Audit of urban electric distribution project

Audit report covers the period 9/77-2/85 and is based on document review and interviews with USAID/E and EEA personnel and consultants. After lengthy delays early on, implementation accelerated to an acceptable rate during the past 2 years in two of the four cities. However, problems have occurred in four areas: (1) Because a realistic procurement plan was never formulated, about $4.8 million in commodities (15% of the total) were either never used, were underutilized, or were misused by project officials. Warehouses were constructed but never used. Materials, equipment, and vans were either overstocked or unsuitable. Station wagons and other vehicles were diverted to non-project use. (2) The EEA did not develop a procedure for enforcing the damage provisions of four USAID/E-financed contracts. As a result, an estimated $188,000 in damages for late delivery of equipment have not been assessed, arbitrated, or excused by the Government of Egypt (GOE). (3) The EEA has not complied with covenants requiring it to achieve a rate of return of 9% of the net asset value of its fixed assets and a debt to equity ratio of 1.5 to 1.0. (4) No evaluations - which could have pointed out the project"s problems and suggested improvements - have been conducted. Nor did project designers provide indicators or a Logical Framework for measuring project progress. It is recommended that USAID/E: (1) work with EEA to better utilize commodities which have already been provided and to establish better procedures for $41 million in planned procurement; (2) analyze contracts regarding damage provisions; (3) conduct a project evaluation, identify quantitative indicators, and develop a logical framework; and (4) amend the loan covenants regarding EEA viability. USAID/E suggests that since the project is nearing completion, the fourth recommendation can be handled more appropiately in energy sector dialogues with the GOE, but has begun action on the first three.