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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Energy Unit Sustainable Development Department Africa Region Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 56.3 MILLION (US$85 MILLION EQUIVALENT) TO THE REPUBLIC OF SENEGAL FOR AN ELECTRICITY SECTOR SUPPORT PROJECT (ESSP) July 1, 2012 Report No: SN This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 31, 2012) Currency Unit = FCFA 536 FCFA = US$1 US$1.51 = SDR 1 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AFD APIX s.a ARMP CAS COSEC CRSE DE DDI DCMP EIA EMP ESSP ESRP ESMF FSE GoS/Government/Client GPN ICB IDA or Bank or Association IFC IFR IN IPP IS ISA ISDS LPDSE MDG ME MEF Agence Française de Développement (French Development Agency) Government-owned Company in charge of Investment Promotion and Large Works. Public Procurement Regulatory Authority Country Assistance Strategy Conseil Sénégalais de Chargeurs Commission de Régulation du Secteur de 1'Electricité (Electricity Regulatory Commission) Direction de l'energie (Energy Directorate) Direction de la Dette et de 1'Investissement (Debt and Investment Directorate of the Ministry of Finance) Procurement Control Department Environmental Impact Assessment Environmental Management Plan Electricity Sector Support Project Energy Sector Recovery Project Environmental and Social Management Framework Fonds Spécial de l Energie (Energy Support Fund) Republic of Senegal General Procurement Notice International Competitive Bidding International Development Association International Finance Corporation Interim Financial Report Interconnected Network Independent Power Producer Interconnected System International Standard of Auditing Integrated Safeguards Data Sheet Letter of Energy Sector Development Policy Millennium Development Goal Ministry in charge of Energy Ministry of Economy and Finance

3 MW NCB NEC NSBD NPV ORAF PDO PIM PLC PMA PPM PPP PRSC PRSP QCBS RAP RPF SBD SENELEC SPE SPL TA T&D UNDB WAPP Megawatt National Competitive Bidding National Energy Council National Standard Bidding Documents Net Present Value Operational Risk Assessment Framework Project Development Objective Project Implementation Manuel Power Line Communication (PLC) Project Management Agreement Pre-payment Meters (PPM) Public-Private Partnership Poverty Reduction Strategy Credit Poverty Reduction Strategy Paper Quality and Cost Based Selection Resettlement Action Plan Resettlement Policy Framework Standard Bidding Document National Power Utility of Senegal Permanent Secretariat of Energy Sector Policy Loan Technical Assistance Transmission and Distribution United Nations Development Business West Africa Power Pool Regional Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Makhtar Diop Vera Songwe Jamal Saghir Lucio Monari Stephan Garnier

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5 SENEGAL Electricity Sector Support Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT...1 A. Country Context... 1 B. Sector and Institutional Context... 4 C. Higher Level Objectives to which the Project Contributes II. PROJECT DEVELOPMENT OBJECTIVES...11 A. Project Development Objective (PDO) B. Key results III. PROJECT DESCRIPTION...13 A. Project Components B. Project Financing C. Lessons Learned and Reflected in the Project Design IV. IMPLEMENTATION...18 A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. KEY RISKS AND MITIGATION MEASURES...21 A. Risk Ratings Summary B. Overall Risk Rating Explanation VI. APPRAISAL SUMMARY...22 A. Economic and Financial Analyses B. Technical C. Financial Management D. Procurement E. Social (including Safeguards) F. Environment (including Safeguards)... 29

6 Annex 1: Results Framework and Monitoring...31 Annex 2: Detailed Project Description...33 Annex 3: Implementation Arrangements...49 Annex 4: Operational Risk Assessment Framework (ORAF)...77 Annex 5: Implementation Support Plan...80 Annex 6: Electricity Emergency and Recovery Plan...83 Annex 7: Economic and Financial Analysis Annex 8: SENELEC s Financial Analysis...110

7 .. SENEGAL ELECTRICITY SECTOR SUPPORT PROJECT (P125565) PROJECT APPRAISAL DOCUMENT AFRICA REGION AFTEG Basic Information Date: 1-July-2012 Sectors: Transmission and Distribution of Electricity (85%); Public Administration Energy and Mining (15%) Country Director: Vera Songwe Themes: Infrastructure Services for Private Sector Development (46%); City-Wide Infrastructure and Service Delivery Sector Lucio Monari/Jamal Saghir (46%); Rural Services and Infrastructure (8%) Manager/Director: Project ID: P EA Category: B - Partial Assessment Lending Instrument: Team Leader(s): Specific Investment Loan Stephan Claude Frederic Garnier Does the project include any CDD component? No Joint IFC: No. Recipient: REPUBLIC OF SENEGAL Responsible Agency: - Supervisory Committee: SPE: Permanent Secretariat of Energy within the Ministry in charge of Energy - Project Implementation Entity: SENELEC: National Power Utility. Contact: Oumy Khairy Diao DIOP Bakary DIOP Assane DIOUF Title: MEM: Technical Advisor SENELEC: Director, General Studies SPE: Permanent Secretary for Energy. Telephone No.: okdiao@hotmail.com bakary.diop@senelec.sn adiouf@senelec.sn Project Implementation Period: Start Date: July 17, 2012 End Date: September 30, Expected Effectiveness Date: October 2012 Expected Closing Date: September 30, 2016

8 Project Financing Data(US$M) [ ] Loan [ ] Grant Proposed terms: Standard IDA terms (40 year maturity including 10 year grace period) [ X ] Credit [ ] Guarantee For Loans/Credits/Others Total Project Cost (US$M): Total Bank Financing (US$M): Financing Source Amount(US$M) BORROWER/RECIPIENT 8.50 International Development Association (IDA) Total Expected Disbursements (in USD Million) Fiscal Year Annual Cumulative Project Development Objective(s) The proposed main development objectives of the Electricity Sector Support Project are to contribute to (i) reducing SENELEC s technical and commercial losses; and (ii) improving the reliability of electricity services in selected areas focusing primarily on Greater Dakar.. Components Component Name The proposed project with an estimated cost of about US$ 93.5 million (including IDA: US$85 million and Client: US$8.5 million) will include the following components: Component 1: Upgrading and modernization of the Transmission and Distribution Network (including contingencies) The upgrading and modernization of the transmission and distribution network component includes: (i) the upgrading, rehabilitation or replacement of existing transmission lines and substations in the Interconnected Network of the Client s territory; (ii) the upgrading of the distribution network from 6.6 kv to 30kV from at least two selected substations in Greater Dakar; (iii) the installation of at least 15 remotely controlled Medium Voltage/Low Voltage (MV/LV) distribution substations in Greater Dakar, (iv) the extension and densification of the distribution network in Greater Dakar, and (v) the extension of the Interconnected Network to reach isolated secondary consumption centers of the Client s territory. Component 2. Improve SENELEC s commercial performance (including contingencies) This component aims at improving SENELEC s commercial performance by reducing the cost of billing, increasing bill collection and reducing non-technical losses through fraud reduction. This component includes: (i) the installation of about 150,000 STS compliant Split Pre-paid Meters in the Client s territory, (ii) the installation of about 10,000 electronic Smart Meters and of a remote meter reading system in the Cost (USD Millions)

9 Client s territory, and (iii) the installation of a new electricity customer management system for SENELEC. Component 3. Long term strategic outlook This component aims at carrying out studies designed to assist the Client in developing long term strategy for its energy sector, regarding: (i) energy diversification; (ii) private sector participation in the energy sector; (iii) strengthening of the energy sector s governance, efficiency, transparency and accountability; and (iv) SENELEC s financial restructuring and electricity tariff review. Component 4. Project implementation, Communication and Monitoring and Evaluation This component will provide financing for project coordination, supervision, financial management, communication and outreach, procurement, supervision of implementation of the Safeguard Instruments, monitoring and evaluation of the Project, including through the provision of technical assistance, training, goods and audit services TOTAL Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ]. Does the project require any exceptions from Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy exception 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 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP Legal Covenants Name Recurrent Due Date Frequency 1. Subsidiary Agreement Effectiveness Description of Condition: The Subsidiary Agreement has been executed on behalf of the Client and the Project Implementing Entity. X X X X X X X X X X

10 2. Project Implementation Manual Effectiveness Description of Condition: The Project Implementation Manual has been adopted. 3. Financial Management Officer Effectiveness Description of Condition: The Project Implementing Entity has employed an additional financial management specialist. 4. Procurement Specialist 90 days after Effectiveness Description of Condition: The Project Implementing Entity has employed an additional procurement specialist. 5. External Auditor 120 days after Effectiveness Description of Condition: The Project Implementing Entity has recruited an external auditor pursuant to qualifications, experience and terms of reference satisfactory to the Association. 6. Financial covenant 1: SENELEC s revenue adjustment Description of Condition: The Client shall ensure that: (1) SENELEC s electricity tariff levels are reviewed not later than January 1, April 1, July 1 and October 1, in each Fiscal Year, and adjusted by said date, if required, to ensure that SENELEC receives the maximum allowed revenue as set out in the Client s electricity regulatory agency official bulletin entitled Decision no regarding SENELEC s tariff requirements for and dated July 21, 2011, and/or (2) SENELEC is fully and promptly compensated for any loss of revenue resulting from insufficient or untimely adjustment. 7. Financial covenant 2: Accounts Receivables Description of Condition: The Client shall ensure that SENELEC maintains a level of Accounts Receivable from electricity sales not exceeding 95 days in a calendar year commencing 2014 and each calendar year thereafter 1 8. Financial covenant 3: Debt Service Coverage Ratio Description of Condition: In the second semester of 2013 and no later than November 30 of each year thereafter during Project implementation, the Client shall ensure that SENELEC at those times prepares and informs the Client and the Association of a forecast of SENELEC's EBITDA over debt service ratio for the immediately subsequent Fiscal Year, calculated in a manner satisfactory to the Association. The Client shall cause SENELEC to maintain such ratio at a level equal to or greater than 1.2 through the end of 2014 and 1.4 thereafter. In the event such ratio is forecast to fall below said relevant level, the Client shall ensure that measures satisfactory to the Association are promptly taken to prevent such fall.. Bank Staff Team Composition Name Title Specialization Unit Stephan Claude Frederic Garnier TTL, Sr. Energy Specialist Team Lead and power engineer AFTEG Fatouma Toure Ibrahima Sr. Financial Specialist Financial Analysis AFTEG Fabrice Bertholet Sr. Financial Analyst Economic Analysis/Regulation AFTEG Maman-Sani Issa Sr. Environmental Specialist Environmental Safeguards ASPEN Cheikh Sagna Sr. Social Safeguard Specialist Social Safeguards AFTCS Cheick Traore Sr. Procurement Specialist Procurement arrangements AFTPC 1 Accounts receivable means the bills issued and not yet paid divided by total sales multiplied by 365

11 Ngor Sene E T Consultant Financial Management AFTFM Noureddine Bouzaher Consultant Economic Analysis Consultant Maya Abi Karam Counsel Legal Aspects LEGAF Wolfgang Chadab Senior Finance Officer Disbursement Aspects CTRFC Lu T. Ha Sr Program Assistant AFTEG Seynabou Thiaw Seye Program Assistant AFCF1 Non Bank Staff Name Title Office Phone City. Locations Country First Administrative Division Location Planned Actual Comments SENEGAL Greater Dakar.

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13 SENEGAL ELECTRICITY SECTOR SUPPORT PROJECT PROJECT APPRAISAL DOCUMENT I. STRATEGIC CONTEXT A. Country Context Recent Political Developments 1. The stable political climate that Senegal has enjoyed over the past years has increased after the 2012 presidential elections that conducted to another transition after the historical one in This peacefully change at the highest level of the State has demonstrated the maturity of the Senegalese democracy. The Senegalese people seem more demanding for transparency and accountability from their elected leaders and are more and more confident on their capacity to defend their right for better governance in all sectors. Recent Economic Developments 2. In the decade since 1995, Senegal enjoyed robust per capita GDP growth, but, starting in 2006, the economy was buffeted by a series of domestic and external shocks. Unfavorable rains prompted a sharp decline in agriculture output during The international food and oil price shocks over slowed the economy down, increased inflation, and resulted in a significant deterioration of Senegal s external and fiscal positions. Weaknesses in fiscal policy and public financial management compounded the fiscal costs of ineffective and untargeted subsidies for electricity and food. As a result, by the end of 2008 the Government had accumulated domestic arrears to the private sector equivalent to more than 3 percent of GDP, forcing a strong corrective response that tightened fiscal policy. The onset of the global financial crisis in 2008 and its deepening in 2009, together with continued electricity shortages, further contributed to the general slowdown of the country s economic activity. Real annual GDP growth averaged 3.4 percent in , down from an average of 4.4 percent in In 2011, real GDP growth decelerated to 2.6 percent, due to a large contraction in agricultural output down from 4.1 percent in 2010 and at the same pace as population growth. Agricultural output declined drastically in the fourth quarter when more than 50 percent of the annual production is harvested, leading to a fall in annual output of 21 percent. The rains were insufficient and erratic, but there also were problems in input supply. Production of groundnuts declined by 59 percent and production of cereals fell by 36 percent. In contrast, nonagricultural activities continued their momentum and grew by 5.0 percent. However, electricity supply improved in the last semester, thanks to the implementation of the Emergency and Recovery plan, which helped a recovery in manufacturing. Dynamism in the telecommunication, transport, and financial sectors contributed to the good performance of the tertiary sector. On the demand side, public investment, private consumption, and exports were the main drivers of economic growth in Inflation rose in early 2011 reflecting increasing international food and petroleum prices, but this trend reversed in the second half of the year, yielding an annual average of 3.4 percent. 1

14 4. In 2011, Senegal s fiscal stance remained consistent with the authorities goal of preserving macroeconomic stability, though the deficit widened. Budget approved in December 2010 was broadly in line with the macroeconomic framework supported by the IMF Policy Support Instrument (PSI). The fiscal deficit stood at 6.7 percent of GDP up from 5.2 percent of GDP in 2010 reflecting an increase by 2 percent of GDP in subsidies to the energy sector as part of the Senegalese Energy Recovery Plan. The postponement of a few investment projects in the energy and road sectors initially programmed for 2011 to 2012 due to delays in their implementation did not offset the increase in subsidies. The financing of the fiscal deficit is ensured by both concessional and non-concessional external resources while domestic bank financing fell to its lowest level since The recourse to domestic financing (0.2 percent of GDP in net) and concessional borrowing (1.6 percent of GDP) were complemented by an emission in May 2011 of a USD500 million Eurobond (3.2 percent of GDP) designated for the financing of big public investment in the energy and road sectors. Performance in domestic revenue collection improved thanks to economic recovery as well as greater efficiency in tax administration. The tax revenue to GDP ratio increased to 19.5, up from 18.0 percent in 2011 and 18.8 percent in Despite an increase in current account deficit, the country s overall external position remained sound. The 2011 current account deficit including official grants widened by two percentage points to 6.4 percent of GDP, reflecting the evolution of the trade balance and the remittances. Exports performed well in value terms, increasing by 10 percent. Phosphoric acid, cement, fish, groundnuts, and cotton all performed well. However, imports rose at a similar pace (11.5 percent). Therefore, since imports are roughly twice as large as exports, the trade deficit increased significantly in absolute terms and as share of GDP. Remittance inflows increased by only 6.1 percent in nominal terms, decreasing slightly from 11.5 percent of GDP in 2010 to 11.0 percent of GDP. Starting from the second semester, recovery in the tourism sector weakened, reflecting new difficulties in the European economies. Foreign direct investment (approximately 2 percent of GDP) reflected a single South-South FDI-funded project in the cement sector. Despite the issuance of a US$500 million Eurobond, the overall balance of payments position showed a small deficit, reducing slightly Senegal s contribution to WAEMU s reserves at the regional central bank, which stood at 6.2 months of WAEMU imports. 6. The IMF has completed in December 2011 the second review of the second three-year PSI for Senegal. Performance under the program has been broadly satisfactory, with all quantitative assessment criteria met, and most structural benchmarks mainly in public financial management met or partially met. The third review of the PSI is expected to be completed by June Macroeconomic Outlook and Debt Sustainability 7. Over the medium term, Senegal is expected to regain economic momentum and return to its historical growth trajectory. Assuming that the turbulent global economic environment will stabilize, growth is projected to reach 3.9 percent in 2012, or about 1.4 percent in per capita GDP. As the effects of the downturn in the global economy dissipate and the authorities deepen structural reforms, growth is projected to accelerate to 5.0 percent by GDP growth is expected to be driven by continued momentum in domestic demand (rising consumption, investment, and public spending) while external demand is expected to build-up gradually as structural constraints are addressed. On the supply side, output growth will be pulled by the secondary and the services sectors in the medium term while the agricultural sector is expected 2

15 to quickly and mechanically recovery from the drought in Production in the secondary sector will be backed by growth in cement with the entry in the market of a third company, an upturn in chemical production and a boost to construction and public works related to the large investment projects aimed at extending and modernizing the country s transport infrastructure. The authorities have also given renewed attention to addressing the poor performance in the electricity sector, though the scale of the challenges implies that a significant improvement will take time. Inflation is expected to return to its historical trend of about 2 percent per year in the medium term, provided global fuel and food prices do not rise above current levels. 8. To support the economic recovery, the authorities are committed to maintaining a prudent fiscal stance over the medium term, while allowing for higher infrastructure investment in To assist the poor households affected by the 2011 drought while pursuing infrastructure spending mainly in the energy sector and the extension of the Dakar-Diamniadio Toll Highway to the site of the new airport, central government expenditure and net lending is set to increase to 29.8 percent of GDP in 2012 up from 29 percent in 2011, while the total revenue and grant is expected to increase to 23.4 percent, up from 22.4 percent in Therefore, the overall fiscal deficit including grants is projected to decrease slightly to 6.4 percent of GDP in 2012, down from 6.7 percent in Thereafter, the overall deficit would continue to decline gradually to below 4 percent in 2015, reflecting the return to more normal levels of infrastructure spending, expenditure restraint in non-priority areas together with improvements in the quality of spending, and, to a lesser extent, further efficiency gains in tax administration and tax reform. However, the medium-term soundness of the budgetary framework and the ability to stay on the planned growth path will be contingent upon a strict adherence to sound public financial management practices, as well as an improvement in the administration s investment planning and implementation capacity. 9. To finance the deficit, the authorities consider drawing increasingly on the regional market. In the 2012 law of finance, the Government has introduced new taxes on the mining sector and cement sales to expand their fiscal space, with a contribution estimated at 0.8 percent of GDP. In addition to these measures, the Government is exploring other financing options. In 2011, the Government issued a US$500 million 10-year Eurobond2, to finance new infrastructure spending in the energy and road sector. A joint IDA/IMF DSA conducted in May 2011 suggested that the growth-enhancing spending financed through such external nonconcessional borrowing was consistent with the maintenance of debt sustainability. In 2012, external concessional resources are expected to increase with drawing reaching 4.5 percent of GDP reflecting budget loans from France and the Bank. Nevertheless, the financing of the budget will require raising large resources from the regional market with gross issuance expected to exceed 6.8 percent of GDP compared with 5.1 percent in 2011 and 4.7 percent in In the financial sector, the authorities intend to safeguard soundness and improve the sector s contribution to investment and long-run growth. Bank regulatory policy and supervision are under the purview of regional monetary and banking authorities, the BCEAO and West African Banking Commission. Reforms will be guided by the consolidated financial sector action plan. As in other countries in the WAEMU region, bank loan quality has deteriorated somewhat as a result of shocks and lower growth. The regional and national authorities are 2 The US$ 500 million 10-year Eurobond was placed on May 6, 2011 with an 8.75 percent coupon (bi-annual frequency), priced to yield percent. Investors holding some US$155 million of the US$200 million 5-year bond issued in 2009 accepted to exchange them for the new 10-year bond. 3

16 coordinating to closely supervise bank compliance with prudential requirements and higher minimum capital standards taking effect at end To improve the contribution of the financial sector to growth, priorities include the promotion of non-currency means of payment, the establishment of a legal framework for credit information bureaus, and improved regulation of leasing. The credit to the economy is expected to increase by 5.5 percent to reach 29 percent of GDP in In the medium term, the share of the long-term loans to total credit to private sector is expected to rise gradually as the financial sector continue to expand and the level of concurrence increase. B. Sector and Institutional Context 11. The development of energy infrastructure represents a key component of the Government s strategy to support economic development. Electricity is a fundamental block for economic growth and the price, reliability and quality of electricity service affect most economic activities directly or indirectly. Aligned with the February 2008 Letter for Energy Sector Development Policy (LPDSE), several institutional reforms have been conducted and significant financial resources have been invested in the energy sector. Nevertheless, the energy sector and particularly the electricity sector have been facing a major crisis over the last four years. This crisis has gained in intensity in 2010 and 2011, causing widespread load shedding. 12. The dramatic surge in oil prices in 2008 and the financial crises resulted in government budget slippages and various disruptions in fuel supply to SENELEC in 2009 and In addition, despite several tariff adjustments between 2007 and , the authorities were unable to improve SENELEC s revenues and performance because of concerns regarding customer affordability constraints and political economy considerations. The Government found it politically difficult to pass the full cost increase on to consumers through tariffs. Weakened by the food and economic crisis, many consumers would have found it difficult to cope with the price shock. The Government was itself equally affected by the escalating fuel cost and the reduction in fiscal revenues because of the economic crisis. It was therefore not in a position to effect budgetary transfers of the magnitude required to compensate SENELEC for fuel and other costs it incurred. 13. In October 2010, the intensity of the energy crisis and the widespread load shedding conducted the Government to a major restructuring and recovery plan for the whole energy sector, based on a 360 degree diagnostic and several technical and financial audits. Electricity sector diagnostic: a severe crisis both on generation capacity and finance 14. The diagnostic pointed to two main issues of the power sector in Senegal: one is the growing gap between fast growing demand and an insufficient, costly and unreliable supply of electricity and the other is SENELEC s persistent financial difficulties with a significant operating deficit and high indebtedness. Figure 1 below shows this double downward spiral. 15. In December 2010, the Government s most immediate effort has been to prepare in December 2010 a Electricity Emergency and Recovery plan aimed at (a) removing the electricity supply bottlenecks 4 by securing sufficient additional power generation capacity 3 With the current energy mix, Senegal has one of the highest electricity tariffs in West Africa. 4 If no action is taken (i.e. without the Emergency and Recovery plan), the supply/demand gap could increase to MW by 2013, equivalent to a deficit of almost 50% of the projected demand 4

17 prior to the commissioning of a 125 MW coal-fired power plant IPP in 2014/2015; and (b) addressing SENELEC s cash-flow and financing constraints. 16. As mentioned above, the sector crisis is characterized by a large gap between supply and demand on the one hand, and on the other, by the critical financial situation of SENELEC. Figure 1. The worrying and widening gap between demand and supply 17. Strong Demand Growth over the Last Decade. The demand for electricity is strong and has almost doubled since 2000, going from 234 to MW at consumption peak at an average annual rate of 6.2% p.a. between 2000 and It shows a classical load curve: seasonal with a daily light peak and a higher peak in early evening. Demand growth nevertheless slowed down since 2005, and recurrent blackouts started in The suppressed demand was estimated in 2010 at about 80 MW. 18. Insufficient, costly and highly unreliable supply. The technical diagnostic showed a significant capacity deficit, with highly unreliable and costly existing generation capacity. Each of these factors is impacting the other, leading to a rapidly deteriorating situation (generation downward spiral). In 2010 and early 2011, the supply deficit at peak reached an estimated 40 to 50 MW. Only 350 MW of generation are operational on average out of a 584 MW installed capacity, mainly because of technical breakdowns due to the insufficient maintenance of old plants, as well as contractual issues with the GTI and Kounoune IPPs. 19. Generation cost in Senegal is high compared to neighboring countries with similar power systems, due to an inappropriate energy mix given the country resources 90% diesel oil-based with high volatility in prices and an increasing use of peaking-plant technology (Gas Turbines - TAG) as base capacity (+120%), which resulted in a 500% increase in fuel purchase and 150% increase in average generation costs between 2004 and MW on October 17,

18 20. In addition, despite the various recent tariff adjustments, the spread between the tariff and SENELEC s variable costs remains important because energy and fuel related expenses continued to increase. 21. Inadequate maintenance of generation facilities. In an attempt to limit load shedding, but also due to lack of cash flow, scheduled maintenance of generation facilities was not properly done by SENELEC (execution rate fell from 53% to 25% in the last three years), which increased breakdown frequency and reduced the efficiency of existing power plants. Transmission and distribution equipment suffered the same problem and now require rehabilitation investments. 22. Adding to these constraints on its own generation facilities, SENELEC has also faced difficulties with both IPPs: GTI with a capacity of 50MW commissioned in 1997 and Kounoune Power with a capacity of 67.5MW commissioned in January Due to a damaged transformer, GTI has not been able to produce for over 18 months in , which contributed to the worsening of SENELEC s financial situation. At the same time, Kounoune Power has had to face a number of technical problems, which did not allow the plant to operate at full capacity during the first two years of operation. 23. Lack of realism about the timeframes for implementing new projects. Finally, the lack of realism about the timeframes for implementing new projects, such as the gas or coal power projects, prevented SENELEC and authorities from considering alternatives for bridging the generation gap. This has combined to produce a rapidly deteriorating situation on the generation side. The structural financial deficit 24. Structural operational loss-making position is limiting SENELEC s ability to finance new investments. Since 2005, SENELEC has only shown negative results, except in 2009, when a decrease in oil prices, and an operating subsidy of FCFA 40 billion, resulted in a net profit. This structural operating deficit was mostly felt in 2010 when SENELEC s financial situation deteriorated significantly. Financial statements show a negative result of FCFA55 billion and an important shortfall in cash flow. SENELEC s structural operating deficit is due to a tariff gap and a compensation mechanism based on a revenue cap formula resting on outdated capacity assumptions and inadequate principles that was not reflecting the reality of the energy sector and SENELEC s technology mix. In 2011, the improved negative results of FCFA 3.5 billion are once again due to high subsidy injection (FCFA 103 billion). 25. High indebtedness with significant cash constraints. SENELEC s repeated losses, low revenues and cash constraints have seriously impacted its financial situation especially in with a high debt level compared to both its equity (D/E ratio of 230% in 2011) and its repayment capacity (DSCR <1) as well as a negative impact on its ability to meet its cash requirements to purchase fuel for example. 26. The level of arrears at end-2011 increased to FCFA 171 billion. These results are mainly explained by the sharp increase in fuel related expenses (+FCFA 77 billion). In terms of customer satisfaction, the un-served demand in 2011 reached another record level of 250 GWh of which half were due to the procurement of fuel (a combination of lack of cash and / or quality of fuel). 6

19 27. Inadequate tariff formula and 2011 tariff gap: Historically, SENELEC s ability to finance new investments was severely limited by its chronic operating loss. Until 2010 SENELEC has been showing a structural operating deficit due to a tariff gap and a compensation mechanism that was not adequate as mentioned earlier. 28. The worsening of SENELEC s financial situation highlighted the limits of the tariff formula and in 2011, the Government launched a process to revise the tariff setting mechanism including the decisions to (a) reduce the validity period of tariff conditions from five to three years; (b) pay subsidies on a quarterly basis, (c) evaluate SENELEC s revenues annually (and abandon the smoothing or lissage concept) 6, and (d) review SENELEC s revenue on a quarterly basis to take into account the impact of inflation. 29. Using the revised formula, the regulatory agency set the 2011 tariff gap at about FCFA 97 billion. Now that subsidies are paid on a quarterly basis, the Government has to deposit funds early in the year. 30. Peak of the crisis reached in In 2011, the situation got worse. As of September 28, 2011, the level of un-served demand had already reached 250 GWh of which 150 GWh was due to lack of fuel, the country registered 270 days of load shedding. This led to growing customer dissatisfaction and lower levels of recovery (recovery rates are around 90%) while the rate has been consistently high in Senegal (above 95%). The 2011 net result is expected to be around FCFA 12 billion because of an important subsidy (FCFA 97 billion) calculated on the basis of the new tariff formula as explained above. Figure 2. Un-served Electricity demand To control SENELEC s revenue through the «smoothing» option, an average value is given to each factor over the entire period. This value could then deviate from one year to another. Although an exceptional review process could be undertaken to correct any major deviation, such a process was quite cumbersome. 7

20 The emergency answer of the Government of Senegal to the energy crisis 31. To tackle both technical and financial imbalances, the Government designed an Emergency and Recovery plan for the period , named Takkal Plan. The goal of this plan is to restore stability in the electricity sub-sector with two clear objectives: (i) bring back a 10% minimum strategic safety margin on the supply-demand balance (generation capacity / demand); and (ii) reestablish SENELEC s financial equilibrium through a mix of recapitalization, debt restructuring, tariff compensation, fuel purchase by Government and operational improvements (cost and loss reductions, commercial improvements, etc). The plan was developed in close cooperation between the Government, SENELEC, consultants and donors (principally with the World Bank Energy team and the AFD). 32. The Emergency and Recovery Plan is structured around the following 6 pillars (Scope and progress of activities under each pillar are presented in annex 6): Measures to quickly increase electricity generation capacity and improve the energy mix in the medium term. The Government has developed a three step strategy to increase its generation capacity and improve the generation mix. This includes the streamlining of existing capacity (rehabilitation program), the addition of short term rental capacity, and the construction of additional capacity for the medium to long term. Upgrade of the transmission and distribution network: SENELEC s transport and distribution networks need to be upgraded to ensure that additional energy generated will be delivered to the client and to enhance the reliability of existing networks that cause many service interruptions. Aggressive Demand Side Management program: The demand side management program will be supported by an intensive communication/awareness campaign. The program includes the introduction of energy efficient lamps, as well as price incentives for clients to reduce their energy consumption. State support via a dedicated Energy Fund to secure and finance part of fuel supply and to co-finance critical investments: The Government has put in place a temporary mechanism to restore financial equilibrium of the energy sector as a whole (and especially SENELEC), through the creation of a special fund to support the energy sector (FSE), whose intervention will focus on two objectives: securing and financing fuel supplies, and supporting critical investments in new infrastructure, particularly generation expansion. Revenues and expenses of the FSE are summarized in Annex 8. Operational turnaround of SENELEC: The key levers for the operational turnaround are: increasing revenues (e.g. by reducing non-technical losses and bill nonpayment), decreasing operational costs (e.g. maintenance and fuel), improving access to working capital, and reducing administrative costs. Financial turnaround of SENELEC: The above described measures, together with SENELEC financial restructuring, are expected to put the utility back on a financially sustainable path, ultimately with the ability to borrow on the strength of its own balance sheet. However, over the next few years, SENELEC still needs to be provided with adequate financial resources for investment and liquidity. The restructuring measures and financial projections are presented in Annex 8. 8

21 Institutional and implementation arrangements for the Emergency and Recovery Plan 33. The Government took strong institutional and legal measures to facilitate the implementation and monitoring of the Emergency and Recovery Plan. This includes the creation of the National Energy Council (NEC) and the Permanent Secretariat for Energy (SPE) for the design and oversight of the Emergency and Recovery Plan, the empowerment of APIX s.a (the majority Client-owned limited liability corporation responsible for investment promotion activities and large civil works programs) as an execution arm for emergency investments in the electric power sector with active participation and support from SENELEC, and the creation of the FSE. (see Annex 6 for more details) 34. The plan is owned at key levels of the Government such as the Minister in charge of energy and the Minister in charge of finance. This has enabled the establishment of a comprehensive and programmatic approach to address the crisis in all its technical and financial dimensions. First visible results 35. Since November 2011, the first visible results of the implementation of the Emergency and Recovery plan were seen, with the arrival on line of rental generation and the securing of fuel purchase through the FSE, load shedding has significantly decreased in Dakar as shown in Figure 2 above. However, progress remains limited and insufficient in some areas such as the operational turnaround of SENELEC, the demand side management program and SENELEC s financial restructuring. Issues and risks of the plan 36. Although the Emergency and Recovery Plan overall is adequate to quickly address key issues in the electricity sector, it entails a number of issues and risks that should be addressed, among which are: (a) the lack of a medium to long term strategy for sector reform and development, (b) the need for a mirror strategy for the hydrocarbon sector to enhance sector performance and secure fuel supply at lowest cost, (c) the insufficient empowerment of SENELEC, (d) global financing of the Emergency and Recovery Plan, (e) governance of the FSE, (f) mitigation of risks to the program such as those linked to international oil prices, redundancies of some generation investments, delays in the implementation of some projects and the commissioning of the coal power project. (see Annex 6 for more details) 9

22 Assessment of the Emergency and Recovery Plan by the new Government 37. Through a recently organized workshop to: (i) evaluate the progress made in the implementation of the recovery program for the energy sector; (ii) assess the different activities of the recovery plan; and (iii) make proposals for its improvement, the new GoS has confirmed that it is determined to strengthen, re-orient and widen the strategic outlook of the recovery plan. The new Government also confirmed that it intends to follow up on the financing and implementation of investments that will be vital to the recovery and expansion of the country s energy with a particular emphasis on transmission and distribution networks (including those in the Bank s proposed project). 38. All projects in the emergency and recovery plan have been assessed and relevant alternatives to some of them, notably in generation, are being examined such as the introduction of natural gas in power generation, hydroelectricity and renewable energy with the view of improving the energy mix. These energy options are considered complements to the coal option. On the basis of this analytical work, SENELEC s five year generation master plan is being updated. 39. The Government has also made it clear that it is keen on accelerating the implementation of activities that have lagged behind such as the financial restructuring of SENELEC and the implementation of demand management measures. 40. A re-examination of the institutional reform and the governance of the implementation of the recovery plan are also underway, notably concerning the respective roles of APIX and SENELEC in the implementation of projects. Nevertheless, SENELEC has been designated as the project implementing entity of the proposed Electricity Sector Support Project (ESSP) supported by the Bank with a confirmation of the oversight and supervisory roles of the Ministry of Energy and the Permanent Secretariat for Energy (SPE). Proposed operation 41. The proposed operation will support two of the main pillars of the Government s overall plan for the recovery of the electricity sector, namely: (i) upgrade of the T&D networks, and (ii) operational turnaround of SENELEC. The proposed operation will improve internal cash generation from SENELEC s increased sales of electricity to its customers, through improved T&D networks to ensure that additional energy generated is delivered, reduce technical losses and enhance reliability of existing networks. These actions will be reinforced through the wide introduction of smart and pre-paid meters to all public and private consumers and specific actions to reduce fraud and operational costs. Further acquisitions financed by SENELEC and other donors will complement the program. This important deployment will be supported by a revision of the current tariff structure and level to align it with the new consumer management and metering system. The proposed operation will also finance the rehabilitation, reinforcement and extension of the transmission and distribution networks, which will support the efforts of the Government in increasing supply but also in reducing losses and improving the quality of service. 42. Furthermore, the proposed operation plans to support the Government of Senegal (GoS) in carrying out the analytical work on the sector strategic outlook over the medium and long term including options for energy diversification (into coal, gas, renewable energies and regional 10

23 integration); energy sector governance (by strengthening of the energy sector s efficiency, transparency and accountability) and private sector participation; and financial restructuring of SENELEC and a review of electricity tariffs 43. Governance at the sector and corporate levels. The proposed investment program will be supported by a strengthened governance system at sector and corporate levels. At the sector level, the Government has created a National Energy Council (NEC) to define the sector strategy and ensure that key Government decisions are actually implemented in a timely fashion. Some measures to reinforce SENELEC s corporate governance have already been adopted by the Government under the recently closed Energy Sector Recovery Project (ESRP) supported by IDA. Additional efforts aiming at introducing transparency and accurate and timely disclosure of important matters regarding SENELEC, including the financial situation, performance, ownership or change thereof, and governance of the company are being made. Furthermore, a manual of corporate governance will be prepared to formalize the actions already taken and new measures added such as those related to transparency, disclosure and internal control. C. Higher Level Objectives to which the Project Contributes 44. As Senegal is recovering from the successive economic shocks that characterized the implementation of the period, the country still faces considerable challenges to reduce poverty. The GoS needs to accelerate economic growth to reduce poverty and move towards the emerging market economy status that it covets. This commitment is reflected in the draft PRSP- III, in which the authorities offer their vision for the next five years, based on the key guiding principles of accelerated growth and wealth creation. The proposed operation contributes to these objectives by helping achieve reliable electricity supply and improve financial sustainability of the sector. As electricity supply quality and availability has been a major impediment to private sector development and attracting additional foreign direct investment in Senegal, the project should help ease this constraint. 45. The proposed operation is consistent with the objectives of the Bank s FY07-10 Country Assistance Strategy approved by the Bank s Board on June 20, 2007 and aligned with the accelerated growth/wealth creation pillar of Senegal s Poverty Reduction Strategy Paper (PRSP- II). The proposed operation is also aligned with the policies supported by the PRSC IV-V. Strengthening GDP growth to an annual rate of 7 percent, which is 1-2 percent higher than the historical average, is perceived by Senegal as one of its prerequisites for reaching the MDGs. World Bank Group support was especially directed to achieve the following outcomes: (i) promoting a competitive investment climate; and (ii) building and maintaining basic infrastructure for growth. The Project is also aligned with the Africa Strategy first pillar (growth) and its foundation (governance). II. PROJECT DEVELOPMENT OBJECTIVES A. Project Development Objective (PDO) 46. The project development objectives are to contribute to (i) reducing SENELEC s technical and commercial losses; and (ii) improving the reliability of electricity services in selected areas focusing primarily on Greater Dakar. 11

24 47. Project Beneficiaries The direct project beneficiaries are SENELEC s existing residential, commercial and industrial consumers. The project s more medium to long term beneficiaries are those who do not yet have access to electricity and whose prospects of having access are improved because SENELEC would be in a better financial situation to reach them through an expansion of its generation, transmission and distribution investments. B. Key results 48. In line with the focused objectives of the project, the following key PDO indicators are proposed: PDO Level Results Indicators. (See Annex 1 for baselines and targets) - PDO indicator 1: Un-served demand due to T&D networks unreliability per year - PDO indicator 2: Electricity losses per year in the Project area - PDO indicator 3: Accounts receivable for residential, commercial and industrial customers (in days) - PDO indicator 4: Direct Project Beneficiaries of which female (beneficiaries) Intermediate results. (See Annex 1 for baselines and targets) Upgrading the transmission and distribution network - Intermediate result indicator 1: (Component 1) - Intermediate result indicator 2: (Component 1) Improving SENELEC s commercial activities - Intermediate result indicator 1: (Component 2) - Intermediate result indicator 2: (Component 2) Improved long-term and strategic plan - Intermediate result indicator 1: (Component 3) - Intermediate result indicator 2: (Component 3) - Intermediate result indicator 3: (Component 3) Transmission/ Distribution Lines constructed or rehabilitated under the project (km) Number of households provided with access to electricity under the project (by households connections) Percentage of residential customers served with prepayment meters under the project Percentage of medium and high power consumers with smart meters SENELEC s five and 10 year generation master plan updated and adopted. SENELEC s financial restructuring plan adopted Strategy adopted on private sector participation and sector governance 12

25 III. PROJECT DESCRIPTION A. Project Components 49. The proposed project whose cost is estimated at about US$ 93.5 million (including IDA: US$ 85 million and Government: US$8.5 million) will include the following components: Component 1: Upgrading and modernization of the transmission and distribution network: (IDA US$38.5 million and GoS U$4.5 million excluding contingencies) 50. The upgrading and modernization of the transmission and distribution network component includes: (i) the upgrading, rehabilitation or replacement of existing transmission lines and substations in the Interconnected Network of the Client s territory; (ii) the upgrading of the distribution network from 6.6 kv to 30kV from at least two selected substations in Greater Dakar; (iii) the installation of at least 15 remotely controlled MV/LV distribution substations in Greater Dakar, (iv) the extension and densification of the distribution network in Greater Dakar, and (v) the Extension of the Interconnected Network to reach isolated secondary consumption centers of the Client s territory. 51. Although the envelope for this component is limited to US$43.5 million, a larger volume of investment has been identified by the Government and SENELEC, in particular regarding the upgrading, rehabilitation and replacement of existing transmission lines and substations. The choice of investments to be financed under the project will be made based on several criteria, particularly economic attractiveness and urgency. 52. Investment priorities are established by SENELEC in its Distribution and Transmission Investment Program for the 2011/2014 period. This program was derived from the Transmission and Distribution Master Plans financed under the Electricity Sector Efficiency Enhancement Project supported by IDA, which closed on December 31, The cost of the overall Program is estimated at approximately FCFA 150 billion (equivalent to about US$350 million). 53. Details on the main investments being considered, including objectives and justification, are presented in annex 2. Component 2: Improve SENELEC s commercial performance (IDA US$30.0 million and GoS US$3.0 million excluding contingencies) 54. This component aims at improving SENELEC s commercial performance by reducing the cost of billing, increasing bill collection and reducing commercial losses through a reduction in arrears. This component includes: (i) the installation of about 150,000 STS compliant Split Pre-paid Meters in the Client s territory, (ii) Installation of about 10,000 electronic Smart Meters and of a remote meter reading system in the Client s territory, and (iii) the installation of a new electricity customer management system for SENELEC. 55. The policy of installing either pre-paid meters for residential customers or electronic (smart) meters (for large customers) for all SENELEC s customers has been adopted by the Government after all other attempts at reducing losses and securing SENELEC s revenue have failed. The metering program will be deployed in phases with due regard to meter standardization and their interface with the customer management system. This component proposed for Bank financing represents the first phase of the program. Other meter acquisition and installation will be financed by other donors yet to be identified and/or through GoS/SENELEC s own resources. 13

26 56. Several studies conducted to assess the adoption of prepaid electricity meters within a local community have highlighted how the role of tariffs, the cost of any start-up investment and the socio-economic characteristics of the population affect system performance. Results indicate that prepaid meters generally lead to an increased welfare. Other advantages include a reduction of arrears in bill payments from consumers, lower operational and financial costs for the service provider. Pre-paid meters also help users to reduce electricity consumption, while allowing firms to reduce financial costs, as well as the costs of operation and bad debts. However, surveys suggest that the main argument against prepayment relates to the possibility of self-disconnection among low income consumers. They argue that the adoption of pre-payment meters is risky, as the insecurity and volatility of their income may force them to make little use of the service, or ultimately, bring about involuntary self-disconnection. 57. These concerns are addressed by introducing mitigation measures such as an intensive and targeted communication campaign to explain the role and use of pre-payment meters and the introduction of a tariff structure adapted to the revenue cycle of the poorest. Such measures are included in the proposed project. 58. Through this component, it is also proposed to finance the installation of a new customer management system. The current system has been in operation since 1994 and is now obsolete. This situation also causes difficulties in obtaining support in case of malfunction or breakdown of equipment or software that are no longer manufactured or serviced. A modern customer management system will therefore: (i) replace the current system that has become obsolete both technically and operationally; (ii) encompass all commercial processes and re-orient the customer information system on the client; (iii) improve sales and cost recovery for low and medium voltage customers through better customer management, billing and cash receipts; and (iv) bring flexibility to allow for adjustment in the future to deal with tariff changes, incentives for energy efficiency and the promotion of renewable energy. See Annex 2 for details. Component 3. Long-term strategic outlook (IDA US$ 8.25 million excluding contingencies) 59. The Emergency and Recovery Plan addresses the main causes of the crisis in the electricity sector in Senegal through a set of coherent measures primarily focused on the shortterm ( ). Long term measures and an articulation of the strategic approach will be supported by this component through the provision of studies and technical assistance. 60. This component will carry out studies to assist the Government in developing a medium to long term strategy for its energy sector, such studies to analyze options for: (i) energy diversification (into coal, gas, renewable energies and regional integration); (ii) energy sector governance (by strengthening of the energy sector s efficiency, transparency and accountability) and private sector participation; and (iii) financial restructuring of SENELEC and a review of electricity tariffs. i) Medium to long term diversification to coal, natural gas, renewable energies and regional integration: This sub-component will finance technical assistance activities designed to facilitate the analytical work of the GoS and SENELEC meant to define the sector s diversification strategy of the means of production as well as the technical and regulatory tools necessary for its implementation. The following studies will, in particular, be supported under this sub-component: (a) analytical study on the introduction of LNG (Liquefied Natural Gas) in Senegal s energy mix; (b) support to the development of new IPPs; and (c) integration of 14

27 renewable energy in the energy mix and definition of a planning and implementation strategy. ii) Energy sector governance and private sector participation: This sub-component aims to finance technical assistance to assist the GoS in finalizing its strategy of private sector participation in the energy sector and strengthening the sector governance (by improving the sector s efficiency, transparency and accountability). The following studies will, in particular, be supported under this sub-component: (a) definition, implementation and audit of the performance contract between the Government and SENELEC; (b) organizational and managerial audit of SENELEC; (c) implementation of some of the actions recommended by the above audits (e.g. technical assistance to some key departments within SENELEC, etc.); (d) finalization of the work on the separation of SENELEC s accounts; and (e) prospective/strategic studies on medium to long term private sector participation in SENELEC. iii) Support to the financial restructuring of SENELEC and the undertaking of a new tariff study: The Government has also made it clear that it is keen on accelerating the implementation of activities that have lagged behind such as the financial restructuring of SENELEC. This subcomponent will: (a) support the Government in the financial restructuring of SENELEC; and (b) undertake a new tariff study with as main purpose to adapt the current tariff structure to (i) the new system of pre-payment and smart meters; (ii) facilitate energy efficiency and promote demand management; and (iii) allow a better alignment between the cycle of revenue of the poor and the pre-payment meter system. Component 4. Project implementation, Communication and Monitoring and Evaluation: (IDA US$3.0 million GoS US$0.5 million excluding contingencies) 61. This component will provide financing for Project coordination, supervision, financial management, communication and outreach, procurement, supervision of implementation of the ESMF and RPF, monitoring and evaluation of the Project, including through the provision of technical assistance, Training, goods and audit services. 62. In particular, it will include the recruitment of supervisory engineering consultants (owners engineers) for SENELEC, support for the fiduciary function within the existing entity of SENELEC and for the supervisory arm of the plan - the recently created Permanent Secretariat for Energy (SPE) - through the financing of specific expertise. 63. In addition, the Project will finance a financial management Project specialist, communication activities, and technical assistance to ensure that Project safeguard measures are systematically carried out throughout the Project life s time. For security purposes and to avoid any potential risk to the Project, adequate financial provision to face any potential resettlement claim arising out of involuntary resettlement will be made available by the Government/SENELEC as part of the counterpart funds to the Project (estimated at US$350,000 in the RPF) and the costs associated with the preparation of the ESIAs and RAPs, population information and awareness raising, and monitoring and evaluation will be financed under the Project through IDA funds (estimated at US$ 700,000 million in the ESMF and RPF). 64. A monitoring and evaluation system is under preparation and should allow the SPE to monitor the results of the global emergency plan and take corrective actions as necessary. This 15

28 component proposes to support the implementation of the system: (i) to monitor and assess the impacts of the activities supported by the Project and (ii) to carry out Project related external audits by auditors acceptable to IDA. Further details are given in Annex 2. B. Project Financing Lending Instrument 65. Because the country is facing a serious power crisis that needs to be addressed on an emergency basis, a Sector Policy Loan (SPL) was considered but rejected in favor of a SIL. The SIL was deemed to be a better fit for the proposed Project scope, and design. Yet the Project investments are expected to be implemented over a relatively short period of time and are part of an emergency plan to reduce the macroeconomic and fiscal impacts of the electricity sector. Project Cost and Financing 66. The Project cost is estimated at US$93.5 million to be financed by an IDA Credit of US$85 million and by the GoS for US$ 8.5 million. A summary of the Project costs is provided below in table 1. Table 1. Project Cost and Financing (in US$ Million) Project Components Project Cost IDA % of IDA Financing Component 1. Upgrading and modernization of the transmission and distribution network - Upgrading/modernization of HV substations (one or two projects still to be confirmed). - Upgrading/rehabilitation of HV lines (one or two Projects still to be confirmed). - Upgrading distribution network to higher voltage (Switching from 6.6 kv to 30 kv). - Network extension and densification in Dakar. - Improvement in network operation through the installation of remotely controlled transformers. - Extension of the distribution network to isolated loads in secondary center % % % GoS/ SENELEC* % % Total component % 4.5 Component 2. Improve SENELEC s commercial performance - Installation of 150,000 split pre-payment % 3.0 meters. - Installation of 10,000 electronic meters % - 16

29 - Installation of a new commercial management system. Component 3. Long-term strategic outlook - TA on energy mix: medium and long term diversification into coal, gas, renewable energy and regional integration; support to the development of IPPs; and integration of renewable energy in the energy mix. - TA on sector governance; on private sector participation; and for SENELEC s operational reorganization/restructuring. - TA to the financial restructuring of SENELEC and the undertaking of a new tariff study % Total component % % % 1.5% Total component % - Component 4. Project implementation, Communication and Monitoring and Evaluation - Support required to preparing, implementing and supervising the Project (including safeguards activities, training and audits) - Communication and Monitoring and evaluation activities % % Total component % 0.5 Total Baseline Costs % 8.0 Contingencies (10%) on C1 and C2 (c) % 0.5 Total Project Cost % 8.5 Total Financing Required *Not accounting for in-kind participation from Client and SENELEC C. Lessons Learned and Reflected in the Project Design 67. Lessons learned from similar projects, including the recently closed Electricity Sector Efficiency Enhancement Project and the Energy Sector Recovery Development Policy Credit, which are relevant to the proposed Project include: Focus on underlying causes and address them through a simple project design and feasible solutions. In a distressed environment, it is difficult for SENELEC to focus on the achievement of multiple targets. This calls for realism. Given the difficult situation of the power sector, there is a temptation to do many things as fast as possible. It is

30 important to be realistic about what can be achieved and at what pace. The design of the proposed Project is in line with this principle and in line with SENELEC electricity business priorities. Project design should be tailored to local implementation capacity and institutional constraints. Experiences from similar projects indicate that a successful implementation is associated with a project design finely tuned to local institutional conditions and constraints. The design of the proposed Project focuses on a limited set of discrete, easily implementable actions tailored to the sector s implementation capacity. These elements have also been taken into account in assigning roles and responsibilities in the implementation of the Project and in identifying areas for capacity building. The identification of physical investments is also in line with system requirements. The importance of promoting ownership of activities. The implementation arrangements have been designed taking into account the beneficiaries of the main activities and the roles and responsibilities of each entity with particular attention given to the role of SENELEC in supporting Project implementation. Financial covenants. A lesson learned from previous projects is that financial covenants imposed on utilities are not often met. It is therefore best to work on the conditions under which these covenants will be fulfilled. In this case, however, the proposed financial covenants have been included because key elements of the Government s strategy and they would help in the dialogue with the authorities on SENELEC s financial performance. Importance of dialogue and coordination with Government and donors/partners. IDA is actively engaged on the sectoral dialogue with the Government and donors. Assistance is being provided to the authorities during the design phase of the electricity sector s investment program. The proposed assistance to the Government on the different elements of the long term strategy will further strengthen the dialogue with the Authorities. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 68. The implementation arrangements mainly involve: (i) the Ministry in charge of Energy, (ii) the Permanent Secretary for Energy (SPE), and (iii) SENELEC. The Client, through the Ministry in charge of Energy (ME) will be responsible for the overall coordination and implementation of the Project. The SPE, within the ME will have a supervisory role. SENELEC will be the Project Implementing Entity of the project. To facilitate project implementation and to simplify coordination, a small Project Implementation Unit (PIU) will be set up within SENELEC whose main purpose is to coordinate the work being done on the project by various departments within the utility. This PIU will be under the responsibility of the General Manager (Direction Générale) of SENELEC to give it the necessary authority to ensure an orderly project implementation within time and budget. 18

31 69. The Project Implementation Unit (PIU), headed by a Project Coordinator (PC), would carry out the day-to-day implementation/administration of the project and would be the main contact for IDA. The PIU would consist of one technical assistant and one administrative and monitoring and evaluation assistant. The technical assistant will be coordinating with task managers in the relevant operational departments within SENELEC. The administrative and monitoring & evaluation assistant will assist the project coordinator to ensure that the reporting, M&E, fiduciaries and safeguards responsibilities are conducted efficiently and timely. The PIU will be coordinating for these activities with SENELEC s (a) procurement division, (b) financial management and accountability division and (c) the social and environmental safeguards division. The responsibilities of SENELEC in the management of the project are detailed in annex SENELEC shall, throughout the Project implementation period: (1) assign and maintain competent and qualified staff, in adequate numbers to be responsible for Project implementation and management, such staff to include the Project Coordinator, the technical assistant, the administrative, evaluation and monitoring assistant, an accountant, an environmental specialist, and an internal auditor; and (2) recruit and thereafter maintain at all times during Project implementation an additional financial management specialist, an additional procurement specialist and a social safeguard specialist (if needed), each of whose qualifications, experience and terms of reference shall be acceptable to the Association. The implementation arrangements are summarized below. Figure 3. Architecture of the implementation arrangements 19

32 Project Implementation Manual (PIM) 71. The PIU would carry out and consolidate day-to-day overall project activities including preparation of annual work/implementation plans, consolidation of quarterly project and financial reports, and monitoring of the project progress in accordance with the time bound action plan presented in the Project Implementation Manual (PIM). The preparation and adoption of the Project Implementation Manuel (PIM), including procurement and financial management procedures is a condition of effectiveness. The PIM will be in line with the implementation arrangements and will clearly define the roles and responsibilities of the various stakeholders (SENELEC, Ministry of Energy and SPE). Implementation period 72. The Project is expected to be made effective by October 2012 and its implementation period is expected to end on March 31, 2016, the effective closing date of the Project is expected to be September 30, 2016, a total of 48 months. Table 2 below summarizes the implementation plan. Table 2: Implementation plan for the project s main investment activities Component/ Main Activity Contract award Work completed Component 1 - Upgrading/modernization of HV substations (one or two projects May 2013 February 2015 still to be confirmed) - Upgrading/rehabilitation of HV lines (one or two projects still to be May 2013 February 2015 confirmed) - Upgrading distribution network to higher voltage (Switching from February 2013 December kv to 30 kv) - Network extension and densification in Dakar March 2013 March Improvement in network operation through the installation of March 2013 March 2014 remotely controlled transformers - Extension of the distribution network to isolated loads in secondary center May 2013 February 2015 Component 2 - Installation of 150,000 split pre-payment meters March 2013 March Installation of 10,000 electronic meters March 2013 December Installation of a new commercial management system May 2013 June 2014 Component 3 (Major contracts) - Analytical study on introduction of LNG in Senegal. - Strategic study for integration of renewable energies in the energy mix - Organizational and managerial audit of SENELEC - Implementation of the main recommendations of the audit - TA to the financial restructuring of SENELEC - Undertaking of a new tariff study March 2013 March 2013 April 2013 January 2014 January 2013 April 2013 September 2013 September 2013 September 2013 March 2016 December 2013 June

33 B. Results Monitoring and Evaluation 73. SENELEC will have overall responsibility for the monitoring and evaluation of results and outcomes. SENELEC currently measures the electricity generated and distributed as well as technical performance and revenues through its power flow and financial monitoring systems. SENELEC will therefore monitor results of Components 1, 2 and 3 through its existing monitoring and control systems and communicate the results to IDA. The project provides, under Component 4, the support for the implementation of the project and the monitoring of its results. 74. SENELEC will prepare Project Reports in form, content and substance satisfactory to the Association; Reports shall cover the period of one semester and shall be submitted to the Association not letter than forty five (45) days after the end of the period covered by such report. Monitoring of results and outcomes will be reported in SENELEC s project implementation reports. Furthermore, the Bank will supervise the project over its lifetime and its results and outcomes on a regular basis in order to evaluate the achievement of the project development objectives. Corrective actions, if necessary, will be discussed and agreed with the Government. C. Sustainability 75. The sustainability of the Project depends largely on (a) a successful completion of the upgrading and modernization of the transmission and distribution networks, (b) an improvement of SENELEC s commercial performance (through a reduction of the cost of billing, increase in bill collection and reduction non-technical losses); and (c) a satisfactory technical assistance to support the GoS in conducting the analytical work on the sectoral strategic outlook. The sustainability of the Project is also dependent on the mitigation of the critical risks presented below, as well as on the Government's commitment to design and implement a medium to long term plan for sector reform. V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary 76. Critical risks and possible controversial aspects. Risks and mitigation measures that have been identified are described in the Operational Risk Assessment Framework (ORAF) worksheet in Annex 4. Rating Stakeholder Risk Substantial Implementing Agency Risk Substantial - Capacity Substantial - Governance Moderate Project Risk Moderate - Design Moderate - Social and Environmental Moderate - Program and Donor Moderate - Delivery Monitoring and Sustainability Moderate Overall Implementation Risk Substantial 21

34 B. Overall Risk Rating Explanation 77. The risk ratings for the Project range from Moderate to Substantial. The Substantial rating for Implementing Agency Risk is primarily related to the Procurement and Financial Management capacity risk, assessed as Substantial before mitigation measures (and expected to be reduced to Moderate for Procurement after implementation of the agreed mitigation measures). The overall implementation Project risk is however rated Substantial. 78. Controversial aspects: At the Project level, there are no major controversial aspects as the project includes investments required for the electric power system to function normally. The new Government confirmed that it intends to follow up on the financing and implementation of investments that will be vital to the recovery and expansion of the country s energy with a particular emphasis on transmission and distribution networks (including those in the proposed project). It also confirmed that it is determined to strengthen, re-orient and widen the strategic outlook of the recovery plan (component 3 of the proposed project will assist the GoS). 79. At the level of the Government Plan (Emergency and Recovery Plan) however, the main controversial aspect may relate to its financing and the high level of subsidy needed to fill the tariff gap between 2012 and Whether this gap would be filled through tariff increase or Government subsidy (or a combination of both) is another related issue. After 2014, however, the Government subsidy is expected to decrease and be eliminated by In such context, the risk would be that the new Government could delay or cast doubt on the implementation of some main elements of the plan or their financing. However, the level of subsidy to the electricity sector is unsustainable, and actions need to be implemented. The new Government might even accelerate the pace of subsidy elimination through tariff increases for example. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 80. The Project will contribute to the financing of SENELEC s least cost T&D investment program. This program is derived from the Transmission and Distribution Master Plans financed under the Electricity Sector Efficiency Enhancement Project supported by IDA, which closed on December 31, SENELEC uses planning and load flow models for optimization of the transmission and distribution system associated with generation expansion schemes. The optimization determines the investment program which has the lowest present value of costs and that meets the capacity requirements over time. 81. The Project is intended to support a number of critical interventions envisaged under SENELEC s broader investment program. The majority of the financial resources provided by the Project are directed toward improving the transmission and distribution network and the cash-flow situation of SENELEC through the acquisition and installation of electronic and prepaid meters. An economic cost-benefit analysis was carried out to assess the economic viability of the Project s component 1: transmission and distribution and on Component 2: Electronic and pre-payment meters. 82. The objective of component 1 of the Project is to secure and increase the load delivery capability of the transmission and distribution system. The primary benefits come from an increased consumption from existing and new customers, which would be possible from reducing transformer and line loss reductions and outages. 22

35 83. The transmission and distribution component of the Project will allow the connection of new customers. The benefits of electricity delivered to these customers are valued at what they would be willing to pay for the incremental energy supplied by the Project as measured by the alternative sources utilized at present (kerosene for lighting for household consumers, stand by generators for commercial and industrial users). 84. The economic benefits of loss reduction are calculated using the with/without Project approach and evaluated at the willingness-to-pay since it is assumed that this reduction in losses would translate into an increase in sales. 85. The objective of installing circuit breakers and new transformers is either to reduce the load or to meet new electricity demand. As the Project consists of replacing old transformers to supply current electricity demand, the incremental benefits include a reduction of transformer losses and an improvement in supply reliability. The economic benefits from the reduction of outages are valued at the cost of electricity to the end users (i.e. the average opportunity cost of the energy when outages occur or cost of un-served energy to users). 86. The results of the economic analysis indicate that the estimated net present value would be US$52 million and the economic rate of return 22 per cent. The switching values analysis shows that the Project could sustain substantial variations in critical variables before the net present value becomes zero. The switching values are the following: Investment cost + 154% Reduction in total benefits - 56% 87. An additional economic analysis of four representative sub-components of Component 1 of the Project was also carried out. These subcomponents are: i/ upgrading of HV substations and rehabilitation of HV lines; ii/ Switching to higher voltage level; iii/ Network densification in Dakar; and iv/ the connection of isolated centers to the grid. All four show strong economic results and the NPVs are largely positive. The results are summarized below: Subcomponent NPV (FCFA Million) IRR (%) Upgrading of HV substations and rehabilitation of HV line 14,284 45% Switching to higher voltage level; 4,301 16% Network densification in Dakar 6,777 48% Connection of isolated centers to the grid 6,231 70% 88. Pre-payment meters. This component has a positive NPV of US$30.52 million and an internal rate of return of 66%. The switching values analysis show that the Project is not very sensitive to an increase in investment costs or to a reduction of energy saved by the deployment of pre-payment meters. The Project is however very sensitive either to an increase in the cost of the energy sold or to a decrease in energy sales (see Annex 7 for details). 23

36 SENELEC s financial situation SENELEC s historical results 89. Since 2005, SENELEC has shown negative financial results except in 2009 when a decrease in oil prices, and an operating subsidy of FCFA 40 billion resulted in a net profit. SENELEC s structural operating deficit was mostly felt in 2010 when its financial situation deteriorated significantly. Audited statements show a loss of 55 billion FCFA and an important shortfall in cash-flow. During the year, the 10% increase in sales was not sufficient to offset not only a 39% increase in operating expenses but also 30% reduction in State subsidy. 90. Despite various tariff adjustments authorized by the Government between 2007 and , the spread between SENELEC s average tariff and variable costs remained important as energy and fuel related expenses continued to increase. The level of arrears at end-2010 exceeded CFA francs 100 billion, and in terms of customer satisfaction, the un-served demand reached a record level of 174GWh of which 148GWh due to lack of fuel (a combination of shortfall in cash flow and / or quality of fuel). 91. Unsurprisingly, SENELEC s repeated losses, low revenues and cash constraints seriously impacted its financial situation especially in 2009 and 2010 with a high debt level both in terms of equity (D/E ratio of 197% in 2010) and repayment capacity (DSCR <1). SENELEC s difficult cash-flow position particularly limited its ability to make operational expenses (e.g. to purchase fuel) Results The current situation and the restructuring of SENELEC 92. At the end of 2011, the level of un-served demand reached another record of 250 GWh of which half due to lack of fuel. As a result, the country registered 270 days of load shedding. This lead to growing customer dissatisfaction and lower levels of bill collection. Without an important subsidy, SENELEC would have faced additional cash constraints. Taking into consideration a CFA Francs 103 billion subsidy 8, SENELEC s 2011 net result is expected to be around FCFA -3.5 billion. Financial restructuring of SENELEC 93. As described earlier, the Government designed a Emergency and Recovery plan to restore stability in the electricity sub-sector. One of its objectives is to restore SENELEC s financial equilibrium through a mix a recapitalization, debt restructuring, and tariff compensation, fuel purchase by Government and operational improvements by To support the Plan, the Government established an Energy Fund, the Special Fund for Energy (FSE)) aimed at securing and financing part of fuel supply and co-financing critical investments. The FSE became operational in July 2011 and became instrumental in helping SENELEC finance least cost fuel, and co-finance investments in new infrastructure, particularly generation expansion. 94. The main elements of SENELEC s restructuring include: (a) providing the necessary subsidy to bridge the tariff gap and ensure fuel security; (b) recapitalizing SENELEC through consolidation of fiscal debt, conversion into equity of on-lent debt, and new investment 7 Recent tariff adjustments: + 6% in October 2007; + 17% in August 2008 and new tariff structure; -12% in January 2009; + 8% in July billion to fill the tariff gap as explained in the box below and 7 billion to compensate for leasing expenses. 24

37 (extension of power plants, barges, containerized units, rehabilitation of power stations); (c) restructuring SENELEC s debt (including lines of credit with commercial banks, accounts payable ); and (d) efficiency gains within SENELEC. The restructuring measures are detailed in annex 8. SENELEC s financial forecasts 95. SENELEC prepared financial projections to assess the impact of the restructuring measures on its financial statements. The analysis takes into consideration the commissioning of the two phases of a new coal-based power plant (2x125 MW) in 2014 and The commissioning of the coal-based power plant will represent a major turning point for SENELEC with a decrease in both variable and total cost. 96. SENELEC prepared financial projections to assess the impact of the restructuring measures on its financial statements. The 2012 results are close to 2011 s with significantly improved results due to high subsidy levels in the absence of tariff adjustment. In 2012, the level of subsidy is expected to be within the same magnitude (CFA francs 117 billion) with a projected net result of FCFA -14 billion loss if additional measures are not implemented. When the financial restructuring measures and efficiency gains are included however, the net results improve to FCFA 6 billion. Under such scenario, SENELEC s net results improve particularly after 2013 if at the end of the leasing program, intermediary capacities are introduced, the use of gas increase and therefore the use DO equipment declines. The situation translates in continuous decrease in the need for tariff subsidy until its elimination by Graph 2: Projected Tariff Subsidies (FCFA billions) Note: SENELEC s required revenue as defined by the regulatory agency considers: (a) the revenue needed by SENELEC to cover its operating expenses, and (b) the revenue required to compensate its asset base. The asset base subsidy is calculated with a return of assets of 10.7%. 25

38 Need for additional measures 97. SENELEC s results in 2012 (with a FCFA 13 billion loss) call for the implementation of the financial restructuring measures. Also, the evolution of SENELEC s financial situation is highly vulnerable not only due to an increase in oil prices but also to delays in the commissioning of additional production capacity (including a coal-fired power plant). As these factors would imply additional operational costs for SENELEC the Bank team looked into the alternative forecasts with a barrel at US$ 120 (instead of US$ 110). In that case, the subsidy amount would increase by about FCFA 50 billion over the period. Also, any delay in the commissioning of the coal plant will result in additional subsidy (estimated between FCFA 70 and 100 billion) for any 12 month delay. 98. While the Government has presented a number of recapitalization, asset and debt restructuring measures in 2011 and 2012, few of the proposed measures (besides subsidies) would have a direct impact on SENELEC s revenues. Although a tariff increase is not considered in the short term, efforts are however ongoing to review the tariff structure and improve SENELEC s revenues. 99. It is clear that the considerable level of subsidy envisaged during the next three years and to a lesser extent until 2018 is not sustainable, as it would affect the public expenditure program, and will require some tariff adjustment as early as possible (assuming quality of service remains good). B. Technical 100. The technical design of the Project is considered sound and presents no unusual construction or operational challenges. The proposed Project component 1 - Rehabilitation and extension of transmission and distribution networks will be based on the T&D master plan designed and evaluated by SENELEC with the assistance of internationally recognized consulting firms. This program meets internationally accepted technical standards. It was reviewed by IDA staff during Project preparation and found to be technically sound and appropriate to the country s needs The main technical challenge of the Project will be the design and implementation of the new customer management system. The conceptual design of the system has been completed by SENELEC and is currently reviewed by an international firm. C. Financial Management 102. SENELEC will have the fiduciary responsibility of the overall project implementation. The fiduciary capacity of SENELEC is weakened by the overloading of the Financial and Accounting Directorate and the lack of experience in bank financial management procedures (disbursement, financial reporting ) As a result of the financial management capacity constraints, (i) the appointment by SENELEC of a Financial Management Officer with experience and qualification satisfactory to the Bank and fully dedicated to handle FM activities of the project, and (ii) the preparation and adoption of the Project Implementation Manuel (PIM), including FM procedures, will be effectiveness conditions. The PIM will be in line with implementing arrangements and will clearly define the roles and responsibilities of the various stakeholders (SENELEC, Ministry of Energy and SPE). 26

39 104. In addition, dated covenants will also be considered: (i) the customization of the existing financial management software (Oracle Application) to host the Electricity Sector Support Project and (ii) the recruitment of an external auditor to carry out the audits of the Project 105. The conclusion of the financial management assessment is that the financial management arrangements will meet the Bank s minimum requirements under OP/BP10.02 once the mitigation measures are implemented. The residual risk rating for SENELEC is Substantial. D. Procurement 106. Procurement for the proposed project will be carried out in accordance with the World Bank s Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, dated January 2011; and Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, dated January 2011, and the provisions stipulated in the Legal Agreement The procurement activities for the project will be handled by SENELEC, through its Procurement Department (DCPM - Direction Centrale de la Passation des Marchés). An assessment of the capacity of SENELEC to implement procurement actions for the project has been carried out by IDA on May 24 th, This entity is familiar with procurement procedures under the national public procurement regulations and has the basis for procurement under the Bank s procurement procedures thanks to the implementation of previous Bank-financed projects since The implementation arrangements involve mainly (i) the Ministry in charge of Energy, (ii) the Permanent Secretary for Energy (SPE), and (iii) SENELEC. The procurement Department of SENELEC will be in charge of all procurement activities including those for the Ministry of Energy and for the SPE. The risks that have been identified with the project are: (i) additional workload, which could challenge the existing procurement department, (ii) possible insufficiencies in procurement practices under the World Bank procedures, (iii) needs for improvement in contract management with regard to fiduciary aspects in conjunction with other technical departments of SENELEC In order to mitigate the above risks, it has been agreed: (i) that the project will provide for resources to employ an additional qualified procurement staff no later than three (3) months after the project s effectiveness date, (ii) to build capacity in SENELEC in procurement and contract management under the World Bank procedures, for both the Procurement Department and other technical Departments, and (iii) to improve contract management in facilitating interactions and complementarities in contract management to permit the Procurement Department to fully play its fiduciary role for the sake of procurement oversight (contractual obligations, contracts execution period, payments, amendments, and so forth) in conjunction with other technical departments of SENELEC and the financial department, and for the needs of procurement statistics, archiving and procurement audits Based on the assessment of the system in place, the overall project risk for procurement is Substantial. It may be lowered to Moderate once the mitigation measures are implemented. Annex 3 of the PAD provides with detailed information on procurement. 27

40 Governance and anti-corruption 111. The civil society and the private sector in Senegal are actively and independently involved in monitoring public procurement transactions. The Public Procurement Regulatory Authority (ARMP), set up in early 2008, is managed in a tripartite manner by representatives from the public administration, the private sector, and civil society; this authority is responsible for policies, handling complaints from bidders, and procurement audits. Guidelines on Preventing and Combating Fraud and Corruption in projects Financed by IBRD Loans and IDA Credits and Grants, date October 15, 2006 and updated January 2011, shall apply to the project The Government substantially improved the country public procurement system to comply with the WAEMU s Procurement Guidelines and international standards and enforced a set of necessary documentation which includes national standard bidding documents (NSBDs) prepared on the basis of Bank s standard bidding documents (SBDs). The Government has also enforced different measures which have contributed to the private sector s trust in the system: this shows a clear commitment by the Government to modernize and ensure transparency in procurement transactions. E. Social (including Safeguards) 113. The Project is rated Category B, Partial Assessment. In light of envisioned Project activities, there are two World Bank Safeguard policies applicable to this operation: Environmental Assessment (OP 4.01) and Involuntary Resettlement (OP 4.12). Although the potential environmental and social impacts of the infrastructure investments under the proposed Project are expected to be generally minimal, localized impacts may occur, thus requiring appropriate mitigation. Since the specific locations have not yet been selected (within the overall T&D investment program), an ESMF, together with a RPF, have been prepared and have been disclosed in-country and at the Association s InfoShop. Relevant provisions from the two sets of safeguard documents will be reflected in Project Implementation Manual. The ESMF and RPF are conforming to the Bank s Environmental, Health and Safety Guidelines of April Once the T&D investments to be financed under component 1 have been decided upon by the Client and SENELEC, ESIA/ESMPs and RAPs will be prepared in form and substance satisfactory to IDA and disclosed. Payment of eventual compensation (to be financed by the Client) will be completed prior to the start of works on the affected sub-component. The studies will be conducted in line with the Bank and national safeguard policies. A participatory approach will be followed throughout the life of the Project The ESMF and the RPF provide for a systematic screening process for the investments in component 1 of the Project. They define procedures and institutional responsibilities and set out basic guidelines and principles to be used for subproject level environment and social assessments, evaluation of potential impacts and preparation of appropriate mitigation measures through (ESIAs, RAPs, ESMPs ) during Project implementation, if deemed necessary Together, these safeguard instruments (the ESMF and the RPF), are considered as a planning tool and as a means for a harmonious integration of the Project in its bio-physical and social environment. They can also be considered as a way to maximize the positive effects on the same environment The RPF developed for the proposed Project sets out the process and entitlements to be followed in the event that involuntary resettlement would occur due, for example, to 28

41 displacement of economic activity, loss of activities including business/commercial, craft, agricultural, loss of sources of income or livelihood. The number of people affected is difficult to estimate because the sites of implantation and electrical infrastructure to be built are not yet precisely known. The Appendix to the RPF contains a template to assist SENELEC in the preparation of a RAP in line with the Association s policies, should it become necessary The RPF outlines the processes and procedures to facilitate the resettlement process should it become necessary. Appropriate grievance mechanisms have been established building on the local administrative and traditional structures. Provisions have been included in the Project for potential preparation of RAPs, information/consultation of the population and socioeconomic monitoring and to evaluate and respond to any emerging impacts associated with the Project during and after implementation of works associated with the transmission and distribution component of the Project Adequate financial provision to face any potential resettlement claims arising out of involuntary resettlement will be made available by the Government/SENELEC as part of the counterpart fund to the Project. F. Environment (including Safeguards) 120. The Project triggers two Bank Safeguard policies: Environmental Assessment (OP 4.01) and the Involuntary Resettlement (OP 4.12) As explained above, since the specific sub-project locations have yet to be selected, an ESMF, and a RPF, have been prepared and have been disclosed in-country and at the Bank s InfoShop. They have been cleared by the Association subject to their comments being taken into account The ESMF provides sound institutional arrangements outlining the roles and responsibilities of the various stakeholder groups involved with the implementation and monitoring of identified measures, along with capacity strengthening measures and awareness raising campaigns targeting relevant actors closely involved with the Project for better implementation and monitoring of the Project s environmental safeguard measures A draft ESMP has been included in the ESMF to ensure that (i) any negative environmental and social impact as a result of the completion of the transmission and distribution is avoided or mitigated to an acceptable degree and (ii) any positive environmental impact is enhanced where feasible. The draft ESMP also describes a monitoring program and detailed recommendations on institutional arrangements. In addition, the draft ESMP has identified specific measures to better take into account the environment in the sector: strengthening the environmental and social expertise within SENELEC The ESMF/draft ESMP outline a number of activities to be supported during Project implementation aimed at mitigating the potential adverse environmental impacts of completing Component 1 and directed toward enhancing the long-term environmental sustainability of the investments in transmission and distribution. These include a series of measures to be adhered to during the detailed design, tendering and construction phases of the Project, along with longer term measures that should be integrated into the operation of the transmission and distribution system through an environmental monitoring plan. Technical and financial support has been included under the Project and specific provisions included in the Project Agreement. 29

42 Arrangement for safeguards monitoring 125. Overall coordination and implementation of the Project s environmental and social safeguards will be carried out by SENELEC, which will maintain, throughout Project implementation, at least one knowledgeable environmental specialist and recruit a social specialist if necessary to be responsible for overseeing Project compliance with the environmental and social guidelines established under the ESMF and RPF related to Component 1 of the Project in accordance with national and Bank policies and procedures. SENELEC will ensure adherence to the safeguard documents of all agencies involved in the implementation of the Project, including contractors All contractor bidding documents will include specific environmental and social clauses to be strictly implemented during implementation phase. Resident engineers will be appointed at each construction site to closely monitor contractors work. The resident engineers team will include an environmental and social specialist, who will attend to the effective mitigation measures incumbent on the contractor Responsibility and oversight of Project s overall compliance with national and Bank environmental and social safeguards policies will be devolved to the Ministry in charge of energy, which will be working with SENELEC in close collaboration with the Ministry in charge of the environment, and other technical agencies involved. Further details about safeguards monitoring is provided in Annex World Bank supervision teams will also include environmental and social safeguard experts. To ensure effective Bank supervision, the environmental and if necessary the social specialist of SENELEC will prepare and update, for review, detailed reports on the implementation of the ESMP and RAP (if necessary) before World Bank implementation support missions. The Bank safeguards specialists will be responsible for corroborating these results and contributing to the updating of the ISRs. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [x] [ ] Natural Habitats (OP/BP 4.04) [ ] [x] Pest Management (OP 4.09) [ ] [x] Physical Cultural Resources (OP/BP 4.11) [ ] [x] Involuntary Resettlement (OP/BP 4.12) [x] [ ] Indigenous Peoples (OP/BP 4.10) [ ] [x] Forests (OP/BP 4.36) [ ] [x] Safety of Dams (OP/BP 4.37) [ ] [x] Projects in Disputed Areas (OP/BP 7.60) * [ ] [x] Projects on International Waterways (OP/BP 7.50) [ ] [x] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 30

43 Core Annex 1: Results Framework and Monitoring SENEGAL: Electricity Sector Support Project Project Development Objective (PDO): To contribute to (i) reducing SENELEC s technical and commercial losses; and (ii) improving the reliability of electricity services in selected areas focusing primarily on Greater Dakar. PDO Level Results Indicators* 9 PDO Indicator One: (Reliability) Un-served demand due to T&D networks unreliability per year PDO Indicator Two: (Net Electricity losses) Electricity losses per year in the Project area 10 Unit of Measure Baseline Cumulative Target Values** YR 1 YR 2 YR3 YR4 YR5 Frequency GWh Annual % Annual Data Source/ Methodology SENELEC s data SENELEC s data Responsibility for Data Collection SENELEC SENELEC Description (indicator definition etc.) PDO Indicator Three: (Commercial losses) Accounts receivables (in days) (residential, commercial and industrial) PDO Indicator Four: Direct Project beneficiaries, of which female Supplemental information to PDO Indicator: Un-served demand (total) per year days Annual Number % 6,024,300 6,508,900 (51%) 11 (51%) 7,035,750 (51%) 7,598,400 (51%) 8,193,450 (51%) 8,834,250 (51%) Annual GWh Annual SENELEC s data SENELEC s data SENELEC s data SENELEC SENELEC SENELEC Calculated on the basis of number of customers in the Interconnected Network 9 90% of the demand in the Interconnected Network is concentrated in the Greater Dakar 10 Global Losses Excluding Generation losses 11 Based on latest census data 31

44 Intermediate Results Intermediate Result (Component One): Reduction in technical losses and outages in the interconnected network Intermediate Result indicator One: Transmission/ Distribution Lines constructed or rehabilitated under the Project Intermediate Result indicator Two Number of households provided with access to electricity under the Project (by households connections) km 0 Number of people / Number of HH connected Intermediate Result (Component Two): Reduced commercial losses in the interconnected network Intermediate Result indicator One: Percentage of residential customers served with pre-payment meters under the Project Intermediate Result indicator Two: Percentage of medium and high power customers with smart meters Target to be defined when T&D investments decided by GoS/SENELEC Annual 0 2,000 10,000 12,400 12,400 12,400 Annual % 0% 5% 15% 20% 20% 20% Annual % 0% 10% 25% 30% 30% 30% Annual SENELEC s data SENELEC s data SENELEC s data SENELEC s data SENELEC SENELEC SENELEC SENELEC Intermediate Result (Component Three): Improved long term and strategic plan Intermediate Result indicator One: SENELEC s five and 10 year generation master plan updated and adopted Intermediate Result indicator Two: SENELEC s financial restructuring plan adopted Yes/No No No No Yes Yes Yes Annual SPE GoS Yes/No No Yes Yes Yes Yes Yes Annual SPE GoS Intermediate Result indicator Three: Strategy adopted on private sector participation and sector governance Yes/No No No No No Yes Yes Annual SPE GoS *Please indicate whether the indicator is a Core Sector Indicator (see further **Target values should be entered for the years data will be available, not necessarily annually 32

45 Project Description Annex 2: Detailed Project Description SENEGAL: Electricity Sector Support Project 1. The proposed Project whose cost is estimated at about US$ 93.5 million (including IDA: US$ 85 million and Government: US$ 8.5 million) will include the following components: Component 1: Upgrading and modernization of the transmission and distribution network: (IDA US$38.5 million and GoS U$ 4.5 million) 2. Although the envelope for this component is limited to US$43.0 million, a larger volume of investment has been identified by the Government and by SENELEC in particular regarding the upgrading, rehabilitation and replacement of existing transmission lines and substations. The final choice will be made based on several criteria, particularly economic attractiveness and urgency. 3. Overall, the priorities are established by SENELEC in its Distribution and Transmission Investment Program for the 2011/2015 period. This program results from the Transmission and Distribution Master Plans recently financed under the Electricity Sector Efficiency Enhancement Project supported by IDA, which closed on December The cost of the overall T&D Program is estimated at approximately FCFA 150 billion (equivalent to about US$350 million). 4. The upgrading and modernization of the transmission and distribution network component includes: (i) the upgrading, rehabilitation or replacement of existing transmission lines and substations in the Interconnected Network of the Client s territory; (ii) the upgrading of the distribution network from 6.6 kv to 30kV from at least two selected substations in Greater Dakar; (iii) the installation of at least 15 remotely controlled MV/LV distribution substations in Greater Dakar, (iv) the extension and densification of the distribution network in Greater Dakar, and (v) the Extension of the Interconnected Network to reach isolated secondary consumption centers of the Client s territory: (i) the upgrading, rehabilitation or replacement of existing transmission lines and substations in the Interconnected Network of the Client s territory (US$ 19 million): Transmission lines: Transmission lines have, for the most part, over 30 years of age. Their rehabilitation and replacement over time is essential to the operation of the power system. This will reinforce the security of supply, improve power flow and reduce technical losses, increase the transit capacity and ensure a good evacuation of the production of the main power stations and substations. SENELEC has listed the transmission lines that need most urgently to be upgraded and/or rehabilitated. Given the limited envelope allocated to this component, the Project will only finance one or two of the proposed upgrades/rehabilitation chosen among a list proposed by SENELEC. SENELEC is currently completing the feasibility studies and should confirm the projects to be considered. Once confirmed, specific ESIAs/ESMPs and if necessary RAPs, will be prepared on the basis of the already prepared ESMF and RPF. Works will not start before disclosure of the safeguards documents and eventual compensations paid by SENELEC. 33

46 Projects considered Estimated costs (US$ million) - Line HT Cap-des Biches/Thiona/Tobene 2.2 to Line HT Hann/Mbao/Cap-des-Biches 1.8 to Line Sococim/Mbour 3.2 to Line Kounoune/Tobene 3.5 to 4.0 Substations: The isolated air exposed substation technique combined with the outdated 90 kv (and 30kV) equipment (made worse by the impact of the oceanic environment) are one of the main causes SENELEC s network has been failing, thus contributing to the increase of the energy un-served to customers on the interconnected network. The rehabilitation or reconstruction (utilizing the isolated armored substation for SF6 technology) of some of the 90 kv substation to replace the existing ones is the best way to address this weakness in the system while protecting the substation against the marine environment for a long period of time. This modernization of the substation will also save on maintenance costs, improve the quality of service, and enhance the ease of operation and the security of supply of electricity to the Greater Dakar area. The proposed subcomponent will finance only one or two of the most urgent rehabilitations/reconstructions among the list proposed by SENELEC. Projects considered Estimated costs (US$ million) - Substation 90kV Cap-des-Biches 12 to 14 - Substation 90kV Bel Air 5 to 6 - Substation 30kV Thiona 3 to 4 In the same way as for the upgrade/rehabilitation of the transmission lines, SENELEC is completing the feasibility studies for the substation to be rehabilitated and will confirm the projects to be considered, as well as the technology to be implemented (standard rehabilitation or reconstruction utilizing the isolated armored substation for SF6 technology). Once confirmed, specific ESIAs/ESMPs, and if necessary RAPs, will be prepared on the basis of the already prepared ESMF. Works will not start before disclosure of the safeguards documents and eventual compensations paid by SENELEC. The global envelope dedicated for this subcomponent is limited to around: US$19 million The following table gives the planned implementation schedule for this subcomponent. 34

47 (ii) the upgrading of the distribution network from 6.6 kv to 30 kv from two substations in Greater Dakar (US$14 million) The development of SENELEC s distribution network across the country will see the generalization of the 30 kv in place of the existing 6.6 kv network. The 30kV voltage level transits of more energy until about 20 MW/feeder and gives longer reach to feeders (21 km/feeder). This network development will reduce the number of voltage levels on the network, improve reliability of the grid and reduce technical losses. This sub-component will finance the works to upgrade the distribution network from 6.6 kv to 30 kv from two substations still to be determined. The feasibility studies for a number of substations have been completed and show a required financing (for two substations) of about 6-7 billion FCFA (around US$ 14 million). Detailed technical specifications are also under preparation. The ESMF and RPF, prepared and disclosed, cover the works to be financed under this sub-component. To avoid or reduce the potential negative impacts, the ESMF has foreseen the preparation of an ESMP, taking into account the requirements of safeguard policies of the World Bank and the national environmental legislation. Once the sites and works are finalized during Project implementation, the ESMP will be prepared, consulted upon, and disclosed before works commence. The following table gives the planned implementation schedule for this subcomponent (iii) improvement of network operation through the installation of remotely controlled of 15 MV/LV distribution substations in Greater Dakar (US$1 million) The percentage of remotely operated of 15 MV/LV distribution substations in the Dakar region is very low (less than 1% of a total of 2000 transformers (MV/LV)). In Dakar, default detection and operations to re-establish power to customers in case of incidents are very difficult due to very heavy road traffic and frequent traffic jams. Operations on the network can last as much as 4 hours or more. The proposed subcomponent aims at increasing the number of remotely controlled of 15 MV/LV distribution substations and progressively at bringing the network towards an automatic default search and reduce the amount of un-served energy to customers because of the time it takes to fix a default on the network. The feasibility study has been completed and shows a required financing for this component of about 0.47 billion FCFA (around US$ 1 million). Detailed technical specifications are under preparation as well as the bidding documents. 35

48 The following table gives the planned implementation schedule for this subcomponent (iv) the extension and densification of the distribution network in Greater Dakar (US$4.5 million) The increasing urbanization and growth of the population has created new needs for distribution networks in Dakar neighborhoods and the suburbs. In peri-urban areas, some people use unsafe means to access electricity. There are in effect many illegal LV distribution networks that need to be secured and put to norms. The proposed subcomponent will allow the increase in the number of customers in areas of urban expansion, reduce losses by the elimination of illegal networks in periurban areas, encourage the electricity access to populations in the suburbs, protect people against the risks inherent to the unsafe use of electricity, and provide a stimulus to urban planning. The Project may finance the construction of 25 km MV and 60 km LV, about 50 transformers and about 12,400 new connections. The estimated financing for this sub-component is of about 2.2 billion FCFA (around US$ 4.5 million). This sub-component will be financed through the counterpart financing. The ESMF and RPF prepared and disclosed, cover the works to be financed under this sub-component. To avoid or reduce the potential negative impacts, the ESMF has foreseen the preparation of an ESMP, taking into account the requirements of safeguard policies of the World Bank and the national environmental legislation. Once the sites and works are finalized, the ESMP will be prepared, consulted upon, and disclosed before works commence. The following table gives the planned implementation schedule for this subcomponent (v) the extension of the distribution network to reach isolated loads in secondary centers and connect them to the Interconnected Network of the Client s territory (US$4.5 million) In a number of localities, initially far from the Interconnected Network (IN), the electrical service is provided by sets operating on very expensive Diesel Oil. 36

49 With the development of the transmission network, some of these villages can be connected to the IN, with a number of advantages: Improve the reliability and quality of service with distribution of electricity around the clock (around 6 to 8 hours per day currently); Reduce operating costs; and, Increase revenue with increased sales. This subcomponent consists in the construction of MV lines (30kV) between some of these villages and the IN. This would allow the decommissioning of the isolated power stations serving those villages with significant saving in operating costs. The global envelope dedicated for this subcomponent is limited to around: US$4.5 million. Therefore, only a limited number of villages will be connected to the grid under this sub-component. SENELEC is currently completing the feasibility studies and should confirm soon the projects to be considered. Once confirmed, specific ESIAs/ESMPs and if necessary RAPs, will be prepared on the basis of the already prepared ESMF and RPF. Works will not start before disclosure of the safeguards documents and eventual compensations paid by SENELEC. The following table gives the planned implementation schedule for this subcomponent Cost table for component 1 Project Sub-Components - Upgrading/modernization of HV substations (one or two projects still to be confirmed) - Upgrading/rehabilitation of HV lines (one or two projects still to be confirmed) - Upgrading distribution network to higher voltage (Switching from 6.6 kv to 30 kv) - Improvement in network operation through the installation of remotely controlled MV/LV distribution substations - Network extension and densification in Dakar (areas still to be determined) - Extension of the distribution network to isolated loads in secondary centers Project cost IDA GoS TOTAL component

50 Component 2. Improve SENELEC s commercial performance (IDA US$ 30.0 million and GoS US$ 3.0 million) 5. This component aims at improving SENELEC s commercial performance by reducing the cost of billing, increasing bill collection and reducing commercial losses through a reduction in arrears. This component will include: (i) the installation of about 150,000 STS compliant Split Pre-paid Meters in the Client s territory, (ii) the installation of about 10,000 electronic Smart Meters and of a remote meter reading system in the Client s territory, and (iii) the installation of a new electricity customer management system for SENELEC. 6. The policy of installing either pre-paid meters for residential customers or electronic (smart) meters (for large customers) for all SENELEC s consumers has been adopted by the Government after all other attempts at reducing losses and securing SENELEC s revenue have failed. The metering program will be deployed in phases with due regard to meter standardization and their interface with the customer management system. This sub-component proposed for financing under the Project is only the first phase of the program. Other meter acquisition and installation will be financed through own resources and/or by other donors yet to be identified. 7. Through this component it is also proposed to finance the installation of a new customer management system. The current system has been in operation since 1994 and is now obsolete. This situation also causes difficulties for obtaining support in case of malfunction or breakdown of equipment or software that are no longer manufactured or serviced. The acquisition of a modern customer management system will therefore: (i) replace the current system that has become obsolete both technically and operationally; (ii) encompass all commercial processes and re-orienting the customer information system on the client; (iii) improve sales and cost recovery for low and medium voltage customers through better customer management, billing and cash receipts; and (iv) bring flexibility to allow for adjustment in the future to deal with tariff changes, incentives for energy efficiency and the promotion of renewable energy. (i) Installation of about 150,000 STS compliant Split Pre-paid Meters in the Client s territory SENELEC s customers were about 870,000 at the end of 2010 distributed as follow: 2,000 were industrial customers, 8,000 high subscribed power consumers (power between 17 kw and 34 kw), 23,500 customers with pre-paid meters and 836,500 with post-payment conventional meters. Customers with post-payment meters are billed every two months and have a payment delay of 35 days. Therefore the credit extended to customers is more than 90 days. Low voltage customers (currently less than 17 kw but SENELEC envisage to reduce the limit at 8 kw) are found all over the country and their management is ensured by 25 commercial offices with a personnel of 1,400 of which 613 are dedicated to meter reading, billing, control and denial of supply in case of non-payment. The customer base increases at an average annual rate of 8%. An exceptional increase is expected in the next three years with the important extension of the distribution networks in Dakar (about 150,000 new customers or more expected). Low voltage customers pose enormous management problems to SENELEC: 38

51 - High unpaid bills: SENELEC has almost permanently about FCFA 17 billion (about US$32.5 million) of unpaid bills, of which 8 billion (about US$16 million) are the result of unpaid bills left after contract cancelation for non-payment. - High operating costs: Many customers are located in areas with poor urban planning and where access is difficult requiring an important personnel and logistics for commercial management, especially in rural areas (about customers). - High level of non-technical losses: Fraud is widespread with low voltage customers. Their number is estimated at more than 100,000 and the loss to SENELEC at more than FCFA 20 billion (about US$39 million) per year. The generalization of pre-payment meters would bring immediate solution to these problems and significantly enhance SENELEC s cash position. The objective of SENELEC (and of the GoS) is to install 650,000 split meters mounted in boxes fixed to supports (poles, towers, etc.) of the electric network over a period of 3 years. The customers to be covered under this project would represent about 60% of the general customer population. The management system for customer with pre-paid meters will be entirely replaced and the last technological solutions in cash management will be installed and will be able to manage up to 1,500,000 prepaid meters (sales through SMS, internet, bulk sales, scratch cards, call centers, kits, etc.). This new management system for pre-paid meters and 100,000 prepaid meters will be acquired under another already approved project financed by Chinese cooperation. Challenges and expected qualitative and/or quantitative gains: The challenges to be faced are organizational, financial and quality of service to customers. The advantages or gains are several: - Improvement in the cash position through pre-paid and bulk sales with gains on cash management products (scratch cards, SMS). - Recovery of unpaid bills by the automatic inclusion of past dues at the time of purchase of new credits. - Reduction of the credit accorded to customers from 90 days to zero. - The system will help customers manage their electricity budget. - Save on costs of metering reading, billing, bills mailing, and interruption of supply (more than 50% of current staff or about 400 persons). - Reduction of commercial losses and fraud. The global envelope dedicated for this subcomponent is limited to around: US$19 million (IDA US$ 16.5 million and US$ 2.5 from the GoS). This sub-component proposes to finance about 150,000 split pre-paid meters. 39

52 The following table gives the planned implementation schedule for this subcomponent Box 1. Pre-payment Meters (PPM) are primarily a credit management tool promoted by utilities to recover debt on the one hand and prevent the future accumulation of debt on the other. There are three types of prepayment meter: (i) Smartcard, (ii) Keys, or (iii) Token meters Split Metering Functionality The split prepayment meter consists of two parts, the meter and the customer interface unit. Communication between the meter and the customer interface unit is by means of Power Line Communication (PLC), using existing household wiring- no additional communication wires are required. The customer interface unit is a compact unit. It may be installed in any convenient location in the consumer s home where there is an electrical socket outlet. The prepayment meter contains all critical metering, number decryption and load control functionality. It operates independently and is immune to any form of tampering on the customer interface unit. The meter is usually installed in a secure, locked enclosure, typically a pavement kiosk or polemounted equivalent. It is outside the consumer s home to facilitate easy inspection by the utility at any time and to reduce the opportunity of fraud by tampering. Three utility-programmable modes of operation are possible: Prepayment Mode: In Prepayment metering mode it functions as a normal prepayment meter. Credit tokens are purchased and entered into the meter via the customer interface unit keypad. On expiry of credit the load is disconnected and will only be re-connected when a valid credit token, purchased by the consumer, is entered. Credit Mode: In Credit metering mode it functions as a conventional credit meter. Power is continuously supplied to the consumer and total kwh used is continuously measured and recorded. The meter must be read by the utility at regular intervals and the consumer billed accordingly. Energy Limiting Mode: This mode allows utilities to distribute a fixed, monthly allocation of energy to consumers. It encourages the rational use of energy without severely inconveniencing the consumer. (ii) Installation of about 10,000 electronic Smart Meters and of a remote meter reading system in the Client s territory Large subscribed power customers are those supplied with a three-phase LV with a contracted power greater or equal to 17 kw (30 A in 380 V Tree-phase). They are about 10,000 but their number should increase to about 30,000 when the limit will be fixed to 6 kw. The French Development Agency (AFD) is already financing 3,000 smart meters. The current management of these customers creates numerous problems for SENELEC s commercial offices and branches. The main constraints are the 40

53 following: (i) significant increase in the resources necessary to manage them; (ii) significant level of commercial losses and fraud, and (iii) significant level of malfunction on the 6,000 meters installed since 2009 (about half have a malfunction of some kind and the consumption of some clients is underestimated). The proposed project aims at replacing all the meters of this category of consumers by smart meters of good quality and satisfying the operating norms and requirements of customers. The smart meters offer the possibility of communicating and remotely carrying out all commercial management operations (reading, interrupting and resuming service, reduction of contracted power, etc.), the project will also finance the management system for these smart meters. Challenges and expected qualitative and quantitative advantages/gains: While the challenges are organizational, financial and quality of service to customers, the benefits are: - Resuming a regular and fair billing for customers with large subscribed power and the reduction of clients complaints. - The covering of all customers under this category with smart meters and as a consequence increase of their share in SENELEC s sales. - Reduction of the delays in billing from 15 to 3 days. - Reduction of the cost of commercial management, and savings on costs of meter reading and control - Reduction of commercial losses and fraud which is particularly important in large urban centers. - A significant improvement in SENELEC s cash position because the vast majority of customers in this category (SME, international organizations and embassies) generally pay their bills before the due date. - Tamper proof measure and control of energy consumed by these customers. The global envelope dedicated for this subcomponent is limited to around: US$4 million. This sub-component proposed therefore the financing of about 10,000 smart meters. Other smart meter acquisition and installation will be financed through own resources and/or by other donors (i.e. AFD: 3,000). The following table gives the planned implementation schedule for this subcomponent (iii) Installation of a new customer management system The current customer management system has been in operation since 1994 on a mainframe computer in a proprietary environment with a single supplier for equipment, software, supplies and services. This operating platform has long been 41

54 overtaken technologically. This has as corollary a great insecurity linked to the difficulties of obtaining support in case of malfunction or breakdown for an equipment or software that is no longer manufactured or serviced. In addition, the current system is not user friendly. It does not cover all operating needs nor provide a holistic view of the client. It lacks tracking capabilities and does not respect certain commercial procedures. Furthermore, the interface of the current system with other information technology applications is very complex and prone to errors. This system cannot evolve to handle the new commercial needs because support for developing new applications is no longer available. Writing in COBOL for this type of system has become something of a rarity both internally at SENELEC and externally. Through this sub-component, the proposed project will finance the acquisition of a modern customer management system, which will: - Replace the current system that has become obsolete both technically and operationally. - Encompass all commercial processes and re-orienting the customer information system on the client. - Improve sales and cost recovery for low and medium voltage customers through better customer management, billing and cash receipts. - Be flexible to allow for adjustment in the future to deal with tariff changes, incentives for energy efficiency and the promotion of renewable energy. The following table gives the planned implementation schedule for this subcomponent Cost table for component 2 Project Sub-Components - Installation of about 150,000 split pre-paid meter - Installation of about 10,000 smart meters Project cost IDA GoS Installation of a new customer management system TOTAL component

55 Component 3. Long term strategic outlook (IDA: US$ 8.25 million) 8. The Emergency and Recovery Plan addresses the main causes of the crisis in the electricity sector in Senegal through a set of coherent measures primarily focused on the shortterm ( ). Long term measures and an articulation of the strategic approach will be supported by this component through the provision of studies and technical assistance. 9. This component will carry out studies to assist the Government in developing a medium to long term strategy for its energy sector, such studies to analyze options for: (i) energy diversification (into coal, gas, renewable energies and regional integration); (ii) energy sector governance (by strengthening of the energy sector s efficiency, transparency and accountability) and private sector participation; and (iii); financial restructuring of SENELEC and a review of electricity tariffs. (i) Medium to long term diversification to coal, natural gas, renewable energies and regional integration: This sub-component will finance technical assistance activities designed to facilitate the analytical work of the GoS and SENELEC meant to define the sector s diversification strategy of the means of production as well as the technical and regulatory tools necessary for its implementation. The following studies will, in particular, be supported under this sub-component: a) Analytical study on the introduction of LNG (Liquefied Natural Gas) in Senegal s energy mix. Liquefied natural gas or LNG is natural gas (predominantly methane, CH 4 ) that has been converted to liquid form for ease of storage or transport. Liquefied natural gas takes up about 1/600th the volume of natural gas in the gaseous state. LNG energy density is 60% of that of diesel fuel. This makes LNG cost efficient to transport over long distances where pipelines do not exist. Specially designed sea vessels (LNG carriers) are generally used for its transport. At destination, LNG is re-gasified and used in various applications most notably in power generation. The study will study the opportunity for SENEGAL to introduce LNG in its energy mix. b) Support to the development of new IPPs. In support of its strategy of increasing the supply of electricity to the economy, the GoS has confirmed its determination to rely for that purpose on the private sector through the development of independent power production (IPPs). The project includes funding to support the development of IPPs. The type of activities that could be undertaken includes: (i) legal support; (ii) expert technical advice, (iii) social and environmental studies, etc The funding available under this subcomponent could also be used to resolve pending issues with existing IPPs. c) Integration of renewable energy in the energy mix and definition of a planning and implementation strategy. The purpose of this activity is to support the Government implement its strategy of reaching the objective of 20% of its energy from renewable energy sources by

56 (ii) (iii) Energy sector governance and private sector participation: This sub-component aims to finance technical assistance to assist the GoS in finalizing its strategy of private sector participation in the energy sector and strengthening the sector governance (by improving the sector s efficiency, transparency and accountability). The following studies will, in particular, be supported under this sub-component: a) Definition, implementation and audit of the performance contract between the Government and SENELEC. A performance contract to be signed between the Government and SENELEC will offer an opportunity to define the rights and obligations between the parties to achieve an adequate level of operational and financial performance for SENELEC s recovery. A firm will also be recruited to audit the performance of both parties on an annual basis with the view of recommending corrective actions, as necessary. b) Organizational and managerial audit of SENELEC. This activity will finance an organizational and managerial audit of SENELEC. c) Implementation of some of the actions recommended by the above audits. This activity will finance some of the actions recommended by the organizational and managerial audit of SENELEC as well as the audit of the performance contract (e.g. technical assistance to some key departments within SENELEC, etc.). d) Finalization of the work on the separation of SENELEC s accounts. Significant progress has already been made in the separation of SENELEC s accounts (generation, transmission and distribution) with the support of the Electricity Sector Efficiency Enhancement Project (ESEEP). This activity will finance the completion of the work for the accounts of accounts. This will support an effective management at SENELEC through the provision of additional management tools. e) Prospective/strategic studies on medium to long term private sector participation in SENELEC. This sub-component will provide financing to a number of activities meant to assist the Government in finalizing its strategy for private sector participation in the energy sector. Support to the financial restructuring of SENELEC and new tariff study The Government has also made it clear that is keen on accelerating the implementation of activities that have lagged behind such as the financial restructuring of SENELEC. This subcomponent will: a) Support the Government in the financial restructuring of SENELEC. This activity will support the Government and SENELEC in conducting the financial restructuring of SENELEC b) Undertake a new tariff study. The purpose of this tariff study is mainly to adapt the current tariff structure to (a) the new system of pre-payment and smart meters; (b) facilitate energy efficiency and promote demand 44

57 management; and (c) allow a better alignment between the cycle of revenue of the poor and the pre-payment meter system. Cost table for component 3 Project Sub-Components Project cost IDA GoS i) Medium to long term diversification to coal, natural gas, renewables and regional power transfers a. Analytical study on the introduction of LNG in Senegal s energy mix b. Support to the development of IPPs c. Integration of renewable energy in the energy mix and definition of a planning and implementation strategy ii) Energy sector governance and private sector participation a. Definition, implementation and audit of the performance contract between the Government and SENELEC b. Organizational and managerial audit of SENELEC c. Implementation of some of the actions recommended by the above audits d. Finalization of the work on the separation of SENELEC s accounts e. Prospective/strategic studies on medium to long term private sector participation in SENELEC iii) Support to the financial restructuring of SENELEC and the undertaking of a new tariff study a. Support to the financial restructuring of SENELEC b. New Tariff Study TOTAL component Component 4. Project implementation, Communication and Monitoring and Evaluation: (IDA US$ 3.0 million GoS US$ 0.5 million) 10. This component will provide financing for Project coordination, supervision, financial management, communication and outreach, procurement, supervision of implementation of the ESMF and RPF, monitoring and evaluation of the Project, including through the provision of technical assistance, Training, goods and audit services. 45

58 11. In particular, it will include the recruitment of supervisory engineering consultants (owners engineers) for SENELEC, support for the fiduciary function within the existing entity of SENELEC and for the supervisory arm of the plan - the recently created SPE - through the financing of specific expertise. 12. In addition, the Project will finance a financial management Project auditor, communication activities, and technical assistance to ensure that Project safeguard measures are systematically carried out throughout the Project life s time. For security purposes and to avoid any potential risk to the Project, adequate financial provision to face any potential resettlement claim arising out of involuntary resettlement will be made available by the Government/SENELEC as part of the counterpart funds to the Project (estimated at US$350,000 in the RPF) and the costs associated with the preparation of the ESIAs and RAPs, population information and awareness raising, and monitoring and evaluation will be financed under the Project through IDA funds (estimated at US$ 700,000 million in the ESMF and RPF). 13. A monitoring and evaluation system is under preparation and should allow the SPE to monitor the results of the global emergency plan and take corrective actions as necessary. This component proposes to support the implementation of the system: (i) to monitor and assess the impacts of the activities supported by the Project and (ii) to carry out Project related external audits by auditors acceptable to IDA. Project Sub-Components - Safeguards activities (preparation of ESIAs/ESMPs and RAPs, information and awareness to population, monitoring and evaluation and payment of potential involuntary resettlement claims). - TA for component 1 & 2 supervising engineering Cost table for component 4 Project cost IDA GoS TA for supporting SENELEC and SPE Training and audits Communication and Monitoring & evaluation activities TOTAL component

59 Project Costs 14. The Project cost is estimated at US$93.5 million to be financed by an IDA Credit of US$85.0 million and a GoS counterpart contribution of US$ 8.5 million. A summary of project costs is provided in the table below: Project Cost and Financing (US$ Million) Project Components Project Cost IDA GoS/ SENELEC Component 1. Upgrading and modernization of the transmission and distribution network - Upgrading/modernization of HV substations (one or two projects still to be confirmed) - Upgrading/rehabilitation of HV lines (one or two projects still to be confirmed) - Upgrading distribution network to higher voltage (Switching from 6.6 kv to 30 kv) - Network extension and densification in Dakar - Improvement in network operation through the installation of remotely controlled transformers - Extension of the distribution network to isolated loads in secondary center Total component Component 2. Improve SENELEC s commercial performance - Installation of 150,000 split pre-payment meters Installation of 10,000 electronic smart meters Installation of a new commercial management system Total component Component 3. Long term strategic outlook - TA on energy mix: medium and long term diversification into coal, gas, renewable energy and regional integration; support to the development of IPPs; and integration of renewable energy in the energy mix. - TA on sector governance; on private sector participation; and for SENELEC s operational reorganization/restructuring. - TA to the financial restructuring of SENELEC and the undertaking of a new tariff study Total component Component 4. Project implementation, Communication and Monitoring and Evaluation - Safeguards activities TA for component 1 & 2 supervising engineering

60 - TA for supporting SENELEC and SPE Training and audits Communication and monitoring & evaluation activities Total component Total Baseline Costs Contingencies (10%) on C1 and C2 (c) Total Project Cost *Not accounting for in-kind participation from Client and SENELEC 15. The table below provides a breakdown of project cost by category of eligible expenditures: Category Project costs by category Amount of the Credit Allocated (expressed in US$) Percentage of expenditures to be financed (inclusive of Taxes) (1) Goods 30,000, % (2) Works and non -consulting services for the Project (excluding Part A.4 thereof) (3) Consultants Services and Training 38,500, % 11,250, % (4) Unallocated 5,250, % TOTAL AMOUNT 85,000,000 48

61 Annex 3: Implementation Arrangements SENEGAL: Electricity sector Support Project PROJECT INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 1. The implementation arrangements mainly involve: (i) the Ministry in charge of energy, (ii) the SPE, and (iii) SENELEC. The Client, through the Ministry in charge of energy will be responsible for the overall coordination and implementation of the Project. The SPE, within the ME will have a supervisory role. SENELEC will be the Project Implementing Entity of the project. To facilitate project implementation and to simplify coordination, a small Project Implementation Unit (PIU) will be set up within SENELEC whose main purpose is to coordinate the work being done on the project by various departments within the utility. This PIU will be under the responsibility of the General Manager (Direction Générale) of SENELEC to give it the necessary authority to ensure an orderly project implementation within time and budget. The architecture of the implementation arrangements is summarized below. Architecture of the implementation arrangements 2. The PIU, headed by a Project Coordinator (PC), would carry out the day-to-day implementation/administration of the Project and would be the main contact for IDA. The PIU would consist of one technical assistant and one administrative and monitoring and evaluation assistant, in addition to staff referred to in paragraph 3 below. The technical assistant will be coordinating with task managers in the relevant operational departments within SENELEC. The administrative and monitoring & evaluation assistant will assist the project coordinator to ensure 49

62 that the reporting, M&E, fiduciaries and safeguards responsibilities are conducted efficiently and timely. The PIU will be coordinating for these activities with SENELEC s (a) procurement division, (b) financial management and accountability division and (c) the social and environmental safeguards division. The responsibilities of SENELEC in the management of the project are detailed in annex SENELEC shall, throughout the Project implementation period: (1) assign and maintain competent and qualified staff, in adequate numbers to be responsible for Project implementation and management, such staff to include the Project Coordinator, the technical assistant, the administrative, evaluation and monitoring assistant, an accountant, an environmental specialist, and an internal auditor; and (2) recruit and thereafter maintain at all times during Project implementation an additional financial management specialist, an additional procurement specialist and a social safeguard specialist (if needed), each of whose qualifications, experience and terms of reference shall be acceptable to the Association. The implementation arrangements are summarized below. Project Implementation Manual 4. The PIU would carry out and consolidate day-to-day overall project activities including preparation of annual work/implementation plans, consolidation of quarterly project and financial reports, and monitoring of the project progress in accordance with the time bound action plan presented in the PIM. The preparation and adoption of the PIM, including procurement and financial management procedures is a condition of effectiveness. The PIM will be in line with the implementation arrangements and will clearly define the roles and responsibilities of the various stakeholders (SENELEC, Ministry in charge of energy and SPE). 5. The responsibilities of SENELEC in the implementation of the project are detailed below. SENELEC will. prepare, in accordance with terms of reference acceptable to the Association, a PIM to be adopted by the Client. carry out the day-to-day activities of the Project with due diligence and efficiency so as to ensure timely implementation of the Project; prepare the Annual Work Plans; carry out the monitoring and evaluation activities (including preparation of Project Reports covering a period of one calendar semester); carry out financial management activities. management section below; 50 Details are given in the financial carry out the procurement activities for the project through its Procurement Department. Details are given in the procurement section below; maintain at all times during Project implementation, competent and qualified staff in adequate numbers; no later than the three months after Effective Date, employ a procurement specialist and a financial management specialist, each of whose qualifications, experience and terms of reference shall be acceptable to the Association; adapt its financial management software for the Project use;

63 ensure that the Project is carried out in accordance with the relevant Safeguard Instruments Monitoring & Evaluation 6. SENELEC will have overall responsibility for the monitoring and evaluation of results and outcomes. SENELEC currently measures the electricity generated and distributed as well as technical performance and revenues through its power flow and financial monitoring systems. SENELEC will therefore monitor results of Components 1, 2 and 3 through its existing monitoring and control systems and communicate the results to IDA. The project provides, under Component 4, the support for the implementation of the project and the monitoring of its results. 7. SENELEC will prepare Project Reports in form, content and substance satisfactory to the Association; Reports shall cover the period of one semester and shall be submitted to the Association not letter than forty five (45) days after the end of the period covered by such report. Monitoring of results and outcomes will be reported in SENELEC s project implementation reports. Furthermore, the Bank will supervise the project over its lifetime and its results and outcomes on a regular basis in order to evaluate the achievement of the project development objectives. Corrective actions, if necessary, will be discussed and agreed with the Government. Safeguards 8. SENELEC will also ensure that the Project is carried out in accordance with the relevant Safeguard Instruments. To that end SENELEC will: prepare (i) such Safeguard Document; (ii) furnish such Safeguard Document to the Association for review and approval; and (iii) thereafter adopt such Safeguard Document, prior to implementation of the activity; and, thereafter take such measures as shall be necessary or appropriate to ensure compliance with the requirements of such Safeguard Document, including without limitation to the above, providing funds as and when required for resettlement compensation when and if required under a RAP. 9. SENELEC will also regularly collect, compile and submit to the Association on a quarterly basis, reports, in form and substance satisfactory to the Association, on the status of compliance with the Safeguard Instruments, giving details of: (i) measures taken in furtherance of such Safeguard Instruments; (ii) conditions, if any, which interfere or threaten to interfere with the smooth implementation of such Safeguard Instruments; and (iii) remedial measures taken or required to be taken to address such conditions. Implementation period 10. The Project is expected to be made effective by October 2012 and its implementation period is expected to end on March 31, 2016, the effective closing date of the Project is expected to be September 30, 2016, a total of 48 months. 51

64 Introduction FINANCIAL MANAGEMENT, DISBURSEMENTS AND PROCUREMENT 1. As part of the preparation phase of the Electricity Sector Support Project, a Financial Management Assessment was carried out in accordance with the Financial Management Manual for World Bank-Financed Investment Operations that became effective on March 1, The objective of the Financial Management Assessment is to determine whether SENELEC, the implementing entity of the project, has acceptable financial management arrangements: (i) to ensure the funds are used only for the intended purposes in an efficient and economical way, (ii) to ensure the preparation of accurate, reliable and timely periodic financial reports, and (iii) to safeguard the entities assets and (iv) are subjected to a satisfactory auditing process. Financial Management Arrangement 1. Budgeting arrangements 3. The PIM will describe in detail the process of budget including preparation, elaboration, approval, and execution monitoring phases. 4. The budget will be adopted by the Board of SENELEC, before the beginning of the year and the execution will be monitored on a quarterly basis. Annual draft budgets will be submitted to the Bank s non objection before adoption and implementation. 2. Accounting policies and procedures 5. The current accounting standards in use in Senegal for on-going Bank-financed projects will be applicable. SYSCOHADA is the assigned accounting system in West African Francophone countries. The credit will be accounted for by the project on an accrual basis. This will be documented with appropriate records and procedures to track commitments and to safeguard assets. Accounting records will be maintained in local currency. The chart of accounts will facilitate the preparation of relevant quarterly and financial statement including information on the total project expenditures, the financial contribution from IDA and other donors, and expenditure by component and category. Annual financial statements will be prepared in accordance with SYSCOHADA accounting system. 6. An update of the information system will allow production of all accounting and financial data required: financial statements, Bank reconciliation statements, books of accounts, and all financial reports including the Interim Un-audited Financial Reports (IFR). 3. Financial Reporting and Monitoring 7. SENELEC will be responsible for overall reporting on the project. Interim financial reporting 8. Interim Un-audited Financial Reports (IFRs) would be prepared on a quarterly basis. 9. The IFR will include sources and uses of funds by project expenditures classification. It will also include a comparison of budgeted and actual project expenditures (commitment and disbursement) to date and for the quarter. SENELEC will submit the IFRs to the Bank within 45 52

65 days following the end the calendar quarter. The first IFR shall be furnished to the World Bank no later than 45 days from the end of the first calendar quarter after the effective date, and shall cover the period from the incurrence of the first expenditure under the project, through the end of the first calendar quarter. 10. The format and contents of the IFR has been agreed on during negotiations. Annual Financial Statements 11. SENELEC will produce Project Annual Financial Statements, and these statements will comply with SYSCOHADA accounting system and World Bank requirements. These Financial Statements 12 will consist of: - a Statement of Sources and Uses of Funds, - a Statement of Commitments, - accounting Policies Adopted and Explanatory Notes, - a Management Assertion that project funds have been expended for the intended purposes as specified in the relevant financing agreements. Audited annual financial statements 12. On an annual basis, SENELEC will also be required to produce, no later than June 30 of the following fiscal year, audited annual financial statements. In addition, the audited report of the project and the statutory audit report of SENELEC will be submitted no later than June 30 of the following fiscal year. 4. Internal control and internal audit arrangements Internal control system 13. SENELEC has adequate financial management procedures which will be used to design the FM Procedures of the Project. These FM procedures will be included in a Project Implementing Manual. 14. The existing Internal Audit Department ( Département Audit interne ) and General Control Directorate ( Direction du Contrôle Général ) of SENELEC will contribute to maintain an adequate Internal Control System. 15. The Internal Audit Department will inform IDA, every year, the internal audit missions for the Project included in its annual audit plan. The report issued after these missions should be send to IDA. 16. The General Control Directorate ( Direction du Contrôle Général ) and IDA will agree every year on the verifications to be performed for the Project. 17. At the national level, the DDI controls ex ante all expenditures and withdrawal applications before sending them to the Bank. 12 It should be noted that the project financial statements should be all inclusive and cover all sources and uses of funds and not only those provided through IDA funding. It thus reflects all program activities, financing, and expenditures, including funds from other development partners. 53

66 5. Funds Flow and Disbursement Arrangements Disbursement Methods 18. The project will use the transaction-based disbursement procedures, i.e., replenishment, direct payment, reimbursement, and special commitments (Funds flow arrangements for the project are as follows: see Figure 1 below). Figure 1: Funds Flow Arrangements: Funds Flow Chart IDA Washington Credit Account Direct payments Replenishments Withdrawal applications via DDI SENELEC Designated Account Special Commitments Payments Supporting documents Suppliers Minimum Value of Applications 19. The minimum value of applications for reimbursement, direct payment and special commitment is 20 percent of outstanding advance made to the designated account. Designated Account 20. A designated account will be opened and managed by SENELEC 21. The designated account will be held in CFA Francs and located in a commercial Bank acceptable to IDA. The designated account ceiling has been agreed during negotiations and is FCFA 1,000,000,000. Counterpart funding 22. The GoS will provide the equivalent of US$8.5 million as counterpart funding for the Project. 54

67 Monthly replenishment applications 23. The designated account will be replenished through the submission of withdrawal applications on a monthly basis by SENELEC and will include reconciled bank statements and other documents as may be required. Disbursement category 24. The table below sets out the expenditure categories and percentages to be financed out of the credit proceeds. Category Amount of the Credit Allocated (expressed in SDR) Percentage of expenditures to be financed (inclusive of Taxes) (1) Goods 19,900, % (2) Works and non -consulting services for the Project (excluding Part A.4 thereof) 25,500, % (3) Consultants Services and Training 7,500, % (4) Unallocated 3,400, % TOTAL AMOUNT 56,300, % 6. Audit arrangements 25. The Financial Agreement will require the submission of Audited Financial Statements for the Project and the statutory audit reports ( Rapports des Commissaires aux Comptes ) of SENELEC to IDA within six (6) months after year-end including the management letters. 26. External auditor with qualification and experience satisfactory to the World Bank will be recruited to conduct an annual audit of the project s financial statements. A single opinion on the Audited Project Financial Statements in compliance with International Standards on Auditing (ISA) will be required. 27. The external auditor will prepare a Management Letter giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the Financial Agreement. SENELEC Financial Statements 28. The Financial statements of SENELEC should be revised by statutory auditors acceptable to IDA. For this purpose, IDA requires that: organizational capacities and technical skills of the statutory auditors, recruited by SENELEC, be acceptable to IDA; 55

68 terms of Reference of the statutory auditors, hired by SENELEC, be submitted to IDA for advice and possible amendments; the Client agrees that SENELEC transmit the reports of auditors to IDA not later than six months after the end of the period (fiscal year) as provided in the Financing Agreement; in addition to the statutory audit report, the report on the internal control system ( Management Letter ) be submitted to IDA before June 30 of each year; the preparation of this report is to be included in the TOR of the statutory auditors; SENELEC maintain an Internal audit Department and a General Control Directorate ( Direction du Contrôle Général ), which participate to enhance the quality of the internal control system. 29. The table below summarizes the auditing requirements: Audit report of the Project and Statutory audit report of SENELEC Financial Statements Management letter Due Date six months after the end of the period (fiscal year) Financial Management Action Plan Weakness Action When By whom 1. Overloading and lack of experience in bank financial management procedures of the Financial and Accounting Directorate. Appoint a Financial Management specialist dedicated to the project to handle FM and accounting activities. By effectiveness SENELEC 2. Absence of procedures defining the roles and responsibilities of each stakeholder Prepare and adopt the Project Implementation Manual including FM procedures By effectiveness SENELEC 3. Absence of a computerized financial management system for the project Extension of existing financial management software (Oracle Application) to host the Electricity Sector Support Project. Three (3) months after effectiveness SENELEC 4. Absence of an external auditor Recruitment of an external auditor with experiences and qualifications satisfactory to the Bank to carry out the audit of the Project. Four (4) months after effectiveness SENELEC 56

69 Conclusion of the assessment 30. The conclusion of the assessment is that the financial management arrangements will meet the Bank s minimum requirements under OP/BP10.02 once the mitigation measures implemented. The overall residual risk rating for SENELEC is Substantial; hence the project will have on-field supervision at two (2) times a year. 57

70 PROCUREMENT A) General. 1. Procurement for the proposed project will be carried out in accordance with the World Bank s Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, published by the Bank in January 2011; and Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, published by the Bank in January 2011, and the provisions stipulated in the Financing Agreement. The general descriptions of various items under different expenditure categories are described below. For each contract to be financed by the Credit, the procurement method or consultant selection method, the need for prequalification, the estimated cost, the prior review requirements, and the time frame are agreed between the Client and the Association project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. National Procurement System and Procurement Reforms. The Government substantially improved the country s public procurement system to comply with the WAEMU s Procurement Guidelines and international standards including: (i) the setting up of an Independent Regulatory Body (ARMP) responsible for policy and handling complaints from bidders, and a Procurement Control Department (DCMP) responsible for controls of procurements transactions, which are both fully operational and appropriately dealing with their respective missions (controls within the contracting authorities are effective through their respective Procurement Commission and Procurement Units; and (ii) an electronic system (SIGMAP) for collecting, disseminating, managing procurement information and monitoring procurement statistics and procurement complaints. The Government has enforced a set of necessary documentation which includes national standard bidding documents prepared on the basis of IDA s standard bidding documents (SBDs). It has also enforced different measures which have contributed to the private sector s trust in the system, and which show a clear commitment from the Government to modernize and ensure the transparency of procurement transactions. 3. In general, Senegal's procurement laws and regulations do not conflict with IDA s Guidelines on procurement. No special exceptions, permits, or licenses need to be specified in Credit documents since IDA procedures take precedence over these laws and regulations. 4. National Competitive Bidding (NCB) procedures may be used for work contracts with a cost estimate less than US$5,000,000 and for goods contracts less than US$500,000. The procedures may be those described in the national public procurement code under its Section 2 - Appel d'offres ouvert included in Chapter 4 of the Title III of the Procurement Code. 5. Some provisions of this code are not concordant with the World Bank s Procurement Guidelines: (1) the procurement of fuel for vehicles for the public administration (the provisions 3.4c(i) of the public procurement code) and the procurement of and hotels services (the provisions 3.4c(iii) of the code) may not be submitted to the code and may not be done with transparent and equity; (2) domestic preference may be used in NCB, and bidders from any WAEMU (West African Economic and Monetary Union) country may be eligible for domestic preference (provision 50 of the code) instead of national bidders only; (3) possible restrictions 58

71 excluding foreign bidders participation in direct contracting for operations financed under the National Budget (provision 52 of the code); (4) the general procurement notice (GPN) is prepared for each fiscal year instead of the duration of the project; the publication of this GPN and of all ICB procurement notices on UNDB portal is not clearly mentioned as mandatory (provision 56 of the Senegal Code of public procurement); (5) the paragraphs 2(b) and 2(c) of the provision 76 related to direct contracting in the context of imperious urgency refers to possible implication of political authorities in the related cases, which leads to political interference in the procurement process; and (6) the provision 108 related to quality control, allowing possible price refection in case the goods, works or service delivered are not fully compliant with the specifications/description/terms of reference inserted in the contract. These provisions have been seen as weaknesses in the procurement regulation. In particular, the provisions related to (i) the procurement of fuel and hotel services, (ii) the possible involvement of political authorities in direct contracting for imperious urgencies and (iii) the quality control and possible price refection, have been raised by the Association and discussed with the authorities for improvement. Special attention should be accorded to these provisions. 6. With regard to the procurement code, in order that the above referred procurement method designated as Appel d Offres Ouvert be acceptable to IDA to be used for NCB, the following special requirements will need to be followed : (a) bids shall be advertised in national newspapers with wide circulation; (b) bid evaluation, bidder qualification and award criteria shall be specified clearly in the bidding documents; (c) bidders shall be given an adequate response time (minimum four weeks following the date of the invitation to bid or the date of availability of the bidding documents, whichever is later) to prepare and submit bids; (d) bids shall be awarded to the lowest evaluated bidder; (e) eligible bidders, including foreign bidders, shall not be precluded from participating; and (f) no preference margin shall be granted to domestic contractors. 7. In addition, the following other dispositions should be applied for contracts financed under the project, irrespective of the procurement method: (1) The GPN will cover the whole duration of the project execution with the possibility to be updated when needed; the GPN as well as all ICB procurement notices, will be advertised in UNDB in addition to national newspapers with wide circulation; (2) in addition to not using the preference margin in case of NCB, if a preference margin is used in any ICB contract, it will be applied in accordance with the World Bank Procurement Guidelines; (3) the following provisions of the national procurement code will not apply: (a) the provisions 3.4c(i) related to the procurement of fuel for vehicles for the public administration, and the provisions 3.4c(iii) referring to the procurement of hotels services: in the need of procuring such goods and services, reference will be done to the relevant methods described in the Procurement Guidelines; (b) the provision 52 containing the possibility to exclude foreign bidders participation in direct contracting; (c) the paragraphs 2(b) and 2(c) of the provision 76, involving political decisions in the use of direct contracting in the context of imperious urgency; and (d) the provision 108 related to quality control and possible price refection. 8. Furthermore, in accordance with para.1.16 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that: (i) the bidders, suppliers, contractors and subcontractors shall permit IDA, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the association; and (ii) 59

72 the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.16(a)(v) of the Procurement Guidelines. 9. Procurement of Works: Works to be procured under this project, would include: under Component 1, the upgrading, rehabilitation and replacement of new transmission lines and substations, the upgrading of the distribution network from 6.6 kv to 30 kv, the construction of new transformers, network protection and control, the extension and densification of the distribution network. The procurement will be done using the Bank s Standard Bidding Documents (SBD) for all International Competitive Bidding (ICB). In the case of NCB, the Borrower has developed National SBD; however, these ones may not be up to date in particular with regard to provisions related to fraud and corruption. As such, it has been agreed that for this project, the Bank s SBD be adapted (or modified to meet the exceptions authorized under NCB) and used for NCB. 10. Procurement of Goods: Goods to be procured under this project would include: under component 2, specific devices to contribute to the implementation of the metering program, consisting in (i) the supply and installation of electronic meters (for large customers), (ii) the supply and installation of pre-paid meters for other customers, and (iii) the installation of a new customer management system. Under component 3 related to the project implementation support, the project will supply a limited number of equipments for information systems, in order to enhance the capacities of the stakeholders in their institutional responsibilities and for the management and implementation of the project. The procurement will be done using the Bank s Standard Bidding Documents (SBD) for all International Competitive Bidding (ICB). In the case of NCB, the Borrower has developed National SBD; however, these ones may not be up to date in particular with regard to provisions related to fraud and corruption. As such, it has been agreed that for this project, the Bank s SBD be adapted (or modified to meet the exceptions authorized under NCB) and used for NCB. 11. Procurement of non-consulting services: Non-consulting services procured under the project would include (i) the installation of electric meters in diverse localities and (ii) general services related to training and workshop sessions. The 1 st group may be for a certain high value and may involve NCB. The activities under the 2 nd group are not likely to be at high value, as such, they may be contracted through the shopping process or other relevant methods, as it would be described in the project operational manual. 12. Selection of Consultants: Consultant services to be procured would include technical services (studies for design, services for supervision) related to the works to be done under component 1; the ones (studies for design, services for supervision) related to the supply and installation of equipments under components 2; and under Component 3 strategic studies for (i) the medium and long term diversification into coal, gas, renewable energy and regional integration, (ii) the private sector participation in the sector, (iii) sector governance and (iv) sector restructuring. Consultants services will also include services for the general coordination, monitoring and evaluation, capacity building, audits. Short lists 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. The project will also cover training for the staff for the beneficiary entity. The Bank s Standard Request for Proposals will be use for the selection of consultants. 60

73 B) Assessment of the agency s capacity to implement procurement 13. The procurement activities for the four Components (1, 2, 3 and 4) of the project will be handled by SENELEC, through its Procurement Department (DCPM - Direction Centrale de la Passation des Marchés). An assessment of the capacity of SENELEC to implement procurement actions for the project has been carried out by IDA on May 24 th, 2012 by The World Bank Office in Dakar. The assessment reviewed the organizational structure for project implementation and the interaction between the project staff responsible for procurement and the other technical staff and other stakeholders in the project implementation. 14. SENELEC is familiar with procurement procedures under the national public procurement regulations and has the basis for procurement procedures under the World Bank financing, thanks to the implementation of previous Bank financed projects since 2004, in particular the Senegal Electricity efficiency Project. 15. The implementation arrangements involve mainly (i) the Ministry in charge of Energy, (ii) the SPE, and (iii) SENELEC. All procurement activities for the three entities will handled by the Procurement Department of SENELEC. This department is staffed with three staff including the manager of the department, and has been already stressed in previous urgent situations which brought additional pressure. The new project involving three entities will bring additional workload which will create additional pressure to face. 16. Most of the issues/risks concerning procurement component in the project implementation have been identified considering the context that this project is an urgent and sensitive one to rehabilitate the energy sector that has been negatively impacted during the last years. The risks include: - Increased procurement workload: the new project will increased the procurement workload, which could challenge the existing procurement department, already under pressure. - Possible insufficiencies in procurement practices under the World Bank procedures. - Contract management: There may be also a need for improvement in contract management in the context of a fiduciary role for contracts oversight in conjunction with other technical departments of SENELEC including the financial department, and for the needs of procurement statistics, archiving and procurement audits, as the procurement department seems not to be involved in this management. 17. The agreed mitigations measures include: - In order to handle the additional workload, SENELEC will reinforce, no later than three (3) months after the project effectiveness, its Procurement Department s capacity with one additional qualified procurement staff with a strong experience in procurement under the World Bank procedures, for, and through the continuous involvement of the core technical staff of SENELEC in support to the procurement department; - SENELEC will build capacity in procurement and contract management under the World Bank procedures, for both its Procurement Department and its other technical departments; - SENELEC will facilitate interactions and complementarities in contract management to permit the Procurement Department to fully play its fiduciary role for the sake of 61

74 procurement oversight (contractual obligations, contracts execution period, payments, amendments, and so forth) in conjunction with other technical departments of SENELEC and the financial department, and for the needs of procurement statistics, archiving and procurement audits. 18. The overall project risk for procurement is currently assessed as substantial. It may be reduced to moderate once the mitigation measures are in place. Procurement Plan 19. The Borrower has developed a Procurement Plan for project implementation, which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on June 12 th, The approved plan will be available on UNDB online, at the respective offices of the Ministry in charge of Energy, the Permanent Secretary for Energy, and SENELEC. It will also be available in the project s database and on the Bank s external website. The Procurement Plan will be updated in agreement with the Project Team at least annually or as required to reflect actual project implementation needs and improvements in institutional capacity. Frequency of Procurement Supervision 20. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the implementing agencies has recommended one supervision mission a year, to carry out post review of procurement actions. 62

75 PROCUREMENT PLAN I. General Remarks 1. Country: Senegal 2. Project: Electricity Sector Support Project (ESSP) 3. Procurement Plan from July 2012 to December Dates of IDA approval: - Original Plan: May 28, First Revision: June 12, Second Revision: N/A 5. Publication Date for the General procurement Notice: [Pending] II. Procurement of Goods, Works, and Non-Consulting Services 1. Procurement subject to prior-review by IDA, as considered in Appendix 1 of the Procurement Guidelines Procurement methods Threshold for Prior-review (US$) Comments 1. ICB and LIB(Goods) All contracts bidded under ICB and LIB and all contracts with estimated value above or equal to US$ US$ 2. NCB (Goods) 3. ICB (Works) 4. NCB (Works) 5. ICB (Non consulting services) NCB (Non consulting services) All contracts subject to IDA prior-review All contracts bidded under ICB and LIB and all contracts with estimated value above or equal to US$ All contracts subject to IDA prior-review All contracts bidded under ICB and LIB and all contracts with estimated value above or equal to US$ All contracts subject to IDA prior-review 63 ICB and LIB used for all contracts with estimated value above or equal to NCB could be used for goods with contract estimated value below or equal to US$ ICB and LIB used for all contracts with estimated value above or equal to US$ NCB could be used for works with contract estimated value below or equal to US$ ICB and LIB used for all contracts with estimated value above or equal to US$ NCB could be used for Non consulting services with estimated value below or equal

76 Shopping (goods) Shopping (works) Shopping (Non consulting services) Direct Contracting All contracts subject to IDA prior-review All contracts subject to IDA prior-review to US$ Shopping could be used for contract with estimated value below or equal to US 64

77 2. List of contracts, including associated procurement method and key milestones Goods Estimated Prequalification Preference Bank Bid-Opening Domestic Review by Expected Ref Contract Procurement Comments Cost No (Description) Method (optional) (US$000s) (Y/N) (Y/N) (Prior/Post) Date 1 Supply of 150,000 pre-paid split meters 11,680 ICB N N Prior 03/06/ Supply of cases for pre-paid meters 3,370 ICB N N Prior 03/06/2013 US$16.0 million financed by IDA and US$3.0 million by GoS 3 Supply of cables and other accessories for the installation of pre-paid meters 2,500 ICB N N Prior 03/06/ Supply of 10,000 smart meters 2,000 ICB N N Prior 03/20/ Supply of cases for smart meters 900 ICB N N Prior 03/20/ Supply of vehicles for the teams supervising the installations of meters. 350 NCB N N Post 02/13/

78 7 Supply of IT equipment for SPE and SENELEC 45 Shopping N N Post 12/05/ Supply of office material for SPE and SENELEC 45 Shopping N N Post 12/05/2012 Ref No 2.2. Works Estimated Prequalification Preference Bank Bid-Opening Domestic Review by Expected Contract Procurement Cost (Description) Method (US$000s) (Y/N) (Y/N) (Prior/Post) Date Reinforcement and modernization of HV substations Reinforcement and modernization of HV lines Voltage upgrade from 6.6 to 30 kv for selected distribution lines and substations Distribution Network expansion within Greater Dakar 13,000 ICB N N Prior 05/08/2013 5,000 ICB N N Prior 05/08/ ,000 ICB N N Prior 02/06/2013 5,000 ICB N N Prior 02/16/2013 Comments (optional) IDA NO subject to disclosure of ESIA/RAP and possibly compensation IDA NO subject to disclosure of ESIA/RAP and possibly compensation IDA NO subject to ESMP acceptable to IDA IDA NO subject to ESMP (financed by GoS) acceptable to IDA 66

79 5 6 Supply and Installation of remote circuit breakers for 15 substations Extension of the distribution network to isolated loads in secondary centers 1,000 NCB N N Post 02/13/2013 4,500 ICB N N Prior 05/22/2013 IDA NO subject to disclosure of ESIA/RAP and possibly compensation Ref No 2.3. Non-Consulting Services Expected Estimated Prequalification Preference Bank Domestic Review by Contract Procurement Offer Cost (Description) Method Opening (US$000s) (Y/N) (Y/N) (Prior/Post) Date Supply and Installation of a new customer service management system. Supply and Installation of an information management system for smart meters Installation of pre-paid meters and related services (Thiaroye and Malika) Installation of pre-paid meters and related services (Touba) 10,000 ICB N N Prior 05/15/ ICB N N Prior 03/20/ NCB N N Post 04/03/ NCB N N Post 04/03/2013 Comments (optional) 67

80 Installation of pre-paid meters and related services (Thiès, Mbour, Ouakam and Patte d Oie) Installation of smart meters and related services (Dakar) Installation of smart meters and related services (other areas) Supply and installation of information management system for the smart meters 484 NCB N N Post 04/03/ NCB N N Post 04/03/ NCB N N Post 04/03/ ICB N N Prior 10/31/

81 III. Selection and Employment of Consultants 1. Selection and Employment of Consultants, subject to prior-review by the Bank as considered in Appendix 1 of the Procurement Guidelines for the Selection and Employment of Consultants. Procurement Method Threshold for prior-review (US$) 1. Competitive selection methods (firms) = or >US$200, Single Source Selection (firms) All contracts 3. Competitive selection methods (individual consultants) = or >US$100, Single Source Selection (individual consultants) All contracts Contracts for specific tasks such as development or update of the project implementation manual, supervision contract, monitoring and evaluation contract, auditing (financial and technical) etc. All contracts could be subject to prior-review Comments (optional) Although not specifically linked with any procurement methods, the importance of those contracts could require Bank s prior-review based on case-by-case consideration. a) Short list comprising entirely of national consultants. Short list of consultants for services, estimated to cost less than US$ 200,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines 69

82 Ref No Consultant Services including associated procurement method and key milestones Expected Review Estimated Selection Proposals Description of Assignment by Bank Cost Method Submission (Prior / Post) Date Comments (optional) 1 Support to the financial restructuring of SENELEC 750 QCBS Prior 01/09/ Tariff Study 500 QCBS Prior 01/09/ Analytical study on introduction of LNG in Senegal s mix 250 QCBS Prior 02/06/ Support to IPPs development 500 QCBS Prior 05/08/ Strategic study for integration of renewable energies in the energy mix and definition of a planning and implementation strategy Definition, implementation and audit of a performance contract between the Government and SENELEC Organizational and managerial audit of SENELEC TA for the implementation of some of the actions recommended by the audits 500 QCBS Prior 02/06/ QCBS Prior 12/12/ QCBS Prior 01/23/2013 2,500 QCBS Prior 08/14/

83 Assistance to the completion of the work on the separation of SENELEC s accounts Strategic study on medium to long term private sector participation in SENELEC ESMP for voltage upgrade from 6.6 to 30 kv ESIA and RAP for the interconnection of secondary isolated centers (1) ESIA and RAP for the interconnection of secondary isolated centers (2) Supervision of environmental safeguards Supervision of the supply and installation of a new customer service management system 1,250 QCBS Prior 12/12/ QCBS Prior 05/22/ QCBS Post 12/26/ QCBS Post 01/16/ QCBS Post 01/16/ QCBS Post 03/27/ QCBS Prior 02/ External Audit for the project 100 QCBS Prior 01/16/ Training program 150 CQS Post 03/13/ TA for monitoring and evaluation 150 CQS Post 03/13/

84 TA for SENELEC for supervision of Project Component 1 and 2 (Owner s Engineer) Individual consultants for the supervision of meter installations 175 CQS Post 11/14/ (*) Financial Management Expert for the project implementation 120 unit Internal auditor for the project implementation unit 80 Individual Consultant Individual Consultant Individual Consultant Post 08/29/2012 Prior 11/28/2012 Prior 11/28/2012 (*) US$ cumulative estimated amount for about 30 Individual Consultants to be recruited at the same time 23 Procurement Specialist for the project implementation unit 120 Individual Consultant Prior 12/05/

85 ENVIRONMENTAL AND SOCIAL (INCLUDING SAFEGUARDS) A. Introduction 1. The Project is classified as an environmental Category B, partial assessment. There are two safeguard policies triggered. These are OP 4.01: Environmental Assessment; and OP 4.12: Involuntary Resettlement. An ESMF and a RPF relating to component 1 of the project have been prepared. They were disclosed as shown below: Date of Disclosure Document In Country InfoShop Environmental and Social Management Framework 12/12/ /06/2012 Resettlement Policy Framework 12/12/ /06/ Component 1 of the project includes: (a) Upgrading/modernization of HV substations; (b) Upgrading/rehabilitation of HV lines; (c) Upgrading distribution network to higher voltage (Switching from 6.6 kv to 30 kv); (d) Network extension and densification in Dakar; (e) Improvement in network operation through the installation of remotely controlled transformers; and (f) Extension of the distribution network to isolated loads in secondary centers. 3. Since the specific sub-project locations have not yet been selected at this stage, an ESMF and a RPF have been prepared that establish the process and provide guidelines to plan for and implement the physical activities. The framework also provides for compliance with the relevant existing environmental rules and regulations applicable in Senegal and the World Bank guidelines. The environmental assessment process described in the Framework includes: (a) an initial environmental screening, including public consultations; (b) an assessment of whether the particular activity under review will generate environmental impacts; and (c) if environmental impacts are expected, an ESMP needs to be prepared and should ensure that adequate implementation arrangements are in place. Similarly, in the RPF, the process for determining the need for RAPs or compensation plans and principles and procedures to be followed in preparing and implementing them are spelt out. B. Safeguards Policy Issues 4. In view of the above, the following will apply to Component 1 of the project: ESIAs/ESMPs/RAPs will be prepared and sent to the Association for review and approval. Following this approval the relevant documentation will be disclosed incountry and at the InfoShop before the commencement of the work. This applies to subcomponents 1.1: 'Upgrading, rehabilitation or replacement of existing transmission lines and substations' and 1.5: 'Extension of the distribution network to connect isolated loads in secondary centers'. 73

86 Environment For sub-component 1.4: 'Extension and densification of the distribution network in Dakar, Bank environmental and social specialists will decide whether a complete environmental and social impact assessment is necessary or if the frameworks are sufficient (in this case, an ESMP will be prepared before works commence). For sub-components 1.2: 'Upgrading the distribution network from 6.6 kv to 30 kv' and for sub-component 1.3: 'Improvement of network operation through the installation of remotely controlled transformers for 30 substations'. Once the sites and works are finalized during project implementation, an ESMP will be prepared, consulted upon, and disclosed before works commence. 5. The ESMF summarizes all the anticipated environmental impacts and their associated mitigation measures during the design, construction and operational phases. It makes reference to the relevant law and contract documents, approximate location, timeframe, possible mitigation costs, and the responsibility for its implementation and supervision. A field monitoring checklist has been prepared based on the ESMF and monitoring plan. The field monitoring checklist will be used by SENELEC and its engineering consultants which will be responsible for the appropriate follow-up and compliance reporting. 6. Safeguard measures will be incorporated in the project design, technical specifications and contract documents. During the construction phase the contractor will construct the project as per the design and technical specifications and implement the ESMF with supervision provided by SENELEC and its construction supervision consultant. During the operation / maintenance phase, the onus for the upkeep of long term maintenance of the power installations falls on SENELEC. 7. Major Impacts. The major environmental impacts associated with Component 1 of the project are: (a) the effects on existing land use (land value, ecologically sensitive sites, existing utilities such as water and telecommunications pipes and cables; (b) aesthetic impact on the surroundings; (c) increased erosion and interference with local drainage patterns; (d) increased access and its associated effects (from the transmission and distribution lines themselves or from construction and maintenance of access roads); (e) hazard of electrical shock and strike to birds construction. However, in all cases the impacts of the project are expected to be minor, temporary, readily mitigated and in most cases easily reversible. Involuntary Resettlement 8. Temporary acquisition of land may be required during the construction of power lines and substations. There may also be cases where assets such as crops and trees may be affected to make way for footpaths or road access. While the acquisition of land will be avoided whenever feasible, and while all viable alternatives will be explored, it may be necessary to acquire parcels of land to be used as right of way for power lines or to install substations or transformers. This will not be clear until the investment to be financed have been precisely identified. In order to address this issue, an RPF was developed and disclosed both in Country and in Infoshop. The RPF identifies principles to be followed in the event of temporary land acquisition, the damage or removal of assets such as crops and trees, and the acquisition of land. 9. The purpose of the RPF is to provide guidance for the process and intended outcomes of resettlement plans. It seeks to ensure that those people whose assets are directly affected by the 74

87 project can share project benefits and be able to improve or at least restore their standard of living to the level prior to the beginning of project implementation. Compensation will be paid, and any other resettlement entitlements provided, before physical and economic displacement arises. Institutional Arrangements 10. Overall Arrangements. The Ministry in charge of environment is the lead agency responsible for coordinating planning and implementation of land acquisition and resettlement. The GoS has in place a legislation for payment of compensation and resettlement procedures that are in line with the World Bank s policies. SENELEC has the expertise to assess resettlement plans in line with the Bank s resettlement procedures, and SENELEC, in conjunction with other GoS stakeholders, will have the responsibility for reviewing the Resettlement Policy Plan that may be needed and its implementation. 11. Financing Land Acquisition. The land acquisition, if any, will be financed and executed by the GoS according to existing legislation. 12. Grievance Redress Mechanism. The mechanisms for redressing grievances was presented and explained in the initial consultations, described above, and will be discussed again once the affected people, if any, have been identified. The GoS has in place a grievance mechanism that allows people to file complaints with the Courts and make appeals to higher Courts. 13. Monitoring. It is the responsibility of the GoS to make an assessment to determine that the objectives of the RPF have been achieved. The GoS, through SENELEC will undertake internal monitoring of the project s progress. In addition, the World Bank will assess the implementation of the RPF and other associated activities during implementation support. C. Supervision Mechanism 14. SENELEC through its engineering consultant shall have the direct responsibility for monitoring the implementation of the ESMF of the project. The ESMF contains reporting requirements and these will be included in the consultant s quarterly progress reports. 15. For land acquisition and resettlement, SENELEC will have responsibility for monitoring the implementation of the RPF. D. Monitoring & Evaluation 16. Data on compliance with the ESMF will be collected by SENELEC and its engineering consultant as part of their regular duties. The ESMF contains monitoring forms to be used for this purpose. Data regarding land acquisition will be available in the RAPs, if they were to be carried out. This will include the list of people affected and the rates of compensation that they will be paid prior to commencement of the works. 17. Data collection will be included in the engineering consultant s Terms of Reference. The data will be used during implementation to: (i) verify that people have been paid compensation for assets lost or land acquired prior to the commencement of works, as per World Bank and GoS policies; and, (ii) to ensure that the contractors are complying with the ESMF. 75

88 18. SENELEC will submit to the Association: (i) the quarterly engineering consultant reports; and (ii) semi-annual progress reports in a form and substance acceptable to the Association. E. Other Issues 19. There are no environmental and social risks or issues in this project that go beyond the coverage of the safeguards policies. 76

89 Annex 4: Operational Risk Assessment Framework (ORAF) SENEGAL: Electricity Sector Support Project Stage: Appraisal Project Stakeholder Risks Description : Consumers: The risk that some consumer groups may not support the project because it does not directly profit them or potentially threaten their current situation (e.g. replacing faulty meters with pre-payment meters). Some consumers may initially have difficulty adjusting to the system of pre-payment. Furthermore, the poor may have concerns about the suitability of pre-payment meters with their revenue cycle. Implementing Agency Risks (including fiduciary) Capacity Description : The capacity of SENELEC may not be sufficient to handle the extra work load generated by the proposed project Rating: Substantial Risk Management : The project is part of a large Government program to expand access and improve the quality of service. With the restoration of the quality of service, it will be easier to communicate around the need to pay electricity bills. In parallel and to avoid a repeat of past experience, the Government has enacted new legislation to toughen sanctions against fraud and the theft of electricity. Strong communication strategy by the SPE, SENELEC and the Electricity Regulatory Commission (CRSE) to inform consumers about the pre-payment metering program, what it may mean to them and its modus operandi. The concerns of the poor regarding the suitability of prepayment meters when viewed against their cycle of revenue as well as the compatibility of the tariff structure for affordability purposes will be carefully examined under the project. Resp: SPE, SENELEC, CRSE, Rating: SUBSTANTIAL Stage: Communication plan for prepaid meter deployment under validation phase Due Date : End September 2012 Status: Ongoing Rating: Substantial Risk Management : The procurement and financial management assessments have identified a need of one additional staff for each of the relevant department in these two areas to handle part of the extra work load that would be generated by the project. These two specialists will be financed under the Project Regarding environmental and social safeguards, the assessment has identified a possible need for one additional social specialist depending on the results of the RAPs to be prepared. The Bank will monitor the performance of the project in these critical areas and provide additional assistance if necessary. Resp: SPE, SENELEC Stage: Preparation of Project Implementation Manuel Due Date : Signature by Effectiveness Status: Ongoing Governance Rating: Moderate 77

90 Description : There was a risk that the new Government may not view the situation or the solutions to the sector s difficulties in the same manner as its predecessor did. This would have posed a risk to the definition and the implementation of the project. Project Risks Design Description : The technology to be acquired is well known and time tested. SENELEC may however experience problems in the deployment of the pre-paid meters on the scale envisaged under the project. The deployment of pre-paid and electronic meters, their interface with existing systems as well as the integration of the whole into a single management platform may prove to be challenging to SENELEC. This may delay project implementation. Social & Environmental Description : The proposed project may include small new transmission and distribution lines. The environmental and social impacts of these investments need to be addressed upfront. Otherwise, This may delay project implementation. Risk Management : In a workshop held in Dakar on May 15-16, 2012, the new Government has confirmed that it is determined to strengthen, re-orient et widen the strategic outlook of the sector recovery plan. The Government also confirmed that it intends to follow up on the financing and implementation of investments that will be vital for the rehabilitation and expansion of the country s electricity infrastructure with a particular emphasis on transmission and distribution networks (including those in the Bank s proposed project). The Government has also made it clear that is keen on accelerating the implementation of activities that have lagged behind such as the financial restructuring of SENELEC and the implementation of demand management measures. The governance of the implementation of the recovery plan is underway, notably concerning the respective roles of APIX and SENELEC in the implementation of projects. Nevertheless, SENELEC has been designated as the executing agency of the proposed project supported by the Bank with a confirmation of the oversight and supervisory roles of the Ministry of Energy and the Permanent Secretariat for Energy (PSE). Resp: Ministry of Energy, SENELEC Rating: MODERATE Stage: Draft ToRs for organizational audit of Senelec under preparation Due Date : End-July Status: Ongoing Rating: Moderate Risk Management : To mitigate this risk and ensure an efficient implementation of the project and particularly the deployment of the meters program, an external assistance will be recruited to help SENELEC in this task. Resp: SPE, SENELEC Stage: Bidding documents under preparation Due Date: July 2012 for selection of Consultant Status: Pending Rating: Moderate Risk Management : An Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF) have been prepared and have been disclosed in-country and at the Bank s InfoShop. They have been reviewed and approved by the Bank. Specific ESMP/RAP will be prepared for some of the transmission and distribution investments and the studies will be launched early on to ensure the project implements environmental and social requirements while remaining on its critical path of implementation. 78

91 The SENELEC may lack capacity in the area of environmental and social safeguards. Program & Donor Description : Bank supported project is only a part of the Government investment program for the sector. Some synergies may be lost for lack of coordination between investments. Delivery Monitoring & Sustainability Description : Investments to be carried out under the project may not be effectively operated and maintained. SENELEC currently has large operating deficits and relies on Government transfers to finance its investments and operations. Tariff review which may involve a change in tariff structure to accommodate the introduction of pre-payment and electronic meters may be opposed if it is seen as an instrument for an increase in existing average tariff levels. By addressing through emergency measures, the main causes of the current crisis in the electricity sub-sector, the Emergency and Recovery plan is positioned in the short term ( ). However, it is necessary to conduct, in parallel a comprehensive analytical work on the strategic outlook on both the sector s and SENELEC s reform in the medium and long-term. Overall Risk Following Review Resp: SPE, SENELEC 79 Stage: Completed (ESMF and RPF) to be prepared (ESMP/RAP) Due Date : before commencement of works (ESMP/RAP) Status: Ongoing SENELEC has a specific division in charge of environment and social safeguards. Depending on the results of RAP, an additional social specialist may be recruited. Resp: SPE, SENELEC Stage: TORs for ESMP/RAP under preparation. Due Date : September 2012 Status: Ongoing Rating: Moderate Risk Management : The choice of the components for the proposed project has been such that its success does not depend in any significant manner on the success or timing of other components of the Government s program. Resp: SPE Stage: NA Due Date : NA Status: NA Rating: Moderate Risk Management : One of the primary goals of the project is to ensure that SENELEC relies exclusively on internal cash generation to finance its operations and part of its investment program (the rest being financed through borrowing in the capital market). Resp: SENELEC, Stage: NA Due Date : NA Status: NA CRSE Risk Management : A review of the current tariff structure is necessary to make it compatible with the new metering system and to ensure adequate revenues for SENELEC s operations. A study of the proposed tariff review will be financed by the project and the Bank project team will work closely with the Government to ensure that the agreed recommendations are incorporated into the new customer management system. Resp: SPE, SENELEC, CRSE Stage: ToRs for tariff review under preparation Due Date : Selection by End 2012 Risk Management : The purpose of Component 3 of the project is to address this concern. Status: Ongoing Resp: NA Stage: NA Due Date : NA Status: NA Implementation Risk Rating: SUBSTANTIAL

92 Annex 5: Implementation Support Plan SENEGAL: Electricity Sector Support Project Strategy and Approach for Implementation Support 1. The implementation support strategy is designed to provide assistance to Government and other stakeholders to support the implementation of the risk mitigation measures identified in the ORAF and provide the policy, technical, financial, procurement and safeguards advice necessary to facilitate the achievement of the PDO. The IS strategy includes: a. Procurement: The procurement activities for the project will be handled by SENELEC, through its Procurement Department (DCPM - Direction Centrale de la Passation des Marchés). The Association will, as is customary, ensure that the rules and procedures relevant to such large contracts (prior review and clearance of bidding documents and prior review and clearance of evaluation reports and awards) are adequately used. More generally, the Association will provide advice to ensure that all project components are implemented as rapidly as possible consistent with economy and efficiency. b. Capacity: An assessment of the capacity of SENELEC to implement procurement actions for the project has been carried out by IDA on May 24, This entity is familiar with procurement procedures under the national public procurement regulations and has the basis for procurement under the Bank s procurement procedures thanks to the implementation of previous Bank-financed projects since SENELEC, although technically very capable, will need the assistance of competent consulting engineers in carrying out the rehabilitation/extension of transmission and distribution lines, the installation of transformers and the deployment of the metering program. c. Financial Management Implementation Support: SENELEC will have the fiduciary responsibility of the overall project implementation. The fiduciary capacity of SENELEC is weakened by the overloading of the Financial and Accounting Directorate and the lack of experience in bank financial management procedures (disbursement, financial reporting ). Supervision activities will include: (i) on-site mission (ii) review the financial management aspects of quarterly IFRs; (iii) review of annual audited financial statements and management letter as well as timely follow up of issues arising; (iv) and participation in project supervision missions, as appropriate. The Bank FMS in charge of this project will monitor the timely implementation of the financial management arrangements. However, intensity of supervision could be reassessed upon the evolution of the rating for the overall control risk. The conclusion of the financial Management assessment is that the financial management arrangements will meet the Bank s minimum requirements under OP/BP10.02 once the mitigation measures are implemented. Based on the outcome of the FM risk assessment, the following implementation support plan is proposed. The objective of the implementation support plan is to ensure the project maintains a satisfactory financial management system throughout the project s life. 80

93 FM Activity 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 Frequency Quarterly Annually Continuous as they become available Depending on the overall FM risk rating As needed As needed During implementation and as and when needed. d. Environmental and Social Safeguards: The Client s operational safeguard capacity will be strengthened under the Project (if necessary) with the recruitment of a social safeguards specialist within SENELEC s safeguard division. In addition, the project will ensure that all contractor bidding documents include environmental and social clauses, whose implementation will be closely monitored by SENELEC and the Association. The reception of completed works will be assessed against the degree to which environmental and social clauses have been implemented by the contractor, among other aspects. Implementation Support Plan 2. The Project implementation will be supported by the task team based both in Washington and Dakar. This will ensure that it is possible to have field missions rapidly should the need arise. Formal missions will be conducted at least three times during the first year of implementation and twice yearly afterwards. Detailed inputs from the team are given below: a. Technical: The bidding documents will be reviewed by a power engineer. Throughout implementation of the Components 1 and 2, a power engineer will participate in supervision missions. b. Fiduciary: The team s financial management specialist (FMS) shall undertake appropriate training of the relevant staff of SENELEC and ensure that: (a) adequate capacity is available to handle the work load of the project and (b) the accounting system is capable of producing the required project s financial statements. The team s FMS will also oversee the recruitment of an external auditor by the accounts of the project. c. Safeguards: The environmental and social safeguards specialists will participate in all supervision missions during the construction of components 1 and 2. They will also perform desk work to review environmental and social monitoring reports. 81

94 d. Operations: Project operation, until project closing, will be followed by the core project team in both Washington and Dakar. Implementation Support Focus (Bank team) Time Focus Skills Needed First twelve Months Months Review of the power construction bidding documents Review of other project documents (tariff study) Environmental and social monitoring Power engineer Proc. Accred. Specialist Resource Estimate (Staff Weeks) 2 3 Technical specialist 3 Env. & Social specialists Financial management FMS 2 Financial analysis of SENELEC Financial analyst 4 Implementation support ACS 4 Team Leadership TTL 10 Components 1 and 2 Construction/installation Power Engineer 8 Financial analysis of SENELEC Financial analyst 10 Environmental and Social Monitoring Env. Specialist Social Specialist Review of Procurement documents Proc. Accr. Specialist 4 Financial Management FMS 3 Implementation Support ACS 14 Team Leadership TTL Partner Role Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Power engineer 10 4 Financial analyst 14 4 Env. Specialist 8 4 Social Specialist 6 4 Procurement Specialist 7 2 Technical Specialists 3 4 Implementation Support 18 1 Team Leadership 30 8 Comments 82

95 Annex 6: Electricity Emergency and Recovery Plan SENEGAL: Electricity Sector Support Project 1. The development of energy infrastructure represents a key component of the Government s strategy to support economic development. Electricity is a fundamental block for economic growth and the price, reliability and quality of electricity service affect all economic activities directly or indirectly. Aligned with the February 2008 Letter for Energy Sector Development Policy (LPDSE), several institutional reforms have been conducted and massive financial resources have been invested in the energy sector. Nevertheless, the energy sector as a whole is facing a major crisis with the sub-sector of the electricity as the most affected area. This crisis was periodic over the last four years but it increased in intensity and frequency in 2010 and 2011 causing repetitive nationwide load shedding. 2. In October 2010, the intensity of the energy crisis and the widespread load shedding conducted the Government to a major restructuring and recovery plan for the whole energy sector, based on a 360 degree diagnostic and several technical and financial audits. Electricity sector diagnostic: a severe crisis both on generation capacity and finance 3. The diagnostic pointed to two main issues of the power sector in Senegal: one is the growing gap between fast growing demand and an insufficient, costly and unreliable supply of electricity and the other is SENELEC s persistent financial difficulties with a significant operating deficit and high indebtedness. Figure 1 below illustrates this double downward spiral. Figure 1 83

96 4. The Government s most immediate effort has been to prepare a electricity Emergency and Recovery plan aimed at (a) removing the electricity supply bottlenecks 13 by securing sufficient additional power generation capacity prior to the commissioning of a 125 MW coal-fired power plant IPP in 2014/2015; and (b) addressing SENELEC s cash-flow and financing constraints. 5. As mentioned above, the sector crisis is characterized by a large gap between supply and demand on the one hand, and on the other, by the critical financial situation of SENELEC. The worrying and widening gap between demand and supply 6. Strong Demand Growth over the Last Decade. The demand for electricity is strong and has almost doubled since 2000, going from 234 to MW at consumption peak at an average annual rate of 6.2% p.a. between 2000 and It shows a classical load curve: seasonal with a daily light peak and a higher peak in early evening. Demand growth nevertheless slowed down since 2005, and recurrent blackouts started in The suppressed demand is estimated at about 80 MW. Figures 2 and Insufficient, costly and highly unreliable supply. The technical diagnostic showed a significant capacity deficit, with highly unreliable and costly existing generation capacity. Each of these factors is impacting the other, leading to a rapidly deteriorating situation (generation downward spiral). In 2010 and early 2011, the supply deficit at peak reached an estimated 40 to 50 MW. Only 350 MW of generation are operational on average out of a 584 MW installed capacity, mainly because of technical breakdowns due to the insufficient maintenance of old plants, as well as contractual issues with the GTI and Kounoune IPPs. 8. Generation cost in Senegal is high compared to neighboring countries with about similar power systems, due to an inappropriate energy mix given the country resources 90% diesel oil-based with high volatility in prices and an increasing use of peaking-plant technology (Gas Turbines - TAG) as base capacity (+120%), which resulted in a 500% increase in fuel purchase and 150% increase in average generation costs between 2004 and In addition, despite the various recent tariff adjustments, the spread between the tariff and SENELEC s variable costs remains important because energy and fuel related expenses continued to increase. 13 If no action is taken (i.e. without the Emergency and Recovery Plan ), the supply/demand gap could increase to MW by 2013, equivalent to a deficit of almost 50% of the projected demand MW on October 17,

97 10. Inadequate maintenance of generation facilities. In an attempt to limit load shedding, but also due to lack of cash flow, scheduled maintenance of generation facilities was not properly done by SENELEC (execution rate fell from 53% to 25% in the last three years), which increased breakdown frequency and reduced the efficiency of existing power plants. Transmission and distribution equipment suffered the same problem and now require rehabilitation investments. 11. Adding to these constraints on its own generation facilities, SENELEC has also faced difficulties with both IPPs (GTI with a capacity of 50MW commissioned in 1997 and Kounoune Power with a capacity of 67.5MW commissioned in January Due to a damaged transformer, GTI has not been able to produce for over 18 months in , which contributed to the worsening of SENELEC s financial situation. At the same time, Kounoune Power has had to face a number of technical problems, which did not allow the plant to operate at full capacity during the first two years of operation. 12. Lack of realism about the timeframes for implementing new projects. Finally, the lack of realism about the timeframes for implementing new projects, such as the gas or coal power projects, prevented SENELEC and authorities from considering alternatives for bridging the generation gap. This has combined to produce a rapidly deteriorating situation on the generation side. Figures 4, 5 and 6 The structural financial deficit 13. Structural operational loss-making position is limiting SENELEC s ability to finance new investments. Since 2005, SENELEC has only shown negative results, except in 2009, when a decrease in oil prices, and an operating subsidy of FCFA 40 billion, resulted in a net profit. This structural operating deficit was mostly felt in 2010 when SENELEC s financial situation deteriorated significantly. Financial statements show a negative result of FCFA58 billion and an important shortfall in cash flow. 85

98 SENELEC s structural operating deficit is due to a tariff gap and a compensation mechanism based on a revenue cap formula resting on outdated capacity assumptions and inadequate principles that was not reflecting the reality of the energy sector and SENELEC s technology mix. In 2011, the improved negative results of FCFA 3.5 billion are once again due to high subsidy injection (FCFA 103 billion). 14. High indebtedness with significant cash constraints. SENELEC s repeated losses, low revenues and cash constraints have seriously impacted its financial situation especially in with a high debt level compared to both its equity (D/E ratio of 230% in 2011) and its repayment capacity (DSCR <1) as well as a negative impact on its ability to meet its cash requirements to purchase fuel to purchase fuel for example. 15. The level of arrears at end-2011 exceeded FCFA 100 billion. These results are mainly explained by the sharp increase in fuel related expenses (+FCFA 77 billion). In terms of customer satisfaction, the un-served demand in 2011 reached another record level of 250 GWh of which half were due to the procurement of fuel (a combination of lack of cash and / or quality of fuel). 16. Inadequate tariff formula and 2011 tariff gap: Historically, SENELEC s ability to finance new investments was severely limited by its chronic operating loss. Until 2010 SENELEC has shown a structural operating deficit due to a tariff gap and a compensation mechanism that was not adequate as mentioned earlier. 17. The worsening of SENELEC s financial situation highlighted the limits of the tariff formula and in 2011, the Government launched a process to revise the tariff setting mechanism including the decisions to (a) reduce the validity period of tariff conditions from five to three years; (b) pay subsidies on a quarterly basis, (c) evaluate SENELEC s revenues annually (and abandon the smoothing or lissage concept) 15, and (d) review SENELEC s revenue on a quarterly basis to take into account the impact of inflation. 18. Using the revised formula, the regulatory agency set the 2011 tariff gap at about FCFA 95 billion. Now that subsidies are to be paid on a quarterly basis, the Government has to deposit funds early in the year. 19. Peak of the crisis reached in In 2011, the situation got worse. As of September 28, 2011, the level of un-served demand had already reached 250 GWh of which 150 GWh was due to lack of fuel, the country registered 270 days of load shedding. This led to growing customer dissatisfaction and lower levels of recovery (recovery rates are around 90%) while the rate has been consistently high in Senegal (above 95%). The 2011 net result is expected to be around FCFA 12 billion because of an important subsidy (FCFA 97 billion) calculated on the basis of the new tariff formula as explained above. 15 To control SENELEC s revenue through the «smoothing» option, an average value is given to each factor over the entire period. This value could then deviate from one year to another. Although an exceptional review process could be undertaken to correct any major deviation, such a process was quite cumbersome. 86

99 Figure 7. Un-served Electricity demand The emergency answer of the Government of Senegal to the energy crisis 20. To tackle both technical and financial misbalances, the Government designed an Emergency and Recovery plan for the period , named Takkal Plan. The goal of this plan is to restore stability in the electricity sub-sector with two clear objectives: (i) bring back a 10% minimum strategic safety margin on the supply-demand balance (generation capacity / demand); and (ii) reestablish SENELEC s financial equilibrium through a mix a recapitalization, debt restructuring, tariff compensation, fuel purchase by Government and operational improvements (cost and loss reduction, commercial improvements, etc). The plan was developed in close cooperation between the Government, SENELEC, consultants and donors (principally with the World Bank Energy team and the AFD). 87

100 Figure 8. A comprehensive plan structured around 6 pillars. 21. The Emergency and Recovery Plan is structured around the following 6 pillars: Rapid actions to increase capacity and improve the energy mix in the medium term. The Government has developed a three step strategy to increase its generation capacity and improve the generation mix. This includes the streamlining of existing capacity (rehabilitation program), the addition of short term rental capacity, and the construction of additional capacity for the medium to long term. In the very short term, the addition of short term rental capacity: the lease of 150 MW is now commissioned 16 to allow additional capacity as well as rehabilitation of several existing units. In the medium term (18 to 24 months), the construction of additional capacity for the medium to long term and the streamlining of existing power stations capacities (rehabilitation program): the construction of additional capacity through MW of containerized generating units, one (or two) barge of 70 MW each and the extension of the power stations of Bel Air and Kahone (additional 34 MW each). After a complete assessment of the rehabilitation needs, the overall rehabilitation program started in September 2011 and should be completed in 18 months. In the long term, to reduce costs and vulnerabilities to price fluctuations and other external factors beyond the country s control, the generation mix will be modified with the introduction of coal as well as natural gas fired units, and by taping the renewable energy potential of Senegal. The actions to increase generation capacity are already mostly financed, and the overall financing plan, for the period , is presented in Attachment 1 of the present annex. 16 A first tranche of 50 MW was commissioned in June 2011; further 100 MW were commissioned in September-October

101 Upgrade of the transmission and distribution network: SENELEC s transport and distribution networks need to be upgraded to ensure that additional energy generated will be delivered to the client and to enhance the reliability of existing networks that cause many service interruptions. Therefore, SENELEC has developed an investment program for the strengthening and modernization of its transport and distribution networks. This program results from the Transmission and Distribution Master Plans recently financed under the Electricity Sector Efficiency Enhancement Project supported by IDA, which closed on December The cost of this Program, to be completed over a 5 to 7 years period, is estimated approximately to FCFA 150 billion (or about US$350 million). SENELEC has already initiated a number of projects both in distribution and transport, such as: (i) the construction of a medium voltage ring around Dakar, (ii) switching from 6.6kV to 30kV of the entire MV network (completed at 60%), (iii) a transmission loop in 225kV, and the upgrading and rehabilitation of many existing transmission lines. The dispatch center was finalized in 2009 and is now fully operational. Several other investments have recently been completed or are under preparation and the Bank project will help finance this T&D program. Aggressive Demand Side Management program: The demand side management program will be supported by an intensive communication/awareness campaign. The program includes the introduction of low consumption lights, as well as price incentives for clients to reduce their energy consumption. The Government has already taken a number of measures to improve end-use electricity efficiency, among which: (i) introducing the obligation to use efficient lamps nationwide and, by law, forbidding the import and/or production of incandescent lamps in Senegal; (ii) a 3 million LBC program to be installed in 12 months is under preparation, (iii) the creation of a National Agency for Energy Management and Energy Efficiency Additional measures are under preparation: (i) a special initiative for large clients with self generation capacity to use it during peak hours, (ii) a number of tariff measures such as the product 17, the generalization of prepaid meters, and the systematic installation of smart meters for the large customers, and the adaptation of the tariff structure to produce additional revenues and increase energy efficiency and improve demand-side management of energy resources, (c) the establishment of standards for quality and performance of electrical equipments, and (d) a program aiming at replacing the current public lighting by solar public lighting State support via a dedicated Energy Fund to secure and finance part of fuel supply and to co finance critical investments: The Government has put in place a mechanism for exceptional support to restore financial equilibrium of the energy sector as a whole (and especially SENELEC), through the creation of a special fund to support the energy sector (FSE), whose intervention will focus on two objectives: securing and financing fuel supplies, and supporting critical investments in new infrastructure, particularly generation expansion. The FSE became operational in July 2011 and has primarily focused its intervention on two objectives: financing least cost fuel supplies to SENELEC, and co-finance short term rental 17 The product: 20% of reduction in tariff for a 20% reduction of the consumption for the same period of the previous year. 89

102 capacity (the lease of 150 MW). The FSE gets its revenues from budgetary transfers (including the tariff compensation), taxes on oil, energy and telecommunications, drawings from the COSEC 18, and other resources allocated to the energy sector. These resources are to be used to purchase fuel for SENELEC (to make up for the tariff gap), and finance investments as well as studies in relation with the restructuring and recovery plan. The revenues and expenses of the FSE are summarized in annex 8. Operational turnaround of SENELEC: The key levers for the operational turnaround are: increasing revenues (e.g. by reducing non-technical losses and bill non-payment), decreasing operational costs (e.g. maintenance and fuel), improving access to working capital, and reducing administrative costs. SENELEC, with the help of consultants, has developed a plan of internal improvements for the period 2011/2013. This plan is the result of lessons learned from the implementation of the previous Cost Reduction Plan - PRC 2008/2010 which produced mixed results (objective reached only at 56%). The new plan is structured around the following main areas: (i) maximizing revenue, (ii) cost reduction, and (iii) optimizing cash/working Capital Need. Over the period, a total gain (net of investments) of nearly FCFA 30 billion is expected. Financial turnaround of SENELEC: The pillars described above, when implemented, will create favorable conditions to put the utility on financially sustainable path and to become a creditworthy entity able to borrow from the strength of its own balance sheet. However, over the next few years, SENELEC still needs to be provided with adequate financial resources for investment and liquidity to be able to effectively implement the recovery plan. The GoS has recognized this need to provide financial support to SENELEC and formalized this support in a financial restructuring plan. The main elements of SENELEC s financial restructuring include: (a) providing the necessary subsidy to bridge the tariff gap and ensure fuel security 19 ; (b) recapitalizing SENELEC; and (c) restructuring SENELEC s debt. The Government and SENELEC, with the support of a consultant firm, have prepared financial projections to assess the impact of financial restructuring and efficiency improvements measures under different scenarios (including for fuel price). The restructuring measures and financial projections are presented in Annex 8. Institutional arrangements to coordinate the Plan implementation with support at the highest Government level 22. To facilitate the implementation of the Emergency and Recovery Plan, strong institutional and legal measures have been taken by the GoS, to help SENELEC with the implementation of the plan. This institutional arrangement was formalized by the creation of the National Energy Council (CNE) and the Permanent Secretariat for Energy (SPE), the empowerment of APIX (the national investment promotion agency) as an execution arm for new investments in the sector and the creation of the FSE. 18 Conseil Senegalais des Chargeurs 19 The FSE finances the purchase of fuel up to the level of the tariff gap. If at the end of 2011, fuel purchase do not reach the FCFA 97 billion gap, the balance will be transferred to SENELEC. 90

103 The CNE as the strategic and decisional entity of the Emergency and Recovery Plan: First in terms of institutional setting up, the Government has created the CNE, which is the entity that oversees the execution of the Emergency and Recovery Plan. The CNE is composed of the President, the Prime Minister, the Minister of Finance, the Minister of Energy, and other members of the Government necessary to the execution of the plan, as well as representatives of the energy sector; The SPE as the coordination arm of the plan: The SPE is jointly presided by the Ministry of Finance and the Ministry of Energy, and it is managed by a Project Manager Officer (whose role is to supervise and coordinate the accomplishment of the whole set of actions defined in the Emergency and Recovery Plan and to ensure the implementation of all decisions taken by the National Energy Council. The SPE is helped in its mission by coordinators in charge of key components of the Emergency and Recovery Plan (demand side management, upgrade of SENELEC generation and transmission facilities, financial and operational turnaround of SENELEC and new generation capacity projects). The coordinators role is to follow up the execution of each step of the Emergency and Recovery Plan and report to the CNE; APIX s.a as an execution arm for new investments in the sector: APIX s.a has proven experience in infrastructure project development and procurement. So the Government decided to extend the focal area of APIX s.a and assigned responsibility for implementing structuring projects of the Emergency and Recovery Plan, including procurement activities; The FSE as financial arm of the plan: The objective of the FSE is to mobilize financial resources through the State Budget and para-fiscal taxes, with the objective of funding expenditure with maximum efficiency and transparency, towards a quick exit from the current energy crisis, through securing fuel supplies and supporting investments in the sector. The FSE is governed by a trustee and a board with representatives from the Government, private sector and consumers. Its accounts will be audited on a yearly basis. Chefs de file d exécution as operational arms for the execution: In order to implement and execute the Emergency and Recovery Plan, the Government and the SPE will rely on existing institutions and expertise, involved in the sector, mostly coming within SENELEC, and acting as the operational arms for the execution and in charge of specific actions/ projects of the overall plan. Issues and risks of the plan 23. Although the Emergency and Recovery Plan overall seems adequate to address quickly key issues in the electricity sector, it entails a number of issues and risks that should be addressed, including mainly: Medium to long-term strategy: by addressing through emergency measures, the main causes of the current crisis in the electricity sub-sector, the plan is positioned in the short term However, it is necessary to conduct, in parallel, a comprehensive analytical work on the strategic outlook on both the sector s and SENELEC s reform in the medium and long term. Indeed, the sector's problems are largely due to poor planning and realization of investments during the last decade. The institutional structure of the electricity sector should 91

104 evolve, probably before 2015, beyond the mere strengthening of SENELEC s corporate governance in its current structure. In addition, there is no clear strategy to enhance SENELEC corporate governance and empowerment in the short term. Therefore, the proposed operation plans to support the GOS in these prospective analytical works. The Project propose to support the Government s analytical works in the following areas: (i) medium to long term energy diversification (into coal, gas, renewable energies and regional integration); (ii) energy sector governance (by strengthening of the energy sector s efficiency, transparency and accountability) and private sector participation; and (iii); financial restructuring of SENELEC and a review of electricity tariffs. Securing fuel supply: to complement the FSE, a clear strategy vis-à-vis the entire hydrocarbon supply chain is necessary. A full diagnosis (technical and financial) of the refinery (SAR), the storage facilities and the role of various actors in the country's fuel supply must be conducted. The GOS is conducting a complete diagnosis for the petroleum sector, which should lead to the development of its strategy enabling it to guarantee the country's fuel supply in quantity, quality and at the best cost. Empowering SENELEC: While recognizing the relevance of the establishment of a specific institutional organization for the fast and efficient implementation of the plan, there is a risk of disempowerment of SENELEC. The success of the plan is only possible if the whole enterprise feels involved and empowered. There has been significant improvement on this front since the plan was designed, which will need to be sustained so as to minimize the risk of SENELEC disempowerment In particular, the implementation of a number of measures and actions to improve operational performance and reduce costs will require strong involvement of SENELEC s staff: (i) reduction of fraud and non-technical losses, (ii) creating additional/complementary income (i.e. ads on invoices), (iii) reduction of overheads and personnel costs, (iv) reduction in billing process (spot billing, monthly payment), (v) reduction of delays in customer payments (prepayment), etc. Global financing plan: The financial resources required for implementing the plan are significant. In addition to the tariff gap - to be financed partly through tariff compensation (estimated at 300 billion FCFA over the period ) and requirements for financial restructuring (estimated at 150 billion FCFA over the period), the financial needs for implementing the investment program are estimated around 450 billion FCFA. Expected resources from the FSE are currently estimated between 350 and 400 billion FCFA over the period, but fiscal/budget tradeoffs might be necessary. Also, funding sought from financial partners is quite significant and the risk that some key activities of the plan cannot be funded remains high. The table below in Attachment 1 shows progress already made by GOS in mobilizing resources to finance the investment program under the Emergency and Recovery Plan. Governance of the FSE: The FSE is at the heart of the financing plan, therefore, the structure of the FSE, its organization and governance are essential. The FSE is governed by a trustee and a board with representatives from the Government, private sector and consumers. Its accounts will be audited on a yearly basis. 92

105 First Visible Results Risk mitigation and robustness of the plan: The robustness of the plan depends on its ability to mitigate a number of risks. The risks on oil international prices (the plan was prepared with a price of US$110 per barrel), the risk of redundancies of some generation investments, the risks of delays in the implementation of some projects and in the commissioning of the coal power project, have to be mitigated. Version 3.0 of the Emergency and Recovery plan provides a first analysis of these key risks and proposes a number of mitigation measures. 24. Since November 2011, the first visible results of the implementation of the Emergency and Recovery plan were seen, with the arrival on line of rental generation and the securing of fuel purchase through the FSE, load shedding has significantly decreased in Dakar as shown in Figure 7 above. However, progress remains limited and insufficient in some areas such as the operational turnaround of SENELEC, the demand side management program and SENELEC s financial restructuring. Assessment of the Emergency and Recovery Plan by the new Government 25. Through a recently organized workshop 20 to: (i) evaluate the progress made in the implementation of the Government recovery program for the energy sector; (ii) assess the different activities of the recovery plan; and (iii) make proposals for its improvement, the newly democratically elected GoS has confirmed that it is determined to strengthen, re-orient and widen the strategic outlook of the recovery plan. The Government also confirmed that it intends to follow up on the financing and implementation of investments that will be vital to the recovery and expansion of the country s energy with a particular emphasis on transmission and distribution networks (including those in the Bank s proposed project). Attachment 1 of this annex resumes the main conclusions of the workshop. 26. All projects in the emergency and recovery plan have been assessed and relevant alternatives to some of them, notably in generation, are being examined such as the introduction of natural gas in power generation, hydroelectricity and renewable energy with the view of improving the energy mix. These energy options are considered complements to the coal option. Attachment 2 of this annex updates on the progress of key activities of the plan and their possible evolution in the future. 27. The Government has also made it clear that it is keen on accelerating the implementation of activities that have lagged behind such as the financial restructuring of SENELEC and the implementation of demand management measures. 28. A re-examination of the institutional reform and the governance of the implementation of the recovery plan are also underway, notably concerning the respective roles of APIX and SENELEC in the implementation of projects. Nevertheless, SENELEC has been designated as the executing agency of the proposed Electricity Sector Support Project (ESSP) supported by the Bank with a confirmation of the oversight and supervisory roles of the Ministry of Energy and the Permanent Secretariat for Energy (SPE). 20 May 15and 16,

106 Attachment 1. Main conclusion of the Workshop held in Dakar on the 15 th and 16 th of May 2012 on the assessment of the emergency and recovery plan for the energy sector in Senegal Objective of the workshop 1. The objective of the workshop was to: (i) evaluate the progress made in the implementation of the Government emergency and recovery plan for the energy sector; (ii) assess the different activities of the emergency and recovery plan; and (iii) make proposals for its improvement. Status of Implementation 2. Delays in implementation: There were delays in implementation experienced over a large number of activities due primarily to an under estimation of the time required for the procurement process and the longer time taken in securing the necessary financing owing both to the variety of donors and financing agencies and their own rules and procedures. 3. Some activities such as the financial restructuring of SENELEC and the implementation of demand management measures faced significant delays because of internal administrative, managerial and coordination issues which the new Government is determined to address. 4. Assessment of the Emergency and Recovery Plan. Three aspects have been highlighted: (i) (ii) (iii) the confirmation of the oversight and supervisory roles of the Ministry of Energy and Mines through the Permanent Secretariat for Energy (PSE); the central role to be given to SENELEC in the implementation of the plan; and, the strategy for securing the fuel supply should be maintained and vigorously pursued through the Special Fund for Energy (SFE), the setting up of a laboratory for the control of the quality of fuel and ensuring the sustainability of the financial resources needed to secure the acquisition of fuel. 5. Assessment of the different projects of the Plan: The assessment found that the relevance of the projects to the sector s needs is generally good. Issues were however raised concerning the best decision to be taken concerning the rapid deployment of containerized generating sets and barges to help meet the demand in the short to medium term. The review of thermal-based alternatives to barges is underway. The new Government has also expressed its determination to develop the use of natural gas for power generation and other uses through an evaluation of domestic natural gas reserves and an analytical study on the feasibility of importing liquefied natural gas (LNG). The Government is also studying the feasibility of importing electricity from Mauritania which has proven natural gas reserves. The coal option has also been confirmed as the solution to the power supply deficit in the country and as an option available starting in Nevertheless, alternatives to the coal option beyond the planned 350 MW capacity are being examined, including the use of natural gas in power generation. 6. Financial restructuring of SENELEC: SENELEC has not, in the recent past, been strongly involved in the debate about its financial restructuring. A new push is being given by the new 94

107 Government and a number of options are being considered by the various stakeholders including SENELEC and the Ministry of Finance. 7. Demand Management: The demand management program includes the use of efficient lamps, pre-payment and smart meters, the shifting of consumption away from peak hours and automatic meter reading. Furthermore, a new tariff study will be financed under the proposed project whose purpose is mainly to adapt the current tariff structure to (a) the new system of pre-payment and smart meters; (b) facilitate energy efficiency and promote demand management; and (c) allow a better alignment between the cycle of revenue of the poor and the pre-payment meter system. Delays in implementation of demand management measures were noted and the new Government expressed its determination to accelerate the plan on the demand side. In addition, the workshop recommendations are to: (i) have the draft law on banning the import of incandescent lamps into Senegal examined by the national efficiency energy agency; (ii) put in place a laboratory to test the quality of the imported efficient lamps; and (iii) promote a larger involvement of the private sector in demand management, together with SENELEC.. Governance of the recovery effort 8. Relevance of the approach: The workshop noted the relevance of the approach used in designing the recovery plan. It also noted the high level of national and international expertise involved in the sector diagnostic and the design of appropriate solutions. It noted however that SENELEC was not sufficiently involved in the implementation of the emergency and recovery plan. 9. Supervision of the overall program: The workshop recommended that the supervision of the overall recovery plan by the Permanent Secretariat for Energy (PSE), as originally envisaged, should be continued. Given the scant role played so far by the National Energy Council (NEC), the workshop recommended that the respective roles of NEC and PSE should be revisited to give a much greater role to the latter. 10. Role of APIX: APIX is a limited liability company entrusted by the Government to promote major infrastructure and other investments. APIX was initially designated as executing agency for the project with SENELEC acting as facilitator of the process through the provision of inputs to APIX. For example, all feasibility studies, preliminary and detailed engineering designs and technical specifications are the responsibility of SENELEC. APIX prepares the bidding documents, ensures that the bidding process is carried out smoothly and transparently and shoulders the responsibility for the financial management of the project. The drawback of this institutional arrangement is that the major investments of the program and the proposed project are implemented by SENELEC which may feel disenfranchised by being relegated to the role of facilitator for major investments which it will ultimately operate. The new Government is considering a shift of emphasis in implementation arrangements in favor of SENELEC, to entrust it with the implementation of new investments. 95

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114 Economic analysis 1 - Alternatives Considered Annex 7: Economic and Financial Analysis SENEGAL: Electricity Sector Support Project 1. This Project is part of SENELEC s least cost investment program. SENELEC has several planning and load flow models for optimization of the transmission and distribution system associated with schemes for expanding the generation. The investment mixes were analyzed by the models to come up with the investment program which has the lowest present value of costs and that meets the capacity requirements overtime. 2- Transmission and Distribution Component A. Global Analysis of the component 2. The objective of this component is to secure and increase the load delivery capability of the transmission and distribution system. The objective of installing new transformers and circuit breakers is either to reduce the load of existing ones or to take on new demand. As the project consists of replacing old transformers or installing new ones to supply the existing demand, the incremental benefits of this project would include the reduction of transformers losses and the improvement in reliability. 3. The primary benefits from improving the transmission and distribution network come from increased consumption by existing and new customers, from transformer and lines loss reduction and from outages reduction. 4. The transmission and distribution component of the Project will connect new customers to the grid for whom the service of the utility would not be available without the project. The benefits of electricity delivered to these customers are valued at what they would be willing to pay for the incremental energy supplied by the Project. The economic benefits from increased consumption are therefore calculated using the willingness of consumers to pay approach. 5. The economic benefits of loss reduction are calculated using the with-without project approach and evaluated at the willingness to pay since it is assumed that this reduction in losses would translate itself into an increase in sales The economic benefits from the reduction of outages are valued at the costs of electricity to the end users (i.e. the average opportunity cost of the energy when outages occur). 7. The results of the base case indicate that if this project could be implemented successfully, the net present value would be US$ 52 million and the rate of return 22%. The switching values show that the project could sustain substantial variations in critical variables before the net present value becomes zero. 21 Since the transmission and distribution component represent only about 30% of SENELEC T&D s program, these sales are prorated to the share of the project in the overall T&D program. 102

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