PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE

Transcription

1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No: PIDA46436 Project Name Region Country Lending Instrument Project ID Borrower(s) Implementing Agency Environmental Category Date PID Prepared/Updated Date PID Approved/Disclosed Estimated Date of Board Approval Appraisal Review Decision (from Decision Note) Other Decision I Project Context Country Context NG-Electricity Transmission Project (P146330) AFRICA Nigeria Investment Project Financing P Federal Republic of Nigeria Transmission Company of Nigeria B-Partial Assessment 04-Apr Apr Jun-2017 The Federal Republic of Nigeria, with a population of 1822 million people in 2015, is a diverse country with major opportunities and complex challenges Consisting of 36 states and the Federal Capital Territory, the Federation is divided into six geo-political zones With more than 400 ethnolinguistic groups, it also features significant contrasts in terms of economic and social outcomes: robust economic growth over the past decade and yet modest poverty reduction; dynamic urban growth centers and isolated rural areas; and widening social and income disparities in the context of abundant natural and human resources Economic growth in 2017 is expected to recover slightly to above one percent in 2017, mainly driven by the restoration of oil production on the back of a more stable security situation in the Niger Delta and supported by continued strong growth in agriculture A statistical rebasing of the gross domestic product (GDP) in 2014 calculated Nigeria s GDP at close to US$500 billion (2012), making it the world s 26th largest economy Nigeria recorded its first full-year recession in 25 years with overall GDP contracting by 15 percent in 2016 The negative oil price and production shocks spilled-over to the non-oil sectors, aggravated by sluggish and inadequate policy adjustments, resulting in high inflation, foreign exchange shortages, and worsening fiscal balances The Federal Government of Nigeria s (FGN) Economic and Recovery Growth Plan sets out the medium-term structural reforms to diversify the economy, including expanding power sector infrastructure as one of the top priorities However, with the immediate recovery depending on its oil sector, Nigeria s outlook Page 1 of 7

2 remains fragile to domestic policy and external risks Projections indicate that the poverty rate will continue to rise during 2017 and 2018 Using a projected US$31 PPP line, poverty will increase to about 745 percent in 2019 Two-thirds of the poor reside in northern Nigeria and the poverty rate in the North East is the highest in the country The economic recession in Nigeria in 2016 was in part due to an underperforming power sector The steep decline in available power generation capacity from the peak of over five gigawatts (GW) in March 2016 to less than four GW on average in the first months of 2017 directly contributed to the recession through the contraction of the electricity sub-sector, and, more importantly, indirectly by affecting production in other sectors In the absence of reliable grid power, businesses that can afford stand-alone diesel generators are dependent on them as a substitute for electricity supplied through the grid thus increasing the cost of production Sectoral and Institutional Context Access to commercial energy services is low: only about 40 percent of the population is connected to the national power grid, and those connected to the grid face multiple daily power cuts Over 100 million citizens (60 percent of the population) are left entirely without access to electricity the second largest access deficit globally, with this portion of the population dependent on candles, batteries, and kerosene lamps for lighting Nigeria launched a far-reaching power sector reform program in 2001 that led to unbundling and privatization of generation and distribution companies in 2013 The National Electric Power Policy in 2001 specified the reform agenda that resulted in the Electric Power Sector Reform Act 2005, which removed the monopoly of the vertically integrated National Electric Power Authority (NEPA) and unbundled it into six generation companies (GENCOs), 11 distribution companies (DISCOs), and the Transmission Company of Nigeria (TCN), which were all subsidiaries of the Power Holding Corporation of Nigeria (PHCN) The process was guided by the Roadmap for Power Sector Reforms, which articulated a credible pathway towards a multi-operator, competitive, open-traded electricity market The privatization of the DISCOs and GENCOs, which was conducted by the Bureau of Public Enterprise (BPE), was completed in November 2013 FGN retained 40 percent ownership in the DISCOs Three of the five thermal GENCOs (that use natural gas as feedstock) were sold in their entirety to new owners while FGN retains 51 percent in one and 30 percent in another Hydropower generation was concessioned to private operators The institutional and market arrangements in the current Transitional Energy Market (TEM) are as follows The Nigerian Bulk Electricity Trading Company (NBET) a government-owned public company acts in an aggregator capacity as a bulk power trader It has entered into power purchase agreements (PPAs) with GENCOs and resells power on to the DISCOs under Vesting Contracts that allocate a percentage of the capacity and energy output from one or more GENCOs to the relevant DISCO The Nigerian Electricity Regulatory Authority (NERC) has the primary licensing function in the power sector and has the mandate to conduct retail tariff reviews that produces and updates the Multi Year Tariff Order (MYTO) The Transmission Company of Nigeria (TCN) is a monopoly transmission service provider that is fully government-owned and controlled TCN incorporates the roles of System Operator and Market Operator under key regulations, including the Market Rules and Grid Rules, and enters into Connection Agreements with both GENCOs and DISCOs, which regulate their connection to the transmission network The role of BPE as a shareholder in the DISCOs and as the grantor of the hydro concessions provides the FGN with representation on the boards of these entities through retaining shareholdings and concession arrangements Page 2 of 7

3 The TEM is expected to evolve into a fully-fledged competitive market over time In the future DISCOs are expected to be fully commercially viable and will then be expected to purchase power directly from the GENCOs, and NBET s intermediary role will gradually lessen Unsolicited generation projects are expected to give way to competitive procurement (the FGN will need to issue a policy in this regard) and eventually not require government backing of PPAs with NBET as the counterparty However, it is likely that this stage of market evolution will not be reached before five years hence Three years after privatization, the reform program has not yet delivered substantial improvement in electricity services Although installed generation capacity is 118 GW comprising 14 GW of hydro and over nine GW of gas-fired power plants, available capacity ranges between three to five GW The main reason for so much installed capacity being permanently or temporarily stranded is the continual gas supply constraints Sabotage of petroleum export infrastructure in 2016 has further curtailed supply of associated gas used in power production with the result that average operating capacity in early 2107 was only about 35 GW The regulatory framework in Nigeria is comprehensive and in accordance with international good practices, but has been poorly implemented The main regulations (in particular the Distribution Code and the Market Rules) include mechanisms to improve performance, but to date they have not been implemented Performance Agreements between BPE, which is trustee of the FGN s 40 percent ownership in DISCOs, and DISCOs have not been made effective Tariff reviews did not proceed as scheduled in 2016 when appointment of Commissioners to NERC was pending A lack of payment discipline together with court injunctions obtained by DISCO licensees have stalled implementation of contractual arrangements (that are contained in vesting contracts between DISCOS and NBET) that would ensure payment and improve the performance of the distribution subsector Such implementation weaknesses and gaps in the institutional and regulatory framework have made it more difficult to cope with the repercussions of the severe economic downturn when the Naira s value eroded causing the gap between power sector costs and payment for electricity to widen The factors above combined with changed macroeconomic conditions led to accumulation of approximately US$15 billion of sector deficits in 2015 and 2016 The currency lost 30 percent of its value against the US dollar since early 2016 and this was not compensated in the MYTO even though 90 percent of sector costs are dollar denominated As the remittances of the DISCOs to NBET fell (they were less than 20 percent of invoice values in early 2017), NBET in turn has been unable to make full payments to GENCOs (and indirectly, gas suppliers) thereby threatening the financial viability of the generation subsector A significant portion of the deficit (about 10 percent) is contributed by the non-payment of electricity bills by the FGN s Ministries, Departments, and Agencies (MDAs) The FGN has recognized that the deterioration in the sector s financial viability that is intimately bound up in deterioration in electricity service to industry and households has had severe economic consequences The FGN has recently approved a Power Sector Recovery Plan (PSRP) in the context of the Economic Recovery and Growth Plan (ERGP) released by the Ministry of Budget and National Planning in March 2017 The objectives of the PSRP are to restore the sector's financial viability in a contract-based electricity market; to improve power supply reliability to meet growing demand; and to strengthen the sector's institutional framework and increase transparency The World Bank collaborated with the FGN in the preparation of the PSRP The action plan in the PSRP is based on sound analysis of the causes that have prevented the contract-based market as designed from being fully implemented The action plan is judicious and has been informed by experience from other countries that the WBG has shared with the FGN team tasked with preparing the PSRP The PSRP, Page 3 of 7

4 approved by Federal Executive Council (FEC), will be further elaborated in the coming months as implementation details are further defined and adjusted to take account of changing circumstances during the five-year period of its implementation For example, the timing and quantum of tariff adjustments for the different customer categories to reach cost-recovery levels, and the resultant subsidy levels, remain to be detailed Threats to implementation of the PSRP are discussed in the risk section The PSRP represents a concerted approach by the FGN to address fundamental issues that threaten the financial sustainability of the sector Near-term actions include settlement of historical (until 2017) debt owed by FGN MDAs to DISCOs (provision for this is included in the 2017 FGN budget); tariff and subsidy policy implementation of petroleum infrastructure sabotage prevention strategy; appointment of boards to sector agencies; agreement on business continuity plans for DISCOs, review of DISCO business plans and recapitalization needs; and legal audit of sector contracts, including Performance Agreements, Vesting Contracts, and PPAs Medium-term actions will include removal of legal impediments to effectiveness of sector contracts; that is expected to chart a pathway to cost reflective tariffs while protecting the poor through lifeline tariffs; review of tariff setting methodology; settlement of deficits owed to market participants; and de-bottlenecking of critical gas and transmission infrastructure to enable up to seven GW available capacity on a reliable basis by 2019 The FGN recognizes that until tariffs reach cost recovery level, the FGN must make up the difference between the costs that the tariff allows market participants to recover and the full cost of supply The PSRP envisages that the shortfall, which it estimated at between US$5-US$11 billion over five years ( ), depending on the pace of tariff reform, will be funded from the sale of government-owned power plants, borrowing from the World Bank and other multilateral financial institutions, and from the national budget A communications strategy is being prepared as part of the PSRP The FGN recognizes that targeted outreach to the public, legislators, the judiciary, industry, and commercial customers and other stakeholders will be necessary to sustain their buy-in over three to four years until electricity service improves to levels commensurate with what customers pay Project Description The project supports priority investments for rehabilitation and upgrading of existing substations and rehabilitation of existing transmission lines across the country in order to increase power transfer on the lines The rehabilitation to be carried out under the project is to address binding constraints to increase power transfer capacity from about five GW currently to at least seven GW The project also includes installation of a SCADA system so as to maintain system stability The substations are parts of the transmission network located across the country Rehabilitation under the project will expand transmission capacity by 3,060 MVA for transformation at 330/132 kv (currently 8,138 MVA) and by 3,500 MVA for transformation at 132/33kV (currently 10,162 MVA) Rehabilitation of the proposed transmission lines will enable additional power evacuation of about three GW from the current maximum of approximately five GW The increase in power transfer capacity from five to seven GW will enable DISCOS to supply consumers with this additional power The project also provides technical assistance to help TCN develop a clear accountability framework and a functional governance structure, fill the gaps in both managerial and staff capacity, and explore private financing for the development of greenfield transmission projects II Proposed Development Objective(s) The project development objective is to increase the transfer capacity of the transmission network in Page 4 of 7

5 Nigeria III Project Description PHCOMP Component Name Transmission Network Strengthening and Improvement Comments (optional) This component has four sub-components: (i) the upgrading and rehabilitation of up to 48 existing substations of these, approximately 11 require the replacement of transformers, while the others require the addition of transformers, and addition and replacement of protection and control systems, switchgear, and associated equipment; (ii) replacement of conductor on up to kv transmission lines and conversion of up to two 132 kv lines from single circuit to double circuit (; (iii) the upgrading and expansion of the network s SCADA and telecommunication system; and (iv) installation of voltage regulation system at the remotely located Gombe substation in the north eastern that is supplied by a long 132kV line part of the country; and (v) purchase of spare equipment PHCOMP Component Name Capacity Building and Technical Assistance Comments (optional) This component includes the following activities: (i) consulting support and capacity building to improve the TCN PMU s performance; (ii) consulting services for construction supervision and management; (iii) consulting services for feasibility studies of priority investment projects for donor financing as identified by the ongoing transmission expansion plan study; (iv) consulting services to support the implementation of a pilot PPP for transmission infrastructure that is part of network expansion; (v) consulting services and capacity building to support TCN s corporatization and commercialization efforts and enhance its managerial, technical, environmental/social, and financial capacity; and (vi) consulting services and capacity building to support public institutions in the sector IV Financing (in USD Million) Total Project Cost: Total Bank Financing: Financing Gap: 000 Financing Source Amount BORROWER/RECIPIENT 400 International Development Association (IDA) Total V Implementation TCN will be the implementing agency for the project The PMU within TCN that exists and has been implementing prior and ongoing Bank-financed project will be the responsible unit within TCN for implementing this proposed project The performance of the PMU under NEGIP has been less than satisfactory and weaknesses in the PMU s capacity have hampered procurement, contract management, and environmental and social safeguards management under NEGIP To address this and ensure that the PMU will be able to successfully implement NEGIP and the proposed project going forward, the PMU s capacity will be enhanced through the recruitment of additional staff and consultants Dedicated staff will be assigned to NEGIP and the proposed project The PMU has Page 5 of 7

6 PHWB PHWB PHBORROWERSECTION experience in implementing projects under Bank specific guidelines on financial management, procurement, and safeguards policies implementation While the majority of the proposed project supports TCN, some activities will benefit other FGN agencies This includes certain technical assistance activities under Component 2, which will benefit several sector agencies, department, and ministries These activities will be primarily executed by the respective agencies with support of the PMU on administrative issues The Project Implementation Plan (PIP), prepared by TCN, is being finalized for the Bank s review and will be finalized during appraisal VI Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 401 Natural Habitats OP/BP 404 Forests OP/BP 436 Pest Management OP 409 Physical Cultural Resources OP/BP 411 Indigenous Peoples OP/BP 410 Involuntary Resettlement OP/BP 412 Safety of Dams OP/BP 437 Projects on International Waterways OP/BP 750 Projects in Disputed Areas OP/BP 760 VII Contact point World Bank Contact: Kyran O'Sullivan Title: Lead Energy Specialist Tel: kosullivan@worldbankorg Contact: Jianping Zhao Title: Senior Energy Specialist Tel: jzhao@worldbankorg Borrower/Client/Recipient Name: Federal Republic of Nigeria Contact: Aliyu Ahmed Title: Director, IERD Tel: ahmed4aliyu@gmailcom Page 6 of 7

7 ṖHIMPLEAGENCYSECTION Implementing Agencies Name: Transmission Company of Nigeria Contact: Mohammed Usman Gur Title: Managing Director/CEO Tel: VIII For more information contact: The World Bank 1818 H Street, NW Washington, DC Telephone: (202) Web: Page 7 of 7