Cameroon - Electricity Transmission and Reform Project. Project Appraisal Document. Corrigendum

Transcription

1 OFFICIAL USE ONLY R /2 December 1, 2016 Closing Date: Wednesday, December 7, 2016 at 6 p.m. FROM: Vice President and Corporate Secretary Cameroon - Electricity Transmission and Reform Project Project Appraisal Document Corrigendum [This cover replaces the version distributed earlier with an incorrect closing date] Attached is the Project Appraisal Document regarding a proposed loan to Cameroon for an Electricity Transmission and Reform Project (R ), which is being processed on an absence-of-objection basis. Distribution: Executive Directors and Alternates President Bank Group Senior Management Vice Presidents, Bank, IFC and MIGA Directors and Department Heads, Bank, IFC and MIGA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

2 OFFICIAL USE ONLY R /1 November 21, 2016 Closing Date: Monday, December 12, 2016 at 6 p.m. FROM: Vice President and Corporate Secretary Cameroon - Electricity Transmission and Reform Project Project Appraisal Document Attached is the Project Appraisal Document regarding a proposed loan to Cameroon for an Electricity Transmission and Reform Project (R ), which is being processed on an absence-of-objection basis. Distribution: Executive Directors and Alternates President Bank Group Senior Management Vice Presidents, Bank, IFC and MIGA Directors and Department Heads, Bank, IFC and MIGA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

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4 .. Document of The World Bank FOR OFFICIAL USE ONLY.Report No: PAD1777 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT... ON A PROPOSED LOAN IN THE AMOUNT OF EURO MILLION (US$325 MILLION EQUIVALENT) TO THE REPUBLIC OF CAMEROON FOR AN ELECTRICITY TRANSMISSION AND REFORM PROJECT November 14, 2016 Energy and Extractives Global Practice Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization..

5 CURRENCY EQUIVALENTS (Exchange Rate Effective October 11, 2016) Currency Unit = Central African Franc (CFA) US$1 = CFA US$1 = Euros FISCAL YEARS Government January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 cubic meter (m³) = cubic feet 1 gigawatt hour (GWh) = 1 million kilowatt hours 1 hectare (ha) = 10,000 m² or acres 1 kilometer (km) = 0.62 miles 1 kilowatt hour (kwh) = 1,000 watts hour 1 megawatt (MW) = 1,000 kilowatts AER AES AFD AfDB APM ARSEL BDEAC CAA CCE CPF CQS DA DFI DSCE DSCR DSRA DUP EBITDA ECAM EDC EIRR ENEO EoI ESDP ABBREVIATIONS AND ACRONYMS Agence pour l Electrification Rurale (Rural Electrification Agency) American Electricity Supply Agence Française de Développement (French Agency for Development) African Development Bank Assistant Program Manager Agence de Régulation du Secteur de l Electricité (Regulatory Agency for the Electricity Sector) Banque de Développement des Etats de l Afrique Centrale (Central African State Development Bank) Caisse Autonome d Amortissement (Autonomous Sinking Fund) Commission de Constat et d Evaluation (Departmental Evaluation Committee) Country Partnership Framework Consultants Qualifications Selection Designated Account Development Finance Institution Document de Stratégie pour la Croissance et l Emploi (Growth and Employment Strategy) Debt Service Cover Ratio Debt Service Reserve Account Déclaration d Utilité Publique (Declaration of Public Utility) Earnings before Interest, Taxes, Depreciation and Amortization Enquête Camerounaise Auprès des Ménages (Cameroonian household survey) Electricity Development Corporation Economic Rate of Return Energy of Cameroon (National Utility) Expression of Interest Energy Sector Development Project

6 ESIA ESMF ESMP EXIM Bank FBS FCFA FM GAP GDP GHG GoC GRM GRS GWh HFO HV IBRD ICB IDA IDF IFC IFR IPP IPPF IRI IRR IsDB kwh LCS LFO LV M&E MINDCAF MINEE MINFI MINFOF MINMAP MINEPAT MINEPDED MV MW NCB NPV Environmental and Social Impact Assessment Environmental and Social Management Framework Environmental and Social Management Plan Export Import Bank Fixed Budget Selection Central Africa Franc Financial Management Generation, Analysis, and Planning Gross Domestic Product Green House Gas Government of Cameroon Grievance Redress Mechanism Grievance Redress Service Gigawatt hour Heavy Fuel Oil High Voltage International Bank for Reconstruction and Development International Competitive Bidding International Development Association Institutional Development Fund International Finance Corporation Interim Financial Report Indigenous People Plan Indigenous People Policy Framework Intermediate Results Indicator Internal Rate of Return Islamic Development Bank Kilowatt hour Least Cost Selection Light Fuel Oil Low Voltage Monitoring and Evaluation Ministère des Domaines, du Cadastre et des Affaires Foncières (Ministry of State Property Survey and Land Tenure) Ministère de l Eau et de l Energie (Ministry in charge of Water and Energy) Ministère des Finances (Ministry in charge of Finance) Ministère des Forêts et de la Faune (Ministry in charge Forestry and Wildlife) Ministère des Marchés Publics (Ministry of Public Procurement) Ministère de l Economie, de la Planification et de l Aménagement du Territoire (Ministry in charge of Economy, Planning and Regional Development) Ministère de l Environnement, de la Protection de la Nature, et du Développement Durable (Ministry in Charge of Environment, Nature Conservation and Sustainable Development) Medium Voltage Megawatt National Competitive Bidding Net Present Value

7 NTSO OHADA O&M OPEX PDSE PFM PIM PIU QBS QCBS RAP REOI RFP RIE RIN RIS RPF SBD SCD SCADA SOE SONATREL SONEL SORT SPP SWS TPA TTL UNDB WBG National Transmission System Operator Organisation pour l'harmonisation en Afrique du Droit des Affaires (Organization for the Harmonization of Business Law in Africa) Operations & Maintenance Operational Expenditure Plan de Développement du Secteur de l Electricité (Electricity Sector Development Plan) Public Financial Management Project Implementation Manual Project Implementation Unit Quality Based Selection Quality and Cost Based Selection Resettlement Action Plan Request for Expression of Interest Request for Proposal Réseau Interconnecté Est (East Interconnected Grid) Réseau Interconnecté Nord (Northern Interconnected Grid) Réseau Interconnecté Sud (Southern Interconnected Grid) Resettlement Policy Framework Standard Bidding Document Systematic Country Diagnostic Supervisory Control and Data Acquisition State-Owned Enterprise Société Nationale de Transport de l Electricité (National Power Transmission Utility) Société Nationale d Electricité (National Power Utility) Systematic Operations Risk-Rating Tool Simplified Procurement Plan Shield Wire System Third Party Access Task Team Leader United National Development Business World Bank Group Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager: Task Team Leaders: Makhtar Diop Elisabeth Huybens Riccardo Puliti Charles Cormier Stephan Garnier, Jan Kappen

8 Cameroon CM - Electricity Transmission and Reform Project (P152755) Contents I. STRATEGIC CONTEXT AND RATIONALE... 1 A. Country Context... 1 B. Sectoral and Institutional Context... 2 C. Higher Level Objectives to which the Project Contributes... 7 II. PROJECT DEVELOPMENT OBJECTIVES... 8 A. PDO... 8 B. Project Beneficiaries... 8 C. PDO level result indicators... 8 III. PROJECT DESCRIPTION A. Project Components B. Project Financing C. Lessons Learned and Reflected in Project Design IV. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability D. Role of Partners V. KEY RISKS VI. APPRAISAL SUMMARY A. Economic and Financial Analyses B. Technical C. Financial Management D. Procurement E. Environmental and Social (including Safeguards) F. World Bank Grievance Redress G. Citizen Engagement/Beneficiary Feedback Annex 1: Results Framework and Monitoring Annex 2: Detailed Project Description Annex 3. Implementation Arrangements Annex 4. Implementation Support Plan... 77

9 Annex 5. Economic and Financial Analysis Annex 6: Transmission Sub-sector Reform Policy Statement Annex 7. Map IBRD

10 . PAD DATA SHEET Cameroon Electricity Transmission and Reform Project (P152755) PROJECT APPRAISAL DOCUMENT AFRICA Energy and Extractives Global Practice Basic Information Project ID EA Category Team Leader(s) Report No.: PAD1777 P A - Full Assessment Stephan Claude Frederic Garnier, Jan Friedrich Kappen Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Project Implementation Start Date 07-Dec-2016 Expected Effectiveness Date 01-Apr-2017 Joint IFC No Practice Manager/Manager Series of Projects [ ] Project Implementation End Date 31-Dec-2022 Expected Closing Date 31-Dec-2022 Senior Global Practice Director Country Director Regional Vice President Charles Joseph Cormier Riccardo Puliti Elisabeth Huybens Makhtar Diop. Borrower: Republic of Cameroon Responsible Agency: Société Nationale de Transport de l Electricité (SONATREL) - National Power Transmission Utility. Contact: Mbemi Nyaknga Title: General Manager Telephone No.: mbemi2000@yahoo.fr Project Financing Data (in USD Million) [ X ] Loan [ ] IDA Grant [ ] Guarantee [ ] Credit [ ] Grant [ ] Other i

11 Total Project Cost: Total Bank Financing: Financing Gap: Financing Source Amount Borrower International Bank for Reconstruction and Development Total Expected Disbursements (in USD Million) Fiscal Year Annual Cumulative Practice Area (Lead) Energy & Extractives Contributing Practice Areas Institutional Data Proposed Development Objective(s) The project development objective is to improve the capacity, efficiency, and reliability of Cameroon s national electricity transmission network.. Components Component Name Provision of support towards the operationalization of SONATREL s transmission portfolio Cost (USD Millions) Strengthening of the National Transmission Grid Project Management Support and Capacity Building. Systematic Operations Risk- Rating Tool (SORT) Risk Category Rating 1. Political and Governance Substantial ii

12 2. Macroeconomic Substantial 3. Sector Strategies and Policies High 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary Substantial 7. Environment and Social High 8. Stakeholders Substantial 9. Other OVERALL. Policy Compliance Does the project depart from the CAS in content or in other significant respects?. High Yes [ ] No [ X ] Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]. Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 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 X X X X X X X X X X iii

13 Project Steering Committee X Continuous Description of Covenant The Borrower shall maintain, at all times during the implementation of the Project, the Project Steering Committee with a mandate, composition and resources satisfactory to the Bank. (Schedule 2, Section 1.A.1 to the Loan Agreement) Name Recurrent Due Date Frequency Project Implementing Entity Staff Description of Covenant X Continuous The Borrower shall require the Project Implementing Entity to maintain within its structure, the Project implementing unit with composition, terms of reference and satisfactory to the Borrower and the Bank which will be comprised of qualified and experience personnel in adequate numbers. (Schedule 2, Section 1.B.1(b) to the Loan Agreement) Name Recurrent Due Date Frequency Project Implementing Entity Staff (monitoring and evaluation specialist) Description of Covenant October 7, 2017 The Borrower shall require the Project Implementing Entity to recruit no later than six (6) months after the Effective Date, a monitoring and evaluation specialist, all with qualifications, experience and terms of reference acceptable to the Bank. (Schedule 2, Section 1.B.1(b) to the Loan Agreement) Name Recurrent Due Date Frequency Owner's Engineer June 30, 2017 Description of Covenant The Borrower shall, not later than three (3) months before the launching of the bidding documents for Parts 2(a), 2(b) and 2(c) of the Project, cause the Project Implementing Entity to recruit, in accordance with Section III of this Schedule 2, an owner s engineer with qualifications, experience and terms of reference satisfactory to the Bank, to assist the Project Implementing Entity with supervision of the procurement, design and construction of the Electricity Infrastructure, operationalization of electricity services and preparation for operation and maintenance of said Electricity Infrastructure and electricity services ( Owner s Engineer ). (Schedule 2, Section I.B.1(c) to the Loan Agreement and Section I.A.3 to the Project Agreement) Name Recurrent Due Date Frequency Project Tender Board October 7, 2017 iv

14 Description of Covenant The Borrower shall no later than six months after the Effective Date, establish a special tender board ( Project Tender Board ), and thereafter maintain at all times during the implementation of the Project, said Project Tender Board with composition, terms of reference and resources satisfactory to the Bank. (Schedule 2, Section I.B.1(e) to the Loan Agreement) Name Recurrent Due Date Frequency External Auditor October 7, 2017 Description of Covenant The Borrower shall cause the Project Implementing Entity to recruit, not later than six (6) months after the Effective Date, an external auditor with qualifications, experience and terms of reference acceptable to the Bank, to carry out the audits referred to in Section II. B.3 of the Loan Agreement, as it relates to the Project. (Schedule 2, Section II.B.4 to the Loan Agreement and Section II.B.3 to the Project Agreement) Name Recurrent Due Date Frequency Computerized Multi-project Financial and Accounting System Description of Covenant July 7, 2017 In furtherance of the provisions of this Section II.B of Schedule 2 to the Project Agreement, not later than three (3) months after the Effective Date, the Borrower shall cause the Project Implementing Entity to adapt for the purpose, its computerized multi-project financial and accounting system in a manner satisfactory to the Bank, and successfully train relevant staff in the use thereof. (Schedule 2, Section II.B.5 to the Loan Agreement and Section II.B.4 to the Project Agreement) Name Recurrent Due Date Frequency Procurement Staff Training July 7, 2017 Description of Covenant Not later than three (3) months after the Effective Date and as needed throughout the implementation of Project, the Borrower shall cause the Project Implementing Entity to train the procurement staff of the PIU and the SONATREL Tender Board or the Project Tender Board, as the case may be, in the use of the Bank s procurement procedures in a manner satisfactory to the Bank. (Schedule 2, Section III.E to the Loan Agreement) Name Recurrent Due Date Frequency Financing of the Resettlement Action Plan Description of Covenant X Continuous Unless otherwise agreed with the Bank, the Borrower shall, beginning in Fiscal Year 2018 through the end of Project implementation, maintain an allocation in the annual Budget and Finance Law for the compensation of Affected Persons on the basis of the total budget expenditures for the compensation of Affected Persons as agreed on an annual basis with the Bank. (Schedule 2, Section V.B.1 to the Loan Agreement) v

15 Name Recurrent Due Date Frequency Counterpart funds October 7, 2017 Description of Covenant Without limitations upon the provisions of Section 4.03 of the General Conditions, deposit into the Counterpart Funds Account (a) no later than six months after the Effective Date, an amount equivalent to ten million Dollars (US$10,000,000) and thereafter, (b) on a schedule and in installments agreed with the Bank as reflected in the Annual Work Plan and Budget, a total additional amount equivalent to forty million Dollars (US$40,000,000) for Part 2 (e) of the Project, all in the Borrower s currency ( Counterpart Funds ). (Schedule 2, Section V.C.2 to the Loan Agreement) Name Recurrent Due Date Frequency SONATREL's Revenue Mechanism Description of Covenant vi April 7, 2018 No later than twelve (12) months after the Effective Date, the Borrower shall ensure that all key elements of the Project Implementing Entity s future Revenue Mechanism including rate base, rate of return, eligible expenses and related fiscal and or subsidy provisions have been defined and adopted by the Project Implementing Entity in form and substance acceptable to the Bank. (Schedule 2, Section V.D. to the Loan Agreement and Section IV to the Project Agreement). Conditions Source Of Fund Name Type IBRD Subsidiary Agreement (Article V, 5.01 (a)) Effectiveness Description of Condition The Subsidiary Agreement has been executed on behalf of the Borrower and the Project Implementing Entity in accordance with the provisions of Section I.B of Schedule 2 to the Loan Agreement. Source Of Fund Name Type IBRD Project Implementation Unit (Article V, 5.01 (b)) Effectiveness Description of Condition The Project Implementing Entity has recruited to the PIU, a Project coordinator, a financial management specialist, an accountant, a procurement specialist and an environmental and social safeguards specialist, all in accordance with the provisions of Section I.B.1(b) of Schedule 2 to the Loan Agreement and Section I.A.1(b) of the Schedule to the Project Agreement. Source Of Fund Name Type IBRD Description of Condition Project Implementation Manual (Article V, 5.01 (c)) Effectiveness The Project Implementing Entity has adopted the Project Implementation Manual in accordance with the provisions of Section I.D of Schedule 2 to the Loan Agreement and Section I.C of the Schedule to the Project Agreement. Source Of Fund Name Type

16 IBRD Financing of the Resettlement Action Plan (RAP) - Commitment Letter (Article V, 5.01 (d)) Description of Condition Effectiveness The Borrower has provided the Commitment Letter to the Bank in accordance with Section V.A of Schedule 2 to the Loan Agreement. Source Of Fund Name Type IBRD Withdrawal conditions Disbursement Description of Condition Notwithstanding the provisions of Part A of Section, no withdrawal shall be made from the Loan Account (other than to repay the Preparation Advance) until the Bank has received payment in full of the Front-end Fee. (Schedule 2, Section IV, B. 1(a)). Source Of Fund Name Type IBRD Ratification of the Subsidiary Agreement (Article V, 5.02 Description of Condition Effectiveness The Additional Legal matter shall be that the Subsidiary Agreement has been duly authorized or ratified by the Borrower and the Project Implementing Entity and is legally binding upon the Borrower and the Project Implementing Entity in accordance with its terms. Source Of Fund Name Type IBRD Description of Condition Supplemental Safeguard Instruments and Compensation of Affected Persons Disbursement Notwithstanding the provisions of Part A of Section IV of the Loan Agreement, no withdrawal shall be made under Category 2 unless (i) the Borrower has disclosed (or caused to be disclosed) all relevant Supplemental Safeguard Instruments and compensated all applicable Affected Persons as required under the Project in accordance with the provisions of Section I.F of Schedule 2 of the Loan Agreement. (Schedule 2, Section IV, B. 1(b)). Source Of Fund Name Type IBRD Assistant Program Manager Disbursement Description of Condition Notwithstanding the provisions of Part A of Section IV of the Loan Agreement, no withdrawal shall be made under Category 2 unless (ii) the Project Implementing Entity has recruited the Assistant Program Manager in accordance with Section I.B. 1(d) of Schedule 2 of the Loan Agreement and Section I.A.2 of the Schedule to the Project Agreement. (Schedule 2, Section IV, B. 1(b)). Bank Staff Team Composition Name Role Title Specialization Unit Stephan Claude Frederic Team Leader (ADM Lead Energy Energy Specialist GEE07 vii

17 Garnier Responsible) Specialist Jan Friedrich Kappen Team Leader Senior Energy Specialist Kouami Hounsinou Messan Celestin Adjalou Niamien Procurement Specialist (ADM Responsible) Financial Management Specialist Senior Procurement Specialist Senior Financial Management Specialist Energy Specialist Procurement Financial Management GEE07 GGO07 GGO26 Bassem Abou Nehme Team Member Young Professional Economic Analysis GEE08 Emeran Serge M. Menang Evouna Franklin Koffi S.W. Gbedey Kolie Ousmane Maurice Megnan Kristyna Bishop Laurence Hougue Bouguen Safeguards Specialist Team Member Team Member Safeguards Specialist Senior Environmental Specialist Senior Energy Specialist Senior Financial Management Specialist Senior Social Development Specialist Environment Engineer Financial Management Social Development GEN07 GEE07 GGO26 GSU01 Team Member Program Assistant Administrative AFCC1 Luis M. Schwarz Team Member Senior Finance Officer Marie Louise Felicite Soue Disbursement WFALN Team Member Program Assistant GEE07 Marie-Paule Ngaleu Team Member Senior Executive Assistant Mohamed El Hafedh Hendah Nneoma Veronica Nwogu Team Member Senior Procurement Specialist Administrative Procurement GEE01 GGO07 Counsel Senior Counsel Legal LEGAM Odilia Renata Hebga Team Member Communications Associate Thanh Lu Ha Team Member Senior Program Assistant Communication Administrative AFREC GEE07 Xavier Remi Daudey Team Member Energy Specialist Engineer GEE07 Extended Team viii

18 Name Title Office Phone Location. Locations Country Cameroon First Administrative Division Adamaoua Centre East Far North Littoral North Province North-West Province South Province South-West Province West Location Planned Actual Comments To Be Determined X X X X X X X X X X The list of investments to be financed under the Project is still indicative and the exact location of the transmission lines and substations are not yet known. ix

19 I. STRATEGIC CONTEXT AND RATIONALE A. Country Context 1. Cameroon is a medium-sized (475,650 km 2 ) country in Central Africa with a population of about 23.3 million in 2015, growing at around 2.5 percent per annum. Cameroon s gross national income per capita stood at US$1,330 in 2015, making it a lower-middle income country. Cameroon has vast natural resources, including oil and gas, minerals, agricultural land, and forests with remarkable biodiversity, which provide a potential basis for development. However, economic growth averaged 3.3 percent per annum between 2003 and 2007, and the economy was negatively affected by the global financial crisis of , which led to weaker demand for Cameroon s non-oil exports. More recently, gross domestic product (GDP) growth rates have increased, reaching 4.2 percent in 2011, 4.6 percent in 2012, 5.6 percent in 2013, and 5.9 percent in 2014, respectively. In 2015, despite a sharp decline in the international oil price and rising insecurity in the far north of the country, GDP growth reached 6.2 percent thanks to a rebound in oil production and continued efforts on public investment projects. The fourth Cameroonian household survey (ECAM4 1 ) fielded in 2014 revealed that despite this growth, Cameroon is characterized by high levels of poverty and weak social indicators. Using the national poverty line, poverty declined marginally since 2001 from 40.2 percent to 39.9 percent in 2007 and 37.5 percent in 2014 and is increasingly concentrated in Cameroon s northern regions, with an estimated 56 percent of the poor living in the North and Far North regions alone. The country ranked 153 out of 187 on the 2015 Human Development Index, with some human development indicators, including life expectancy, declining over the last 10 years, and infant and maternal mortality rates exceedingly high. 2. In the medium term, Cameroon s GDP growth is projected to remain strong at about 6.1 percent on average over The primary sector growth is expected to average 4.6 percent as a result of the Government of Cameroon s (GoC) continued efforts to improve productivity of agriculture, livestock, and forestry. Oil production will continue to increase although at a slower pace than in 2015, while public works activity is projected to expand. As a result, secondary sector output is projected to grow on average by 6.8 percent over Services output is expected to expand by 5.6 percent, supported by the strengthening of the telecommunication segment, as well as trade, financial services, and real estate activities. Inflation is expected to remain around three percent. Cameroon s debt situation has deteriorated over the two last years. After the public debt-to-gdp ratio had declined from 52 percent in 2005 to 10 percent in 2008 due to the Highly Indebted Poor Countries and Multilateral Debt Relief Initiative in 2006., the ratio has increased to 26.7 percent of GDP at the end of 2015 from 22.9 percent in 2014 due to external financing mobilized to fund major infrastructure projects and lower oil receipts. The 2015 joint International Monetary Fund-World Bank debt sustainability analysis revealed that Cameroon s risk of external debt distress moved from moderate risk in 2014 to high risk in The analysis emphasized the urgent need for fiscal adjustment, budget consolidation, and efforts to improve the quality of public expenditure management, as well as significant adjustments in the amounts and terms of both external and domestic borrowing. 3. Cameroon s development priorities are laid out in the 2009 Document de Stratégie pour la Croissance et l Emploi (DSCE, or Growth and Employment Strategy) and in Vision Vision 2035 sees Cameroon becoming a middle-income, industrialized country with poverty levels at less than 10 percent by The DSCE identifies inadequate infrastructure and an unfavorable business environment as the main factors impeding economic growth and employment creation in Cameroon. 1 ECAM4: 4ème Enquête Camerounaise Auprès des Ménages 1

20 The strategy emphasizes the need for agricultural diversification, increased productivity, and large-scale public investment projects. B. Sectoral and Institutional Context 4. Electricity supply. In 2014, total power production reached 6,080 GWh on the grid while total installed capacity was estimated at 1,287 MW. Hydro capacity represents 59 percent of total installed electricity generation. Three large hydropower sites Song Loulou (384 MW), Edéa (265 MW), and Lagdo (72 MW) together account for close to 90 percent of hydropower generation. The Kribi Gas to Power Project 2 with a capacity of 216 MW was commissioned in 2013, supported by guarantees from the International Development Association (IDA) and with funding from the International Finance Corporation (IFC). The remaining capacity of about 350 MW consists of heavy fuel oil (HFO) and diesel generation. 5. Electricity demand. According to the most recent forecasts of Cameroon s 2014 least cost development plan for the power sector, demand for electricity is expected to grow from 5,800 GWh 3 to 24,400 GWh under the median growth scenario and to 33,400 GWh under the high growth scenario by In contrast, peak demand would ramp up from about 1,000 MW 4 in 2013 to 3,900 MW under the median growth scenario and 5,500 MW under the high growth scenario in Electricity access. In 2015, about 48 percent of the Cameroonian population had access to electricity and 74 percent lived in localities with direct access to electricity. However, in the same year, only 26 percent of the 14,207 localities within Energy of Cameroon s (ENEO s) concession area were connected to the medium voltage (MV) network or had access to electricity produced by isolated power plants. As the small share of grid connected localities indicates, Cameroon s relatively good access rate masks major differences between (i) urban and rural areas; and (ii) the southern (88 percent access rate) and northern regions (47 percent access rate) of the Cameroonian territory. Overview of Cameroon s Electricity Sector Reform Agenda 7. Late 1990s start of ambitious sector reform agenda. Starting with the Electricity Law in 1998, the GoC implemented a first phase of far-reaching policy and structural reforms to address a number of pressing governance issues that were stifling urgently needed investment in generation capacity and distribution. As a result, the Agence de Régulation du Secteur de l Electricité (ARSEL), the sector regulator, and the Agence pour l Electrification Rurale (AER), the rural electrification agency, were established. Moreover, the Société Nationale d Electricité (SONEL), Cameroon s state-owned, verticallyintegrated power utility, was privatized in 2001, through the sale of a 56 percent equity stake and the award of a 20-year concession to the American Electricity Supply Corporation (AES). 8. The 2000s encouraging early results of reforms. In the decade following its privatization, SONEL gradually evolved from a loss-making government utility to an income-generating enterprise while mobilizing significant investments in new generation capacity and connections. By 2011, private sector financing had boosted Cameroon s power capacity by 30 percent, the number of connections had expanded by 75 percent, and the electrification rate had increased from less than 15 percent to nearly 50 percent. 9. The 2010s sector progress loses momentum. While the privatization unleashed significant new investment during the first decade of the concession period, from 2011 onward both sector 2 Gas is supplied to Kribi from the Sanaga Sud gas project that was developed by Perenco in partnership with Cameroon s Société Nationale des Hydrocarbures. 3 In 2013, electricity demand included about 1,500 GWh of self-generation. 4 In 2013, peak demand included about 285 MW of self-generation. 2

21 investment and performance began to stall. Most importantly, a continued lack of investment in transmission led to the sector s transmission backbone becoming a critical bottleneck to the further expansion of power generation capacity, in particular with regard to the development of remote hydropower sites on the Sanaga River. After a prolonged period of dwindling returns and sector performance, AES Corporation sold its equity stake in AES-SONEL to the private equity company ACTIS Capital LLP (ACTIS). For the remaining period of the concession ( ), ACTIS committed to comply with all previous obligations by AES-SONEL (renamed to ENEO CAMEROON S.A.) within its concession, including the accelerated ramp-up of hydroelectric power and a number of critical rehabilitation and renovation works. 10. Second phase of reforms. To reinvigorate investment and sector performance, and to foster new investments into the transmission system, the GoC initiated a second phase of reforms including the 2011 New Electricity Law. Key changes under the legislation included: (i) the transfer of the transmission network management from ENEO to a state-owned entity; (ii) changes to water storage activities, including the transfer of the water storage concession of the Sanaga basin reservoirs to the Electricity Development Corporation (EDC); and (iii) the introduction of new penalty charges in the event that ENEO fails to meet agreed performance targets. 11. Tariff regime and regulation. Following the above sector reforms, and to improve the financial sustainability and performance of the sector, tariffs for regulated low voltage (LV) and MV customers changed from a price cap to a revenue cap (see Box 1). As a result, LV/MV electricity tariffs have risen, with the current average at US$0.14/kWh (82 FCFA/kWh). However, for social and political reasons, the full tariff increase was not passed on to consumers; since 2012 the GoC has opted instead to compensate ENEO directly. Since then, compensations amount to about US$30 million annually, which allows for the actual tariff to be about US$0.135/kWh (78 FCFA/kWh). Box 1. Revenue Cap Regulation Revenue cap regulation is a system for setting the prices charged by regulated monopolies by limiting the total revenue in a given period. Revenue cap regulation is a form of incentive regulation, using rewards and penalties to induce the utility company to achieve desired goals, affording the operator some discretion in how to achieve these goals. A revenue cap is similar to a price cap, except the constraint is placed on total revenue rather than a particular price or basket of prices. For Cameroon, the choice of a revenue cap rather than a price cap meant that ENEO does not face any quantity risk. 12. Unregulated and Subsidized Tariff for high voltage (HV) consumers. In contrast to LV/MV customers, Cameroon s Aluminum Smelter Plant (ALUCAM) and two other HV consumers, 5 together representing about 25 percent of national energy demand, continue to benefit from a highly subsidized power price set at US$0.027/kWh (16 FCFA/kWh) under a long term Power Purchase Agreement with ENEO. 13. The 2014 Electricity Sector Development Plan. To close the widening gap between Cameroon s installed generation capacity of 1,287 MW and current peak demand estimated at over 1,800 MW and growing at 7.5 percent per year, 6 the GoC ratified in 2014 the Plan de Développement du Secteur de l Electricité (PDSE), a Least-Cost Electricity Sector Development Plan covering the period In addition to the scale up of generation capacity, the PDSE includes a short-term ( ) investment program estimated at US$1,200 million for the strengthening of the national transmission grid. Current Sector Challenges 5 CIMENCAM (cement) and SOCATRAL (aluminum transformation). 6 STUDI (October 2014): Update of Cameroon s Least Cost Sector Development Plan

22 14. Current performance of ENEO. While the company has made some progress with the implementation of its investment program, notably by connecting 88,000 additional customers to the network in 2015 (thereby crossing the threshold of one million connections), and by reducing the number of incidents and outages on the network, 2015 was also characterized by a number of critical issues, including: (i) (ii) (iii) A continued disappointing operational performance, including high level of technical and commercial losses adding up to a combined total of about 30 percent. The execution of the investment plan falling seven billion FCFA short of the goal of 37 billion FCFA and below the level of depreciation for the year. ENEO s management explains the sustained underinvestment as the result of the uncertainty regarding the duration of the concession. 7 A 40 percent decline of the company s EBITDA 8 compared to 2014, mainly explained by the delay in the payment of tariff compensations. 15. ENEO s liquidity situation. Throughout 2015, the company has suffered from liquidity problems resulting from major payment delays of electricity bills, including by ALUCAM and the GoC. To address its liquidity issues, ENEO had to fall back on the use of costly bridge loans amounting to 16 billion FCFA. For the same purpose, ENEO also negotiated a factoring facility of 13.5 billion FCFA with commercial banks, which will allow ENEO, against a discount, to immediately convert outstanding GoC electricity bills into cash, with partner banks taking over the collection of bills from the government. 16. Extension of ENEO s concession contract. Since early 2016, the discussions between the GoC and ACTIS regarding the extension of the ENEO concession contract have been underway. The prolonged uncertainty regarding the future of the concession contract, scheduled to expire in 2021, has been hampering the utility s capacity to raise financing and launch its US$790 million investment program focused on decreasing technical and commercial losses and scaling up connections. Since ENEO collects the revenues for the entire power sector, the financial health of the entities in charge of generation and transmission is subject to ENEO being able to collect enough revenue for all market players Electricity tariff for The regulator ARSEL has approved ENEO s request for an increase in revenue requirements for the electricity sector (in the range of 15 percent) for The GoC is now evaluating different options for implementing this increase, whether through a tariff increase, a tariff compensation, or a combination of both. Substantive Transmission Sub-Sector Reforms 18. New blueprint for Cameroon s transmission sector architecture. The key rationale for unbundling the transmission sub-sector from ENEO s concession mandate was to rapidly attract much needed investment from other public and private sources to rehabilitate and extend the transmission grid. ENEO would then be able to focus on raising the financing for the distribution network expansion and rehabilitation of generation assets conceded by GoC. Within this context, the GoC selected the Third Party Access (TPA) 10 model as the new modus operandi for the National Transmission System Operator (NTSO). Figure 1 reflects the current framework while Figure 2 conveys the future institutional 7 See Section VI. A and Annex 5 for further details on ENEO s investment plan. 8 EBITDA: earnings before interest, taxes, depreciation, and amortization 9 See Section VI.A for further details on ENEO s concession contract. 10 Under the TPA, electricity transmission system operators are required to grant energy companies nondiscriminatory access to their infrastructure. They must offer the same service to different users under identical contractual conditions. 4

23 framework for the sector, taking into consideration the changes introduced by the 2011 Law. The proposed project will support the GoC in the most critical remaining steps of the transition to the new sector architecture, namely the completion of the legal framework as well as the handover of transmission assets and operationalization of the NTSO as described below. 19. Handover of transmission assets to NTSO. In line with the GoC s sector reform agenda, a provision was included in ENEO s concession contract allowing for the separation of transmission assets and their transfer to the NTSO upon mutual agreement on the terms of the handover. Given the urgency and substantial volume and long payback periods of critical transmission investments, which far exceeds the financial capacity of the concessionaire, both ENEO and the GoC are in agreement and their respective strategic interests are fully aligned with regard to both the necessity and timeline of the unbundling. Figure 1: Cameroon Electricity Sector Structure Pre- Reform Figure 2: Cameroon Electricity Sector Structure Post- Reform EDC = Electricity Development Corporation IPP = Independent Power Producer 20. Creation of national transmission grid operator. To secure the implementation and dependable oversight of grid operations and works, the GoC created the Société Nationale de Transport de l Electricité (SONATREL, or the National Electricity Transport Company) as the NTSO in October As the public administrator and operator of Cameroon s transmission network, SONATREL has been set 5

24 up as a state-owned enterprise (SOE) with the GoC as the sole shareholder. SONATREL s mandate includes the development, operation, maintenance, and expansion of the national transmission grid, including its interconnection with neighboring countries. Moreover, SONATREL is responsible for seeking, securing, and managing the necessary financing of all related investments. As the formal establishment of SONATREL has been completed, the main challenge will consist in the handover of transmission assets and the operationalization of the new entity, including the provision of the resources, processes, and capacity required to fill its important cross-cutting mandate. The proposed project will support the GoC in completing all of the necessary capacity building activities and closely accompany the newly minted organization during its first years of operations. Current Transmission Sub-Sector Challenges 21. Completion of transmission sector reforms. SONATREL s mandate includes two vital sectoral functions: (i) the short-term allocation of scarce transmission capacity; and (ii) the long-term allocation of capital for rehabilitation and extension of the country s transmission backbone and interconnections. Therefore, the operationalization of SONATREL and the concurrent implementation of the TPA model for non-discriminatory access to the transmission network is indispensable for ensuring the transmission grid s current and future ability to efficiently manage growing demand and power flows. SONATREL s future role as system operator will require the spin-off, sale, and transfer of assets and personnel from ENEO, as well as the completion of a complex institutional and regulatory framework and related organizational infrastructure. Thus, the timely completion of these reforms requires significant analytical work and technical support that will be addressed by several consulting firms. 22. Acceleration of transmission investments. Given the significant and growing investment backlog in transmission infrastructure, the swift rehabilitation and expansion of Cameroon s transmission backbone is a critical precondition to stop the continued deterioration of the quality of power supply with ever more pervasive system-wide blackouts and corresponding losses of industrial productivity and economic welfare. Today, the accelerated implementation of grid rehabilitation and expansion works is widely considered the cornerstone to meet the power sector s two key challenges: (i) the functioning of the new sector architecture; and (ii) the timely implementation of the GoC s ambitious hydropower development plans, in particular with regard to the integration of hydroelectric projects currently at advanced planning and construction stages, including Memvé ele (completion scheduled for 2018) and Nachtigal (completion scheduled for 2021). 23. Proposed operation focused on transmission sub-sector. Given the significance of the above challenges as a key bottleneck for broader sector development, the GoC requested the World Bank s assistance in October 2015 to support (i) the swift operationalization of SONATREL, including all related accounting, legal, financial, organizational, and operational aspects; and (ii) the coordinated implementation of the Least Cost Transmission Investment Program. 24. Ongoing sector dialogue and complementary World Bank projects. The Cameroonian power sector s broader sectoral challenges including ENEO s financial and operational performance, the future of the concession, and tariffs will continue to be addressed through the Bank s ongoing sector dialogue with the GoC and the World Bank s growing portfolio of energy sector projects in Cameroon. The GoC s request for World Bank support under this project is bolstered by a strong and well-established sector dialogue between the World Bank Group (WBG) and the authorities. Over the years, the WBG has built a close working relationship with sector stakeholders and is a trusted partner in regard to policy, institutional development, and sector investment. Under the Energy Sector Development Project (ESDP, P104456), the World Bank is assisting the GoC in updating the sector framework and supporting rural electrification, undertaking analytical work on least cost energy sector planning, and strengthening regulatory capacity. The WBG is also supporting hydropower development on the Sanaga River through 6

25 a combination of instruments, including support to the Nachtigal hydropower project (420 MW), which is the first development on the Sanaga River that will benefit from the Lom Pangar regulating dam, also supported by the Bank. For over a decade, IFC has also been active in the power sector in Cameroon: (a) as advisor to the GoC in the privatization of AES-SONEL; (b) as lead arranger for a 260 million syndicated loan for AES-SONEL s five-year investment program; and (c) as lender to Dibamba Power Development Company and Kribi Power Development Company. With regard to ENEO s financial performance, as well as the support of tariff reforms and the future of the concession for the generation and distributions sub-sectors, the Bank and IFC continue to play a pivotal role in facilitating a constructive dialogue and transparent decision making by the national authorities. Within this context, the Bank has supported the GoC in the completion of a transmission sub-sector reform policy statement (see Annex 6) laying out the key parameters and roadmap for the full completion of the sector unbundling, including the set-up of the TPA model and operationalization of SONATREL. C. Higher Level Objectives to which the Project Contributes 25. Alignment with GoC strategic objectives. The proposed project will support the strategic objectives of the GoC s Vision 2035 to achieve shared growth, reduce poverty, and create jobs through increased industrialization, improved productivity, and better governance. Similarly, the project will contribute to the GoC s DSCE , which aims to increase non-oil growth by investing in key infrastructure, improving productivity and the business climate, and strengthening human development and regional integration. By supporting the GoC to hold its course and stay on the sector reform path outlined above, the project will help establish a predictable environment for future growth and competitiveness of Cameroon s economy, which in turn will be essential for creating jobs and lifting marginalized and vulnerable populations out of poverty. 26. Alignment with the World Bank s twin goals. The project will contribute to reducing extreme poverty and boosting shared prosperity. More specifically, the project will help to address the following constraints: Jobs. The 2009 World Bank Enterprise Survey diagnosed electricity as one of the most binding constraints preventing Cameroonian firms from creating more and better jobs. More recent enterprise surveys have found that job-creating firms are more severely affected than other firms by low quality of electricity supply. Electricity access. The expansion of the country s regional transmission systems and interconnections will enable the transfer of power from new hydropower plants and energy-surplus regions to towns and villages in under-served regions and improve quality of supply in urban areas. Moreover, through the piloting of Shield Wire Systems (SWS) for rural electrification, the project will pave the way for the future roll out and mainstreaming of the technology to more evenly spread the benefits of transmission investment amongst both urban and rural populations. Electricity affordability. Cameroon s continued double digit losses in transmission and distribution are large even by Central African standards. As the reduction of technical losses will reduce overall costs per kwh delivered to customers, the project s investment in rehabilitation is an important precondition to improving the affordability of power supply. However, while efficiency gains are likely outcomes of any transmission sector investment program, these gains will not always be translated into welfare benefits. For the poor to benefit from power sector reforms and for investments to result in improved access to affordable electricity, supportive and coherent regulatory frameworks are needed, including the TPA model. 27. Relationship to the Systematic Country Diagnostic (SCD). Power supply and reliability have long been identified as important impediments to economic growth in Cameroon. According to the

26 Global Competitiveness index, Cameroon ranks 124 out of 140 countries worldwide on electricity infrastructure. In the World Bank s 2007 Investment Climate Assessment, two thirds of manufacturing firms cited power deficiencies as a constraint to doing business, leading to losses as high as 4.3 percent of annual sales. About half of the small and medium enterprises and 90 percent of the large enterprise own generators and one third of the country s installed generation capacity is met by high-cost, highpolluting diesel back-up generation, at US$0.46/kWh. Indeed, the World Bank s 2015 SCD for Cameroon, discussed by the Board in June 2016 (Report number ) identified improving reliability, availability, and access of clean energy as the highest ranked and most feasible intervention for addressing poverty reduction. 28. Relationship to the Country Partnership Framework (CPF). A new CPF is under preparation. This CPF sets out the World Bank s proposals for supporting the GoC s Vision 2035 and DSCE and will cover the period FY17-FY21. The CPF has translated the core constraints identified by the SCD into three areas of focus: (i) addressing multiple poverty traps, particularly in the North; (ii) improving the business environment for the formal and informal private sector, which will entail development of infrastructure, particularly energy and transport, direct support to the private sector environment, and vocational training; and (iii) supporting improvements of governance in the private and public sector, particularly at the local level and building on social accountability mechanisms that have worked in the past. The second CPF focus area, Infrastructure and Private Sector Development, will support the GoC s Industrialization Strategy through the promotion of five outcomes, including increased national availability of electricity. Regarding private sector development, the WBG will also scale up its support for the energy sector, in follow-up to demonstrated success under the FY10-14 Country Partnership Strategy. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 29. The project development objective (PDO) is to improve the capacity, efficiency, and reliability of Cameroon s national electricity transmission network. B. Project Beneficiaries 30. Direct beneficiaries. The proposed project beneficiaries are current and future electricity consumers, including the poor, who are disproportionately excluded due to the lack of reliable and efficient transmission capacity to service demand. In addition, in the absence of the investments supported under the proposed project, the grid would face difficulty in fully absorbing energy from new generation assets, and these assets could end up being stranded; as such, generation project sponsors and lenders benefit from the proposed project. SONATREL, and key sectoral institutions such as the Ministère de l Eau et de l Energie (MINEE, the ministry in charge of energy), ARSEL, and AER will also be directly supported by the project. 31. Indirect beneficiaries. Additional transmission capacity created under the proposed project will help increase productivity and spur economic growth. This benefits not only the electricity consumers, but the country s population as a whole through translation of improvements in the power supply situation into advances in job creation, poverty reduction, and improved prospects for shared prosperity. C. PDO level result indicators 32. The proposed PDO indicators are presented below and the full results framework in Annex Increase in transmission network s wheeling capacity (MW); 8

27 2. Reduction in total transmission network losses (percent); 3. Reduction in the hours of power outages that are linked to malfunctions in the transmission system / improvement of transmission system stability - System Average Interruption Duration Index - SAIDI) (hours); 4. Reform roadmap satisfactorily implemented - including new regulatory framework in place (text); 5. Project beneficiaries (number), of which female (percent). 9

28 III. PROJECT DESCRIPTION 33. Paving the way for private sector investment. The project will support Cameroon s approach to improving the quality of power supply and unlocking private sector investment through the implementation of the TPA model guided by the principles of efficiency and transparency. Activities are geared toward swiftly completing the institutional set-up of a fully unbundled transmission sector and addressing the backlog of urgent infrastructure investments. 34. Two-pronged approach for enabling SONATREL to exercise its mandate. As noted above, Cameroon s choice of the TPA model means that SONATREL is responsible for (i) the efficient, shortterm allocation of existing transmission capacity among competing network users; and (ii) the efficient long-term allocation of capital to build and extend transmission capacity to meet future demand and interconnect new generating facilities. Both are crucial to avoid the negative effects and social costs of transmission congestion and ensure the functioning and sustainability of the market model itself. To meet this two-fold mandate, the proposed project will support SONATREL via a two-pronged approach: (i) the handover of transmission assets from ENEO and full operationalization of SONATREL as system operator; and (ii) implementation of a comprehensive, coherent, and fully financed Least Cost Transmission Investment Program. Given their importance and interdependence, the implementation of both activities in parallel is vital. Figure 3: Two-pronged Support during Project Preparation and Implementation Phases 35. Long-term capacity building as integral part of World Bank support. The project has allocated significant resources to the handover of transmission assets and operationalization of SONATREL to ensure its rapid launch and to avoid system-wide disruptions during the startup phase. However, while preventing disruption is crucial in the short-term, the project s long-term success will 10

29 hinge on the provision of targeted capacity building activities to build the organization s skill set and expertise for efficient transmission grid operations and for the planning and preparation of investments for grid expansion and rehabilitation. A. Project Components 36. In line with the above, the project consists of the following three components. A more detailed description is presented in Annex 2. All project components will be implemented by SONATREL as the GoC s Project Implementation Entity. Component 1: Provision of support towards the operationalization of SONATREL s transmission activities (IBRD US$30 million equivalent). 37. Component 1 will support the GoC in the operationalization of the NTSO, SONATREL, and contribute to its efficiency. This component is underpinned by a detailed action plan/roadmap, and will include the following sub-components: Sub-Component 1(a): Handover of Transmission Assets, including the Spin-off, Sale, and Transfer to SONATREL. In order to complete the legal unbundling of the transmission assets from the balance sheet of the fully integrated ENEO, this sub-component will provide the technical assistance needed to ensure completion of the full accounting and legal separation of ENEO s transmission assets from the holding and their subsequent transfer to SONATREL. Sub-Component 1(b): Consolidation of SONATREL, including Institutional and Regulatory Framework. This sub-component will help complete the definition of SONATREL s operational arrangements and business processes, as well as its legal and institutional framework including tariff setting procedures and the national grid code. Sub-components 1(a) and 1(b) will be supported by two experienced consulting consortiums that have already been retained under the Project Preparation Advance. The CPCS-led consortium will carry out the institutional arrangements study, and the RTEled consortium will implement the operationalization of SONATREL. Sub-Component 1(c): Technical and Management Support for Start-up and Initial Operations of SONATREL. To ensure a swift transition and rapid start of operations, this sub-component will fund robust technical and management support for the first three to four years of SONATREL s operations. Sub-Component 1(d): Overall Management of the National Transmission Grid Investment Program. In order to ensure smooth implementation of the National Transmission Grid Investment Program, this sub-component will finance (i) an international firm acting as Assistant Program Manager to train and assist SONATREL in the implementation and supervision of the investment program and to ensure oversight of all resettlement, compensation, and citizen engagement processes for investments financed by the project; and (ii) an owner s engineer to oversee the works financed by the project. Component 2: Strengthening of the National Transmission Grid (US$335 million, of which IBRD US$285 million equivalent and GoC US$50 million equivalent). 38. Component 2 will improve the capacity and reliability of Cameroon s national electricity transmission network by financing priority investments to upgrade and extend the national transmission networks and strengthen the reliability of power supply in the interconnected systems. The key rationale for this component is to improve the quality of power supply and ensure that critical transmission infrastructure will be strengthened on time to enable absorption of urgently needed new generation capacity that will be coming online. In terms of reliability, the success of the TPA model 11

30 hinges on the capacity and technical performance of the transmission network, particularly with regard to avoiding congestion. In addition to the negative effects of transmission congestion on power prices and the associated social costs of congestion, a congested transmission network obstructs the functioning of the market model itself. 39. More specifically, this component will fund a subset of the short-term ( ) transmission expansion and rehabilitation measures proposed in the recently updated least cost Electricity Sector Development Plan (PDSE 2035). The component will be implemented by SONATREL and include both (i) new capacity expansion; and (ii) refurbishment and replacement measures. Project support will focus on the most urgent investments needed for the rehabilitation and upgrading of the Yaoundé and Douala networks, and the strengthening of the Northern transmission network and interconnections. All related compensation and resettlement measures will be supported by the GoC s US$50 million equivalent national counterpart contribution. 40. The investments to be financed under the project are currently indicative and may change, for the following two reasons. First, the short-term ( ) transmission expansion and rehabilitation program will be financed by a number of donors. Some of the proposed financing concerns investments that are critical to the coherence of the program, but has not yet been confirmed (i.e., Exim Bank, Deutsche Bank of Spain, European Investment Bank). Hence, the investments financed by IBRD may need to be revised to focus on the most critical investments in order to complete them in a timely fashion. Second, a stability analysis of the transmission system has recently been completed, taking into account the transmission investment program and the new power generation projects coming on line by This analysis assessed the coherence of the program and the network s ability to absorb the new generation capacity, and the priority investment program is being finalized based on this analysis. 41. Within the above context, Component 2 has five main sub-components: Sub-component 2(a): Strengthening of Douala s Transmission System. High-priority investments including 225 kv and 90 kv lines and substations aimed at ensuring the reliability of power supply, avoid voltage drops, and reduce dependence on thermal generation in Cameroon s largest city. Sub-component 2(b): Strengthening of Yaoundé s Transmission System. Critical investments in additional transmission capacity including 225 kv/90 kv transmission lines and substations to integrate the power produced by future generation assets, and increase the reliability of the transmission system in the city of Yaoundé. Sub-component 2(c): Strengthening and stabilization of the Three National Transmission Networks (South, East, and North) and their Interconnections. Urgent investments to bolster the three congested transmission grids and their interconnections. Sub-component 2(d): Provision of Smart Grid Investment Package in the Transmission system. To further enhance the stability and efficient use of existing transmission infrastructure, the program will finance a "Smart Grid" component. This component will provide support for both the preparatory analytic work and the implementation of Smart Grid investments, such as the strengthening of the supervisory control and data acquisition (SCADA) or upgraded switchgear and protection systems, to improve the efficiency and stability of network operations and allow for more accurate and robust sector planning decisions. Sub-component 2(e): Safeguard Activities. This component will carry out a program of activities aimed at supporting the implementation of the environmental and social mitigation measures 12

31 associated with the project including, but not limited to, the measures detailed in the Safeguards Instruments. 42. While the concession agreement does not prevent the implementation of new transmission investments by entities other than the concessionaire, SONATREL can and will be responsible for the implementation of the entire investment program under Component 2 of the project. Component 3: Project Management Support and Capacity Building (IBRD US$10 million equivalent). 43. Under Component 3, the project will finance technical assistance, analytical work, and capacity building support to key sector stakeholders, including AER, ARSEL, and MINEE (Ministry in charge of Water and Energy) to ensure clarity of roles and responsibilities, further bolstering sector governance within the context of the new sector framework. Moreover, the component will ensure the provision of needed technical, financial, operational, and fiduciary assistance to SONATREL s Project Implementation Unit (PIU) for the implementation of the project. Component 3 consists of the following sub-components: Subcomponent 3(a): Support to Sectoral Institutions and Capacity Building. The project will finance technical assistance, analytical work and studies, and capacity building of key sector players, particularly AER, ARSEL, and MINEE. o MINEE. The project proposes to finance a number of analytical activities such as: (i) feasibility and environmental and social impact studies for the Islamic Development Bank financed part of the investment program; (ii) update of the Letter of Energy Sector Development Policy to outline the sector policy objectives to improve the sector s performance in the medium term; (iii) development of an Energy Master Plan for Cameroon, which integrates the hydrocarbon subsector (including the development of gas), renewable energy development, and energy efficiency; (iv) development of a new Grid Code; and (v) study establishing the opportunity of creating a National Agency for the Development of Renewable Energy and Energy Management; and action plan for its establishment if confirmed. The capacity-building program for MINEE will be implemented with the support of international expertise (technical assistance); training in areas such as project planning, project management, public-private partnerships, policy development, and risk management; and acquisition of specific tools/software. o AER. In addition to capacity-building activities for AER, the project proposes to finance: (i) development of a new operational policy for electricity access in Cameroon; and (ii) feasibility studies for the first five-year access investment program issued from the recently approved Rural Electrification Master Plan (financed under the ESDP). o ARSEL. The project also proposes to finance a number of analytical activities and capacitybuilding activities for ARSEL. The recently completed study financed under the World Banksupported ESDP on the diagnosis of the electricity regulation function in Cameroon has provided a solid foundation for establishing a five-year capacity-building program of activities for ARSEL. Subcomponent 3(b): Project Management Support. Activities under this sub-component will mainly ensure the provision of needed technical, financial, operational, and fiduciary assistance to SONATREL s PIU for the implementation of the project. B. Project Financing 44. The lending instrument for the proposed project is Investment Project Financing. The project is financed by a Euro million (US$325 million equivalent) International Bank for Reconstruction and Development (IBRD) loan. The GoC is contributing US$50 million equivalent to finance costs 13

32 associated with resettlement and compensation. Project cost and financing by component is shown in the table below. Project Cost and Financing Project Components 1. Provision of support towards the operationalization of SONATREL s transmission activities 2. Strengthening of the National Transmission Grid 3. Project Management Support and Capacity Building Project Cost (US$ million equivalent) IBRD Financing (US$ million equivalent) % IBRD Financing Total Costs Total Project Costs Front-End Fees Total Financing C. Lessons Learned and Reflected in Project Design 45. The design and development of this project has benefited from a rich menu of lessons learned from similar, large infrastructure operations in Africa and beyond, as well as other completed and ongoing World Bank-financed projects in Cameroon, including in the energy sector. Lessons from analytical work on transmission reforms carried out by the World Bank, other donors, non-governmental organizations, and the private sector are also relevant and have been taken into account. 46. The use of the full range of World Bank instruments is important in supporting sector reforms. Lessons learned from around the globe show that the World Bank s role in supporting transmission investments extends well beyond lending, to include technical assistance, knowledge sharing, policy dialogue, analytical work, and the full range of support provided during project preparation. The preparation of this project builds support that the World Bank has provided to the GoC during its long engagement in the energy sector in Cameroon, combining investment lending with strengthening of sectoral foundations through policy dialogue and technical assistance. The World Bank has established a strong policy dialogue with the authorities and is a trusted, strategic partner of the GoC in the sector. 47. Two-pronged approach - reforms are fundamental, and so are investments. Recent sector experience throughout Sub-Saharan Africa and beyond shows that transmission investment is not a natural outcome of successful reforms. As independent transmission grid operators have developed, congestion on the transmission network has often not only increased but is increasingly recognized as a significant constraint to the development of efficient, competitive wholesale markets for power. In many countries that have liberalized their electricity sectors, investment in transmission capacity has not kept pace with the expansion in demand, generating capacity, or the volume of wholesale trade. In Europe and the United States there has been almost no investment in interregional transmission capacity since the early 1990s. Similarly, following the unbundling of utilities in Brazil and Chile during the same decade, inadequate transmission investment has been identified as a major and rapidly growing problem. Against this backdrop, the project has been designed to achieve parallel progress on the two most urgent and critical issues of the country s transmission sub-sector: (i) the completion of 14

33 institutional reforms, including the operationalization of SONATREL; and (ii) the implementation of a coherent transmission investment program. 48. Management support and capacity building must happen simultaneously. The operationalization of SONATREL in the start-up phase will require support from international experts as well as capacity building to develop national skills. Lessons from past reforms show that for institutional reform to be successful, management assistance and the simultaneous building of staff capacity are required. Given the vital function of a NTSO as the hub and spinal column of any country s power system, the successful implementation of the project will hinge on the timely and orderly handover of transmission to SONATREL and the rapid bolstering of the new entity s operational and fiduciary capacity. Therefore, the project has allocated significant resources to the swift operationalization of SONATREL, with operational support for an initial three to four year period through a technical and management assistance contract, including a gradual handover to local staff and management. 49. Proactive planning for transmission investments, backed-up by the requisite implementation capacity, is critical. Recent experience in Cameroon and throughout Sub-Saharan Africa shows that it is crucial to ensure that investment planning for power transmission infrastructure is proactive and forward looking, and not simply reactive to natural growth in demand. The skills required for the planning and preparation of large energy sector transmission investments are often lacking, which results in poor preparation of investments and significant implementation delays with potentially high costs to the economy. For the implementation of the transmission investment plan under this project, it is proposed to supplement SONATREL s project unit with technical, environmental, and social consultants fully dedicated to the preparation of investments, ensuring that international best practices are applied and providing capacity building and training to SONATREL s staff. Furthermore, SONATREL will be supported by an international consulting firm acting as Assistant Program Manager to streamline implementation of investments, including planning and procurement of works. 50. Management of customs duties and taxes in regard to SOEs. Experience from the World Bank-supported Lom Pangar Hydropower Project (P114077) shows that it is critical during the creation of an SOE in charge of overseeing the project to get the appropriate management of customs duties and taxes on the imports made for the project. In absence of such arrangements during the creation of the SOE, a significant amount of project/counterpart financing would go toward customs duties and taxes, and could generate significant implementation delays. It has been agreed that the proposed project will not cover the costs of taxes and duties. 51. Knowledge transfer is key. Knowledge transfer is necessary to ensure long-term sustainability of sector support. The project aims to meet this challenge by providing a mix of analytical work and incountry and outside training activities, as well as teaming external consultants with staff of SONATREL, MINEE, AER, and ARSEL for key technical activities. With a view towards improving coordination among all sector agencies and ensuring synergies between activities, capacity building activities under the project have been demand-driven and developed though a participatory approach involving all sector agencies. 52. Proactive management of environmental and social impacts. As transmission lines and substations are likely to negatively affect both urban and rural livelihoods as well as sensitive ecosystems, the early identification and implementation of appropriate mitigation measures is key to ensure that the development benefits of investments are not undermined by negative social and environmental impacts. Within this context, the diligent optimization of line routings and the location of the substations to minimize social and ecological impacts is the most effective way to mitigate such negative impacts. When negative social impacts cannot be avoided or minimized further, the fair and efficient completion of expropriation and compensation processes well before the beginning of works 15

34 has to be guaranteed. Therefore, it is often necessary to introduce a legal covenant to ensure that required resources for compensation and resettlement measures are included in the project budgets and made available and that qualified international consultants help oversee and ensure the timely implementation of these measures. A legal covenant has been incorporated under the proposed project. 16

35 IV. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 53. Project Implementing Agency. SONATREL will be the sole implementing agency of the project. The project will be managed under the supervision of SONATREL s General Manager. Given that SONATREL is a newly created entity, a PIU will be created, headed by a Project Coordinator who will be responsible for the day-to-day management of project activities. The PIU will benefit from the existing fiduciary experts within MINEE for the implementation of the ESDP and will be supplemented by a small number of specialists either financed by the project or SONATREL. The MINEE/ESDP team has consistently been rated satisfactory and will be reinforced to manage the project. The MINEE/ESDP fiduciary team, which is also currently implementing the US$ 3.5 million Project Preparation Advance, comprising a Senior Financial Management Specialist, an Accountant, and a Senior Procurement Specialist, will be transferred from MINEE to SONATREL before project effectiveness. Other key staff will be recruited before effectiveness, including a Project Coordinator and a Socio-environmental Specialist. Within six months of effectiveness, a Monitoring and Evaluation (M&E) Specialist will be recruited. During the first year of project implementation, the PIU will be reinforced, if necessary, by a second accountant and a second procurement specialist and a resettlement expert to monitor the preparation and implementation of the Resettlement Action Plans. 54. The PIU will have responsibility for the day-to-day management of the project and coordination of project-related activities, including: (a) ensuring the timely implementation of the project in accordance with the Project Implementation Manuel (see below); (b) preparing annual work plans and budgets and annual procurement plans for submission to the World Bank for approval and to the Steering Committee for information; and (c) assuming overall responsibility for, inter alia, such tasks as procurement, financial management, M&E, communication, citizen engagement, and compliance with environmental and social safeguards. PIU staff will work closely with SONATREL to ensure longterm capacity building. 55. Assistant Program Manager. Given the importance of an efficient and centralized control to ensure proper coordination and to avoid major delays, the project will also finance an Assistant Program Manager (APM) (international firm) to assist SONATREL in the implementation of the electricity transmission investment program. The APM will be responsible for coordination of construction and administrative duties, in support to SONATREL for the entire program, and oversight of all resettlement, compensation, and citizen engagement processes for investments financed by the project. The APM will also work closely with the owner s engineers recruited by SONATREL to supervise preparatory and construction works. The project will also finance the contracting of an owner s engineer, to be selected competitively, for the part of the program to be financed by IBRD. 56. Project Implementation Manual. A Project Implementation Manual (PIM) is under preparation by SONATREL. The PIM will provide guidance on roles and responsibilities as well as on the technical, administrative, financial and accounting procedures, procurement arrangements, and the safeguard procedures. 57. Steering Committee. In December 2014, a Steering Committee (Comité de Pilotage) chaired by MINEE was established by decree. The Steering Committee is responsible for overseeing the handover of transmission assets and operationalization of SONATREL and for monitoring the electricity transmission program progress. The Steering Committee will be regularly informed of progress on the reforms and on project implementation, including through: (i) quarterly reports on the reform provided by the reform implementation task force; and (ii) quarterly financial and narrative reports by the PIU 17

36 with help from the APM and from the owner s engineers. While SONATREL will be the sole project implementation agency, MINEE will be responsible for oversight of the project. 58. Reform Implementation Task Force. In addition to the Steering Committee, to facilitate operationalization of SONATREL, a Reform Implementation Task Force has been established. It is composed of representatives of the two already recruited consultant consortia, ENEO, and SONATREL. A number of working groups in all key areas, such as technical, accounting, social and human resources, financial, cost and tariff, fiscal, and legal, have also been created and will report directly to the Task Force. The Task Force itself will report to the Steering Committee. B. Results Monitoring and Evaluation 59. The project-level M&E framework will track progress during implementation, measure intermediate outcomes, and evaluate project impacts. The results framework in Annex 1 outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. This framework will be used to supervise and monitor project implementation. 60. The PIU in SONATREL will be responsible for the overall management of the project results framework (Annex 1). To ensure efficient data for monitoring and evaluation of outcomes, SONATREL will closely coordinate with government agencies, donors, and other stakeholders. 61. The PIU will prepare project reports that are in form, content, and substance satisfactory to the World Bank. Reports will be prepared for each semester during project implementation, and will be submitted to the World Bank no later than 45 days after the end of the period covered by the reports. Monitoring of results and outcomes will be reported in the PIU s project implementation reports. Furthermore, the World Bank will supervise the project over its lifetime and its results and outcomes on a regular basis to evaluate the project s achievement of the PDO. If necessary, corrective actions will be discussed and agreed upon with the GoC, including, for example, during the project s mid-term review. C. Sustainability 62. The sustainability of infrastructure investments critically depends on the timely implementation of the accompanying reforms and the operationalization of SONATREL. A transmission sub-sector reform policy statement was prepared and approved by the GoC (see Annex 6) prior to project negotiations to provide an updated and comprehensive analysis of the sector and institutional context of sector reform. An inception road map and modus operandi for the operationalization of SONATREL have also been prepared and approved by the GoC prior to project negotiations. The inception road map for the operationalization of SONATREL provides a detailed overview of all formal and legal actions that need to be completed for the purpose of a full operationalization of SONATREL, including a tentative timeline covering the key technical, social, tariff, accounting, management, and legal elements of the activity. The inception modus operandi provides a synopsis of the methodology and key organizational aspects of the above actions including responsibilities, operating modalities, and composition of working groups 63. Financial sustainability. Financial sustainability of the proposed project will ultimately be determined by the sustainability of the new market model of the power sector being implemented and the definition and correct application of the transmission tariff. In the transfer of assets from ENEO to SONATREL, a portion of the existing tariff will need to be carved out, increased, and allocated to SONATREL in order for it to recover operations and maintenance (O&M) costs; existing and new asset depreciation costs; and return on capital. Ongoing studies will help the GoC in defining the right level of the wheeling tariff and therefore ensure SONATREL s sustainability. 18

37 64. Technical, environmental, and social sustainability. As mentioned above, the APM financed by the project will be responsible to assist SONATREL in the overall coordination for the entire electricity transmission investment program including the oversight of all resettlement, compensation, and citizen engagement processes for investments financed by the project. Capacity building and knowledge transfer will be part of the APM s terms of reference, as will the terms of reference of PIU staff, to ensure long-term sustainability of investments and to build capacity for any future investments in the sector. Regarding O&M activities, it is expected that most of the staff currently in charge of transmission operations within ENEO will be transferred to SONATREL. D. Role of Partners 65. Project implementation activities will be carried out in coordination with other donors that are providing assistance to the GoC for transmission investments. This includes the African Development Bank (AfDB) and Banque de Développement des Etats de l Afrique Centrale (BDEAC) (US$88.6 million); Kribi Port Industrial Complex (US$17.2 million); EXIMBANK China (US$154.4 million); EXIMBANK India (US$107.3 million); Industrial and Commercial Bank of China (US$54.6 million); SOCIETE GENERALE (US$154.3 million); NACHTIGAL Project 11 (US$16 million); Islamic Development Bank (IsDB, US$150 million); and Deutsche Bank of Spain (US$40.1 million). 66. Given the importance of an efficient and centralized control to ensure proper coordination and to avoid major delays, the project will finance an APM (international firm) to assist SONATREL in the implementation of the program, including environmental and social requirements, global coordination, and program consistency and planning. 67. In parallel, the GoC has asked the World Bank to take the lead in coordinating donor support for the implementation of the program, including to ensure timely availability of funds, and thus the World Bank will coordinate through joint missions at least twice per year, regular donor meetings, and workshops. In between missions, in country staff of various donor agencies will cooperate on follow up and dialogue with SONATREL, the APM, and the GoC. While the World Bank has a recognized role in leading donor coordination, each donor will be responsible for compliance with their own procurement and safeguard policies for the sub-projects that are not financed by IBRD. 68. The World Bank will also assist the GoC in completing (if deemed necessary) the financing plans for the transmission program. The Agence Française de Développement (AFD), the United Kingdom s Department for International Development, the European Investment Bank, the Japan International Cooperation Agency, and others have expressed an interest in supporting the GoC s transmission program. More details are provided in Annex 2. V. KEY RISKS A. Risk Ratings Summary Table Risk Category Rating 1. Political and Governance Substantial 2. Macroeconomic Substantial 3. Sector Strategies and Policies High 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary Substantial 11 Nachtigal hydroelectric project is developed by a consortium, comprising the Republic of Cameroon, Electricité de France, and IFC. 19

38 7. Environment and Social High 8. Stakeholders Substantial Overall High B. Overall Risk Rating and Explanation of Key Risks 69. The overall project risk rating is high. Major risks are attributable to the complexity of the project, the technical and policy issues that are critical to its success, and the country s challenging governance environment. At an institutional level, the World Bank has carefully weighed the risks alongside the project s considerable benefits. The major risks and possible mitigation measures are discussed below. 70. Political and Governance and Sector Strategy and Policy Risks. Sustained political commitment to the reform program is critical to the success of the project. The advances made in the power sector reform under the current government could be reversed by subsequent administrations. Mitigation: the GoC has prepared a Transmission Sub-sector Reform Policy Statement to reassert its commitment to the reform process. Moreover, intense implementation support and continued policy dialogue will be key to mitigate these risks. In addition, there is broad public support and political consensus around the overall sector reform goals. In case of any reduction in external borrowing available for the project, the scope of the project components would be modified accordingly to reflect the available allocation during the implementation phase of the project. These reductions would mostly affect the scale and scope of components 1 (b) and 2 (a). 71. Stalling of Reform Progress. A stalling of reforms could result from a number of factors, most notably from the failure of both GoC and ENEO to agree on mutually acceptable terms and conditions from the spin-off and transfer of transmission assets to SONATREL. Mitigation: Funded by the Project Preparation Advance, the GoC has hired two experienced teams of consultants to work with both ENEO and the authorities in mixed, inclusive working groups to jointly discuss and establish an equitable and mutually acceptable terms for the transfer of ENEO s transmission mandates, assets, and human resources. The fleshing out of these terms and conditions will be a key component of the important detailed action plan for SONATREL s operationalization, which is under preparation. 72. Sector Financial Viability Risk. There is a risk that the implementation of tariff increases will be slowed down by a continued lack of political will to strengthen ENEO s revenue base. This would result in deterioration of ENEO s finances, thus affecting its ability to make payments to different market players, including SONATREL and independent power producers. Furthermore, a sustained deterioration of ENEO s finances could affect its ability to borrow the capital needed for urgent infrastructure rehabilitation and for bolstering its operational performance. Mitigation: the World Bank team is strongly engaged in sector dialogue on this issue with the GoC. The sector s and ENEO s financial viability has been the key topic of the WBG-GoC sector high-level workshop, which was held on September 22, 2016, when a detailed action plan was agreed to address delays in tariff setting and payments of compensation. It was also agreed to further work on macro-modelling of the impact of tariff increases on households in particular, and on the economy in general. 73. Sector Macroeconomic Risks. The Cameroonian power sector is subject to a significant amount of volatility stemming from external factors such as interest rates, financial markets, and the economic growth of key trade and investment partners. Moreover, future investment in the sector s infrastructure will be contingent on the sustainability of Cameroon s rapidly rising debt burden and fiscal discipline. Mitigation: While none of these macro risks can be addressed directly, the project itself will contribute to greater resiliency in weathering many of these risks by helping the country to diversify its 20

39 energy matrix and improve the overall service quality of the power sector for both productive and consumptive energy users. 74. Environmental and Social Risks. Transmission lines and substations which may be funded by this project could negatively affect both urban and rural livelihoods as well as sensitive ecosystems thus requiring appropriate mitigation measures. Mitigation: Based on pre-feasibility studies and Environmental and Social Assessments, the GoC will ensure that final line routings and the location of the substations are selected and optimized to minimize social and ecological impacts and will secure sufficient financial resources to ensure an efficient completion of all expropriation and compensation processes prior to the beginning of works. A legal covenant has been included under the proposed project to ensure that required resources are included in the GoC s yearly Finance Law. Moreover, the GoC has agreed to recruit a qualified international consultant firm to ensure the oversight of all resettlement and compensation processes from the commissioning of Environmental and Social Impact Assessments (ESIAs) and Resettlement Action Plans (RAPs), to the payment of compensation to affected populations. In addition, the project will finance an APM (international consultant firm) to assist SONATREL in the implementation of the electricity transmission investment program, including all environmental and social requirements. 75. Implementation Risks. Implementation delays represent the greatest risk to the achievement of the PDO since any major holdup in the completion of the project s transmission works can result in stranded assets and urgently needed new generation capacity not being connected to the national grid. There is a risk of delays due to the complicated and administratively intensive compensation and resettlement process under Cameroonian law. The management of compensation and resettlement measures is on the critical path of project implementation. Mitigation: In order to minimize the risk of delays, the team has agreed with the GoC to adopt a number of measures to ensure the forward-looking and proactive management of resettlement and compensation issues. The mitigation measures include the streamlining and earliest possible initiation of processes related to the identification and compensation of populations affected by the project, including the request for Déclaration d Utilité Publique (DUP, or Declaration of Public Utility) as soon as the line routing or location of the substation is identified. The above mentioned legal covenant is meant to secure sufficient financial resources for compensation payments. In addition, all efforts will be made to avoid any resettlement or land acquisition unless it is absolutely necessary. 76. Institutional Capacity Risk. Even if resettlement and compensation processes are streamlined and initiated as early as possible, the coherent supervision and overall coordination of works related to implementation of the transmission investment program could become a major bottleneck. Mitigation: an international consultant firm acting as APM will assist SONATREL in the implementation of the electricity transmission investment program, including all environmental and social requirements. The successful implementation of the proposed transmission network expansion and rehabilitation measures and the further expansion of generation capacity hinges on the timely and orderly handover of transmission assets to SONATREL and ensuring the new entity s operational and fiduciary capacity. The proposed project has allocated significant resources to the swift operationalization of SONATREL and will ensure its rapid launch and gradual handover by means of technical and management support for the first three to four years of SONATREL s operations. 77. Fiduciary Risk. The fiduciary risk under the project is rated substantial given that SONATREL (the implementing entity) is a newly created entity with limited fiduciary capacity. Mitigation: SONATREL s PIU fiduciary staff (financial management and procurement) will consist of the existing fiduciary experts within MINEE, currently in charge of the implementation of the ESDP and of the Project Preparation Advance. Therefore, to ensure adequate fiduciary capacity, the MINEE/ESDP fiduciary team 21

40 will be transferred from MINEE to the SONATREL PIU, which has already been created, before the project becomes effective. In addition, to speed up procurement processing, the establishment of a project-specific tender board (Special Tender Board) has been incorporated under the proposed project as a dated legal covenant. 78. Climate and Disaster Risks. The project has been screened for risks related to climate change and natural disasters. Apart from limited seismic risks, there is a moderate potential impact of climaterelated disasters to the planned network extension and upgrade activities. Cameroon is subject to heavy precipitation, flooding and landslides, particularly in the rainy season which last from April to November each year. The above climate-related events could delay the construction of new transmission lines and network upgrades and critically damage new and existing transmission infrastructure including substations. All major climate and disaster risks will be examined more closely during the completion of feasibility studies of planned extension and rehabilitation works and monitoring procedures established as needed. The project also has important climate mitigation co-benefits as detailed in the economic analysis below. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses Economic Analysis 79. Project s development impact. The economic analysis which focuses on the project s Component 2 where the majority of investments will be undertaken, shows that the IBRD project is economically beneficial with an estimated economic internal rate of return (EIRR) of 11.6 percent and a net present value (NPV) of US$90 million, at 6 percent discount rate. The project s development impact can be summarized as follows: i. By reducing transmission losses and investing in grid modernization and rehabilitation measures, the project will improve the efficiency of power supply. The related gains are assumed to be passed on to both commercial and household customers. All of the project s investments will contribute to reducing the losses of the larger interconnected system. Therefore, economic benefits have been computed as a share of overall loss reductions to be achieved through the National Transmission Investment Program, rather than as the sum of loss reductions for individual investments financed by the project. In addition to the decrease of transmission losses, the analysis also considered efficiency gains from improved voltage stabilization and reactive power compensation. Economic benefits have been valued at willingness-to-pay. ii. By reinforcing the network s wheeling capacity, and by financing grid rehabilitation measures, the project will improve the capacity and reliability of power supply. Consequently, with frequent blackouts, brownouts, and voltage drops heavily affecting the productivity of Cameroonian businesses and well-being of households, the project will foster improved productivity and economic growth. The economic benefits of improved capacity and reliability have been computed by considering the reduction of unserved energy at the grid-wide marginal cost versus the marginal cost of self-generation. iii. Finally, by contributing to the efficient transmission of low-cost and low-carbon power from renewable energy projects scheduled to be coming online from 2018, the project will further improve the economic and environmental sustainability of the country s power supply. However, for the purpose of a sufficiently robust and conservative analysis, these benefits have not been included in the computation of the project s economic benefits. iv. With regard to avoided greenhouse gas (GHG) emissions, it is expected that the project will save

41 million tons of CO 2 over the economic lifetime of the investment. Similarly, for the purpose of a conservative estimate, only emission reductions from diminished transmission losses have been considered. Net emission reductions were computed using the current Cameroonian emission factor of 216 g CO 2 /kwh versus the projected loss of carbon sinks (forest cover, vegetation) from the clearing of sites and right-of-way of transmission lines. Table 1. EIRRs and NPVs broken down for each of the sub-components under Component 2 Sub-component EIRR (%) NPV (US$ million) 2 (a) and (b): Reinforcement of Douala and Yaoundé (c): Reinforcement of Northern Grid Global (a+b+c) While the economic rate of return is lower for the northern grid (7.2 percent), the proposed investments are strongly supported by the priorities of the SCD. Cameroon s SCD emphasizes that, despite consistently featuring the highest regional poverty rates, the Northern regions have received seven to ten times less per capita spending in public works as the Southern urban areas of the country. With the lack of infrastructure investment, Cameroon s recent solid growth performance has had little overall effect on the incidence of poverty in the North, but has rather exacerbated geographic inequalities. During the last decade, poverty rates have increased in the northern region of the country, which is home to 56 percent of Cameroon s poor, even as poverty rates have fallen in urban areas and in the south. Hence the significance of the investment in the northern grid. The critical importance of public works for inclusive growth has been confirmed by recent research, including a study that concluded that worldwide investments in infrastructure during the 1990s and 2000s reduced inequality by a three percentage point drop in the Gini coefficient The team s sensitivity analysis has shown that the project s overall economic benefits (based on sub-components 2(a), 2(b), and 2(c)) are sufficiently robust to sustain adverse events such as costs overruns (switching value at 180 percent of baseline) and delays in generation and/or transmission investments (switching value at five years). However, with its lower economic returns, the project s investments in the Northern grid are more sensitive to variations in key parameters: these are the willingness to pay (with a switching value of 29 cents per kwh; baseline is 35 cents per kwh), cost overruns (switching value at 120 percent of baseline), and delays (switching value is two years). 82. Appropriateness of public sector financing. The ongoing sector reform is a highly complex and risky undertaking given the multitude of aspects that need to be addressed, particularly in the operationalization of SONATREL, including operational, financial, legal, human resources, political, environmental, and social aspects. Moreover, transmission investments, by their nature, typically have very long payback periods. Therefore, while the proposed transmission investments would be difficult and costly to finance from private sources, their timely implementation is a crucial precondition to revitalize private investment in the other (generation and distribution) subsectors. However, once SONATREL has been operationalized and the most critical investment backlog in the country s transmission backbone overcome, perceived investment risks will be significantly lower, potentially also paving the way for private sector participation in the generation and distribution subsectors. 83. World Bank value added. The World Bank has a long history and ample experience in accompanying power sector reforms in Sub-Saharan Africa and worldwide, including in unbundling and Transmission Company restructuring, and will use its expertise to help the GoC implement its comprehensive reform program. The World Bank also has a long history of supporting sector reform in 12 Calderon and Serven (2010). 23

42 Cameroon and has become a trusted partner of the GoC in this regard. Finally, by enhancing sector governance and transparency, the World Bank s fiduciary processes and support will be beneficial to all participants of the investment program and bolster the confidence of private contractors. 24

43 Financial Analysis of Sector 84. In 2014, ENEO was able to break even financially with a profit after tax of 2.3 billion FCFA, which amounted to less than one percent of total sales. However, distribution losses, at 30 percent, are high by industry standards. Moreover, the company s annual depreciation of 30 billion FCFA is roughly twice the amount of annual investments. This testifies to the urgency of capital investments needed for the rehabilitation of critical hydro assets and the revamping and expansion of ENEO s distribution network. 85. In 2015, the situation deteriorated further with the GoC delaying its tariff compensation to ENEO, estimated at 17 billion FCFA. As a result, ENEO incurred a loss of 15 billion FCFA despite continuing to cover its operating expenses with 20 billion FCFA in cash flow from operations. Throughout the same year, the company also suffered from liquidity problems resulting from major payment delays of electricity bills, including from ALUCAM and the GoC. To address its liquidity issues, ENEO had to fall back on the use of costly bridge loans amounting to 16 billion FCFA. For the same purpose, ENEO also negotiated a factoring facility of 13.5 billion FCFA with commercial banks, which will allow ENEO, against a discount, to immediately convert outstanding GoC electricity bills into cash, with partner banks taking over the collection of bills from the government. 86. The regulator ARSEL has approved the request made by ENEO for a 15 percent increase in revenue requirements for the year Following the approval, it is up to the GoC to decide how it would like to see this increase implemented, whether through a tariff increase, a tariff compensation, or a combination of both. In addition, discussions between the GoC and ACTIS regarding the extension of the concession contract are ongoing. Once an agreement is reached on the tariff issue and the future of the concession, ENEO s management team intends to refinance the company s most costly debt instruments, including the above bridge loans, and revive its ambitious investment program. 87. While in 2016, the cost of service for LV/MV consumers is expected to increase to a peak of 110 FCFA/kWh from a current level of 82 FCFA/kWh, by 2025, the commissioning of new hydro assets combined with loss reduction efforts will yield a significant reduction in cost of service down to 66 FCFA/kWh (see Figure 4). Provided the tariff is adjusted or compensation paid to reflect the above increase of the utility s cost of service, projections show that ENEO should be able to service its debt and will have acceptable liquidity ratios. Figure 4: Cost of Service Expected to Decline (Source: ENEO's Financial Model) 88. In the absence of a tariff increase or compensation, the escalating liquidity situation will eventually become a solvency issue for ENEO and the sector more generally. While the sector financial 25

44 sustainability is outside the project s scope, it has been clearly identified as a risk to the achievement of the PDO. Thus, the project is viewed as a high risk - high reward project. 89. To facilitate a swift resolution of the above issues, a joint WBG-GoC workshop took place on September 22, 2016 to identify and discuss solutions and expedite executive decisions in the following critical areas: application of the tariff formula, timely implementation of regulatory decisions, least cost planning, and the ongoing transmission reform. 90. In parallel to the transfer of assets from ENEO to SONATREL, the proper transmission share of current ENEO tariffs will need to be determined and assigned to SONATREL in order for the new transmission system operator to recover: (i) O&M costs; (ii) existing and new asset depreciation costs; and (iii) an appropriate return on capital. The World Bank team completed an initial estimate of the future wheeling tariff while assuming that all debt financing of new transmission investments by the GoC will be passed on to SONATREL. As shown in Figure 5 below, the wheeling tariff will remain a small portion of the total tariff (maximum of 15 FCFA/kWh at the retail level after loan repayments begin). Figure 5: Estimation of Wheeling Tariff Required for SONATREL's Sustainability 91. A more detailed financial analysis of SONATREL was not possible given that the breakdown of both assets and operating expenses between generation, transmission, and distribution was not available at the time of appraisal. 13 However, work on this critical task is ongoing and will be completed by early 2017 by the consortium in charge of defining SONATREL s institutional arrangements. B. Technical 92. The project uses well established technologies and presents no unusual construction or operational challenges. The equipment and the technologies involved in construction and operation of transmission lines are well known and proven, including in Cameroon. 93. Network Stability Study. The final design of the National Transmission Investment Program for the period covering , including technical parameters and final estimated project costs for the works under Component 2, will be established based on the conclusions of the recently completed Network Stability Study. The study has assessed and optimized the coherence, sequencing and 13 For the same reason, the team has not conducted a financial analysis of the project as this is contingent on having a wheeling tariff that has been set for SONATREL. However, the wheeling tariff estimation provides an idea of what SONATREL s revenues should be for it to be solvent. 26

45 prioritization of the Program. The results of the study have been reviewed and approved during appraisal. 94. Financing of the Program. As mentioned above, the Program will be financed by a number of donors with some of the proposed financing not yet confirmed. The final scope of the IBRD investment of the proposed project will be adapted by GoC to ensure that critical investments identified by the stability study, and not financed by other donors, will be fully funded and completed on time. 95. Feasibility and Safeguard Studies and bidding documents. Once all specific investments for IBRD s contribution to the National Transmission Investment Program have been confirmed, a comprehensive feasibility study will be completed. The study will be realized in two stages. In its first stage (pre-feasibility), alternative line routings and preliminary substation locations will be proposed in order to minimize the overall negative impact of the project activities. The pre-feasibility study will be the starting point for the below mentioned safeguards studies. As a result, the safeguard and other technical consultants will work in close collaboration with SONATREL to consider all possible alternatives for the line routings and location of substations in order to minimize environmental and social footprints. 96. Subsequently, the completion of the full feasibility study will specify all pre-construction tasks, including installation design, detailed cost estimates and implementation schedules, procurement strategy, tender processes and documents, engineering-procurement-construction packaging, bid evaluations and contract awards for physical implementation. The stability study and safeguards framework documents have been financed through the Project Preparation Advance and the ESIAs and feasibility studies will be financed by the proposed project. 97. Project costs are based on estimates derived from recently commissioned lines and substations financed by ENEO. The cost estimates have been appraised and are deemed to be in line with current market prices. Taking into account the possibility of relative cost increases during the feasibility study, the contingency amount has been estimated at 15 percent of the total cost. The total cost also includes eight percent for project and operation management. 98. As part of the project s implementation arrangements and as is common for these types of projects, an owner s engineer will be contracted. The owner s engineer will be a reputable international engineering company with the experience required for this kind of project and they will help to ensure that construction is carried out in accordance with designs and international quality standards. C. Financial Management 99. The fiduciary aspects of the proposed project will be managed by the PIU that has recently been created within SONATREL. Given that SONATREL is a newly created entity with limited fiduciary capacity, the PIU financial management (FM) staff will consist of the existing FM experts within MINEE, currently in charge of the implementation of the ESDP, which will close January 31, Therefore, the MINEE/ESDP financial management team, which is also currently implementing FM aspects of the Project Preparation Advance, will be transferred from MINEE to the PIU created in SONATREL before the project becomes effective In line with the FM aspects of the Bank s OP/BP 10.00, Investment Project Financing, an FM assessment was conducted to ensure the proposed arrangement with MINEE/ESDP is adequate and the PIU will be in place by effectiveness. The assessment concluded that the FM system in place at MINEE/ESDP is deemed adequate; qualified staff members are in place and conversant with World Bank procedures (one FM specialist and one accountant). The MINEE/ESDP FM team has consistently been rated satisfactory, and could be reinforced to manage the proposed project as needed during project 27

46 implementation. The arrangement to have the FM staff transferred to the SONATREL PIU is deemed adequate In line with the use of the country national system, the project will rely on the existing country FM arrangements put in place to manage donor-funded projects. These arrangements are centered on two main institutions. First, the Caisse Autonome d Amortissement (CAA), or Autonomous Sinking Funds equipped with dedicated tools developed by the Bank Institutional Development Fund (IDF). These tools include (i) a standardized FM manual; and (ii) and integrated financial management system for donor funded projects (namely SIGED 14 ), which includes modules on (a) project cycle; (b) budgeting and accounting; (c) automated payments, and (d) electronic archive. Second, the Ministry of Public Procurement in charge of ex ante control of all suppliers invoices associated with a contract before any payment by CAA In light of the above, (i) the standardized Financial Management Manual of Procedures developed by CAA with World Bank IDF support will be customized to reflect the project specificities, the budget and accounting modules of the SIGED will be deployed at the PIU to handle accounting and reporting needs under the project, and CAA and the Ministry of Public Procurement s internal control mechanisms will be applied. An external auditor will be recruited using the country arrangements (by which the Ministry of Public Procurement leads the process with involvement of the line ministry) to conduct annual financial audit of the financial statements of the project along with the review of the internal control system. The option to involve the Chamber of Account (Supreme Audit Institution) in the auditor recruitment process will be considered For sustainability purposes (capacity building), it might be considered to add to the project FM team, staff (accountants) from SONATREL on a part-time or full-time basis. Said staff will benefit from a competence transfer on all FM and disbursement related issues during the project life The overall FM residual risk is assessed as substantial. FM assessment and detailed FM arrangements are described in Annex 3. D. Procurement 105. The overall procurement risk for the project is rated high, mainly due to: (i) the country environment risk of corruption in procurement, especially in public contracts; (ii) the relatively limited experience of the Ministry of Public Procurement (MINMAP) with World Bank-financed projects; (iii) the potential conflict of interest for MINMAP in relation to the management of complaints linked to contracts directly handled by MINMAP and shortcomings in procurement operations and practices; and (iv) the newly created PIU within SONATREL. However, the transfer of MINEE s ESDP procurement expert to SONATREL s PIU will help to mitigate the PIU s procurement risk As with FM, for sustainability purposes (capacity building), it might be considered to add to the project procurement team, staff (procurement specialists) from SONATREL on a part-time or fulltime basis. Said staff will benefit from a competence transfer on all procurement related issues during the project life Mitigation action plans have been developed for both entities, i.e., SONATREL s PIU and MINMAP (see details in Annex 3). In particular, to speed up procurement processing, the establishment of a project-specific tender board (Special Tender Board) has been incorporated under the proposed project as a dated legal covenant. 14 Système Intégré de Gestion des Décaissements. 28

47 108. Procurement Plan. A draft Simplified Procurement Plan (SPP) for the first 18 months of project implementation has been prepared, discussed, and agreed between the World Bank and SONATREL during project appraisal. This plan provides the basis for the procurement methods and the type of reviews. The updated version of the SPP was discussed, and agreed upon, by the GoC, SONATREL and the project team at negotiations. It will be available in the project s database, and a summary will be disclosed on the World Bank s external website after Board approval of the project. The SPP will be updated annually or as required, in agreement with the project team, to reflect the actual project implementation needs and improvement in institutional capacity. E. Environmental and Social (including Safeguards) 109. The project is classified as Environmental Assessment Category A, Full Assessment. The potential environmental and social impacts of infrastructure investments under the proposed project are expected to be significant with regard to the sensitive agro-ecological features and social issues in the potential locations, thus requiring appropriate mitigation, including best environmental and social management practices. The following safeguard policies are triggered: Environmental Assessment (OP/BP 4.01); Involuntary Resettlement (OP/BP 4.12); Forests (OP/BP 4.36); Natural Habitats (OP 4.04); Physical Cultural Resources (OP/BP 4.11); and Indigenous Peoples (OP/BP 4.10) Safeguard instruments. A framework approach is applied in this project as the list of investments to be financed is still indicative and the exact location of the transmission lines and substations are not yet known. Therefore, (i) an Environmental and Social Management Framework (ESMF); (ii) a Resettlement Policy Framework (RPF); and (iii) an Indigenous Peoples Planning Framework (IPPF) have been prepared and disclosed at the Infoshop on July 27, 2016 and in country on July 28, These documents describe the procedures and processes that will be followed in preparing and disclosing site specific safeguard instruments where required as soon as the final list of investments and their exact locations are known. There are indigenous peoples that meet the criteria of OP 4.10 in three of the regions in which the project might be implemented. A social assessment was undertaken to identify the general locations of indigenous peoples and gather information about these communities relevant to the project. The results of the social assessment have been used to prepare the IPPF, which identifies the locations of the indigenous communities, potential impacts (if any) of project financed activities, and the process by which an Indigenous Peoples Plan (IPP) will be prepared. Further, any site specific environmental and social assessment (ESIA, Environmental Assessment, Environmental and Social Management Plan), as well as any RAP and IPP that may be prepared during implementation will be subject to review and No-objection by the World Bank. All of the above documents will have to be consulted upon and disclosed in-country and at the Infoshop, and mitigation measures and recommendations properly integrated in all the relevant technical implementation plans before the commencement of works Implementation cost of safeguard instruments. The framework instruments that have been prepared provide guidance regarding the scope of work required to prepare the specific safeguard implementation instruments, i.e., ESIAs, Environmental Assessments (EAs), RAPs, and IPPs. The cost of the implementation of the environmental mitigation measures under the Environmental and Social Management Plans (ESMPs) will be included in the contractor s contracts, while the costs associated with the RAPs will be directly borne by the GoC. It is estimated that the mitigation measures for investments to be financed under the RAPs will cost about US$50 million equivalent Institutional arrangement for safeguards management. Given that SONATREL is a newly created entity with very limited capacity for safeguards management, the safeguards implementation responsibility will be given to the APM for the duration of the project. The APM, in close collaboration 29

48 with the socio-environmental specialist being recruited for the PIU, will also be responsible for building the environmental and social management capacity within SONATREL. It will design a short and medium-term environmental and social capacity building program that includes recommendations for staffing and job descriptions for SONATREL. The APM will work closely with the Ministry of Environment, Protection of Nature and Sustainable Development, as well as all relevant ministries, including Ministry of State Property and Land, and the Ministry of Social Affairs, other existing electricity bodies as well as civil society organizations involved in the energy sector in Cameroon Consultation with stakeholders. During the preparation of the various frameworks, a comprehensive consultation was carried out in the area of the three networks (South, North, and East Interconnected Networks). The ESMF includes a proposed consultation framework for each site specific investment and the IPPF outlines the process to identify and consult with potentially affected indigenous communities. During the first six months, the APM will prepare a consultation and communication plan for the whole project and will implement it with the collaboration of SONATREL Completion of preliminary studies and interaction between feasibility study and ESIA consultants. As described in the technical appraisal summary above, the consultant completing the feasibility study under Component 2 will work closely with the consultants working on the ESIA in order to finalize the line routings and location of the substations. The choice of corridors for the transmission lines will take into account a number of principles and general considerations outlined in the ESMF and RPF and consider potential repercussions for the technical and environmental feasibility of the project and cost of implementation. The consultant completing the feasibility studies will also include at least one social specialist with good resettlement experience and will help determine line routing options on the basis of defined environmental and social criteria including the need to avoid and minimize adverse social and environmental impacts, such as involuntary resettlement. These preliminary line routings will be submitted to the client and the consultant in charge of the ESIA studies. The ESIA studies will analyze these routings and rank the best option for each line. The consultant will consider the ESIA results and the proposals in order to change the routing accordingly. The consultant will carry out the study for the transmission line corridor that corresponds to the best line routing option Forward-looking and proactive management of resettlement and compensation issues. The identification of populations affected by the works of the project and the timely payment of compensation will be important prerequisites for construction works financed under Component 2. This work will be undertaken in a proactive fashion by a team of experienced consultants. The GoC will have to secure sufficient financial resources to finance the work of the Commission de Constat et d Evaluation (CCE, or departmental evaluation committees) 15 and mobilize the resources that will be necessary for the compensation payments. Once the line routings and location of substations are identified, MINEE shall initiate the expropriation and compensation decree process as soon as possible and ensure that it is aligned with the preparation of the various safeguard instruments. A legal covenant is included to ensure that the amount estimated for compensation and the operation of the CCE(s) is included in the GoC s yearly Finance Law Consistency and overall management of the backup program. The client has asked the World Bank team to help ensure the coherent and timely implementation and management of all resettlement and compensation processes under the transmission investment program. For this purpose, the GoC has agreed to recruit an international consultant firm to supervise all resettlement and compensation processes from the commissioning of ESIAs and RAPs to the request for DUPs and establishment of the 15 CCEs are established at the national, provincial or district levels by prefectural, governor or ministerial decree, depending on the nature and geographical extent of works and affected populations. 30

49 CCE to payment of compensation to affected populations. As mentioned above, the project will finance an APM (international consultant firm) to assist SONATREL in the implementation of the electricity transmission investment program, including all environmental and social requirements. F. World Bank Grievance Redress 117. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank s attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank s corporate Grievance Redress Service (GRS), please visit For information on how to submit complaints to the World Bank Inspection Panel, please visit G. Citizen Engagement/Beneficiary Feedback 118. Beneficiary feedback would be recorded and monitored for Component 2 through the grievance redress mechanism (GRM) that is further described in the ESMF/RPF. The PIU and the APM would gather information about Component 2 activities where complaints have been brought forward, including information on how they were resolved and relevant follow-up. This information would be included in an annual project progress report and taken into account during implementation. These reports would provide information regarding the source and type of grievance and be disaggregated according to gender. 31

50 Annex 1: Results Framework and Monitoring Cameroon Electricity Transmission and Reform Project Project Development Objectives PDO Statement: The Project Development Objective (PDO) is to improve the capacity, efficiency, and reliability of Cameroon s national electricity transmission network. Project Development Objective Indicators Cumulative Target Values Baseline Indicator Name End Target PDO1. Increase in transmission network s wheeling capacity (MW) PDO2. Reduction in total transmission network losses (percent) PDO3. Reduction in the hours of power outages that are linked to malfunctions in the transmission system / improvement of transmission system stability - System Average Interruption Duration Index, SAIDI (Hours) PDO4. Reform roadmap satisfactorily implemented - including new regulatory framework in place (text) No Adaptatio n of the legislation and new regulatory framewor k in place Human resources in place and capacity building program fully defined Capacity building program fully implemente d SONATREL fully operational SONATREL fully operational SONATREL fully operational PDO5. Project beneficiaries (number) 0 5,000,000 5,500,000 6,000,000 6,500,000 7,000,000 7,000,000 Of which female (percent) 0 52 percent 52 percent 52 percent 52 percent 52 percent 52 percent 32

51 Intermediate Results Indicators (IRIs) Indicator Name Baseline Cumulative Target Value End Target IRI 1 (Reform): Full accounting and legal separation of ENEO s transmission assets from the holding and their subsequent transfer to SONATREL IRI 2 (Reform): Completion of SONATREL s organigram, revenue model, and business plan. IRI 3 (Reform): Completion and approval of a grid code (Yes/No) IRI 4 (Reform): Assistant Project Manager performing adequately (works contractors recruited and completion of works on schedule) IRI 5 (Investment): Transmission lines constructed under the project (Km) IRI 6 (Investment): Upgrade of the Southern grid SCADA completed IRI 7 (Investment): Northern grid SCADA installed and operational (Yes/No) IRI 8 (Investment): Project-related grievances registered under the project GRM addressed (percent) No Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes No No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes No No Yes Yes Yes Yes Yes No No No Yes Yes Yes Yes N/A N/A 30 percent 50 percent 75 percent 95 percent 95 percent 33

52 Indicator Description Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Frequency PDO1. Increase in transmission network s wheeling capacity (MW) PDO2. Reduction in total transmission network losses (percent) PDO3. Reduction in the hours of power outages that are linked to malfunctions in the transmission system / improvement of transmission system stability - System Average Interruption Duration Index, SAIDI (Hours) PDO4. Reform roadmap fully implemented - including new regulatory framework in place PDO5. Project beneficiaries Of which female (percent) Wheeling capacity relates to the capacity of a transmission grid to transmit electric energy from within an electrical grid to an electrical load outside the grid s boundaries. Electric power transmission losses include losses in transmission between sources of supply and points of distribution. SAIDI is the average outage duration for each customer served. SAIDI will be calculated by: the sum of all customers interruption duration (hours) divided by the total number of customers served. Satisfactory implementation of the reform roadmap will be monitored as follow: - Year 1: Updating and harmonization of the existing sector legislation and the new regulatory framework in place; - Year 2: Human resources in place and capacity building program fully defined; - Year 3: Capacity building program fully implemented; - Year 4: SONATREL fully operational. Project beneficiaries reflect the number of direct customers of ENEO multiplied by five, which is the average number of persons per household. Percentage of project beneficiaries female is based on the last census (females out of entire population). Annual Annual Annual Annual Annual Annual Data Source / Methodology Monitored through reports from Dispatching Center Monitored through reports from Dispatching Center Monitored through reports from Dispatching Center with SAIDI indicator The results will be issued from Quarterly reports The results will be issued from the Annual report National Census Responsibility for Data Collection SONATREL SONATREL SONATREL Reform Task Force SONATREL GoC 34

53 Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Frequency Data Source / Methodology IRI 1 (Reform): Full accounting and legal separation of ENEO s transmission assets from the holding and their subsequent transfer to SONATREL IRI 2 (Reform). Completion of SONATREL s organogram, revenue model, and business plan. IRI 3 (Reform). Completion and approval of a grid code (Yes/No) IRI 4 (Reform). Assistant Project Manager performing adequately (works contractors recruited and completion of works on schedule) IRI 5 (Investment). Transmission lines constructed under the project (Km) IRI 6 (Investment). Upgrade of the Southern grid SCADA completed; IRI 7 (Investment). Northern grid SCADA installed and operational (Yes/No) All relevant current, fixed and tangible assets of the transmission subsector have been spun off and properly accounted for in SONATREL s opening balance. SONATREL s organogram, revenue model, and business plan have been established by SONATREL with the support of reform consultant team and approved by MINEE. The grid code has been discussed and approved by the main sector s stakeholders: MINEE, ENEO, and SONATREL. Performance of the Assistant Project Manager will be assessed through the timely implementation of the entire transmission program (including environmental and social requirements and reporting). Number of HV lines constructed under the project and which construction has been considered satisfactory by the owner s engineer. Southern Grid SCADA will be upgraded through the acquisition and installation of Energy Management System and Generation Management System software. Northern grid SCADA will be fully operational once all substations of the RIN can be remotely monitored and controlled from the Regional Control Center. Annual Annual Quarterly Quarterly Annual Annual Annual SONATREL assets to be registered in certified annual reports. SONATREL organogram to be published in annual report. Confidential revenue model and business plan to be provided separately. The results will be issued from the Quarterly reports The results will be issued from the Quarterly reports The results will be issued from the Annual report The results will be issued from the Annual report The results will be issued from the Annual report Responsibility for Data Collection SONATREL SONATREL SONATREL/ PIU PIU SONATREL SONATREL SONATREL 35

54 IRI 8 (Investment). Project-related grievances registered under the project GRM and addressed (percent) SONATREL has registered all complaints received through GRM and reports on responses provided. Annual The results will be issued from SONATREL Annual report SONATREL 36

55 Annex 2: Detailed Project Description Cameroon Electricity Transmission and Reform Project 1. The proposed project will finance priority investments to upgrade and extend the national transmission networks and strengthen the reliability of power supply in Cameroon s interconnected systems. It will also support the sustainable institutional set-up to manage and operate the existing and new transmission assets. The proposed project s components are: (1) handover of transmission assets and operationalization of SONATREL; (2) strengthening of the national transmission grid; and (3) project management support and capacity building. Component 1: Provision of support towards the operationalization of SONATREL s transmission activities (IBRD US$30 million equivalent). 2. Component 1 will support the GoC in the handover of transmission assets to, and operationalization of, the NTSO, SONATREL. Activities under this component will be supporting GoC s implementation of the TPA model, through which provision of non-discriminatory access to the transmission network by an independent system operator will facilitate efficient competitive production and exchange. This includes mechanisms for both the short-term allocation of scarce transmission capacity among competing network users and long-term allocation of capital for efficient siting and interconnection of new generating facilities. The component will encompass: (i) the handover of transmission assets from ENEO, including their spin-off, sale, and subsequent transfer to SONATREL; (ii) the operationalization of SONATREL, including the establishment of an effective institutional and regulatory framework; and (iii) the provision of the technical and management support needed for a swift start-up and initial operations of SONATREL. Finally, Component 1 will support the GoC in the project planning and coordination for the entire National Transmission Grid Investment Program, including all social and environmental aspects to ensure its timely and efficient implementation. This component is underpinned by a detailed action plan/roadmap, 16 and will include the following subcomponents. 3. Sub-Component 1(a): Handover of Transmission Assets, including the Spin-off, Sale, and Transfer to SONATREL. This sub-component will provide the technical assistance needed to ensure completion of the full accounting and legal separation of ENEO s transmission assets from the fully integrated ENEO and their subsequent transfer to SONATREL. Support will also be provided to ensure the completion of both statutory and physical transfer of assets and human resources to SONATREL, the new NTSO. 4. Sub-Component 1(b): Operationalization of SONATREL, including Institutional and Regulatory Framework. Through this sub-component, IBRD support will help complete the definition of SONATREL s operational arrangements and business processes including organigram, revenue model, and business plan. Moreover, this activity will help define and implement SONATREL s legal and institutional framework, including tariff setting procedures, the national grid code, and the division of roles, responsibilities and interactions with all other key actors of the power sector. Support will also be provided to analyze and address implications with regard to the compliance with, and continuity of, obligations, claims and entitlements from existing contracts. Finally, and based on the above, this subcomponent will consolidate all of the above activities and findings in a detailed road map for the operationalization of SONATREL. 5. Sub-Component 1(c): Technical and Management Support for Start-up and Initial Operations of SONATREL. To ensure a swift transition and rapid start of operations, support under sub-component 1(c) 16 A study on the operationalization of SONATREL is ongoing by a consortium of RTE-Nodalis-PWC; while the consortium CPCS-EGI advices the GoC on the institutional framework. 37

56 will fund robust technical and management support for the first three to four years of SONATREL s operations. This robust technical and management support will be to ensure a rapid launch of operations, the continuous refinement of procedures and organization set-up, and a gradual handover of operations by SONATREL. 6. Sub-Component 1(d): Overall Management of the National Transmission Grid Investment Program. In order to ensure a smooth implementation of the National Transmission Grid Investment Program, this sub-component will finance (i) an international firm acting as Assistant Program Manager to assist SONATREL in the implementation and supervision of the investment program and to ensure oversight of all resettlement, compensation, and citizen engagement processes (both for activities under the project and for activities under other sources of financing); and (ii) an owner s engineer to oversee the works financed by the project. Figure 2.1 Component 1 - Overview of Reform Sequencing Component 2: Strengthening of the National Transmission Grid (US$335 million, of which IBRD US$285 million and GoC US$50 million equivalent). 7. Component 2 will improve the capacity and reliability of Cameroon s national electricity transmission network by financing priority investments to upgrade and extend the national transmission networks and strengthen the reliability of power supply in the interconnected systems. The key rationale for this component is to improve the quality of power supply and ensure that critical transmission infrastructure will be completed on time for urgently needed new generation capacity coming online. In terms of reliability, the success of the TPA model hinges on the capacity and technical performance of the transmission network, particularly with regard to avoiding congestion. In addition to the negative effects of transmission congestion on power prices and the associated social costs of congestion, a congested transmission network obstructs the functioning of the market model itself. 38

57 8. More specifically, this component will fund a subset of the short-term ( ) transmission expansion and rehabilitation measures proposed in the recently updated least cost Electricity Sector Development Plan (PDSE 2035). The component will include both (i) new capacity expansion; and (ii) refurbishment and replacement measures. IBRD support will focus on the most urgent investments needs for the rehabilitation and upgrading of the Yaoundé and Douala networks (RIS), the strengthening of the Northern transmission network (RIN), and their interconnections. All related compensation and resettlement measures will be supported by the GoC s US$50 million (equivalent) national counterpart contribution. 9. In October 2015, the World Bank team facilitated a workshop in Yaoundé where all sector stakeholders were invited to jointly review the above preliminary list of transmission rehabilitation and expansion projects, including the status of preparation and availability of financing for each project. The key objective of the workshop was, on the basis of the least cost Electricity Sector Development Plan (PDSE 2035), to rank transmission projects according to their importance for evacuating new generation capacity coming online over the period and to match the corresponding investment needs with available financing sources. 10. During the workshop, MINEE, ENEO, and other stakeholders established and endorsed a comprehensive list of the investments needed in the short- and medium-term to secure the evacuation of new generation capacity coming on line by The list is based on a review of: (i) the PDSE covering the period , approved by the GoC in November 2014; (ii) the Emergency Investment Plan for the electricity sector prepared by MINEE; and (iii) ENEO s transmission sector investment plan for It compiled relevant planning information, including the status and preparatory work completed for each investment, expected commissioning dates, and the amount of funding already secured, if any. 11. The workshop resulted in a consolidated investment plan of 105 projects subdivided into two priority groups amounting to a total investment of about US$1.1 billion to be implemented by The two different level of priorities that were identified are: priority 1 projects to be commissioned by the end of 2018 with the aim of urgently improving reliability and efficiency of the main network s bottlenecks and new generation wheeling capacity coming on line by the end of 2018; and priority 2 projects required for transiting energy from new generation assets to be commissioned by the end of 2021 and improving more broadly the reliability and efficiency of the three networks (North, South, East). Forty-three projects amounting to about US$0.7 billion were not included as priority projects (defined as priority 3). 12. All investments to be financed under the project are indicative and may change for the following two reasons. First, the short-term ( ) transmission expansion and rehabilitation program will be financed by a number of donors. Some of the proposed financing concerns investments that are critical to the coherence of the program, but the financing has not yet been confirmed (i.e., Exim Bank, Deutsche Bank of Spain, European Investment Bank). Hence the investments financed by IBRD may need to be revised to ensure that the most critical investments are completed in a timely fashion. Second, a stability analysis of the transmission system is underway, taking into account the transmission investment program and the new generation coming on line by This analysis will assess the coherence of the program and the network s ability to absorb the new generation capacity. The assessment will serve to fine tune the investment program. 13. As mentioned above, the investments are subdivided into the following two levels of priority: Priority 1 All investments required for the integration of energy from new generation projects coming online by the end of 2018 and for improving the reliability of the transmission grid: The funding needs for priority 1 investments have been estimated at about US$450 million 39

58 and would be covered though financing provided by a number of multilateral and commercial lenders, including AfDB, BDEAC, Export-Import Bank of China, Export-Import Bank of India, Deutsche Bank of Spain, Société Générale, and the proposed IBRD project. Within the priority 1 category, there are a number of Emergency investments urgently needed to maintain basic system stability. Given the short timeframe for emergency investments, it was agreed that these would be funded by ENEO and the GoC (US$20 million). Priority 2 Integration of energy from new generation projects coming online by 2021 and for improved reliability and efficiency of the transmission grid: The total amount of priority 2 investments has been estimated at about US$650 million. For about 60 percent of these investments, funding from various lenders has already been identified, including AfDB, BDEAC, IBRD, Export-Import Bank of India, the Nachtigal consortium, and Société Générale. However, for the remainder of priority 2 investments, financing has either been requested by MINEE but yet to be confirmed, or no formal request has been made so far. The preliminary list of investments to be financed by IBRD is still to be defined. 14. The preliminary long list of all investments of the national investment program ( ) ( the Program ) are presented below. The Program has four main objectives: (i) strengthening and stabilization of Douala s Transmission System; (ii) strengthening and stabilization of Yaoundé s Transmission System; (iii) strengthening and stabilization of the three National Transmission Networks (RIS, RIE and RIN) and interconnections; and (iv) Smart Grid investment package. Component 2 of the proposed project will fund a subset (about 25 percent) of the Program covering all four objectives. Table 2.1: Summary of the Transmission Investment Program Total estimated cost per Investment Objectives objective (US$) (i) Strengthening and stabilization of Douala s Transmission System 193,721,571 (ii) Strengthening and stabilization of Yaoundé s Transmission System 152,981,091 (iii) Strengthening and stabilization of the three National Transmission Networks (RIS, RIE and RIN) and interconnections 737,480,969 (iv) Smart Grid investment package 25,200,000 TOTAL 1,109,383, IBRD funding. The total IBRD funding needs for priority 1 and 2 investments have been estimated based on an indicative list of investments amounting to US$285 million including operation management and contingencies. The preliminary breakdown of IBRD funding is detailed in Table 2.2 below. The sub-components are described further below. Table 2.2: Indicative Cost Breakdown of IBRD Project Component 2 Component 2. Strengthening of the National Transmission Grid 40 Estimated cost (US$) 2 (a) Strengthening and stabilization of Douala s Transmission System 28,000,000 2 (b) Strengthening and stabilization of Yaoundé s Transmission System 98,000,000 2 (c) Strengthening and stabilization of the three National Transmission Networks (RIS, RIE and RIN) and interconnections 80,000,000

59 2 (d) Smart Grid investment package 25,000,000 2 (e) Safeguard activities: Compensation and rest (financed by the Borrower) 50,000,000 Sub-Total 231,000,000 Operation management (5%) 11,500,000 Contingencies (18%) 41,500,000 TOTAL 284,000, Sub-component 2(a): Strengthening of Douala s Transmission System. This sub-component will finance a subset of high-priority investments including 225 kv and 90 kv lines and substations aimed at ensuring the reliability of power supply, avoid voltage drops, and reduce dependence on thermal generation in Cameroon s largest city. The full list of preliminary investments is shown in the table below. Table 2.3: National Investment Program - Strengthening Douala s Transmission System Type of Project Nature of Project Title Estimated Cost New Power Line Double Circuit Line 225 kv MANGOMBE-NGODI BAKOKO 18,777,512 New Power Line Single Circuit 225 kv LOGBESSOU-LOGBABA 3,098,800 New Power Line Single Circuit 225 kv NGODI BAKOKO - LOGBESSOU 6,424,000 New Power Line Single Circuit 225 kv NGODI BAKOKO-LOGBABA 2,832,400 New Power Line Double Circuit Line 225 kv LOGBESSOU-BEKOKO 11,266,507 New Power Line Double Circuit Line 90 kv LOGBESSOU-MAKEPE 4,203,230 New Power Line Single Circuit 90 kv NGODI BAKOKO-KOUMASSI 4,469,267 New Power Line 90kV Underground Single Circuit Power Line KOUMASSI-DEIDO 7,878,291 New Power Line Single Circuit 90 kv BONABERI-SODIKO 2,990,686 New Power Line Single Circuit 90 kv SODIKO-BEKOKO 2,502,670 New Substation LOGBESSOU : 225/90kV -3x50MVA et 90/30kV et 90/15kV- 1x50MVA 33,217,103 Extension Substation NGODI BAKOKO 225/90kV 3x50MVA 17,802,936 New Source Substation SODIKO 90/15 kv 1 x 50 MVA 10,791,055 Extension Extension Source and Distribution Substation Distribution Substation / Switchyard LOGBABA 4,302,166 BEKOKO 4,684,250 Extension Source Substation BANABERI 2,052,439 41

60 Extension Source Substation DEIDO 2,051,018 Extension Source Substation KOUMASSI 10,833,485 Rehabilitation Source Substation MAKEPE 4,093,756 Extension Extension Extension Reinforcement Source Substation Substation / Switchyard Substation / Switchyard Substation / Switchyard Construction of 2 line panels at BASSA 90 kv substation Construction of 3 line panels at BEKOKO 225 kv substation Construction of new line panel at 90 kv LOGBABA substation Installation of 2 Transformers at 225/90 kv 180 MVA BEKOKO Substation 1,000,000 2,150, ,000 10,800,000 New Source Substation 225/30 kv MISSOLLE 6,500,000 New New New Power Line Source Substation Power Line 225 kv Double Circuit Feeder MISSOLLE connected to MANGOMBE-NGODI line 90/15 kv Substation at Nylon (2017) at Intersection of Power Line NGODI BAKOKO- KOUMASSI 2x50 MVA Inout / Output at Nylon for 90 kv NGODI BAKOKO-KOUMASSI Power Line 8,000,000 5,000,000 3,600,000 New Power Line Double Circuit Line 90kV BASSA-DEIDO 1,200,000 New Power Line Double Circuit Line 90kV BASSA-DEIDO 90kV DEIDO-BONABERI 700,000 Total 193,721, Sub-component 2(b): Strengthening of Yaoundé s Transmission System. This sub-component will finance a subset of critical investments to secure the additional transmission capacity including 225 kv/90 kv lines and substations to integrate the power produced by future generation assets, and increase the reliability of the transmission system in the city of Yaoundé. Investment under this subcomponent could also include interconnections with Douala in order to stabilize supply, avoid voltage drops and reduce dependence on thermal generation. The full list of preliminary investments is shown in the table below. Table 2.4: National Investment Program - Strengthening Yaoundé s Transmission System Type of Project Nature of Project Title Estimated Cost New Source Double Circuit-400 kv EDEA Substation NKOLNKOUMOU 60,000,000 New Power Line Double Circuit-400 kv NKOLNKOUMOU NYOM 9,000,000 New Power Line Double Circuit-feeder L.T 225 kv KRIBI- MANGOMBE (at EDEA substation) 1,500,000 New Power Line Double Circuit- 90 kv NYOM NGOUSSO 4,080,000 New Power Line Double Circuit-90 kv AHALA BITENG 2,000,000 New Power Line Double Circuit-90 kv BITENG KONDENGUI 1,400,000 42

61 New Power Line Double Circuit-225kV NYOM OYOMABANG 3,000,000 New Substation NYOM 225/90/30/15 KV 15,000,000 New New Extension New Extension Extension Extension Substation/swit chyard Source Substation Source Substation Power Line Source Substation Source Substation Source Substation New Subststation EDEA 225 KV (8 line panels/inter-bus bays) 10,000,000 BITENG 90/30/15 KV 2x50 MVA 7,000,000 Remplacement des 2 bancs de transformateurs 225/90 kv MVA par 2 bancs de 180 MVA OYOMABANG Input/output at NKOLNKOUMOU substation and double circuit for 225 kv MANGOMBE- OYOMABANG power line 10,000, ,000 NGOUSSO 3,101,091 AHALA (90 KV tranch) 7,000,000 GIS KONDENGUI 3,500,000 New Substation 225/30 kv 50 MVA NKOLBISSON 6,000,000 New Source Substation 90/15KV - 50 MVA SIMBOCK 4,000,000 Extension Substation OYOMABANG 3 Cellules 225 kv 2,700,000 New Power Line ST-225 kv OYOMABENG-NKOLBISSON 1,000,000 Extension New Substation Power Line AHALA : one 225 kv Cell for Power Line from NYOM + one 225 kv Cell for Power Line from ABONG MBANG Input Double Circuit 90 kv at OYOMABANG-AHALA for SIMBOCK substation 1,800, ,000 Total 152,981, Sub-component 2(c). Strengthening the Three National Transmission Networks (South, East, and North). This sub-component will finance a subset of the urgent investments to bolster the three congested National Transmission grids, i.e., RIS, RIE, and RIN, and their interconnections. The full list of preliminary investments is shown in the table below. Table 2.5: National Investment Program Subcomponent Strengthening and Stabilization of RIS, RIE, RIN and Interconnections Nature of Type of Project Title Estimated Cost Project New Power Line 90kV Single Circuit KUMBA- NJOMBE 13,200,000 New Source Substation Transformer 90/30kV 36 MVA KUMBA 4,000,000 43

62 New Power Line Double Circuit 225kV SONGLOULOU- BAFOUSSAM 64,000,000 New Power Line Single Circuit 90kV BAFOUSSAM-FOUMBAN 15,180,000 New New New Source Substation and Switchyard Source Substation Power Line BAFOUSSAM 225/90/30 KV 180 MVA 8,000,000 Foumban 90/30 kv 36 MVA 4,000,000 Single Circuit 110kV MBALMAYO-NIJON- YEKOBO 24,000,000 New Power Line Double Circuit 225kV EBOLOWA-KRIBI 56,000,000 New Substation / Switchyard KRIBI 225 KV (6 travées lignes) + transformateur 225/30kV MVA 10,000,000 Extension Substation MBALMAYO (90/110KV - 36 MVA) 4,000,000 New Power Line Ligne Single Circuit 90 kv OYOMABANG- NKOMETOU 6,600,000 New Substation 90/30 kv NKOMETOU 6,000,000 New New Extension Extension Power Line Power Line Substation / Switchyard Source Substation Double Circuit 225kV AHALA-ABONG MBANG Single Circuit 225kV NKONGSAMBA- BAFOUSSAM Substation de BEKOKO (225KV tranche) 1 inter-bus bay 225 kv 73,600,000 25,000, , /90 kv BAMENDA Substation 225 kv 7,000,000 New Power Line ST-BAFOUSSAM-BAMENDA 225 kv 17,500,000 New New Extension Reinforcement Reinforcement Reinforcement Reactive Power Compensation Reactive Power Compensation Substation Substation Power Line Substation Capacitor Banks 2,000,000 Capacitor Banks 500, /110 KV MVA GAROUA (225KV tranch) Replacement of Transformer: 90/30 kv for 110/30 kv 36 MVA at GUIDER Upgrading of 90kV GAROUA-GUIDER- MAROUA Power Line to 110 kv Replacement of Transformers: 90/30 kv for 110/30 kv 36 MVA and 90/15 kv for 110/15 kv 36 MVA at MAROUA 6,000,000 1,200,000 3,000,000 2,400,000 New Power Line DT-225 kv GAROUA-MAROUA (2015) 64,000,000 New Power Line Double Circuit 225kV NATCHIGAL- NYOM II 16,000,000 Extension Substation 225/110 KV MVA MAROUA (partie 225 KV) 6,000,000 44

63 New Other Construction of Meteorological Lab 400,000 New New New Extension New New Displacement Substation / Switchyard Power Line Power Line Source Substation Source Substation and Switchyard Power Line Power Line NKOL-NKUMU 225 KV 7,000,000 Double Circuit EBOLOWA-NKOLNKOUMOU 225 KV Input/Output at AHALA Substation on 225 Kv EBOLOWA-NKOLKOUMOU Double Circuit Power Line 62,000, ,200, AHALA (225KV tranch) 8,000,000 EBOLOWA 225/90 kv 1*100 MVA 13,000,000 Double Circuit 225 kv MEMVELE(NYABISSAN)-EBOLOWA Single Circuit 225 kv and Single Circuit 90 kv MAMGOMBE-OYOMABANG Power Lines 50,000, , New Power Line Single Circuit 90 kv LOMPANGAR-BERTOUA 20,000,000 New New New New Source Substation Power Line Source Substation Source Substation ABONG MBANG 90 /30kV 4,000,000 Single Circuit 90 kv BERTOUA-ABONG MBANG 23,000,000 BERTOUA 90/30 kv 3,600,000 BATOURI 90 /30kV 4,000,000 New Power Line Single Circuit 90 kv BERTOUA-BATOURI 17,000,000 New Power Line Single Circuit 90 kv EBOLOWA-MBALMAYO 17,000,000 New New Power Line Source Substation and Switchyard 225 kv Single Circuit BINI WARAK- NGAOUNDERE (MOUNGEL) 225/110kV 90 MVA substation MOUNGEL 35,370,969 New Power Line DT- 90 kv MENCHUM-BAMENDA (2017) 19,200,000 Extension Substation NJOMBE : 2 cellule 90 kv 1,000,000 New Substation 225 kv SONG LOULOU 5,000,000 Extension Substation NJOM YEKOMBO : 1 cellule 110 kv 600,000 New Substation 225/90 kv ABONG MBANG 6,000,000 Total 737,480, Sub-component 2(d) Smart Grid Investment Package. To further enhance the effectiveness and sustainability of investments in the transmission sector, the project will finance a Smart Grid sub- 45

64 component. The project s Smart Grid investments in the transmission system will have the following three key objectives: (i) Efficient use and operation of transmission infrastructure: Given the extent of the above mentioned investment backlog, it is unlikely that the most immediate capacity constraints and transmission bottlenecks could be met with conventional rehabilitation and grid extension measures alone. Furthermore, it would simply not be cost efficient to invest into new transmission capacity before having exhausted all possibilities for a more efficient use of the existing transmission infrastructure. The latter typically entails investments in system diagnostics, automation and control systems for more efficient operations of lines and substations as well as power electronics to improve voltage controllability, power factor, and transmission limits of existing lines. The most important measure towards this objective will be the strengthening of the SCADA infrastructure of the national grid. (ii) System stability and quality of supply: To a certain degree, the deterioration of power supply quality and system stability is not just a result of capacity constraints, but also of the need to upgrade switchgear and system protection systems, and invest in modern maintenance and system diagnostics technology. This would allow to diagnose system failures much faster and re-boot affected grid sections much more swiftly after a failure has occurred. Greater stability and quality of supply would also require the extension and/or more efficient use of existing energy storage capacities. (iii) Robustness and precision of grid planning process: Finally, system planning itself has to become smarter, more robust, and fine-grained to meet the growing complexity of demands on the future transmission system. Better planning is dependent on a better/ smart data acquisition system to allow analyzing current and predict future system needs more thoroughly, and making more efficient planning decisions for future upgrades and expansions of the transmission system. 20. With regard to the above mentioned strengthening of SCADA infrastructure, the detailed scope of work will be validated though the feasibility study. So far, the preliminary scope of the investment package to be financed though the project includes the procurement and installation of following equipment: (i) Implementation of a SCADA system for the Northern network to allow for remote monitoring and control of the substations. Each substation will be equipped with an autonomous numerical control system which will communicate with the Regional Control Center; (ii) Completion and upgrading of the SCADA for the Southern network with the acquisition of Energy Management System and Generation Management System software and the establishment of a back-up control center in Yaoundé; (iii) Implementation of energy accounting software, Management Market System, for the Northern (RIN) and Southern (RIS) networks. Energy accounting software will provide real-time cost and usage comparison against on-site generation, power exchange allocation, and spinning reserves while providing power consumption and pricing profiles for reporting purposes. (iv) Implementation of Disturbance Recording System in the Northern (RIN) and Southern (RIS) substations. The project will specify the types of recording devices available to capture disturbances on the power system, and the analog and binary inputs that will help an engineer analyze these disturbances. The disturbance recorder will enable evaluation of different events within the power system and is an important part of a station monitoring system. Any of the recorded analogue channels and binary signals shall be programmed to start a recording. The 46

65 fault locator will provide information about the fault position which enables rapid repair and restored line service. 21. The principal technologies and investments identified so far are shown in Table 2.6 below. 47

66 Table 2.6: Smart Grid Investment Package Type of Project Component Designation Estimated Cost Reinforcement Reinforcement Creation Creation Creation Extension Substation Substation SCADA SCADA SCADA SCADA Replacement of electromechanical protection by numerical protection Replacement of outdated and unreliable high voltage switching device (circuit breaker, disconnector etc.) Completion and upgrading of the SCADA for the Southern network with the acquisition of EMS and GMS software and the establishment of a back-up control center in Yaoundé Implementation of a SCADA system for the Northern network Implementation of Disturbance Recording System in the RIN and RIS substations Implementation of energy accounting software, as one of application of Management Market System for the RIN and RIS networks 2,000,000 4,000,000 10,000,000 8,000, ,000 1,000,000 Total 25,200, Sub-component 2(e) Safeguard Activities. This sub-component will carry out a program of activities aimed at supporting the implementation of the environmental and social mitigation measures associated with the project including, but not limited to, the measures detailed in the Safeguards Instruments. 23. Preparation activities Network Stability Study. In order to corroborate the consistency of the above investment lists for sub-components 2(a) through 2(d), a stability study is being carried out to ensure that sequencing and prioritization of investments are in line with the transmission system s technical requirements. The parameters to be evaluated will be load flow, short-circuit currents, system stability, technical losses, N-1 steady state criteria, outage probability, and primary reserve. Furthermore, the stability study will analyze whether the network configurations resulting from the proposed prioritization are consistent with future power generation and demand growth including mining loads, imports, and exports. For each priority group, the study will confirm the suitability and optimize the specifications of investments identified for lines and substations, including the sequence of their commissioning, the choice of conductors and transformers, as well as the possible need for additional power electronics and other static equipment to monitor load distribution and voltage levels and ensure the dynamic stability of networks. The results of the stability study have been reviewed and approved during appraisal. 24. Feasibility and safeguard studies and bidding documents. Once all specific investments to be financed by the project have been confirmed, comprehensive feasibility studies will be completed. There will be two stages. During the first stage (pre-feasibility), alternative line routings and preliminary locations for the substations will be proposed. The pre-feasibility study will be the starting point for the preparation of the various safeguard instruments. Therefore, safeguard and technical consultants will work in close collaboration to fine-tune the line routings and location of substations in order to minimize environmental and social footprints. 25. Subsequently, the completion of the full feasibility study will specify all pre-construction tasks, including installation design, detailed cost estimates and implementation schedules, procurement strategy, tender processes and documents, engineering-procurement-construction packaging, bid 48

67 evaluations and contract awards for physical implementation. The stability study and preparation of the safeguard framework documents are being financed through the Project Preparation Advance and the ESIAs and feasibility studies will be financed by the proposed project. 26. Preparation activities safeguards studies. A consultant firm will be recruited to complete Environmental and Social Impact Studies (ESIAs, EAs). The consultant will work in close collaboration with the consultant in charge of the feasibility studies and bidding documents to optimize line routing and localization of substations to minimize the project s environmental and social footprint. 27. The cost of implementation of the ESMPs and the RAPs will be fully covered by the works contractors and by the GoC. The costs of the implementation of the environmental mitigation measures under the ESMPs will be included in the contractor s contracts, while the costs of compensation and resettlement will be directly borne by the GoC (estimated cost of resettlement is US$50 million equivalent). 28. Preliminary investment packages. The bidding documents will be prepared in separate packages (lines, substations and smart grid infrastructure). All new line pylons under Component 2 will be equipped with state-of-the-art optical ground wires to facilitate the high-speed transmission of data, either for the utility s own control and communication purposes (including tele-protection, remote control, and tele-control of the electrical network) or to be leased or sold by SONATREL to third parties to serve as a high-speed fiber for public telecommunications and interconnection between cities (see below). 29. Mainstreaming of SWS for Rural electrification. Over 20 years of experience from developing countries shows that SWS technology can distribute significant amounts of power in rural and remote settings at very low cost. SWS consists of insulating the shield wires of transmission lines from the towers and energizing them at medium voltage ( kv) from the transformer station at one end of the transmission line. SWS technology can be installed on new transmission lines that are intersecting areas with poor grid access. Once installed, SWS provides low-cost power supply from the interconnected grid to villages, small towns, and small-medium size commercial users such as farms, factories, and water pumping stations located near the route of the new transmission lines. Unfortunately even today, the opportunities of SWS technology are still not being communicated widely enough to national utilities. Within this context, the Bank team has encouraged ENEO and MINEE to undertake an assessment of grid access and rural electrification needs near the transmission lines to be funded by the project. Based on this assessment, the feasibility study commissioned during the appraisal phase will provide an in-depth analysis of the potential for low-cost rural electrification measures through the use of SWS. The results of the feasibility study will be communicated to donors, including AFD, who has already expressed interest in financing the LV/MV modules of potential SWS activities that might emerge as a result of the feasibility study. 30. Transfer of existing and new transmission assets to SONATREL. As the current concession agreement allows for the implementation of new transmission investments by entities other than the concessionaire, SONATREL can and will be responsible for the implementation of the entire investment program under Component 2 of the project. Regarding the transfer, operation and maintenance of new transmission assets of the investment program, there are two possible scenarios: (i) if the handover of existing transmission assets from ENEO to SONATREL under Component 1 of the project has been concluded before the implementation of investments under Component 2, then SONATREL will receive these new investments, add them to its asset base, and be responsible for their operation and maintenance; (ii) if the handover of existing assets from ENEO has not been concluded before the completion of the investment program, then new assets will be assigned to ENEO and only transferred to SONATREL upon conclusion of the above handover. 49

68 Component 3: Project Management Support and Capacity Building (IBRD US$10 million equivalent). 31. Subcomponent 3(a): Support to Sectoral Institutions and Capacity Building. This sub-component will support MINEE, ARSEL, and AER. As needed, support may comprise analytic and advisory activities, travel, training, equipment, office space, and vehicles. More specifically, this activity will provide technical assistance and capacity building support for: MINEE: Preparatory studies for transmission infrastructure investments to be financed by IsDB; Update of the Letter of Energy Sector Development Policy, to outline the sector policy objectives to improve the sector s performance in the medium term The development of an Energy Plan for Cameroon which consolidates the further development of the hydrocarbon sub-sector (including both natural and liquefied petroleum gas), as well as a the scale up of renewable energy and energy efficiency initiatives; The development of a new Grid Code to specify the required behavior of all power producers. These include voltage regulation, power factor limits and reactive power supply, response to a system fault (short-circuit), response to frequency changes on the grid, and requirement to "ride through" short interruptions of the connection; The recruitment of technical consultants at the Ministry to help with a number of specific tasks related to the project management and coordination of ongoing sector initiatives; The completion of a study establishing the opportunity of creating a National Agency for the Development of Renewable Energy and Energy Management; and action plan for its establishment if confirmed; Capacity building for MINEE staff on project planning and management, Public-Private Partnerships, risk management, and other topics as needed. AER: Development of a new implementation approach and policy for Cameroon s electricity access program (including access policy and objectives, project management and contracting, planning and decision tools, financing); Feasibility studies and fundraising support (organization of donor roundtables) for the for the first five-year access investment program issued from the recently approved Rural Electrification Master Plan (with a particular focus on the three northern regions); Development and implementation of a capacity building program for AER staff. ARSEL: The findings of the recently completed review of the regulation function in Cameroon provides a solid basis for establishing a detailed program of activities for ARSEL. This program will be a combination of analytical work and capacity building activities. Subcomponent 3(b): Project Management Support. Activities under this sub-component will mainly ensure the provision of needed technical, financial, operational, and fiduciary assistance to SONATREL to ensure successful project implementation according to Bank policies and procedures. 50

69 Annex 3. Implementation Arrangements Cameroon Electricity Transmission and Reform Project Project Institutional and Implementation Arrangements 1. Project Implementing Agency. SONATREL will be the sole implementing agency of the project. The project will be managed under the supervision of SONATREL s General Manager. Given that SONATREL is a newly created entity, a PIU has been created, headed by a Project Coordinator who will be responsible for the day-to-day management of project activities. The PIU will benefit from the existing fiduciary experts within MINEE for the implementation of the ESDP and will be supplemented by a small number of specialists either financed by the project or SONATREL. The MINEE/ESDP team has consistently been rated satisfactory and will be reinforced to manage the project. The MINEE/ESDP fiduciary team, which is also currently implementing the Project Preparation Advance, comprising a Senior Financial Management Specialist, an Accountant, and a Senior Procurement Specialist, will be transferred from MINEE to SONATREL before project effectiveness. Other key staff will be recruited before effectiveness, including a Project Coordinator and a Socio-environmental Specialist. Within six months of effectiveness, a Monitoring and Evaluation (M&E) Specialist will be recruited. During the first year of project implementation, the PIU will be reinforced, if necessary, by a second accountant and a second procurement specialist. 2. The PIU will have responsibility for the day-to-day management of the project and coordination of project-related activities, including (a) ensuring the timely implementation of the project in accordance with the Project Implementation Manuel (see below); (b) preparing annual work plans and budgets and annual procurement plans for submission to the Bank for approval and to the Steering Committee for information; and (c) assuming overall responsibility for, inter alia, such fiduciary tasks as procurement and financial management, and also M&E, communication, citizen engagement, and compliance with the Bank s environmental and social safeguards. PIU staff will work closely with SONATREL to ensure long-term capacity building. 3. Assistant Program Manager. Given the importance of an efficient and centralized control to ensure proper coordination and to avoid major delays, the project will also finance an APM (international firm) to assist SONATREL in the implementation of the electricity transmission investment program. The APM will be responsible for coordination of construction and administrative duties, including environmental and social requirements, in support to SONATREL. The APM will also work closely with the owner s engineer recruited by SONATREL to supervise preparatory and construction works. The project will finance an owner s engineer to be selected competitively, for the part of the program to be financed by IBRD. 4. Owner s engineers. SONATREL will also recruit and mobilize an owner s engineer to supervise preparatory and construction works. The project will finance an owner s engineer, to be selected competitively, for the part of the program to be financed by IBRD. 5. Steering Committee. In December 2014, a Steering Committee chaired by MINEE was established by decree. The Steering Committee is responsible for overseeing the handover of transmission assets and operationalization of SONATREL and for monitoring the electricity transmission program progress. The Steering Committee will be regularly informed of progress on the reforms and on project implementation, including through: (i) quarterly reports on the reform provided by the reform implementation task force; and (ii) quarterly financial and narrative reports by the PIU with help from the APM and from the owner s engineer. While SONATREL will be the sole project implementation agency, MINEE will be responsible for oversight of the project. 51

70 6. Reform Implementation Task Force. In addition to the Steering Committee, to facilitate operationalization of SONATREL, a Reform Implementation Task Force has been established. It is composed of representatives of the two already recruited consortia, ENEO, and SONATREL. A number of working groups in all key areas, such as technical, accounting, social and human resources, financial, cost and tariff, fiscal and legal, have been created and report directly to the Task Force. The Task Force itself reports to the Steering Committee. 7. Project Implementation Manual (PIM). A draft PIM has been prepared and discussed prior to negotiations. The final version of the PIM will provide guidance on roles and responsibilities as well as on the technical, administrative, financial and accounting procedures, procurement arrangements, and the safeguard procedures. SONATREL will establish memoranda of understanding/agreements (if needed) with key ministries that formalize cooperation arrangement described in the PIM. 8. Multiple ministries will play a regulatory, supervisory, or supporting role for the project. These include the Ministry of Water Resources and Energy (MINEE), the Ministry of State Property Survey and Land Tenure (MINDCAF), the Ministry of Finance (MINFI), the Ministry of Economy, Planning and Regional Development (MINEPAT), Ministry of Forestry and Wildlife (MINFOF) and the Ministry of Environment Protection of Nature and Sustainable Development (MINEPDED). 9. Figure 3.1 below illustrates the project s implementation arrangements. 52

71 Figure 3.1: Project Organisation Chart 53

72 Financial Management and Disbursement Arrangements Executive summary 10. The fiduciary aspects of the proposed project will be managed by a PIU already created within SONATREL. Given that SONATREL is a newly created entity with limited fiduciary capacity, the PIU FM staff will consist of the existing FM experts within MINEE, currently in charge of the implementation of the ESDP. Therefore the MINEE/ESDP financial management team, which is also currently implementing FM aspects of the Project Preparation Advance, will be transferred from MINEE to the PIU in SONATREL before the project becomes effective. 11. In line with the financial management (FM) policies of the Bank s OP/BP 10.00, Investment Project Financing, an FM assessment was conducted to ensure the proposed arrangement with MINEE/ESDP is adequate and the PIU in SONATREL will be in place by effectiveness. The assessment concluded that FM system in place at MINEE/ESDP is deemed adequate; qualified staff members (one FM specialist and one accountant) are in place and conversant with World Bank procedures; and the MINEE/ESDP FM team has consistently been rated satisfactory, and could be reinforced to manage the proposed project as deemed needed during project implementation. Therefore, the arrangement to have the FM staff transferred to the SONATREL PIU is deemed adequate. 12. In line with the use of the country national system, the project FM arrangement will rely on the existing country FM arrangements put in place to manage donor-funded projects. These arrangements are centered on two main institutions. First, the CAA, which is equipped with dedicated FM tools: (i) a standardized FM manual; and (ii) and integrated financial management system for donors funded project (namely SIGED), which includes modules on (a) project cycle; (b) budgeting and accounting; (c) automated payments; and (d) electronic archive. Second, the Ministry of Public Procurement in charge of ex ante control of all suppliers invoices associated with a contract before any payment by CAA. 13. In light of the above, (i) the standardized Financial Management Manual of Procedures developed by CAA with Bank IDF support will be customized to reflect the project specificities; (ii) the budget and accounting modules of the SIGED will be deployed at the PIU to handle accounting and reporting needs under the project; and (iii) CAA and the Ministry of Public Procurement internal control mechanisms will be applied. An external auditor will be recruited using the country arrangements (by which the Ministry of Public Procurement leads the process with involvement of the line ministry) to conduct annual financial audit of the financial statements of the project along with the review of the internal control system. The option to involve the Chamber of Account (Supreme Audit Institution) in the auditor recruitment process will be considered 14. For sustainability purposes (capacity building), it might be considered to add to the project FM team, staff (accountants) from SONATREL on a part-time or full-time basis. Said staff will benefit from a competence transfer on all FM and disbursement related issues during the project life. 54

73 Public Financial Management 15. After the adoption of the new Public Financial Management (PFM) Act (Nouveau Régime Financier de l Etat) in 2007, the GoC introduced in 2013 the program budgeting approach in all line ministries. While the budget has been approved on a programmatic basis since 2013, the intended benefits of the reforms have yet to materialize. Budget preparation and adoption processes have transitioned to program budgeting. However, the core problems identified in 2007 remain unsolved. The execution of line ministries capital budget remains low and the performance of public services has not improved. Traditional annual line item budgeting persists in budget execution, meaning that the benefit and flexibility of multi-year program-budgeting are not leveraged yet. Program performance indicators are still essentially activity and output-based indicators, with no real foray into outcomes. Program Managers in line ministries are not sufficiently prepared to handle their new responsibilities and they lack several tools to carry out their duties. Finally, financial information systems have not undergone the necessary changes to ensure consistency and comprehensiveness of financial information among the key players along the expenditure chain. This is essential in order to match financial and performance information and allow for an effective and efficient management of public resources. 16. To support the ongoing PFM reform process, the World Bank is preparing a PFM project aiming at (i) enhancing transparency and efficiency in public financial management, and (ii) improving public procurement performance as to achieve efficiency, transparency, competition and better value of money. The implementation of this project will sustain the results already achieved and contribute to the improvement of the overall PFM environment in Cameroon. 17. Finally, the Bank s IDF has supported GoC to elaborate a standard FM manual and an integrated information system for investment project aiming at ensuring a better integration of investment project FM system to country system. The information system is contributing to improved synergy between project s accounting system and government information system by allowing automatized transmission and integration of project s financial information to the government system, and thus enhance transparency over donors funded project s funds management. FM Assessment Risk Country level Governance is widely acknowledged to be weak and may impact negatively the achievement of development objectives of programs and projects implemented. Table 3.1: FM Assessment and Mitigation Measures of Project FM Risks Risk Risk Mitigating Measures Incorporated rating into Project Design H Donors community actions are oriented toward PFM reform agenda in support to the GoC commitment to tackle the cross cutting issue of governance in the public resources management. Some donors foresee using the budget support instrument that could help accelerating the pace of the PFM and governance agenda. Risk after mitigation measures H Risk Risk rating Risk Mitigating Measures Incorporated into Project Design Risk after mitigation measures 55

74 Entity level Relatively new entity (SONATREL) with capacity to be built might jeopardize the project implementation. Project level Multiple stakeholders (many involved ministries) may jeopardize the project activities coordination. H S Before the project becomes effective, the already created PIU within SONATREL (implementing entity) will be staffed with seasoned fiduciary team. Internal control will follow the national internal control in place that is working quite well. The internal control that will be built around an implementation manual will ensure the project is implemented in accordance with accepted procedures and segregation of duties. Roles and responsibilities of each stakeholder will be clearly defined. INHERENT RISK H S Budgeting Elaboration of a credible budget in light with the procurement plan and the constructor and controller engineer estimates might be an issue as the project might experience delay in the recruitment of said engineer Delay may occur in the Budget preparation and deviations may be experienced in budget execution of some components not captured by the reports. Variations from budgets might not be authorized. S The bidding process for the recruitment of the main contractors has already started during the Project Preparation Advance phase. The standardized FM manual will be customized to provide clear timeline and responsibilities for budget preparation and monitoring. S Accounting SONATREL is not yet operational and lack an accounting system hence the project may experience delays in the treatment of financial information and in submissions of Financial Statements (interim and annual) as the accounting team is not recruited yet and the accounting software might not be set up to record the project transactions. Internal Controls and Internal Audit Lack of experience of SONATREL with existing internal control system might hamper the project implementation. S S New contracts will be signed with the FM officer and the accountant of the MINEE/ESDP under terms of reference acceptable to the Bank. The budgeting and accounting module of the SIGED will be customized and deployed at the PIU level. SONATREL team will be reinforced with seasoned staff transferred from previous MINEE/ESDP with a very well understanding of the functioning of the existing system. The project manual of procedures will include a clear description on the internal control environment including role and responsibilities of each actor in the project activity control process. S S S M 56

75 Funds Flow As there is not yet a dedicated account for the project there is a risk that the project funds are diverted and used for non-project eligible purposes S One (1) Designated Account will be opened in a stable commercial bank acceptable to the World Bank. M As large amounts might be paid to contractor, the fund flows mechanism might not fit the project disbursement needs During implementation relying mostly on direct payment mechanism that will be made available to the project will be considered. As the project intends to import significant amount of equipment, associated taxes might limit the project financing capacity of development activities. Financial Reporting Delays on the submission of agreed IFRs and annual project financial statements as the accounting scheme of SONATREL is yet to be established. Auditing The external auditor of SONATREL might not be acceptable to the World Bank. S S Exemption of taxes and customs has been agreed to all Eligible Expenditures under the Project. The budgeting and accounting module of SIGED will be customized and deployed to ensure timely recording of financial information as well as timely production of quarterly and annual financial statements An external auditor will be recruited according to terms of reference acceptable to the World Bank. It will be considered involving the chamber of account (Supreme Audit Institution) in the recruitment process. CONTROL RISK S S Overall FM risk H S Note: H = high; L = low; M = moderate; S = substantial. Table 3.2: Financial Management Action Plan Action to be Undertaken Time frame Responsible Body 1- Recruit the FM officer (new contract to be signed with the FM officer of MINEE/ESDP) Before effectiveness SONATREL/PIU 2- Recruit the accountant (new contract to be signed with the accountant of MINEE/ESDP) 3- Customized the standardized project FM procedures to reflect the project specifics as part of the PIM Before effectiveness Done S S SONATREL/PIU SONATREL/PIU 4- Customize an deploy the budgeting and accounting module of SIGED to handle accounting and reporting needs under the project 5- Recruit an external auditor to conduct annual financial audit of the financial statements of the project along with the review of the internal control system Financial Management Arrangements 57 Not later than three months after effectiveness Within six months of effectiveness SONATREL/PIU SONATREL/PIU

76 18. In line with the use of the country national system, the project FM arrangement will rely on the existing country FM arrangements put in place to manage donor-funded projects. These arrangements are centered on two main institutions, the CAA equipped with dedicated tools developed with support from the IDF and the Ministry of Public Procurement in charge of ex ante control of all suppliers invoices associated with a contract before any payment by CAA. 19. Staffing. The PIU FM staff will consist of the existing FM experts within MINEE in charge of the implementation of the ESDP. Therefore the MINEE/ESDP financial management team, which is also currently implementing FM aspects of the Project Preparation Advance, will be transferred from MINEE to the PIU created in SONATREL before project s effectiveness. This will be done through the signing of new contracts based on terms of reference acceptable to the Bank. 20. Budgeting. The overall responsibility for preparing an annual work plan and related budget will lie with the PIU. The different steps of budget management (preparation, revision, adoption, and execution) will be detailed in the FM section of the PIM. The annual work plan and budget will be prepared yearly, submitted to the Bank early enough to have them approve before the end of January (or one month after the effective date for the first year of the project), and then approved by the Steering Committee. A budget execution report will be included in a quarterly interim financial report to enable the project s implementation to be monitored. 21. Accounting Policies and Procedures. The PIU through its accounting team (to be transferred from the ESDP) will have the overall responsibility for maintaining the accounts of the project activities and ensuring that the annual financial statements are produced in a timely manner and in accordance with the accounting standards that are in effect in Cameroon. 17 The PIU will install a computerized accounting system that is capable of covering several projects to record the project s transactions and to produce the required periodic reports not later than three months after the Effectiveness date. The budget and accounting modules of the integrated financial management system for donors funded project (SIGED) will be deployed at the PIU to handle accounting and reporting needs under the project. Furthermore, when the current CAA reporting systems (developed with the software provider Tomate) permits, a dedicated window will be opened for the project s users by CAA on the module of the accounting and reporting of said CAA information system. Thanks to the interface that is being developed between the SIGED and the existing systems in the Directorate of Public Treasury (PATRIOT) and the Directorate of Investment Projects (PROBMIS), the project transactions would be easily incorporated into the national financial statements. 22. Internal Control and Internal Auditing. The administrative, financial, and accounting procedures will be part of the PIM. The PIM will include a clear description of the initiation and approval processes with respect to segregation of duties. In that regard, the standardized Financial Management Manual of Procedures developed by CAA with Bank IDF support will be customized to reflect the project specificities. The PIU will make use of the computerized accounting system to capture all project-related transactions. The financial manager will be responsible for maintaining all necessary controls to ensure: (i) that the project funds are used only for the intended purposes in an efficient and economical way; (ii) the preparation of accurate, reliable, and timely periodic financial reports; and (iii) that the project s assets are adequately safeguarded. These are reinforced by the government s internal control arrangements, such as the prior visa payment by the Ministry of Public Contracts that will apply to the project s invoices and the control by CAA over withdrawal applications and payments requests. 17 The Accounting principles set out by L Organisation pour l Harmonisation en Afrique du Droit des Affaires (OHADA). 58

77 23. To sustain the capacity building initiatives of the project team, the World Bank loan and FM units will provide adequate training in disbursement and FM procedures to the project FM team. All of these measures aims at further enhancing the internal control system 24. At this stage, there is no need to set up an internal audit function. This will however be reassessed during implementation based on the risk level. It is however worth mentioning that CAA governance scheme was reinforced with the setting up of an internal audit unit with Bank IDF support. When that unit becomes operational relying on it to conduct the internal audit review of the project will be considered. 25. Financial Reporting and Monitoring. The quarterly interim financial reports (IFRs) to be generated from the computerized financial management system will be presented in accordance with the format agreed with IBRD and submitted to IBRD within 45 days of the end of each calendar quarter. The current content and format of the IFR under the ESDP will continue to be used. The IFRs will normally include: (i) sources and uses of funds by the classifications of project expenditures; (ii) a comparison of budgeted and actual project expenditures (commitment and disbursement) to date and for the quarter; (iii) a statement of the use of funds by component or activity; (iv) designated account activity; and (v) a physical progress report on the implementation of the project. 26. At the end of each fiscal year, the project will prepare annual financial statements. 27. External Auditing. The annual financial statements and quarterly IFRs prepared by the PIU as well as the internal control system will be subject to an annual audit by a reputable and independent auditing firm based on terms of reference that are satisfactory to IBRD. The scope of the audit will be tailored to the project s specific risks in accordance with World Bank requirements and will be agreed upon with the government. In particular, the independent auditor will audit the use of all funds flowing from the designated account to the ultimate beneficiaries. The project will comply with the World Bank s access to information and disclosure policies by making of all disclosable audit reports publicly available promptly after receiving them. The project s external auditor will be hired within six months of effectiveness. A single audit opinion, in compliance with International Standards on Auditing, will be issued and will cover all project receipts, payments, and accounts. The audited financial statements, along with the auditor s report and management letter (incorporating management s comments) covering any identified internal control and accounting system weaknesses, will be submitted to IBRD within six months of the end of each financial year. If their availability and capacity permit, it would be considered involving the chamber of account (Supreme Audit Institution) in the auditor recruitment process 28. Funds Flow and Disbursement Arrangements. Funds flow will rely on the government s banking arrangements through CAA. In this regard, CAA s managing director will continue to act as public accountant which includes the signing authorization on all payment means using the automated payments module of CAA information system for donor financing. 29. Funds will flow from the IBRD Account to one (1) Designated Account (DA) denominated in XAF and opened in a reputable commercial bank in Cameroon that is acceptable to the Bank. The DA will be managed according to the disbursement procedures described in the administrative, accounting, and financial procedures manual as part of section of the PIM and the Disbursement Letter. 30. Upon effectiveness, this operation will follow transaction-based disbursement. The DA will receive an initial deposit equivalent to four (4) months expenditures forecast and will be replenished regularly through monthly Withdrawal Applications. Direct payment, reimbursement, and special commitment methods will be available to the project and might apply as appropriate. Disbursements may become report-based eventually when the PIU has the capacity to produce reliable and acceptable 59

78 IFRs. The minimum value of the direct payments, reimbursements and special commitments will be 20 percent of the DA ceiling. Figure 3.2: Disbursement Channel IBRD CAA DA (XAF) Commercial bank Direct payment PIU/SONATREL Suppliers and Services providers Flow of documents (invoices, documentations, etc.) Flow of funds 31. Disbursements by category. Table 3.3 below sets out the expenditure categories to be financed from the loan proceeds. Table 3.3: Expenditure Categories to be financed from the Grant/Credit Proceeds Category Amount of the Loan Allocated (expressed in Euro) (1) Goods, non-consulting services, consultants services, Training and Operational Costs for Parts 1 and 3 of the Project (2) Goods, works, non-consulting services, and consultants services for Part 2 of the Project, except Part 2(e) of the Project. Percentage of Expenditures to be financed (exclusive of Taxes) 32,700, % 255,200,00 100% (3) Refund of the Preparation Advance 3,200,000 Amount payable pursuant to Section 2.07 (a) of the General Conditions 60

79 TOTAL AMOUNT 291,100, As the project intends to import a significant amount of equipment and there might be large associated taxes that could limit the project capacity to finance its development activities, it has been agreed during negotiations that the Borrower will waive all Taxes to all eligible expenditures under the Project. 33. Implementation Support Plan for Financial Management. FM implementation support intensity and frequency will be in line with the risk-based approach, and will involve a collaborative approach with the entire Task Team. A first implementation support mission will be performed three months after the project effectiveness. Afterwards, the missions will be scheduled by using the risk based approach model and will include the following diligences: (i) monitoring of the financial management arrangements during the supervision process at intervals determined by the risk rating assigned to the overall FM Assessment at entry and subsequently during implementation in the project Implementation Status and Results Reports; (ii) integrated fiduciary review on key contracts; (iii) review the IFRs; (iv) review the audit reports and management letters from the external auditors and follow-up on material accountability issues by engaging with the task team leader, client, and/or auditors; the quality of the audit (internal and external) also is to be monitored closely to ensure that it covers all relevant aspects and provide enough confidence on the appropriate use of funds by recipients; (v) physical supervision on the ground especially; and (vi) assistance to build or maintain appropriate financial management capacity and efficient internal control system 34. Conclusions of the FM Assessment. The overall FM residual risk at preparation is considered Substantial. The proposed financial management arrangements for this project are considered adequate and meet the Bank s minimum fiduciary requirements under OP/BP Procurement Guidelines 35. Procurement. For the project, procurement will be carried out in accordance with the World Bank Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, dated January 2011, revised July 2014; Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credit & Grants by World Bank Borrowers, dated January 2011, revised July 2014; the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006, and revised in January 2011, as well as the provisions stipulated in the Legal Agreement. Procurement (works, goods, and non-consulting services) or consultant selection methods, pre-qualification requirements, estimated costs, prior review requirements, and time frame has been agreed upon and specified in the Procurement Plan. The Procurement Plan will be updated at least annually, or as required, to reflect the actual project implementation. The Bank s Standard Bidding Documents (SBDs) or Cameroon National Standard Bidding Documents satisfactory to the Bank will be used. To the extent practicable, the Bank s SBDs for works, goods, and standard RFPs, as well as all standard evaluation forms, will be used throughout project implementation. 36. Advertising. The Borrower is required to prepare and submit to the World Bank a General Procurement Notice. The World Bank will arrange for its publication in United Nations Development Business online (UNDB online) and on the Bank s external website. The General Procurement Notice shall contain information concerning the Borrower, amount and purpose of the credit, scope of procurement reflecting the Procurement Plan, and the name, telephone (or fax) number, and address(es) of the Borrower s agency(ies) responsible for procurement, and the address of a widely used 61

80 electronic portal with free national and international access or website where the subsequent Specific Procurement Notices will be posted. If known, the scheduled date for availability of prequalification or bidding documents should be indicated. The related prequalification or bidding documents, as the case may be, shall not be released to the public earlier than the date of publication of the General Procurement Notice. 37. In the case of international competitive bidding (ICB) or limited international bidding, invitations to prequalify or to bid, as the case may be, shall be advertised as Specific Procurement Notices in at least one newspaper of national circulation in the Borrower s country, or in the official gazette, or on a widely used website or electronic portal with free national and international access, in English or French, or at the option of the Borrower, in a national language. Such invitations shall also be published in UNDB online. Notification shall be given with sufficient time to enable prospective bidders to obtain prequalification or bidding documents and prepare and submit their responses. The Bank will arrange the simultaneous publication of all Specific Procurement Notices prepared and submitted by the Borrowers on the Bank s external website. 38. In the case of National Competitive Bidding (NCB), the complete text of advertisement shall be published in a national newspaper of wide circulation in the National Language, or in the official gazette, provided that it is of wide circulation, or on a widely used website or electronic portal with free national and international access. The Borrower may publish a shorter version of the advertisement text, including the minimum relevant information, in the national press provided that the full text is simultaneously published in the official gazette or on a widely used website or electronic portal with free national and international access. Notification shall be given to prospective bidders in sufficient time to enable them to obtain relevant documents. 39. To obtain expressions of interest (EOIs), the Borrower shall include a list of expected consulting assignments in the General Procurement Notice, and shall advertise a request for expressions of interest (REOI) for each contract for consulting firms in the national gazette, provided that it is of wide circulation, or in at least one newspaper, or technical or financial magazine, of national circulation in the Borrower s country, or in a widely used electronic portal with free national and international access in English or French. In addition, assignments expected to cost more than US$300,000 shall be advertised in UNDB online. Borrowers may also in such cases advertise REOIs in an international newspaper or a technical or financial magazine. The information requested shall be the minimum required to make a judgment on the firm s suitability and not be so complex as to discourage consultants from expressing interest. REOIs shall at a minimum include the following information applicable to the assignment: required qualifications and experience of the firm, but not individual experts bio data; shortlisting criteria; and conflict of interest provisions. No less than 14 days from date of posting on UNDB online shall be provided for responses, before preparation of the short list. The late submission of a response to an REOI shall not be a cause for its rejection unless the Borrower has already prepared a short list, based on received EOIs, that meets the relevant qualifications. The Bank will arrange the simultaneous publication of all REOIs prepared and submitted by the Borrower on the Bank s external website. Contract awards will also be published in UNDB, in accordance with the Bank s Procurement Guidelines (para. 2.60) and Consultants Guidelines (para. 2.31). 40. Requirements for NCB. Works, goods, and non-consulting service contracts will use NCB procurement methods in accordance with national procedures using SBDs acceptable to the IBRD and subject to the additional requirements: In accordance with paragraph 1.16 (e) of the procurement guidelines, each bidding document and contract financed out of the proceeds of the financing will provide that (a) the bidders, 62

81 suppliers, contractors, and their subcontractors, agents, personnel, consultants, service providers, or suppliers will permit the Bank as the supervising entity, at its request, to inspect all accounts, records and other documents relating to the submission of bids and contract performance, and will have the said accounts and records audited by auditors appointed by the Bank or supervising entity and (b) the deliberate and material violation of such provision may amount to an obstructive practice as defined in paragraph 1.16 (a)(v) of the procurement guidelines. Invitations to bid will be advertised in national newspapers with wide circulation. The bid evaluation, qualification of bidders, and contract award criteria will be clearly indicated in the bidding documents. Bidders will be given adequate response time (at least four weeks) to submit bids from the date of the invitation to bid or the date of availability of bidding documents, whichever is later. Eligible bidders, including foreign bidders, will be allowed to participate. No domestic preference may be given to domestic contractors or to domestically manufactured goods. Association with a national firm will not be a condition for participation in a bidding process. Bids are awarded to the most responsive and lowest evaluated bidder, provided that the bidder is qualified. No scoring system will be allowed for evaluation of bids, and no blanket limitation to the number of lots that may be awarded to a bidder will apply. Qualification criteria will only concern the bidder s capability and resources to perform the contract, taking into account objective and measurable factors. Fees charged for the bidding documents shall be reasonable and reflect only the cost of their printing and delivery to prospective bidders, and shall not be so high as to discourage qualified bidders. 41. Procurement environment. Changes in the Cameroon legislation have modified the institutional architecture of the bodies responsible for public procurement in the country. The new organizational structure was introduced through three decrees issued on March 8, 2012, and on August 5, No special exceptions, permits or licenses need to be specified in the Financing Agreement since the procurement code, approved by the President of the Republic in September, 2004, allows World Bank procedures to take precedence over any contrary provisions in local regulations. 42. Procurement arrangements for Bank-financed projects in Cameroon have been under discussion for some time as the national system has been revised to shift responsibility for the bulk of procurement and contract management from decentralized agencies to a newly created MINMAP. The World Bank fielded a procurement mission between October 31 and November 10, 2012 to assess the potential effects of these changes and notably the possible consequences on Bank financed projects in Cameroon. The mission concluded that the new centralized system could lead to a number of positive outcomes. However, concerns were raised with respect to technical and legal responsibilities as well as regulatory issues. This mission was followed by another one conducted jointly with other Development Partners based in Cameroon during the period of January 28 to February 3, 2013, in order to: (a) discuss the recommendations of the initial mission; (b) facilitate the transition from the old to the new procurement system; and (c) ensure the smooth implementation of the Bank financed projects. MINMAP has confirmed in writing to the Bank that it accepts the proposed short term measures of the donors concerning existing projects, which consist of the creation of special tender boards with full 63

82 procurement responsibility and the Program Coordination Unit ( Maître d Ouvrage ) in charge of the publication of tenders, contracts award and signature of all contracts. The project will benefit from the creation by MINMAP of a special tender board, to smooth procurement activities, as allowed by the Cameroon legislation. 43. Specific procurement arrangements for this Project: Procurement will be the responsibility of the SONATREL with the technical support of a special tender board placed under their authority and to be set up by MINMAP Order ( Arrêté ) acceptable to the World Bank. 44. Procurement of works. Under this project, procurement of works consists mainly of investments to secure the additional transmission capacity needed to integrate power produced by future generation assets, strengthen and expand the transmission system for the cities of Douala and Yaoundé; and necessary reinforcements of the three congested transmission grids. Civil works costing more than US$10,000,000 will be procured through ICB. Other works contracts costing less than US$10,000,000 will use NCB procurement methods in accordance with national procedures using SBDs acceptable to IBRD and subject to the additional requirements set forth or referred to above under Requirements for National Competitive Bidding. Small works estimated to cost less than US$200,000 per contract may be procured through shopping procurement method, based on price quotations obtained from at least three contractors in response to a written invitation to qualified contractors. Direct Contracting shall be used in accordance with the provisions of paragraphs 3.7 of the Procurement Guidelines. 45. Procurement of goods and non-consulting services. Procurement of goods under this project will include vehicles, furniture and office equipment, etc. Taking into account the level of value added, and manufacturing/production capacity in the country, procurement of goods will be bulked, where feasible (of similar nature and need in the same period), into bid packages of at least US$1 million, so that they can be procured through suitable methods to secure competitive prices. Goods estimated to cost $1 million or more per contract will be procured through ICB, which will use the Bank s SBDs. For others goods contracts costing less than $1 million, NCB procurement methods will be used in accordance with national procedures using SBDs acceptable to the Bank and subject to the additional requirements set forth or referred to above under Requirements for National Competitive Bidding. Further: Goods and non-consulting services including those of readily available off-the-shelf maintenance of office electronic equipment, and other services, such as printing and editing, which cannot be grouped into bid packages of US$100,000 or more may be procured through prudent shopping procurement method in conformity with clause 3.5 of the procurement guidelines. Based on country-specific needs and circumstances, shopping thresholds for the purchase of vehicles and fuel may be increased up to US$500,000, considering that major car dealers and oil providers are consulted. At the beginning of the project, vehicles procurement packages estimated to cost US$200,000 or less can be procured through the United Nations Office for Project Services or other United Nations agencies. 46. Selection of consultants. Consulting services will used be for (list non exhaustive) Assistant Program Manager; owner s engineers; technical assistance for legal and institutional framework; management contract; etc. These consulting services will be procured with the following methods allowed by Bank guidelines and included in the approved procurement plan: quality- and cost-based selection (QCBS), quality-based selection (QBS), selection under a fixed budget (FBS), and least-cost selection (LCS). Selection based on Consultants Qualifications (CQS) will be used for assignments that shall not exceed US$300,000. Single Source selection shall also be used in accordance with the 64

83 provisions of paragraphs 3.8 to 3.11 of the Consultant Guidelines, with World Bank s prior agreement. All terms of reference will be subject to World Bank Prior Review. The following requirements will apply: Assignments of engineering designs and contract supervision in excess of US$300,000, and all other technical assistance assignments above US$100,000, must be procured on the basis of international short lists and in accordance with the provisions of paragraph 2.6 of the consultant guidelines. All other consultancy assignments in which the estimated cost does not exceed US$100,000 per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Consultants for services meeting the requirements of section V of the consultant guidelines will be selected under the provisions for Selection of Individual Consultants through comparison of qualifications among candidates expressing interest in the assignment or approached directly. 47. Operating costs financed by the project include, inter alia, utilities, offices supplies, vehicle operation, vehicle maintenance and insurance, and building and office equipment maintenance costs. These goods and services will be procured using the project s financial and administrative procedures included in the PIM and based on the annual work plan and budget. For services (such as car maintenance and computer maintenance) to be financed through operating costs, the project will proceed by service contracting for a defined period. 48. Training, workshops, seminars, conferences, and study tours will be carried out on the basis of an approved annual work plan and budget that will identify the general framework of training and similar activities for the year, including the nature of training, study tours, and workshops; the number of participants; and cost estimates. Institutional Arrangements for Procurement and Capacity Assessment, including Risk Mitigation Measures 49. Procurement implementation arrangement. The procurement activities of the proposed project will be managed by a PIU already created within SONATREL. The PIU procurement staff will consist of the existing procurement expert within MINEE in charge of the implementation of the ESDP. Therefore the MINEE/ESDP procurement team, which is also currently implementing procurement aspects of the Project Preparation Advance, will be transferred from MINEE to the PIU created in SONATREL before project s effectiveness. An additional procurement specialist might be recruited if deemed needed. The ESDP team has consistently been rated satisfactory. 50. Procurement capacity assessment of the implementation arrangement of the PIUs. An assessment of implementation arrangements, particularly at the SONATREL, was carried out to assess readiness for project implementation. The capacity assessment found, inter alia, that (i) there will be a qualified procurement specialist within the SONATREL/PIU; (ii) the PIM, including a section on procurement, will need to be prepared for the use by the project. 51. Risks identified and proposed mitigation measures. The overall procurement risk for the project is rated as High. The procurement risk assessment is informed by general weaknesses with regard to procurement, particularly with regard to controls and procedures governing public contracting. A mitigation action plan has been prepared and agreed to. If properly implemented and monitored, the mitigation action plan will reduce the assessment of risk to Substantial. The action plan is presented in the table below. 65

84 Table 3.4: Procurement Action Plan Action to Be Undertaken Time Frame Responsible Body Elaborate and submit a procurement plan to the World Bank Finalize a satisfactory version of the project implementation manual (PIM) comprising a section on procurement for use by the project, and submission to the IBRD for approval. Transfer from MINEE to the PIU or recruitment of a Senior Procurement Specialist to the PIU with qualifications and expertise satisfactory to the Bank Creation of a Special Tender Board within the Implementing Entity and attached to the project to supervise project procurement, which is acceptable to the Bank. Strengthen (if needed) the capacity of staff within the PIU with regard to the World Bank s procurement and consultant guidelines, dated January, 2011, updated July Final version discussed and approved during negotiations Draft submitted to the World Bank prior to negotiations and adoption prior to project effectiveness By effectiveness No later than six months after the project effectiveness Two months after the project effectiveness and as needed during project life SONATREL SONATREL SONATREL SONATREL/ MINMAP SONATREL/PIU 52. The PIU of SONATREL is the key implementing entity and will be responsible for compliance with relevant procurement procedures including the request of No-objection to the Bank. The implementing entity is responsible for ensuring that the necessary national clearances and approvals have been received before the no-objection requests are transmitted to the Bank. Procurement contracts costing FCFA 5 million (US$10,000 equivalent) or more depending on their thresholds will be conducted either by MINMAP through their central tender board or with the technical support of a special tender board to be set up by an order ( arrêté ) of the Minister in charge of public contracts at the level of the implementing entity. For contract amounts of less than FCFA 5 million (US$10,000 equivalent) the implementing entity will rely on an internal procurement committee. Details of the institutional arrangement and the responsibility of this internal procurement committee will be provided in the PIM. 53. Overall project procurement risks. The overall procurement risk for the project is rated as high. This is due to, among other factors, the country environment risk of corruption in procurement, especially in the public contract, the relatively limited experience in the implementation of Bankfinanced projects for MINMAP, and the conflict interest of MINMAP on the management of complaints, whose contracts are being directly handled by MINMAP. Mitigation action plans have been agreed which, if properly implemented and monitored, will bring this risk to Substantial. 54. Procurement Plan. A Simplified Procurement Plan (SPP) for the first 18 months of project implementation was prepared and updated during appraisal. The updated version of this Procurement Plan was discussed, and agreed upon, by the GoC and the project team at negotiations. It will be available in the project s database, and a summary will be disclosed on the Bank s external website once the Board approves the project. This plan provides the basis for the procurement methods and the type of reviews. The SPP will be updated in agreement with the project team annually, or as required, to reflect the actual project implementation needs and improvement in institutional capacity. 66

85 55. Publication of Results and Debriefing. The Borrower shall publish information on UNDB online for all contracts under ICB and Limited International Bidding, and all direct contracts, and in the national press for all contracts under NCB. Such publication shall be within two weeks of receiving the Bank s no objection to the award recommendation for contracts subject to the Bank s prior review, and within two weeks of the Borrower s award decision for contracts subject to the Bank s post review. The disclosure of results is also required for selection of consultants. The Borrower shall publish information on UNDB online for all contracts when the short list included any foreign firm and all single-source selection contracts awarded to foreign firms, and in the national press all contracts where the short list comprises only national firms and all single-source selection contracts awarded to national firms. Such publication shall be within two weeks after receiving the World Bank s no objection for award of the contract subject to the World Bank s prior review and within two weeks of successful negotiations with the selected firm for contracts subject to the World Bank s post review. 56. Fraud and Corruption. The procuring entity as well as bidders, suppliers, contractors, and service providers must observe the highest standard of ethics during the procurement and execution of contracts financed under the program, in accordance with paragraphs 1.16 and 1.17 of the Procurement Guidelines and paragraphs 1.23 and 1.24 of the Consultant Guidelines. The Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006, and revised in January 2011, will apply to this project. 57. Frequency of procurement supervision. The capacity assessment of SONATREL has recommended supervision missions to visit the field at least twice a year, and a post-review of procurement actions will be conducted annually. The initial post review sampling percentage shall not be less than one in five contracts to be reviewed. Summarized Procurement Plan 58. The main works, goods, and non-consulting services to be procured in the project are listed below. Ref. No. Table 3.5: List of Works, Goods, and Non-consulting Services Contracts to Be Procured Description Estimated Procurement Domestic Review by Cost Method Preference World Bank (USD (yes/no) (Prior/Post) millions) To be procured the first 18 months of the project WORKS Comments/ Completion date SO.1 Works for the National Transmission Networks (RIN, RIS et RIE) 190 ICB No Prior SO.2 Works for the posts 64 ICB No Prior SO.3 Works for the Supervisory Control and Data Acquisition (SCADA) and Smart Grid 31 ICB No Prior Oct. 28, 2021/Number of lots to be determined Nov. 19, 2021/Number of lots to be determined Dec. 27, 2019/Number of lots to be determined 67

86 SO.1 Computing equipment for SONATREL Goods and Non-consultant Services 0.8 NCB No Post March. 15, 2017 SO.2 SO.3 SO.4 Furniture for the implementing entity of the project Vehicles for the implementing entity of the project Acquisition, customization and deployment of a budgeting and accounting module software to handle accounting and reporting needs under the project 0.3 NCB No Post 0.3 Shopping No Post February 24, 2017 March 10, DC No Post March Prior Review Thresholds for Works, Goods and Non-consultant Services. Contracts estimated to cost more than US$5 million for works and US$500,000 for goods per contract, the first ICB and NCB contracts for works and goods, eventually others as identified in the procurement plan, and direct contracting above US$100,000 will be subject to prior review by the Bank. 60. The main consulting assignments of the project are listed below. Ref. No. Table 3.6: List of Consulting Assignments with Selection Methods and Time Schedules Estimated Review by Description of Assignment Selection Comments/ Cost (USD World Bank Method Completion date millions) (Prior / Post) Contract to be financed through the Project Preparation Advance MI.1 MI.2 MI.3 Recruitment of a consultant in charge of providing technical support to the reorganization of the electricity sector in Cameroon Study defining the needed operationalization support to the National Transmission System Operator (NTSO) Recruitment of a consulting firm for the elaboration of the Environmental and Social Impact Assessment (ESIA) for QCBS Prior QCBS Prior 0.5 QCBS Prior 68 Dec. 16, 2016/Financed through the Project Preparation Advance Nov. 17, 2017/Financed through the Project Preparation Advance and later by the Loan after its effectiveness March 24, 2017/Financed through the Project Preparation Advance and later by

87 MI.4 SO.1 SO.2 SO.3 SO.4 SO.5 SO.6 SO.7 SO.8 the electricity transmission investments of the project Feasibility studies, detailed studies and bidding documents for investments aimed at strengthening the national transmission grid to be financed under the project Recruitment of a Project Coordinator of the project Recruitment of an Administrative and Financial Management Specialist for the project Recruitment of a procurement specialist for the project Recruitment of an accountant for the project on a 2 years renewable contract Recruitment of a Safeguard Expert for the project on one year renewable contract Recruitment of a Monitoring and Evaluation Expert for the project on a 2 years renewable contract Recruitment of a consultant in charge of the elaboration of the implementation manual of the project Recruitment of a consultant in charge of the elaboration of the monitoring and evaluation manual of the project 1,0 QCBS Prior the Loan after its effectiveness April 28, 2017/Financed through the Project Preparation Advance and later by the Loan after its effectiveness SSS Prior Dec. 31, SSS Prior Dec. 31, SSS Prior Dec. 31, SSS Prior Dec. 31, IC Prior Dec. 31, 2019/Financed through the PPA and later by the Loan after its effectiveness 0,096 IC Prior Dec.31, IC Post 0.05 IC Post Dec. 23, 2016/Financed through the PPA Dec. 23, 2016/ Financed through the PPA Contract to be financed after the effectiveness on the project SO.9 SO.10 Recruitment of a consultant in charge of the technical assistance for the project management with a view to update the Interconnected Grid Transport of Cameroon up to 2020 Recruitment of a consultant for the supervision of the works financed by the IBRD 1.5 QCBS Prior Dec. 31, QCBS Prior Dec. 31,

88 project for the update of the Interconnected Grid Transport of Cameroon up to 2020 SO.11 Recruitment of a consulting firm in charge of the technical assistance and managerial to 10.0 QCBS Prior Dec. 31, 2020 SONATEL during the first 3 years SO.12 Recruitment of a consulting firm in charge of the elaboration of the preliminary studies of the investments 1.0 QCBS Prior Oct. 27, 2017 financed through financed through the Islamic Development Bank SO.13 Recruitment of a consulting firm for the elaboration of the Environmental and Social Impact Assessment (ESIA) 0.5 QCBS Prior Oct. 19, 2017 financed through the Islamic Development Bank SO.14 Recruitment of a consultant in charge of the elaboration the 0.5 QCBS Prior Jan. 16, 2019 Energy Master Plan SO.15 Recruitment of a consultant in charge of the elaboration the 0.2 QCBS Prior Jan. 19, 2018 Energy Master Plan SO.16 Feasibility studies for rural investments during the 5 first 0.5 QCBS Prior Oct. 19, 2018 years of the project SO.17 Recruitment of an accounting and financial auditor 0.05 LCS Prior June 30, 2018 Note: LCS = Least-cost selection; QCBS = Quality and cost-based selection; ESMP = Environmental and Social Management Plan. 61. Prior Review Thresholds for Consultant Services. Contracts estimated to cost above US$200,000 for firms and US$200,000 for individuals per contract, and single source selection of consultants (firms and individuals) to cost above US$100,000 will be subject to prior review by the Bank. Similarly, all audit contracts will be subject to prior review as will be any other contract identified in the procurement plan. 70

89 Environmental and Social (including Safeguards) 62. The project is classified as Environmental Assessment Category A, Full Assessment. The potential environmental and social impacts of infrastructure investments under the proposed project are expected to be significant with regard of sensitive agro-ecological features and social issues in the potential locations, thus requiring appropriate mitigation best environmental and social management practices. The following safeguard policies are triggered: Environmental Assessment (OP/BP 4.01); Involuntary Resettlement (OP/BP 4.12); Forests (OP/BP 4.36); Natural Habitats (OP 4.04); Indigenous Peoples (OP/BP 4.10), and Physical Cultural Resources (OP/BP 4.11). Specifically, OP/BP 4.10 has been triggered as some transmission lines may cross areas in which there are indigenous peoples. 63. A framework approach has been applied in this project as the list of investments to be financed is still indicative and the exact location of the transmission lines and substations are not yet known. Therefore, an (i) Environmental and Social Management Framework (ESMF); (ii) Resettlement Policy Framework (RPF); and (iii) an Indigenous Peoples Planning Framework (IPPF) have been prepared and disclosed in country and Infoshop. These documents describe the procedures and processes that will be followed in preparing, consulting on and disclosing site specific safeguard instruments where required as soon as the final list of investments and their exact locations are known. A social assessment was undertaken to identify the general locations of indigenous peoples and gather information about these communities relevant to the project. The results of the social assessment have been used to prepare the IPPF, which identifies the locations of the indigenous communities, potential impacts (if any) of project financed activities and the process by which an Indigenous Peoples Plan will be prepared. Further, any site specific environmental and social assessment (ESIA, ESMP), as well as any RAP and IPP, that may be prepared during implementation will all be subject to review and clearance by the Bank. All of the above documents will have to be consulted upon and disclosed in-country and at Infoshop, and mitigation measures and recommendations properly integrated in all the relevant technical implementation plans before the commencement of works. The table below presents the dates of disclosure for the documents. Document Table 3.7: Safeguards Documents Disclosure Dates Date of Disclosure In Country At InfoShop Environmental and Social Management Framework 07/28/ /27/2016 Resettlement Policy Framework 07/28/ /27/2016 Indigenous People Planning Framework 07/28/ /27/ Component 2 of the project will finance a subset of the short-term transmission expansion and rehabilitation measures proposed in the recently updated least cost Electricity Sector Development Plan (PDSE 2035). The component will be implemented by SONATREL and include: (i) new capacity expansion; and (ii) refurbishment and replacement measures. IBRD support will focus on supporting the most urgent investments needs for the rehabilitation and upgrading of the Yaoundé and Douala networks and all related compensation and resettlement measures will be supported by the GoC s national counterpart contribution. 65. Implementation cost of safeguard instruments. The frameworks instruments that have been prepared assess the specific safeguard implementation instrument cost (ESIAs/ESMPs, RAPs, IPPs). The costs of the implementation of the environmental mitigation measures under the ESMPs will almost entirely be included in the contractor s contracts, while the costs of the RAPs and IPPs as needed will be 71

90 directly borne by the GoC. The cost estimate of mitigation measures, to be borne by the GoC, for investments to be financed under the project is about US$50 million equivalent. The project s US$10 million management support and capacity building component will provide sufficient funds to ensure the coordination, monitoring, and evaluation of all mitigation measures. 66. Institutional Arrangement for safeguards management. Given that SONATREL is a newly created entity with limited capacity for safeguards management, the safeguards implementation responsibility will be given to the APM for the duration of the project. The APM, in close collaboration with the socioenvironmental specialist being recruited for the PIU, will also be responsible for building the environmental and social management capacity within SONATREL. It will design a short and mediumterm environmental and social capacity building program that includes recommendations for staffing and job descriptions for SONATREL. The APM will work closely with the Ministry of Environment, Protection of Nature and Sustainable Development, as well as all relevant ministries including Ministry of State Property and Land, Ministry of Social Affairs, other existing electricity bodies as well as civil society organizations involved in the energy sector in Cameroon. A. Safeguards Policy Issues The following will apply to the project: 67. OP/BP Environmental Assessment. Rehabilitation and construction of transmission lines and substations will have environmental and social impacts. The impacts will cumulatively be significant with regard of the national scope of the project. The three networks that will be funded through this project are located in sensitive agro ecological areas. As the locations of the activities remain unknown until the investment list is finalized, the borrower has prepared an ESMF. The ESMF describes the procedures and processes that would be followed in preparing and disclosing specific investments safeguard instruments (ESIAs/ESMPs, RAPs, IPPs) where required as soon as they are selected and their exact locations known. 68. OP/BP Indigenous People. This policy is triggered as indigenous peoples that meet the criteria of OP 4.10 are present in three of the regions in which the project will be implemented. An IPPF was prepared to provide guidance regarding how to mitigate any potential negative impacts associated with project activities, indicate when an IPP needs to be prepared and outline the culturally appropriate consultation process that will be used if these communities are impacted by the project. 69. OP/BP Physical Cultural Resources. The ESMF indicated that within the regions that could be included in the project areas, there are physical cultural sites. The project activities however are not expected to have negative impacts on Physical Cultural Resource. The ESMF provides an annex on how chance findings will be managed. 70. OP/BP Involuntary Resettlement. This policy is triggered to guide the management of involuntary resettlement, land acquisition, or restriction of access to natural resources in the project areas. The activities under Component 2 will require limited land acquisition and/or involuntary resettlement. As the exact locations of these activities are not yet known, the borrower completed a social assessment during preparation in order to identify potential impacts and prepare an RPF. The RPF provides guidance regarding how to minimize impacts, when a RAP needs to be prepared and how project affected peoples should be consulted and engaged during project implementation. 71. OP/BP 4.04 Natural Habitats and OP/BP Forests. Transmission lines may cross forest areas yet to be identified, mainly in the South and East Interconnected Networks areas and may have impacts on Natural Habitats. The right of way of the transmission lines will be cleared and trees will be cut. In addition, the transmission lines in Cameroon are supported by Eucalyptus poles. It is possible that 72

91 tree planting measures be proposed during the project implementation within the communes on which the transmission crossed. B. Environment 72. The ESMF has been prepared, discussed and disclosed in Cameroon and at the InfoShop on July 27, It summarizes all potential environmental impacts and their associated mitigation measures during the design, construction, and operational phases. It refers to the relevant law and contract documents, approximate location, timeframe, possible mitigation costs, and the responsibility for its implementation and supervision. Once individual investments have been identified, then derived plans will provide specific measures to be integrated in bidding documents, contracts and civil works planning and implementation. A field-monitoring checklist will be prepared on the basis of individual ESIAs and monitoring plans. The checklist will be used by the APM who will be responsible for the appropriate environmental safeguards follow-up and compliance reporting 73. Safeguard measures will be incorporated in the project design, technical specifications, and contract documents. During the construction phase, the contractor will proceed according to the design and technical specifications and will implement the ESMPs with the supervision of the SONATREL s PIU and the owner s engineers. 74. Major Impacts. The major environmental impacts associated with Component 2 of the project are: Terrestrial Habitat Alteration Loss of trees Aquatic habitat alteration Soil erosion Air Pollution (dust, fuel emissions) Water Pollution Generation of solid waste Risk of fire Noise pollution Risk of electrocution from live power lines Risk from working at heights Social/cultural disruption Land acquisition and involuntary resettlement C. Involuntary Resettlement 75. Temporary acquisition of land may be required during 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 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 rights-of-way for power lines or to install substations or transformers. This will not be clear until the transmission line and location of substations have been precisely identified. To address this issue, an RPF has been developed and disclosed in the country and at the World Bank s InfoShop before appraisal. The RPF identifies principles to be followed in the event of temporary land acquisition; damage to or removal of assets, such as crops and trees; and the acquisition of land. The RPF will also be used by the departmental evaluation committees (CCEs) during their work to identify any expropriation, survey the project affected people and prepare the compensation decree. Compensation including resettlement and reconstruction must be paid prior to the start of any project financed works. 73

92 76. The identification of populations affected by the works of the project and the timely payment of compensation will be important prerequisites for construction works financed under Component 2. This work will be undertaken in a proactive fashion by a team of experienced consultants. The GoC will have to secure sufficient financial resources to finance the work of the CCE and mobilize the resources that will be necessary for the compensation payments. Once the line routings and location of substations are identified, MINEE shall initiate the expropriation and compensation decree process as soon as possible and ensure that it is aligned with the preparation of the various safeguard instruments. A legal covenant is included to ensure that the amount estimated for compensation and the operation of the CCE(s) is secured in the GoC s yearly Finance Law. 77. Coordinated implementation of national and donor policies for compensation and resettlement campaigns. A key challenge of the project s investment component will be to ensure the coordination and consistency between the key stages and activities of OP 4.12 and national compensation process. It is important that the consultants hired by the GoC for the purpose of completing the ESIAs and RAPs work closely with national authorities. This applies in particular for the coordination of the consultant s work with the work of departmental and regional evaluation commissions responsible for identifying affected populations and preparing the decrees for compensation. Therefore, the funding needed for the various CCEs to begin their work has to be secured and made available well before the recruitment of ESIA and RAP consultants. Thereafter, the identification of affected populations and the signing of decrees for compensation should be closely coordinated so that the mobilization of resources and disbursement of compensations can be completed swiftly. The table below provides an overview of the key steps and activities to be completed in parallel. (i) Table 3.8: Optimal juxtaposition of the key stages of national and donor compensation and resettlement campaigns Implementation of National Policies - Implementation of Donor/ IBRD Policies - Key Stages Key Stages Identification of paths of transmission lines (ii) Issuance of Declarations of Public Interest Compilation of the Terms of Reference for ESIA/RAP DUPs consultants Establishment of regional and departmental commissions (iii) Mobilization and disbursement of funds for the operations of the regional and departmental commissions Recruitment of ESIA/RAP consultants (iv) Work of the Commissions and Preparation of Completion of field assessments by ESIA/RAP Decrees by the Ministry of Property, Surveys and consultants Land Tenure (MINDCAF) (v) Signature of the Decrees Approval and publication of ESIA and RAP (vi) Mobilization of funds for payments of resettlement and compensation (vii) Implementation of compensation and resettlement campaigns D. Institutional Arrangements 78. Given that SONATREL is a newly created entity with limited capacity for safeguards management, the safeguards implementation responsibility will be given to the APM who will be hired and will also be in charge to build environmental and social management capacity within SONATREL. The APM will propose a short and mid-term environmental and social capacity building program including staffing and job description for SONATREL. The APM will be working closely with the Ministry of 74

93 Environment, Protection of Nature and Sustainable Development, as well as other relevant ministries including Ministry of State property and Land, Ministry of social Affairs, other existing electricity bodies, and civil society organizations involved in energy sector. 79. All supply and installation bidding documents for the transmission works will include the relevant mitigation measures and specific environmental and social clauses to be strictly implemented during the project s implementation phase. The owner s engineer, who is to be recruited under the project, will closely monitor the work of the contractors. The owner s engineering team will include an environmental and social specialist to provide technical support for the implementation of the safeguard measures. 80. The environmental specialist and the social specialist of the APM will prepare and update, for review, detailed quarterly reports on the implementation of the ESMP and RAP (if necessary) for transmission to the Bank. 81. Financing Land Acquisition. Land acquisition will be financed by the GoC according to existing legislation and Bank policies. Documentation regarding the successful voluntary transfer of land ownership will be required in order to ensure that it does not trigger OP 4.12 (Involuntary Resettlement). 82. Grievance Redress Mechanism. The mechanism for redressing grievances was presented and explained in the initial public consultations. It will be reviewed and updated for inclusion in the PIM. 83. Monitoring of Resettlement Activities. It is the responsibility of the GoC to supervise the expropriation and compensation process and to monitor the implementation of the RPF/RAP. In addition to payment of compensation under the national decree, additional measures to ensure that the livelihoods of the project affected people have been restored. The GoC, through SONATREL s PIU and the APM, will undertake internal monitoring of the project s progress. In addition, the World Bank will formally review the implementation of the RPF and other associated activities. A full explanation of the expropriation and compensation process under Cameroonian law is provided in the RPF and will be referenced in the PIM. E. Monitoring and Evaluation 84. Data on compliance with the ESMF/ESMPs will be collected by the APM and its engineering consultant as part of their regular duties. The ESMF contains monitoring forms to be used for this purpose but each ESMP will provide its own relevant list of indicators to report on. Data regarding land acquisition will be available in the RAPs, if acquisitions were to be carried out. This will include the list of people affected and the rates of compensation that they will be paid before commencement of the work. 85. Data collection will be included in the engineering consultant s terms of reference. The data will be used during implementation to (a) verify that people have been compensated for assets lost or land acquired before commencement of the work, per World Bank and GoC policies; and (b) ensure that the contractors are complying with the ESMPs. 86. Monitoring Arrangements and Data Collection. The APM will monitor and evaluate all project indicators. 87. Views of Direct Beneficiaries. The views of the direct beneficiaries will be sought and reflected during the M&E process. Comprehensive M&E reporting will be needed to monitor the results and performance of the project. It will involve mainly the direct beneficiaries of project activities but will also be extended to other beneficiaries such as private operators. 75

94 88. Reporting. SONATREL with the help of the APM will have overall responsibility for reporting to and liaising with the Steering Committee and producing the project s biannual M&E reports. The report will include the updated results framework and action table, listing the corrective actions to be implemented with deadlines and people responsible clearly identified. The report will be sent to the Bank for informational purposes. F. Consultations 89. Extensive public consultation will be carried out during the preparation of the safeguard instruments and will continue throughout project preparation and implementation. Civil society, project-affected people and various stakeholders were consulted during the preparation of the ESMF, IPPF, and RPF. Most of the concerns expressed by the stakeholders were taken into consideration. Safeguard instruments have been disclosed in country and through the Bank s InfoShop. The ESMF proposed consultation framework for each specific investment. The APM will prepare and implement a consultation and communication plan for the whole project. G. Other Issues 90. Disposal of creosote poles. The electricity companies treated poles with creosote. The regulation is preventing now any use of creosote, but the disposal of the existing creosoted poles was identified as an emerging environmental issue on which several options will need to be explored. As the disposal of wooden creosote products is not only specific to energy sector in Cameroon, this project will give the opportunity to open a dialogue with the authorities and other stakeholders on the best way to handle this concern. The relevant WBG Environmental, Health and Safety Guidelines will be considered. 76

95 Annex 4. Implementation Support Plan Cameroon Electricity Transmission and Reform Project Strategy and Approach for Implementation Support 1. The Implementation Support Plan described in the table below explains how the Bank and other development partners will support the implementation of the risk mitigation measures which has been identified in the SORT. It is also linked to the results/outcomes identified in the result framework annex. Implementation Support Plan 2. The level of technical support needed includes staff with energy sector knowledge and expertise; specialized transmission expertise including procurement experts, safeguards specialists, power engineering as well as M&E expertise. The primary responsibility for this support lies with the Task Team Leader (TTL) with key inputs from specialized Bank experts. Evaluation of results indicators will be part of regular IBRD supervision missions. The main focus in terms of support during implementation is summarized in the table below. 3. FM supervision will be consistent with a risk-based approach. The supervision intensity is based initially on the assessed FM risk rating and subsequently on the updated FM risk rating during implementation. Given the Substantial residual risk rating, on-site supervision will be carried out at least once a year. On-site review will cover all aspects of FM, including internal control systems, the overall fiduciary control environment, and tracing transactions from the bidding process to disbursements as well as statement of expenses review. Additional supervision activities will include desk review of semester IFRs, quarterly internal audit reports, audited Annual Financial Statements and management letters as well as timely follow up of issues that arise, and updating the FM rating in the Implementation Status and Results Report and the Portfolio and Risk Management (PRIMA) system. Additional target reviews may be conducted depending on emerging risks. The Bank s project team will support in monitoring the timely implementation of the action plan. Detailed financial management reviews will also be carried out regularly, either within the regular proposed supervision plan or a more frequent schedule if needed, to ensure that expenditures incurred by the project remain eligible. Regular reporting arrangements and supervision plan will also ensure that the implementation of the project is closely monitored and that appropriate remedial actions are taken expeditiously. 4. In terms of procurement, in addition to the prior review supervision to be carried out by the Bank, the capacity assessment of the implementing agency has recommended that the Bank should carry out supervision missions at least once a year to review procurement actions. These post-procurement reviews should cover at least 20 percent of the contracts subject to post-review 77

96 Time Focus Skills Needed Resource Estimate (WB Only) First 12 months Effectiveness, Procurement, and Supervision Preparation of consultation and communication plan TTL Power Engineer Procurement Safeguards Financial Country Team Partner Role US$300,000 SONATREL/MINEE will lead implementation 12 th month- 60 th month (Including Mid-term review and Completion Report) Continued procurement, Implementation, Contract management, Supervision. TTL Power Engineer Procurement Safeguards Financial Country Team M&E US$600,000 SONATREL/MINEE will lead implementation Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments Team Leader Energy Specialist Power Engineer Financial Analyst Social Environmental Monitoring Procurement Financial Mgmt. Estimated to be 7-10 weeks per person per year 3-4 per year 3-4 per year 2-3 per year 2-3 per year 1 per year Local staff Local staff 1-2 per year Local staff Local staff To be adjusted annually depending on available supervision budget 78

97 Annex 5. Economic and Financial Analysis Cameroon Electricity Transmission and Reform Project I. Summary of Least Cost Expansion Plan 1. Cameroon s Least Cost Expansion Development Plan (PDSE) is a long term least cost power generation expansion plan covering generation and transmission investment over the period It was originally developed in 2006 and updated recently with support from IDA financing to include Government s Strategic Vision for the country by 2035 and to integrate a more accurate picture of upcoming projects. 2. The consultancy firm Studi International, in charge of the study, used the model GAP (Generation Analysis and Planning) to derive the expansion plan and NEPLAN, a planning software for electrical transmission, distribution and industrial networks to carry out static and dynamic simulations of the grid. An economic analysis of this plan was carried out by the consultancy firm to evaluate its feasibility. Current Grid 3. The grid managed by ENEO is divided into three sub-grids that are not interconnected: the Northern interconnected grid, the Eastern interconnected grid, and the Southern interconnected grid. It includes three hydropower plants, and 14 thermal power plants, the majority of which (two hydro and eleven thermal power plants) feed into the Southern grid. On the demand side, the Southern grid accounts for about 90 percent of the medium and low voltage demand. All three high voltage customers, representing aluminum and cement industries, are connected to the Southern grid. This concentration of demand and production highlights the importance of the Southern region economically. 4. In 2014, total production reached 6,080 GWh, of which 1,351 GWh was self-generated power. The total installed capacity on the grid is currently estimated at 1,287 MW. Hydropower accounts for about 60 percent of total installed capacity, resulting in a grid that is subject to variations in hydrology. The largest and most efficient thermal plant Kribi was commissioned in 2013 with support through IDA guarantees and IFC financing. Gas is supplied to Kribi from the Sanaga Sud gas project that was developed by Perenco in partnership with Cameroon s Société Nationale des Hydrocarbures (national oil and gas company). Table 5.1: Existing power plants of at least 1 MW (RIS) Name Category COD Capacity (MW) Southern Interconnected Grid (RIS) Songloulou Hydro Edea Hydro Kribi Gas Dibamba Limbe 85 Logbaba 2 HFO 12 Oyomabang Bafoussam 8 PTU1 40 Oyomabang 2 LFO 12.8 Ahala MW from Ahala will be moved to RIN in the course of the year. 79

98 Demand Supply Balance Table 5.2: Existing power plants of at least 1 MW (RIN and RIE) Northern Interconnected Grid (RIN) Lagdo Hydro Kousseri LFO 3 Eastern Interconnected Grid (RIE) Bertoua LFO 13 Garoua Boule LFO 1 Table 5.3: Existing power plants RIS+RIN +RIE RIS RIN 75 RIE 14 Less than 1 MW LFO 11.7 Total 1,287 MW 5. Demand forecast took into account growth in demand from existing and new customers, as well as from interconnections with neighboring countries. Demand is also contingent upon the materialization of a number of major industrial and mining projects currently under development including bauxite, iron ore, nickel, cobalt, and cement, which are all fairly energy-intensive. Two scenarios were developed for the purpose of the PDSE for each of the three regions: (i) high growth scenario aligned with the National Strategy of Growth and Jobs that calls for a sustained real GDP growth of 6.5 percent, and envisions Cameroon as an emerging country in the long term; and (ii) median growth scenario with a six percent GDP growth and a more conservative view on the number of industrial and mining projects and interconnections. 6. Energy demand is expected to grow from 5,800 GWh in 2013 up to 24,400 GWh under the median growth scenario and up to 33,400 GWh under the high growth scenario by In contrast, peak demand would ramp up from about 1,000 MW in 2013 up to 3,900 MW under the median growth scenario and 5,500 MW under the high growth scenario. 80

99 Table 5.4: Demand Projections for the Three Interconnected Grids CAGR Southern Interconnected Grid (RIS) Peak (MW) Median % Energy (GWh) Median % Peak (MW) High % Energy (GWh) High % Northern Interconnected Grid (RIN) Peak (MW) Median % Energy (GWh) - Median % Peak (MW) High % Energy (GWh) - High % Eastern Interconnected Grid (RIE) Peak (MW) Median % Energy (GWh) - Median % Peak (MW) High % Energy (GWh) - High % Total Energy Demand Peak (MW) Median % Energy (GWh) - Median % Peak (MW) High % Energy (GWh) - High % 7. The expansion plan was defined for each of the three regions separately and then aggregated at the national level. The plan calls for a scale-up in investment in the significant hydropower potential the country holds. More than 3,000 MW of hydropower capacity needs to be developed under the median growth scenario and 5,500 MW by Thermal plants were used to complement hydropower, in particular in the northern region. II. Economic Analysis of IBRD Investment under the Project 8. This section provides the economic justification for the grid-related investments, identified as Component 2 of the project. For the sub-components 2(a), 2(b), and 2(c), an economic justification is carried out by assessing the incremental net benefits of implementing the investment program over not implementing it. To the extent that Douala and Yaoundé are both part of the same Southern Interconnected Grid, an integrated economic analysis was done for sub-components 2(a) and 2(b). The benefits of the smart grid investment being more difficult to ascertain, the Bank team has restrained from evaluating the economic returns of sub-component 2(d). 9. The benefits that were identified by the team are the following: i. For sub-components 2(a) and 2(b), the replacement of overloaded transmission lines and transformers in Yaoundé and Douala will contribute to reducing transmissioninduced SAIDI, thereby reducing the amount of unserved energy and the volume of expensive self-generation for consumers. It will also contribute to reducing the level of 81

100 ii. transmission losses that are valued at the consumer s willingness to pay. Furthermore, the addition of capacitor banks will also cut the city s dependence on diesel generation to maintain the voltage levels required and improve the quality of supply. The strengthening of the Northern transmission network will bolster and rehabilitate the congested Northern transmission grid (RIN) which is currently providing the towns of Garoua, Maroua, Ngaoundéré, and Meiganga with power from Lagdo dam and Djamboutou diesel power plant. Upgrade of 90 kv transmission line to 110 kv will reduce technical losses while addition of capacitor bank will provide the grid with much needed reactive power to mitigate voltage drops that are occurring on long transmission lines (more than 200 km). 10. While these investments enhance the grid s wheeling capacity paving the way for the evacuation of power from new generation assets that will be connected to the grid, the value that is attached was not included in the economic analysis. Following extensive discussions with Bank economic experts, the team has decided it would produce a conservative analysis that is restrained to the project s boundaries and not one that is contingent on future generation that may or may not materialize. 11. The set of assumptions can be summarized as follows: Table 5.5: Assumptions Southern Grid Investment Northern Grid Investment Willingness to pay USc/kWh 35 USc/kWh Grid Electricity Tariff 15 USc/kWh 15 USc/kWh Growth in Demand 6% 10% Long Run Marginal cost of Generation 5 USc/kWh 8 USc/kWh CAPEX US$ 363 M US$ 221 M IBRD investment US$ 126 M US$ 80 M E&S US$ 88 M US$ 43 M Reduction in voltage related generation 18 GWh on year 1 4 GWh on year 1 Reduction in SAIDI 40 hours 80 hours Reduction in network losses (in area of investments) 4% Economic Lifetime 40 years Discount Rate 6% O&M 1.5% of total CAPEX Local content of CAPEX 20% Local content of OPEX 20% Duty and Tax Rate 12% 19 Cost of self-generation was used as a proxy for willingness to pay. Cost of self-generated power is estimated at 25 USc/kWh in the Southern Grid and 35 USc/kWh in the northern grid (more expensive to get oil to northern landlocked region). 82

101 Key Results 12. The investment being considered yields an EIRR in the range of 11.6 percent, above the threshold level of six percent, thereby reflecting a solid added-value to the economy. The NPV at six percent discount rate, prorated to IBRD investment, is US$90 million over the 40-year project economic lifetime for a total IBRD investment of US$206 million. 13. As explained in the assumptions section, this return ought to be seen as the minimum return this project would achieve given the conservative approach used to value the benefits. Particularly, in the absence of the transmission investments in southern grid, Nachtigal hydropower plant would be a stranded asset and would entail significant cost to the economy. 14. While the economic rate of return is lower in the northern grid (7.2 percent), this investment is strongly substantiated by the SCD, which notes the importance of infrastructure that improves connectivity and service availability. Recent research found that worldwide investments in infrastructure during the 1990s and 2000s reduced inequality leading to a three percentage point drop in the Gini coefficient.20 Unfortunately, Cameroon s recent solid growth performance has unfortunately had little overall effect on the incidence of poverty, but has rather exacerbated geographic inequalities. During the last decade, poverty rates have increased in rural areas and in the northern region of the country, home to 56 percent of Cameroon s poor, even as they have fallen in urban areas and in the south. Hence the significance of this investment. Table 5.6: EIRRs and NPVs broken down for each of the sub-components under Component 2 Sub-component EIRR (%) Total NPV (US$ million) Prorated NPV to IBRD Investment (US$ million) 2 (a) and (b): Reinforcement of Douala and Yaoundé (c): Reinforcement of Northern Grid Global (a+b+c) Calderon & Serven (2010). 83

102 15. The economic valuation is presented in the matrix below. Table 5.7: Economic Valuation of Sub-components 2(a) and 2(b) MUSD Economic benefits Reduced Technical Losses & Reactive Power Requirements Reduced Self Generation Total Gross Benefits Economic Costs CAPEX (91) (91) (91) (91) 263 E&S Cost for Transmission alone (22) (22) (22) (22) 64 Recycling within Economy of Local Component 20% (53) Recycling within Economy of Tax and Duty Free 12% (32) OPEX 1.5% (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) Recycling within Economy of Local Component of OPEX 20.0% Net Benefits (84) (84) (84) (84) Net Present Value 236 Economic Rate of Return 14.0% Table 5.8: Economic Valuation of Sub-component 2(c) MUSD Economic benefits Reduced Technical Losses & Reactive Power Requirements Reduced Self Generation Total Gross Benefits Economic Costs Transmission CAPEX (55.3) (55.3) (55.3) (55.3) E&S Cost (10.8) (10.8) (10.8) (10.8) 31.2 Recycling within Economy of Local Component 20% (32.0) Recycling within Economy of Tax and Duty Free 12% (19.2) OPEX 1.5% (3.3) (3.3) (3.3) (3.3) (3.3) (3.3) (3.3) (3.3) (3.3) (3.3) (3.3) Recycling within Economy of Local Component of OPEX 20.0% Net Benefits - (48.3) (48.3) (48.3) (48.3) NPV of Total Investment 18 EIRR 7.2% 84

103 Project Risks 16. A sensitivity analysis shows that the economic viability of the overall project is robust to credible changes in the underlying parameters. A switching value analysis for total project costs and benefits was performed. The results show that the EIRR for the project remains at six percent or above until a 180 percent increase in total investment cost or until a 43 percent reduction in total economic benefits. The switching value for delays is five years. 17. However, the northern investment with a lower economic return is more subject to variations in key parameters: these are the willingness to pay (with a switching value of 29 cents per kwh; baseline is 35 cents per kwh), cost overruns (switching value at 120 percent of baseline), and delays (switching value is two years). III. Financial Analysis of ENEO 18. ENEO provides electricity to around 90 percent of Cameroon s urban population, with LV consumers or public sector demand comprising close to one million connections (of which 93 percent are residential and seven percent commercial) and generating along with MV consumers (including special customers) 90 percent of ENEO s revenues. This demand is concentrated in the Southern Interconnected Grid (RIS), which represents 94 percent of total demand compared to only five percent for the Northern Interconnected Grid and one percent for the Eastern Interconnected Grid. 19. Over the past five years, total system losses have stood at 29 percent on average and in 2014, reached 30 percent (technical, 12 percent; commercial, 18 percent), translating into revenue losses of around 180 million. Revenue collections have been stable with a 10-year average of 95.2 percent. Figure 5.1: Distribution Losses (percent) Figure 5.2: Collection Rate (percent) Commercial losses Technical losses 20. Capex investment has been inadequate with AES Corporation having invested over its tenure of AES Sonel 693 million in the generation, transmission, and distribution, in part through a 260 million financing raised in 2006 for the company s 380 million capex program, which IFC arranged. Since 2011, overall capex investment has dropped significantly to around 40 million per year versus 80 million in , and resulted in ENEO consistently remaining below the concession distribution efficiency targets: 73.2 percent in 2013 versus 77 percent target, and 69 percent in 2014 versus 78 percent regulatory target. 85

104 21. From a technical and operational standpoint, ENEO has not performed to expected standards post privatization of the national utility, with the weak performance stemming from two main factors: a) Poor operational management, poor planning and coordination and lack of human resources strategy, which led to high management turnover. AES s challenging relationship with the GoC (44 percent owner of the utility) led to delays in the implementation of the capex program, resulting in costs overruns. b) Lack of required investments in the transmission and distribution networks (overloaded feeders and transformers, which have led to high level of fatalities) due to delayed tariff increases, coupled with poor metering and billing and technical inefficiencies. Historical Financial Performance 22. The company grew its revenue base from 259 million in 2009 to 412 million in 2014, primarily due to growing electricity demand and to a tariff increase (6.9 percent) in Average revenue growth rate over the past five years is 9.7 percent per annum. However, ENEO has displayed over the past five years volatile and eroding EBITDA and net income margins: EBITDA margin of 29 percent in 2009 versus 23 percent in 2014 and a net margin of 10.7 percent in 2009 versus -0.5 percent in Figure 5.3: Profit and Loss Highlights and Total Debt ( millions) 23. Margins have been particularly hit by: (i) increasing penalties for unserved energy and bad debt, and (ii) increasing interest expenses (+ 100 percent between 2009 and 2014). Volatility in 2011 financials is particularly attributable to a catch up on unserved energy penalties and financial expenses due to a bridge loan contracted for Kribi I development, while a drop in 2013 margins is the result of 20 million of extraordinary expense to supply emergency power. 24. In 2010, the 260 million development finance institutions (DFI) loan was rescheduled due to delays and cost overruns in the implementation of ENEO s capex program and to accommodate the slower than expected performance improvements. The initial repayment of 90 million was restructured and reduced to ~ 35 million. This re-profiling included an increase in pricing to accommodate the changes in risk profile, a rescheduling of repayments, a cash sweep and a dividend block until the original repayment profile is restored and losses improved. To date, ENEO has made no payments towards restoring the loan amortization to the original profile. 25. In 2014, ENEO was able to break even financially with a profit after tax of 2.3 billion FCFA representing less than one percent of net profit. However, distribution losses are high in industry standards in the range of 30 percent. Depreciation of 30 billion FCFA is twice as big as the amount of 86

105 investments ENEO is carrying out; this is symptomatic of a company unable to even replace its existing asset in a context of a growing demand and surcharged grid. Meanwhile, ACTIS started engaging in protracted discussions interlinked with the GoC and ARSEL around the tariff increase, investment program, and extension of concession. 26. In 2015, the situation deteriorated further with the GoC delaying its tariff compensation estimated at 17 billion FCFA; as a result ENEO incurred a loss of 15 billion FCFA. To make things worse, the company has suffered throughout the year from liquidity problems resulting from major payments delays of electricity bills, including by ALUCAM and the GoC. To address its liquidity issues, ENEO had to fall back on the use of costly bridge loans amounting to 16 billion FCFA. To improve its liquidity, ENEO has negotiated with commercial banks a factoring facility of 13.5 billion FCFA, which will allow ENEO to reduce its working capital requirements by receiving payment on time for GoC electricity bills (the banks are then in charge of collecting the funds). 87

106 Unaudited 2014 FY Actual 2015 FY Actu Unaudited Key Financial Drivers: Volume injected (GWh) 4,108,842 Cash Flow Statement: 4,355,9 '000 CFA Volume sold (GWh) 2,839,908 3,043,1 Cash Flow from / (used by) Operations Distribution Efficiency (%) 69.12% EBITDA 60,764,055 36,319,0 MV Collection Rate (%) 98.38% Non cash items -13,251,384-6,504,2 LV Collection Rate (%) 94.78% VAT 15,552,754 15,136,4 HV Collection Rate (%) % Decrease(increase) in accounts receivable, ne -18,775,041 1,147,6 State Collection Rate (%) 79.53% Decrease(increase) in inventory -742, ,8 Global Collection Rate (%) 95.24% Decrease(increase) in prepaid expenses -3,023, ,8 Decrease(increase) in other current assets -1,934,710-9,644,3 Income Statement: '000 CFA (Decrease)increase in accounts payable 3,853,288 4,930,2 LV & MV (incl. other MV special customers) 221,617, ,954,7 (Decrease)increase in accrued interest 0 (Decrease)increase in other current liabilities -5,431,322-12,331,8 Cancellation 0-2,600,6 (Decrease)increase in customers deposit 2,711,220 2,395,4 HV 24,976,480 25,629,8 Changes in net working capital -7,790, ,9 Others Revenues 7,180,066 8,971,1 Interest paid on capital lease 0 Rules of Services Penalties (ROS) -1,368, ,2 Taxes paid -12,757,663-10,779,1 Government compensation 17,493,846 1,544,5 Net cash flow from operations 26,964,554 19,489,64 Total Revenue 269,899, ,134,9 Operating Cash Flow Margin (% of Sales) 10% 12 Fuel costs 38,083,370 41,450,1 Cash Flow from / (used by) Investment Energy purchased costs 69,695,457 80,200,5 Purchase of fixed assets -13,139,911-15,727,7 New connections charges 6,741,245 9,051,0 Proceeds from sale of assets 0 Arsel fees 2,040,497 2,805,9 Interest income -59, ,3 Allowance of provision for UE penalty 4,198,981 2,647,1 Other -258,762 Net cash flow from investment (13,458,089) Reversal of provision for UE penalty -17,450,365-6,846,1 (15,301,37 Cash Flow from / (used by) Financing Total Variable Costs 103,309, ,308,7 Debt Proceeds Received (Long-Term Debt) 0 Core Gross Profit 166,590, ,826,2 Debt Repayment (Long-Term Debt) -22,484,453-22,484,4 Gross Profit Margin 62% 52Debt Proceeds Received (Short-Term Debt) ,200,0 Debt Repayment (Short-Term Debt) 0 Financing costs 0 Salaries 41,580,023 44,551,0 Capital lease repayment -532, ,3 Maintenance costs 14,708,529 9,578,5 Cash release (Funding) of DSRA 2,464,763 6 Bad debt expenses 10,264,028 8,822,9 Interest paid on loan -5,733,666-5,570,0 Operating lease (CIA) 4,586,726 4,591,5 Bank Overdraft 0 Management fee to Actis 1,004,784 1,188,1 Equity injection 0 Dividends 0 Management fee received from DPDC & KPDC -650, ,0 Net Cash Flow -12,779,291 Other Fixed costs 34,332,275 38,424,8-8,278,9 Total Fixed costs 105,826, ,507,1 Cash -- Beginning Balance 32,015,026 19,235,7 Total Operating Expenses 209,135, ,815,8 Add/(Subtract) Net Cash Flow -12,779,291-8,278,9 EBITDA 60,764,055 36,319,0 Net Cash Balance (Unrestricted cash) 19,235,736 10,956,8 EBITDA Margin (% of Sales) 23% 14Restricted cash balance (DSRA) 14,764,601 14,764,2 Depreciation 29,820,038 Total Cash 30,546,2 34,000,337 25,721,0 EBIT 30,944,017 5,772,8 Debt Interest Expense 4,789,071 4,792,1 Interest Income -181, ,6 Provisions 2,961,302-1,454,9 Interest Expense on KPDC & DPDC 6,829,133 6,758,4 Other 3,777,667 4,837,7 Profit Before Tax 12,768,764-8,866,8 Income Tax Expense 10,485,186 6,130,1 Profit After Tax 2,283,579-14,997,0 PAT Margin (% of Sales) 1% FY Actual 2015 FY Actu

107 End-user tariff increase 27. Genesis of tariff compensation. GoC has over the recent years resisted the application of much needed tariff increase for social and political reasons (the last increase was in 2012). However, it has become clear that the financial sustainability of the sector is dependent upon adequate investments in the network. During the 2011 tariff revision, the GoC opted not to pass on generation costs in full to end-users and rather to compensate ENEO, and has adopted that approach since. This results in circa US$30 million owed by the GoC to ENEO annually (equivalent to 27.9 percent of the company s 2014 EBITDA) and led, in September 2014, to the company drawing on the debt service reserve account (DSRA) to service the DFIs debt of 23 million debt. The liquidity risk further materialized in 2014 with a two-month payment delay to the Dibamba and Kribi independent power producers. Payments to independent power producers were regularized and the DSRA replenished ( 20 million equivalent to the next six month debt service requirement) upon receipt in November 2014 of part of GoC compensation due at year-end 2014 ( 13 million). 28. In early 2015, ENEO submitted a one-year tariff increase request of 4.5 percent for the year 2015, broken down as shown in the table below. Table 5.9: Breakdown of End User Tariff (CFA/kWh) Component Actual Proposed Proposed Tariff Increase percent increase IPPs and direct electricity costs % Salaries, maintenance costs % Fuel costs - ENEO % Tariff base (return & amortization) % Bad debt % Arsel n.a. Deduction for non-core % Deduction for distribution efficiency % Average end user Tariff (CFA/kWh) % cents/kwh equivalent However, the requested tariff increase did not occur in 2015; along with outstanding GoC electricity bills (including a three month delay payment from ALUCAM), GoC owed ENEO about 13 billion FCFA ( 20 million) in early ENEO is now expecting to reach an agreement on tariff, the GoC is now evaluating different options for implementing tariff adjustments, whether through a tariff increase, a tariff compensation, or a combination of both. ENEO s 10-year operational plan 30. ENEO s strategy for the next 10 years ( ) consists of about. 727 million investment into the network to improve quality of service, expand access to electricity and drive operational performance through: a) Additional shareholders equity (ACTIS and GoC) of about 27 million; b) Internally generated cash flow for about 400 million; and c) A 300 million debt financing to refinance existing debt (long and short term, amounting to 133 million) and fund part of the new capex program. 31. It will be distributed as follows: 89

108 a) Investment in distribution networks and MV/LV substations ( 334 million); b) Rehabilitation of hydro generation assets: the critical 384 MW Song Loulou representing 38 percent of energy produced, Lagdo and Edéa ( 220 million); c) Investment in HV/MV substations ( 91 million); d) Commercial activities, safety and environment and management tools modernization ( 70 million); e) Investment in the transmission asset ( 14 million). 32. Operational Performance: ENEO has made commercial losses reduction a priority, to be achieved through proactive distribution efficiency ratio management, collection rate improvement below and human resources and Health, Safety and Environment. As such, it has since September 2014 adopted new meter reading methods and focused on customer relations (i.e., converting fraudulent LV power users to customers). Latest financial projections for period Table 5.10: Key operational performance targets 33. ENEO s Base Case financial condition going forward: During a meeting with the World Bank team in February 2016, ENEO presented its financial outlook based on the following assumptions: a) A 15 percent tariff increase for LV/MV consumers in 2016 applicable of March ; b) No tariff increase for HV consumers; c) A target distribution efficiency ratio of 75 percent; d) A 10- year extension of its concession; e) The refinancing of the existing DFI debt (~ 108 million) and short-term debt ( 25 million); f) No delays on payment government electricity bills 22 ; g) New capex investments; and Distribution efficiency 71.5% 73.5% 74.5% 75.5% 76.5% 79.0% 78.5% 79.5% 80.5% 80.8% Collection Rate - LV/MV excluding Government 97.7% 97.3% 98.2% 98.2% 98.2% 98.2% 98.7% 98.7% 98.7% 98.7% h) The release of the existing DSRA and no DSRA on new capex financing. 34. Cost of service is expected to reach a peak in Under ENEO s base case scenario, the requested tariff increases by 23.5 percent in 2017 for LV customers and by 5.8 percent for MV customers. In 2018, it is assumed ENEO will switch to a unified tariff for both MV and LV at a lower level of 86.3 FCFA/kWh. Cost of service is expected to decline significantly in 2018 (22 percent decrease), as Memve ele comes on line with more than 1,000 GWh of additional energy injected substituting the majority of expensive thermal generation (HFO and diesel). As a result, share of hydropower generation within the generation mix ramps up from 58 percent in 2017 up to 80 percent in 2018 (commissioning of 21 While the regulator expressed preliminary approval with the tariff increase plan, it still remains uncertain. This tariff increase is expected to yield 26 billion FCFA of additional revenues in ENEO has access as of April 2016 to a 13.5 billion FCFA factoring/invoicing facility offered by local commercial banks; these banks will be responsible for collecting government electricity bills on behalf of ENEO. This would enable the utility to mitigate late government payments and thus reduce working capital requirements. 90

109 Memveéle) and up to about 98% in 2021 (commissioning of Nachtigal); the remaining thermal operating asset on the grid post-2018 is Kribi. LV/MV Tariff (FCFA/kWh) Increase in tariff Share of Hydro Table 5.11: Projected evolution of tariff vs. share of hydro in the energy mix 2015 Actual % 10 % 23 % -22 % -5 % -3 % 9 % -8 % -6 % -6 % -5 % 64 % 69 % 58 % 80 % 77 % 74 % 98 % 96 % 94 % 92 % 93 % /21 will mark a milestone for the Cameroon power sector with the commissioning of Nachtigal power plant that will be supplying potentially more than 30 percent of total energy injected in the grid paving the way for the country to become an energy exporter to the energy-thirsty sub-region. After a small hike in 2021, tariff quickly embarks on a downward trend reflecting a sustained reduction in cost of service following the commissioning of Nachtigal; by 2025, LV/MV tariff is expected to be as low as 66 FCFA/kWh. Share of hydropower within the generation mix exceeds 90 percent in the five years following Nachtigal operation. Table 5.12: Dispatch projections Dispatch Song Loulou (Hydro) GWh Edea (Hydro) GWh Hydro IPP (Mekin, Memvele, Nachtigal ) GWh Kribi (Gas) GWh Rodéo (Gas) GWh Limbe (HFO) GWh Dibamba (HFO) GWh Oyomabang I (HFO/LFO) GWh Logbaba II (HFO) GWh LFO Grid GWh PTU (Heat emergency power) GWh IPP 1 - Lompangar ou Noun 1 GWh LFO Bertoua GWh Remote System GWh NIG - Lagdo (Hydro) GWh NIG - Djamboutou (Diesel) GWh Total Generation GWh Over the period , revenues are projected to grow by about 100 billion FCFA reaching 422 billion FCFA in 2025 at a compounded annual growth of three percent. While ENEO s management expects that LV/MV demand will grow by six percent per annum, the tariff, computed as cost of service yearly by ARSEL, is expected to shrink down at an annualized rate of 3.3 percent subsequent to: (i) the commissioning of large hydro plants (Nachtigal and Memve ele); and (ii) sustained efforts by ENEO in reduction of distribution losses. 37. Fuel purchase is divided by 2.5 over the period while energy purchase from independent power producers has almost doubled reaching 195 billion FCFA, i.e., about 46 percent of total revenues. Fixed costs, comprising of salaries, maintenance, leasing of conceded assets and administrative costs, remain almost stagnant at around 100 billion FCFA despite a fast growing demand. This testifies to the importance of cost discipline within ENEO s strategy in achieving its operational and financial targets. 91

110 Table 5.13: Income Statement Financial Year End: 31 December - in millions of FCFA INCOME STATEMENT - OHADA LV & MV (incl. other MV special customers) 291, , , , , , , , , ,186 HV 23,302 33,614 37,238 37,359 37,365 37,359 37,359 37,359 37,365 37,352 Electricity sales 314, , , , , , , , , ,538 Compensation Other revenue 10,009 6,146 6,919 7,155 7,298 7,444 7,593 7,745 7,899 8,057 Total Revenue 324, , , , , , , , , ,596 Fuel (38,632) (47,044) (16,575) (10,752) (13,522) (12,293) (13,152) (14,074) (15,061) (15,629) Energy purchase (95,420) (124,642) (119,595) (128,103) (130,530) (188,808) (190,290) (192,311) (194,320) (195,064) Arsel fees and Unserved Energy penalties (11,394) (4,975) (6,805) (6,984) (7,233) (8,213) (8,114) (8,221) (8,330) (8,467) New connections (9,515) (8,565) (8,973) (9,279) (9,464) (9,653) (9,847) (10,043) (10,244) (10,449) Total Variable Cost (154,961) (185,225) (151,947) (155,117) (160,749) (218,967) (221,402) (224,649) (227,956) (229,609) Gross Profit 169, , , , , , , , , ,986 Salaries, wages & benefits (46,978) (46,978) (46,978) (47,439) (47,439) (47,910) (47,910) (48,390) (48,879) (48,879) Maintenance (8,344) (6,130) (10,301) (10,275) (10,070) (10,011) (10,125) (10,062) (9,986) (9,709) Others (Administrative, Operationnal CIA & Management fee) (38,358) (38,358) (38,358) (38,358) (38,358) (38,358) (38,358) (38,358) (38,358) (38,358) Bad debts (2,924) (7,623) (6,237) (5,463) (5,633) (5,883) (7,013) (5,130) (5,190) (5,250) Total Fixed Costs (96,603) (99,088) (101,873) (101,535) (101,500) (102,161) (103,405) (101,939) (102,413) (102,196) EBITDA 72,846 85,699 80,100 86,661 94,442 95,685 82,983 85,542 86,186 90,791 Depreciation, Amortization and other non operating items (40,636) (35,902) (36,383) (38,593) (40,086) (38,633) (38,880) (39,352) (38,554) (40,852) EBIT 32,209 49,797 43,717 48,068 54,356 57,052 44,103 46,190 47,632 49,939 Total Interest (5,413) (3,250) (4,422) (4,571) (8,157) (7,388) (5,794) (4,487) (3,267) (2,411) EBT 26,796 46,547 39,295 43,497 46,199 49,663 38,309 41,703 44,365 47,528 Tax expense (after EOY compensation offset) (8,843) (15,361) (12,967) (14,354) (15,246) (16,389) (12,642) (13,762) (14,641) (15,684) Net profit after tax 17,954 31,187 26,328 29,143 30,953 33,275 25,667 27,941 29,725 31, Key ratios. Over the projection period, ENEO s return on equity ranges between eight percent and 14 percent depending on the years and averages about 10 percent. ENEO is expected to emerge from the stressed liquidity situation earlier mentioned (current ratio of 0.78 in 2015) to a better situation by 2017 when current ratio exceeds 1.0. ENEO s leverage ratio, currently at 74 percent, is on a downward trend to 60 percent by 2025 highlighting sponsor s willingness to retain earnings within the project company and strengthen its balance sheet; annual dividends paid to the sponsors range between 10 and 12 billion FCFA representing less than five percent of equity invested in the project company. 39. ENEO has a heavy CAPEX program to implement over the period concentrated in the period where cash flow from investing activities is expected to reach 211 billion FCFA. External borrowing amounting to 144 billion FCFA is disbursed during this period while additional equity of 17.7 billion FCFA is injected; the balance of investments needs (about 50 billion FCFA) is financed through cash internally generated. By the end of 2025, ENEO has ten times more cash and cash equivalents (107 billion FCFA) then what it had by end of Minimum DSCR of 1.59 is reached in 2016; ENEO has no difficulty at all repaying the refinanced loan for which repayment starts in

111 Table 5.14: Cash Flow Statement ( ) (=) Net cash provided by operating activities 70,258 59,026 58,697 66,570 70,625 81,901 72,462 71,456 70,269 76,725 Purchase of fixed assets (32,142) (64,451) (56,696) (64,823) (31,636) (29,731) (27,087) (29,780) (68,352) (75,349) Interest income 587 1,011 1,247 1,916 1,895 3,357 3,556 3,626 3,637 2,824 (=) Net cash provided by investing activities (31,555) (63,440) (55,449) (62,907) (29,741) (26,374) (23,531) (26,154) (64,715) (72,525) Cash flow before financing activities 38,703 (4,413) 3,247 3,663 40,884 55,527 48,930 45,302 5,554 4,200 Loan disbursement - 106,080 40,440 15,077 54, ,407 - Loan repayment (22,484) (72,405) (21,647) (21,647) (21,647) (120,054) (5,868) CIA Principal repayment (783) (909) (1,055) (1,225) (1,421) (1,650) (1,915) (2,223) (2,580) (2,995) Cash Release (Funding) of DSRA & DRA 5,797 7, (16,987) , Interest paid on loan (6,913) (4,172) (6,131) (7,727) (10,303) (11,417) (10,764) (9,575) (8,955) (8,338) Financing costs - (2,893) (604) (402) (327) (52) (52) (52) (1,529) (52) Other Equity injection - 9,913 7, Dividends paid - (10,000) (10,200) (10,404) (10,612) (10,824) (11,041) (11,262) (11,487) (11,717) (=) Net cash provided by financing activities (24,382) 33,474 30,238 (4,681) 15,218 (45,051) (44,821) (44,127) (32,932) (28,886) (=) Net Increase in Cash and Cash Equivalent 14,321 29,061 33,485 (1,018) 56,102 10,476 4,109 1,176 (27,378) (24,687) (+) Cash and cash equivalents at beginning of year 10,957 25,278 54,339 87,824 86, , , , , ,291 (=) Cash and cash equivalents at end of year 25,278 54,339 87,824 86, , , , , , ,604 93

112 Annex 6: Transmission Sub-sector Reform Policy Statement Cameroon Electricity Transmission and Reform Project English version 94

113 REPUBLIQUE DU CAMEROUN REPUBLIC OF CAMEROON MINISTERE DE L'EAU ET DE L'ENERGIE MINISTRY OF WATER AND ENERGY Strategic Statement on Electricity Sector Reform Historical overview of the reform process The Government of Cameroon (GoC) initiated an ambitious reform process to liberalize the electricity sector in the 1990s, the first step of which was the promulgation of Law 98/022 of December 24, The reform process has undergone two important phases. During the first phase, under the new law, new agencies were created, including the ARSEL (electricity sector regulator) and the AER (rural electrification agency), the roles of the principal actors (the administration, ARSEL, and AER) were reorganized, and the sector was liberalized/deregulated through the following: Opening of activities related to the production, import, export, and commercial supply (sell) of electricity to competition; Partial and progressive deregulation of so-called Grand Comptes (large accounts) customers or other eligible customers; Concessioning to a Private Operator of the national electricity company (SONEL); Allowing third-party access (TPA) to the public transmission grid while preserving SONEL s electricity transmission activity; Distribution remains a regional monopoly; Regulating tariffs (at a level sufficient to cover all costs and ensure a reasonable yield) for all activities of a monopolistic nature, and according to the principles of free and fair competition whenever applicable; Setting up independent dispatching (to be subsidiarized within five years from the concessioning of SONEL) in order to ensure fair and equitable access to the electricity transmission grid; Require the historical vertically integrated operator to have separate accounts for production, transmission, and distribution; and Establish neutral or independent regulation of water management in the Sanaga basin. The agencies ARSEL and AER were established and the GoC awarded a 20-year concession to AES Corporation in 2001 for the operation of SONEL and for investing in the public entity of SONEL. In November 2006, by Presidential Decree, the GoC created the Electricity Development Corporation (EDC), which holds public electricity sector assets and whose mandate includes the development, management, and operation of hydropower assets. Lastly, a Presidential Decree of December 10, 2009 established the Rural Energy Fund (FER) in order to improve rural communities access to modern energy. 95

114 Following mixed results in the electricity sector in the late 2000s, the GoC initiated the second phase of its sector reform project by promulgating Law 2011/022 of December 24, This law differs from the Law of 1998 in the following respects: A state-owned entity to be created to serve as the electricity transmission system operator (TSO); Specific provisions to promote the production and transmission of electricity by companies engaged in industrial activities and seeking to produce energy in order to meet their industrial needs; Public service operators are now required to connect any electricity producer using renewable energy to the grid; A Water Storage Activity to be established for the production of electricity; A reinforced system of administrative penalties for infractions committed in the electricity sector. The missions of ARSEL have also been strengthened by decree No. 2013/204 relative to its structure and operations. Lastly, in 2014, after its takeover by the British group Actis, Cameroon s historical electricity sector operator changed names. AES-SONEL became ENEO CAMEROON S.A (ENEO). ENEO (formerly AES- SONEL) is now a semi-public company of which Actis owns 56% and the Cameroon government owns 44%. The second phase of reform is currently underway. This Statement reiterates Government s objectives and discusses the implementation of the second phase, which began with the promulgation of the Law of Objectives of electricity sector reform The second phase of electricity sector reform in Cameroon aims at strengthening the electricity sector through the following: Strengthen the Government s ability to enhance competitive development and lower the cost of hydroelectric plant projects, in particular for independent producers; and Enhance the capacity, efficiency, and stability of Cameroon s national electricity transmission grid. In order to achieve these goals, with support from development partners, notably the World Bank, the GoC began implementing the electricity transmission sub-sector reform, taking measures to improve the capacity, efficiency, and stability of the grid. There are two principal components of this process: Component 1: perform the analytical activities needed to reorganize the electricity sector and operationalize the TSO; Component 2: design and finance an ambitious program to upgrade transmission grids by This two-pronged approach is critical for achieving the ambitious objectives the Government has set with regard to supplying electricity to Cameroonians while ensuring quality service and lowering costs. Main components of the reform Component 1: Sector reorganization 96

115 The main pillars of the reform were set out during a workshop held on October 8 and 9, 2014 in Yaoundé, which led to the definition of a detailed roadmap for the establishment of a public power transmission system company (TSO). Organized by the Government, the Workshop s primary objective was to establish a consensus with all stakeholders regarding key aspects of the future electricity market in Cameroon. Following the workshop, the GoC outlined some strategic directions for the reorganization of the electricity sector and the future role of the TSO: The organizational model for the sector must allow third-party access to grids (TPA) on the basis of agreements that reconcile the public service objective (as defined by the Government) with the growth of industrial and mining activities; The TSO will be responsible for the exploitation, maintenance, and development of the transmission grid, as well as for energy flow management; The TSO must remain neutral vis-à-vis producers, distributors, and large customers; The TSO will be responsible for the optimization of the electrical system on behalf of the Ministry of Water Resources and Energy, which remains the final authority on planning matters; Certain provisions pertaining to sector organization must be included in a new sector policy document and may require adjustments to sector-specific laws; The TSO will be created rapidly and in phases. Initially, its activities will focus on developing grid transmission infrastructures. Once the process of separation and transference of transmission management to ENEO is complete, the TSO will begin other activities. Rules governing water management on the Sanaga River must be approved by a future Sanaga Basin Commission in order to better manage relations between producers and buyers, as well as risks related to water management, and the hydrological risks. The institutional framework of the reorganization process is outlined in Annexe 1. In addition to these strategic directions, an action plan and a roadmap were prepared during the Workshop. Component 2: Priority investments The GoC has created a broad program for the upgrade and development of electricity transmission infrastructures by 2021 in order to facilitate sector reorganization, namely the establishment of the national TSO, and to achieve the objectives of improving the capacity, efficiency, and stability of the national electricity transmission grid of Cameroon. Total investment required for this program is around USD 1 billion. Its main components are: Set up interconnections in order to increase electricity supply to urban centers and ensure this supply has a security level (N-1); Strengthen and secure electricity transmission in the cities of Douala and Yaoundé; Strengthen and secure the three interconnected grids (Northern, Southern, and Eastern); Ensure the evacuation of energy from new plants (such as Mekin, Memv' ele, Nachtigal, etc.) to centers of consumption while ensuring the reliability and stability of supply; Modernize and upgrade the Dispatching center of the Southern interconnected grid, 97

116 and implement a Dispatching for the Northern interconnected grid; Build the backbone for Power interconnections with neighboring countries. The Transmission Program, program to upgrade and develop energy transmission infrastructures by 2021, set up by the Government, is based on the PDSE 2035 (Electricity Sector Development Master Plan), approved by the Government in November 2014, as well as on the emergency plan for the electricity sector prepared by the MINEE, the investment plan prepared by ENEO, and the list of investments needed for the evacuation of power from the Mekin, Memv'ele and Nachtigal plants. In order to ensure the coherence and relevance of the Transmission Investment Program, a Network Stability Study that incorporated all program investments was presented to the TSO steering committee on June 30, This analysis not only assessed the program pertinence and coherence, but also confirmed stability of the entire system once major hydropower project such as Memve ele and Nachtigal will be commissioned. In order to ensure that financing for the program can be timely made available, the GoC also opened a dialogue with donors. The program has already received preliminary financial commitments from a number of donors, including the World Bank. The GoC has asked the World Bank for support in implementing investments in the program, namely in terms of 1) ensuring coherent and coordinated implementation program-wide; 2) assisting the government in securing and optimizing financing for all aspects of the program; and 3) providing assistance in meeting environmental and social standards, and in managing any delays that may arise due to this aspect. Reform implementation The reform process is well underway in Cameroon. Several actions have already been carried out since the October 2014 workshop. Actions already completed. In order to accelerate the reform process, the GoC has already taken the following steps: A Decree establishing SONATREL was signed by the Chief of State on October 8, 2015 and, in February 2016, the Board was established by decree and the General Management of SONATREL was appointed by resolution of the Board; The Government hired two international consortiums: one for the reorganization of the electricity sector and the other one for the operationalization of SONATREL. They began work in June 2016; A mechanism for steering and managing the reform process was established, including: o A Steering Committee (COPIL) established by Ministerial Decree in December 2014, which is responsible for overseeing the reform process and implementation of the roadmap. It consists of various government administrations and members of the relevant sector institutions; o A Project Committee (or Reform Task Force) responsible for the operational aspects of the reform, was established in July o Specific working groups were also established in July Creation of an internal commission at ENEO responsible for the transfer to SONATREL. Two consortiums were appointed to assist with the reform process: - CPCS-ELIA Grid International-Jing & Partners consortium was selected after an international consultation in order to assist the GoC with sector reorganization. This 98

117 consortium will work with the Government from July 2016 to December 2016 in order to accomplish the following: Ensure the TSO s role in the new sector organization is in compliance with existing laws and decrees; Prepare a new electricity sector policy letter that reflects the new sector organization and reiterates the GoC s desire to promote private sector involvement in production, increasing residents access to electricity, and the regional export of energy; Propose a tariff structure for access to the transmission grid and design a tariff calculation method; Establish the method for regulating tariffs charged for transmission and third-party access to the transmission grid. - The RTE-PWC-Nodalis consortium was appointed to assist the GoC, ENEO, and SO JATREL in the operationalization of SONATREL. The consortium will work with the Government from July 2017 to December 2017 in order to accomplish the following: Ensure the separation of ENEO s transmission accounts; Propose methods for transferring ENEO s transmission assets and activities to SONATREL; Prepare a grid code and promote its adoption; Oversee the transfer of transmission activities to SONATREL; Revise existing contracts in order to ensure compatibility with the new sector structure. The two consortiums began working following an inception workshop which took place in Yaoundé on July 5, Planned action to be implemented in the short term (18 months) Short-term actions began with the appointment of the abovementioned consultants. They include: Support for electricity sector reorganization (over the next 6 months), which includes these main components: Propose recommendations about the terms and conditions of sector reorganization; Prepare a revised sector policy document that reflects the reform underway; Perform an analysis and make recommendations about various tariff structures for TSO services, including payments for any auxiliary services it provides; Prepare recommendations about the optimal principle and applicable regulation modalities; Prepare a recommendations report about possible changes to the Law of 2011, to the proposed Decree establishing the TSO and its structure, adaptations, or new implementation regulations in order to reflect the new sector organization; A detailed list of works to be carried out during the process of sector reorganization is provided in Annex 2. Operationalization of SONATREL (over the next 18 months), which includes these main components: In the first phase, separate the transmission accounts; In the second phase, perform all due diligence requisite for the transfer to the new TSO of the assets, rights and obligations relative to ENEO s activities and management of the electricity transmission grid. The consultant will assess the financial impacts of this 99

118 transfer on the State or the concessionaire and, if necessary, will propose methods of settlement; Operationalization of SONATREL, including all technical, social, tariff, accounting, managerial, legal, and fiscal aspects. SONATREL will be operationalized in phases, but in such a way that it can immediately assume the role of managing the infrastructure upgrades and development program, and assume its other roles in the first half of A detailed list of works to be carried out during the process of sector reorganization is provided in Annex 3. Investment program for infrastructures of the electricity transmission grid: Continue dialogue in order to secure the financing needed; Establish a project management unit at SONATREL; Perform feasibility studies for priority projects. Conducting these three activities simultaneously will create a solid foundation for improving the capacity, reliability, and stability of the grid while making the sector more attractive to foreign investors, which is critical to ensuring an adequate level of production. With regard to water management: Finalize the legal and institutional framework; Create a basin committee with two key missions: prepare water use and management guidelines, as well as flow regulation guidelines; Finalize the concession contract, water storage contract, and contracts with hydroelectric producers. The Government of Cameroon has taken an unwavering commitment to furthering the process of energy sector reform it initiated several years ago. The Government is grateful for development partners support in implementing this reform, the success of which hinges on securing substantial funds and human resources. MINISTRY OF WATER RESOURCES AND ENERGY Lé---- Dr. Basile AT ANGANA KOUNA 100

119 Annex 1: Proposed Institutional Framework 101

120 Annex 2: Simplified Roadmap for Sector Reorganization Works The GoC has chosen a consortium composed of CPCS, ELIA Grid International, and Jing & Partners to assist with the process of sector reorganization. The consortium will work with the GoC from July 2016 to December 2016 in order to achieve the following objectives: Ensure the TSO s role in the new sector organization is in compliance with existing Laws and Decrees; Prepare an energy sector policy document that reflects the new sector organization and reaffirms the Government s desire to promote private sector involvement in the production, increasing residents access to electricity, and the regional export of energy; Propose a tariff structure for access to the power grid and design a tariff calculation method; Establish the method for regulating tariffs charged for transmission and third-party access to the transmission grid. Below is a detailed list of the works carried out in order to achieve these objectives: Review of overall objectives of creating the TSO, providing detailed information about the objective of the reform and establish a consensus with the COPIL in order to better frame the sector reform mission: o o o Detailed objectives of creating the TSO; Detailed description of the type of market to be established through the reform; Detailed review and possible revision of the Roadmap prepared at the Seminar in October 2014; o Detailed review of actions already undertaken in the framework of reform implementation. Prepare the implementation modalities for the organizational model and confirm the market model selected for Cameroonian electricity and its implementation modalities: o o o o Analysis of international practices in the implementation of liberalized markets from an institutional, technical, and financial standpoint; Define in specific terms the organization and operations of TPA in Cameroon; Identify differences between the Cameroonian market and comparable markets having undergone successful transitions; Assess the institutional, technical, and financial aspects of implementing the new structure; o Recommendations and incentives for reform implementation. Prepare a training support program in order to ensure the availability of the skills 102

121 needed for the implementation of the reform: o o o Identify the training needs in the reform process and in the activities of the TSO; ldentify the target audience; Prepare the training program; o Implement the training program after approval by the COPIL. Review and update the electricity sector policy document in order to adapt the sector policy letter to the new structure: o Detailed review of existing documents relative to electricity sector policy; o Identify items that are missing from the new market structure; o Identify new elements that might affect the sector policy; o Revise the sector policy document; o Establish a government strategy for the implementation of the sector development plan. Review the remuneration method for the TSO, recommend the tariff method the best suited for the Cameroonian electricity market, and ensure the TSO has financial autonomy: o Prepare a map of services offered by SONATREL; o Assess the cost of services provided by SONATREL; o Critical assessment of various remuneration methods for services provided by SONATREL; o Establish the objectives of the tariff structure; o Determine the tariff methodology of SONATREL. Assess the impact of the remuneration method of the TSO on sector regulations with a view to align the current regulation with the tariff methodology and to ensure the appropriate remuneration for TSO services: o Critical review of tariff regulation models; o Analyze the regulatory model currently applicable to ARSEL s grid management and transmission regulation; o Assess the impact of the reform on the tariff regulation model; o Propose recommendations for changes to the transmission regulation methods. Review the bylaws of SONATREL in order to ensure that new strategic directions potentially affecting SONATREL are taken into account: o Include services offered and their tariffs in the bylaws of SONATRE; o Propose recommendations about the legal structure of SONATREL; o Establish the respective roles and responsibilities of the TSO and other public and private institutions in the electricity sector; o Revise the bylaws of SONATREL. Review and update the Law of 2011 on electricity with a view to take the new sector organization into account: o Detailed summary and analysis of statutory texts relative to the electricity 103

122 sector, as well as analytical reports on the current legal framework; o Identify gaps between the Law of 2011 and the needs of the new institutional and regulatory structure of the market; o Propose recommendations about possible changes to the Law of 2011; o Prepare any revisions deemed necessary to the Law of 2011 and any implementing provisions or decrees. 104

123 Annex 3: Simplified Work Roadmap to Bring SONATREL into Operation The Government of Cameroon has retained the services of the RTE-PWC-Nodalis Group to provide assistance in the operationalization process for SONATREL. The consortium will work with the Government of Cameroon from July 2016 to December 2017 to achieve the following objectives: Ensure the accounting separation of transport services within ENEO; Ensure the transfer of transport services to SONATREL; The work aimed at achieving these objectives thus includes the following precise elements: 1) A technical component that will structure the organization by establishing operational functions and shared services, and which will include: o Evaluation of the current organization of activities, in terms of skills and resources o Definition of the scope of SONATREL s activities in relation to the exact scope of the TNM s inventory and missions Maintenance of the lines, posts, command control, access to facilities Network control, in real time and preparation, telecontrol, information system Network development Calculation/Billing of technical data Definition of the flow of services between entities o Establishment of the TNM s operational functions o Establishment and valuation of contracts The technical component will lead to the establishment of a transitional organization and the preparation of a roadmap for shared functions. 2) A management and accounting component that will define the separate financial statements and organize the accounting and financial management of the two separate entities, ENEO and SONATREL: o Current state of affairs o Finalization of the guidelines for separating the accounts o Analysis of functional, organizational and Information System constraints o Building the roadmap to establish an independent and fully operational SONATREL Creation of separate financial statements for ENEO and the TNM Development of contracts and operating procedures Adaptation of the IS when necessary Carrying out of the data transfer 3) A social component that will define SONATREL s social organization and HR staffing procedures and monitor its implementation: o o o o Evaluation of ENEO s human resources Evaluation of SONATREL s HR needs Preparation of the transfer of staff at the collective/legal level Analysis of the individual situation of the staff to be transferred 105

124 o o o o o o Definition of the payment modalities for SONATREL s staff Mechanism to transfer staff to SONATREL Collective status for SONATREL and joint status for ENEO s staff Assistance in preparing for the collective bargaining Monitoring of the collective bargaining Monitoring of the transfer of staff and possible external recruitment 4) A pricing component that will prepare the groundwork for SONATREL s Business Plan and evaluate the level of income needed to cover its costs and the guidelines for applying pricing principles. This component includes: o o o o o o Financial analysis of ENEO s transport activities Establishment of the regulation mechanism and pricing principles Underlying principles of the business plan model Assistance in defining the costs related to SONATREL s activities Preparation of a business plan model and initial simulation Physical-financial model programed in MS Excel Projections of the financial statements and indicators for the short, medium and long term Tests and adjustment of hypotheses using an iterative process Determination of the level of income needed to ensure financial equilibrium Application of pricing principles pricing level and distribution/services Analysis of the financial and pricing impact of some of the potential decisions or options 5) A legal and fiscal component that will structure SONATREL s contractual environment and assist in its implementation. This component includes: o o Legal and fiscal assessment and monitoring of changes to the legal framework Status of returned or transferred real estate and other assets, review of the current situation Analysis of the concession and license framework agreement, the transport and transport network management contract, and any possible amendments or other contractual relations Review of the fiscal framework: what are the potential fiscal and customs advantages? Liabilities in case of failure and compensation system Recommendations for the contractual environment: Procedures for operator replacement and the transfer of activities: transfer scheme Proposal for a new operational contractual environment for SONATREL o Technical support for the preparation/adjustment/negotiation of concession agreements o Technical support for the preparation of connection and transmission model contracts o Assistance in relations with tax authorities 106

125 Annex 4: Modus Operandi for the Work to Bring SONATREL into Operation 1) Technical Component Objective: Structure the organization by establishing its operational functions and shared services. Organization and Composition of Working Groups: TM Pilot TM Participants Scope System Operation Asset Management Support Functions Head of ENEO or Head of ENEO or Head of ENEO or SONATREL SONATREL SONATREL Those responsible for Those responsible for Technical managers by real-time team, work line, post and field of activity: human planning, EOD analysis, command control resources, accounting, feedback, network maintenance, access to purchasing, development studies electrical installations, management control, and billing. and SCADA legal affairs, other Management of realtime/provisional transits, management of contracts and system services, network development procedures. Operational organization. maintenance. Organization of the line, post and command control maintenance, access management, and the technical information system. areas of support. Organization of support functions for human resources, accounting, purchasing, management control, legal affairs, and other areas of support. 2) Management and Accounting Component Objective: Define the separate financial statements and organize the accounting and financial management of the two separate entities. Organization and Composition of the Working Groups: Pilots: (i) (ii) Participants: (i) (ii) (iii) IS ENEO s financial branch manager, to be appointed SONATREL s financial branch manager, to be appointed Accounting Management Sub-components to be implemented: (i) Unbundling of accounts (ii) Property lines (iii) Analytical accounting 107

126 (iv) IS accounting Critical point: Plan for Accounting, Management and Information Systems participants in the different sub-components, given the adhesions, as well as the presence of a technical manager, when necessary. 3) Social Component Objective: Define SONATREL s social organization and human resources staffing procedures and monitor its implementation. Organization and Composition of the Working Groups: Pilots: ENEO s Human Resources Director (ultimately, a representative of SONATREL in charge of HR) Participants: (i) An ENEO HR manager (ii) An ENEO payroll manager (iii) A representative from the MINEE (iv) A representative of SONATREL Sub-components to be implemented: (i) Definition of SONATREL s organization and HR needs (ii) Definition of SONATREL s HR staffing procedures: transfer and recruitment (iii) SONATREL s collective status and salary scheme Critical point: Plan for interactions with the Technical TM regarding the organization chart/organization issues 4) Pricing Component Objective: Establish a SONATREL business plan by ensuring the level of income needed to cover its costs and applying pricing principles. Organization and Composition of the Working Groups: Pilots: SONATREL CEO (ultimately, the financial director) Participants: (i) An ENEO financial manager (ii) An ENEO accounting manager (iii) An ARSEL representative (iv) A representative from the MINEE Sub-components to be implemented: (i) Financial analysis of ENEO s transport activities 108

127 (ii) Preparation of SONATREL s business plan: gather all of the necessary elements (OPEX, CAPEX, targets, etc.) (iii) Implementation of pay mechanisms and pricing principles 5) Legal and Fiscal Component Objective: Structure SONATREL s contractual environment and assist in its implementation. Organization and Composition of Working Groups: Pilots: SONATREL CEO (or executive vice president) Participants: (i) A representative from the MINEE (ii) A representative of the tax and customs authorities (iii) An ARSEL representative (iv) An ENEO representative Sub-components to be implemented: (i) (ii) Monitoring of changes to the institutional framework (cf. sectoral reform) Definition and implementation of the contractual and fiscal scheme within which SONATREL s activities will be inscribed 109

128 Annex 5: Timeframe Sector reorganization and Operationalizing SONATREL Simplified Road Map 110

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151 Annex 7. Map IBRD Cameroon Electricity Transmission and Reform Project 133