PROJECT APPRAISAL REPORT Date : July 2009

Transcription

1 Language: ENGLISH Original: French AFRICAN DEVELOPMENT FUND PROJECT : Electricity Infrastructure Strengthening and Rural Electrification Project COUNTRY : Burkina Faso PROJECT APPRAISAL REPORT Date : July 2009 Appraisal Team Peer Reviewers Team Leader J.B. NGUEMA-OLLO OINF V. ZONGO OINF B. TOURE OINF L. JOOTTUN OINF Sector Division Manager A.T. DIALLO OINF Sector Director G. MBESHERUBUSA OINF 2034 Regional Director J. LITSE KPOUROU ORWA 2047 N. CONTE ORPU 2431 M. EL GHALI FFCO S.A. NNA EBONA FFCO S. ILBOUDO BFFO 6112 P.C. OUEDRAOGO BFFO 6153 A. KARANGA OINF J.P. M. KALALA OINF N. NDOUNDO OINF P. DJAIGBE OINF O.T. DIALLO OINF

2 TABLE OF CONTENTS 1 STRATEGIC THRUST AND RATIONALE Project Linkages with Country Strategy and Objectives Rationale for Bank Involvement Aid Coordination PROJECT DESCRIPTION Project Components Technical solutions adopted and alternatives considered Project Type Project Cost and Financing Arrangements Project Target Area and Beneficiaries Participatory Approach Bank Group Experience and Lessons Reflected in Project Design Key Performance Indicators PROJECT FEASIBILITY Financial and Economic Performance Environmental and Social Impact PROJECT IMPLEMENTATION Implementation Arrangements Project Monitoring and Evaluation Governance Sustainability Risk Management Knowledge Building LEGAL FRAMEWORK Legal Instrument Conditions for Bank Intervention Compliance with Bank Policies RECOMMENDATION...17 Annex I: Country s Comparative Socio-Economic Indicators...1 Annex II: ADB Portfolio in Burkina Faso...1 Annex III: Key Related Projects for Burkina Faso s Development...1 Annex IV : Map of Project Area...1

3 i CURRENCY EQUIVALENTS July 2009 UA 1 CFAF UA 1 USD UA 1 EUR Fiscal Year 1 January - 31 December Weights and Measures m metre KOE kilogram of oil equivalent cm centimetre = 0.01 metre kv kilovolt = volts mm millimetre = metre KVa kilovolt ampere (1 000 Va) km kilometre = metres KW kilowatt = Watts m² square meter GW gigawatt ( kw or 1000 MW) cm² square centimetre MW megawatt ( W or kw km² square kilometre = m² KWh kilowatt hour (1 000 Wh) ha hectare = m² MWh megawatt hour (1 000 KWh) t (t) metric tonne (1 000 kg) GWh gigawatt hour ( KWh) Acronyms and Abbreviations ADB : African Development Bank ADF : African Development Fund BD : Bidding Documents CSPS : Centre de Santé et de Promotion Sociale (Community Health Centre) DGE : Department of Energy ECC : Energy Consumption Control EDF : Electrification Development Fund ESDP : Energy Sector Development Policy GDP : Gross Domestic Product HV : High Tension IEC : Information, Education and Communication LV : Low Tension MMCE : Ministère des Mines des Carrières et de l Energie (Ministry of Mines, Quarries and Energy) MV : Medium Tension NEPAD : New Partnership for Africa s Development NGO : Non-Governmental Organisation NTF : Nigeria Trust Fund OHADA : Organisation for the Harmonisation of Business Law in Africa PAP : Priority Action Programme PNE : National Electrification Plan PRSP : Poverty Reduction Strategy Paper SONABEL : Société Nationale Burkinabé d Electricité (National Electricity Company of Burkina Faso) UNDP : United Nations Development Programme

4 ii PROJECT INFORMATION SHEET Borrower/ Donee Executing Agency Client Information Burkina Faso Ministry of Mines, Quarries and Energy FINANCING PLAN Sources Amount (UA) Instrument ADF Loan and Grant Sonabel 7.43 Counterpart Funds EDF 2.75 Counterpart Funds Government 0.29 Counterpart Funds Customers 0.56 Counterpart Funds Total Project Cost KEY ADB FINANCIAL INFORMATION Loan Currency Unit of Account (UA) Interest Type N.A. Interest Rate Margin N.A. Service Charge 0.75% yearly on the undisbursed and unpaid loan. Commitment Fee 0.50% on the undisbursed loan amount, to run 120 days after the signing of the Loan Agreements. Interest Type N.A. Tenor 50 years Grace Period 10 years FIRR, NPV (baseline scenario) 14.1 % ; NPV: CFAF billion EIRR (baseline scenario) 19.7%; NPV: CFAF 12,28 billion TIMEFRAME MAIN MILESTONES Concept Note Approval June 2009 Project Approval 13 January 2009 Effectiveness April 2010 Last Disbursement December 2014 Completion May 2014 Last Repayment October 2060

5 iii PROJECT SUMMARY 1 Project Overview. The Electricity Infrastructure Strengthening and Rural Electrification Project is an investment project involving the rehabilitation and extension of MV/LV lines, implementation of accelerated connections in urban and rural areas and installation of public lighting units, and reduction of technical and commercial losses through the rehabilitation of the distribution network and the installation of pre-paid meters. All these operations are intended to boost countrywide network coverage, improve the network operating conditions and increase the number of localities and households with access to electricity. Lastly, two studies were incorporated into this project with a view to preparing future Bank operations in the sector. The total project cost is estimated at UA million. It is scheduled to be implemented within a timeframe of 36 months, as from Needs Assessment. The limited fossil energy sources available in Burkina Faso do not lend themselves to commercial utilisation. The country s energy sources are limited to biomass, hydro and solar energy. Hydroelectricity has a limited potential and is also too dependent on a random rainfall pattern. Consequently, it does not lend itself to a large scale energy production, which could have contributed to a significant reduction of the average cost of electricity production. Solar energy is the most abundant source of energy for Burkina Faso. These constraints led the country to set up thermal power generation plants with high production costs to meet a fast growing demand. The average production cost per kwh for 2008 was CFAF , or about USD 0.32 per kwh. The country s national electricity access rate of 17% in 2008 is low. It is only 4% in rural areas owing to the limited transport and distribution networks in those areas. 3 Supply and Demand Analysis. The analysis of energy supply and demand balances for Burkina Faso indicates that the system s peak demand which was of 131 MW in 2009 will reach 426 MW in This level of energy demand was met in 2009 with a global supply of 132 MW and it is expected that supply will reach 609 MW in The current generation capacity as well as future generation plans confirm that the country will have sufficient and adequate supply of more affordable energy, including imports of power from neighbouring countries through interconnections implemented with Côte d Ivoire ( up to 120 MW) and Ghana (up to 30 MW). This level of energy supply which draws from hydroelectric and gas powered plants located in the neighbouring countries will not only satisfy the projected demand but will also adequately provide for the system s reserve margins. It will also have a favourable impact on the average cost of supply of electrical energy, thereby facilitating increased access by the general population. 4 Bank s Valued-Added. The Bank s value-added consists, at the technical level, in ensuring rigorous selection and planning of project components, drawing on its long experience in the implementation of projects of this nature, as well as allowing for in-depth assessment of project impacts on the environment to be taken into account in the project implementation. 5 Knowledge Management: Right from the start of the project, a baseline situation for the monitoring-evaluation system will be established by the executing agency, to allow the Bank and other stakeholders to draw lessons from implementation of the project. The executing agency will list and update the sources of information and data to be used as indicators and a warning system in the quarterly and periodic monitoring-evaluation reports. The monitoring-evaluation system data will be checked against the findings of the socioeconomic surveys to assess the project impact. This information will be used by the country and the Bank during monitoring and supervision missions.

6 iv RESULTS-BASED LOGICAL FRAMEWORK Project Name : ELECTRICITY INFRASTRUCTURE STRENGTHENING AND RURAL ELECTRIFICATION PROJECT Commencement Date : January 2010 Completion Date : 31 December 2012 Design Team : J.B. NGUEMA-OLLO; V. ZONGO; B. TOURE; M. DIENE. Hierarchy of Objectives Expected Results Scope Performance Indicators Indicative Targets and Schedule Assumptions/Risks 1 Goal 1.1 Contribute to increasing the population s access to quality electric power at least cost;; 1.2 Contribute to improving the living conditions of the population 1 Impact 1.1 Increased proportion of the population with access to electricity 1.2 Improved financial performance of Sonabel 1 Direct Beneficiaries 1.1 Population 1.2 Industry 1.3 Businesses 1.4 Sonabel 1.5 EDF 1 Impact Indicators 1 Progress expected in the long-term 1 Assumption Statements 1.1 Rate of access to electricity 1.2 Volume of imported energy 1.3 Net income of Sonabel 2 Project Purpose 2 Impacts 2 Beneficiaries 2 Impact Indicators 2.1 Reinforce and extend the transport and distribution networks to new localities and new customers. 2.2 Prepare the technical, economic, financial and environmental feasibility of the Ouagadougou network reinforcement and extension project as well as that of the Zano-Koupela HV line 2.1 Increased country-wide coverage by network 2.2 Reduced technical losses 2.3 Reduction of commercial losses 2.4 Reduced production costs 2.5 Increased electrification rate 2.6 Availability of reliable data on social, economic parameters as well as physical parameters of the sites 2.1 Population 2.2 Industry 2.3 Businesses 2.4 Sonabel 2.5 EDF 2.1 Increased hydroelectric energy imports 2.2 Number of new localities electrified 2.3 Rate of technical losses 2.4 Rate of commercial losses 2.5 National Rate of electrification 2.6 Rate of Rural electrification 2.7 Conclusive results of feasibility studies 2.8 Detailed engineering designs and bidding documents 1.1 Increased electricity access rate from 18% in 2007 to 60% in 2015 and 100% in Energy imports from GWh in 2007 to 970 GWh in 2015 and to 1559 GWh in Increase in Sonabel net profits by 5% in Progress expected in the mediumterm 2.1 From 80MWh in 2008 to 111MWh in From 10.5% in 2007 to 9.% in From 7% in 2007 to 5.% in From 0.49% in 2007 to 0.2% in From18% in 200 to 7.27%. in From 3.5 in 2007 to 36.% in Feasibility reports (including environmental and social impact assessment) by Political stability 1.2 Continuing sector reforms 1.3 Implementation of other sector programmes 1.4 Economy s vulnerability to external shocks, 1.5 Sonabel s capacity to offset reduced connection costs 2 Risks 2.1 Insufficient performance of the sector in project implementation 2.2 Stability of Sonabel s financial situation 2.3 Availability of national counterpart funds 3 Activities and Resources 3 Outputs 3 Beneficiaries 3 Output Indicators 3 Targeted Value of Indicators 3 Mitigating Measures 3.1 Works implementation 3.1 Population 3.2 Execution of studies 3.2 Industry 3.3 Works monitoring and supervision 3.3 Businesses 3.4 Information, Education, Communication. 3.4 Government 3.5 Training 3.5 Sonabel 3.6 Audits 3.6 EDF Financial Resources ADF UA million Sonabel UA 7.43 million EDF UA 2.75 million Government UA 0.29 million Customers UA 0.56 million Total UA million Human Resources Consultant Projects Implementation Unit Bank Monitoring Team 3.1 LV and MV networks rehabilitated and extended 3.2 Connections and public lighting installed 3.3 Logistic and operation equipment reinforced 3.4 Study for rehabilitation and extension of the Ouagadougou network carried out 3.5 Study of the line Zano-Koupela carried out 3.6 Sonabel and EDF capacity built 3.7 Rural communities capacity built 3.8 Awareness raised among beneficiaries 3.1 Number of dams rehabilitated 3.2 Length of networks rehabilitated and erected 3.3 Number of connections 3.4 Number of public lighting units installed 3.5 Number of public buildings electrified 3.6 Availability of the study on the for rehabilitation and extension of the Ouagadougou network 3.7 Availability of the study of the line Zano-Koupela 3.8 Proof of procurement of logistic and operation equipment 3.9 Number of persons trained Energy Ministry reports 3.11 Sonabel and EDF Annual Reports 3.12 Appraisal Report 3.13 Loan Agreement signed 3.14 Consultant s contract 3.15 Contracts with contractors 3.16 Project progress reports 3.17 Bank supervision reports 3.18 Project completion reports 3.19 Audit reports km LV networks erected in km of MV network erected in MV/LV transformer stations in pre-paid meters installed in low-cost connections in public lighting units in educational institutions electrified community health centres electrified 3.9 Logistic and operation equipment purchased in study on the for rehabilitation and extension of the Ouagadougou network available en study of the line Zano-Koupela available en Training programme carried out in Transfer of project implementation to Sonabel 3.2 Sonabel profit earnings ; 3.3 ADF loan and grant onlent to Sonabel on the same ADF terms and conditions; 3.4 Compensation of persons affected by project.

7 v PROJECT IMPLEMENTATION SCHEDULE ID Task Name 1 Approval and Effectiveness 2 Loan Approval 3 Signing of Loan Agreement 4 General Procurement Notice 5 Works Control and Supervision 6 Preparation of Bid Invitations 7 Shortlisting of Consultants 8 Issuing of Bid Invitations 9 Bid Preparation 10 Bid Analysis 11 Negotiation and Signing of Contract 12 Consulting Services 13 Works 14 Preparation of Bidding Documents 15 Publication in Business Development 16 Issuing of Bid Invitations 17 Bid Preparation 18 Bid Analysis 19 Negotiation and Signing of Contract 20 Works Implementation 21 Borrower s Completion Report 22 Bank s Completion Report 23 Project Audit 24 Preparation of Terms of Reference 25 Shortlisting of Auditors 26 Issuing of Bid Invitations 27 Award and Signing of Contract 28 Auditor s Services Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1

8 REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE BANK GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO BURKINA FASO Management submits the following Report and Recommendations on a proposed ADF loan of UA million and an ADF grant of UA 0.95 million to Burkina Faso for the Electricity Infrastructure Strengthening and Rural Electrification Project. 1 STRATEGIC THRUST AND RATIONALE 1.1 Project Linkages with Country Strategy and Objectives The project is consistent with Burkina Faso s socio-economic development policy, which places special emphasis on improving the living conditions of the population. The Burkina Faso Poverty Reduction Strategy Paper (PRSP ) identifies lack of infrastructure as a major impediment to poverty reduction. With regard to the electricity sector, the country is confronted with the following two challenges: i) the need to ensure a substantial increase in the country s power supply to meet a fast-growing demand; ii) the need to extend power supply to several urban and rural localities while improving the reliability and quality of the overall service. In order to face up to these challenges, the Government decided to base the country s electricity supply strategy on establishing interconnections with neighbouring countries while pursuing the development of local generation capacity. For the interconnection with Côte d Ivoire, the commercial operation of the Ferkessedougou-Bobo-Dioulasso line was realised in The Bobo-Dioulasso- Ouagadougou line is scheduled for full availability in January 2010 and will enable a total import of up to 120 MW annually from Cote d Ivoire. Simultaneously, discussions are underway with Ghana to speed up implementation of the Bolgatanga-Ouagadougou interconnection as well as with Niger and Nigeria, for the feasibility of the Nigeria-Niger- Burkina Faso-Benin link, as part of the West African Power Pool (WAPP) priority programme. Lastly, the PRSP Three-Year Rolling Priority Action Programme envisages an increase in the country s electricity access rate from 17% in 2008 to 26% in This objective requires that, in parallel to the implementation of interconnections with neighbouring countries, the rehabilitation and extension of the existing network be carried out to improve the quality of service and extend supply to new localities. This project is in line with this objective as it supports the rehabilitation and extension to semi-urban and rural areas of the country s electrical network The project is also in line with the Bank Group s assistance strategy and the RBCSP, which aims to help Burkina Faso achieve the Millennium Development Goals (MDGs) by focusing on two pillars: (i) diversification of the economy and (ii) improving the living conditions of the population. Indeed, by boosting electric power supply and providing expanded access to energy services, the project is supporting growth of activities in the economy s productive sector by allowing the creation of new production and processing units or the expansion of existing ones. By promoting improved access and enhanced efficiency of basic services, particularly drinking water, health, education and communication, the project will contribute to improving the quality of life of the population and have a positive impact on the Human Development Index, one of the lowest in the world In addition, the project derives from the findings of the study on the electrification of remote centres, conducted by Sonabel, as well as the feasibility study of the rural

9 2 electrification priority programme completed in October 2007 with Bank financing. Based on the assessment of the operating constraints of the electricity networks and the analysis of options for power supply to priority localities, identified in the aforementioned study, it was decided to extend the distribution network to localities with over 6,000 people as well as smaller ones located along the transmission route the new lines to be erected and close enough to them to justify in economic terms, the incremental investment for their connection to the new networks These studies allowed the sector authorities and the Bank to design a project aimed at rehabilitating and strengthening the electrical infrastructure of the existing network as well as extending the transmission and distribution network to new previously un-served urban and rural areas. The project therefore serves to support achievement of Burkina Faso s energy sector goal of increasing the population s access to quality electricity at least cost. 1.2 Rationale for Bank Involvement The project was designed in a context of close collaboration between the government and the Bank and through broad consultation with other sector donors and the beneficiaries aimed at providing concrete answers to the priority challenges of Burkina Faso s electricity sub-sector. The various project components have been selected to contribute as effectively as possible to achieving concrete outcomes for expanded coverage of the national transmission and distribution networks to serve new urban and rural areas. As such, the project embraces the country s energy sector strategy and objectives by providing solutions with measurable impacts to the challenges identified. By extending the transmission and distribution network to other parts of the country and ensuring the expansion of energy services, the project contributes to improving the competitiveness of all productive sectors of the economy of Burkina Faso and the effectiveness of its priority programmes in the social sectors, mainly relating to health, education, drinking water, telecommunications, sanitation and hygiene. By supporting the development of new connections, the project contributes to increasing the electricity access rate and improving the living conditions of the population. The project is therefore strongly aligned on the objectives of the Bank s assistance strategy for Burkina Faso for the period under consideration Implementation of the project is thus justified by the need to promote the population s access to affordable electricity to meet demand. The project component relating to the rehabilitation and extension of close to 1,800 km of MV/LV networks will help to increase the service capacity of the national grid, for more extensive coverage of the country and, in particular, 150 new rural municipalities and areas. The project will make it possible to reach 800,000 inhabitants or 140,000 households. Over 20,000 connections and 750 additional public lighting units will be installed and will allow the accelerated connection of urban, periurban and rural customers, thus contributing to achievement of the access rate objectives outlined in the country s sector strategy. The institutional support will make it possible to carry out relevant support measures for the implementation, maintenance and operation of the project facilities. This support will include training and essential logistic support for optimum operation of the project structures In view of the fast growing demand for electricity (around 10% annually), any delay in strengthening the country s electricity infrastructure is detrimental to its economic and social development; it therefore represents a priority commitment for the government and sector donors. All sector donors agree on this priority, on which their operations are focused.

10 3 1.3 Aid Coordination Bilateral and multilateral donors active in the sector include the United Kingdom, France, Spain, Netherlands, BOAD, World Bank, European Union, UNDP, India and ADB. The intervention of these donors, in diverse forms (subsidies, loans and grants) have entailed the strengthening of the country s generation, transmission and distribution infrastructure, implementation of projects involving the use of new and renewable energies and support to strengthening the institutional framework of the energy sector The sector infrastructure however continues to have a limited capacity to provide the population with more expanded access to electricity. As shown in the table of donor operations in Annex III, AFD, World Bank, EIB, BOAD, Spain, Denmark and FND are thus concentrating their action on financing the extension of transmission and distribution networks as well as inter-urban and trans-border links. Denmark and the World Bank have also supported the construction of new diesel power plants while Spain and Exim Bank of India have supported rural electrification projects. Table 1.1 presents the key statistics on donor intervention in the energy sector. Additional details on donor coordination are presented at Annexe A. Table 1.1 Importance of Energy Sector from 2005 to 2007 Electricity Sub-Sector Importance GDP Exports Manpower % 0% [%] Stakeholders Annual Public Expenditure (Average) ** Government Donor UA million AFD UA million World Bank UA million EIB UA million BOAD UA million Denmark UA million Spain UA million EXIM Bank (India) UA 9.35 million FND UA million UA 2.21 million WAPP Level of Aid Coordination Existence of thematic working groups No Existence of a comprehensive sectoral programme Yes ADB s role in aid coordination None In light of the above, and in order to ensure coherence and complementarity of donor interventions, the preparation and appraisal missions of this project held meetings involving all the sector s donors represented in Ouagadougou. These meetings helped to refine the project design, notably in the selection of priority infrastructure to be rehabilitated and strengthened as well as in the selection of localities to be electrified and ginning plants to be connected to the grid in the cotton-producing area.

11 4 2 PROJECT DESCRIPTION 2.1 Project Components Table 2.1 Project Components and Cost (in UA million) N Component Cost Component Description A) B) C) D) E) Rehabilitation and Extension of MV/LV Networks Connections and Public Lighting 2.93 Logistic and operation Equipment 0.41 Studies, Control and Supervision 1.41 Project Administration and Management 0.64 Total Project Cost Rehabilitation and extension of 1,000 km of 33 kv MV networks Rehabilitation and extension of 40 km of 20 and 15 kv MV networks Rehabilitation and extension of 400 km LV networks Procurement and installation of 300, 25 kva substations Procurement and installation of 100, 50 kva substations Procurement and installation of 50, 100 kva substations 5 MV connections of cotton ginning plants three-phase connections single-phase connections pre-paid meters 750 public lighting units Batch of spare parts 2 supervision 4 WD vans Management software Modernisation of IT system and training Ouagadougou networks restructuring and extension studies 0.95 Zano-Koupela line studies 0.46 Works control and supervision Training programme Auditing of project account IEC and ECC Environmental impact mitigation of about 4% Personnel expenses and allowances 2.2 Technical solutions adopted and alternatives considered The option adopted by Burkina Faso for the development of the electricity transmission and distribution networks and supported by this project, is to gradually achieve countrywide coverage by means of a unified national grid and linking this grid to the national systems of neighbouring countries through trans-border lines. This strategy for developing the network will help increase power supply and reduce the high generation cost per kwh, through the use of more affordable imported power. Three other supply options were considered: i) the rehabilitation and construction of new diesel thermal plants, ii) the development of photovoltaic solar energy and iii) the use of biomass. They are briefly presented in Table 2.2 below with the reasons for their rejection. Table 2.2 Project Alternatives and Reasons for Rejection Names Description Reasons for Rejection Thermal plants Preelectrification option Installation of diesel thermal Very high fuel costs plants in remote centres Greenhouse gas emissions Very high costs Insufficient output for size of priority localities Installation of solar kits in retained certain remote localities. Widely variable conditions from one natural region to the other Installation of multifunctional Insufficient output for size of priority localities platforms retained Biomass Still at experimental phase in only one locality

12 5 2.3 Project Type The electrical infrastructure strengthening and extension of the rural electrification network constitutes an investment project intended to boost reliable operation of Burkina Faso s electricity transmission and distribution networks and to extend them to new areas. The financing instruments proposed are a project loan and a grant financed by ADF The ADF loan and grant will be extended to the Government for on-lending to Sonabel under the same ADF terms and conditions. Sonabel is the owner, and main operator of the project works. As a result, it contributes significantly to financing the project. 2.4 Project Cost and Financing Arrangements The total project cost, excluding customs taxes and duties, is estimated at UA million, of which UA million in foreign exchange and UA million in local currency. These costs include a 7% provision for technical and physical contingencies and 3% annually for price escalation. Tables 2.3, 2.4, 2.5 and 2.6 below present the costs by component and by category of expenditure as well as the project financing plan. Table 2.3 Estimated Cost by Component (in UA million) Components Foreign Local % Total Exchange Currency Total Rehabilitation and extension of MV/LV networks % Connections and public lighting % Logistic and operation equipment % Studies, control and supervision % Project administration and management % Total base cost % Physical contingencies (7%) % Price escalation (3% per annum) % Total project cost % NB: The exchange rates used are indicated in the introduction of the Report (page (i)) Table 2.4 Project Cost by Category of Expenditure (in UA million) Category of expenditure Foreign Local % Local Total Exchange Currency Currency Goods (Supplies and Equipments) Works Services (consultant, studies, control and auditing) Percentage (%) Financing Arrangement Table 2.5 Project Financing Plan by Source (in UA million) Sources of Financing Foreign Local % Total Exchange Currency Total ADF Sonabel EDF Government Customers Total Project Cost

13 6 Percentage (%) The capacity of the Government, Sonabel and EDF to contribute to financing of the project has been assessed and provision has been made for their contributions to be entered annually into their respective capital budgets. The government s financing will be used to cover the costs of mitigating measures of the environmental and social impacts and the compensation plan. Sonabel, in addition to its contribution to the project s financing plan, will cover the provision of premises. The EDF s contribution will cover mainly connections in the rural areas. Tableau 2.6 Financing plan by component and by source (in UA million) Components FAD Sonabel FDE GVT Consumers Total Rehabilitation and extension of MV/LV networks Connections and public lighting Logistic and operation equipment Studies, control and supervision Project administration and management Total base cost Table 2.7 Expenditure Schedule by Component (in UA million) Components Total Rehabilitation and extension of substations and networks Connections and public lighting Logistic and operation equipment Studies, supervision and training Project administration and management Total The ADF loan and grant will help cover 69.53% of the project cost and cover partial financing of the foreign exchange and local currency costs of goods, works and services. The grant is intended to finance two studies. Tables 2.8 and 2.9 below present the amounts of ADF Loan and Grant by category of expenditure. Tableau 2.8 Amount of Loan by category of expenditure (in UA million) Type category of expenditure Foreign Exchange Local Currency Total A Goods (supplies and equipment) B Works C Services (Consultant, control and auditing) Total Tableau 2.9 Amount of Grant by category of expenditure (in UA million) Type category of expenditure Foreign Exchange Local Currency Total A Goods (supplies and equipment) B Works C Services (Consultant, control and auditing) Total

14 7 2.5 Project Target Area and Beneficiaries The project covers several specific areas of the country, as presented in Annex IV. It involves the strengthening of Sonabel s electricity infrastructure and the electrification of about 150 localities through the extension of the transmission and distribution networks. This operation also covers five localities in the cotton-producing area for the supply of electricity to the Sofitex ginning plants from the interconnected grid Consequently, the main project beneficiaries will be the population, local communities, businesses and private and government institutions, which will have access to more reliable electricity supply for domestic, industrial and commercial use. This will have an immediate positive impact on the competitiveness of investments in the productive sectors of the economy. The government and Sonabel will have the energy supply needed for achievement of their national electricity access rate objectives for the population. Additionally, the effectiveness of education, health, communication, administration, drinking water and sanitation development programmes will be enhanced in the project area as a result of the use of electricity, especially in the rural areas with no access to modern energy services. 2.6 Participatory Approach This project was designed based on Burkina Faso s development guidelines, which were formulated on a participatory basis and taking account of the PRSP sectoral priorities. The various project components were prepared by sector institutions (DGE, Sonabel and EDF) and the relevant districts using the rural electrification master plan financed by the Bank and other studies conducted by Sonabel or with financing from other donors. The project components are a response to Sonabel s operation constraints and the demand for electricity connections and improved service quality articulated by customers and local authorities The population concerned, NGOs in the districts of the project area, local authorities and institutions concerned were consulted during the project preparation and appraisal stages and the project constitutes a response to the priorities expressed by these bodies during the consultations. The operations of other sector donors for the development of the country s electricity networks were also taken into consideration in order to ensure overall coherence and synergy. One of the cross-cutting objectives was also to ensure that the project is compliant with the environmental and social regulations applicable to Burkina Faso as well as with those of the Bank. The Environmental and Social Management Plan spells out the mitigation, follow-up, benefit enhancement and consultative measures required to prevent, minimize, mitigate and offset the negative impacts, or to enhance the positive impacts of the project The participatory approach incorporated in the project design will be pursued during implementation of the project, mainly through Information, Education and Communication campaigns, implementation of measures for the mitigation of negative environmental and social impacts, as well as training programmes on energy consumption control.

15 8 2.7 Bank Group Experience and Lessons Reflected in Project Design To date, the Bank has financed only two operations in the Burkina Faso electricity sector. The first operation, approved in 1979, involved the financing of the Kompienga hydroelectric dam. A completion report and Bank evaluation report have been produced on the project. The Bank s second intervention concerned the rural electrification study for which a grant of UA was approved in March The experience gained from these two Bank operations, as detailed in Technical Annex B.1, and that of other donors, reveals the sector institutions limited capacity for timely implementation of financing granted for the implementation of infrastructure projects Based on the findings above, the Bank included specific measures in the design of this project to ensure that Sonabel will have the requisite human and technical capabilities for timely implementation of the project. As a result, Sonabel project implementation capabilities will be strengthened through the transfer from EDF and GDE of qualified and competent personnel as well as through the recruitment of an Engineering Consultant to assist the project implementation unit with the coordination of daily tasks. Furthermore, the Project Implementation Unit will be provided with adequate IT equipment for management of project activities. Specific training on the Bank s rules of procedure for procurement of goods and services will be dispensed by the project team. Monitoring of project implementation by the Bank will be reinforced with an average of two supervision missions yearly. Lastly, regular monitoring by the Bank s Representation in Burkina Faso (BFFO) will allow speedy resolution of possible problems. 2.8 Key Performance Indicators The key project performance indicators are detailed in the results-based logical framework matrix. They include the reduction of outage frequency, boosting and extension of transmission and distribution networks, increased connections, public lighting and pre-paid meters, increased number of customers and electricity access rates, reduction of technical and commercial losses, as well as strengthening of logistic and operation equipment Data on outage times will be captured automatically through counting and measurement systems installed at the substations and switching centres. Regarding Sonabel, project performance will be assessed by comparing operating data from year to year and the reduction of electric losses will be measured through voltage readings. 3 PROJECT FEASIBILITY 3.1 Financial and Economic Performance Table 3.1 Key Financial and Economic Performance Indicators FIRR and NPV (baseline scenario) FIRR: 14.1% NPV CFAF billion EIRR and NPV (baseline scenario) EIRR: 19.7% NPV CFAF billion N.B. Detailed calculations and assumptions are given in Annex B Financial Performance: The project s Financial Internal Rate of Return (FIRR) was estimated based on the project s investment cost, as presented in the relevant Tables. These estimates include provisions for physical contingencies. The operating life of the project

16 9 structures has been set at 25 years and no residual value of the equipment has been set at the end of this period. Provision has been made for the replacement of certain equipment with a lifespan not exceeding 15 years. The project s incremental revenue is from the additional consumption generated by the new connections Economic Performance: The project s Economic Internal Rate of Return (EIRR) was calculated using the cost/benefit method. The economic costs have been estimated on the basis of the investment costs, net of taxes, corrected by the appropriate conversion factors for the equipment, works, services and skilled and unskilled manpower. Similarly, the maintenance and operating costs have been converted from their financial values, estimated at 3% of the investment costs. The economic benefits have been calculated on the basis of the savings made by electricity consumers by paying only the price billed by Sonabel, which is well below their willingness to pay, estimated at CFAF 262.4/kWh by a 2008 study of the costs of production of small independent thermal units in use in the country. 3.2 Environmental and Social Impact Environment: The project has been classified under Category II of the Bank Group s environmental classification criteria, considering that its catchment area is not environmentally sensitive, that it is of average size and that its environmental impact are easily controllable with the implementation of appropriate measures. The project s environmental and social impact study was conducted in 2007, as part of a feasibility study financed by the Bank. The infrastructure will have a low impact on the environment and will cause limited disruption to the natural environment. Risks to trees and other elements of the ecosystem will be limited by the line option adopted. The project will not cause involuntary population displacement. The MV and LV lines do not require the same width of right of way as HV lines and also do not require an overall linear layout, and can therefore bypass obstacles. The cost of the mitigation measures is estimated at UA 0.68 million, and includes the IEC and ECC program, the monitoring of environmental measures, and compensation as well as specific environmental protection works. Details relating to the environmental and social impacts are presented at Annex B Climate Change: The country, which has signed the Kyoto convention, integrates, to the project, measures for energy control in order to reduce the level of greenhouse gas production. In its design, which is based on imported hydroelectric energy, on reduced working time of many individual generators and of thermal power stations both highly pollutants, the project takes into account the risk of climate change. In addition to the lines implementation, the project is designed to reduce the electrical losses during network transport and distribution, which means, for an equivalent delivered energy, an important benefit on the environmental costs (reduction of the consumption of fossil fuels), on the economic and social costs (decrease of electrocution casualties; reduction of production loss and damage due to a lack of electricity) while the life standard of the population is improving. In conclusion, the project may help to reduce the quantities of pollutants related to the thermal power generation in a country where the production of electricity is already characterized by a low intensity of CO2 emissions Gender: The project will also contribute to expanding the range of energy choices available to rural users while improving the productivity of cottage industry and trading activities, engaged in mainly by women within associations. The project s contribution will enable them to devote more time to other income-generating activities that can improve the

17 10 living standards of families. Furthermore, the possibility that electricity provides for the use of household appliances will enhance the quality of life by reducing the hardship of domestic chores. The use of construction material compatible with domestic connection standards will also contribute to improving housing. The supply of electricity to new localities, coupled with public lighting, will foster urbanisation and improved living conditions for the population Social: The project will entail Information, Education and Communication (IEC) activities, involving both men and women, on issues of STI-HIV/AIDS, family planning, the environment and safety of persons and property in view of the electrical installations. The line installation works will generate greater intermingling of persons in the localities and villages along the transmission route, thus increasing the possibility of risky casual relationships (risk of HIV and other STI transmission, risk of unwanted pregnancies ). Furthermore, to prevent the risk of electrocution of persons or animals following the installation of the electrical equipment, information and education campaigns will be conducted among the population, via the various target groups and through the use of appropriate teaching materials. The induced social benefits derived from implementation of the project include education, health, culture and leisure The project area has 272 primary, junior secondary and senior secondary schools. These establishments lack regular source of lighting. The regular supply of electricity will contribute to motivating the teachers and students of these schools, with the beneficial effects of increased attendance rates, improved academic performance and the development of adult functional literacy activities. Apart from these benefits, the supply of electricity will promote the introduction of new information technologies, particularly in the area of information, training and internet-based education Additionally, 290 Community Health Centres (CSPS), dispensaries and maternity units were identified in the project area. Although these health facilities are often underequipped, they sometimes have small preservation and sterilisation equipment (refrigerators, stoves, etc.) which run intermittently on kerosene. The supply of electricity to the health centres will contribute significantly to improving the safe preservation of drugs, vaccines, blood products and other medical products; it will permit the installation in relatively significant localities of new health equipment such as laboratory, minor surgical and x-ray equipment. This will result in improved working conditions for health personnel, better preservation of medical products, improved healthcare quality and, as a secondary effect, increased attendance rates at these health facilities Teachers and government workers based in rural areas could reunite with their families as most of them settle their families in provincial towns with amenities that favour the development of their family members. Through the improvement of living conditions, the project will contribute to the social stabilisation of households Compensation: The project will not lead to a resettlement programme. The right of way for the lines will be cleared mainly along existing routes; a compensation plan will be prepared by the Engineering Consultant prior to project start, in accordance with loan conditions. The certification of the detailed inventory of goods and equipment for compensation will be carried out as part of the verification of the studies by Sonabel and the Engineering Consultant.

18 11 4 PROJECT IMPLEMENTATION 4.1 Implementation Arrangements The Ministry of Mines, Quarries and Energy (MMCE) will be the project executing agency. It will beef up the existing Project Implementation Unit within Sonabel, which reports directly to the Managing Director, by assigning to it personnel from the Electrification Development Fund (EDF), the General Directorate of Energy (GDE) and the relevant complementary staff required to monitor the project. The Project Implementation Unit will be assisted by an Engineering Consultant, who will be responsible for verification of the implementation studies conducted by Sonabel, control, supervision and factory acceptance of supplies and equipment as well as works control and acceptance. At the start of the project, the Project Implementation Unit will be equipped with human and material resources including IT equipment (accounting and other software) to ensure the success of the operation and for monitoring-evaluation. Training in the Bank s rules of procedure for procurement of goods, works and services, financial management as well as disbursement procedures will be organised for the members of the implementation unit during the project launching mission, particularly for the financial and monitoring-evaluation officers The Project Implementation Unit is responsible for regular monitoring of the activities of projects financed by Sonabel and various donors, the management of various contracts and coordination between various consultants and all the relevant structures and public services as well as the periodic assessment of the implementation of projects. The Sonabel Projects Implementation Unit will be strengthened with the assignment of qualified and competent EDF and General Directorate of Energy (GDE) staff, and will comprise three engineers one for substations, one for the networks and a computer engineer; a procurement specialist, an environmentalist; a finance officer; an administrative officer and a secretary. The CVs of the new members of the unit must be submitted to the Bank for its prior no objection A project steering committee, chaired by the Secretary General of the MMCE and composed of the Managing Director of the Sonabel the Managing Director of EDF, the Directors of GDE Coop and DSP will ensure overall coherence of project implementation. The committee will meet at least once quarterly to review the status of the project. It will submit to the Bank quarterly analytical project status reports. The project completion report must be prepared jointly by the Bank and the Borrower within six months of reaching a total disbursement rate of 98% or if most of the activities are completed. This report will include the outputs, status of disbursements, problems encountered and solutions applied as well as the implementation of environmental mitigation measures Procurement: Burkina Faso has project monitoring and procurement mechanisms. All Ministries, which are project executing agencies, have procurement sections. For this project, given the Bank s experience in the country, the procurement for all Bank-financed activities will be in accordance with the Bank s Rules of Procedure for the Procurement of Goods and Works, or as appropriate, with the Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents. However, activities financed from national counterpart resources and/or Sonabel contributions, can be procured in keeping with national procurement regulations Sonabel will be responsible for preparing the bidding documents for all procurement of goods, works and services, for project implementation. It has the requisite experience and

19 12 skilled and competent staff to carry out all these activities. However, as indicated in paragraph 4.1.1, training in the Bank s rules of procedure for the procurement of goods and services will be organised for the members of the Project Implementation Unit to ensure more effective delivery of project implementation. The entire procurement process will be supervised by Sonabel, which will ensure rigorous compliance with the Bank s rules of procedure. Tableau 4.1 SUMMARY PROCUREMENT ARRANGEMENTS (in UA Million) Category of Expenditures ICB NCB Short List Non ADF TOTAL % Goods 0.14 [0.00] [0.00] 1.04% Lot of operating supplies 0.07 [0.00] 0.07 [0.00] 0.19% Lot of spare parts 0.07 [0.00] 0.07 [0.00] 0.19% Four Wheel drive pick up 0.07 [0.00] 0.07 [0.00] 0.19% Software applications for management 0.04 [0.00] 0.04 [0.00] 0.12% Modernisation of information system and training 0.12 [0.00] 0.12 [0.00] 0.35% Works [21.47] 0.19 [0.00] 1.58 [0.00] [21.47] 85.23% Rehabilitation and extension of MV/LV networks [20.39] [20.39] 77.35% Connections and Public lighting 1.08 [1.08] 1.58 [0.00] 2.66 [1.08] 7.37% Mitigation of environmental impacts about 4% 0.19 [0.00] 0.19 [0.00] 0.51% Services (consultant, studies, control and auditing) 1.55 [1.42] 0.12 [0.00] 1.68 [1.42] 4.64% Studies restructuring and extension of the Ouagadougou network 0.38 [0.38] 0.38 [0.38] 1.06% Study of the line Zano-Koupela 0.49 [0.49] 0.49 [0.49] 1.34% Control and et supervision of works 0.42 [0.42] 0.42 [0.42] 1.15% Training Program 0.10 [0.10] 0.10 [0.10] 0.29% Auditing of Project Accounts 0.03 [0.03] 0.03 [0.03] 0.08% IEC and MCE 0.14 [0.00] 0.14 [0.07] 0.38% Personnel allowances 0.12 [0.00] 0.12 [0.00] 0.34% Project Base Cost [21.47] 0.42 [0.00] 1.55 [1.42] 1.70 [0.00] [22.89] 90.91% Physical Contingencies 2.04 [1.50] 0.03 [0.00] 0.11 [0.10] 0.12 [0.00] 2.30 [1.60] 6.36% Sub-total [22.91] 0.45 [0.00] 1.66 [1.52] 1.82 [0.00] [24.49] 97.27% Price Escalation per annum 0.88 [0.64] 0.01 [0.00] 0.05 [0.04] 0.05 [0.00] 0.99 [0.66] 2.73% Total Project CostsCoût total du projet [23.55] 0.46 [0.00] 1.71 [1.56] 1.87 [0.00] [25,15] % Percentage 88.80% 1.28% 4.73% 5.18% % N.B. Short list applies solely to the use of consultants ; «Non-ADF» refers to local or international shopping or works on force account. Figures in brackets[ ] refer to amounts financed by ADF Financial Management: The project will maintain separate accounts; the implementation unit will use an OHADA compliant accounting framework. The assessment of Sonabel indicates that the arrangements for the financial management of the project are satisfactory. Sonabel has (i) an administrative, financial and accounting procedures manual, (ii) an accounting system that the project will use for keeping its accounts for the regular and timely production of its financial statements and (iii) qualified personnel to ensure financial management and accounting The project s financial management will be in keeping with Sonabel s administrative, financial and accounting rules of procedure. For the separation of duties of project administration and management from those under internal controls, the project coordinator will be assisted by an administrative officer for all administrative duties, particularly those relating to commitment of expenditure. The finance officer will be responsible for implementation of expenditure and preparation of disbursement requests. The projects unit will keep project accounts that permit the identification and monitoring of expenditure by component, category and financing source. Annual financial statements will be audited by independent auditors prior to submission to the Bank within six months from the close of the financial year Disbursements: The loan and grant resources will be disbursed in keeping with the Bank s rules of procedure. The three disbursement methods could be used: (i) direct payment method for payment of contracts with significant amounts, for works, goods and services,