FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT AND A PROPOSED GRANT

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1 Public Disclosure Authorized FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION Report No: PAD2753 Public Disclosure Authorized Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 26.1 MILLION (US$37.5 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 26.1 MILLION (US$37.5 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA AND A PROPOSED CREDIT IN THE AMOUNT OF EUR 3.8 MILLION (US$4.5 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 3.2 MILLION (US$4.5 MILLION EQUIVALENT) TO THE REPUBLIC OF MALI FOR THE GUINEA MALI INTERCONNECTION PROJECT Public Disclosure Authorized Energy and Extractives Global Practice Africa Region June 20, 2018 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2018) Currency Unit = Euro 0.84 = US$1 US$1.44 = SDR 1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ACGPMP AFD AfDB AWPB BGEE BOAD CBT CLSG COD CPF CWE DA DNACPN DNMP DPO EBID EBIT EBITDA ECOWAS EDG EDM SA EIB EIRR ESIA ESMP ESSU EU Administration et Contrôle des Grands Projets et Marchés Publics (Procurement Control Body for Large Projects) Agence Française de Développement (French Development Agency) African Development Bank Annual Work Plan and Budget Bureau Guinéen d'évaluation Environnemental (Guinean Bureau of Studies and Environmental Assessment) Banque Ouest Africaine de Développement (West African Development Bank) Cost Benchmark Tool Côte d Ivoire, Liberia, Sierra Leone, and Guinea Commercial Operation Date Country Partnership Framework China International Water and Electric Corporation Designated Account Direction Nationale de l'assainissement et du Contrôle de la Pollution et des Nuisances (National Directorate of Sanitation and Control of Pollution and Nuisances) National Public Procurement Directorate Development Policy Operation ECOWAS Bank for Investment and Development Earnings before Interest and Taxes Earnings before Interest, Taxes, Depreciation, and Amortization Economic Community of West African States Electricité de Guinée (Electricity of Guinea) Energie du Mali S.A. (Energy of Mali) European Investment Bank Economic Internal Rate of Return Environmental and Social Impact Assessment Environmental and Social Management Plan Environmental and Social Safeguards Unit European Union

3 FIRR FM GBV GDP GHG GoG GoM GPN GRM GW HFO HPP ICBC IDA IFR IMF IPF IPP IPS (WA) IsDB JIC kv kwh LCOE M&E MEH MoF MoU MSC MW MWh NPV O&M OMVG OMVS OPGW PAP PDO PCBs PCU PIM PIU PNDES PPA Financial Internal Rate of Return Financial Management Gender-based Violence Gross Domestic Product Greenhouse Gas Government of Guinea Government of Mali General Procurement Notice Grievance Redress Mechanism Gigawatt Heavy Fuel Oil Hydropower Project Industrial and Commercial Bank of China International Development Association Interim Financial Report International Monetary Fund Investment Project Financing Independent Power Producer Industrial Promotion Services West Africa S.A. Islamic Development Bank Joint Implementation Committee Kilovolt Kilowatt Hour Levelized Cost of Electricity Monitoring and Evaluation Ministry of Energy and Hydraulics Ministry of Finance Memorandum of Understanding Management Service Contract Megawatt Megawatt-Hour Net Present Value Operation and Maintenance Organisation pour la Mise en Valeur du fleuve Gambie (Organization for the Development of the Gambia River) Organisation pour la Mise en Valeur du fleuve Sénégal (Organization for the Development of the Senegal River) Optical Fiber Ground Wire Project Affected Person Project Development Objective Polychlorinated Biphenyls Project Coordination Unit Project Implementation Manual Project Implementation Unit National Economic and Social Development Plan Power Purchase Agreement

4 PPSD RAP ROW SCADA SES SG&A SoE SOGEM SPN SPV SYSCOHADA ToR TW UNDB VfM VRE WAEMU WAPP WBG Project Procurement Strategy for Development Resettlement Action Plan Right-of-Way Supervisory Control and Data Acquisition Social and Environmental Clauses Selling, General, and Administrative Statement of Expenditures Société de Gestion de l Energie de Manantali (Manantali Energy Management Corporation) Specific Procurement Notice Special Purpose Vehicle Système Comptable Ouest Africain (West African Countries Accounting Standards) Terms of reference Terawatt United Nations Development Business Value for Money Variable Renewable Energy West African Economic and Monetary Union West African Power Pool World Bank Group Regional Vice President: Makhtar Diop Country Director: Soukeyna Kane Senior Global Practice Director: Riccardo Puliti Practice Manager: Charles Joseph Cormier Task Team Leaders: Thierno Bah, Yussuf Uwamahoro

5 TABLE OF CONTENTS DATASHEET... Error! Bookmark not defined. I. STRATEGIC CONTEXT... 8 A. Country Context... 8 B. Sectoral and Institutional Context C. Relevance to Higher Level Objectives II. PROJECT DESCRIPTION A. Project Development Objective B. Project Components C. Project Beneficiaries D. Results Chain E. Rationale for World Bank Involvement and Role of Partners F. Lessons Learned and Reflected in the Project Design III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation Arrangements C. Sustainability IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis B. Fiduciary C. Safeguards V. KEY RISKS VI. RESULTS FRAMEWORK AND MONITORING ANNEX 1: Implementation Arrangements and Support Plan ANNEX 2: Detailed Project Description ANNEX 3: Project Implementation Arrangements ANNEX 4: Economic and Financial Analysis ANNEX 5: Logical Chain for Gender Tag ANNEX 6: Project Map

6 DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Guinea, Mali Project Name Guinea Mali Interconnection Project Project ID Financing Instrument Environmental Assessment Category P Investment Project Financing A-Full Assessment Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date 12-Jul-2018 Expected Closing Date 30-Jun-2024 Bank/IFC Collaboration No Proposed Development Objective(s) The Project Development Objectives are to: (i) increase electricity supply to the Eastern part of Guinea; (ii) enable electricity trade between Guinea and Mali; and (iii) increase Guinea s electricity export capability towards other West African Power Pool countries. Page 1 of 129

7 SUMMARY-NewFin1 DETAILS-NewFinEnh1 The World Bank Components Component Name Power Transmission Infrastructure (Project US$ million, of which IDA Credit US$ million) Implementation Support and Capacity Building (Project US$ million, of which IDA Credit US$ million) Cost (US$, millions) Organizations Borrower: Implementing Agency: Republic of Guinea Republic of Mali EDG EDM PROJECT FINANCING DATA (US$, Millions) Total Project Cost Total Financing of which IBRD/IDA Financing Gap 0.00 World Bank Group Financing International Development Association (IDA) IDA Credit Non-World Bank Group Financing Other Sources African Development Bank Borrower ECOWAS Bank for Investment and Development EC: European Commission Page 2 of 129

8 EC: European Investment Bank Islamic Development Bank West African Development Bank IDA Resources (in US$, Millions) Credit Amount Grant Amount Total Amount Guinea National PBA Regional Mali National PBA Regional Total Expected Disbursements (in US$, Millions) WB Fiscal Year Annual Cumulative INSTITUTIONAL DATA Practice Area (Lead) Energy & Extractives Contributing Practice Areas Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes Page 3 of 129

9 country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance Substantial 2. Macroeconomic Substantial 3. Sector Strategies and Policies High 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability High 6. Fiduciary High 7. Environment and Social High 8. Stakeholders 9. Other 10. Overall High High High COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [ ] No Does the project require any waivers of Bank policies? [ ] Yes [ ] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 Page 4 of 129

10 Performance Standards for Private Sector Activities OP/BP 4.03 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 Legal Covenants Sections and Description FA, Schedule 2, Section 1, C, 1: The Recipients shall take all action required on its behalf to ensure that the Project is implemented in accordance with the provisions of the Environmental and Social Management Plan (ESMP) and the Resettlement Action Plan (RAP), all in a manner satisfactory to the Association. Sections and Description FA, Schedule 2, Section 1, C, 2: Without limitation upon its other reporting obligations under this Agreement, the Recipients shall cause EDG and EDM to collect, compile and furnish to the Association on a quarterly basis, or promptly whenever the circumstances warrant, reports on the status of compliance with the Environmental and Social Management Plan (ESMP) and the Resettlement Action Plan (RAPs), giving details of: (a) measures taken in furtherance of the ESMP and the RAP; (b) conditions, if any, which interfere or threaten to interfere with the smooth implementation of the ESMP and the RAP; and (c) remedial measures taken or required to be taken to address such conditions. Sections and Description FA, Schedule 2, Section 1, D: The Recipients shall assist the PIUs as required: (a) to prepare a draft Annual Work Plan and Budget (AWP&B) for each Fiscal Year, setting forth, inter alia: (i) a detailed description of planned Project activities for the following Fiscal Year; (ii) the sources and uses of funds therefor; and (iii) responsibility for execution of said Project activities, budgets, start and completion date, outputs, and monitoring indicators to track progress of each activity; (b) on or about November 30 of each Fiscal Year and after considering the comments provided by the Joint Implementation Steering Committee, to furnish to the Association for its comments and approval, the draft AWP&B and, promptly thereafter, finalize the AWP&B taking into account the Association s views and recommendations thereon; and Page 5 of 129

11 (c) to adopt and sign the final version of the AWP&B in the form approved by the Association not later than December 31 of such Fiscal Year. Sections and Description FA, Schedule 2, Section 2, A: The Recipients shall cause EDG and EDM to furnish to the Association each Project Report for the Project not later than forty-five (45) days after the end of each calendar quarter, covering the calendar quarter. Sections and Description FA, Schedule 2, Section I, C, 2: The Recipient shall verify and ensure, and EDM and EDG shall take all required measures to ensure, through its own staff and/or existing environmental/social institutions, that no works are commenced under the Project until and unless all Project Affected Persons have been properly compensated in accordance with the provisions and procedures set forth in the RAP, including an up-to-date census which adequately identifies all such Project Affected Persons, and in compliance with the requirements of appropriate national and/or local authorities. Sections and Description PA, Schedule, Section I, A, 1: EDM shall employ the following specialists for the PIU not later than three (3) months after the Effective Date: one (1) senior environmental specialist, one (1) social development specialist, and one (1) accountant, all with experience and qualifications satisfactory to the Association. Sections and Description PA, Schedule, Section I, A, 1: EDG shall employ the following specialists for the PIU: (A) not later than two (2) months after the Effective Date, one (1) accountant; and (B) not later than three (3) months after the Effective Date: one (1) senior environmental specialist, one (1) social development specialist, one (1) electrical engineer specialized in power transmission substations, and one (1) electrical engineer specialized in power transmission lines, all with experience and qualifications satisfactory to the Association. Sections and Description PA, Schedule, Section I, F: EDM shall, not later than three (3) months after the Effective Date, sign with EDG a term sheet, upon conditions deemed satisfactory to the Association, describing broadly the commercial terms of the energy exchange between the two utilities, including a commitment on a range of quantity and price of energy, which shall govern the negotiation of a future power purchase agreement between EDM and EDG. Sections and Description PA, Schedule, Section I, G: EDM shall, not later than three (3) months after the Effective Date establish, and thereafter maintain and operate, a functional complaint handling mechanism for the Project, with adequate staffing and processes for registering complaints and acceptable to the Association, thereby ensuring the ongoing improvement on service delivery under the Project. Sections and Description PA, Schedule, Section I, G: EDG shall, not later than three (3) months after the Effective Date establish, and thereafter maintain and operate, a functional complaint handling mechanism for the Project, with adequate Page 6 of 129

12 staffing and processes for registering complaints and acceptable to the Association, thereby ensuring the ongoing improvement on service delivery under the Project. Sections and Description PA, Schedule, Section I, H: EDM shall: (i) not later than three (3) months after the Effective Date: (A) purchase a new accounting software for the Project or, in the alternative, customize its existing accounting software version to make it suitable for the Project and reflect the Project specificities, thereby allowing EDM to comply with its obligations under this Agreement; and (B) train the staff of its audit and control department on the Association s procedures and appoint a dedicated internal auditor for the Project; and (ii) not later than five (5) months after the Effective Date, appoint an external auditor under terms of reference and with qualifications and experience satisfactory to the Association. Sections and Description PA, Schedule, Section I, F: EDG shall, not later than three (3) months after the Effective Date, sign with EDM a term sheet, upon conditions deemed satisfactory to the Association, describing broadly the commercial terms of the energy exchange between the two utilities, including a commitment on a range of quantity and price of energy, which shall govern the negotiation of a future power purchase agreement between EDG and EDM. Sections and Description PA, Schedule, Section I, H: EDG shall: (i) not later than two (2) months after the Effective Date: (A) update its fiduciary procedures manual; and (B) customize its existing accounting software version to make it suitable for the Project and reflect the Project specificities, thereby allowing the Recipient to comply with its obligations under this Agreement; and (ii) not later than five (5) months after the Effective Date, recruit an external auditor under terms of reference and with qualifications and experience satisfactory to the Association. Conditions Type Effectiveness Type Effectiveness Description EDM and EDG shall have appointed to the PIU a procurement specialist and a financial management specialist, both under terms of reference and with qualifications and experience satisfactory to the Association. Description EDM and EDG shall have adopted the Project Implementation Manual, including fiduciary procedures, in form and substance satisfactory to the Association. Page 7 of 129

13 I. STRATEGIC CONTEXT A. Country Context 1. Despite Sub-Saharan Africa s significant endowment of natural resources, approximately 600 million people, or two-thirds of its population, do not have access to electricity. For those with access to electricity, average residential electricity consumption per capita is equivalent to about half the average level of China or one-fifth that of Europe (in 2014). 1 While Sub-Saharan Africa is energy poor, it is rich in natural resources, that if harnessed, could meet the needs of the continent for reliable and affordable electricity. Excluding solar, McKinsey estimates that there are 1.2 terawatts (TW) of generation capacity potential. 2 Solar generation capacity was estimated at a staggering potential of 10 TW, with important regional hotspots, such as the Sahel sub-region (including Mali). 2. While current levels of consumption are among the lowest in the world, demand for electricity in Sub-Saharan Africa is expected to increase many fold over the next couple of decades. A 2015 study on African electricity markets prepared by McKinsey estimates that demand for electricity in Sub-Saharan Africa will register a four-fold increase between 2010 and 2040, representing an average growth of 4.5 percent per year. 3 This strong growth will be sustained by an increase in industrial and commercial demand for electricity averaging 4.1 percent per year, and an increase in residential demand averaging 5.6 percent per year. This increase in demand could vary significantly between sub-regions. In West Africa, for instance, it is expected that demand for industrial and commercial electricity would grow faster than average, at 5.3 percent per year Regional integration is a game changer that could shape the energy landscape of Sub-Saharan Africa. If every country builds infrastructure to fulfill its electricity needs, the McKinsey study estimates that the region would require about US$490 billion of capital for new electricity generation capacity by 2040, plus another US$345 billion for transmission and distribution. The study estimates that significantly increasing regional integration could save more than US$40 billion in capital spending, and save the African consumer nearly US$10 billion per year by 2040, as the levelized cost of energy would fall from US$70 to US$64 per megawatt-hour (MWh). The World Bank estimates that power trade within the West Africa Power Pool (WAPP) could lead to cost savings of US$5 billion to US$8 billion per year, by enabling WAPP countries to benefit from more cost-effective hydro or gas-based imports 5. The overall range of cost saving arising from greater regional integration for the beneficiary countries in Sub-Saharan Africa is estimated to be in the range of US$0.01 to US$0.07 per kilowatt hour (kwh) 6 and the cost of electricity could be cut by more than half in many countries in West Africa. 1 World Energy Outlook 2014 Factsheet: Energy in Sub-Saharan Africa Today, International Energy Agency. 2 Castellano, A., A. Kendall, M. Nikomarov, and T. Swemmer Brighter Africa: The Growth Potential of the Sub-Saharan Electricity Sector. McKinsey & Company. 3 ibid 4 This strong growth of electricity demand results from relatively high economic growth, rapid urbanization, large population increases, and active policies to expand access. 5 World Bank, West Africa Power Pool Securitization of Cross-Border Power Trade: A Proposed Way Forward. 6 Foster, V., and C. Briceño-Garmendia Africa s Infrastructure: A Time for Transformation. Washington, DC: World Bank. Page 8 of 129

14 4. The WAPP is designed to optimize supply and maximize economies of scale by integrating the national power systems into a regional electricity market. For the West Africa sub-region where the demand-supply gap is likely to reach more than 100 gigawatt (GW) by 2040, it is fundamental to optimize supply through regional integration that maximizes economies of scale and links sources of supply to distant centers of consumption, as well as the development of cost-efficient sources of supply, such as hydroelectricity. Faced with the task of expanding the power system to meet development needs of countries in the sub region, the 15-member states 7 of the Economic Community of West African States (ECOWAS) have acknowledged that past efforts to achieve national self-sufficiency in electricity supply have been uneconomic due to the high cost of establishing power generation and transmission infrastructure at the national levels. They have decided instead to opt for a regional approach to effectively address their growing energy needs. To foster the expansion of regional energy markets, ECOWAS has put in place, in 1999, WAPP, a cooperative mechanism for integrating national power systems (except Cape Verde) into a regional electricity market, with the expectation that this mechanism would help provide a stable and reliable electricity supply for all at affordable cost over the medium to long term. It was created as a flagship infrastructure project of the New Partnership for African Development, aiming to foster the development of electricity in all ECOWAS member states. 5. The Implementation Road Map of the WAPP Infrastructure Program consists of five distinct but mutually reinforcing sub-programs that will converge into a regional power pool as outlined in the Table 1. Subprogram Coastal Transmission Backbone Interzonal Transmission Hub Organisations pour la mise en valeur du fleuve Gambie (OMVG)/OMVS Regional Projects Côte d'ivoire, Liberia, Sierra Leone, Guinea (CLSG) Regional Interconnector Table 1. The WAPP Infrastructure Program Countries Côte d'ivoire, Ghana, Togo / Benin, Nigeria Burkina Faso and Mali through Ghana, Organisation pour la mise en valeur du fleuve Sénégal (OMVS) through Mali, Liberia-Sierra Leone-Guinea through Côte d'ivoire The Gambia, Guinea, Guinea-Bissau, Mali, Senegal CLSG Expected Date of Commissioning Completed December 31, 2018 June 30, 2022 (OMVG); December 31, 2022 (OMVS) October 30, 2019 Objectives Establish a robust interconnection link among the ECOWAS coastal member states. Establish more secure, reliable transmission corridors for transfer of low-cost energy to displace diesel-based sources especially in Burkina Faso, through Ghana and Côte d Ivoire, and the OMVS through Mali. The OMVG and OMVS projects interconnect national systems of The Gambia, Guinea, Guinea-Bissau, Mali, and Senegal and secure access to sources of low-cost energy to be built on the Gambia River and the Senegal River. Interconnect CLSG into the WAPP energy system and develop hydropower resources in the subregion. 7 Benin, Burkina Faso, Cape Verde, Côte d Ivoire, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. Page 9 of 129

15 Subprogram North Core/Dorsale Nord Regional Interconnection Project Countries Nigeria, Niger, Burkina Faso, Benin/Togo Expected Date of Commissioning Year 2024 Objectives Upgrade and extend capacity to transfer low-cost energy supply in the short term from Nigeria to Niger, Burkina Faso, and northern Benin, and in the longer term also, from Niger to the other countries. 6. The World Bank has developed a strong partnership with WAPP and is financing, together with other donors, part of the abovementioned five WAPP Master Plan subprograms. It is also supporting the preparation of key generation projects for cost-efficient electricity for the region and assisting member countries to build commercial and technical instruments to create a regional energy market. To channel this support, the World Bank uses various instruments, including so far, (a) grant/credits; (b) technical assistance; and (c) guarantee instruments. WAPP is on track to finalize the primary interconnectors shown in Figure 1 (which includes both current and planned interconnectors) by the early 2020s, which will significantly change the energy landscape in West Africa. Figure 1. Map of the WAPP Infrastructure Source: WAPP 7. The interconnections allow electricity trading among countries, with trading patterns expected to change over time as more connections are made and new power sources come on line. In the context Page 10 of 129

16 of WAPP, Mali has experience trading electricity with Mauritania and Senegal through the OMVS system as well as Côte d Ivoire through a 225 kilovolt (kv) transmission interconnection running from Segou in Mali through Koutiala and Sikasso. In fact, imports from those countries represented 35 percent of Mali s energy mix in On the other hand, Guinea has no experience in electricity trading. However, with the planned power interconnection projects and the ones currently under construction, including this project, Guinea will be at the heart of the WAPP system and will be connected to 13 ECOWAS countries. Currently and in the short term, both Mali and Guinea would import electricity if the interconnectors were available, as both depend partly on expensive rental power to meet their current electricity needs. In the medium to long term, Guinea is uniquely positioned to play an important role in the future regional power market, as it has an estimated hydropower potential of 6,200 megawatt (MW) (largely untapped), or more than 10 times the current size of its national grid, under active development. 8. Guinea s ambition to become a net exporter of hydropower to the sub-region will be realized only if it succeeds in developing its hydropower resources at lower cost and exporting electricity at a competitive price. Indeed, potential importers of Guinean hydropower (Senegal, Guinea-Bissau, The Gambia, Liberia, Sierra Leone, and Mali) have domestic or regional sources of power at higher than US$0.12 per kwh from gas-fired plants, solar energy, and coal-fired plants. For Guinea to capture part of the regional power market and fully utilize the rapidly expanding regional power transport network under WAPP, Guinea will need to be selective in the hydropower plants it develops and focus on those with the capacity to supply electricity all year around at a low cost. B. Sectoral and Institutional Context 9. Table 2 summarizes key sector indicators for the two countries. Table 2. Key Sector Indicators Guinea Mali Access to electricity (% of population) Number of customers 250, ,000 System losses (%) Average electricity tariff (US$ per kwh) Average cost of service (US$ per kwh) Sources: World Bank Internal Country Engagement Notes for Guinea and Mali, Guinea 10. The energy sector in Guinea is currently undergoing a major restructuring towards a full liberalization of the sector, although it currently remains dominated by public sector players. The Ministry of Energy and Hydraulics (MEH) sets the sector s policy and plays an overarching surveillance role of the sector. The state-owned electricity utility, Electricity of Guinea (Electricité de Guinée, EDG), which was created following the failure of the privatization of the sector in the 1990s, is currently under a fouryear Management Services Contract (MSC) until October After the MSC, it is expected that the utility will be operated by local staff who would have benefited from skills transfer by the MSC Contractor s experts and on-the-job training during the MSC period. There are currently two independent power producers (IPPs), the Abdallahi Ould Noueiguedh (AON) Group and La Guinéenne d Electricité (GDE). The China International Water and Electric Corporation (CWE) operates the Kaleta hydropower plant. The Page 11 of 129

17 recently established agency, Agence Guinéenne d Electrification Rurale (Guinean Rural Electrification Agency), created on May 9, 2017, will oversee the development of rural electrification programs including decentralized off-grid electrification solutions. The law establishing an independent regulator has been adopted by the Parliament on November 24, 2017, and the Government of Guinea (GoG) is planning to operationalize it in The electricity law is being updated with the support of the African Development Bank (AfDB) to reflect new developments in the sector and to encourage private sector participation in solar, and eventually, in hydropower. A set of regulations will follow to enforce the law in The Electricity Generation, Transmission and Distribution Master Plan that will define a least-cost-generation plan and grid extension plan is being updated with financing from the AfDB. 11. Despite its vast hydropower potential, Guinea s energy sector performance has remained below that of regional peers. The official access rate in 2016 stood at 18 percent, while reaching 29 percent when including significant proportion of illegal connections (compared to 57 percent in Senegal, 53 percent in Côte d Ivoire, and 30 percent in Mali in 2016). The access rate in rural areas is as low as 3 percent, which is significantly lower than the Sub-Saharan Africa average of 15 percent. With these figures of access, electricity demand has grown by 13 percent in 2015, and it is expected to grow at 9 percent to 10 percent per year in the next five years. The installed capacity in 2017 is about 630 MW, of which MW (59 percent) is from hydropower plants. In 2016, EDG produced 1,531.5 GWh to meet the needs of its 246,527 customers, of which 65 percent live in the capital city of Conakry. About 45 percent of the energy was produced by the Kaleta hydropower plant (240 MW), 31 percent by thermal IPPs, and 24 percent by EDG s legacy power plants, mainly composed of hydropower plants. 12. Guinea is actively developing renewable energy sources and is expected to have enough capacity by 2021 to meet its future national demand and export excess supply on the regional market. Guinea is actively developing its hydropower resources with the completion of the Kaleta hydropower project (HPP) (240 MW) in 2015 with Chinese financing obtained in 2012, and the ongoing construction of the Souapiti HPP (450 MW) also with Chinese support. In addition to those two national HPPs, two other regional HPPs are under development: the Sambangalou (128 MW) regional HPP, being developed by the OMVG on the Gambia River (bordering Senegal and Guinea), and the Koukoutamba (294 MW) HPP, being developed by the OMVS on the Senegal River. Other projects that are being considered by the Guinean authorities include Amaria (300 MW), Korafindi (100 MW), and Kogbedou-Frankonedou (90 MW). Guinea is also exploring, with support from International Finance Corporation Advisory Services, the development by private investors of solar photovoltaic projects. Some of the projects under development, as well as the completed Kaleta project, already anticipate the possibility of exporting electricity to the neighboring countries once the transmission interconnection projects are completed by The transmission line between Linsan and Fomi, a critical line linking the generation facilities in Guinea to the WAPP system, including the proposed interconnection project, is at an advanced stage of development. The GoG has already mobilized the required financing from the Industrial and Commercial Bank of China (ICBC). The transmission line will be constructed by the CWE, the developer of the completed Kaleta hydropower plant as well as the ongoing Souapiti hydropower plant and commissioned in 2020 (before the completion of Souapiti). The Linsan-Fomi transmission line is therefore expected to be commissioned on time to evacuate the power produced by the hydropower plants in Guinea, including Kaleta and Souapiti. However, should the construction of the Linsan-Fomi transmission line be delayed, Page 12 of 129

18 the feasibility study demonstrated that between 150 MW and 230 MW of energy could still be supplied to the eastern part of Guinea and Mali with imports from Côte d'ivoire and eventually, other WAPP countries (through power injection into the Man substation and wheeling of that power to N Zerekore through the CLSG line) and/or Guinea (through power injection into the Linsan substation and wheeling of that power to N Zerekore through the CLSG line). 14. While the performance of EDG has been improving lately, significant challenges remain. The IDA-funded MSC 8 of the EDG is making some progress toward the improvement of the operational performance of the utility. To date, a few positive results have been achieved, in particular: (a) reduction in the number and duration of power supply interruptions; (b) reduction of operational expenditures by 32 percent; (c) increase in generation capacity in rural secondary cities with the installation of 14 smallscale power generators; (d) increase in the annual turnover by 28 percent; and (e) increase in bill collection rate by 19 percent. However, the midterm review of the MSC undertaken in November 2017 revealed that the contractor achieved limited results in improving the commercial performance of the utility and did not make sufficient efforts to build the capacity of the local Guinean staff. The improvement of these two areas have been prioritized for the remaining two years of the MSC focusing on (i) installation of smart meters for nonresidential large consumers (as part of the implementation of the Revenue Protection Program, which is a prior action of the World Bank s latest Development Policy Operation [DPO] currently under preparation and the International Monetary Fund [IMF] program ( ) and both prepayment and post payment meters for residential consumers (depending on the preference of the customer); (ii) the implementation of an integrated management system to modernize the management of the utility; and (iii) the rehabilitation of distribution and connection infrastructures to reduce system losses. The MSC is also committed to improving bill collection (currently at 79 percent). To build the capacity of the local staff of the EDG, the MSC has developed a human resources capacitybuilding plan which includes specific training sessions, on-the-job training through industrial attachment in better-performing utilities in Africa, voluntary retirement and/or separation packages, and so on. 15. The EDG is in a critical financial situation as electricity tariffs are far from being cost-reflective. Guinea s power sector faces a quasi-fiscal deficit 9 of 2.1 percent of the country s gross domestic product (GDP). This is higher than the 0.9 percent average of 39 countries in Sub-Saharan Africa, excluding South Africa. It is also large in comparison to the central government s fiscal deficit (6.9 percent of GDP in 2015) and education expenses (3.2 percent of GDP in 2014). The project is expected to improve the financial situation of the utility through the generation of hard currency revenues from exports to Energy of Mali (Energie du Mali S.A., EDM SA), in addition to providing reliable and affordable electricity service to the cities of Siguiri, Kankan, Kerouané, Beyla, and Nzerekore, currently being supplied with expensive standalone thermal power generators. Furthermore, the Guinea Electricity Access Scale up Project (P164225), which is under preparation with the objective to expand the access rate from the current 18 percent to 36 percent in the next four years, will contribute to the improvement of the financial situation of the EDG as it will regularize the illegal connections in Conakry and in the regional cities (about 11 percent of the population) and hence reduce the commercial losses of the utility. In addition to the abovementioned project, the GoG concluded a program with the IMF which includes about a 25 percent electricity tariff increase for the industrial and professional category and 10 percent electricity tariff increase for the 8 The management contract became effective on October 9, The difference between the net revenue of an efficient utility and the net cash it collects. Page 13 of 129

19 residential and tertiary category as part of gradual tariff adjustments to improve the financial viability of the EDG. The Additional Financing to the Power Sector Recovery Project (P160771) 10 will also improve the financial situation of the sector by improving the technical and commercial performance of EDG. Mali 16. The EDM SA is the vertically integrated electricity utility that has monopoly over power transmission and distribution within its concession, while generation is open to the private sector. Since 1989, a variety of models have been experimented with for the management of EDM SA. This includes a performance contract model ( ), a management contract model ( ), and a concession contract model. In 2000, the concession was awarded to a consortium formed by SAUR International (referred to as SAUR) and Industrial Promotion Services West Africa S.A (IPS [WA]). 11 A fundamental disagreement between the Government of Mali (GoM) and SAUR emerged because of divergent interpretations of the contractual obligations of each party concerning required investments and tariff adjustments, which led to SAUR s departure from the company in October Since then, the GoM is the majority shareholder of EDM SA with 66 percent of the shares, while IPS (WA) holds the remaining 34 percent. EDM SA s concession covers mainly urban areas. EDM SA is the single buyer of power supplied by IPPs and/or imported from neighboring countries. The Malian Rural Electrification Agency (Agence Malienne pour le Développement de l'energie Domestique et l'électrification Rurale), created in 2003, supplies electricity to rural areas through a public-private partnership approach, whereby rural electrification licenses are granted to private operators. 17. Significant progress has been made in increasing access in Mali, with access to modern energy services reaching about 30 percent nationally, corresponding to an access rate of 55 percent in urban areas and 18 percent in rural areas. In fact, the access rate in rural areas has increased tenfold from about 1 2 percent to 18 percent in less than a decade. Households still mainly rely on fuelwood for cooking, and wicks and kerosene lamps for lighting. The use of these traditional fuels poses both health and environmental hazards while requiring time-consuming foraging by women and children and providing inadequate levels of service. 18. The quality of service however has been deteriorating, while costs have continued to rise. The unreliability of the existing generation facilities, the delays in procurement of new generation facilities, the limited investments in the network, and the fast pace of new customer connections leading to network densification have all contributed to this situation. Total domestic installed generation capacity connected to the grid currently stands at 479 MW (unchanged since the 23 MW extension of the Balingue thermal power plant in 2016), although only about 250 MW is available mainly due to lack of maintenance of existing generation facilities, resulting in breakdowns. The demand for electricity in Mali is increasing on average by 10 percent per year. To serve that fast-growing demand, EDM SA has largely relied on expensive rental containerized diesel units for an aggregated installed capacity of 100 MW (that is, The Additional Financing to the Power Sector Recovery Additional Financing Project (P160771), approved by the Board on March 16, 2018, will further the achievement of the parent project s Project Development Objective (PDO), which is to improve technical and commercial performance of the EDG by financing critical activities identified by the Internal Recovery Plan of EDG ( ), which was adopted by the GoG in October IPS (WA) is an entity of the Aga Khan Fund for Economic Development. Page 14 of 129

20 percent of grid-connected available capacity, including the capacity of rentals). 12 Despite these expensive efforts, planned and unplanned outages have increased sharply in recent years in both frequency and duration. Moreover, total losses (including technical and commercial losses) have increased from 19.6 percent in 2011 to close to 22.0 percent in 2016, mainly due to the lack of investments in the rehabilitation of the network and to the increased transmission losses pursuant to larger volumes of power imported from Côte d Ivoire. 19. Mali is heavily dependent on expensive thermal generation (more than 50 percent of its energy mix) and is in dire need of diversifying its sources of energy. Mali relies on expensive rental diesel units to meet its fast-growing demand, but that approach comes with a high financial cost. While Mali is embarking on the development of its solar resources, it does not have sufficient large-scale hydropower resources left to exploit and it does not have any known exploitable gas resources; therefore, the most feasible alternative for Mali to lower the cost of electricity in the short to medium term is to increase the import of electricity from its neighboring countries while supplementing it with domestic thermal generation. With this project, Guinea and Côte d Ivoire, through the CLSG, will play a strategic role in helping Mali diversify its energy mix and lower its cost of power generation, therefore contributing to the financial equilibrium of the sector. 20. The timely construction of the Sanankoroba substation is critical to supply power to the area of Bamako through this interconnection. The construction of the Sanankoroba substation is within the scope of the ongoing Sikasso-Bougouni-Sanankoroba-Bamako 225 kv transmission line project, which is entirely funded by Exim Bank of India (US$100 million), the ECOWAS Bank for Investment and Development (EBID) (US$50 million), and the GoM (US$11.4 million). The contract for the construction of the substation has been awarded to an Indian firm on May 2, 2018, and construction works were officially launched on May 14, Furthermore, with the supply of significant amount of power from Guinea toward Mali through this interconnection project, the Malian grid will need to be reinforced, particularly around the capital city of Bamako, to ensure that the energy supplied to the Malian national grid is absorbed and distributed all the way to the end users. In that regard, EDM SA, with assistance from the French Development Agency (Agence Française de Développement, AFD) is preparing technical feasibility and environmental and social studies for the construction of a 225 kv transmission ring around Bamako, upgrading of the capacity of the transformers, and upgrading of the distribution system. 13 Studies for the transmission ring are expected to be completed by December The World Bank will consider providing additional financing to this project to finance part of the 225 kv transmission ring around Bamako and the abovementioned upgrades to the transmission and distribution system once the studies are completed and based on the results of the ongoing Transmission and Distribution Master Plan for the Bamako region, which is under implementation with the EDM SA funding. 12 Oil-based generation products are imported and are especially costly given that Mali is a landlocked country connected to neighboring countries ports through relatively poor transport infrastructure. 13 The transmission ring will be composed of four new 225/30 kv substations (Kodialani, Kati, Dialakorodji, and Dialakorobougou) and the associated 225 kv transmission lines and will create four infeed points for the import of electricity from the Guinea-Mali interconnection toward the Malian grid, particularly in the area of Bamako. Page 15 of 129

21 22. The financial situation of EDM SA has been undermined by high production costs and high technical and commercial losses. As the country relies heavily on expensive imported fossil fuels for power generation, the average cost of electricity service to the end users is estimated at US$0.25 per kwh. On the other hand, the electricity tariff stands at US$0.16 per kwh on average and is thus not cost reflective. Despite that, the tariff is considered high for the average Malian household and business. On the other hand, EDM SA has been making losses totaling US$100 million in EDM SA received a total subsidy amounting to US$73.6 million in 2015, translating into a subsidy of US$0.055 per kwh. Facing increasing liquidity challenges, EDM SA has been relying heavily on short-term borrowing to meet its obligations and has delayed payments to fuel and power suppliers, including neighboring countries such as Côte d Ivoire. EDM SA s profitability depends upon its ability to reduce its cost of service by reducing its dependency on rental power and expensive heavy fuel oil (HFO)-fired generation and improve its operational efficiency along the value chain. 23. EDM is taking measures to address its precarious situation. In an effort to address the challenges in the sector and restore its profitability, EDM SA has set up a new organization in January and developed an emergency plan. The plan aims at rehabilitating several power plants, including Sirakoro (56 MW), Balingue (33 MW), Sélingué (44 MW), and Sotuba (6 MW); rehabilitating and strengthening several transport and distribution substations; improving billing and collection; increasing the capacity of the existing interconnections with Côte d'ivoire (from 40 MW to 75 MW) and Senegal and Mauritania (from 20 MW to 60 MW). In April 2018, the World Bank agreed to review EDM SA s domestic commercial debt and advise the utility on a financial sustainability plan. The Electricity Subsidy Reform Study in Guinea, Mali, and Togo (P166128) will also undertake the analytical work required to guide the GoG and the GoM on the implementation of further sector reforms to increase the performance of the EDG and EDM SA and ultimately reduce the government subsidies to the sector. The Mali Electricity Sector Improvement Project (P166796), which is under preparation, aims at improving the operational performance of EDM SA. The project will finance, among others, the rehabilitation, reinforcement, and expansion of the transmission and distribution network in Bamako to reduce technical and commercial losses, improve the quality of supply, and may also contribute to increasing access to electricity services. The ongoing IDA-funded Mali Energy Support Project (P108440) aims to improve the access and efficiency of electricity services in Bamako and other targeted (grid-connected) areas in the country (including reducing losses and improving revenue collection with the implementation of a revenue protection program). C. Relevance to Higher Level Objectives 24. The objectives of the project are aligned with the World Bank corporate goals of ending extreme poverty and promoting shared prosperity. It will provide the participating countries with affordable, reliable, and sustainable electricity through regional integration. This will enhance the prospects for further integration of the countries infrastructure and natural resource management, thereby resulting in more sustainable growth through increased trade and economic competitiveness. The proposed project 14 The reorganization involves changes to (a) reinforce the control and the fight against fraud through the creation of a new internal audit position; (b) strengthen the strategic planning function by strengthening the prerogatives of the Studies and Strategic Planning Department; (c) optimize the procurement of supplies, assets, and fuel through the creation of a Procurement Department; (d) strengthen the information and management/data security systems through creation of an information system department; and (e) improve the level of recoveries through the establishment of a dedicated department. Page 16 of 129

22 also supports the World Bank FY18 23 Africa Regional Integration and Cooperation Assistance Strategy, which identifies the energy sector as one of the four priority areas, in particular the Objective 2.1: Support priority regional generation and transmission links and the Objective 2.2: Transform subregional power pools into effective commercially run entities actively enhancing power trade between countries. The project is in line with the Directions for the World Bank Group s Energy Sector 15, which emphasized the leveraging of private sector resources and experience to enable reliable and more efficient energy sectors in developing countries, and the Africa Energy Strategy, particularly the first three pillars that target scaling up regional power generation and transmission capacity, expanding electricity coverage, and improving sector planning and utility performance. 25. The proposed project is also in line with the strategy of the World Bank in each of the participating countries: In Guinea, a new WBG Country Partnership Framework (CPF) 16 is in effect for the period FY The new CPF is based on the GoG s development priorities that are set out in the National Economic and Social Development Plan (PNDES ). The PNDES is structured around four pillars that are driven by three drivers of structural change, including catalytic investments in the energy sector. The proposed interconnection is expected to increase foreign currency through export of energy and contribute to the improvement of the country s economic indicators, as well as to the ambitious objectives of providing universal access to electricity. The project directly supports Pillar Three of the CPF (Agricultural Productivity and Economic Growth), and in particular Objective 7 that focuses on better access to energy and water through improved management of utilities. The development of energy infrastructure represents a key component of Mali s strategy to support economic development. The project is fully consistent with the WBG s FY16 19 CPF for Mali. 17 The CPF lays out three GoM objectives to which the WBG interventions are expected to contribute: (a) improving governance; (b) creating economic opportunities; and (c) building resilience. The proposed project will directly support the second area of focus of the CPF by contributing to the provision of affordable, reliable, and sustainable energy supply. It will also contribute to increasing access to electricity in Mali, which is part of the goals of the Sahel Alliance, launched in July 2017, as it seeks to increase financial and technical resources to the Sahel countries to address the multifaceted challenges and drivers of fragility and to promote increased resilience and economic opportunities, including for the most vulnerable. Among the five sectors of focus, the Sahel Alliance has proposed an ambitious target of doubling energy access in Sahelian countries during to address energy poverty. The project is included in the Sahel Alliance pipeline of operations. 26. The proposed project is well aligned with the principles of Maximizing Finance for Development, being part of a larger comprehensive World Bank engagement in the energy sector of the two concerned countries and providing support across the value chain. The proposed project provides public sector financing for the construction of strategic infrastructure where commercial financing is not considered viable, while also supporting increased private sector participation in the generation subsector, which is a commercially viable segment, as it connects potentially interested purchasers to the 15 Report No Report No GN 17 Report No ML. Page 17 of 129

23 generators. In Guinea, for instance, generation projects that will supply the interconnector are mainly led by IPPs. 27. Furthermore, the Guinea-Mali Interconnection Project will improve the stability of the national networks in Guinea and Mali and contribute to the integration of Variable Renewable Energy (VRE), in particular, large-scale grid-connected solar, in those two countries. Due to its intermittency, solar power plants need to be backed by a more reliable and flexible source, such as hydropower, which is abundantly available in Guinea. The private sector is expected to play a critical role in developing the large solar energy potential along the transmission line route in the two countries. In that regard, the World Bank is considering financing a series of projects for solar development in Sub-Saharan Africa, with the aim to accelerate grid-connected solar electricity generation expansion in the region. The first project in the series, which includes a component related to the identification and preparation of regional investments in solar electricity generation and associated network reinforcements and upgrading, will be complementary to this project. 28. Finally, the project will ensure equal access to reliable, safe, and affordable energy for both women and men, contributing to meet Sustainable Development Goal 5 for achieving gender equality and empowering all women and girls. The ECOWAS Policy for Gender Mainstreaming addresses the growing evidence base that energy deprivation has often greater negative impacts on women. Women s lower socioeconomic status and rights at the household and community level limit women s capacity to enjoy the same level of access to modern energy services as their male counterparts in the region. II. PROJECT DESCRIPTION A. Project Development Objective 29. The PDO is to: (i) increase electricity supply to the Eastern part of Guinea; (ii) enable electricity trade between Guinea and Mali; and (iii) increase Guinea s electricity export capability towards other WAPP countries. B. Project Components 30. The proposed project is part of a network of interconnections that will contribute to the realization of Guinea s electricity export potential to the WAPP countries. The proposed Guinea-Mali Interconnection Project starts in N Zérékoré in Guinea, near the Liberian border, stretches across the eastern part of Guinea from south to north, through Fomi, and crosses the Malian border into Sanankoroba in Mali. The interconnector is complementary to the Côte d Ivoire, Sierra Leone, Liberia, and Guinea Power System Re-Development (P113266), the OMVS Transmission Expansion (P147921), and the OMVG Interconnection (P146830) projects being financed by the World Bank. Indeed, the Guinea-Mali Interconnection Project will be connected to the CLSG system through the future N Zérékoré substation in Guinea (to be constructed by the ongoing CLSG Power System Re-Development Project (P113266), and extended with the construction of two new 225 kv bays under this project), the OMVS system through the Sanankoroba substation in Mali (to be constructed by the ongoing Sikasso-Bougouni-Sanankoroba- Bamako 225 kv transmission line project and extended with the construction of two new 225 kv bays Page 18 of 129

24 under this project), and the OMVG system through the future Fomi substation (to be constructed under the project), and the future Linsan-Fomi line in Guinea (to be constructed by the GoG with secured financing from China). The Linsan substation will be constructed under the OMVG Interconnection Project (P146830). 31. Communities along the transmission line will be provided with access to electricity. To partly mitigate the environmental and social impacts of the project, the AfDB, the Islamic Development Bank (IsDB), and the European Union (EU) are financing the electrification of 201 rural communities located along the line route (121 in Guinea and 80 in Mali) through the 225/33 kv substations that will be constructed under the project. This will provide reliable and affordable access to electricity to those communities and contribute to the social development of the local population directly affected by the project, with a special focus on women and girls, a key initiative to ensure strong citizen engagement ownership and gender equal participation in the project. Since the World Bank is already considering financing the ECOWAS-Regional Electricity Access Project (P164044), which includes Guinea and Mali and will be complementary to this component, it is not participating to the financing of that initiative. Component 1: Power Transmission Infrastructure (US$343.8 million equivalent, of which IDA financing US$71.8 million equivalent and US$272.0 million equivalent from other donors) Sub-component 1-A: Construction of the Transmission Interconnector (US$317.3 million equivalent, of which IDA financing US$61.6 million equivalent and US$255.6 million equivalent from other donors) 32. This subcomponent involves the construction of a 714 km 225 kv double circuit transmission line from N Zérékoré in Guinea to Sanankoroba in Mali, as well as the construction of five substations in Guinea (Fomi, Beyla, Kankan, Kerouane, and Siguiri) and the extension of one substation in Guinea (N Zérékoré, planned to be built under the Côte d Ivoire, Sierra Leone, Liberia, and Guinea Power System Re- Development Project) and one in Mali (Sanankoroba). The 225 kv high voltage transmission line will be equipped with double circuit, one earthwire, and one Optical Fiber Ground Wire (OPGW). The OPGW will provide grounding and communication capabilities to the line, and its excess fiber optic capacity will be considered for commercialization to telecoms operators. This component also includes: (a) the Supervisory Control and Data Acquisition (SCADA)/telecommunication equipment and (b) the compensation equipment (Reactance, Capacitor Bank, and static VAR compensator). IDA will finance the construction of two new 225 kv bays in the Sanankoroba substation; the construction of a portion of the transmission line between the Mali/Guinea border and Siguiri (53.7 km); and the construction of new substations in Siguiri, Kankan, and Kerouane. This subcomponent will be co-financed with AfDB, EU, European Investment Bank (EIB), IsDB, EBID, and West African Development Bank (WADB). Sub-component 1-B: Implementation of the Environmental and Social Management Plans and Resettlement Action Plans (US$26.6 million equivalent, of which IDA financing US$10.2 million equivalent and US$16.4 million equivalent from other donors) 33. The cost of the implementation of the Resettlement Action Plans (RAPs) will be financed by the respective Governments as part of their counterpart financing. The costs of the implementation of all the aspects of the ESMPs other than the implementation of the RAPs will be financed by the donors. Environmental mitigation measures will be included under the ESMPs, while gender actions will be Page 19 of 129

25 included in the construction contract. IDA will finance the cost of the ESMP in Guinea. The cost of the ESMP in Mali will be financed by WADB. Component 2: Implementation Support and Capacity Building (US$37.0 million equivalent, of which IDA financing US$12.2 million equivalent and US$24.8 million equivalent from other donors) Sub-component 2-A: Implementation Support (US$29.8 million equivalent, of which IDA financing US$5.5 million equivalent and US$24.3 million equivalent from other donors) 34. In each country, a PIU will be responsible for implementing the portion of the project located in that country. This subcomponent will finance the procurement of one owner s engineer for the whole project. The owner s engineer, financed by the EU and WADB (with terms of reference (ToR) reviewed and approved by the World Bank), will coordinate and assist the PIUs in the two countries with (a) overall project management and supervision of the procurement, design, construction, and preparation for operation and maintenance (O&M) of the complete investment, including the full transmission line, construction, and upgrade of substations and (b) supervision and monitoring of the implementation of the ESMPs and of the RAPs, based on an agreed monitoring plan. 35. This subcomponent will also provide support to operationalize the implementation arrangements for the project. In addition to the two PIUs, a Joint Implementation Steering Committee will guide the implementation of the project during the construction phase. This subcomponent will, among others, cover the operating costs of the two PIUs in the two countries during the construction of the line. It will provide support for setting up the PIUs, including setting up of systems such as procurement and financial management (FM) systems and recruitment of staff and the operational costs (per diems, acquisition of vehicles, office supplies, furniture and hardware/software, and so on) during the construction phase. It will also support the logistical expenses related to the organization of the Joint Implementation Steering Committee meetings. IDA will finance part of these costs. Sub-component 2-B: Capacity Building (US$5.7 million equivalent, of which IDA financing US$5.2 million equivalent and US$0.5 million from other donors) 36. This subcomponent will finance the competitive recruitment of engineers highly experienced in implementing 225 kv or more transmission line projects who will reinforce the capacity of the PIU in Guinea and the carrying out of specialized studies as required. This subcomponent will also finance the supply of equipment and tools to strengthen the capacity of the two utilities to operate and maintain the interconnected grid and it will finance specific training of the staff, women, and men, involved in O&M. Finally, this subcomponent will support the commercialization of the excess capacity of the fiber optic associated with the interconnection line. IDA will finance part of these costs. Sub-component 2-C: Trade Facilitation (US$1.5 million equivalent, of which IDA financing US$1.5 million equivalent) 37. This subcomponent will support analytical work to strengthen the two countries institutional, legal, and regulatory framework to facilitate the trade of electricity between the two utilities. The analytical work will explore measures to build mutual trust, pursuant to the recommendations of the Page 20 of 129

26 WAPP Task Force on Securitization of Payments supported by the World Bank. This includes measures such as enhanced power purchase agreements (PPA) and the possibility for the provision of payment guarantees when and if necessary. In that regard, some good precedents, like the introduction by Manantali Energy Management Corporation (Société de Gestion de l Energie de Manantali, SOGEM) of a gradual disconnection policy that has forced the utilities of the OMVS countries, including EDM SA, to pay on time, will be explored. IDA will fully finance the subcomponent. C. Project Beneficiaries 38. The project beneficiaries are the existing and future customers of the power utilities in Mali and Guinea. With reliable access to an affordable and clean source of energy, these customers will benefit from improved electricity services. In particular, the population in the regions of Nzerekore (estimated at 1,947,191 inhabitants) and Kankan (estimated at 2,645,453 inhabitants) in Guinea, and in the region of Koulikoro (estimated at 2,418,305 inhabitants) in Mali will directly benefit from the project with new connections and/or improved electricity service. 39. The utilities in the two countries will also directly benefit from the project through the reduction of the average cost and increase in the reliability of the electricity supply in Mali and through increased revenues from energy sales in Guinea. The utility staff will also benefit from technical assistance to be provided under the project. 40. The project is deemed to be gender tagged in terms of analysis, action and monitoring and evaluation (M&E). In 2015, the Gender Inequality Index for Mali was (where one denotes complete inequality). In the case of Guinea, this value was not available which points to a lack of data regarding gender aspects in the country. 18 In the energy sector, research in the ECOWAS region has demonstrated that increasing access to sustainable electricity services can contribute to narrowing of gaps between females and males in a variety of domains and can contribute to enhancing gender equality. Increased electricity access will improve women s health outcomes by reducing reliance on polluting and inefficient solid fuels for their energy needs and easing the physical burden women experience by fulfilling household chores manually and collecting traditional fuels. Provision of affordable electricity access can result in time savings and can enhance the ability of women to engage in income-generating opportunities both inside and outside the home. Further, women s generally low economic power and other sociocultural factors, especially in rural areas, have important consequences for women s reproductive health, access to productive factors, 19 participation in the public life, and empowerment. Electricity access is helping women to participate in new income-generating activities as a result of reduced time in domestic chores (that is, fetching water, collecting firewood, or cooking). In both countries, the use of polluting and inefficient solid fuels for cooking, lighting, and heating due to lack of access to electricity has negative 18 The GoM and the GoG have made strong commitments to promote gender equality and women s empowerment. In both countries, this was demonstrated by the creation of gender ministries and the adoption of a National Gender Policy, to meet the countries national development objectives. Although Mali and Guinea have adhered to several international and regional conventions and agreements, which have a positive effect on the status of women, progress in practical application of those commitments is lagging. 19 In relation to men, women only have limited access to registered property rights (2 percent), land use (20 percent), farm equipment (19.6 percent), and credit (40.6 percent), source: UNWOMAN Country Report Page 21 of 129

27 impacts on women s and children s health, with high risk of respiratory infections from exposure to household air pollution. Lack of electrification of health care facilities and for refrigeration of vaccines and medicines increase maternal and infant mortality 20 and has negative impacts on children s education, particularly in rural areas. 41. The project will explore specific ways in which the proposed components can reduce the identified gender gaps in the energy sector in Mali and in Guinea. The project plans to address the gender gaps identified earlier through the following main interventions: (a) organizing gender-sensitive communications campaigns and outreach activities to inform women and other socially marginalized groups about the services provided by the project, and consultations with women and youth to promote their involvement in project implementation; (b) providing professional women in both utilities technical skills training in the area of high-voltage transmission and substation; (c) facilitating recruitment of female staff in electricity generation, distribution, and commercial performance activities, as frontline service providers for the customer call center or as promoters and sales agents for off-grid products; and (d) collecting sex-disaggregated data through the customer service satisfaction survey and adopting gendersensitive and sex-disaggregated indicators to monitor progress and assess the impacts of the gendertargeted interventions. Key indicators will be included in the Results Framework to track the progress in the selected gender actions to be developed throughout the project. Finally, the PIM will set up mechanisms to collect and report sex-disaggregated and gender-relevant data and results D. Results Chain 42. Figure 2 shows the results chain. E. Rationale for World Bank Involvement and Role of Partners 43. WAPP has been playing an active role in the preparation of the project studies, including technical feasibility and safeguard instruments, under financing from the AfDB. WAPP will continue playing an active role during project implementation. Indeed, the WAPP Secretariat will be represented in the project Joint Implementation Steering Committee. 44. The project financiers are at different stages of readiness. The AfDB will be the lead financier and as such will be coordinating the interventions of the different financiers. Furthermore, as the lead financier, the AfDB, in coordination with WAPP, will organize monthly donors meeting to report on each donor s progress and ensure proper coordination. 45. The AfDB has already committed US$58 million for both countries; EU US$14 million for both countries; EBID US$44 million financing for both countries; and WADB US$33 million financing for Mali. The other financiers are at an advanced stage of preparation and are expected to get their board approvals by the end of year Household Energy Network Boiling Point: A Practitioner s Journal on Household Energy, Stoves and Poverty Reduction. Page 22 of 129

28 Figure 2. Results Chain Chart F. Lessons Learned and Reflected in the Project Design 46. The proposed project takes into consideration lessons and experience gained from the implementation of comparable regional World Bank-financed projects, notably from the recently completed WAPP-APL1 Phase 1 and Phase 2 Coastal Transmission Backbone Project (P and P094917). A summary of lessons learned and how they have been reflected in the design of the project is presented in Table 3. Table 3. Summary of Lessons Learned and Reflected in the Project Design LESSONS LEARNED Country commitment and ownership. There is typically lack of ownership by the concerned Governments for these types of regional projects. With erratic country commitment, the project s governance framework is the key first step to determine the potential for project success and mitigate sustainability risks. REFLECTION IN PROPOSED PROJECT PROJECT DESIGN The proposed project will establish a Joint Implementation Steering Committee composed of high-level representatives from, among others, the ministries in charge of finance and energy to ensure ownership of the two concerned countries and facilitate the coordination between the two concerned Governments so that implementation issues can be addressed at an early stage. Furthermore, the project will be implemented directly by the utilities of the two concerned countries, unlike some other regional projects that are executed by regional entities (such as Page 23 of 129

29 LESSONS LEARNED Results indicators. Poorly designed results indicators make it difficult to assess IDA s development impact in multidonor projects. Project scope. Lessons learned from similar projects indicate that the addition of an access expansion component to a transmission project can help mitigate the negative impacts of the line on the population living along the line route. Implementation arrangement model. The setting up of separate PIUs located in each country could result in disruptions in the implementation and piecemeal construction due to lack of coordination. This could be avoided if a single supranational company is established to build the infrastructure referred to as the special purpose vehicle (SPV) model. REFLECTION IN PROPOSED PROJECT the OMVS or OMVS). This will reinforce the countries commitment and ownership. The proposed project provides indicators to measure outputs attributable to IDA s contribution distinctly from the whole infrastructure, as well as indicators to track the performance of the project overall as jointly financed by all funding sources. An important access component is included in the project scope for both countries. An assessment of various implementation options, including the SPV model, was undertaken. Based on the results of the assessment, the countries decided that two separate PIUs would be created. This choice was mainly motivated by the fact that the option with two separate PIUs (a) does not require the transfer of the investments to a third entity because each country remains responsible for the part of the work in its territory; (b) makes it possible to better integrate existing resources in the management and operating bodies of each country into the project, and thus allows a good involvement and capacity building of the teams that will be in charge of operating the new facilities; and (c) facilitates the training of young engineers and technicians who will also be integrated into the future operating teams of each country with a good working knowledge acquired during project implementation. To mitigate the risk of interrupting or delaying project implementation, there will be one owner s engineer to supervise and coordinate the construction works for the entire line in both countries and a Joint Implementation Steering Committee will facilitate the coordination between the two PIUs. Furthermore, as the lead financier, the AfDB, in coordination with WAPP, will organize monthly donors meeting to report on each donor s progress and ensure proper coordination. While the SPV model mitigates the risk of interrupting or delaying project implementation with the creation of one single supranational company to implement the project, it also presents the following major constraints: (a) the requirement to negotiate an international treaty to establish the statutes and shareholder agreement of the supranational company, which can take several years based on experience with previous WAPP projects; (b) the lack of control of each client country on the solutions implemented in their territory and in relation to project implementation; and (c) once completed and the assets transferred to the utilities, they might lack the experience and skills required to manage the newly transferred asset. Page 24 of 129

30 LESSONS LEARNED Financing and procurement arrangements. Experience shows that parallel financing in multidonor projects in different countries with different procurement arrangements create binding interdependencies between donors and countries, as any delay in the completion of a component financed by one donor in a country might potentially create stranded assets for all other funding agencies. Commercial arrangements. The introduction of a gradual disconnection policy, as done by SOGEM in 2008, could force the utilities to pay on time. Capacity building of the utilities. In the case of weak utilities, their capacity needs to be reinforced to assist them in implementing the project properly. REFLECTION IN PROPOSED PROJECT IMPLEMENTATION ARRANGEMENTS The Joint Implementation Steering Committee and the owner s engineer, financed by the EU and WADB (with ToR reviewed and approved by the World Bank), will mitigate this risk as they will be entrusted to ensure adequate and timely coordination not only between Governments but also between funding agencies. The technical assistance to facilitate trade provided under Component 2.3 will build on SOGEM s positive experience to mitigate the risk of nonpayment of the main offtaker EDM SA. IMPLEMENTATION CAPACITY The limited capacity of the utilities will be mitigated through the financing of training sessions and other capacity-building activities for the PIUs and utilities and the hiring of a strong owner s engineer. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 47. Agreement on trading terms. A Memorandum of Understanding (MoU) was signed on June 21, 2017, between the Governments of the two countries to combine their efforts for the construction of the power transmission line to interconnect the two power systems and exchange energy between them. The MoU confirms the willingness of the two countries to trade energy and authorizes the two utilities, EDG and EDM SA, to execute a PPA. While the negotiation of a PPA will require some time and support (technical assistance is provided by the project), the two electricity utilities have agreed to sign not later than three (3) months after the Effective Date of the countries Financing Agreement (that is, around 31 December 2018), a term sheet broadly describing the commercial terms of the energy exchange, including a commitment on a range of quantity and price for the energy, which will govern the negotiation of a PPA. 48. MEHs. In each country, the MEH, through its National Directorate for Energy, will be responsible for overseeing the overall implementation of the project. The Directorates will delegate the implementation of the project to two PIUs hosted in the two national utility companies, the EDG and EDM SA. Each PIU will be responsible for implementing the portion of the project located in its country. 49. PIUs. The PIUs will more precisely be responsible for, among others, carrying out the bidding process for the works; supervising the implementation of the project; coordinating the activities of the various stakeholders, including consultants, manufacturers, installers, inspection services, and all the public services concerned; approving technical documents; ensuring sound FM of the project; preparing progress and completion reports; coordinating the commissioning of the project once completed; and ensuring the smooth handing over of the facilities to the two utilities that will be in charge of operating Page 25 of 129

31 and maintaining them; and preparing and participating, as secretary, in the meeting of the Joint Implementation Steering Committee. The PIUs are composed of existing staff from the public utilities, EDG and EDM SA, and the National Directorate for Energy in the MEH of the energy sector in each country. They will be reinforced, as needed, by consultants who will be procured and financed under the project. An owner s engineer will assist the two PIUs in supervising and coordinating the construction works for the entire project in both countries. 50. Joint Implementation Steering Committee. A Joint Implementation Steering Committee, composed of five representatives from Guinea, five representatives from Mali, one representative from WAPP, and one representative from the owner s engineer, has been created to guide and coordinate the implementation of the project during the construction phase, from procurement activities to the supervision of works and management of the project resources, as well as to ensure the smooth commissioning and handing over of the resulting facilities to the respective national utilities who will own the respective portions of the line in their territory and be responsible for its O&M. The Joint Implementation Steering Committee will meet quarterly. The venue of the meeting will alternate between the two countries, and the meeting will be chaired by the representative of the National Directorate for Energy of the country where the meeting is taking place. More precisely, the Joint Implementation Steering Committee will, among others, guide and coordinate the project stakeholders in carrying out the studies and works related to the construction of the interconnection line and related substations, supervise and coordinate the activities of the PIUs in the two countries, guide and coordinate the project stakeholders in carrying out the studies and works related to the construction of the interconnection line and related substations, resolve any issues/disagreements arising between the PIUs, and prepare the transition to the operation phase. 51. The structure of the implementation arrangements is depicted in Figure 3. More details are provided in Annex 2. Figure 3. Implementation Arrangements Structure Page 26 of 129

32 52. WAPP Secretariat. In addition to being represented in the Joint Implementation Steering Committee, the WAPP Secretariat will be playing an active role to ensure that the different parties, including the beneficiaries and the donors, are well coordinated. Furthermore, as the lead financier, the AfDB, in coordination with WAPP, will organize a monthly donor meeting to report on each donor s progress and ensure proper coordination. B. Results Monitoring and Evaluation Arrangements 53. The M&E system will be based on the Results Framework. The power utilities will be responsible for providing the required quarterly implementation progress status reports and elaborating an M&E Manual as part of the Project Implementation Manual (PIM), which will guide the overall M&E activities. Activities to be monitored include the timely and efficient construction and commissioning of the transmission line, quality control, and processing of payments to contractors approved by the owner s engineer, as well as the effective implementation of the ESMP and the RAPs of the project. C. Sustainability 54. The project s sustainability depends on the commitment of the engagement of the two Governments to implement the power sector reforms they have initiated with an objective to have credit-worthy utilities in the medium to long term. In Guinea, the GoG has been engaged in the transformation and restructuring of the EDG and other sector reforms involving, among others, a tariff revision, while in Mali, EDM SA has set up a new organization in January 2017 and has developed an emergency plan that aims at rehabilitating several power plants; rehabilitating and strengthening several transport and distribution substations; improving billing and collection; and increasing the capacity of the existing interconnections with Côte d'ivoire, Senegal, and Mauritania. The World Bank is actively supporting the two countries in their ambitious reforms through a combination of Investment Project Financing (IPF) and DPO operations to improve the performance of the utilities and support actions that are required to implement the reform programs. Those reforms will contribute to the financial sustainability of the utilities in the two countries and therefore their ability to deliver power sustainably at a reasonable cost and/or pay for the electricity traded through the interconnector. The WAPP Secretariat, with assistance from the World Bank, is promoting the establishment of a strong bilateral and regional market where the exporting countries will honor the quality and quantity of energy they commit in their PPAs, while the importing countries honor their payment obligations. 55. The proper O&M of the assets constructed by the project is key for a sustained performance and efficiency of the utilities. As part of the dialogue and technical assistance to be provided under the project, the World Bank will work with the Clients to ensure appropriate arrangements are put in place for the operation of the assets and training of the future O&M staff. Page 27 of 129

33 IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis Technical 56. The project uses the well-established 225 kv high voltage alternating current power transmission technology and presents no unusual construction and/or operational challenges. In fact, the equipment and the technologies involved in construction and operation of transmission lines are wellknown and proven, including in Sub-Saharan Africa. The system analysis of a power transmission network with load flow and dynamic simulations, predesign, including technical parameters and estimated project costs for the transmission line, has been established by a feasibility study prepared by a reputable international engineering consultancy firm. 57. The project costs are based on the feasibility study developed in November 2015 and includes a 10 percent contingency provision. The cost estimates have been reviewed by the team and are deemed to be in line with current market prices. The 10 percent contingency will cover the following eventual extra costs: (a) unit price variations for steel, transformer, compensation, and other equipment; (b) finalization of the line routing after route alignment survey by the contractor; (c) modification of the scope of works of the contractor due to the final line routing (deviation, number, and type of tower/foundation); (d) price adjustments as a result of potential delays in the effectiveness of the contract; and (e) others unforeseen events (for example, special foundation design after soil investigation). 58. The project would remain viable even with a delay in the construction of the Linsan-Fomi transmission line. The project has been designed to supply energy to the Eastern part of Guinea and Mali from the existing and future hydropower plants in Guinea, assuming that the Linsan-Fomi transmission line is commissioned on time to evacuate the power produced by those hydropower plants. However, an alternative scenario where the energy is imported from Côte d'ivoire through the CLSG line was considered in the feasibility study, to ensure that should the construction of the Linsan-Fomi transmission line be delayed, the project remains viable. 59. As part of the project s implementation arrangements and as is common for these types of projects, an owner s engineer will be contracted. The owner s engineer will be a reputable international engineering firm and will help to ensure the finalization of the bidding documents and that design and construction are carried out in accordance with technical specifications and international quality standards. The procurement of the owner s engineer is ongoing. Economic and Financial Analysis 60. The project presents many economic benefits not only to Guinea and Mali but also to WAPP. Indeed, this interconnection project would further facilitate trade within the WAPP and potentially reduce the average cost of power generation for WAPP member countries. In quantifying the overall economic benefits of the proposed project, country level (Guinea and Mali) benefits and costs have been assessed Page 28 of 129

34 and aggregated. Any additional power transmitted beyond the two countries would only result in additional economic and financial benefits that were not quantified in this analysis. 61. Although a range of economic benefits will accrue from the project to both countries, this analysis has focused on those that are the most quantifiable. The interconnection will allow Mali to access lessexpensive power supply from Guinea and potentially Côte d Ivoire from the CLSG transmission line. Therefore, economic benefits to Mali mainly consist of the avoided costs of alternative domestic generation, mainly based on thermal generation. For the exporting country, Guinea, the main benefit is the hard currency revenue that the country will earn from exports and the benefits from the additional energy that will be supplied to the eastern part of the country. 62. In Mali, there is an overdependence on thermal-based generation (HFO), which is estimated to cost US$0.23 per kwh, to meet the demand. The proposed project would permit Mali to import from Guinea or from Côte d Ivoire through the CLSG transmission line, thereby reducing its average cost of generation. While a PPA between the two countries is still under discussion, import costs are conservatively estimated between US$0.11 per kwh (average price of hydropower based imports from Guinea) and US$0.13 per kwh (average price of imports from Côte d Ivoire). This would be in addition to the wheeling charges of up to US$0.025 per kwh. Either way, the avoided cost of thermal-based generation in Mali presents an economic benefit. 63. For the exporters, there is an economic benefit in terms of the foreign currency revenues that would accrue from exporting energy. Export prices are conservatively estimated between US$0.11 per kwh and US$0.13 per kwh plus a wheeling charge of up to US$0.025 per kwh. The exporting country would nevertheless bear the marginal cost of generating additional electricity to meet the extra demand from Mali. In the case of Côte d Ivoire, this would be about US$0.12 per kwh while in the case of Guinea, this is assumed to be the cost of hydropower generation from Souapiti (which is expected to come online in 2021) at US$0.09 per kwh. The project will also provide an economic benefit to the localities in Eastern Guinea: Nzerekore, Kankan, Beyla, Kerouané, and Siguiri which will benefit from more reliable and affordable supply of electricity as opposed to the thermal-based generation that is currently used to supply those localities and will be displaced once the project is commissioned. 64. Project costs comprise all costs associated with the construction and operation of the transmission line and substations. These include: Capital costs of the 225kV double circuit transmission line from N Zerekore in Guinea to Sanankoroba in Mali, new substations in Guinea, extension in a substation in Guinea, extension in a substation in Mali, SCADA, and telecommunications equipment a total of US$343.9 million; and Associated O&M costs estimated at 3 percent of capital costs. 65. The economic analysis considered two scenarios. The first scenario is a case where imports to Mali are coming from the generation at Souapiti hydropower plant in Guinea. The second scenario is a case where energy is not available to be evacuated from Souapiti through the Linsan-Fomi line and therefore, imports to Mali are coming from Côte d Ivoire through the CLSG line at US$0.13 per kwh. In Page 29 of 129

35 both scenarios, the project presents a positive net present value (NPV) and an economic internal rate of return (EIRR) that is well above the hurdle rate of 10 percent. 66. In Scenario 1, where trade happens between Guinea (power generation from Souapiti) and Mali, the results show that the project is economically viable. Assuming a discount rate of 10 percent (excluding taxes and duties from capital expenditure), the NPV of the project is US$810 million and its EIRR is 29 percent. This represents a benefit-cost ratio of 3.2. Assuming a lower wheeling charge of US$0.01 per kwh, the overall project is still economically viable. 67. At the national level, the results show that the project is more beneficial for Mali. The reason for this is the large proportion of avoided energy costs in Mali in the overall benefits of the project. NPV and EIRR to Mali are US$684 million and 84 percent, respectively, while the NPV and EIRR to Guinea are US$265 million and 19 percent, respectively. Table 4 summarizes the main results of the analysis. Table 4. Scenario 1: Estimated Project Economic Viability (Exports from Souapiti) Project Guinea Mali EIRR 29% 19% 84% NPV (@ 10% discount rate) US$810 million US$265 million US$684 million 68. In Scenario 2, where imports to Mali are coming from Côte d Ivoire through the CLSG line, the results show that the project is still economically viable. At a 10 percent discount rate, the NPV of the project is US$584 million and the EIRR is 25 percent. This represents a benefit-cost ratio of At the national level, the project is still more beneficial for Mali for the same reason highlighted earlier. The NPV and EIRR to Mali are US$542 million and 73 percent, respectively, while the NPV and EIRR to Guinea are US$168 million and 16 percent, respectively. Table 5 summarizes the results of this scenario. Table 5. Scenario 2: Estimated Project Economic Viability (Exports from CLSG) Project Guinea Mali EIRR 25% 16% 73% NPV (@ 10% discount rate) US$584 million US$168 million US$542 million 70. A sensitivity analysis in the form of switching values was performed to determine how economic viability changes with variations in the most critical risk drivers of the project. The results show that the project is most sensitive to a change in the cost of thermal-based generation in Mali, which is the alternative source of energy. Should the unit cost of thermal-based generation reduce to US$0.13 per kwh, which is very unlikely, it would no longer be economical for Mali to import from Guinea. For other key drivers such as capital costs overrun, an increase in the marginal cost of generation in Guinea and a reduction of demand in Mali, the project is sufficiently robust to changes in these drivers within reasonable limits. Table 6 provides a summary of the analysis. Page 30 of 129

36 Table 6. Results of the Sensitivity Analysis (Switch Values) Parameter Unit Base Case Switch Value Change (%) CAPEX US$, million Cost of thermal-based generation US$ per kwh Cost of additional generation (Guinea) US$ per kwh Demand from Mali ( ) GWh Demand from Mali (2030 and beyond) GWh The impact of alternative trade within WAPP is captured in the sensitivity analysis by lowering the demand from Mali (the difference being exported from Guinea to other WAPP countries). The analysis determines the break-even value for demand from Mali (259 GWh versus 808 GWh in the base case) below which the project would no longer be economically viable. 72. Financial Assessment. In assessing the financial viability of the project, it generates cash inflows mainly from (a) export revenues for Guinea which includes electricity sales and wheeling charges and (b) sales of additional electricity to the eastern part of Guinea. Cash outflows are represented by the investment costs, additional energy supplied costs, and O&M costs. In Scenario 1, the stream of inflows and outflows result in a positive NPV of US$252 million and a financial internal rate of return (FIRR) of 4.6 percent, while in Scenario 2, the results show an NPV of US$28 million and an FIRR of 1.3 percent. While both scenarios show positive NPVs and FIRR above the hurdle rate of 0.75 percent, the results of the financial analysis are less favorable in Scenario 2 because of the higher cost of electricity import from Cote d Ivoire which is assumed to be US$0.13 per kwh on average, compared to the average cost of generation in Guinea which is assumed to be US$0.11 per kwh in Scenario 1. Should the costs of imports from Guinea in Scenario 1 be increased to a US$0.15 per kwh, which is closer to the mid-point price between the current cost of thermal generation in Mali and the cost of generation in Guinea (hydropowerbased) plus a wheeling charge of US$0.01 per kwh, the NPV would increase to US$633 million and the FIRR to 9 percent. 73. The full economic and financial analysis is presented in Annex Greenhouse gas (GHG) emission accounting. A total net emission of about 651,995 tons of CO 2 (tco 2) are avoided during the project lifetime. The main sources of emissions for project are due to land clearing needed to build the high voltage transmission line, technical losses reduction compared to alternative scenario and emissions from Sulfur Hexafluoride (SF6). 75. Climate co-benefits. The project being a greenfield power transmission infrastructure is not expected to generate climate co-benefits based on the agreed calculation methodology. B. Fiduciary (i) Financial Management 76. The objective of the FM assessment is to determine whether the implementation agencies of the project, namely EDG SA and EDM SA, have acceptable FM arrangements in place to take on the project s fiduciary responsibility. These arrangements include each agency s accounting system and reporting, auditing, and internal controls. The FM arrangements are deemed acceptable if these are (a) capable of Page 31 of 129

37 correctly recording all transactions and activities; (b) able to support the preparation of regular and reliable financial statements; (c) able to safeguard its assets; and (d) subjected to a satisfactory auditing process. The assessment complied with the Directive on FM Manual for World Bank IPF operations effective on March 1, 2010, and as last revised on February 10, EDM SA. The assessment of EDM SA shows lack of capacity and experience to take fiduciary responsibility for the management of the project. EDM SA present weaknesses in various areas like (a) lack of reliable information systems and (b) weak internal control environment. 78. The overall fiduciary risk rating for EDM SA is assessed as Substantial. The mitigation measures proposed (see Table 7) will strengthen the internal control environment and maintain the continuous timeliness and reliability of information produced by EDM SA/PIU and an adequate segregation of duties. It is expected that EDM SA will satisfy the World Bank s minimum FM requirements once the recommended mitigation measures have been implemented. Table 7. FM Action Plan for EDM SA Action Responsible Party Deadline and Conditionality Adopt implementation manual including fiduciary procedures EDM SA Before effectiveness Recruit a project FM specialist with qualifications and EDM SA Before effectiveness experience satisfactory for the World Bank Recruit or appoint an accountant with qualifications and experience satisfactory for the World Bank EDM SA Three months after effectiveness Purchase project accounting software or customize current accounting software to generate project financial report and statement EDM SA Three months after effectiveness EDM SA s audit and control department staff will be trained on World Bank procedures and appoint dedicated internal auditor for the project Recruit an external auditor to audit project annual financial statement EDM SA EDM SA Three months after effectiveness Five months after effectiveness 79. EDG. The assessment of EDG shows that the current FM staffing comprising an FM officer (responsible for administrative and finance activities) and one accountant is adequate. 80. The overall fiduciary risk rating for EDG is assessed as Moderate. The mitigation measures proposed (see Table 8) will strengthen the internal control environment and maintain the continuous timeliness and reliability of information produced by the PIU and an adequate segregation of duties. It was agreed during the preparation of the Power Sector Recovery Project Additional Financing (P160771) to create this function within the MEH of Guinea because of the increase in the number of donorsfinanced projects implemented within the ministry, which in turn, requires more effective internal control systems. The responsibility and scope of work of the internal auditor will be extended to this new project. It is expected that the FM will satisfy the World Bank s minimum requirements once mitigation measures have been implemented. Page 32 of 129

38 Table 8. FM Action Plan for EDG Action Responsible Deadline and Party Conditionality Adopt implementation manual including fiduciary procedures EDG Before effectiveness Recruit a project FM specialist with qualifications and experience satisfactory for the World Bank EDG Before effectiveness Recruit a senior accountant with qualifications and experience Two months after EDG satisfactory for the World Bank effectiveness Update its fiduciary procedures manual EDG Two months after effectiveness Customize project accounting software to cover new project EDG Two months after effectiveness Recruit an external auditor EDG Five months after effectiveness 81. A detailed FM assessment can be found in Annex 2. (ii) Procurement 82. The Recipients will carry out procurement for the proposed project in accordance with the World Bank s Procurement Regulations for IPF Borrowers (Procurement Regulations), dated July 2016 and revised in November 2017, under the New Procurement Framework, and the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated July 1, 2016, and other provisions stipulated in the Financing Agreements. 83. Procurement will be carried out by a PIU located within the public utility companies of each country. The PIUs will be composed of existing staff from the utilities and reinforced as need be by consultants that will be procured and financed under the project. 84. All procuring entities as well as bidders and service providers, that is suppliers, contractors and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with Paragraph 3.32 and Annex IV of the Procurement Regulations. 85. Project Procurement Strategies for Development (PPSD). Recipients have prepared PPSDs which describe how procurement activities will support project operations for the achievement of PDOs and deliver Value for Money (VfM). Based on which, the Procurement Plans for the first 18 months have been prepared by the Recipient, reviewed and approved by the World Bank prior to negotiations. The approved Procurement Plan sets the selection methods to be used by the Borrowers in the procurement of goods, works, non-consulting services, and consulting services under the project. The Procurement Plans will be updated at least every 12 months, or as required, to reflect the actual project implementation needs. Each update shall require World Bank approval and will be publicly disclosed in accordance with the World Bank disclosure policy. 86. National procurement procedures (NPP). National procedures may be used while approaching the national market under National Open Competitive Procurement (NOCP). NOCP will observe the Page 33 of 129

39 requirements stipulated in the Procurement Regulations for IPF Borrowers on NPP. Other national procurement arrangements (other than NOCP) that may be applied by the Borrowers (such as limited/restricted competitive bidding, request for quotations (RFQs)/shopping, direct selection) shall be consistent with the World Bank s Core Procurement Principles and ensure that the World Bank s Anticorruption Guidelines and Sanctions Framework and contractual remedies set out in its Legal Agreement apply. 87. Procurement arrangements. Implementation of the project will be carried out by EDG (Guinea) and EDM (Mali) who will be responsible for the procurement activities under the project. EDG will be responsible for the implementation of the works and related services contracts for the transmission line and substations on the Guinean territory while EDM will be responsible for the implementation of the works and related services contracts for the transmission line and substations on the Malian territory. 88. Procurement capacity. Procurement capacity assessment for the agencies to implement the project was carried out in April 2018 for both utilities. The assessment revealed that most of the staff dealing with procurement have adequate experience, but limited capacity, in procurement of works and goods through ICB procedures and in selection of large-value consultancy contracts including using World Bank procedures. Some of the mitigation measures include the recruitment of international and local procurement consultants to support the PIUs. The recruitment of the international procurement consultant is an effectiveness condition. 89. A detailed procurement description and institutional arrangements can be found in Annex 2. C. Safeguards (i) Environmental Safeguards 90. The project is rated as Environmental and Social Assessment Category A, requiring a full assessment of environmental and social risks and impacts of the project. In addition to the Involuntary Resettlement OP/BP 4.12 described in the social safeguard section, the following safeguard policies are equally triggered: Environmental Assessment - OP/BP 4.01: The policy is triggered as the project will cover more than 714 km and will imply civil works (transmission line and associated substations) and will generate environmental and social adverse risks and impacts that will need to be mitigated adequately. Two specific Environmental and Social Impact Assessments (ESIAs)/ESMPs covering the project rights-of-way (ROWs) have been prepared one for each country - and amply consulted upon and publicly disclosed (both in-country and at the World Bank InfoShop) prior to project appraisal. Natural Habitats - OP/BP 4.04: The policy is triggered as the project ROWs will have potential negative impacts on the birds and many ruminants and amphibians natural habitats. The ESIA/ESMP reports reveal that several endangered species were identified in the regions and nearby Ramsar sites were also identified close to the ROW. The two Governments have however committed to ensure that there is no conversion of critical natural habitats as a result of the Page 34 of 129

40 project. In addition, each Government will prepare and implement an action plan in compliance with the Ramsar convention and will ensure that specific protection measures are taken to protect endangered species. Finally, specific mitigation measures have been provided in the ESIA/ESMP for consideration during implementation and operation of the transmission line. Forests - OP/BP 4.36: The policy is triggered as some project activities will most likely require clearing up of over 1,000 ha of forest and sensitive areas/spaces, altogether, mainly in Guinea as well as in some parts of Mali. The two Governments envisage re-foresting an equivalent if not greater surface as an ecosystem mitigation measure. In addition, the project will provide to each participating village along the transmission line and around the substations additional sets of fruit tree plants to be shared among the community for their household-level usage. Looking at the cumulative impacts, it is anticipated that within five years, the canopy of all these fruit trees planted in these villages will increase the benefit of the greenhouse gases and add value to the overall benefit of the forest. The two Governments will ensure that relevant measures will be taken to avoid adverse impacts on the health and quality of forests or on the rights and welfare of people dependent on their interaction with forests. The project activities will also avoid bringing changes in the management, protection or utilization of natural forests. Finally, provisions are being offered in the ESIA reports that will be complied with during project implementation. Physical Cultural Resources - OP/BP 4.11: The policy is triggered as several cultural sites have, so far, been pre-identified in the project areas along the transmission line, and the ESIA reports have proposed relevant mitigation measures, such as the use of Chance Finds protocols to ensure a safe and sustainable protection of these sites. 91. Safety of Dams - OP 4.37: This policy is not triggered because, further to its technical assessment and due diligence, the Task Team confirmed that the project does not directly depend on existing dams in Guinea and Mali, including the Kaleta and Souapiti dams, or any of the dams under construction in the said countries. 92. Potential adverse risks and impacts. Several potential risks and impacts were identified : clearing up of over 1,000 ha of forest and sensitive areas spaces mainly in Guinea and in some parts of Mali, risk of polychlorinated biphenyls (PCBs) and fuel pollutants, risk of water pollution, noise in the construction sites, dust and smoke generated by site work, risk of diseases and nuisance, risk of accidents during civil works, risk of fire, risk of poaching and pressure against endangered species identified in the regions, and risk of harm to Ramsar sites. Attention will be given, among others, to (a) occupational health and safety; (b) safe handling and disposal of industrial wastes hazardous products such PCBs and management of other solid and liquid wastes; (c) the emergency response in case of fire; and (d) labor influx and genderbased violence (GBV) issues. 93. Management of project safeguards compliance. Each country will establish a PIU within their electricity utility company for implementing the project. Even though both EDG and EDM SA have implemented a few World Bank-financed projects in the past, their respective technical capacity on social and environmental safeguards risks and impacts management remains limited and thus needs to be reinforced. The existing environmental and social safeguards unit (ESSU) in each PIU, comprised of one full time environmental safeguards specialist and one full time social safeguards specialist with experience Page 35 of 129

41 in gender, will therefore be reinforced with the hiring of an experienced international senior social and environmental safeguards specialist during a three-year period. The senior specialist will strengthen the expertise of the two other ESSU staff and develop, build and foster their in-house technical capacity on safeguards. The ESSU in each PIU will work in tandem and closely with the national environmental protection agency of their respective country (i.e. Bureau Guinéen d'evaluation Environnementale - BGEE at the Ministry of Environment, Waters and Forests in Guinea, and Direction Nationale de l'assainissement et du Contrôle de la Pollution et des Nuisances - DNACPN at the Ministry of Environment, Sanitation and Sustainable Development in Mali) and the World Bank safeguards specialists to ensure that environmental and social safeguards risks and impacts are properly managed and that the World Bank s policies in that regard are complied with throughout project implementation (construction, operationalization and monitoring phases). Each PIU will sign a MoU with its national environmental protection agency with whom it will work in tandem to ensure that the core requirements of the national legislations are being complied with. 94. Moreover, this project will be an opportunity for both utilities to build and strengthen their inhouse capacity on broader social and environmental safeguards aspects directly relevant to the energy sector, such as environmental management, land acquisition and involuntary resettlement, grievance redress mechanism (GRM), stakeholders engagement, as well as systematic screening of subprojects, preparation of site specific safeguards documents, safeguards monitoring and reporting and so on. Hence, the two senior social and environmental safeguards specialists will support EDG and EDM respectively in designing, building, training and fostering a robust internal ESSU, both at central and regional levels. This will support EDG and EDM in properly managing safeguards related risks and impacts of their operations. 95. It was agreed among donors that the World Bank would lead the coordination of safeguards compliance for this project. The World Bank social and environmental safeguards specialists will work in a coordinated manner with the specialists of the other donor agencies to provide support during regular project joint implementation support missions as well as during specific training workshops (physically and/or virtually). Regular monitoring reports on the implementation of the environmental and social safeguards provisions will be provided to the World Bank for consideration and approval, in coordination with the other donors. 96. Public Consultation and disclosure. During the project preparation stage, the two countries prepared safeguards instruments (ESIAs/ESMPs, RAPs) for which, the main stakeholders, inclusive of women, youth and vulnerable groups, were amply consulted upon. These safeguards instruments, initially prepared and disclosed in 2013 and 2015 respectively, were reviewed by the World Bank and cleared for disclosure in the two countries (Mali and Guinea) and on the World Bank Infoshop website on May 11, 2018 and May 14, 2018 respectively. Since stakeholders consultation and participation is an iterative process, the consultations will be pursued throughout the project implementation period. 97. Climate and disaster risk screening. The project was screened through the World Bank Climate and Disaster Risk Screening Tool. The screening exercise showed that there is a risk for strong winds in the savannah areas. However, the overall potential impacts on the project s physical infrastructure and assets is low as there has never been strong winds disaster in the past and this cannot significantly affect the transmission line and substation infrastructure. To mitigate that risk, the feasibility studies prepared by international consultants have considered the potential strong winds in the savannah areas of Mali and Page 36 of 129

42 northeastern part of Guinea in the design of the transmission line and substation facilities, particularly the towers. Nonetheless, none of such winds are expected to result in disruptive damages for both the structures and services to be mutually provided by EDG and EDM SA. (ii) Social Safeguards 98. The proposed operation has been socially and environmentally classified as a Category A (Full Assessment) project because the foreseen adverse social (and environmental) risks and impacts of project activities (both during construction: mostly civil works related to the construction of the transmission line and associated substations; and during operation: emission of GHG, risks of accidents, etc.) are expected to be important in scale and scope, likely cumulative, and spread across borders. Those are nonetheless expected to be manageable to an acceptable level. 99. OP/BP 4.12 (Involuntary Resettlement) is triggered as the project foreseen activities will require land acquisition along both the transmission line as well as the associated substations and workers and material storage camps in both countries, which will lead to loss of assets and/or restriction of access to various means of livelihood upon which affected communities would depend heavily; hence resulting in the payment of compensation whether or not project affected persons (PAPs) may have to move Resettlement Action Plan (RAP). Since, most of the footprints of the transmission line s ROW and associated substations plots are known at this juncture, each country has prepared, in 2013/2014, a RAP for the portion of the line in its territory. The RAP reports for the two countries were prepared in a participatory and inclusive manner through extensive stakeholder consultation and participation and were initially finalized and approved by the countries and the other donors in December 2015 and publicly disclosed thereafter. The reports initially identified about 1686 and 336 persons affected by the project (PAP) respectively in Guinea and Mali. The reports were recently reviewed by the World Bank and cleared for re-disclosure both in-country and at the World Bank Infoshop website on May 11th, 2018 and May 14th, 2018 respectively. After extensive due diligence, the World Bank was provided with ample comfort from the two countries that there has not been any forced and/or involuntary displacement of PAPs. Nevertheless, both Governments have committed to update the census to reflect the latest realities on the ground, update and publicly disclose the RAP reports and compensate all finally identified PAPs prior to the physical start of any civil works. Women and other vulnerable groups have been sufficiently engaged in the consultation process and clear mechanisms were built within the project to ensure that displaced and/or resettled men and women equitably share the proceeds from the compensation funds and that they fully participate in the overall RAP process The updated safeguards instruments have captured the following core requirements: (a) Citizen engagement - to ensure that broader stakeholders and beneficiary communities are engaged through constructive and inclusive public consultation and participation mechanisms which aim at fostering ownership while building social accountability through feedback and check-and-balances tools. This overall interaction aims at building a sustainable development enabling environment for the project to yield its expected results of fostering a transparent governance environment. Page 37 of 129

43 (b) Grievance Redress Mechanism (GRM) - to ensure that an inclusive and participatory mechanism that builds on existing mechanisms to properly and effectively settle disputes and grievances is in place, with the use of legal ways as a last resort. The GRM builds on existing local practices to ease processing and make it inclusive. The GRM should be available to every project affected and/or impacted person (PAP). (c) Gender-based Violence (GBV) - to mitigate the risk of violence against women, children, and the most vulnerable persons during project implementation, a Code of Conduct will be embedded in all contractors contracts as part of the social and environmental clauses (SES). The owner s engineer will have as one of its tasks to supervise adherence to the Code of Conduct. (d) Labor influx and child labor - to ensure that no child labor occurs on any of the project activities and site, and that possible labor influx is limited to dedicated zones and that related issues are properly dealt with in an inclusive way. A Labor Influx Plan will be prepared by contractors, reviewed and cleared by the World Bank as part of the ESMP. (e) Vulnerability - broadly speaking, is properly managed as the project will ensure no discrimination against a disabled, disadvantaged, or culturally vulnerable person occurs throughout the project lifecycle. (iii) Other Safeguards 102. There are no other safeguard policies applicable to this project. (iv) Grievance Redress Mechanisms 103. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level GRMs or the WB s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank s corporate Grievance Redress Service (GRS), please visit For information on how to submit complaints to the World Bank Inspection Panel, please visit V. KEY RISKS 104. The overall risk rating for the project is High. This is mainly due to (a) the substantial country environment risks, particularly, the political and security situation in Mali; (b) the macroeconomic risks that could negatively affect the two countries macroeconomic performance; (c) the challenges in the Page 38 of 129

44 electricity sector of the two countries, in particular, about the utilities poor performance and financial standing; (d) the weak capacity in the two countries, in particular with regard to procurement; (e) the high environmental and social risks involved; (f) the involvement of many stakeholders; and (g) risks to the project s sustainability stemming from the financial standing of the offtaker. Key risks, rated High or Substantial, are described in the following paragraphs and mitigation measures are proposed Political and Governance risk is rated Substantial: Political and governance developments carry substantial risk for the project. The Corporate Security Threat Rating for Mali is High, while it is Medium for Guinea. Since the political crisis in 2012, Mali is and will most likely remain a politically fragile country. A consequence of that crisis was the progressive withdrawal of the State s presence in large areas of the northern part of the country. The absence of the State s authority has fostered increased insecurity due to the presence of armed terrorist groups. However, the Malian authorities, with the support of the International Community, are progressively regaining control of the northern and central parts of Mali. Also, it is worth noting the return of the administration in the northern and central part of the country with the recent appointment of Prefects as well as the recent visit of the Prime Minister in all six regions affected by the security crisis. After recovering from a long period affected by the Ebola crisis, the security situation in Guinea has been generally stable. Civil unrest and crime are the predominant security threats especially in urban areas. There is a general discontent toward the local authorities from the local population especially the youth who want to see their socioeconomic situation improve, in particular, employment and the supply of water and electricity. Demonstrations are generally violent and seriously disrupt activities where they occur. These protests are generally located in Conakry and the mining areas such as Kamsar and Boke. Regarding the governance of the sector, there have been multiple changes of leadership at the level of the Ministry of Energy and Water and EDM SA, with notably four different managing directors for EDM SA within a two-year period, undermining the decision-making and leadership capacity in the sector. In Guinea, the utility has signed a performance contract with the Government and is being managed by a private operator under a management service contract (MSC). To date, the results of the performance contract are mixed compared to Government s expectations from the MSC. Mitigation measures: While it is difficult to mitigate the risk of future instability, the strong engagement of the WBG and other development partners in the sector of the two countries provides some level of comfort. A close supervision of the implementation of the MSC by the World Bank team, in addition to support provided under the Power Sector Recovery Project Additional Financing (P160771) to improve the utility s communication, should mitigate the risk of the MSC being terminated. However, should it be terminated, the World Bank will ensure that proper transitional measures are put in place to ensure a smooth transition. Technical assistance will also support the two countries in the negotiation of commercially sound power purchase and wheeling agreements, hence minimizing political interference Macroeconomic risk is rated Substantial. A significant increase in oil prices or a drop in the price of the main export commodities (gold in Mali and bauxite in Guinea) would negatively affect the countries current account balance and fiscal position. A negative climatic shock would aggravate food insecurity, raise social spending needs, and raise food inflation, particularly in Mali. This would ultimately significantly reduce GDP growth also in the nonagricultural sectors. Given the two countries limited fiscal buffers, such risks could affect budget execution. First this would affect domestically financed public investment, but if the shock is sufficiently severe, recurrent spending could also be affected. Page 39 of 129

45 Mitigation measures: Mali s fiscal situation and management remained sound during the previous crisis and should continue as such given the stabilizing effect of West African Economic and Monetary Union (WAEMU) membership and public FM reforms undertaken in recent years. Risks of contagion effects to the financial sector or to the balance of payments would continue to be moderate as the financial sector continues to be highly liquid and Mali benefits from the pooling of WAEMU foreign currency reserves to cover its balance of payments needs in bad times, including external debt service obligations Sector strategies and policies risk is rated High. There is a high risk that the Governments of the two countries reverse their commitment to foster cost-efficient energy trade through the project because of the difficult local social and political climate prevailing in the two countries and that could lead them to privilege their own sovereign needs. While regional trade is part of the two countries sector strategies, in practice, there is often a mismatch between the national development objectives of each country and the regional approach to generation capacity development which hinders the potential for cost-efficient trade. Furthermore, the ability of the Governments of both countries to reform the energy sector, and particularly, implement much-needed tariff increases, is dependent upon the local social and political climate and the quality of the electricity service provided by the utility. Mitigation measures: As a mitigation measure, a bilateral PPA will be negotiated with the technical assistance provided by the project and the ongoing assistance provided by the World Bank to WAPP well before the commissioning of the line. Eventually, within the lifetime of the project, WAPP will enable a day ahead spot market. On the other hand, the engagement of the WBG in the sector dialogue, particularly to help improve the technical and commercial performance of the utilities and hence lower its cost (by reducing losses) and improve its service, is a high-risk/high-reward initiative Institutional capacity for implementation and sustainability risk is rated High. The risk of insufficient institutional capacity to ensure the timely implementation and sustainability of the project is rated high as Guinea lacks experience with the implementation and operation of large-scale transmission line projects. In fact, there is no existing 225 kv transmission line in Guinea, whereas in Mali, EDM SA has developed and is now operating three 225 kv transmission lines within its territory. The project requires a significant amount of coordination between the two countries on project design, construction, and O&M to ensure smooth implementation and operation. Mitigation measures: Coordination is being ensured through WAPP with coordination meetings being organized on a regular basis by the WAPP Secretariat during the preparation phase. A Joint Implementation Steering Committee has been created by the two countries to guide the implementation of the project during the construction phase. A PIU has also been created in each country to implement the portion of the line in its territory and is currently being staffed. The PIUs will be reinforced with the technical assistance provided under the project Fiduciary risk is rated High. The overall fiduciary environment has substantial weaknesses with regard to the integrity of the procurement and FM systems of the two countries. Different procurement, FM, and project management capacities among the two countries could result in delays in the acquisition of key project commodities and lead to disjointed implementation of key project activities. Mitigation measures: Extensive technical assistance will be included in the project to build the capacity at different levels, particularly in procurement, FM, and M&E. The assistance will notably Page 40 of 129

46 help develop guidelines and standard documents, simplify processes, and train project implementation staff with the solutions approach, thus aligning technical and fiduciary requirements. Further discussion on fiduciary-related risks and their mitigation measures can be found in Annex Stakeholder is rated High. The project involves stakeholders in two countries, one regional entity (WAPP), and several donors, each with its own rules and procedures. There is therefore a risk that the implementation of the project could be slowed down or obstructed by one or more of these stakeholders. Mitigation measures: To mitigate the risks involved with the multiplicity of stakeholder, a proper communication plan for the project will be developed and implemented. Donors will also ensure close coordination of their procedures with the AfDB playing the role of lead donor Environmental and social risk is rated High. This is to reflect the project s transboundary coverage that spans 714 km between two neighboring countries (Guinea and Mali). In fact, several culturally, socially, and environmentally sensitive areas ranging from dense tropical forest to savannah, with various ecosystems, are expected to be negatively affected due to the 40 m (2x20m) wide ROW that is needed for the implementation of the transmission line throughout, at the exception of the vicinity of urban settlements around Bamako in Mali where a 60-meter (2x30m) wide ROW is used. More precisely, the existing studies show that several bird habitats as well as travel-paths may be threatened, several hundred hectares of forests and thousands of endemic trees are expected to be cleared, cultural and natural habitats may be negatively affected, and several families in both countries might need to be physically resettled and/or compensated with the likely impacts on their livelihood resources. Indeed, the risks and impacts, that vary depending on the socioecological zone, are foreseen to include land taking resulting or not in the loss of assets, eco-forestry services, and/or restriction to access to sources of livelihoods upon which most of these direct or indirect beneficiaries would rely upon. Mitigation measures: The project has taken adequate mitigation measures and provisions to address the concerns raised in these studies. Robust ESIA/ESMP and RAP reports have already been prepared by the Borrowers and thoroughly reviewed by the World Bank during the project preparation. Pursuant to the World Bank s feedback on these reports, they were revised and publicly disclosed both in-country and at the World Bank Infoshop. The countries have also committed to compensate all PAPs prior to starting any civil works. The institutional environmental and social safeguards capacity of the ESSU in the two PIUs as well as EDG and EDM SA will be strengthened to ensure that environmental and social concerns, as well as other corporate requirements (citizen engagement, GBV, GRM, vulnerability, and so on) raised in the studies and/or encountered during project implementation are fully complied with to IDA s satisfaction, and properly recorded in project documents Others - timely completion of power generation and transmission projects in Guinea and Mali, competitiveness of electricity price in Guinea, and ability to pay of the utility in Mali is rated High. For trade to effectively take place, Guinea should be able to generate enough power at a competitive price to supply electricity to Mali which should be able to pay and distribute the supplied electricity into its grid. In that regard, the timely completion of the following projects is important: ongoing power generation and transmission projects in Guinea, particularly the construction of the 450 MW Souapiti HPP and the associated transmission line between Linsan and Fomi; and the construction of the Sanankoroba substation, which is essential to distribute the electricity to the area of Bamako. Furthermore, the absence of a competitive procurement process for the development of new power generation projects in Guinea Page 41 of 129

47 may result in high generation costs, potentially leading to a high electricity tariff. At the same time, the main offtaker of the power traded through the project, the power utility in Mali, EDM SA, is in a precarious financial situation, undermined by high production costs as well as high technical and commercial losses. There are therefore concerns on EDM SA s ability to pay for the electricity traded through the project. Mitigation measures: With regard to the timely completion of power generation and transmission projects in Guinea, it should be noted that (a) the Souapiti Project, which is a priority flagship project for the GoG, is fully funded and its implementation is going on smoothly, ahead of schedule; and (b) the transmission line between Linsan and Fomi is at an advanced stage of development, with financing secured by the GoG from the ICBC. The line will be constructed by the CWE, the developer of the Kaleta and Souapiti hydropower plants who is already mobilized and will be commissioned in 2020 before the expected completion of the Souapiti HPP and Guinea-Mali Interconnection Project. However, should the construction of the Linsan-Fomi transmission line be delayed, the feasibility study demonstrated that between 150 MW and 230 MW of energy could still be supplied to the eastern part of Guinea and Mali with import from Côte d'ivoire and eventually other WAPP countries (through power injection into the Man substation and wheeling of that power to N Zerekore through the CLSG line) and/or Guinea (through power injection into the Linsan substation and wheeling of that power to N Zerekore through the CLSG line) once the WAPP electricity market is established. The risk of new generation projects not being competitive and leading to high electricity price is mitigated by the fact that Mali has exhausted its hydropower potential as well as its import capacity (the existing interconnection transmission lines, in particular, the one with Côte d Ivoire, are currently being used at full capacity) and can therefore only rely on solar and thermal. For instance, the average cost of thermal generation in Mali is US$0.23 per kwh, while it is expected that the average cost of the hydropower imported from Guinea would be around US$0.11 per kwh. Even if the cost of solar energy is dropping, that type of VRE must be complemented with conventional sources (such as the hydropower that will be imported from the project) to avoid curtailment. On the Malian side, should the construction of the Sanankoroba substation fall short of financing and/or experience cost overrun, the World Bank may consider, as a mitigation measure, providing additional financing to close any financial gap. On EDM SA s financial standing, the key mitigation measures include the following: (a) the GoM has prepared an ambitious program to improve the performance of EDM SA and the World Bank is considering financing part of that program with a new operation (P164735); (b) EDM SA is already importing electricity from Côte d Ivoire and there have been no major payment issues so far, partly because the price of imported electricity is much cheaper than EDM SA s marginal cost of producing electricity; (c) even though the financial responsibility for covering the cost of the transmission services will first reside with the utility EDM SA, the GoM, as the main shareholder of the utility, will ultimately be responsible for the repayment of the financing obtained from international donors that finance the implementation of the project and will ensure that EDM SA makes good on their obligations under the project; and (d) the World Bank is considering a mechanism for the securitization of payments to mitigate the risk related to payment defaults under WAPP. Page 42 of 129

48 RESULT_FRAME_T BL_ PD O The World Bank VI. RESULTS FRAMEWORK AND MONITORING Results Framework Project Development Objectives(s) The Project Development Objectives are to: (i) increase electricity supply to the Eastern part of Guinea; (ii) enable electricity trade between Guinea and Mali; and (iii) increase Guinea s electricity export capability towards other West African Power Pool countries. PDO Indicators by Objectives / Outcomes DLI CRI Unit of Measure Baseline End Target Energy supplied in the Eastern part of Guinea Energy supplied in the Eastern part of Guinea Enable electricity trade between Guinea and Mali Energy traded annually between Guinea and Mali Gigawatthour (GWh) Gigawatthour (GWh) Increase Guinea s electricity export capability towards other West African Power Pool countries Capacity added to Guinea s electricity export capability towards West African Power Pool countries Megawat t Page 43 of 129

49 RESULT_FRAME_T BL_ IO The World Bank Intermediate Results Indicators by Components DLI CRI Unit of Measure Baseline End Target Power Transmission Infrastructure Transmission lines constructed with IDA financing Kilometer s Number of substations constructed or extended with IDA financing Number Implementation Support and Capacity Building EDG professionals trained on 225kV HV line and HV/MV substations design and construction Number Percentage of woman professionals trained Percentag e EDM professionals trained on 225kV HV lines and HV/MV substations design and construction Number Percentage of woman professionals trained Mandatory Training for Contractors on Gender Based Violence Issues and Mitigation Grievences related to project delivery adressed/registered Percentag e Percentag e Percentag e Page 44 of 129

50 RESULT_FRAME_TBL_UL Indicators to be mapped DLI CRI Unit of Measure Baseline End Target PDO Indicators Energy supplied in the Eastern part of Guinea Energy traded annually between Guinea and Mali Capacity added to Guinea s electricity export capability towards West African Power Pool countries Gigawatthour (GWh) Gigawatthour (GWh) Megawatt Intermediate Outcome Indicators Transmission line constructed with non IDA financing Kilometers Number of sustations constructed or extended with non IDA financing Number Monitoring & Evaluation Plan: PDO Indicators Indicator Name Definition/Description Frequency Energy supplied in the Eastern part of Guinea Quantity of energy supplied to the Easter part of Guinea through the project measured for a full year of operation after the project's commercial operation date Annually Page 45 of 129

51 Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection EDG annual reports EDG annual reports EDG Energy traded annually between Guinea and Mali Quantity of energy flowing from Guinea to Mali through the project measured for a full year of operation after the project's commercial operation date. Annually EDG and EDM annual reports EDG and EDM annual reports EDG and EDM Capacity added to Guinea s electricity export capability towards West African Power Pool countries Capacity of the interconnection line used to export electricity to West African Power Pool Countries other than Mali Annually EDG annual reports EDG annual reports Page 46 of 129

52 Responsibility for Data Collection EDG Monitoring & Evaluation Plan: Intermediate Results Indicators Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Transmission lines constructed with IDA financing Length of the transmission line constructed under the project with IDA financing Annually Project monitoring reports EDG and EDM Number of substations constructed or extended with IDA financing Number of 225/33 kv substations constructed under the project with IDA financing Quarterly Project monitoring reports Project monitoring reports Page 47 of 129

53 Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection EDG and EDM EDG professionals trained on 225kV HV line and HV/MV substations design and construction Number of technical staff from EDG trained under the project Annually EDG annual reports EDG annual reports EDG Percentage of woman professionals trained Percentage of woman EDG professional staff trained on 225kV HV line and HV/MV substations design and construction Annually EDG annual reports EDG annual reports EDG Page 48 of 129

54 Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description EDM professionals trained on 225kV HV lines and HV/MV substations design and construction Number of technical staff from EDM trained under the project Annually EDM annual reports EDM annual reports EDM Percentage of woman professionals trained Percentage of woman EDM professional staff trained on 225kV HV line and HV/MV substations design and construction Annually EDM annual reports EDM annual reports EDM Mandatory Training for Contractors on Gender Based Violence Issues and Mitigation Percentage of Contractors who have completed a Mandatory Training on Gender Based Violence Issues and Mitigation Page 49 of 129

55 Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Indicator Name Definition/Description Frequency Data Source Methodology for Data Collection Responsibility for Data Collection Quarterly Project monitoring reports Project monitoring reports EDG and EDM Grievences related to project delivery adressed/registered Complaints resolved through Grievance Redress Mechanism Quarterly Project monitoring reports Project monitoring reports EDG and EDM Page 50 of 129

56 ANNEX 1: Implementation Arrangements and Support Plan COUNTRY : Western Africa Guinea Mali Interconnection Project Strategy and Approach for Implementation Support 1. The strategy for implementation support has been developed based on the nature and risk profile of the proposed project. It aims to make implementation support to the Client more flexible and efficient and, it will focus on the implementation of risk mitigation measures defined in the Systematic Operations Risk-rating Tool. 2. Technical aspects of implementation (including the preparation of bidding documents and the implementation of safeguards mitigation measures) will be handled by the two PIUs created within the two utilities, EDG and EDM SA. They will be responsible for carrying out the fiduciary aspects of the project including procurement, FM, as well as M&E, and monitoring of the implementation of safeguards mitigation measures throughout the project s life cycle. One/Two missions a year at an interval of six months, are envisaged for the supervision of the proposed project. 3. Procurement. Implementation for procurement will include: (a) providing training to EDG and EDM SA staff; (b) reviewing procurement documents and providing timely feedback to the Client; (c) providing detailed guidance on the World Bank s Procurement Guidelines to procurement specialists who are responsible for preparing procurement documents; and (d) monitoring procurement progress against the Procurement Plan, which will be updated as required to reflect project implementation needs and improvements in institutional capacity. 4. Financial management. The team will review the project s FM system including, but not limited to, accounting, reporting, and internal controls. The World Bank team will also work with EDG and EDM SA in improving FM and reporting. The FM implementation support missions will be consistent with a riskbased approach and will involve a collaborative approach between the Client and the entire World Bank task team. 5. A first implementation support mission will be performed six months after board approval. Subsequently, missions will be conducted with a risk-based approach and will include the following due diligence: (a) Monitoring of FM arrangements during the supervision process at intervals determined by the risk rating assigned to the overall FM assessment at entry and, subsequently, during implementation (in Implementation Status and Results Reports). (b) Integrated fiduciary review on key contracts. (c) Review of Intermediate Financial Reports (IFRs). Page 51 of 129

57 (d) Review of audit reports and Management Letters from the external auditors and follow-up on material accountability issues by engaging with the task team leader, the client, and/or auditors; the quality of the audit (internal and external) will also be monitored closely to ensure that it covers all relevant aspects and provides enough confidence on the appropriate use of funds by Recipients. (e) (f) Physical supervision on the ground. Assistance to build or maintain appropriate FM capacity. 6. Environmental and social safeguards. The technical capacity of the existing ESSU in each utility, comprised of one full time environmental safeguards specialist and one full time social safeguards specialist with experience in gender, will be strengthened to support the implementation of safeguards mitigation measures. Both environmental and social safeguards specialists in each PIU will be supported by an experienced international senior social and environmental safeguards specialist during a three-year period. The senior specialist will strengthen the expertise of the two other ESSU staff and develop, build and foster their in-house technical capacity on safeguards. The ESSU in each PIU will work in tandem and closely with the national environmental agency of their respective country (i.e. Bureau Guinéen d'evaluation Environnementale - BGEEs at the Ministry of Environment, Waters and Forests in Guinea, and DNACPN at the Ministry of Environment, Sanitation and Sustainable Development in Mali) and the World Bank safeguards specialists to ensure that environmental and social safeguards risks and impacts are properly managed and that the World Bank s policies in that regard are complied with throughout project implementation (construction, operationalization and monitoring phases). Throughout the life of the project, the World Bank team, in its lead-role among donors on the project s overall safeguards performance, will provide guidance to both EDG and EDM SA to address any safeguards issues that may arise. Implementation Support Plan and Resource Requirements 7. The World Bank team members will be based both at the headquarters and in the field to ensure timely, efficient, and effective implementation support to the client. Formal missions and field visits will be carried out at least twice a year. 8. Technical inputs. Technical knowledge of power generation, transmission, and energy access are required for proper assessment of technical specifications and other aspects of bids and contracts. During project implementation, technical supervision is required to ensure contractual obligations are met. The World Bank s project team will conduct site visits to project sites on a regular basis throughout the duration of the project. 9. Fiduciary requirements and inputs. The World Bank project team will help EDG and EDM SA identify its capacity-building needs to strengthen its project FM capacity and improve procurement management efficiency. The World Bank s regular FM and procurement supervision missions will provide timely advice on budget planning and related matters. EDG and EDM SA will be responsible for the timely compilation of the annual project financial statements for the independent external audit. Project financial statements will be audited by an independent auditor acceptable to the World Bank. Page 52 of 129

58 10. Audit. The team will continue its diligent attention to the timing of audit report preparation to ensure that audit reports are prepared and submitted on time. External auditors are expected to identify any internal control deficiencies and accounting issues. Audit reports, audited financial statements, and Management Letters will be delivered to the World Bank within six months of the end of each fiscal year. At mid-term revue and six months prior to project closure, or whenever deemed necessary, the social and environmental safeguards team will commission an audit report to assess the project s safeguards performance. 11. Monitoring and evaluation. The M&E system will be based on the agreed Results Framework (Section VI). EDG and EDM SA will be responsible for furnishing the required quarterly implementation progress status reports and elaborate an M&E Manual that will guide M&E activities. Project-specific data will be collected by EDG and EDM SA. It is expected that the project will build the capacities of staff so that they can adequately lead M&E activities. Table 1.1. Implementation Support Plan Time Focus Skills Needed Resource Estimate Technical review, US$250,000 FM/procurement system First 12 months months Implementation of environmental and social safeguards Technical supervision Procurement and FM supervision Technical and FM/procurement expertise Safeguards Power engineering Procurement/FM US$700,000 Partner Role Coordination will take place with other SOGEM partners. Coordination will take place with other SOGEM partners. Safeguards supervision M&E supervision Safeguards M&E Table 1.2. Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments Power Engineer Social Environmental Economic/Financial Analysts Monitoring Procurement FM Energy Specialist Task Team Leader 7 10 weeks per year across the team Local staff Local staff Local staff 2 per year 1 per year Local staff Local staff 2 per year 2 per year To be adjusted annually Page 53 of 129

59 ANNEX 2: Detailed Project Description COUNTRY: Western Africa Guinea Mali Interconnection Project 1. ECOWAS includes 15 countries, of which 14 are located on the continent, and of which the total population was estimated at 260 million. This population is very unequally distributed inside this economic space. The growth rate of the urban population (3.81 percent/year) is higher than that of the global population of the area. The main energy resources available to West Africa (hydro-electricity, oil, natural gas, coal and renewable sources) are also unequally distributed across the region. 2. The WAPP, which is a specialized institution of ECOWAS, constitutes the institutional framework of the regional electric system. The strategic objective of WAPP is based on a dynamic vision of the integration of the operation of the national electricity networks in a unified regional market. This unified regional market should make it possible to ensure in the medium and long term an optimal electricity supply, that is reliable and at an affordable cost to the population of the various member states. The WAPP grid covers two geographical zones A and B: The countries of zone A (Nigeria, Niger, Benin, Togo, Burkina Faso, Ghana, and Côte d Ivoire) are already connected by power interconnections. Among the countries of zone B (Mali, Liberia, Guinea, Sierra Leone, Guinea Bissau, Senegal and The Gambia), only Senegal and Mali are already interconnected with the OMVS Network. 3. Rationale for a regional project. The Guinea-Mali interconnection project, along with the Linsan Fomi transmission line, is one of the priority projects identified in the 2011 Master Plan of the ECOWAS to establish cross-border transmission capacity. The project is also part of the WAPP infrastructure investment pipeline projects for the creation of a regional power pool in West Africa. It is conceived to evacuate the production of the future hydroelectric plants in Guinea, notably Souapiti (450 MW), as well as from other WAPP countries once the WAPP electricity market is established. These transmission lines will not only allow the interconnection of Guinea and Mali, but also the interconnection between the Member States of the zones A and B of WAPP with three other 225 kv interconnection projects under construction: OMVG, CLSG, and the OMVS Kayes-Tambacounda. The OMVG project includes the 225 kv interconnection loop between Guinea, Senegal, Guinea-Bissau and The Gambia. This line will allow to share the hydroelectric production of the existing and future sites of Kaléta and Souapiti in Guinea and others hydro projects under feasibility stage (Amaria and Fomi); The CLSG project includes the 225 kv interconnection line between Côte d Ivoire - Liberia - Sierra Leone Guinea. This line will allow sharing the hydroelectric production of the existing sites of Mount Coffee in Liberia and Yiben, Bumbuna, and Bikongor in Sierra Leone and other hydro projects under feasibility stage (Saint Paul River); and Page 54 of 129

60 The OMVS Kayes-Tambacounda will connect Senegal s network with the OMVG and OMVS networks. 4. The 225 kv regional grid is undergoing an important change for the creation of the regional power pool, with more than 4,000 km of the line under construction. The regional nature of the project is expected to establish cross-border transmission capacity between the countries of ECOWAS / WAPP and also creates enabling conditions for domestic access expansion in Guinea. 5. The Guinea-Mali Interconnection Project aims to connect Guinea and Mali using a 714 km long high voltage 225 kv transmission line between the Sanankoroba substation in Mali to the N'Zérékoré substation in Guinea and enable energy trade between those two countries (see map in Annex 6). The project will also connect to: the CLSG system through the future N Zérékoré substation in Guinea (to be constructed under the CLSG Power System Re-Development Project and reinforced under the project); the OMVS system through the Sanankoroba substation in Mali (to be reinforced under the project); and the OMVG system through the future Fomi substation (to be constructed under the project) and the future Linsan-Fomi line in Guinea (to be constructed by the Guinean Government with secured financing from China the Linsan substation will be constructed under the CLSG Power System Re-Development Project). This network interconnecting with the three ongoing projects will enhance energy trade among the involved WAPP countries: Mali, Guinea, Côte d Ivoire, Liberia, Sierra Leone, The Gambia, Guinea Bissau and Senegal. 6. The Guinea-Mali Interconnection Project, the CLSG Power System Re-Development Project and the Linsa-Fomi line will together contribute to increase the: (i) regional energy trade: regional integration creates economies of scale, permitting for lower costs across all aspects of infrastructure including for power; (ii) integration of Renewable Energy in Guinea and Mali: expanding the transmission network to areas with high renewable energy potential, as it is the case for the areas being crossed by this transmission line (where there is significant solar potential), will facilitate the integration of VRE into the two countries power systems. 7. The connection of the Guinea-Mali project with the CLSG line at N'zérékoré and the connection of CLSG and OMVG at Linsan is also of great interest and will enable Guinea to increase its electricity export capability to other WAPP countries through OMVS and CLSG. The ongoing and future 225 kv interconnection projects will ensure that all WAPP countries are interconnected by 2022 and the regional system will be sufficient to meet the medium-term regional transmission needs with a regional power trade. According to estimates, cross-regional collaboration could reduce electricity costs in Africa by US$2 billion per year. 8. In addition to building Guinea s transmission interconnection infrastructure allowing the evacuation of the existing and future hydroelectric plants of Guinea, the proposed project will support WAPP s ability to set up a power market platform to scale-up power trade opportunities within the WAPP regions and strengthen its ability to optimize regional trade and the share of hydro generated energy between the WAPP countries once the countries will be interconnected and synchronized. The consultant who prepared the feasibility study for the Guinea-Mali Interconnection Project carried out various simulations to ensure that the design of the line could sustain the impacts of unforeseen events (N-1 contingencies, short-circuits, loss of synchronism, and so on) that could lead to instability in the two countries grid and other interconnected networks (OMVG, CLSG and OMVS). For instance, the transient Page 55 of 129

61 stability analysis showed that for three-phase short-circuits located at realistic locations of the network and of typical duration, the stability of the grid is preserved and there is no loss of synchronism. 9. The conclusions of these simulations informed the design of the line as follows: (a) To ensure safe behavior on an N-1 event: the line is designed to be double circuit for all sections; (b) To ensure moderate electrical losses: the line is equipped with one 570 mm² Almélec conductor per phase; and (c) To ensure the proper functioning of all the networks, the line is designed to have some compensation / reactance equipment installed in the substations along the line route. 10. The equipment indicated in Table 2.1 will maintain the voltage and avoid overloads on certain components of the network including in particular the: (a) variable "busbar" reactance with steps at the substations of the line; (b) the inductive - capacitive SVC at the Fomi substation; and (c) the line reactance at the Sanankoroba substation. Table 2.1: Synchronization Equipment Compensation SVC (MVAr) 35 / 70 Sanankoroba Fomi Kankan Kérouané Beyla N Zérékoré Bus Bar Reactance (MVAr) Line Reactance (MVAr) The synchronization of the WAPP countries has been analyzed in the Guinea Power System Re- Development project and the studies have identified the actions needed to reinforce the networks and adapt its operational rules as stated in the WAPP Operation Manual to be undertaken to allow a synchronized operation of all existing WAPP interconnected countries, including CLSG and OMVG among others. The Guinea-Mali interconnection was not taken into account in this analysis because the study has considered only the period However, the World Bank has requested WAPP and the dedicated technical working group to update the analysis taking into consideration the Guinea-Mali interconnection. This updated analysis will confirm whether the equipment mentioned in Table 2.1 is sufficient and properly sized. 12. The Guinea-Mali Interconnection Project with connections to CLSG (through the Nzerekore substation) and OMVG (through the Linsan-Fomi line) will also expand the mesh of the 225 kv high voltage regional network and thus improve the stability and quality of service in the national and regional networks. These infrastructures will contribute to increase the integration of VRE, mostly wind and solar photovoltaic, in the area with access to the spinning reserve of the different hydropower plants. The new ability of the regional interconnected network for frequency regulations will reduce the risk of VRE curtailment and load shedding. 13. The consultant who prepared the feasibility studies for the Guinea-Mali Interconnection Project carried out a detailed network study with different connections to the Linsan-Fomi line and CLSG and OMVG networks. The hydropower plants of Kaleta (existing) and Souapiti (future) will feed the OMVG and Page 56 of 129

62 CLSG networks at the Linsan substation that will also be connected to the Guinea-Mali interconnection through the Linsan Fomi line. The technical analysis of the network aimed to: Determine the necessary compensation and network reinforcement needed for the proper functioning of the Guinean, Malian and Ivorian grids, taking into account the networks of neighboring WAPP countries and the CLSG interconnection; Determine the sections of line that are necessary for Guinea to export to Mali in normal operation and n-1 contingencies; Determine the maximum possible transits from Guinea to Mali during the period of the study (until 2035); Determine possible transits to Mali from the CLSG system; Check the possible interest of a two-conductor bundle circuit for the line; Analyze the adequacy of installed circuit breakers in the face of changes in short-circuit currents due in particular to the development of hydropower plants in Guinea; and Check the transient stability. 14. Simulations were conducted without the Linsan-Fomi line. The purpose of those simulations was to examine whether without the Linsan Fomi line, the demand from the eastern part of Guinea and Mali could be met from the CLSG system in the short term. Two scenarios were envisaged, as follows: Scenario A- Feeding of the Guinea-Mali interconnection line from the eastern part of the CLSG (imports from Côte d'ivoire only through the Nzérékoré substation); and Scenario B- Feeding of the Guinea-Mali interconnection line from the eastern (imports from Côte d'ivoire through the Nzérékoré substation) and western part of the CLSG (from Guinea through the Linsan substation). 15. In the two scenarios, the power flow on the Guinea-Mali interconnection line will be between 97 MW and 266 MW as indicated in Table 2.2 (columns Scenario A and Scenario B). Table 2.2: Power Flow in the Guinea-Mali Interconnection Line in the Absence of the Linsan-Fomi Line CLSG Substation A Substation B Number of Circuits Transit (MW) Transit (MW) Scenario A Buchanan Yekepa Scenario B Reactance Susbtation A (MVar) Man Yekepa Yekepa Nzerekore Reactance Line Guinea- Nzerekore Beyla (MVar) Page 57 of 129

63 Mali Intercon nector Beyla Kerouane Kerouane Kankan Kankan Fomi Fomi Siguiri Siguiri Sanankoroba Sanankoroba 2 2x In conclusion, the results shown in Table 2.2 confirm that the demand from the eastern part of Guinea and Mali may be satisfied by the CLSG system with power exports from Côte d'ivoire or/and Guinea. Adequate reactance equipment will however need to be installed in the substations along the line route to maintain adequate voltage levels. The World Bank will consider financing the reactance equipment should the Linsan-Fomi line not be implemented on time. 17. The consultant in charge of preparing the feasibility study for the development of the Souapiti hydropower plant had also carried out various simulations on the network to ensure that the evacuation of the power would be possible in the absence of the Linsan-Fomi line. The simulations assumed that the Linsan-Fomi line would not be completed in 2021 when Souapiti is commissioned. These simulations confirmed that the evacuation of the power from Kaléta and Souapiti hydropower plants is still possible, even in the absence of the Linsan-Fomi line. In that case, 180 MW need to be evacuated on the Boké- Salthino section (to Guinea-Bissau through OMVG), 180 MW on the Sambangalou-Tambacounda section (to Senegal through OMVG), 160 MW on the Linsan-Kamakwie section (to Sierra Leone through CLSG) and the balance to the other localities in Guinea and in Conakry. According to the results of the simulations, the thermal limits of the lines are not reached and the network can work properly. If these neighboring countries are ready to absorb this amount of energy as soon as Souapiti is commissioned in 2021 (which is the case according to the demand forecasts of these countries), this scenario is viable. 18. In Mali, the projects listed in the Table 2.3 are planned in the short to medium term to reinforce the Malian system. The 225 kv Sikasso Bougouni Sanankoroba-Bamako project will finance the construction of the 225 kv Sanankoroba substation. The Bamako 225 kv transmission ring project will finance the construction of four new 225/30 kv substations (Kodialani, Kati, Dialakorodji and Dialakorobougou) and the associated 225 kv transmission lines, which is crucial to evacuate the power imported from the Guinea-Mali interconnection in the Malian grid, in particular towards the capital city Bamako. The transmission ring will indeed create four infeed points for the power imported from the Guinea-Mali interconnection to the rest of the Malian network. The 225 kv Manantali-Kati transmission line, which is part of the OMVS network expansion program, is being implemented by SOGEM with financing from AFD. Table 2.3: Malian System Reinforcement in the Short Term No. Project Funding Timeline 1 Sikasso Bougouni Sanankoroba Project Sanankoroba Substation 225 kv (400 km) Double ciruit 225 kv Sikasso Bougouni Sanankoroba-Bamako Exim Bank India (US$94 million) ECOWAS Bank for Investment and Development (EBID) (US$47 million) 2020 Page 58 of 129

64 2 Bamako 225 kv transmission ring + substations 2a Kodialani - Kati (27 km) Studies funded by AFD b Kati - Dialakorodji (18 km) Studies funded by AFD c Dialakorodji - Dialakorobougou (43 km) Studies funded by AFD d Dialakorobougou - Sanankoroba (25 km) Studies funded by AFD f Sanankoroba Kodialani (40 km) Studies funded by AFD OMVS Connection 225 kv Manantali Kati (300 km) AFD 2021 Design and Technical Specifications 19. The 225 kv transmission line, approximately 714 km long, will run from the Sanankoroba substation in Mali to the N'Zérékoré substation in Guinea. It will be composed of: two circuits with Almelec 570 conductor; one two steel conductors as classical groundwire; and one OPGW with 24 pairs of fiber optic cable. Beyond the support of the tele-protection, remote control, and tele-control of the electrical network, the optic fiber will contribute to the development of the public telecommunication network as part of the spare capacity will be commercialized. Indeed, some optic fibers could be leased to telecoms operators, who are in much need of additional capacity as their customer base expands very quickly. The project will support the commercialization of those optic fibers to telecoms operators. 20. The double circuit towers will be of the lattice type, with conductors arranged in two vertical planes ("Double Flag" armament). The choice of the number and type (suspension, angle, and dead end) of tower types will be made on a conventional basis according to the approved final line routing during detailed studies that will be undertaken by the contractors. To reduce voltage and current asymmetry during normal operation, phase transpositions phase shall be provided. The interconnection is divided into seven lines sections. Table 2.4 below shows the lengths of each of the sections. SECTIONS Table 2.4. Lines Sections Sanankoroba Border Guinéa-Mali 125,6 Mali Length (km) Border Guinéa-Mali Siguiri 53,7 Guinea Siguiri Fomi 135,5 Fomi Kankan 43,3 Kankan Kérouané 144,3 Kérouané Beyla 85,2 Beyla N Zérékoré 126,0 Length by country 125,6 588,0 Total Length 713,6 21. The main objective of the Guinea-Mali Interconnector is to enable electricity trade between Guinea and Mali with the anticipated additional hydropower in Guinea. In the feasibility study, the consultant carried out a technical-economical comparison for the choice of the conductor (type ACSR or aluminum alloy AAAC). The conclusions of this analysis have suggested an Almelec 570 for the project. The ampacity of this conductor is around 1,000 A that will allow to (a) transfer a maximum design power Page 59 of 129

65 at 225 kv nominal voltage in normal condition and in cases of emergency on one circuit where there is a double circuit system; and (b) provide satisfactory safety to the line (considering the loads from wind pressure). The power wheeling capacity of the line was established at around 800 MW in normal condition and 400 MW for N-1 criteria and therefore this configuration offers a better transit reserve for eventual future expansions considering a certain transmission capacity reserve. The actual simulations show that Guinea will feed the interconnector with at least 150 MW in 2022 reaching 300 MW in The project requires the extension (two new line bays 225 kv) in the following substations: (a) Sanankoroba substation, built as part of the 225 kv Sikasso-Bougouni-Sanankoroba-Bamako Project; and (b) N'Zérékoré, to be built as part of the CLSG Power System Re-Development Project. The project also involves the engineering and construction of five 225/33 kv substations in Siguiri, Fomi, Kankan, Kérouané and Beyla. These substations will be connected to the existing networks with required extension adaptation in the National Dispatch Centers. These 225/33 kv substations will allow the development of rural electrification in the regions crossed by the line. The scope of works in each substation is summarized in Table 2.5. AIS 225 kv Table 2.5. Lines Sections Sanankoroba Siguiri Fomi Kankan Kérouané Beyla N Zérékoré Bus Bar 225 kv Extension 1 Double Bus Bar Extension 225 kv 1 Simple Bus Bar 225 kv Double Bus Bar 225 kv Coupling Bay «JdB 225 kv» Line Bay 225 kv Spare Line Bay 225 kv Transformer Bay 225/33 kv 40 MVA Transformer Bay 225/33 kv 20 MVA Transformer Bay 225/33 kv non- equipped 1 Compensation SVC (MVAr) 35 / 70 Bus Bar Reactance (MVAr) Line Reactance (MVAr) 25 INTERIOR SUBSTATION Bus Bar 33 kv Coupling Bay Incoming Transformer Bay Metering Bay Outgoing MV Line Bay Urban Outgoing MV Line Bay Rural Spare Bay Auxiliary Transformer Bay Auxiliary Transformer 250 kva Diesel Generator Set Page 60 of 129

66 Detailed Project Cost 23. The total project cost in both countries is detailed in Table 2.6. Table 2.6. Total Project Cost GUINEE + MALI (USD) AfDB IsDB EBID EIB WADB IDA EU Government Government Total Mali Guinea Component 1: Power Transmission Infrastructure Sub-component 1-A: Construction of the Transmission Interconnector Sub-component 1-B: Implementation of the ESMPs and RAPs 48,478,138 86,545,853 44,188,849 47,400,549 31,992,214 71,806, ,370,220 12,071, ,853,270 48,478,138 86,545,853 44,188,849 47,400,549 29,031,590 61,636, ,281, ,960,624 10,169, ,370,220 12,071,220 26,571,674 Component 2: Implementation Support and Capacity Building 9,939, , ,117,948 12,193,772 13,522, ,991,947 Sub-component 2-A : Implementation Support 9,939, ,308 5,473,500 13,522, ,834,397 Sub-component 2-B Capacity Building 0 218, ,639 5,220, ,657,551 Sub-component 2-C : Trade Facilitation ,500, ,500,000 Total in USD 58,417,297 86,764,492 44,188,849 47,400,549 33,110,162 84,000,000 13,522,429 1,370,220 12,071, ,845, The project cost in Guinea is detailed in Table 2.7. Table 2.7. Project Cost in Guinea GUINEE (USD) AfDB IsDB EBID EIB WADB IDA EU Government Government Total Mali Guinea Component 1: Power Transmission Infrastructure 34,543,383 86,545,853 44,188,849 47,400, ,440, ,071, ,190,025 Sub-component 1-A: Construction of the Transmission Interconnector Sub-component 1-B: Implementation of the ESMPs and RAPs Component 2: Implementation Support and Capacity Building 34,543,383 86,545,853 44,188,849 47,400, ,270, ,949, ,169, ,071,220 22,240,830 4,969, , ,559,829 12,131, ,879,838 Sub-component 2-A : Implementation Support 4,969, ,812,375 12,131, ,913,745 Sub-component 2-B Capacity Building 0 218, ,997, ,216,093 Sub-component 2-C : Trade Facilitation , ,000 Total in USD 39,512,963 86,764,492 44,188,849 47,400, ,000,000 12,131, ,071, ,069, The project cost in Mali is detailed in Table 2.8. Page 61 of 129

67 Table 2.8. Project Cost in Mali MALI (USD) Component 1: Power Transmission Infrastructure Sub-component 1-A: Construction of the Transmission Interconnector Sub-component 1-B: Implementation of the ESMPs and RAPs Component 2: Implementation Support and Capacity Building AfDB IsDB EBID EIB WADB IDA EU Government Mali Government Guinea 13,934, ,992,214 7,366, ,370, ,663,246 13,934, ,031,590 7,366, ,332, ,960, ,370, ,330,844 4,969, ,117,948 1,633,943 1,390, ,112,109 Total Sub-component 2-A : Implementation Support 4,969, , ,125 1,390, ,920,652 Sub-component 2-B Capacity Building , , ,457 Sub-component 2-C : Trade Facilitation , ,000 Total in USD 18,904, ,110,162 9,000,000 1,390,639 1,370, ,775,355 Page 62 of 129

68 26. The Sub-component 1-A: Construction of the Transmission Interconnector will finance the construction of the 714 km 225 kv double circuit transmission line from N Zérékoré in Guinea to Sanankoroba in Mali as well as the construction of five substations in Guinea (Fomi, Beyla, Kankan, Kerouane, Siguiri) and the extension in one substation in Guinea (N Zérékoré, planned to be built under the CLSG Power System Re-Development Project) as well as the extension in one substation in Mali (Sanankoroba). This sub-component includes also for the substations: (a) the SCADA/telecommunication equipment; and (b) the compensation equipment (Reactance, Capacitor Bank and SVC). IDA financing will finance the construction of (a) 54 km of 225 kv transmission line between the Guinea-Mali border and Siguiri in Guinea; (b) the extension in Sanankoroba in Mali; and (c) the three 225/33 kv substations Siguiri, Kankan and Kerouane in Guinea. Benchmarking of Transmission Lines and Substations Cost 27. The cost estimates for the transmission lines and substations, based on the feasibility study prepared in November 2015 by the consultant INTEC-LAHMEYER, were updated during the project appraisal. To do so, the team examined a sample of transmission line projects undertaken over the last two decades in Sub-Saharan Africa and used the OMVG and CLSG projects as benchmark to estimate the cost of the substations. The team also used the Cost Benchmark Tool (CBT) developed by Fichtner and financed by the World Bank. The CBT is a cost estimation tool for alternating current high-voltage overhead transmission lines with voltages of 66 kv and above. This benchmark tool was developed with reference to project costs derived for typical transmission line projects. 28. The results of the benchmarking and CBT are presented thus: Substation: o o The average bidding cost for a 225/30 kv substation is around US$9.4 million (Table 2.9). The cost will depend mainly on the scope of works and technical specifications such as rating of transformers, number of High and Medium voltage bays and compensation equipment. However, in the specific case of this project, the difficult access to the site for the delivery of the substation s equipment could be an important driver that could lead to an increase in the price of around 12 percent (US$10.5 million). Transmission Line: o o The average bidding cost for a 225kV Transmission Line is around US$0.243 million per km (Table 2.10). The cost per km will depend on various input parameters such as the location factors. The cost is very sensitive to the easiness of access to the line route (existing road, forest area, and accessibility from port area), the characteristics of the line routing and profile (winding routing, and hilly terrain) and the quality of the soil. The team used the CBT to assess the impact of these parameters on the cost estimates. However, in the Page 63 of 129

69 specific case of this project, the difficult access to the site has driven the cost higher to around US$0.286 million per km (Table 2.11). The standard case was also simulated and resulted in a cost estimate of US$0.248 million, which is very close to the average value of US$0.243 million derived from the benchmarking, which confirms the adequacy of the CBT. 29. The updated cost estimate for the transmission lines and substations being financed by IDA (Table 2.11), presented below, are consistent with the results of the benchmarking and CBT for 225 kv transmission lines (US$0.248 million/km) and 225/33 kv substations (US$9.4 million) in West Africa. These cost estimates were adapted to the context of the project characterized by difficult access to the sites and a complex line routing and were confirmed as reasonable and competitive. Page 64 of 129

70 Substation Lot P1 : KAOLACK, TAMBACOUNDA, SAMBANGALOU et TANAFF Lot P3: BISSAU, MANSOA, BAMBADINCA ET SALTHINO LOT P4-A KALÉTA et BOKÉ Lot 1 SS-EIB: KENEMA, BIKOMGOR, BUMBUNA Lot 2 SS-KfW : YEKEPA, BUCHANAN, MONROVIA, MANO Table 2.9. Benchmarking of the Substation Cost Description OMVG 225 kv 225/33 kv - Single Bus Bar Transformer 25 MVA + Compensation Equipment 225/33 kv - Single Bus Bar Transformer 25 MVA + Compensation Equipment 225/33 kv - Single Bus Bar Transformer 25 MVA + Compensation Equipment CLSG 225 kv 225/33 kv - Double Bus Bar Transformer 40MVA + Compensation Equipment 225/33 kv - Double Bus Bar Transformer 40MVA + Compensation Equipment Average Cost Contract Price M.USD Contractor Year Average Price per substation M.USD 35.4 KEC EIFFAGE/ ELECNOR EIFFAGE/ ELECNOR JV SIEYUAN/NEIE JV SIEYUAN/NEIE Table Benchmarking of the Transmission Line Cost # Project Title Length Harmonized USD Price Project Year Bid Cost per km (US$) 1 Ethopia Sudan Interconnection ,868, ,169 2 Construction du réseau de transport d'énergie associe à la Centrale d Imboulou ,077, ,531 3 Nkeda Hoima Transmission Line Project ,981, ,670 4 Energy Sector Development ,000, , Marché 3 Ligne aérienne 220 kv Fungurume Kasumbalesa 280MW LOT C OLKARIA SUSWA TRANSMISSION LINES ,455, , ,741, ,735 7 Rabai Malindi Garsen Lamu T. line Project ,678, ,484 8 OLKARIA LESSOS KISUMU TRANSMISSION LINES LOT 2 (LESSOS KISUMU) 73 19,579, ,210 9 LOT 1: Kawanda Masaka 220kV Transmission line ,032, , CLSG Double Circuit TL WB-EIB 04 / Lot $54,002, , CLSG Double Circuit: TL WB-EIB 04 / Lot $53,567, , CLSG Double Circuit: TL WB-EIB 04 / Lot $43,871, , CLSG Double Circuit: TL WB-EIB 04 / Lot $44,392, , CLSG Double Circuit: TL AfDB 01 / Lot $38,027, ,871 AVERAGE COST 242,534 Page 65 of 129

71 Table Results of the Cost Benchmark Tool (CBT) Standard Case = US$0.248 Million per km Specific Case = US$0.286 Million per km 30. The cost estimated includes a 10 percent contingency provision that covers the following eventual extra costs: (a) unit price variations for steel, transformer, compensation and other equipment; (b) finalization of the line routing after route alignment survey by the contractor; (c) modification of the scope of works of the contractor due to the final line routing (deviation, number and type of tower/foundation); (d) price adjustments as a result of potential delays in the effectiveness of the contract; and (e) others unforeseen events (special foundation design after soil investigation for example). The total benchmarked project cost is presented in Table Table Total Benchmarked Project Cost Packages Budget Contract Contingencies ( M (US$ M) (US$ M) ±10% (US$ Comments Substation and Transmission Lines Guinea Lot Substation SIGURI KANKAN Transformer 40 MVA, MV line bays, compensation equipment KEROUANE Compensation equipment Lot Transmission Line SIGURI-Frontiere Mali-Guinee (53,7 km) Cost/km = 0,286 M$/km due to difficult access, hilly terrain and winding line routing Substation Mali SANANKOROBA Extension of existing substation Page 66 of 129

72 ANNEX 3: Project Implementation Arrangements COUNTRY : Western Africa Guinea Mali Interconnection Project Project Institutional and Implementation Arrangements 1. In each country, the Ministry in charge of Energy, through its National Directorate for Energy, will be responsible for overseeing the overall implementation of the project. The Directorates will delegate the implementation of the project to two PIUs hosted in the two national utility companies, EDG and EDM SA. A joint implementation steering committee has also been created to guide and coordinate the implementation of the project during the construction phase, from procurement activities to the supervision of works and management of the project resources, as well as the smooth commissioning and handing over of the resulting facilities to the respective national utilities who will own the respective portions of the line in its territory and be responsible for its O&M. Joint Implementation Steering Committee 2. The duties of the Joint Implementation Steering Committee include the following: Guide and coordinate the project stakeholders in carrying out the studies and works related to the construction of the interconnection line and related substations; Guide and coordinate the work of the project participants to take into account the other interconnection projects underway in the West African countries and included in the WAPP Master Plan; Supervise and coordinate the activities of the PIUs in the two countries; Resolve any issues / disagreements arising between the PIUs; and Prepare the transition to the operation phase. 3. The Joint Implementation Steering Committee is composed of 12 members as follows: Representatives from Guinea: The National Director for Energy or his representative; The Managing Director of the Administration et Contrôle des Grands Projets et Marchés Publics (Procurement Control Body for Large Projects, ACGPMP) or his/her representative; The National Director for Public Investments or his/her representative; The Managing Director of the BGEEE or his/her representative; and Page 67 of 129

73 The Managing Director of EDG or his/her representative. Representatives from Mali: The National Director for Energy or his/her representative; The National Director for DNACPN or his/her representative; The National Director for Development Planning or his/her representative; The Managing Director of the Public Debt or his/her representative; and The Managing Director of EDM SA or his/her representative. Representative from the WAPP Secretariat: The General Secretary of the WAPP or his/her representative. Representative from the Owner s Engineer: The overall project coordinator or his/her representative. Project Implementation Units 4. The duties of the PIUs include the following: Ensure the supervision and regular monitoring of the various activities of the project. Coordinate the activities of the various stakeholders, including consultants, works contractors, manufacturers, freight forwarders, installers, and providers of control services and all public services involved in the studies and works of the project. Approve all project documents. Facilitate, for the various stakeholders, contacts, field visits and access to all information and documentation available and necessary for carrying out the studies and works of the project. Ensure that the execution of the tasks is carried out according to the established project implementation schedule. Draft progress and completion reports for the project. Prepare a PIM, including administrative, procurement and FM aspects. Page 68 of 129

74 Participate in the preparation and analysis of tenders, the negotiation and drafting of contracts, in compliance with the national legislation applicable to public procurement as well as the World Bank s procurement guidelines. Ensure the coherence of technical specifications and contracts. Keep an analytical accounting of the project and ensure the transfer of information as needed. Prepare monthly, quarterly, annual and completion reports that include technical, accounting and FM components. Organize and declare the provisional and final reception of the interconnection works. Prepare the transition to the operation phase. Prepare for and participate (as secretary) in the joint implementation steering committee meetings. 5. The PIUs act as technical advisor to the joint implementation steering committee to which they regularly report progress by producing monthly, quarterly and annual reports and minutes of meetings. For Guinea 6. For the PIU in Guinea, in addition to the staff to be nominated / recruited locally, it is planned to recruit one (1) accountant, one (1) senior environmental and social development specialist, one (1) electrical engineer specialized in power transmission substations, and one (1) electrical engineer in power transmission substations to provide the missing expertise for the implementation of the project and transfer their expertise to the national staff. For Mali 7. For the PIU in Mali, in addition to the staff to be nominated / recruited locally, it is planned to recruit one (1) senior environmental and social development specialist and one (1) accountant. As opposed to Guinea, Mali has extensive experience in the O&M of 225 kv transmission lines and EDM SA has qualified engineers to monitor the construction of this project. 8. The details of the staffing of the PIUs will be included in the project s operations manual. 9. In addition to being represented in the joint implementation steering committee, the WAPP secretariat will play an active role to ensure that the different parties, including the beneficiaries and the donors, are well coordinated. Furthermore, as the lead financier, the AfDB, in coordination with WAPP, will organize a monthly donor meeting to report on each donor s progress and ensure proper coordination. Page 69 of 129

75 Financial Management 10. A FM Assessment was conducted on the FM arrangements for the project that will be implemented at the national level by EDG SA in Guinea and by EDM SA in Mali. 11. The objective of the assessment was to determine whether: (a) these implementing entities have adequate FM arrangements (planning, budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements) to ensure that the project funds will be used for purposes intended in an efficient and economical way; (b) project financial reports will be prepared accurately, reliably and on time; and (c) the project s assets will be safeguarded. The FM assessment was carried out in accordance with the FM Manual for World Bank IPF Operations that became effective on March 1, 2010 and was last revised on February 10, In this regard, a review of the FM arrangements has been conducted for the previously mentioned entities as further detailed in the following paragraphs. EDG SA (Guinea) 12. A new PIU has been created and will have the overall fiduciary responsibility of the Guinea Mali Interconnection Project. The FM arrangements for this project will be similar to the existing arrangements in place under the ongoing World Bank financed Power Sector Recovery Parent Project (P146696). The overall FM performance of this ongoing project is Satisfactory. Staffing has remained adequate and proper books of accounts and supporting documents have been kept in respect of all expenditures. The Project Coordination Unit (PCU) is familiar with the World Bank FM requirements. The audit for the year ended December 31, 2016 for this ongoing project was submitted on time, and acceptable to IDA. The un-audited IFRs for the on-going project are also submitted on time. EDM SA (Mali): 13. An FM assessment of EDM SA was conducted in January 2018 to determine whether this agency has the FM capacity to manage the proposed project. The assessment concluded that there is (a) capacity shortage in the areas of FM human resources; (b) lack of familiarity of the FM team with World Bankfinanced project procedures and requirements; and (c) lack of project accounting software and efficient internal audit function. 14. The conclusion was that EDM SA could be in a position to manage the World Bank s funds once many measures are implemented to strengthen its current FM system. A PIU will be created inside EDM SA. The FM team of the PIU will be the World Bank s main counterpart and focal point for all the fiduciary aspects of the project. 15. The overall FM risk for EDM SA is rated Substantial. This is due to (a) the EDM SA lack of experience and familiarity with Bank-FM procedures; (b) the project design which involves several actors with beneficiaries based in the countryside; and (c) some activities of the projects being prone to irregularities. 16. The EDM SA will have adequate capacity to effectively manage World Bank funds once the following measures are implemented (a) recruitment of one FM Officer and one accountant; (b) preparation of a PIM including FM procedures; (c) acquisition or customization of the accounting software Page 70 of 129

76 to allow the recording of project transactions; (d) appointment of dedicated internal auditor to conduct ex-post reviews of the project transactions; and (e) recruitment of an external auditor for auditing annual financial statements. These actions will be completed on time to help implement the project. Planning and Budgeting 17. EDM SA and EDG SA will prepare a detailed consolidated annual work plan and budget (AWPB) for implementing the activities of the project. The AWPB will be submitted to the joint implementation steering committee for approval and thereafter to IDA for no-objection, not later than November 30 of the year preceding the year the work plan should be implemented. Internal Control System and Internal Audit 18. The internal control system is designed to ensure (a) the effectiveness and efficiency of operations; (b) the reliability of financial reporting; and (c) the compliance with applicable laws and regulations. For this project, the accounting, financial and administrative procedures manual, to be developed, will document, explain and describe work processes, information flow, authorization and delegation of authority, timing, job segregations, auto and sequential controls, compliance with project objectives, micro and macro rules and regulations. Application of the procedures set up in the manual will be mandatory for all staff at all levels. For Guinea, the internal auditor recruited under the Power Sector Recovery Parent Project will extend the workplan to cover the new project and for Mali, EDM SA will recruit or appoint dedicated internal auditor for this project. Accounting Arrangements 19. The prevailing accounting policies and procedures in line with the West African Francophone countries accounting standards SYSCOHADA (Système Comptable Ouest Africain [West African Countries Accounting Standards]) - in use in Mali and Guinea for ongoing World Bank-financed operations will apply. The accounting systems and policies and financial procedures used by the new project will be documented in the project s administrative, accounting, and financial manual to be developed by project (before effectiveness to Mali and three months after effectiveness to Guinea). EDM SA and EDG will purchase or customize the accounting software to meet the project requirements. This software should be capable of recording transactions and reporting project operations in a timely manner including the preparation of Withdrawal Applications and periodic financial reports (unaudited IFRs and Annual Financial Statements). The software should include budgeting, operating and costs accounting systems to facilitate monitoring, evaluation and reporting. Interim Financial Reporting 20. The unaudited IFRs will be prepared every quarter and submitted to the World Bank regularly (for example, 45 days after the end of each quarter) and on time. The consolidated quarterly IFR for the project includes the following financial statements (a) Statement of Sources of Funds and Project Revenues and Uses of Funds; (b) Statement of Expenditures (SoE) classified by project components and/or disbursement category (with additional information on expenditure types and implementing agencies as appropriate), showing comparisons with budgets for the reporting quarter, the year, and cumulatively for the project life; (c) cash forecast; (d) explanatory notes; and (e) Designated Account (DA) activity statements. Page 71 of 129

77 Annual Financial Reporting 21. In compliance with International Accounting Standards and IDA requirements, both implementing entities will produce annual financial statements. These include (a) a Balance Sheet that shows assets and liabilities; (b) a Statement of Sources and Uses of Funds showing all the sources of project funds and expenditures analyzed by project component and/or category; (c) a DA Activity Statement; (d) a Summary of Withdrawals using SoEs, listing individual Withdrawal Applications by reference number, date, and amount; and (e) notes related to significant accounting policies and accounting standards adopted by management and underlying the preparation of financial statements. The financial statements will be audited annually by the external auditor. External Auditing 22. The external audit of the project s funds will be done by a private audit firm acceptable to the World Bank on the basis of ToR cleared by the World Bank. The audit will be carried out in accordance with the International Standards on Auditing. The audit report together with the management letter will be submitted to the World Bank within six months after the end of the financial year. The financial years for preparing audited accounts will follow the financial year of the implementing entity. In addition, EDM SA and EDG SA will submit the audit report on consolidated financial statements and management letter. 23. Audit reports will be publicly disclosed by the World Bank in accordance with the World Bank disclosure policy. The due dates for the audit reports are provided in Table 3.1. Table 3.1. Due Dates of the Audit Report Audit Report Due Date Responsible Party Two audited financial statements including audit report and Management Letter (for project and consolidated financial statement) for each entity. Funds Flow Arrangements (a) Not later than June 30 ( N) if effectiveness has occurred before June 30 ( N-1). (b) Not later than June 30 (2,000 + N+1) if effectiveness has occurred after June 30, ( N-1) EDG and EDM SA 24. Banking Arrangements. Each implementing entity will open a DA in a financial institution acceptable to IDA. Table 3.2 details bank accounts and currencies for each country. The ceiling of the DA will be stated in the Disbursement and Financial Information Letter. The funds flow for each country is presented in Figures 3.1 and 3.2. Table 3.2. Banking Arrangements Implementing Entity Designated Account DA Currency Project Account Currency Financial Institution Mali Commercial bank CFA franc n.a BCEAO Guinea Central Bank (BCRG) US dollar GNF (Commercial bank) Page 72 of 129

78 25. Disbursements for all implementing entities. Upon financing effectiveness, disbursements will follow the Disbursement Guidelines for IPF operations issued in February In the two countries, the IDA grant and IDA credit will each finance 50 percent of eligible expenditures inclusive of taxes. The project can make use of all four (4) disbursement methods (advance, reimbursement, direct payment and special commitment). An initial advance up to the ceiling of the DA will be made into the DA from which payments for incurred eligible project expenditures will be made. Where payment is to be made for eligible project expenditures in local currency, funds will be transferred from the DA to the Project Account to make such payments. Balance in the Project Account will be as close to zero as possible after payments have been made. Subsequent disbursements will be made against submission of SoE reporting on the use of the initial/previous advance; The minimum value of applications for these methods is 20 percent of the DA ceiling. The authorized signatory for each entity will sign and submit Withdrawal Applications electronically using the Disbursement module accessible from the Bank s Client Connection website. Table 3.3. Eligible Expenditures (Guinea) Category (1) Works, goods, non-consulting services, consulting services, training, and Operating Costs under Parts 1.A.1, 1.A.2, 1.B and 2 of the Project Amount of the Grant Allocated (expressed in SDR) Amount of the Credit Allocated (expressed in SDR) 26,100,000 26,100,000 50% Percentage of Expenditures to be Financed (inclusive of Taxes) TOTAL AMOUNT 26,100,000 26,100,000 Table 3.4. Eligible Expenditures (Mali) Category (1) Works, goods, non-consulting services, consulting services, training, and Operating Costs under Parts 1.A.1, 1.A.4 and 2 of the Project Amount of the Grant Allocated (expressed in SDR) Amount of the Credit Allocated (expressed in EUR) 3,200,000 3,800,000 50% Percentage of Expenditures to be Financed (inclusive of Taxes) TOTAL AMOUNT 3,200,000 3,800,000 Page 73 of 129

79 Figure 3.1: Funds Flow for Guinea Figure 3.2: Funds Flow for Mali Page 74 of 129

80 26. Local taxes. Funds will be disbursed in accordance with project categories of expenditures and components and their financing will be in line with the Financing Agreement and will be inclusive of taxes according to the current country financing parameters approved for Mali and Guinea. Financial Management Action Plan 27. The FM Action Plan described in Tables 3.5 and 3.6 has been developed to mitigate the overall FM risks. Table 3.5. FM action plan for EDM SA Action Responsible Party Deadline and Conditionality 1. Adopt implementation manual including fiduciary EDM SA Before effectiveness procedures 2. Recruit a FM specialist with qualifications and experience EDM SA Before effectiveness satisfactory to the World Bank 3. Recruit an accountant with qualifications and experience satisfactory to the World Bank EDM SA Three (3) months after effectiveness 4. Purchase project accounting software or customize current accounting software to generate project financial report and statement 5. The EDM SA audit and control department staff will be trained on world bank procedures and dedicated internal auditor will be appointed. 6. Recruit an external auditor to audit project annual financial statement EDM SA EDM SA EDM SA Three (3) months after effectiveness Three (3) months after effectiveness Five (5) months after effectiveness Table 3.6. FM action plan for EDG SA Action Responsible Party Deadline and Conditionality 1. Adopt implementation manual including fiduciary EDG SA Before effectiveness procedures 2. Recruit a project FM specialist with qualifications and EDG SA Before effectiveness experience satisfactory for the World Bank 3. Recruit a senior accountant with qualifications and experience satisfactory to the World Bank EDG SA Two (2) months after effectiveness 4. Update the fiduciary procedures manual EDG SA Two (2) months after effectiveness 5. Customize project accounting software to cover new project EDG SA Two (2) months after effectiveness 6. Recruit an external auditor EDG SA Five (5) months after effectiveness 28. Support to the implementation plan. FM supervisions will be conducted over the project s lifetime. The project will be supervised on a risk-based approach. Based on the outcome of the FM risk assessment, the implementation support plan is proposed in Table 3.5 is proposed. The objective of the implementation support plan is to ensure the project maintains a satisfactory FM system throughout its life. Page 75 of 129

81 Table 3.7. FM Implementation Support Plan FM Activity Frequency Desk reviews IFRs review Quarterly Audit report review of the program Annually Review of other relevant information such as interim internal Continuous, as they become available control systems reports On-site visits Review of overall operation of the FM system Every six months for Substantial risk (Implementation Support Mission) Monitoring of actions taken on issues highlighted in audit As needed reports, auditors Management Letters, internal audits, and other reports Transaction reviews As needed Capacity-building support FM training sessions Before project effectiveness and during implementation as needed Procurement 29. The Recipients will carry out procurement under the proposed project in accordance with the World Bank s Procurement Regulations for IPF Borrowers (Procurement Regulations) dated July 2016 and revised in November 2017 under the New Procurement Framework, and the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and revised in January 2011 and as of July 1, 2016, and other provisions stipulated in the Financing Agreements. 30. All procuring entities as well as bidders, and service providers, that is suppliers, contractors and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with Paragraph 3.32 and Annex IV of the Procurement Regulations. 31. The Recipients shall prepare and submit to the World Bank a General Procurement Notice (GPN) and the World Bank will arrange for publication of the GPN in United Nations Development Business (UNDB) online and on the World Bank s external website. The Recipients may also publish it in at least one national newspaper. 32. The Recipients shall publish the Specific Procurement Notices (SPN) for all goods, works, and nonconsulting services, and the Requests for Expressions of Interest on their free-access websites, if available, and in at least one newspaper of national circulation in the borrower s country, and in the official gazette. For open international procurement and selection of consultants using an international shortlist, the borrower shall also publish the SPN in UNDB online and, if possible, in an international newspaper of wide circulation; and the World Bank will arrange for the simultaneous publication of the SPN on its external website. Page 76 of 129

82 Institutional Arrangements for Procurement: 33. At the level of both countries. A joint implementation steering committee will be created to guide the implementation of the project during the construction phase, from procurement activities to the supervision of works and management of the project resources, as well as the smooth commissioning and handing over of the resulting facilities to the respective national utilities who will own the respective portion of the line in its territory and be responsible for its O&M. In addition, a JIC will be set up to ensure the technical coordination of the project. The committee will among others establish a general planning of tasks and ensure its coherence with respect for the mutual interests of the two countries and coordinate common technical aspects to ensure the functionality of the interconnector. The JIC will be headed by a coordinator that will be recruited internationally. 34. Procurement at the national level shall be carried out as follows: 35. Guinea - A PIU will be created and housed at EDG. The PIU will be responsible for the project planning, financial and procurement management, M&E, and internal auditing. Technical coordination with respect to the project will involve the appropriate technical departments of EDG. The Coordinator will be responsible for decision making during the procurement process. A Procurement Specialist proficient in World Bank Procurement procedures and a Procurement Assistant will be recruited to support the implementation of the project. 36. Mali - A PIU will be created and housed at EDM SA, the national public utility company. The PIU will be responsible for the project planning, financial and procurement management, M&E, and internal auditing. Technical coordination with respect to the project will involve the appropriate technical departments of EDM SA. The Coordinator will be responsible for decision making during the procurement process. A Procurement Specialist proficient in World Bank Procurement procedures and a Procurement Assistant will be recruited to support the implementation of the project. 37. The joint implementation steering committee will approve the project related annual work plan and review annual budgets and audit reports. The committee will be chaired by a representative from both countries and will be composed of the representatives from the Ministry of Finance (MoF), Ministry of Energy and other key ministries involved in implementation. The joint implementation steering committee will function during the full project implementation period, and will meet at least twice a year. 38. Filing and record keeping. The Procurement Procedures Manual will set out detailed procedures for maintaining and providing readily available access to project procurement records, in compliance with the Loan Agreement. Implementing Agencies will assign one person responsible for maintaining the records. The logbook of the contracts with unique numbering system shall be maintained. 39. The signed contracts as in the logbook shall be reflected in the commitment control system of the Borrower s accounting system or books of accounts as commitments whose payments should be updated with reference made to the payment voucher. This will put in place a complete record system whereby the contracts and related payments can be corroborated. Page 77 of 129

83 Ref. No. Description Estimated Amount (US$) Procurement Method Prequalification (Yes/No) Domestic Preference (Yes/No) Prior Review (Yes/No) Estimated Bids Opening Date Expected Contract Signature Date The World Bank 40. Project Procurement Strategy for Development. As part of the preparation of the project, the recipients have prepared a PPSD which describes how procurement activities will support project operations for the achievement of PDOs and deliver VfM. Based on this, the Procurement Plans for the first 18 months have been prepared by the Recipient, reviewed and approved by the World Bank prior to negotiations. The approved Procurement Plan sets the selection methods to be used by the Borrowers in the procurement of goods, works, non-consulting services, and consulting services under the project. The Procurement Plans will be updated at least every 12 months, or as required, to reflect the actual project implementation needs. Each update shall require World Bank approval and will be publicly disclosed in accordance with the World Bank disclosure policy. 41. UN agencies may be hired by the Governments on sole-source basis for contracts for which they offer their unique roles and qualifications in responding to the emergency situations. Standard forms of agreement for UN agencies as acceptable to the World Bank will be adopted. For those UN agencies, if such forms have not been agreed with the World Bank, the World Bank team will provide acceptable sample forms for use by the countries. For the UN agencies hired by the Government, certain quickdisbursing arrangements may be agreed upon to finance a positive list of imported or locally produced goods that are required for the project, further subject to the World Bank s prior agreement on the conditions for the release of the financial tranches and the required documentation and certifications, such as customs and tax certificates or invoices. 42. The recruitment of civil servants as individual consultants or as part of the team of consulting firms will abide by the provisions of Paragraph 3.23 (d) of the Procurement Regulations. 43. Special considerations. Mali is on the harmonized list of Fragile and Conflict affected Situations (FCS) countries and therefore the Project will trigger Paragraph 12 of the IPF Policy to apply flexibilities and simplification to facilitate procurement implementation. These procurement arrangements therefore draw on the World Bank Guidance on Procurement Procedures in Situations of Urgent Need of Assistance or Capacity Constraints issued on July 1, Procurement Plan. The Procurement Plan for the regional part of the Guinea-Mali Interconnection Project is represented in Table 3.8. The co-financing structure is based on parallel financing. A coordinated procurement strategy for the structuring of the bidding process and bidding documents has been adopted. In developing the procurement strategy (especially with respect to the sizing of the bid packages), the team has closely assessed lessons learned in similar recent projects, such as the OMVG and CLSG projects. Table 3.8. Works and Goods Contract Packages Guinea-Mali Interconnection Project (100 % IDA) 1 Package Guinea Lot 1-TL: 225 kv Transmission Lines (53.7km) SIGURI-Mali-Guinea Border Lot 2 -Ss: Substations 54,200,000 RFB No No Yes March 1, 2019 September 15,2019 Page 78 of 129

84 Ref. No. Description Estimated Amount (US$) Procurement Method Prequalification (Yes/No) Domestic Preference (Yes/No) Prior Review (Yes/No) Estimated Bids Opening Date Expected Contract Signature Date The World Bank SIGURI, KANKAN, KEROUANE 2 Package Mali-Substation SANANKOROBA Note: RFB = Request for Bids. 7,400,000 RFB No No Yes March 1, 2019 September 15, The Procurement Plans will be updated in agreement with the World Bank Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 46. The Implementing Agencies in the two countries will carry out procurement for the needs of the project as included in the Procurement Plan and agreed with the World Bank. 47. The scope of procurement is described in the PPSD and the Procurement Plans agreed by the World Bank. It is summarized in the following paragraphs. 48. In general, the procurement activities that are critical for the success of this operation will consist of the construction of 714 km 225 KV double circuit transmission line from N Zerekore in Guinea to Sanankoroba in Mali, the construction of five (5) substations in Guinea (Fomi, Beyla, Kankan, Kerouane and Siguiri), the extension works of one substation in Guinea (N Zerekore, planned to be built under CLSG Power System Re-Development Project) and the extension works of the Sanankoroba substation (built as part of the 225 kv Sikasso-Bougouni-Sanankoroba-Bamako project). More precisely, each country will be procuring the following: 49. Guinea: The project will finance the procurement of 588 km of the 225 kv double circuit transmission line, starting from Guinea Border to N Zerekore in Guinea, as well as the construction of five (5) substations in Guinea (Fomi, Beyla, Kankan, Kerouane, Siguiri) and the extension in one substation in Guinea (N Zerekore, planned to be built under CLSG Power System Re-Development Project). 50. Mali: The project will finance the procurement of 126 km of the 225 kv double circuit transmission line, starting from Guinea Border to Sanankoroba in Mali, and the extension works in the Sanankoroba substation (built as part of the 225 kv Sikasso-Bougouni-Sanankoroba-Bamako project). 51. The Figure 3.3 below shows all the procurement lots for the project, with lots being financed by the World Bank highlighted in yellow (BM). Page 79 of 129

85 Figure 3.3. Procurement Lots Page 80 of 129

86 52. Training, workshops, study tours, and conferences. Training activities will comprise workshops, seminars and training, based on individual needs, as well as group requirements. Consultants could be hired to develop training materials and conduct group trainings. Selection of consultants for training services follows the requirements for selection of consultants described in the earlier paragraphs above. All training and workshop activities (other than consulting services) will be carried out on the basis of an approved Annual Work Plan / Training Plan that would identify the general framework of training activities for the year, including (a) the type of training or workshop; (b) the personnel to be trained; (c) the institutions which would conduct the training and reason for selection of this particular institution; (d) the justification for the training, how it would lead to effective performance and implementation of the project and or sector; (e) the duration of the proposed training; and (f) the cost estimate of the training. Reports by the trainee(s), including completion certificate/diploma upon completion of training, shall be provided to the Project Coordinator and will be kept as parts of the records, and will be shared with the World Bank if required. 53. A detailed training and workshops plan giving the nature of training/workshop, number of trainees/participants, duration, staff months, timing and estimated cost will be submitted to IDA for review and approval before initiating the process. The selection methods will derive from the activity requirement, schedule and circumstance. After the training, the beneficiaries will be requested to submit a brief report indicating what skill have been acquired and how these skills will contribute to enhance their performance and contribute to the attainment of the project objective. 54. Operational Costs. Operational costs financed by the project will be incremental expenses, during project implementation, including the cost of the per diems of the PIUs staff, the acquisition, O&M of vehicles, office supplies, furniture and hardware/software, and the logistical expenses related to the organization of the Joint Implementation Steering Committee meetings. 55. Procurement Manual. Procurement arrangements, roles and responsibilities, methods and requirements for carrying out procurement shall be elaborated in detail in the Procurement Manual which may be a section of the PIM. The PIM shall be prepared by the Recipients and agreed with the World Bank by effectiveness. 56. Procurement methods. The Borrowers will use the procurement methods and market approach in accordance with the Procurement Regulations. 57. Open National Market Approach is a competitive bidding procedure normally used for public procurement in the country of the Borrower and may be used to procure goods, works, or non-consultant services provided it meets the requirements of Paragraphs 5.3 to 5.6 of the Procurement Regulations. 58. The thresholds for particular market approaches and procurement methods are indicated in Table 3.9. The thresholds for the World Bank s prior review requirements are also provided in Table 3.9. Page 81 of 129

87 No 1 Works Expenditure Category Table 3.9. Thresholds for Procurement Methods, and Prior Review Contract (C) Value Procurement Contracts Subject to Threshold* (US$ equivalent) Method Prior Review / (US$ equivalent) Open Competition Guinea: International C 15,000,000 5,000,000 Market Mali: Approach and C 15,000,000 Direct Contracting Guinea: 200,000 < C < 15,000,000 Mali: 200,000 < C < 15,000,000 Open Competition National Market Approach None 2 3 Goods, IT and nonconsulting services National shortlist for selection of consultant firms C 200,000 RfQ None Guinea: 1,500,000 Mali: C 3,000,000 Guinea: 100,000 < C < 1,500,000 Mali: 100,000 < C < 3,000,000 Open Competition International Market Approach and Direct Contracting Open Competition National Market Approach 1,500,000 None C 100,000 RfQ None Guinea: for C < 200,000 Consulting None Mali: Services C < 200,000 Guinea: C 300,000 Mali: C 400,000 for Engineering and Construction Supervision None 4 International shortlist for selection of consultant firms Guinea: C 200,000 Mali: C 200,000 Guinea: C 300,000 Mali: for Consulting Services for Engineering and Construction Supervision 500, ,000 Page 82 of 129

88 No Expenditure Category Selection of Individual consultants Direct contracting Training, Workshops, Study Tours Contract (C) Value Threshold* (US$ equivalent) C > 400,000 All Values All Values All Values Procurement Method All Approaches Based on approved AWP&B Contracts Subject to Prior Review / (US$ equivalent) 200,000 As agreed in the Procurement Plan AWP&B Note: The thresholds in the above table are for the two countries unless indicated otherwise and for the procurement risk rated as high. It is applicable to specific items and for the purposes of the initial Procurement Plan for the first 18 months. The thresholds will be revised periodically based on re-assessment of risks. All contracts not subject to prior review will be post-reviewed. 59. Procurement Risk Rating: Although an in-depth assessment of procurement remains to be carried out at the project appraisal stage, the current risk of project procurement considering recent experiences (Mali Energy Support Project under preparation) and before the mitigation measures is deemed High. The risk can be reduced to a residual rating of Moderate upon consideration of successful implementation of the mitigation measures. For Guinea, a procurement assessment was conducted as part of project preparation in March It shows that on the procurement process, the PCU which will be created, will conduct the procurement activities in collaboration with others national actors. These are: (a) in the Ministry of Energy, one Procurement Officer (PRMP); (b) the National Public Procurement Directorate (DNMP-MoF) which will be involved in the procurement process for contract cost equivalent US$ and above; (c) ACGPMP which will be involved in the procurement process for contract cost equivalent US$555,000 and above. There are significant delays in the procurement process. The assessment has rated the overall risk as High. 60. The risks and mitigation measures are provided in Table Table Procurement Risks and Mitigation Measures Procurement Risk Mitigation Measure Responsibility and Deadline Guinea: EDG/national system 1-Absence of a manual of procedures Prepare the PIM with section on procurement detailing out all applicable procedures, instructions and guidance for handling procurement, the SBDs and other standard procurement documents to be used. The PIM will outline the interaction between all the stakeholders in the procurement process PCU/ Before effectiveness Risk Level Initial/residual High/Moderate Page 83 of 129

89 2-Lack of procurement capacity in World Bank procurement procedures project 3-High level staff within EDG responsible for process control and approval are not very familiar with World Bank procurement procedures 4-Inadequate communication leading to delays in the drafting of ToR, and technical specifications as well as poor cost estimation 5-Political interference/fraud and Corruption Recruit a Procurement Specialist and procurement assistant. The Procurement Specialist must be experienced in World Bank Procurement Regulations for IPF Borrowers Organize a workshop to familiarize staff on World Bank procurement procedures Hands-on training of identified high level staff within EDG on World Bank procurement procedures Capacity building for the all PIU staff involved in the procurement decision-making process and tender committee members, and customized and hands-on training for the procurement staff on procurement focusing on: procurement planning, preparation of bidding documents, evaluation of bids or proposals, and procurement documents filing Strengthen the flow of communication between the PIU and technical departments of EDG by avoiding bureaucratic procedures and set up periodic meetings Adherence to the implementation arrangements as provided for in the project Legal Agreement and PIM will be enforced. Project launch will be organized before effectiveness to brief all stakeholders on their roles and responsibilities as provided for in the PIM The National Public Procurement Directorate (DNMP in the Ministry of Economy and Finances); the Procurement Process Control Body PCU/ Before effectiveness PIU-IDA/ Three months after effectiveness PIU Procurement Specialist / No later than three months after effectiveness PIU Procurement Specialist / Throughout the project life PIU/EDG Throughout project implementation PIU/IDA Throughout project implementation DNMP/ACGPMP/ARMP /IDA/ Throughout project implementation Page 84 of 129

90 6-Important timeouts in the implementation of some activities, mainly evaluation committee management and contracts award 7-Lack of a dedicated archiving room for procurement records with a trained staff for its management (ACGPMP) and the Regulation Authority (ARMP) will have to play their role to ensure good governance and limit the opportunities for undue influence by anyone Close monitoring and exercising quality/control on all aspects of the procurement process, including evaluation, selection, and contract award Provide adequate space and equipment for the procurement archive and set up an adequate filling system for project records to ensure easy retrieval of information/data. PIU/ Throughout project implementation PIU/ No later than six months after the beginning of the project implementation Mali EDM SA 1-Absence of a manual of procedures 2-Lack of procurement capacity in World Bank procurement procedures Project Designate or recruit an officer to be responsible for data management Prepare the PIM with a section on procurement detailing out all applicable procedures, instructions and guidance for handling procurement, the SBDs and other standard procurement documents to be used. The PIM will outline the interaction between all the stakeholders in the procurement process Recruit a Procurement Specialist and Procurement Assistant. The Procurement Specialist must be experienced in World Bank Procurement Regulations for IPF Borrowers PCU/ Before effectiveness PCU/ Before effectiveness High /Moderate Page 85 of 129

91 3-High level staff within EDM SA responsible for process control and approval are not familiar with World Bank procurement procedures 4-Inadequate communication leading to delays in the drafting of ToR, and technical specifications as well as poor cost estimation 5-Political interference/fraud and Corruption Organize a workshop to familiarize staff on World Bank procurement procedures Hands-on training of identified high level staff within EDM SA on World Bank procurement procedures Capacity building for all PIU staff involved in the procurement decision-making process and tender committee members, and customized and hands-on training for the procurement staff on procurement focusing on: procurement planning, preparation of bidding documents, evaluation of bids or proposals, and procurement documents filing Strengthen the flow of communication between the PIU and technical departments of EDM SA by avoiding bureaucratic procedures and set up periodic meetings Adherence to the implementation arrangements as provided for in the project Legal Agreement and PIM will be enforced. Project launch will be organized before effectiveness to brief all stakeholders on their roles and responsibilities as provided for in the PIM The Control Body and the Regulation Authority will have to play their role to ensure good governance and limit the opportunities for undue influence by anyone PIU-IDA/ Three months after effectiveness PIU Procurement Specialist / No later than three months after effectiveness PIU Procurement Specialist / Throughout the project life PIU/EDM SA Throughout project implementation PIU/IDA Throughout project implementation DGMP-DS/ARM-DS /IDA/ Throughout project implementation Page 86 of 129

92 6-Important timeouts in the implementation of some activities, mainly evaluation committee management and contracts award 7-Lack of a dedicated archiving room for procurement records with a trained staff for its management Close monitoring and exercise quality/control on all aspects of the procurement process, including evaluation, selection, and contract award Provide adequate space and equipment for the procurement archive and set up an adequate filling system for project records to ensure easy retrieval of information/data. Designate or recruit an officer to be responsible for data management Note: SBD = Standard Bidding Document. PIU/ Throughout project implementation PIU/ No later than six months after the beginning of the project implementation 61. Frequency of Procurement Reviews and Supervision. The World Bank s pre- and post-reviews will be carried out based on thresholds indicated in the Procurement Plan. The World Bank will conduct missions every six months and annual Procurement Post Reviews (PPR). The World Bank may also conduct an Independent Procurement Review (IPR) at any time up to two years after the closing date of the project. Environmental and Social (including safeguards) Institutional Arrangement for Safeguards Implementation: Institutional capacity assessment 62. Mali: The Republic of Mali has a legislative and regulatory framework which is conducive to good environmental and social management. Mali has signed a number of international treaties and conventions and has experience with the World Bank s Safeguard Policies due to World Bank-funded projects across different sectors. However, implementation capacity remains limited. Environmental policies and their compliance are governed by the Ministry of Environment, Sanitation and Sustainable Development through The National Directorate of Sanitation, Pollution and Noises Control Direction Nationale de l Assainissement et du Contrôle des Pollutions et des Nuisances (DNPACN). DNAPCN is responsible for safeguards compliance of all projects in the country. This agency is familiar with the World Bank safeguards instruments such as the Environmental and Social Management Framework (ESMF), ESIA, ESMPs, Resettlement Policy Framework (RPF) and RAPs. However, DNAPCN is understaffed and has limited capacity. Despite several donor-funded capacity building initiatives, DNACPN is still largely relying on donor funded projects to carry out its field supervision duties. DNAPCN has deconcentrated Units named DRAPCN that are in charge of reviewing and validating Environmental and Social Notices. These regional bodies often do not have the necessary equipment to monitor social and environmental risks and impacts; their staff lack training, and management capacity is very thin. The Environmental Assessment archives system of DNACPN remains weak and is mainly done manually. Page 87 of 129

93 63. At the level of the Ministry of Energy, the capacity remains weak as well, despite its experience in implementing several World Bank funded projects. Electricité du Mali Société Anonyme (EDM SA), within which the PIU will be hosted, has within its directorate for studies and planning a Health Safety and Environment unit, which comprised, at the time of the assessment, four staff with a safety profile. A staff with an environment profile that meets World Bank requirements was under recruitment. The unit lacks social development staff that meets World Bank requirements. 64. Guinea: The Republic of Guinea has a legislative and regulatory framework which is conducive to good environmental and social management. Article 19 (3) of the constitution states that: " People have the right to the preservation of their heritage, culture and environment ". Therefore, the environmental policy framework is rooted in the provisions of the Constitution. The Environment code was published on May 28, In November 8, 1989 the Government published a Decree regulating Impacts Studies. The national Environmental and Social Assessment and ESIA review process is under the responsibility of the Ministry of the Environment through the BGEEE. It is part of its functions to monitor and preserve the quality of the environment and advising the Government on environmental issues. BGEEE implements its mandate through five main phases (a) validation of the ToR proposed by the promoter to serve as a scoreboard for the Environmental and Social Impacts Notice; (b) the admissibility review; (c) the receipt of the ESIA draft reports submitted to the Minister of Environment, which shall forward it to the competent department for analysis, comments and suggestions through internal and external consultations (ministerial departments, NGOs and the interested public); (d) review and judgment on the environmental acceptability of the project by BGEEE; and (e) monitoring and environmental monitoring of the project. Since March 2013, the Government adopted a General Environmental Assessment Guide that provides project developers with technical support to carry out environmental and social impacts studies necessary for a better analysis of their projects. This Guide defines the methodology and procedure for conducting ESIA. Sectoral guidelines are under preparation for further consideration. In general, the ministry of environment and other state institutions in charge of handling environmental and social issues are so far poorly staffed and equipped. The number of skilled staffs within the Ministry of Environment remain limited. Additionally, the ministry also lacks equipment and infrastructures in number and quality. 65. At the level of Ministry of Energy and Hydraulic, the capacity remains very weak as the ministry has not yet directly implemented World Bank funded projects. On the other hand, Electricité du Guinée (EDG), within which the PIU will be hosted, has experience with World Bank funded projects. Nevertheless, its environmental and social safeguards capacity remains weak. Project safeguards implementation arrangements 66. Mali. The PIU will be set within EDM SA and has already planned the hiring of an environmental specialist and a social development specialist. Those specialists will be supported by an experienced international senior social and environmental safeguards specialist during a three-year period. The main responsibility of the senior specialist would be, in addition to strengthening the safeguards expertise of the two specialists, to design, build train and foster a robust and well-functioning environmental and social management unit within EDM. The two environmental and social safeguards specialists and the senior safeguards specialist will work in tandem and closely with DNACPN at the Ministry of Environment, Sanitation and Sustainable Development and the World Bank s social and environmental safeguards Page 88 of 129

94 specialists to ensure that environmental and social safeguards are properly managed during project implementation. The PIU will sign a MoU with DNACPN that will clearly define the collaboration modalities and perspectives between the two entities. The PIM will capture in detail the safeguards implementation process including GBV, management and GRM. 67. Guinea. The PIU will be set within EDG and has already planned the hiring of an environmental specialist and a social development specialist. Those specialists will be supported by an experienced international senior social and environmental safeguards specialist during a three-year period. The main responsibility of the senior specialist would be, in addition to strengthening the safeguards expertise of the two specialists, to design, build train and foster a robust and well-functioning environmental and social management unit within EDG. The two environmental and social safeguards specialists and the senior safeguards specialist will work in tandem and closely with BGEEE at the Ministry of Environment, Waters and Forests of Guinea and the World Bank Social and Environmental Safeguards Specialists to ensure that environmental and social safeguards are properly managed during project implementation. The PIU will sign an MoU with BGEEE that will clearly define the collaboration modalities and perspectives between the two entities. The PIM will capture in detail the safeguards implementation process including GBV, management and GRM. 68. Regular monitoring reports on the implementation of environmental and social safeguards provisions will be provided to the World Bank for approval. These reports will be reviewed during project supervision missions, which will include environmental and social safeguard experts. Environmental Safeguards Policies Triggered and Main Instruments. 69. The project is rated as Environmental and Social Assessment Category A, requiring a full environmental and social risks and impacts rating assessment. In addition to the Involuntary Resettlement OP/BP 4.12, the following environmental safeguard policies are triggered: Environmental Assessment OP/BP 4.01: The policy is triggered as the project will cover more than 714 km and will involve civil works (transmission line and associated substations) and generate adverse environmental risks and impacts that will need to be mitigated adequately. As the project is an interconnector project between Guinea and Mali (two neighboring countries), two specific ESIAs / ESMPs have been prepared one for each country. Natural Habitats - OP/BP 4.04: The policy is triggered as the project ROWs will have potential negative impacts on the birds and many ruminants and amphibians natural habitats. The ESIA/ESMP reports reveal that several endangered species were identified in the regions and nearby Ramsar sites were also identified close to the ROW. The two Governments have however committed to ensure that there is no conversion of critical natural habitats as a result of the project. In addition, each Government will prepare and implement an action plan in compliance with the RAMSAR convention and will ensure specific protection measures are taken to protect endangered species. Finally, specific mitigation measures have been provided in the ESIA/ESMP for consideration during implementation and operation of the transmission line. Page 89 of 129

95 Forests - OP/BP 4.36: The policy is triggered as some project activities will most likely require clearing up of over 1,000 ha of forest and sensitive areas/spaces, altogether, mainly in Guinea as well as in some parts of Mali. The two Governments envisage re-foresting an equivalent if not greater surface as an ecosystem mitigation measure. In addition, the project will provide to each participating village along the transmission line and around the substations additional sets of fruit tree plants to be shared among the community for their household-level usage. Looking at the cumulative impacts, it is anticipated that within five years, the canopy of all these fruit trees planted in these villages will increase the benefit of the greenhouse gases and add value to the overall benefit of the forest. The two Governments will ensure that relevant measures will be taken to avoid adverse impacts on the health and quality of forests or on the rights and welfare of people dependent on their interaction with forests. The project activities will also avoid bringing changes in the management, protection or utilization of natural forests. Finally, provisions are being offered in the ESIA reports that will be complied with during project implementation. Physical Cultural Resources OP/BP 4.11: The policy is triggered as several cultural sites have, so far, been pre-identified in the project areas along the transmission line; and the ESIA/ESMP reports have proposed relevant mitigation measures, such as the use of Chance Finds protocols to ensure safe and sustainable the protection of these sites. 70. The policy on Safety of Dams OP 4.37: This is not triggered because, further to its technical assessment and due diligence, the Task Team confirmed that the project does not directly depend on existing dams in Guinea and Mali, including the Kaleta and Souapiti dams, or any of the dams under construction in the said countries. 71. Potential adverse risks and impacts: Several potential risks and impacts were identified : cleaning up of over 1,000 ha of forest and sensitive areas spaces mainly in Guinea as well as in some parts of Mali; risk of PCBs and fuel pollutants; risk of water pollution; noise in the construction sites; dust and smoke generated by site work; risk diseases and nuisance; risk of accidents during civils works; risk of fire; risk of poaching and pressure against endangered species identified in the regions; and risk to harm RAMSAR sites. Particular attention will be given among other to (a) Occupational Health and Safety; (b) safe handling and disposal of industrial wastes hazardous products such PCBs, and management of other solid and liquid wastes; (c) the emergency response in case of fire; and (d) labor influx. 72. Public Consultation and disclosure: During the preparation of the Mali and Guinea safeguards instruments (ESIA/ESMPs, RAP), the main stakeholders will be consulted. The specific safeguards instruments, once cleared by the World Bank, will be disclosed within the two countries (Mali and Guinea), and the World Bank website. Stakeholder consultation being an iterative process, the consultation of the main stakeholders will continue throughout the project implementation period. Social Development 73. The social safeguards screening revealed that the project has triggered five social and environmental safeguards policies, namely OP/BP 4.01 (Environmental Assessment), OP/BP 4.12 (Involuntary Resettlement), OP/BP 4.04 (Natural Habitats), OP/BP 4.36 (Forests) and OP/BP 4.11 (Physical Cultural Resources). Since, most of the footprints of the transmission line right of way (ROW), and Page 90 of 129

96 substations plots are known, the two Governments have already prepared during year 2013/2014 two ESIAs, inclusive of their ESMPs, and two RAPs. These ESIAs/ESMPs and RAPs reports were prepared in a participatory and inclusive manner through extensive stakeholder consultation and participation and were initially finalized and approved by the countries and the other donors in December 2015 and publicly disclosed thereafter. The reports initially identified about 1,686 and 336 persons affected by the project (PAP) respectively in Guinea and Mali. The reports were recently reviewed by the World Bank and cleared for re-disclosure both in-country and at the World Bank Infoshop website on May 11th, 2018 and May 14th, 2018 respectively. After extensive due diligence, the World Bank was provided with ample comfort from the two countries that there has not been any forced and/or involuntary displacement of PAPs. Nevertheless, both Governments have committed to update the census to reflect the latest realities on the ground, update and publicly disclose the RAP reports and compensate all finally identified PAPs prior to the physical start of any civil works. Women and other vulnerable groups have been sufficiently engaged in the consultation process and clear mechanisms where built within the project to ensure that displaced and/or resettled men and women equitably share the proceeds from the compensation funds and that they fully participate in the overall RAP process. 74. Additionally, the World Bank Social Safeguards Specialist, together with the TTL and the regional Coordination Unit of the West Africa Power Pool project based in Cotonou-Benin, and the two national coordination units (Guinea and Mali) have recently undertaken a field mission (March 16-23, 2018) that led the team on an over 950 km road-trip from Conakry to Bamako to follow the T-line ROW (40 m for Guinea and Mali, except for the last 30 km before Bamako where the ROW is 60 m), and selected stations/substations locations, as well as speak/consult with stakeholders along the way to further appreciate the level of risks and impacts involved. The mission was pleased with its core findings that are well-aligned with the current available safeguards documents reporting, namely: Stakeholders Consultations and participation were done properly and transparently: Beneficiary communities met along the trip confirmed that they were properly consulted; got full details on the project objectives and processing timeline; given enough ground and space to voice out their concerns and needs which were properly recorded and constructively captured in the final documents; and shared with them during the final December 2015 public consultations and validations of the documents; No PAP has been forcefully nor voluntary displaced: There are no physical structure affected by land acquisition, only few farmlands with trees and plantations. PAPs were told that, prior to the physical start of civil works, they can continue using their current agriculture farms to sustain their families/communities livelihood. Moreover, since each rural household has, in addition to their fallow lands, at least 5 to 7 similar or of equal value farms around their villages, and therefore they will be willing to relinquish their affected farm plots whenever the civil works are about to start; Compensation methods (individual and /or communitarian) and means: Communities confirmed that they were indeed told that all compensations (loss of land, sources of livelihood: fruits and multipurpose usage trees) will be paid to them on due course well-prior to the physical start of civil works. With the issuance of the Public Usage Decree by both countries (Mali December 2017) and (Guinea February 2018), the Governments are going Page 91 of 129

97 to put in place a series of resettlement committees to help properly handle the compensations issues, ensuring vulnerable PAPs, and host communities are provided with sufficient attention and care to help them cope with these risks and impacts. Restoration of Livelihood Means and Resources: During consultations, needs and ancillary measures identified by the communities will be attended during project implementation with the view of restoring communities livelihood through the channel of income generating activities such as horticulture farming for women and youth groups, indigenous tree nurseries and replantation to increase their means, as well as specific technical skills development activities to sustain this endeavor, etc. Additionally, numerous unskilled rural youth and adults are foreseen to be hired during project civil works, and possibly a handful throughout project operationalization lifespan. Core Social Requirements 75. The final safeguards documents will capture the following core requirements: (a) (b) (c) (d) (e) Citizen engagement - to ensure that broader stakeholders and beneficiary communities are engaged through constructive and inclusive public consultation and participation mechanisms which aim at fostering ownership while building social accountability through feedback and checkand-balances tools. This overall interaction aims at building a sustainable development enabling environment for the project to yield its expected results of fostering a transparent governance environment. Grievance Redress Mechanism (GRM) - to ensure that an inclusive and participatory mechanism that builds on existing mechanisms to properly and effectively settle disputes and grievances is in place, with the use of legal ways as a last resort. The GRM builds on existing local practices to ease processing and make it inclusive. The GRM should be available to every project affected and/or impacted person (PAP). Gender-based Violence (GBV) - to mitigate the risk of violence against women, children, and the most vulnerable persons during project implementation, a Code of Conduct will be embedded in all contractors contracts as part of the social and environmental clauses (SES). The owner s engineer will have as one of its tasks to supervise adherence to the Code of Conduct. Labor influx and child labor - to ensure that no child labor occurs on any of the project activities and site, and that possible labor influx is limited to dedicated zones and that related issues are properly dealt with in an inclusive way. A Labor Influx Plan will be prepared by contractors, reviewed and cleared by the World Bank as part of the ESMP. Vulnerability - broadly speaking, is properly managed as the project will ensure no discrimination against a disabled, disadvantaged, or culturally vulnerable person occurs throughout the project lifecycle. Page 92 of 129

98 Management of Project Safeguards Performance and Compliance 76. From safeguards standpoint, the existing ESSU in each PIU, comprised of one full time environmental safeguards specialist and one full time social safeguards specialist with experience in gender, will be reinforced with the hiring of an experienced international senior social and environmental safeguards specialist during a three-year period. The senior specialist will strengthen the expertise of the two other ESSU staff and develop, build and foster their in-house technical capacity on safeguards. The ESSU in each PIU will work in tandem and closely with the national environmental protection agency of their respective country (that is: BGEE at the Ministry of Environment in Guinea, DNACPN at the Ministry of Environment, Sanitation and Sustainable Development in Mali) and the World Bank safeguards specialists to ensure that environmental and social safeguards risks and impacts are properly managed and that the World Bank s policies in that regard are complied with throughout project implementation (construction, operationalization and monitoring phases). Each PIU will sign a MoU with its national environmental protection agency with whom it will work in tandem to ensure that the core requirements of the national legislations are being complied with. 77. Moreover, this project will be an opportunity for both utilities to build and strengthen their inhouse capacity on broader social and environmental safeguards aspects directly relevant to the energy sector, such as environmental management, land acquisition and involuntary resettlement, GRM, stakeholders engagement, as well as systematic screening of subprojects, preparation of site specific safeguards documents, safeguards monitoring and reporting and so on. Hence, the two senior social and environmental safeguards specialists will support EDG and EDM respectively in designing, building, training and fostering a robust internal ESSU, both at central and regional levels. This will support EDG and EDM in properly managing safeguards related risks and impacts of their operations. Monitoring and Evaluation 78. Monitoring and evaluation for the project will be the responsibility of the utilities, EDG and EDM SA, through their M&E directorates. A M&E expert will be recruited by each PIU in the two utilities. An owner s engineer will also assist with overseeing and monitoring project implementation. 79. Each national power utility will record and summarize in its utility database detailed data on the generation and supply of electricity from one utility to the other. Data collection will be done monthly. The WAPP, in coordination with the two utilities, will prepare annual reports at the regional level, based on data from the two national power utilities. Role of Partners (if applicable) 80. WAPP has been playing an active role in the preparation of the project s studies, including technical feasibility and safeguard instruments, under financing from the AfDB. The WAPP will continue playing an active role during project implementation. Indeed, the WAPP secretariat will be represented in the project s joint implementation steering committee. 81. The project financiers are at different stages of readiness. The AfDB will be the lead financier and as such will be coordinating the interventions of the different financiers. Furthermore, as the lead Page 93 of 129

99 financier, the AfDB, in coordination with WAPP, will organize a monthly donor meeting to report on each donor s progress and ensure proper coordination. 82. The AfDB has already committed US$58 million for both countries; EU US$14 million for both countries; EBID US$44 million financing for both countries; and WADB US$33 million financing for Mali. The other financiers are at an advanced stage of preparation and are expected to get their board approvals by the end of year Page 94 of 129

100 ANNEX 4: Economic and Financial Analysis COUNTRY : Western Africa Guinea Mali Interconnection Project 1. This section presents the economic and financial analysis prepared for this project. The evaluation of the components is restricted to the activities that generate benefits for which an economic value can be clearly identified and measured, notably benefits associated with investments under Component 1: Power Transmission Infrastructure (US$343.8 million). Economic Analysis 2. The objective of the economic analysis carried out by the Team is to assess the overall impact of the project in the region and on the two countries. The economic analysis for the project follows a standard cost-benefit framework. Comparing the present value of incurred costs to the stream of attributable benefits, the EIRR and NPV will inform the project s viability over its economic life time. The economic analysis has been based on the estimations presented in the feasibility study carried out by Intec Energy Consultants and Lahmeyer International in The analysis was performed in real US dollar, and the lifetime (economic life) of the entire project has been conservatively estimated as 30 years. Description of Project Benefits 3. The project presents a number of economic benefits not only to Guinea and Mali but also to WAPP as a result of the additional energy that could be transmitted using the interconnector. The interconnector would further facilitate trade within the WAPP region and potentially reduce the average cost of generation for member countries. In quantifying the overall economic benefits of the proposed project, country level (Guinea and Mali) benefits and costs have been assessed and aggregated. Any additional power transmitted beyond the two countries would only result in additional economic and financial benefits. 4. Although a range of economic benefits will accrue from the project to both countries, this analysis has focused on those more quantifiable. The interconnection will allow Mali to access less expensive power supply from Guinea and potentially Côte d Ivoire from the CLSG transmission line. Therefore, economic benefits to Mali mainly consist of the avoided costs of alternative domestic generation. For the exporting country, the main benefit is the hard currency revenue that the country will earn from exports, and in the case of Guinea, additional energy that will be supplied to the eastern part of the country. 5. In Mali, there is an overdependence on thermal-based generation (HFO), which is estimated to be US$0.23 per kwh to meet demand. The proposed project would permit Mali import from Guinea or from the CLSG transmission line through Côte d Ivoire or Libera thereby reducing its average cost of generation. While there is no signed PPA, import costs could range from US$0.11 per kwh (hydro based imports from Guinea) to US$0.13 per kwh (imports from Côte d Ivoire). This would be in addition to wheeling charges of up to US$0.025 per kwh. Either way, the avoided cost of thermal based generation in Mali presents an economic benefit. Page 95 of 129

101 6. For the exporters, there is an economic benefit in terms of the foreign currency revenues that would accrue from exporting energy. Export prices could range from US$0.11 per kwh to US$0.13 per kwh plus a wheeling charge of up to US$0.025 per kwh. The exporting country would nevertheless bear the marginal cost of generating additional electricity to meet the demand from Mali. In the case of Côte d Ivoire, this would be about US$0.12 per kwh while in the case of Guinea, this is assumed to be the cost of hydro generation from Souapiti of US$0.09 per kwh which is expected to come online in The project also provides an economic benefit to the localities in Eastern Guinea: Nzerekore, Kankan, Beyla, Kerouané and Siguir which will benefit from an increase and reliability of supply as currently used thermal generation is displaced. 7. Other benefits would also accrue from the project during its economic lifespan. Indeed, large environmental benefits in the form of avoided GHG emissions will accrue due to displacement of thermalbased generation in Guinea and Mali. 8. Greenhouse gas emission accounting. A total net emission of about 651,995 tons of CO 2 (tco 2) are avoided during the project lifetime. The main sources of emissions for project are due to land clearing needed to build the high voltage transmission line, technical losses reduction compared to alternative scenario and emissions from Sulfur Hexafluoride (SF6). Description of Costs 9. Project costs comprise all costs associated with constructing and operating the transmission line and substations. These include: Capital costs of the 225kV double circuit transmission line from Nzerekore in Guinea to Sanankoroba in Mali, new substations in Guinea, extension of substation in Mali, SCADA, and telecommunications equipment; a total of US$343.9 million; and Associated O&M costs estimated at 3 percent of capital costs. 10. Table 4.1 summarizes the main assumptions: Table 4.1. Key Assumptions on Project Benefits and Costs Parameter Unit Value Cost of thermal-based generation (Mali) US$/kWh Cost of imports from CLSG (Côte d'ivoire) US$/kWh Cost of imports from Guinea US$/kWh Wheeling charges US$/kWh Cost of additional generation (Côte d'ivoire) US$/kWh Cost of additional generation (Guinea) US$/kWh Energy supplied to Eastern Guinea GWh 200 Demand from Mali GWh 808 ( ) and 1010 thereafter Transmission losses % 5.0 Page 96 of 129

102 Total project costs US$ million 344 O&M Costs % 3.0 Results 11. The results of the economic analysis considered two scenarios. The first scenario is the case where imports to Mali are from generation at Souapiti hydropower plant in Guinea. The second scenario is a case where energy is not available to be evacuated from Souapiti through the Linsan-Fomi line. In this case, imports to Mali are through the CLSG at US$0.13 per kwh. 12. In Scenario 1 where trade is between Guinea and Mali because of generation from Souapiti, the results show that the project is economically viable. Assuming a discount rate of 10 percent (excluding taxes and duties from capital expenditure), the NPV of the Project is US$810 million and the EIRR is 29 percent. This represents a benefits-costs ratio of At the national level, the results show that the project is more beneficial for Mali. The reason for this is the large proportion of avoided energy costs in Mali in the overall benefits of the project. NPV and EIRR to Mali are US$684 million and 84 percent respectively, while the NPV and EIRR to Guinea are US$265 million and 19 percent respectively. Table 4.2 summarizes the main results of the analysis. Table 4.2. Scenario 1: Estimated Project Economic Viability (Exports from Souapiti) Project Guinea Mali EIRR 29% 19% 84% NPV (@ 10% discount rate) US$810 million US$265 million US$684 million 14. In Scenario 2 where imports to Mali are through the eastern part of the CLSG (Côte d Ivoire) through the Nzerekore substation, the results show that the project is still economically viable. At a 10 percent discount rate, the NPV of the Project is US$584 million and the EIRR is 25 percent. This represents a benefits-costs ratio of At the national level, the project is still more beneficial for Mali for the same reason highlighted earlier. NPV and EIRR to Mali are US$542 million and 73 percent respectively, while the NPV and EIRR to Guinea are US$168 million and 16 percent respectively. Table 4.3 summarizes the results of this scenario. Table 4.3. Scenario 2: Estimated Project Economic Viability (Exports from CLSG) Project Guinea Mali EIRR 25% 16% 73% NPV (@ 10% discount rate) US$584 million US$168 million US$542 million 16. In both scenarios, the project presents a positive NPV and an EIRR that is well above the hurdle rate of 10 percent. Page 97 of 129

103 Sensitivity 17. A sensitivity analysis in the form of switching values was performed to determine how economic viability changes with variations in the most critical risk drivers of the project. The results show that the project is most sensitive to a change in the cost of thermal based generation in Mali which is the alternative source of energy. Should the unit cost of thermal-based generation reduce to US$0.13 per kwh, it would no longer be economical for Mali to import from Guinea. 18. For other key drivers such as capital costs overrun, an increase in the marginal cost of generation in Guinea and a reduction of demand in Mali, the project is sufficiently robust to changes in these drivers within reasonable limits. Table 4.4 provides a summary of the analysis. Table 4.4 Results of the Sensitivity Analysis (Switch Values) Switch Parameter Unit Base Case Value Change CAPEX US$ millions % Cost of thermal-based generation US$/kWh % Cost of additional generation (Guinea) US$/kWh % Demand from Mali ( ) GWh % Demand from Mali (2030 and beyond) GWh % Financial Analysis 19. The project generates cash inflows mainly from (a) export revenues for Guinea which includes electricity sales and wheeling charges and (b) sales of additional electricity to the eastern part of Guinea. Cash outflows are represented by the investment costs, additional energy supplied costs, and O&M costs. 20. In Scenario 1, the NPV of the stream of inflows and outflows result in a positive NPV of US$252 million and a FIRR of 4.6 percent while in Scenario 2, the results shown an NPV of US$28 million and FIRR of 1.3 percent. While both scenarios show positive NPVs and FIRR above the hurdle rate of 0.75 percent, the results of the financial analysis are less favorable in Scenario 2, because of higher costs of imports of US$0.13 per kwh assumed compared to US$0.11 per kwh in Scenario The cash flow statements of the economic and financial analysis are provided in Tables 4.5 and 4.6 respectively. Page 98 of 129

104 Table 4.5. Economic Cash Flow Analysis Page 99 of 129

105 Table 4.6. Financial Cash Flow Analysis Page 100 of 129

106 Financial Analysis of EDG 22. The financial viability of the sector is highly influenced by the financial situation of EDG as the sole state-owned electric utility. A financial analysis of EDG undertaken to assess its financial viability by analyzing the historical performances and the financial projections shows that the financial position of the company is weak but will improve significantly from A. Historical Operational Performance and Financial Position Analysis 23. EDG s average cost of service, which is around GNF 1,530 per kwh (US$0.164 per kwh) in is considered relatively high. The cost of service followed a seesawing trend, decreasing by 23 percent in 2015 before increasing by 11 percent in This movement was due to both fuel price and the commissioning of the Kaléta dam. 24. The energy supply is mainly coming from the hydroplants, including Garafiri and Kaléta which were commissioned in May As the country was facing load shedding, the Government was using IPPs thermal plants with costly power purchase contracts, locked by a take or pay under PPA. 25. The energy supplied by thermal IPPs, Kaléta, and Garafiri, and fuels were the main cost drivers of the company. The energy purchased from the IPPs (thermal, Kaléta, and Garafiri) represents 32 percent of the total cost of service in 2015 and 75 percent in Similarly, the fuel cost represents 36 percent and 0.1 percent respectively of the total cost of service in 2015 and Table 4.7 shows the impacts of these drivers on the energy supplied cost. Table 4.7. Drivers of Energy Supplied Cost Elements Unit Energy purchased IPP GNF, millions 513,568 1,841,977 Fuel GNF, millions 577,517 2,212 Selling, general and GNF, millions 297, ,318 administrative (SG&A) Financial charges GNF, millions 124, ,767 Salaries GNF, millions 110, ,397 Total cost of service GNF, millions 1,623,067 2,462,670 Energy Suppled GWh 1,118 1,532 Cost of service GNF/kWh 1,452 1,608 Source: EDG financial statements. 26. EDG is facing significant losses on average around 33 percent, despite operating only on medium voltage and low-voltage networks. The distribution networks are outdated and the level of fraud is high and unsustainable. The company is trying to resolve this situation by investing in rehabilitation and reinforcement programs focusing on the distribution system, and by introducing secured prepaid meters. Nevertheless, more rehabilitation and reinforcement are needed in the distribution system. Table 4.8 shows the trend in demand, energy sold, and losses. Page 101 of 129

107 Table 4.8. Demand, Energy Sold, and Losses Trend Elements Unit Energy supplied GWh 1,118 1,532 Energy sold GWh 758 1,003 Losses GWh Losses % Source: EDG financial statements. 27. EDG s commercial performance is poor, characterized by a low performance of the employees and inadequate and poor collection rate of state-owned enterprises and public administration. The revenue collected per kwh supplied is below cost recovery - around GNF 364 per kwh (US$ per kwh) in 2015, and increased to GNF 403 per kwh (US$ per kwh) in As a result of the low level of revenue collected relative to the cost of service, EDG experienced a growing negative margin during averaging three times the revenue collected per kwh supplied. 28. The margins have been low or negative because of the level of losses and poor commercial performance. This latter is characterized by low energy sold per employee of around 476 MWh in 2015, which increased to around 634 MWh in Referring to the collection, while there is an improvement in 2016, the level is still very low when compared to the average collection rate realized by electric utilities in West Africa. Table 4.9 shows the evolution of the commercial performance indicators. Table 4.9. Commercial Performance Indicators Elements Unit Unit revenues collected GNF/kWh Energy sold per employee MWh/employee Energy sold per customer kwh/customer 3,181 4,068 Collection % Source: EDG financial statements. 29. The financial performance of the company is poor from 2015 to The profitability, liquidity, asset efficiency, and leverage are weak keeping the company in a poor financial situation. 30. Profitability. EDG remains in deficit territory during the period. The operational margin is very low and the operational charges were not covered by revenues collected, resulting in low and negative returns on equity during the last two years. The net margin ratio has oscillated between 2 percent in 2015 and 165 percent in 2016 even with the Government subsidy included. 31. The company is highly leveraged with no internally generated financial resources. The return on equity was slightly positive in 2015 (owing to high injection of Government subsidies - five times the level of equity) but returned to negative territory in 2016, even with additional capital injection from the Government. Furthermore, the operational cash flow is negative and too low to cover the other cash expenses in both years (2015 and 2016 without subsidy). 32. Table 4.10 summarizes the company profitability position in 2015 and Page 102 of 129

108 Table Profitability Ratios Elements Unit Operating margin % Net margin % Operating charges coverage ratio (+ subsidy) % Return on equity % Return on capital employed % 1 37 Source: EDG financial statements 33. Liquidity. The liquidity of the company was weak during the period. EDG was not able to pay its current expenses. The collection days slightly decreased in While the payables days were trending down slightly, its average level (405 days) is still very high when compared to the average of West African utilities, which is around 60 days. On a positive note, the cash conversion cycle decreased from 28 days in 2015 to 22 days in Finally, the day s cash on hand were negative in both years, a definitive sign that EDG is relying on its suppliers (power and fuel) to keep operating. Table 4.11 shows the trend of the liquidity ratios. Table Liquidity Ratios Elements Unit Quick ratio Current ratio Collection days Days Days in payables Days Cash conversion cycle Days Day s cash on hand Days Source: EDG financial statements. 34. Solvency. EDG is a very indebted company that funds its investment with mainly debts which are currently twice as large as the equity of the company in Chronic deficit has eroded the equity of the company, which has resulted in high interest expenses to service the long-term debt needed to finance the investment program. 35. The utility is trapped in a vicious circle characterized by a high indebtedness combined with a chronic deficit and a tariff that was not able to cover the resulting high costs. The debt ratio increased significantly during the period, while the short-term financial position was negative. The credit quality of EDG was weak and was characterized by its inability to honor its debt service obligation, due to its negative debt service coverage ratio (DSCR) during the period despite the subsidies from the GoG. The financial position of the company, which is practically in quasi bankruptcy, is described in Table Table Solvency Ratios Elements Unit Leverage (debt/equity ratio) % Indebtedness (liabilities/assets) % Interest coverage ratio % Source: EDG financial statements. Page 103 of 129

109 36. Asset Efficiency. The conservative commercial policy has maintained a high level of receivables turnover during the period. It is expected that the introduction of prepaid meters combined with a strong communication and/or marketing plan will improve the receivables turnover. On the other hand, the payables turnover remained relatively the same as the situation did not improve on this front. Table 4.13 shows the trend in the asset efficiency ratios. Table Asset Efficiency Ratios Elements Unit Receivables turnover % 788 1,485 Payables turnover % Source: EDG financial statements. B. Projected Performance and Financial Position Analysis 37. The financial projections prepared by the WBG finance team based on assumptions collected from EDG and validated by the WBG finance team are the following: (a) Estimated financial statements for FY2014 and FY2015 (b) Investment plan will be financed under concessional loan (c) No subsidies are expected from the Government from FY2021 (d) Tariff increase of 10 percent for households and 25 percent for industrial and mining companies in FY2019 (e) The total energy generation in FY2016 was 1,531,504 MWh. The domestic demand growth of 10 percent up to 2020 and 9 percent up to 2025 can be considered. EDG s projections for new generation implementation plan are the following: (i) (ii) Kaléta exports of 30 percent will start in FY2020. Souapiti exports of 20 percent will start in FY2022. (iii) Mining demand is pushed to FY2020. (iv) Baneah: one group 2.5 MW currently operational. It will operate at full capacity from FY2019 onward after rehabilitation. (v) Kaléta will start producing at maximum capacity in FY2022 when Souapiti is operational. (vi) Koukoutamba will start producing in FY2022 and a quarter (of 840 GWh) will be meant for Guinea. (vii) Sambangalou is likely to be onboard in FY2022 and a quarter comes to Guinea. (viii) Imports from Côte d Ivoire will come from FY2020 when CLSG is completed (27 MW). Page 104 of 129

110 38. EDG s cost of service, while already relatively high at GNF 1,608 per kwh (US$0.164 per kwh) in 2016, is projected to decrease in 2017 and will stay stable up to 2020, before increasing in 2021 to GNF 1,505 per kwh (US$0.169 per kwh). The main cost drivers of the company are expected to be the energy purchased (hydro and thermal IPPs). Table 4.14 shows the evolution of the drivers of the energy supplied cost. Table Drivers of Energy Supplied Costs Elements Unit Energy cost GNF, millions 1,993,655 2,492,208 1,932,714 1,987,318 2,283,318 3,552,873 4,297,250 4,963,774 O&M cost GNF, millions 525, ,938 1,311,055 1,390,709 2,016, ,966 1,712,198 2,631,631 Fuel costs GNF, 84,635 88,722 93, , , , , ,774 millions SG&A GNF, 11,604 17,068 22,983 71,546 78, , , ,642 millions Financial charges GNF, millions 111, ,700 96, , , , , ,923 Total cost of service GNF, millions 2,727,037 3,376,636 3,456,876 3,650,817 4,591,450 4,666,044 6,413,049 8,016,744 Energy GWh 2,112 2,359 2,682 2,586 3,050 3,444 4,252 4,939 supplied Cost of service GNF/kWh 1,291 1,431 1,289 1,412 1,505 1,355 1,508 1,623 Source: EDG financial model. 39. The technical losses are projected to be high during the four first years, around 36 percent, and to improve slightly to be close to 26 percent from 2020 to 2022 thanks to the ongoing transmission and distribution network rehabilitation projects and the measures that are being taken to improve the commercial performance of the utility. The losses are expected to increase again to 34 percent from 2023 due to the aggressive access program that is under development which is expected to increase the load and therefore the losses in the system. Table 4.15 shows the trend of the energy losses. Table Energy Losses and Trends Elements Unit Demand GWh 2,112 2,359 2,682 2,586 3,050 3,444 4,252 4,939 Energy sold GWh 1,329 1,482 1,715 1,977 2,238 2,518 2,824 3,179 Losses GWh Losses % Source: EDG financial model. 40. The overall commercial performance of EDG is expected to stay weak with a forecast low collection rate for the public administration and households. The metrics related to the energy sold per employee, with an average of 634 MWh per employee in 2016, is expected to increase during the upcoming period, around 15 percent per year. Page 105 of 129

111 41. Similarly, the unit revenue collected around GNF 615 per kwh (US$0.063 per kwh) in 2016, is forecasted to increase up to GNF 2,411 per kwh (US$0.24 per kwh) in Table 4.16 summarizes the commercial performance indicators. Table Commercial Performance Indicators Elements Unit Unit revenues collected GNF/kWh ,375 1,602 1,927 2,103 2,411 Energy sold per employee MWh/employee 869 1,066 1,372 1,569 1,762 1,967 2,189 2,446 Energy sold per customer MWh/customer Collection % Source: EDG financial model. 42. The operational performance, while improving, will not be enough to have a material impact on the financial position of the company during Based on the projections, EDG is expected to continue facing poor profitability, liquidity, leverage, and asset efficiency during that period, but will see improvement in its financial position starting from 2022 as the utility becomes more efficient (ratio of energy sold per employee, energy sold per customer and collection rate will increase). 43. Profitability: The utility is expected not to be able to pay its fixed cost, such as interest on debt, SG&A expenses before The net margin is forecast to be positive from 2022 onward with average annual deficit of GNF 2.7 billion before the breakeven period starting from Consequently, EDG s profitability is expected to be negative during the period, save the last three years. 44. The company s cost recovery situation is also expected to improve from The revenues will cover the operating charges from 2022 to Similarly, the return on capital employed (investments of EDG) is expected to be positive from this period, resulting in the utility being profitable starting from Table 4.17 summarizes the profitability ratios. Table Profitability Ratios Elements Unit Operating margin % Net margin % Operating charges coverage ratio % Return on equity % Return on capital employed % ,041 Source: EDG financial model. 45. Liquidity. EDG s short-term financial position, being weak at the start of the projection period, is expected to see an improvement up to The company will not be able to pay off its current liability from 2016 to 2021 on time. However, beyond 2022 the utility will be able to do so. 46. This positive outlook is due to the expected improvement in collection days during these upcoming years. Still, the collection days remain relatively high despite efforts to improve them. As such, EDG s cash is mainly locked in the receivables which will not allow the utility to pay its suppliers on time. The company will be Page 106 of 129

112 mainly relying on its suppliers to operate; in the end, this can lead to a supply of energy and fuel cut. Table 4.18 shows the forecast trend of the liquidity ratios. Table Liquidity Ratios Elements Unit Quick ratio % Current ratio % Collection days Days Days in payables Days Cash conversion cycle Days Days cash on hand Days Source: EDG financial model. 47. Solvency. EDG is a highly leveraged company. The investments are mainly being forecast to be funded using a concessional loan. With a forecast of a poor operating performance, the company is not expected to have positive retained earnings to bolster its equity position, which could potentially pave the way for it to participate in the financing of its investment program. Moreover, the growth accumulated in the past and projected deficit will keep eroding the equity of the utility. 48. With expected negative equity, EDG s capital structure is and will remain meaningless. Unless a capitalization is pursued, the company will technically be bankrupt. In fact, the long-term liabilities are forecast to be more than twice the long-term assets. The cash flow is mainly used to repay the debts, sowing the seeds for the company s lack of resiliency to withstand revenue and expense volatility. Table 4.19 shows the expected trend in the solvency ratios. Table Solvency Ratios Elements Unit Leverage (debt/equity ratio) % , Indebtedness (liabilities/assets) % Interest coverage ratio % ,326 1,609 2,689 Debt Service Coverage Ratio % Source: EDG financial model. 49. Asset efficiency. During the projection period, EDG is forecast to maintain the speed of supplier s payment despite the critical financial situation. These payments are mainly for energy purchased from the hydro and thermal IPPs. Consequently, the utility is and will stay in a situation of bankruptcy, and the cessation of operations is hanging on EDG s head unless the Government provides adequate subsidy and a financial restructuration plan. Page 107 of 129

113 50. The extremely high working capital turnover shows that the company does not have enough capital to support its sales growth, despite the efficient uses of the assets. Table 4.20 shows the trend in the assets efficiency ratios. Table Assets Efficiency Ratios Elements Unit Receivables turnover % Payables turnover % Working capital turnover % Fixed asset turnover % Source: EDG financial model. 51. A scenario was simulated to assess the level of tariff increase necessary to cover the operating expenses during The results show that EDG would have to annually raise its average rate by a staggering 37.7 percent instead of the current projected average annual rate increase of 8.4 percent, even though the cost of procuring power will trend down. Page 108 of 129

114 Financial Analysis of EDM SA Historical Cost of Electricity 52. Cost of electricity is very sensitive to oil prices. The cost of electricity generation in Mali is highly and increasingly sensitive to the oil prices, given the structural changes in the energy generation mix, which is more and more dependent on thermal generation units (HFO and diesel) fueled with imported petroleum products. Those products are especially costly in Mali, a landlocked country connected to neighboring countries ports through relatively poor transport infrastructure. The cost of the electricity service is also highly dependent on the variation of oil prices in the market. If EDM has recently benefited from the globally lower fuel cost, the earlier surge in oil prices in the past decade has significantly deteriorated the financial situation of the electricity sector. Figure 4.1. Impact of Oil Price on Power Supply Cost Rental power is very costly. EDM currently rents 100 MW of expensive and polluting diesel-fired thermal generation units to serve its growing customer base. Because of that dependency on thermal generation, the sector remains extremely vulnerable to future potential increases in oil prices. Figure 4.2. Expensive Thermal Generation Page 109 of 129

115 54. Relative cheap imported power is a boon. Share of electricity imported from neighboring countries has more than doubled since 2014, owing to higher level of imports from Côte d Ivoire. These imports helped reduce the average cost of supply by displacing expensive diesel-run generators and represents close to 15 percent of the total electricity supplied to the national grid. Figure 4.3. Increasing Cheaper Power Import from Côte d Ivoire Historical Tariff of Electricity 55. Tariff has been irresponsive to the generation mix change. The shift to more expensive thermal generation in the energy mix has not been reflected in the regulated national electricity tariffs. In fact, there has not been any substantial tariff adjustment since 2004, except for limited increases in 2009 and Figure 4.4. Tariff versus Cost of Service (in EUR, million) EURct/kWh 30 Irresponsive Tariff to Cost of Service Average effective Tariff (EURct/kWh) Average Other Revenue (EURct/kWh) Average Subsidy (EURct/kWh) Average Deficit (EURct/kWh) 56. Sector deficit is chronic with no improvement in sight. The deficit has been growing. It could however have been even more severe had the GoM not provided regular subsidies. Page 110 of 129

116 Table Revenue deficit with Subsidies (in EUR, million) Million EUR AVG Effective Tariff Revenue Other Revenue Pre-Subsidy Revenue Subsidy Total Revenue Operating Cost Pre-Subsidy Deficit Post-Subsidy Deficit (34) (16) (1) 17-4 Energy Sold (GWh) 1, ,094 1,214 1,327 1,489 Pre-Subsidy Deficit (EURct/kWh) Post-Subsidy Deficit (EURct/kWh) Level of subsidies. To ensure the continuity of the electricity service and prevent EDM s financial challenges to spread to the national economy, the GoM has increasingly been subsidizing EDM since With an average cost of service of Euro per kwh (US$0.260 per kwh) in 2016 and an average tariff at Euro per kwh (US$0.175 per kwh) and pre-subsidy revenues at Euro per kwh (US$0.197 per kwh), EDM has been losing (before accounting for any subsidies) Euro per kwh sold (US$0.062 per kwh) since 2012, which represents losses increasing from Euro 59 million in 2012 (US$71 million) to Euro 68 million (US$81 million) in In 2013, the subsidies to EDM peaked at approximately Euro 90 million (US$108 million), or Euro per kwh (US$0.10 per kwh), that is, 1.1 percent of the country s GDP. In 2016, the GoM subsidies decreased to Euro 51 million or Euro per kwh (US$61 million and US$0.042 per kwh), less than the gap needed to cover the company s operational costs. Indeed, the subsidies were not enough to cover the operating costs even when ignoring the debt repayment related to the amortization of the assets. The following factors contributed to the increase in operating costs: (a) the strengthening of oil prices in the global markets, beginning at the end of 2015, and (b) the increased share of thermal generation combined with thermal power purchased. The evolution of the revenues compared to the cost of supply is shown in Figure 4.5, while Figure 4.6 shows the evolution of the level of operating subsidies. 21 This estimate does not consider the quasi-fiscal deficit associated with underinvestment in maintenance, that is, the cost of service would be higher if accounting for maintenance cost in line with international standards to ensure longevity of the assets. Page 111 of 129

117 Figure 4.5. Revenues and Level of Subsidies to Cover Cost (in EUR, million) Source: EDM annual reports and Projections. Figure 4.6. Operation Subsidy in EUR cents per kwh Source: EDM annual reports. Working Capital Distresses. 58. Liquidity challenges. EDM is facing severe liquidity constraints due to insufficient revenues, increasing costs, deteriorating technical performance, bill payment collection delays, and insufficient and erratic payment of subsidies. As a result, EDM increased its short-term borrowing under unfavorable conditions, leading to an accumulated cash deficit (Figure 4.7) and started to delay payments to suppliers of Page 112 of 129

118 fuel and electricity, including Côte d Ivoire (Figures 4.8 and 4.9), leading in turn to suppliers strengthening advance payment and guarantee requirements. Figure 4.7. Evolution of EDM Net Cash in EUR million Source: EDM annual reports. 59. Unsustainable level in Trades Payables: Figure 4.8. Trade Payables in EUR millions and Days of Purchase Page 113 of 129

119 Figure 4.9. Trade Receivables in Euro millions and Days of Purchase Source: EDM annual reports. 60. Growing short-debt overhang. EDM, lacking sufficient revenue from electricity sales, has resorted to short-term debts (overdraft and treasury facilities) to partially limit the growth of its trade payables (electricity and fuel suppliers). Figure 4.10 presents how the situation has worsened since Figure Short-term Debt and Overdraft in Euro million Source: EDM annual reports Page 114 of 129

120 61. High level of indebtedness. Increased short-term borrowing combined with new long-term debt for capital investments has sharply increased EDM s debt stock. Weak cash flows and delayed payments have further contributed to a more difficult management of the debt service. Net Debt/Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) ratio increased from 2.4 times in 2013 to 8.6 times in 2016, as depicted in Table Table EDM s Historical Financial Statements in EUR million Income Statement Energy revenues Supply costs (100.3) (131.5) (152.0) (144.9) (164.5) (217.2) (206.5) (181.4) o/w fuel supply cost (73.1) (103.1) (125.7) (115.3) (111.0) (130.5) (123.6) (97.9) o/w electricity purchase (27.3) (28.3) (26.3) (29.6) (53.6) (86.8) (82.9) (83.5) Gross margin (8.9) (5.6) (5.9) (37.0) (7.8) 38.7 Other operating revenues o/w operating state subsidies Other operating expenses (31.0) (36.9) (35.3) (43.6) (55.8) (31.1) (37.5) (87.4) EBITDA (9.7) Earnings before Interest 1.9 (8.8) (23.4) (11.7) (5.0) (21.9) and Taxes (EBIT) Net Income (0.6) (0.1) (27.4) (18.7) (26.1) (40.2) Cash flow Statement Total uses Working Capital (10.07) (5.05) (20.44) (53.97) (9.35) Investments (29.10) (28.06) (27.90) (32.72) ( (78.25) (68.16) ) Debt Reimbursement Total Sources Free Cash State Subsidies Debt Free Cash Flow (7.96) (26.23) (35.81) (20.24) Net cash (24.28) (22.62) (7.70) (43.51) (32.91) (53.14) Balance Sheet Equity of which investment subsidies LT Debt ST Debt of which Account payables to suppliers of which bank ST Debt Operational ratios Energy rev growth (%) Supply cost growth (%) EBITDA margin (%) Page 115 of 129

121 Net margin (%) Credit ratios Net Debt / EBITDA (21.5) Source: EDM Annual Reports. Sector Financial Projections Supply projections. The projections are done over 10 years ( ). The energy balance is based on a generation expansion plan considered realistic by the WBG given available information on the various projects and the needs of the system. The merit order is based on the estimated Levelized Cost of Electricity (LCOE) of each power supply source and the dispatch order prioritizes: (a) IPPs and imports with take-or-pay contracts; (b) EDM-owned hydropower generation; (c) EDM-owned thermal generation; and (d) rental diesel units needed in the first few years to bridge the gap. 63. Based on these, the following assumptions were made on the supply of electricity: All the existing capacity remains in operation. However, it is assumed that Sotuba and Manantali will be decommissioned in 2025 and Selingue in New solar capacity. Three projects totaling 123 MW are commissioned within the next five years and two other solar projects are delayed (Koutiala and Sissako for 75 MW together). New HFO plants. Albatros (IPP, 92 MW) starts providing electricity for the Mali interconnected grid in Two EDM-owned HFO plants are assumed close to Bamako: IsDB-financed 100 MW HFO and EU-financed 70 MW, with operations starting in New hydropower plants. As a conservative assumption, the commissioning of cheaper hydropower plants, Kenie and Gouina, is assumed to take place with a slight delay. Other projects are assumed with even more delays but within the projection period: Sotuba (II), Markala, Talo, and Badoumbe. Interconnections with Mauritania and Guinea (for which studies have been completed, but financing is not secured yet) are assumed with some delay. Interconnection with Ghana through Burkina Faso (Ghana-Burkina Faso-Mali interconnection project, for which studies have not started) is assumed to face significant delays, beyond The projected Commercial Operation Date (COD) along with its source, capacity, and capacity factor, as summarized in Table 4.23, were used in the analysis. Table Projected CODs, Capacity, Source, and Capacity Factor for New Power Plants Source COD MW Capacity Factor (%) Ségou Solaire Solar Sotuba (II) Hydro R20 Solar Kati Solar Page 116 of 129

122 HFO Plant in Bamako (EDM) HFO HFO Plant in Bamako 2 (EDM) HFO Albatros HFO Kenie Hydro Imports from Guinee Conakry Imports Gouina Hydro Imports from Mauritania Imports Koutiala Solar Sissako Solar Markala Hydro Talo Hydro Badoumbe Hydro Demand projection. The possibility to generate from diesel units in the initial years gives some flexibility to increase generation but at a financial cost. Therefore, the assumption on consumption growth driven by a distribution network extension and new connections is approached as a trade-off between the GoM s policy of increasing consumption by 10 percent per year and affordability of this policy for EDM and the GoM (given the subsidies it would involve). A 7 percent annual growth rate is assumed for the first four years, then 10 percent growth per year in the medium to long term. It is further assumed that consumption will not exceed the master plan estimates, which are considered optimistic. 66. Losses. The technical and commercial total losses are assumed to be decreasing by 0.5 percent per year, reflecting a regular investment plan as described below to strengthen the network. 67. Energy balance. In Mali, given the low level of access to electricity and per capita consumption, the insufficient supply and weakness of the transmission/distribution network, suppressed demand is estimated to be substantial. Availability of supply and capacity to evacuate power and distribute it to customers are considered the main driver of consumption growth in Mali. Investment assumptions in generation and transmission and distribution network expansion are therefore an integral part of the met-demand projections. As illustrated in Figure 4.11, diesel generation will be required in the coming four years to serve new connections 22. However, the high cost of this strategy led to assuming a reduced pace in the distribution network expansion and resulting growth in demand for a few years: 7 percent per year until 2019, then 10 percent per year in the long run. 22 The fuel price used in the analysis are from the latest World Bank Commodity Price Forecast from (January 2017), which extends until The price is assumed to rise up to US$80/bbl and then decrease again following the long-term commodity cycle. Under this somewhat conservative scenario, it stays above US$50/bbl (but US$68/bbl by 2035). It is in line with World Bank projections and with those in the economic analysis. Page 117 of 129

123 Figure Projections of Energy Balance on the Grid in Mali ( ) Source: EDM annual reports, Artelia Masterplan, and WBG estimates. 68. Levelized cost of electricity. The assumed generation plan has the potential to reduce the average cost for EDM. As illustrated in Figure 4.12, the estimated LCOE is often lower than the cost of the existing power plants and in all cases far lower than the rental diesel generation. Page 118 of 129

124 Figure PPA Tariff for IPPs or LCOE for Public Plants in Euro cents per kwh Source: WBG estimates. 69. Transmission investment plan. The transmission network in Mali is saturated and does not currently allow for the evacuation of the planned additional generation capacity or additional imports from Côte d Ivoire, Mauritania, Senegal, or Guinea. The existing transmission line to Côte d Ivoire allows a maximum import of 45 MW while the transmission line from Manantali to Bamako (part of the OMVS system) is almost saturated. To overcome those constraints, the Artelia Masterplan has identified investment needs estimated at Euro 1.2 billion (US$1.3 billion) through 2034, including Euro 795 million (US$867 million) by 2021 alone. The scale and rapid pace of this investment plan illustrate the need to address the transmission constraints to support the development of the sector. 70. In this analysis, the transmission investment plan reflects the status of the key projects identified by the National Directorate for Energy of the Ministry of Energy and of discussions with potential financiers. CODs of generation projects are aligned with the revised commissioning dates of some transmission lines. Any delay in the implementation of those projects represents a financial risk for EDM, considering its takeor-pay obligations under the PPAs. 71. The following priority projects represent a significant amount of investment (close to Euro 630 million) and other investments in transmission are needed. OMVS 225 kv transmission line from Bamako to Manantali, 23 Kayes to Senegal, 24 and Kayes to Mauritania, 25 allowing the evacuation of existing generation capacity from Manantali and 23 Financed by AFD. 24 Financed by IDA. 25 Financed by Exim Bank China. Page 119 of 129

125 Felou 26 from the OMVS system but also new generation capacity from Albatros (92 MW, HFO), R20 (50 MW, Solar), and Gouina (140 MW OMVS hydro to be shared equally by the three OMVS countries), as well as imports from Mauritania and Senegal. This project is expected to be commissioned by 2020/2021 and these additional capacities are subject to its timely commissioning. Bamako 150 kv ring and four substations 27 allowing additional power to be absorbed in the capital city area where the transmission network is currently congested. This loop would also allow the development of the additional HFO capacity around Bamako. 225 kv Bamako-Sikasso 28 allowing the interconnection with Ghana and additional imports from Côte d Ivoire, as well as the evacuation of Sikasso (50 MW, solar) and Koutiala (25 MW, solar). 72. Investments in the expansion of OMVS generation and transmission system will be financed collectively by Mali, Senegal, and Mauritania. Therefore, EDM is not assumed to be paying for the OMVS assets. The allocation of the investments among the three countries is yet to be defined. Funding is identified for most of the investment needs in the coming four five years, as illustrated in Figure Figure Transmission Investment Plan in Euro, millions Source: Artelia Masterplan WBG estimates. 73. Distribution investment plan. Investments in the distribution network, new connections, and grid extensions are key to delivering the output of new generation capacity to customers. Using Artelia s 26 Manantali and Felou are two OMVS power plants. Mali is entitled to one-third of the output and the remaining two-thirds belong to Senegal and Mauritania and need to be evacuated. 27 Assumed to be financed by Exim Bank of China. 28 Assumed to be financed by Exim Bank India, BIDC and CEDEAO. Page 120 of 129

126 Masterplan and adjusting it to fit the revised power generation plan, the investment needs in the grid are estimated to average EUR 25 million (US$27 million) per year over the projection period. Many have shown interest in supporting Mali with its off-grid initiatives but no funding is yet clearly identified for the gridconnected distribution investments. However, the estimated amount remains reasonable for EDM and the GoM to self-finance if needed. 74. Capital expenditures. The resulting projected investment plan to be financed by EDM and OMVS until 2026 includes Euro 300 million for the two HFO plants, Euro 840 million in transmission, and Euro 310 million in distribution (Figure 4.14). Financing is assumed to be raised by the GoM from international donors at the following IDA-type terms: 38 years maturity with 6-year grace and interest of 0.75 percent per year. It is assumed that GoM would on-lend the funding to EDM with 15-year maturity with 3-year grace and 1 percent interest rate. Although there is no set policy on the GoM s side, those terms are in line with recent on-lending arrangements in Mali. The financial benefit to the GoM stemming from the on-lending arrangement is included as a financial resource to the GoM when assessing its required financial support to the sector. Given the situation of EDM and its reliance on the GoM s subsidies, the financing plan uses no internal cash flow. Figure Assumed EDM and OMVS Investment Plan Source: WBG estimates 75. Revenues. Customers connected to the national grid and to isolated centers are subjected to the same tariffs. No significant tariff increase has occurred in the recent past and it is assumed that it would be difficult to implement any tariff increase in the short term. Therefore, there is no tariff increase for the next three years, followed by a small tariff increase of 4 percent per year in line with the average local consumer price index over the past 25 years and the local inflation assumption used in the project. 76. Collections. Historical collection performance is aligned with the performance in the sub region and collection loss level is assumed stable in the base case, at 2 percent. Page 121 of 129

127 77. Operating expenses. Power purchases are projected based on the dispatch of each power source and their nominal cost. Fuel costs are estimated based on the World Bank commodity forecast, the specific consumption of each of EDM s own thermal power plants and the local cost of the fuel value chain in Mali. The cost of diesel rental generation is calculated using the current arrangements involving a fixed capacity payment and variable cost payment including the fuel cost. The price of diesel is forecasted based on (a) the World Bank commodity prices Brent forecast; (b) a long-term cycle; and (c) the actual variable and fixed costs of the fuel value chain in Mali, including taxes and duties. 78. Non-cash expense. The growing level of investments in transmission and distribution assets is leading to a sharp rise in EMD s depreciation charges from Euro 38 million in 2017 to a peak of Euro 118 million in Depreciation expenses are calculated using the applicable depreciation rates for EDM. 79. Cost of service. Given the continued use of diesel rental in the next few years, the cost of service is projected to keep increasing before it can reduce when other generation sources from HFO, solar and eventually imports and hydropower come online. With the constant but modest assumed tariff increase starting in Year 4, it would take some time for EDM to reach full cost recovery, estimated in Figure 4.15 shows the cost of service including all operating expenses, interest charges, and depreciation charges for the cost of assets. Figure Cost of Service and Average Tariff in Euro cents per kwh Source: WBG. 80. Subsidies. EDM will require subsidies to cover its costs and keep operating for some time. When computing the level of subsidy needed to reach full cost recovery, a return on equity for EDM is not assumed although it would be desirable in the long run. It is estimated under this scenario that EDM would need on average Euro 100 million (US$109 million) per year of subsidies over the next 10 years to fully cover its costs, Page 122 of 129

128 with a peak at Euro 176 million in 2019 (US$192 million) at the peak of diesel utilization. Although these amounts of subsidies are significant, they reflect a slower pace of new customer connections and consumption growth than currently envisaged by the GoM. 81. Debt service. With over Euro 1.4 billion (US$1.5 billion) of new debt over the 10 years to finance its investment plan, EDM would have to service on average Euro 41 million (US$45 million) of principal repayment per year for the next 10 years. Since the computation of the subsidy amount in the projections ensures that EDM can cover the cost of the assets, DSCR levels have limited relevance. They remain however acceptable most years through the projection period. Figure 4.16 shows the cash flow available for debt service, the debt service (principal + interest), and the resulting DSCR (right axis). Figure Debt Service Coverage 29 Source: WBG. 82. Cash flow. The subsidy assumption in the base case does focus on ensuring that the cash flow requirements are met. EDM s operating cash flows strengthen over the projection period benefiting from a favorable working capital situation. Historically, the collection rate has been relatively good and EDM has been able to pay suppliers at extended terms. However, the situation is deteriorating and needs to be closely monitored. Figure 4.17 summarizes EDM cash flow over the projection period. The detailed financial projections are provided in Table Under this scenario, EDM would start repaying the debt associated with two HFO power plants in The retail tariff increases assumed in previous years help EDM meet this debt obligation from the first year but the DSCR level would be low. Subsequent annual increases allow EDM to restore a more comfortable DSCR level. Page 123 of 129

129 Figure EDM Cash Flow and Change in Cash (EUR, millions) Source: WBG. 83. Government financial support to the sector. Net financial support from the GoM to the sector is computed by adding operation subsidies, investment subsidies, financing for OMVS projects, and subtracting the financial benefits to the GoM from the on-lending arrangement. The total net financial support from the GoM presented in Figure 4.18 is substantial, averaging Euro 93 million (US$101 million) over the projection period. Most of the support is in the form of subsidy to EDM to compensate for the operational losses and cover partly the cost of existing and new assets. Figure Required GoM Financial Support to the Sector (Euro, millions) Source: WBG. Page 124 of 129

130 Table Financial Projections Income Statement (EUR, millions) Revenues including subsidy Operating costs (381) (427) (484) (512) (502) (553) (591) (648) (746) (818) including fuel (84) (86) (88) (91) (120) (104) (105) (111) (149) (167) EBITDA Provisions and depreciation (40) (43) (43) (43) (59) (76) (85) (96) (104) (118) Earnings before interest and taxes (EBIT) Net interest expense (2) (2) (1) (1) (6) (6) (7) (7) (8) (10) Tax (1) (1) (1) (2) (2) (2) (2) (2) (3) (3) Net income Balance Sheet (EUR, millions) Property, Plant and Equipment Fixed assets Non-cash current assets Cash Total assets ,116 1,379 1,445 1,591 1,713 1,805 1,844 1,802 Common stock Retained earnings (24) (22) (18) (15) (11) (7) (2) Investment subsidy Reserves and other equity Long-term debt ,092 1,167 1,178 1,118 Long-term liabilities and provisions Accounts Payables Short term debt Total equity and liabilities ,116 1,379 1,445 1,591 1,713 1,805 1,844 1,802 Cash Flow (EUR, millions) Operating revenues Operating costs (384) (416) (470) (506) (531) (538) (590) (635) (729) (808) Cash flow from operations Capital expenditure and IDC (34) (170) (196) (250) (134) (157) (168) (151) (106) (49) Interest income Page 125 of 129

131 Cash flow after investing 1 (127) (151) (220) (121) (102) (110) (77) (22) 35 Interest (3) (2) (2) (2) (7) (7) (8) (8) (9) (10) Debt repayment (7) (9) (12) (14) (29) (43) (64) (74) (87) (101) Debt drawdown Investment subsidy Net change in cash (43) 12 (14) (11) (20) (35) Key Ratios Revenue growth (%) (0.1) DSCR total debt 6.9x 9.0x 6.5x 4.0x 0.2x 2.3x 1.6x 1.8x 1.7x 1.4x Current ratio 1.3x 1.4x 1.5x 1.6x 1.7x 1.8x 1.9x 1.9x 1.9x 2.0x EBITDA margin (excluding subsidy) (0.6)x (0.7)x (0.8)x (0.5)x (0.1)x (0.0)x 0.1x 0.1x 0.1x 0.1x EBITDA margin (with subsidy) 0.2x 0.2x 0.1x 0.1x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x Asset turnover 0.4x 0.3x 0.3x 0.3x 0.3x 0.3x 0.4x 0.4x 0.4x 0.5x Page 126 of 129

132 ANNEX 5: Logical Chain for Gender Tag COUNTRY : Western Africa Guinea Mali Interconnection Project Gender Gap Gender Action that Addresses the Gap/Key Outcome Indicators to Measure Closing of the Gender Gap Key Issues Issues West African countries, such as Guinea and Mali, still face significant challenges in closing existing gender gaps at different sectors. In the energy sector, the lack of affordable and easy access to electricity services disproportionately affects women as consumers and within the households, because of their reliance on electricity to fulfill domestic chores manually, such as collecting firewood, and burning high-polluting charcoal and kerosene for cooking and lighting, which in rural contexts, are primarily the responsibility of women. As a result, women in the region experience more time poverty which impedes their full participation in educational and economic activities and access to information about the benefits of using energy resources. Lower productivity and income may also contribute to women s lack of access to energy because they are not able to pay for the connection or the tariff. Another factor that contributes to disparities in energy access is the lack of technical capacity on gender at the power utilities in these countries. Lack of technical capacity to successfully have an equal impact on energy access for women and men Lack of access to information about the availability and benefits of i. Build the capacity of power utilities project staff on gender to deal with women s energy access needs. ii. Hire female staff (or mixed-gender teams) in the power utilities, in the Customer Call Center, or as promoters and sales agents for off-grid products and include gender in the ToR for new positions. This may provide an opportunity to provide employment opportunities for women. i. Design gender-sensitive information campaigns about the project and its benefits. ii. Collect sex-disaggregated data through the customer service satisfaction survey Number of utilities project staff trained/certified on gender training, and percent by sex. Number Percentage of woman professionals trained, and percent by sex Number of technical staff from EDG trained under the project, and percent by sex. Number of people hired by the project by type of job, and percent by sex. Number of gender-sensitive information campaigns delivered Number of people who completed the customer service satisfaction survey and percent by sex Gender gap in knowledge reduced and female staff in the power utilities increased. Gender gaps in knowledge and access/use of modern energy reduced. Page 127 of 129

133 Gender Gap Key Issues energy Lack of economic opportunities in the energy sector for women Gender Action that Addresses the Gap/Key Issues to assess women s and men s satisfaction or complaints with the project. i. Hire women from the beneficiary communities in the maintenance or communications work around the project. ii. Provide technical skills training to women entrepreneurs. Outcome Indicators to Measure Closing of the Gender Gap Number and percent of female and male customers who are satisfied or dissatisfied with the project. Number of people hired under the project by type of job, and percent by sex. Gender gap in labor force participation in the energy sector reduced. Page 128 of 129

134 ANNEX 6: Project Map COUNTRY : Western Africa Guinea Mali Interconnection Project Page 129 of 129