The situation in the energy sector in Moldova before 1996, when the first energy project was launched, was characterized by the following main issues:

• Sector Financial Crisis. There has been a persistent failure, since 1991, to place Moldova's energy resources consumption on an economic basis, as a result of energy price distortions, inadequate metering and invoicing of consumed volumes with increasing levels of theft and, in some instances, even reluctance or technical inability to terminate deliveries to customers who do not pay.
These problems have delayed the structural reform in the energy sector, have led to the growth of external trade debts.
• Import Dependence. Moldova was almost completely dependent (99%) upon imported sources of primary energy. The situation was further complicated by the fact that Moldova had landlocked position, rather limited prospects for supply diversification and due to the fact that the large Moldavskaya thermal power station, with 85% of Moldova's available generating capacity, is located on the left bank. In these conditions it became of crucial importance to use rationally all energy resources, including electrical, thermal energy and natural gas.
• Assets Deterioration. Moldova's energy infrastructure was poorly maintained since independence, and there was a need for long-term re-scaling of this infrastructure to rationalize the costs of upkeep and ensure maximum production efficiency.
• Low Energy Efficiency. Despite its relatively low concentration of heavy industry, the economy of Moldova exhibits high energy-intensity characteristic of former-Soviet nations, though to a slightly lesser degree. The problem reflects previously-low energy prices, inefficient methods of energy production and use, high losses, obsolete equipment, and inadequate maintenance of facilities.
• Decline in Energy Consumption. Energy consumption has declined markedly from its peak in 1989-90, including natural gas and electricity consumption. These declines in demand have been concentrated on the right bank, where progress in raising tariffs to cost-recovery levels, although far from complete, has been much more rapid than on the left bank.

In these circumstances the implementation of the first energy project, which had to contribute to the process of Moldova energy sector renewal, became very important. The choice of CHP-2 and Moldovagaz, as the beneficiaries of the first energy project was justified and well founded. CHP-2 was (and is still now) the main sufficient source of both electrical and thermal energy for Chisinau. Moldovagaz with its natural gas transportation and distribution systems represents a very important part of Moldova energy sector. Thus, the first energy project had two beneficiaries - Moldovagaz and Chisinau Combined Heat Power Plant -2 (CHP-2).

Loan Agreement was signed in July 1996, became effective in January 1997, the closing date initially was established as June 2000, first extension was made till June 2001, second and last - till December 2001.

First procurements were made in December 1997, each beneficiary had its own team for project implementation, and the Chief of the Department of Energy who later was officially appointed as coordinator of the project by the Government Decision in February 1998 performed coordination.

Later on, due to the World Bank recommendation and in accordance with the mutual agreement between the Ministry of Finance and Department of Energy in February 1998, a Government decision was adopted to establish a Project Implementation Unit (PIU) for coordination and monitoring of all project activities and maintaining project's Accounting and Financial Management System.

In accordance with the Order of the Department of Energy of April 10, year 1998 Moldova Energy Project Implementation Unit (PIU) was created, PIU staff (consisting of 3 persons - a deputy coordinator, a procurement specialist and a financial/accounting specialist) was hired competitively and after a period of preparation (initial PIU set up, opening of Special Account with PIU as Beneficiary, office selection and repair, office equipment procurement, AS installation) in August 1998 PIU became fully operational.

It is worth mentioning, that during project implementation the Loan Agreement was amended several times for properly aligning of these development objectives with the project concept and scope (reallocations of Loan means between categories for new procurements realization, defining more exactly project objectives etc.).
The achieving of the first Project objectives was facilitated by introducing by the Government decision of new National Accounting Standards (NAS), elaborated with the help of international organizations and based on the International Accounting Standards (IAS). Moldovagaz and Chisinau CHP-2 took all necessary actions for transition by January 1st, 2000 of all Beneficiaries' records, accounts and financial procedures to the new National Accounting Standards. Training for their accounting staff on NAS was also performed. All financial statements, starting with the 1st of January, 2000, were prepared in accordance with NAS. So, the beneficiaries, taking into account all these realizations, asked the WB to reallocate the initially planned for part D (strengthening of the accounting systems of Beneficiaries) project means to other components.
The second project objective was planned to be achieved by procurement and installation of different types of industrial, household and apartments gas meters, gas pressure regulators, flow computers for MG and respectively by procurement and installation of different technological equipment for CHP-2. This equipment included generators spare parts, computers, copy machines, pumps, chemicals, measuring devices, valves, water retainers, generator excitations systems, busbars and cables.

Thus, the Project consisted of the following components, which were planned to be financed from the Loan MD-4020:

Part A: overhaul of the Chisinau No. 2 Combined Heat and Power Plant.
The scope was to reduce fuel consumption and restore operating efficiency of CHP 2 through repair of existing and installing of newly procured equipment.
During project implementation some changes were introduced from time to time in the initial procurement plan due to changes in priorities or due to savings appeared in result of some procurement. So, the last variant of equipment list to be procured for CHP-2 included measuring devices for chemical composition identification, spare parts for turbo-generators, water retainers for cooling towers, condensations pumps, motor operated valves, chemicals for water demineralizing system, computers, copiers and technological computers and network devices, excitation systems with cables and busbars for connection to turbo-generators.

Part B: repair of Gas Distribution Points.
The goal was to reduce gas leakage, operating inefficiencies of Moldovagaz Gas Distribution Points (GDP) and unscheduled outages through the procurement and installation of different types of gas meters, gas pressure regulators and flow computers.

Part C: Industrial and Household Gas Meters Installation.
The main results expected were reduced losses, improved accuracy of existing meters and commencing the introduction of universal metering through installation of household and apartment riser meters for consumers, who currently did not have meters. Also it was planned to replace existing meters with more accurate metering system for commercial and large industrial customers.

Part D: Upgrade of Accounting and Billing Systems and Financial Management systems at CHP-2 and Moldovagaz.
Improve internal collection and handling of operational data and billing and financial management at CHP-2 and Moldovagaz through provision of computer-system upgrades, technical assistance and training in administrative procedures.
Note: This component of the project was later financed and implemented by beneficiaries from their own means because they had to upgrade their accounting and financial management systems during conversion to new National Standards of Accounting (based on IAS), which was imposed by the Government decision by the end of 1999. So, Loan means were not used for this part of the project.
At the stage of the Project preparation one more part was included:

Part E: Project Management and Implementation Services:
Provision of technical assistance to CHP-2 and Moldovagaz in project management, preparation of bidding documents and carrying out WB procurement procedures. This part of the project was financed from a grant administrated by IBRD, not from Loan means.

CHP-2 and MG project implementation teams started working separately in January 1997 (after the project became effective) under coordination of Department of Energy. In February 1998 in order to accelerate project implementation, based on agreement between WB, Ministry of Finance, Department of Energy and Beneficiaries, the Government decision was issued for creating Project Implementation Unit (PIU) and designating the General Director of the Department of Energy as Project coordinator. Department of Energy issued the respective order on April 10, 1998 and carried out competition for hiring PIU staff, which consists of three persons - deputy coordinator, financial management/accounting specialist and procurements specialist.

Thus, after some organizational work (opening of Special Account and local accounts in the name of PIU, office space preparing and office equipment procurement, financial and accounting management system installing etc.) in August 1998 PIU became fully operational and undertaken all the activities on project coordination, monitoring, reporting etc. As subsequent experience showed, it is very important and even necessary to establish a PIU at the stage of project preparation in order to avoid difficulties in future project management, monitoring and implementation.

Both beneficiaries of the project underwent some organizational changes during the period of project implementation, however these once did not affect in negative sense the project implementation. CHP-2 was at the time of Loan Agreement (LA) signing a part of State enterprise "Moldenergo", but later was moved out from its structure and transformed in a separate State enterprise, which later in its turn was converted from State enterprise into JSC CHP-2 Chisinau.

The second beneficiary - State Concern Moldovagaz underwent some reorganization too, the last one was made in accordance with Government decision and imposed by the situation created in gas sector due to large debts to Russian Gazprom. The State Concern Moldovagaz was converted into a mixed Moldo-Russian venture of open type JSC Moldovagaz. Later an associated company Chisinaugaz Ltd. was created by MG and it became a legal successor of Moldovagaz in connection with the obligations, referring to Loan 4020-MD. Nevertheless, the equipment procured under the loan was distributed to all MG associated companies over the whole republic (except left bank region) and taking into account that MG was the founder of all these enterprises, MG reserved the right to determine the technical policy in gas sector of the republic.

In compliance with the changes appeared in Beneficiaries' legal status, project objectives formulation, procurement plan and respective Project documents (including LA, Subsidiary Loan Agreements and also the Project Agreements) were amended correspondingly.

In order to provide assistance in establishing accounting and financial management system, reporting and procurement upon implementation of the Project, the consulting firm - "Management Strategies" was hired under the contract approved by the WB. Results of the above consultant's services were in conformity with TOR and other provisions of the contract. The "American Fundware7.0" software based accounting system, was provided with additional spreadsheets reporting system "F9" for automatic creation of financial management reports.

Financial Management Reports were settled up. Taking into account that PIU was created when the project was already ongoing, it was necessary to restore the previously made transactions in PIU accounting system from the very beginning. Simultaneously all project related documents were copied from beneficiaries files in order to form PIU files, starting from the very beginning of the project. Utilized AS made possible generating automatically all necessary FMR reports for every accounting period and was rather flexible. So, AS used permitted to have a clear view on funds spent from different categories and for all project entities.

Following the experience accumulated a conclusion could be drawn that it would be desirable to have a standard accounting software, adjusted expressly for WB projects and reporting, in order to facilitate future projects financial management and accounting. For example, almost every WB project implemented or ongoing in Moldova has different accounting software. This makes impossible the exchange of experience accumulated between PIUs, complicates staff training and considerably increases time and spending for new projects preparation.

If it is not possible to establish a single standard software, may be WB consultants could recommend a short list of appropriate software for AS or formulate the minimum requirements which such systems have to comply with, so as the clients could choose the most suitable AS software for their specific needs.

In accordance with WB regulations the annual audits of PIU and beneficiaries accounts (for years 1998, 1999, 2000) and year 2001 only for Project accounts (as it was agreed with the WB) were performed. For all audited periods auditors expressed their unqualified opinion.

The essential part of the Project was gas distribution system rehabilitation, based on installation of modern metering and regulation equipment on GDP and at the customers. This put start to further development and created conditions for better operation and maintenance using modern metering equipment. The next step could be the creation of a National System of gas flow measuring at the borders of the republic on main pipelines in order to have a clear view on the quantities of gas imported, consumed in the republic and transited. One such gas metering station, financed by a TACIS program, was built in the South of the republic.

One of the main directions of the project was to put gas selling on commercial basis. This was impossible without consumed gas measuring. The particular feature of gas distribution systems in Moldova was that only industrial and big social consumers had gas meters, the rest of households and multi-story buildings consumers practically did not have gas meters and paid for consumed gas according to the norms established by MG. At the end of the project the considerable progress in metering of gas supplied, especially at the level of individual consumers (the initial state was zero installed at individual consumers) is evident. More than 94% of gas supplied to population is paid in accordance to gas meters indications, collections increased considerably, especially from population, which presently pays practically entirely current consumption.

Certainly this result is achieved also due to the severe measures taken by MG to nonpaying consumers, one of such measures was to cut them off gas supply. Additional measures undertaken were creating of a special subdivision for gas meters indications read-out at household and industrial consumers, timely billing and cutting off the non-paying consumers. This resulted in instant better collection from individual consumers.

Gas supply interruption risk in present is eased due to recent long-term agreement between the Governments of Moldova and Russia.

In spite of the fact that the total sum disbursed from the Loan by CHP-2 was rather small, comparing, for example, with its fixed assets value, procured goods had a considerable influence on station performance. Materials, spare parts and technological equipment procured (together with other measures undertaken) made possible to undertake normal maintenance, to keep the plant in a reliable operating condition, to renew the obsolete and outmoded facilities, for which lifetime expired, and prevent further deterioration. Due to all these measures the number of unscheduled downtimes decreased.

Turbo-generators spare parts were already partially used in the cases of necessity for generators repair, the rest of the spare parts are in stock and planned to be used on as needed base. So, these spare parts ensured maintaining of generators in operational status.

The two procured water retainers for water-cooling towers were installed and are in operation now. Estimated efficiency is about 330 000 MDL and pay back period equal app. 7 months.

Condensation pumps were installed instead of old ones with their lifetime exhausted and are contributing to reliable operation of CHP-2 main equipment. In 1999 one condensation pump was repaired in accordance to warranty obligations of manufacture.

The procured computers and copy machines were used in different CHP-2 subdivisions, particularly in accounts department, planned-economic department, automated control systems department for improving CHP-2 accounting and financial management.

Motor operated gate valves - 4 large valves with diameters 800 mm were installed on different water pipelines at CHP-2 instead old equipment, the rest of the valves, most of them with small diameters, are in stock for replacement of existing one in dependence of their current condition on as needed base.

The procured thyristor excitation systems for generators were installed, adjusted and are in operation. Old electromechanical exciters are worked out completely and need to be substituted in any case. Besides, they have some disadvantages, the main of them are: the increased vibration of longer generator shaft and need to be oiled, the latter one leads to additional service costs and increases fire risk. The common advantages of thyristor excitation systems are well known, concerning this instance case the installed systems are working successfully, providing more reliable and stable generator operation in connection with electrical network (especially in the cases of network failure), more flexible automatic generator output active and reactive power control.

As a result of all measures attempted during project implementation the operation reliability, unscheduled downtimes ratio and fuel specific consumption of CHP-2 were brought closely to the level of initially designed for this station and corresponding to good condition of main equipment. More reliable and uninterrupted electrical and heat supply of the industrial plants and residential districts in Chisinau is provided. Moreover, the availability of the own local source of energy such as CHP-2 creates more favorable conditions for negotiations on energy market for import of electrical energy from other suppliers.

Due to the fact, that at the initial stage of the project some delays occurred and, besides, some additional equipment was included in procurement plan, the project closing date was extended twice, last time until 31 December 2001. So, it would be naturally to complete all installations (except spare parts, which have to be in stock until they become necessary) until 31 December 2001. But, due to different factors the procured equipment was not completely installed by this date. One of the reasons for this was additional quantity of procured equipment (gas meters of different types, excitation systems). Delays during the project implementation most often took place due to lack of own beneficiaries' means , restrictions imposed by the schedule of CHP-2 operation or main equipment repairs or in cases of additional procurement, when the time remaining until project closing date was not sufficient for installation of all procured equipment. Besides, some spare parts could not be installed immediately after receiving and had to be in stock for future repairs.
The following delays took place during project implementation:
PIU was established in April 1998, by that time a considerable part of contracts at CHP-2 and MG had been signed and even transactions made. So, it took some time for PIU to establish the accounting and financial management system, create own files for the whole project and assume all the activities under the project;

At CHP-2

The World Bank completely satisfied the requirements of the situation in which Moldovagaz and CHP-2 found itself in the post-soviet period, starting from the needs of PIU establishing, providing with necessary information, assistance in the preparation of documents and approvals (including professionals and experts visits) during all the Project phases and right up to adequate monitoring, contributed to the efficient implementation of the Project.

Beside very competent individuals in the function of the Task Manager, Program Leader and consultants, the World Bank staff demonstrated the competence to recognize special features of the client and flexibility in upgrading the procurement plan to be adjusted to the changing priorities of beneficiaries.

It particularly manifested competence in understanding the current needs and condition related to the local situation through the assistance with preparation and timely decisions concerning each demand (here as an example could be mentioned the assistance in solving problems with Social Funds payments, updating and adjustment of procurement plan in accordance with results obtained in procurement and changing priorities during implementation, careful study of newly appeared beneficiaries proposals on most effective use of loan funds or additional procurements, gas meters excessive taxation on selling to population etc.).

Besides the technical ability of beneficiaries to implement this Project, they succeeded in manifesting their ability to define clearly the priority needs, being ready to adopt the world's best practice in the domain. Beneficiaries also proved their readiness to take on and execute the tasks in the agreed manner.
Moldovagaz had a lot of large (such as CHP-2, CHP-1, Termocom, other industrial enterprises) and small (private firms, households, apartments) consumers. CHP-2 on the contrary, had few main consumers - Termocom for thermal energy and Distribution companies (Union Fenosa, Nord and Nord-West-distribution network operators) for electrical energy.
MG demonstrated the ability to develop, operate and maintain the gas system, which was its major role. Despite its growth, MG had losses in financial operations, the reasons for which lie in depressed sales gas prices, industry decline, national currency instability (especially during 1998-1999) and low paying ability of the citizens as gas consumers.
MG took all measures to improve the billing and collection system expecting further improvement. The basic expectations are in the application of the solutions find and experiences gathered during implementation of the first project.
Further considerable improvement of MG performance is expected after construction of Border Gas Metering stations, which will permit to obtain more precise data referring to gas imported in the republic, consumed and also transited through its territory.
CHP-2 demonstrated the ability to operate and maintain the station equipment in a relatively good condition. Major financial losses in financial operations were just as in MG case due to depressed energy tariffs, industry decline, national currency instability and low paying ability of the consumers. But in this particular case the main losses were generated due to Termocom, which accumulated large debts for thermal energy, supplied by CHP-2. Electrical energy collections are relatively much better, especially after privatization of the part of distribution networks by Union Fenosa.
Referred to the lessons learned it could be mentioned that it is very important to create and maintain a stable project coordination teams at beneficiaries, including the persons responsible for filing and storing project related documents in appropriate order and ensuring transferring of all these documents in case if another responsible person is appointed. This issue had a special importance for CHP-2, where 3 managers were changed during project implementation.

The activities carried out under the Project raised the reliability of the gas distribution system (including GDP), significantly improved gas metering at different levels, created conditions for further decreasing of technical and commercial losses and improving collections for supplied gas to a satisfactory level, thus preventing further gas distribution system decay and contributing to its development. To maximize the results achieved, the construction of Gas Metering Stations (GMS) at the border of the republic was initiated for measuring the amounts of gas imported, consumed inside and transited through republic's territory. This project was carried out at MG under TACIS financial support.

Rehabilitation of CHP-2 also had a positive influence on electrical and heating energy supply. The activities carried out under this Project raised the reliability of CHP-2 main equipment to a satisfactory level thus preventing its further deterioration.