Burundi - Jiji and Mulembwe Hydropower Project. Project Appraisal Document

Transcription

1 OFFICIAL USE ONLY IDA/R /1 April 2, 2014 For meeting of Board: Tuesday, April 22, 2014 FROM: Vice President and Corporate Secretary Burundi - Jiji and Mulembwe Hydropower Project Project Appraisal Document Attached is the Project Appraisal Document regarding a proposed grant to Burundi for a Jiji and Mulembwe Hydropower Project (IDA/R ), which will be discussed at a meeting of the Executive Directors. Distribution: Executive Directors and Alternates President Bank Group Senior Management Vice Presidents, Bank, IFC and MIGA Directors and Department Heads, Bank, IFC and MIGA 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 Group authorization.

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3 Document of The World Bank FOR OFFICIAL USE ONLY Report No: BI INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR MILLION (US$100 MILLION EQUIVALENT) TO THE REPUBLIC OF BURUNDI FOR A JIJI AND MULEMBWE HYDROPOWER PROJECT MARCH 27, 2014 Energy Unit Sustainable Development Department Eastern Africa Country Cluster 1, AFCE1 Africa Region 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.

4 CURRENCY EQUIVALENTS Exchange Rate Effective: February 28, 2014 Currency Unit = Burundi Francs (BFu) BFu 1,556 = US$ US$ = SDR 1 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ABER ACR ACSR AFDB ARAP AWP AWPB BP CAS CEPGL CoS CQS CV DA DL DRC DSI EA EAC EAPP EGL EIB EIRR EMP ENSAP EOI EPC ESIA ESMF ESMP EU Rural Electrification Agency in Burundi Agency for Regulation and Control Aluminum Conductor, Steel Reinforced African Development Bank Abbreviated Resettlement Action Plan Annual Work Plans Annual Work Plans and Budgets Bank Procedures Country Assistance Strategy The Economic Community of Great Lakes Countries (Communauté Economique des Pays des Grands Lacs) Cost of Service Selection Based on Consultants Qualifications Curriculum Vitae Designated Account Disbursement Letter Democratic Republic of Congo Design, Supply and Installation Environmental Assessment East Africa Community East Africa Power Pool Great Lakes Energy (Energie des Grands Lacs) European Investment Bank Economic Internal Rate of Return Environmental Management Plan Eastern Nile Subsidiary Action Program Expression of Interest Engineering Procurement and Construction Environmental and Social Impact Assessment Environmental and Social Management Framework Environmental and Social Management Plan European Union ii

5 FBS FBU FIRR FM FMR FMS GDP GHG GoB GRM GWh IBRD ICB IDA IFC IFR ISDS kwh LCOE LCS LV M&E MEM MIS MV MW NBI NCB NPV O&M OP PAP PDO PEFA PIM PIU PPA PPP PRSP PSC QBS QCBS RAP REGIDESO Fixed Budget Selection Franc Burundais (Burundi s National Currency) Financial Internal Rate of Return Financial Management Financial Management Report Financial Management Specialist Gross Domestic Product Green House Gases Government of Burundi Grievance Redress Mechanism Gigawatt hour International Bank for Reconstruction and Development International Competitive Bidding International Development Association International Finance Corporation Interim Financial Report Integrated Safeguards Data Sheet Kilowatt hour Levelized Cost of Electricity Production Least-Cost Selection Low Voltage Monitoring and Evaluation Ministry of Energy and Mines Management Information System Medium Voltage Megawatt Nile Basin Initiative National Competitive Bidding Net Present Value Operations and Maintenance Operational Policy Project Affected Persons Project Development Objective Public Expenditure and Financial Accountability Project Implementation Manual Project Implementing Unit Power Purchase Agreement Public Private Partnerships Poverty Reduction Strategy Paper Project Steering Committee Quality-Based Selection Quality and Cost Based Selection Resettlement Action Plan Agency for Production and Distribution of Water and Electricity (Régie de Production et de Distribution d'eau et d'electricité) iii

6 RPF Resettlement Policy Framework SBD Standard Bidding Document SCADA/EMS Supervisory Control and Data Acquisition/Energy Management System SDR Special Drawing Rights SE4ALL Sustainable Energy for All SOE Statement of Expenses SSS Single Source Selection T&D Transmission and Distribution TA Technical Assistance TOR Terms of Reference UCS Use of Country Systems UNDP United Nations Development Program US$ United States Dollar WB World Bank WBG World Bank Group WTP Willingness to Pay Regional Vice President: Makhtar Diop Country Director: Philippe Dongier Sector Director: Jamal Saghir Sector Manager: Lucio Monari Task Team Leader: Kyran O Sullivan iv

7 REPUBLIC OF BURUNDI JIJI AND MULEMBWE HYDROPOWER PROJECT TABLE OF CONTENTS I. STRATEGIC CONTEXT...1 A. Country Context... 1 B. Sectoral and Institutional Context... 2 C. Higher Level Objectives to which the Project Contributes... 6 II. PROJECT DEVELOPMENT OBJECTIVE(S)...7 A. PDO... 7 B. Project Beneficiaries... 8 C. PDO Level Results Indicators... 8 III. PROJECT DESCRIPTION...9 A. Project Components... 9 B. Lending Instrument C. Project Costs and Financing D. Lessons Learned and Reflected in the Project Design IV. IMPLEMENTATION...16 A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. KEY RISKS AND MITIGATION MEASURES...20 A. Risk Ratings Summary Table B. Overall Risk Rating Explanation VI. APPRAISAL SUMMARY...21 A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Financial Terms F. Social (including Safeguards) G. Environment (including Safeguards) v

8 Annex 1: Results Framework and Monitoring...35 Annex 2: Detailed Project Description...38 Annex 3: Implementation Arrangements...45 Annex 4: Operational Risk Assessment Framework (ORAF)...71 Annex 5: Implementation Support Plan...77 Annex 6: Economic and Financial Analysis...79 Annex 7. Sector Background...99 Annex 8: Power Sector Reforms Annex 9: Maps vi

9 ..... PAD DATA SHEET Republic of Burundi BI-Jiji and Mulembwe Hydropower (P133610) PROJECT APPRAISAL DOCUMENT AFRICA AFTG1 Basic Information Project ID EA Category Team Leader P A - Full Assessment Kyran O'Sullivan Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Project Implementation Start Date 22-Apr-2014 Expected Effectiveness Date 18-Aug-2014 Joint IFC No Series of Projects [ ] Project Implementation End Date 30-June-2019 Expected Closing Date 31-Dec-2019 Sector Manager Sector Director Country Director Regional Vice President Lucio Monari Jamal Saghir Philippe Dongier Makhtar Diop Recipient: Republic of Burundi Responsible Agency: Ministry of Energy and Mines Contact: His Excellency, Come Manirakiza Title: Minister for Energy and Mines Telephone: comemanirakiza@yahoo.fr Responsible Agency: REGIDESO (Régie de Production d Eau et d Electricité) Contact: Mr. Libérat Mfumukeko Title: Director General Telephone: nyctekfrance@yahoo.fr vii

10 ..... Project Financing Data (in USD Million) [ ] Loan [ ] Grant [ ] Guarantee [] Credit [X] IDA Grant [ ] Other Total Project Cost: Total Bank Financing: Financing Gap: Financing Source Amount BORROWER/RECIPIENT International Development Association (IDA) IDA recommitted as a Grant 0.09 African Development Bank European Investment Bank European Union REGIDESO 2.50 Total Expected Disbursements (in USD Million) Fiscal Year Annual Cumulative Project Development Objective The project development objective is to increase the supply of clean and low cost hydropower electricity to Burundi's national grid. Components Component Name Cost (USD Millions) Component A: Hydropower Facilities and Electricity Services Component B: Technical Assistance; Project Management Component C: Power Sector Reform and Institutional Development 4.40 Sector Board Energy and Mining Institutional Data viii

11 .... Sectors / Climate Change Sector (Maximum 5 and total percent must equal 100) Major Sector Sector Percent Adaptation Cobenefits percent Mitigation Co-benefits percent Energy and mining Hydropower 90 Energy and mining Transmission and Distribution of Electricity 10 Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total percent must equal 100) Major theme Theme Percent Financial and private sector development Infrastructure services for private sector development 100 Total 100 Policy Compliance Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X] Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? N/A [X] Is approval for any policy waiver sought from the Board? Yes [ ] No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 X X X ix

12 . Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X 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 X X X X Legal Covenants Name Recurrent Due Date Frequency Owner s Engineer Dated Covenant Description of Covenant The Recipient shall, not later than thirty days before launching the bidding documents for Components A1 and A2 (Jiji and Mulembwe hydropower schemes) cause the Project Implementing Entity to recruit an Owners Engineer with qualifications, experience and terms of reference satisfactory to the Association. Name Recurrent Due Date Frequency Dam Safety Panel Dated Covenant Description of Covenant For the purpose of the construction of the Jiji Dam, the Recipient shall, not later than thirty days before the launching of the bidding documents for Component A1 (Jiji hydropower scheme), cause the Project Implementing Entity to establish and thereafter maintain an independent dam safety panel all with qualifications and experience acceptable to the Association. Name Recurrent Due Date Frequency Environmental and Social Safeguards Advisory Panel. Dated Covenant Description of Covenant The Recipient shall, not later than the commencement of activities detailed under Component A6 (Social and Environmental Impacts Mitigation), cause the Project Implementing Entity to establish and thereafter maintain, throughout the implementation of the Project, an independent environmental and social safeguards advisory panel comprised of environmental and social safeguards experts having qualifications and experience acceptable to the Association. Name Recurrent Due Date Frequency Counterpart Funds Account Dated Covenant Description of Covenant The Recipient shall deposit into the Counterpart Funds Account, (a) not later than three (3) months prior to the commencement of works under Components A1 through A4 (Hydropower facilities), an amount equivalent to six million Dollars ($6,000,000), and (b) thereafter on a schedule and in installments agreed with the Association as reflected in the Annual Work Plan and Budget, a total x

13 amount equivalent to eight million three hundred thousand Dollars ($8,300,000), all in the Recipient s currency. Name Recurrent Due Date Frequency Operations and Maintenance (O&M) Contract Description of Covenant Dated Covenant The Recipient shall, not later than twelve (12) months prior to the completion of Components A1 through A4 (Hydropower Facilities), cause the Project Implementing Entity to enter into a three (3)- year operation and maintenance contract with a qualified contractor for the operation and maintenance of the Facilities. Financial Management Dated Covenant Description of Covenant Not later than three (3) months after the Effective Date, the Recipient shall cause the Project Implementing Entity to adapt for the purposes of the project, its computerized multi-project financial and accounting system in a manner satisfactory to the Association, and successfully train relevant staff in the use thereof. Procurement Dated Covenant Description of Covenant Not later than three (3) months after the Effective Date, the Recipient shall (or cause the Project Implementing Entity) to establish, within the PIU, a comprehensive record keeping system satisfactory to the Association, and successfully train relevant staff in the use thereof. Conditions Name Subsidiary Agreement Type Effectiveness The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity. Name Project Implementing Entity Type Effectiveness The Project Implementing Entity has recruited to the Project Implementing Unit (PIU), a Project coordinator, technical manager, environmental and social safeguards manager, a financial management specialist, an accountant and a procurement specialist. Name Type xi

14 Project Implementation Manual Effectiveness The Project Implementing Entity has adopted the Project Implementation Manual that is satisfactory to the Association. Name Co-financing Agreements Type Disbursement For Component A1 and A2 (Jiji and Mulembwe hydropower schemes, the Co-financing Agreements, except the EU Co-financing Agreement, have been executed and delivered and all conditions precedent to their effectiveness or to the right of the Recipient to make withdrawals thereunder have been fulfilled. For Component A3 (Substations), the EU Co-financing Agreement, has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Recipient to make withdrawals thereunder have been fulfilled. Bank Staff Team Composition Name Title Specialization Unit Kyran O'Sullivan Senior Energy Specialist Team Lead AFTG1 Nneoma Veronica Nwogu Paul-Jean Feno Antoine Lema Frederic Louis Vonjy Rakotondramanana Melance Ndikumasabo Bella Diallo Legal Counsel Legal issues LEGAM Senior Environmental Specialist Senior Social Development Specialist Senior Hydropower Specialist Transmission /Distribution Engineer Procurement Specialist Financial management Specialist Environmental safeguards and environment management capacity. Social safeguards and environment management capacity. Engineering design and supervision Engineering and supervision Procurement review and procurement capacity building Financial management including capacity building xii AFTN1 AFTCS AFTG2 AFTG1 AFTPE AFTMW David Vilar Engineer Engineering, risks AFTG2 Faly Diallo Finance Officer Loan and Disbursement CTRLA Bernadette Tembo Milunga Program Assistant Administrative support AFTG1 Pacifique Ndoricimpa Team Assistant Administrative support AFMBI Clarette Rwagatore Executive Assistant Administrative support AFMBI Lucy Kang arua Program Assistant Administrative support AFCE2

15 . Non-Bank Staff Name Title Office Phone City Ananda Covindassamy Consultant (Economist & Institutional Specialist) Washington D.C. Locations Country Burundi First Administrative Division Location Planned Actual Comments xiii

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17 I. STRATEGIC CONTEXT A. Country Context 1. Since 2004 Burundi has made good progress in establishing a relatively stable macroeconomic environment, rebuilding institutions, and consolidating peace and security. Burundi has recovered from the decade long conflict, which took place between 1993 and 2003 and resulted in widespread destruction of economic and social infrastructure. Over the past decade, the Government s economic and financial programs aim to consolidate economic and political gains, promote inclusive economic growth, contain inflation, and strengthen policies designed to combat endemic poverty in rural and urban areas. 2. Gross Domestic Product (GDP) per capita is US$164 and GDP is estimated to have grown at 4.4 percent in 2013 and is estimated to grow at 4.6 percent in Agriculture accounts for about one-third of GDP and provides livelihood for more than 80 percent of the population mainly in the cultivation of coffee and tea, the main cash crops. Reforms aimed at spurring economic growth include improvements to the legal and regulatory framework to enable easier business start-up, improving agricultural productivity, and promoting the mining sector. 3. Education and health outcomes improved significantly over the past few years but none of the Millennium Development Goals will be achieved by Life expectancy rose from 43 years in 2000 to 50 years in Poverty that affects two-thirds of the population varies widely between regions and between rural and urban areas (a new household survey carried out in 2013 is expected to be available in 2014). Progress was particularly significant in carrying out structural reforms and policies for social inclusion, in line with the priority needs of the country. 4. The Government s priorities are laid out in the second Poverty Reduction Strategy Paper (PRSP-II) 2012 that focuses on job-creating economic growth, reducing poverty and consolidating peace and security. The PRSP aims to transform the economy to facilitate rapid job-creating growth and food security; make growth more inclusive and sensitive to the needs of vulnerable groups; increase trade with neighbors; and develop institutions to improve governance and the quality of Government services to the public. 5. Improving the business environment is a Government priority. Since 2011 when Burundi was ranked third from bottom in the World Bank's Doing Business report it has climbed to 159th place out of 185 in the Doing Business ranking for 2013 after taking measures to reinforce investor protection (for example a new mining code was approved in October 2013) and register property. The PRSP recognizes that poor infrastructure including inadequate and costly electricity supply and inadequate regional transport connectivity are barriers to improving the business climate and private sector activity. 6. Poverty reduction and economic growth will require that progress is made in eliminating the severe power supply deficit and raising the very low access rate of households to electricity in Burundi, which at 4 percent is one of the lowest in the world. 1

18 B. Sectoral and Institutional Context 7. The main institutions in the electricity sector are the Ministry of Energy and Mines (MEM); Régie de Production et de Distribution d'eau et d'electricité (REGIDESO) the national public-owned electricity and water production and distribution company and the Rural Electrification Agency of Burundi (ABER). The Ministry s mandate is development of sector policy making, sector planning, and supervision of seven state enterprises including REGIDESO and ABER. REGIDESO has a position of quasi-monopoly, although the law governing the sector does not confer on it monopoly rights. The company has budgetary autonomy and is managed commercially. The Director General of REGIDESO and the company directors are appointed by the President of the Republic. 8. Electricity production is mainly through hydropower generation (84 percent) with diesel generators supplying the remainder. Production capacity includes 35 MW nationally plus 3.5 MW (from Ruzizi I) purchased from the Société Nationale d Electricité (SNEL), the national power utility in the Democratic Republic of Congo (DRC) and 12 MW (from Ruzizi II) purchased from the regional production company Société International d Electricité des Pays des Grandes Lacs (SINELAC). The total available maximum electricity production capacity is therefore 50.5 MW. REGIDESO operates 94 percent of the nationally installed generation capacity. ABER operates seven mini-plants with a capacity of 1.52 MW and religious organizations operate plants with a total capacity of 0.29 MW, none of which are connected to the national grid. Hydropower plants in Burundi are all run-of-river (without reservoirs) except for Rwegura, resulting in additional difficulties in meeting power demand during the six-month dry season. Imports represent 42 percent of the total electricity supply. The terms of imports are relatively favorable: the tariff charged by SNEL is US$ 0.078/kWh and by SINELAC is US$0.034/kWh. 9. About 10 MW rental generation units using diesel fuel have been contracted by the Government in 2013 to supplement REGIDESO owned generation capacity of 50.5 MW (of which 10.5 MW are diesels and the rest hydro) in order to narrow the supply-demand gap during peak hours There are significant opportunities for renewable energy investments mostly in hydropower. An equatorial and mountainous country, Burundi benefits from large hydropower potential of about 1,700 MW of which approximately 300 MW is estimated to be economically exploitable. There is solar potential for pre-electrification in isolated areas. Hybrid solar-diesel systems and grid-connected solar photovoltaic (PV) farms may be viable substitutes for high cost diesel generation. Wind potential is limited and is more attractive for water pumping than power generation. There is good geothermal potential whose economic potential at specific sites still needs to be confirmed through exploratory drilling. 1 The power output of the 10MW thermal power rental units that were contracted in May 2013 for a period of two years, costs US$ 800,000 per month. The units operate for 6 hours per day for 6 days per week. Since the units were contracted, the Government has paid about 72 percent of the cost and REGIDESO the remainder. 2

19 11. The electricity access rate in Burundi was approximately four percent in REGIDESO serves about 76,000 customers and 64 percent of these are located in and around Bujumbura. The quality and reliability of electricity service provided by REGIDESO is poor. Available generation capacity is insufficient to meet the demand. REGIDESO estimates that 60 percent of the grid requires rehabilitation or upgrading to meet the interconnection standards of the East African Power Pool. 12. Although REGIDESO s financial performance has improved after tariff increases in recent years, its operational efficiency still remains inadequate. The cumulative increases in electricity tariffs in 2011 and 2012 was about 69 percent and raised the average tariff to about the equivalent of US$0.11 per kwh in This level is below the system long run marginal cost of US$0.14 per kwh but higher than REGIDESO s average cost of supply and revenue requirement in 2012 that was estimated at US$0.10 per kwh. However, the effective tariff (i.e., revenue collected per kwh) is lower at US$0.09 per kwh due to large technical and commercial losses. The losses are due to a combination of the poor condition of distribution system that results in high technical losses as well as metering, billing and non-payment issues. The Energy Reform Program 13. The Government has articulated the principles of an energy sector reform program 2. This program aims to improve the commercial operation of the sector and its financial viability, accelerate access to electricity, facilitate private investment in power generation, allow private or cooperative participation in electricity distribution and encourage regional energy integration. Implementation of the reform program has begun. 14. A new electricity law 3 to replace the Electricity and Water Law of 2000 is currently being prepared. In 2011 the statute for the regulatory agency (l Agence de Contrôle et de Régulation - ACR) for the water and electricity sectors was approved. The Government is planning to set up the regulatory agency, which will be supported by the proposed project. ACR will have a mandate for technical and economic regulation at arms-length from policy making in the Ministry. 15. Reform of REGIDESO to strengthen its operational and financial performance would help to sustain private investments in generation and regional projects. As REGIDESO will be a purchaser for the electricity produced by private generation projects (including Ruzizi III), its financial performance is key to underpinning the viability of such development. Thus, reinforcement of its financial and operational performance is an important pre-requisite to make it a credible partner for future private investors. 16. A comprehensive diagnostic of REGIDESO s organization (Audit Organisationnel de REGIDESO) including for its various departments (commercial, legal, information system, 2 See annex 8 for the Lettre de Politique Energétique du Burundi 2011(in French) and a table summarizing the reforms (in English). 3 Preparation of the new electricity law is being supervised by IFC Advisory with funding of SE4All. 3

20 etc.) was carried out by consultants in The study provides detailed recommendations on how the various functions can be strengthened and on how REGIDESO s organization can be restructured. Based on the study recommendations, an operational plan for implementation of the key recommendations will be prepared and the proposed project will support the implementation of the plan. The plan will focus on the areas of governance, corporate structure, management information system, financial reporting, procurement and stock management, commercial functions and maintenance operations. 17. Peak demand in Burundi is projected to grow from 46 MW (unsuppressed) and 254 GWh in 2012 to 92 MW and 450 GWh by 2018, and 192 MW and 933 GWh by 2025 under a base case 10 percent annual demand growth scenario. This base case rapid growth scenario takes account of elimination of unserved demand (as much as 36 percent in 2013), loss reduction and increase of household access from 4 to 35 percent by The countries of the Nile River Basin, that includes Burundi, have committed to integrate their power systems through the East African Power Pool (EAPP). In 1999, the countries established the Nile Basin Initiative (NBI) to realize the shared vision of sustainable economic development through regional integration. The Strategic Action Program of the NBI consists of two complementary components. The first is a basin-wide program (the Shared Vision Program) of collaborative action, exchange of experience, and capacity-building. The second consists of sub-basin action programs (Subsidiary Action Programs) for collaborative physical investments through the Nile Equatorial Lakes Subsidiary Action Program (NELSAP) and the Eastern Nile Subsidiary Action Program (ENSAP). The objective of these programs is to plan and implement infrastructure projects taking into account the interests of all beneficiary countries. The development of the energy sector in the Great Lakes Region is coordinated by the Communauté Economique des Pays des Grands Lacs (CEPGL) and its energy arm, Energie des Grands Lacs (EGL) including Burundi, DRC and Rwanda. 19. Regional electricity generation projects and in particular Rusumo Falls and Ruzizi III are complementary to the proposed project. These two regional hydro generation projects in which Burundi has a share are under development (along with associated transmission lines) with projected commissioning dates of 2020 and 2018 respectively. Rusumo Falls (80 MW) will be owned by Rwanda, Tanzania and Burundi. In 2013, the World Bank committed US$340 million to the project under the World Bank Group s Great Lakes Regional Initiative. Ruzizi III (145 MW) whose electricity output will be sold to Burundi, DRC and Rwanda is being developed by EGL as a public private partnership. 20. A long term development plan was prepared by EAPP/EAC in 2011 covering the entire Great Lakes Region that considered the significant potential for regional exchanges of energy. It concluded that Jiji and Mulembwe are part of the regional least cost development investment plan with an optimum construction date of They are the least cost plants amongst those located in Burundi, after Kabu 16 (20 MW) which is being financed under cooperation with India. Compared to regional power plants, Jiji and Mulembwe are amongst the lowest generation cost options (about US$0.10 per kwh), close to the production cost of Bendera (DRC) and Ruzizi IV (DRC/Rwanda). 4

21 21. The Jiji and Mulembwe hydropower plants, although they will provide significant increase in system capacity (48 MW compared to the present total available capacity of 50.5 MW), will not result in system over-capacity, as there is estimated 35 MW of unserved load (suppressed demand that cannot be met), and there is 10 MW high cost diesel capacity which will be retired when the Jiji and Mulembwe plants are commissioned. Based on the base case generation expansion plan, REGIDESO will have sufficient capacity to serve peak demand from 2018 during the wet seasons when hydrology is favorable. During dry seasons, however, there is likely to be a shortage of capacity until After 2020, the increase in the demand that is forecast to be close to 10 percent per year for the next fifteen years (as the electricity household access rate accelerates) will absorb all the power supplied by Jiji and Mulembwe and other generation projects in the sector s development program. Generation expansion planning beyond 2020 should incorporate the potential opportunity to import hydro based power from other regional projects. Such imports could bring considerable financial benefits to the Burundi economy compared to thermal alternatives. 22. The proposed project is a high overall risk operation that will deliver high reward in a fragile state. It is one of the largest single infrastructure investments ever undertaken in Burundi that will almost double the installed capacity of the power system. The impact of the project will be transformative as it will close the energy deficit and displace high cost oil based generation with low cost hydropower. Furthermore it will build the foundations of a multi-year reform program. 23. The Government has indicated its firm support for the Sustainable Energy for All (SE4All) initiative 4. The World Bank is the lead development partner in the Donor Sector Working Group for the SE4ALL program. The Government has prepared a national strategy for electricity access relying extensively on renewable energy resources (hydropower, and solar). Government policy 5 of November 2012 and Vision Burundi 2025 of June 2011 and the SE4All initiative set goals of 25 percent and 35 percent household access by 2025 and 2030 respectively. The strategy has three main axes: (i) developing least cost national resources for grid based and off-grid power supply; (ii) progressing toward universal access as per SE4All; and (iii) using public sector funding to leverage private sector financing in generation and also distribution. The strategy proposes measures ranging from accelerating implementation of national and regional hydropower projects, development of hydropower sites less than 20 MW by private investors, developing off-grid lighting (pre-electrification) for rural areas and promoting energy efficiency. 4 The SE4ALL was launched in September 2011 by the UN General Secretary to share his vision for making sustainable energy for all a reality by The initiative intends to mobilize actions from all sectors of society in support of three interlinked objectives of (i) providing universal access to electricity by 2030, (ii) doubling the global rate of improvement in energy efficiency, and (iii) doubling the share of renewable energy in the global energy mix. 5 National Strategy for Development of Renewable Energy in Burundi until 2025 (Esquisse de la Stratégie Nationale de Développement des Energies Renouvelables Electriques au Burundi à l Horizon 2025) 5

22 24. It will not be possible to rapidly expand household electricity access before 2018 as there will be insufficient electricity supply until then. Investment to meet household electricity access goals during the period is estimated at US$158 million (approx. US$500 per connection). The base case scenario assumes an electrification program that will involve 326,000 new connections from 2014 to As presently there is considerable capacity shortage and 36 percent of the demand is not served, it is not realistic to significantly increase access prior to 2018 when Jiji and Mulembwe and other generation projects such as Rusumo Falls and Ruzizi III will be completed. 25. The generation expansion program supported by the project is complementary to the electricity access program. The electricity access program will continue at the current rate of approximately 8,000 new connections per annum until 2018, and will accelerate thereafter to reach 53,000 per year in REGIDESO connected 6,713 new customers in 2011 and 9,307 in Financing requirements for the access investment program is about US$3 to 4 million per annum until 2017 to be financed from REGIDESO s own funds, and US$20 to 25 million per annum after 2018, requiring external financing. An Access Investment Prospectus will be prepared under the SE4All program for Burundi with the objective of securing donor commitments by end 2015 for investments in distribution network extension and off-grid electrification. These investments should be implemented in the period so that by 2018 when electricity supply is adequate, the necessary infrastructure to more rapidly increase access is in place. 26. The World Bank Group (WBG) is also supporting measures to prepare for private sector investment to increase energy supply and access. Activities under implementation being managed by the International Finance Corporation (IFC) Advisory Services under the SE4All program for 2014 include: development of appropriate amendments to the Electricity Law and regulations and development of model concession and power purchase agreement (PPA) combined with customized training. Additional actions under SE4All supported by the Bank include the establishment of a SE4All Secretariat, the preparation of a revised generation and transport long term plan, the preparation of a national electrification plan, and the preparation of an Investment Prospectus for Electricity Distribution and Access. C. Higher Level Objectives to which the Project Contributes 27. The project will contribute to the twin goals of ending extreme poverty and boosting shared prosperity. The project will help eliminate power shortages and the cost of electricity produced by the project will be less than any other alternative. Currently, power shortages and the cost of power from expensive thermal power plants constrain economic growth. By raising overall economic growth, the project will pull people out of extreme poverty and boost the income of the bottom 40 percent. By increasing the supply and lowering the cost of electricity 6, the project will enable business activity and improve Burundi s business competitiveness. By strengthening REGIDESO s financial and operational performance, the 6 With addition of 236 GWh annual production from Jiji and Mulembwe at a cost of approximately US$ 0.09/kWh, the average cost of electricity supply by 2020 would be about US$ 0.14/kWh. 6

23 Project will help transform REGIDESO into a credit worthy enterprise that can enter into power purchase agreements with privately funded generation projects. 28. Far reaching sector reforms are beyond the scope of the project. However the project will support some key reforms designed to facilitate private investment in the sector including: preparation of regulations for public private participation; establishment of a sector regulatory body (L Agence de Contrôle et de Régulation-ACR) as required by the 2000 Electricity and Water Law, creating the conditions for improving the efficiency of REGIDESO, including support to governance reforms. Technical assistance in the project for the preparation of regulations will build on the work of IFC Advisory Services in preparing a new Electricity Law. 29. The project together with the regional hydropower projects (Rusumo Falls and Ruzizi III) will be a cornerstone in the electricity access program enabling it to accelerate after 2018 when there will be adequate electricity supply. The access program will require complementary investments in the electricity distribution network and off-grid. As the access program accelerates there will be need to secure additional low cost electricity supply. 30. The project is aligned with Burundi s poverty reduction strategy (PRSP II). In addition to supporting Pillar II of PRSP II Transforming Burundi s economy to generate sustainable, job creating growth, it supports Pillar 1 of Strengthening the rule of law, consolidating good governance by reinforcing the management and commercial function of REGIDESO. It will also contribute to Pillar III of PRSP II Improving access and quality in basic social services by improving power supply to schools, training centers and health facilities. 31. The project is aligned with the four-year World Bank Group Country Assistance Strategy (CAS) covering the period adopted in October The provision of reliable low cost electricity will contribute to the CAS objectives of improving competitiveness by establishing an enabling environment for inclusive growth and poverty reduction; and increasing resilience by consolidating social stability. The project is aligned with the SE4ALL Initiative as it will double the share of renewable energy in the energy mix of Burundi and will enable an accelerated electrification program once the Jiji and Mulembwe hydropower facilities are commissioned. II. PROJECT DEVELOPMENT OBJECTIVE A. PDO 32. The project development objective (PDO) is to increase the supply of clean and low cost hydropower electricity to Burundi s national grid 7. 7 For the purposes of the project development objective, the term clean refers to low-carbon emissions hydropower technology; and the term low cost refers to the levelized cost of production of the technology compared to alternative oil-based technologies. 7

24 B. Project Beneficiaries 33. The first group of beneficiaries is the households, social service providers and businesses with an electricity connection that will directly benefit from improved reliability of power supply and the incremental electricity produced. Electricity supply to this primary group will be more reliable and less costly as a result of the project. The supply of electricity from the project will be less expensive (about US$0.09/kWh) than electricity supply from alternative sources which are mainly large generators that use diesel or petrol fuel at a cost of between US$0.28 and US$0.72 per kwh (depending on type, size, fuel and efficiency). 34. The second group of beneficiaries is households, social service providers and businesses that will gain access to electricity services as a result of the project. On the basis of the present allocation of demand between the main groups of consumers, the project will allow the connection of 15,000 households, 7,000 commercial customers and 1,700 industrial undertakings 8. It should be noted that connecting these households will require investments to extend the electricity network that are not included in the project. 35. The third group is communities in the vicinity of the project s hydropower infrastructure. The project will finance electricity distribution infrastructure so that 150 households and 54 public facilities including schools, clinics and other public infrastructure will receive access. 36. By substantially increasing low-cost electricity supply, the project will lay the foundation for the electricity access program that has the goal of raising the household access rate to 35 percent in 2030 from 4 percent currently. It will need to be complemented by other low cost electricity generation projects and by investment in electricity distribution. C. PDO Level Results Indicators 37. The achievement of development objectives will be assessed using the following outcome indicators. (i) Quantity of hydroelectricity generated by the project (Cumulative). (ii) Avoidance of carbon dioxide emissions per year of operation. (iii) Ratio of the levelized cost of production from Jiji and Mulembwe compared with the levelized cost of production from oil based generation. 8 Calculated using the following assumptions: average annual production of 236 GWh corresponding to an effective incremental supply of 40 GWh after meeting the unserved demand of 132 GWh, retiring the thermal plants (52 GWh), and taking into account 22 percent system losses; average consumption per household of 500 kwh per year; average consumption per commercial customer of 2,000 kwh per year; and average consumption of small industry customers of 3,000 kwh per year. The structure of the demand is 60 percent residential; 30 percent commercial and 10 percent industrial. 8

25 III. PROJECT DESCRIPTION 38. The project will finance the construction of hydropower facilities (48MW) and associated infrastructure (transmission lines and substations) to transport the electricity produced at the Jiji and Mulembwe hydropower site to the consumption centers in Bujumbura and other main towns in Burundi. It will also finance infrastructure to supply electricity to local communities in the vicinity of the power plants. 39. The project will support the immediate reform priorities in the sector which are: (a) to improve REGIDESO s operation performance and financial sustainability; and (b) reform the electricity law and then prepare the secondary legislation that must refer to the new law as well as setting up the regulator. Both these pillars are essential to attracting private investment in electricity generation and service delivery. The projects technical assistance components will thus improve REGIDESO s operational and financial performance and will put in place the framework for PPPs (by establishing for example the key principles and stipulations for power purchase agreements and concession contracts). The support of the project to establishing the sector regulator will underpin these efforts. 40. However far reaching reforms in the sector are considered not advisable at this time (for example unbundling generation from transmission and distribution or change in ownership of REGIDESO) and are outside the scope of the project. A. Project Components Component A: Hydropower Facilities and Electricity Services (Total Cost US$248.8 million of which IDA is US$ 82.6 million) 41. This component will finance the construction of the Jiji and Mulembwe hydropower facilities, the transmission line connecting the facilities to Bujumbura and to Bururi, new substations and extension of existing substations and the electricity distribution network in the vicinity of the hydropower facilities. The two hydropower plants will be five kilometers apart on the Jiji and Mulembwe rivers. Jiji is a tributary of the Mulembwe. The Mulembwe discharges into Lake Tanganyika. Both plants will be run-of-river with a small 80,000 cubic meters reservoir for management of daily production at Jiji and a reservoir of 40,000 cubic meters at Mulembwe. The total duration of the construction is estimated at 42 months. 42. Component A1: Jiji hydropower scheme. This component comprises all excavation/earth works, tunneling and concrete for the power plant structures, including the Jiji dam and ungated spillway, intake works and water conveyance system, surface powerhouse, access roads and construction of site facilities such as operator's village common to the Jiji and Mulembwe schemes (offices and housing), mechanical and electrical works including supply, installation, testing and commissioning of hydro-mechanical equipment, turbine-generator sets and auxiliaries, substation; and power complex control. The capacity of Jiji will be 31.5 MW with a concrete dam with a height of 13.5 meters, a desilting basin, a 700 meters adduction canal followed by a 1.1 kilometer tunnel, a penstock and a plant with three Pelton turbines operating under a head of 439 meters. Site 9

26 investigations (test drilling) that are ongoing are scheduled for completion by March The result of the site investigations already completed indicates that the bedrock (gneiss) is, according to the data presently available, plunging deeply (30 meters and more) from the left bank to the right bank of the river. This will have an impact on the design of the dam. The 13.5 meter dam is still technically feasible, but if after site investigations are completed the cost of the foundation treatment might be too high, an option will be to replace the dam with a simple intake weir (less than five meters). The investigations indicate that the foundation of a Jiji dam may be complex and difficult to prepare. For this reason OP 4.37 (Safety of Dams) has been triggered. If the option of a dam is retained after the site investigations are complete, the excavation depth is likely to increase and the height of the dam would thus increase. It is estimated that the height of the dam may increase above 15 meters but all the other characteristics (e.g. crest height of dam and volume of reservoir) of the structure will remain unchanged. 43. Component A2: Mulembwe hydropower scheme. This component comprises all excavation/earth works, tunneling and concrete for the power plant structures, including the Mulembwe dam and ungated spillway, intake works and water conveyance system, surface powerhouse, access roads to Mulembwe works, mechanical and electrical works including supply, installation, testing and commissioning of hydro-mechanical equipment, turbinegenerator sets and auxiliaries; and power complex control. The capacity of Mulembwe will be 16.5 MW with a concrete dam with a height of 14 meters, a desilting basin, a 1.1 kilometer intake tunnel and a plant with three Pelton turbines operating under a head of 258 meters. Site investigations (test drilling) have been completed for the Mulembwe dam. 12 drillings (390 meters) have been performed and confirm the assumptions made at the feasibility level. Fichtner has completed the detailed design and the dam shows no particular complexity. 44. Component A3: Substations. This component concerns the construction of four substations and the extension of three existing substations as follows: (i) construction of a 110kV substation at Jiji power plant site; (ii) construction of a 110kV substation at Mulembwe power plant site; (iii) construction of a 110/30 kv substation at Horezo; (iv) construction of a 110/30/10 kv substation at Kabezi; (v) extension of the RN1 110/30/10 kv existing substation; (vi) extension of the existing Bujumbura Sud 30/10 kv substation; and (vii) extension of the existing Itaba 30/10 kv substation. 45. Component A4: Transmission Lines. This component will consist of construction of associated 110kV transmission lines of a total length of about kilometers that will connect the two new substations located at Jiji and Mulembwe power plant sites, through the Horezo and Kabezi substations, to the RN1 substation that supplies the national grid at Bujumbura. This component will also include the construction of 30kV lines of about 25.4 kilometers to connect the Horezo 110/30kV substation to the Itaba 30/10kV substation and to connect the Kabezi 110/30/10kV substation to the Bujumbura Sud 30/10kV substation. 46. Component A5: Electricity Supply to Communities. Construction of 30kV distribution lines of about 18 kilometers and the installation of low voltage lines of about 19 kilometers, the connection of public facilities, socio-economic infrastructures, and 10

27 households in the vicinity of the hydropower schemes. Public facilities will include: schools, health centers, municipal offices, court houses, police stations, and military posts. Socioeconomic infrastructures are mainly coffee factories, carpentry workshops, churches, shops, and markets. 47. Component A6: Social and Environmental Impacts mitigation. This component will finance implementation of mitigation measures in the Environmental and Social Management Plans (ESMPs) and in the Resettlement Action Plans (RAPs) for the hydropower plants and the transmission line. Component B: Technical Assistance; Project Management (Total Cost US$17.1 million of which IDA is US$14.6 million) 48. This component will enable REGIDESO to sustainably maintain and operate the hydropower facilities of Component A. 49. Component B1: Owner's Engineer, Panel for Dam Safety and Panel for Supervision of ESMPs and RAPs Implementation. This component will finance: (a) An Owner's Engineer to assist the REGIDESO PIU with: (i) overall project management and supervision of the procurement, design, construction, interface management and preparation for operation and maintenance of the power plant complex and transmission lines; and (ii) coordination of the implementation of the ESMPs and RAPs. (b) Panel for Supervision of ESMPs and RAPs implementation. (c) Panel for Dam Safety. The project has triggered the Operation Policy 4.37 on Dam Safety. In compliance with the policy a panel of international specialists will review the design and monitoring the construction of the dams. 50. Component B2: Feasibility Studies for new investments. This component will finance the preparation of investments in generation, transport and distribution beyond the project Jiji and Mulembwe. For example it may finance feasibility studies for solar and geothermal generation in Burundi, and the preparation of investment projects to improve and extend the distribution network to increase the household electricity access rate in line with the SE4All targets. 51. Component B3: Technical Support to the PIU. This component will finance specialists in fields such as hydrology, civil works and power transmission & distribution who will provide technical engineering support to REGIDESO and the PIU. This component will also finance specialists that will be attached to the PIU whose positions will be maintained throughout the entire implementation of the Jiji and Mulembwe project. These specialists to support the PIU in implementing the Jiji and Mulembwe project will include a senior specialist with confirmed international experience in both environmental and social safeguards as well as specialists in financial management and procurement. 11

28 52. Component B4: Operation of the PIU. This component includes office rental, operation and maintenance of vehicles, REGIDESO PIU staff salaries. Staff salaries are financed by REGIDESO. 53. Component B5: Equipment for the PIU. This component includes purchase of vehicles, office furniture and information technology. Component C: Power Sector Reform and Institutional Development (Total Cost US$4.4 million of which IDA is US$2.7 million) 54. This will include three main sub-components. 55. Component C1: Expert support to ensure the sustainability of REGIDESO. This component will include support for the implementation of REGIDESO s restructuring along the lines recommended by the management audit prepared by external experts in Activities to improve financial sustainability and operations performance include development of a modern Management Information System (MIS), improved billing, collection, procurement and operational monitoring. 56. Component C2: Reinforcement of the power sector Regulator: This component will finance international expertise to establish the electricity sector regulator, organize the regulation function, train the newly appointed staff and prepare the procedures for interaction between the Regulator, the Ministry, REGIDESO and future private investors. 57. Component C3: Implementation of Government plan for the preparation of Public Private Partnerships (PPPs) in the power sector: This component will finance international expertise to support implementation of a framework for future PPPs, with regard to: (a) The implementation of the regulatory reforms related to the revision of the Electricity Law and the preparation of regulations, which will require institutional support to obtain approval by the relevant authorities; and (b) The provision of advisory services on the preparation of a Government policy concerning the processing of PPPs and the sharing of risks between the Government and private partners, as well as the instruments for Public Private Partnerships (PPP) risk management. B. Lending Instrument 58. The Project will be an investment project financing in the amount of US$100 million (equivalent of SDR million) in the form of an IDA Grant. C. Project Costs and Financing 59. The total project cost is US$270.4 million. International inflation was taken as two percent per year over the 2014 to 2018 period. Physical contingencies are 25 percent on Jiji 12

29 civil works because of the relative complexity of the dam foundation; 15 percent on civil works for the Mulembwe dam; and 7.5 percent on equipment. The cost estimate is based on the feasibility studies (2012) carried out by Fichtner and the unit prices are adjusted for 2014 conditions. The detailed design (avant-projet détaillé) for Mulembwe was completed in February 2014 and that for Jiji is expected to be completed in May 2014 when geotechnical site investigations are completed. The project cost breakdown is summarized in Table 2. Final costs estimates will be provided with the detailed designs. 60. The Project is to be financed by the following co-financiers: (i) (ii) (iii) (iv) (v) European Union with a grant ceiling of 30 million as part of its 11 th European Development Fund allocation. African Development Bank with a grant of US$22 million equivalent through its Fragile States Facility. European Investment Bank with a concessional loan to the Republic of Burundi in Euro for US$95 million equivalent that will be on-lent to REGIDESO. The Government of Burundi with a contribution of US$14.3 million equivalent; REGIDESO with a contribution in kind of US$2.5 million equivalent. 61. Under the envisaged financing plan, the Bank will finance 38 percent of the Jiji and Mulembwe plant cost and 45 percent of the substations cost in Component A, 85 percent of technical assistance cost for project management (Component B) and 61 percent of technical assistance cost for power sector reform and institutional development (Component C). The project will be exempt of taxes. The co-financiers confirmed the amounts of their contribution during a joint donor pre-appraisal mission from January 13-18, Financing source and the duration of contract (from anticipated contract signing to completion of contracts are shown in Table 1 and the financing plan is shown in Table 2. Table 1: Financing Source, Procurement and Contract Duration by Component Project Procurement phase Contract implementation phase Components Financier A1 & A2 Jiji & Mulembwe hydropower schemes AfDB, EIB & IDA A3 Substations EU & IDA A4 T-line EU A5 Electricity supply GoB to communities A6 Social & GoB Environmental mitigation B TA for Physical IDA C1 C2 & C3 Infrastructure TA for Sustainability of REGIDESO TA for Regulator and private sector development EU and IDA IDA 13

30 Table 2: Project Cost and Financing Plan (Current US$ million) Total Cost IDA EIB AfDB EU GoB REGIDESO COMPONENT A : HYDROPOWER FACILITIES AND ELECTRICITY SERVICES A1. Jiji A2. Mulembwe 65.4 Management and Design Jiji and Mulembwe 9.2 Total Hydropower facilities A3. Substations A4. Transmission lines A5. Electricity Supply to Communities A6. Social and Environmental Impact Mitigation of which Jiji of which Mulembwe of which Transmission lines Total Component A COMPONENT B: TECHNICAL ASSISTANCE; PROJECT MANAGEMENT B1. Owner's Engineer, Project Supervision and Panels Owner's Engineer Panel for supervision of ESMPs and RAPs and Panel for Dam Safety Sub-total 10.0 B2. Feasibility Studies for new Investments B3. Technical Support to PIU (5) B4. Operation of the PIU B5. Equipment for the PIU Total Component B COMPONENT C: POWER SECTOR REFORM AND INSTITUTIONAL DEVELOPMENT C1. Sustainability of REGIDESO C2. Support to the Regulator C3. Support for strengthening the regulatory framework for private sector investment Total Component C Grand Total D. Lessons Learned and Reflected in the Project Design 62. The project s primary objective is to increase supply to the national grid that will be achieved when the hydropower facilities financed by the project are commissioned. It is recognized that policy and institutional reforms are needed and the project includes financing for activities to advance sector reforms of REGIDESO. The reforms that the project aims to achieve are realistic given the starting point and the absorption capacity of the institutions. For this reason the project does not include reform-related PDO indicators or conditionalities. However, given the importance of improving REGIDESO efficiency, the indicators of REGIDESO s financial performance are included as intermediary indicators. 14

31 63. There are important synergies and economies to be gained by developing the two hydropower plants as an integrated project. The Jiji and Mulembwe sites could technically be developed in two independent projects. The Jiji site could be developed first, followed by Mulembwe at a later stage. However, as the two plants as well as the transmission lines, the operator s village and the access roads are considered as a cluster of interdependent projects and there are important synergies and economies to be gained by developing them as one project, for instance, the reduction in mobilization and demobilization costs of contractors. Moreover, the country needs both plants within a time interval of two years in order to meet forecast demand. The separation of the two plants would involve significant duplication of preparation efforts by the government, REGIDESO, and by the donors with additional preparation costs putting stress on limited preparation budgets and capacity. 64. The manner in which major contracts are packaged for purposes of procurement reduces the interference risk during construction. A design, supply and installation, similar to Engineering, Procurement and Construction (EPC) approach, is proposed for the major contracts of Jiji and Mulembwe power houses, hydro mechanical and electro-mechanical equipment, penstocks (Component A1) and for associated infrastructure substations (Component A2) and the transmission line (Component A3). Three separate tenders will be prepared for each of the three components A1, A2 and A3. This packaging is anticipated to facilitate the management of the project and in turn will also facilitate the drafting of the performance criteria for each component. One contractor for all facilities for both hydropower plants (Component A1) has the following anticipated advantages: Interface management is simplified. Administration procedure and contract management is simplified. Synergy in the design and construction. Construction organization and logistic is flexible. Standardization of equipment (for example the turbines being furnished by the same supplier gives advantage for operation and spare parts). Overall project costs should be reduced. 65. An alternative packaging for Component A would be to split contract packaging as follows: civil works for the two hydropower schemes power houses and electromechanical works for the two schemes; transmission line; and switch yards and substations. A challenge with this approach would be the necessity to precisely define and manage the interfaces between the packages and it would require the owner to have a much more active role and the Owner s Engineer to have a much more extended one. Such an approach could reduce bid prices but this may be outweighed by the risk of delays that would put upward pressure costs as the project is implemented. 66. Another alternative packaging would have been to have had two Design, Supply and Installation (DSI) contracts for the hydropower schemes (one for Jiji and another for Mulembwe). This option was not retained as it would probably lead to increase in project costs if two contracts were awarded to different contractors. 15

32 67. The weak capacity of REDIGESO in the operation of such large generation projects requires support through an Operations and Maintenance contract for the first few years of operation of Jiji and Mulembwe plants. Training activities that will be a requirement in the Bidding Document for the hydropower plants will also be a critical part of the contractor s contractual obligations. 68. Direct benefits sharing for the communities in the vicinity of the hydropower will be through the construction of electricity distribution lines and associated infrastructure to connect public facilities such as schools and clinics to the grid. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 69. A Project Steering Committee (PSC) has been established by ministerial decree that will oversee the project. The members of the PSC are named in the decree. The PSC is chaired by the Permanent Secretary of the Ministry of Energy and Mines and includes representatives at the level of Counsellor or Director General from the Ministry of Finance, Second Vice-Presidency, Ministry of Environment, Ministry of Public Works, Ministry of Interior and other ministries. The Director General of REGIDESO and the PIU coordinator are also members of the PSC. The purpose of the PSC is to ensure reporting and monitoring of project implementation. It will facilitate strong inter-ministerial cooperation when necessary. 70. REGIDESO has established a Project Implementation Unit (PIU), with the responsibility for day to day management of the project. The PIU operates under the direction of the General Manager of REGIDESO and includes the professional profiles detailed in Annex 2. REGIDESO s PIU has experience in implementing two IDA financed Energy Efficiency Project (P117225) and the Emergency Energy Project (P122217). These projects involved the rehabilitation of hydropower stations and the construction of a 5 MW diesel plant. 71. Specialists with international experience in similar projects will be recruited to support the PIU in key functions. The project is on a larger scale and is more complex than projects previously implemented by the PIU. The following key personnel will be recruited to the PIU: Project Coordinator, Technical Manager, Environmental and Social Safeguards Manager, Financial Manager, and Procurement Manager. The Bank has discussed job descriptions and qualifications for the key positions with REGIDESO. REGIDESO has submitted - as part of the draft Project Implementation Manual (PIM) - job descriptions for the key positions. Job descriptions and proposed personnel for the key positions in the PIU (including present occupants of the positions) will be subject to Bank s approval. Some positions in the PIU will be filled by personnel with international experience appointed under contract for a fixed period (normally not less than three years). About US$1.5 million from the IDA financing has been allocated to pay for such PIU contract staff. Recruitment for the key positions will be through a competitive process. 16

33 72. The PIU will be supported by an Owner s Engineer. The Owner s Engineer will be responsible for reviewing bidding documents and will actively participate in the bidding evaluation, supervision of construction, as well as the supervision of implementation of the environmental and social mitigation measures. The Owner s Engineer will be funded by the project. The Owner s Engineer may involve seconded REGIDESO staff in training mission to strengthen their abilities in project implementation. 73. The PIU will oversee the execution of the project components and corresponding contracts for works and services. It will prepare quarterly progress reports for the cofinanciers and the Steering Committee. The PIU will facilitate the coordination between the contractors, consultants and any public entity or service related to the project. The PIU will also be responsible for procurement and financial management and for the preparation of project financial reports. 74. Procurement processes will be managed by REGIDESO with the technical support of the Owner s Engineer. REGIDESO will establish sub commissions for the opening, evaluation and awarding of contracts. According to technical specifics of each contract, the General Manager of REGIDESO will nominate ad hoc members of these sub commissions. The Director General will also sign the contracts. The PIU will organize and monitor all the procurement processes. 75. A Unit for Environmental and Social Management has been created in the PIU. At the commencement of the project, this unit will be supported by a full time senior international consultant with proven experience in both environmental and social safeguards. The Unit will oversee the implementation of measures to mitigate the social and environmental impacts of the project. The Unit will rely on the Owner s Engineer s supervision of these activities. 76. To ensure the correct application of the safeguards policies triggered by the project, two Independent Panels of Experts will be established: (a) Environmental and Social Panel of Experts in compliance with OP/BP 4.01 for a Category A (full assessment) Project. (b) Dam Safety Panel of Experts in compliance with OP/BP A draft Project Implementation Manual (PIM) has been prepared by the PIU. The final version will be approved by the Bank. The adoption of the PIM, satisfactory to the Bank, is a condition of project effectiveness. 78. Not later than twelve months prior to the completion of the construction of the Jiji and Mulembwe hydropower facilities, REGIDESO will enter into a three year operation and maintenance (O&M) contract with a qualified contractor. The O&M contract will include training of REGIDESO s personnel in the operation of the facilities for a smooth transfer at the end of the O&M contractual period. 17

34 79. The functions and roles of each institution and unit of the organogram as well as the job descriptions and minimum requirements of the key positions will be described in the PIM. Figure 1: Project Institutional and Implementation Organization Project Stakeholder Assessment 80. The Government considers the project a priority for national development and is strongly committed to the project. World Bank Group relations with the Government on energy sector issues are good through ongoing projects. There is need to strengthen Government s capacity for strategic planning, sector regulation and for development of private sector participation. The Government will finance the cost of compensation for project affected persons and the costs for environmental management (total US$14.3 million). A dated covenant requires the government to deposit the funds for compensation into the government counterpart funds account not later than three months prior to the commencement of works in the hydropower schemes, transmission line and substation components and funds for environmental management plan implementation on a schedule and in installments agreed with the Bank. 81. European Investment Bank (EIB), African Development Bank (AfDB) and the European Union (EU) declared their co-financing commitments to the project during a joint donor mission from January 13-17, 2014 as set out in section C above. The timetable for approval of the co-financiers grants and credits is as follows: EIB, August 2014; AfDB, June 11, 2014; and EU, September REGIDESO is strongly supportive of the project and the REGIDESO PIU has been proactive in managing the various feasibility studies, site investigations and environmental and social impact assessments. There is need to strengthen REGIDESO s core functions (information systems, procurement, commercial, etc.) as well as its capacity for project management. REGIDESO will pay the salaries of REGIDESO staff assigned to the PIU, office location of the PIU and other in-kind contribution. 18

35 83. Communities in the vicinity of the project are supportive of the project as they will gain temporary employment during construction, and community facilities such as schools and community centers in the vicinity of the project will be provided with electricity service financed by the project. Communities will sell farm produce to construction workers and to the families of REGIDESO staff after the facilities are constructed. B. Results Monitoring and Evaluation 84. The project-level Monitoring and Evaluation (M&E) framework will track progress in implementation, measure intermediate outcomes, and evaluate project impacts. The results framework in Annex 1 outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. This framework will be used to supervise and monitor project implementation. 85. The PIU in REGIDESO will be responsible for the overall management and implementation of the project M&E framework. To ensure efficient data for monitoring and evaluation of outcomes, REGIDESO will closely coordinate with government agencies, donors, and other stakeholders. REGIDESO has experience and capacity in the IDA financed Energy Efficiency and Emergency Energy projects to successfully implement the M&E Framework. Tailored training on M&E will be delivered and specific follow up on the monitoring of data collection activities will be conducted. 86. The data collecting and reporting responsibilities will be described in the PIM. The tools to be used for project M&E include progress reports compiled by the PIU in REGIDESO based on operational data, financial audits, progress reports of the Owner s Engineer for the construction contracts. The progress reports will also be used by the Steering Committee and the donors for monitoring purposes as well as for periodic technical audits of environmental and social measures. C. Sustainability 87. The Government has demonstrated strong commitment and ownership of the project. Alleviation of recurrent power shortages and connection of new consumers are unanimously recognized as high visibility objectives with positive economic, social and political effects. 88. The sustainability of the project will be enhanced by reforms in REGIDESO. Technical assistance activities will strengthen REGIDESO s commercial and financial management and improve its operational and financial performance in the medium term. This in turn will enable it to produce sufficient cash flow to carry out adequate maintenance of its infrastructure, provide more reliable services to consumers and expand access to electricity. 89. Technical assistance will support project sustainability. An Owner s Engineer will support the PIU in procurement and contract management for the construction of the hydropower and transmission facilities. REGIDESO will sign a three year operations and maintenance contract with a qualified operator to operate and maintain the facilities once they are constructed. 19

36 V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Category Stakeholder Risk Implementing Agency Risk - Capacity H - Governance S Project Risk - Design S - Social and Environmental S - Program and Donor M - Delivery Monitoring and Sustainability H - Sector reforms M - Other (Optional) Overall Implementation Risk B. Overall Risk Rating Explanation Rating H H 90. Both country and implementing agency risks are high. Although the Government and REGIDESO have strong ownership of the project and are committed to it, neither have experience in implementing a project of similar size and complexity. They do not have personnel with experience of implementing similar projects. The Owner's Engineer and the Panels of Experts will partly mitigate weak implementing agency capacity. Strengthening the capacity of REGIDESO at the PIU level will also be important to enhance project management. 91. Governance risk is rated substantial. As REGIDESO is a state-owned corporation and its Board and managers are under the purview of the Presidency, there is a risk of political interference in the project. This could, for example, undermine the competence of the PIU to implement the project. Appointments to the key positions within the PIU will require the approval of the Bank. The appointment of the Independent Panels of experts will also mitigate the risk of interference in the technical and safeguards aspects of the project. 92. Design and Operation risk is rated substantial. Although it is a hydro construction project, it is not complex or technically risky in its power plant construction component, as both plants are run-of-river units with low dams. Nevertheless, factors that contribute to implementation risk include the residual geological uncertainty (at the Jiji dam site) and the capacity of REGIDESO to operate and maintain the hydropower schemes. The design risk due to geological risk may be mitigated with an alternative design that replaces the dam with a small intake weir. The requirement that REGIDESO will hire an O&M contractor for the operation of the power plants for three years after commissioning will mitigate the operation risk. 93. Safeguard risks are substantial. It is estimated that 936 households will be affected of which 221 houses will be demolished. The RAPs conclude that households will be relocated in the areas they presently inhabit (i.e. in their present collines). Due to density of population at the locations and the scarcity of available land, monetary compensation will be used. The H 20

37 cost of compensation of project affected persons that is estimated at approximately US$6 million is to be paid from Government resources with the risk that compensation may be delayed. The condition that adequate financing from the Government will be available before construction will mitigate this risk. 94. Program and donor risk is moderate. Four co-financiers (IDA, AfDB, EU and EIB) will be involved posing risks for procurement and project coordination during implementation. World Bank procurement guidelines will be used for all contracts financed in whole or in part by IDA. This will be the case for the main DSI contract (hydropower schemes) that will be co-financed by IDA, EIB and AfDB. IDA will co-finance with the EU the DSI contracts for Substations. EU will co-finance technical assistance support for REGIDESO with IDA (Component C). A jointly agreed procedures document being discussed among co-financiers to maximize harmonization of processes will mitigate this risk. 95. Procurement Risk is high. Most contracts will be through International Competitive Bidding (ICB) with prior review that mitigates procurement risk. However, in a fragile governance environment, the sector is vulnerable to risks of fraud and corruption in other procurement processes outside the project. 96. Sector Reform risk is moderate. The development outcome of the project is not linked to sector reforms (although the project will support reforms to establish the regulatory function and to improve financial and operational performance of REGIDESO). Progress in the reform actions (especially with respect to improving the efficiency of REGIDESO) will contribute to sustainability of the project outcomes. VI. APPRAISAL SUMMARY A. Economic and Financial Analysis Economic Analysis 97. The traditional economic cost-benefit analysis was used to evaluate the proposed project. The main costs are the capital investment, environmental and social mitigation costs and the operation and maintenance costs. The project s economic evaluation is based on: (i) the place of Jiji and Mulembwe plants in the country s and region s least cost development plan; and (ii) the benefits to consumers as estimated by their willingness to pay (WTP) for the electricity generated from Jiji and Mulembwe. Finally the impact of the project in terms of avoided greenhouse gas emissions was estimated. 98. The economic analysis established that the two hydropower plants, Jiji and Mulembwe, are the least cost alternative to achieve the project objectives as demonstrated by their place in the sector s long term least cost development plan (Annex 6, Table 4). 21

38 Costs and Benefits of the Project 99. The economic internal rate of return (EIRR) of the base case scenario is estimated at 22 percent. Sensitivity analyses show that even under unfavorable conditions the EIRR is still at 13 percent, above the estimated 12 percent cost of capital The two plants as well as the transmission lines and the access roads are considered as a cluster of interdependent projects. The "without project" scenario is defined as the Jiji and Mulembwe plants were not built and the consumers would have to produce an equivalent amount of electricity on their own to meet their power needs or reduce their consumption of lighting and motive power services Key assumptions. Key assumptions are detailed in Annex 6. The construction period is three years for Jiji and two years for Mulembwe. The cost of each of the components (Jiji and Mulembwe plants, transmission lines and access roads) is based on the estimates provided in the feasibility study. Economic costs include physical contingencies but exclude taxes and price contingencies. The annual operating cost of each plant is estimated as one percent of the total construction cost, based on the project feasibility study estimate, that is, Mulembwe: US$496,000 and Jiji: US$772, Benefits. Assuming the plants operate at or below full capacity depending upon the availability of water, the average generation based on the average hydrology is 90 GWh at Mulembwe, and 146 GWh at Jiji. This electricity generation minus the technical losses, estimated at 12 percent for the Burundi system, is the basis for estimating the economic benefits of the project. The non-technical losses have not been taken into account, as the consumption of stolen electricity has a positive economic value Estimates of the value of Jiji and Mulembwe electricity consumed. The economic value of electricity consumed is based on the willingness to pay of each category of consumers, that is, the cost for each category of consumer of producing the same quantity of electricity with an individual generator. For industries, the alternative is the production of electricity with large diesel generator at a cost of approximately US$0.28/kWh. For households, the alternative is the use of small individual generators with a lower technical efficiency than large industrial generators at a cost of approximately US$0.72/kWh 9. In addition, it is assumed for the economic analysis that the electricity produced by Jiji and Mulembwe will be consumed by the various categories of clients of REGIDESO in the same proportion as presently (See Annex 6). As the cost of alternative sources of energy such as kerosene lamps that substitute for electricity is significantly higher by about 300 percent, than the cost of electricity from Jiji and Mulembwe, and considering that the price elasticity of electricity demand is estimated at -0.1 for most developing countries, the demand of 9 Many household consumers connected to the grid already have diesel generators. However, many lower income consumers may not have their own generator. In the absence of grid electricity, they will use traditional forms of energy for lighting including candles, kerosene or batteries. However, since these forms of energy are more expensive per kwh equivalent than generators, lower income consumers will often reduce their consumption of energy services when grid electricity is unavailable. 22

39 electricity services by consumers in the absence of Jiji and Mulembwe will be about 30 percent lower. This reduction in demand due to higher cost of service has been taken into account in the economic analysis. Economic justification 104. The economic justification of the project in the Base Case scenario is evaluated through the calculation of the project Economic Internal Rate of Return (EIRR) and the project Net Present Value of the net benefits of the project. The project EIRR is 22 percent and the Net Present Value (NPV) at a discount rate of 12 percent is US$170 million. Risk Analysis 105. The impact on the economic justification of the project of the following events has been calculated considering the main risks for a hydro project: (a) (b) (c) (d) Construction cost overrun of 20 percent. Electricity production that is 20 percent below forecast due to technical operational problems. Delay of completion date by two years. Combination of (a), (b) and (c). A 20 percent cost overrun results in a reduction of the EIRR to 19 percent and a decrease of the NPV to US$132 million. A 20 percent reduction of the production results in a decrease of the EIRR to 18 percent and a decrease of the NPV to US$98 million. A two-year delay in the commissioning of the plants results in a decrease of the project EIRR to 18 percent and a decrease of the NPV to US$103 million. The combination of all three events results in an EIRR of 13 percent and a NPV of US$11 million Under each of these scenarios, the project EIRR and NPV remain above the estimated cost of capital and zero respectively, demonstrating the economic robustness of the project. Justification of Public Sector Financing 107. Alternative forms of financing and structuring for the project were considered and evaluated, including partial or total financing from the private sector. Partial or total private sector financing for the project was not pursued for the following reasons. The regulatory framework in Burundi is at an early stage of development and in need of strengthening in order to support PPPs. The Bank Group is providing support through IFC to the Government for the development of the regulatory framework, 23

40 beginning with preparation of a new Electricity Law. The capacity of the government to interact with private sponsors has to be developed. The financial performance of the sector is not yet adequate to make REGIDESO creditworthy as a credible off-taker for a private sponsor, even with Government backing (itself with a low credit standing). Activities are included in Component C of the project to reinforce the financial sustainability of the REGIDESO but the impact of these will take several years to materialize. The perceived high political risk attached to Burundi may limit the interest of potential investors in investing in the power sector until a credible track record of stability and commitment to reforms is established. The risk of prolonged delay in competitively selecting a private sponsor could prolong the power supply deficit by a year or more It was therefore concluded to proceed with the proposed project in the public sector and in parallel through the provision of technical assistance for the development of a PPP framework to facilitate future private sector investments in generation. Component C of the project aims at strengthening REGIDESO, completing the development of sector regulation, reinforcing the recently created Regulator, and developing a Government strategy for PPP risk management There is also the consideration of the urgency of the project to address severe power shortages which are bound to increase in coming years unless additional capacity is constructed. The additional capacity is needed at the earliest possible date, as every year of delay costs an estimated US$49 million corresponding to the additional cost of alternative thermal generation. Carbon Dioxide (CO 2 ) Emissions 110. Greenhouse Gas (GHG) Emission Impact. The evaluation of the GHG impact of the project was conducted in terms of gross GHG emissions and net GHG emissions (Annex 6) Gross GHG emissions. The project s gross GHG emissions are evaluated on the basis of the GHG released in the atmosphere through the construction of the two plants of 0.6 kg carbon dioxide (CO 2 ) per kwh Net GHG emissions. The plants impact was evaluated through the incremental method from the perspective of the full power system. Experience in Burundi demonstrates that the alternative to least cost hydropower plants is the construction of emergency thermal capacity based on the most recent additions to the capacity of the Burundi. The calculation of the avoided emissions or reduction of GHG emissions compared to the alternative solution for the production of the same energy indicate that the project will avoid the annual release of 153,000 tonnes of carbon dioxide in the atmosphere. Considering conservatively a 50-year technical life of the plants, the avoided emissions over the project life is 7.65 million tonnes. 24

41 Taking into account the gross GHG emissions of the project, the net avoided GHG emissions over the life of the project are 7.57 million tonnes of carbon dioxide. World Bank s Value Added 113. The Bank will provide about 36 percent of the financing required for the project. The value added of Bank participation in the project stems from the following: Its convening power and capacity to develop the project according to standards acceptable to the other donors (including its due diligence on safeguards, financial management arrangements and other critical aspects) which will catalyze US$165 million of concessional financing for the project. Its capacity to link the project with the broader objective of financial strengthening of REGIDESO and implementation of a road map leading to private sector financing within a reasonable period of time. This will be achieved through the provision of technical assistance support to government and REGIDESO for capacity building and sector reforms under the project and as part of the sector dialogue, conducted jointly with IFC and other donors. The capacity of the Bank to organize and monitor the implementation of a technically complex project based on the Bank s extensive experience with the development, management and construction of large hydro power projects in Africa. Financial Analysis Financial Analysis of REGIDESO 114. REGIDESO financial position has improved over the past three years. Based on the utility s financial statements for 2012, REGIDESO as a whole made a net profit after tax of FBU 3,522 million (US$2.4 million), compared with net losses of FBU 547 (US$0.4 million) and FBU 767 million (US$0.6 million) in 2011 and 2010 respectively. The current ratio has improved to 3.5 times as at December 31, 2012 (2.6 times at end 2011) and the debt/equity ratio in the last two balance sheet dates was low and ranged between 13 percent and 11 percent. However, accounts receivable, mainly with Government entities, are still high (207 days of revenues) and a large part of it is unlikely to be collected in full Overall the average transmission and distribution (T&D) losses over the years 2008 to 2011 were 19.7 percent. REGIDESO s annual report for 2012 states that the losses were in the region of 24 percent; the increase in estimated transmission and distribution losses is attributed to improvement in measurement of losses due to the development of prepayment meters which provide a more accurate evaluation of energy consumed. It is estimated that about 40 percent of overall losses can be attributed to technical losses. Revenue lost and uncollected for every one percent of transmission and distribution losses is estimated at FBU349 million (US$0.226 million), based on the present tariff. 25

42 116. The billing collection rate has varied considerably over recent years. The average collection rate in 2012 worsened due to late payments by public sector clients, which is being addressed through the installation of prepayment meters with all public sector clients. Table 3: Billing Collection Rates Water and Electricity Combined Average As per financial statements data 90.7% 88.3% 73.1% 84.1% As per technical audit 92.1% 82.3% 76.0% 83.5% 117. The weighted average electricity revenue in 2012 of 152 FBU/kWh (0.11US$/kWh), compared with the cost of service (CoS), excluding fuel subsidies, of 133 FBU/kWh (0.092US$/kWh), giving a profit margin of 10 percent. On the basis of cash flow requirements, the average revenue requirements in 2012 amounted to 149FBU/kWh (0.102US$/kWh), almost equal to the average tariff REGIDESO s financial prospects for its electricity operations over the next six years to 2020 will be largely driven by: (a) demand growth, (b) capital investments and financing thereof as well as the cost of supply from future IPPs, (c) electricity tariffs, (d) improvements in network losses, billing collection and operating costs, and (e) Government support or subsidies towards additional cost of exceptional thermal generation REGIDESO s future financial performance is dependent upon the capacity of Government to address the following challenges: Reducing non-technical losses by at least 0.25 percent per annum and improving billing and collection by 1.5 percent per annum. Implementing the construction of scheduled additional least cost capacity and network reinforcement in a timely manner to meet future demand and reduce thermal generation. Absorbing the temporary cash flow deficit resulting from the increasing use of high cost thermal over the period in order to avoid a worsening of the power shortages during the period. Integrating the cost of production of the next plants after Jiji and Mulembwe in the tariff after After 2021, additional plants will be needed to serve demand and achieve the SE4All access target, but will raise significantly the average production cost of the sector. Hence, tariff adjustments are anticipated: 15 percent by 2017; 25 percent by 2021; 10 percent by 2024 for a total of 50 percent in nominal terms over the period Provided these challenges are met, with the support of the project (increase in generation capacity) and capacity building (improving commercial and technical 26

43 performance of REGIDESO), the financial projections (Annex 6) lead to the following conclusions: REGIDESO will achieve a positive net result every year in the future from 2015 onward. The liquidity situation of REGIDESO will remain satisfactory with a current ratio greater than 1.0 until 2024 and the cash situation remains positive every year in the future, with the exception of 2015 (because of the high utilization of thermal capacities and the elimination of Government fuel subsidies). Project Financial Analysis 121. As the analysis is conducted on a cash flow basis and is expected to be independent from the mode of financing of the project, interest payments and debt repayment as well as depreciation are not taken into account. The projected project cash flow is detailed in Annex 6 and summarized below The project FIRR is four percent and the project NPV at 12 percent discount rate is negative US$91 million in the Base Case, demonstrating that the implementation of the project will marginally contribute to improve the cash flow of REGIDESO but with a negative NPV, as the FIRR is less than the NPV discount rate of 12 percent. The FIRR is significantly lower than the EIRR because the willingness to pay is significantly higher than the tariff, and the FIRR takes into account the non-technical losses as a loss of revenues. The low FIRR is explained by comparing the levelized cost of production of Jiji ($US0.9/kWh) and Mulembwe ($US0.10/kWh with the average tariff of US0.11/kWh 10 ). In this context, it should be noted that the average tariff level only partially covers the total fuel costs and rental cost of thermal power that are being subsidized by the Government Risk analysis. The financial risks facing REGIDESO in case of implementation of the project are the same as for the economic analysis. Their impact on the FIRR and NPV of the project as follows: Table 4: Sensitivity Analysis Base A-Cost increase 20 percent B- Production decrease 20 percent C- Delay 2 years A+B+C FIRR 4 percent 3 percent 1 percent 3 percent -1percent NPV at 12 percent discount US$ - 91 million US$ -120 million US$ -111 million US$ -101 million US$ -143 million 10 The tariff of UUS$0.11/kWh is sufficient to cover the production costs including the high cost of thermal generation (US$0.35/kWh), because it is based on the average cost of generation of REGIDESO, taking into account the price of imports from Ruzizi I of US$0.04/kWh, of Ruzizi II of $US0.06/kWh, and the fully depreciated hydro plants of REGIDESO that have negligible production cost. 27

44 124. The sensitivity analysis shows that the main risk is with a reduction of production by 20 percent. In the event the three main risks are combined, the project FIRR becomes marginally negative, indicating that the risk of the project affecting negatively the cash flow of REGIDESO is limited, even in the worst case scenario. B. Technical 125. The two sites were selected following a comparative approach developed by Fichtner in a study on small hydro potential sites in Burundi. From 10 sites identified, a screening reduced the number to four and then two. The two schemes at Jiji and Mulembwe were optimized by the consultant based on topography, hydrology, anticipated ground conditions and anticipated social and environmental impacts The total duration of the construction is estimated at 42 months. Access to the Mulembwe site is through Jiji so the contractor is likely to begin construction first at the Jiji site and then move on to Mulembwe. The average annual energy potential of both hydropower facilities is estimated at approximately 235 GWh per year, with an average production of 90 GWh per year at Mulembwe and 145 GWh per year at Jiji. The line route for the proposed transmission line from the power plants to Bujumbura will follow the national road (RN7) alignment and this has been chosen as the best option for ease of construction and to minimize environmental and social impacts Feasibility studies for the two hydropower schemes were completed in April 2012 (by Fichtner) including cost estimates and environmental and social impact scoping assessments. The Consultant is currently finalizing the detailed design for the two projects based on the results from the geological and geotechnical site investigations. These site investigations involve drilling to take rock core samples, in situ tests and laboratory analysis of the rock samples and are critical to finalizing the design of the civil works and the project cost estimate. The detailed design for Mulembwe has been completed by the Consultant and does not change from the design developed at the feasibility stage. However, unexpected ground conditions encountered on the Jiji dam site will lead to changes in the design of the foundation treatment in order to guarantee stability and water tightness of the dam. Ultimately, if the cost of the foundation treatment appears too high, a fallback solution with a smaller intake weir, less than five meters in height, will be designed by the Consultant. This option will not involve a change to the generation capacity of the hydropower plants but would forego operating a reservoir with capability of daily regulation. C. Financial Management 128. As part of the project preparation, a financial management (FM) assessment of REGIDESO s PIU was carried out in The objective of the assessment was to determine: (a) whether this unit has adequate financial management arrangements to ensure that project funds will be used for purposes intended in an efficient and economical way; (b) project financial reports will be prepared in an accurate, reliable and timely manner; and (c) the project s assets will be safeguarded. The FM assessment was carried out in accordance with the Financial Management Practices Manual issued by the Financial Management 28

45 Sector Board on November 3, 2005 as revised in March In this regard, a review of the FM existing system (budgeting, staffing, financial accounting, financial reporting, funds flow and disbursements, internal and external audit arrangements) at the REGIDESO has been carried out REGIDESO has good experience in implementing IDA funded projects and it is currently the implementing agency of the Energy Efficiency Project (P117225) and the Emergency Energy Project (P122217). Unaudited Interim Financial Reports (IFRs) for these projects are submitted on time, reviewed and found to be satisfactory. The external auditors issued an unqualified audit report for the year ended June 2012 and years before, the management letter from the external auditors did not raise any major issues; there are no overdue audit reports and interim financial reports from this entity The PIU maintains proper books of accounts which include a cash book, ledgers, journal vouchers and a contract register through the suitable project software TOMPRO. The PIU staff shall prepare the necessary records and books of accounts which shall adequately identify, in accordance with accepted international accounting standards and practices, the goods and services financed out of the proceeds of the Grant. It is expected that the accounting system will be used for the implementation of this project For the purpose of this project, the PIU s FM team will be supported by two additional persons (one financial management specialist and one accountant). A PIM including the administrative and financial management procedures will be prepared and adopted by effectiveness. D. Procurement 132. There are four sources of financing i.e., IDA, AFDB, EU, EIB (in addition to Republic of Burundi financing, including REGIDESO). Three DSI contracts are co-financed by IDA. One DSI (for Jiji and Mulembwe hydropower schemes) is co-financed by IDA, AfDB and EIB. One DSI contract (substations) is co-financed by EU and the IDA. One DSI contract (transmission line) is financed by EU. All the financing institutions have agreed that World Bank consultants guidelines and procurement guidelines will apply for all contracts financed in whole or in part by IDA. A single DSI contract (for Jiji and Mulembwe hydropower schemes) is co-financed by IDA, AfDB and EIB. Procedures for prior procurement review, coordination and communication with the client will be recorded in a Jointly Agreed Procedures shared document of the World Bank, AfDB, EU and EIB. The client will send all prior review procurement requests to the World Bank and copy the concerned co-financier(s) on such requests. The co-financiers will communicate their comments on prior procurement review documentation (procurement notices, bidding documents, evaluation reports, other) to the World Bank which will take these into account when performing its due diligence. The World Bank will reconcile the co-financiers comments and communicate with the other financiers to resolve discrepancies. For the DSI contract that AfDB, EU and EIB will jointly finance, the co-financiers will be informed of any written complaint received from a tenderer. The World Bank will provide no-objection to bidding documents and evaluation reports. Following issuance of World Bank no-objection 29

46 to recommendation for contract award, the co-financiers will also provide formal no objection in compliance with the Bank s no objection to the client with minimum delay Procurement of all contracts financed in whole or in part by IDA under the project will be carried out in accordance with the following World Bank Guidelines: (i) Guidelines: Procurement under International Bank for Reconstruction and Development (IBRD) Loans and IDA Credits dated January 2011; (ii) Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated January 2011; (iii) 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 (iv) the provisions stipulated in the Legal Agreement A procurement risk assessment for REGIDESO s PIU was conducted in May and October 2013 using the Bank tool Procurement Risk Assessment and Management System (P-RAMS) based on past experience of the PIU when implementing three other Bank-funded projects in the water and electricity sectors and preparation funds of this project as well. The PIU staff were fully involved in the ICB and relatively large contracts of consultants services. However, the volume and complexity of procurement contracts to be implemented under this project will be challenging to the PIU. In addition, contract management will be crucial for the successful implementation of this project The key procurement risks are: (i) inadequate planning in terms of sequencing of different works and consultants; (ii) limited experience of the PIU staff in planning and handling complex procurement; (iii) limited incentives of PIU staff since they have status of civil servants paid from REGIDESO (Government) budget; (iv) risk of corruption in procurement processes and contract management, especially for high value contracts in the overall Burundi business and political environments; (v) recurrent contract amendments and overruns; (vi) inadequate record keeping and document management systems; and (vii) lack of familiarity with the Bank s January 2011 procurement and consultant s Guidelines The proposed mitigation measures for these risks are: (i) proper procurement planning and contracts packaging; (ii) hiring of an Owner s Engineer to assist the client in overall project management and a Procurement Specialist dedicated to the Jiji and Mulembwe project in addition to the on board PIU Procurement Officer; (iii) REGIDESO keeping the salary bonus granted to PIU staff; (iv) integrating clear sections clarifying procurement processes, roles and responsibilities of all parties and committees in the procurement cycle, including ethical standards and contract management in the PIM; (v) establishing a separate and strengthened procurement records keeping and document retention; and (vi) clinic on the use of the 2011 Procurement and Consultants Guidelines with support of the Bank The draft procurement plan for the first 18 months of the project has been agreed with the Borrower before appraisal completion. During implementation the procurement plan will be updated in agreement with the project team as required - at least annually - to reflect actual project implementation needs and improvements in institutional capacity. It will be 30

47 available in the project s database and a summary will be disclosed on the Bank s external website. E. Financial Terms 138. The Bank will provide the IDA Grant to the Recipient at standard IDA terms. Out of the US$100 million the Recipient will lend US$98.8million to REGIDESO under a Subsidiary Loan Agreement on the following terms: 8 years grace period; 25 years repayment period following the grace period; payments to be made quarterly in US$ at the official exchange rate pertaining on the date of payment; and 1 percent annual interest rate. F. Social (including Safeguards) 139. The population density of the area is estimated at 250 inhabitants per square kilometer; a figure that is lower than the national average of 320 inhabitants per square kilometer. Indigenous People (Batwa) do not constitute part of the population of the area. The average household size is six persons per household. Average income is US$2 to US$3 per day. Agriculture is the main source of income. Land deeds are informal/ traditional and leasing of land is a recurrent arrangement. Predominant crops include: bananas, cassava, sweet potatoes, beans and coffee. Men work mainly on coffee while women mainly tend other crops. Household expenditures are dominated by energy (purchase of fuel wood) whose costs are estimated to about 30 percent of household incomes The proposed Jiji and Mulembwe project has been conceived in a participatory manner and has been the subject of recurrent discussions and presentations in many fora over the past few years; at local, at national as well as at international levels. The preparation of safeguards instruments has been part of the consultation process, at local as well as at national level. Consultation with local stakeholders will continue throughout the project cycle, from implementation to project completion The expected social benefits of the project will be important to Burundi as a nation. The project will contribute to the reduction of the persistent electricity deficit, estimated at 36 percent. Social benefits will include: job creation, induced development, improvements in the safety and quality of electricity services, and an increase in governments tax revenues from electricity purchases. The findings of the Environmental and Social Impact Assessment (ESIA) and the three Resettlement Action Plans (RAPs) prepared for the project suggest that the adverse social impacts of the project are manageable. Expected adverse social impacts associated with Jiji and Mulembwe during construction and exploitation phases include, but are not limited to: land acquisition; involuntary resettlement; water quality; transmission of HIV/AIDS; impacts on cultural resources as well as influx of migrant workers including sex workers; substance abuse around the dam sites during construction and land speculation The social safeguards policy OP/BP 4.12 (Involuntary Resettlement) is triggered. The construction of the Jiji and Mulembwe hydropower schemes, the transmission line from the two sites to Bujumbura as well as the access roads will require land acquisition. Three RAPs, one for Jiji hydropower scheme, one for the Mulembwe hydropower schemes and one for the Transmission line and one Resettlement Policy Framework (RPF) for the electricity supply to 31

48 local communities (component A5) have been prepared, and consulted upon, locally and nationally. The number of project affected households identified in the three RAPs is 936 (383 for Mulembwe; 341 for Jiji and 212 for the transmission line); that translates to about 6,200 persons (3,253 females and 2,947 males). The RAPs conclude that no households will be relocated outside the areas in which they presently live. Households which are expected to lose their houses (Mulembwe 4 households, Jiji 18 households, Transmission lines 199 households, Total 221 households), will have the option of resettling in the same Colline (the smallest administrative unit in Burundi) REGIDESO through the PIU, will establish a Grievance Redress Mechanism (GRM), in addition to those of the RAPs. This is to ensure that anyone with a complaint or concern about the construction of the Jiji and Mulembwe hydropower plant can express her/his or their concerns and get feedback from the project on how the project will address the concern or issue raised. The procedure will apply to ongoing project activities The revised RAPs were reviewed by the Social Safeguard Specialist in February 2014 and have been approved by the Bank and disclosed in the Infoshop on March 7, G. Environment (including Safeguards) 145. The project has triggered OP 4.01, OP 4.11, OP 4.12, OP 4.37 and OP 7.50 and has received a Category A rating assigned to projects that are likely to have significant adverse environmental impacts that are sensitive, diverse, or unprecedented Given some uncertainty with regard to the Jiji dam foundation being possibly complex and/or difficult to prepare, OP 4.37 Safety of Dams is triggered. In accordance with the policy, REGIDESO will engage an independent dam safety review panel to review and advise on the design of the structure and on dam safety issues that may arise during the construction phase until the first filling of Jiji dam and start-up of the dam, including any design or operational precautions to ensure that the project is consistent with Bank safeguard policies. Three independent experts (geologist, geo technician and dam specialist) will be engaged by REGIDESO for the review of the design only. REGIDESO should appoint the independent dam safety panel before launching bidding documents of dam civil works with terms of reference and staffing acceptable to the World Bank Group. The results of a specific study has confirmed that there would be no downstream hazards in the case of dam failure based on dam failure/flooding analysis and downstream topographic/land use survey. Therefore, preparation of Emergency Preparedness (EPP) is deemed to be not necessary. In compliance with the requirements of OP 4.37, REGIDESO has prepared a dam safety plan composed of a plan for construction supervision and quality assurance and a preliminary O&M plan. These plans were approved by the Africa Region Safeguards Adviser on March 6, The following safeguard environment instruments have been prepared: an ESMF for the electricity supply to the communities Component A5; ESIA and ESMP for Jiji and Mulembwe transmission lines and substations, ESIA and ESMP for Mulembwe hydropower scheme, and ESIA and ESMP for Jiji hydropower scheme. The results and recommendations of these safeguard instruments are included within the project design. 32

49 148. At the request of the Government, the Bank notified riparian countries in order to comply with the provision of OP Riparian notices were sent on January 28, 2014 to DRC, Zambia and Tanzania. Zambia responded on February 24, 2014 and expressed its support for the project. As the deadline of February 28, 2014 for the responses from DRC and Tanzania has passed, the requirement is deemed to have been met The PIU will be composed of one environmentalist (local) and one social specialist (local). At the commencement of the project, this safeguard unit will be supported by a senior consultant with confirmed international experience in both environmental and social safeguards. An environmental and social advisory panel of two experts for the monitoring of environmental and social safeguards issues has been confirmed within the results of environmental and social studies of the project. They should be operational before the implementation of the RAPs and during the first phase of civil works following the terms of reference approved by the Bank. The project has included in the design the Government contribution for a total estimated amount of US$14.3 million, the necessary budget for implementation of the environmental mitigation measures and the compensation measures for resettlement of affected persons in the project Extensive public consultations on the ESIA started in 2010 during the preparation of the feasibility studies. Many local and national consultations have been conducted during the socio-economic surveys carried out in The key stakeholders were consulted on all safeguards documents, including the ESMPs and the various RAPs. The three ESIAs with the ESMF have been approved by the Bank on December 01, 2013 and have obtained an environmental compliance certificate No. 728/2013 on December 09, 2013 delivered by the Ministry of Water, Environmental and Urban, Republic of Burundi. They have been disclosed in the country since December 15, 2013 in the Public Centers, at the REGIDESO web site and to Infoshop on December 17, The complete list of safeguard instruments and their disclosure dates is provided below. 33

50 Ref No. Table 5: List of Safeguard Instruments and Disclosure Dates Safeguard Report (English Safeguard Report Title) (French Title) 1 Jiji Hydropower Resettlement Action Plan 2 Mulembwe Hydropower Resettlement Action Plan 3 Transmission Line Resettlement Action Plan 4 Distribution Network Environmental and Social Management Framework (ESMF) 5 Jiji and Mulembwe Project - Resettlement Policy Framework 6 ESIA and ESMP for Jiji and Mulembwe transmission lines + substations 7 ESIA and ESMP for Mulembwe hydropower scheme 8 ESIA and ESMP for Jiji hydropower scheme Date of Disclosure (publication in InfoShop) Plan D Action de Réinstallation de l Aménagement March 7, 2014 de Jiji Plan D Action de Réinstallation de l Aménagement de Mulembwe March 7, 2014 Plan d Action de Réinstallation des lignes et postes électrique HT March 7, 2014 Cadre de Gestion Environnementale et Sociale du Réseau de Distribution Electrique associe aux December 17, Aménagements Hydroélectrique de Jiji et Mulembwe 2013 Cadre de Politique de Réinstallation Aménagement Hydroélectrique de Jiji et Mulembwe Etude d Impact Environnementale et Sociale des Lignes et Postes Electriques associes aux Aménagements de Jiji et Mulembwe Etude d Impact Environnementale et Sociale de l Aménagement de Mulembwe Etude d Impact Environnementale et Sociale de l Aménagement de Jiji December 17, 2013 December 17, 2013 December 17, 2013 December 17,

51 Annex 1: Results Framework and Monitoring BURUNDI: Jiji and Mulembwe Hydropower Project (P133610) Project Development Objective (PDO): The project development objective is to increase the supply of clean and low cost hydropower electricity to Burundi's national grid. PDO Level Results Indicators Quantity of hydroelectricity additionally generated under the project (Cumulative) Avoidance of CO2 emissions per year of operation; Ratio of the levelized cost of production (LCOE) from Jiji and Mulembwe compared with levelized cost of production from oil based generation C o r e Unit of Measure Base line Cumulative Target Values Frequency Data Source/ Methodology Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 GWh/year Annual REGIDESO Annual Report Kg CO2 emissions minus 29,200 minus 85,400 minus 141,600 minus 46,992 plus 26,484 Ratio Less than 1 plus 232,978 Less than 1 Annual Annual PIU progress reports REGIDESO Annual Report PIU progress reports Responsibility for Data Collection REGIDESO REGIDESO REGIDESO Description Full year production of the two plants will be 236 GWh. Jiji will be in production for 9 months of year 6. Calculation based on 648 grams of CO2 per kwh produced in diesel-fired reciprocating engine power plants 11 LCOE of Jiji and Mulembwe Hydro Power Plants divided by LCOE of the electricity produced by alternative oil- 11 Source: IFC, Environmental, Safety and Health Guidelines for Thermal Power Plants, December

52 based sources at the year of calculation INTERMEDIATE RESULTS Component A Generation Capacity of Hydropower constructed under the project (MW) (Cumulative) Direct project beneficiaries (number), of which female (percentage) Transmission lines constructed under the project Distribution lines constructed under the project Number of substations constructed and extended Base Line Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 X MW Annually REGIDESO Annual Report Number Percentage (female) Annually REGIDESO Annual Report 2008 National Census X Kilometers Annually REGIDESO Annual Report PIU progress reports X Kilometers Annually REGIDESO Annual Report PIU progress reports Number Annually REGIDESO Annual Report PIU progress reports REGIDESO REGIDESO REGIDESO REGIDESO REGIDESO Number of new household connections made by REGIDESO, multiplied by the average number of people per household based on the 2008 National Census 2 new substations and 3 extended 36

53 Quantity of household connections made in the communities in the vicinity of the project (on-grid) Community electricity connections under the project (grid connection) Component B Feasibility studies elaborated for new investments Hydropower Plant Contract Awarded number Annually REGIDESO PIU progress reports X Number Annually REGIDESO PIU progress reports Number of studies Base Line Yr1 Yr2 Yr3 Yr4 Yr5 Yr Annually Approved studies. PIU progress reports Yes/no No No Yes Yes Yes Yes Yes Annually REGIDESO PIU progress reports REGIDESO REGIDESO REGIDESO REGIDESO Connections effectively done with meters (schools, community centers, etc.) Cumulative Transmission Line Contract Awarded Substations Contract Awarded Yes/no No No No Yes Yes Yes Yes Annually REGIDESO PIU progress reports Yes/no No No No Yes Yes Yes Yes Annually REGIDESO PIU progress reports REGIDESO REGIDESO Owner s Engineer Contract Awarded Yes/no No Yes Yes Yes Yes Yes Yes Annually REGIDESO PIU progress reports REGIDESO Component C Debt Service Coverage ratio Percentage Annually REGIDESO Annual Audit Billing collection ratio Percentage Annually REGIDESO Annual Audit REGIDESO REGIDESO Not less than value stated Ratio of Current Assets to Liabilities Percentage Annually REGIDESO Annual Audit REGIDESO Not less than value stated The regulator (ACR) is established and resourced with staff assigned. Yes/no No No Yes Yes Yes Yes Yes Annually REGIDESO PIU progress reports REGIDESO 37

54 Annex 2: Detailed Project Description BURUNDI: Jiji and Mulembwe Hydropower Project 1. The hydroelectric complex will be composed of two hydroelectric power plants: Jiji, with an installed capacity of 31.5 MW and Mulembwe, with an installed capacity of 16.5 MW. The plants will be located five kilometers from one another and about 34 kilometers from the mouth of the Mulembwe river on Lake Tanganyika. 2. The feasibility stage reference design for Jiji hydropower scheme includes a 13.5 meter high dam with an overflow spillway and a stilling basin. The intake on the right bank will include an inlet transition between the intake channel and the sand trap, a sand trap with two basins; a buried supply pipe 2.4 meter in diameter and 700 meters in length; a headrace tunnel 1.1 kilometer long; a surge chamber; a valve chamber followed by a 1.8 meter in diameter and 1300 meters long penstock; a manifold; a hydroelectric plant housing three horizontal Pelton units operating under a gross head of about 439 meters and tailrace channel; a substation and a 110 kv line about 9.5 kilometers long connecting to the departing substation common to Mulembwe; 23.7 kilometer of access roads to various works and an operator s village common with Mulembwe. Site investigations (test drilling) that are ongoing at the Jiji dam site in March The result of the site investigations already completed indicates that the bedrock (gneiss) is plunging deeply (30 meters and more) beneath the surface from the left bank to the right bank of the river. This will have an impact on the design of the dam. The 13.5 meter dam is still technically feasible, but if after site investigations are completed the cost of the foundation treatment might be too high, an option will be to replace the dam with a simple intake weir (less than five meters). The investigations indicate that the foundation of a Jiji dam may be complex and difficult to prepare. For this reason OP 4.37 has been triggered. If the option of a dam is retained after the site investigations are complete, the excavation depth is likely to increase and the height of the dam would thus increase. It is estimated that the height of the dam may increase above 15 meters but all the other characteristics (e.g. crest height of dam and volume of reservoir) of the structure will remain unchanged. 3. The Mulembwe hydropower scheme will include a 14 meters high weir with an overflow spillway and a stilling basin. The intake on the right bank will include an inlet transition between the intake channel and the sand trap; a sand trap with two basins; a buried supply pipe 2.4 meters in diameter and 700 meters in length; a headrace tunnel 1 kiloemter long; a valve chamber followed by a 1.6 meters diameter and 600 meter long penstock; a manifold; a hydroelectric plant housing three horizontal Pelton units operating under a gross head of about 254 meters and tailrace channel; a substation and a 110 kv line about 2.3 kilometer long connecting to the Jiji substation and kilometer of access roads to various works sites. 4. The current planning foresees the interconnection of the two power stations to a common substation near the village of Manyoni. From there, a 110 kv line will connect to Bujumbura. The main consumption center in the south, Bururi, will be fed through a 30 kv line that constitutes an integral part of the project. 38

55 5. Each facility will be connected to the road network. One new access road will successively reach the Jiji and Mulembwe power plants from the provincial road. This road will also connect the operator s village. Separate access roads will allow access to selected works such as dams, intakes, valve chambers, surge tank and the penstocks. 6. Both facilities have a relatively similar design but will differ in their mode of operation. Jiji power plant will have a small reservoir with a live storage of 80,000 cubic meters that will allow it to adapt its generation to the daily load curve. Mulembwe will operate as a pure run-of-river. The average annual energy output of the complex is estimated at about 235 GWh per year, with an average production of 145 GWh per year for Jiji and 90 GWh per year for Mulembwe. Component A: Jiji and Mulembwe Hydropower Facilities and Electricity Services 7. This component will finance the construction of the Jiji and Mulembwe hydropower facilities, the substation and the transmission line connecting the projects to Bujumbura and to Bururi, and the distribution systems in the vicinity of the project. 8. In an effort to reduce the interface risk during construction, it has been decided to package the project in three contracts using Design Supply and Install similar to an Engineering Procurement Construction approach: (i) Jiji hydropower and Mulembwe Hydropower plants; (ii) substations; and (iii) transmission line and local distribution lines. This will facilitate the management of the project by REGIDESO and in turn will also facilitate the drafting of the performance criteria for each component. 9. Component A1: Jiji hydropower scheme. This component comprises all excavation/earth works, tunneling and concrete for the power plant structures, including the Jiji dam and ungated spillway, intake works and water conveyance system, surface powerhouse, access roads and construction of site facilities such as operator's village common to the Jiji and Mulembwe schemes (offices and housing), mechanical and electrical works including supply, installation, testing and commissioning of hydro-mechanical equipment, turbine-generator sets and auxiliaries; substation; and power complex control. 10. Component A2: Mulembwe hydropower scheme. This component comprises all excavation/earth works, tunneling and concrete for the power plant structures, including the Mulembwe dam and ungated spillway, intake works and water conveyance system, surface powerhouse, access roads to Mulembwe works, mechanical and electrical works including supply, installation, testing and commissioning of hydro-mechanical equipment, turbinegenerator sets and auxiliaries; and power complex control. 11. Component A3: Substations. This component concerns the construction of four substations and the extension of three existing substations as follows: (i) construction of a 110kV substation at Jiji power plant site; (ii) construction of a 110kV substation at Mulembwe power plant site; (iii) construction of a 110/30 kv substation at Horezo; (iv) construction of a 110/30/10 kv substation at Kabezi; (v) extension of the RN1 110/30/10 kv existing substation; (vi) extension of the existing Bujumbura Sud 30/10 kv substation; and (vii) extension of the existing Itaba 30/10 kv substation. 39

56 12. The new 110kV substations at Jiji and at Mulembwe plant sites will include the following installations: bus bars; two (2) line bays and two (2) transformer bays equipped with: circuit breakers, switches, surge arresters, and voltage and current transformers; two power transformers: 6.6/110kV- 39MVA for Jiji and 6.6/110kV- 22MVA for Mulembwe; auxiliaries systems; power cables and control cables; SCADA system; and telecommunication system. 13. The new Horezo 110/30kV substation will be mainly equipped with: bus bars; three (3) line bays and two (2) transformer bays equipped with: circuit breakers, switches, surge arresters, and voltage and current transformers; two power transformers 110/30kV- 20/31.5MVA ONAN/ONAF; one (1) bus bar coupling bay; 30kV switchboards; auxiliaries systems; power cables and control cables; SCADA system; and telecommunication system. 14. The new Kabezi 110/30/10kV substation will be mainly fitted with: bus bars; two (2) line bays and two (2) transformer bays equipped with: circuit breakers, switches, surge arresters, and voltage and current transformers; two power transformers 110/30kV- 20/31.5MVA ONAN/ONAF; one power transformer 30/10kV- 10MVA; 30kVand 10kV switchboards; auxiliaries systems; power cables and control cables; SCADA system; and telecommunication system. 15. The existing RN1 substation will be extended to include the following installations: one (1) line bay and two (2) transformer bays equipped with: circuit breakers, switches, surge arresters, and voltage and current transformers; two power transformers 110/30kV- 20/31.5MVA ONAN/ONAF; 30kV switchboards; auxiliaries systems; power cables and control cables; SCADA system; and telecommunication system. 16. The extension of the existing Bujumbura Sud 30/10kV substation will include: the installation of 30kV switchboards equipped with circuit breakers, of SCADA system, and of communication system. 17. The extension of the existing Itaba 30/10kV substation will include: the installation of 30kV switchboards equipped with circuit breakers, of SCADA system, and of communication system. 18. Civil works will be included in both construction and extension of substations mainly for the foundation of transformers, erection of pylons and supports, installation of cables, construction or extension of control and protection rooms. 19. Component A4: Transmission Lines. This component will consist of construction of associated 110kV transmission lines of a total length of about kilometers that will connect the two new substations located at Jiji and Mulembwe power plant sites, through the Horezo and Kabezi substations, to the RN1 substation that supplies the national grid at Bujumbura. This component will also include the construction of 30kV lines of about 25.4 kilometers to connect the Horezo 110/30kV substation to the Itaba 30/10kV substation and to connect the Kabezi 110/30/10kV substation to the Bujumbura Sud 30/10kV substation. 20. The different sections of the 110kV transmission lines of kilometers are as follows: Jiji substation to Horezo substation of about 5.1 kilometers; Mulembwe substation 40

57 to Horezo substation of about 2.3 kilometers; Jiji substation to Mulembwe substation of about 5.5 kilometers; Horezo substation to Kabezi substation of about 73 kilometers; and Kabezi substation to RN1 Bujumbura substation of about 21.3 kilometers. 21. The 110kV lines between: Jiji substation and Horezo substation; Mulembwe substation and Horezo substation; and Jiji substation and Mulembwe substations will be equipped with ACSR Hawk conductor which is already used in Burundi. The tower will be of steel lattice type. The lines will use composite insulators and will be equipped with fiber optical guard cable. The nominal capacity of the line is of 60MW. All the towers will be erected on concrete reinforced foundations. 22. The transmission line between the Horezo substation and the Kabezi substation will be built at 220kV to facilitate future interconnection with neighboring countries but the line will be operated at 110kV during the first fifteen years. The line will use steel lattice towers with permanent earthing. The conductor will be of ACSR Drake and the insulators will be of composite type. The line will be equipped with two guard cables (fiber optic and galvanized steel) for communication and protection against lightning. The foundations of towers will be reinforced concrete. The nominal capacity of the line is of 60MW. 23. The 110kV line to connect the Kabezi substation to RN1 Bujumbura substation will be built on standard steel lattice towers which are already used in the country. The line will use ACSR 150/25 conductor and composite insulators and will be equipped with fiber optical guard cable. 24. The 30kV lines of about 25.4 kilometers are detailed as follows: Kabezi substation to Bujumbura Sud substation of about 8.1 kilometers; and Horezo substation to Itaba substation of about 17.3 kilometers. 25. All the 30kV lines that will be constructed under this component will have a nominal capacity of 10MW. Those lines will use ACSR Penguin conductor and composite insulators that will be built on steel structure pylons erected on reinforced concrete foundations. The lines will be equipped with fiber optical guard cable. 26. Component A5: Electricity Supply to Communities: This component will focus on the construction of 30kVdistribution lines of about 18 kilometers and the installation of low voltage lines of about 19 kilometers, the connection of public facilities, socio-economic infrastructures, and households in the vicinity of the hydropower schemes. Public facilities will include: schools, health centers, municipal offices, court houses, police stations, and military posts. Socio-economic infrastructures are mainly coffee factories, carpentry workshops, churches, shops, and markets. This component will concern the following areas: Gakungwe, Kabezi, Songorero, Kumatara, Horezo, Gataba, Muheka, and Nyamiga-tagara. 27. The 30kV lines will be built on steel poles with anchorage cables. The line will be equipped with ACSR 35/15 conductors, guard cable, isolators, 36kV surge arresters, and earthing system. In addition, 30/0.4kV pole mounted transformers will be installed. The low voltage reticulation will use wooden poles and Aerial Bundled Cable. 41

58 28. Component A6: Social and Environmental Impacts mitigation. This component will finance implementation of mitigation measures in the Environmental and Social Management Plans (ESMPs) and in the Resettlement Action Plans (RAPs) for the hydropower plants and the transmission line. Component B: Technical Assistance; Project Management 29. Component B1: Owner's Engineer, Panel of Experts Panel for Dam Safety and Panel for Supervision of ESMPs and RAPs Implementation. This component will finance: 30. An Owner's Engineer to assist the project entity with: (i) overall project management including procurement, contract management, interface management of the three design, supply and installation contracts (for hydropower schemes, substations and transmission lines); and (ii) coordination of the implementation of the ESMPs and RAPs. 31. A Panel for Dam Safety of three international consultants will review the design of the Jjij dam and supervise its construction. A Panel for Supervision of ESMPs and RAPs will monitor the implementation of the project s socio-environmental components. 32. Component B2: Feasibility Studies for new investments: this component will finance the feasibility studies of prospective investment projects in generation, transport and distribution. These may include assessment of potential geothermal and solar generation projects and investments to rehabilitate and extend the electricity distribution network to improve Burundi s access rate in line with the SE4All targets. 33. Component B3: Technical Support to the PIU. This component will finance international expertise in hydrology, civil works and transmission for the PIU and REGIDESO on technical matters during project implementation. 34. Component B4: Operation of the PIU. This component will support the PIU during the five years of project implementation. A number of specialists with international experience (engineering, financial management, procurement, and socio-environment specialists) will be recruited to the PIU to support implementation of the project. Component C: Power Sector Reform and Institutional Development 35. In order to make the power sector attractive to private investors, the proposed project will support reforms aiming at: (a) Implementing sector regulations allowing private investment in power generation; access to the national grid for direct sales of power producers to selected customers; and distribution of electricity through isolated systems and grid connected franchises. This activity will build on the work to prepare a new Electricity Law being managed by IFC Advisory. (b) Ensuring the stability of the sector regulation through the establishment of a competent and specialized power sector regulator separate from the Ministry in charge of Energy. The establishment of a competent and separate regulatory function 42

59 will reduce the political dimension in the supervision of future PPP and reinforce the perception by potential investors of stability and reliability in sector regulation. (c) Ensuring that the power sector is financially self-sustaining and creditworthy without Government support, and that REGIDESO the main counterpart to private investors as counter signatory of power purchase agreements, manager of the transmission system and supplier of bulk power has the financial and managerial capacity to honor commercial contracts and deliver quality transmission and power supply to distribution franchises. 36. The Project components to achieve the sector reform objectives are: (a) Component C1: Expert support to ensure the sustainability of REGIDESO as partner for private investors. The estimated cost of this component is US$3.3 million. This component will include the support of three experts full time in REGIDESO for a period of four years to design, monitor the implementation, and train REGIDESO s staff in, a new and modern management system, with a special attention to the development of an integrated computerized management information system covering finances and accounting, commercial (particularly actions for the reduction of nontechnical losses), procurement and stock management, operational statistics and preventive maintenance (aiming inter alia at increasing availability of installation and reducing technical losses). The implementation of the new system and staff training will facilitate management reporting and decentralization of responsibilities, as well as management empowerment, eliminating the present frequent breakdown in the line of authority resulting from lack of timely and reliable management data. This component will implement the main recommendations formulated in the detailed organizational audit (Audit Organisationnel de la Régie de Production et de Distribution d Eau et d Electricité) of REGIDESO prepared in June and endorsed by the Ministry and the management of REGIDESO. This component will also finance the cost of purchase and installation of power utility software. (b) Component C2: Technical assistance for the establishment of a sector Regulator. The estimated cost of this component if US$0.365 million. It will provide support services of specialists (including a utility organization specialist and regulation specialist). The role of the experts will be to organize the new regulatory function, define the organization chart, job descriptions, support selection of key staff, prepare a manual of procedures and policies of the Regulator. The experts will also provide on-the-job training for the newly appointed staff. (c) Component C3: Support for Implementation of Regulatory Reforms. The cost of this component is estimated at US$0.36 million. It includes the provision of expert support for the finalization, revision and processing of the amendments to the already approved law on Water and Electricity, including support for the processing until final adoption of the separate legislation for Water and for Electricity; the support for the processing and revisions to the technically complex secondary legislation until its finalization and adoption. 43

60 (d) Component C4: Support for the Implementation of Sector Risk Management program. The estimated cost of this component is US$0.37 million. It includes the provision of expert services for the identification of the risk profile of the various types of public-private structures and design of risk mitigation strategies. It aims at helping the government decide what type of risks it is willing to endorse and guarantee and under what terms. It may lead to a policy document on government risk management strategy and mitigation instruments offered to potential investors (Partial Risk Guarantee of certain risks, insurance, policy concerning escrow facilities or pledge of assets, etc.). The objective is to increase capacity of government in managing risk in public-private partnerships in the power sector so that it takes informed policy decisions concerning the mitigation instruments to be provided. 44

61 Annex 3: Implementation Arrangements BURUNDI: Jiji and Mulembwe Hydropower Project Project Institutional and Implementation Arrangements Project Administration Mechanisms 1. Overall Project Management. An inter-ministerial Project Steering Committee (PSC) to oversee implementation of the project has been established that is chaired by the Permanent Secretary at the Ministry of Energy and Mines and comprises the General Manager of REGIDESO, the PIU Coordinator and representatives of the second Vice Presidency, Ministry of Finance, Ministry of Environment, Ministry of Public Works, Ministry of Interior and Ministry of Agriculture. The purpose of the PSC is to ensure reporting and monitoring of project implementation at a senior level of government. It will report quarterly to the concerned Ministries. 2. Monitoring of implementation and daily management. A Project Implementation Unit (PIU) established in REGIDESO will be responsible for carrying out the fiduciary aspects of the project, in particular the financial management aspects as well as the technical aspects of implementation (including the preparation of bidding documents and the implementation of safeguard mitigation measures). Regarding safeguards, the PIU will ensure, on behalf of the Government, that safeguard measures and recommendations are timely and appropriately considered and implemented as necessary throughout the life-cycle of the project. The PIU will include the following key positions: Project Coordinator who is also an electrical or hydraulic engineer Technical Manager who is also an electrical or hydraulic engineer Financial Management Specialist and Certified Accountant Procurement Manager Social and Environmental Safeguards Manager 3. Detailed draft job descriptions and the necessary minimum qualifications for each of the key positions were discussed by the Bank team and REGIDESO in January The duties and qualifications of the Project Coordinator and the Technical Manager are summarized here and will be further detailed along with all the other key positions in the Project Implementation Manual (PIM) which the Bank will approve. 5. Project Coordinator in REGIDESO PIU: The Coordinator will implement the strategic decisions of the PSC and reports to this Committee and the Director General of REGIDESO. The Coordinator will provide leadership in project management and will serve as the secretariat for the meetings of the PSC. The Coordinator will ensure the preparation of the project work plan and regular updates and oversee all aspects of project implementation. The Coordinator will be responsible for submitting monthly and quarterly progress reports to donors. 45

62 6. Technical Manager: The Technical Manager provides the technical functions of the PIU with the support of the two Expert Committees (for Dam Safety and RAP Panel) and the Owner s Engineer. The role of Technical Manger (i.e., the Head of the Department) is to supervise the Consulting Engineer. Under the authority of the Coordinator the Technical Manager will participate in all activities and in particular: coordination of works contracts; the verification of the quality assurance system applied by contractors during construction; and control of work s sites. 7. Supervision of construction for quality control. Although most of the construction will be executed under Design, Supply, and Installation (DSI) (Engineering, Procurement and Construction-type) contracts, transferring most construction risk to the contractor, REGIDESO will recruit an Owner s Engineer to monitor the construction of the hydro power plants and transmission lines. The Owner s Engineer will be involved in all the phases of the construction, from the revision of the biding documents to the commissioning of the power plants, the substations and transmission and distribution lines. It will report to the PIU and the donors. 8. Special Committee for Procurement. The General Manager of REGIDESO will appoint ad-hoc subcommittees for the opening, evaluation and awarding of the contracts. Depending of the nature of each contract, the members of the subcommittees will be taken from REGIDESO, the Government of Burundi and, if needed, independent experts. For the main contracts (Hydro Power Plants, Substations and Transmission and Distribution Lines), the Owner s Engineer will be part of the evaluation subcommittees. The procurement specialist (consultant with international experience) to be recruited to the PIU will be participate in all subcommittees and monitor the progress of each procurement process. 9. The overall organization of project institutional and implementation arrangements is summarized in the following diagram. 46

63 Figure 1: Project Institutional and Implementation Organization Financial Management, Disbursements and Procurement Financial Management 10. As part of Project preparation, a financial management (FM) assessment of REGIDESO implementing unit (PIU) was carried out. The objective of the assessment was to determine: (a) whether this unit has adequate financial management arrangements to ensure that project funds will be used for purposes intended in an efficient and economical way; (b) project financial reports will be prepared in an accurate, reliable and timely manner; and (c) the project s assets will be safeguarded. The FM assessment was carried out in accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on November 3, 2005 as revised in March In this regard, a review of the FM existing system (budgeting, staffing, financial accounting, financial reporting, funds flow and disbursements, internal and external audit arrangements) at the REGIDESO has been carried out. 11. REGIDESO has good experience in implementing IDA projects and is currently the implementing agency of the Energy Efficiency Project (P117225) and the Emergency Energy Project (P122217). Unaudited Interim Financial Reports (IFRs) for these projects are submitted on time, reviewed and found to be satisfactory. The external auditors issued a clean audit report for the year ended June 2012, the management letter from the external 47

64 auditors did not raise any major issues; there are no overdue audit reports and interim financial reports from this entity. 12. The unit maintains proper books of accounts which include a cash book, ledgers, journal vouchers and a contract register through the suitable project software TOMPRO. They prepare the necessary records and books of accounts which adequately identify, in accordance with accepted international accounting standards and practices, the goods and services financed out of the proceeds of the Grant. It is expected that this accounting software will also be used for the implementation of the Jiji and Mulembwe Hydropower project. 13. The assessment concluded that, the overall residual FM risk is substantial (see table below) due to the overall weak capacity context. For the purpose of this project, the FM team in the REGIDESO PIU will be supported by two additional qualified, experienced persons. A PIM including the administrative and financial management procedures will be prepared and adopted by effectiveness. Country issues 14. Structural reforms have been launched in the areas of economic governance, public expenditure management, and transparency. The ongoing Financial and Private Sector Development Project (P107851) as well as the Capacity Building for the use of the Medium- Term Expenditure Framework (P120163) are helping the country strengthen capacity in both public and private administration and tackle corruption and mismanagement. 15. Although there is cause for cautious optimism, significant improvements have been made in public finance management in recent years, it will take some time for these reforms to yield substantial improvement in the management of public funds. Given the fragility of the fiduciary environment, the government has requested to use a ring-fenced approach to implement the project, similar to the other Bank-financed projects in the country. Financial management risk assessment and mitigation 16. The following risk identification worksheet summarizes the significant risks with the corresponding mitigating measures. 48

65 Risk Country level Table 1: Financial Management Risks Risk Risk Mitigating Measures Rating Incorporated into Project Design Conditions for Effectiveness (Y/N) Residual Risk Burundi is still a high risk country from the fiduciary perspective. The Public Expenditure Review (PER), the Public Expenditure and Financial Accountability (PEFA) as well as the Use of Country Systems (UCS) reports outlined Public Financial Management (PFM) weaknesses at central and decentralized government levels as well as sector ministries level in term of governance and public funds management. Entity level The assessment of some ministries during the PEFA and UCS particularly the Ministry of Finance revealed internal control weaknesses and weak fiduciary environment. Project level Ensuring funds are used for purposes intended. H S S None. Beyond the control of the project. The government is committed to a reform program that includes the strengthening of the PFM, an ongoing IDA-financed project is being implemented but is unlikely to yield results quickly enough to impact the project. Use of IDA FM procedures is required for this project. The existing fiduciary team within the REGIDESO will be used; Relying on a dedicated FM team and use of IDA FM requirements is critical for the mitigation of fiduciary risk of this project; the adoption of a FM procedures manual by effectiveness will mitigate internal control weaknesses. Training on fiduciary procedures will be conducted for all FM staff throughout the life of the project. Defined terms of reference including timeframes for reporting for each FM staff acceptable to the IDA will be agreed. N Y N H M S Control Risk S S Budgeting: The Annual Work Plans and Budgets (AWPB) will be prepared by the implementing agency and S N M approved by the Steering Committee based on the policy guideline. The budgeting process is fairly complex. Inputs are required from all implementing entities and all other donors. This could result in delays in the preparation of the budget. Weak capacity at the implementing entities to prepare and submit accurate work program The project Financial Procedures Manual will define the arrangements for budgeting, budgetary control and the requirements for budgeting revisions. Annual detailed disbursement forecasts and budget required. IFR will provide information on budgetary control and analysis of variances between actual and budget. 49

66 Risk and budget; weak budgetary execution and control; weak monitoring leading to some overrun expenditures. Accounting: This project will use the accounting software as for all other World Bank financed project in Burundi. The existing SOFTWARE TOMPRO might be adapted and used to accommodate financial information from other donors. The risks will be the following: Poor policies and procedures, delay in keeping reliable and auditable accounting records. Poor coordination among donors. Internal Control: Internal control system may be weak due to weak FM capacity of implementing agency (IA); Insufficient safeguards and controls may result in misuse of funds and impact the implementation of the project. Risk Rating S Risk Mitigating Measures Incorporated into Project Design The project will adopt the OHADA accounting system. Accounting procedures will be documented in the manual of procedures (ii) The FM functions will be carried out by qualified consultants (individuals); one additional accountant to be recruited on competitive basis; the existing software will be customized to take into consideration the need for this new project. The fiduciary staff of other donors will work closely with those in charge of World Bank financed project. S Revision and adoption of a FM Procedures Manual and training on the use of the manual by the consultant recruited for this purpose. Conditions for Effectiveness (Y/N) N N Residual Risk S M Funds Flow: One Designated Bank account has been already opened for the Project Preparation Advance, this account will be used for the subsequent project; separate accounts will also be opened at the same Bank for other donor s funds; all project activities will be financed through these Bank accounts. Risk of misused funds; and (ii) delays in disbursements of funds to IA and beneficiaries, delay of replenishment of designated accounts by multiple donors. Financial Reporting The fiduciary team will provide a quarterly Interim Financial Report (45 days after the end of each quarter; annual Financial Report (within six months after the year end) to the Bank and other donors in order to monitor the utilization of funds for the project. The risk S The following are the mitigating measures: (i) Payment requests will be approved by the FM Manager prior to disbursement of funds. (ii) The ToRs of the External Auditors will include physical verification of goods, services acquired. S (i) A computerized accounting system will be used. (ii) IFR and financial statements formats similar to the ongoing IDA financed operation in REGIDSO. N N S M 50

67 Risk will be to have inaccurate and delay in submission of Interim Financial Report (IFR) to the World Bank due to delays from IAs or weak capacity of the FM team. Risk Rating Risk Mitigating Measures Incorporated into Project Design Conditions for Effectiveness (Y/N) Residual Risk Delay in receiving financial information from all donors. Auditing: No auditing arrangement in place; the national audit capacity is weak and not reliable. Qualified external auditor will be appointed to audit all projects including the World Bank financed project. The risk would be the delay in submission of audit report or qualified opinion and delays in the implementation of audit reports recommendations. S (i) The project s institutional arrangements allow for the appointment of external auditors (independent auditors) whose ToRs will include physical verification and specific report on finding of physical controls of goods, and services acquired or delivered. (ii) Annual auditing arrangements will be carried out during the project implementation period in accordance with International Standard Audit. N S Lack coordination between donors for the selection of external auditor and acceptation of audit reports. Governance and Accountability Possibility of circumventing the internal control system with colluding practices as bribes, abuse of administrative positions, mis-procurement etc., is a critical issue. M (i) The TOR of the external auditor will comprise a specific chapter on corruption auditing. (ii) FM procedures manual approved before project effectiveness. (iii) Robust FM arrangements (qualified individual FM staff recruited under ToRs acceptable to IDA, quarterly IFR including budget execution and monitoring. (iv) Measures to improve transparency such as providing information on the project status to the public, and to encourage participation of civil society and other stakeholder are built into the project design. OVERALL FM RISK S S 17. The overall residual FM risk rating is deemed Substantial. N M 51

68 Implementing Entity 18. The existing fiduciary team within the REGIDESO will have the overall responsibility of handling the financial management and procurement aspects of this project. The existing FM team is composed of one financial officer, one financial management expert (consultant) and one accountant. They will be reinforced by two additional persons one financial management specialist and one accountant who will be recruited through a competitive process to handle both World Bank financed projects and others funds; the World Bank and other donors will have the right to review the resume of the identified persons and meet with them before formal appointment; the overall selection should be finalized before effectiveness but the contract could be signed only after effectiveness no later than three months after effectiveness. The fiduciary team will be trained on the use of World Bank procedures as well as on project software. Planning and Budgeting 19. The Annual Work Plan (AWP) and budget along with the disbursement forecast will be consolidated into a single document by the FM unit of the project, which will be submitted to the Project Steering Committee for approval, and thereafter to IDA and other donors for approval no later than December 31 of the year preceding the year the work plan should be implemented. The implementing entity will monitor its execution with the accounting software in accordance with the budgeting procedures specified in the manual of procedures and report on variances along with the quarterly interim financial report. The budgeting system needs to forecast for each fiscal year the origin and use of funds under the project. Only budgeted expenditures would be committed and incurred so as to ensure the resources are used within the agreed upon allocations and for the intended purposes. The quarterly IFRs will be used to monitor the execution of the AWP. Information and Accounting System 20. Burundi is a member of the Organisation pour l Harmonisation en Afrique du Droit des Affaires (OHADA), hence adheres to its accounting standards, (Syscohada), in line with the international accounting standards. Hence Syscohada accounting standards will apply to this project. An integrated financial and accounting system will be put in place and used by the fiduciary unit. The Project code and chart of accounts will be developed to meet the specific needs of the project and documented in the Manual of Procedures. The accounting system currently used by the unit will be upgraded for the project. The upgraded system is expected to include a general diary, auxiliary diaries, general balance, cash record, fixed assets record. The charter project account should be prepared according to the wording used in tables for sources and uses of funds for the accepted eligible expenditures as agreed during negotiations of the project. These diaries and records should be maintained with the support of financial management software that should be operational no later than three months after project effectiveness. FM staff at the REGIDESO should also be trained in the use of the software by the same date. 52

69 Internal control and financial, administrative, and accounting manual 21. REGIDESO has an FM manual which details out key internal control procedures from transaction initiation, review, approval recording and reporting. The manual will be updated within two months after the effectiveness of the project to take into consideration any specific concerns. There is a clear separation of duties within the FM unit. In addition, there is an internal control unit staffed by five qualified persons. The annual audit plan will include the project. The capacity of this unit will be strengthened through training. Funds Flow Mechanism 22. IDA funds will be disbursed through Designated Accounts managed by REGIDESO. For components A, B and C the project funds will be channeled through three (03) segregated Designated Accounts (DA.A, DA.B and DA.C) under the jointly agreed fiduciary arrangements. Additionally, the PIU will manage other Bank Accounts for funding coming from the others Donors (EIB, AfDB and EU) and for GoB counterpart funds. Bank Accounts 23. The following accounts will be opened at Banque de la République du Burundi and will be managed by REGIDESO. 24. Parallel Financing: The parallel funds will consist of one Segregated Designated Account (DA.B). This account will be denominated in US Dollars. Disbursements from the IDA grant will be deposited in this account and will be used to finance the IDA portion of component B. 25. Joined Financing: The joined funds will consist of two (02) Designated Accounts denominated in US$ and other Bank Accounts denominated in Euro/USD (IDA, EIB, ADB and EU). Disbursement from the IDA Grant will be made to the two segregated DAs (DA.A and DA.C) and will be used to finance IDA portion of component A and C. 26. REGIDESO will also manage other bank accounts which will receive the respective contributions for AfDB, EIB, EU and GoB counterpart funds. Contributions from AfDB, EIB and EU will be channeled through bank accounts in US$ and/or Euro. Disbursement of IDA funds to the Designated Accounts 27. The project will use the transactions based disbursement procedures. Upon effectiveness, initial advances up to the ceiling of the DAs will be disbursed to the Designated Accounts. Subsequently, withdrawal applications will be supported with statements of expenditures (SOE), or records, reporting on the use of the previous amounts advanced to the designated account. 28. For component A, B and C, initial advances will be made to the respective Designated Accounts (DA.A, DA.B and DA.C) at the inception of the project. The advances will be 53

70 meant to cover forecast expenditures for six months, as indicated in the initial and rolling cash flow forecast and annual work plan. Subsequently, withdrawal applications will be supported with SOE, or records, reporting on the use of the previous amounts advanced to the designated account. Figure 2: Funds Flow 29. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Financing ( Category ), the allocations of the amounts of the Financing to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category: 54

71 Category Table 2: Allocation of Funds per Category Amount of the Amount of the Credit Allocated Credit Allocated (expressed in (expressed in SDR) US$) Percentage of Expenditures to be Financed (Exclusive of Taxes) (1) Goods, works, nonconsulting services, and consultants services for Parts A.1 and A.2 of the Project (2) Goods, works, nonconsulting services, and consultants services for Part A.3 of the Project (3) Goods, non-consulting services, consultants services, Training and Operating Costs for Part B of the Project (4) Goods, non-consulting services, consultants services and Training for Part C.1 of the Project (5) Goods, non-consulting services, consultants services and Training for Parts C.2 and C.3 of the Project (6) Refund of Preparation Advance 72,600,000 47,000,000 38% 10,000,000 6,500,000 45% 10,600,000 6,800, % 1,600,000 1,000,000 48% 1,200, , % 4,000,000 2,600,000 Amount payable pursuant to Section 2.07 of the General Conditions TOTAL AMOUNT 100,000,000 64,700,000 Financial Reporting 30. The fiduciary team in REGIDESO will be required to prepare monitoring financial reports as defined in the Financing Agreement for the project. These reports will be submitted to IDA and to other donors on a quarterly basis within the 45 days following the end of each quarter. This report will include: (i) a table with sources and use of funds; (ii) table with use of funds per activity; (iii) table regarding use of funds according to procurement methods and threshold; and (iv) a table with monitoring and evaluation or physical advance of activities. Financial statements will be prepared for each financial exercise covering in general twelve (12) months. Interim financial statements will also be prepared taking into account (i) certified status of expenditures; and (ii) an analysis of DA 55

72 management. The format of such reports were discussed and agreed during project negotiations. 31. It is expected that one single monitoring report will be prepared which will consolidate all donor s reports. Separate reports could be issued to donors if requested. External Audit 32. The financial statements for the project should be the object of an external audit prepared by an independent firm that should be selected according to the procedures that should be acceptable to the World Bank and other donors. Audit reports produced by this auditor should be submitted to all donors including IDA six (6) months after the end of each financial statement for the project, before June 30 of each year. These reports should include: (i) report on the financial statements; (ii) report on the special accounts and certified statements of expenditure; and (iii) a report on the internal control procedures or letter of recommendation. The terms of reference for the selection of the external auditor should be prepared by the financial management team of the project and should be sent to IDA and other donors for comments. 33. Governance and Accountability: The risk of fraud and corruption within project activities is high given the country context, inherent risks of activities. However, the proposed fiduciary arrangements will help to mitigate such risks. Nonetheless, the following measures are envisaged to further mitigate the risk of fraud and corruption; mainly the REGIDESO to implement an anti-corruption Action Plan which is different from the FM action plan. Financial Management Action Plan 34. The Financial Management Action Plan described in the following table has been developed to mitigate the overall financial management risks. Table 3: Financial Management Action Plan Issue Remedial action recommended Responsible entity Completion date FM staffing Recruitment of two project REGIDESO before additional staff (one financial effectiveness management specialist and one accountant). Accounting software FM procedures manual Adapt the existing software (namely TOMPRO) and train the fiduciary staff on the use of that software. Prepare a project manual of procedures which will include FM and accounting aspects REGIDESO Three months after effectiveness FM Conditions Yes Yes REGIDESO By effectiveness Yes 56

73 Reporting (IFRs) External auditing Agree on the format and content REGIDESO By effectiveness No of Unaudited Interim Financial Reporting s (IFRs) Selection of external auditor REGIDESO six months after Yes effectiveness Implementation Support Plan 35. Implementation support will be conducted over the project s lifetime. The project will be supervised on a risk-based approach. It will comprise inter alia, the review of audit reports and IFRs, advice to task team on all FM issues. Based on the current risk assessment the project will be supervised at least twice a year and may be adjusted when the need arises. An implementation support mission will be carried before effectiveness to ensure the project readiness. To the extent possible, mixed on-site missions will be undertaken with procurement monitoring and evaluation and disbursement colleagues. 36. Based on the outcome of the FM risk assessment, the following implementation support plan is proposed: FM Activity Table 4: Implementation Support Plan Frequency Desk Reviews Interim financial reports review Audit report review of the program Review of other relevant information such as interim internal control systems reports. On Site Visits Review of overall operation of the FM system Monitoring of actions taken on issues highlighted in audit reports, auditors management letters, internal audit and other reports Transaction reviews (if needed) Capacity Building Support FM training sessions Quarterly Annually Continuous as they become available Annually (Implementation Support Mission) As needed As needed Before project start and thereafter as needed 37. The objectives of the above implementation support plan are to ensure the project maintains satisfactory financial management systems throughout the project implementation. 57

74 List of covenants a) Financial covenants Installation (network) and completion of the configuration of the multi-project accounting software three months after effectiveness. Recruitment of two additional persons, one financial management specialist and one accountant. Submit to donors the REGIDESO s audited financial statement. b) Other FM standard covenants IFRs will be prepared on a quarterly basis and, submitted to the Bank 45 days after each quarter. Annual detailed work program and budget including disbursement forecasts will be prepared each year by end of December. The overall FM system will be maintained operational during the project s entire life in accordance with sound accounting practices. 38. Conclusions of the FM Assessment: The overall residual FM risk at preparation is considered substantial. The proposed FM arrangements for this project are considered adequate to meet the Bank's minimum fiduciary requirements under OP/BP Procurement 39. The Country Procurement Environment. In 2008, Burundi enacted a new public procurement law that provides standardized procurement processes, procedures and controls, and their application. However, its implementation is facing challenges including weak institutional capacity and lack of independent audit. The Government has initiated a revision process for the current law. This public procurement law, as it is now, allows external financing to take precedence over any contrary provisions in local regulations. 40. Applicable Guidelines. Procurement for the project will be carried out by REGIDESO-PIU. Procurement of all contracts financed in whole or in part by IDA in the project will be carried out in accordance with the World Bank s Guidelines: (a) (b) (c) (d) Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants, dated January Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers, dated January 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 The provisions stipulated in the Financing Agreements. 41. The Procurement Plan will be updated annually, or as otherwise required, to reflect the actual project implementation needs and improvements in the institutional capacity. The 58

75 client, as well as contractors, suppliers, and consultants, will observe the highest standards of ethics during procurement and execution of contracts financed under this project. 42. Standard Bidding Documents. Procurement will be carried out using the Bank s Standard Bidding Documents (SBD) for goods and works for International Competitive Bidding (ICB), while selection of consultants will use the Standard Request for Proposals. For National Competitive Bidding (NCB), the client could build on the Bank s SBD and submit a sample form of bidding documents to the Bank for prior review and will use this type of document throughout the project once agreed upon. The following compliance requirements will be considered: 43. In accordance with paragraph 1.16 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that (a) the bidders, suppliers, contractors and their subcontractors, agents, personnel, consultants, service providers, or suppliers shall permit the Association, at its request, to inspect all accounts, records and other documents relating to the submission of bids and contract performance, and to have said accounts and records audited by auditors appointed by the Association; and (b) the deliberate and material violation of such provision may amount to an obstructive practice as defined in paragraph 1.16 (a)(v) of the Procurement Guidelines. Invitations to bid shall be advertised in national newspapers with wide circulation. The bid evaluation, qualification of bidders and contract award criteria shall be clearly indicated in the bidding documents. Bidders shall be given adequate response time (at least four weeks) to submit bids from the date of the invitation to bid or the date of availability of bidding documents, whichever is later. Eligible bidders, including foreign bidders, shall be allowed to participate. No domestic preference shall be given to domestic contractors and to domestically manufactured goods. Bids are awarded to the lowest evaluated bidder provided this bidder is qualified. Fees charged for the bidding documents shall be reasonable and reflect only the cost of their printing and delivery to prospective bidders, and shall not be so high as to discourage qualified bidders. 44. Advertising: A comprehensive General Procurement Notice will be prepared by the client and published in the United Nations Development Business online (UNDB online) following Board Approval, to announce major consulting assignments and any international competitive bidding (ICB). The General Procurement Notice shall include all ICB for works, goods, and non-consulting services contracts and all large consulting contracts (i.e., those estimated to cost US$200,000 or more). In addition, a specific procurement notice is 59

76 required for all works and goods to be procured under ICB in UNDB online. Requests for Expressions of Interest (EOI) for consulting services expected to cost more than US$200,000 shall be advertised in UNDB online. An EOI is required in the national gazette, a national newspaper, or an electronic portal of free access for all consulting firm services regardless of the contract amount. In the case of NCB, a specific procurement notice will be published in the national gazette, a national newspaper, or an electronic portal of free access. Contract awards will also be published in UNDB, in accordance with the Bank s Procurement Guidelines (Para. 2.60) and Consultants Guidelines (para. 2.31). Scope of Procurement and Selection under the Project 45. Procurement of Works. This category will consist of packages as follows: (i) construction of the Jiji and Mulembwe hydropower facilities comprising, for each site, all excavation/earth works, tunneling, and concrete for the power plant structures including dam and ungated spillway, intake works and water conveyance system, surface powerhouse, access roads/facilities to site, mechanical and electrical works including supply, installation, testing and commissioning of hydro-mechanical equipment, turbine-generator sets and auxiliaries; (ii) construction of substations at the project site in Bururi and in Bujumbura; (iii) construction of transmission lines to connect the power stations to the national grid near Bujumbura; (iv) construction of electricity distribution network to serve households and social facilities (schools, clinics, etc.); (v) construction of houses for affected people. The three first packages above would be procured on DSI (similar to Engineering, Procurement and Construction-EPC) basis. 46. The selection of the Owner s Engineer is at the stage of shortlisting in March 2014 and contracting is anticipated by May The Owner's Engineer who will supervise the separate procurement packages for hydropower schemes, substations and transmission line will be actively involved in the management of the interface between different activities. In the case of the three DSI contacts for the hydropower schemes, substations and transmission line, the primary task of the Owner s Engineer will be to prepare relevant and comprehensive owner's requirements, based on the feasibility design, review the bidding documents and review the design and construction work done by the contractor. 47. Procurement of Goods. This procurement will include motor vehicles, office furniture, and office equipment. 48. Consulting Services. These services will include: the Owner s Engineer, panel of experts for dam safety, social and environmental panel, technical and fiduciary assistance to PIU. The Bank s Standard Request for Proposal document will be used in the selection of consulting firms as well as standard Form of Evaluation. The consulting services will, as far as possible, be awarded under Quality and Cost Based Selection (QCBS) procedures. Other methods of selection will be determined for each assignment depending on the type of assignment and the provisions of the Consultant Guidelines and will be indicated in the procurement plan. 60

77 49. Shortlists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 50. Record Keeping and Filing. To ensure transparency in the procurement process, the Project will document all steps in the process for each contract. These procurement documents will be filed in a manner that will facilitate retrieval in the event of audits or reviews. Procurement record-keeping will be the responsibility of the Procurement Unit. REGIDESO would avail a full time Logistics Assistant to manage procurement filing day-today, REGIDESO-PIU has dedicated building and offices where documents of the three IDA funded projects are kept. Since two of them will be closed at effectiveness period of this project, it is foreseen that enough space for storing all procurement records will be available. Additional record-keeping furniture could be acquired. 51. Procurement of non-consulting services. Non-consulting services are services that are not intellectual or advisory in nature. They will include maintenance of equipment. Procurement of non-consulting services shall follow the competitive bidding procedures acceptable to the association and as prescribed in the PIM to be agreed by project effectiveness. 52. Operating Costs. Operating costs will cover the venue and materials for workshops and training; the servicing of office machines and equipment; the operation and maintenance of vehicles and IT equipment; office supplies; communication charges; bank charges; advertising costs; per diem and travel costs for staff when travelling on duty for the purpose of project implementation, but excluding the salaries or bonuses of civil servants. Operating expenditures will be financed following procedures described in the PIM and verified by the Task Team Leader or the Financial Management Specialist (FMS). They will not be subject to the procurement Guidelines or prior or post reviews. 53. Assessment of implementation capacity for procurement. A procurement risk assessment for the PIU was conducted in May and October 2013 through a review of its track record in implementing three other Bank funded projects in the water and electricity sectors. The PIU staff were fully involved in procurement of contracts involving international competitive bidding (ICB) and relatively large consultants services contracts. However, the volume and complexity of procurement contracts under this project will be greater and more challenging to the PIU. In addition, contract management, which the review found appeared to be the greatest weakness of the PIU, will be crucial for the successful implementation of this project. 54. REGIDESO PIU staff members include one electrical engineer, one water engineer and one procurement officer who have been in the PIU since 2008 implementing three IDAfinanced projects. They are civil servants with regular contracts with REGIDESO and have benefited training in procurement both from World Bank in Burundi and external specialized institutions. An additional electrical engineer has joined the team with special focus on the preparation of this project. They will continue to receive advice and support on procurement 61

78 actions from the World Bank s country office in Burundi. A proficient procurement specialist will be recruited to complement the current capacity. 59. Based on current oversight of procurement, REGIDESO PIU has functioning Procurement Sub-committees, comprising its technical staff, representatives from the line Ministries and Ministry of Finance, to provide procurement oversight and approval of all key stages in the procurement processes. The Procurement Officer provides the secretarial services. For this project, the PIM will provide more details on the procurement procedures and oversight of procurement, on basis of agreed arrangements between co-financiers and adopted by the client. 60. Procurement risks. The table below summarizes procurement risks. The overall project risk for procurement is High and mitigation measures are proposed. Table 5: Procurement Risk Assessment and Mitigation Risk Action Completion Date Inadequate planning in terms of sequencing of different works and consultants Limited experience of PIU in procurement of complex contracts Low salary and limited incentives of PIU staff Risk of corruption, especially for high value contracts in the context of Burundi Inadequate record keeping & document management system Lack of familiarity with the January 2011 World Bank guidelines Proper procurement planning and contracts packaging, especially for large contracts and all others planned on the first 18 months Hiring of (i) Owner s Engineer, and (ii) an additional procurement specialist to support the procurement function REGIDESO to keep salary bonus granted to PIU staff (to be included in PIM) Integration in the PIM clear sections clarifying procurement processes, contract management and ethical standards Establishment of a separate and strengthened procurement records & documents keeping following the WB guide on filing and archiving procurement documents Clinic on the use of the 2011 procurement and consultants guidelines Before Effectiveness Not later than thirty days before launching the bidding documents for Components A1 and A2 Before effectiveness Before effectiveness 3 months after effectiveness At project launch workshop Responsible Entity REGIDESO PIU REGIDESO PIU REGIDESO PIU REGIDESO PIU REGIDESO PIU WB Risk arising from different sanctions procedures of World Bank, AfDB and EIB in the case of the DSI contract for the Jiji & Mulembwe hydropower schemes Coordination processes with AfDB and EIB including for procurement matters are to be described in the Jointly Agreed Procedures. Before finalizing the Bidding Document for Components A1 and A2 WB, EIB and AfDB. 62

79 61. Frequency of procurement implementation support. In addition to the priorreview conducted from Bank offices, the Bank will carry out annual missions to conduct post review of procurement actions and contracts under prior review thresholds on basis of a sample of about 20 percent of contracts within review period. Periodic independent procurement reviews (IPR) are also envisioned. 62. Prior review threshold. The prior review thresholds are as follows: a) Procurement of Goods and Works Expenditure category Procurement method Threshold (US$) Contracts subject to prior review Works Goods Non-consultancy Services ICB NCB Shopping Direct Contracting ICB NCB Shopping Direct Contracting NCB Shopping Direct Contracting US$5 million < US$5 million < US$100,000 All values US$0.5 million < US$0.5 million < US$50,000 All values < US$5 million < US$50,000 All values All contracts None None (*) All contracts All contracts None None (*) All contracts None None (*) All contracts (*) Note: For shopping, when the client has been unable to obtain at least three quotations, it shall provide the Bank with the reasons and justification why no other competitive method could be considered and obtain a no objection before proceeding on the basis of the only responses already received. b) Selection of Consultants Expenditure category Contract value (Threshold) US$ Firms US$200,000 < US$200,000 All values Individuals US$100,000 (*) All values Procurement method QCBS, QBS, FBS, LCS QCBS, CQS, LCS, QBS, FBS, SSS Three CVs SSS Contracts subject to prior review All contracts (Selected contracts as indicated in the procurement plan) All contracts All contracts All contracts (*) Note: For individual consultants subject to post review, the Borrower shall obtain the Bank s no objection when it has not been able to compare at least three qualified candidates before hiring, in which case it shall provide the reasons. 63

80 63. Procurement plan. The client, at appraisal, developed a procurement plan that project management will use during project implementation. This plan was agreed between the Recipient and the Bank Team on March 13, 2014 and is available at the REGIDESO-PIU offices Bujumbura, Burundi. It will also be available in the project s database and on the Bank s external website. The Procurement Plan will be updated annually, in agreement with the Project Team, or as required to reflect actual project implementation needs and improvements in institutional capacity. 64. The following tables provide the details of the procurement arrangements involving international competition. (a) List of contract packages to be procured following ICB and Direct Contracting Table 6: List of ICB and Direct Contracting Contracts Ref. No. Contract (Description) Construction of Jiji and Mulembwe hydropower plants Construction of substations Construction of Transmission line Construction of Houses for PAPs Estimated Cost (US$ million) Procurement Method Prequalification (yes/no) Domestic Preference (yes/no) 190 ICB Yes No Prior 22 ICB Yes No Prior Review by Bank (Prior / Post) Expected Bid-Opening Date January 2015 September 2015 Comments Joint IDA, AFDB and EIB financing Joint IDA and EU financing 22 ICB Yes No Prior August 2015 EU financing 1.3 NCB No No Post November 2014 GoB financing (b) List of consulting assignments with short-list of international firms. Table 7: List of Consulting Assignments Estimated Selection Review Expected Comments Ref. Cost (US$ Method by Bank Proposals Description of Assignment No. million) (Prior / Post) Submission Date 1 Owner s Engineer 9.6 QCBS Prior May Feasibility study for new investments (electricity schemes, doubling T-line 2.3 QCBS Prior September kv RN1-Bubanza and urban T-line) 3 Support to REGIDESO Governance and organizational aspects 0.5 QCBS Prior June GIS for REGIDESO installations 0.6 QCBS Prior June Financial Audit of the project 0.06 LCS 6 Technical Manager to support REGIDESO and PIU management Prior (short list) November IC Prior December Review of Jiji Dam design 0.07 IC Prior April Panel for Dam Safety 0.2 IC Prior May Panel for environmental and social aspects 0.13 IC Prior May Environmental and Social Management Officer 0.1 IC Prior May Finance Officer 0.1 IC Prior September Procurement Specialist 0.1 IC Prior May Support for energy sector regulator 0.1 IC Prior April

81 Table 8: Goods and Non-Consulting Services Estimated Prequalificati Domestic Contract Procurement Expected Ref No. Costs on Preference Prior/Post Comments (Description) Method Bid Opening US$ million (Yes/No) (Yes/No) Office October NCB No No Post 2 equipment Office furniture 0.05 NCB No No Post 3 Vehicles 0.2 NCB No No Post 2014 October 2014 October 2014 Table 9: IDA Disbursement Schedule (Thousand US$) Total Component A Hydropower facilities and Electricity services A1 & A2 Jiji & Mulembwe - 13,076 20,341 19,614 10,897 2,906 5,813 72,646 A3 Substations - 1,998 2,996 2,996 2,000 9,990 A4 Transmission lines Total Component A - 13,076 22,339 22,637 13,893 4,906 5,813 82,636 Component B Technical Assistance for Project Management B1 Owner's Engineer, Project Supervision and Panels Owner's Engineer 1,136 1,740 2,321 2,321 1, ,669 Panels (Social & Environmental & Dam Safety) B2 Feasibility Studies for new investments ,866 B3 Technical Support to the PIU ,471 B4 Operation of the PIU B5 Equipment for the PIU Total Component B 1,378 2,123 3,690 3,690 2, ,621 Component C Power Sector Reform and Institutional Development - C1 Sustainability REGIDESO ,600 C2 Support to the Regulator C3 (a) Support for Implementation of Regulatory Reforms C3 (b) Support for Implementation of sector risk Management program Total Component C ,693 Total 1,378 15,872 26,702 26,973 16, ,283 99,949 Environmental and Social (including safeguards) 65. The project has been discussed with various stakeholders within Burundi, including not only government administrations, but also the private sector and the civil society. The project has also been coordinated with the international community of donors, including the AfDB, EU, and the EIB. 65

82 66. The number of project affected households identified in the three RAPs is 936 (383 for Mulembwe; 341 for Jiji and 212 for the transmission line); that translates to about 6,200 persons (3,253 females and 2,947 males). The RAPs conclude that no households will be relocated outside the area in which they presently inhabit. Households which are expected to lose their houses (Mulembwe 4 households, Jiji 18 households, and the transmission line 199 households, total 221 households), will have the option of resettling in the same Colline (the smallest administrative unit in Burundi). The final numbers of transmission line affected households could be reduced, after detailed design by the contractor, who is responsible for preparing the final design and is expected to modify the alignment in order to avoid involuntary resettlement. The RAP for the transmission line will therefore be updated on the basis of the final alignment. If this is the case, the revised RAP for the transmission line will be submitted for Bank review and approval before disclosure and implementation. The alignment of access roads and choice of quarries, dump site and workers camps will be determined when the design is finalized by the contractor. ESIAs and abbreviated resettlement action plans (ARAPs) or RAPs for the access roads, camp sites and quarries, will then be prepared as need be, in compliance with the project's ESMF and RPF approved by the Bank. The three RAPs prepared will be updated. In terms of loss of agriculture land, the findings of the RAPs suggest that between hectares will be lost for the 936 affected households (Jiji 34.6 hectare, Mulembwe 30.9 hectare, and the transmission line 1 hectare). 67. REGIDESO through the PIU, will establish a Grievance Redress Mechanism (GRM), in addition to those of the RAPs. This is to ensure that anyone with a complaint or concern about the construction of the Jiji and Mulembwe hydropower plant can express her/his or their concerns and get feedback from the project on how the project will address the concern or issue raised. The procedure will apply to ongoing project activities. This mechanism will be established in recognition of the importance of transparency and accountability. The concerns and complaints of project-affected persons and other stakeholders can be freely made and will be addressed in a manner that is fair, transparent, objective and constructive. The project GRM will review all grievances that are submitted. If the project finds that a grievance is not related to project activities or if the project is in compliance with the Burundi and International Standards that the project is committed to, the GRM will explain this to the grieved person or group in writing. If the GRM concludes that the subject of the grievance is a result of project activities and does not comply with its Environmental and Social commitments, the project will investigate the issue and respond to suggest and agree on an appropriate resolution. 68. The social safeguards policy triggered is: OP/BP 4.12 (Involuntary Resettlement). The construction of the Jiji and Mulembwe hydropower schemes, including excavation/earth works, tunneling and concrete for the power plant structures and the Jiji dam, will induce land acquisition; likewise, the construction of the transmission line from the two sites to Bujumbura. Access roads will also require land acquisition. Three RAPs, one for Jiji hydropower scheme, one for the Mulembwe hydropower schemes and one for the Transmission line and one Resettlement Policy Framework (RPF) for the electricity supply to local communities component have been prepared, and consulted upon, locally and 66

83 nationally. The revised RAPs were reviewed by the Social Safeguard Specialist in February 2014 and have been approved by the Bank and disclosed in the Infoshop on March 7, At national level, the Ministry of Environment has an environmental law governing environmental impact assessments, including public consultations. The environmental department of the Ministry has ten staff; six agronomists, three biologists with masters in environmental management and an environmental chemistry specialist. REGIDESO prepared eight safeguards instruments as part of the project preparation. Those instruments were: (i) three environmental and social impact assessments (ESIA); (ii) an environmental and social management framework (ESMF); (iii) a resettlement policy framework (RPF); and three resettlement action plans (RAPs). On December 9, 2013, the Ministry of Environment delivered the environmental certificate to the project, after document review of the eight safeguards instrument and subsequent public consultations. 70. At the project level, safeguards compliance will be ensured by REGIDESO PIU, which has its own environmental unit. The environmental unit, has one environmentalist and one social specialist. At commencement of the project, this environmental unit will be supported by a full time senior international consultant with confirmed experience in both environmental and social safeguards. This unit will have the fiduciary responsibility of safeguards compliance. Environmental chemistry and industrial pollution management in particular, are the fields of training and experience of the environmentalist. These skills will need to be strengthened to include safeguards policy issues. REGIDESO and the PIU have limited capacity to successfully implement and monitor the safeguards requirements of the project. The project will therefore support and strengthen the safeguards capacity of the PIU and REGIDESO environmental units by providing: hands on training; inputs from short term consultants and tailored short term training. 71. The project will also seek to strengthen the capacity of the two environmental units through hands on training by Bank s safeguards specialists, in conjunction with implementation support missions. Supervision and monitoring will be a continuous process. The day to day field supervision will be conducted by the consultant engineers and documented in the monthly progress reports. Periodic supervision will be conducted by REGIDESO, the PIU, and the Bank s safeguards specialists. At the national level, the Government has a clearly defined institutional and regulatory framework (Environmental Law) which is conducive to good environmental assessments (EAs) and management since Effective since 2010, is the regulatory decree governing the requirements of the environmental assessment law. Environmental Assessments (EAs) are mandatory for all large projects. The review is carried out by an Inter-Ministerial Committee on the Environment, and it includes public hearing. As a result, if the EA is successful, a certificate of compliance is issued by the Minister of Environment. Although this process has some weaknesses in terms of technical capacity of the inter-ministerial committee, e.g., to review complex EAs and to monitor the implementation, the process is functional. The interministerial committee ensures compliance at national level. 72. For the proposed project, eight separate safeguards instruments have been prepared: two policy frameworks (ESMF, RPF); three ESIAs and three RAPs. Each ESIA includes an 67

84 Environmental and Social Management Plan to deal with the direct social and environmental impacts, managing cumulative social and environmental impacts, direct and indirect, with a sufficient budget to implement the identified environmental and social mitigation measures. 73. With the final technical design complex mentioned within the detailed technical studies of Jiji site, the project team has triggered the operational policy 4.37 on the dam safety. As stipulated in the text of the policy: "structures with a height between 10 and 15 meters are treated as large dams if their design demonstrated of particular complex aspects. In this context, a panel of technical experts for the construction of the facilities is to be established on the basis of the reference terms deemed acceptable by the Bank. This Panel should be operational as soon as the technical studies are available for review and during all civil works period if the option of a dam at Jiji is retained. The dam safety panel should conduct a review of the technical studies available for the project site, seismic design requirements, evaluation of flood risks and their incorporation in the design, the general arrangement of the site, the location of the main structures, and all technical aspects before and during construction. An operation and maintenance plan and a construction supervision and quality assurance plan have been prepared and have been found acceptable by the Bank. An instrumentation plan acceptable to the World Bank Group should be prepared before effectiveness. The results of a specific study has confirmed that there would be no downstream hazards in the case of dam failure based on dam failure/flooding analysis and downstream topographic/land use survey. The river bed is sufficiently deep downstream for the wave, which would be low, not to escape. No significant flooding is anticipated in the areas downstream. Therefore preparation of an Emergency Preparedness Plan is deemed not necessary. 74. Per OP 7.50 (Projects on International Waterways), and as requested by the GoB, the Bank issued notification letters to Burundi s riparian neighbors. The Riparian notices were sent on January 28, 2014 to the Democratic Republic of Congo, Republic of Zambia and Republic of Tanzania. Zambia responded on February 24, 2014 and expressed support for the project. The deadline of February 28, 2014 for response having passed, the requirement is deemed to have been met. 75. Supervision and monitoring will be a continuous process. The day to day field supervision will be conducted by the Resident Engineers and documented in the monthly progress reports, which will be subject to review by the inter-ministerial committee and REGIDESO. The reports will constitute part of the overall project monitoring system. Periodic supervision will be conducted by REGIDESO, the inter-ministerial committee and the Bank s safeguards specialists; these stakeholders will also continuously take stock of all expropriation and compensation reports and discuss them. 76. An Environmental and Social advisory Panel of two Experts for the monitoring of environmental and social safeguards issues will be engaged. The advisory Panel will advise the project unit on the project environmental and social safeguard implementation. They should be operational before the implementation of resettlement action plans and during the first phase of civil works following the ToR approved by the Bank. 68

85 77. Extensive public consultations on the ESIA started in 2010 during the preparation of feasibility studies. Many local and national consultations have been conducted during the socio-economic surveys carried out in The key stakeholders were consulted on all safeguards documents, including the ESMP and the various RAPs. The three ESIAs with the ESMF have been approved by the Bank on December 1, 2013 and have obtained an environmental compliance certificate No. 728/2013 on December 9, 2013 delivered by the Ministry of Water, Environmental and Urban, Republic of Burundi. They have been disclosed in the Burundi since December 15, 2013 in the Public Centers, at the REGIDESO website and to Infoshop on December 17, Monitoring & Evaluation 78. The project-level monitoring and evaluation (M&E) framework will track progress in implementation, measure intermediate outcomes, and evaluate project impacts. The results framework in Annex 1 outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. This framework will be used to supervise and monitor the implementation of the project. Detailed processes, responsibilities, and templates for the M&E framework will be included in the Project Implementation Manual. 79. Monitoring and evaluation of project activities will be performed by the PIU in REGIDESO. REGIDESO, as an implementing agency, will have an overall responsibility for monitoring and evaluating the different components/activities in accordance with the indicators and data sources included in the results framework (Annex 1). The activities the PIU will conduct on this area include maintaining a project database, managing the flow of information, and producing periodic monitoring reports. REGIDESO will also be responsible for the dissemination of the M&E results to the Project Steering Committee and the cofinanciers and the monitoring results will be informed in the progress report. The progress report will include complete information on contracts, procurements, disbursements, information on the project s financial status, inputs, and the PDO level results indicators and intermediate results indicators to track project status. Role of Co-Financing Partners 80. The AfDB, the EIB and the EU will co-finance the project. 81. The co-financiers will coordinate throughout project implementation. A Jointly Agreed Procedures document that describes donor coordination mechanisms and processes with respect to procurement, financial management and project implementation support has been drafted with contributions by the project teams of the co-financiers. It will be updated throughout implementation of the project. 82. The main contract for the hydropower schemes will be co-financed by IDA, EIB and AfDB (Parts A1 and A2). The EU will finance the transmission line (Part A4). The EU will co-finance with IDA the substations (Part A3). 69

86 83. The EU will co-finance with IDA the technical assistance activities for REGIDESO in Component C of the project. 84. The Government will finance the activities in the Environmental Management Plans and compensation for project affected persons (PAPs). 85. REGIDESO will finance the operation of the PIU. IDA will finance equipment for the PIU. 86. IDA will finance the supervision consultant (Owner s Engineer). 87. The execution of the AfDB and EIB financing is a condition for disbursement of the IDA financing for Parts A1, A2 and the execution of the EU financing is a condition for disbursement of the IDA financing for Part A Approval of AfDB, EIB and EU financing by their respective Boards is expected to take place on various dates between June and September Factors unknown at this point may delay presentation of the project to the respective Boards of the EIB and EU. This in turn may delay execution of the financing. The anticipated dates of signing of the three DSI contracts that are cofinanced by AfDB, EIB and EU are July 2015 (Jiji and Mulembwe hydropower schemes) and August 2016 (substations). For these reasons having the effectiveness of the AfDB, EIB and EU financing as disbursement conditions for Parts A1, A2, and A3 rather than effectiveness will allow the IDA financing to disburse against parts B and C of the project and will permit IDA financing to be disbursed for Parts A1, A2 and A3 at the earliest opportunity. 70

87 Annex 4: Operational Risk Assessment Framework (ORAF) BURUNDI: Jiji and Mulembwe Hydropower Project (P133610) Project Stakeholder Risks Stakeholder Risks Rating High Risk Description: Risk Management: Borrower/Government. Government commitment to the project may not be maintained throughout project implementation. Donors. Three donor agencies (AfDB, EIB and EU) in addition to IDA are co-financing the project and this introduces greater complexity than if only one, two or three were involved. Direct/indirect Beneficiaries. Affected communities or NGOs might take issue with certain environmental, social or project impacts. Resettlement impacts could raise reputational risks, especially if correct and complete information is not well-communicated to and consulted with project stakeholders. Since the project will reduce electricity shortages when the Jiji and Mulembwe hydropower schemes are commissioned, Government commitment throughout the implementation period of the project is likely to be sustained. Satisfying electricity demand will remain a priority of any future government in Burundi and the project is essential to achieving this goal. Donor coordination in the sector is strong with the Bank s on the ground presence in Bujumbura having a huge impact. Mechanisms on the ground and good working relations are helpful in resolving issues as they arise. Communities in the vicinity of the project are expected to be supportive of the project as they will gain temporary employment during construction and electricity will be provided to community centers such as churches and the construction of electricity distribution lines will enable household connections. Nevertheless, communities may acquire expectations that cannot be met (e.g., permanent employment, gratuity of electricity service) or otherwise may suffer negative impact that would engender opposition to the project. The project will adopt a communications strategy that, inter alia, targets the communities affected making them aware of employment opportunities. Resp: Bank and Client Status: In progress Implementing Agency Risks (including Fiduciary Risks) Capacity Rating: High Risk Description: Risk Management: Stage: Preparation and Implementation Recurrent: Due Date : Frequency: Continuous Ability of REGIDESO to effectively prepare the project, An Owners Engineer will be contracted from the procurement stage through to 71

88 supervise implementation and operate and maintain the two power schemes and the associated transmission line. commissioning of the facilities. In addition a technical panel of experts will be formed composed of a dam safety expert, a geologist and a geotechnician to provide additional independent expertise to REGIDESO. To mitigate the risk of less than optimum operation after the commissioning of the plants, REGIDESO will enter into a three year operation and maintenance (O&M) contract with a qualified contractor not later than twelve months prior to the completion of the construction of the Jiji and Mulembwe hydropower facilities. The O&M contractor will train REGIDESO personnel in operation of the facilities for a smooth transfer at the end of the O&M contractual period. There is need to improve the capacity of the PIU in REGIDESO through recruitment of personnel in key positions. The project will support diagnosis of capacity needs and finance external experts for key positions. Resp: REGIDESO Status: In progress Governance Rating: Substantial Risk Description: Risk Management: Stage: Preparation and Implementation Recurrent: Due Date: Frequency: Continuous Political interference in project activities is substantial in view of the high profile of the project. It could manifest itself through interference in politically motivated appointments to the PIU and REGIDESO (The Constitution gives the President of Burundi authority to appoint Board members and Directors of REGIDESO). Risk of conflict of interest between the design engineer, Owner s Engineer and DSI contractors. The Project Implementation Manual (to be prepared by REGIDESO PIU) and the legal agreements will reflect the requirement that job descriptions in the PIU including technical qualifications required for each position will be approved by IDA. They will also require that job positions will normally be filled through a competitive process (comparison of CVs). It is anticipated that suitable qualified candidates will not be found within REGIDESO or in Burundi for some positions. The project has set aside $1.5m in the IDA financing to pay the contracts of personnel with requisite international experience who may be contracted for periods of 2 or 3 years. REGIDESO will enter into a three year operation and maintenance (O&M) contract with a qualified contractor not later than twelve months prior to the completion of the construction of the Jiji and Mulembwe hydropower facilities. The O&M contract will include training of REGIDESO s personnel in the operation of the facilities for a smooth transfer at the end of the O&M contractual period. The support for a period of three years by the O&M contractor is expected to embed sound operational practices that would be difficult for special interests 72

89 to undermine. The project will finance individual technical specialists with international expertise to be attached to REGIDESO who will monitor for indications of collusion between the DSI contractors and consultants. Implementation support missions will be alert to this risk and will address it if it is suspected. Resp: Bank Status: In progress Stage: Preparation and Implementation Recurrent: Due Date: Frequency: Continuous Project Risks Design Rating: Substantial Risk Description: Risk Management: Technical complexity and innovation: The technology is mature. However, as for every hydropower project, unexpected ground conditions can lead to delays or cost overruns. Unexpected technical challenges associated with the site and construction could lead to delays and cost overruns. Complexity of Government coordination and implementation arrangements: There is a risk that the coordination arrangements between Ministry of Energy and REGIDESO PIU may not work well in practice leading to delays (for example if the review and sign-off roles of the two at the various stages of contract procurement are ambiguous) in implementation. An international engineering company is supervising geological site investigations in order to improve the knowledge of the foundation and to incorporate it in the detailed design. These investigations have been completed for Mulembwe and show no particular complexity. In the case of Jiji the site investigations have revealed that the sound bedrock assumed to be at 5-10 meters beneath the surface plunges deeply (30 meters). The investigations indicate that the foundation of a Jiji dam may be complex and difficult to prepare. This will have an impact on the design of the dam. For this reason OP 4.37 (Safety of Dams) has been triggered. If the option of a dam is retained after the site investigations are complete, (an option is to replace the dam with a simple intake weir). the excavation depth is likely to increase and the height of the dam would thus increase. It is estimated that the height of the dam may increase above 15 meters but all the other characteristics (e.g. crest height of dam and volume of reservoir) of the structure will remain unchanged. Implementation arrangements have been agreed. These are described in the Project Implementation Manual that has been drafted by REGIDESO PIU. The arrangements ensure adequate oversight at senior levels of government through a Project Steering Committee and clear responsibility for implementation (REGIDESO PIU). The role of the Owner s Engineer as representative of REGIDESO and taking the lead role in procurement and contract management are also described in the draft Project Implementation Manual. 73

90 Robustness of Cost Estimates: Risks related to robustness of project costs estimates, degree of competition for contracts, and accessibility to the site during construction especially during the rainy seasons that may lead to cost overrun. Delays and cost overrun could also arise from risks related political developments. There is a small risk that additional civil and electromechanical works requirements will be identified during construction leading to cost increases. Adequate physical and price contingency is included in the project cost estimate. In view of the foundation complexity at Jiji, physical contingency of 25 percent is included in the project cost for Jiji (compared to 15 percent for Mulembwe). Hydro-climatic and water allocation risk: cyclical variation and changes to the hydro-climatic regime and increased water use of the Mulembwe and Jiji rivers upstream lead to conflicts for water use downstream. The projects will not consume any water and will have virtually no impact on the river flow downstream. The Jiji project will have a very limited storage capacity and the Mulembwe will be a pure run-of-river project. The inundation upstream will also be very limited. However, the sustainable operation of the facility will require the strict enforcement of a policy to protect the marshes upstream of the two projects. This will in turn be beneficial for the environment of the local communities. Dam and Transmission lines completion mismatch: Risk of the substations and transmission lines being completed with a delay compared to dam construction, thus not being able to evacuate the power. The transmission line is relatively short (107 kilometers) and both it and the substations can be constructed in 18 months. Resp: Bank Status: In progress Social and Environmental Rating: Substantial Risk Description: Risk Management: Stage: Preparation and Implementation Recurrent: Due Date: Frequency: Continuous The main work sites are: the dam site, camps and quarries; the power plants; the transmission lines; and access roads. The main social and environmental impacts relate to relocation of project affected persons (PAPs) and agricultural land acquisition at the reservoir sites and along the transmission line route. Although the number of PAP families to be resettled is The Recipient has prepared (i) three Environmental and Social Impact Assessments (ESIA), (ii) an Environmental and Social Management Framework (ESMF), (iii) a Resettlement Policy Framework (RPF), (iv) three Resettlement Action plans (RAPs) and (v) dam safety instruments composed of a Plan for Construction Supervision and Quality Assurance and a Preliminary Operation and Maintenance Plan. The above documents were approved by the Bank and have obtained an environmental compliance certificate No. 728/2013 on December 09, 2013 delivered by the Ministry of Water, Environmental and Urban, Republic of Burundi. The three ESIAs with the ESMF and RPF were disclosed in Burundi on December 74

91 not many, compensation for land may be challenging as population density in the area is high and available agricultural land limited. Loss of agricultural land and reforestation areas with flooding need for the reservoir and dam construction. Loss of income with the population affected by the project. Increasing HIV dissemination with the workers, modification of river hydrology regime. The proposed operation has triggered five safeguard policies: OP 4.01 (Environmental Assessment); OP 4.11 (Physical Cultural); OP 4.12 (Involuntary Resettlement); OP 4.37 (Safety of Dams) and OP 7.50 (International Waterways). 15, 2013 and at the Bank InfoShop on December 17, The three RAPs were disclosed on March, An environmental and social management unit created at REGIDESO s PIU will be composed of two safeguard experts (one Environmental Specialist and one Social Scientist). Both will be supported, at the beginning, by a senior international consultant full time with confirmed experience in both environmental and social safeguards. To ensure the correct application of the safeguards policies triggered by the project, an Environmental and Social Panel of Experts in compliance with OP/BP 4.01 for a Category A Project will be recruited to advise REGIDESO PIU and dam Safety Panel of Experts in compliance with OP/BP No Riparian state had objected to the project by the set deadline. Resp: Government and Bank Status: In progress Program and Donor Rating: Moderate Risk Description : Risk Management : Stage: Preparation and Implementation Recurrent: Due Date: Frequency: Continuous There may be risk that EU, AfDB and EIB impose different conditions in the terms of their loans/grants. There is a risk of delay in effectiveness of AfdB, EIB and EU financing. There is a risk that procurement of the three DSI contracts The AfDB, EIB and EU teams preparing the project are working closely together with a view to harmonizing their respective grant and loan (in the case of EIB) effectiveness conditions. All have incentive to not delay disbursement. The AfDB and EIB are planning their Board presentations in June and August 2014 respectively and the EU anticipates approval of its financing by September The signing of the only contract to be cofinanced by IDA with AfDB and EIB is anticipated for March The signing of the two DSI contracts to be financed by the EU (one of them to be cofinanced with IDA) is anticipated for August and September The effectiveness of the EU financing is a dated covenant in the IDA Financing Agreement. The lag between when the AfDB, EIB and EU financing is expected to be approved and when the DSI contracts are expected to be signed partially mitigates the risk of delay in making their financing effective. The Bank team has discussed coordination mechanisms with the project task teams of the 75

92 that are co-financed by IDA, EIB, AfDB and EU may be delayed because of conflicting donor requirements. cofinanciers - AfDB, EU and EIB during appraisal with a view to agreeing on efficient processes for procurement review, joint supervision, funds flow and disbursement arrangements. The coordination mechanisms are described in a draft Jointly Agreed Procedures shared document of the co-financiers that will be updated as necessary during project implementation. Donor relations in Bujumbura are strong with the Bank playing a lead role in the sector and this mitigates donor coordination risks. Resp: Bank Delivery Monitoring and Sustainability Rating: High Risk Description : Risk Management : Status: In progress Stage: Implementation Recurrent: Due Date: Frequency: Continuous Project delivery and contract monitoring: The ability of REGIDESO to procure and manage contracts is weak. Monitoring and evaluation: REGIDESO has not monitored such a large project. Sustainability: There is risk that poor operational practices and maintenance after the hydropower facilities are commissioned would result in deterioration of the physical assets and safety of the power plant. An Owner s Engineers will be financed by the project and will represent REGIDESO. The capacity of REGIDESO for M&E will be enhanced. The contractor will provide personnel to operate the plants for two or three years after commissioning to be financed from electricity sales from the plants. During the construction phase, REGIDESO personnel will be assigned to the contractor. Resp: Bank Overall Implementation Risk Rating: High Risk Description: Status: In progress Stage: Implementation Recurrent: Due Date: Frequency: Continuous The overall risk rating of the project remains high because of a combination of High country risks and Substantial project risks which may delay or even derail project implementation. These include: (a) risks associated with a fragile state environment structural power sector issues; (b) risks associated with implementation of the projects social and environmental safeguard instruments; and (c) low implementation capacity. 76

93 Annex 5: Implementation Support Plan BURUNDI: Jiji and Mulembwe Hydropower Project Strategy and Approach for Implementation Support 1. The annual implementation support cost is calculated as follows: 50 staff weeks times US$4,000 per week (average cost) = US$200,000. The annual costs will be lower towards the end of the project after resettlement and procurement activities have been completed. The tables below show the implementation support plan and staff complement. Table 1: Implementation Support Plan Activity Frequency Remarks Project launch workshop Once Full team. Formal Implementation Review (all experts including environment, social, FM and procurement) Twice a year Full team comprising Country Office (CO) and Headquarter (HQ) staff for comprehensive implementation with representatives of co-financiers Informal Implementation Review Continuous CO staff, staggered between formal missions Co-ordination meetings with REGIDESO and co-financiers of generation component Quarterly Team leader and CO staff FM review Twice annually CO FM team members Procurement post review Environmental safeguards review Social safeguards review Twice annually (as long as procurement risk is substantial) Three times a year during first two years, then twice a year Three times a year during first three years, then twice a year CO Procurement team members HQ environmental specialists with support from CO specialists and local consultants CO specialists and local consultants Mid-term review Once Full team and specialists Review of the subsequent impact assessments As required Full team Completion/ Implementation Once Completion Review HQ=Head Quarters; CO=Country Office. Full team 77

94 Table 2: Main focus in Terms of Support to Implementation Time Focus Skills Needed Resource Partner Role Estimate First twelve months Procurement of Contractors and Consultants: Procurement specialists. $200,000 EIB and AfDB involved for specific TA Capacity Strengthening at REGIDESO Utility specialists Policy Reform months Mobilization of Contractors Environment and Social Public private partnership $200,000 per annum EIB and AfDB involved for specific TA Ongoing capacity strengthening at REGIDESO M&E Other Contract Management M& E Procurement $150,000 per annum EIB and AfDB involved for specific TA 78

95 Annex 6: Economic and Financial Analysis BURUNDI: Jiji and Mulembwe Hydropower Project Economic Analysis 1. Supply-demand balance. Projected electricity demand in Burundi depends mainly on future economic growth prospects and projected electricity access rate. For the evaluation of the demand, the corresponding assumptions are: (i) an acceleration of economic growth, which is projected to be four percent per annum over the period; and a household access rate increasing from 4 percent at present to 25 percent by 2025 and 55 percent by The corresponding demand projections, taking into account an improvement in energy efficiency of 15 percent over the same period, and a reduction of system losses from 24 percent to 15 percent over the coming ten years, indicate that the production needed at the plant or at the import point and the installed capacity needed to eliminate the 35 percent un-served demand by 2018, and maintain a reserve capacity of 15 percent will increase by 10.4 percent per annum. The projections are given in the table below. Table 1: Burundi Electricity production and capacity needed Years Energy produced (GWh) Installed Capacity (MW) High Base Low High Base Low , , , , , , , , , , , The average annual growth rate of production needed and installed capacity of 10.4 percent is explained by the rapid increase in access, which produces additional demand of 2,500 GWh by The supply-demand balance based on the demand projections and the envisaged schedule of new generation projects is presented in the graphs below. A specific feature of the Burundi power system is the variation in hydrology between the rainy and the dry seasons that is on average 30 percent. Comparison of the supply and the demand forecast indicates that the country will be able to meet the peak demand during the rainy seasons from 2019 onward, but a lack of capacity will emerge after 2019 during the dry seasons, which will require the installation of additional capacity that is immune to seasonal variations of hydrology. 79

96 Figure 1: Burundi supply-demand balance in MW 80

97 Table 2: Demand Projections Burundi demand forecast Share Residential 30% Share Industries 70% Total dema 126 GWh Population Million Demand per household 600 kwh/year Unserved e 6 GWh Household 6 persons 1.63 Million Access % GDP Elastic 1.10 System Load Factor 56% Cost of connection per unit in $ 500 GDP Growth % Future Demand GWh Population Growth % Total Household number Increase access rate Number of households connected (cum) Connections in the year Annual consumpti New on per new household households demand (GWh) Demand from Residentia l % of demand from new connectio ns Efficiency gains in the year Residentia l Demand from Industries Efficiency gains in the year Industries Total Energy Efficiency gains Total compared to Demand Base Case (GWh) Total Demand Growth Rare Access Rate Annual Connection investment cost (in million US$) ,633, % % % % ,681, % 28,554 28, % 1.0% % % 8.5% ,714, % 57,165 28, % 1.0% % % 10.0% ,749, % 86,874 29, % 1.0% % % 11.5% ,784, % 117,713 30, % 1.0% % % 13.0% ,821, % 149,715 32, % 0.5% % % 14.5% ,857, % 182,916 33, % 0.5% % % 16.0% ,892, % 226,259 43, % 0.5% % % 18.0% ,927, % 271,104 44, % 0.5% % % 20.0% ,962, % 317,491 46, % 0.5% % % 22.0% ,999, % 365,463 47, % 0.5% % % 24.0% ,036, % 415,062 49, % 0.5% % % 26.0% ,068, % 464,792 49, % 0.5% % % 28.0% ,100, % 515,962 51,170 1, % 0.5% % 54 1, % 30.0% ,134, % 589,946 73,984 1, % 0.5% % 61 1, % 33.0% ,167, % 666,111 76,165 1, % 0.5% % 69 1, % 36.0% ,202, % 744,506 78,396 1, % 0.5% % 78 1, % 39.0% ,231, % 823,057 78,551 1,241 1, % 0.5% % 88 1, % 42.0% ,262, % 903,572 80,515 1,301 1, % 0.5% % 98 1, % 45.0% ,292, % 986,090 82,518 1,364 1, % 0.5% % 109 2, % 48.0% , ,323, % 1,070,651 84,561 1,430 1, % 0.5% % 122 2, % 51.0% , ,354, % 1,157,294 86,643 1,500 1, % 0.5% % 136 2, % 54.0% , ,383,595 1,172,808 15,514 1,570 1, % 0.5% % 150 2, % 54.0% , ,412,675 1,188,511 15,703 1,643 1, % 0.5% % 166 3, % 54.0% , ,442,110 1,204,406 15,895 1,720 2, % 0.5% % 184 3, % 54.0% , ,471,903 1,220,495 16,089 1,799 2, % 0.5% % 202 3, % 54.0% , ,502,061 1,236,779 16,285 1,881 2, % 0.5% 1, % 223 3, % 54.0% , ,530,834 1,252,317 15,538 1,965 2, % 0.5% 1, % 244 3, % 54.0% System Peak demand (in MW) Table 3: Capacity Needed Energy Production (GWh) Installed Capacity (MW) Unconstrained Demand (MW) Technical loss and non technical High Base Low High Base Low High Base Low Year % % % % % % % % % % % % 1, % 1, , % 1, , % 1, , , % 1, , , % 1, , , % 1, , , % 2, , , % 2, , , % 2, , , % 2, , , % 2, , , % 2, , , % 3, , , % 3, , , % 3, , , % 9.4% 8.9% 9.8% 9.4% 8.9% 8.9% 8.9% 8.9% 81

98 4. The EAPP has prepared a regional optimal least cost development plan for the Great Lake region 12. It concluded that the least cost development plan for Burundi as per the table below: Table 4: List of Least Cost Power Plants for Burundi and Optimum Commissioning Date Plants Capacity (MW) Energy (Average Load factor Commissioning date GWh) Kabu Kagunuzi Complex Mpanda Mulembwe (updated) Jiji (updated) Siguvyaye The production costs of the least cost plants are : Table 5: Production Costs of the Least Cost Plants in Burundi Cost (US$ Cost/kW Production Plants million) installed cost (US (US$/KW) Cents/kWh) Kabu , Kagunuzi Complex , Mpanda , Mulembwe , Jiji , Siguvyaye , On the basis of the cost estimates and plant capacity provided by the project feasibility study, the plants Jiji and Mulembwe are the least cost options to meet the future demand. They are the least cost plants, after Kabu 16. (Regional Power System Master Plan and Grid Code Study, Volume II, Table 5-13). Compared to regional power plants, Jiji and Mulembwe are amongst the lowest production cost options, close to the production cost of Bendera (DRC) and Ruzizi IV (DRC/Rwanda) and competitive with Gibe IV and V in Ethiopia. Main assumptions for Economic Cost Benefit Analysis Key Assumptions 7. Timing. It is assumed that the construction of Mulembwe starts later than the construction of Jiji in The construction period is 42 months for Jiji & Mulembwe (Components A1 and A2) and 24 months for both the substations (Component 3) and transmission lines (Component 4). 12 EAPP and EAC Regional Power System Master Plan and Grid Code SNC Lavallin and Parson Brinckerhoff, February

99 Costs 8. Investment. The cost of each of the project s infrastructure components (Jiji and Mulembwe plants, transmission lines, substations and access roads) are based on the estimates provided by the consultant who prepared the feasibility study. 9. Economic costs include technical contingencies but exclude taxes and price contingencies but including design cost and supervision costs. The retained costs are as follows: Project economic cost (in 2013 US$) Mulembwe hydropower scheme : US$ 64.4 million Socio-environmental mitigation costs Mulembwe : US$ 5.6 million Jiji hydropower scheme : US$ million Socio-environmental mitigation costs Jiji : US$ 5.1 million Transmission lines & substations : US$ 43.0 million Socio-environmental mitigation costs Transmission lines US$ 2.8 million Total Economic Cost : US$ million 10. Operating cost. The annual operating cost of each plant is estimated as one percent of the construction cost Benefits Annual cost of operation Mulembwe US$ 496,000 Jiji US$ 772, Assuming the plants operate at full capacity depending upon the availability of water, the average generation based on the average hydrology is: Annual production at the plant Production Load Factor Mulembwe 90 GWh 63 percent Jiji 146 GWh 53 percent 12. Production consumed. For the calculation of the economic value of the production, the basis is the production consumed, that is, the energy produced minus the technical losses, estimated at 12 percent for the Burundi system. The non-technical losses are not taken into account, as the consumption of stolen electricity has a positive economic value. 13. Evaluation of the value of Jiji and Mulembwe electricity consumed. The economic value of power consumed is based on the willingness to pay (WTP) of each category of consumers, that is, the cost for each category of consumer of producing the same quantity of electricity with an individual generator. For industries, the alternative is the production of electricity with large diesel generator. For households, the alternative is the use of small individual generators with a 83

100 lower technical efficiency. In addition, it is assumed that the electricity produced by Jiji and Mulembwe will be consumed by the various categories of clients of REGIDESO in the same proportion as the present consumption overall. 14. Cost of self-generation. The cost of power generation by individual generators was calculated based on investment, maintenance and fuel costs excluding taxes. The generation cost per kwh in Bujumbura is US$ 0.28/kWh for large industrial generators and US$ 0.72/kWh for small individual generators. 15. Financial Analysis. The project financial analysis was prepared based on the same technical assumptions as the project economic cost-benefit analysis, with a number of adjustments: The total financial project cost is US$270 million (it excludes interest during construction of the EIB loan). Production considered is the production billed to consumers and paid, hence, after deduction of non-technical losses and bill non-payment, the paid production of Jiji and Mulembwe (taking into account the projected improvement in collection and the reduction of non-technical losses) is as follows: Table 6: Energy Paid (in GWh) Year Energy paid The value of the production is based on tariff at 2013 level which is the weighted average of the nominal tariff. Based on the structure of the demand in 2012, the weighted tariff is US$ 0.11/kWh. The transmission and distribution cost has be deducted from the tariff in order to evaluate the net revenue per kwh produced at the plant. Based on the Tariff study, the transmission cost on a per kwh basis is US$ 0.025/kWh. The net revenue per kwh of production from Jiji or Mulembwe is therefore US 0.099/kWh; No profit tax was included, as REGIDESO is unlikely to show a taxable profit as a corporation in the foreseeable future. 84

101 Table 7: Cost of Power Generation for Small Household Generator (5.1 kw) Maintenance Capacity (kw) 5.1 Every 60 hours 100 Every three months Consumption l/kwh) 250 Load Factor 0.3 Hours of operation/year Tax on Diesel 30% Price of Diesel excl. taxes Annual 400 Price of Diesel US$/l Year NPV 12% Investment US$ Fixed maintenance US$ Variable Maintenance US$ Fuel Consumption US$ Total Cost US$ 1 3, ,125 Energy produced kwh 2 1,400 4,380 4,337 10,117 13, ,400 4,380 4,337 10,117 13, ,400 4,380 4,337 10,117 13, ,400 4,380 4,337 10,117 13, ,400 4,380 4,337 10,117 13, ,400 4,380 4,337 10,117 13, ,400 4,380 4,337 10,117 13,403 2,790 5,705 17,848 17,671 44,014 61,167 Average Cost/kWh $

102 Table 8: Cost of Power Generation for Generator in Commercial Premises (160 kw) Maintenance Capacity (kw) 160 Every 60 hours 400 Consumption l/kwh) Hours of operation/year Tax on Diesel 30% Every three months 1000 Load Factor 0.3 Price of Diesel excl. taxes Annual 1600 Price of Diesel US$/l Year Investment US$ Fixed maintenance US$ Variable Maintenance US$ Fuel Consumption US$ Total Cost US$ Energy produced kwh 1 43, , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , , ,600 17, , , ,480 NPV 12% 39,063 33, , , ,680 2,787,012 Average Cost/kWh $0.28 Load Factor 15% 20% 25% 30% Cost/kWh

103 Capacity Table 9: Summary Generation Cost of Individual Generators Load Factor 15% 20% 25% 30% 5.1 kw kw kw Allocation of consumption by category of consumer. Taking into account the allocation of consumption by consumers with pre-payment meters, the allocation is as follows for 2011 and assumed to remain the same in the future: Table 10: Power consumption by category of consumer 2011 percent kwh FBU cons. Public Sector 39,721,983 4,883,580, percent Commerce s 42,078,221 5,583,369, percent Industries 36,296,233 5,164,679, percent Households 81,295,722 7,617,151, percent Total 199,392,159 23,248,780, percent 17. Calculation of Willingness to Pay. For the calculation of the benefits of the project, the weighted average of the willingness to pay of each category was used. The calculation of the average willingness to pay is presented below: Table 11: Calculation of Average Willingness to Pay 2011 (US Cents/kWh) WTP Categories Weighting (cents/kwh) Weighted DAP Public Sector 20 percent Commerce 21 percent Industries 18 percent Households 41 percent Average WTP Calculation of the Demand: In the absence of Jiji and Mulembwe, consumers will have three alternatives: Using an individual generator at a cost per kwh estimated above. Using traditional energy for lighting mainly, including candles, batteries and kerosene lamps or solar lanterns. Surveys demonstrated that these technologies have a cost per kwh equivalent even higher than individual generators, above US$1/kWh although they are widely used because of the lower upfront cost, their technological simplicity and the ability of consumers to control their monthly consumption. For consumers which would switch to traditional energy, the cost per kwh was conservatively estimated to be equal to the cost of individual generators. 87

104 Reducing their consumption of lighting and other services depending upon electricity availability. Statistical analyses of the electricity demand in developing countries has shown that the medium to long term demand is rather rigid, particularly when the supply is constrained as it is in Burundi and the price elasticity of power demand is about The higher cost of alternative sources of energy may therefore reduce the demand by 30 percent. Risk Analysis 19. The impact on the economic justification of the project of the following events has been calculated considering the main risks for a hydro project: (a) Construction cost overrun of 20 percent. (b) Electricity production that is 20 percent below forecast due to technical operational problems. (c) Delay of completion date by two years. (d) Combination of A, B and C. A 20 percent cost overrun results in a reduction of the EIRR to 19 percent and a decrease of the NPV to US$132 million. A 20 percent reduction of the production results in a decrease of the EIRR to 18 percent and a decrease of the NPV to US$98 million. A two-year delay in the commissioning of the plants results in a decrease of the project EIRR to 18 percent and a decrease of the NPV to US$103 million. The combination of all three events results in an EIRR of 13 percent and a NPV of US$ 11 million. Table 12: Sensitivity of the project to a Cost increase, Reduction of Generation and Delay in Completion B- Production Base A-Cost +20 percent increase decrease 20 percent C- Delay 2 years A+B+C EIRR 22 percent 19 percent 18 percent 18 percent 13 percent NPV at 12 percent discount US$170m US$132m US$98m US$103m US$11m 20. An additional sensitivity test was carried out to evaluate the impact of nonimplementation of Mulembwe although the cost of the transmission lines and of the access roads remains the same. Under this scenario, the project EIRR is 23 percent (because the Jiji plant is more economical than Mulembwe), but the NPV decreases to US$ 134 million. The 88

105 conclusion is that even if Mulembwe were not to be constructed, the construction of Jiji and ancillary installations would still be economically justified. 21. Greenhouse Gas Emission (GHG) Impact. The evaluation of the GHG impact of the project was conducted in terms of gross GHG emissions and net GHG emissions. 22. Gross GHG emissions. The project s gross GHG emissions are evaluated on the basis of the GHG released in the atmosphere through the construction of the two plants. GHG emissions for the construction of small run-of-river plants and ancillary installation is about 0.6 kg carbon dioxide (CO 2) per kwh 13. The Jiji and Mulembwe plants will produce 236 GWh per year, hence, the gross GHG emissions are 81,600 tonnes of CO 2 for the construction of the plants, over the 42 months of construction. 23. Net GHG emissions. The plants have a capacity above 15 MW each, hence their impact in terms of GHG emissions has to be evaluated through the incremental method from the perspective of the full power system, based for 75 percent on the operating margin and for 25 percent on the built margin. In the case of Burundi, although the system is 95 percent hydro, it is considered that the operating margin cannot be based on the assumption that if the two plants of the project are not built, they will be replaced by less economical equivalent hydropower plants, as any alternative hydropower plants would meet the same problems as Jiji and Mulembwe and therefore, would not be a reasonable alternative. Experience in Burundi as well as other countries in the region demonstrate that the alternative to least cost hydropower plants is the construction of emergency thermal capacity. It was therefore considered that the operating margin should be calculated on the basis of a Heavy Fuel Oil fired capacity. For the calculation of the build margin, the most recent additions to the capacity of the Burundi system were considered. They are diesel units using diesel fuel (some of which were financed by the Bank). The calculation of the avoided emissions or reduction of GHG emissions compared to the alternative solution for the production of the same energy (236 GWh per year when the two plants are in operation) indicate that the project will avoid the annual release of 153,000tonnes of CO 2 in the atmosphere 14. Considering conservatively a 50-year technical life of the plants, the avoided emissions over the project life is 7.65 million tones. Taking into account the gross GHG emissions of the project, the net avoided GHG emissions over the life of the project are 7.57 million tonnes of CO Other economic benefits. The project generated additional benefits from the improvement of living conditions of household. These social gains are difficult to estimate, as well as the gains resulting from avoided emission of CO 2 of thermal engines for motive power and selfgeneration. 13 Source: William Steinhurst, Patrick Knight, and Melissa Schultz Hydropower GHG Emissions: State of the research Synapse Energy Economics, February The lower value of the range has been used, as the plants of the project require little civil works and have no reservoir. 14 Based on 648 grams of CO 2 per kwh produced in diesel-fired reciprocating engine power plants (source: IFC, Environmental, Safety and Health Guidelines for Thermal Power Plants, December 2008) 89

106 Table 13: Base Case EIRR and NPV Calculation for Jiji and Mulembwe Years Costs (Thousand US$) Investment Jiji 31,503 37,803 37,803 18, Investment Mulembwe 0 18,156 18,156 18,156 18, Exploitation Jiji ,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 Exploitation Mulembwe Rehab Jiji , Rehab Mulembwe , Investment Trans. Lines and Substations ,892 22, Investment Access roads Socio environ. Cost Total Cost (Thousand US$) 31,503 37,803 78,852 59,950 19,416 19,416 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 1,986 64,991 1,986 38,299 1,986 1,986 1,986 1, Benefits (Thousand US$) Benefits Jiji ,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 47,938 Benefits Mulembwe ,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 29,551 Total benefits (Thousand US$) ,938 47,938 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 77,488 Net Benefits (Thousand US$) 31,503 37,803 78,852 59,950 28,521 28,521 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 12,497 75,502 39,190 75,502 75,502 75,502 75,502 31,503 37,803 78,852 59,950 28,521 28,521 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 75,502 12,497 75,502 39,190 75,502 75,502 75,502 75,502 ERR 22% NPV 169,851 90

107 Financial Analysis of REGIDESO 1. The overall financial performance of REGIDESO (combined water and electricity operations) has progressively improved since 2011 following increases in water and electricity tariffs in September 2011 and March Water and electricity tariffs were previously revised in May Prior to the last two tariff increases, the utility s financial performance and its financial position were weak. Financial restructuring of REGIDESO s balance sheet as at December 31, 2008 was undertaken to clear or write-off overdue accounts of the Government, unpaid import bills of SNEL and SINELAC and loans related to investments financed by donors. Import bills of SNEL and SINELEC up to 2007 were settled by GoB and nothing was paid between 2008 and REGIDESO started paying for its import bills from January 2011 onwards and the overdue bills of SNEL were cleared by September 2012 and the SINELAC debt is expected to be cleared by end REGIDESO as a whole made a net profit after tax of FBU 3,522 million15 (US$2.4 million) in 2012 compared with net losses of FBU 547 (US$0.4 million) and FBU 767 million (US$0.6 million) in 2011 and 2010 respectively. REGIDESO s combined water and electricity operations generated net cash inflows of FBU 2,754 million (US$1.9 million) in 2012 and FBU 3,005 million (US$2.3 million) in 2011 and net cash outflow of FBU 586 million (US$0.5 million) in The financial results take account of the World Bank subsidies towards fuel costs for thermal power generation of FBU869 million (US$0.6 million) in 2012, FBU 6,679 (US$ 5.1 million) in 2011 and FBU 4,298 (US$3.5 million) in REGIDESO s combined water and electricity operations generated net cash inflows of FBU 2,754 million (US$1.9 million) in 2012 and FBU 3,005 million (US$2.3 million) in 2011 and net cash outflow of FBU 586 million (US$0.5 million) in 2010; all after receipt of electricity generation fuel subsidies. Without such subsidies, the utility would have generated net cash inflows of FBU 1,885 million (US$1.3 million) in 2012 and net cash outflows of FBU 3,674 million (US$2.8 million) in 2011 and FBU 4,884 million (US$4.0 million) in The financial performance indicators of REGIDESO have improved over the past three years. Based on the utility s financial statements, the current ratio has improved to 3.5 times as at December 31, 2012 (2.6 times at end 2011) and the debt/equity ratio in the last two balance sheet dates were low and ranged between 13 percent and 11 percent. However, it should be noted that accounts receivable, as reported in the financial statements, are most probably overstated as they are unlikely to be collected in full. Combined Operations Key Issues 5. Finance Department: The reporting of operational and financial performance within REGIDESO is not satisfactory. Conflicting data between technical, commercial and financial departments makes it difficult to undertake analysis of REGIDESO s performance with a reasonable degree of confidence. The accounting systems are antiquated and there is an urgent need for the installation of a new computerized accounting system that is integrated with other 15 Unaudited results 91

108 software applications such as commercial and inventory systems. Accounting staff require training and coordination within the finance department and across REGIDESO need to be strengthened. Audited financial statements should be issued in a timely manner (within six months of the year-end). Issuance of the audited accounts should not be delayed on account of audit qualifications. 6. Commercial Department: The recording of billing collection and customer accounts in REGIDESO s billing system for both water and electricity operations are combined and it therefore makes it difficult to separate the underlying collection performance and customer accounts between the two operations. The present billing system is antiquated (introduced in 1992) and the system is also unreliable and the monthly billing statistics are erratic. Conflicting data generated by the existing system makes it difficult to assess the accuracy of reported data. For example, the billing statistics reported in REGIDESO s annual report for 2012 indicates that overall network losses reached 24 percent; on the other hand, the technical audit (RAPPORT FINAL for 2011 and 2012, dated June 30, 2013) indicates that the losses amounted to 20.3 percent (including auxiliary losses). In addition, the auditors of REGIDESO have always expressed many reservations about the reliability of commercial data. The reporting of commercial data is therefore not satisfactory and there is an urgent need to replace the existing billing software. The billing for water and electricity should be separated. 7. The accounts receivable in the billing system have accumulated over the years and a large part of the recorded debt is not collectable. It is recommended that the records of the commercial departments are reviewed and old irrecoverable balances are cleared from the records. Electricity Operations 8. Network Losses: Overall transmission and distribution (T&D) losses averaged 19.5 percent over the three years REGIDESO s annual report for 2012 states that the losses were in the region of 24 percent. It is estimated that about 40 percent of overall losses can be attributed to technical losses. Metering is considered to be average; although at times meters get locked when power voltage is low and electricity consumption goes unrecorded (approximately 2-3 percent of losses can be attributed to this). Revenue lost and uncollected for every one percent of T&D losses is estimated at FBU 349 million (US$0.226 million), based on the estimated present tariffs and the average collection rate of 84.1 percent. Assuming optimum network losses of 13.2 percent and billing collection rate of 97.5 percent, FBU 2.75billion (US$1.8 million) can be recovered annually through efficiency gains. This is the level of the challenge facing both REGIDESO and the Government. REGIDESO should exert all efforts to bring down the network losses and increase billing collection. The base case analysis assumes that distribution losses are reduced by 0.25 percent each year. If the assumed reductions in distribution losses percent are achieved, and based on the projected average tariffs, there will be a positive cash flow impact of US$10 million to Billing Collection: The billing collection rate has varied considerably over recent years. The average collection rate in 2012 has worsened considerably and it is not clear if this reflects the true underlying performance or whether the figures are distorted due to the inaccuracies of 92

109 the statistics generated by an unreliable billing system. The overall billing collection rates (based on current year billing) for both water and electricity over the past four years are indicated in the following table. Table 14: Billing Collection Rates Water and Electricity Combined Average As per financial statements data 90.7% 88.3% 73.1% 84.1% As per technical audit 92.1% 82.3% 76.0% 83.5% 10. The deterioration in the billing collection performance over the past three years is a cause for concern. The performance should be improving, especially since the proportion of electricity prepayment billing has doubled to 32.4 percent since The large increases in both water and electricity tariffs in September 2011 and March 2012 (cumulatively 140 percent for water and 70 percent for electricity) may have contributed to the decline in the collection performance. REGIDESO should exert all possible efforts in improving its billing collections. If the assumed improvements in the overall Burundi billing collection rate of 1.5 percent each year (increasing from the present 84 percent to 96 percent by 2025), and based on the projected average tariffs and network losses, there will be a positive cash flow impact of US$56 million to The recommended financing plan to meet the projected revenue shortfalls over the next thirteen years to 2025 involves (a) GoB subsidy to cover the full capacity and fuel costs of the rental thermal until 2015 and (b) average tariff increases of 15 percent by 2017 and 25 percent in 2021 when Ruzizi III is commissioned and by 2024 (10 percent). Details of the revenue requirements and the recommended financing plan are provided in the project file. 12. Peak demand in Burundi grew at an annual average rate of 4.46 percent, rising from 45.5MW in 2009 to 54.0MW in Electricity sent out during the same period has grown from 207 GWh in 2009 to 243 GWh in As a percentage of total supply, hydro output from REGIDESO s plants accounted for 56.1 percent in 2012 (52 percent in 2011), hydro imports accounted for 42.7 percent in 2012 and 2011 and the balance of requirements was met from the Bujumbura thermal plant (1.2 percent in 2012 and 5.3 percent in 2011). The use of the Bujumbura thermal plant was restricted to boost financial results. 13. Overall T&D losses averaged 19.5 percent over the three years (19.9 percent in 2012). Revenue lost and uncollected for every 1 percent of T&D losses is estimated at FBU349 million (US$0.226 million), based on the estimated present tariffs and the average collection rate of 84.1 percent. 14. Electricity billed to end-use customers registered growth rates of 14.1 percent and 5.4 percent in 2010 and 2011 and declined by 2.3 percent in 2012, reaching 194.8GWh in Growth in recent years was limited due to capacity constraints. 15. The ratio of the average number of customers per employee has improved significantly over recent years, rising from 73 in 2009 to 101 in However, the latest ratio does not compare well with the other utilities in the region. 93

110 16. Total number of electricity customers billed increased by 38 percent since December 2009 to reach 75,847 by December 31, New customers connected reached 9,307 in 2012, 6,713 in 2011 and 4,797 in As of December 31, 2012, customers connected with prepayment meters accounted for 43 percent of total customers and 64 percent of customers were in Bujumbura. Customers with prepayment meters accounted for 31.3 percent of total electricity sales and 32.5 percent of total electricity revenue in The actual weighted average electricity revenue increased from 101FBU/kWh (0.082 US$/kWh) in 2010 to 110 FBU/kWh (0.085 US$/kWh) in 2011 and 152FBU/kWh (0.11 US$/kWh) in The present weighted average revenue is still estimated at 152 FBU/kWh (0.11US$/kWh). In terms of the local currency, the average revenue increased by 8.7 percent in 2011 and by 34.9 percent in In US dollar terms, the average revenue increased by 3.2 percent in 2010 and 10.4 percent in The weighted average electricity revenue of 152FBU/kWh (0.11 US$/kWh), compared with the cost of service (CoS), excluding fuel subsidies, of 133 FBU/kWh (0.092 US$/kWh), giving a profit margin of 10 percent. On the basis of cash flow requirements, the average revenue requirements in 2012 amounted to 149 FBU/kWh (0.102 US$/kWh), almost equal to the average revenue. 19. REGIDESO s electricity operations generated net cash inflows of US$0.8 million and US$1.8 million in 2012 and 2011, compared with net cash outflows of US$0.3 million in Capital investments in the past three years amounted to US$40.6 million, largely funded through GoB and donor grants and customer contributions and deposits. Debt service payments were minimal. 20. REGIDESO had healthy current ratios in recent years as per its financial statements. However, current assets reflect receivables from customers which may not be fully recoverable. REGIDESO has no debt and GoB/donor grants for investments have been transferred as subsidies in the past. Electricity Operations - Future Outlook to REGIDESO s financial prospects for its electricity operations over the next eleven years to 2025 will be largely dictated by the following: (a) demand growth and sources and costs of power supply, (b) capital investments and financing thereof, (c) electricity tariff gradual adjustment, (d) operating costs, (e) efficiency improvements in network losses, billing collection and operating costs, and (f) borrowing terms for new debt secured for investments. 22. The base case analysis to 2025 as presented in this report assumes that electricity demand in Burundi will grow as per the base case demand growth forecast used in the economic analysis. In view of capacity constraints, the underlying electricity demand up to 2017 will not be fully met. On this basis, demand is expected to grow by 3 percent and 4.9 percent in 2013 and 2014 respectively, and decline by 5.0 percent in The projected capacity additions in 2015/16 will lead to high demand growth of 20 percent in 2018 and 25 percent in 2019, catching-up with 94

111 deferred connections and unserved demand. Thereafter, the annual demand growth is forecast to range between 10.3 percent and 12.3 percent. 23. Peak demand and energy sent out in Burundi is projected to grow from 54 MW and 243 GWh in 2013 to 204 MW and 925 GWh by Available energy supply based on the generation expansion plan is allocated to meet Burundi demand and little exports are envisaged. 24. Transmission losses are assumed to remain constant throughout the forecast period (estimated at five percent). Distribution losses, as a percentage of bulk supply, are forecast to decrease from the assumed present level of 15.7 percent by 0.25 percent each year starting On this basis, the overall transmission and distribution losses for Burundi supply are expected decline from the present 19.9 percent to 17.1 percent by REGIDESO s investment requirements in generation expansion, the extension, reinforcement and rehabilitation of the transmission and distribution networks over the next eleven years to 2025 are considerable and the levels of investments undertaken will largely depend on the availability of funding from donors, REGIDESO and government. REGIDESO s capacity to provide funding out of internal resources will be determined by the levels of electricity tariffs, collected revenues, customer contributions to new connections, and revenue requirements. The projected total investment requirements over the next eleven years to 2025 are estimated at US$ 867 million (excluding generation investments to be undertaken by IPPs), equivalent to annual average investments of US$67 million. The projected financing plan for such investments will require 27 percent funding (US$235 million) from internal resources, 7 percent funding (US$57 million) from customer contributions, 42 percent funding (US$366 million) through borrowing (on-lent government/donor funds) and the remaining 24 percent funding (US$ 209 million) from government and donor grants. 26. REGIDESO s forecast revenue requirements over the next three to four years will remain high as long as long it has to rely on thermal power supply to alleviate capacity shortages. This situation is forecast to continue through to 2017 before lower cost supply from donor funded hydro plants (Jiji, Kabu16 and Mulembwe) come on line from late 2017 to The forecast revenue requirements to 2025 will be met through gradual adjustment of electricity tariffs. 27. REGIDESO s base case forecast annual revenue requirements are expected to remain constant from US$20.5 million in 2014 to US$20.3 million in 2015 as tariff remains constant after the 2012 increase and demand remains constrained. Revenue requirements in 2016 and 2017 are expected to increase to US$21.0 million and US$23.8 million respectively. In the subsequent three years, the revenue requirements are forecast to reach US$40.2 million in 2018, US$41.0 million in 2019, US$48.2 million in The annual requirements in the subsequent five years are expected to increase gradually to US$144.5 million by The base case forecast revenue requirements, electricity revenues (based on present tariffs) and revenue surpluses/shortfalls of REGIDESO's electricity operations, together with a proposed financing plan are summarized in Tables 14 and 15 below. Government support towards thermal costs will be significantly reduced from 2014 onwards, following the recent tariff adjustments. 95

112 29. As can be seen from Table 14 Projected Income Statement 2013 to 2025, the projected operating revenues fully cover the cost of revenue throughout the forecast period. 30. The structure of REGIDESO's cash operating costs is going to change quite radically over the next few years. The split between fixed and variable costs in 2012 is estimated as 39 percent fixed and 61 percent variable. This is forecast to change to 78 percent fixed and 22 percent variable by 2025, primarily due to fixed capacity & fixed O&M costs of IPPs and fixed financing cost of new plants including Jiji and Mulembwe. The cash flows of REGIDESO's electricity operations over the forecast period will be healthy if (a) the projected tariff adjustments of 15 percent by 2017 and 25 percent in 2021 are implemented, (b) the anticipated efficiency improvements in network losses and billing collection are achieved, and (c) the projected funding for REGIDESO's investment plan is secured under the terms assumed in the base case analysis. 31. REGIDESO will be in a position to meet its operational and other requirements from the projected revenues (Table 15 Summary Projected Cash Flows - Electricity). The projected net cash in hand is positive and increasing throughout the forecast period. The debt service burden is forecast to increase dramatically over the next few years, as indicated in the table. Annual debt service requirements are expected to rise considerably from 2019 onwards as ongoing and new debt mature for debt service payments. The annual debt service payments are forecast to grow from US$1.53 million in 2019 to US$ million by REGIDESO s financial indicators of debt service coverage and self-financing through 2025 are forecast to be robust based on improved billing and collection (Table 17). 96

113 Table 15: Projected Income Statement in US$ million 2013 to Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Operating revenue Electricity revenue Burundi Revenue billed REGIDESO own consumption for water pumping & offices Total electricity revenue Other operating revenue Government subsidies & amortization of grants Total operating revenue Operating expenses Power purchase excluding fuel Generation fuel Payroll Repairs & maintenance Transport & travel Administration & overheads Operating expenses before depreciation & provisions Depreciation Provisions for bad debts & stock obsolescence Total operating expenses Operating profit/(loss) (0.1) Non-operating income - net Net finance charges Net interest payable/(receivable) (0.3) (0.3) (0.3) Exchange (gains)/losses Net finance charges (0.3) (0.3) (0.3) Profit/(loss) before taxation (3.7) (3.9) Taxation Profit/(loss) after taxation (4.6) (4.7)

114 Table 16: Summary Projected Cash Flows (Electricity) in US$ million 2013 to Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Net cash inflow/(outflow) from operating activities: Operating profit/(loss) (0.1) Non-operating income/(expense) - net Depreciation Customer capital contributions (connection charges) taken to income (0.4) (0.6) (0.6) (0.7) (0.8) (0.9) (1.0) (1.3) (1.7) (2.2) (2.8) (3.2) (3.7) (Increase)/decrease in stocks 0.7 (0.9) (0.4) (1.6) (4.8) (21.5) (6.5) (10.0) (14.5) 5.2 (8.7) (15.5) (12.2) (Increase)/decrease in debtors (0.9) 0.5 (0.4) (0.3) (0.7) (3.0) (1.3) (2.2) (8.7) (1.1) (3.8) (3.1) (3.7) Increase/(decrease) in creditors (3.5) (1.7) (0.4) 1.0 (0.3) Other Net cash inflow/(outflow) from operating activities (0.1) (0.6) (8.5) Returns from investments and servicing of finance: Interest received Interest paid (0.1) (0.0) (0.0) (0.0) (0.2) (0.4) (1.0) (3.0) (5.4) (6.5) (6.7) (6.8) (6.7) Net cash outflow for returns on investments and servicing of finance (0.1) (0.7) (2.7) (5.1) (6.1) (6.3) (6.5) (6.4) Taxation paid 0.0 (0.6) (0.4) (0.2) (0.1) (0.2) (1.4) (2.1) (0.1) (0.8) (0.9) (1.2) (5.0) Investing activities: Payments to acquire tangible fixed assets (38.4) (72.1) (123.3) (152.3) (161.3) (137.2) (97.3) (79.3) (94.7) (98.9) (83.5) (87.3) (91.3) Receipts from disposals of tangible fixed assets Net cash outflow from investing activities (38.4) (72.1) (123.3) (152.3) (161.3) (137.2) (97.3) (79.3) (94.7) (98.9) (83.5) (87.3) (91.3) Net cash inflow/(outflow) before financing (38.3) (71.2) (120.8) (150.7) (161.9) (145.9) (87.1) (75.7) (96.0) (78.8) (61.6) (62.2) (60.7) Financing activities: 0.7 (0.4) (0.9) (0.3) (0.5) (3.3) (6.1) (11.1) (23.3) (30.2) (31.6) Grants & Government contribution for investments Customer deposits & capital contributions (connection charges) Borrowing Borrowing repaid (0.3) (0.5) (3.2) (6.1) (11.1) (23.3) (30.3) (31.7) Receipts/(payments) for investments Net cash inflow from financing activities Increase/(decrease) in cash and cash equivalents (0.5) (9.0) (7.4) 9.0 (1.3) (5.0) (0.9) Cash and cash equivalents at beginning of year (1.0) Exchange difference (0.2) (0.2) (0.2) (0.3) (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) Cash and cash equivalents at end of year (1.0)

115 Table 17: REGIDESO Electricity Operational Indicators Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Operational indicators Electricity sales (GWh) Burundi Exports Total REGIDESO No. of new customer connections 7,636 8,000 19,187 19,921 20,677 21,455 40,835 60,890 82,338 85,288 68,326 70,700 73,138 Av. no. of customers per employee Electricty sales (MWh) per employee Profitability Operating margin (%) 7.2% 5.5% 2.0% -0.5% 2.2% 11.3% 19.8% 9.2% 2.6% 2.4% 15.5% 17.9% 18.0% Return on equity (%) 2.3% 1.5% 0.6% 0.2% 0.3% 2.3% 3.3% 0.2% -3.0% -3.1% 6.4% 6.8% 7.4% Self-financing ratio (%) 9% 3% 5% 3% 1% -5% 14% 8% 4% 20% 2% 4% 10% Debt service cover (times) Liquidity Current ratio (times)

116 Annex 7. Sector Background Organogram of Sector 100

117 Annex 8: Power Sector Reforms Summary Road Plan Phase Activities Legislation Regulator Preparatory Phase Including actions supported by the Project 2014 to 2015 A new Electricity Law is prepared and enacted (under implementation in 2013/2014 under SE4All with IFC); Study on future industry structure completed and Policy Framework for PPP in the Energy Sector is prepared; Regulations necessary under the new Electricity Law are prepared and promulgated. Establish the regulatory body (l Agence de Contrôle et de Régulation-ACR) required by 2000 Law and appoint a senior official to head it; Develop job descriptions and profile of technical skills for ACR; Provide training in basic regulatory functions (e.g., tariff setting, licensing of operators); Intermediate Phase 2016 to 2017 Regulations are completed and implemented that opens the sector to private participation in generation and distribution and protects consumers. ACR competence in core functions is built. Long-term Phase 2018 to 2020 ACR is fully operational Results Comprehensive Power sector regulation is functional ACR is operating at arm s length from MEM whose responsibility is policy making GoB continues to carry out regular adjustment of tariffs based on ACR recommendations reflecting use of thermal power and fuel prices. Utility Operation Reorganization of REGIDESO is implemented (i.e., selected recommendations of MAZAR study implemented); Departmental functions in REGIDESO are modernized (including MIS, procurement and stock management, billing and collection; accounting; metering and connections; Loss reduction measures (including improved metering) are implemented by REGIDSO; Reform of REGIDESO Board (minimum competence criteria for members; allocate half the seats to representatives of consumers and industry); Reform of REGIDSO Management (Establish job descriptions for all Directors and competency profiles; transparent competitive recruitment for key posts that President appoints). REGIDESO Water and Electricity businesses are separated. Functional separation of generation and distribution activities of REGIDESO; REGIDESO distribution function operates alongside private distributors; Generation and distribution companies are ready for a deeper private sector participation. Distribution and generation functions providing efficient and reliable power to the country with private sector participation; Government focus on policy and regulatory role in the sector 101

118 Phase Activities Physical Infrastruct ure Preparatory Phase Including actions supported by the Project 2014 to 2015 Construction begins on key generation projects (Rusumo Falls, Ruzizi 3, Jiji and Mulembwe) and interconnector Bujumbura to Rwanda; Investment Prospectus for Infrastructure is prepared that includes: o Sub-regional generation master plan - Bujumbura and major provincial cities distribution network extension plan; Pre-Feasibility studies carried out for generation and transmission; Study on options to expand rural access and role of ABER. Intermediate Phase 2016 to 2017 IDA and soft loans finance new distribution projects in Bujumbura and other towns and are implemented by contractors under EPC arrangements ( new customer are connected) and PPP distribution is encouraged; Investment Prospectus priority generation and transmission projects and incentivization of PPPs initiated; Long-term Phase 2018 to 2020 Number of connected households triples to reach 220,000 (from 76,000 in 2013) Installed generation capacity is162 MW from 58MW in and expensive diesels are used exclusively in dry season and for peaking; National transmission grid backbone is extended. Results 30% access has been achieved (from 4-6% today); Reduction of overall system losses from 40-50% to 20-30% Rural electrification program launched with pilot projects and PPPs. 102

119 Government Letter of Energy Policy: January 2011 Extract for Power Sector 103

120 leare de politique energetique - janvier 2< CHAPITRE 7 LE SOUS-SECTEUR DE L'ELECTRICITE 8.1. Le diagnostic Le reseau electrique conventionnel alimente principalement par des generateurs synchrones est Ia seule forme d'energie susceptible de pem1ettre aux industries, aux etablissements importants du secteur tertiaire et a certains artisans de faire fonctionner leurs applications puissantes ou specifiques en tout lieu desservi, a tout moment et dans des conditions economiques supportables. De ce fait il est un facteur cle de Ia croissance pour le Burundi, meme s'il ne represente qu'une faible proportion de f'energie totale consommee dans le pays. Malheureusement, avec moins de 200 GWh distribues annuellement dont seulement 50 pour les activites productives, 24 kwh consommes par habitant, 2 % des foyers desservis par reseau interconnecte ou isole, l'electncite burundaise est l'une des moins developpees au monde. L'absence d'investissement significatif depuis vingt ans Ia met aujourd'hui au bord de l'effondrement technologique et economique. Cette situation risque meme de s'aggraver dans les annees qui viennent du fait de!'absence d'amenagements de production encore clairement programmes a ce jour La phase de redressement Le Burundi n'echappera done pas a une situation de crise energetique pour quelques annees encore. Elle sera marquee par des delestages frequents en saison seche et en periode de travaux dans l'une au l'autre des centrales de production. Pendant cette periode les axes strategiques du sous-secteur consisteront a (i) sauvegarder les equipements existants, (ii) comprimer Ia demande et (iii) prendre des mesures d'urgence permettant d'attenuer les consequences de Ia penurie. C'est aussi une periode propice a (i) Ia reflexion sur l'avenir eta (ii) Ia renovation des structures du sous-secteur. Pour eviter des incidents aux consequences majeures, il convient de realiser dans des delais Ires courts les travaux dans les postes et sur les lignes prevus dans le cadre du Projet Multisectoriel Eau et Electricite de Ia Banque Mondiale et du Projet Rehabilitation des Reseaux Electnques de Ia Banque Africaine de Developpement. Malgre les difficultes supplementaires qui en resulteront ponctuellement, il importe que soient effectues les lravaux de remise a niveau prevus et finances par l'aide intemationale dans les centrales de production nationales et regionales afin de maintenir leur capacite de production. La remise en fonctionnement de Ia centrale Diesel de Bujumbura apporte un soulagement momentane. II conviendra d'assurer sa maintenance de fa ~on conforme aux preconisations du constructeur d'autant plus qu'elle sera Ires sollicitee. Le Gouvemement a deja fait appel a I'Entreprise INTERPETROL pour une location d'une Centrale Thermique pour une periode de 6 mois, periode de Ia saison seche ou les debits d'eau diminuent dans les cours d'eau. De meme, Ia Banque Mondiale a donne son accord de financement pour une nouvelle Centrale Thermique a Bujumbura de 5 MW pour un montant de 16 millions US $. Toutefois ces solutions thermiques ne peuvent se prolonger au-<lela de Ia periode de financement du combustible. Elles exigeraient Ia revision drastique des tarifs de l'electricite pour eviter Ia ruine de Ia REGIDESO ou l'assechement du budget de I'Etat. led- Innovation Energie Developpement page HI 104

121 lettre de polltique energelique janvier L'interet de quelques mesures techniques sera examine, notamment Ia reduction de Ia moyenne tension de desserte a Bujumbura et Ia compensation supplementaire de Ia puissance reactive. La solidarite des pays voisins sera recherchee, nolamment dans le partage des ressources des centrales de RUZIZI I et II. Au cours de cette penode d'urgence, le raccordement au reseau interconnecte de nouvelles zones rurales ou urbaines ne pourra etre poursuivi. La priorite des programmes d'eleclrification ira done vers l'electrffication par reseau isole, notamment les microcentrales hydroelectriques ou par systeme autonome photovoltatque ou eolien. L'attention des consommateurs urbains sera attiree sur J'utilite reelle et le reglage des climatiseurs, les eclairages inutiles, etc. La contribution des consommateurs industrials par effacement a Ia pointe en saison seche sera egalement sollicitee. Cette periode de plusieurs annees de stagnation forcee de J'offre sera mise a profit pour preparer Ia phase de croissance rapide qui suivra en dotant le sous-secteur des outils indispensables de planification, en renfor~ant son organisation interne, en ameliorant Ia gestion du systeme et les competences de son personnel et en menant des actions vigoureuses de maitrise de l'energie. Seront notamment entrepris : L'actualisation de l'inventaire des ressources hydroeleclriques et Ia mise en place d'un suivi regulier de l'hydrologie L'etablissement d'un plan directeur d'electrification a moyen et long terme La creation d'un fonds d'acces universe! abonde par les bailleurs de fonds et permettant de subventionner l'electrificalion par reseau ou systeme isole. La revision de Ia politique tarifaire de l'electricite pour refleter les cotils, coniger les inegalites de Lraitemenl entre les consommaleurs sans exclure des subventions croisees en faveur des couches deravorisees de Ia population desservie. des actions ciblees de localisation et de reduction des pertes techniques et non techniques, notamment Ia generalisation des compteurs a prepaiement La reorganisation du sous-secteur et notamment du Ministere de I'Energie et des Mines, dont les moyens humains, le savoir-faire et l'equipement seront renforces pour mieux exercer les taches de planification, d'optimisation de Ia gestion et de regulation QUi lui incomberont dans le SOUS-secteur electrique Ia clarification du role de REGIDESO en tant qu'acheteur unique, operateur du reseau de transport majs ne disposanl ni du monopole de production ni de distribution!'introduction de Ia regulation dans les conditions les mieux adaptees a Ia taille et a Ia complexite du sous-secteur. Le lancement de campagnes de mait:nse de l'energie aupres des differents secteurs economiques avec notamment Ia generalisation de l'eclairage public et prive a basse consommation La mise en place d'une assistance technique internationale destinee a Ia formation sur le lieu de travail, a J'appui au Ministere de I'Energie et des Mines et a Ia REGIDESO pour les reformes precedentes et les aspects comp'lexes de Ia negociation contractuelle avec les partenaires prives et intemationaux, notamment les industriels miniers. led - Innovation Energie Developpement page

122 Lettre de pofitique energeliqtte - J<3nvier 2011 L'actualisalion de Ia loi sur I'Eiectricite et Ia promulgation de ses decrets d'application notamment en matiere de hberalisation. Le cadre institubonnel revise inclura au benefice de Ia zone rurale une remuneration legitime des ressources hydroelectriques de surface au meme titre que les ressources energeliques ou minieres du sous-sol La phase d'equipement La phase d'equipemenl qui succede a Ia phase de redressement est caracterisee par Ia mise en reuvre de nouveaux axes strategiques : Le developpement de Ia production hydroelectrique nationale et regionale La constitution d'un reseau de transport fortement interconnecte La reprise de l'ellectrificalion perlurbaine et rurale par reseau interconnecte Elle est marquee par une alternative majeure : le developpement possible de!'extraction et du raffinage au Burundi du minerai de nickel du grand gisement de Musongati dont l'impact sur les moyens de production et le reseau de transport burundais seraient considerables. La sortie de Ia phase de redressement et des mesures d'urgence n'est possible qu'avec le developpement de moyens de production d'electricite nauonaux et regionaux de coot supportable par l'economie. La production hydroelectrique sera!'option prioritaire compte tenu de son abondance sur le territoire el de Ia diversite des tailles d'amenagements envisageables bien ajustes aux phases successives de Ia croissance de l'economie. Les amenagements hydroelectriques etudies et pertinents exigent!'implication dedsive du secteur prive et des bailleurs de fonds intemationaux a hauteur de 200 millions de dollars au minimum, un montant que I'Etat, lourdement endette, ne peut moblliser par lui-meme. L'interet des compagnies minieres pour les gisements de nickel du pays est Ia seule perspective actuellement credible qui suscite!'intervention majeure d'investisseurs prives dans le sous-secteur a un niveau de financement consequent. Elle entrainerait le quadruplement progressif de Ia puissance installee de production et le remaniement complet du reseau de transport. Si elle se confirme, cette opportunite ne doit pas seulement permettre de renflouer les caisses de I'Etat grace aux droits et taxes pe r~ues sur!'exportation du nickel metal produil Elle doit aussi permettre le developpement decisif des infrastructures electriques du Burundi au benefice non exclusif de l'industrie miniere mais aussi du reste de l'economie burundaise etant donne les avantages de tous ordres que retireraient les deux parties d'une exploitation commune de Ia ressource. Les aspects techniques et environnementaux d'un tel developpement du systeme electrique exigent des etudes poussees de l'hydrologie, de!'optimisation des ouvrages hydroelectriques, de Ia structure des reseaux de transport, de Ia problematique de!'exploitation, de Ia stabilite. etc. Le gouvernement souhaite en faire un example d'un partenariat public-prive reussi et se declare dispose a envisager les modifications mutuellement profrtables du cadre institutionnel et reglementaire qu'il exigerail A defaut de developpement minier d'importance, le Burundi ne poorrait compter dans l'immediat que sur Ia communaute intemationale pour financer des investissements durables de production electrique, les investissements thermiques Diesel ne pouvant constituer que des solutions transitoires qui deviendraient rapidement insupportables pour l'economie du pays en raison des coots des combustibles. Les bailleurs de fonds devraient etre sensibles au fait que beaucoup de programmes de cooperation sont rendus inefficaces en!'absence led - Innovation Energie Developpemenl page

123 leltre de politique energetique - janvier 2011 de l'enclenchement d'un processus vertueux de croissance pour lequel un systeme electlique efficient et fiable est indispensable. Le choix des centrales hydroelectriques developpees devra comporter une proportion suffisante d'installations dotees de reservoirs a gestion saisonniere ou annuelle de fa ~on a faire face a l'irregularite de Ia pluviometrie encore accentuee par le changement climatique. De meme les groupes installes seront dimensionnes de telle sorte qu'une reserve toumante permette de compenser l'arret non programme du gemerateur le plus puissant du resea u ou d'une ligne de transport quelconque alors que le plus gros groupe l herrnique subit des operations de maintenance. La mise en service de moyens de production hydroeleclriques nationaux sera ensuite relayee par les centrales regionales de RUZIZL Ill et RUSUMO FALLS pour porter Ia puissance installee du pays entre 150 et 200 MW hors nickel. Cette evolution exigera!'erection des lignes 220 KV RUSUMO FALLS - GITEGA - BUJUMBURA, BUJUMBURA RWEGURA-KIGALI, BUJUMBURA-RUZIZI et BUJUMBURA-BURURI-TAN ZAN IE integrant solidement le reseau burundais au reseau electrique de I'Est Africain et lui donnant acces aux marches de I'EAPP et du NELSAP susceptibles de couvrir ses besoins uherieurs par!'importation. Le developpement de l'offre e!ectrique permettra de relancer Ia demande electrique latente en perrnettant le raccordement progressif en MT euou HT des capitales regionales et des petits systemes isoles qui beneticieront dorenavant d'une alimentation permanente pour l'industrie locale, le traitement des produits agricoles et miniers,!'administration, l'artisanat, les ateliers de menuiserie et de mecanique; ainsi que les etablissements scolaires et hospitaliers les plus importants, les telecommunications, l'approvisionnement en eau etc.. Cette strategie d'electrification s'inscrira dans le cadre de Ia politique de Villagisation pronee par le gouvemement et s'appuiera done principalement sur le maillage MT du territoire. Elle profrtera egalernent a Ia zone periurbaine de Bujumbura. La confiance retrouvee dans!'alimentation electrique perrnettra de meme le retour ou!'installation d'investisseurs industrials et commerciaux nolamment dans Ia zone economique de Bujumbura La phase d'expansion Si les perspectives d'extraction et de transformation du minerai de nickel et des autres metaux associes se realisent, le Burundi sera dote d'ici 2020 d'une puissance electrique installee nationale de l'ordre de 300 MW. II aura acces aux marches regionaux de l'electricite d'origine essentiellement hydraulique et renouvelable et disposera d'une industrie miniihe florissante et de produrts agricoles de qualite. Le Burundi sera devenu un pays exportateur capable d'assurer son propre developpement sur le plan energetique. Com me le montre l'etude de novembre 2009 soutenue par Ia Banque Africaine de Developpement sur les infrastructures, l'operateur historique du sous-secteur eleclrique presentera un bilan excedenta1re avec un niveau d'autofinancement qui lui donnera acces aux marches financiers. L'ouverture de son capital aux inveslisseurs sera bien accueillie. L'importance du pare hydroelectrique et renouvelable permettra de maintenir les tams a un niveau compatible avec le revenu des populations urbaines a l'abri des variations des prix des combustibles fossiles sur le marche mondial. Les irregularites de l'hydraulicite seront compensees par le developpement de ferrnes solaires et eoliennes, ainsi que par quelques centrales Diesel alimentees au fioul lourd importe. Ouoique non generalisee,!'electrification par le reseau s'etendra aux petites Villes, qui connaitront de ce fait un certain developpement economique et Ia creation d'emplois associee. led- Innovation Energie Devmppement page

124 Lettre de politique energeuque - j anvier Faute d'un developpement minier signiffcatif,!'expansion du systeme electrique burundais devrait rester plus modeste, au rythme des financements intemationaux pour les centrales hydroelectnques nationales et regionales_ Un veritable ballon d'oxygene a long terme proviendrait ajors de l'lnterconnex ion avec les sources relativement bon marche de I'Ethiopie et de Ia ROC, au prix d'une dependance energetique accentuee pesant sur Ia balance commerciale _ La position geographique du pays au centre de!'afriq ue lui permettra de proposer a ses partenaires de I'Esl, Ouest et Sud africain d'abriter le hub electrique siege des echanges electriques entre grandes regions du conti nent led- lnnova1ion E.nergie Developpem enr page

125 Annex 9: Maps BURUNDI JIJI AND MULEMBWE HYDROPOWER PROJECT OVERVIEW CJ IIYO>(J'(JW[R lun15 G) IROfOSUI!SIIll(JIS 0 DISillr;9:ESWXliiS - A1W IIOtvlRJJ6MIS9QWII ---- A1W lo lv llstiiibuljon UIIE... M'JXll(,ll PAI!S 0 MAIHCffiES * NAOO!I'< CAPito. -- ""' iqods -- IUER!IAOOIIAl ln.noaihs.,._, 109

126 .,.,. BURUNDI JIJI AND MULEMBWE HI YDROPOWER PROJECT JIJI AND MULEMBWE HYDROPOWER PLANTS,, "'" o.--jtl ,_......,_.,_.._ --~ _ - ~ -- ""'- [I) HYDROPOWER PLANTS NEW ItO tv TRA.MSMISSIOH LINE <I) SU8STA.TIOHS - NEW 30 tyoistribo TION Ulo!E ;;;;;;;;;;; PiOVlKCIAl ROADS - NEW ROADS - OTHER ROADS INHA.SIT 0 PLACES l 110