The Project Executing Agency

shall designate an officer at the PMU as contact point for queries and

complaints with regard to procurement and consulting services recruitment

and other implementation activities.

Complied; contract award details were

published in NUC website. NUC’s CEO

was the designated officer for

addressing queries and complaints for

procurement of roof and generator

contracts and also for selection of

consulting services.

Appendix 8 35

GRANT NUMBER 0424-NAU (EF)




Schedule 4 to the Special Operations Grant Agreement (see above).

Complied.





statements for the FY 2015/16,

2016/17, 2017/18 (up to October)

disclosed in ADB website.

4.03 The Recipient shall enable ADB's representatives to inspect the Project, the

Goods and Works, and any relevant records and documents.

Complied

ADB:

- Attended Inception Visit

- Reviewed bidding documents

- Attended bid opening

- Represented at negotiations as an

observer

- Visited site during construction and


4.04 The Recipient acknowledges and agrees that this Grant

Agreement is entered into by ADB, not in its individual capacity, but as grant

administrator for the EU. Accordingly, the Recipient agrees that (i) it may

only withdraw Grant proceeds to the extent that ADB has received proceeds

for the Grant from the EU, and (ii) that ADB does not assume any

obligations or responsibilities of the EU in respect of the Project or the Grant

other than those set out in this Grant Agreement.

Complied; the government, Ministry of

Finance and NUC were aware of this

requirement.

GRANT AGREEMENT 0443-NAU (EF)




Schedule 4 of the Grant Agreement (see below).

Complied.





statements for the FY 2015/16, 2016/17,

2017/18 (up to October) disclosed in

ADB website.

4.03 The Recipient shall take all actions which shall be necessary on its part to

enable NUC to perform its obligations under the Project Agreement and

shall not take or permit any action which would interfere with the

performance of such obligations.

Complied.

4.04 The Recipient shall enable ADB’s representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

Complied

ADB:

- Attended Inception Visit

- Reviewed bidding documents

- Attended bid opening

- Represented at negotiations as an

observer

- Visited site during construction and


36 Appendix 8


4.05 (a) The Recipient shall exercise its rights under the Subsidiary Grant

Agreement in such a manner as to protect the interests of the Recipient

and ADB and to accomplish the purposes of the Grants.

(b) No rights or obligations under the Subsidiary Grant Agreement shall be

assigned, amended, or waived without the prior concurrence of ADB.

(a) Complied, no issues recorded.

(b) Complied, all amendments to grant

agreement obtained ADB and the

Government of Nauru concurrence and

followed ADB’s due processes.

4.06 The Recipient acknowledges and agrees that this Grant Agreement is

entered into by ADB, not in its individual capacity, but as grant administer

for the Government of Australia. Accordingly, the Recipient agrees that (i) it

may only withdraw Grant proceeds to the extent that ADB has received

proceeds for the Grant from the Government of Australia, and (ii) that ADB

does not assume any obligations or responsibilities of the Government of

Australia in respect of the Project or the Grant other than those set out in

this Grant Agreement.

Complied, the Government of Nauru,

Ministry of Finance and NUC understood

this requirement and disbursements from

the cofinancing grant was limited to

available funds as in ADB account

received from the Government of

Australia.

PROJECT AGREEMENTS 0414, 0424 and 0443-NAU


2.01 (a) NUC shall carry out the Project with due diligence and efficiency, and in

conformity with sound applicable technical, financial, business, and

development practices.

(b) In the carrying out of the Project and operation of the Project facilities,

NUC shall perform all obligations set forth in the Grant Agreement to the

extent that they are applicable to NUC.

(a) Complied, NUC showed due

competency in complying to due

diligence and efficiency requirements as

in the project administration manual.

(b) Complied, NUC showed due

competency in complying to

requirements as in the grant

agreements.

2.02 NUC shall make available, promptly as needed, the funds, facilities,

services, equipment and other resources as required, in addition to the

proceeds of the Grant, for the carrying out of the Project.

Complied, CNUC promptly provided

required facilities, equipment, human

resources and necessary funds as

needed to smooth implementation of the

project. This is one of the reasons for

successful completion of the project.

2.03 (a) In the carrying out of the Project, NUC shall employ competent and

qualified consultants and contractors, acceptable to ADB, to an extent and

upon terms and conditions satisfactory to ADB.

(b) Except as ADB may otherwise agree, NUC shall procure all items of

expenditures to be financed out of the proceeds of the Grant in accordance

with the provisions of Schedule 3 to the Special Operations Grant

Agreement and Schedule 3 to the Grant Agreement. ADB may refuse to

finance a contract where any such item has not been procured under

procedures substantially in accordance with those agreed between the

Recipient and ADB or where the terms and conditions of the contract are

not satisfactory to ADB.

(a) Complied, the design and supervision

consultants (Jacobs Australia) engaged

by NUC were competent in providing

necessary designs and project

management support throughout the

project. The roof and generator

contractors were also provided required

inputs for successful completing their

contracts. NUC obtained ADB’s no objection before awarding all the

contracts under the project.

(b) Complied, all procured items of

expenditures were in accordance to

provisions in the grant agreements. ADB

did not refuse to disburse any of the

payment as recommended by NUC.

2.04 NUC shall carry out the Project in accordance with plans, designs,

standards, specifications and work schedules, and any material

modifications subsequently made therein, in such detail as ADB shall

reasonably request.

Complied, the project implementation

was in accordance to agreed plans,

designs, specifications and schedules.

NUC obtained ADB’s concurrence to any of the amendments to these.

Appendix 8 37


2.05 (a) NUC shall take out and maintain with responsible insurers, or make

other arrangements satisfactory to ADB for, insurance against such risks

and in such amounts as shall be consistent with sound practise.

(b) Without limiting the generality of the foregoing, NUC undertakes to

insure, or cause to be insured, the Goods to be imported for the Project

against hazards incident to the acquisition, transportation and delivery

thereof to the place of use or installation, and for such insurance any

indemnity shall be payable in a currency freely usable to replace or repair

such Goods.

(a) Complied, NUC through respective

contracts had necessary insurance

covers against various risks. The

insurances that contractors provided

included insurance for (i) works, (ii)

Contractor’s Equipment, (iii) Contractor’s personnel, (iv) Injury to Persons and

Damage to Property.

(b) All project related goods were

imported through respective contracts

and required insurances were provided

by the contractors indemnifying NUC

2.06 NUC shall maintain, or cause to be maintained, records and accounts

adequate to identify the items of expenditure financed out of the proceeds

of the Grant, to disclose the use thereof in the Project, to record the

progress of the Project and to reflect, in accordance with consistently

maintained sound accounting principles, its operations and financial

condition.

Complied. NUC maintained separate

accounts for generator, roof and

consultant contracts and for each grant.

The details of the accounts were

available in the audited project financial

statements provided by NUC.

2.07 (a) ADB and NUC shall cooperate fully to ensure that the purposes of the

Grant will be accomplished.

(b) NUC shall promptly inform ADB of any condition which interferes with,

or threatens to interfere with, the progress of the Project, the performance

of its obligations under this Project Agreement or the Subsidiary Grant

Agreement, or the accomplishment of the purposes of the Grant.

(c) ADB and NUC shall from time to time, at the request of either party,

exchange views through their representatives with regard to any matters

relating to the Project, NUC and the Grant.

(a) Complied. Purposes of the grants

were fully accomplished. NUC, Ministry

of Finance cooperated with ADB to

maintain this requirement throughout the

project period;

(b) None were recorded. The only

impediment that interfere to impact

project progress was the logistic

constraints due to Nauru’s remoteness and non-availability of port facilities.

(c) NUC and ADB exchanged project

related matters through emails and

telephone discussions on daily basis.

2.08 (a) NUC shall furnish to ADB all such reports and information as ADB shall

reasonably request concerning (i) the Grant and the expenditure of the

proceeds thereof: (ii) the items of expenditure financed out of such

proceeds; (iii) the Project; (iv) the administration, operations and financial

condition of NUC; and (v) any other matters relating to the purposes of the

Grant.

(b) Without limiting the generality of the foregoing, NUC shall furnish to

ADB periodic reports on the execution of the Project and on the operation

and management of the Project facilities. Such reports shall be submitted in

such form and in such detail and within such a period as ADB shall

reasonably request, and shall indicate, among other things, progress made

and problems encountered during the period under review, steps taken or

proposed to be taken to remedy these problems, and proposed program of

activities and expected progress during the following period.

(c) Promptly after physical completion of the Project, but in any event not

later than 3 months thereafter or such later date as ADB may agree for this

purpose, NUC shall prepare and furnish to ADB a report, in such form and

in such detail as ADB shall reasonably request, on the execution and initial

operation of the Project, including its cost, the performance by NUC of its

obligations under this Project Agreement and the accomplishment of the

purposes of the Grant.

(a) NUC provided all the reports to ADB

as required in the project

administration manual including

Audited Financial Statements (project

and entity), Quarterly and monthly

progress reports, semi-annual

safeguards monitoring reports.

(b) NUC provide ADB quarterly and

monthly progress reports, semi-

annual safeguards monitoring reports

on the formats and information as

requested by ADB.

(c) NUC submitted Employer’s Project Completion Report after physical

completion of the project as agreed

with ADB. In addition, NUC through

supervision consultants submitted

completion reports after completion of

roof and generator contracts showing

any outstanding matters and any

defects and a schedule for

38 Appendix 8


completing those outstanding and

defects with a reasonable timeframe.

All outstanding items and defects

were subsequently corrected or

rectified by the contractors satisfying

supervision consultants and NUC.

2.09 (a) NUC shall (i) maintain separate accounts and records for the Project; (ii)

prepare annual financial statements for the Project in accordance

with accounting principles acceptable to ADB; (iii) have such financial

statements for the Project audited annually by independent auditors whose

qualifications, experience and terms of reference are acceptable to ADB, in

accordance with international standards for auditing or the national

equivalent acceptable to ADB; (iv) as part of each such audit, have the

auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the Grant proceeds and compliance with the

financial covenants of the Grant Agreement) and a management letter

(which sets out the deficiencies in the internal control of the Project that

were identified in the course of the audit, if any); and (v) furnish to ADB, no

later than 6 months after the close of the fiscal year to which they relate,

copies of such audited financial statements, audit report and management

letter, all in the English language, and such other information concerning

these documents and the audit thereof as ADB shall from time to time

reasonably request.

(b) ADB shall disclose the annual audited financial statements for the

Project and the opinion of the auditors on the financial statements within 30

days of the date of their receipt by posting them on ADB’s website. (c) In addition to annual audited financial statements referred to in

subsection (a) hereinabove, NUC shall (i) provide its annual financial

statements prepared in accordance with national accrual-based financing

reporting standards acceptable to ADB;

(ii) have its financial statements audited annually by independent auditors

whose qualifications, experience and terms of reference are acceptable to

ADB, in accordance with international standards for auditing or the national

equivalent acceptable to ADB; and

(iii) furnish to ADB, no later than 1 month after approval by the relevant

authority, copies of such audited financial statements in the English

language and such other information concerning these documents and the

audit thereof as ADB shall from time to time reasonably request.

(d) NUC shall enable ADB, upon ADB's request, to discuss NUC’s

financial statements and its financial affairs where they relate to the Project

with the auditors appointed by NUC pursuant to subsections (a)(iii) and (c)

herein above and shall authorize and require any representative of such

auditors to participate in any such discussions requested by ADB. This is

provided that such discussions shall be conducted only in the presence of

an authorized officer of NUC, unless NUC shall otherwise agree.

(a) Complied; NUC (i) maintained

separate accounts for project

accounts and for each grant; (ii)

annual financial statements for the

project accounts have been prepared

for FY 2015/16, 2016/17, 2017/18 (up

to October 2018) following

accounting principles acceptable to

ADB; (iii) independent auditor

engaged by NUC, Earnest & Young

of Fiji had sufficient qualification and

experience and acceptable to ADB

for auditing project accounts for each

year since FY2015/16; (iv) audits

reports contained auditor’s opinion,

management letter; (v) all audit

reports were furnished to ADB in

English however with some delays.

(b) Complied; Annual audited financial

statements for FY2015/16, 2016/17,

2017/18 have been disclosed in ADB

web site.

(c) Complied; NUC provided to ADB

NUC’s own audit reports for FY2014/15, 2015/16, 2016/17,

2017/18. NUC’s Audit report for FY2014/15 has been prepared by

Government’s Auditor and the others by independent auditor Earnest and

Young of Fiji. Submission of audit

reports to ADB were sometime

delayed.

(d) Not yet requested by ADB

2.10 NUC shall enable ADB's representatives to inspect the

Project, the Goods and any relevant records and documents.

Complied; ADB’s project officer visited site at every review mission and

inspected roof work and installation of

the generators. NUC shared all project

related documents with ADB and

obtained ADB’s concurrence for all necessary documents (bidding

Appendix 8 39


documents, bid evaluation reports)

before decisions been taken.

2.11 (a) NUC shall, promptly as required, take all action within its powers to

maintain its corporate existence, to carry on its operations, and to

acquire, maintain and renew all rights, properties, powers, privileges and

franchises which are necessary in the carrying out of the Project or in the

conduct of its operations.

(b) NUC shall at all times conduct its operations in accordance with sound

applicable technical, financial, business, development and operational

practices, and under the supervision of competent and experienced

management and personnel.

(c) NUC shall at all times operate and maintain its plants, equipment and

other property, and from time to time, promptly as needed, make all

necessary repairs and renewals thereof, all in accordance with sound

applicable technical, financial, business, development, operational and

maintenance practices.

Complied;

(a) NUC took all necessary steps to

maintain its corporate existence to carry

out the project. The government

appointed international experts in the

key positions of NUC including chief

executive officer, general manager

generations, financial controller and also

appointed a full board of directors to

improve NUC’s governance.

(b) NUC improved its capacity in its

operations over the years since 2011

with the support of ADB’s TAs for Regulatory and Governance Reform for

Improving Water and Electricity Supply

(2011) and Institutional Strengthening of

the Nauru Utilities Corporation (2014).

(c) NUC now maintain old and new

plants and also other equipment

regularly to a corporate plan.

2.12 Except as ADB may otherwise agree, NUC shall not sell, lease or

otherwise dispose of any of its assets which shall be required for the

efficient carrying on of its operations or the disposal of which may prejudice

its ability to perform satisfactorily any of its obligations under this Project

Agreement.

NUC disposed/decommissioned 1

medium speed and two high speed

generating units that were out of service

for long time and cannot be repaired.

The retiring of these units was envisaged

at the project approval. In order to

improve efficiency NUC currently

undertaking overhaul repairs to 3

medium speed and 1 high speed

generating units.

2.13 Except as ADB may otherwise agree, NUC shall apply the proceeds of the

Grant to the financing of expenditures on the Project in accordance with the

provisions of the Grant Agreement and this Project Agreement, and shall

ensure that all items of expenditures financed out of such proceeds are

used exclusively in the carrying out of the Project.

NUC incurred all grant proceeds only for

the project related items including for

powerhouse roof and structural repairs,

two generators, switchgear and related

equipment. All works, plants and goods

were inspected, and payments were

authorized by design and supervision

consultants before being disbursed. All

payments were disbursed by ADB

directly to contractors nominated

accounts.

2.14 Except as ADB may otherwise agree, NUC shall duly perform all its

obligations under the Subsidiary Grant Agreement, and shall not take, or

concur in, any action which would have the effect of assigning, amending,

abrogating or waiving any rights or obligations of the parties under the

Subsidiary Grant Agreement.

NUC and government (Ministry of

Finance) maintained its obligations

under subsidiary grant agreement and

no amendments, repeals, or waiving off

of any such obligations were recorded.

2.15 NUC shall promptly notify ADB of any proposal to amend, suspend or

repeal any provision of its constitutional documents, which, if implemented,

could adversely affect the carrying out of the Project or the operation of the

All amendments to NUC constitution

supported smooth project

implementation especially improving

NUC’s operations. One such change

40 Appendix 8


Project facilities. NUC shall afford ADB an adequate opportunity to

comment on such proposal prior to taking any affirmative action thereon.

supported the project and NUC was

government approval for NUC to operate

its own bank account following

acceptable guidelines. Previously NUC’s bank accounts were managed by

Ministry of Finance and was identified as

an impediment to NUC’s efficient operation

Appendix 9 41

ASSESSMENT OF PROJECT IMPACTS AND BENEFITS

1. Methodology 1. The appraisal of the Nauru Electricity Supply Security and Sustainability Project (the project) was completed in October 2014 and the project was commenced since April 2015 upon mobilization of the design and supervision consultants. The project was physically completed in December 2017. Given credible data within Nauru Electricity Corporation (NUC) is available since 2015, the project’s impacts and benefits before and after the projects is compared between 2015 and 2018. NUC’s electricity generation and country’s demand at appraisal is considered to be unchanged as of 2015 and available data in 2015 is treated as same at appraisal in 2014. 2. Nauru’s Power System 2. Virtually all residential, commercial, government and industrial buildings on Nauru have access to electricity. The main source of electricity is NUC’s powerhouse grid on the western side of the island where NUC’s diesel generating plant is installed. Some of the larger entities on the island, such as Nauru’s phosphate mining entity (RONPHOS), Regional Processing Centre (RPC) are currently not connected to NUC grid and have their own diesel generating facilities. 3. Electricity is distributed around the island at 11kV, 50Hz, three phase and stepped down to 400V, mostly by pole mounted distribution transformers but for large installations, ground mounted transformers are used. With the exception of one underground feeder extending to the Menen Hotel, 11kV distribution is by overhead line. 3. NUC’s Generation Capacity 4. NUC’s generation capacity at appraisal in 2014 and in 2018 is compared in Table 1.

Table 1: NUC Generation Capacity 2014 and 2018

Generator Name Type

2014 2018

Remarks Installed Capacity

(MW)

Rated Capacity

(MW)

Installed Capacity

(MW)

Rated Capacity

(MW) Gen 1 - Ruston Medium Speed 2.6 0.8 2.6 0.8 Major overhaul by 2020 Gen 2 - MAN Medium Speed 2.8 2.5 New; By ADB Project Gen 3 - MAN Medium Speed 2.8 2.5 New; By ADB Project Gen 4 - Ruston Medium Speed

2.8 2.4 Purchased by NUC; installation Sep 2019

Gen 5 - Ruston Medium Speed 1.0 0.8 1.0 0.8 Major overhaul by 2020 Gen 6 - Ruston Medium Speed 2.4 1.4 2.4 1.7 Overhaul complete by Dec 2019 Gen 7 - Ruston Medium Speed 2.8

Out of service; decommissioned by 2018

Total Medium Speed 8.8 3.0 14.4 10.7 Gen 2A - Cummins High Speed 1.0 0.8 Available Gen 2B - Cummins High Speed 1.0 0.8 Available Gen 3 - Cummins High Speed 1.0 0.8 Available Gen 4 - Cummins High Speed 1.0 0.8 1.0 0.8 Overhaul complete by July 19 Gen 5 - Caterpillar High Speed 1.2

Out of service; decommissioned by 2018

Gen 5 - Cummins High Speed 1.0 0.8 Available Gen 7A - MTU High Speed 1.0 1.0 0.8 Out of service; decommissioned by 2018 Gen 7B - Cummins High Speed 1.0 0.8 Available

Total High Speed 3.2 0.8 7.0 5.6 Total NUC Capacity 12.0 3.8 21.4 16.3

Source: Nauru Utilities Corporation

42 Appendix 9

4. Electricity Demand and Supply 5. Nauru’s total electricity demand in 2014 was estimated at 10.75 MW whereas in 2018, 12.85 MW. NUC further estimates Nauru’s electricity demand will rose to 15 MW including RPC’s 1,2 and 3, new prison and ramp-up in mining by 2025. 6. NUC’s combined available generation capacity in 2014 was 5.3 MW and the grid’s peak load was 3.75 MW. This was far below than the country’s electricity demand and most of the consumers used their own generation units to supply electricity. Since 2014, NUC was able to source several generation units and increased its available generation capacity to 16.3 MW by 2018 and grid’s peak lead was increased to 5.3 MW. This increase in the peak load is determined to be over 41% compared to 2014. A comparison of Nauru’s electricity demand and available generation capacity at NUC between 2014 and 2018 is in Figure 1.

7. NUC’s electricity generation is supplied through a mix of medium and high-speed diesel generators. The current generation mix to meet the peak demand of 5.3 MW is supplied through distributing among the 3 high speeds (droop mode) and a MAN medium speed (fixed mode). This generation mix is determined to be the most appropriate to evade the medium speeds running at low efficiencies and enable quick response to cloud cover’s during solar penetration.

Fig 1: Nauru’s Electricity Demand and Supply

5. Power Outages 8. By 2014, power generation in Nauru has not been reliable, resulting in extended outages and consumer frustration. One of the main reasons for the lack of reliability was that the base-load diesel generating plant and its associated infrastructure was more than 30 years old. Shortfalls in maintenance and overhauls exacerbated the reliability issues. NUC, to a limited extent, compensated for lack of generating capacity by procuring small high-speed diesel generating sets. In addition to the unreliable generating plant, most of NUC’s distribution network which mainly comprises overhead lines, is more than 50 years old and also suffered from a lack of maintenance and rehabilitation. Since 2014, NUC implemented several programs funded by

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2014 2018

Country's Demand NUC Available Capacity Peak Load

MW

Appendix 9 43

various development partner support and also through NUC and the Government of Nauru (the government) financing to increase its generation capacity and rehabilitate its distribution network. 9. The installation of two new medium speed diesel generators supported by Asian Development Bank (ADB), the European Union (EU) and the Government of Australia assisted NUC to meet its peak load demand, provide reliable generation and plan outages of other sets for maintenance and overhauls. The EU supported distribution network rehabilitation program enabled NUC to deliver more reliable electricity supply to consumers with reduced system losses.

10. In parallel, NUC launched a program to overhaul refurbishment of the older medium speed generating units and to procure containerized high-speed diesel generating sets, each of around 1MW rating. Combined these programs enabled NUC to improve supply reliability to consumers, substantially reduce the frequency and duration of outages and attain N-2 energy security by 2019. At N-2 security level NUC is able to continue in generating rated capacity to meet the total grid demand when two largest generators are taken out for planned/unplanned maintenance.

11. The increased reliability of NUC’s electricity supply is a key performance indicator to demonstrate NUC’s efficiency and effectivity in service delivery. The reliability of electricity supply systems is generally measured using two metrics that show the duration and frequency of outages: System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI). SAIDI measures duration of outages and SAIFI frequency of outages. A comparison of the frequency and duration of outages before and after the project (between 2014 and 2018) is in Figure 2 and 3 respectively.

Figure 2: Comparison of Frequency of Outages

12. It is evident from Figure 2 that NUC has reduced frequency of outages by 91% to 46 interruptions per customer in 2018, compared with the 490 in 2015. NUC projects further reduction in the frequency of outages to 35 interruptions per customer by end of 2019.

Figure 3: Comparison of Duration of Outages

490

231

96

46 35

0

100

200

300

400

500

600

2015 2016 2017 2018 Proj. 2019

SAIFI

44 Appendix 9

13. The figure 3 is evident to demonstrate NUC’s ability to reduce duration of outages. The duration of outages has been shortened by 94% to 3,948 minutes in 2018 from 67,476 minutes in 2015. NUC projects this will be further reduced to 2.187 minutes in 2019. 6. Electricity Generation, Sales and System Losses

14. Figure 4 below compares NUC’s total electricity generation against sales.

Figure 4: Electricity Generation and Sales

15. It is evident that electricity generation has been increased by 19% to 36.18 million kWh in 2018 from 30.35 million kWh in 2015. NUC’s electricity sales has been increased by 46% to 27.35 kWh in 2018 against 18.79 million kWh in 2015.

67,476

34,097

8,6023,946 2187

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2015 2016 2017 2018 Proj. 2019

SAIDI

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2015 2018

Total Sales Total Generation

Appendix 9 45

16. This compares significant reduction in the system losses. Figure 5 demonstrates NUC’s efforts in reducing system losses by 15% in 2019 compared to 40% in 2015.

Figure 5: System Losses

7. NUC’s Consumer Base 17. Figure 6 and 7 represent NUC’s customer base composition in 2015 and 2018.

Figure 6: NUC Customer Base 2015

Figure 7: NUC Customer Base 2018

18. It is evident that NUC’s major consumer being residential users. The number of residential users increased by 24% to 2,740 connections in 2018 compared to 2,201 in 2015. Similarly, commercial consumers have been increased by 20% to 402 connections in 2018 from 335 in

40%

36%

26%

22%

15%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2015 2016 2017 2018 Proj. 2019

Residential

85%

Commercial

12%

Government

2%

Industrial

1%

Residential

Commercial

Government

Industrial

Residential

84%

Commercial

13%

Government

2%

Industrial

1%

Residential

Commercial

Government

Industrial

46 Appendix 9

2015. The total consumers including residential, commercial, government and industrial increased by 28% to total 3,325 connections in 2018 from 2,604 in 2015.

19. The figure 8 shows composition of electricity usage. This includes electricity usage by power station itself and other non-revenue energy users such as street lighting.

Graph 8: NUC Electricity Usage FY2018/19

(up to end April 2019)

8. Electricity Tariffs and NUC Revenue

20. Table 2 shows NUC’s electricity tariffs since commencement of the project in 2015. There is no tariff changes over the years except reduction of the lifeline tariff level to 200kWh from 300kWh based on the recommendation by ADB’s TA for Tariff and Subsidy Policy Reform.

Table 2: NUC Electricity Tariff Structure

Year Domestic Commercial Government Industrial

FY 2015/16 0.25 < 300 kwhr 0.50 > 300 kwhr

0.70/kwhr 0.70/kwhr 0.70/kwhr

FY 2016/17 0.25 < 300 kwhr 0.50 > 300 kwhr


FY 2017/18 0.25 < 200 kwhr 0.50 > 200 kwhr


FY 2018/19 0.25 < 200 kwhr 0.50 > 200 kwhr


21. Table 3 shows NUC’s revenue since 2015. It is evident that government subsidy has been significantly reduced and expect completely avoid in FY2019. NUC has been generating positive

301,000

25,078,585

567,970 4,698,710 Total Auxillary Power

StationsTotal Sales

Total Non Revenue Energy

Appendix 9 47

operating profit since 2017 and the profit margin has been significantly improved in FY 2018 mainly attributed by the positive effects of the project.

Table 3: NUC Financial Results for FY’s 2015 to 2018

Year FY2015 FY2016 FY2017 FY2018

Income 16,450,417 19,237,636 21,858,108 20,170,473 Expenses 16,235,087 20,792,928 19,141,405 15,483,824 Profit 215,330 (1,555,292) 2,716,703 4,686,649 Government Subsidy 6,416,683 6,478,274 5,939,266 1,700,004

Source: NUC FY 2018 Audit Report

9. Post Project Consumer Survey 22. During an interview undertaken in May 2019, Nauruan residents responded positively to electricity supply in 2019 compared to a few years prior. The main areas that improved daily life included daily bathing, refrigeration and suspicion to neighboring districts for having electricity while other districts had a power cut. 23. Due to electricity shortfalls in the past, water pumps would not operate, and buckets of water had to be physically transported from a water tank outside, to inside their house. In some cases, respondents said their incentive to go to work reduced when so much effort was required to have a shower.

24. The main mitigant to refrigerator outages for residents was the daily purchase of groceries. Households could not take advantage of food sales or larger bulk purchase due to unpredictable electricity which would cause meat and vegetables to go bad quickly, particularly in the hot Nauruan climate. Daily food purchase made food costs more expensive, required more time for food preparation and allowed for limited for planning for households, living as a daily survival.

25. Power outages in the past meant that some districts would be without power while their neighbors would have it on. This caused suspicion in the eyes of locals, making accusations of political corruption and anger for communities.

26. Other issues residents raised included the high cost of fuel to run generators, in some cases not having money for fuel to power household generators, and turning generators on and off causes sub-optimal operation resulting in frequent breakdowns, more maintenance and repairs, causing a higher cost of living for the local residents.

10. News Releases

27. ADB publicized several news releases on the progress and the successful completion of the project in various media including in ADB’s website. The details of news articles published, and their links to the ADB web site are as below.

(i) ADB, Australia, EU Commission New Generators to Deliver Safe, Reliable Power to Nauru – News Release dated 26 January 2019. Link - https://www.adb.org/projects/46455-002/main#project-stories

(ii) New Generators Provide Reliable, Affordable Electricity in Nauru – Project Result / Case Study published in ADB web site on 1 June 2018.

https://www.adb.org/projects/46455-002/main#project-stories

48 Appendix 9

Link - https://www.adb.org/results/new-generators-provide-reliable-affordable-electricity-nauru

11. Photos 28. ADB and NUC gathered several photos during project implementation and at the commissioning ceremony. These photos are shown in figure 9.

Figure 9: Project Implementation and Inauguration Ceremony Photos

Fig 9.1: Generators transported through a barge

Figure 9.2: Generators transported to Powerhouse



Appendix 9 49

Figure 9.3: Generators installation completed

Figure 9.4: Generator Inauguration Ceremony

50 Appendix 9

Figure 9.4: Generator Inauguration Ceremony

Figure 9.5: The NUC Powerhouse 2015

Figure 9.6: The NUC Powerhouse 2018

Appendix 10 51

ECONOMIC ANALYSIS Introduction 1. Nauru’s recent economic performance has been volatile. The economy continues to be supported by only a few sources of income, that is international assistance, dwindling revenues from the Regional Processing Centre, fluctuating fish license fees and limited secondary phosphate mining. The country’s economic future remains most uncertain. Without Project 2. Without the project NUC would have had to continue generating power for the island with its set of old, fuel inefficient generators. NUC would also have had to increasingly bear the risks of rain damage, fire and other risks to life, limb and technical operations from (i) a deteriorating powerhouse fabric, (ii) dangerous fuel and lubricant waste drainage and (iii) an unsafe water tower. Without the project the island’s energy supply would have continued to be comparatively expensive, largely inconsistent and unreliable forcing major commercial and industrial consumers to maintain their investments in higher cost private generators. Uncertain and costly energy supply would have continued to constrain the country’s social and economic growth and development. With Project 3. With the project NUC has been able to secure a 24-hour power supply to the island at reduced full cost recovery tariff levels. This greatly improved service has, in turn attracted increased demand, both non-incremental and incremental with consumers switching from more expensive self-generation to the NUC operated mains reticulation and with other existing, mainly residential consumers increasing their demand for power. With improved technical, financial and general management, NUC can now operate a transparent, accountable and viable service. The project has also substantially lessened the power plant risks to life, limb and operations. Improved and much less risky electricity supply supports the country’s social and economic growth and development. The project has also allowed the country’s energy sector to switch from a partial reliance on comparatively fuel inefficient and more expensive private generators to the more fuel-efficient and less expensive generation of electricity by NUC. Cost-Benefit Assumptions 4. A re-evaluation of the original 2014 economic analysis and the 2015 re-appraisal incorporating a second generator has been prepared for the entire investment.1 All costs and benefits are expressed in constant mid 2019 prices, in Australian dollars and projected over 25 years. The methodology employed follows standard practice of comparing life cycle investment and operating costs with and without project, using Net Present Value (NPV) at a 12 % discount rate and economic internal rate of return (EIRR) as decision criteria. The economic analysis of the project was carried out in accordance with the ADB’s project economic guidelines.2 5. The two generators and the associated equipment and facilities supplied and refurbished under both the original and additional financing have been treated as one project for a combined analysis of economic viability. Apart from the investment in the generators actual investment costs also cover site preparation, rehabilitation of the powerhouse roof and

1 The investment consists of two generators and the associated equipment and facilities supplied and refurbished under both

initial and additional financing. Apart from the investment in the generators actual investment costs also cover their site preparation, rehabilitation of the powerhouse roof and walls, demolishing an old water tower, construction of a water and oil separation facility, and technical assistance in support of design and supervision.

2 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila

52 Appendix 10

walls, demolishing an old water tower, construction of a water and oil separation facility, and technical assistance in support of design and supervision. 6. Economic costs include: (i) all actual investment costs, and (ii) actual incremental annual and periodic operating costs and maintenance over the project life of 25 years. Economic benefits as projected by NUC are: (i) NUC’s non-incremental net operating cost savings from reduced consumption of diesel fuel, lube oil and other operating costs resulting from the investment in more fuel efficient generators; (ii) non-incremental savings from sales to commercial and industrial consumers who switch from their own more expensive generators to the lower cost and the now more reliable 24-hour grid supply. Estimates of non-incremental benefits are based on fuel savings from displacing alternative generation; (iii) incremental new market demand resulting from both previously unserved demand and the increased demand from existing consumers due to the increase in overall system capacity and reliability; (iv) increased willingness to pay for assured 24 hour electricity.3; and (v) a terminal value for the capital employed in the project at an assumed 10% of the total value of initial investment. Projections for future benefit streams are based on NUC estimates that in turn are based on actual increases in tariff levels, estimates of increased willingness to pay and actual increases in demand in recent years of operation. 7. The approach, methodology and assumptions employed at project appraisal are largely endorsed for the post-project economic re-evaluation. The only minor areas of disagreement are with regard to (i) adoption of a shadow wage rate, and (ii) the benefits calculated for other works (roof rehabilitation, site preparation, water tower demolition, and oil-water separation). With regard to the assumption of a shadow wage rate, Nauru is not a labour surplus economy. The country consists of one comparatively small island, one small “urban” marketplace. According to the country’s limited statistics there is next to no unemployment.4 NUC management report that unskilled and semi-skilled labour markets are competitive, most especially when productivity is taken into account. There is also no defendable, rationale for calculating individual benefits that could be separately and directly attributed to the other works. These differences of opinion are however slight and do not affect the results of the overall analysis. 8. The analysis uses the world price numeraire. Taxes and duties have been removed for the economic analysis. The shadow exchange rate factor (SERF) is calculated by applying the trade-weighted estimate. The SERF is calculated as 1.11 with the SCF as 0.90.5 Given the nature of Nauru’s labour market a shadow wage rate of 1 is assumed. Cost-Benefit Analysis 9. The re-evaluation assesses the project as economic. The ex-post base case EIRR is calculated as 26% and with NPV of A$7.38 million at 12% discount rate. This compares with the ex-ante (with additional co-financing) project reappraisal estimate of EIRR of 46.0% and ENPV of $17.41 million, also at a 12% rate of discount. A comparison of these estimates of viability should allow for the greatly strengthened technical, financial and general management of the NUC over the past 5 years. The majority of the project benefits had already been realized by 2019. A small, 2% further increase in benefits is projected for 2020. However, no further increase in benefits is projected as levels of economic growth and related levels of domestic population are most uncertain and very difficult to project with any degree of confidence. Year

3 The 2017 Tariff Report willingness to pay survey revealed that respondents were willing to pay, on average 32% more than their

current bills for 24-hour reliable electricity service. See: DHInfrastructure. 2017. TA-8754: Nauru Tariff and Subsidy Policy Reform Combined Report on Electricity and Water Tariffs. Maryland

4 See the Secretariat of the Peoples Community PRISM database: A total of 41 people were recorded as unemployed in 2012-13, 1% of the labour force.

5 Standard conversion factor (SCF) = (imports [cif] + exports [fob] / [imports + import taxes] + [exports – export taxes]). For 2014 imports (cif) were A$126.2 million; exports (fob) were A$16.5 million; and in the FY 2018/19 proposed budget import taxes were A$16.4 million and export taxes A$0.0. The SERF is therefore calculated as 1.11 with the SCF as 0.90.

Appendix 10 53

2020 revenues are derived from net operating savings (41%), increased demand for electricity (44%) and non-incremental supply (15%). Appraisal estimates could not benefit from actual technical and financial parameters available today. 10. Given the fragility of Nauru’s economy and therefore the future demand for energy and given historic fluctuations in international fuel prices sensitivity tests have been conducted for reduced demand (10% across all categories of customer) and increased costs of both fuel and lubricants (at a 10% increase). The EIRR assessments are robust with both sensitivity tests leading to only a one percent point reduction, to an EIRR of 25%. Energy demand from year 2020 on would have to fall by 80% each year for the net present value to fall to zero (switching value). 11. There was a cost overrun of $2.12 million that was covered by the government. This is included in the analyses and has probably led to the comparative reduction in economic viability. The delay in commissioning the generators and completing construction is considered to be standard for Nauru as with other Pacific Island Countries. Process efficiency is incorporated in the recalculated EIRR. Given (i) the EIRR is higher than 18%, (ii) the robustness of the assessments to all sensitivity tests, (iii) the benefits have been produced at least cost, and (iv) process efficiency is rated highly the project is assessed as highly efficient. 12. The base case assessments of economic costs and benefits are presented below.

Table 1: Economic Costs and Benefits (AUD ‘000)

Year Total Investment

Terminal Value

Annual O&M costs

Total Incremental Costs

Total Incremental Benefits

Total Non-Incremental

Benefits

Net Returns

2015 118.07 118.07 0 0 -118.07 2016 3,090.72 3,090.72 0 0 -3,090.72 2017 11,728.30 11,728.30 662.53 0 -11,065.77 2018 2,198.22 227.91 2,426.14 3,864.72 762.52 2,201.10 2019 355.53 355.53 4,211.50 762.52 4,618.49 2020 241.01 241.01 4,321.71 762.52 4,843,22 2021 355.53 355.53 4,321.71 762.52 4,728.71 2022 1,499.06 1,499.06 4,321.71 762.52 3,585.17 2023 355.53 355.53 4,321.71 762.52 4,728.71 2024 241.01 241.01 4,321.71 762.52 4,843.22 2025 355.53 355.53 4,321.71 762.52 4,728.71 2026 241.01 241.01 4,321.71 762.52 4,843.22 2027 1,613.57 1,613.57 4,321.71 762.52 3,470.66 2028 3,628.09 3,628.09 4,321.71 762.52 1,456.15 2029 355.53 355.53 4,321.71 762.52 4,728.71 2030 241.01 241.01 4,321.71 762.52 4,843.22 2031 355.53 355.53 4,321.71 762.52 4,728.71 2032 1,499.06 1,499.06 4,321.71 762.52 3,585.17 2033 355.53 355.53 4,321.71 762.52 4,728.71 2034 241.01 241.01 4,321.71 762.52 4,843.22 2035 355.53 355.53 4,321.71 762.52 4,728.71 2036 241.01 241.01 4,321.71 762.52 4,843.22 2037 1,613.57 1,613.57 4,321.71 762.52 3,470.66 2038 3,628.09 3,628.09 4,321.71 762.52 1,456.15 2039 355.53 355.53 4,321.71 762.52 4,728.71 2040 241.01 241.01 4,321.71 762.52 4,843.21 2041 355.53 355.53 4,321.71 762.52 4,728.71 2042 1,499.06 1,499.06 4,321.71 762.52 3,585.17 2043 1,713.53 499.06 499.06 4,321.71 762.52 6,298.70 ENPV

7,377.98

EIRR 26%

54 Appendix 11

FINANCIAL ANALYSIS Introduction 1. As of May 2019 NUC, technical, financial and overall operations have significantly improved. NUC is now well managed, operating under a corporate strategy and staff has a much-improved work culture. Generators are safely housed and operating to scheduled maintenance. The island has 24-hour power supply. The main industrial, RONPHOS and commercial markets are now partly supplied by NUC rather than by more expensive and fuel inefficient private generators. Other new residential users have been brought onto the grid. Accounts are up-to-date and annually audited. Electricity tariffs have been increased and are set to further increase. Electricity losses have been greatly reduced. NUC now has the capacity to cater for projected increases in demand, and the island energy grid is poised to absorb increasing contributions from newly installed renewable energy plant.1 Without Project 2. Without the project NUC would have had to continue generating power for the island with its set of old, fuel inefficient generators. NUC would also have had to increasingly bear the risks of rain damage, fire and other risks to life, limb and technical operations from (i) a deteriorating powerhouse fabric, (ii) dangerous fuel and lubricant waste drainage and (iii) an unsafe water tower. Without the project the island’s energy supply would have continued to be comparatively expensive, largely inconsistent and unreliable forcing major commercial and industrial consumers to maintain their investments in higher cost private generators. Uncertain and costly energy supply would have continued to constrain the country’s social and economic growth and development. With Project 3. With the project NUC has been able to secure a 24-hour power supply to the island at reduced full cost recovery tariff levels. This greatly improved service has, in turn attracted increased demand, both non-incremental and incremental with consumers switching from more expensive self-generation to the NUC operated mains reticulation and with other existing, mainly residential consumers increasing their demand for power and willing to pay more for a regular energy supply. With improved technical, financial and general management NUC can now operate a transparent, accountable and viable service. The project has also substantially lessened the power plant risks to life, limb and operations. Improved and much less risky electricity supply supports the country’s social and economic growth and development. Cost, Benefit Assumptions 4. The two generators and the associated equipment and facilities supplied and refurbished under both the initial and additional financing have been treated as one project for a combined analysis of financial viability. Apart from the investment in the generators actual investment costs also cover their site preparation, rehabilitation of the powerhouse roof and walls, demolishing an old water tower, construction of a water and oil separation facility, and technical assistance in support of design and supervision. Other cost streams employed for calculating internal rate of return are life streams of annual operation and maintenance costs.

1 It is interesting to note that the project appraisal discounted the possible contribution of renewable energy to the country’s energy

needs: paragraphs 25 and 26 of Financial and Economic Analysis and International Renewable Energy Agency. 2013. Renewable energy opportunities and challenges in the Pacific Islands region: Nauru. Abu Dhabi.

Appendix 11 55

5. Project benefits are increased residential, commercial and industrial demand and savings in fuel, lubricants and repairs and maintenance. Projections for future benefit streams are based on NUC estimates that in turn are based on actual increases in tariff levels, as well as estimates of increased willingness to pay and actual increases in demand in recent years of operation. Financial benefits are all revenues at constant mid 2019 prices from sales of electricity generated by the 2 new generators. As at appraisal, the life of the project is assumed to be 25 years. A terminal value for the capital employed in the project is also included in the analysis at an assumed 10% of the total value of initial investment. 6. An opportunity cost of 2.4% is employed for the financial analysis as this is considered to be the alternate return for NUC holding working capital on deposit in Australian commercial banks. Regarding the weighted average cost of capital (WACC), the NUC holds neither debt nor equity. It has no cost of capital other than that forgone by alternate investment and even this is limited to temporary deposits of working capital held overseas to secure imports. A WACC therefore hardly applies to NUC’s financial operations. Cost - Benefit Analysis 7. A re-evaluation of the original 2014 financial analysis has been prepared for the entire investment.2 The methodology employed follows standard practice of comparing life cycle investment and operating costs and benefits with and without project, using Net Present Value (NPV) at an opportunity cost of capital as the discount rate and with financial internal rate of return (FIRR) as decision criteria. The financial analysis of the project was carried out in accordance with the ADB’s project economic guidelines.3 8. The re-evaluation assesses the project as viable. The base case FIRR is calculated as 21% and with NPV of A$21.74 million at a 2.40% opportunity cost of capital. This compares with the reappraisal estimate of a FIRR of 13.59% and a financial net present value of $11.09 million using a financial discount rate equal to an estimated weighted average cost of capital of 7.32%. The FIRR was not calculated for the additional co-financing at project reappraisal. The first appraisal estimate also could not include the cost, benefit of the second generator. The greatly strengthened technical, financial and general management of the NUC over the past 5 years also likely explains the discrepancy between the rates of return at appraisal and at evaluation. Appraisal estimates could not benefit from actual technical and financial parameters available today. NUC has also managed to capture much of the potential and projected increase in revenues, including an increase in tariffs. Both tariffs and revenues are set to further increase and the FIRR could increase to an estimated 38% if all projected revenues are included. 9. NUC technical, financial and general management should secure the corporation’s future financial sustainability. The project has also improved the immediate environment of the power plant and its ongoing investments in renewable solar energy will further strengthen environmental sustainability. However, the sustainability of the project will also greatly depend on: (i) the future growth of the Nauru economy and therefore the demand for electricity. The future of all the country’s drivers of economic growth are most uncertain, and (ii) the continued responsible ownership and good management of NUC. These latter factors are largely out of the direct control

2 The total investment consists of two generators and the associated equipment and facilities supplied and refurbished under both

initial and additional financing. Apart from the investment in the generators actual investment costs also cover their site preparation, rehabilitation of the powerhouse roof and walls, demolishing an old water tower, construction of a water and oil separation facility, and technical assistance in support of design and supervision.

3 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila

56 Appendix 11

of NUC. Other factors influencing viability and sustainability are: (i) the further increase in and maintenance of tariff levels, and (ii) future fuel and lubricant prices that will be influenced by political concerns. 10. Given the fragility of Nauru’s economy and therefore the country’s future demand for energy and given historic fluctuations in international fuel prices sensitivity tests have been conducted for reduced energy demand (10% across all categories of customer) and increased costs of both fuel and lubricants across the life of the project (at a 10% increase). Both reduced energy demand and the 10% increase in fuel and lubricant prices have minimal impact on FIRR. A further sensitivity test was conducted for further potential increases in industrial demand that increases the FIRR to 38% and NPV to over AUD 50 million. 11. The base case assessments of financial costs and benefits are presented below.

Table 1: Financial Costs and Benefits (AUD ‘000)

Year Total Investment

Terminal Value

Annual O&M costs

Total Incremental

Costs

Total Incremental Benefits

Net Returns

2015 118.07 118.07 0 -118.07 2016 3,090.72 3,090.72 0 -3,090.72 2017 11,728.30 11,728.30 662.53 -11,065.77 2018 2,198.22 252.17 2,450.39 3,864.62 1,414.22 2019 393.41 393.41 4,211.50 3,818.09 2020 266.73 266.73 4,321.71 4,054.99 2021 393.41 393.41 4,321.71 3,928.31 2022 1,653.45 1,653.45 4,321.71 2,668.27 2023 393.41 393.41 4,321.71 3,928.31 2024 266.73 266.73 4,321.71 4,054.99 2025 393.41 393.41 4,321.71 3,928.31 2026 266.73 266.73 4,321.71 4,054.99 2027 1,780.13 1,780.13 4,321.71 2,541.59 2028 3,996.81 3,996.81 4,321.71 324.91 2029 393.41 393.41 4,321.71 3,928.31 2030 266.73 266.73 4,321.71 4,050.99 2031 393.41 393.41 4,321.71 3,928.31 2032 1,653.45 1,653.45 4,321.71 2,688.27 2033 393.41 393.41 4,321.71 3,928.31 2034 266.73 266.73 4,321.71 4,054.99 2035 393.41 393.41 4,321.71 3,928.31 2036 266.73 266.73 4,321.71 4,054.99 2037 1,780.13 1,780.13 4,321.71 2,541.59 2038 3,996.81 3,996.81 4,321.71 324.91 2039 393.41 393.41 4,321.71 3,928.31 2040 266.73 266.73 4,321.71 4,054.99 2041 393.41 393.41 4,321.71 3,928.31 2042 1,653.45 1,653.45 4,321.71 2,688.27 2043 1,713.53 533.45 533.45 4,321.71 5,481.80 FNPV

21,740

FIRR 21%

Appendix 12 57

STATUS OF IMPLEMENTING ADB TA RECOMMENDATIONS

TA 8754 NAU: Tariff and Subsidy Policy Reform

Category Description Status as of 1 July 2019

Government approval and reserve accounting (2-3 months before new tariffs are implemented)

Government agreement on transition plan and changes to tariff design

The main goal of the TA was to move towards cost-recovery tariffs. For electricity, this might be possible within the next 4-5 years. It will require increases in the residential tariffs (higher tariffs and lower subsidy) and changes to the tariff structure (i.e. addition of a fuel surcharge). These changes/plans will need to be agreed on with the GON.

Done

Agree upon a transfer mechanism with Government.

The tariff transition plan assumes that the GON will provide cash transfers to NUC for the difference between the approved tariffs and the cost-recovery tariff. Our recommendation is for NUC to calculate the subsidy for each tariff sold below cost recovery. The Government service fee would then be used to invoice the GON monthly for the prior month sales. Appendix I.4 includes rules for determining the Government Service Fee.

Done

Incorporate revenue requirement recommendations into accounting procedures and chart of accounts

NUC needs to establish the accounting procedures for how the operating reserve and capital reserve funds will be managed. The NUC Finance Department will also need to identify other potential procedures or accounts that need to be altered (e.g., determining whether the revenue account should have separate accounts for fuel surcharge and base tariffs).

Have deferred as the funds are required now. Hope to begin building fund by 2020 and will have in place accounting procedures.

Establish an escrow account for the Capital Reserve Fund

The creation of the Capital Reserve Fund would result in NUC having up to $10 million set aside in a bank account. Because the funds in the reserve will be relatively stagnant, there is a risk that NUC or the GON could potentially target the reserve for more immediate non-capital financial requirements. Another risk of maintaining a fund of this size is it could become a target for fraud and embezzlement. We recommend that NUC find an offshore financial partner (for example, in Australia) who would be willing to establish an escrow account for the Capital Reserve to eliminate these risks. The ESCROW agreement would establish the terms under which NUC may access funds. Terms for release should include agreement between NUC and Government on the amount of funding to be released and the specific purpose for which it will be used. Appendices I.1 and I.2 provide rules for how the reserves should be managed.

See comments above. Still to rebuild Ruston medium speed generators and eliminate Government subsidy before we can begin to build Capital Reserve fund. Expect to be able to commence this by 2020.

Tariff Setting Process (at least 2 months before tariffs go into effect, every year around same time)

Develop annual budget The initial step in the tariff setting process should be to put together a budget for NUC operations for the tariff year. Ideally, the budget for each account should be initially based on the previous year’s actual spend with adjustments for known and measurable changes (i.e. inflation, planned salary increases, changes in consumption, etc.).

Done

Update the capital plan and determine funding sources

Each year NUC should assess the set of projects included in the previous year’s capital project plan and then update the plan with any changes or additions. As part of these updates NUC should continue to identify how each project will be funded and then account for these plans in the capital components of the revenue requirement

Done

Estimate billing determinants

To calculate tariffs, it will be necessary to estimate sales for the tariff years. Like the annual budget the estimated billing determinants should be initially based on the previous year and then adjusted for known or anticipated changes.

Done

Evaluate capital fund contributions

(Note: For the first-year we recommend this be set at $2 million for the electricity division. The step below applies to future years)

After determining which projects will be paid for using capital reserve funds, NUC then needs to evaluate whether the current level of contributions into the fund will be sufficient to cover the anticipated expenses. This evaluation requires looking not only at the reserve requirements in the current year but also projecting future reserve fund requirements. We recommend that NUC use the depreciation expenses as a guideline in the tariff-setting process to ensure there will be sufficient revenues to cover capital expenses. A recommended threshold is that capital-

Deferred. See comments above.

58 Appendix 12



related expenses (cash-paid capital, reserve fund contributions, and debt service) for the next five years should be at least equal to projected distribution expenses for the next five years. Appendix H discusses the approach for evaluating the capital reserve contributions from year-to-year.

Evaluate operating reserve contributions

(Note: In the final draft of the combined report we recommend that the reserve be built up over three-years. The first-year O&M reserve contribution should be 1/3 of 10 percent of electricity O&M costs, including fuel)

NUC should also evaluate whether the recommended target level of operating reserve contributions (10 percent of O&M and fuel expenses) is adequate. If NUC had financial problems related to cash flow in the previous year then it may consider increasing the reserve to 15 percent.

Deferred. See comments above.

Update the tariff model We developed a tariff model that allows NUC to determine cost-recovery tariffs per the recommendations in this study. Each yeah NUC will need to update the model with the most recent operating costs, customer counts, and billing determinant projections. The cost-recovery tariffs should then be used as the basis for any discussion with the GON on the appropriate tariff level for the next year. (Note: This step is recommended, but not essential. NUC could develop their own calculations that apply the same principals.)

Done

Determine the subsidy from non-residential classes

(if necessary) Our recommendation in the electricity tariff transition plan is to set non-residential classes above their cost-recovery tariff until residential tariffs reach full cost-recovery. The subsidy from these classes can partially offset the foregone revenue from keeping residential tariffs below cost-recovery, and reduce the size of the GON cash transfer. As part of the tariff-setting process, NUC will need to determine what level to set non-residential tariffs. We suggest that NUC set non-residential tariffs at the lesser of 120 percent of the cost-recovery base tariff plus fuel surcharge and the previous year’s tariff (i.e., the subsidy should not result in a tariff increase).

Done

Agree on GON contribution

(if necessary) When NUC and the GON discuss the tariffs to be set each year it will be important to consider the cash transfer requirements that result from any tariff decision. We suggest that in addition to the tariffs charged to customers that NUC and the GON also agree on the Government Service Fees for each tariff now.

Done

Set base tariffs for the year and program them into the billing system

After NUC and the GON determine the appropriate tariffs and service fees to be used for the coming tariff year, these prices will need to be updated in the billing system

Done

Billing changes and fuel surcharge (one time, 1 month prior)

Update billing system settings

NUC will need to modify its billing system to account for the changes to the tariff structure. Specifically, these updates should include: changing the lifeline kWh threshold from 300 kWh to 200 kWh; setting all tariffs at four decimal places; adjusting customer invoices so that both the fuel and baseline tariffs are shown separately; and installing monthly fixed charges for C&I and Government water customers.

Done

Assign a staff member responsibility for determining the fuel surcharge

The tariff transition plan recommends that NUC begin charging customers for the cost of fuel as part of the next annual tariff process. Our recommendation is to calculate the fuel surcharge monthly. NUC should identify a staff member who will oversee updating the fuel surcharge every month. Appendix I.3 provides rules for how the fuel surcharge should be determined.

CEO responsible. Monthly fuel assessment of surcharge in place.

Public education (throughout first year)

Hold public meetings to discuss tariff increases

Public hearings are an integral part of the tariff-setting process in many countries. These hearings are an opportunity for the regulator, utility company, or both to present an overview of the proposed tariff changes and allow the public to ask questions and provide comments. We recommend that NUC establish a similar practice by holding multiple public meetings in Nauru to explain the tariff changes and the plan for tariff increases over the next few years.

Done

Appendix 12 59



Carry out a public awareness and service programme to enhance efficiency

The recommendations in this study represent significant changes for how consumers are charged for electricity and will result in an increase in monthly expenditure for many households. For both political and social affordability reasons, we recommend that NUC carry out public notification and education campaigns to inform customers about these changes and provide suggestions for how they can lower their monthly expenditure. Specifically, we recommend the following:

Educate the public on the impact of cheating and theft. Reduction in non-technical losses will play a key role in keeping tariffs affordable and improving NUC’s financial situation. NUC has set a target to cut losses in half over the next two to three years. It will be important to get broad customer support for this initiative. We recommend that NUC disseminate information or hold meetings to educate their customers on how electricity theft affects the prices they are charged and explains NUC’s plans to eliminate theft. This discussion could be included in the tariff change meetings or as part of separate events.

Conduct an energy efficiency campaign. Based on the results of our survey and anecdotal information we received during our mission trips, it is apparent that the use of household lights and appliances is generally inefficient in Nauru. Consumption by all classes of consumers could be reduced substantially by instituting programmes to educate customers and improve efficiency. Old and poorly maintained lights and appliances, insufficient insulation in houses, and other inefficiencies increase household energy consumption, and therefore monthly expenditure, without any increase in benefits. Excess demand could be curtailed by a programme of public education combined with provision of associated services (like home energy audits) aimed at helping customers conserve energy. Such programmes are well established worldwide and would be relatively straightforward to implement in Nauru.

Done

Implement second lifeline threshold drop (for 2019/2020 tariff year)

Update billing system settings for lifeline

We recommend that the optimum lifeline block for electricity is 150 kWh. The reduction is done over three years. Like how the billing system is updated in the first year from 300 kWh to 200 kWh, a 200 kWh to 150 kWh needs to be installed in 2019/2020.

Not Approved. Plan to introduce with tariff reduction commitment under 6MW solar project

Publicize lifeline changes (should be done at least six months in advance)

Customers should be made aware of this change during the public consultation meetings in 2017/2018. However, additional meetings or media announcements should be made reminding customers of this subsequent change multiple months in advance.

Can only be publicize after Cabinet approval and may not have 6 months to do it.

Lifeline recovery surcharge (within 3-5 years)

Installation of lifeline recovery surcharge

We recommend that NUC eventually recover the foregone revenue from the lifeline tariff through a per kWh surcharge. The tariff transition plan assumes that this surcharge will not be implemented until residential tariffs achieve cost recovery. Once cost-recovery is achieved NUC will need to project foregone revenue for the tariff year and then calculate a tariff to be charged to recover that amount.

Cabinet has allowed cross subsidy to cover for lifeline and residential tariff shortfall.

Assign staff responsibility of tracking lifeline costs and calculating the tariff

NUC will need to assign a staff member to calculate the annual surcharge and track the balance between foregone revenue and lifeline recovery surcharge revenues. The difference between projected and actual foregone revenue should be reconciled annually.

Identified in budget presentation to Cabinet every year

60 Appendix 12

TA 8631 NAU: Institutional Strengthening of the Nauru Utilities Corporation (NUC)

A. Asset management and maintenance

No. Indicator Description of

indicator/Target

Unit for measuring indicator

Responsible party

Completion timeframe

Status as at July 2019

1 Develop long-term Program for asset replacement

program should be for 20 yrs

Y/N NUC Short-term In progress. Finalization of the program deferred as currently we are in the rehabilitation phase of infrastructure

2 Develop short-term Program for asset rehabilitation

program should be for 3 yrs

Y/N NUC Short-term In progress

3 Adopt procedures and schedule for maintenance of assets

Procedures and schedules should be developed for: generation, distribution, and water assets

Y/N NUC, respective departments (water, generation, distribution)

Short-term Done

4 Update asset maintenance schedules as new asserts are aquired

updates for: generation, distribution, and water assets


Short-term Done

5 Annual replacement of high-voltage distribution assets

km/year NUC Short-term In progress

6 Acquire a new SCADA system

Y/N NUC Short-term Done

7 Annual assessments of asset condition

Assessment should include at least a visual inspection of key indicators of asset condition. Update should be reflected in fixed asset register, VIA Fixed Asset package, and Asset Management Calculation Engine


Short-term Done

8 Annual update of asset criticality

Update should be reflected in fixed asset register, VIA Fixed Asset package, and Asset Management Calculation Engine


9 Measure asset criticality weighting

Target: Improve criticality weighted average remaining economic life of assets from 37% to 63% over the next 5 years

Weighted average

NUC Short-term Done

10 Establish process to capture information about relationship between asset condition and delivered service quality

Key data to include: a. Annual asset condition survey results; b. Criticalities assigned to each asset; c. Assumed and actual replacement costs for all assets; d. Criticality weightings;

Y/N NUC Medium- to long-term

Done

Appendix 12 61


indicator/Target


Responsible party



e. Calculated weighted average asset condition index; f. SAIDI, SAIFI and System Minutes for the year

Other potential indicators

11 Annual expenditure on asset rehabilitation

Capital works program

B. Accounting


indicator


Responsible party



1 Complete integration of MYOB and VIA

Including assignment of location codes for each asset and setting depreciation start date as at 1 July 2015

Y/N Accounting Short-term Replaced with upgraded system

2 Monthly manual upload of depreciation data

Y/N Accounting Short-term Plans for incorporating in phase 2 of upgraded system

3 Introduce and appoint a Fixed Asset Clerk

Y/N NUC, HR Short-term Done

4 Create clear and unique identifiers for all assets

Update single line diagrams and water process diagrams, develop an asset location map, affix asset ID labels to every asset (where practical), and input asset IDs into FA Register and VIA


Short-term Done

5 Adopt project approval process

Assign project manager for each project, create a new class of assets in general ledger ("Capital works in progress" CWIP), assign Job Numbers to projects, and require financial approval from CFO


6 Adopt materials and orders process

Project manager identifies materials to be ordered by FA Clerk, who enters order information into MYOB


7 Adopt procedures for recording time against projects

Weekly project-specific timesheets for employees and external contractors; Wages clerk to record time costs against project


62 Appendix 12


indicator/Target


Responsible party



codes and enter into MYOB

8 Adopt process for capturing project costs in financial system

Code all project costs to appropriate CWIP account and Job Number; and journal project timesheets from salary expense GL account to appropriate CWIP account and Job Number

Y/N Accounting Short-term Done

9 Adopt procedures for closing out projects

Condut commissioning tests of assets; update FA register; and close out project account


10 Develop accounting procedures for handling decommissioned assets that are not being replaced

Y/N Accounting Short-term Done

C. Human Resources

No. Indicator Description of indicator


Responsible party



1 Monthly review of work plans in each department

Y/N NUC departments

Short-term Weekly meetings on going

2 Review progress of work plan implementation at monthly senior management meetings

Y/N NUC management

Short-term Weekly meetings on going

3 Establish formal appraisal system to link performance with rewards and recognition

Current system can be kept for positions which perform tasks; Introduce 360 Appraisal system for positions accountable for producing results


4 Link measurement of KPIs to performance appraisals


5 Implement new salary scale, and make annual cost-of-living adjustments


6 Implement new job classification structure


7 Introduce job descriptions for all positions


8 Develop system for movement between job classification steps


9 Set a specific grade level for eligibility for overtime pay


Appendix 12 63


indicator/Target


Responsible party



10 Establish overtime allowance for selected positions to offset ineligibility for overtime


D. Corporate Governance

No Indicator Description of

indicator


Responsible party



1 Amend Corporation Act to give NUC a traditional Board of Directors

Follow international best practice in defining roles for the Board, Board composition, and Board remuneration

Y/N GoN Short-term Done

2 Draft tariff regulations Y/N GoN Short-term Not done

3 Establish process for calculating tariff

Revenue requirement, allocation to customer classes, and design of end-user tariff

Y/N NUC, GoN Short-term Done

4 Establish how often tariff can be adjusted


5 Determine what to do in case of under- or over-recovery of revenue

Role of government subsidies, need for true-ups in case of under- or over-recovery


6 Determine how NUC's reported costs will be verified


7 Enact tariff regulations under the Corporation Act

Separate regulations for water and electricity

Y/N GoN Short-term Not done

8 Draft service quality regulations

Y/N GoN Short-term Done

9 Specify KPIs to use, including precise definitions and calculation methods


10 Determine how indicators will be monitored

Self-report; or hire independent consultant for annual audit of NUC's performance against KPIs


11 Determine how often, and in what format, indicators will be reported

No more frequently than monthly, but no less frequently than semi-annually


12 Determine how indicators will be enforced

Financial incentive for good performance; regular public reporting
