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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 9.9 MILLION (US$16 MILLION EQUIVALENT) TO BURKINA FASO AND A PROPOSED CREDIT IN THE AMOUNT OF SDR 16 MILLION (US$25.9 MILLION EQUIVALENT) TO THE REPUBLIC OF GHANA Report No: AFR IN SUPPORT OF THE FIRST PHASE OF THE INTER-ZONAL TRANSMISSION HUB PROJECT OF THE WEST AFRICA POWER POOL (APL3) PROGRAM Energy Group Sustainable Development Department Africa Region June 9, 2011 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 30, 2011) Currency Unit = West Africa Franc CFA /Ghana Cedi FCFA = US$1 Ghana Cedi = US $ 1 US$ = SDR 1 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AFD ADB APL ARSE BF BOAD BSP CAS CEB CEET CRCB CRCO DSCR EA ECG ECOWAS EEP EIB EMS ERERA ERR ESIA ESMP FCFA FM GRIDCo HFO HV IBRD ICB Agence Française de Développement (French Development Agency) African Development Bank Adaptable Program Loan Autorité de Régulation du Secteur de l Electricité Burkina Faso Banque Ouest Africaine de Développement (West African Development Bank) Bulk Supply Point Country Assistance Strategy Communauté Electrique du Bénin (Benin/Togo Generation and Transmission Power Company) Compagnie Energie Electrique du Togo (Togo Power Utility) Centre Régional de Consommation de Bobo-Dioulasso (Regional Center for consumption in Bobo-Dioulasso) Centre Régional de Consommation de Ouagadougou (Regional Center for consumption in Ouagadougou) Debt Service Coverage Ratio Environmental Assessment Electricity Company of Ghana Economic Community of West African States ECOWAS Energy Protocol European Investment Bank Energy Management System ECOWAS Regional Electricity Regulatory Authority Economic Rate of Return Environmental and Social Impact Assessment Environmental and Social Management Plan CFA Franc Financial Management Ghana Grid Company Heavy Fuel Oil High Voltage International Bank for Reconstruction and Development International Competitive Bidding ii

3 IDA IPP IRR ISP JIC LCO LNG LPG MCF MMCFD M&E NCB NCC NED NEPAD NGO NPV OMVS PDO PIU PURC RIAS TWh USAID VRA WAGP WAPP International Development Association Independent Power Producer Internal Rate of Return Implementation Support Plan Joint Implementation Committee Light Crude Oil Liquefied Natural Gas Liquefied Petroleum Gas thousand cubic feet Million Cubic Feet per Day Monitoring and Evaluation National Competitive Bidding National Control Center Northern Electricity Department New Partnership for Africa s Development Non Governmental Organization Net Present Value Organisation pour la Mise en Valeur du fleuve Sénégal (Senegal River Basin Organization) Project Development Objective Project Implementation Unit Public Utilities Regulatory Commission Regional Integration Assistance Strategy Terawatt-hour United States Agency for International Development Volta River Authority West Africa Gas Pipeline West Africa Power Pool Regional Vice President: Regional Integration Director: Sector Director: Acting Sector Manager: Task Team Leader: Obiageli K. Ezekwesili Yusupha B. Crookes Jamal Saghir Anna M. Bjerde Issa M.Diaw iii

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5 AFRICA THE FIRST PHASE OF THE INTER-ZONAL TRANSMISSION HUB PROJECT OF THE WEST AFRICA POWER POOL (APL3) PROGRAM Table of Contents I. Strategic Context... 1 A. Regional and Country Context... 1 B. Sectoral and Institutional Context... 3 C. Higher Level Objectives to which the Project Contributes... 7 II. Project Development Objectives... 8 A. Project Beneficiaries... 8 B. PDO Level Results Indicators... 8 III. Project Description... 8 A. Project components... 8 B. Project Financing... 9 C. Lessons Learned and Reflected in the Project Design IV. Implementation A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. Key Risks and Mitigation Measures VI. Appraisal Summary A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social and Environmental Assessment (including safeguards) Annex 1. Results Framework and Monitoring Annex 2. Detailed Project Description Annex 3. Implementation Arrangements Annex 4. Operational Risk Assessment Framework (ORAF): Disclosable version Annex 5. Implementation Support Plan Annex 6. Economic and Financial Analysis Annex 7: Implementation Status of projects Annex 8. Team Composition Annex 9. Map IBRD iv

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7 AFRICA THE FIRST PHASE OF THE INTER-ZONAL TRANSMISSION HUB PROJECT OF THE WEST AFRICA POWER POOL (APL3) PROGRAM PROJECT APPRAISAL DOCUMENT AFTEG Date: June 9, 2011 Regional Integration Director: Yusupha B. Crookes Sector Director: Jamal Saghir Acting Sector Manager: Anna M. Bjerde Team Leader(s): Issa M. Diaw Project ID:P Lending Instrument: Adaptable Program Loan Sector(s): Power (85 percent); Technical Assistance (15 percent) Theme(s): Regional Integration (P) EA Category: B (Partial Assessment) Project Financing Data: Proposed terms: Standard Terms for the IDA Grant to Burkina Faso Maturity of 35 years, with 10-year grace period for the IDA Credit to Ghana [ ] Loan [X] Credit [X] Grant [ ] Guarantee [ ] Other: Source Total Project Cost (US$m.): Total Amount (US$M) 111 Cofinancing: European Investment Bank Agence Francaise de Développement SONABEL GRIDCo Borrowers: Burkina Faso and the Republic of Ghana Total Bank Financing (US$m): IBRD IDA New Recommitted v

8 Borrowers: Burkina Faso Ministère de l Economie et des Finances Address: 03 BP 7050 Ouagadougou 03, Burkina Faso Fax: Republic of Ghana Ministry of Finance and Economic Planning Address: PO Box MB40. Accra, Ghana Fax: / Implementing Agencies: 1. SONABEL Contact Person: Mr. Ki Siengui Apollinaire Telephone No: Fax No.: siengui.ki@sonabel.bf 2. GRIDCo: Contact Person: Mr. Charles Darku Telephone No: Fax No.: ceo@gridcogh.com Annual (Burkina Faso) Estimated Disbursements (Bank FY/US$ m) FY FY12 FY13 FY14 FY15 FY16 Cumulative (Burkina Faso) Annual (Ghana) Cumulative (Ghana) Project Implementation Period: June, December, 2015 Expected effectiveness date: November, 2011 Expected closing date: December 31, 2015 Does the project depart from the CAS in content or other significant respects? Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? If yes, please explain: Yes [x] No Yes [x] No Yes [] No Yes [x] No vi

9 Does the project meet the Regional criteria for readiness for [x] Yes No implementation? If no, please explain: Project Development objective: The development objective of the WAPP program is to establish a well-functioning, cooperative, power pooling mechanism for West Africa, as a means to increase access of the citizens of ECOWAS to stable and reliable electricity at affordable costs. The WAPP APL program would help the ECOWAS Member States to develop a robust platform for WAPP, comprising five (5) distinct but mutually reinforcing subregional infrastructure development projects. The development objective of the first phase of the Inter-Zonal Transmission Hub Project under the WAPP APL3 is to reduce the cost of and improve security of electricity supply to Burkina Faso, while increasing Ghana s electricity export capacity. Project description Component 1: Transmission Line between Bolgatanga, Ghana, and Ouagadougou, Burkina Faso. (i) the construction of 210 km of 225 kv transmission line from Bolgatanga in the northern part of Ghana to the capital of Burkina Faso; (ii) the construction/extension of substations at Ouagadougou and Bolgatanga; (iii) installation of telecommunication systems and Supervisory Control and Data Acquisition (SCADA) systems as well as Energy Management Systems (EMS); and (iv) implementation of Environmental Management and Resettlement Action Plan and strengthening the management of the Kabore Tambi National Park. Component 2: Reinforcement of transmission grid in Ghana. Part of key non- funded reinforcements needed to strengthen the northern region network and to increase capacity export to Burkina Faso from 20 to 100 MW and it will include the provision of an additional 330/161kV transformer. The component will also finance the feasibility, engineering and environmental studies of the 161kV Atebubu-Tamale line. Component 3: Electrification of rural localities along the right of way in Burkina Faso. Design and engineering studies as well as works to electrify 24 localities not more than 6km from the right of way using the shield wire of the 225kV transmission line. Component 4: Supervision/Owner s engineer. Owner s Engineer contract to supervise the procurement process and works in both Ghana and Burkina Faso to ensure proper coordination between the two utilities. Component 5: Capacity building and institutional support to GRIDCo and SONABEL for project implementation. Training and technical assistance in: (i) HV System Planning, Hotwire; (ii) O&M of HV transmission systems; (iii) Development, operation and maintenance of SCADA systems; (iv) commercial trading of electricity; and (v) Telecommunications and HV network protection. It will also cover the acquisition of equipment, training and operational expenses of the Project Implementation Units. vii

10 Safeguard policies triggered 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 Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Conditions and Legal Covenants Financing Agreement Reference Financing Agreement with Republic of Ghana Description of Condition/Covenant [x] Yes No [x] Yes No Yes [x] No Yes [x] No [x] Yes No Yes [x] No [x] Yes No Yes [x] No Yes [x] No Yes [x] No a) Board Condition: None b) Credit effectiveness Evidence from GRIDCo of a satisfactory financing and implementation plan for the 161kV and 330kV network reinforcement needed to export 100MW to Burkina Faso; GRIDCo and SONABEL have executed a Transmission service agreement satisfactory to the Association; AFD co-financing for the project has been approved by its Board and the effectiveness conditions are met; Signature of a subsidiary loan agreement between Ghana and GRIDCo satisfactory to the Association. GRIDCo has established an adequately staffed PIU and adopted a Project Implementation Manual satisfactory to the Association; and All conditions precedent to the effectiveness of the Burkina Faso Financing Agreement have been fulfilled. c) Other covenants Commitment from GRIDCo to maintain a Debt to Service Coverage Ratio (DSCR) of not less than 1.3 at all times; (Project Agreement Schedule, section II.C.3) Commitment from GRIDCo to cover the environmental and social cost of the project and implement the measures needed (Project Agreement Schedule, section I.C.); and Ghana will ensure that the Project is implemented in accordance with the provisions of the Environmental and Social Impact Assessment ( ESIA ), the Environmental and Social Management Plans ( ESMPs ), and the Resettlement Action Plan ( RAP ), all in a manner satisfactory to the Association, and GRIDCo shall implement the RAP and the provisions of the ESIA and the ESMPs as per the disclosed documents (Financing Agreement Schedule 2, Section I.D.1). Date Due viii

11 Financing Agreement with Burkina Faso a) Board condition: None b) Grant effectiveness SONABEL and GRIDCo have executed a Transmission service agreement satisfactory to the Association; SONABEL and VRA have executed a Power purchase agreement satisfactory to the Association. EIB and AFD co-financing for the project have been approved by their respective Boards and the effectiveness conditions are met; Signature of a subsidiary loan agreement between Burkina Faso and SONABEL satisfactory to the Association; SONABEL has concluded a Memorandum of Understanding with Burkina Faso s Ministry of Environment and Sustainable Development for the technical implementation of the actions under component 1.5 of the Project to strengthen the Kaboré Tambi National Park; The Energy Protocol has been ratified by the Parliament of Burkina Faso and the ratification instruments thereof have been transmitted to ECOWAS; SONABEL established an adequately staffed PIU and adopted a Project Implementation Manual satisfactory to the Association; and All conditions precedent to the effectiveness of the Ghana Financing Agreement have been fulfilled. c) Other covenants Commitment from SONABEL to maintain a Debt Service Coverage Ratio (DSCR) of not less than 1.3 starting in 2012 and beyond (Project Agreement Schedule, section II.C.3); Commitment from SONABEL to cover the environmental and social cost of the project(project Agreement Schedule, section I.C.1); Burkina Faso will ensure that the Project is implemented in accordance with the provisions of the Environmental and Social Impact Assessment ( ESIA ), the Environmental and Social Management Plans ( ESMPs ), and the Resettlement Action Plan ( RAP ), all in a manner satisfactory to the Association, and SONABEL shall implement the RAP and the provisions of the ESIA and the ESMPs as per the disclosed documents (Financing Agreement Schedule 2, Section I.D.1).; Burkina Faso shall, not later than three (3) months after the Effective Date, engage, or cause SONABEL to engage, independent auditors for the audits to be carried out under the Project (Financing Agreement Schedule 2, Section II.B.4). ix

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13 I. Strategic Context A. Regional and Country Context Regional Overview 1. The 15 member states 1 of the Economic Community of West African States (ECOWAS) cover an area of about 5 million square kilometers with over 260 million people. The region has important energy resources with one third (1/3) of the African gas and oil reserves and over 23,000MW of technically exploitable hydropower capacity as well as solar resources. However these resources are unequally distributed, with around 98 percent of the recoverable oil and gas resources concentrated in Nigeria and 91 percent of the hydro potential is located in five countries Access to sustainable and affordable energy is one of the main priorities of ECOWAS as a way to alleviate poverty and improve its economies competitiveness. A regional approach to promote an optimal use of energy resources was launched in 1982 by the adoption of an ECOWAS energy policy 3. This political commitment led later to the setting up of energy programs such as the West African Power Pool (WAPP) in 1999, the West African Gas Pipeline (WAGP) and the common regional energy access program with WAEMU Important infrastructure development is needed to address the 7 percent average electricity demand growth that will lead to a 22,000MW peak demand for power by ECOWAS member states have acknowledged that past efforts to achieve national selfsufficiency in electricity supply have been uneconomical and costly. The high cost of establishing and operating power generation and transmission infrastructure is mainly due to: (i) lack of economies of scale in investments with higher costs due to small-sized generation units and bigger reserve margin needs to ensure reliability; (ii) difficult to ensure a cost-effective energy mix as most of the countries do not have domestic energy resources and face fuel supply constraints. ECOWAS member states also acknowledge two major shortcomings in the region at the present time: (i) over-reliance on hydro-based power systems that will not provide sufficient regional security of electricity supply because of vagaries of rainfall; and (ii) the lack of sufficient generation capacity and adequate transmission infrastructure (within and between national power systems) which is the major constraint in the process of establishing a sustainable regional electricity market. 4. Therefore the ECOWAS energy strategy is based on the recognition that the differences in energy endowments (e.g. hydropower potential in Guinea, natural gas resources in Ghana, Nigeria and Côte d Ivoire) as well as the imbalances between domestic energy resources and needs constitute the basis of regional energy trade opportunities. In addition, the variations of national daily and seasonal consumption patterns will allow mutual support and optimization of supply cost. This strategy aims to (i) take advantage of the aggregation of different load 1 Benin, Burkina Faso, Cape Verde, Côte d Ivoire, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. 2 Nigeria (37.65 percent), Guinea (25.8 percent), Ghana (11.4 percent), Côte d Ivoire (10.9 percent), Sierra Leone (5.2 percent) 3 Decision A/DEC.3/5/82 relating to the ECOWAS Energy policy 4 Based on the ECOWAS/UEMOA Regional Policy on Access to Energy Services for Populations in Rural and Peri-urban Areas adopted in

14 profiles; (ii) ensure an optimal use of energy resources through large scale generation plants designed to supply multiple countries; and (iii) ensure a cost effective and climate resilient system by balancing the energy mix (thermal/hydro). Country Context Burkina Faso 5. Burkina Faso is a low-income, landlocked, Sub-Saharan country with limited natural resources and 16 million inhabitants with a per capita income of US$517. The country s economy is highly dependent on cotton and gold exports and is vulnerable to exogenous shocks. From 1998 to 2006, Burkina Faso maintained an average growth rate of over five percent per annum. 6. Burkina Faso has no significant known fossil fuel resources. The electrification rate is about 23 percent (about 40 percent in urban areas and about 3 percent in rural areas). Per capita consumption of electricity is only 44 kwh. About 90 percent of the population still relies on wood firewood and charcoal for the bulk of their energy needs. 7. Petroleum products are entirely imported (about 450,000 tons annually) by road at high cost from ports over 1000km away. This handicap has acted as a brake on Burkina Faso s ability to expand access to electricity, since over 90 percent of electricity production is from liquid fuels. The country s hydroelectric potential is limited, with less than 100MW of potential capacity in five identified sites. Two hydropower plants have been developed, totaling 27MW representing only 10 percent of total generating capacity. These plants are vulnerable to erratic rainfall conditions. Total generation capacity in Burkina Faso is 256MW which is insufficient to meet peak demand. Power demand is growing at 7 percent per annum. Imports from Côte d Ivoire and Ghana (via small cities at the border) are just enough to ensure a precarious equilibrium between demand and supply during non-peak load periods. 8. Despite the completion of the Bobo-Dioulasso-Ouagadougou transmission line which facilitates the transfer of power imported from Côte d Ivoire to the capital, Burkina Faso still suffers load shedding. This is due mainly to the inability of Côte d Ivoire to provide the necessary power to Burkina Faso. The recent political crisis has seen a complete interruption in supply to Burkina Faso from time to time. Even after a normalization of economic activity in Côte d Ivoire, the scope for increased power supply to Burkina Faso from Côte d Ivoire will be limited, due to the increasing domestic demand in Côte d Ivoire, the under-investment in both gas and power production facilities by the latter and increasing export commitments arising from the upcoming interconnection with Mali. Burkina Faso has therefore been forced to contract 61MW of high cost emergency power rental capacity in 2011 to overcome its supply deficit. 9. The country faces four main needs in the energy sector: (i) additional capacity to meet an increasing demand for energy services; (ii) improvement of the efficiency and equity in energy services provision by reforming the tariff and subsidy policy in a context of high supply costs; (iii) to expanded access of energy services to rural and peri-urban populations in the face of the high generation cost barrier; and (iv) achievement of sustainable supply of wood fuels used by the majority of the population while promoting alternative fuels such as Liquefied Petroleum Gas (LPG) to households. 2

15 Ghana 10. Ghana has a population of 24 million, with a per capita income of US$700 (2010). Ghana has become one of the best economic performers of the West Africa region by making significant progress during the last twenty years in increasing the per capita income and improving human development indicators. Following the discovery of the offshore Jubilee field in 2007, oil production began in late 2010 and is expected to reach 120,000 b/d by late Associated gas is to be brought ashore and used for power generation from Ghana's electrification rate is about 60 percent, which is significantly higher than the average of 29 percent for Sub-Saharan Africa. Growing urbanization and the country s relatively robust economic growth has increased the demand for electricity. The growth in demand combined with insufficient investment in the network improvements in the past, has led to considerable strain on the distribution network especially in densely populated urban areas. Inadequate investments in network infrastructure and preventive maintenance have led to operational inefficiencies and poor service with frequent interruptions. Energy losses in the distribution network are about 25 percent. 12. Electricity is produced from two main sources - hydro and thermal (oil/gas). Total generation capacity is about 2100MW of which 1200MW is hydro. Several new plants currently under construction will raise capacity by 800MW over the next two years. The thermal generation mix in Ghana is transitioning from crude oil to natural gas as the main source of fuel as a result of the West African Gas Pipeline Project, which brings gas from Nigeria to Ghana, through Benin and Togo. The present contract with Nigeria provides Ghana with gas sufficient to run only 450MW of thermal generators. Additional quantities of gas can be transported by West Africa Gas Pipeline (WAGP), provided that Ghana can obtain supply from Nigeria. The development of gas transmission and procession facilities to exploit Ghana s own gas reserves will provide additional gas supplies to the power sector from With this relatively low-cost gas/hydro energy mix, it is expected that the proposed Bolgatanga- Ouagadougou transmission line will help to significantly reduce the cost of electricity supply in Burkina Faso and facilitate future unconstrained cross-border electricity exchanges across WAPP zones as well as financial benefits to Ghana due to increased revenue for power sales. B. Sectoral and Institutional Context Regional ECOWAS vision: The West Africa Power Pool 13. ECOWAS Vision: The collective vision of ECOWAS Member States is to develop and put in place the West Africa Power Pool (WAPP) a cooperative power pooling mechanism for integrating national power system operations into a unified regional electricity market with the expectation that such mechanism would, over the medium to long term, assure their citizens a stable and reliable electricity supply at affordable costs. To this end, they established the West African Power Pool (WAPP) in 1999 as the principal vehicle to help meet the region s projected electricity requirement by harnessing electricity from: (a) several large capacity hydropower facilities sited on the region s major rivers (Niger, Volta, Senegal) which produce relatively low-cost electricity; (b) the substantial but as yet untapped hydro resources of Guinea, some 6000MW of which is potentially economic to develop and can generate around TWh per year of electricity at relatively low cost compared to other available alternatives; and (c) an expansion of gas-fired power generation, leveraging the community s parallel track strategy to 3

16 expand access to Nigeria s enormous natural gas reserves (3500 billion cubic meters of proven natural gas reserves) via the WAGP project. Free flow gas started in 2010 and full commercial deliveries of about 120mmcfd are expected to commence in mid Prices of Nigerian gas delivered to Ghana are partly indexed to crude oil and are currently in the range of US$5-6/MCF, which makes the cost of gas-fired generation to be less than half that of fuel oil based generation. WAPP, with the help of a private investor is also exploring the possibility of obtaining additional gas supplies through a floating Liquefied Natural Gas (LNG) facility. As a flagship infrastructure project of the New Partnership for African Development (NEPAD) 5, the WAPP directly contributes to the broader ECOWAS agenda to establish an open, unified, regional economic space in West Africa. The vision for WAPP is also embodied in the ECOWAS Energy Protocol (EEP) which provides a legal framework aimed at promoting long term cooperation between the ECOWAS Member States in the energy field with a view to developing an open and competitive energy market. The Protocol came into force in 2006 after ratification by nine ECOWAS Member States. 14. The basic objectives of the EEP are to: (i) ensure free trade of energy, equipment and products related to energy between Member States; (ii) define non-discriminatory rules for trade and dispute resolution; (iii) attract and protect private investments; and (iv) ensure the protection of the environment and promotion of energy efficiency. Specific provisions related to competition, wheeling and to resource access constitute a basis for building the regional electricity market framework. 15. Other key milestones in enhancing cooperation in the energy sector are (i) the adoption of the Articles of Agreement Relating to the Establishment and functioning of the West African Power Pool (WAPP) with the status of a Specialized Institution of ECOWAS 6 ; and (ii) the establishment of the ECOWAS Regional Electricity Regulatory Authority (ERERA) 7, with jurisdiction over the territory of all Member states in their relation in the area of cross border exchanges of electricity through the power transmission network. ERERA is based in Accra, Ghana and launched formally its activities in 2010 with the support of national regulators. 16. Strong ownership by member power utilities is shown by their signing of the WAPP Articles of Agreement which institute a management structure for the WAPP, its organization and functions. The WAPP Secretariat was formally inaugurated in 2006 and is based in Cotonou, Benin, with 20 (public and private) electric power utility members to date. 17. WAPP members recognize that the WAPP Organization exists and operates for the benefit of the bulk electric transmission system and to ensure the reliability of the entire region s power supply and commit to participate in projects, and comply with regulatory requirements. The implementation of the WAPP vision requires the development of a clear roadmap for the design and implementation of power market mechanisms and the power generation and transmission facilities. However, common infrastructure investments and market design/implementation have lagged during the past decade in part because of lack of 5 NEPAD was established to implement an integrated socio-economic development framework for Africa, and was formally adopted at the 37 th Summit of the Organisation for African Unity in July ECOWAS/ CEDEAO (2006). 29th Session of the Authority of Heads of State and Government. Decision A/Dec. 18/01/06 Adopting the Articles of Agreement Relating to the Establishment and functioning of the West African Power Pool, Niamey, 12 January 2006; and Decision A/Dec.20/01/06 Granting the Status of a Specialized Institution of ECOWAS to the WAPP Organization. Niamey, 12 January ECOWAS/ CEDEAO (2008). 33th Session of the Authority of Heads of State and Government. Supplementary Act A/SA.2/1/08 establishing the ECOWAS Regional Electricity Regulatory Authority. Ouagadougou, 18 January

17 institutional capacity in WAPP and the urgent need of the member utilities to first address their national power deficits (Annex 7). Rationale for the Bank involvement Overall WAPP APL Program. 18. The Regional Integration Assistance Strategy (RIAS) for Sub Saharan Africa, which was presented to the World Bank Board on March 18, 2008, reiterates the Bank s commitment to greater support to regional integration building on lessons learned from the implementation of IDA Regional Pilot Program since It translates the priorities and flagships of the Africa Strategy. The first pillar of this strategy focuses on regional infrastructure as a way to support Africa s economic growth by facilitating more intraregional trade with focus on transport, energy and telecommunication/ict. Improving reliability of energy supply as well as access to clean energy is one of the key areas of support, given that investment climate surveys indicate that those are the major constraints to business and investment 8. In addition, landlocked countries like Burkina Faso are suffering more from these constraints, especially with regards to their economy competitiveness and the effectiveness of their social programs. The operationalization of a regional electricity market is also in line with the RIAS objective to help the countries concerned create a more unified regional economic space through the integration of the markets of goods, and financial and infrastructure services. 19. On June 30, 2005, the Bank s Executive Board of Directors endorsed the application of the Adaptable Program Lending (APL) instrument, within the framework of the World Bank s RIAS for West Africa, as the vehicle for providing IDA credit support to the WAPP initiative. The objective of the WAPP APL program is the development of a robust platform for WAPP comprising four distinct but mutually reinforcing sub-regional power system infrastructure development projects (WAPP APL 1, 2, 3 and 4 projects) that are fully aligned with the WAPP Implementation Road Map as shown in the figure below. The different phases were planned in a way that their implementation will enable cross border electricity exchanges in the framework of a unified regional electricity market. Combining financing support to infrastructure and technical assistance was identified as key to reaching the final objective of establishing a regional market in line with the principle of the ECOWAS Energy Protocol. 8 Surveys reveal that roughly 40 percent of enterprises identified deficient power supply as a major constraint to doing business. As many as 50 percent maintain their own generation facilities to insulate themselves from unreliable public supplies (See RIAS, Page 8). 5

18 WAPP APL FACILITY BENEFICIARIES/EXPECTED OUTCOMES UNIFIED WEST AFRICAN ELECTRICITY MARKET WELL FUNCTIONING WEST AFRICA POWER POOL (WAPP) (WAPP APL 1 Cote d Ivoire, Ghana, Togo/Benin, Nigeria ) Power Interconnection and Transfer Capacity Upgraded Performance/Availability of Power Generation Assets Improved WAPP Cooperation Agreement Established and Implemented (WAPP APL 2 Senegal, Mali, Guinea, Guinea-Bissau, Gambia) Power Interconnection and Transfer Capacity Established Regional Power Generation Capacity Expanded WAPP Cooperation Agreement Established and Implemented (WAPP APL 3 Cote d Ivoire-Mali, Ghana-Burkina Faso) Power Interconnection and Transfer Capacity Established Access to Coastal Power Generation Capacity Improved WAPP Cooperation Agreement Established and Implemented 20. Since 2005, several lending operations have been approved by the Board under the WAPP APL facility for a total of US$260 million representing 60 percent of the US$350 million: A total financing of US$105million was devoted to APL1. The first IDA credit was for Ghana (US$40 million) in 2005 to develop the first phase of the Coastal Transmission Backbone Project. It was followed in 2006 by two others of US$45 million and US$15 million to Ghana and Benin respectively to implement the 2nd phase of the coastal backbone. A total financing of US$160 million was approved under APL2 for the development of the OMVS Felou Hydroelectric Project (60MW) by its member states (Mali, Mauritania and Senegal). Each country obtained an IDA credit of US$25 million in 2006 and an additional financing was approved in 2009 with US$42.5 million each to Mali and Senegal. 21. Projects in the pipeline require US$1,265 million, out of which US$305 million may be funded by IDA. The slow pace and delay in implementation under APL1 has been a major concern. This project experienced considerable delays in procurement processes and completion is expected to be at least three years behind schedule. Arranging co financing for the segments of the coastal backbone between Nigeria and Ghana took much longer than anticipated. The project is being implemented separately by each participating utility, which has given rise to problems of coordination and a tendency to give higher priority to national projects at the expense of regional ones. Both phases of APL1 have been restructured and extended. They are now being implemented without further delay. Phase 1 (Aboadze-Volta 6

19 330kV transmission line and substations) was energized in late 2010 and has helped meet the objective of increasing power transfer capability within Ghana. In addition, the operation of this line has reduced the need for reactive power in the system and has improved voltage levels and supply to Greater Accra. 22. The APL2 Felou hydro project required substantial additional financing at the end of the initial bidding process due to initial underestimated cost, a time consuming two stage bidding process and price escalation of raw material and labor associated after The project is under implementation and commissioning is expected in the first quarter of There is therefore a need to strengthen the capacity of WAPP Secretariat and utilities for the preparation and implementation of regional projects in the ECOWAS region. In particular, advanced procurement activities should be implemented during project preparation. A regional IDA technical assistance grant for the WAPP Secretariat is under preparation and could be expected to be submitted for approval in Fiscal Year The establishment of the regional electricity market has been progressing slowly, despite the entering into force of the ECOWAS Energy Protocol (EEP) in 2007, the establishment of the ECOWAS Regional Regulatory Agency in 2009 and the adoption of the WAPP Operational Security and Mitigation Plan (OSMP). 9 Studies have been conducted to establish a road map 10 for the market and a tariff methodology 11 with USAID technical assistance. The risk of further delay is real, due to the limited internal capability of the WAPP Secretariat to actively pursue this goal. Inter-Zonal Transmission Hub of the WAPP APL Program. 25. This sub-program, accorded high-priority in the Revised ECOWAS Electricity Master Plan, aims to link Burkina Faso and Ghana through the 225kV Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Interconnection project. This will create an alternative source of lower-cost power supply for Burkina Faso. As the first investment operation under the Inter- Zonal Transmission Hub of the WAPP APL Program, the Bolgatanga-Ouagadougou project is designed to fully complement country-specific energy sector interventions that are defined in the Country Assistance Strategies (CAS) for Burkina Faso and Ghana. C. Higher Level Objectives to which the Project Contributes 26. The Bank supports ECOWAS efforts to create an open and unified regional economic space through the integration of the markets for infrastructure services, the WAPP and the West Africa Gas Pipeline project (for which IDA has provided a partial risk guarantee). The proposed project is a logical continuation of Bank assistance to the ECOWAS energy program by contributing to increasing Burkina Faso s access to lower-cost electricity, in line with the NEPAD objectives. In so doing, it will also address one of the major constraints to business and investment in the region expensive and unreliable power supply. The Ghana-Burkina Faso interconnection project will allow Burkina Faso to avoid additional petroleum fuel imports by road that would have had an adverse impact on transport and energy infrastructure, as well as 9 One of the key reasons has been that several utilities in the region were pre-occupied with addressing immediate electricity shortages. 10 Preliminary Design of a roadmap of unified electricity market (NEXANT/USAID, October 2008) 11 A methodology to calculate the demand and energy component of the transmission tariff within WAPP (NEXANT/USAID, October 2008) 7

20 the environment. Moreover, this project lays the base for the development of the second phase of the intra-zonal network that will link Burkina Faso and Mali and strengthen the interconnection between WAPP Zones A and B. 27. Consistent with this objective of the Bank s Africa Energy Strategy, the project supports efforts to expand access to reliable and affordable modern energy services, both for households and business currently having to cope with poor quality, high-cost power supply. Furthermore it contributes to reducing Burkina Faso s carbon emissions by substituting cleaner gas for fuel oil used in power generation II. Project Development Objectives 28. The PDO is to reduce cost of, and improve the security of electricity supply to Burkina Faso, while increasing Ghana s electricity export capacity. A. Project Beneficiaries 29. The project most directly benefits the customers of SONABEL who will gain access to lower cost and reliable electricity supply. In addition, currently non-electrified villages along the right of way in Burkina Faso will gain access to electricity for the first time. The three utilities involved in the energy exchanges (VRA, GRIDCo, and SONABEL) benefit financially as a result of the new commercial opportunities opened up to them by the project. B. PDO Level Results Indicators 30. Appropriate PDO level monitoring indicators and intermediate results have been discussed with the utilities and included in the Project Implementation Manuals. These will include the following: III. Average weighted annual cost of electricity supply 12 in Burkina Faso; Annual total duration of outages in Burkina Faso due to generation capacity deficit/load shedding; Annual total hours of operation of the interconnection line. Other agreed intermediate result indicators are presented in Annex1. Project Description A. Project components 31. The Inter-Zonal Transmission Hub WAPP APL3 (Phase 1) project will finance the following components of investments and technical assistance: Component 1: The 225kV Transmission Line between Bolgatanga (Ghana) and Ouagadougou, (Burkina Faso) (US$84.2 million; US$16.4 million financed by IDA). 32. This component involves the construction of a 225kV transmission line from Bolgatanga in the northern part of Ghana to the capital of Burkina Faso. It includes the following elements: Construction of about 210 km of 225kV transmission line; Construction of a new 225/161kV substation in Bolgatanga, Ghana; 12 At utility level 8

21 Extension of the 225/90kV Zagtouli substation and construction of a new 90/33kV substation in Burkina Faso; Installation of telecommunications systems, SCADA systems and Energy Management Systems (EMS); Implementation of Environmental Management and Resettlement Action Plan and strengthening the management of the Kaboré Tambi National Park. Component 2: Reinforcement of the transmission grid in Ghana (US$6 million financed by IDA). 33. HV Network reinforcements needed in Ghana to be able to transmit 100MW in the interconnection line and provide n-1 reliability. Given the level of preparation and financing available for the 161kV reinforcement, it was agreed to finance the following items: A 330/161kV 200MVA transformer to be installed in Aboadzé; The pre-investment studies of the 161kV Atebubu-Tamale line. Component 3: Electrification of rural localities along the right of way in Burkina Faso (US$9 million financed by IDA). 34. The shield wire of the 225kV interconnection line will be used to provide electricity to localities no further than 6km from the right of way. This will benefit about 7000 households in Burkina Faso. This component will finance design and engineering studies as well as works. Component 4: Supervision/Owner s Engineer (US$4.2 million financed by IDA). 35. This component will finance a single owner s engineer hired to supervise works in both Ghana and Burkina Faso and ensure proper coordination. The interconnection line bidding documents have been prepared by a consultant engaged by the WAPP Secretariat. Draft Final versions will be available by June 2011 taking into account utilities and donors comments. The owner s engineer will take over from the finalization of the bidding document to the commissioning of the facilities. The consultant will assist the two utilities with project management and supervision of design, construction and commissioning of the investments to be undertaken in Components 1, 2 and 3. Component 5: Capacity building and institutional support to GRIDCo and SONABEL for project implementation (US$7.6 million, US$6.3 million financed by IDA). 36. This component will finance a capacity building program for the concerned utilities in High Voltage system Planning, O&M of HV transmission systems, SCADA development, operation and maintenance, commercial transactions, Telecommunications and HV network protection. It will also include the acquisition of Hotwire O&M equipments for the trained staff. Experts from WAPP Secretariat and ERERA will be associated to the training sessions on Planning and Commercial Transactions. It will also cover the acquisition of equipment, training and operational expenses of the Project Implementation Units. B. Project Financing 1. Lending Instrument 37. Since 2005, when the Bank s Executive Board of Directors endorsed the application of the Adaptable Program Lending (APL) instrument, within the framework of the World Bank s 9

22 RIAS for West Africa, as the vehicle for providing IDA credit support to the WAPP initiative, several lending operations have been approved under the WAPP APL facility totalling 60 percent of the US$ 350 million initial allocation. The proposed Project will use the same instrument. 2. Project Cost and Financing 38. The table below summarizes the project cost and financing: Project Components 1. Transmission Line Bolgatanga-Ouagadougou 2. Reinforcement of Ghanaian HV Grid 3.Village Electrification along the right of way 4. Supervision/Owner s Engineer 5. Capacity building and institutional support to GRIDCo & SONABEL Table 1: Project Cost and Financing Project cost US$ millions IDA Financing US$ millions percent Financing Total The breakdown of the amount per country is as follows: Table 2: Breakdown of the amount by country Project Components Project cost (US$ millions) IDA Financing (US$ million) 1. Transmission Line Bolgatanga-Ouagadougou 1.1 Construction of the HV line 1.2 Construction of Bolgatanga Substation (Ghana) 1.3 Construction of substations in Burkina Faso 1.4 Telecom & SCADA 1.5. Environmental and social 1.6 Contingency Total Burkina Faso Ghana Total Burkina Faso Ghana 2. Reinforcement of Ghanaian HV Grid 3.Village Electrification along the right of way 4. Supervision/Owner s Engineer Capacity building and institutional support to GRIDCo & SONABEL Total

23 Co-financing arrangements are as follows between SONABEL, GRIDCo, IDA, European Investment Bank (EIB) and Agence Francaise de Développement (AFD) Project Components 1. Transmission Line Bolgatanga- Ouagadougou 2. Reinforcement of Ghanaian HV Grid 3. Village Electrification along RoW 4. Supervision/Owner s Engineer 5. Capacity building and institutional support to GRIDCo & SONABEL Table 3: Co-financing Arrangements Project cost US$ millions IDA EIB AFD SONABEL GRIDCo Total Conditions of Financings (Credit and Grant, respectively): The following IDA legal covenants are included in the Financing Agreements: With Burkina Faso a) Board Condition: None b) Grant effectiveness SONABEL and GRIDCo have executed a Transmission service agreement satisfactory to the Association; SONABEL and VRA have executed a Power purchase agreement satisfactory to the Association; EIB and AFD financing for the project have been approved by their respective Boards and effectiveness conditions are met; Signature of a subsidiary loan agreement between Burkina Faso and SONABEL satisfactory to the Association; SONABEL has concluded a Memorandum of Understanding with Burkina Faso s Ministry of Environment and Sustainable Development for the technical implementation of the actions under component 1.5 of the Project to strengthen the Kaboré Tambi National Park; The Energy Protocol has been ratified by the Parliament of Burkina Faso and the ratification instruments thereof have been transmitted to ECOWAS; SONABEL established adequately staffed PIU and adopted Project Implementation Manual satisfactory to the Association; and All conditions precedent to the effectiveness of the Ghana Financing Agreement have been fulfilled. c) Other covenants Commitment from SONABEL to maintain a Debt Service Coverage Ratio (DSCR) of not less than 1.3 starting in 2012 and beyond; 11

24 With Ghana Commitment from SONABEL to cover the environmental and social cost of the project; Burkina Faso will ensure that the Project is implemented in accordance with the provisions of the Environmental and Social Impact Assessment ( ESIA ), the Environmental and Social Management Plans ( ESMPs ), and the Resettlement Action Plan ( RAP ), all in a manner satisfactory to the Association, and SONABEL shall implement the RAP and the provisions of the ESIA and the ESMPs as per the disclosed documents; and Burkina Faso shall, not later than three (3) months after the Effective Date, engage, or cause SONABEL to engage, independent auditors for the audits to be carried out under the Project. a) Board Condition: None b) Loan/credit effectiveness Evidence from GRIDCo of a satisfactory financing and implementation plan for the 161kV and 330kV network reinforcement needed to export 100MW to Burkina Faso. GRIDCo and SONABEL have executed a Transmission service agreement satisfactory to the Association; AFD co-financing for the project has been approved by its Board and effectiveness conditions are met; Signature of a subsidiary loan agreement between Ghana and GRIDCo satisfactory to Association; GRIDCo has established adequately staffed PIU and adopted Project Implementation Manuel satisfactory to the Association; and All conditions precedent to the effectiveness of the Burkina Faso Financing Agreement have been fulfilled. c) Other covenants Commitment from GRIDCo to maintain a Debt to Service Coverage Ratio (DSCR) of not less than 1.3 at all times; Commitment from GRIDCo to cover the environmental and social cost of the project and implement the measures needed; and Ghana will ensure that the Project is implemented in accordance with the provisions of the Environmental and Social Impact Assessment ( ESIA ), the Environmental and Social Management Plans ( ESMPs ), and the Resettlement Action Plan ( RAP ), all in a manner satisfactory to the Association, and GRIDCo shall implement the RAP and the provisions of the ESIA and the ESMPs as per the disclosed documents. C. Lessons Learned and Reflected in the Project Design 40. The experience of WAPP APL1 and 2 (paragraphs 21 and 22) clearly demonstrated that regional projects cannot be executed in a timely manner by the state utilities working in isolation. Joint implementation, such as by a special purpose company created for the project is desirable. At a minimum, very close coordination between the participating utilities is required. For this reason, GRIDCo and SONABEL have agreed that the procurement process should be conducted jointly for the line which is the critical part requiring strong coordination, and have undertaken 12

25 that, not later than June 30, 2011, they shall establish and thereafter maintain throughout Project implementation, a Joint Implementation Committee to coordinate the implementation of the Project with the activities related to the Project to be carried out in the territory of each country. The Joint Implementation Committee shall comprise representatives of SONABEL and GRIDCo, as well as WAPP, as an observer. Furthermore, the close participation of a single engineering consultant for project management of the entire Transmission line will also help to ensure that there is close coordination on all implementation matters, so that potential bottlenecks are anticipated and slippages minimized. The table below summarizes key implementation challenges identified for regional projects and how they are addressed in the design of the current operation. Implementation Challenge Weak implementation capacity Table 4: Key Implementation Challenges for Regional Projects and Measures Consequence / Lessons learned Delay in project implementation Need to be proficient in World Bank procedures Measure included in the present project design Both entities are currently involved in ongoing interconnection projects with IDA financing. The project builds on existing resources and will fund a capacity building program covering all project management and operation aspects. Lack of coordination during implementation Timely implementation of safeguard measures (in particular resettlement) Lack of coordination between donors Lack of clear commercial agreement Parallel design and procurement may result in additional difficulties to commission the entire project. It may also result in different pace of implementation May impact the launching of works. Vandalism of equipment (pylons in particular) may compromise safe operation of the line Different implementation time tables Different design of components which may lead to operational difficulties Tariff adjustment difficult to enforce and reduce willingness to export. No obligation from the exporter facing severe load shedding to ensure minimum security of supply to the client A Joint Implementation Committee was established by the two utilities and articles of agreements for its operation were discussed and agreed in March Joint procurement process to recruit a single owner s engineer for the project was agreed. A joint procurement process for the line was also agreed Comprehensive budget including contingencies has been prepared and will allow timely implementation of the ESMP and RAP as well as deal with complaints that may arise. Utilities commit to make budget available for early implementation. Rural electrification component will create ownership for the population living in the Right of way and prevent adverse actions. Close coordination during preparation including joint meetings with WAPP, utilities and other donors to review studies, implementation arrangements and bidding documents. Include this provision in the power sales contract and request involvement of the regional regulator in the discussions. Include provisions in the contract for minimum delivery and penalties in case of non-compliance. 13

26 Coordination of system operation and maintenance country Affect availability of the line and capacity to export Include provision in the contract for coordination of maintenance of equipment related to the interconnection line. IV. Implementation A. Institutional and Implementation Arrangements 41. The Project will be implemented by two different legal entities: GRIDCo and SONABEL. It has been agreed that each entity will set up an internal Project Implementation Unit (PIU) by effectiveness of the legal documents with relevant project implementation specialists, responsible for procurement, financial management, project monitoring and coordination with the other implementing entities. A Joint Implementation Committee (JIC) will be established by the two utilities not later than June 30, 2011, to coordinate implementation of the entire interconnection project. The Articles of Agreements of its operation were agreed on March 28, It will comprise representatives of WAPP Secretariat, the PIUs, and the management of the three entities. VRA s role as power supplier will be limited to agreements on the technical and commercial conditions of such supply to GRIDCo and SONABEL. 42. In addition, a joint GRIDCo/SONABEL procurement committee will be established on an ad hoc basis to conduct the bidding process for selection of the Owner s engineer and the line portions in Ghana and Burkina Faso to ensure an optimal outcome, and to mitigate the risk of having an unsuccessful or high-cost bidding outcome for the Ghana portion, should each utility bid out its portion of the line separately. Agreement on the process has been reached by the two utilities. One Owners Engineer will oversee the implementation of the Project, while bidding documents will be issued in accordance with the guidelines of the country where implementation is to be done and evaluation carried out by the national PIU. B. Results Monitoring and Evaluation 43. Existing Utility reports contain all the operational and management data needed to monitor key indicators of the project. Furthermore, the WAPP Secretariat, supported by USAID and the Bank (through an ongoing IDF sponsored activity), is developing an integrated M&E system for WAPP activities (project implementation and regional network operation), building upon the existing utility M&E systems and the utilities operational data bases. Once operational it will provide periodic reports on the overall outcome indicators for WAPP programs. Annex 1 presents the WAPP APL 3 Results Framework. C. Sustainability 44. Sustainability of this project rests predominantly on (i) the long-term availability of surplus generation capacity in Ghana at a substantially lower cost than Burkina Faso s domestic alternatives; and (ii) strong economic and financial incentives for efficient electricity trading between Ghana and Burkina Faso. At a later date, the opportunity of increased use of the line to transit Ghanaian power exports to Mali will also enhance its sustainability. 45. Over 1200MW of additional power generation capacity is planned in the next five years in Ghana, so the 100MW required from 2015 onwards to serve Burkina Faso s needs do not 14

27 represent a major increment in terms of plant availability. By way of comparison, just the annual increment in demand for power in Ghana is about 150MW. 46. The three utilities (VRA, GRIDCo and SONABEL) have extensive experience in the implementation/operation of interconnection project and management of cross-border electricity trade contracts, since Ghana is already connected to Côte d Ivoire, Togo and Benin, while Burkina Faso and Côte d Ivoire are also interconnected. Furthermore, VRA and SONABEL already have a small-scale power supply arrangement in place for two small towns close to the Ghana-Burkina Faso border (Leo and Po). Moreover, GRIDCo has been providing energy to the Youga mines (8MW) in Burkina Faso since 2008 under a contract with SONABEL. The project is financially a very attractive proposition to all parties since it permits SONABEL to make substantial savings in its fuel costs while at the same time assuring both VRA and GRIDCo of significant export earnings. 47. The planned construction of the Han (Ghana) Bobo Dioulasso (Burkina Faso) Sikasso (Mali) Bamako (Mali) interconnection line will bring additional opportunities for the use of the Bolga-Ouaga line to sustain reliability of exchanges between WAPP zone A and B, and for Ghana to export more power. Other important factors contributing to the sustainability of the project include the strong commitment of the governments and utilities. The latter have already agreed to set up joint project procurement and implementation arrangements for the project. V. Key Risks and Mitigation Measures 48. One of the risks facing the proposed operation is the firm availability of power to export from Ghana to Burkina Faso. In the past, during drought years exports from Ghana to its neighbors were curtailed due to the dominance of hydro plants in Ghana s generation mix. However, the electricity supply mix in Ghana has passed from a heavily hydro-based system to a balanced hydro/thermal one. Furthermore, new capacity additions in Ghana are overwhelmingly dual-fueled thermal plants, which are not vulnerable to drought or gas supply cuts. Thus, the risks of reductions in export capability are mitigated, although there is no doubt that substituting oil-based power for gas/thermal generation imposes substantial extra costs. 49. Lack of gas is another risk for the sustainability of the project. If gas shortages were to persist beyond temporary supply interruptions, this would be an issue for the cost of energy supplied to Burkina Faso, but would not necessarily jeopardize power deliveries. SONABEL and VRA will define in their power supply contract the terms and conditions that will apply in the event VRA is obliged to use liquid fuel to meet its supply obligations to SONABEL. 50. At present there is uncertainty about the firm availability of adequate gas supply to fuel Ghana s generation expansion program, but investments to bring associated gas ashore from the Jubilee oilfield have begun and selection by VRA of a private partner for a Public Private Partnership (PPP) project for a gas-fired power plant is at an advanced stage. Jubilee gas sufficient for 300MW of power generation could be available by In addition, indications from the ongoing offshore exploration activity suggest that Ghana has sufficient non-associated gas reserves available to be exploited for power generation in the medium-term. Finally, the WAGP has the capacity to carry much greater volumes of gas from Nigeria and discussions have already begun between N-Gas of Nigeria and several Ghanaian parties seeking to obtain firm supply contracts for new power plants that are at an advance planning stage. VRA also would like to obtain additional gas to feed some of its existing thermal plants. The 15

28 next 3 to 4 year-period, prior to the commissioning of the Ghana-Burkina Faso T-line, provides a window for progress on gas supply, both offshore Ghana as well as from Nigeria. 51. The risk of delays and difficulties in project execution arising from the challenges of joint implementation of a transnational project are to be mitigated by the close participation of an experienced supervision/owner s engineer right from the start. Mitigation measures are proposed in Annex 3 to keep the procurement and financial management risks low as the project evolves. 52. While the Burkina Faso Financing Agreement includes a cross-suspension remedy allowing suspension of disbursements under the Burkina Faso Financing Agreement if the Association has suspended in whole or in part the right of Ghana to make withdrawals under the Ghana Financing Agreement, the Ghana Financing Agreement provides instead that a similar cross-suspension of disbursements, based on a default under the Burkina Faso Financing Agreement, will not apply to the Ghanaian component 2 of the Project, consisting of the reinforcement of the transmission grid in Ghana. This difference is because the Ghanaian component 2 of the Project is national (not regional) in scope, since it is critical for the reliability and stability of the Ghana system in the short term. The other Project components, by contrast, are either regional in scope or dependent on components that are regional in scope. However, if the cross-suspension were applied to the Ghana Financing Agreement during implementation, leaving only its component 2 intact, a restructuring may be necessary to reduce the Project s PDO to a scope commensurate to the limited national dimension of said component Taking into consideration the above factors, the overall risk facing the project is assessed as Medium-I (Medium driven by Impact). VI. Appraisal Summary A. Economic and Financial Analysis Project Economic Analysis 54. The economic analysis presented here focuses on the Bolgatanga-Ouagadougou interconnection line, whose cost is estimated at US$83.9 million. The economic analysis includes the supervision cost but excludes the costs of the other components (support to WAPP, rural electrification etc.) since they do not contribute directly to the costs or benefits of the interconnection. 55. The economic justification for the proposed interconnection line was initially assessed by the Inter-Zonal Transmission Hub project feasibility study 13. The study compared two expansion plans over the time horizon, one with and the other without the interconnection. The study was not designed to assess the optimal dates of interconnection investments, but to demonstrate the least-cost option. 56. Based on the difference in net present value (NPV) between the two scenarios, the study concluded that the project had a positive NPV of US$26.3 million (with a 10 percent discount rate) and an economic rate of return (EIRR) of 12.2 percent with the base case assumptions kv Bolgatanga-Ouagadougou Interconnection Project Update of Feasibility Study, Volume 3: Economic and Financial Study, December 2010, by Studi International, Africon and STEG International Services. 16

29 Sensitivity analyses carried out for variations of the most significant cost parameters, the study demonstrated that the economics of the interconnection project was robust. 57. As a complement to the Inter-Zonal study, an alternative economic analysis has been prepared by the task team to assess the economics of the proposed transmission line, using the most recent cost data available and factoring in higher crude oil prices. The analysis attempts to capture the direct impact of the transmission line, i.e. the substitution of high-cost power generated in Burkina Faso using fuel oil by lower-cost imports from Ghana based on gas-fired generation. 58. The details of the EIRR calculations and the assumptions used in the analysis are presented in Annex The economics of the interconnection project appear strong. In the base case scenario, the project EIRR would be 32.6 percent and the project NPV is estimated at US$284million. The economics of the investment also appears very robust to variations in the major economic and technical parameters, such as project costs, load factor and fuels costs. For instance, in a pessimistic scenario combining oil prices at US$75/barrel, an overrun of 30 percent on investment costs and a T-line load factor limited to 50 percent, the project EIRR would still be 13.8 percent, indicating that the investment is still justified. 60. The estimates of the EIRR above do not quantify the benefit for Burkina Faso of increased system reliability resulting from the interconnection with Ghana. This is obviously an important consideration for a landlocked country far from seaports necessary for oil imports. It also reduces Burkina Faso s vulnerability to oil price shocks and the frequent recourse to budgetary support for the power sector 14 in order to mitigate the impact of oil price hikes on SONABEL s financial viability. In addition, access to lower-cost power from Ghana offers Burkina Faso an opportunity to boost its electrification program and increase household access to electricity, which remains among the lowest in sub-saharan Africa. This is another benefit from the project that cannot be quantified. In the longer term, SONABEL also stands to gain from wheeling Ghanaian power through its transmission lines to Mali, which is equally keen to substitute lower-cost, gas-fired power for local generation based on liquid fuel. 61. Another important conclusion is that, given the large difference in generation costs between Ghana and Burkina Faso, the interconnection line would be economically justified even if its capacity remained capped at 20 MW. In a scenario assuming no grid reinforcements in Ghana, the project EIRR is still 15.2 percent under the base case parameters. The plan to go ahead with the interconnection before the completion of feasibility studies for the reinforcements in Ghana appears validated by this finding. Project Financial analysis 62. The project financial analysis is based on the same assumptions as the economic analysis with regard to project costs and energy flows. However, the financial analysis only takes into account the benefits from the project accruing to SONABEL and GRIDCo. 63. The projected FIRR for the T-line is 25.5 percent for SONABEL, with an NPV of US$9.1million. The project FIRR for GRIDCo would be 12.2 percent and the NPV is US$11million. This level of returns is adequate for a regulated transmission utility like 14 In recent years, financial support to Sonabel from the national budget has been as much as US$40 million annually. It should be possible to progressively phase out these subsidies once the T-line is in service. 17

30 GRIDCo and clearly above the usual on-lending rates for concessional loans (or even the interest rate on the direct semi-commercial loan that would be granted by AFD to GRIDCo for reinforcements). The interconnection itself would in fact be a relatively minor investment for GRIDCo, relative to its overall investment plan, and its impact on the utility s financial position would be limited. 64. Impact of Ghana grid reinforcements on the project financial return: In a scenario without network reinforcements under which the line capacity would remain capped at 20MW, the project FIRR would be much lower: 5.5 percent for SONABEL, 7.6 percent for GRIDCo. Undertaking the network reinforcements necessary to ensure a transfer capability of 100MW would therefore appear to be in the financial interest of both utilities. Utilities Finances 65. To address the issue, of the historical financial weakness of the power sector the government of Ghana adopted in 2010 a financial recovery plan for the sector and the sector regulator (PURC) revised tariffs accordingly in June Combined with the arrival of freeflow natural gas from the WAGP, the result was to improve dramatically the financial parameters of the sector, and in particular to allow VRA to generate a large free cash flow from current operations. In March 2011, PURC followed up with the adoption of an automatic tariff adjustment mechanism, allowing for tariff adjustments (bulk generation and retail) on a quarterly basis. While the immediate impact of implementing this mechanism was a significant reduction in the bulk generation tariff (reflecting a more favorable generation mix with natural gas), the principle of frequently re-adjusting tariff to reflect the changes in generation cost is sound and favorable to the long term financial sustainability of the power sector. Under the circumstances, it is anticipated that Volta River Authority (VRA) will be able to cover investment and operational costs and also be in a position to provide sustainable supply to Burkina Faso. With regard to the transmission operator Ghana Grid Company (GRIDCo), its prospects for financial viability appear favorable because its operating costs are less volatile and it has stable revenue inflows. The current transmission service charge approved by PURC assures it of revenue sufficient to cover all operating expenses and contribute to its capital expenditure program. With a low level of debt on its balance sheet, GRIDCo is creditworthy well placed to fund capital expenditures (capex) through long-term borrowings. Given the size of GRIDCo s investment program, GRIDCo is bound to see its debt level rise in the medium term. However, the financial forecast for the next 6 years ( ) indicates that the level of debt service of the transmission utility will remain manageable as long as the investment program is financed with long term debt, as should be the case for transmission assets. 66. SONABEL stands apart from other utilities in the sub-region as having maintained positive operating and net incomes year after year over the last decade. As a result, SONABEL has been able to maintain a healthy balance sheet with an acceptable Debt to Equity ratio. As opposed to many other utilities in the region which have experienced frequent episodes of illiquidity, SONABEL has been able to maintain a positive cash balance and to stay current on its financial obligations to suppliers and lenders. However, this is the result of high tariffs and fuel subsidy by government (capped at a maximum of CFAF21.5 billion US$48.7 million/year). 67. To expand access to electricity, SONABEL is faced with limited options given the cost of domestic generation. Developing interconnection with neighboring countries in order to import cheaper bulk supply electricity is a strategic priority for Burkina Faso. Despite additional costs 18

31 due to recent disruptions of supply from Côte d Ivoire and unusually low financial results in 2010 (net income of only CFAF 698 million (US$1.6million), SONABEL is expected to achieve adequate financial performance indicators in 2012 and beyond, if there is a return to operational normalcy in The proposed interconnection project will have a major positive impact on SONABEL s finances. It would result in a significant improvement in operating profitability, despite higher annual debt service. 68. Financial forecasts for both utilities are presented in Annex 6 and confirm that GRIDCo s prospects for financial viability remain sound while the project will have a major positive impact on SONABEL s finances. B. Technical 69. Extensive planning studies have demonstrated that the project is the least-cost option for Burkina Faso s electricity supply while also serving as a means for Ghana to export power and contribute to the goal of WAPP to create a regional power market. 70. The project does not present any unusual construction or operational challenges. The technical parameters and estimated project costs for the transmission lines have been established by detailed feasibility and engineering studies, including land surveys, carried out by internationally recognized consultants and checked against actual unit costs for similar undertakings in the sub-region. The technologies involved in construction and operation of transmission lines are well-known and proven. In addition, the project would be implemented according to internationally accepted technical criteria and standards, with the assistance of IDA-financed consultants. The line is short, relatively simple to build. The 225kV voltage chosen for the line is compatible with the existing Burkina Faso and the WAPP voltage levels. Ghana and Burkina Faso already have experience with electricity trade, and day to day operations after completion are not a major source of implementation risk. 71. The Rural Electrification component will allow the connection of rural communities on the right of way using the Transmission Line shield wire. This will not involve major additional costs and should contribute to poverty alleviation in these villages. Initially about 3400 households out of 7000 are expected to be connected to the grid as a result of the component. Burkina Faso already has experience of using the shield wire technique for rural electrification under the 225kV interconnection line with Côte d Ivoire. C. Financial Management 72. A Financial Management (FM) assessment of WAPP APL 3 Inter Zonal Transmission was conducted by the Bank s FM team in October 2010 and updated in March 2011 in accordance with the Financial Management Manual and AFTFM ORAF guidelines. The review of the FM capacity of the entities (all continuing entities such State Own Enterprises SONABEL and GRIDCo) involved in the project identified inherent and control risks, for which the team developed corresponding mitigation measures. The overall control risk is Medium Likelihood for GRIDCo and Low for SONABEL. The proposed FM arrangements for this Project built on the implementing entities own procedures are considered adequate to meet the Bank s minimum fiduciary requirements under OP/BP However, with the aim of improving some areas, the assessment recommended the following actions meant to be met: (i) the appointment of dedicated FM staff within the implementing entities to handle the project transactions; (ii) the need to enhance the internal audit function to comply with international 19

32 standards; (iii) the extension of the existing external audit arrangements to cover the project needs; and (iv) the development of project implementing manual for the two entities. The detailed assessment, together with the proposed arrangements for disbursements, accounting, auditing, and monitoring, is provided in Annex 3. D. Procurement 73. The Bank s standard fiduciary requirements will apply to the project supported under the WAPP APL program. Lending under the WAPP APL program will be through an IDA credit and a grant, respectively, to the individual countries. Annex 3 presents detailed implementation arrangements for GRIDCo (Ghana) and SONABEL (Burkina Faso). 74. Procurement would be carried out in accordance with the World Bank s "Guidelines: Procurement of Goods, Works and Non-Consulting Services Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" (published by the Bank in January 2011); "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" (published by the Bank in January 2011); Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised in January 2011; and the provisions stipulated in the Financing Agreements with the countries participating in the Project. 75. For National Competitive Bidding (NCB) for goods and works, Burkina Faso will use standard bidding documents acceptable to the Association. In the case of Ghana, GRIDCo may follow procedures governed by its national public procurement laws after incorporating exceptions identified and enumerated in the Financing Agreement (see Annex 3 of this PAD). 76. Assessments of the capacities of GRIDCo in Ghana, and SONABEL of Burkina Faso to implement procurement actions for their various components of the project have been carried out by the Bank based on responses to questionnaires filled out by these agencies. The assessment reviewed the organizational structure for implementing the project and the interaction between the implementing agencies and their staff responsible for procurement. The assessments conclude that GRIDCo and SONABEL are all in compliance with the procurement laws of their respective countries and have strong experience in implementing World Bankfinanced projects. The agencies have full complements of key procurement and technical staff who are also proficient in World Bank Procurement procedures, as well as the National Procurement procedures. They also have entity tender committees and review boards in their permanent organizations as final decision making authorities, in addition to adequate internal technical and administrative controls and anti-corruption procedures. Details of the assessments are given in Annex The overall risk for procurement (prior to mitigation measures) is considered Medium-L (Medium driven by Likelihood) for both institutions because of their experience in implementing previous Bank funded projects. The assessments recommended a number of actions to mitigate the procurement risks. With implementation of these measures the procurement risks are expected to be reduced to Low for of the two implementing agencies. 20

33 E. Social and Environmental Assessment (including safeguards) Project Related Activities and Categorization 78. The proposed project is classified as an Environmental Category B project, since potential adverse environmental and social impacts are generally small-scale and site specific with known mitigation measures to be put in place. Correspondingly, the project triggers four World Bank safeguards policies: Environmental Assessment (OP/BP 4.01); Involuntary Resettlement (OP/BP4.12); Natural Habitats (OP/BP 4.04); and Physical Cultural Resources (OP/BP 4.11). Activities that cross the boundaries of Ghana and Burkina Faso will not be located or carried out in any disputed areas, thus, implementation of the Project will not raise any issue affecting the relations between the Association and its member countries or between the two neighboring countries benefitting from the Project. 79. From a safeguards point of view, the most relevant project activities include Component 1 (Construction of the 225kV Transmission Line) and Component 3 (Rural Electrification). Other Safeguard Instruments and Disclosure 80. GridCo and SONABEL have commissioned Environmental and Social Impact Assessment (ESIA) studies, including Environment and Social Management Plans (ESMPs), covering both portion of the transmission line between Bolgatanga and Ouagadougou. These studies have been cleared by World Bank and were disclosed in country during February, March and April, 2011 and then in the World Bank Infoshop on April 12, The Resettlement Action Plans (RAPs), for Ghana and Burkina, prepared for the WAPP APL-3 were disclosed in the World Bank Infoshop on April 25, 2011 and in-country during February, March and April, The following conclusions mainly derive from these studies and the fact-finding missions carried out by World Bank safeguard specialists. Future Phases of the WAPP APL3 will be covered by the respective safeguard instruments to be developed under those projects. Alternative 81. All viable alternative project designs have been explored by VRA (which initiated the project), and SONABEL to avoid or minimize the need for resettlement and in general to avoid environmentally and socially sensitive sites including schools, clinics, other community properties, sacred shrines and delicate habitats that may harbor rare and endangered species. Where this was not possible (for example, in the case of the Kaboré Tambi National Park in Burkina Faso), mitigating measures have been identified to minimize the significance and likelihoods of the potential impacts. Impacts may be further limited, to the extent practicable, during final route alignment. The current routing has already been selected to avoid villages and other developed and sensitive areas and to run beside the existing roads right-of-way as much as possible. Potential Impacts 82. In general, the WAPP APL3 is expected to positively impact the beneficiary communities and individuals in several ways, including a projected region-wide lowering of electricity supply costs than would be achievable on an individual country basis, and an improved reliability and security of supply leading to reduced overall vulnerability to drought-induced power supply disruptions. The rehabilitations and installations of electricity infrastructure will not only improve the way of life of the people in terms of having improved access to less costly 21

34 electricity, but will also serve as the basis for their social and economic empowerment and reduction in poverty levels. Moreover, the WAPP provides tangible demonstration that regionally integrated infrastructure initiatives are powerful drivers for more comprehensive socio-economic and political integration. Other local positive social impacts may include employment during the construction phase. 83. However, a number of potentially negative impacts have been identified in the ESIAs. The table below provides a summary of them and potential mitigating measures. These impacts are expected to be small-scale and site-specific; and thus easily remediable. Table 5: Potential Adverse Impacts and Proposed Mitigation Measures Potential Adverse Impact Clearing of vegetation for route survey and construction activities. Noise during construction Impacts related to loss of assets, loss of land access and involuntary resettlement (Transmission Lines, towers and substations). Sedimentation and Erosion of nearby water bodies Public Health and Safety Waste generation from vegetation clearing and Packaging materials (solid wastes). Cultural Heritage and Sacred Places Risk of accidents due to increased traffic and heavy vehicles activities during construction phase. Risk of conflicts arising between non-local workforce and local communities and spreading of STDs. Proposed Mitigating Measure Vegetation clearing shall be kept to the barest minimum. Existing and available farm tracks and footpaths shall be used as access routes for surveyors Limit construction to daylight Relocation or compensation should be carried out following the objectives, policies, and procedures set forth in the relative Resettlement Action Plan (RAP). Provision of the RoW acquisition shall involve consultations with stakeholders. Compensation shall be paid for all properties and loss of land access along the whole RoW of the TLs and substations. Number of passes of trucks to and from site will be regulated. Access roads shall be selected to avoid crossing streams and water bodies Warning notices "NO ENTRY, NO TRESPASSING" shall be placed at entry points of access roads. Trucks and machinery shall display appropriate road safety signals. Safe speed limits shall be observed (10-20 km/h) Trees, stumps, cut brush and conductor drums shall be made available to the communities for firewood. Non-metal solids will be disposed of through the public waste collection system. Waste cloths used for cleaning, special wastes in the form of empty chemical, oil and solvent containers. Hazardous wastes will be segregated and disposed by total destruction. Metal waste will be sold as scrap to dealers. All wastes will be stored in areas isolated from surface drains. Route finalization will try to avoid to the possible extent existing cultural and sacred heritage places. A chance-finding procedure is included in the Environmental and Social Management Plans. Community concerns regarding shrines and community properties would be managed through the Resettlement Action Plan. Traffic management activities to be implemented as per ESMP and raising awareness among local communities and drivers. Maximization of local employment to avoid significance of such impact. In any case, a Workers management plan and code of conduct will be developed and extended to contractors. Measure of raising awareness regarding STDs will be developed and will be targeted to both workers and local communities. 22

35 Impacts on Biodiversity (flora and fauna) The project is not expected to significantly impact biodiversity or natural habitats. Impacts on animals will be only transitory. Particular attention will be devoted to avoid electrocution of animals, in particular elephants. Mechanisms to keep animals and birds away from the line will be put in place. 84. In addition to the above impacts, the line will cross the Kabore Tambi National Park which has a status of a protected area managed for ecosystem protection and recreation. The vegetation is mainly savanna strewn with some gallery forests in some areas. The Transmission line will follow mostly an existing road to minimize impacts. The ESMPs include replanting an equivalent number/species of trees in denuded areas within the Park boundaries to replace trees cut down to allow for the construction of the transmission line. Furthermore and in accordance with OP4.04, the project includes additional resources under component 1 to strengthen the management of the Kaboré Tambi National Park team to assist in the implementation of the ESMP. 85. In summary, key safeguard issues raised by the project are not envisaged to be significant, and can be managed through standard route finalization, construction and operation mitigating measures. Potential impacts and the corresponding recommended mitigation will be carried out during the pre-construction, construction, operational and maintenance phases of the project. 86. The ESIAs contain Environmental and Social Management Plans (ESMPs) acceptable to the Association that describe the environmental management structure of GRIDCo and SONABEL; the qualifications and functions of the respective project environmental and social teams; general health, safety, pollution prevention, and waste disposal procedures; and training program for project management and contractor personnel. The ESMPs specify mitigation measures for various potential adverse impacts in the pre-construction, construction and operation phases of the project. Funds for implementing the ESMPs are also included in the project cost estimates. Resettlement 87. As part of project design, every effort has been made by the implementing agencies to minimize resettlement impacts. In Burkina Faso, this included diverting the line to avoid all major settlements clusters, and ensure that the line primarily traverses state owned or agricultural land. That being said, the project will require the removal of a number of livelihood and residential assets including economically valuable trees and crops, as well as small houses in both Ghana and Burkina Faso. As a result, relevant Resettlement Action Plans (RAPs) for both countries have been prepared, consulted upon with local stakeholders and affected people and disclosed in country and in the World Bank Infoshop. 88. For Burkina Faso, a total of 346 property owners will be affected by the high-voltage transmission line, including owners of 110 residential structures (affecting 1178 people residing in those structures). The remaining 236 are owners of livelihood assets including fruit and eucalyptus trees, agricultural land, or land designated for construction purposes. An inventory of these affected assets, as well as a socio-economic census of affected people has taken place and is summarized in the Resettlement Action Plan along with compensation estimates. For the distribution lines and transformers to be installed under the Rural Electrification component, detailed designs and engineering studies will not be available until implementation. However, 23

36 the RAP includes information on potential impacts of the Rural Electrification component. It is expected that implementation of this component will not result in resettlement, but rather the removal of income-producing trees that will have to be replaced. Once more details are known about the number of trees affected by this component, the RAP will be updated during implementation. 89. In Ghana, the line construction will result in the displacement of 87 residential households and affect the crops and/or trees of 89 farmers. The total number of people displaced by the transmission line is 1166, which includes all residents of the affected households, such as children, elderly relatives, and extended family members living in the same compound. An inventory and preliminary valuation of these assets, along with a socioeconomic census and Project-Affected Persons (PAP) consultation has taken place and this is reflected in the Resettlement Action Plan prepared and locally disclosed by the client. Institutional Capacity 90. Based on their previous experience, GRIDCo and SONABEL have adequate capacity to manage the potential negative impacts of transmission line projects and substation construction. Standard environmental and resettlement management practices will suffice to minimize any concerns during construction and operation. Although both GRIDCo and SONABEL have capacity to monitor environmental and social impacts and implement appropriate mitigating measures, their resettlement plans have been appraised by the World Bank safeguard specialists and deemed appropriate for the monitoring and supervision of the potential impacts and mitigating measures arising from this project, although some capacity building of the utilities in these areas may be required. Public Consultation 91. To ensure an adequate flow of information on projects, public consultation has been made an integral part of the ESIA. This includes consultations during the preparation of the ESIA reports. Also as part of the RAP, community consultations were held during February and March, All the relevant bodies have been adequately informed of the Project and on the process leading from census to construction. Concerns of the communities and some details of consultations have been provided as Annexes of the ESIAs and RAPs. These landowners or users, as well as other stakeholders such as District Assemblies, other Government agencies and NGOs, were consulted during the ESIA and RAP studies. They will be consulted again when the final alignment is set and other preparations such as the formation of regional valuation commissions have been finalized. Local concerns were generally about the loss of crops and land use, sacred groves/shrines and delayed payment of compensation by VRA for past power projects in the area. These concerns were addressed in the preparation and budgeting of relevant resettlement measures, including the provision of a contingency budget to cover any unanticipated impacts. Furthermore, provision has been made for a robust grievance redress mechanism to handle any complaints in both RAPs. 24

37 Core Annex 1. Results Framework and Monitoring The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program Results Framework Project Development Objective (PDO): to reduce cost of and improve the security of electricity supply to Burkina Faso while increasing Ghana s electricity export capability PDO Level Results Indicators* Indicator One: Average weighted annual cost of electricity supply 15 in Burkina Faso Indicator Two: Annual total duration of outages in Burkina Faso due to generation capacity deficit/load shedding Indicator Three: Annual total hours of operation of the interconnection line Unit of Measure US dollars/ KWh Baseline (2010) Cumulative Target Values** Frequency Data Source/ Methodology YR 1 (2011) YR 2 (2012) YR3 (2013) YR 4 (2014) YR5 (2015) Annual SONABEL s business affairs records Annual Power control centers hour recorded data and summarized in the utility database (MIS) on a monthly basis hour Annual Recorded data by each power utility transfer substation and summarized in the utility database (MIS) on a monthly basis Responsibility for Data Collection SONABEL SONABEL & GRIDCo SONABEL & GRIDCo Description (indicator definition etc.) Total generation cost (self generation + import)/ Total energy injected in the system. INTERMEDIATE RESULTS Intermediate Result (Component One): Transmission Line Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Intermediate Result indicator One: Annual quantity of energy exported from Ghana to Burkina Faso GWh Annual Recorded data by each power utility transfer substation and summarized in the utility database (MIS) on a monthly basis SONABEL & GRIDCo 15 At utility level 25

38 Intermediate Result (Component Two): Reinforcement of domestic networks Intermediate Result indicator One: Feasibility & Environmental Studies of Kintampo Tamale line completed Intermediate Result indicator two: 330/161kVTransformer at Aboadzé commissioned Yes/No No No No Yes Yes Yes Yes/No No No No No Yes Yes Intermediate Result (Component Three): Electrification of rural localities in the ROW Intermediate Result indicator one: Rural households connected in the right of way (ROW) Intermediate Result indicator two: Direct project beneficiaries (number), of which are female ( percent) Number Annual SONABEL commercial data base Number, ( percent) (55perce nt) (55perce nt) Intermediate Result (Component Five): Capacity building and institutional support to GRIDCo and SONABEL for project implementation Annual SONABEL commercial data base SONABEL SONABEL Number of rural households connected times average household size Intermediate Result indicator One: Staff trained on network live O&M Number Annual Recorded by PIU after training sessions SONABEL & GRIDCo & PIU 26

39 Annex 2. Detailed Project Description The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program 1. The Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Interconnection Project aims to lower the cost of and improve security of electricity supply to Burkina Faso through avoided diesel and fuel-oil based generation, and to increase the overall reliability and stability of the Burkina Faso and Ghana electricity grids. The Interconnection is a priority project of the Inter- Zonal Transmission Hub WAPP APL3 (Phase 1) and, as such, it will comprise the following: Component 1: The 225kV Transmission Line between Bolgatanga (Ghana) and Ouagadougou (Burkina Faso) (US$84.2 million, of which US$16.4 million is to be financed by IDA; US$30.9 million by EIB and US$30.3 by AFD). 2. This component involves the construction of a 225 kv transmission line from Bolgatanga in the northern part of Ghana to the capital of Burkina Faso, Ouagadougou. It includes the following elements: Sub component 1: Construction of about 210 km of 225kV Transmission Line (US$34.2 million of which US$3.8 million financed by IDA, US$2.5 and 27.9 million by AFD and EIB respectively): The 210 km interconnection line will link the existing Bolgatanga substation in Ghana to be extended and the existing Zagtouli substation in Burkina Faso, with 171 km of line in Burkina Faso and 39 km in Ghana. The line is to be a single-circuit 570 mm² AAAC conductor link and will operate at 225kV. The shield wire, which will be fiber optic and of stainless steel loose tubes type, will be energized for the purpose of facilitating rural electrification along both sides of the RoW of the transmission line. Plans are that 20MW shall be initially exported from Ghana to Burkina Faso and thereafter 100 MW by 2017, following network reinforcements in the two countries; Sub component 2: Construction of a new 225/161kV substation in Bolgatanga, Ghana (US$16.5 million of which 9.9 million financed by IDA and US$6.6 million by AFD): The existing substation is a 161/33/34, 5kV air insulated substation type built on a main bus bar with transfer bus bar configuration. The 161/33kV Bolgatanga substation will be the connection point of the interconnection line. Since the interconnection will be done at 225kV, it is therefore necessary to create a 225kV substation at Bolgatanga; Sub component 3: Extension of the 225/90kV Zagtouli substation and construction of a new 90/33kV substation in Burkina Faso (US$19.7 million financed by AFD): The Zagtouli 225/90kV air insulated substation is new one and was commissioned in 2009, within the framework of the 225kV Bobo-Dioulasso - Ouagadougou Transmission Line Project that was built to transmit energy from Côte d Ivoire into the Ouagadougou area network (CRCO). Additional works are needed to make the substation capable of receiving the 225kV Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Interconnection Line and this includes doubling the Bus Bar and the bays coupler. The new 90/33kV substation to be erected shall be air insulated and shall be controlled from the National Control Center (NCC). The substation shall be equipped with a single busbar and a 90/33kV 40 MVA power transformer. The Patte-d Oie substation is located at this site in addition to the NCC. The substation is the end point of the Bagre/Kompienga transmission line and is also connected to the Zagtouli substation; 27

40 Sub component 4: Installation of telecommunications systems and SCADA (US$1.13 million of which US$0.46 million is financed by IDA and US$0.67million by AFD.): For the two networks to function satisfactorily together, the seamless integration of the 225kV Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Interconnection Line in the SCADA systems as well as Energy Management Systems (EMS) of both countries is mandatory. This includes in particular, the possibility to control and supervise the Bolgatanga and Zagtouli substations remotely from Burkina Faso and Ghana respectively. This component shall finance communication equipment and shall comprise works that shall aim to ensure the integration of the networks of Ghana and Burkina Faso. Sub component 5: Implementation of Environmental Management and Resettlement Action Plan and strengthening the management of the Kabore Tambi National Park. (US$5.4 million of which US$0.8 million financed by IDA, US$1.2 financed by GRIDCo and US$3.4 by SONABEL): Once the exact route is finalized, GRIDCo and SONABEL will implement the ESMP and RAP in Ghana and Burkina Faso respectively. The anticipated cost is US$1.2 million for Ghana and US$2.2 million for Burkina Faso. In addition, the management of the Kabore Tambi National Park(PNTK) 16 in Burkina Faso will be strengthened given the impacts of the transmission line on its classified natural assets (fauna, flora, water and cultural). This support to improving the conservation of the park as part of the development of the power line would constitute best practice development or greening development and help ensure compliance with the Bank s Natural Habitats OP It will address the following aspects during the transmission line construction and operation: (i) minimize bird coalition and electrocution risks; (ii) minimize impact from the transmission line and access roads (such as habitat fragmentation) and potential increased human settlement and habitat degradation; (iii) minimize indirect impact from transmission construction sites on natural habitat and small tributaries that could decrease water availability; (iv) decrease fire risks that are occurring regularly inside the park and could affect the power transmission operation as well as biodiversity conservation of the PNTK; and (v) decrease the incidence of illegal activities in the park such as poaching and deforestation and that could increase with the presence of construction workers. Specific actions to be supported in the Park for a total cost of US$2 million with an IDA contribution of US$0.8 million are the following: a) Improve access road planning: SONABEL and the Park management team would work together to use as much as possible the same access road system and ensure that the power line configuration is not affecting critical habitats or sites within the park; b) Strengthen surveillance: strengthening the surveillance of the park by funding guard posts, equipment, one vehicle and motorcycles, and labor to carry the surveillance activities; c) Habitat and fauna inventory and monitoring: studies and monitoring activities on the population dynamic of species of conservation concern around the project area; d) Habitat restoration: reforestation to re-establish the natural ecosystem functions in the project area and provide for the conditions for the native fauna to thrive; 16 The park is classified by the International Union for Conservative Nature (IUCN) 28

41 e) Maintain surface drainage: the opening of the transmission line and access roads might cause alterations to surface water drainage in some areas of the Park, to mitigate these, the project team will carefully review design and implementation of drainage works (catchwater drains, culverts, ditches, etc.) along the route of the proposed transmission line; a contingency fund will also be provided for implementing remedial measures, if needed, in the areas of the Park where such effects might become evident during project execution; f) Fire management: the project would support the construction of wind breaks and fire prevention programs as well as fire control in the project area; and g) Support initiative by local communities: the project would support local communities in the area of influence of the power line to adopt alternative livelihoods that value the natural resources as well as improve their socio-economic status. The cost breakdown of Component 1 is as follows: Table 6: Cost breakdown of Component 1 Cost Items (US$ millions) 225kV Transmission line KV Substations 34 90kV Substation at Ouagadougou 2.2 SCADA 1.1 Environmental & social mitigation measures 5.4 Contingency 7.3 Total 84.2 Component 1 Total Cost (US$ millions) Burkina Faso IDA Financing (US$ million) Ghana Total Burkina Faso Ghana Construction of the HV line Construction of Bolgatanga 225kV Substation (Ghana) Construction of 225 and 90kV substations in Burkina Faso Telecom & SCADA Environmental and social costs Contingency Total

42 Component 2: Reinforcement of transmission grid in Ghana (US$6 million financed by IDA). 3. Reinforcements are needed for the northern part of the Ghana network both for the 161kV lines and the 330kV ones. Key non-funded reinforcements needed between 2012 and 2015 to strengthen the northern region network while still allowing export capacity to Burkina Faso from 20 to 100 MW include: (i) additional reactive compensation device (3 shunt capacitors and one SVC); and (ii) 317km of 161kV line in Ghana and extension of the 330kV network (Kumasi-Kintampo line). GRIDCo has made significant progress on the financing of these lines except for a 188 km 161kV Kimtampo-Tamale which require studies and additional transformer capacity at Aboadze. This component will support those activities as follows: Table 7: Activities under Component 2 Items Cost (US$ millions) Feasibility/Engineering study of 161kV Atebubu-Tamale line 1.5 ESIA Study of 161kV Atebubu-Tamale line 1.0 Supply & installation of a 330/161kV 200MVA transformer at Aboadze 3.5 Total 6.0 Component 3: Electrification of rural localities along the Right of Way (US$9 million financed by IDA). 4. Localities with low population densities that could benefit from rural electrification are scattered along the interconnection line. In order to have rural populations also benefit from the interconnection, all the localities in Burkina Faso in the vicinity of the line with a population of more than 1300 and within 6km of the RoW, shall be electrified using the Shield Wire technique. Both countries have already used successfully this technique in Northern Ghana and along the 225kV Côte d Ivoire-Burkina Faso interconnection project. 5. The component will finance both detailed design and bidding documents for US$0.4 million and supply and installation of LV network and service connections for US$8.6 million. 6. It is anticipated that 7,000 households will be eligible for this type of rural electrification. The list of the designated localities for Burkina Faso is below. Table 8: List of localities eligible for rural electrification in Burkina Faso Province Department Locality Number of households Number of inhabitants Distance from the line axis (meters) Bazega Konioudou Kombissiri Monomtinga Ouidin Sabraogo Sapone Ouarmini Binsboumbou Toece Dagouma Koussala Kadiogo Ouagadougou Boassa

43 Tanghin- Lougsi Dassouri Tinsouka Badongo Nahouri Po Pounkouyan Tambolo Guiba Tanghin Bion Bisboumbou Doncin Zoundweogo Nioryida Nobere Nobere Nobili Pissi Tampouy Zagable Total Component 4: Supervision of construction works/owners Engineer (US$4.2 Million to be financed by IDA) 7. This component is for specific consultancy services of a Supervision Engineer to be recruited as the project Owners Engineer (GRIDCo & SONABEL). The scope of work for the Owner s Engineer shall be from the launching of the procurement process to the commissioning of the facilities. The Owners Engineer shall mainly assist the two utilities with project management and review of design, supervision of construction and commissioning of the investment undertaken in Component 1, 2 and 3. The services will include, but not be limited to: Manufacturer s quality management ; Review relevant documentation for compliance with the requirements of the various contracts; Supervision during construction/implementation/testing/commissioning, certifications for contractor payments, and preparation of reports required; Expertise transfer and training for staff and other related issues; and Environmental monitoring and management. Component 5: Capacity building and institutional support to GRIDCo and SONABEL for project implementation (US$7.6 million of which US$6.3 million to be financed by IDA). 8. The capacity building activities will cover topics that include (i) HV Planning; (ii) Hotwire O&M of HV transmission systems; (iii) Development, operation and maintenance of SCADA systems; (iv) Commercial transactions, Telecommunications and HV Network protection; and (v) project management and procurement. The capacity building activities will benefit staff from SONABEL, VRA and GRIDCo for an estimated total of 120 staff-months. 31

44 Two sets of hotwire electrical work equipment will be provided to the utilities with associated staff training sessions. The total estimated cost is US$4.4 million ($2.2 million for each utility). 9. Acquisition of equipment, training and operational expenses of the PIUs will be covered by IDA at a cost of US$1.2m and US$0.7 million for SONABEL and GRIDCo respectively. Training for the PIU will cover project management, procurement, Power system design, and financial management. The tables below give the cost breakdown and IDA financing for Component 5. Table 9: Burkina Faso Item Cost & financing (US$ m) SONABEL IDA Total Capacity building Office equipment and vehicles Operating cost PIU training TOTAL Table 10: Ghana Item Cost (US$ m) GRIDCo IDA Total Capacity building Office equipment and vehicles ,2 Operating cost PIU training TOTAL

45 Annex 3. Implementation Arrangements The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program A. Project institutional and implementation arrangements Project administration mechanisms 1. Project implementation involves two legal entities: GRIDCo in Ghana, and SONABEL in Burkina Faso. 2. It has been agreed that each entity will set up an internal Project Implementation Unit (PIU) with relevant project implementation specialists, responsible for bids documents validation, bids evaluation, day to day project monitoring and relation between the Utilities on the project matters. A sole Supervisory Engineer will be hired for the entire project components, while bidding documents will be issued according to the country where implementation is to be done and evaluation carried on by the given PIU. GRIDCo s PIU Organigram CHIEF EXECUTIVE GRIDCO PROJECT MANAGER ADMINISTRATIVE OFFICE SUPPORT STAFF (DRIVERS,CLERK PROJECT CONSULTANT DESIGN REVIEW COMMISSIONING CONSTRUCTION MANAGER ELECTRICAL ENGINEER CIVIL ENGINEER SITE INSPECTORS PROCUREMENT & CONTRACTS MANAGER FINANCE OFFICER QUANTITY SURVEYOR PROJECT ENGINEERS (Design Review and Project Monitoring) SONABEL s PIU Organigram SONABEL Managing Director SONABEL CORPORATE SUPPORT - Planning & Project Department (Engineering & Safeguard) - Legal Department (Procurement & Contract Management) - Finance & Accounting Department (Accounting & Disbursement) Project Manager ADMIN. SUPPORT STAFF - Assistant - Drivers Administrative & Finance Officer Substation Specialist HV LINE Specialist Rural Electrification Specialist Safeguard / Resettlement Specialist Procurement & Contract Management Specialist 33

46 3. A Joint Implementation Committee (JIC) will be set up by June 30, 2011, to coordinate implementation of the entire project. It will comprise representatives of WAPP Secretariat, the PIUs, and the management of the two utilities. 4. Capacity constraints are identified on fiduciary aspects and appropriate measure proposed below. B. Financial Management, Disbursements and Procurement Financial Management Strengths and Weaknesses Country Burkina Faso - SONABEL Ghana - GRIDCo Strengths SONABEL has an adequate track record in managing donors-financed projects (European Investment Bank, AfDB, West African Development Bank, and World Bank). As a State Own Enterprise (SOE), its overall oversight is ensured through the Annual General Meeting for SOEs chaired by the Prime Minister. In addition, to improve its control environment SONABEL has developed with support from an international firm a set of manual of procedures and procured an integrated computer based system on Oracle with appropriate modules covering the entire FM processes. GRIDCo currently has a strong and well functioning finance unit and is currently jointly managing the WAPP APL1 project with a satisfactory rating. The Finance department has a functioning internal audit unit and an experienced and qualified staff mix that is capable of providing reliable FM support to the project. 5. Weaknesses and action plans are described in Section 12 of the financial assessment report. Staffing Country Burkina Faso - SONABEL Ghana - GRIDCo Description of FM staffing for the project SONABEL FM Staff will be used to implement the project. Dedicated staff will be assigned to the project. They (one accountant and one financial manager) will be part of the project implementation unit to be set up within SONABEL. Overall responsibility for FM will remain with the Finance Director and head of GRIDCo s finance department. A qualified senior level accountant and an accounts officer will be assigned to this project. Budgeting Country Burkina Faso - SONABEL Ghana - GRIDCo Budgeting Arrangements Reliance will be place on SONABEL budgeting arrangements described in its manual of procedures which are deemed adequate following a review by the Bank FM team. GRIDCo has developed a Financial Accounting Manual (FAM) which includes the budgeting process. The guidelines for budgeting is issued under the annual Planning Letter signed by the Chief Executive in consultation with the Director of Finance. This forms the basis of budgeting for both recurrent and capital investment. A review of the FAM indicates that the budgeting processes are adequate and the WAPP APL3 project will follow the same guidelines using the allocated credit as a basis for budgeting and preparing procurement plans. Budgets are monitored closely against actual in monthly and quarterly financial reports which are thoroughly discussed with management. 34

47 Accounting Country Burkina Faso - SONABEL Ghana - GRIDCo Accounting Arrangements, Policies and Procedures Reliance on SONABEL existing accounting arrangements which comply with OHADA (Organisation pour l Harmonisation en Afrique du Droit des Affaires) accounting principles SYSCOHADA calling for double entries system and accrued accounting principles. The project will benefit from the existing accounting system supported by Oracle application which included several modules (account payable, fixed asset, inventory controls, treasury management, general ledger, procurement). To prevent any risk of delay in the project financial data and ensure accuracy, dedicated FM staff from SONABEL Finance and Accounting Department will be members of the project implementing unit. The Finance unit of GRIDCo has thirty two staff covering all key functions including procurement. The Director of finance heads the department and is a qualified Chartered Accountant with the relevant qualification and experience having worked at senior finance position within VRA for over ten years. The unit has adopted the FAM. It has secured licenses of the accounting software Axs One for its own use and is in the process of acquiring a server for storing its data which is currently on a separate platform but hosted on the same server with VRA. The project will be manned by two Finance Staff, one of whom would be a chartered accountant supported by a finance officer with an accounting degree and a number of years of accounting experience. Internal Control / Internal Audit Country Burkina Faso - SONABEL Ghana - GRIDCo Internal Control / Internal Audit The existing manual of procedures developed with the support from an international consulting firm is deemed adequate. It includes provisions pertaining to segregation of duties, delegation of authority, fixed asset management, accounts reconciliation. Reliance will be placed on it. The existing Internal Audit Department will be strengthened to foster the implementation of a risk based approach and setting up of an audit committee. Internal Controls are in existence and working effectively. GRIDCo has a six man internal audit department (IAD) headed by a qualified accountant who was part of the VRA Internal Audit department. The IAD has developed an acceptable internal audit manual similar to the one for VRA to guide its internal audit processes. The Internal audit unit conducts periodic reviews according to an annual plan and presents quarterly reports to the Board. The company has established guidelines on financial approval limits for all positions of managerial grades and above within the firm. This document indicates the approval and authorization limits for activity initiation and control of expenditure Reporting and Monitoring 6. All implementing entities in the different countries will have to prepare Interim Financial Report on a semester basis and annual Financial Statement composed of the following: (i) Financial reports (sources and uses of funds by funding source and uses of funds by activities of the project), (ii) Projected expenditures and cash forecast for the next semester (six months), and (iii) Bank reconciliation statement for the Designated Accounts and the Transactions Accounts showing the cash balance available at end of the semester under review. IFR will be submitted no later than 45 after the end of the semester. 35

48 Country Burkina Faso - SONABEL Ghana - GRIDCo Financial Reporting Systems, including interim and annual reporting SONABEL financial reporting arrangements include preparation of interim financial statements each semester. These financial statements are subject to a limited review by the statutory auditors. It includes a balance sheet and profit and loss statement. Reliance will be place on these arrangements. The project transactions will be integrated into SONABEL interim financial statements subject to audit. However, for the sake of report-based disbursement, a separate interim quarterly financial report will be prepared and submitted to the Bank. This will include only the project transactions. GRIDCo is a fully 100percent Government of Ghana owned limited liability company incorporated in Since its incorporation the entity has consistently submitted copies of its audited statement to the Bank and these have been found acceptable. The Financial statements are prepared in compliance with IFRS. The company also prepares monthly and quarterly reports that give a comprehensive view of the company s financial performance including actual against budget and formally presented to management. Specifically for the project, the existing reporting format of the company would be used with a schedule included to show current quarter, year to date and cumulative project sources and application of funds. External Audit 7. The annual financial statements and the Interim Financial Reports prepared by the implementing entities as well as internal control system applied will be subject to an annual audit by a reputable, competent and independent auditing firm based on terms of reference that are satisfactory to the Bank. The audit scope will be tailored to the project s specific risks. The auditor will also provide a management letter on the internal control procedures outlining recommendations for improving the control system, accounting, and financial procedures as a result of the audit. The implementing entities will be required to produce, no later than June 30 of the following fiscal year, audited annual financial statements in compliance with International Standards on Auditing. In line with new access to information policy, the audited financial statements will be made available. Country Burkina Faso - SONABEL Ghana - GRIDCo External Audit Arrangements SONABEL has a statutory auditor Commissaires aux Comptes appointed with the Board approval and acceptable to the Bank. The latter has a 6 year mandate which includes submission of an audit report on the annual financial statement, and semester accounts as well as management letter on internal control issues. Its contract will be extended to incorporate the project activities. During the project implementation, any new assignment of external auditor should require the Bank team clearance on the TOR and the auditing firm to be selected. If it s decided otherwise, then the selection of a new auditor for the project would follow a competitive process based on a TOR agreed with the Bank. Confirmation of the existing auditor or selection of a new one is expected to be completed within three (3) months of project effectiveness. The audited financial statement of GRIDCo for the year 2009 has been completed and a copy submitted to the Bank. A review of the management letter did not highlight any major internal control or compliance issues. Being a fully owned government entity, GRIDCo is audited by the State Enterprises Audit Corporation (SEAC) which is legally mandated to audit SOEs in Ghana. As part of the appraisal and consistent with the use of country system, the current arrangement will be maintained subject to an amendment of the currenttor to include the WAPP APL3 project. Where it is envisaged that 36

49 Disbursement Arrangements there will be challenges or delays in relying on the SEAC then the selection of a new auditor for the project would follow a competitive process based on a TOR agreed with the Bank. 8. For all countries the minimum value of applications for reimbursement, direct payment and special commitment is 20 percent of outstanding advance made to the Designated Accounts. Country Burkina Faso - SONABEL Ghana - GRIDCo Disbursement Methods and Mechanisms Given the adequate control environment at SONABEL, the project will use the report based disbursement. To ensure smooth use of it, the Bank FM & LOA team will provide training and support to the client. Following the moderate FM risk environment, the report based disbursement method will be used with Interim unaudited financial reports (IUFRs) used as supporting documentation. Banking arrangements and funds flow 9. Detailed fund flows for each country are presented in the appendixes. Country Accounts Flow of funds A CFA Francs Designated Account will be opened at the West African Central Bank in Ouagadougou from which transfer will be made to a transaction account in a commercial bank. Burkina Faso - SONABEL Ghana - GRIDCo Disbursement by component A US dollar denominated Designated Account (DA) would be opened either at the Bank of Ghana or at an acceptable commercial bank. See detailed fund flow in the appendixes. Upon grant effectiveness and request from the project, the Bank will deposit the amounts of CFAF equivalent to a cash forecast of two quarters into the Designated Account. See detailed fund flow in the appendixes. Upon grant effectiveness and request from the project, the Bank will deposit the amount equivalent to a cash forecast of two quarters. 10. The table below sets out the expenditure categories and percentages to be financed out of the grants and credit proceeds. Given that all countries are eligible for the country financing parameter, IDA fund will finance all expenditures at 100 percent including taxes. Category Table 11: Expenditure Categories Ghana GRIDCO Amount of the Credit Allocated SDR USD Percentage of Expenditures to be Financed (inclusive of Taxes) (1) Works, goods and services: (a) under Part 1.1 of the Project 2,400,000 3,800,000 60percent 37

50 (b) under Part 1.2 of the Project 6,100,000 9,900,000 60percent (c) under Part 1.3 of the Project 300, , percent (d) under Part 2 of the Project 3,700,000 6,000, percent (2) Goods, services and training under Parts 3 and 4 of the Project 2,600,000 4,200, percent (3) Unallocated 900,000 1,500,000 TOTAL AMOUNT 16,000,000 25,900,000 Category Burkina Faso -SONABEL Amount of the Grant Allocated SDR USD Percentage of Expenditures to be Financed (inclusive of Taxes) (1) Works, goods and services: under component 3 [Part 2 of the Project for Burkina Faso] (2) Goods, services, training and operating cost under Component 4 and 5 [Part 3 and 4 of the project for Burkina Faso] (3) Goods, services,training and operating cost under Component 1. [Part 1.4 of the project for Burkina Faso] 5,600,000 9,000, percent 3,800,000 6,200, percent 500, , percent TOTAL AMOUNT 9,900,000 16,000,000 Use of SOEs 11. The use of SOEs will be in line with the procurement s thresholds. Retroactive financing 12. Retroactive financing of payments made by the Recipients on or after June 1 st, 2011 but prior to the date of the respective financing agreements will be made available. SONABEL and GRIDCo will pre-finance eligible expenditures under Components 4 and 5 to be procured in line with Bank procurement guidelines. The Recipients will seek reimbursement payments up to an amount equivalent to US$2 million for each country in this context upon project effectiveness. 38

51 Action Plan to address weaknesses Country Actions Date due by Responsible Body Burkina Faso - SONABEL SONABEL Appoint dedicated FM staff from SONABEL Finance & Accounting Department as member of the project implementing unit. Strengthen the risk analysis by developing a risk based approach including a risk map. Reinforce the governance by setting up an audit committee to which the Internal Audit Department will report. Agreement on external Auditor Terms of Reference. Extend the contract of the statutory auditors to incorporate the project transactions. Within 3 months after effectiveness Over project implementation Over project implementation Prior or at negotiations (Done) 3 months after effectiveness SONABEL SONABEL SONABEL Ghana GRIDCo Prepare Project Implementation Manual to guide project team. By June 30,2011 Project Director, GRIDCo Agree on schedule of project financial information to be included in GRIDCo s quarterly financial report in fulfillment of quarterly IFR requirements. On or By negotiations (done) WB Team/ GRIDCo Finance Director Dated covenants 13. For SONABEL: appointment of an external auditor within 3 months after effectiveness Financial covenants 14. The standard financial covenants related to submission of IFRs, audit reports and the maintenance of a sound financial management system will be stated in the Financing Agreement. Supervision plan 15. FM implementation support plan will be consistent with a risk-based approach, and will involve a collaborative approach with the entire Task Team (including procurement). The first FM review will be carried out within 9 months of project effectiveness. This detailed review will cover all aspects of financial management, internal control systems, overall fiduciary control environment and tracing transactions from the bidding process to disbursements. Thereafter, the on-site supervision intensity will be based on risk, initially on the appraisal document risk rating and subsequently on the updated financial management risk rating during implementation. Given a residual risk rating of low at project appraisal, the financial management specialist on-site visit will be once a year. Additional supervision activities will include desk review of semi-annual IFRs, internal audit report, audited Annual Financial Statements and management letters as well as timely follow up of issues arising, and updating the financial management rating in the Implementation Status and Result Report (ISR) and the Portfolio and Risk Management System. 39

52 Conclusions of the FM Assessments 16. Following the financial management assessment of the entities involved in the WAPP APL 3, inherent and control risks were identified and related mitigation measures were developed. The residual control risk is Medium Likelihood for Ghana and Low for Burkina Faso. The table below summarizes the conclusion of the assessment per country. Country Level Burkina Faso Ghana Implementing agency and overview of implementation arrangements SONABEL, (State Own Enterprise in the electricity sector) will be the implementing entity. The Ghana component of the project would be implemented by the Ghana Grid Company Ltd., (GRIDCo). GRIDCo is a limited Liability Company incorporated under the Ghana Companies Code of Ghana, 1963, (Act) 179 in 2006 to provide Electricity transmission services. It is a 100percent wholly owned government company. It was spun off of the Volta River Authority with staff and related assets and liabilities. Status SONABEL has an adequate track record in managing donorsfinanced projects and an acceptable control environment that will be reinforced over the project implementation. As much as possible reliance will be place on SONABEL s financial management arrangements in place.. The Finance department is a 32- person, fully functional unit with a mix of professionally qualified accountants, graduates of accounting and finance and diploma holders all with varied years of experience at different levels within the organization. Reliance will be placed on the financial management arrangements within GRIDCo. 40

53 Burkina Faso Appendixes: Detailed fund flow IDA IFR Direct payment SONABEL Designated Account in BCEAO SONABEL Transaction Account in Commercial Bank Foreign & Local services providers Legend: Transfers of funds Flow of documents Payment to suppliers 41

54 Ghana IDA IDA Credit Commercial Bank GRIDCo Designated Account o Documents flow Funds flow Procurement Capacity assessment of Implementing Agencies 17. The project will be implemented by two legal entities. GRIDCo will be responsible for managing the project components applicable to Ghana while SONABEL will handle the Burkina Faso components. Each entity will set up an internal project unit with relevant project implementation specialists to handle day to day project management. However, GRIDCo and SONABEL have decided to set up a joint ad hoc committee to handle procurement for the transmission line and Owner s engineer as one contract to ensure harmonization and easy project management. Details of this arrangement will be described in the Project Implementation Manual. 18. Procurement assessments for the implementing agencies in Ghana and Burkina Faso were done during the period of November 2010 to February The assessments reviewed the procurement procedures, organizational structures, staffing, and skills at the country and project management levels. The summary findings of each of the agencies are given below. The overall risk for procurement (prior to mitigation measures) is considered Medium-L for the two institutions because of their experience in implementing previous Bank funded projects. The 42

55 assessments recommended a number of actions to mitigate the procurement risks. With implementation of these measures the procurement risks are expected to be reduced to Low for the two implementing agencies. Ghana Grid Company Limited (GRIDCo) 19. The assessment concludes that GRIDCo is in compliance with the procurement law, has enormous experience in implementing World Bank-financed projects, with one of such project currently ongoing. It has a full complement of key procurement and technical staff who are also proficient in World Bank Procurement procedures as well as the National Procurement procedures. It also has entity tender committees and review boards in its permanent organization as final decision making authorities in addition to adequate internal technical and administrative controls and anti-corruption procedures. The review also noted the existence of satisfactory appeals mechanisms for bidders. 20. It is observed however that certain portions of the national procedures and accompanying standard bidding document deviate from Bank procedures and in order to allow the use of national procedures and bidding documents for National Competitive Bidding (NCB), some adjustments will need to be made to align the national procedures to the Bank s. These exceptions include provisions that must ensure that: (i) foreign bidders shall be allowed to participate in the NCB procedures; (ii) bidders shall be given at least one (1) month to submit bids from the date of the invitation to bid, or the date of availability of bidding documents, whichever is later; (iii) no domestic preference shall be given for domestic bidders and for domestically manufactured goods; and (iv) in accordance with paragraph 1.16(e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that: (1) the bidders, suppliers, contractors and subcontractors shall permit the Association, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the Association; and (2) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.16(a)(v) of the Procurement Guidelines. 21. The assessment shows a Low risk for GRIDCo. 22. To ensure that the level of procurement risk is consistently kept low, the following actions are proposed in the Table below: Table 11: Procurement Risks and Mitigation Measures (GRIDCo) No Key risks Mitigation Actions By Whom By When 1 2 Lack of familiarity with current trends and updates of World Bank procurement guidelines and procedures Delays in Evaluation of bids and Technical Proposals. Organize a quick workshop to update procurement staff in current changes in Bank procurement procedures and work closely with Bank PS. Continue training of procurement and technical staff in an acceptable institution Close monitoring of procurement plans on a monthly basis and closely monitor and exercise quality control on all aspects of the procurement process, including evaluation, selection and award. GRIDCo Procureme nt Manager Procureme nt Team At Project launch and throughout project life Throughout project life 43

56 No Key risks Mitigation Actions By Whom By When 3 Use of National Procurement For NCB procurement, a list of exceptions to the National Procurement Procedures GRIDCo Throughout project life Procedures for have been identified and will be NCB incorporated to take account of the Bank s Fraud and anti-corruption and other procurement provisions. SONABEL 23. The assessment concludes that SONABEL is in compliance with the procurement law, has strong experience in implementing World Bank-financed projects, with two of such project currently ongoing. It has a full complement of key procurement and technical staff who are also proficient in World Bank Procurement procedures as well as the National Procurement procedures. It also has entity tender committees and review boards in its permanent organization as final decision making authorities in addition to adequate internal technical and administrative controls. 24. An ongoing assessment of the procurement system and bidding document by the Bank for the Piloting project for the Use of Country System revealed that certain portions of the national procedures and standard bidding documents deviate from Bank procedures. Until the assessment identifies clear adjustments that are needed to be done, it is proposed that the Bank standard documents for International Competitive Bidding will be adapted for National Competitive Bidding (NCB) and utilized by SONABEL. 25. The assessment shows a Medium-L risk for SONABEL. 26. To ensure that the level of procurement risk will be reduce to low, the following actions are proposed in the Table below: Table 12: Procurement Risks and Mitigation Measures (SONABEL) No Key risks Mitigation Actions By Whom By When 1 Lack of familiarity with current trends and updates of World Bank procurement guidelines and procedures 2 The possible overload due to the fact that SONABEL receives lot of funds from other donors Delays in Evaluation 3 of bids and Technical Proposals. 4 Delays in the prior review of the National Organize a quick workshop to update procurement staff in current changes in Bank procurement procedures and work closely with Bank PS. Refreshment procurement training for staff that were trained more than 3 years ago. The recruitment of procurement specialist if necessary Close monitoring of procurement plans on a monthly basis and closely monitor and exercise quality control on all aspects of the procurement process, including evaluation, selection and award. Ask to the National Procurement Directory to nominate a focal point for SONABE L SONABE L Procureme nt Team / SONABE L SONABE L At Project launch and throughout project life At any time if necessary Throughout project life Before launch project and 44

57 No Key risks Mitigation Actions By Whom By When 5 Procurement Directory the project and a close following up of procurement documents submitted to prior review Bidding document for NCB Implementation Support for Procurement Adapt the Bank Standard documents for ICB SONABE L / Bank PS Throughout project life Before the project launch 27. Bank Procurement Specialists will participate regularly in implementation support to assist in monitoring of procurement procedures and Procurement Plans. During regular implementation support missions for each country the Procurement Plans will be updated at minimum once each year and similarly post procurement reviews will be carried out at minimum once a year. Post review supervision will also be carried out by the Bank at least once a year and will cover at least 20 percent of contracts subject to post-review. Post review consists of reviewing technical, financial and procurement reports carried out by the Borrower s executing agencies and/or consultants selected and hired under the Bank project according to procedures acceptable to the Bank. Applicable procurement policies and procedures 28. All countries: Procurement for the proposed Project would be carried out in accordance with the World Bank s "Guidelines: Procurement of Goods, Works and Non-Consulting Services Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" (published in January 2011), "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" (published in January 2011), and the provisions stipulated in the Financing Agreements with the countries participating in the Project. Exceptions to National Competitive Bidding Procedures 29. For National Competitive Bidding (NCB) for goods and works, Burkina Faso will adapt and make necessary modification to the Bank Standard Bidding Documents for International Competitive Bidding for use. 30. However Ghana s GRIDCo may follow its own national procedures that are governed by national public procurement acts and/or laws, with the following exceptions noted above in paragraph 20. Procurement Arrangements 31. Apart from the Bolgatanga- Ouagadougou transmission line contract and engagement of Owner s engineer, whose procurement will be jointly managed by a team from both countries, each country will handle the rest of the applicable procurements on their own. The Transmission Line contract is being co-financed by World Bank together with AFD and EIB. Given that both the Ghana and Burkina Faso portions will have to be procured as one single contract in order to ensure harmonization, easy connectivity and make contract management less complicated, it has been agreed that one bidding document with the bills of quantities clearly defining the works in each country will be used. However, two different contracts will be signed by each country with the winning contractor for their portion of the works for easy payment arrangement and to enhance ownership. To this effect, it has been generally agreed by all the funding agencies that the World Bank Guidelines and Standard Bidding documents will be used. EIB does not anticipate any issues with the current WB debarment list based on the current list of Debarred 45

58 Firms and Individuals that is published on WB s web site, even though their rules do not subscribe to it. However if a situation occurs that they have exceptions to, EIB shall consult with the World Bank to examine the reasons for which the WB has debarred the company and consequently come to an agreement. In addition to the Bank s requirements to publishing ICB Specific procurement Notices in the UNDB online and the External website of the World Bank, EIB requires that such Notices will also be published in the Official Journal of the European Union (OJEU) in parallel with the W.B s and the Promoter s publications. Finally, EIB accepts WB s provisions for fraud and corruption, and audit rights but in addition requires a declaration of Integrity (anti-corruption) form to be submitted by potential bidders with their bids 32. Procurement of Works: Contracts estimated to cost above US$ 5,000,000 equivalent for Ghana and US $ 3,000,000 equivalent for Burkina Faso may be procured through ICB. However, relevant NCB works contracts, which are deemed complex and/or have significant risk levels, will be prior-reviewed. Such contracts will be identified in the tables and also in the procurement plans. Contracts estimated to cost less than US$100,000 equivalent for Ghana and US$ 50,000 equivalent for Burkina Faso per contract may be procured using shopping procedures in accordance with paragraph 3.5 of the Procurement Guidelines 17 and based on a model request for quotations satisfactory to the Bank. Direct contracting may be used in exceptional circumstances with the prior approval of the Bank, in accordance with paragraphs. 3.6 and 3.7 of the Procurement Guidelines. 33. Procurement of Goods: Contracts for goods estimated to cost US$500,000 equivalent or more per contract shall be procured through ICB. Goods orders shall be grouped into larger contracts wherever possible to achieve greater economy. Contracts estimated to cost less than US$500,000 but equal to or above US$50,000 equivalent per contract may be procured through NCB. Contracts estimated to cost less than US$50,000 equivalent per contract may be procured using shopping procedures in accordance with paragraph 3.5 of the Procurement Guidelines and based on a model request for quotations satisfactory to the Bank. Direct contracting may be used in exceptional circumstances with the prior approval of the Bank, in accordance with paragraphs. 3.6 and 3.7 of the Procurement Guidelines. 34. Selection of Consultants: (a) Firm - Consultancy services would be selected using Request for Expressions of Interest, short-lists and the Bank s Standard Requests for Proposal, where required by the Bank s Guidelines. The selection method would include Quality and Cost Based Selection (QCBS) whenever possible, Quality Based Selection (QBS), Fixed Budget (FBS), Least Cost Selection (LCS), Single Source Selection (SSS) as appropriate. (b) Individual Consultants - Specialized advisory services would be provided by individual consultants selected by comparison of qualifications of at least three candidates and hired in accordance with the provisions of Section V of the Consultant Guidelines. 35. Assignments estimated to cost the equivalent of US$200,000 or more would be advertised for expressions of interest (EOI) on the Bank s Client Connection or Operations Portal and in United Nations Development Business (UNDB) online, in addition to local newspapers of wide national circulation and Ghana s PPA website and the Burkina Faso Revue des Marchés Publics. In addition, EOI for specialized assignments may be advertised in an international newspaper or magazine. In the case of assignments estimated to cost less than US$200,000, but more than US$100,000 the assignment would be advertised nationally. The 17 Shopping consists of the comparison of at least three price quotations in response to a written request. Additional information on how to do prudent shopping is contained in the Guidance on Shopping available at the Bank s external web site for procurement under Procurement Policies and Procedures. 46

59 shortlist of firms for assignments estimated to cost less than US$200,000 may be composed entirely of national firms in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines provided a sufficient number of qualified national firms are available and no foreign consultants desiring to participate has been barred. 36. Procedure of Single-Source Selection (SSS) would be followed for assignments which meet the requirements of paragraphs of the Consultant Guidelines and will always require the Bank's prior review regardless of the amount. Procedures of Selection of Individual Consultants (IC) would be followed for assignments which meet the requirements of paragraph 5.1 and 5.4 of the Consultant Guidelines. For all contracts to be awarded following QCBS, LCS and FBS, the Bank's Standard Request for Proposals will be used. 37. The use of civil servants as individual consultants or a team member of firms will strictly follow the provisions of Article 1.9 to 1.11 of the Consultants Guidelines. 38. Capacity Building, Training Programs, Workshops, Seminars and Conferences..: Training activities would comprise workshops and training, based on individual needs as well as group requirements, on-the-job training, and hiring consultants for developing training materials and conducting training. Selection of consulting firms for training services estimated to cost US$100,000 equivalent or more would be procured on basis of QCBS or QBS as appropriate. Training services estimated to cost less than US$100,000 equivalent per contract may be procured through CQ method. When appropriate, training may also be procured on the basis of Direct Contracting subject to review and approval by the Bank. All training and workshop activities would be carried out on the basis of approved annual programs that would identify the general framework of training activities for the year, including: (i) the type of training or workshop; (ii) the personnel to be trained; (iii) the selection methods of institutions or individuals conducting such training; (iv) the institutions which would conduct the training; (v) the justification for the training, how it would lead to effective performance and implementation of the project and or sector; and (vi) the duration of the proposed training; (vii) the cost estimate of the training. Report by the trainee upon completion of training would be required. 39. Operating Costs: Operating Costs financed by the project are incremental expenses arising under the Project, and based on Annual Work Plans and Budgets approved by the Association pursuant to the Financing Agreement, on account of office equipment and supplies, vehicle operation and maintenance, maintenance of equipment, communication and insurance costs, office administration costs, utilities, rental, consumables, accommodation, travel and per diem, salaries of Local Contractual Staff, but excluding the salaries of the Recipient s civil service. 40. The procedures for managing these expenditures will be governed by the Borrower s own administrative procedures, acceptable to the Bank. Procurement Documents 41. The procurement will be carried out using the latest Bank s Standard Bidding Documents (SBD) or Standard Request for Proposal (RFP) respectively for all ICB for goods and recruitment of consultants. For NCB, the borrower shall submit a sample form of bidding documents to the Bank prior review after incorporating the exceptions listed above and will use this type of document throughout the project once agreed upon. The Sample Form of Evaluation Reports developed by the Bank, will be used. NCB SBD will be updated to include clauses related to Fraud and Corruption, Conflict of Interest and Eligibility requirements consistently with the World Bank procurement guidelines dated January

60 Advertising procedures 42. For each participating country a General Procurement Notice (GPN) will be prepared and published in accordance with advertising provisions in the following guidelines: "Guidelines: Procurement of Goods, Works and Non-Consulting Services Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" (January 2011); and "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" (January 2011) in United Nations Development Business (UNDB), on the Bank s external website and in at least one national newspaper after the project is approved by the Bank Board, and/or before Project effectiveness. Since this is a regional Project, advertisements for GPN will be published in a major newspaper of each country participating in the Project. The borrower will keep a list of received answers from potential bidders interested in the contracts. 43. Specific Procurement Notices for all goods and works to be procured under International Competitive Bidding (ICB) and Expressions of Interest for all consulting services to cost the equivalent of US$200,000 and above would also be published in the United Nations Development Business (UNDB), on the Bank s external website, and the national press of the participating countries. For works and goods using NCB, the Specific Procurement Notice (SPN) will be published only in the country that is procuring such works and goods. Frequency of Procurement Supervision 44. In addition to the prior review supervision which will to be carried out by the Bank, the procurement capacity assessment recommends one supervision mission each year to visit the field to carry out post-review of procurement actions and technical review. The procurement post-reviews and technical reviews should cover at least 20 percent of contracts subject to postreview. Post review consist of reviewing technical, financial and procurement reports carried out by the Borrower s executing agencies and/or consultants selected and hired under the Bank financed project according to procedures acceptable to the Bank. 48

61 Expenditure Category Table 13: Thresholds for Procurement Methods and Prior Review Threshold for Method (US$) Procurement Method Contracts Subject to Prior Review Works >=5,000,000 ICB All Ghana < 3,000,000 NCB First 2 contracts <100,000 Shopping None Burkina Faso >=3,000,000 < 3,000,000 ICB NCB All First 2 contracts <50,000 Shopping None Goods and non-consulting services. Ghana Burkina Faso >=500,000 <500,000 <50,000 Direct Contracting ICB NCB Shopping Direct Contracting All All First 2 contracts for each entity None All Consulting services from firms & NGOs Ghana Burkina Faso Individual consultants >=200,000 <200,000 QCBS QCBS, CQS, LCS, FBA, QS Single Source IC All contracts of US$200,000 and above and the two first contracts under US$200,000 All single source All contracts of US$50,000 and above Ghana Burkina Faso Note: All Term of reference regardless of the value of the contract are subject to prior technical review ICB International Competitive Bidding QCBS -- Quality and Cost-Based Selection method NCB National Competitive Bidding CQS Consultants Qualification Selection method IC Individual Selection method Procurement Plan 45. Each participating country has prepared a Procurement Plan for the first eighteen months, Each Procurement Plan will be updated at least twice a year after each supervision mission or as required to reflect the actual project implementation needs and improvements in institutional capacity. The various items under different expenditure categories are described in the Procurement Plan. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior 49

62 review requirements, and time frame are agreed between each recipient and the Association in the Procurement Plan. 46. These procurement plans will be available in the project s database and in the Bank s external website and also available in the Project s database. They were agreed during negotiations. Major contract procurement processes have been discussed during appraisal. Table 14: Procurement Arrangement and Schedule for Works and Goods Estimated Domestic Review by Procure- N Cost Preferenc Bank Contract (Description) ment P-Q o. (US$ e (Prior/Pos Method million) (Yes/No) t) Construction of 210 km of 225kV line in Burkina Faso Construction of a new 225/161kV substation in Bolgatanga & Installation of telecom system &SCADA Electrification of rural localities in the ROW (Burkina Faso) One 330/161kV Transformer Aboadze Supply of Project Vehicles Ghana Supply of Project Vehicles Burkina Faso Supply of Computers and other Office Equipment - Ghana Supply of Computers and Office equipments in Burkina Faso Supply of Field Equipment & Logistics- Ghana Expected Bid Opening Date 34.2 ICB Post No Prior 05/16/ ICB Post No Prior 04/15/ ICB Post No Prior 05/16/ ICB Post No Prior 12/15/ NCB Post No Prior 11/7/ NCB Post no Prior 09/01/ NCB Post No Post 11/07/ NCB Post no Post 09/30/ NCB Post no Post 11/7/

63 Table 15: Procurement Arrangement and Schedule for Consultancy Services No Description of Services Owner s Engineer for the Interconnection component Consultancy services for feasibility/engineering study of Atebubu-Tamale 161kV transmission line Consultancy services for Environmental and Social study of Atebubu-Tamale 161kV transmission line Consultant for Inventory of Affected Assets (Burkina Faso) Estimated Cost (US$ million) Selection Method Review by Bank (Prior/Post) Expected Proposals Submission Date 4.2 QCBS Prior 08/25/ QCBS 1.0 QCBS 0.26 QCBS Prior Prior Prior 10/21/ /21/ /05/2011 Publications of Awards and Debriefing 47. For all ICBs, request for proposal that involves the international consultants and direct contracts, the contract awards shall be published in UN Development Business online and on the Bank s external website within two weeks of receiving IDA s "no objection" to the recommendation of contract award. For Goods, the information to publish shall specified (i) name of each bidder who submitted a bid; (ii) bid prices as read out at bid opening; (iii) name and evaluated prices of each bid that was evaluated; (iv) name of bidders whose bids were rejected and the reasons for their rejection; and (v) name of the winning bidder, and the price it offered, as well as the duration and summary scope of the contract awarded. For Consultants, the following information must be published : (i) names of all consultants who submitted proposals; (ii) technical points assigned to each consultant; (iii) evaluated prices of each consultant; (iv) final point ranking of the consultants; and (v) name of the winning consultant and the price, duration, and summary scope of the contract. The same information will be sent to all consultants who have submitted proposals. 48. The other post review contracts should be published in national gazette or on a widely used website or electronic portal with free national and international access within two weeks of the Borrower s award decision and in the same format as in the preceding paragraph. Fraud, Coercion and Corruption 49. All procurement entities as well as bidders and service providers, i.e., suppliers, contractors, and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraphs 1.14 and 1.15 of the Procurement Guidelines and paragraphs 1.22 and 1.23 of the Consultants Guidelines, in addition to the relevant Articles of the Ghana Public Procurement Act which refers to corrupt practices. 51

64 C. Environmental and Social (including safeguards) 50. Ghana and Burkina Faso have completed the Environmental and Social Impact Assessment ( ESIA ) studies, including the preparation of Environment and Social Management Plans (ESMPs) to be prepared during Project implementation, covering the entire transmission line between Bolgatanga and Ouagadougou. These studies have been cleared by World Bank and have been disclosed in country and then at the Infoshop. These two countries have likewise prepared, consulted upon and disclosed Resettlement Action Plans ( RAPs ) following review by the World Bank before appraisal. The following conclusions mainly derive from these studies and the fact-finding missions carried out by World Bank safeguard specialists. The other future Phases of the WAPP APL3 will be covered by the respective safeguard instruments to be developed under follow on projects. 51. GRIDCo and SONABEL have adequate capacity to satisfactorily manage the potential negative dimensions of transmission line projects and substations construction. Standard environmental and resettlement management practices will suffice to minimize any concerns during construction and operation. 52. Both GRIDCo and SONABEL have capacity to monitor environmental and social impacts and implement and monitor appropriate mitigating measures and resettlement plans have been appraised and found to be satisfactory by the World Bank safeguard specialists That said, some additional capacity building measures may be required during implementation including training events and the recruitment of specialist consultants to prepare monitoring reports on the implementation of environmental and social management plans and resettlement plans. The ESIAs contain acceptable Environmental and Social Management Plans (ESMPs) that describes the environmental management structure of GRIDCo and SONABEL; the qualifications and functions of the respective project environmental and social teams; general health, safety, pollution prevention, and waste disposal procedures; and training program for project management and contractor personnel. The ESMPs and RAPs specify mitigation measures for various potential adverse impacts in the pre-construction, construction and operation phases of the project. Funds for implementing the ESMPs and RAPs are also included in the project cost estimates. 53. No further environmental and social risks are currently envisaged for the project beyond the mentioned safeguards. On the contrary, the WAPP APL3 is expected to create several opportunities and positively impact the beneficiaries: (i) a projected region-wide lowering of electricity supply costs than would be achievable on an individual country basis; and (ii) an improved reliability and security of supply leading to reduced overall vulnerability to droughtinduced power supply disruptions. The rehabilitation and installations of electricity infrastructure will not only improve the way of life of the people in terms of having improved access to electricity, but will also serve as the basis for their social and economic empowerment and reduction in poverty levels. Moreover, WAPP provides tangible demonstration that regionally integrated infrastructure initiatives are powerful drivers for more comprehensive socio-economic and political integration. 52

65 D. Monitoring & Evaluation 54. At the regional level, the WAPP APL Program is included in the established mechanism for policy oversight of the EEP - the WAPP Steering Committee composed of the Meeting of ECOWAS Energy Ministers. The WAPP APL Program will also benefit from the existing monitoring mechanisms set up by ECOWAS, including the Meeting of WAPP Donors. Moreover, the WAPP General Secretariat, supported by USAID and the Bank (through an ongoing IDF sponsored activity), is assisting the development and deployment of an integrated WAPP M&E system, building upon the existing country-specific M&E systems and utilities operational data base, to report on overall program outcome indicators. No additional collection cost is expected from the utilities as operation data collection is automatic through the SCADA and existing periodic reporting. E. Role of Partners 55. European Investment Bank (EIB) and Agence Française de Développement (AFD) have pledged complementary financing for US$30.9 million and US$32.3 million respectively. These co-financings will cover the interconnection line and associated substations. AFD is currently assessing a possible financing of HV network reinforcement in Ghana. Funding from EU-Africa Infrastructure Trust Fund is being explored for additional capacity building to the WAPP Secretariat 56. Both EIB and AFD can co-finance with the IDA and agree the use of IDA Standard Bidding documents. Agreement on the joint procurement process for the transmission line has also been reached. (cf. Annex 3- paragraph 31). 53

66 Annex 4. Operational Risk Assessment Framework (ORAF): Disclosable version The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program Project Development Objective(s) Project Development Objective (PDO): to reduce cost of and improve security of electricity supply to Burkina Faso while increasing Ghana s electricity export capability. 1. Average weighted annual cost of electricity supply 18 in Burkina Faso 2. Annual total duration of outages in Burkina Faso due to generation capacity deficit/ load shedding 3. Annual hours of operation of the interconnection line Project Stakeholder Risks Risk Category Risk Rating Risk Description The risk of local social and environmental groups considering the project as a threat. Proposed Mitigation Measure Project will continue consultation with local interest groups, donors and beneficiaries. Most PAPs will benefit from electrification of homes in villages along RoW. Stakeholder M-I The risk of population suffering from outages in Ghana protesting because of the country exporting power. The project will not only increase availability of electricity in Burkina Faso, but will also improve the reliability of the Ghanaian network. GridCo will focus communications messages on the benefits of the project for increasing the reliability of the Ghana network. 18 At utility level 54

67 Institutional Risk (sector & multi-sector Level) Summary of Implementing Agency Risks M-I M-I Although VRA/GridCo and SONABEL have a bilateral longterm energy supply contract, the risk of operational difficulties is real (in terms of different operational rules, different working languages, etc.) Difficulties in coordination of project activities across different utilities may lead to slow procurement and implementation, with adverse impact on the project development objectives. Risk of collusion between contractors and PIU staff - Preparation of: (i) power trade agreements covering tariffs and volumes, (ii) standards for system operations will be included in the Transmission service contract between SONABEL-GridCO; - A dispute resolution mechanism has also been previewed in the ECOWAS Energy Protocol and provisions will be made in the contracts between Sonabel/VRA and GridCo; - The regulation of electricity trade will be ensured by the new regional regulator (ERERA) in line with the provisions of the ECOWAS Energy Protocol. A single owner s engineer will be hired to supervise operations and coordinate communication between the two utilities. Project staff to be trained in fiduciary matters An independent external auditor acceptable to the Bank will be engaged to audit the project s accounts. International standards on fraud and corruption will be included in its TORs 4. Project Risks Design L Complexity of implementing a crossborder interconnection project; Electrification of villages in BF along RoW likely to be economically unviable and a financial drain on SONABEL The project will build on previous WAPP experiences and on other international projects of this type; The two utilities have agreed on a joint implementation process including dispute resolution mechanisms. GoB will consider funding the Rural Electrification component on a grant basis, but opex impact on SONABEL cannot be mitigated However, the local community benefits are 55

68 Social & Environmental Program & Donor H M-L A number of potentially negative impacts have been identified: (i) clearing of vegetation for construction; (ii) noise disturbance; (iii) lost of assets and resettlement; (iv) risk of accidents; public health issues; (v) sacred places in the ROW; (vi) impact on biodiversity, etc. in the Kabore National Park (BF) The risk of other projects/phases of the WAPP Inter-zonal Transmission Hub not being implemented; Risk of delays due to crosseffectiveness clauses between EIB, AFD & WB; necessary for overall project acceptance, as recorded during public consultation on environmental an social impacts GridCo and SONABEL have prepared Environmental and Social Impact Assessments (ESIAs), including Environment and Social Management Plans (ESMPs), covering both portions of the transmission line between Bolgatanga (Ghana) and Ouagadougou (Burkina Faso). Resettlement Action Plans have also been prepared for Ghana and Burkina Faso. Apart from the GridCo and SONABEL capacity to monitor environmental and social impacts and implement appropriate mitigating measures (incl. offsets for the trees cut along the RoW within the national park boundaries) and resettlement plans, some additional support/reinforcement of the Park/Forest services in BF is envisaged. The WAPP secretariat is making progress on the completion of the whole Inter-zonal Transmission Hub project. Donors have pledged financial support to cover the cost of Phase 2. Cannot be mitigated as the Bank will be the first among the co-financiers to approve the project. Risk of incompatibility in procurement procedures among the 3 lenders. Other donors have accepted the use of WB procurement procedures. Delivery Quality The risk of electricity trade being interrupted between the countries concerned; No enforcement of regional rules. Ghana & BF have ratified the ECOWAS Energy Protocol and are part of the different technical agreements on technical and commercial rules market operation. The WAPP secretariat and ERERA will watch over the correct functioning of the system and will arbitrate, if necessary, 56

69 M-L between the utilities. Provisions for coordinated maintenance will be included in the contracts between the two utilities. Overall Risk Rating at Preparation H Legend: L - Low; M-L - Medium, driven by likelihood M-I - Medium, driven by impact H - High Overall Risk Rating During Implementation M-I Comments 57

70 Annex 5. Implementation Support Plan The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program Strategy and approach for Implementation Support 1. The strategy for implementation support (IS) takes account of the international nature of the project, with two different implementing agencies located in two different countries. It aims at making implementation support to the client rapid and well-targeted. It will inter alia, focus on implementation of the risk mitigation measures defined in the ORAF. Higher than average resources will have to be committed by the Bank to supervision activities, given the dispersion of project entities and the joint implementation arrangement. 2. Procurement. In addition to the prior review supervision which will be carried out as and when required, one formal annual supervision will be undertaken to carry out post-reviews of procurement actions. The procurement post-reviews and technical reviews will cover at least 20 percent of contracts subject to post-review. 3. Financial management. Based on the risk rating of the project and the current FM arrangement, it is expected that there will be onsite visits once a year to ascertain adequacy of systems and supplemented by desk reviews of IFR and audit reports. The FM supervision mission s will ensure that strong financial management systems are maintained for the project throughout its tenure. In adopting a risk based approach to FM supervision, the key areas of focus will include assessing the accuracy and reasonableness of budgets, their predictability and budget execution, compliance with payment and fund disbursement arrangements and the ability of the systems to generate reliable financial reports. Implementation Support Plan 4. The majority of the task team members will be based in the country offices in the West African region to ensure timely, efficient and effective implementation support to the client. Task team leadership will also be located in the country office. Formal supervision and field visits will be carried out semi-annually. Detailed inputs from the Bank team are outlined below: Technical inputs. The project does not pose any significant or unusual technical challenges. However, should it be necessary, specialized expertise in power pool operations will be obtained for supervision support to the bank team, from external consultants. Safeguards. Inputs from an environment specialist and a social specialist are required for the T-line works. Field visits will be required quarterly initially and then on a semiannual basis. The social and environmental specialists are both country office based. A senior energy specialist/ttl, based in the country office will provide day to day supervision of all operational aspects, as well as coordination with the clients, co financiers and among Bank team members. 58

71 The main focus of implementation support is summarized below. Time Period First twelve months Focus Resource estimate per year in staff-weeks Team leadership and coordination TTL 10 Technical reviews of procurement documents Power engineer 4 Procurement reviews Procurement Specialist(s) 6 FM supervision FM Specialist 3 Financial analysis of GRIDCo & Sonabel Financial Analyst 4 Environmental supervision, incl. Environmental Specialist(s) 4 mitigation measures in Kabore Natural Resources Management National Park specialist 3 Social safeguards, especially RAP implementation Social scientist 4 Partner Role Close coordination with AFD/EIB Close coordination with AFD/EIB Close coordination with AFD/EIB Next 36 months Task leadership TTL Financial analysis of power sector in Ghana & Burkina Faso Monitoring & Evaluation Engineering issues, incl. system synchronization Procurement/contract management Financial management - Disbursements, accounting and reporting Environment monitoring. Resettlement supervision Financial Analyst M & E Specialist Power engineer Procurement Specialist(s) FM Specialist Environmental Specialist(s) Social scientist Close coordination with AFD/EIB 59

72 Staff skill mix required is summarized below. Skills Needed Number of Trips Comments annually Power Engineer &/or TTL NA Country Office based Financial Analyst 2 Country Office/HQ based Procurement Specialist NA Country Office based Environment Specialist NA Country Office based Financial Management Specialist NA Country Office based Social Scientist NA Country office based M & E Specialist NA Country Office/HQ based Partners Name Institution/Country Role TBD AFD Cofinancier TBD EIB Cofinancier TBD VRA Bulk power supplier TBD Ministry of Environment Support to National Kaboré Park and Sustainable Development TBD ERERA Regional regulator TBD WAPP Secretariat Coordination and facilitation 60

73 Annex 6. Economic and Financial Analysis The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program A. Economic Analysis 1. This annex provides details regarding the economic and technical assumptions used in determining the economic internal rate of return on the transmission interconnection between Ghana and Burkina Faso. The main benefit of the proposed interconnection would be to enable electricity trade between Ghana and Burkina Faso. This economic analysis attempts to assess the economic benefit that can be expected from replacing costly Heavy Fuel Oil (HFO) -based thermal generation in Burkina Faso with gas-fired generation from Ghana. 2. The economic justification for the proposed interconnection line was assessed by the Inter-Zonal Transmission Hub project feasibility study 19. The study compared two least cost expansion plans over the time horizon. The two scenarios were derived using a wellestablished power system planning software which minimizes the present value of all system costs, including investment, fuel, operation and maintenance, as well as the cost of unserved energy. The commissioning dates for programmed WAPP transmission projects were used as inputs for the modelling of the two scenarios. The study was not designed to assess the optimal dates of interconnection investments, but to demonstrate the least-cost option. 3. The two planning scenarios considered were: Reference scenario: this is the optimal expansion plan of the electrical system of the two countries (Ghana and Burkina Faso) without the interconnection line. This is the without project scenario; and Integrated Planning Scenario: this is the optimal expansion plan which includes the interconnection line and adjusts the power generation investments in both countries to derive the maximum benefit from the interconnection. 4. Based on the difference in net present value (NPV) between the two scenarios, the study concluded that the project had a positive NPV of US$26.3 million (with a 10 percent discount rate) and an economic rate of return (EIRR) of 12.2 percent with the base case assumptions. The difference in costs between the two scenarios is primarily related to the difference in generation costs between Ghana and Burkina Faso. Incremental generation in Ghana would be based on gas-fired combined cycle plants (CCGT) and in Burkina Faso it would be based on slow-speed diesel generators running on heavy fuel oil (HFO). Sensitivity analyses carried out for variations of the most significant cost parameters of the study demonstrated that the economics of the interconnection project was robust. 5. As a complement to the Inter-Zonal study, an alternative economic analysis has been prepared by the task team to assess the economics of the proposed transmission line. The analysis attempts to capture the direct impact of the transmission line, the substitution of highcost power generated in Burkina Faso by lower-cost imports from Ghana. Contrary to the Inter- Zonal study, the present analysis does not assume that generation investments would be optimized at a regional level. This methodological simplification tends to reduce the expected kv Bolgatanga-Ouagadougou Interconnection Project Update of Feasibility Study, Volume 3: Economic and Financial Study, December 2010, by Studi International, Africon and STEG International Services. 61

74 economic benefits of the interconnection line, but has some practical justifications: in real life, SONABEL is unlikely to consider the interconnection as a supply of firm power and will probably wish to maintain some reserve thermal generation capacity of its own to provide backup in the event of interruptions in power deliveries from Ghana. 6. The team s analysis also uses different assumptions for some key planning parameters. In particular: Imports from Côte d Ivoire: It is assumed that the interconnection between Côte d Ivoire and Burkina Faso would function at full capacity throughout the period and that imports from Côte d Ivoire would be prioritized over imports from Ghana because of lower prices. This would result in a low load factor for the Ghana-Burkina Faso transmission line. However, given the frequent supply disruptions observed on the Ivorian interconnection, and the looming supplybalance gap in Côte d Ivoire, this assumption is not realistic. Also, at a regional level, incremental generation costs appear lower in Ghana than in Côte d Ivoire due to the availability of natural gas. Timing of new transmission investments: The Inter-zonal study assumes that the Ghana Burkina Faso interconnection would be commissioned in 2012 without the reinforcements in Northern Ghana. This would limit the transit capacity to 20MW. The planned grid reinforcements in Ghana would boost the transfer capacity of the interconnection to 100MW by However, in the team s analysis, it is assumed that the Ghana Burkina Faso interconnection would be commissioned in The transit capacity would also be limited to 20 MW initially, but would be increased to 60MW by network reinforcements in Ghana in 2015, and to 100MW in 2017 thanks to additional transmission reinforcements within Ghana (commissioning of 330KV line Kumasi- Kintampo). The load factor for the line after the reinforcements is assumed to remain at 75 percent. Oil prices: The Inter-Zonal study baseline scenario assumes oil at US$60 per barrel in its central scenario, against US$90 in the team s analysis. The effect of this is to strongly increase the difference in generation costs between Burkina Faso and Ghana, thereby increasing the economic benefits from electricity trade between the two countries. The assumptions regarding the relationship between HFO prices and crude oil prices, and the estimate for the logistical and transportation costs of bringing the HFO to Burkina Faso are derived from the inter-zonal study. 7. Other technical parameters in the economic model are derived from the inter-zonal study, or from VRA s technical and financial forecasting model. These assumptions include inter alia: the incremental transmission loss rate on the interconnection, gas fired generation costs in Ghana and HFO generation costs in Burkina Faso. Since the reinforcements in the Ghanaian network are needed with or without the interconnection line, albeit at a later date, this analysis arbitrarily attributes 50 percent of the estimated costs of future reinforcements to the interconnection project. Avoided generation costs in Burkina Faso 8. Domestic power generation in Burkina Faso is currently a mix of hydro (in small quantities), Diesel and HFO. All recent additions of generation capacity in Burkina Faso have been engines running on HFO which remains the least cost option for SONABEL. Burkina Faso is a landlocked country. As a result, transportation and imports are significant in the total costs of fuel delivered to SONABEL. 62

75 Costs of HFO delivered to SONABEL in Ouagadougou Table 16: Costs of HFO delivered to SONABEL source: inter-zonal study Crude oil price (US$/bbl) CIF Price at coastal depots (US$/ton) CIF Price at coastal depots (FCFA/ton) 265, , , ,076 Coastal depots handling (FCFA/tonne) 15,654 15,654 15,654 15,654 Transportation and transit (FCFA/ton) 57,324 58,324 58,696 58,706 Delivery fees to SONABEL (FCFA/ton) 14,617 14,617 14,617 14,617 Economic cost to SONABEL (US$/ton) Very conservatively, this analysis assumes that SONABEL would not reduce its generation investments as a result of the interconnection. Only the reduction in fuel costs and variable O&M is considered as a project benefit. Based on oil prices at US$90/barrel, and with a specific consumption of 222 grams of HFO per kwh, the avoided cost of generation would be US$18.5cent/kWh. Cost of generation with HFO in Burkina Faso HFO price 787 US$ / ton Specific consumption 222 g/kwh Fuel cost 17.5 USc/kWh Lubricants, variable O&M 1.0 USc/kWh Total variable costs 18.5 USc/kWh Incremental generation costs in Ghana 10. The generation mix in Ghana is approximately 50 percent hydro and 50 percent thermal. A significant hydro investment (Bui, 400MW) is ongoing. All other major recent or planned additions of capacity are gas-fired plant. Currently, natural gas for thermal generation is imported from Nigeria through the WAGP. In addition to the WAGP supply, Ghana possesses significant domestic gas reserves which should start to be exploited within a 3 to 4 year time frame. With current WAGP gas prices, combined cycle g as turbines are the least cost option for power generation. Incremental generation costs (including Capex) are estimated on this basis. It seems prudent to assume that current WAGP gas prices reflect more adequately the economic value of natural gas in Ghana. On this basis, the total economic cost of incremental generation in Ghana is estimated at US$7.6 cents per kwh. 63

76 Table 17: Cost of Combined Cycle Generation in Ghana Cost of Combined Cycle Generation in Ghana Source Unit Heat Rate 7,308 Btu/kWh VRA Current WAGP prices Gas price 6.5 US$/MMBTU Gas costs per kwh 4.8 USc/kWh Investments costs 1,200 US$/kW Interzonal study Annual O&M 2.5 percent percent of investment costs Interzonal study Discount rate 10 percent WB Plant life 15 Years WB Levelized capital costs US$/kW/year Annual O&M 30.0 US$/kW/year load factor 75 percent WB Annual generation 6,570 kwh/kw/year Capital costs per kwh 2.40 USc/kWh O&M costs per kwh 0.46 USc/kWh Gas costs per kwh 4.75 USc/kWh Total costs per kwh 7.6 USc/kWh Technical parameters of the transmission line 11. Based on the Inter-Zonal study, it is assumed that exports from Ghana to Burkina Faso would increase transmission losses by 5 percent of the energy transmitted (3 percent on the Ghanaian network, 2 percent on the interconnection). Initially, the T-line transit capacity would be limited at 20MW subsequently increased in two phases to 60MW and 100MW with reinforcements of the Ghanaian network. In the first stage, the line load factor would be 90 percent (SONABEL would absorb as much cheap energy as possible), and diminish to 75 percent of the increased transit capacity afterwards (with the assumption that not all the line transit capacity would be needed off-peak). Investment costs 12. Investment costs for the interconnection line are derived from estimated project costs plus supervision costs. With regard to the subsequent reinforcements of the Ghanaian network, they appear to be justified irrespective of the construction of the interconnection with Burkina Faso. Since these investments could be realized earlier in time because of the interconnection, we have attributed 50 percent of their cost to the interconnection project. Main results 13. Based on the above assumptions, the economic justification of the line is very strong. In the base case assumption, the project EIRR is at 32.6 percent which is extremely high. This would translate into a NPV of US$ 284 million. The transmission line would remain economically justified even with more pessimistic assumptions with regard to project costs, average line load factor, or oil prices. In a pessimistic scenario combining lower oil prices (US$75 per bbl), increased project costs (by 30 percent), and an interconnection load factor reduced from 75 percent to 50 percent, the EIRR is still an acceptable 13.8 percent and the NPV US$48 million 64

77 14. Given the robustness of the economic justification under most relevant parameters, the most relevant issue for the economic analysis is to determine the optimal timing for the construction of the line. The question of the optimal timing is especially significant for this project, because the interconnection transit capacity will remain limited initially at 20 MW. Postponing the construction of the interconnection to coincide with the reinforcements in Northern Ghana would have the advantage of capturing the full economic benefits of the interconnection in its first year of operation. 15. However, even in a scenario assuming no reinforcements in Northern Ghana, the interconnection EIRR would be above 15 percent. This result is counterintuitive, given that with a transit capacity capped at 20MW, the cost of the line would be above US$4,000 per kw. However, given the massive cost difference between gas-fired and HFO based generation, the economic benefits derived from reduced generation costs would be above US$15 million annually from the interconnection first year of operation and would be sufficient to justify the investment. 65

78 Table 18: Project Economic Analysis Project Economic Analysis Base case Technical parameters Line transit capacity MW Average load factor % 90% 75% 75% 75% 75% 75% 75% 75% 75% 75% Additional Energy delivered to Sonabel GWh Incremental transmission losses % 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Additional generation required in Ghana GWh Project costs Interconnection % 50% reinforcements % 50% reinforcements % 50% Interconnection MUSD (43.6) (43.6) - Investments - reinforcements 1 MUSD (14.1) (14.1) Investments - reinforcements 2 MUSD - - (13.0) (13.0) Total transmission investments MUSD (43.6) (57.8) (14.1) (13.0) (13.0) Impact of project on operating costs Avoided cost of Generation - Burkina Usc/kWh Incremental Cost of Generation - Ghana Usc/kWh Avoided cost of Generation - Burkina MUSD Incremental Cost of Generation - Ghana MUSD (12.6) (31.6) (31.6) (52.6) (52.6) (52.6) (52.6) (52.6) (52.6) (52.6) Incremental O&M T line (1.5% invest) MUSD (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) Net Savings on operating costs MUSD Net annual benefits / costs MUSD (43.6) (57.8) Discount rate 10.0% NPV MUSD $284 EIRR 32.6% Assumptions Reinforcements 1 Yes=1, No=0 1 Reinforcements 2 Yes=1, No=0 1 Project costs Cost MUSD Supervis. Engineer. Cost overr. Total MUSD date capacity MW load factor % allocated to project Interconnection % 0.0% % 100% Reinforcements % 0.0% % 50% Reinforcements % 0.0% % 50% 66

79 Table 18: Project Economic Analysis (continued) Project Economic Analysis No reinforcement scenario Technical parameters Line transit capacity MW Average load factor % 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% Additional Energy delivered to Sonabel GWh Incremental transmission losses % 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Additional generation required in Ghana GWh Project costs Interconnection % 50% reinforcements % 50% reinforcements % 50% Interconnection MUSD (43.6) (43.6) - Investments - reinforcements 1 MUSD Investments - reinforcements 2 MUSD Total transmission investments MUSD (43.6) (43.6) Impact of project on operating costs Avoided cost of Generation - Burkina Usc/kWh Incremental Cost of Generation - Ghana Usc/kWh Avoided cost of Generation - Burkina MUSD Incremental Cost of Generation - Ghana MUSD (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) (12.6) Incremental O&M T line (1.5% invest) MUSD (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) Net Savings on operating costs MUSD Net annual benefits / costs MUSD (43.6) (43.6) Discount rate 10.0% NPV MUSD $31 EIRR 15.2% 67

80 Table 18: Project Economic Analysis (continued) Project Economic Analysis Low case scenario Technical parameters Line transit capacity MW Average load factor % 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% Additional Energy delivered to Sonabel GWh Incremental transmission losses % 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Additional generation required in Ghana GWh Project costs Interconnection % 50% reinforcements % 50% reinforcements % 50% Interconnection MUSD (56.2) (56.2) - Investments - reinforcements 1 MUSD (18.2) (18.2) Investments - reinforcements 2 MUSD - - (16.8) (16.8) Total transmission investments MUSD (56.2) (74.4) (18.2) (16.8) (16.8) Impact of project on operating costs Avoided cost of Generation - Burkina Usc/kWh Incremental Cost of Generation - Ghana Usc/kWh Avoided cost of Generation - Burkina MUSD Incremental Cost of Generation - Ghana MUSD (7.0) (21.0) (21.0) (35.1) (35.1) (35.1) (35.1) (35.1) (35.1) (35.1) Incremental O&M T line (1.5% invest) MUSD (1.7) (1.7) (1.7) (1.7) (1.7) (1.7) (1.7) (1.7) (1.7) (1.7) Net Savings on operating costs MUSD Net annual benefits / costs MUSD (56.2) (74.4) (12.9) Discount rate 10.0% NPV MUSD $48 EIRR 13.8% Assumptions Reinforcements 1 Yes=1, No=0 1 Reinforcements 2 Yes=1, No=0 1 Project costs Cost MUSD Supervis. Engineer. Cost overr. Total MUSD date capacity MW load factor % allocated to project Interconnection % 30.0% % 100% Reinforcements % 30.0% % 50% Reinforcements % 30.0% % 50% 68

81 B. Financial Forecast GRIDCo, Ghana 16. As part of its power sector reform, and consistent with WAPP principles, Ghana decided in the first half of the last decade to unbundle transmission from power generation and to establish an independent transmission operator. This resulted in transmission activities being spun off from VRA and in the creation of GRIDCo in In operational terms, the unbundling was not an instantaneous process, and GRIDCo had to rely temporarily on VRA systems and personnel in several areas of operations, including financial management. However, as of December 31 st 2010, the separation process was almost entirely completed, and GRIDCo can now be analyzed as a fully autonomous entity from a legal, operational or financial perspectives. 17. At its creation, GRIDCo inherited VRA s transmission assets, and the related financial debt. Given the limited transmission investments over the last decade, this resulted in a low level of indebtedness (as measured by the ratio of net debt to assets). The level of the transmission tariffs, especially after the June 2010 tariff increase, provides GRIDCo with a cash-flow that is adequate to cover its debt service obligations. Also, GRIDCo operates in a regulated business with limited volatility. On the revenue side, GRIDCo s turnover is determined by the annual energy flows on the network which tend to grow year after year (except in case of major episodes of power supply disruption), and by the level of the transmission service charge (TSC). Current operating costs tend to be stable and predictable, and contrary to the generation business, are not significantly affected by oil prices. The financial forecast for the period , (Tables 5 and 6 below) confirms that, as long as the Ghanaian electricity regulatory agency (PURC) continues to adjust the TSC regularly to reflect variation in local costs and the foreign exchange rate, (GRIDCo s debt is largely denominated in foreign currency), the transmission utility should continue to achieve a comfortable level of operating profitability. 18. In order to catch up with the lack of transmission investments in the last decade, GRIDCo has prepared an investment plan that is very large in relation to its existing asset base. The initial five year investment plan prepared for the period totaled US$770 million (compared with a net accounting value of GRIDCo s fixed assets below US$350 million at the end of 2010). For some of the planned investments, GRIDCo has already identified or secured sources of long term financing. The utility intends to fund other smaller investments with its own cash-flow or with commercial loans of relatively short maturity (typically around five to seven years). This recourse to medium term commercial financing needs should however remain limited. Going forward, GRIDCo will need to follow a funding strategy that is adapted to the capital-intensive nature of the transmission business. In particular, long-lived fixed assets should be funded with long term resources. 19. GRIDCo has acquired full financial autonomy only very recently, the absence at this stage of a well-defined long term funding strategy is understandable. Nevertheless, as GRIDCo is about to embark on an ambitious investment program, the issue needs to be addressed rapidly. The financing plan associated with the corporate investment plan remains indicative at this stage in view of the technical and practical constraints that would make it difficult to supervise the implementation of several major investment projects in parallel, GRIDCo has therefore spread out the implementation of its investment program over a longer period. 69

82 20. The 6-year financial forecast for GRIDCo ( ) is based on the implementation of an investment plan of US$730 mn over 6 years, which is ambitious compared to transmission investments made over the last decade. On this basis, it appears that GRIDCo would be able to continue complying with the agreed covenant related to debt service coverage (DSCR of no less than 1.3) throughout the forecasting period. However, there would be no scope for increasing further the level of borrowing for investments without risking breaching the debt service covenant. 21. The Ghanaian portion of the interconnection between Ghana and Burkina Faso will have a limited impact on GRIDCo s overall financial viability. Its estimated cost of US$27million would represent less than 4 percent of the 6-year investment program. Still, as for the rest of GRIDCo s investment program, the interconnection should be financed with long term resources. There is therefore a good case for supporting the Ghana-Burkina Faso interconnection with public funds, with on-lending terms that would be semi-commercial (interest rate above the risk-free rate but with low risk premium compared with commercial loans, and with principal repayments spread over 15 years or more). SONABEL, Burkina Faso 22. SONABEL is the integrated State-owned utility of Burkina Faso. Domestic power generation is overwhelmingly based on oil (Diesel and increasingly HFO). As a result of high generation costs, Burkina Faso s electricity tariffs are among the highest in the sub-region, in spite of a significant level of operating subsidy by the GoBF. The subsidy takes the form of lower prices for HFO and Diesel, within an annual maximum amount of subsidy of FCFA 21.5 billion (about US$43 million), compared with electricity sales of FCFA88 billion (about US$176 million in 2010). 23. The GoBF has demonstrated a consistent commitment to preserving the financial viability of its power utility. This commitment is reflected in the high level of operating subsidy and past decisions to adjust electricity tariffs in response to higher oil prices. In spite of the preponderance of oil-based generation, SONABEL stood apart from other utilities in the subregion as having maintained positive operating and net incomes year after year over the last decade. As a result, SONABEL has been able to maintain a healthy balance sheet. SONABEL s financial debt is for the most part long term (above five years). While the total debt level is relatively high (Debt to Equity ratio of 1.7 in 2010), it remains acceptable for an expanding power utility. The bulk of SONABEL s investments are financed by donors (with direct loans or through on-lending by the GoBF). 24. Contrary to many other utilities in the region which have experienced frequent episodes of illiquidity, SONABEL has been able to maintain a positive cash balance and to stay current on its financial obligations to suppliers and lenders. The company has also been able to achieve a good level of commercial performance in relation to its peers. SONABEL s total distribution losses (technical and non technical) are below 15 percent against a typical level of 20 percent or more in the sub-region. 25. In order to be able to expand access to electricity, SONABEL is faced with limited options given the cost of domestic generation. For this reason, developing interconnection with neighboring countries in order to import cheaper bulk supply electricity is a strategic priority for Burkina Faso. In 2010, the existing interconnection with Côte d Ivoire helped reduce the cost of power, but has since experienced disruptions following the political crisis in Côte d Ivoire. As a 70

83 result, SONABEL has had to put in place emergency thermal generation. Given the cap on the annual fuel subsidy, SONABEL posted a low profit of CFA Francs 698 million in 2010 and did not attain the required level of DSCR. A similar situation could occur in The evolution of SONABEL s financial situation (in particular accounts receivable which increased by 36percent in 2010) needs to be monitored and, if supply disruptions were to become prolonged, measures to increase the company s revenue would become necessary. Assuming a return to normalcy in 2012, the forecast indicates that SONABEL would achieve adequate financial performance indicators in 2012 and beyond. 26. Although SONABEL considers 2010 as an unusual year and expects a return to normalcy in 2011 (with a projected positive net result of CFA francs 4 billion net results compared to FCFA 698 million in 2010), the Bank will be looking to SONABEL to put in place measures to ensure that its financial situation does not further deteriorate. In that regard, measures initiated by SONABEL include a more aggressive collection policy, an increase in sales by a reduction of energy losses, and a reduction of other internal costs (e.g. DDO consumption). 27. Given the increase in demand for power in Burkina Faso, the looming supply demandgap in Côte d Ivoire and the need for increased reliability, the benefits for SONABEL of an additional interconnection with Ghana are clear. Unlike GRIDCo, the interconnection investment will have a major positive impact on SONABEL s finances. It would result in a significant improvement in operating profitability despite higher annual debt service. The increase in the transit capacity of the line thanks to reinforcements in the Ghanaian grid would benefit SONABEL greatly as they would permit increased imports from Ghana without the need for SONABEL to finance additional investments. 28. The projected financial statements for SONABEL which assume the commissioning of the interconnection in 2014 are given below. 71

84 Table 19: Main items of SONABEL s balance sheet CFA Francs Million percent of assets CFA Francs Million percent of assets CFA Francs Million percent of assets ST Assets 70, percent 67, percent 74, percent LT Assets 194, percent percent 238, percent Total Assets 265, percent 289, percent 313, percent Equity 112, percent 115, percent 120, percent ST Debt 29, percent 35, percent 33, percent LT Debt 123, percent 137, percent 159, percent Total Debt 152, percent 173, percent 193, percent Net results percent percent percent (in CFAF millions) Item Sales 85,498 93,711 EBITDA 16,300 19,630 Operating results 1,524 1,481 72

85 Table 20: SONABEL s Financial projections (in CFAF millions) Financial results with the GoBF subsidy terminated in Net results 698 3,961 4,601 3,327 6,288 2,258 5,089 6,248 9,805 15,088 19,027 Cashflow available for debt service 6,564 43,555 34,876 38,209 44,995 42,213 53,145 55,416 58,316 61,780 62,142 Debt payment 9,767 15,405 19,852 25,668 31,689 33,215 33,034 34,791 33,462 35,903 32,715 Debt service coverage ratio Outstanding debt 137, , , , , , , , , , ,185 Debt to equity ratio *Assumptions Ghana Burkina Faso line in service: 2014 Imports from Côte d Ivoire: 340 GWh in 2010, 340 GWh in 2011, 424 GWh in 2012, 530 GWh in 2013 and 636 GWh from MW rental to make up for the low imports from Côte d Ivoire in 2011 DDO/FO expenses: FCFA 49.5 billion in 2010, FCFA 66.5 billion in 2011, FCFA 53.6 billion in 2012, FCFA13.6 billion in 2013 and FCFA 8.4 billion in

86 Table 21: SONABEL s Balance sheet (CFAF millions) Fixed Assets 31/12/10 31/12/11 31/12/12 31/12/13 31/12/14 31/12/15 31/12/16 31/12/17 31/12/18 31/12/19 31/12/20 0 Apportioned charges 1, R&D, Software Fixed assets 2 - Land 1,524 1,577 1,631 1,686 1,743 1,800 1,859 1,918 1,979 2,042 2, Indus. Construction and buildings 43,802 46,106 48,240 47,039 46,043 45,047 43,559 42,075 40,604 39,252 37, Installations 134, , , , , , , , , , , Instal. and agencies 0 3,630 7,601 11,938 16,693 21,903 26,625 31,929 37,884 44,561 52, Material 54,863 72, ,340 96,303 87,278 78,553 69,014 61,043 53,744 48,377 42, Transportation material ,066 1,161 1,269 1,390 1,524 1,672 Capital assets 11 - Other capital assets 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 Current assets Assets Total Fixed Assets 238, , , , , , , , , , , Raw material 23,219 18,898 20,225 20,754 20,938 22,759 19,623 20,770 21,670 22,634 23,668 Accounts receivables 13 Créances clients 31,893 25,547 28,870 31,644 34,316 37,478 40,561 43,082 46,522 49,278 56, Suppliers 1,100 1,788 1,937 2,090 2,181 2,587 2,628 2,837 3,096 3,256 3, Other receivables 2,591 2,591 2,591 2,591 2,591 2,591 2,591 2,591 2,591 2,591 2,591 Total receivables 35,584 29,926 33,398 36,325 39,088 42,655 45,780 48,511 52,209 55,125 63,000 Total current assets 58,803 48,824 53,623 57,080 60,026 65,415 65,403 69,281 73,879 77,759 86,668 Cash and cas equivalents (assets) 21 Investment titles 0 42, , ,000 7, Values Notes 15,472 19,412 20,400 22,371 22,800 26,500 27,100 29,100 31,600 33,039 36,538 Total cash and cash equivalents 15,472 61,712 20,600 28,671 23,000 26,700 27,301 29,302 31,803 35,243 44,643 TOTAL ASSETS 313, , , , , , , , , , ,492 74

87 Table 21: SONABEL s Balance sheet (continued) Equity 31/12/10 31/12/11 31/12/12 31/12/13 31/12/14 31/12/15 31/12/16 31/12/17 31/12/18 31/12/19 31/12/20 23 Capital 46,000 46,000 46,000 46,000 46,000 46,000 46,000 46,000 46,000 46,000 46, Available reserves 3,450 3,519 3,915 4,375 4,708 5,337 5,562 6,071 6,696 7,677 9, Other reserves 18,067 18,318 19,744 21,401 22,599 24,862 25,675 27,507 29,756 33,286 38, Retained earnings Net results 698 3,961 4,601 3,327 6,288 2,258 5,089 6,248 9,805 15,088 19, Franchisor rights (Droit du concédant) 13,889 13,889 13,889 13,889 13,889 13,889 13,889 13,889 13,889 13,889 13, Investment subsidies, partnership, third party 37,989 41,849 45,546 58,679 63,060 67,936 71,734 76,803 82,523 89,023 96,374 Total capitaux propres 120, , , , , , , , , , ,192 LT Debt Liabilities 30 Borrowings 138, , , , , , , , , , , Other financial debt 5,770 4,557 4,557 4,557 4,557 4,557 4,557 4,557 4,557 4,557 4, Reserves for fixed assets renewal 0 2,913 3,104 3,271 3,417 3,544 3,656 3,754 3,840 3,914 3, Reserves for other risks and charges 15,203 16,983 18,974 21,078 23,314 25,742 28,314 30,963 33,693 36,511 39,419 Total Financial Debt 159, , , , , , , , , , ,141 ST Debt Advances 1, Supliers 20,272 28,300 30,669 33,086 34,527 40,950 41,601 44,917 49,011 51,543 56, Fiscal debt 2,136 3,794 4,374 4,102 5,429 4,138 5,445 6,138 7,752 9,975 11, Social debt Estimated liability Other debt 5,612 5,612 5,612 5,612 5,612 5,612 5,612 5,612 5,612 5,612 5,612 Total short term debt 33,358 38,332 41,303 43,472 46,264 51,420 53,405 57,441 63,176 67,960 75,159 Cash and cash equivalent - liability 40 Notes , ,024 17,850 16,063 11,688 4, Total cash equivalent - liability , ,024 17,850 16,063 11,688 4, TOTAL LIABILITY 313, , , , , , , , , , ,492 Net cash position 15,307 61,712 18,430 28,671 21,976 8,850 11,238 17,614 27,020 35,243 44,643 75

88 Table 22: SONABEL s Income Statement (CFAF millions) Income Statement Operational revenues 10% 11% 12% 9% 8% 8% 8% 8% 7% 6% 9% 1 Sales 86,745 96, , , , , , , , , ,129 3 Rental and maintenance 3,752 4,015 4,297 4,598 4,921 5,266 5,636 6,031 6,454 6,907 7,392 4 Other billed work 1,740 1,964 2,144 2,340 2,554 2,788 3,043 3,322 3,626 3,958 4,321 5 Penalties ,063 1,151 1,234 1,325 1,418 1,486 1,611 6 Other revenues Fixed production 8,133 8,792 9,598 10,477 11,437 12,486 13,630 14,880 16,244 17,734 19, Other diverse revenue ,077 Total operational revenues 101, , , , , , , , , , ,156 Operational expenses 11 Energy purchase 18,195 18,502 22,600 28,298 35,924 36,642 69,953 76,003 84,063 90, , Fuel /plants 33,143 31,466 31,328 30,375 25,441 37,494 8,384 8,551 8,722 8,897 9, Lubricants 1,529 1,283 1,078 1, , Parts 3,840 3,850 4,264 4,251 3,920 4, Internal consumption Network material 5,232 6,276 7,033 7,612 8,243 8,931 10,499 11,594 12,507 13,500 14, Fuel and lubricant vehicles Parts vehicles Water consumption Other consuption 1,164 1,083 1,123 1,163 1,205 1,249 1,294 1,340 1,388 1,438 1, Tranportation Maintenance and repairs 886 1,226 1,437 1,546 1,652 1,913 1,771 1,871 1,979 2,098 2, Insurance 539 1,152 1,411 1,558 1,737 2,004 2,219 2,348 2,486 2,639 2, Telecom and postal fees Bank fees ,080 1,841 2,045 2, Training cost Mission cost External services ,100 1,213 1,337 1,474 1,624 1,791 1,974 2, Taxes 1, ,054 1,132 1,226 1,315 1,411 1,511 1, Personnel expenses 11,427 11,957 12,389 12,837 13,300 13,780 14,276 14,790 15,321 15,872 16, Other expenses 1, Total operational expenses 82,253 82,062 88,364 94,841 98, , , , , , ,749 76

89 Table 22: SONABEL s Income Statement (continued) Income Statement Accrued operational expenses 32 On stocks On receivables 885 1,031 1,149 1,249 1,344 1,457 1,567 1,687 1,812 1,914 2, On leave Recoveries on accrued operational expenses 35 On stocks 1, On receivables ,031 1,149 1,249 1,344 1,457 1,567 1,687 1,812 1, On leave Total accrued operational expense > EBITDA 19,630 30,369 36,500 40,968 47,465 43,481 53,427 57,847 61,134 66,868 71,190 > EBIT 3,612 11,592 13,682 16,742 22,662 18,558 22,582 24,165 28,140 34,455 38,761 Financial activities 46 Financial revenues , Interest 3,128 5,903 9,109 11,810 13,940 15,076 15,182 15,153 14,208 13,221 12,179 Total financial activities -2,262-5,899-7,004-11,810-13,635-15,076-15,182-15,153-14,208-13,221-12,079 > EBT 1,350 5,693 6,678 4,932 9,027 3,482 7,400 9,012 13,933 21,234 26,682 Income Tax 651 1,732 2,076 1,605 2,740 1,224 2,311 2,765 4,128 6,147 7,656 >>>>>>>>>>>>>>> NET INCOME 698 3,961 4,601 3,327 6,288 2,258 5,089 6,248 9,805 15,088 19,027 77

90 Table 23: GRIDCo s Projected Operating Statements Energy Transmitted GWH 9,763 11,082 11,946 13,348 14,997 15,754 16,598 Usage & Transmission Losses GWH TOTAL ENERGY INJECTED GWH 10,151 11,579 12,479 13,909 15,627 16,417 17,251 Transmission and Wheeling Income MUSD Average revenue per unit Usc/kWh Other Revenue MUSD Cost of Transmission losses MUSD (6.7) (27.1) (30.2) (35.0) (46.1) (60.3) (78.5) Other Direct Transm. costs (Personnel, materials...) MUSD (32.4) (49.8) (50.2) (54.1) (56.5) (61.3) (65.9) Indirect administrative costs MUSD (5.6) (15.5) (14.8) (16.0) (16.7) (18.2) (19.6) Gross Operating Profit - EBITDA MUSD as a % of transmission income 61% 40% 45% 47% 48% 44% 40% Depreciation MUSD (18.5) (20.6) (20.2) (22.0) (24.0) (24.8) (25.8) Operating Profit - EBIT MUSD as a % of transmission income 43.8% 26.1% 33.1% 36.1% 37.9% 34.4% 30.7% Finance costs MUSD (4.4) (7.7) (26.3) (33.5) (36.7) (37.0) (31.3) Net Income MUSD as a % of transmission income 40% 21% 18% 19% 22% 20% 19% 78

91 Table 24: GRIDCo s Balance Sheet & Cash Flow Statement Financial Indicators Non Current Assets MUSD Stocks and Trade Receivables MUSD Cash MUSD Total Assets MUSD Non Current liabilities MUSD Current liabilities MUSD Total Liabilities MUSD Equity MUSD Net Cash Flow from Operating Activities MUSD Debt service Interests MUSD (2.8) (4.1) (22.0) (29.3) (32.8) (33.0) (30.2) Debt service principal MUSD (8.6) (9.5) (9.4) (28.4) (43.4) (44.1) (44.4) New Financial Debt MUSD Net Cash Flow From Financing activities MUSD Investments MUSD (59.9) (125.8) (120.6) (122.9) (119.3) (117.9) (124.2) Variation in net Cash position MUSD (1.3) (2.0) 6.3 Current ratio Debt/equity DSCR

92 Annex 7: Implementation Status of projects The First Phase of the Inter-Zonal Transmission Hub Project of the West Africa Power Pool (APL3) Program 1. In order to address regional energy challenges ECOWAS has formed and put in place the West African Power Pool (WAPP) a cooperative power pooling mechanism for integrating national power system operations into a unified regional electricity market with the expectation that it will, over the medium to long term, assure citizens of a stable and reliable electricity supply at affordable costs. ECOWAS vision: The West African Power Pool 2.ECOWAS Vision: The collective vision of ECOWAS Member States is to develop and put in place the West African Power Pool (WAPP) to achieve the objective enumerated above. To this end, they adopted an ECOWAS Energy Policy in 1982 and decided to establish a West African Power Pool (WAPP) in The long term scenario is for WAPP to become the principal vehicle to help meet the region s projected electricity requirement by harnessing electricity from: (a) several large capacity hydropower facilities (Kainji & Jebba, Akosombo, Manantali,etc.) sited on the region s major rivers (Niger, Volta, Senegal) which could produce relatively lowcost electricity compared to other alternatives; (b) the substantial but as yet untapped hydro resources of Guinea, some 6,000MW of which is potentially economic to develop and can generate around TWh per year of electricity at relatively low cost; and (c) an expansion of gas-fired power generation, leveraging the community s parallel track strategy to expand access to Nigeria s enormous natural gas reserves (3500 billion cubic meters of proven natural gas reserves) via the West Africa Gas Pipeline (WAGP) project. Free flow gas started in 2010 and full commercial delivery is expected mid 2011 with the commissioning of compressors in Nigeria. As a flagship infrastructure project of the New Partnership for African Development (NEPAD) 20, the WAPP directly contributes to the broader ECOWAS agenda to establish an open, unified, regional economic space in West Africa. 3.The vision for WAPP is also embodied in the ECOWAS Energy Protocol (EEP) which develops a legal framework aimed at promoting long term cooperation between the ECOWAS Member States in the Energy field. According to its Article 2, this cooperation is based on the mutual advantages to increase investment in the energy sector and to develop energy commerce in the West African region. Article 3 states the general objective of developing an open and competitive energy market. 4. The basic objectives of the EEP are to: (i) ensure free trade of energy, equipments and products related to energy between Member States; (ii) define non-discriminatory rules for trade and dispute resolution; (iii) attract and protect private investments and; and (iv) ensure the protection of environment and development of energy efficiency. Specific provisions related to competition (article 6), to wheeling (article 7) and to resource access (article 18) constitute a basis for building the regional electricity market framework. 20 NEPAD was established to implement an integrated socio-economic development framework for Africa, and was formally adopted at the 37 th Summit of the Organisation for African Unity in July

93 5. Important decisions, taken by the ECOWAS highest decision making body demonstrate ownership of the WAPP initiative by its Member States. Key milestones reached to date include: 2001: Adoption of a Mechanism for Financing the WAPP ; : Adoption of the ECOWAS Energy Protocol or EEP to set up a unified,regional (legal and regulatory) umbrella for energy sector developments in the region; 2005: Adoption of a regional investment plan based on the ECOWAS RevisedMaster Plan for the Generation and Transmission of Electrical Power 22 ; 2006: Adoption of the Articles of Agreement Relating to the establishment and ffunctioning of the West African Power Pool with the status of a specialized Institution of ECOWAS 23 ; and 2008: Establishment of the ECOWAS Regional Electricity Regulatory Authority (ERERA) 24 with jurisdiction over the territory of all Member states in their relation in the area of cross border exchanges of electricity through the power transmission network. 6. Strong ownership by involved utilities is shown by their signing of the WAPP Articles of Agreement which institute a management structure for the West African Power Pool (WAPP), its organization and functions. The WAPP Secretariat was formally inaugurated in 2006 and is operational. It includes 20 (public and private) electric power utilities to date. The entity is based in Cotonou, Benin and includes a WAPP Information and Coordination Center. 7. WAPP members recognize that the WAPP Organization exists and operates for the benefit of the bulk electric transmission system and to ensure the reliability of the entire region s power supply and commit to.participate in projects, and comply with regulatory requirements. 8. However, in addition to the development of a specific regional institutional framework and policy harmonization between member states, the implementation of the vision requires the development of a clear roadmap for the design and implementation of the power market mechanisms and the power generation and transmission facilities. It appears that infrastructure and market design/implementation were relatively slow to materialize during the last 10 years because of lack of capacity at the institutional level on one hand and urgent needs to first address national power deficit on the other. 9. Progress has been made on the establishment of a transparent and harmonized policy, regulatory and commercial framework for cross border electricity trade between ECOWAS member States. In addition to the coming into force of the Energy Protocol in 2006 and the establishment of the Regional Electricity Regulatory Authority, some progress has been made on key issues related to the establishment of the market as follows: 21 ECOWAS/ CEDEAO (2001). 25th Session of the Authority of Heads of State and Government. Decisions A/Dec.8/12/01 Relating to the Establishment of a Mechanism of the West African Power Pool (WAPP). Dakar, December ECOWAS/ CEDEAO (2005). 28th Session of the Authority of Heads of State and Government. Decision A/Dec.7/01/05 Relating to the ECOWAS Revised Master Plan for the Generation and Transmission of Electrical Energy. Accra, 19 January ECOWAS/ CEDEAO (2006). 29th Session of the Authority of Heads of State and Government. Decision A/Dec. 18/01/06 Adopting the Articles of Agreement Relating to the Establishment and functioning of the West African Power Pool, Niamey, 12 January 2006; and Decision A/Dec.20/01/06 Granting the Status of a Specialized Institution of ECOWAS to the WAPP Organization. Niamey, 12 January ECOWAS/ CEDEAO (2008). 33rd Session of the Authority of Heads of State and Government. Supplementary Act A/SA.2/1/08 establishing the ECOWAS Regional Electricity Regulatory Authority. Ouagadougou, 18 January

94 A methodology to calculate the tariffs for electric transmission service in an ECOWAS regional electricity market has been proposed but yet to be adopted and implemented because of an important pre-requisite which the definition of the market structure and rules. Utilities through WAPP Executive Board adopted an Operations Manual called the Operational Security and Mitigation Plan (OSMP) in This Manual sets the rules, principles, requirements, standards, criteria and procedures to be observed for the smooth operation of the pool. However, a gap analysis shows additional equipment and capacity building are needed for its implementation. IDA financing is being considered for that. 10. Remaining gaps include the definition and adoption of market rules and regulations. This will require commitment to a road map to harmonize policies and practices as well as transition arrangements. WAPP Secretariat will need assistance to conduct and coordinate the process with the utilities and the Member States. 11. WAPP is working on a road map to enable a transition from the present technical and commercial arrangements to a regional electricity market and competitive wholesale market including time frame and resources. Recruitment of a consultant is ongoing to support key stakeholders (authorities, operators and other participants) to: Analyze and recommend an appropriate market model for the establishment of the WAPP Regional Electricity Market; Develop electricity market rules that to address issues that include among others, bidding process, physical spot market, financial market, clearing and settlement, and power balance mechanisms, including roles, responsibilities and interfaces; Assist in the establishment of comprehensive trading rules and a mechanism for market operations; Develop a systematic and detailed integrated action plan for establishing regional power trade and physical and institutional infrastructure projects for implementation; Review and advice on consolidation of existing agreements and recommendations on mitigation strategies for existing PPAs and interface with the WAPP Operation Manual; Develop guidelines for establishing the Wholesale Electricity Market (WEM), relevant Transmission Tariff and transition to a competitive energy market. 12. In total, WAPP members need to agree as soon as possible on the phases of market development and on how to adopt and implement the associated technical and commercial rules. Progress in implementing the West African Power Pool Infrastructure program 13. Progress has also been made on the Regional Infrastructure Development as both power supply capacities and interconnection Transmission lines are needed. The regional Master Plan was adopted in It was revised in 2004 with an implementation strategy. However, low implementation on the generation aspects combined with an exorbitant energy 82

95 crises led to the adoption of the WAPP Emergency Power Supply Security Plan (EPSSP) in 2008 by ECOWAS Heads of State and Government through Supplementary Act Implementation of new transmission line projects was also constrained due to among others, limited human and institutional capacities both at the regional and national level. A regional IDA TA Grant is under preparation to support the WAPP Secretariat to accelerate the project preparation and implementation processes, as utilities are facing short term challenges which limit dedication of their staff to day to day regional project issues. 15. A Consultant is updating the 2004 Master Plan and the final report is expected by mid This will build on the present implementation strategy of pursuing in parallel the following five distinct but mutually-reinforcing sub- programs (see Map below): Coastal Transmission Backbone Subprogram (Côte d Ivoire, Ghana, Benin/Togo, Nigeria); Inter-zonal Transmission Hub Sub-program (Burkina Faso, OMVS via Mali, Mali via Côte d Ivoire, LSG via Côte d Ivoire); North-core Transmission Sub-program (Nigeria, Niger, Burkina Faso, Benin); OMVG/OMVS Power System Development Subprogram (The Gambia, Guinea, Guinea Bissau, Mali, Senegal); Côte d Ivoire-Liberia-Sierra Leone-Guinea Power System Redevelopment Subprogram (Côte d Ivoire, Liberia, Sierra Leone, Guinea). 16. With regards to power generation, the 60 MW Felou Hydropower Facility is currently under construction within the framework of OMVS and expected to be commissioned end In Ghana, the construction of the 400 MW Bui Hydropower by the Government of Ghana is well-advanced with commissioning envisaged by end In complement, the WAPP EPSSP 25 ECOWAS/ CEDEAO (2008). 33rd Session of the Authority of Heads of State and Government. Supplementary Act A/SA.4/1/08 adopting the Emergency Power Supply Security Plan. Ouagadougou, 18 January