PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Urgent Electricity Rehabilitation Project Region AFRICA Sector Power (100%) Project ID P Borrower(s) REPUBLIC OF COTE D IVOIRE Implementing Agency SOPIE, SOGEPE, CIE, Ministry of Mine and Energy Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared April 2, 2009 Date of Appraisal March 16, 2009 Authorization Date of Board Approval June 9, Country and Sector Background Report No.: AB Côte d Ivoire, with a population of 18.5 million, is the largest economy in the West African Economic and Monetary Union (UEMOA) and is critical to the overall development of the sub-region. Côte d Ivoire has an important economic influence over the rest of the region, given its size (accounting for 40 percent of GDP in the UEMOA), its relatively high income per capita (US$960 in 2007 as per the Bank s Atlas methodology), and its role in transit trade for landlocked neighboring countries. It has a relatively diversified agricultural economy as well as significant manufacturing and services sectors. However, the civil war in and subsequent years of stalemate in the peace process have taken a heavy toll on the economy and social outcomes, as reflected by data from a recent PRSP household survey which shows that while only one in ten Ivorians was poor in 1984, this had risen to one in two in Despite negative real GDP growth between 2000 and 2006, electricity demand continued to increase, albeit slowly. In the last two years, electricity demand growth has accelerated to about 7% annually, and even faster in the greater Abidjan urban area, which accounts for 20% of total national electricity consumption. Very little investment in the power system took place during the past eight years and even maintenance expenditures were severely cut back. As a consequence, Côte d Ivoire has been obliged to cut its electricity exports to its neighbors since its own needs have grown to the point where it has very little surplus generation capacity.. In addition, the energy losses of the distribution utility, Compagnie Ivoirienne d Electricité (CIE), have increased sharply to over 24% in 2008, while the quality of service has declined considerably from an average outage duration of 13 hours in 2000 to 36 hours in Numerous new urban areas have been settled on the periphery of Abidjan and these are frequently served by unofficial lines and illegal household connections. The transmission and distribution network is overloaded and is inadequate to serve existing demand. Further demand growth as the economy picks up will severely strain the power system. 4.5% GDP growth is forecast for 2009, rising to 6% in 2010, which would translate into electricity demand growth of over 7%. Hence, in the absence of rapid corrective action, there is a real risk that the power system will become an obstacle to economic recovery.

2 Sector issues 1.3 Lack of generation capacity in the short term to meet growing demand: The current power supply/demand balance is very tight and additional generation capacity is urgently needed, both for the domestic market as well as exports to the neighboring countries. The Ciprel III expansion is ongoing and will add about 110MW capacity in late early Adding a combined cycle to the existing Azito plant is also under consideration, but is not likely before Converting the Ciprel plants to combined cycle would also be economically justified in the medium term. For the longer term, GoCI is also keen to develop the Soubré hydroelectric project on the Sassandra river, which would deliver 270 MW and 1200 Gwh/year, but the earliest date for its commissioning would be Lack of system expansion planning: The chaos caused by years of civil strife meant that investment planning became virtually impossible. A return to more normal conditions since 2007 inevitably led to pressure to adopt ad hoc solutions to pressing supply problems in the sector, as can be seen by the decision to proceed with more single cycle gas turbines rather than combined cycle plants. In addition, political imperatives have led to scarce sectoral resources being diverted to rural electrification, rather than being used for addressing transmission bottlenecks or distribution upgrades in urban areas. However, now that stability has returned, the planning vacuum needs to be rapidly filled and investment decisions taken after more thorough assessment and deliberation of choices and costs. In its letter of sector development policy, GoCI has affirmed that future IPPs will be selected by means of a transparent, competitive process. 1.5 Interconnections with neighboring countries: Côte d Ivoire is geographically positioned to be the main hub of electricity trading in the sub-region. It is already interconnected to Ghana and Burkina and was a supplier to Togo and Benin (via Ghana) until its recent supply shortages forced it to cut back on exports. An interconnection with Mali is proceeding and is likely to be completed in 2011, with financial aid from India. Studies are underway to interconnect eastwards with Guinea, Liberia and Sierra Leone as part of the West Africa Power Pool (WAPP). These projects have important implications for the strengthening of Côte d Ivoire s transmission system as well as the need to expand gas-fired generation. The Bank is fully supportive of these regional interconnections under the auspices of the WAPP, and it is evident that the Bank needs to assist in restoring the Ivorian power sector to be able to play the central role it has in the power pool. 1.6 Uncertainty over gas supply. Côte d Ivoire s currently proven gas reserves of about 1 trillion cubic feet (tcf) are insufficient to meet the needs of the both the existing and new generation projects described in para 3 for their entire economic lives. Gas deliveries to the power sector in 2008 were about 115 million cubic feet per day (MMCFD). Gas production capacity is now a bottleneck and is currently being expanded in order to deliver greater volumes ashore by end-2009, when Ciprel III will enter service. Exploration activities are underway to enlarge the reserve base and there are indications that prospects for proving up further reserves are good.

3 1.7 Investment and maintenance backlog: As described above, the electricity sector is now facing the risk of major technical breakdowns resulting from years of neglect at a time of rising demand on the supply system. The sums required to restore the Ivorian power system to its former level exceed half a billion dollars. CIE estimates that a low-voltage network rehabilitation program specifically aimed at reducing energy losses by 1.5% annually over the three-year period would require an investment of CFAF 100 billion (US$ 200m). 1.8 Access expansion in peri-urban areas is a priority: There has been minimal investment in extending electricity service over the past few years, despite a rapid expansion of urban areas, so there is a major backlog of investment in distribution, both to connect new customers, regularize illegal connections and upgrade existing overloaded lines and substations. For low-income households the initial connection charges can often be a barrier to access, as these often amount to $ and have to be paid in full prior to receiving service. 1.9 Insolvent sector finances: Private management of distribution was one of the key elements facilitating the entry of IPPs to the sector, as their risks of non-payment were considerably diminished. However, fundamental financial flaws remained in the sector, because inadequate provision was made in the tariff structure for debt service and asset renewal. The affermage (leasing) contract with CIE does not require it to carry out investments, which remain the responsibility of GoCI, with the result that during the past decade the sector has been starved of investment resources The GoCI s limited financing capability during the conflict years and the frozen level of tariffs to consumers during six years ( ) meant that the sector was increasingly short of funds for major maintenance and asset renewals. New investments were virtually halted, with the exception of some rural electrification schemes. Since 2006, rising oil prices led to higher fuel costs to the power sector as a result of the uncapped indexation formula in the gas price. In 2008, gas costs alone amounted to 68% of total power sector revenues, an unsustainably high proportion. Consequently, the electricity sector is presently unable to cover its operating costs, meet its debt service or contribute to investments. Budgetary subsidies to the sector in 2008 were about CFAF 70 billion (US$ 140 million), considerably more than the country can afford. With Bank support, GoCI is undertaking a review of international practice in gas pricing and contracting with a view to renegotiating the current gas supply contracts to bring them into line with international best practice Dysfunctional institutional framework.: Major institutional changes were undertaken in the late 1990s, leading to the creation of a regulator, Autorité Nationale de Régulation du Secteur de l Electricité (ANARE) and two state bodies, Société de Gestion du Patrimoine du Secteur de l Electricité (SOGEPE) which is intended to be the asset holding entity responsible for major investments, and Société d Opération Ivoirienne d Electricité (SOPIE) which carries out planning and supervision of CIE s operations. These changes were introduced by decree and the 1985 Electricity Law has never been amended. This institutional arrangement has now proven to be unwieldy, costly and increasingly ill-adapted to the real needs of the sector. SOGEPE does not legally own the assets in the sector and thus cannot use its balance sheet for borrowing purposes. Demarcation of responsibility for investment versus maintenance remains problematic, while there are overlapping areas of responsibility between the regulator and

4 SOPIE. ANARE has a purely advisory role on tariff matters and the Ministry of Energy, while retaining most decision-making authority, lacks adequate skills to provide proper leadership to the electricity sector Government strategy and sector policies. Government s Letter of Sectoral Development Policy for Electricity (LSDP), contains a frank assessment of the problems and weaknesses of the sector. GoCI s goal is to provide good quality power supply to the country at least cost and without recourse to operating subsidies from the state. The LSDP affirms GoCI s commitment to (a) restore the sector to financial viability, (b) improve the sector s institutional and legal framework and (c) ensure that electricity supply is expanded and access to it increased significantly among the population. The proposed project will assist GoCI in pursuit of all three objectives. 2. Objectives 2.1. The project development objective is to help improve the availability, reliability, efficiency and financial viability of electricity supply in Côte d Ivoire Key output indicators for the hardware components of the project include a platform of operational and commercial performance targets that were agreed with CIE and SOPIE during appraisal, along with appropriate monitoring indicators These will include the following: Distribution extensions, rehabilitation and reinforcement: Outages and average outage duration in the project targeted areas (Abobo area, Abidjan North & South, Yopougon): Number of additional consumers connected Number of overloaded MV/LV substations Number of overloaded MV feeders Number of overloaded HV/MV transformers replaced Voltage improvement plan in the eastern region. Losses 3. Rationale for Bank Involvement 3.1. Following Côte d Ivoire s emergence from civil war and normalization of political and economic activity, there is a pressing need to restore infrastructure to an acceptable level. Restoration of satisfactory electricity supply is equally critical for the country s economic recovery, given that Côte d Ivoire has a fairly broad manufacturing and services sector, for whom reliable power supply is vital The Bank s return to the sector after a long hiatus should help to revive donor participation in the electricity sector, and would be a signal of considerable symbolic value to the government and the donor community. The last IDA electricity investment project was approved in 1995 and closed in 2004, after multiple extensions. Despite the scale of unmet needs in the

5 sector, the proposed project is necessarily modest in size and scope, given the macroeconomic imperative of concentrating the bulk of IDA assistance in the form of budget support to GoCI The proposed project would essentially serve to address some of the most urgent needs in electricity distribution, improve the efficiency of supply and help restore the sector s financial viability. It would also start the needed regulatory and institutional reforms of the sector that are currently obstructing greater donor involvement. Investment requirements for improving electricity supply are much greater than can be addressed by the proposed project, but it will accelerate preparation of new transmission projects, including those that are part of the West Africa Power Pool (WAPP) program of regional interconnections. If successful, there could be follow-on project with the participation of co-financiers, within months of Board approval of the proposed operation. 4. Description 4.1. The project consists of three main components and is estimated to cost about US$ 54 million (including PPF refinancing and physical and price contingencies, but excluding duties and taxes) A summary project cost breakdown by main components is provided in the following table with further details on the activities and costs for each sub-component given in Annex 4 and 5 of the PAD. Cost Project Component (million US $) Distribution network rehabilitation and expansion 44 Preparatory activities for future transmission network investments 4 Project oversight and institutional support 6 TOTAL 54 Component 1: Distribution Network Rehabilitation and Expansion (US$ 44 million) 4.3 This component includes rehabilitation and upgrading of medium and low voltage distribution equipment and facilities mainly in the greater Abidjan area, by: (i) expanding distribution substations and feeders to connect awaiting customers and those customers with unofficial connections; (ii) replacing existing run-down, overloaded and over-aged medium and low voltage equipment; (iii) replacing overloaded HV/MV transformers to improve security of supply; and (d) installing compensation devices in substations to comply with operating voltage standards and reduce losses. The specific sub-projects have already been selected by the operator (CIE) based primarily on their impact in terms of security of supply, potential for connecting new customers and reduction of losses. About 60,000 additional consumers are expected to be connected to the grid as a result of investments made under the project. To enhance SOPIE s project supervision capability, ten project vehicles will also be purchased under this component.

6 Component 2: Preparatory activities for the future transmission network investments (US$ 4 million) 4.4 The project will provide resources to finance the consulting expertise required to carry out feasibility and Environmental Impact Assessment studies as well as bidding documents for the projects needed to restructure and upgrade the HV network, as well as contribute to greater exchanges of electricity with neighboring countries via the WAPP. These studies will enable GoCI to fast track the second generation of transmission projects urgently needed to deal with the acceleration of electricity demand growth since the end of the civil conflict. Component 3: Project oversight and institutional support (US$ 6 million) 4.5 This component will provide the Government with a diverse range of technical assistance and training needed to: (i) implement and supervise the project, (ii) carry out legal, institutional and financial studies for the implementation of the policy reforms spelt out in the LSDP, (iii) upgrade SOPIE s system planning skills, (iv) build capacity in the three sector entities as well as MME to ensure smooth management succession in the medium-term, and (v) design programs for energy efficiency improvements such as demand side management and the dissemination of low-energy bulbs. In addition, a financing mechanism with a revolving fund of US$3m will be set up to facilitate household connections for low-income families. 4.6 The total cost of the proposed project is estimated at US$54 million, of which IDA will finance US$50 million, GoCI $1million as a contribution to the revolving fund that is to be set up to facilitate service hookups by low-income families, and CIE the remaining US$3 million for electricity meters and customer service centers. 5. Financing Source: ($m.) GoCI 1 CIE 3 IDA Grant 50 Total Implementation 6.1 GoCI will transfer the IDA grant to SOGEPE (acting in its capacity as the manager of the electricity sector s financial flows. SOGEPE will oversee the implementation of the UERP with the assistance of SOPIE and CIE as technical partners. A Coordination Committee chaired by the Managing Director of SOGEPE has been set up and includes representatives of SOPIE, SOGEPE, CIE and Ministry of Energy. The Managing Director of SOGEPE will sign all the contracts and payments documents relating to the proceeds of the Grant. 6.2 A Project Coordinator has been appointed to carry out day to day project activities, centralize information related to project implementation and carry out regular progress reporting to GOCI and IDA. The coordinator will also act as secretary of the Project Coordination Committee.

7 6.3 Procurement activities under the project will be handled by the Procurement and Logistics Department of SOPIE, assisted by a consultant recruited under the project. The Director of that department, assisted by an engineer is responsible for reporting to the Project Coordinator. The disbursement and financial management activities will be handled by the Finance Department of SOGEPE. The Director of Finance assisted by a project specialist will oversee the financial management aspects of the project, including the consolidation of financial statements for project activities, providing quarterly interim financial reports, monitoring financial transactions of the project s designated account in coordination with the Directorate of Public Debt (Direction de la Dette Publique- DDP); and making the necessary arrangements for the annual financial audit. SOGEPE will be strengthened by appropriate staff training (funded under the project) during implementation to cope with the resulting increased activity level. 6.4 An assessment of SOPIE and SOGEPE implementation capacities shows that external support will be necessary in (i) procurement, (ii) for adaptation of the existing procedures manuals and (iii) for the acquisition and implementation of a new project management software covering financial management, procurement and the M&E aspects of the project. These actions will be financed under Component 3 of the project. 6.5 The activities of supervision, control and official acceptance of work will be collectively led by SOPIE and CIE, in line with the terms of the concession contract between GoCI and CIE. Technical validation will fall under CIE s responsibility, while SOPIE will undertake its own checks before certification of invoices. The respective roles of SOPIE and CIE have been spelt out in a memorandum of understanding between them. 7. Sustainability 7.1 The project is aimed at bolstering the sustainability of the energy sector through physical rehabilitation, financial recovery, and capacity building in key institutions. The Government has shown its commitment to sectoral development goals in the LSDP. However, the financial, institutional and legal reforms underpinning the LSDP are complex and require broad consultation and ownership among stakeholders prior to their introduction if they are to be sustainable. PPIAF and IDA will support GoCI s efforts in these areas through the provision of the necessary advisory services. 7.2 Physical implementation and operation of the project is low risk, given the simple nature of the works to be carried out and SOPIE/CIE s experience in supervising such activities in the normal course of their operations. 7.3 However, to achieve full sustainability, the sector will need considerably more financial support than this operation will provide. Long term assistance will be required to upgrade the entire power system and to set up and implement a comprehensive rural electrification scheme to aggressively expand access to electricity in rural areas. 7.4 The weak finances of the sector are a major issue that needs resolution to ensure achievement and sustainability of the PDO. These problems are also being addressed in a

8 concerted manner by the Bank and IMF through the macro-economic dialogue. Under the recently-approved PRGF, the Government agreed with the Fund to limit budgetary support to the electricity sector to CFAF 25 billion (US$50m). The Bank s next budget-support operation will continue to emphasize the restoration of financial viability to the sector as a central theme. 8. Lessons Learned from Past Operations in the Country/Sector 8.1 Lessons learned from similar operations in the Bank that are relevant to the proposed project include: Designation of a steering committee for the proposed project with full responsibility for coordination and management of the Project. Project implementation should be based on supply and installation contracts in order to minimize risks due to lack of coordination and to put full responsibility on the contractors; Early preparation of procurement documentation to ensure fast implementation; it is intended that bidding documents will be available by the time of Board approval to enable initial payments to contractors to take place shortly after effectiveness. A good project monitoring system is necessary for effective results evaluation. A detailed monitoring and evaluation component, including collection of all baseline data, has been built into the project. The performance indicators will be monitored either annually or bi-annually. 9. Safeguard Policies (including public consultation) 9.1. The Bank s safeguard policies applicable to this project are: (i) Environmental Assessment (OP/BP 4.01) and (ii) Involuntary Resettlement (OP/BP 4.12). The project has been assigned an environmental risk Category B, because the planned activities might have some minor environmental and social impacts that will be site-specific and thus easily remediable. 9.2 The ESMF and RFP instruments will also be used for screening subprojects. The screening process will ensure that the project does not finance any activities that require relocating people or limiting their access to public amenities. However, if at screening stage, the proposed subprojects show adverse effects depending on the type, location, nature and magnitude of their potential environmental and social impacts, an EIA or a RAP will be developed along with the necessary mitigation measures. SOPIE will upgrade the capacity of its environment unit during implementation (with IDA support under the project) in order to address environmental and social issues safeguard issues.

9 Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [ X] [ ] Natural Habitats (OP/BP 4.04) [ ] [ X] Pest Management (OP 4.09) [ ] [X ] Physical Cultural Resources (OP/BP 4.11) [ ] [X ] Involuntary Resettlement (OP/BP 4.12) [X ] [] Indigenous Peoples (OP/BP 4.10) [ ] [X ] Forests (OP/BP 4.36) [ ] [X ] Safety of Dams (OP/BP 4.37) [ ] [X ] Projects in Disputed Areas (OP/BP 7.60) * [ ] [X ] Projects on International Waterways (OP/BP 7.50) [ ] [X ] 10. List of Factual Technical Documents 1. Aide-memoire, Appraisal Mission, March Draft Project Appraisal Document 3. Project Appraisal Document Data Sheet 4. Signed Request for Project Preparation Advance 5. Request for Project Preparation Advance, draft disbursement letter 6. Environmental and Social Impact Assessment 11. Contact point Contact: Sunil W. Mathrani Title: Sr. Energy Specialist Tel: Fax: smathrani@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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