INTRODUCTION
Developing operations, finance and implementation strategies are not requirements for the MEC 4722 Renewable Energy Capstone Project. Nonetheless, Capstone Project students will require a basic understanding of these topics as they pertain to PV (photovoltaic) systems and micro-grid design for healthcare facility electrification.
This lesson plan does not purport to be a comprehensive assessment of the complex challenges of operations, finance and implementation for rural electrification in the developing world; but rather, it is a review of the key lessons learned from the Republic of Uganda's healthcare facility portfolio under the Energy for Rural Transformation (ERT) Project (2009-2019), in which 522 health centers electrified. This review is intended to inform Capstone students of real-world issues in operations, finance and implementation experienced in Uganda in order to support PV systems and micro-grid design, and other elements of the Capstone Project deliverables, as may be applicable.
The lessons learned from the ERT Project are also essential for planning the implementation of the Uganda Energy Access Scale-up Project (EASP). As such, the Capstone Project may have an impact on PV system and micro-grid design planning for EASP stakeholders.
This Lesson Plan is focused on three lessons learned from of the operation, finance and implementation of the ERT Project, as follows:
This lesson plan does not purport to be a comprehensive assessment of the complex challenges of operations, finance and implementation for rural electrification in the developing world; but rather, it is a review of the key lessons learned from the Republic of Uganda's healthcare facility portfolio under the Energy for Rural Transformation (ERT) Project (2009-2019), in which 522 health centers electrified. This review is intended to inform Capstone students of real-world issues in operations, finance and implementation experienced in Uganda in order to support PV systems and micro-grid design, and other elements of the Capstone Project deliverables, as may be applicable.
The lessons learned from the ERT Project are also essential for planning the implementation of the Uganda Energy Access Scale-up Project (EASP). As such, the Capstone Project may have an impact on PV system and micro-grid design planning for EASP stakeholders.
This Lesson Plan is focused on three lessons learned from of the operation, finance and implementation of the ERT Project, as follows:
- ERT Project Lesson #1, Operations and Management: ERT Project Description and Objectives;
- ERT Project Lesson #2, Finance: Health Sector Ability to Pay for Energy Services; and
- ERT Project Lesson #3, Operations and Maintenance (O&M): Sustainability and Systems Security.
ERT Project Lesson #1, Operations and Management: ERT Project Description and Objectives
The Energy for Rural Transformation (ERT), 2009-2019, was a project funded by multilateral donors, principally the World Bank Group (WBG) and the Global Environmental Facility (GEF), with the goal to improve the quality of life of rural households, the productivity of enterprises, and the effectiveness of government services, including the improvement of rural health care services through electric power intervention.
The ERT Project was funded in multiple phases: ERT I (project budget: $75 million), ERT II (project budget: $93 million), and ERT III (project budget: $176 million), though actual project disbursements varied.
The World Bank’s preferred lending instrument for this project was an Adaptable Program Loan (APL). The APL mechanism for the Uganda ERT Project centered around three objectives:
In order to fully appreciate the APL mechanism and its stated objectives, it is useful to review the text of Annex 4 [1] of the ERT Project Concept Document (PCD), which describes Uganda's national power transformation strategy:
The ERT Project was funded in multiple phases: ERT I (project budget: $75 million), ERT II (project budget: $93 million), and ERT III (project budget: $176 million), though actual project disbursements varied.
The World Bank’s preferred lending instrument for this project was an Adaptable Program Loan (APL). The APL mechanism for the Uganda ERT Project centered around three objectives:
- APL Objective #1: Provide a phased and sustained implementation support for long term development of technologies and markets;
- APL Objective #2: Provide different entry points for the private sector to encourage investment in market development and logical maturation to commercial delivery and finance mechanisms, and
- APL Objective #3: Provide financial resources for an increased level of pre-investment studies that would lead to a long-term private sector investment pipeline.
In order to fully appreciate the APL mechanism and its stated objectives, it is useful to review the text of Annex 4 [1] of the ERT Project Concept Document (PCD), which describes Uganda's national power transformation strategy:
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At present, the power sector in Uganda is in a state of transition, moving from a state-owned vertically-integrated power utility to a competitive, unbundled, privatized mode, with transmission being retained as a monopoly. This shift has direct implications for renewable energy small-scale power producers (SPPs), as, over time, these SPPs will no longer be able to sell their power to “the power utility,” but would instead have to sell either directly to individual large consumers or to distribution companies under a “Multiple Buyer, Multiple Seller” model. The sale of power from small, renewable energy resources that are close, or already connected to the main grid, would be to third-party customers via wheeling through the main grid. In the long run, there would be no power purchase agreement between the generator and the main grid, which would merely serve, for a fee, as the “highway” over which power is transported from the generator to a third-party customer. Source: ERT Project Concept Document (PCD), Annex 4 (2009); pg. A4-2 (See Section 6, Bibliography.) |
In order to facilitate this model in deep-rural communities, the ERT Project operations and management model for health facility electrification placed the bulk of decision-making and management responsibilities with the Ministry of Health (MoH). Ownership of the PV and micro-grid systems was transferred to the district governments following installation, but the MoH has yet to transfer O&M responsibility. The MoH continues to handle O&M responsibility, as district governments have neither the human nor financial capacity to assume this responsibility.
The ERT Project focused principally upon the development of technologies and markets (APL objective #1). The ERT Project entry point for the private sector was the commercial delivery of PV and micro-grid systems (APL objective #2). The ERT Project as a whole served as the initial pre-investment stage that would presumably lead to a long-term private sector investment pipeline (APL objective #3). The EASP is envisioned as the principal instrument to support the ERT Project goal to transition to a private sector investment pipeline and SPP service delivery model, as stated in Annex 4, above.
With appropriate structural policy reforms in the energy sector, private sector SPPs will be licensed by the Government of Uganda to develop, operate and maintain micro- and mini-grid solutions under various ownership and operating models in which an SPP is the producer, distributer, and retailer of electric power under a “Multiple Buyer, Multiple Seller” model. The SPP would, in essence, implement an approach to electric power market development driven by supply-side commercial delivery and finance instruments, which are common to more mature power markets with clients that have proven ability to pay for services at economically sustainable tariffs.
This approach, however, requires: (a) dependable PV and micro-gird systems technology solutions matched to consumer need; (b) power markets with clients that have proven ability to pay for services at economically sustainable tariffs; and (c) reliable service delivery, operations and maintenance, and systems security.
The ERT project, however, demonstrated that: the PV industry in Uganda lacks dependable technology solutions to meet private sector finance performance standards (ERT Lesson #1); that power markets lack the ability to pay for services at economically sustainable tariffs (ERT Lesson #2); and that reliable service delivery, operations and maintenance, and systems security are substandard (ERT Lesson #3).
The Republic of Uganda Auditor General's Report (see the Operations and Maintenance (O&M): Sustainability and Systems Security section of this lesson plan, below) has highlighted these ERT Project shortfalls. This has been further substantiated by the World Bank review of the ERT Project, as cited in the Ministry of Energy and Mineral Development, Uganda Energy Access Scale-up Project (EASP)-P166685 [2]. World Bank ERT Project reviewers state:
The ERT Project focused principally upon the development of technologies and markets (APL objective #1). The ERT Project entry point for the private sector was the commercial delivery of PV and micro-grid systems (APL objective #2). The ERT Project as a whole served as the initial pre-investment stage that would presumably lead to a long-term private sector investment pipeline (APL objective #3). The EASP is envisioned as the principal instrument to support the ERT Project goal to transition to a private sector investment pipeline and SPP service delivery model, as stated in Annex 4, above.
With appropriate structural policy reforms in the energy sector, private sector SPPs will be licensed by the Government of Uganda to develop, operate and maintain micro- and mini-grid solutions under various ownership and operating models in which an SPP is the producer, distributer, and retailer of electric power under a “Multiple Buyer, Multiple Seller” model. The SPP would, in essence, implement an approach to electric power market development driven by supply-side commercial delivery and finance instruments, which are common to more mature power markets with clients that have proven ability to pay for services at economically sustainable tariffs.
This approach, however, requires: (a) dependable PV and micro-gird systems technology solutions matched to consumer need; (b) power markets with clients that have proven ability to pay for services at economically sustainable tariffs; and (c) reliable service delivery, operations and maintenance, and systems security.
The ERT project, however, demonstrated that: the PV industry in Uganda lacks dependable technology solutions to meet private sector finance performance standards (ERT Lesson #1); that power markets lack the ability to pay for services at economically sustainable tariffs (ERT Lesson #2); and that reliable service delivery, operations and maintenance, and systems security are substandard (ERT Lesson #3).
The Republic of Uganda Auditor General's Report (see the Operations and Maintenance (O&M): Sustainability and Systems Security section of this lesson plan, below) has highlighted these ERT Project shortfalls. This has been further substantiated by the World Bank review of the ERT Project, as cited in the Ministry of Energy and Mineral Development, Uganda Energy Access Scale-up Project (EASP)-P166685 [2]. World Bank ERT Project reviewers state:
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Despite availability of sizable capital investment to install solar systems at health centers and schools, actual delivery is sometimes non-existent or substandard either due to non-functioning equipment (inverters, panels, batteries) that has not received adequate O&M, or no systematic plan for regular O&M. Under the ERT-2 project in Uganda, approximately 13 percent and 30 percent of solar energy packages installed in health centers and schools, respectively, are not functional. Under ERT-1, the degree of non-functionality is even more significant, reaching approximately 50 percent of solar energy packages installed in health centers and schools.
Source: Ministry of Energy and Mineral Development, Uganda Energy Access Scale-up Project (EASP)-P166685, pg. 3. (See Section 6, Bibliography.)
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A long-term private sector investment pipeline combined with alternative ownership models are not feasible with substandard industry performance, as indicated in the Auditor General's Report and the World Bank ERT Project review.
ERT Project Lesson #2, Finance: Health Sector Ability to Pay for Energy Services
According to the national health sector budget, National Health Expenditure Uganda [3] (FY 2014/2015 and FY 2015/2016), published by the Ministry of Health (MoH), total expenditures on health services in the Republic of Uganda are approximately $2.1 billion dollars (USD), $51 per capita.
In 2017, the latest published national health care expenditure data, the Government of Uganda provided 15.7% of total heath care expenditures ($329.7 million) in fiscal year (FY) 2015/2016. See Figure 1, Percent of National Health Funding by Source of Funds, below:
In 2017, the latest published national health care expenditure data, the Government of Uganda provided 15.7% of total heath care expenditures ($329.7 million) in fiscal year (FY) 2015/2016. See Figure 1, Percent of National Health Funding by Source of Funds, below:
Figure 1. Percent of National Health Funding by Source of Funds
Source: Ministry of Health (2017), National Health Expenditures Uganda; Pg. 20.
(See Section 6, Bibliography.)
(See Section 6, Bibliography.)
The Nation Health Expenditures Uganda report omits recurring energy expenditures, such as tariff payments (fees) for electricity, or expenditures on energy infrastructure. For tariff payments, this is likely due to the disbursement structure of health care expenditures in which energy services are paid by district administrative entities; for energy infrastructure, this likely due the Ministry of Energy and Mineral Development disbursing payments directly to vendors.
Nonetheless, Republic of Uganda Auditor General's Report [4] clearly indicates the lack of available funding for the health sector to pay for recurring energy services. Note the following statement from the Auditor General's field report: "It was observed that 17 out of the 45 sites had faulty lamps. The site staff informed the audit team that the lamps had stopped functioning as early as three months after the systems were installed. They also mentioned that the contractors did not leave behind any spare lamps, and the cost of replacing them was too high. Thus, the affected rooms were left with no lights." (See 7.5.6.4. Utilization of the Solar Systems: a. Non-functioning lamps, below.)
The lack of the health sector's ability to pay for energy services, especially in healthcare facilities that are not electrified, represents a challenge to a supply-side approach to rural electric power market development as envisioned under the Uganda EASP plan. To achieve a measure of success, SPPs would, in essence, implement an approach to electric power market development which is at one and the same time driven by supply-side and demand-side commercial delivery and finance instruments. This would require SPPs to gain expertise in development economics, which is clearly not the role of the emerging renewable energy sector in Uganda.
As summarized in a technical research paper, Case Study of an Energy Project in Health Facilities in Kenya: How to Implement Demand-based Approaches [5], published by the Would Resources Institute WRI, the supply-driven approach tends to "lack understanding of energy demand and how energy can be deployed for economic intervention from the user's perspective. It thus lacks an understanding of the economics of energy access from the user’s perspective." Simply stated, the supply-side energy industry delivers energy services. The industry is not a development partner of the energy end-user.
The WRI offers this useful description of the demand-side approach in the context of electrification as development intervention:
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An alternate approach endorsed by the energy access community focuses on energy demand. This demand- based approach recognizes the importance of the linkage between energy needs and broader development needs (Schillebeeck, et. al. 2012; Odarno et al. 2017). It does not propose technical solutions based on donors’ preferences, nor does it depend on the “connection” alone to gauge success. Instead, it develops interventions around the impacts it seeks to achieve. Based on the understanding of end users’ demands on energy and how they can be met within present constraints (Broto et al. 2017), demand-based interventions provide tailored technical solutions alongside complementary services, such as credit and training, toward development impact goals; for example, livelihood opportunities and poverty reduction (Morrissey 2019). The demand-based approach refers to the strategy of filling energy access gaps by addressing end users’ multifaceted needs, proposing solutions that are fit for purpose, and designing interventions that seek to make an impact.
Source: World Resources Institute (2020); Case Study of an Energy Project in Health Facilities in Kenya: How to Implement Demand-based Approaches, pg. 4. (See Section 6, Bibliography.)
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Blending supply side energy economics with demand-side interventions may mitigate investment risk. However, this approach will require continued donor support for a layer of specialized development services for the rural power sub-sector to effectively transition to a viable supply-side electric power market.
ERT Project Lesson #3, Operations and Maintenance (O&M): Sustainability and Systems Security
The Energy for Rural Transformation (ERT) Project Report [6] of the Office of the Auditor General, Republic of Uganda provides an assessment of the critical need for effective operations and maintenance (O&M), and systems security in order to protect sector investment and sustain the benefits of electrification as a viable health care intervention. This report provides ample evidence that neither the emerging renewable energy sector nor the health sector are fully capable of managing PV energy and micro-grid systems O&M services to prevent the risk of accumulating millions of dollars of stranded assets in the field. This information is offered herein to inform Capstone Project students of the need for proper accountability for O&M services and associated costs, and to design adequate PV energy and micro-grid systems security measures.
The following content is extracted and/or paraphrased from the Republic of Uganda Auditor General's Report of the ERT Project, dated 30 June 2014:
7.0. MINISTRY OF ENERGY AND MINERAL DEVELOPMENT COMPONENT:
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7.1 Government of Uganda Counterpart Funding: The $9,824,732,622 released to the Ministry of Energy as ERT II counterpart funding was neither deposited into the ERT project account nor reported in the project financial statements. There were no records at the project office evidencing expenditure. No action had been taken by the time of audit for the year ended 30th June 2014.
7.2 Lack of Internal Audit Reviews: Section 6 VI (C) of the ERT Accountability Instructions requires the Ministry’s Internal Audit Department to appraise the internal controls of the project. It was however noted that no such reviews have ever been undertaken in the implementing Entities of MoFPED, MoLG and MEMD. |
7.3. MINISTRY OF LOCAL GOVERNMENT (MOLG) SUB-COMPONENT
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7.3.1, Ineligible Expenditure: Section 3.2.2 of the ERT II Accountability Instructions states that each of the implementing units of the ERT II projects shall ensure that all expenditures incurred from the project proceeds are only for goods and services intended for the project. Funds were borrowed for fuel, per-diem and to purchase of air tickets for the Ministry of Local Government without approval from the World Bank. This practice is irregular and could result into under performance on the part of the Project as funds are diverted to other activities not related to the project.
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7.4. PROJECT COORDINATION UNIT
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7.4.1, Absence of a Computerized Accounting System: Section 4.3 (i) of the ERT II Financial Management manual requires project books of accounts to be maintained on a computerized system. The project did not have an accounting system for the three years in existence. Accounts were maintained using MS Excel spreadsheets which are prone to manipulation. Management explained that the project had procured an accounting software which uses the Ministry server and does not have a stand-alone server.
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7.5. MINISTRY OF [HEALTH] EDUCATION AND SPORTS SUB-COMPONENT
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7.5.1. Absence of Annual Work Plans: The ERT II operational manual requires all implementing institutions to requisition for funds from the World Bank through the Project Coordination Unit (PCU).
7.5.2. Management of the Dollar Account: Section 2.2.2 of the ERT Finance Management Manual requires that Cashbooks are kept to record all banking and withdrawals of cash and checks as they occur. The cash book, bank statements and reconciliations of the Dollar Account were not availed for audit. 7.5.3. Inspection Report: Visits conducted during the World Bank Mission in May/June 2014 identified a high prevalence of dysfunctional solar PV systems due to vandalism and inadequate care by local authorities. Consequently, concerns were raised over the sustainability of the investment provided thereby necessitating an independent assessment of the status of installed Solar PV systems before new funds could be committed. 7.5.4. Objectives of the Field Inspection: The objectives of the Inspection were as follows:
7.5.6 Findings: The inspections revealed in most of the installation sites visited solar panels were mounted on the roof tops. The solar packages were being utilized to provide lighting and also operate and equipment in the schools. Contractors trained at least one person at each facility to operate the equipment and left behind operational manuals for user reference. However, the following exceptions were noted: |
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7.5.6.1. Routine maintenance of Solar Equipment by the contractor: According to the ERT II Project Operational Manual, private companies were to supply the energy systems, maintain them and provide after sales services. The contractor was required to undertake routine maintenance, and also attend to service calls caused by system faults when notified by user and or the project manager for a period of five years after equipment commissioning. Out of the 45 site installations visited, routine maintenance had not been undertaken by the contractor at 29 sites. Out of the remaining site, 13 had received maintenance visits only once since the systems were installed. Interviews with site staff revealed that some contractors did not respond when called for PV systems service. Others were unaware that the contractor were to undertake routine maintenance, as they had not received any communication from the Ministry in this regard. Consequently, 10 PV systems had completely broken down and were not functioning at the time of inspection.
Table 1. Site Inspection Observations, Non-functioning Systems: 
Note: Modified from original table. 7.5.6.2 Delivery of defective Solar System and failure to deliver some of the Equipment:
According to the contract documents, the contractors were to supply and install complete and functioning PV systems that included solar panels, lighting fixtures and accessories. It was observed that defective parts were delivered by the contractors to some sites, and no effort was made to replace them. In some instances some parts were not delivered at all as shown in the table below: Table 1. Site Inspection Observations, Equipement Defective or not Delivered:
Note: Modified from original table.
Source: Auditor General's Report, dated 30 June 2014
7.5.6.3 Security of the Solar Equipment: According to the communication to the head teachers of the beneficiary schools dated 1st July 2013, and referenced PED/137/284/63 by the MOES, institutional staff on site are responsible for ensuring the security of the PV system equipment, including respective spare parts. It was noted that the installed PV systems were not secure at a number of sites, and as a result the equipment was vandalized and stolen. No efforts were made to replace the vandalized equipment, or to secure the remaining equipment. Most of the institutional staff could not offer a clear explanation, or explain the measures they had put in place to ensure that the vandalism/theft does not re-occur. The installed systems were therefore not working at their optimum capacity. Details of the vandalized equipment are provided below: Table 3. Site Inspection: Vandalized and Stolen Equipment
Modified from original table.
7.5.6.4. Utilization of the Solar Systems: It was observed that some of the systems were not utilized to their optimum capacity due to non-functioning lamps, uninstalled solar panels, and systems that provide light for a few hours. Note the following observations: |
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a. Non-functioning lamps: It was observed that 17 out of the 45 sites had faulty lamps. The site staff informed the audit team that the lamps had stopped functioning as early as three months after the systems were installed. They also mentioned that the contractors did not leave behind any spare lamps, and the cost of replacing them was too high. Thus, the affected rooms were left with no lights.
b) Systems that provide light for a few hours: Through interviews with site staff, it was revealed that contrary to the expected discharge rate of 20 hours, some packages provided light for as little as two to three hours, and in one extreme case the system only worked after the lights had been switched off for about three days. Table below refers for details: Table 4, Number of Hours of Available Light
Modified from original table.
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7.5.6.5 Negligence of solar installations by end users: Failure by the end users to take care of the solar equipment could compromise the efficiency of the PV systems. At several sites facility staff were not carrying out basic cleaning, and maintenance of the solar systems. Battery boxes/cages were commonly loaded with heavy items, and at other PV installations wires were left exposed, as shown in the photographs below: Figure 7. Negligence of solar installations
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WEBINAR SLIDES - 11 MAY 2021
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Commentary on ERT Project Objectives: A key objective of the ERT Project was to put in place a conducive environment and capacity for commercially-oriented, sustainable service delivery of rural/renewable energy. The goals of the Project were to: (a) accelerate private investments; and (b) increase the deployment of standalone PV and micro-grid systems solutions as a intervention for increasing access to and improving the quality of deep-rural health care services where the extension of the electric power grid is infeasible.
ERT Phase 1 came to a close on 28th February 2009 and had a grace period ending 30th June 2009. ERT Phase II agreement was signed on 27th August 2009. The second phase became effective in November 2009 and operations commenced in 2010. The implementation of Phase II ended in June 2013, and Phase III ended in
ERT II is intended to accelerate private investments and increase regional coverage. The financing plan provides for approximately USD 102 million comprised USD 84 million of IDA credit, USD 9 million of the Global Environment Facility (GEF) grants and counterpart funding from the Government of Uganda of USD 9 million.
The Project comprises three components namely; (i) Rural Energy Infrastructure, (ii) Information and Communication Technologies and (iii) Energy Development, cross sectoral links and impact monitoring. The subcomponents of each are outlined below:
ERT II is intended to accelerate private investments and increase regional coverage. The financing plan provides for approximately USD 102 million comprised USD 84 million of IDA credit, USD 9 million of the Global Environment Facility (GEF) grants and counterpart funding from the Government of Uganda of USD 9 million.
The Project comprises three components namely; (i) Rural Energy Infrastructure, (ii) Information and Communication Technologies and (iii) Energy Development, cross sectoral links and impact monitoring. The subcomponents of each are outlined below:
a) Rural Energy Infrastructure
b) Information Communication Technologies (ICT)
c) Energy Development, Cross-sectoral Links, and ImpactMonitoring
- Publicly-funded grid related power supply;
- Off-grid Renewable Energy Investments;
- Technical Assistance and Training;
- Credit Support Facility (also known as the Uganda Energy Credit Capitalization
Company (UECCC); and - Private Sector Foundation Uganda.
b) Information Communication Technologies (ICT)
- Investments; and
- Technical Assistance, Training, Operating costs.
c) Energy Development, Cross-sectoral Links, and ImpactMonitoring
- Energy Packages for Health, Water and Education; and
- Technical Assistance, Training, Operating costs.
[Comment: Lack of fiscal accountability, including lack of internal audit reviews (7.2, below), is a disincentive to the acceleration of private investment capital.] [Comment: Management acknowledged the anomaly and undertook to restore the monies to the project account in the third quarter of the financial year 2014/15. Funds have not been restored as of Audit Report.] [Comment: Information technology (IT) infrastructure is lacking at several levels of project management.] [Comment: No annual work plans were evidenced.} [Comment: No evidence exists of compliance to Section 2.2.2 of the ERT Finance Management Manual requirements.]