Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL FINANCING GRANT

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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 PAPER ON A PROPOSED ADDITIONAL FINANCING GRANT IN THE AMOUNT OF SDR MILLION (US%18.62 MILLION EQUIVALENT) TO THE DEMOCRATIC REPUBLIC OF CONGO FOR THE Report No: 4875-ZR SOUTHERN AFRICAN POWER MARKET PROJECT (SAPMP) -APL1 Energy Group Sustainable Development Department Africa Region June 5,29 his document has a restricted distribution and may be used by recipients only in the performance of eir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 FOR OFFICIAL USE ONLY CURRENCY EQUIVALENTS (Exchange Rate Effective May 3 1,29) Currency Unit = Franc Congolais (Fc) Fc775 = US$1 US$ = SDRl FISCAL YEAR January 1 - December 3 1 AfDB APL. BCECO CAB CAS CEC CP DRC EIB ERR ESIA GDP ABBREVIATIONS AND ACRONYMS I AC I Alternating Current I African Development Bank Adaptable Program Loan Bureau Central de Coordination Central African Backbone Country Assistance Strategy Copperbelt Energy Corporation Comnensation Plan Democratic Republic of Congo European Investment Bank Economic Rate of Return Environmental and Social Impacts Assessment Gross Domestic Product

3 FOR OFFICIAL USE ONLY TA UGP WAFS WBG I WTP Technical Assistance Unit6 de Gestion du Projet (Project Implementing Unit) West Africa Festoon Submarine Cable System World Bank Grout, I Willingness-To-Pay Vice President: Country Directors: Sector Manager: Task Team Leader: Obiageli Ezekwesili Richard Scobey, Marie Franqoise Marie-Nelly Subramaniam V. Iyer Samuel O Brien-Kumi 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.

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5 DEMOCRATIC REPUBLIC OF CONGO Southern African Power Market Project (SAPMP) - APLl Additional Financing Project Paper Data Sheet Market Project (SAPMP)-APL 1 Marie Franqoise Marie-Nelly Responsible agency: Societe Nationale d Electricit6 (SNEL) Current closing date: December 3 1,29 date: December 31,212 Does the project require any exceptions from Bank policies? (Exception with respect to OP13.2 as Project is rated as Marginally Unsatisfactory). Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Yes (OP 13.2) Yes No Revised project development objectivedoutcomes. Previous Project Development Objectives: To develop an efficient regional power market in the Southern African Development Community to create conditions for accelerated investments in the power sector, increase competition and foster regional economic integration. Revised Project Development Objective: To facilitate further development of an efficient power market in the Southern Afiican Development Community. Does the scaled-up project trigger any new safeguard policies? No For Additional Financing [ ] Loan [ ] Credit [X ] Grant For Loans/Credits/Grants: Total Bank financing (US$m): Source Borrower/SNEL IBRDDDA EIB Total without CEC Financinn Local Foreign Total Additional Regional Activitv Not Co-financed bv IDA (US$m)

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7 DEMOCRATIC REPUBLIC OF CONGO Southern African Power Market Project (SAPMP)-APL1 Additional Financing TABLE OF CONTENTS I. I1. I11. IV. V. VI. Introduction... 1 Background. Rationale for Additional Financing and Consistency with CAS... 3 Proposed Changes Expected Outcomes Benefits and Risks Financial Terms and Conditions for the Additional Financing Annex 1 : DRC Electricity Sector Rehabilitation and Development Strategy. and Alternatives Considered for the Rehabilitation of the Inga-Zambia Transmission Assets Annex 2: Description of the Southern African Power Market Program Annex 3: Detailed Project Description Annex 4: Additional Details on the Telecommunication Component Annex 5 : Description of the Regional and Domestic Power Markets Development Project Annex 6: Summary Status of the Main Contracts Annex 7: Summary of Implementation Schedule of the Main Contracts Annex 8: Revised Project Cost Estimate by Component Annex 9: Comparison of Revised Cost Estimate and Initial Estimate Annex 1: Project Financing by Contract and Financing Agency Annex 1 1 : Organizational Arrangements for Supervision of Implementation Annex 12: Arrangements to Ensure Sustainability of Project Output Annex 13: Results Framework and Monitoring Arrangements Annex 14: Comparison of the Initial and Restated Indicators Annex 15: Economic Re-Evaluation Annex 16: Financial Management, Audit and Disbursement Arrangements

8 Annex 17: Estimated Revised Disbursements of total IDA Financing lo 1 Annex 18: Procurement MAPS

9 DEMOCRATIC REPUBLIC OF CONGO Southern African Power Market Project (SAPMP) - APLl Additional Financing I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional grant in the amount of US$18.62 million equivalent to the Democratic Republic of Congo (DRC) for the DRC s component of the Southern African Power Market Project ( SAPMP, P69258, Credit DRC)-APL1, approved in November 23, and for a formal restructuring necessary to complete the implementation of the Project. The Project Paper also seeks a 3-year extension of the Credit Closing Date from December 3 1, 29 to December 3 1, The Project Paper (PP) proposes restructuring of the project to ensure that the objectives are met and are sustained. This comprises modification of the project s development objective (PDO), revisions to performance indicators and their targets to improve implementation monitoring (Annex 13); and modified project activities. The re-stated PDO which provides greater clarity with respect to the Project s achievable goals is to facilitate further development of an eflcient power market in the Southern African Development Community (SADC). This would arise from the: Increased exports of power and resulting competition in the SADC power market. The project would restore the power transfer capability of the main high voltage transmission artery from the Inga hydropower stations in DRC to the border with Zambia and enable the transfer of 5 MW of firm and reliable hydro-based electricity into the SAPP. This will contribute to reduction in the economic cost of electricity in the SAPP, and as an alternative supply source for the SAPP, would thereby enhance competition and trading in the SAPP. Significant real-time technical and commercial information would be available to the power-pool members. The provision of the modern optical fiber telecommunication system with the associated data acquisition and management systems to be installed under the project will enable market participants to enhance efficiency in and the operations of the short-term energy market (STEM). The STEM is one of the two main electricity trading mechanisms employed in the SAPP, and is based on day-ahead short-term contracts for supply of energy in hourly periods (Annex 2). The SAPP market will benefit from increased transparency and efficiency, as well as the speed and volume of transactions. 3. The modified and additional project activities in support of the revised development objectives are: installation of a new state-of-the art optical fiber telecommunication system for power operations and other national and regional telecommunication requirements. It has been determined that the earlier project alternative of repairs to the existing system are not technically and economically appropriate; replacement of control systems of the converterhnverter stations instead of repair of the existing dilapidated and technologically obsolete systems; 1

10 upgrade of the System Control and Data Acquisition (SCADA) facility at Likasi Transmission Control Center; increased emphasis on the implementation of the environmental and social mitigation measures; enhanced support for community development comprising: construction of schools, clinics, water supply and systems, supply of basic medicine, electrification, and an HIV/AIDS awareness campaign for communities along the transmission line corridor and expanded technical assistance activities to establish: (a) a 5 year operation and maintenance contract for the power transmission assets, including training of the power utility staff to take over thereafter; (b) a private operator to manage the commercialization of excess telecommunication capacity, as well as its operation and maintenance; and (c) an entity with international experience such as a non-governmental to provide additional oversight for the implementation of the Resettlement Action and Compensation Plans. 4. The Project is the first phase (APL1) of a three-phase horizontal Adaptable Program Loan (APL) of the Southern African Power Market Program (the Program) on which the Bank and the Southern African Development Community (SADC) reached an understanding in 22 as the basis of development of the integrated Southern African Power Pool (SAPP). The Project invests in a key infrastructure for the development of regional energy trade with hydropower from Inga hydropower complex in DRC as the anchor supply. Associated developments to harness the Inga resource and promote energy access for DRC include, inter alia, investments in the rehabilitation of the existing Inga 1 and 2 hydropower facilities, development of the new Inga 3 project, reform of the DRC power sector and its utility, SociCtC Nationale d ElectricitC (SNEL). 5. There are a suite of regional and national energy investment projects in DRC, variously supported by the Bank, the African Development Bank (AfDB), the European Investment Bank (EIB) and other donors to address the required development needs. The has recently taken decisions that weave these different projects into a unified strategy to address the objectives of regional power trade, national energy access and security of supply. 6. This Project s specific focus is to rehabilitate and reinforce an existing 2,3 kilometer high voltage power transmission line from the Inga hydropower stations to Kasumbalesa at the border with Zambia, which is the backbone of the DRC power transmission system as well as the main artery for conveying power to the SAPP through Zambia (see attached maps). This high voltage transmission system is currently in poor operating condition and performs far below its installed capacity and reliability due to age and years of persistent inadequate maintenance. The Project also supports an additional high voltage transmission line to the border with Zambia, on the existing alignment. In Zambia, activity complementing the Project should result in reinforcement of the system s power transfer capability and improvement of its reliability within DRC and Zambia and into the SAPP. Furthermore, a modern optical fiber telecommunication system is to be installed in tandem with the power lines to enhance SNEL s power operations and electricity trade with the SAPP also the national and regional communication applications as well as interconnection capacity (see attached Map 3). 7. The original operation underlying this Financing Project was approved by the Board in November 23. It became effective in May 24. Since its approval, the project faced a series of implementation challenges arising mainly from DRC s post-conflict country situation, and 2

11 from the technical complexity of the project itself. As a result of the fragile conditions following the civil war, it has taken the, GoDRC and SNEL time to develop the requisite institutional capacity and address the project s procurement activities. Within the Bank, staff transitions and limited supervision budgets posed a major challenge for efficient supervision and monitoring of implementation. Over the last 18 months though, significant progress has been achieved to the point where major procurement is completed or close to completion. In April 27 GoDRC requested an additional grant to meet the cost increases faced by the Project and a four year extension of the Credit Closing Date from December 3 1, 27 to December 3 1, The Bank granted a one year extension to December 3 1, 28. In November 28 at the request of GoDRC a second extension to December 3 1, 29 was granted, with a further extension to December 3 1, 2 12 to be considered along with this additional financing package. 8. The proposed additional grant will contribute to meeting the Project s US$252.5 million financing gap. It is required to complete the original project activities as defined in the Project Appraisal Document (PAD) and the revised activities described in p 3 above. The European Investment Bank (EIB) and SNEL will complete the balance of the financing. In addition the will support the reinforcement of the existing interconnector between DRC and the power systems in Zambia, linking DRC to the SAPP. 11. Background, Rationale for Additional Financing and Consistency with CAS A. Country Context 9. Despite its vast resource wealth, DRC is one of the poorest countries in the world. Annual GDP per capita declined from US$38 in 196 to about US$13 in 27, four times lower than the average for sub-saharan Africa. About 75 percent of the population lives on less than a dollar a day. The deep poverty is the result of conflicts, poor governance, weak policies and insufficient investments. The prolonged conflict particularly left many institutions in shambles were neglected, destroyed or lost, and needed investments were halted or deferred. The electricity sector.in particular has suffered considerable damage and most of the existing infrastructure is in need of rehabilitation. 1. Since 22, however, DRC has experienced important political and economic gains. On the political level, the 26 general elections (legislative and presidential) took place through a process judged as largely free and fair. Since 27, a broad coalition has implemented policies following a set of five priorities underpinning the PRSP (good governance and peace consolidation, consolidation of macroeconomic stability and growth, access to social services, fight against HIV/AIDS, and promotion of community dynamics) in order to generate rapid growth and sustained development. As regards economic recovery, adequate monetary and fiscal policies addressed hyperinflation (5 percent in 2) during 21-4, and a program was largely during June 22-March 26. Although the PRGF program veered off track in mid- 26 during the period preceding the 26 presidential election, the post-election that took office in early 27 implemented adequate macroeconomic policies under a Staff-Monitored Program of the IMF In spite of the multiple challenges, growth has picked up significantly since 22. During 22-8 average annual GDP growth was 6.6 percent, compared to -5.2 percent over , owing to rapid development in the mining, construction and transportation sectors, which all experienced double digit annual growth rates. Following an export boom in 27, growth was

12 expected to accelerate further in 28. Export volumes increased by about 75 percent in 27, and rose more than 1 percent in US value terms. Increased activity and revenues in the mining sector gave way to rising private investment (6 percentage points of GDP in 27) and stimulated growth in construction and services. As late as September 28, a sharp acceleration of GDP growth to 1 percent was projected for 28, including additional export volume increases of 23 percent. There were also good prospects for growth continuing at the double-digit level over the medium term. Fiscal policies in 28 were expected to support monetary policy efforts at containing the associated inflationary pressures by moving from a 1 percent overall deficit in 27 to an overall fiscal surplus of 1 percent in 28. However, these fell below expectations. Actual recorded growth in 28 was only 7 percent, and export volume increased by only 15 percent. Since September 28 however, DRC s economic prospects have sharply deteriorated as a consequence of the changing international environment resulting from the financial crisis. In addition, the country had to face a security and humanitarian crisis in its North Kivu province. The rapid collapse of the mining sector has overwhelmed its ability to address the economic consequences without external support. B. DRC Electricity Sector Rehabilitation and Development Strategy 12. DRC has enormous hydropower potential, in the order of 1, MW, mainly concentrated around the Inga hydro site on the Congo River that could provide about 4, MW. Today however, only a total installed power generating capacity of about 2,1 MW is in place in the Inga 1 and Inga 2 and other smaller hydropower stations, including those in the Katanga Province, of which less than half the capacity is operable. Lack of sufficient transmission and distribution capacity means that the vast majority of DRC s population and its economy are under-served. At about 6 percent, household access to electricity services is now less than the pre-war period level, and particularly low compared to the average of Sub-Saharan countries access rate of 24 percent. Frequent and prolonged blackouts are becoming increasingly common throughout the network, including high priority areas. Because of its vast hydropower resource, DRC has however the potential to play a pivotal role in fully meeting not only its domestic electricity needs but also the needs of Southern Africa and of other regions. Power supplied from DRC can be a critical factor for the development of a competitive power market in the region, with reliable low-cost and low-carbon power supporting industrial and agricultural competitiveness, private sector investment, and regional growth and development. It also potentially represents an important source of foreign exchange and foreign direct investment for the country. However, DRC under the current condition of its energy sector is not able to capitalize on the opportunity of electricity exports in a region where demand far outstrips supply. 13. The main areas critical to the sustained development of DRC s energy potential are sector policies, investment regime, governance and the performance of the single utility (SNEL). The has started to put in place a set of pragmatic strategies to address issues, including: systematic rehabilitation program for existing infrastructure, particularly with respect to the transmission system and the generation assets at the Inga 1 and Inga 2 sites; improving the policies and governance within the sector, notably in respect of the transparent and systematic promotion of private investment; improving the performance of SNEL by strengthening its governance, management and operational capacity; and short term actions in critical areas to improve SNEL s governance and performance such as enhancing billing, collection, and addressing the weaknesses in the accounting and 4

13 financial management systems. Annex 1 describes the Inga and DRC electricity sector rehabilitation and development strategy. 14. Obiectives. The Poverty Reduction Strategy Paper (PRSP) recognizes the economic and social development constraints imposed by the power sector, and the important role that a wellfunctioning electricity sector can play in poverty reduction. It also highlights regional power trade opportunities and their contribution to regional political stability. In its June 28 Electricity Sector Policy and Strategy Paper, the adopted the dual objectives of: (i) increasing access, quality and reliability of service for the domestic electricity market; and (ii) developing its massive hydroelectric resources to generate foreign exchange and strengthen the strategic positioning of DRC in a regional context. To achieve these objectives, the intends to: (a) reform the sector and SNEL, in particular, to increase efficiency and private sector investment; and (b) increase electrification in urban and rural areas. 15. The energy sector policy dialogue between the GoDRC and the Bank, supported by EIB and AfDB, has gained intensity in the past year. It comprises the following elements: Rehabilitation and expansion of the electricity infrastructure to increase production from the existing Inga 1 and Inga 2 hydroelectric plants, and the hydroelectric plants in the Katanga region; securing supply by rehabilitation and expansion of the Inga- Katanga-Zambia and the Inga-Kinshasa high voltage transmission systems; and rehabilitation and upgrade of the distribution systems of Kinshasa and other urban centers. Development of a long-term program for rural electrification to be supported by donors and the private sector to increase population access from the current low level of about 6-percent to the higher levels of access prevailing in neighboring countries. Development of a modern policy and regulatory framework for the power sector, including new legislation to promote efficiency, investment and private sector participation and implementation of sound, transparent processes to partner with the private sector in a manner that provides for technically, economically and financially sound partnerships. An electricity law is under preparation. Strengthening the governance and technical capacity within the sector, notably at SNEL, including transforming SNEL into a limited liability company (SARL) as per Presidential Decree of April 24,29, and putting SNEL under a five-year management contract with the objectives of: (a) rebuilding SNEL s commercial, financial and operating practices and systems; (b) improving financial reporting and transparency; (c) reconstituting SNEL operational and technical capacities and; (d) ensuring satisfactory implementation of the rehabilitation programs. These measures would be similar to arrangements contemplated for the water utility -REGIDESO. The selection of consultants to complete the existing diagnostic studies and delineate the exact scope of the management contract and prepare the bidding documents is underway. Until the start of the SNEL management contract scheduled for September 21, immediate The recent location of the Bank s Country Director Kinshasa has contributed significantly to positive momentum. The reform dialogue and related actions are garnering increased political support. 5

14 measures will be implemented, with support from a consulting firm under recruitment to improve the commercial performance and financial transparency of SNEL. Continuing the promotion of regional power trade through further hydroelectric and transmission development and strengthening DRC s role as a trading partner and sponsor of regional development efforts. This includes, in particular, completing the feasibility and engineering work so as to initiate the next stage in Inga development, and accelerating the construction of medium-sized green-field hydroelectric projects in other parts of the country. 16. GoDRC, with assistance from the Bank and the IFC, has also recently initiated dialogue with the mining companies to explore Public-Private Partnership (PPP) or Independent Power (IPP) vehicles for rehabilitation and green-field investments. Even though the global financial crisis and the general slowdown in the mining industry have reduced appetite of the private sector, some companies are showing interest. 17. On the regional scene, the power supply deficit in Southern Africa has opened new opportunities for DRC to export power. The market for exports in the region has firmed up significantly in DRC s favor over the last few years. This is demonstrated by the recent 5-7 year sales agreements finalized with Namibia, Zambia and Botswana, and shorter term (one year) sales agreement with Zimbabwe. Negotiations are in progress with South Africa (ESKOM) following the expiration in December 28 of the latest sales agreement. The main export destination should continue to be Southern Africa, which will continue to face growing supply deficits and at higher prices in the future. In order to enter into secure, longer term agreements at attractive prices, DRC would need to demonstrate reliable availability of power in excess of domestic needs, supported with a capable and reliable transmission system to deliver it into the SAPP. The success of this Project and of the PMEDE that supports rehabilitation of Inga 1 and 2 hydropower stations are, therefore, critical to DRC s long term regional trade aspirations. 18. An associated Information and Communication Technologies (ICT) strategy to accompany modern power transmission systems is essential. Broadband telecommunications infrastructure is a critical element in the operation of modern electric power transmission facilities to ensure reliability, security and cost efficiency, and enhance the speed of power trade transactions. Load management, control, monitoring, and wheeling of power over long distances and across multiple regional networks are only made possible by a widely distributed computer system (e.g. SCADA systems2) interconnected by high quality optical fiber telecommunication system. As such, the design of DRC s component of the SAPMP includes Optical Ground Wire fiber cable (OPGW) and the associated electronic communication facilities. Given the nature of OPGW, there exists an opportunity to install capacity that not only meets SNEL s minimum modest internal communication requirements, but also build-in excess capacity at a low marginal cost. The availability of excess OPGW capacity along the route of the SAPMP transmission line could be utilized to fill a significant gap in the DRC s national telecommunications backbone. Thereby a reliable and cost efficient platform for a wide range of electronic communications services to public and private customers would ensue. Broadband access would promote economic growth and competitiveness, improve the decentralization and effectiveness of government and enhance civil security, as well as access to information for business and public uses. This infrastructure is by far the least expensive option for DRC to integrate with the System Control and Data Acquisition. 6

15 Southern Africa and other regional networks (including the Eastern Africa Regional Communication Infrastructure Program -RCIP), Central Africa Backbone (CAB), and the Western Africa submarine cable system (WAFS)). Many land-locked and east coast countries in the region rely on expensive and limited capacity satellite connections for their communications needs. The excess capacity on the OPGW with its links to Zambia and on to Zimbabwe, Namibia and South Africa, together with interconnections to other broadband networks offers the prospects for the transformation of the region by providing access to high capacity and low cost ICT infrastructure. 19. SNEL is not in the best position to operate and commercialize a world class OPGW telecommunication network since this is not part of its normal business. SNEL also understands that commercialization under the operation and management of a qualified private operator as a business venture would provide it with a significant annual revenue stream (e.g. royalties and concession fees). To strengthen the possibility of effectively utilizing the broadband infrastructure and attract private investors to operate it, the DRC s ICT sector policy, regulatory, legal and institutional framework, and overall ICT strategy are currently being developed by the with the support of the Bank under the ongoing Private Sector Development Project and by the ICT Strategy Technical Assistance. C. The Southern African Power Market Program, the SAPMP Project, and the PMEDE Project 2. As pointed out in paragraph 15, the implementation of two investment operations: the SAPMP project, which focuses on transmission rehabilitation, and the PMEDE project for the rehabilitation of the Inga 1 and 2 hydropower stations, are critical elements for DRC s successful participation in the regional power market. These operations and the inter-linkages are described below. The SAPMP Program 21. The Bank and SADC reached an understanding in 22 as the basis of development of the integrated Southern African Power Pool (SAPP) program. The Program s main purpose is to increase the availability and reliability of low cost, environmentally friendly electric energy in the Southern Africa region, thereby improving industrial competitiveness, fostering growth, and increasing the region s attractiveness for private investment. Both SADC and the New Partnership for Africa s Development (NEPAD) regard this program as a pillar of regional cooperation. Annex 2 provides a brief description of the SAPP Program. The World Bank in partnership with several other donors is supporting the SAPP Program through investment projects and technical assistance. The investment support is designed as a series of adaptable program loans (APLs). 22. The first phase (APL1) is aimed at improving electricity trading in the SAPP and increasing security of the SAPP system, making information available to all pool members and improving the speed of transactions. It will also make significant blocks of hydropower from the Inga hydropower complex in the DRC available to the SAPP. Its successful completion will contribute significantly to attaining the benefits of the Program. It was designed with three main components of which the DRC component (the high voltage transmission line from Inga to the Zambia border), and the new interconnector with Zambia constitute the largest (about 98 percent of APLl total cost of US$2.2 million). The other two components comprise: (i) support to the 7

16 SAPP Co-ordination Center to build its institutional, technical and power market operations capability funded entirely through donor assistance (US$3.2 million); and (ii) feasibility, and environmental and social impacts assessment studies for the future Zambia- Tanzania power transmission interconnection for which the Bank approved a credit of US$l million to Zambia in September 23. These two components were satisfactorily completed by the original project completion date of December 3 1, The next two phases, APL2 and APL3 are aimed at helping to bring the current three non-operating members - Angola, Malawi, and Tanzania - into the SAPP, further strengthening regional interconnections, improving market operations, and laying the basis for the future integration of the Eastern Africa and Southern Africa Power Pools. Two IDA credits were approved by the Board on July 1, 27 in the amounts of US$48 million to Malawi, and $45 million to Mozambique for the APL2 project (the Malawi- Mozambique power transmission interconnection). The feasibility studies for APL3, which will cover the rest of the Program, are on-going. Completion of APL 1 would enhance the benefits of APL2 and APL3. The SAPMP APLl Project 24. The DRC - Zambia APLl project involves an IDA Credit -in the amount of SDR129.2 million to DRC (US$177.5 million - Project P69258), and was approved by the Bank's Board on November 11, 23. The Credit became effective on May 17, 24. The original Credit Closing Date of December 31, 27, stands extended to December 31, 29. The Project is to restore the transmission corridor from Inga to the DRC border with Zambia to its original installed capacity (576 MW) and reliability performance level and to reinforce the interconnection with the Zambian power system in order to be able to deliver 5 MW of firm power on a sustained basis to the industrial heartland of DRC in the Katanga Province and also to the Southern Africa region. 25. This proposed restructuring of the Project and Additional Financing would enable SAPMP APLl project, including the new additions discussed above to achieve its original objectives through implementation of the following components (A detailed Project description is provided in Annex 3): rehabilitation and reinforcement of the converter and inverter stations at Inga and Kolwezi respectively, including the rehabilitation of synchronous compensators at Kolwezi, and the removal and replacement of all Polychlorinated Biphenyls contaminated capacitor units and auxiliary transformers; rehabilitation and reinforcement of the high voltage substations at Fungurume, Panda, Karavia, and Kasumbalesa, and installation of a modern at the Transmission Control Center at Likasi; construction of new 278 kilometers of high voltage AC transmission from Fungurume to Kasumbalesa at the border with Zambia; rehabilitation of the entire 2,28 kilometers HVDC and HVAC transmission lines from Inga to Kasumbalesa, including the towers;' installation of a modern telecommunication system comprising about 2,3 kilometers of OPGW and the associated electronic equipment from Kinshasa to Kasumbalesa to link with the SAPP telecommunication system; community development in seven villages in the Katanga Province comprising the Construction of water supply and sanitation facilities, schools and supply of basic 8

17 furniture, clinics with basic equipment and six months supply of basic medicine, electrification, and provision of HIV/AIDS awareness campaign for communities along the transmission corridor in the Katanga Province; implementation of the environmental and social mitigation measures of the Project (but cash compensation, land acquisition and other resettlement aid paid in cash will not be financed by IDA, unless a special authorization is previously granted in accordance with Annex A of BP6. on Bank financing); provision of engineering and project implementation management services by international consultants; technical assistance for: (i) procurement training in project management and supervision, including acquisition of tools and equipment and management information system; (ii) private operation and maintenance contract for SNEL transmission assets; (iii) private management of the commercialization of the telecommunications excess capacity, and studies; (iv) an entity with international experience such as an NGO to provide additional oversight for the implementation of the environmental and social mitigation measure, and implementation of the HIV/Aids awareness campaign; and as an activity complementary to the Project (but not formally part of the Project restructuring) construction of a double circuit high voltage 22kV transmission line by CEC from Luano substation in Zambia to link with the DRC transmission system at Kasumbalesa (DRC border). 26. Under the telecommunications component in the original project, it was proposed to repair the existing Power Line Carrier (PLC) telecommunications system. In the revised appraisal, it has been determined that repairs to what is now a technologically obsolete system would be uneconomic and the required performance and reliability levels will not be achieved. Therefore under the revised proposals, the OPGW will consist of 24 pairs of optical fiber, of which 3 to 4 pairs will be used by SNEL for operation and management of the physical power infrastructure, as well as its internal needs for communications and management information system to enhance efficiency, speed of power transactions, and cost-effectiveness. The remaining telecommunication capacity will be made available for commercialization. It should be noted, however, that the total OPGW capacity and investment is fully justified by SNEL s internal needs alone. 27. Implementation of the telecommunications component will be consistent with the overall project implementation. SNEL and its implementing unit (UGP) will be supported by the international engineering and project supervision management consultant. A panel of experts will be assigned to further assist and guide SNEL on highly technical and specialized matters. 28. The project will provide technical assistance to SNEL for the purposes of: (i) designing the technical, contractual (e.g. shareholders agreement, transaction agreement) and business/economic aspects of the commercialization contract of the excess capacity; (ii) assisting the Beneficiary to recruit an internationally experienced private operator for the commercialization of the excess telecommunication capacity under an Open Access regime; and (iii) preparing the necessary interconnection agreements. The broader aspects related to the telecommunications regulatory environment, legal and institutional framework will be further developed under the on-going related Technical Assistance provided to the DRC for the preparation of an ICT Policy and Strategy, including the drafting of supporting legal and regulatory instruments by the GoDRC. These are critical building blocks for the successful commercialization of the excess capacity of the telecommunication system. As such the ICT 9

18 policy and strategy, as well as the needed amendments to the legal and regulatory framework are expected to be completed and adopted by DRC no later than June 3,21 1. The PMEDE Project 29. The SAPMP Project is closely linked to the Regional and Domestic Power Markets Development Project (PMEDE APL-lb), for which the Board approved a Grant to DRC of $296.7 million equivalent in May 27. Its development objectives are to improve the operational efficiency in DRC electricity sector and expand generation, transmission and distribution capacity in order to better serve domestic power demand and to support regional power market integration. The Project consists of five main components: (i) Generation - rehabilitation of Inga 1 and Inga 2 hydropower stations; (ii) Transmission - construction of a new 4 kv transmission line from Inga to Kinshasa; (iii) Distribution- rehabilitation, reinforcement and expansion of the power distribution system in Kinshasa; (iv) Capacity building - strengthening SNEL s operational capabilities including activities regarding the governance within the utility specifically and in the sector generally; and (v) Project Implementation - provision of consulting services for engineering, management and supervision of implementation, procurement and financial management services. The PMEDE Project provides the required resources to develop GoDRC goal of quickly improving the governance of the sector and of SNEL s performance through a management contract. The benefits of the SAPMP transmission Project will only be realized if a properly executed rehabilitation program for the Inga 1 and 2 generating units proceeds in tandem. 3. Inga 1 has six units and Inga 2 eight, with a total installed capacity of around 1,775MW. Presently, however, the complex produces about 7MW with poor reliability. The rehabilitation program under the PMEDE envisages rehabilitation of the generating units at the Inga 1 and 2 plants to make available about 1,3MW of reliable production. The program also provides for investments in canal dredging and re-profiling and some civil works to enhance productivity. The rehabilitation of the 14 Inga units will take 1-12 years and is estimated to cost around US$55 million. A detailed rehabilitation program for the 14 units of the Inga 1 and 2 facilities has been discussed and agreed with SNEL and its engineering consultants. The rehabilitation costs have also been updated to reflect the conclusions of the additional detailed engineering studies carried out in 28, as well as the recent international market conditions for electrical equipment and materials, exchange rate fluctuations of the major international currencies, as well as the experience and lessons learnt from the ongoing rehabilitation of unit G23 at Inga 2 and of the other hydropower units in the SNEL generating system. For these reasons, and as experienced with the SAPMP Project and other rehabilitation activities planned for DRC power sector, estimates of the rehabilitation costs for Inga 1 and 2 have significantly increased, leading to a significant financing gap. However, the magnitude of this financing gap will only be known upon receiving bids for the rehabilitation works A detailed description and proposed implementation strategy is described in Annex 5, and summarized below (Table 1). The status of the Inga 1 and 2 rehabilitation program is as follows: (a) an initial repair work on unit G23 (16 MW), financed by the private sector, is nearing completion and the unit will be re-commissioned by September 29 to be followed by rehabilitation in ; (b) the rehabilitation of unit G12 (55MW), financed under the Bank The Inga units are numbered G1 or G2 for Inga 1 and Inga 2 respectively, and the second numeral indicates the turbine number in the respective complex. G12 is thus the second unit of Inga 1 and G23 is the third unit of Inga 2. 1

19 emergency project (PMURR) and the PMEDE is expected to be completed in July 21; and (c) the rest will be carried out at varying periods to completion as shown in Table 1. SNEL and its consulting engineer and BCECO are preparing the bidding documentation as per the overall rehabilitation strategy. 32. The overall rehabilitation strategy is based on the following criteria: (a) priority to be given as much as possible to units that are currently not operating; (b) as there is a financing constraint, the least expensive units to rehabilitate receive priority (lowest $/kw restored); and (c) in Inga 1 and 2A power stations, only two units in each can be rehabilitated simultaneously, and only one unit can be rehabilitated at a time so that the power stations continue to produce power to meet at least the critical load requirements, and also due to work-space limitations in the power stations. Employing these criteria, the first phase of this rehabilitation program covering 8 of the 14 units is programmed to be completed in at an estimated cost of about US$37 million. This cost is envisaged to be met partly through the existing PMEDE financing (about US$22 million allocated to generation) focusing on the rehabilitation of the first six units to anchor the output needed to power the transmission line. Additional IDA financing will however be required to continue supporting the rehabilitation program. Secondly, the is exploring private financing options. A private mining company is currently negotiating with SNEL the arrangements necessary for raising commercial financing towards the rehabilitation of two units at Inga, costing about US$5 million, in exchange for guaranteed future power supply. Finally, to meet the balance financing requirement of US$l million for the program up to , GoDRC is working closely with and has asked the donors, in particular IDA, AfDB and EIB, to provide additional financing. An IDA additional contribution under the PMEDE, of about US$2 million (subject to outcome of the biddings) might be necessary to continue the rehabilitation of Inga 1 and 2, and also to expand efforts on distribution, urgent rehabilitation and access expansion requirements in other parts of the country. Completion of the rehabilitation of the 8 generating units will bring total generating capacity to about 1,3MW by 21 5, with 95MW of fully rehabilitated units. 33. Continuation of the Inga 1 and 2 rehabilitation program - e.g. full rehabilitation of the remaining 6 units by end-22 - is critical to the ability of DRC to provide the power required by the domestic and the export markets. This is a long term program and priority for the Completion of the program (Le. all 14 units fully rehabilitated) will require an additional amount of about US$18 million. The is pursuing several options including the private sector and development partners to garner these resources, whilst in parallel pushing for reforms within the sector to improve overall efficiency and resource mobilization. A summary of the Inga 1 and 2 rehabilitation program is provided in Table 1 below. Table 1 - Summary of Inga 1 and 2 Rehabilitation Program 11

20 G28 Inga 2B Sep. 29 Nov. 21 May In order to maintain plant output, and due to physical limitations, only one unit from Inga2A & one from Inga2B can be out for overhaul at any one time. G22 Inga 2A Sep. 29 Jun. 21 Jun Unit G23 is currently undergoing extensive repairs and should be back on stream at the latest in September It is important to note that the rehabilitation of the Inga generation complex is not intended only for exports. With only 6 percent electrification country-wide and growing demand in the capital Kinshasa and other urban centers, the and SNEL are planning to increase supply from Inga for the domestic market as additional capacity becomes available. Increase in domestic transmission capacity also is needed. The SAPMP APLl Project will enable the restoration of the power transfer capability of 576 MW of the HVDC and HVAC transmission lines from Inga to Kasumbelasa to serve, first, the industrial heartland in the Katanga Province, and for exports into SAPP. EIB has approved financing for a second transmission line between Inga and Kinshasa expected to be completed by 213. As stated earlier, the PMEDE also supports US$3 million for distribution system rehabilitation and reinforcement in Kinshasa and the GoDRC intends to seek additional support from donors including the Bank for this. 35. The GoDRC is also emphasizing rural electrification. The AfDB intends to provide about US$lOO million, comprising US$5 million for Kinshasa distribution expansion and US$5 million for Rural Electrification projects outside Kinshasa and the Katanga region. The Bank and AfDB have agreed to cooperate closely in preparing this project and some initial preparatory work and studies are being undertaken under the ongoing PMEDE. 36. The PMEDE also addresses critical governance and financial issues of SNEL in line with GoDRC strategy discussed earlier. This is further complemented by the actions being taken by the GoDRC to place SNEL under a management contract with an experienced power utility; these are within the scope of the ongoing dialogue with the Bank. Critical and short- term actions to improve SNEL governance and performance, billing and collection, financial management and accounting, procurement and improved maintenance practices agreed with GoDRC and SNEL are currently under preparation to be implemented soon. 12

21 SAPMP APLl Project Implementation Status 37. The Project is technically complex and the Bank, GoDRC and SNEL have found its implementation challenging. The implementation is considerably behind schedule and only US$19.2 million (end-april, 29) or 1.9% of the Credit amount has actually been disbursed. Out of the six main contracts for goods and works, procurement for two has been completed. Procurement for a third contract, the largest and most complex one, is expected to be completed by end-june when the contract is to be signed These three contracts amount in value to about US$216 million and account for about 61% of the estimated cost of the Project. Progress is being made on the procurement of the remaining three contracts and it is expected that these will also be completed between June and October 29. The contract for engineering services has been procured and is under implementation. The services of BCECO had been engaged since 23 for procurement and financial management services, training of the staff of the UGP in various aspects of project management has been in-progress since 26, consulting services to assist SNEL in export contract negotiations have been engaged, and important update of the environmental and social impacts assessment has also been completed. As a result of these actions, the existing initial credit of US$177.5 million is currently about 56% committed. Cumulative disbursements would rise to about US$5 8 million by end-june 29 following the signing of the largest contract. Thereafter following the effectiveness of the additional financing, both commitments, through the award of additional contracts, and disbursements are expected to increase rapidly (Annex I 7 provides the revised Disbursement schedule). Physical implementation of the contract for the construction of new transmission lines will begin in September 29 and, thereafter the Project is expected to be on an accelerated path for completion, expected at end-december 212. Summary status of the main contracts is provided in Annex 6, the implementation schedule in Annex 7, and detailed procurement arrangements are in Annex Re-tendering of the remaining three main contracts representing about US$7 million is in progress. The bidding of those contracts failed for a number of reasons: (i) non-conformance of the bid received to the requirements of the bidding documents; (ii) excessively high price offers in non-competitive situations that arose during the bidding process; and (iii) in one case no bid was received at all. These contracts comprise: (i) the supply and installation of OPGW telecommunication system; (ii) the supply and installation of social infrastructure for communities; and (iii) the rehabilitation of the existing HVDC and HVAC high voltage transmission lines from Inga to the border with Zambia. The first two contracts are expected to be awarded in June- September 29 and the last one in March Bunk s sufewurd policies. The Project is a Category A project. The Bank safeguard policies triggered by the Project have all been fully complied with both in DRC and in Zambia. The Environmental and Social Impact Assessments (ESIAs), including the Resettlement Action Plans (RAPS), and Compensation Plans (CPs) for the population affected by the Project in DRC and in Zambia, prepared in 22/23, were updated in June and October 28/January 29 respectively and reviewed by the Bank. The compensation levels and the RAPs have been revised to reflect the changed conditions on the ground. 4. On the DRC side, and with respect to the construction of a new transmission line between Fungurume and Kasumbalesa in the Katanga Province (278 kms. long and 5 m. wide), the enumeration of affected land, other property, and the number of affected households -41 households- have been established and documented. The information has been disclosed publicly 13

22 through the local press, radio and television, and publications in the localities and provincial capitals. To ensure full coverage of all potentially affected households, additional public hearings have been conducted by SNEL in collaboration with local and Provincial authorities. In that context in October 28, SNEL and the provincial Authorities carried out a mission focused on the Fungwume-Kasumbalesa section of the transmission system. SNEL confirmed that no significant changes have occurred since the updating of the environmental/social assessments terminated in June 28. Based on authorization received from the DRC Ministry in charge of Environment, in early February 29 the Bank disclosed in its Infoshop the Updated Environmental and Social Impact Assessment (ESIA) study, the Resettlement Action Plan (RAP) and the Compensation Plan (CP) for the Project affected population. The studies and their recommendations were formally validated by the DRC Ministry of Environment and a corresponding certificate delivered to SNEL in February 29. The Council of Ministers approved the SAPMP Project and on February 13, 29, and on February 2, 29 the Prime Minister asked the Governor of the Katanga Province to take all actions required to proceed with implementation particularly with the granting of the rights-of-way to SNEL. This was agreed by the Governor on February 25, On the Zambian side, in June 23 CEC prepared an ESIA, including a CP and a RAP for the population to be affected by the construction by CEC of an additional transmission line required to reinforce the existing 45 kilometer link between Luano (Zambia) and Kasumbalesa (DRC), which were approved by the Zambia Environmental Council (ZEC) for the of Zambia. The ESIA respected the Bank s safeguard policies, and was disclosed in the Infoshop. The CP and the RAP recommendations have since then been fully and satisfactorily implemented in line with the ESIA submitted to the Bank by CEC and with the Bank and Zambia environmental and social guidelines. The Progress Report on the implementation of the ESIA, CP and RAP was completed by CEC in October 28, was approved by ZEC, and submitted to the Bank. The Bank found the implementation of CP and RAP totally in compliance with the requirements of the ESIA, the Bank and Zambia guidelines. However because of the delays in the implementation of the corresponding investment in DRC, this additional line was not built. The 23 ESIA was then updated in October 28 to also take into account a two kilometer change in the transmission rights-of-way. This update affects the CP only since there are no physical structures and affected people to be relocated. There has not been any new encroachment of population into the rights-of-way following the successful implementation of the earlier RAP. The updated ESIA was disclosed in the localities and through local press, radio and television in Zambia in October and November 28. The ESIA was subsequently revised by CEC in January 29 to take into account the results of the public disciosures, and submitted to the ZEC for its review and approval. The final ESIA approved by ZEC was submitted to the Bank. The Bank s review confirmed full compliance of the updated ESIA with the Bank s safeguard policies, and has been subsequently disclosed in the InfoShop on February 26, All audit requirements for the Project Accounts have been complied with4. The audit requirements for SNEL financial statements have also been fully complied with. The resolution Despite the provisions of the Development Credit Agreement (DCA) for the original IDA credit, which provided for 85% eligibility of IDA financing of BCECO s operating costs, which left 15% of such costs unfinanced, BCECO had been withdrawing 1% of its operating cost from the Designated Account. This discrepancy was not picked up by the auditors because they were relying on the French unofficial translation of the DCA that did not indicate the percentage of eligible expenditures for BCECO s operating costs. The discrepancy has since been discovered and is being corrected in accordance with paragraph 8 of BP 12 on Disbursements, through a retroactive increase of the percentage of eligible expenditures for BCECO s operating costs up to 1% (as was the case in other DCAs 14

23 of the qualifications noted regarding SNEL s financial statements, is part of the short-term action plan agreed with GoDRC and SNEL. Reasons for Implementation Delays 43. The country situation at the time the Project was prepared was quite challenging. The detailed engineering studies were significantly hampered by the fragile post-conflict environment and the associated security concerns prevailing prior to appraisal, which prevented full inspection of the condition of certain sections of the 2,2 km-long transmission line. The Project implementing entity, SNEL, was inadequately prepared for the early stages of project implementation in terms of staffing and organizational arrangements in particular for procurement. In the early stages of the Project, numerous factors delayed both the design and implementation aspects; contributing factors included procurement challenges arising from the institutional and capacity constraints both in-country and on the Bank side. The process for the selection and contracting of the critical Consulting Engineers took about 14 months. The detailed engineering work to prepare and launch the bid documents could be undertaken only after the Consulting Engineers came on board, resulting in the serious project implementation delays. Frequent changes of staff in the Bank team during the initial implementation period contributed as well to the time taken in executing major procurement actions. Since 26, with stable SNEL and Bank teams in place, implementation process has been on track to a point where major procurement actions are complete or nearing completion. 44. Due to the Project s technical complexity, the preparation of bid documents, prequalification processes of firms for the four major contracts and associated clearances took a long time to be completed - starting from July 25 when the pre-qualification documents were issued, to January 27. New issues arose later with some of the pre-qualified firms entering into mergers and acquisitions, which necessitated additional reviews and clearances by the Borrower and the Bank. As a result, the Borrower s evaluation and the Bank approval process took rather long to be completed. Because of the complexity of the main contracts, site visits were mandated by the Project implementing entity for the potential bidders to get additional firsthand information on the ground. Therefore pre-bid conferences took nearly 3 months to organize and complete - much longer than for most Bank projects. However significant progress has since been made on the procurement of the main contracts. 45. The delays in the implementation of the compensation and resettlement action plan in DRC have been due to the time it has taken for the appropriate processes to be completed through the GoDRC and the Provincial authorities, involving approval of the Project by the Cabinet and issuance of letter from the Governor of the Katanga Province to SNEL confirming support to SNEL for the implementation of the Project in the Fungurume-Kasumbalesa section. Implementation of the compensation schemes and of the RAPS will commence following Board approval of the proposed additional financing. 46. In view of the implementation delays, both Implementation Progress (IP) and progress towards achievement of the Development Objectives (PDO) have been on marginally unsatisfactory rating status for the past 3 months. However, by end-june 29, three of the six main contracts under the Project, should be signed. Such progress would trigger upgrade to Marginally Satisfactory status for the IP and DO from the current Marginally Unsatisfactory entered into between IDA and DRC, based on the fact that BCECO is statutorily exempted from any taxes and duties). 15

24 status. The Project could be further upgraded to full satisfactory status about end- December 29 when nearly all the major contracts would have been signed and physical implementation of some of the already signed contract would have begun. A waiver of OP 13.2 was granted by the Bank s Managing Director in January 29 to allow the preparation of the additional financing for the Project, despite its marginally unsatisfactory status. Reasons for Cost Increases and the Additional Financing 47. Total cost of the original project was estimated at appraisal in to be US$195.8 million, including the transmission link between Zambia and DRC to be constructed by CEC. The approved IDA Credit towards the financing was US$177.5 million equivalent. The current total cost estimate revised at appraisal in February 29 to achieve the Project objectives stands at US$43 million; the financing gap is expected to be US$252.5 million. The revised estimated project cost and comparison with the estimate at appraisal are provided in Annex 8 and 9. The main reasons for the cost increase are: the proposed restructuring of the project to scale up certain component activities, and the addition of new components all of which are critical to assure the achievement of the project objectives, and the sustainability of the project output after completion; increased cost of electrical equipment and materials in the international market since the project was appraised in 23, further consolidation of the major firms in the production of electrical materials and equipment resulting in further tightness of the market, as well as the highly specialized nature of materials and equipment for the project with even fewer producers; needed increase in scope of some components due to further deterioration of existing plant and equipment that had set in because of further passage of time; and volatility of the US dollar relative to the major international currencies of potential sources of equipment and materials supply. 48. In order to contribute to meeting the financing gap of US$252.5 million, this additional financing proposal recommends approval of an additional US$18.62 million equivalent grant from IDA. EIB is expected to contribute US$47.2 million equivalent; SNEL and US$6.86 million. In addition, in Zambia, CEC will carry out construction works at a cost estimated at US$18 million. Detailed description of the additional financing proposal is contained in the following section. D. Additional Financing Project Description Rationale for Additional Financing and Consistency with the Country Assistance Strategy 49. The rationale for IDA involvement in the Project is well discussed in the 23 PAD. The rationale for the additional financing is the cost increases in the Project. In view of the critical importance of the project for DRC, the positive impacts it will have on the other regional power initiatives, continuation of Bank support through the Additional Financing is justified. As a HIPC country, DRC could not have raised the concessionary financing required to fill the financing gap on the project. Moreover, since the Bank appraised the project originally, and 16

25 contributed 97% of the financing required, it is important that the Bank remains actively engaged to see the project to its successful completion 5. The objectives of this operation, its benefits, as well as the objectives of the Bank in supporting the Project, remain valid in-spite of the difficulties that have arisen in its implementation. 51. The Project is a high profile and economically viable one for the DRC, as well as for SADC. For DRC, it will enable the evacuation of power from the Inga hydropower plants, and from the future development of the Inga site, to the industrial heartland of the country. The asset will serve as the future transmission backbone for the electrification of major towns and cities in the hinterland of the country. Regionally, with significant electricity exports enabled over time into the SAPP, DRC would earn significant foreign exchange earnings. The Project will at the same time serve to provide several SADC countries a source of relatively low cost, reliable and clean power supply. 52. The Project is also a high visibility one for the Bank. Its success will be a good demonstration of achievement to the other regional power integration initiatives that the Bank has embarked upon- the future Eastern Africa, the Western Africa Power and the Nile Basin Power Pools. 53, Consistencv with the Countrv Assistance Stratem. Improving the quality and reliability of electricity supply for both the domestic market and for exports is a high priority activity of GoDRC. The Country Assistance Strategy (CAS) for DRC was discussed by the Bank Board in November 27. Derived from the PRSP and following on from the Bank Group s Transitional Support Strategy of January 24 (report 27751), it sets out a road map for World Bank Group support to DRC for the medium term, with focus on infrastructure, institutions and policies. The SAPMP and the additional financing proposed here are fully consistent with the new CAS, which notes that electric power is a prerequisite for growth generation as well as for a range of economic activities in DRC, and a source of foreign exchange through exports, and that major improvements in power supply will be needed to that end. The CAS notes that the Bank is wellplaced to lead and implement the growth related investments, including in the electricity sector. Proposed Additional Financing 54. The combination of difficult circumstances prevailing at the time of the Project commencement, complexity of the Project with regard to procurement and technical aspects, and capacity constraints for implementation contributed to significant delays. As a result of this and of expanded components, the total project cost has been revised to US$43 million. Compared to the original project financing this creates a gap of US$252.5 million to achieve Project objectives. The revised estimate takes into account the bids received to date, and industry accepted criteria for price and physical contingencies for a project of this nature. In addition, a price adjustment formula has been provided for the main contracts that would take more than 18 months to complete. The adjustment formula allows for both escalation and de-escalation. To finance the additional cost, IDA contribution is proposed to be increased by US$18.62 million equivalent, comprising US$12.41 million from the Regional IDA allocation, since the SAPMP is a regional project, and US$6.21 million from the Country IDA allocation. The contributions include IDA financing of 85% and 9% of local costs in addition to 1% financing of foreign exchange costs. The 9% of financing by IDA of the local costs of certain contracts would 17

26 Financier Amount (US$ million) DRC International DeveloDment Association (1) Societe Nationale d Electricite 6.86 European Investment Bank 47.2 I Zambia Total Costs Proposed Changes Project Changes Proposed changes to the PDO 56. The original PDO has been changed from to develop an efjcient regional power market in the Southern Afiican Development Community to create conditions for accelerated investments in the power sector, increase competition and foster regional economic integration, to to facilitate further development of an efjicient power market in the Southern African Development Community. Proposed changes to the Components: 57. The original APLl is composed of the following four main components: Component 1 : Support to the SAPP Co-ordination Center Component 2 : Rehabilitation and reinforcement of the high voltage transmission corridor from Inga to Kasumbalesa at the border with Zambia Component 3 : Construction of a double circuit 22 kv line by CEC from Luano substation in Zambia to link the DRC transmission system at Kasumbalesa 18

27 Component 4: A feasibility and preliminary design study of an interconnector between Zambia and Tanzania that would connect the SAPP to the market that would be formed by interconnecting Tanzania, Uganda and Kenya. 58. Out of these four components, the proposed restructuring includes changes to Component 2 above. This component is split into subcomponents, Part A and Part B: Part A (to be financed by EIB) consisting of two subcomponents (i) Rehabilitation and reinforcement of 22 kv substations in three locations- Fugurume, Panda, and Karavia; and (ii) Upgrade of the System Control and Data Acquisition (SCADA) facility at the Likasi transmission control center. This subcomponent is a new activity. Part B (to be financed by IDA and SNEL) comprises all the activities described in paragraph 25 above excluding the 22 kv line in component 3 above. The modified and new activities as part of the proposed restructuring, as discussed in paragraph 3 above comprise: o Installation of new control systems for the HVDC inverter converter substations instead of the previously planned upgrade of the existing obsolete, dilapidated control system o Installation of a modern optical fiber telecommunication system over the entire 2,3 kilometer transmission system from Kihshasa to Kasumbalesa on the border with Zambia instead of the repair of an obsolete power line carrier communication system o Increased emphasis on environmental and social mitigation measures.o enhanced support for community development comprising water supply and sanitation facilities, clinics and supply of basic medicine, electrification, and an HIV/AIDS awareness campaign for communities along the transmission line corridor o expanded technical assistance activities to establish: (a) a 5 year operation and maintenance contract for the power transmission assets, including training of the power utility staff to take over thereafter; (b) a private operator to manage the commercialization of excess telecommunication capacity, as well as its operation and maintenance; and (c) an entity with international experience such as a non- Governmental Organization (NGO) to provide additional oversight for the implementation of the Resettlement Action and Compensation Plans Proposed changes to institutional arrangements 59. There are no proposed changes 'to institutional arrangements. However, the project will emphasize actions to assure effective implementation and sustainability as described below. Proposed changes in financing plan 6. The financiers of the original project were IDA, SNEL and CEC. In the restructured project, EIB will also participate in the financing in addition to IDA, SNEL and CEC. The contributions of the various financing agencies in the original and the restructured project are provided in the following table: 19

28 T a bl e 3 f1gma.. I an dr' evlse d FO mancmg PI an Institution Original Revised Contribution Contribution IDA $177.5 $ ($ $18.62) SNEL $8.53 $6.86 CEC $9.6 $ 18. EIB $ 47.2 Total $ $43. Proposed changes to financial management and disbursement arrangements 61. There are no chances to the financial management and disbursement arrangements. Proposed changes to procurement arrangements 62. As per the Project Agreement dated January 21, 24, Goods and Works were to be procured in accordance with the provisions of the Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 and revised in January and August, 1996, September 1997 and January 1999, and consultants' services were to be procured in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in January 1997 and revised in September 1997, January 1999 and May 22. However, due to the delays that occurred in procurement under the project, which did not begin until 27, the Guidelines: Procurement under IBRD Loans and IDA Credits published by the Bank in May 24 and revised in October, 26 have been and will continue to be used. In addition, Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in May 24 and revised in October 26 will be applied to the new contracts for consultancy services to be procured under the additional financing. Proposed changes to closing date 63. The original closing date of the project was December 31,27. This has been extended twice and stands at December 31, 29. Under this additional financing, a further three years extension is proposed to December 31,212. Proposed changes to implementation schedule 64. The original project implementation schedule envisaged completion by December 31, 27. However as discussed above, due to procurement delays and an expanded project scope, implementation schedule is extended to be completed by December 31, 212. Actions to Assure Effective Implementation and Sustainability 65. At the recommendation of the Bank, the Borrower engaged a team of foreign experts to review and make recommendations on the implementation details of the critical and technically complex components of the project, such as the high voltage direct current (HVDC) component. The recommendations of the panel of experts have been taken into account in establishing the details of implementation of those project components. It has been verified that the current scope of the Project constitutes the minimum requirements to achieve the development objectives. 2

29 requisite capacity and assure proper implementation. On the critical issue of procurement, the success achieved by BCECO - the procurement agency - over the last 24 months that issues of capacity in this area have been satisfactorily addressed. 67. Measures to ensure implementation effectiveness and sustainability of project outputs include the following: A comprehensive procurement and implementation program by contract, including allowance for unexpected delays, has been agreed with the GoDRC and SNEL to achieve the new proposed physical completion date of the Project at end-december 212. The procurement and implementation programs were reviewed and confirmed during appraisal to ensure that any unforeseen and emerging constraining issues are captured, and closely supervised thereafter. Staffing and organizational arrangements for the Project Management Unit (UGP) at both SNEL headquarters and work sites have been completed with a view to ensuring effective contract supervision (Annex 11). The additional necessary tools and training to enhance capacity have been agreed upon and implementation of training and procurement of tools and equipment which began in 26 are near completion to ensure readiness for implementation. It has been agreed between SNEL and that the project implementation units of this project and that of the PMEDE will eventually be merged into a single project implementation department of SNEL to manage and supervise the implementation of all SNEL s development projects financed by external donors, including the Bank. Such an entity, with the addition of the right expertise and training would bring added strength and effectiveness of implementation to the SAPMP, and PMEDE, as well as future power projects. GoDRC has requested Bank assistance in this regard, which is being provided under the PMEDE. Support from an international engineering consultant has also been put in place with provision to engage additional short-term expertise to address critical and complex technical issues that may arise during implementation, especially during testing and commissioning of some of the more complex project components. Since SNEL has never implemented a rehabilitation project of such complexity and in multiple disciplines as this project, it is important that adequate expertise be provided for the management and supervision of implementation. To promote success, the international engineering consultant will direct the project activities on behalf of SNEL in close cooperation with UGP. To enable smooth progress of the project implementation, UGP and international engineering consultant have put in place an adequate project organization and sufficient staff and the logistics, which are tailored to the specific project needs and stages of implementation as follows: (i) design and approval stage; (ii) manufacturing stage; (iii) factory acceptance stage; (iv) shipping, delivery, storage and construction stage; and (v) commissioning.the design and approval stage, which is critical to implementation success, will be carried out by a back-stop experts team of the international engineering consultant s head office in close collaboration with field office in Kinshasa and UGP/SNEL staff. The back-stop team will include the Project Director, his Assistant and a poo1,of experts, who will be called upon when required for specific tasks. These experts will also be available for the factory inspection and acceptance testing visits, as may be needed, and for coordination meetings with contractors and UGP/SNEL. 21

30 The international engineering consultant s site staff will be dispersed to the various work sites in line with organization arrangement to manage and supervise the works with UGP staff, who at the same time will benefit fkom transfer of know-how. Since the nature of the works varies considerably, some will be permanent in some locations, and other will move in mobile offices to closely monitor quality of work and implementation progress. Ease of communications and transportation is vital for the success of the construction supervision. As such, a comprehensive Management Information System (MIS) will be set up for the purpose. Permanent offices of the international engineering consultant and UGP will be in Kinshasa, Inga, and Kolwezi and Likasi. Testing and commissioning stage of the project, will be supervised by a team comprising the international engineering consultant s head-office expert team, the field staff and with UGP/SNEL staff. Procurement support to the Project from the procurement agency, BCECO, has improved substantially through the additional procurement staff assigned to the Project, and the retention in BCECO of the services of the international procurement expert. Further to a Bank review of BCECO and consecutive Bank s May 27 recommendations, the GoDRC ordered a management audit of the institution, under terms of reference acceptable to IDA. BCECO was audited to assess its internal controls and recommend improvements in efficiency, transparency and accountability. The July 28 audit report, prepared by an international firm, concluded that BCECO was well-managed overall and adequate to carry out project implementation, including fiduciary responsibilities. The report also recommended upgrading various controls, establishing a proper management accounting system, and improving the accountability of the management steering committee. Based on these recommendations, the GoDRC, in close collaboration with the Bank, has agreed on a month action plan. The Bank will follow up its implementation closely. The Bank supervision team has been strengthened to take account of the multi-sector nature of the project, although the power component remains the main one, to enhance quality and effectiveness of supervision of the project. The core of the team comprises staff with expertise in the management of implementation of complex projects, procurement, engineering, economics, financial management, environmental and social safeguards, and back-up support. In addition, the team includes staff with expertise in community capacity development for the management of community social infrastructure systems, public health for the HIV/Aids, ICT legal, regulatory, and commercial aspects. To ensure sustainability of the Project output and development impact, the and SNEL have agreed that an operation and maintenance contract (O&M contract) for the operation and maintenance of SNEL s high voltage transmission assets would eventually be entered into between SNEL and an experienced entity by 212. The financing of the O&M contract and O&M expenditures have been discussed and agreed upon between SNEL, EIB, and IDA. Agreement has also been reached with GoDRC and SNEL on the commercialization of the excess capacity of the optical fiber telecommunication system by an internationally experienced private operator under an Open Access regime. (See section Vr). 22

31 To ensure that adequate and timely counterpart funding is available, agreement has been reached with SNEL on the amounts and timing of contributions into the Counterpart Fund Account. A Joint Implementation Team has been established by SNEL and CEC under the Infrastructure Agreement between them to coordinate and monitor implementation activities and progress of the construction of the new transmission lines in DRC and the new interconnector to be built by CEC. This is to facilitate exchange of information on both the physical as well as the environmental and social aspects, and also to identify potential technical interface issues on both transmission lines and the OPGW telecommunication system and be able to address them timely. The updates of the ESIAs and the RAPS both in DRC and Zambia include the revision of compensation levels and other measures to ensure that all the mitigation measures and the resettlement of affected population have been addressed and fully comply with the World Bank guidelines. A dedicated team, comprising environmentalists and social scientists within the project implementation unit, has been established since 23 to implement the Compensation Plan and the RAP and CP. Additional staff comprising two social scientists and two environmental specialists with demonstrated expertise in their fields of expertise, are to be assigned to the Project management unit to further strengthen implementation capacity. Additional support is to be provided by the international engineering consultant, and an entity with an international experience such as an NGO is to be recruited to provide additional oversight of the RAP implementation. The recruitment by SNEL of two environmental specialists and two social scientists and the recruitment of an entity/ngo with expertise acceptable to the Bank is a condition of effectiveness of the Grunt Agreement. Additional IDA remedies have been included in the Project in case CEC fails to comply with the safeguards requirements in Zambia, even though IDA is not participating in the financing of the activities carried out by CEC in Zambia. With respect to DRC and to ensure that the RAP and the Compensation Plan (CP) are satisfactorily implemented, provision has been made in the Counterpart Fund contribution of SNEL for the project to fully cover the financing required for the RAP and CP. The NGO providing oversight of the implementation of the CP and SNEL, will be required to provide a completion report on the implementation of the RAP and the CP, including an audit report to be issued by an independent auditor on the disbursement under the RAP and CP. The issuance of the Completion Report and audit of disbursements fiom the counterpart fund is a dated covenant in the Financing and Project Agreements. 68. As part of the actions to ensure more effective implementation of this Project, and in the context of the PMEDE operation, the Bank continues to pursue active policy dialogue with the authorities on sector reform. This has led in particular to the preparation of a short term action plan aimed at improving SNEL governance and financial management before a 5-year management contract is eventually entered into by SNEL and takes effect. A limited number of critical entry points have been selected to be implemented, covering the areas of financial management and accounting, reporting, procurement, and billinghd collection. These actions would address the most significant weaknesses in terms of internal controls and financial management that have been identified by SNEL external auditors. Implementation is expected to 23

32 start shortly, and would help to enhance SNEL s performance, in particular with respect to financial matters. Those actions in which SNEL management lacks the required capacity, external experts will provide implementation and management support and capacity strengthening. 69. Results Framework and Monitoring. The results framework and monitoring mechanism has been reviewed updated and adapted (Annex 13). Monthly and quarterly progress reports will be issued by the Project Implementing Unit set-up by SNEL. IV. Expected Outcomes 7. The project aims to facilitate further development of an efficient regional power market in the Southern African Development Community. The achievement of this proposed new PDO will be monitored through the following indicators: o Quantity of firm and reliable electricity exports from DRC to the SAPP; o Quantity of firm and reliable power supplied to the mining sector in Katanga. 71. Commercial and technical information about local and regional electricity supply and market is available to pool members and the public on a regular basis. The implementation of the Project should also catalyze the next stage in the development of the Inga potential (such as the Inga 3 hydropower station with a proposed additional generating capacity of about 4,3 MW) as it will provide reliable transmission access to markets within DRC and SAPP, and will reduce the amount of investments in additional transmission capacity. V. Benefits and Risks Benefits and Re-evaluation of Economic Justification 72. The economic merit of the Project has been re-evaluated at the higher total project cost and taking account of the delays in completing the Project relative to the expectations at appraisal, as well as the rehabilitation of Inga 1 and 2, and the future generating capacity additions, including Inga 3 expected to be in service by 22. The re-evaluation of the economic justification is carried out in three stages as discussed below. The details of assumptions and analyses are provided in Annex Existence of markets to be served by the Project. There are rapidly growing electricity markets in two main locations to be served by the Project. First, the market provided by the mining companies, industries and households in the industrial heartland of DRC in the Katanga Province. Electricity demand in the Province is projected to grow from about 3 MW (2436 GWh) in 28 to about 1, MW (8593 GWh) in 215, and to remain at about that level thereafter (an average annual growth of 19% over the first 7 years). This relative rapid demand growth is attributed to the expected growth of mining sector. However with the recent downturn in the international markets for metals, electricity demand may continue to drop; SNEL is continuously reassessing both short and mediudlong term impacts. The other market is provided by the SAPP, where demand of the integrated Pool, excluding DRC, is projected to grow from 47, MW in 28 to about 6, MW in 212, and to reach about 85, MW in 22. The SAPP offers a large market for the relatively low-cost hydro-based electricity of DRC, 24

33 which could lead to overall reduction in the cost of electricity in the SAPP, and promote industrial competitiveness and economic growth in the Southern Africa Region. The potential demand over the medium to long-term for imports from DRC is as large as DRC is able to supply. The SAPP will therefore be an alternative market for any decline in demand in the mining sector of DRC. Following its completion at end-212 the Project will transmit 2-5 MW of power from the Inga hydropower plants into the Katanga Province to complement supply from the generating plants in the Province and for exports into the SAPP (see Annex 15). It is fair to say that the economics of power exports in Southern Africa have firmed up considerably in favor of DRC compared to the time the original project was prepared. 74. Least-cost means of se'rving the markets. The Project still represents the least-cost means of providing the transmission capacity of 576MW from the Inga hydropower stations to the border with Zambia and at the end of the interconnector to Zambia, at the total cost of US$43 million to serve the market in the Katanga Province and for exports into the SAPP. This is compared with the alternative of constructing a new transmission system of same capacity and over same distance at an estimated cost of US$1.2 billion, or the construction of an additional 6MW new generating capacity and associated transmission lines at an estimated cost of US$7 million for power that would have otherwise been transferred along the transmission line into the Katanga Province and for exports into the SAPP. The SAPP Pool Plan study of medium to long-term generation and transmission expansion program for the integrated power pool, completed recently by international consultants for the SAPP Co-ordination Center, confirms the Project as part of the least-cost future main transmission backbone development of the SAPP. This new SAPP transmission backbone will be required to transport hydro-based generation from the future Inga hydropower plants for exports into the SAPP. The Project also provides the least-cost means of bulk power transmission for the future electrification and expansion of access to cities and towns in the hinterland of the country, which presently have no access to electricity. 75. Profitability of the Project as measured by the economic rate of return (ERR). The Project economic profitability is better today than it was in 23. The estimated ERR now is 31 percent, excluding the benefits that would arise from the leasing of the excess capacity of the telecommunication system component, compared to the estimated long-term opportunity cost of capital to DRC of 1 percent. Compared to the ERR of the original project (21%), the net benefit is higher because the value of delivered power has increased substantially from UScl.O/kWh in 23 to USc7./kWhy the long-run marginal cost of the SAPP discounted to the DRC border with Zambia. Even if a value of USc5.65kWh is used (base-load generation cost of the SAPP discounted to the border of DRC), the ERR is still 24%; at a value of USc3.5/kWH, the ERR is 1%. 76. The estimation of the ERR follows the traditional approach of comparing economic costs and benefits in real terms. Costs comprise: The delivered incremental cost of electricity to the transmission system based on the estimated cost of generation from Inga 3 of USc2.7/kWhY as a proxy for the long-term marginal cost of generation of the DRC power system. Inga 3 is the next-in-line candidate development in the DRC long-term least-cost generation expansion program. The next developments will be the Grand Inga schemes which are further in the future; 25

34 The project s capital cost estimated at US$393 million, excluding price contingencies; and The SAPMP transmission system annual fixed operation and maintenance cost, estimated at US$12 million on the basis of cost of a new transmission system. 77. Net electricity transfers into Katanga Province, after adjustment for 6.5-percent transmission losses, are expected to increase from about 1947 GWh in 213, following completion of the Project, to 394 GWh in 218, and expected to remain at about that level for the future. Exports are maintained at a level of 21 MW on firm continuous basis (1-percent load factor -184GWh per year). Until year 2.13, when the new Inga-Kinshasa 4 kv transmission line is built and operational, the consumption in Kinshasa would be limited to the power transfer capability of 4 MW of the existing transmission line. The net energy flows on the transmission line to feed into the Katanga Province and for exports into SAPP are projected to increase from 3787 GWh in 213 to 5521 GWh in 218, and remain at that level for the remaining life of the Project. (Annex 15). 78. Net energy transfers are valued at USc7./kWhY as the value to DRC of a unit of electrical energy consumed and or exported. It reflects the long-term Willingness-to-Pay (WTP) by the mines in the Katanga Province as compared to the cost to them of the alternative thermal generation, or of imports at the border with Zambia. The WTP is achievable by the time the Project is completed, as time is required for DRC to re-establish confidence in the market that it is capable of providing electricity into the market on a sustained reliable basis. This will be assured by the completion of this Project as well as the completion of the rehabilitation of the Inga 1 and 2 generating facilities. For several years now, supplies to the mines and to the customers in the SAPP have been subject to high levels of unreliability. 79. The WTP is estimated as the net-back value of the average incremental cost (AIC) of base-load and peak-load electricity at the bulk supply level in the SAPP of USc8.69kWhY which also reflects the long-term WTP in the SAPP. This is adjusted for marginal cost of transmission estimated at USc.65/kWhy based on the SAPP regional least-cost transmission expansion program, and cumulative technical losses of 12% from Southern Africa to the DRC-Zambia border. In this case, the value to DRC considers the opportunity cost to the SAPP of the alternatives to the SAPP in-lieu of imports from DRC. It enables DRC to capture further consumer surplus as a result of its relatively more cost-effective hydro-based generation and bulk supply at an estimated marginal cost USc2.73kWh. Since electricity exports from DRC into the SAPP is considered to be available 1-percent of the time it could be used to meet both baseload and peaking requirements. The net-back price of USc7.kWh captures both roles of DRC exports. The case of considering imports from DRC for base-load duty only with WTP estimated at USc5.6KWh was used as one of the sensitivity scenarios examined, because it is not far in excess of the export sales tariffs recently negotiated or under negotiations, and the current average price to the mines. 8. Sensitivity analyses. Ten alternative sensitivity cases were considered to test the robustness of the ERR; the results are summarized in Table 4 below. They confirm the robustness of the ERR with values well above the opportunity cost of capital to DRC. They show that the ERR is more sensitive to the price of electricity and impacts of delays in completing the rehabilitation of Inga 1 and 2 than to capital cost increases. In the extreme and highly unlikely scenario of the combined effects of: (i) 2% project capital cost increase; (ii) 5 26

35 years delay to 225 in completing Inga 1 and 2 rehabilitation; (iii) 5 years delay in completing about 5 MW of new generating capacity additions mostly in the Katanga Province to complement supply and enable contractual exports; and (iv) energy valued at the lower price of US$.O565/kWhy the ERR is still robust at 17%. The impact of prolonged 2% decline in the demand of the mining sector in the Katanga Province would lower the ERR to 26% and if the current average price for bulk sales to the mining companies was considered as a proxy for the willingness-to-pay, the project ERR would be equal to the cost of capital of 1%. Base Case and Sensitivity Cases Considered Base Case: 6) power transfers from West to Katanga Province take account of distribution system constraints in Kinshasa in the early years until Inga 3 comes into service;(ii) export contractual obligations fully met; (iii) cost of energy delivered to the transmission system based on marginal cost of generation from Inga 3 at USc2.27/kWh; and( iv) electricity sales valued at USc 7/kWh as the WTP of the integrated SAPP for DRCpower net back to the DRC border with Zambia Alternative 1: capital cost increase of the Project by 2% Alternative 2: energy valued at USc 5.6YkWh for base-load supply Alternative 3: 2 years delay in completing Inga 1&2 Alternative 4: 2%capital cost increase + 2 years delay in completing Inga land2+enerw value at USc 7/kWh Alternative 5: 2 years delay in completing Inga I and 2 +2% capital cost increase + energy value at USc 5.65/k Wh Alternative 6: increase power transfer capability to IOOOMW Alternative 7: 5 years delay in completing 5MW of new capacity Alternative 8: combined effect of 2% capex increase; 5 years delay in completing Inga I and 2; 5 years delay in completing new additional generating capacity (5MW); and lower energy value at USc5.65/kWh Alternative 9: 2% reduction in energy transfers to the transmission line due to decline in mining sector demand Alternative 1: energy valued at USc3S/kWh, the current average bulk supply to the mining sector, as an estimate of the long-term willingness-to-pay Net Present Value (US$ Million) at 1% Discount rate Economic Rate Return ("/.I The estimate of ERR at appraisal of the original Project was 22% with Net Present Value of US$115.4 million The estimation was based on: the project capital cost of US$169 million, without price contingencies; fixed operation and maintenance cost based on information obtained from SNEL records; energy cost to the transmission system based on production from the Inga hydropower stations; electricity exports into SAPP initially from 5 MW and projected to increase to about 8 MW on firm continuous basis (Le. at 1% load factor) from 21 onwards and 27

36 maintained at that level for the remaining 3 year life of the rehabilitated transmission system; and energy sales valued at the then negotiated price of USclkWh for exports to ESKOM as measure of benefit to DRC. 82. Sensitivity analyses were also carried on assumptions of 2% variation in the capital and fixed operation and maintenance costs, as well as the price of energy. They confirmed the robustness of the ERR estimated. 83. The other benefits not considered in the above analysis include the benefits to DRC of the use of the excess telecommunication capacity to be made available for all the various forms of communication and information for private and public business applications and household uses applications. It will provide the first broad-band telecommunications back-bone infrastructure for DRC, and expected to reduce cost of telecommunications services by two-thirds. An approximate conservative estimate of the incremental gross revenues accruing to the whole sector is estimated to be in the range of US$5 million for the first 6-7 years of operation of the telecommunication system. 84. The benefits of commercializing the excess telecommunication capacity will flow from various ICT applications for the private, public, household and business sectors and in revenues streams for SNEL. As part of the ICT strategy preparation, various options are being assessed for the optimization of the national infrastructure networks to which the new OPGW can contribute. 85. The OPGW installed for SNEL will connect to that of its partners in the SAPP in Zambia and Southern Africa with the potential to connect to undersea cables and global telecommunications networks. SAPMP may act as a catalyst or an important connected component of additional regional infrastructure projects which would radically change the ICT potential of Central and Southern Africa (see attached map). These are: The World Bank-supported Central African Backbone Project (CAB) which could link to the OPGW from the North; The World Bank-supported Regional Communications Infrastructure Program (RCIP) which could link to the OPGW from the East and for which DRC is eligible to apply; and The West African Festoon System (WAFS) of undersea cables along the West Africa Coast which could link to the OPGW from the West with the current project to link Muanda to Kinshasa. 86. The provision of social infrastructure to the communities along the transmission line corridor from Fungurume to Kasumbalesa under the Project, comprising water supply and sanitation systems, construction of schools and clinics, including provision of school hrniture and six months supply of basic medicines, electricity supply, and the implementation of HIV/Aids awareness campaign will bring added improvement in the quality of life of the communities, and generate more economic activity; and 28

37 87. The catalytic effect of the Project in attracting private investments into the rehabilitation of Inga 1 and 2, as well as for the development of Inga 3, because of the access it will provide to markets in the Katanga Province and in the SAPP. Without the Project, such investments would not be realized, or would require the construction of new transmission system at much higher cost with longer delays. Risks 88. The overall risk of the operation is assessed as substantial as described in the matrix below: 29

38 Risk Political. Disruption of the ongoing political reconciliation process that could undermine the project implementation. Corruption. Experience with other projects in DRC highlights the serious risk of corruption particularly in major infrastructure projects. Time required for implementation of the project. Given the proposed revised project closing date of December 212, there are risks that the fabrication, delivery, installation and testing of material and equipment would take longer than the estimated time in the implementation schedule. Additional Cost Overruns. Major increase in the scope of work due to further deterioration of the transmission system, which could have negative impact on the project cost. Financing. /SNEL inability to Produce their financing share for Risk Rating H S S M L S Risk Mitigating Measures While the political situation seems to be stable, the Bank will continue to work closely with the UN and other development partners to monitor the political situation. Procurement. The procurement arrangements under the Project have been designed to assure full transparency of all processes leading to contract award in strict accordance with Bank procurement guidelines. An internationally known engineering firm is supporting DRC particularly on procurement matters. Major procurement action is near completion with most of main contracts awarded or near award stage. Heightened Bank supervision will address potential issues of corruption that may arise during implementation. As needed third party support will also be mobilized. Financial Management is handled by BCECO. Project related financial matters are subject to periodic external audits; BCECO as the financial management agent is also subject to external audits. This is a serious risk given that some of the equipment to be procured under the Project, especially with the technologically complex components of the Project, which are at the same time in relatively high demand, with few suppliers. For the largest contract, which potentially poses the highest risk, the winning contractor is also the manufacturer of the equipment; this could mitigate the risk of potential delays. All major contracts should be signed just after Board approval of the additional financing as procurement process has already been completed. Additionally, reasonable amounts have been added to the project cost to account for price and physical contingencies that could arise during implementation. Steps were taken before the launching of the bids to ensure that implementation details update the scope of work for each contract. In addition site visits prior to bidding were organized with the potential bidders. In order to mitigate this risk, /SNEL contribution to this project is limited to 1.6% of the project 3

39 the project. Project Sustainability. Given the past performance of the utility in the operation and maintenance of the transmission system, the rehabilitated system could fall into disarray. In addition, the sustainability of the infrastructure services that would be put in place under the community development component poses a significant challenge and risk. Inga 1 and 2 rehabilitation: Delays in completing the rehabilitation works at Inga 1 and Inga2 due for example to financing constraints, and impacting on the availability of power supply to the transmission system, and subsequently on economic viability of the investments in the transmission line. Institutional Capacity for implementation. Weak institutional capacity and lack of proper organizational arrangements. M H H cost or US$6.86 million and will be paid progressively over the next three years of the implementation period. GoDRC and SNEL have agreed in principle for retaining an O&M contractor to operate and maintain the transmission system for a period of at least five years and to train SNEL staff in operation and maintenance of the transmission systems. In addition, the Bank is working with the under the PMEDE project for the reform of the power sector and of SNEL, including handing over the operation and management of the electricity utility to an experienced utility. Lessons from past experience on social community infrastructure services will be utilized to design systems for community, local and provincial support to ensure continuing maintenance of the infrastructure services to be provided. Although, commitment to the rehabilitation of Inga is strong, there are technical, legal and financing issues which may lead to additional delays. Significant efforts are currently made to minimize implementation risks as follows: (a) priority is given to the rehabilitation of nonoperating units; (b) SNEL is assisted by an experienced Consulting Engineer; and (c) additional financing from public sector and mivate sector sources is currentlv sought. In the past three years, staffing and organizational arrangements for the dedicated Project Implementation Unit (UGP) at both SNEL headquarters and work sites have been completed with a view to ensuring effective contract supervision and project management. Necessary equipment and tools, and training programs for capability strengthening have been put in place. Working arrangement with the Engineering Consulting firm hired to assist in supervision of project execution has also further been strengthened. UGP has also high degree of autonomy to ensure its efficiency in management of procurement and implementation issues with the assistance of the engineering consultant. In addition by merging existing project implementation units, SNEL has established and is currently strengthening an overall Project Management Unit remonsible for the 31

40 Excess telecommunication capacity. Legal and regulatory framework insufficient to enable effectively the optimization of the commercialization of the excess telecommunication capacity. Implementation of environmental and social safeguards in Zambia. M M implementation of all projects, particularly the SAPMP and the PMEDE projects. This should fbrther strengthen capacity for implementation of the Project. However, there is the risk that overall weaknesses of SNEL as an organization, instability within the organization through rapid and frequent top management changes could adversely affect the capacity of UGP to effectivelv manage imdementation of the Proiect. The has committed to take all measures necessary on his part to unable commercialization of the excess capacity to a private operator under an open access regime, in accordance with application laws and regulations. Another Bank supported project is supporting adoption of an ICT Policy Strategy and drafting of supporting legal and regulatory instruments. CEC has committed to SNEL and IDA that it would comply with the Bank s and Zambian environmental and social safeguards requirements, subject to certain conditions. IDA may exercise its remedies under the Financing Agreement if CEC s commitment does not become effective by the agreed date or if, having become effective, it is breached. Furthermore, Zambia, under separate Development Credit Agreement, has committed to caus,e CEC to comply with the Bank s and Zambian environmental and social safeguards reauirements. VI. Financial Terms and Conditions for the Additional Financing 89. The original IDA Credit approved in September 23 was on-lent to SNEL at quasicommercial terms. SNEL s accumulated financial losses are very high; it has therefore been agreed with the GoDRC that the Additional Financing be provided to SNEL as a grant to strengthen SNEL s financial situation. 9. Conditions for Board Presentation VB: Condition met) Confirmation by CEC of its financing to construct the additional transmission link between DRC and Zambia. 91. Signing: Amendment of the Development Credit Agreement providing for the Original Credit and corresponding Project Agreement will be signed at the same time as the Financing Agreement and the Project Agreement for the Additional Financing for purpose of consistency. 32

41 92. Conditions of Effectiveness Execution of the Subsidiary Agreement. Effectiveness and availability of funds under the EIB Co-financing Agreement in form and substance satisfactory to IDA. Recruitment or designation by SNEL of two environmental specialists and two social scientists with qualifications acceptable to IDA for the Project Recruitment of an entity for the purpose of providing the project Implementing Entity additional oversight in the supervision of the implementation of the Resettlement Action Plan and the Compensation Plan. Opening up of the Project accounts with terms and conditions acceptable to IDA. Signed amendment to the Protocol d Accord between SNEL and BCECO Revision of the Project Implementation Manual by SNEL satisfactory to the Association The Amendment to the Zambia DCA signed between Republic of Zambia and the Association 93. Additional Dated Covenants Appointment of the Transmission Assets: Contractor for the Operation and Maintenance of SNEL (a) No later than April 3, 21, SNELLJGP should appoint a consultant for the design of operation and maintenance services for SNEL s transmission assets; drafting of terms of reference (including required qualifications and experience) for the appointment of the O&M Contractor; the delineation of the high voltage transmission system to be covered by the O&M contract; determining the funding requirements to perform the operation and maintenance of the power transmission assets until the O&M contractor has been recruited. (b) No later than September 3, 212, appointment by SNEL of the O&M Contractor. Provisioning of the project accounts as per schedule agreed upon between DRC, SNEL and IDA. Appointment of an internationally experienced private operator to commercialize the excess capacity of the telecommunications system under Open Access regime: (a) No later than December 31, 29, recruitment by SNEL of a consultant to: (i) design the services to be provided for the management, maintenance, operation and commercialization of the excess telecommunication capacity; (ii) assist with the recruitment of an internationally experienced private operator for the commercialization of excess telecommunication capacity under Open Access regime; and (iii) assist with the necessary interconnection agreements. (b) (i) No later than September 3, 21 the shall (identify all measures required to select the operator in accordance with applicable laws, and prepare a timetable for the implementation of the measures, and (ii) no later than September 3, 212, implement such measures. 33

42 (c) No later than September 3, 212, appointment by SNEL of the international private telecom operator. Safeguards: (a) No later than September 3, 21, the Recipient shall furnish to the Association a Completion report on the implementation of the RAP, including the Compensation Plan. (b) No later than September 3, 29, the conditions of effectiveness of the CEC Commitment to IDA and SNEL will have been satisfied. 34

43 ANNEX 1 : DRC ELECTRICITY SECTOR REHABILITATION AND DEVELOPMENT STRATEGY, AND ALTERNATIVES CONSIDERED FOR THE REHABILITATION OF THE INCA-ZAMBIA TRANSMISSION ASSETS Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing 1. This annex provides background information on DRC power sector overall strategy and on the rehabilitation programs currently implemented or planned under the PMEDE and SAPMP programs, and also on the alternatives considered to carry out the implementation of the rehabilitation of the transmission assets - the SAPMP Program. I - Background DRC Hvdroeeneration Generation, Transmission, Demand Level and ProsDects 2. The Inga hydroelectric complex is a project of regional importance. The site has a potential of about 44, MW; so far two generating plants have been commissioned: Inga 1 and Inga 2. The generation of the fully rehabilitated Inga 1 and Inga 2 plants (in total 14 units) would bring the Inga system installed capacity to 1,775 MW of nameplate capacity, able to generate 1,61 MW. Current generation is about 7 M W as more than half of the generating units are idle and all the units are in need of rehabilitation. Details of the Inga 1 and 2 installed capacity is as follows: Inga 1 : 6x 58.5 MW 351 MW Inga 2: 4x 178 MW 712 MW 4x 178 MW 712 MW Total 14 units 1,775MW 3. The national transmission system consists mainly in: (i) over 2, kms of power transmission lines and substations originating at the hydroelectric complex of Inga, providing power to the mining companies and other industrial complexes in the Katanga Province of DRC, continuing to the DRC/Zambia border, and connecting to the Zambia power system and to the Southern Africa power pool. This transmission system serves as backbone for the DRC system and includes one of the longest DC transmission lines in the world; and (ii) the transmission line from Inga to Kinshasa (26 km) and to Brazzaville (Republic of Congo). 4. The demand for electricity has been increasing rapidly both in DRC and in the Southern Africa region. Excluding exports to Southern Africa and the Republic of Congo and the demand from the proposed aluminum smelter, electricity demand is projected to grow from 77 MW GWh in 28 to about 167 MW in 215, and to reach about 2268 MW in year 225, an average annual growth of about 7% over the period. Most of the demand will however continue to be concentrated in the Western part of the country because of the demand from the capital Kinshasa and the other major urban centers in the West. Demand in the industrial heartland and in the Southern part of the country is projected to grow significantly but will be mainly related to evolution of the mining sector. Between 1,6 and 2, MW may also be needed for a new aluminum smelter expected to be commissioned around during a new stage in the development of the Inga potential (most likely Inga 3). 35

44 5. The regional demand is also projected to expand rapidly. A recently completed study of generation and transmission expansion for the Southern African Power Pool (SAPP) by international consultants concluded that the SAPP regional demand will grow from about 36,93 GWh (46,95 MW) in 28 to about 43,294 GWh (63,53 MW) in 215, and 448,254 GWh (77576 MW) by 22, an annual average growth rate over the period of about 4.3%. About 8% of the demand will be accounted for by South Africa. The SAPP offers therefore a large market for exports of power from DRC. Current level of exports is however low at 1 MW firm; SNEL has indicated that it wants to provide at least 21MW of capacity to the SAPP prior to the commissioning of the next stage of Inga. The Domestic and Revional Markets DeveloDment Proiect (PMEDE) and the Southern Africa Power Market Proiect (SAPMP) 6. Two projects - the PMEDE and the SAPMP - supported by the World Bank, the European Investment Bank and the African Development Bank are currently under implementation. 7. The PMEDE proiect - an IDA grant of $296.7 million equivalent was approved in 27 - aims at: (a) rehabilitating some of the generating units of Ingal and Inga 2 and the facilities common to the two power plants; (b) building an additional transmission line to Kinshasa to increase the quantity and reliability of power delivery; (c) rehabilitating and reinforcing the distribution system in the capital Kinshasa; and (d) initiating the dialogue with the for the strengthening of the power utility (SNEL) performance. To that effect the PMEDE project includes activities supporting a new institutional set up and legal framework for the sector which should improve transparency, attract private sector investments and transform SNEL into a modern power utility. Work has been initiated to address some weaknesses of SNEL particularly with respect to commercial and financial management, procurement, and internal controls and audits. Preparatory work is also progressing on a 5-year management contract for SNEL. The PMEDE will also seek to complete rehabilitation activities initiated under the IDA financed Emergency Infrastructure program (PMUUR). Annex 5 discusses in more detail the PMEDE project and the status of the rehabilitation of the Inga and Inga 2 generating units. Additional financing to the PMEDE operation is needed to account for the increase in the rehabilitation costs, to strengthen the institutional set-up of the power sector, support private sector participation and the reform of SNEL, further improve distribution technical and commercial performance; and prepare the next stage of Inga development. 8. The SAPMP proiect addresses the rehabilitation of the high voltage transmission system, the backbone of DRC power system, originating at the Inga site and ending at the Zambia border, 3, kilometers from Inga. The SAPMP project would inter alia improve the reliability of supply to the mines in the Katanga region and to the export markets. It should also create the condition for private sector participation (in particular by the mining companies, one of the principal benefactors of a reliable and low cost power supply) in financing the rehabilitation of the Inga 1 and 2 generating units. The SAPMP project is discussed in detail in Annex Main Power Sector Issues 9. Due to many years of lack of maintenance and of civil strife, of focus on commercial and financial aspects, of maintaining its human capacities, DRC s power sector is in need of large 36

45 scale and profound rehabilitation, financial restructuring and renewed management. Access to electricity services is on average 6% (one of the lowest access rate in Sub-Saharan) with less than 1% access in rural areas. Furthermore the quality of the services is poor. Rehabilitation Needs 1. The existing infrastructure is in very poor condition and need to be rehabilitated. The key areas already mentioned are: (a) the Inga 1 and Inga 2 generating facilities and also hydroelectric generation facilities in the rest of the country; (b) the Inga-Kolwesi-Zambian border high voltage transmission system - the SAPMP Project -; and (c) the distribution system. Increased attention is also needed on the distribution system and to rural areas (where electricity access is about 1 YO). The following paragraphs briefly discuss the rehabilitation of the Inga generating units and some other generating plants and of the distribution system To complete the program of rehabilitation of all the 14 units of the Inga hydroelectric plants, the rehabilitation and extension of the transmission system and the rehabilitation and reinforcement of key distribution systems an additional US$ 5-$6 million over the next five years is needed, of which about $3 million is needed for generation. This is more than what the donor community can commit now. SNEL cash flow is too weak to contribute to project financing under the present arrangements. A limited number of creditworthy investors, such as mining companies, have expressed interest in financing the rehabilitation of some units at Inga. To attract private sector financing for rehabilitation and for green field projects a new policy and strategy and institutional framework for PPP are needed. For these reasons and also to further access to electricity, the Ministry of Energy, with the support of the Bank, has initiated the preparation of a power sector policy and strategy and of a new electricity law. (see section 111 below). 12. The program agreed with SNEL and its international consultants envisages the rehabilitation of all 14 generating units over the next ten years to be concluded in 22. To achieve this it is proposed that additional IDA financing be sought from the Board, be applied to financing the rehabilitation of 8 units to be completed by 215/216, including the works required to rehabilitate the existing civil structures of Inga 1 and 2. As one unit is currently overhauled with private sector financing, financing for the remaining five units will however need to be secured. Should the private sector financing not fully materialize, it is proposed that a second Bank project for a designated Phase 2 of the rehabilitation program under IDA 16 be submitted to the Board to complete the Inga 1 and 2 rehabilitation program. Other power generating units in the Katanga region and in the Eastern and the Central parts of the country are also in need of rehabilitation with limited financing available. 13. SNEL s distribution system is underdeveloped and in poor condition. This will however be solved only progressively, combining improved billing, collection and commercial and management practices, with the physical rehabilitation of the infrastructure. Development of DRC s Dower System 14. The GoDRC is also reviewing its options with respect to new generation facilities. Because of the long lead time required to commission hydroelectric facilities, substantial efforts need to be made to complete the necessary feasibility and engineering studies. This relates in particular to preparing: (a) the next stage in harnessing Inga s potential (such as the Inga 3 37

46 project: 4,3 MW, or the first phase of Grand Inga) and (b) medium size hydroelectric plants such as Nzilo I1 (12MW), Zongo 2 (12MW), or Busanga (24MW). Generation, transmission and distribution master plans proposed about 2 years ago need to be updated, and technical, financial and economic feasibility studies need to be carried out. SNEL Commercial and Financial Performance 15. SNEL commercial and financial performance is also very weak. As for other state-own enterprises such as REGIDESO - the water utility -, the GoDRC has decided to bring SNEL under a 5-year management contract to be executed by an experienced utility. In the short term, actions have been initiated to improve billing and collection from some customers, financial and cash management, procurement, and also to address the issues listed in the external auditors report. In parallel with these actions and with the objectives of increasing transparency and attracting private sector interest and financing, the GoDRC with Bank support is preparing a detailed power sector strategy and a new electricity law. Imdementation CaDacity 16. Implementation capacity particularly with respect to the rehabilitation of Inga generating facilities and of the transmission system is a key issue: SNEL past performance leads to conclude that it needs to strengthen its capacity to implement a complex rehabilitation program including the Inga hydroelectric site and the reconstruction of the Inga-Zambia border transmission line. SNEL therefore needs to be supported by an experienced international project manager in addition to the international consulting engineer. SNEL will also need to rely on a Panel of Experts for assistance and guidance on highly technical matters. Two Project Implementation Units (PIUs) - one in the context of the PMEDE project, and one in the context of the SAPMP project - had been put in place within SNEL. To improve their effectiveness, the GoDRC and SNEL have agreed to eventually merge these two PIUs, strengthen the new implementation unit technical expertise, and plan to further reinforce it with international experts Electricity Sector Strategy 17. The overall strategy for DRC power sector is to take full advantage of its large and relatively cheap hydroelectric potential with sites of various sizes and well distributed countrywide. This potential should provide electricity services at low cost to meet the increase in domestic demand and to stimulate social and economic development, while in the medium term increasing revenue earning exports and becoming an important and reliable player in the SAPP regional power system. The strategy seeks to address in parallel the key issues of: (a) rehabilitation of the existing generation, transmission and distribution infrastructure currently operated by SNEL; (b) raising additional financing in particular to complete the rehabilitation of the. Inga 1 and Inga 2 generating units; (c) preparing the next investments in particular in generation; (d) increasing implementation capacity; and (e) significantly improving power sector performance, in particular of SNEL. 38

47 18. In June 28, the GoDRC presented its vision for the sector, and is now developing, with Bank support, a detailed policy and strategy document and a new electricity law. The policy and strategy aim at: e e e Meeting domestic electricity demand in DRC by increasing access in urban and rural areas, providing additional power to the mining sector and other sectors to support economic growth; Ensuring full participation of DRC in the Southern African Power Pool (SAPP) and in the Central Africa Power Pool; and Generating royalties and other revenues from power supply to DRC customer base and to the export markets. 19. Key results expected from the power sector strategy are to: e e e e e As soon as possible rehabilitate the Inga-Kolwesi-Zambia border transmission system (by 212), while in parallel progressively rehabilitate the Inga 1 and 2 generating units to their original installed capacity of 1,61 MW (completed by 22), and the related common facilities through the SAPMP project; Increase access of the urban and rural population to electricity services; for rural electrification focus on off-grid alternatives in addition to grid based electrification; Ensure the technical and financial sustainability of the rehabilitated power system (generation, transmission and distribution); Develop the next stage of the Inga hydroelectric potential (Inga 3 or the first phase of Grand Inga); and Mobilize private financing for the rehabilitation and development of the electricity sector to reduce the financing gaps, as a test for the development of Inga 3 IV- Alternatives Considered for the Rehabilitation of the Inga-Zambia Transmission Assets 2. Alternative implementation strategies have been delineated and assessed with respect to carrying out the power sector rehabilitation programs. Table 1 presents the pros and cons of the selected overall strategy, and table 2 presents options considered to rehabilitate the high voltage transmission system - the SAPMP transmission system. 39

48 Strategy rehabilitation of the- SAPMP transmission system (from Inga to DRC border with Zambia) and rehabilitate Inga 1 and 2 under public sector and PPP arrangements when feasible. Improve SNEL commercial and financial performance and the domestic distribution system in parallel. Table 1 : The Overall Implementation Strategy Pros Continuity with current approach (initiated 5 years ago). SAPMP Project ready to be presented to the Board in June 29. Procurement work already done for the main transmission contracts. No changes in contracts already awarded. Technical studies available. No restructuring of existing Bank projects. No issues with cofinanciers. Strong Bank message in support of Regional Integration. Provides incentives for private sector financing of the rehabilitation of Inga 1 and 2 generating facilities. Simpler projects; Minimize implementation Cons Transmission line completed before optimum date with respect to power flows, even though economic return of transmission line rehabilitation investment is quite robust. Financing plan for the rehabilitation of Inga not complete at date of approval of SAPMP Additional Financing. Portion of the transmission line (from Kolwezi to the DRC border) may be unusedhnderutilized, if the generation rehabilitation is delayed for lack of financing. 21. With respect to the rehabilitation of the high voltage transmission systems - SAPMP project - four different alternative strategies have been assessed by the team, leading to the conclusion that the transmission system should be rehabilitated as soon as possible. Strategic Option Option 1: Carry out as soon as possible the rehabilitation of the transmission system required for domestic demand and defer the strengthening of the 22 KV export system. Table 2: Options to Rehabilitate the Transmission System Pros I Cons Improves project economic return by deferring $7 million of investment (about 16 %) of project costs. Reduces SAPMP financing requirements by $7 million in the short term. Provides incentives for private sector financing of the rehabilitation of Inga 1 and 2 generating facilities. Weaken message regarding Bank support to regional integration. Undermines DRC efforts to demonstrate to the Southern African Power Pool and the Central Africa Power Pool that DRC is a reliable regional partner. Some of the SAPMP contracts already signed. Option 2: Defer the rehabilitation of the transmission system till additional power is available from Inga 1 and 2 i.e. by 5-6 years (financed in part through the PMEDE Inna Provide time for mobilizing complete financing for generation and transmission. 4 Procurement will need to be totally reinitiated with a high risk of lack of interest. Procurement advances over the last 2 years to be lost. Loss of existing approved

49 rehabilitation program). Option 3: Request in about 8 Could provide a more months additional financing for: (1) the full public sector rehabilitation of the Inga generating facilities; and (2) the transmission system. coherent view of the links between Inga rehabilitation and transmission system rehabilitation. Option 4. Merge the two Explicitly link in one projects, and request additional 1 document the generation -. financing for a new and combined generatiodtransmission project. project with the. transmission project. IDA credit of $178 million Substantial negative impacts on Bank s reputation with DRC, private sector/contractors, donor community, etc. Without appropriate rehabilitation the Inga- Kolwezi transmission system may collapse leading to severe economic impacts. Additional economic costs to DRC. Bids validity will need to be extended; procurement will need to be delayed; procurement advances over the last 2 years will be lost. Substantial negative impacts on Bank s reputation with DRC, private sector/contractors, donor community, etc. Increase project complexity Without appropriate rehabilitation the Inga- Kolwezi transmission system may collapse leading to severe economic impacts. See cons re. Strategy 3 above. Need to restructure two existing projects, modify existing legal agreements, etc. 41

50 ANNEX 2: DESCRIPTION OF THE SOUTHERN AFRICAN POWER MARKET PROGRAM Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing 1. The Southern African Power Pool (SAPP) was created on September 28, 1995 during the period in which the SADC Energy.Protoco1 was being developed. It was established by the Inter-Governmental Memorandum of Understanding (IGMOU) among seven of the eleven members of the Southern African Development Community (SADC). In December 1995 the Inter-Utility Memorandum of Understanding (IUMOU) was signed by the national power utilities. At present, the utilities of the following SADC countries are members of the SAPP: Angola - Empresa Nacional de Electricidade (ENE); Botswana - Botswana Power Corporation (BPC); Lesotho - Lesotho Electricity Corporation (LEC); Malawi - Electricity Supply Corporation (ESCOM); Mozambique - Electricidade de Mozambique (EdM); Namibia -Namibia Power (NamPower); South Africa - Electricity Supply Commission (ESKOM); Swaziland- Swaziland Electricity Board (SEB); Tanzania - Tanzania Electricity Supply Company (TANESCO); Zambia - Zambia Electricity Supply Corporation Limited (ZESCO, Ltd); Zimbabwe - Zimbabwe Electricity Supply Authority (ZESA); and the Democratic Republic of Congo - Societe Nationale d ElectricitC (SNEL). The SAPP was the first formal international power pool established outside of Europe or North America. The Pool comprises an area of 9.9 million sq. km and approximately 174 million people. The total number of electricity customers of the combined national interconnected systems was about 6.4 million in 28. The total peak load in the SAPP in 22 was 38,115 MW, and 47, MW in 28 with an average load factor of 7%. The total generating capacity of the SAPP in 28 was about 5, MW, 74% of which is provided by thermal plants mostly coal-fired. Since the hydro capacity is subject to hydrological fluctuations the effective capacity is lower. 2. At present, there are two classes of members in the Pool: (i) operating members linked to the interconnected - regional grid and participating in the power trade, and (ii) non-operating members, which are yet to construct the transmission line linkages to the regional grid to participate in and enjoy the benefits of the regional power market. The non-operating members are ESCOM (Malawi), TANESCO (Tanzania) and ENE (Angola). 3. ESCOM (Malawi) and TANESCO (Tanzania) are expected to be connected to the regional power market through, respectively, EdM (Mozambique) and ZESCO (Zambia). The construction of the transmission line interconnection between Mozambique and Malawi is expected to begin in 211. The timing of interconnection between ENE, SNEL and NamPower will depend on the need to move power South through Angola. 4. The SAPP is organized under the Executive committee, which acts as the board of directors of the pool and is responsible for the overall pool policy, and a Management committee, which oversees the administration of the Pool. Three subcommittees serve under the direction of the Management committee and are in charge of technical issues: the Planning Subcommittee (which focuses on reviewing power wheeling rates annually and developing an indicative SAPP expansion plan every two years), the Environmental Subcommittee and the Operating Subcommittee with its associated Coordination Center. The Coordination Center in Harare, Zimbabwe, has several functions, the most important being the technical oversight of pool operations and acting as a trading center for electricity flows across the borders of member 42

51 countries. There are also special working groups, comprising representatives of member utilities with relevant expertise, that are formed on an as-needed basis to address specific issues that arise (e.g. the Telecommunications Working Group has developed recommendations for a suitable and financially viable telecommunication infrastructure to support competitive trading in the region and to facilitate secure and sound operations of the SAPP power grid; and the Quality of Supply Working Group is working to establish standards for quality of supply in the SAPP and their measurements, etc.). 5. The SAPP Agreements state that the purpose of the Pool is to allow its members to coordinate the planning and operation of their systems while maintaining reliability, a degree of autonomy, and sharing of the benefits - including reductions in required generating capacity and reserves, reductions in fuel costs and improved use of hydro-electric energy. The objectives include reduction in investment and operating costs and enhancement of the reliability of supply through providing opportunities to coordinate the installation and operation of generation and transmission facilities. 6. The SAPP members agreed to begin their pooling operations as a loose, or cooperative, pool. Loose pools emphasize gaining the maximum economic and reliability benefits from trading within the parameters of maximum system autonomy. These pools do not employ central dispatch and tend to be characterized by long-term bilateral contracts for the supply of electricity between particular generators and customers, supplemented by offsetting short-term contracts and other deals under the overall agreement framework. Loose pools may provide central services such as data gathering and provision-- including providing continuous real-time data to match generation and demand, producing indicative expansion plans, and implementing emergency procedures. Loose pools also establish detailed common design and operational standards to ensure system security and reliability, and to facilitate trades. 7. However, recently the SAPP has been focusing on moving from a cooperative pool to a tighter pool. Operating as a cooperative pool the SAPP brought to its members benefits of support in emergency situations and increased reliability of supply. Competition was not promoted between members and the cost of electricity was centered on recovery of operating costs. Moving to a tighter pool would require ensuring open access to transmission infrastructure and addressing the issues of the differences in size of the utilities within the SAPP. Otherwise, effective competition would be difficult to envisage. 8. Initially, since each member has an obligation to meet domestic demand, some members hesitated to rely on the Pool for large proportions of domestic load because of reliability problems in the operation of the interconnected transmission system. Gradually, as transmission system reliability improved, members have become more comfortable with taking a large proportion of their power requirements from the pool, when it reduces cost, rather than maintaining full domestic capacity to cover their demand and reserve requirements. As an example, imports from the SAPP cover about 7% of power demand in Botswana and Namibia, and about 4% in Zimbabwe. 9. The trading environment within the SAPP is poised for fundamental change. The primary reason for this is the imminent depletion of the excess generation capacity, which has been an enduring feature of the region's electricity sector over the past two decades. 43

52 1. Since the formation of the SAPP in 1995, the trading has been characterized by large supply/demand imbalances. The supply surplus has resulted in electricity being traded at prices well below long run marginal costs. This situation was tenable for as long as no new major generation investments were required. However, as a result of growth in regional demand, the deferral of major generation investments and the retirement of aging plant, new generation capacity has been required since 27, when the SAPP began to face serious supply deficits. The new investments can only materialize if the SAPP market is restructured appropriately so that prices are based on economic levels. 11. There are two market mechanisms currently employed in the SAPP trading namely, long term Power Purchase Agreements (PPA) and the Short Term Energy Market (STEM). 12. Historically, the PPA mechanism was the only form of trading with contracts typically lasting for 1-15 years. While PPA prices are meant to reflect both fixed and variable cost cqmponents, the actual agreed prices in the SAPP have been well below the long run marginal costs, since the fixed costs were considered sunk and largely unrecoverable in a market with large excess generation capacity. Most of the PPAs expired beginning 27, when the supply deficits became acute. The new PPAs will not be based on historically low price levels but on long run marginal costs. The long run marginal costs are expected to be between two to three times the current PPA price levels. 13. Over the past two years STEM trading has increased rapidly. STEM trading is predominantly based on day-ahead short term contracts for the supply of energy in hourly periods. The STEM pricing is based on the variable cost component. In a pool with large hydro generation such as the SAPP market, there is considerable potential for this type of trading. As a result, the prices in the STEM market have been significantly lower than the average PPA prices and utilities have displayed an increasing interest for this form of trading. However, since STEM trading does not recover fixed costs, it cannot encourage new generation investments. 14. The STEM market mechanism is expected to be transformed into a classical competitive pool mechanism, where the power pool players receive the system marginal price plus an availability payment. The system marginal price is the price of the most costly plant dispatched at any given hour. The availability payment is based on the Value of Loss of Load (VOLL). This mechanism allows producers to recover their required return on assets, thus encouraging new generation investments. 15. The persistence and predominance of STEM is heavily dependent on the amount of excess generation in the market. The risk of failing to contract for the required energy in a pool with large excess generation is low since there are potentially a number of sellers of energy. However, in a pool with little surplus generation, there may be a considerable risk of a utility falling short of their energy requirements. The STEM market in the SAPP has expanded rapidly over the past two years as utilities took advantage of the excess generation within the SAPP. As a result, the risks of day-ahead trading have become significant as the surplus generation has been exhausted. Member utilities now prefer to enter into PPAs for the bulk of their demand requirements using the STEM market for 'top-up' requirements. 16. In summary, it is expected that the trading mechanisms within the SAPP will change significantly over the next few years. Many of the long standing PPAs expired in 27 and 44

53 28, and new ones are under negotiation. The new contracts are likely to be shorter and based on long run marginal costs resulting in a two to three-fold increase in prices. 45

54 APL APL APL _ I- APL 1-b 27- (S297 rn Grant). ' Angola,' I 1 Tanzania,> * Linking Angola and Tanzania to SAPP Mozambique. ($48 m) *-- --* Linking Malawi to SAPP Rehab of Inga-1 and Inga-2 Hydro Power stations S A P P. Rehab of existing 2 km HV T- line 46

55 ANNEX 3: DETAILED PROJECT DESCRIPTION Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing 1. The objective of the Project has been revised from the stated objective in the Development Credit Agreement to provide for greater clarity with respect to the pr4ect s achievable goals. The re-stated objective is to facilitate further development of an efficient power market in the Southern African Development Community (SADC). This is important to create conditions for accelerated investments in the power sector, to increase overall economic competitiveness and to foster regional economic integration among the participating countries. 2. It is proposed to restructure the project by modifying some of the components and adding new essential ones to ensure that the output of the project can be achieved and be sustained. Project, as restructured, therefore, consists of the following components: Component 1 - Rehabilitation and Reinforcement of Converter and Inverter Stations at Inga and Kolwezi (US$142.8 million) 3. This comprises the replacement of the core systems of the two converter and inverter stations at Inga and at Kolwezi respectively. As the rehabilitation of the existing installation hasn t proven feasible it has been decided that the valves, cooling and control systems should be replaced in order to obtain reliable and modern stations. The replacement will enable also to increase the rating of the equipment from the original 2x288 MW (total 576 MW) to 2x5 MW (total 1, MW) This upgrade is possible with minimal additional cost due to the high power thyristors used in the modern installations. The overall capacity will, however, remain at the original installed capacity level after rehabilitation since the converter transformers and the filters on the AC side will not be replaced or upgraded under the project to enable the capacity of 1, MW. 4. This contract includes also a major rehabilitation of the AC 22 kv switchyard equipment and its protection. The replacements of the circuit breakers and its control/protection will substantially improve the overall reliability. 5. A further component of this contract is the repair and rehabilitation of the three synchronous compensators, required for the converter operation in Kolwezi. One damaged unit will be overhauled and the common equipment, such as the switchgear, starting and control/protection equipment will be replaced. 6. All PCB contaminated equipment, such as the capacitor units and the auxiliary transformers will be replaced. These will be kept in safe storage, temporarily, and subsequently disposed off outside DRC through incineration under the services of an internationally experienced firm. 47

56 Component 2 - Rehabilitation and Reinforcement of Extension 22 kv Substations at Fungurume, Panda, and Karavia, and Installation of Modern SCADA System at Likasi Control Center (US$47.2 million) 7. The rehabilitation of the existing 22 kv substations on the axis between the Kolwezi converter station and the Zambian border will enable the reinstatement and the reinforcement of the HV highway for the electrical energy exchange with Zambia and SAPP countries. 8. The project scope comprises the replacement of the unreliable equipment, such as the circuit breakers, current transformers, but also the replacement of the technologically antiquated control system and unreliable protection relays. 9. At the Karavia substation near Lubumbashi inductive power compensation equipment shall be installed to improve the unfavorable reactive power balance and improve the system stability of the HVAC network. 1. To enhance efficiency of operation and management of the transmission system, the existing SCADA facility at Likasi will be upgraded. Component 3 - Construction of the new 22 kv Overhead Lines from Fungurume to Kasumbalesa (US$75.78 million) 11. The existing overhead lines will be reinforced by the construction of the new links between Fungurume, over Panda and Karavia, up to the Zambian border at Kasumbalesa. The existing line has limited capacity, which leads to frequent power supply interruptions to Zambia. This will be eliminated with the construction of this new line. 12. A single circuit 22kVoverhead line will be built from Fungurume to Panda, and to Karavia, and a double circuit line from Karavia to Kasumbalesa at the border with Zambia. This contract also includes the supply and installation of a medium voltage line from Shituru to Likasi for the operations of the upgraded Control Center. Component 4 - Rehabilitation of the HVDC and the HVAC Overhead Lines (US$22.36 million) 13. The existing overhead transmission lines from Inga through Kolwezi to Kasumbalesa at the border with Zambia will be rehabilitated. The works will include the HVDC as well as the HVAC lines, and the transmission towers The rehabilitation work includes replacement of all broken or missing parts such as the earthing wire, broken insulators, replacement of sections of the main conductors, both DC and AC as may be needed, improvement of some erosion zones, and to strengthen tower foundations, repair of broken bridges, and reclamation of parts of the rights-of-way. The preparatory works for this contract will include the detailed aerial diagnostic study of the transmission line, including condition assessment of the 1,7 towers in order to secure the optimum requirements for satisfactory completion of the rehabilitation. Component 5 - Telecommunication System (US$4.88 million) 14. This component consists of three sub-components, which are mutually dependent. It involves the supply and installation of a modern OPGW fiber cable over a distance of about 48

57 2,3 km and associated electronic communication equipment to be installed over the high voltage transmission line from Kinshasa through Inga and Kolwezi to Kasumbalesa at the border with Zambia to link with telecommunication system of Zambia and the Southern African Power Pool. Sub-component 1 (US$15.29 million): Supply and delivery of the optical fiber cable (OPGW cable); Sub-component 2 (US$17.34 million): transmission towers; and Sub-component 3 (US$8.25 million): electronic repeater equipment Installation of the OPGW on the high voltage Supply and installation of the telecommunication 15. The complete system will replace the existing inoperable technologically antiquated PLC system on the HVDC line, which has been out-of-service for several years. The new telecommunication system will allow SNEL the connection and communication between the new network centers in Kinshasa and Likasi and of course enable the proper operation of the rehabilitated converter and inverter stations at Inga and Kolwezi, the entire high voltage transmission system, improved communications with the rest of the Southern African Power Pool, and enhance the speed of transactions. 16. Beside the utilization of this fiber optic cable for SNEL internal communications and controls, a large excess telecommunication transmission capacity beyond the needs of SNEL will be commercialized by internationally experienced operator under Open Access regime. Component 6 - Engineering and Construction Supervision (US$17.55 million) 17. Contract for the Engineering and construction supervision has been signed with an international engineering consulting firm. The services include assistance to SNEL in preparation of bidding documents, follow-on procurement processes to conclusion of contracts with selected bidders, project management and supervision of implementation. Component 7 - Transmission Link between Luano and Kasumbalesa (US$18 million) 18. This component comprises the construction of a new double circuit 22 kv from Luano substation in Zambia to the border with DRC to link the DRC transmission system. It is to reinforce the existing single circuit 22 kv, which has been unable to cope with the power transfers from DRC into SAPP, and to enable power transfer capability of 5 MW. The existing line with the associated substation is owned and operated by the Copperbelt Energy Corporation of Zambia, a private bulk transmission company that purchases power in bulk mainly from ZESCO of Zambia and supplies to the individual mining companies in the copperbelt of Zambia. Luano substation is the off-take point for ESKOM of power delivered by DRC to its customers in the SAPP. Component 8 - Diagnostic Study of the State of the Existing HVDC and HVAC Transmission Lines (US3 million) 19. This component is for the services of an experienced transmission engineering firm to undertake and provide a comprehensive technical audit of the state of the existing HVDC and 49

58 HVAC transmission lines from Inga to the border with Zambia (2, km) ), including the transmission towers, to establish requirements for rehabilitation of the transmission lines under Component 4. Design and technical specifications for the bidding documents for the contracting for Component 4 will be based on the results of this technical audit. Component 9 - Operation and Maintenance for the Transmission Assets (US829 million) 2. This component is to provide technical assistance for the design of the Operation and Maintenance Contract, through the procurement, and engagement of an O&M Contractor. It will also assist in establishing the demarcation of the high voltage transmission assets of SNEL. The component also finances the mobilization of the O&M operator and the essential tools and equipment, including the two specialized heavy duty helicopters needed for the task. The selected O&M Contractor must have operating experience in the operation and maintenance of long-distance high voltage DC and AC transmission system. The O&M contract will start following the completion of the rehabilitation and reinforcement of the existing transmission corridor from Inga to the border with Zambia, and will run for a period of about five years. The main objective of this component is to train and transfer know-how to the staff of SNEL in modern methods and techniques of all aspects of operation and maintenance of the SNEL high voltage transmission system. More details about this component are given in Annex 12. Component 1 - Social and Environmental Component (US3.42 million) 2 1. This component comprises four main subcomponents as follows: 22. Sub-Component 1 (US$.52 million): for the update of the earlier Environmental and Social Impacts Assessment study completed in 22 for the original project to assess any additional changes on the ground that would warrant further mitigation measures under the Project to be undertaken. The update is to cover also the Resettlement Action Plan (RAP), and the Compensation Action Plan (CP) for the project affected population in DRC. 23. Sub-Component 2 (US.4 million): HIV/Aids Awareness Campaign to educate the Project Affected Population and the communities along the length of the high voltage transmission system about the prevention, including the distribution of condoms, and information on where infected persons can go for counseling support and treatment. The activity will be linked with already established systems at state, provincial and local levels for the continuation of educating, counseling, and treatment for infected persons. 24. Sub-Component 3: Social and Environmental Mitigations - Resettlement and Compensation (US$1.8 million) -This comprises the implementation of RAP and the CP for the construction of housing and related social infrastructure for the population to be relocated from the rights-of-way of the new transmission lines to be constructed in DRC, as well as the payments of compensation for crops, land and other movable property in the rights-of-way acquired by SNEL (However, cash compensation, land acquisition and other resettlement aid paid in cash will not be financed by IDA, unless a special authorization is previously granted in accordance with Annex A of BP 6. on Bank Financing). 25. Sub-Component 4: Monitoring and Oversight of Implementation of Environmental and Social Mitigation Measures (US$.7 million) for the services of an international NGO to 5

59 assist in the supervision and provide oversight of implementation of the RAP and the CP to ensure success of implementation of the RAP and the CP. Component 11 - Community Development (US6.45 million) 26. The component comprises the provision of social infrastructure for a population of about 7 families in seven villages - Ngubu, Mutaka, Kapemba, Bungu-bungu, Nsatumbe, Ntumbwe, and Nshinga - along the high voltage transmission corridor in the Katanga Province. It will cover the construction of schools and the provision of basic school furniture, construction clinics and the supply of basic medical equipment, including beds, and six months supply of basic medicines, water supply and sanitation systems, and electricity supply. The sub-components are: Sub-component 1: Construction of the schools and medical centers in the villages. Sub-Component 2: Construction of the water wells for the seven villages and the separate external water supply for the schools and clinics to be constructed under sub-component 1. Sub-component 3: medical centers. Supply and delivery of medical equipment and furnishing for the new Sub-Component 4: Supply and Delivery of the furnishing for the schools. Sub-Component 5: Supply and installation of low voltage distribution lines for electrification of the seven villages. Sub-Component 6: Supply and delivery of six months stock basic medicines, certified by the appropriate governmental authority, to the medical centers in the seven villages. Component 12 - Institutional Strengthening and Capacity Building of Project Implementation Unit - UGP (US% 7.9 million) 27. This is to strengthen the capability and capacity of UGP in the areas of procurement, project implementation supervision and management for the successful execution of the Project. It will provide overseas training as well as on the job training with the support of the engineering consultant, participation in inspections and factory acceptance tests of equipment for the Project at manufacturers premises. It will also provide tools and equipment, including vehicles, office furniture, computers and communication equipment, and a modem management information system, and will also cover the operating cost of UGP. The sub-components are: Sub-component 1 (US%1.5 million) - Installation of a modern management information system; Sub-Component 2: (US$1.65 million) - Supply of equipment, tools, vehicles and logistics; Sub-Component 3 (US%1.3 million) - Training, including participation in inspections and factory acceptance tests of equipments for the project in manufacturers factories oversees. Sub-Component 4 (USS3.45 million) - Operating cost of UGP Component 13 - Advisory Services (US%5.55 million) 51

60 28. This component covers the technical assistance sub-components of the project other than the engineering and implementation supervision services. The sub-components are: Sub-component 1 (US$ 2 million): for the services of an international specialized consultant to (i) design the technical, contractual (shareholders agreement, transactions agreement), and businesdeconomic aspects of the commercialization contract of the excess capacity, (ii) assist SNEL to recruit an internationally private world class private operator for the commercialization of the telecommunication excess capacity under Open Access regime, and (iii) drafting the necessary interconnection legal and regulatory as well as the commercial arrangements to support Open Access. Sub-Component 2 (US2.45 million): Procurement of assistance of BCECO to UGP. It will finance the salaries of assigned BCECO staff (excluding civil servants), contribution to payment of office space for BCECO staff, publication of procurement notices, procurement of office equipment, and other related expenses in the provision of the services to UGP. Sub-Component 3 (US%.6 million): for audits of the project accounts. Sub-Component 4 (US.5 million): foreign consultancy services to assist SNEL in export contract negotiations. Component 14 - Establishment of Letters of Credit (US%1 million) - to cover commercial bank charges and associated costs for the establishment of Letters of Credit on behalf of the Contractors for the supply of imported equipment and materials for the project 52

61 ANNEX 4: ADDITIONAL DETAILS ON THE TELECOMMUNICATION COMPONENT Strategic Context and Rationale 29. The electronic communications and ICT sectors in the Democratic Republic of Congo (DRC) seriously lag global and regional peers. The Digital Opportunity Index produced by the International Telecommunications Union (ITU) ranked DRC 15th in 25 falling to 176 h in 26 illustrating the continuing relative decline of the country. Major issues in DRC are the absence of a national telecommunications backbone and an efficient and capable operator to provide such services. As a consequence traffic between cities and internationally are carried by satellite, which is expensive and is of limited capacity and within DRC the level of connectivity is very low and disjointed, together impeding the roll out of ICT applications and services. 3. This state of affairs is a serious bottleneck to the effective management of the SNEL power distribution, the functioning of the power pool and the users of electronic communications. Access to broadband infrastructure along the route of the SNEL Southern African Power Pool facility will go a long way to addressing the electronic communications bottlenecks in DRC. Access will improve the effectiveness of, the prospects for decentralization and the level of security, while removing the constraints on the contribution of ICT to economic growth and competitiveness as well as to improving the quality of life in general. This will be achieved by providing broadband access to telecommunications operators (fixed and mobile), broadcasters, service and application providers. The broadband infrastructure of SNEL will replace the limited and expensive satellite connections, extend the reach and capacity of electronic communications networks and increase quality. Project Description 31. The project includes the installation of the OPGW telecommunication system to be owned by SNEL. The OPGW is vital to both the national and regional aspects of the overall project. The OPGW provides broadband capacity along the 2,3 km length of the HV transmission network from Kinshasa to Kasumbalesa at the border with Zambia, which then connects to the equivalent in Zambia and to that of the SAPP. The broadband OPGW allows SNEL to manage, monitor and maintain power distribution in an effective and efficient real time manner. Further, the broadband OPGW will facilitate electronic trading of energy within the regional power pool in a more speedy and efficient manner than traditional trading using international voice telephony infrastructure. SNEL has received an authorization from the telecommunications regulatory authority (ARPTC) to operate an independent network for these purposes (ARPTC Decision n 3 3/ARPTC/CLG/28). Consequently there are no regulatory authorization concerns regarding SNEL s internal communication requirements. Commercialization of Excess Fiber Optics Capacity 32. The OPGW comprises 24 pairs of optical fiber in one cable. As a consequence the project will install more fiber optics capacity than that strictly required by SNEL s internal communications requirements. The OPGW has two parts: World Information Society Report (26 and 27). 53

62 Part A which will be dedicated capacity for the internal communications needs of SNEL for its power operations and with the SAPP system. Part B which is the capacity in excess of the requirements of Part A. 33. The commercialization of part B will produce revenue streams for SNEL. Capacity in Part B will be offered on a commercial for profit basis to third parties where it would be able to support a large range of additional electronic communications services such as: Electronic communications for private and public customers, including access for the incumbent fixed operator (OCPT), mobile operators, large corporations and public institutions. International connectivity via Zambia and the Power Pool. Distribution of public and private radio and television. Regional Integration Potential of Excess Fiber Optics Capacity 34. The OPGW of SNEL will connect to that of its partners in the SAPMP in Zambia and South Africa with the potential to connect to undersea cables and global telecommunications networks. SAPMP may act as a catalyst or an important connected component of additional regional infrastructure projects which would radically change the ICT potential of Central and Southern Africa. These are: The World Bank supported Central African Backbone Project (CAB) which could link to Part B from the North. The World Bank Regional Communications Infrastructure Program (RCIP) which could link to Part B from the East and for which DRC is eligible to apply. The West African Festoon System (WAFS) of undersea cables along the West Africa Coast which could link to Part B from the West under the current financed Project to link Muanda to Kinshasa. Outcome and indicators 35. The potential outcome and benefits of utilizing the Part A capacity will be in the efficient operation and monitoring and control of the electric power transmission facilities resulting in greater reliability, security and cost efficiencies. Load management, control, monitoring, and wheeling of power over long distances and across multiple regional networks will be made possible by a widely distributed computer system (e.g. SCADA system) interconnected by high quality fiber optics. 36. The benefits of commercializing Part B will flow from various ICT applications for the private, public, household and business sectors and in revenues streams for SNEL. Part B will be offered on a commercial for-profit basis to third parties where it would be able to support a large range of additional electronic communications services and improve regional integration. 37. When the regional networks are connected, broadband and global infrastructure will become widely available in several contiguous countries offering converged services which would generate new economic activities, communications and trading patterns. 54

63 38. The following are the expected targets to be achieved by the telecommunication component: Commercializatioflreparation Adoption by DRC of the ICT Policy Strategy currently under preparation supported by the Comp,etitiveness and Private Sector Development Project and drafting of supporting legal and regulatory instruments. Contracting of the consultant to conduct the Component 13 - Sub component 1. Appointment of the world class Private Operator for the operation, management, and commercialization of the Part B capacity under Open Access regime, after acceptance and approval by the Beneficiary of the commercialization model. Part A Capacity Reliability and availability (e.g %) of the control, monitoring, and load management systems (e.g. the SCADA system). Part B Capacity New annual revenues (fees, royalties, etc.) generated by SNEL related to the commercialization of the Part B capacity. Volume of national traffic carried (bandwidth) as a result of the commercialization of the Part B capacity. Regional Integration Volume of international national traffic carried (bandwidth) as a result of the commercialization of the Part B capacity. Average price of international telecommunications traffic carried (bandwidth) (per minute or Mbps) Implementation 39. Implementation of the telecommunications components (described below) will be consistent with the overall project implementation. Given that SNEL does not have the capacity to implement a complex OPGW telecommunication system, needed expertise will be provided by the Project Engineer supported adequately by the back-stop head office experts. Component 1 - Supply and Installation of OPGW 4. The telecommunications component (Contract #5) of the project is for the design, supply and installation of the OPGW by SNEL along the 2,2 km length of the HV transmission network between Inga, Kinshasa, Kolwezi and Kusumbalesa, connecting to the equivalent in the SAPMP. The OPGW will consist of 24 pairs of optical fiber, of which 3 to 4 pairs (Part A capacity) will be used by SNEL for its internal needs to manage, monitor and maintain power distribution in an effective and efficient real time manner. The remaining fiber capacity (Part B capacity) will be made available for commercialization. 41. The complete system will replace the inoperative PLC system on the HVDC line, which never operated properly and is now completely out of service. The new telecommunication system will allow SNEL the connection and communication between the new network centers in 55

64 Kinshasa and Likasi and of course enable the proper operation of the rehabilitated converter stations at Inga and Kolwezi. The total estimated cost of this component is US$4.8 million. The bidding for the various contracts is on-going. Component 2 - Technical Assistance Building Blocks for Commercialization (US $2. million) 42. No later than December 3, 29, SNEL should appoint a consultant for the design and implementation of the Private Operator Contract, including the procurement process. This will entail accessing business models to enable SNEL to enter into an appropriate commercial relationship with private investors via a competitive tender. Certain regulatory issues must be addressed and coordinated with other TA provided to DRC to enhance investor and regulatory certainty across the sector. 43. Commercialization of excess capacity embedded in power transmission has been tried and tested in many projects resulting in a wide range of outcomes. There are risks that the full benefits, national and regional, of the telecommunications component may not materialize. Essentially, many of the outstanding issues and risks can be mitigated by a well structured and comprehensive technical assistance program financed either by the program or other sources of funding or technical assistance programs that may be available. Two current Bank projects: the PSD Competitiveness Project and the National ICT Strategy Technical Assistance are currently addressing ICT regulatory issues both regarding the regulatory environment and capacity building in the Regulator in DRC. These projects should produce results by the time the OPGW is commissioned in DRC. 44. Part B will remain under the ownership of SNEL. A private world class operator will commercialize excess capacity under Open Access regime. This world class operator will be responsible for additional investment, day-to-day management, commercialization, operation and maintenance of Part B. The business modalities for these networks share common principles and are sometimes the subject of Special Purpose Vehicles (SPV). SNEL has no interest in commercializing Part B itself. Commercialization will be undertaken by applying the principles of open access. Two business models each involving private investors responsible for the dayto-day management, commercialization of capacity, operation and maintenance of Part B may be considered A Joint Venture with all additional investment and other costs and related returns being funded and shared by participants. A long term lease of Part B to private investors who fund all additional investment and other costs in return for which SNEL will receive fees and/or a share of gross revenues or profits Commercialization of Part B will require enhancement of the communications regulatory environment, instruments to provide greater regulatory certainty and improved investor confidence. In DRC state owned telecom operator OCPT holds temporary exclusive rights to For example, the Power Holding Company of Nigeria (PHCN) granted a long term concession on 8 of 12 pairs to 6 Phase 3 Telecom in Nigeria to equip the fiber and operate the network. Phase 3 paid $1 million for concession plus 2.5% of gross annual revenues to PHCN as a royalty for the right to use the fiber. 56

65 national backbone raising the possibility that Part B is such national backbone. OCPT is currently facing serious challenges and has no experience of this business or sufficient funds for investment. Moreover, the telecommunications law (No. 13 of 22) at Art 12 allows the State via the telecommunications regulator to authorize another operator to install and exploit part of the national backbone. 46. In terms of competition policy, the operator of Part B may be deemed to hold a potential dominant position, and therefore must be regulated to mitigate the risks of unreasonable charges and conditions of use. The maximum developmental contribution will be derived where all customers are treated in a non-discriminatory and transparent manner at reasonable costs. These principles, known as open access, facilitate market entry and a thriving sector. Consequently there is a need to protect customer interest by regulatory means. The above matters are also pertinent to other potential infrastructure projects. Therefore a clear, transparent and coordinated national and regional access and interconnection regime will need to be elaborated and implemented. 57

66 ANNEX 5: DESCRIPTION OF THE REGIONAL AND DOMESTIC POWER MARKETS DEVELOPMENT PROJECT (PMEDE) (Phase APL-lb) and of the Inga 1 and 2 Rehabilitation Component Democratic Republic of Congo: Southern African Power Market Project (SAPMP)- APLl Additional Financing A. INTRODUCTION, PROJECT DEVELOPMENT OBJECTIVE 1. In May 27, the Board approved a grant of US$296.7 million equivalent for the implementation of the PMEDE Project estimated at appraisal to cost US$499 million. Other financiers were the European Investment Bank, the African Development Bank, and SNEL (DRC's power utility). 2. The development objective of the PMEDE Project is to improve the operational efficiency of the electricity sector and expand generation, transmission and distribution capacity in order to better serve domestic power demand and to support regional market integration. B. PROJECTCOMPONENTS 3, The PMEDE Project consists of five components as follows: Component 1 : Generation (US$226.7 million): Rehabilitation of the hydroelectric facilities at Inga, including civil works on the intake canal to improve the water flow through the plant and rehabilitation of the turbines to increase the operational capacity and reliability of the Inga 1 and 2 plants from its current level of about 7 MW to about 13MW of reliable production. Component 2: Transmission (US$93.8 million): Construction of a 4 KV Inga- Kinshasa transmission line. The commissioning of the second line complements the existing 22 kv IngdKinshasa transmission line, relieving the current saturation of the existing line and thereby improving the security of transport of power from Inga to Kinshasa, as well as increasing the amount of power that can be delivered to the capital Kinshasa. Component 3: Distribution (US$88.5 million): Expansion and strengthening of the distribution system in Kinshasa, including the acquisition of low voltage cables and transformers, the extension of the grid into currently un-electrified areas of Kinshasa and the connection in these areas of a total of 5, new customers. Component 4: Capacity Building; and Governance (US$41.2 million): This component comprises two subcomponents: o Subcomponent (a): Strengthening SNEL's operational capabilities, notably in billinglcollection activities, planning and maintenance. The component also finances capacity building activities (in finance and other areas) designed to enhance governance within the utility specifically and in the sector generally. 58

67 o Subcomponent (b): Strengthening the Ministry of Energy's capacity to develop and implement sector reform and to support the further development of the Inga site. Component 5: Proiect Execution (US$48.8 million) including project preparation activities. This component supports the effective implementation of the Project's activities, in an environmentally and socially sound manner, including appointment of supervisory engineering consultant, environmentalhocial consultants and of a Procurement Financial Management Agent (PFM). C. DETAILED DESCRIPTION OF THE ACTIVITIES RELATED TO THE REHABILITATION OF THE GENERATION FACILITIES AT INGA 1 AND 2 (US$226.7million, of which UW198.3 million equivalent financed by IDA and US$28.4 million by other sources) 4. There is a total of 14 units at Inga 1 and 2, of which 6 turbines at Inga 1, with nameplate capacities of 55 MW each, and maximum capacities of 58.5 MW (total max. capacity at Inga 1 is 351 MW) and 8 turbines at the Inga 2 plant (separated into two groups of four, entitled 2A and 2B), each with nameplate capacities of 162 and maximum capacities of 178 MW (total max. capacity at Inga 2 is 1,424). The total nameplate capacity at the two plants is 1626 M W and the total maximum capacity is 1775 MW. The plant is operating nearer to 7 MW, as a result of poor maintenance and some questionable design choices, with significant intermittent reductions as a result of low reliability. Production capacity at the Inga plant is limited by turbines that no longer function and other factors such 'as siltation and rock formations that limit the water flow through the intake canal. 5. In order to address these issues, the PMEDE Project plans to rehabilitate the turbines and other installations at the Inga 1 and 2 plants to make available about 13MW of reliable production. In addition, in order to achieve a production capacity of about 13 MW, the canal needs to be re-profiled and dredging undertaken. The PMEDE plans to finance rehabilitation works for the turbines and related facilities at Inga 1, for the turbines and related facilities at Inga 2A and the canal dredging and reprofiling. 6. The rehabilitation work and canal re-profiling is expected to increase production capacity at the Inga site by about 6 MW, from about 7 MW to about 13 MW, and to improve its reliability. The increase will be incremental, averaging about 15 M W per year beginning end 29 through end 215. Given the run-of-river quality of the Inga site and the hydrological conditions, each incremental MW can be expected to generate 6132 MWh, assuming a 7 percent plant load factor. D. IMPLEMENTATION STATUS OF THE GENERATION COMPONENT OF THE PMEDE PROJECT (REHABILITATION OF INGA 1 AND 2) 7. In May 28 and in view of the increase in unit costs, a cost update was provided by the Consulting Engineering to the, SNEL and the Bank. It showed that: (a) the rehabilitation costs of the Inga 1 and 2 facilities did significantly increase; (b) the condition of the generating units was also worse than initially assessed; and that (c) an emergency program for generation was required to implement very quickly a series of measures to maintain the generation at the current 59

68 level. Furthermore, some actions initiated under the PMURR program (such as the rehabilitation of unit G12 at Inga 1) would not be completed through the PMURR program mainly because of a lack of funds, and should be incorporated in the PMEDE project. 8. In addition, particularly in view of the higher cost estimates, it was decided that a comprehensive rehabilitation strategy covering the 14 units of Inga 1 and 2 should be developed to form the basis of a coherent action plan, integrating the operating constraints (the plants need to be kept operating to provide for the electricity needed in Kinshasa and in the Bas-Congo and also in the Katanga region, and only 2 units can be dismounted at any time at Inga 1 and at Inga 2) within which public and private financing could participate. Such rehabilitation program covering the 14 units is provided below. Figure 1: Inga 1 and 2 Rehabilitation Program 8 PMEDE 7 L cl I 9. It shows that completion of the rehabilitation program (including preparation of the bid documents, bidding, physical rehabilitation, testing, etc.) would take till Total financing required including the initial emergency program, the rehabilitation of the Inga common facilities (substation, dredging, intake canal reprofiling, civil works, etc. ) would be about US$547 million (see table 1). Based on the existing and potential financing from the Donor Community (such as PMEDE Additional Financing) this should allow the implementation of the Emergency program, the rehabilitation of the common facilities, and the rehabilitatiodmajor overhaul of 9 of the 14 units (G12, G27, G21, G14, G28, G22, G25, G11 and G23) as indicated in figure 1 over the period. To complete the program about $18 million will still be needed for the period. One private company is currently negotiating with SNEL the financing of the rehabilitation of 2 units costing about $5 million. 6

69 Table 1: Inga 1 and 2 Rehabilitation - Revised Costs Estimates Sub-Component Emergency Rehabilitation Progrim Rehabilitation of common Costs (US$ million) I facilities I I Dredging Intake canal reprofiling Rehabilitation of the 14 generating units Total Financing for generation activities 9 PMEDE (Available) 9 PMEDE Additional Financing (Potential) $14. E. REHABILITATION OF INGA 1 AND 2 - IMPLEMENTATION STRATEGY 11. The rehabilitation of the 14 Inga units will take 1-12 years (figure 1); the proposed implementation strategy is described below. To address priority generation issues at Inga 1 and 2, an emergency program of $27. million has been delineated. A major overhaul of unit G23 (16 MW) is near completion, financed by the private sector. The units should be back on stream in March 29. Unit G12 (55MW) has been rehabilitated through the PMURR program. The main parts are back to DRC and should be reinstalled starting April 29, with restarting expected by September 29. For the other units, the rehabilitation strategy is based on the following criterias: (a) priority should be given as much as possible to units that are currently not operating; (b) as there is a financing constraint, the least expensive unit ($kw rehabilitated) should be rehabilitated first; and (c) only 2 units in each of the 2 power plants can be rehabilitated simultaneously. 12. In order to optimize the procurement strategy, the following principles have been discussed between SNEL and the Consulting Engineer: (a) As there is only a limited number of specialized contractors as regards the generating units, post-qualification should be the preferred procurement method; and (b) constructiodrehabilitation of the wheels is on the critical path; preparation of tenders, tendering, ordering, for these equipments etc. should therefore be made as soon as possible. 1 Unit Power I Launch I Award Complete Duration Estimated Cost 1 Comments Plant 1 Bid. Doc. [ Contract I Work 1 (month) US $ million G12 I Inga 1 I N/A I Sep.29 1 Jul.21 I 1 I 5.85 Parts were procured underpwr G27 I Inga 2B I Mar Nov. 21 I Nov I 26.2 Units 27,28 and 25 are in a single contract. G21 I Inga2A I Sep Jun Jan. 214 I 42 I I Units 21 and 22 are in a I I I I I I I I single contract. I 61

70 G14 G28 Inga 1 Sep. 29 Jul. 21 Inga 2B Sep. 29 Nov. 21 Jul May Units 11 and 14 are in a single contract In order to maintain I I I G26 Inga 2B Jun. 214 Apr. 215 G15 Inga 1 Jun.214 May215 G24 Inga 2A Sep. 214 Jul. 215 G23 Inga 2A Sep. 214 Nov. 216 G16 Inga 1 Jun.214 Feb.217 G13 Inga 1 Jun. 214 Nov

71 ANNEX 6: SUMMARY STATUS OF THE MAIN CONTRACTS Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing Contract 1. Rehabilitation and modernization of inverter and converter substations at Inga and Kolwezi 2. Rehabilitation and reinforcement of high voltage substations 3.Supply and installation of new high voltage transmission lines $.Rehabilitation of existing HVDC and HVAC xansmission lines Estimated cost (us $ Million) Procurement Status Following agreement of the Bank to the recommendations of the Borrower, and its panel of experts on Stage 1 Technical Solution of ABB AB, the Stage 2 price bid was submitted by ABB AB to the Borrower on July 4,28. Following the review by the Bank of the Evaluation Report submitted subsequently by the Borrower, the Bank s agreement, communicated to the Borrower on January 29,29, to the Borrower s recommendation for award of the contract to ABB AB, and to invite ABB for contract clarifications meeting to close on two relatively simple outstanding issues, and to initial the Contract. However, due to the significant changes that have been introduced in the contract and accepted by the Borrower at the clarification meeting communicated to the Bank on April 7,29, the Bank was not in the position to agree to the Borrower s recommendation to sign the contract with ABB. The changes introduced in the contract are: change of the bid price and elimination of the price adjustment formula provided in the bidding document. The Bank has recommended to the Borrower to: (i) request the bidder to maintain its bid price unchanged; (ii) to maintain the starting data of application of the price and post formula as stated in the bidding documents; and (iii) for the issue regarding the structure of the price adjustment formula be discussed firther, based on additional detailed due diligence, to come to closure on the matter. Subject to the acceptance of the Borrower and the Contractor to the above, the contract could be signed by end- June 29. Contract signed on October 2,28. Effectiveness procedures to be completed by July 15,29. Contract signed on September 29,28. Contract effectiveness procedures to be completed by May 26,29. subject to the establishment of the Letter of Credit, the only outstanding condition for the contract effectiveness. Bidding failed due to inadequate technical information in the bidding document and resulting in non-responsiveness of the single bid received. Detailed technical studies to begin June 29 and completed in September 29 to establish more clearly the requirements to be incorporated in the bidding document for retendering of the Contract. Retendering of 63

72 rehabilitation works to be completed with contract award in June Supply and installation of optical fiber cable and associated telecommunications equipment 4.8 Bidding failed due an excessive price offer by a single bidder in a non-competitive environment. Procurement is to be done through three separate contracts for economy and effectiveness as: (i) supply and delivery of the optical fiber cable; (ii) installation service for the optical fiber cable on power transmission towers; and (iii) supply and installation of the electronic telecommunications equipment. All contracts to be procured through international competitive tender with post-qualification criteria. Bids issued, pre-bid conference done on January 3,29. Bid submission date extended to May 14,29 from April 4,29 due to changes introduced in the bidding documents following the pre-bid conference. Contract award now expected about AugustBeptember Supply and installation of social infrastructure 6.45 Bidding failed to attract interest mainly due excessive complexity of a single contract encompassing different activities beyond the capability of local contractors to execute. Original contract has been split into 6 separate contracts to be re-tendered separately to enable greater local participation. All contracts expected to be awarded in August. 64

73 ANNEX 7: SUMMARY OF IMPLEMENTATION SCHEDULE OF THE MAIN CONTRACTS Democratic Republic of Congo: Southern Af. Power Market Proj. (SAPMF')-APLl Additional Financing Contract Year Quarter Contract # I-Rehab ofthe DC System Contract Signature and Effectiveness Construction Period Completion Contract Signature and Effectiveness Construction Period Completion Contract Signature and Effectiveness Construction Period Completion Contract Signature and Effectiveness Construction Period Completion 65

74 ANNEX 8: REVISED PROJECT COST ESTIMATE BY COMPONENT Democratic Republic of Congo: Southern African Power Market Additional Financing Contract or Project Component Estimate cost (US Local Foreign million) Total 1 Rehabilitation of the converter stations (HVDC) Turnkey contract -base cost Rehabilitation of the 22 kv Substations Turnkey contract - base cost 3 Supply and Installation of new 22 kv Lines Turnkey contract -base cost Rehabilitation of Existing Trans. Lines Turnkey contract - base cost Supply and Installation of Telecom. Equipment Total - base cost Engineering and Construction Supervision Additional Transmission Link Luano to Kasumbalesa Study of the state of the existing Transmission Lines Operation & Maintenance of Transmission Assets i) Consultancy Services ii) Start-up Cost iii) Equipment and Tools subtotal Component oo Social and Environmental Component i) Update of the Environmental & Social Impact Study ii) HIV Awareness Program iii) Social and Envir. Mitigations (housing & compensation) iv) Monitoring and Overview of Env. & Safe Guard Plan subtotal Component Community Development Component for affected people i) Construction of Schools & Med. Centers ii) Const. of Water Wells & Water Syst. in Bldg. iii) Suppy & Delivery of Medical Equip.& Fumshings iv) Supply and Delivery of furnishings for Schools v) Supply & Installation of electricity dist.system vi) Supply of medicines for six month Contingencies sub-total Component Institutional Strengthening and Capacity building i) M IS for UGP ii) Reinforcement of UGP - Equipment & Logistics iii) Training of UGP Staff iv) UGP Operating Cost sub-total Component so oo Advisory Services i) TA for the Fiber Optic Operator Contract ii) Procurement Services by BCECO ili) Establishing Accounts for Exports & Audits iv) Export Contracts Negotiations subtotal Component I O Cost of Establishing Letters of Credit Total Project Cost Base Cost Physical Contingency Price Contingency TOTAL COST

75 ANNEX 9: COMPARISON OF REVISED COST ESTIMATE AND INITIAL Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing Project Component Clost Estimate at Appraisal Current Cost Estimate I Dikzice ( US $ million ) 1 Rehabilitation and Reinforcement of Inverter/Converter Stations (HVDC) 2 Rehabilitation and Reinforcement of High Voltage Substations 3 Supply and Installation of new 22 kv Transmission Lines 4 Rehabilitation of Existing Transmission Lines 5 Supply and Installation of Optical Fiber Telecommunications System 6 Social and Environmental Component Engineering and Construction Supervision Services 8 Engineering Audit of Existing Transmission Lines 9 Operation and Maintenance of Transmission Assets 1 Institutional Strengthening and Capacity Building 11 Advisory Services OO Cost of Letters of Credit Sub-total DRC Luano - Kasumbelasa Transmission Line - Zambia TOTAL

76 ANNEX 1: PROJECT FINANCING BY CONTRACT AND FINANCING AGENCY Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing Contract or Project Component Total cost Financing Plan (US $ million) IDA* SNEL EIB CEC Total 1 Rehabilitation of the converter stations (HVDC) Rehabilitation of the 22 kv Substations ; 3 Supply and Installation of new 22 kv Lines Rehabilitation of Existing Trans. Lines Supply and Installation of Telecom. Equipment Engineering and Construction Supervision Additional Transmission Link: Luano to Kasumbalesa ( 8 Study of the state of the existing Transmission Lines C 9 Operation & Maintenance of Transmission Assets i) Consultancy Services ii) Start-up Cost iii) Equipment and Tools sub-total Component 9 1.oo OC 3.OC 25.( 29.C 1 Social and Environmental Component i) Update of the Environmental & Social Impact Study ii) HIV Awareness Program iii) Social and Envir. Mitigations (housing & compensation) iv) Monitoring and Overview of Env. & Safe Guard Plan sub-total Component C 1.8C.7C Community Development Component for affected people i) Construction of Schools & Med. Centers ii) Const. of Water Wells & Water Syst. in Bldg. iii) Suppy & Delivery of Medical Equip.& Furnshings iv) Supply and Delivery of furnishings for Schools v) Supply & Installation of electricity dist.system sub-total Component Institutional Strengthening and Capacity building i) MIS for UGP ii) Reinforcement of UGP - Equipment & Logistics iii) Training of UGP Staff iv) UGP Operating Cost sub-tota1,component oo C C Advisory Services i) TA for the Fiber Optic Operator Contract ii) Procurement Services by BCECO iii) Establishing Accounts for Exports & Audits iv) Export Contracts Negotiations sub-total Component osa Cost of Establishing Letters of Credit TOTAL COST & FINANCING PLAN YO of Total

77 ANNEX 11: ORGANIZATIONAL ARRANGEMENTS FOR SUPERVISION OF IMPLEMENTATION Democratic Republic of Congo: Southern Africa Power Market Project (SAPMP) - APLl Additional Financing 2 ENVWHEH ENTIUSE5 2 SOCWLOGUES 69

78 SITE 2 DE KINSHASA - K I ~ DCC ~ ~ W ~ INOENEUR DE PROJET DE REHABILITATtON (SITE f CE LIKASI) I 1 i $ r I!..* '*! I 1 t tb LMNE C t INOA LOANCIE 9 CWVFFEVR WE 3 LlKABl REH 7

79 ION DES NOUVELLES LiGNES f... 1 t - i' 71

80 ANNEX 12: ARRANGEMENTS TO ENSURE SUSTAINABILITY OF PROJECT OUTPUT Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing 1. To ensure the sustainability of the project s output following its completion, actions will be required on two fronts: e Establishment of a comprehensive system for state of the art operation and maintenance of SNEL s high voltage transmission assets over the long-term; and e Commercialization as a business venture through the services of an experienced private telecommunication operator of the excess OPGW telecommunication capacity. Operation and Maintenance of SNEL s High Voltage Transmission Assets 2. Given SNEL poor track record with operation and maintenance (O&M), project sustainability, following the rehabilitation of the transmission system, depends critically on the design and implementation of arrangements that ensures that: (a) adequate financial resources are available to SNEL; as well as: (b) access to technically experienced staff empowered to carry out operation and maintenance activities on the transmission network and all SNEL s assets. With a view to guarantee the reliability and technical efficiency of the transmission system to deliver power to large high voltage consumers (such as the mines), to the SAPP, as well as to DRC other consumers, GoDRC and SNEL have agreed to: (a) set-up mechanisms to prepare, follow-up and finance the implementation of SNEL s annual Operation and Maintenance Program; and in particular, to: (b) contract the Operation and Maintenance of SNEL transmission system to an internationally experienced operating power utility for a period of at least five years, that will also train and transfer know-how to the staff of SNEL. The scope of the O&M contract and the mechanisms to fund and implement SNEL s overall O&M program are described below and will be included in the Project Agreement. A. ScoDe of the ODeration and Maintenance (O&M) Contract 3. The O&M contract will cover all SNEL s high voltage transmission network. Presently, SNEL classifies all network voltages above 5 kv as high voltage transmission. The O&M services will cover the HVDC system from Inga to Kolwezi, including the converter and inverter stations, the AC system from Kolwezi to Kasumbalesa at the border with Zambia, including the lines to be constructed under the project; the existing Inga-Kinshasa 22 kv line and substations, as well as the new 4kV Inga-Kinshasa line and substations to be constructed under the PMEDE, and all the existing 5kV - 22kV networks throughout the country. As new additional transmission lines and substations are added, the resources to ensure effectiveness of the O&M services will be increased commensurately. 72

81 B. Contractual arrangements 4. A private operator (from an Operating Power Utility) with the requisite demonstrated experience in the operation and maintenance of HVDC system similar to that of SNEL will be contracted by SNEL to take full responsibility for the operation and maintenance of the DRC transmission assets. The contract will be for a period of at least five years with possibilities of extension as may be considered necessary. The Contractor s responsibility will include training of SNEL transmission operation and maintenance staff to be adequately prepared to take over the O&M services at the end of the contract. The training will be predominantly on the job, an exceptionally in the home office of the Contractor for specialized training of Control Center staff in areas of emergency simulation and contingency planning and response. The Contractor is expected to be appointed by September 3, 212. The O&M contractor will be accountable to SNEL Management, 5. The operator will be remunerated on a fee plus bonus basis. A performance incentive will be included in the contract through a mechanism of bonus/penalty for achieving, exceeding or falling short of technical performance targets (including for example level of losses, availability, reliability, and cost effectiveness of operations). 7. The Project will finance the services of a consulting engineer to design the O&M contract, assist with the delineation of the boundaries and assets of transmission, and the procurement process leading to the selection of the Contractor, and establishment of the first years O&M requirements. 8. A Supervisory Engineer will also be appointed by SNEL to report annually on the technical performance of the O&M contractor, and to audit the overall performance of the Contractor and of SNEL against the set targets. Main Duties 9. The O&M contractor will have full authority and independence from SNEL with respect to the execution of the O&M activities, engaging works and maintenance activities, contracting entrepreneurs and suppliers for works, services and goods within the budget approved by SNEL, and as agreed between SNEL, the O&M Contractor and the Supervising Engineer, and following procurement guidelines to be agreed by SNEL and under the surveillance of the Engineer. The O&M contractor will have its own maintenance and operation teams to carry out the O&M activities. 1. The O&M contractor will not be responsible for the dispatch of electricity, but will design and implement on the job training of SNEL operating staff in the modern aspects of load dispatching and management. The Contractor would have a full time staff at the main Control Center in Kinshasa for an agreed duration for the training of the SNEL staff. 11. The O&M Contractor will also seek to re-establish a culture for maintenance of the transmission system and, together with SNEL, will develop and publish the proper O&M procedures. He will also prepare a detailed training program to re-establish this culture at SNEL. This annual program will be discussed and agreed with SNEL annually before the O&M budget is approved. 73

82 12. A Supervisory Engineer accountable to SNEL will also be appointed. His duties will be to provide technical advice on the annual maintenance programs, the training program, and the budget of the O&M contractor, to report on the technical performance of the O&M contractor, through an O&M audit and to give advice on the performance of the O&M contractor and of SNEL. C. Funding of the O&M Expenses and of the O&M Contract 13. The O&M expenses and the O&M contract will be funded through the secured management of SNEL s flow of income acceptable to the donors. 14. Before the beginning of each year, SNEL will submit its annual O&M budget for review and comments to an independent expert with qualifications acceptable to the Bank and to the institutions financing the Project. Based on this review and before the beginning of the fiscal year, the annual O&M budget and financial resources requirements will be defined. To ensure that adequate resources are available once the rehabilitation is completed by end 212, SNEL will, starting in 29, progressively build provisions for operation and maintenance. 15. In addition, the project will finance critical and essential materials and equipment, including two long-distance and heavy duty helicopters for rapid response and normal maintenance, and inspections of the transmission system. In view of the very long-distance nature of the transmission system, additional helicopters may be required to enhance maintenance and response to major outages. 16. The technical audit and reporting on the performance of the Contractor will be carried out by the supervisory engineer for SNEL. In addition, the Project accounts will be audited as part of the annual audit of SNEL s financial statements by the external financial auditor. 74

83 ANNEX 13: RESULTS FRAMEWORK AND MONITORING ARRANGEMENTS Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing I. Results Framework 1. The monitoring and impact evaluation for the overall project (APL1) will be the responsibility of SNEL, and the Ministry of Energy. For results evaluation, a mid-term evaluation and final evaluation will be carried out by external consultants, terms of reference for which will be provided by UGP. SNEL will submit regular reports to, IDA, and EIB. Hierarchy of Objectives Sector-related DRC CAS Goal : Increase the availability of electric power Sector-Related Regional Integration Assistance Strategy (RIAS) Goal : Improve Access to and Reliability of Clean Energy (AAP v) Outcome Indicators Percentage increase in revenues from power sector. 1. Increased cross border power trade among countries Quantity (MW) and value of electricity traded between countries Power supply reliability within countries 2. Enhanced reliability of the interconnected grid. Percent of power loss along the principal transmission interconnection links Number of power outages within the principal transmission interconnection 3. Improved power connectivity among countries Number of interconnections within regional systems 4. Cost-effective systems in place Unit cost of traded power Use of Outcome Information Indicates effect on revenues of increased power supply to domestic users and increased exports. To measure in quantitative and qualitative terms the performance of the Southern African Power Market regional power market. Program Purpose: To promote regional cooperation to expand and maintain an efficient regional power market End of Program Indicators: (as per above RIAS) 75 To measure in quantitative and qualitative terms the performance of the Southern Africa regional power market.

84 PDO Outcome Indicators Use of Outcome Information To facilitate further development of an efficient regional power market in the Southern African Development Community Quantity of firm and reliable electricity exports from DRC to the SAPP; Quantity of firm and reliable power supplied to the mining sector in Katanga. Commercial and technical information about local and regional electricity supply and market is available to pool members and the public on a regular basis. To evaluate progress towards restoring the transmission system to full capacity in order to provide power to domestic and external consumers. This will contribute to the medium to long-term strategic objectives of the for the power sector to provide quality and reliable power supply to support economic growth, and regional integration Intermediate Results C.l Upgrade the SAPP Coordination Centre to permit improved energy management and communication between pool members. IR Indicators 1.1 Tie line flows based on predictive load flows available to pool participants on a regular basis. Use of Results Monitoring Measures effectiveness of fiber optic telecommunications system and of the SAPP Coordination Center to support an efficient regional power market. 76

85 Intermediate Results C.2 Upgrade transmission system between Inga and the Zambian border to provide reliable industrial quality electricity for domestic use and export C. 3 Preparatory Studies for Interconnection between Zambia and Tanzania C.4 Implementation of environmental and social mitigation measures for communities along the transmission line from Fungurume to Kasumbalesa region. IR Indicators 2.1 Power transfer capability of HVDC and HVAC transmission system from Inga to the border with Zambia restored to its original installed capacity of 576 MW (2x 288MW); % availability at full load; 2.3 Loss level at 6.5% at full load; 2.4 Stable frequency (5Hz) of current maintained; 2.5 Stable HVDC voltage (+-5 kv) maintained; 3.1 Feasibility Studies completed 3.2 Environmental and Social Impact studies completed. 4.1 Number of community projects completed. 4.2 Number of households successfully resettled under the RAP. 4.3 Number of households fully compensated under the CP. 4.4 Number of communities participating in the HIV/Aids campaign I Use of Results Monitoring Measures the reliability, quality and quantity of electricity provided through the transmission system for domestic use and export. Provides basis for determining overall feasibility of interconnection between Zambia and Tanzania. Measures extent to which project is able to mitigate the environmental and social effects of the project. 77

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91 ANNEX 15: ECONOMIC RE-EVALUATION Table 15.1 Electricity Demand and Supply Balance (MW) Transmission Line with Original Installed Capacity and Base-Case Mine Expansion A -Western Power System Load Demand (MW) TRO+BDD+KKT+MBKA (Kinshas Kanansa KIKWIT SAF-ENERGIE BHP-BILLITON (Alum Smelter) -E_xpo=ga_ - Sub-Total Kasai T~trl Western Demand Generating Capacity (MW) A - Existing Power Plants lnga I & 2 Zongo Sanea -- Sub-Total B - New Installed Capacity lnga 3 (432 MW) Zonpo MW) Katende Hydro (6MW) Kakobola (9 MW) Sub-Total Total Western Power System Capacity Firin Western System Cepncdj IO IO IO IO ,2 1,6 1,6 1,6 1,6 1,6 1, A--zo % ,922 US W52 2, , s 545 bq ,1 2,442 2, ,452 2,452 2, ,15 1,45 1,45 1,25 1,395 1,235 1,235 1,395 1,395 1,61 1,61 1,61 1, I2 12 I ,15 1,12 1,132 1,132 1,292 1,482 1,322 1,322 1,482 1,482 1,697 1,697 1,697 1,697 1,697 1, ,89 3,78 4,32 4,32 4,32 4,32 4, * I LO19 3,969 4,59 4,59 4,59 4,59 4, ,15 1,12 1,132 1,142 1,315 1,528 1,511 1,511 1,941 3,561 5,666 6,26 6,26 6,26 6,26 6, s ,155 1, ,241 1,671 3,291 5,396 5,936 5,936 5,936 5,936 5, , B - Southern Power System Load Demand (MW) TRS (Existing Mines) New Mines Generating Capacity (MW) A - Exixting Power Plants Nseke Nzilo I Mwadingusha Kon Subtotal Firm Available Cnpacity 8, B -Transfer From the Western System Available Capacity From the West Capacity of the DC Link Net Transfer From West to South C - New Projects in the South Nzilo 2 Busanga th I , ,416 1, ,21 2,762 3,262 3,258 3,258 3,258 3, , 1, 1, 1, 1, 1, 1, 1, , 1, 1, 1, 1, 1, 1, Firm Southern Capacity $ 3 3 Exports Demand NET CAPACITY BALANCE (68) 83

92 Table 15.2 Electricity demand and Supply Balance (MW) Transmission Capacity at 1 MW, High Case Mining Sector Demand A -Western Power System Load Demand (Mw) TROtBDDtKKT+MBKA (ffinshasa) Kananga KlKWlT SAF-ENERGIE BHP-BILLITON (Alum Smelter) Export Braza SubTotaI Kmiu Tote1 Weptern hand Generating Capacity (MW) A. Existing Power Plants lnga 1 & 2 Zongo Sanga sub-total B - New Installed Capacity lnga 3 (432 MW) Zongo 2 (16 MW) Katende Hydro (6MW) Kakobola (9 MW) IO IO IO IO IO ,2 1,6 1,6 1,6 1,6 1,6 I M) 46 48s l$zt 2, ,352 2,352 2,352 2, $ M, ,7 2,442 2,447 2,452 2,452 1,432 2, ,15 1,45 1,45 1,25 1,395 1,235 1, I395 1,61 1,61 1,61 1,61 1,61 1, I I2 I ,15 1,12 1,132 1,132 1,291 1,482 1J22 1,322 1,482 1,482 1,4Y? 1697 S,697 1,697 1,657 1, ,89 3,78 4,32 4,32 4,32 4,32 4, I IO Total Western Power System Capacity Capacity Balance to the Southern System B - Southern Power System Load Demand (MW) TRS (Exishng Mines) Neb Mines Ssb-Total Generating Capacity (MW) A - Exixting Power Plants Nseke Nzilo 1 Mwadingusha Kon Subtotal Firm Available Capacity ,6 SQU6 94 1, IO 1 1 IO IO I 251 I 251 I 26 I 347 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 B -Transfer From the Western System Awilable Capacit). From the West Capacity ofthe DC Line' Net Transfer From West to South C - New Projects in the South Nzilo 2 Busanga ,21 2,762 3,262 3,258 3,258 3,258 3,258 I I Firm Southern Capacity Exports Demand AETL'APACIN BALANCE 84

93 Economic Analysis Introduction: 1. The analysis of economic justification is carried out in three stages to ensure: that there is a market to be served by the Project that the Project provides the least-cost means of providing the transmission capacity for power transfer capability from the Inga hydropower complex to serve the electricity markets in the industrial heartland of DRC - the Katanga Province, and in the Southern African Power Pool (SAPP); and the profitability of the investment in the Project as measured by the internal economic rate of return. The Power Markets 2. For the foreseeable future, there are two main markets to be served by the Project with bulk electricity supply -(i) the industrial heartland comprising mining companies and associated supporting industrial complexes, the commercial sector and households in the Katanga Province; and (ii) the electricity market in the SAPP. 3. The Market in the Katanga Province: The performance of the mining sector is vital to the economy of the DRC. The mining sector is heavily dependent on electricity supply and its reliability for its production. The projected growth in electricity demand reflects the expected rapid growth in economic activity in the Katanga Province, and, particularly, in the mining sector. As a result, electricity demand in the Province, of which the mining sector accounts for about 95% is projected to grow from 39 MW in 28 to 1,9 MW in 215, and to reach about 1359 MW in year 22, an average annual growth of about 13% over the period. Similarly, energy requirements are projected to grow from about 242 GWh in 28 to about 1,7 GWh in 22. Most of the growth in demand is expected between 28 and year 215 as a result of expected rapid increased production, and investments already committed to expand existing mining operations, as well as to the development of new green-field mines. However, it is likely that the recent down-turn in the international copper and other metal markets, if the trend continues, will slow down the growth of the mining sector in the Katanga Province, and its expected contribution to the GDP. However, such down-turn, which may lead to lower electricity demand in the mining sector, would make more electricity available for exports into the SAPP. The comparative advantage of DRC in the SAPP market is its relatively low cost electricity. 4. Following their full rehabilitation to fully restore original installed capacities, the existing generating plants in Katanga Province, complemented by new generating capacity to be developed in the Province in 2 15/2 16 would be able to meet only about 6% (7 MW) of the projected demand in the Katanga Province at that time. Therefore, there will be need for continuous and steady power transfers from the Inga hydropower complex to complement the supply from the power plants in the Katanga Province to fully meet the demand in the Province. This underscores the importance of having available, as soon as possible, a fully rehabilitated and reliable transmission system to provide the power transfer capability, and the original decision of the GoDRC in the early 197 s to construct the high voltage transmission system 85

94 from Inga to Kolwezi and onwards to the border of Zambia to external power markets in the Southern Africa region. 5. With the expected steady growth in electricity demand due to increased industrial and commercial activity and population growth, new sources of generation will need to be developed. Inga 3 (4,2MW) is the obvious least-cost candidate plant in line to be developed to cope with the increased demand in DRC. Inga 3 development is also part of the medium to longterm least-cost power generation expansion program for the Southern African Power Pool and expected to be in service by year 22. It will not only serve to meet the demand in the DRC, but will also be a significant source of power supply to the Southern African Power Pool (SAPP), and a significant source of foreign exchange earnings for DRC. The transmission developments necessary for the power transfer capability into the Katanga Province and into the SAPP are discussed,below, 6. The Southern Africa Regional Market: The SAPP electricity market has also seen phenomenal growth over the past years, with South Africa, being the dominant player, accounting for about 8% of the volume of consumption in the SAPP. The trend of high growth in electricity demand is expected to continue as economies of the region continue to experience rapid growth. Adequate and reliable electricity supply is critical to attaining the projected economic growth in the region. Based on the SAPP Pool Plan study recently completed by Consultants in collaboration with the SAPP Co-ordination Center, the member utilities of SAPP, as well as the Bank, peak electricity demand in the SAPP, including DRC is projected to grow from 46,949 MW in 28 to 77,576 MW in 225. In South Africa, the biggest market in the SAPP, peak demand is projected to grow from 38, 21 M W in 28 to 62,725 MW in 22, an average annual growth rate of about 4.2% per year over the period. Table 15.3 provides a summary of the projected peak demand and energy for the SAPP. Table Summary SAPP Electricity Demand Forecast Yearmemand Total SAPP ' I 22 I 225 Peak Demand (MW) Energy (GWh) 46,949 36,93 5 1, ,776 63,53 43,294 77,576 93, , ,94 ESKOM-SA Peak Demand (MW) Energy (GWh) 38,21 252,19 4 1, , ,79 62,725 75, ,84 48, The study's main ob-iective was to derive least-cost generation and transmission expansion programs for the SAPP that could serve as a basis of decision by the SADC countries on regional priority generation and transmission projects for the future development of the integrated SAPP, and to demonstrate the advantages for the region of electricity trade. Inga 3 and the other proposed future hydropower plant developments in the DRC, as well as the rehabilitation of Inga 1 &2 are part of the medium to long-term least-cost generation expansion program for the SAPP. The SAPP offers a large market for the relatively cheaper hydro-based electricity of the DRC. On the basis of Pool Plan study, DRC could contribute, as exports, about 26, GWh of electricity each year from year 22 following the coming into service of Inga 3 86.

95 to meeting the demand in the SAPP on a firm continuous basis. Currently, DRC exports 11 MW to South Africa and 1 MW to Zimbabwe, although, rather unreliable due to inadequate generation and the poor state of the transmission infrastructure. Electricity imports from DRC could lead to overall reduction in the cost of electricity in the SAPP, enhance industrial competitiveness, and promote economic growth in the Southern Africa region. Therefore, following the rehabilitation of the existing power generation and transmission infrastructure to improve quality and reliability of supply, which is necessary to re-establish confidence of the Southern Africa power market, imports of electricity from DRC by Southern Africa will be as large as DRC is able to supply. The Project is needed to serve both the power market in the Katanga Province, as well as and the market in the Southern Africa Region. Least-cost Justification 8. The question arises as to whether the Project is the most cost-effective or least-cost means of serving the two markets discussed above. To answer this, the cost of the Project was compared to the cost of two practically feasible alternatives as discussed below. 9. Alternative 1.- Construction of a new transmission system of the same structure, configuration, and power transfer capability of 576 MW as the existing one, comprising 1,7 kilometers of high voltage direct current (HVDC) system, and about 3 kilometers of high voltage alternating current (HVAC) system, including associated transformer stations. The estimated capital and development cost of this alternative based on the current international market prices is about US$1.2 billion in real terms, of which the HVDC system is estimated at about US$1 billion, and HVAC system at about US$2 million. The estimates are comparable to those used in the SAPP Pool Plan study in determining the cost of future high voltage transmission backbone development for the integrated SAPP system. The estimate excludes the cost of the environmental and social mitigation measures that would normally be part of such a transmission development. The estimated cost of the Project, including the cost of the associated environmental and social mitigation measures and owner s cost, and excluding price contingencies is about US$ 394 million, much lower than the cost of installing a new transmission system of same size and configuration. 1. Alternative 2: Construction of additional generating capacities of about 6 MW in place of the power transfer from the West into the Katanga Province to complement supply to the mines and for exports into the SAPP. The total cost, including required transmission capacity is estimated at about US$7 million. The capital cost associated with this alternative is summarized below: Plant Type Hydro Plants Busanga (24 MW); Nzilo 2 (12 MW ) and others New 22 kv transmission lines and substations Total Development Cost Unit Cost Installed Capacity Total Capital $kw MWI Distance in Cost km US$ million 1, km 1 $4,OOO/km 7

96 The cost of this alternative of $7 million is in excess of the cost of the Project 'The analysis above, therefore, confirms the Project - the rehabilitation and reinforcement of the existing transmission system to restore its originally installed power transfer capability of 576 MW, as the least-cost means of serving the two markets described above. The alternative of not undertaking the Project is not a feasible option to serve the two markets. In its current state, the transmission system is barely capable of carrying 15 MW of load, compared to its installed capacity and power transfer capability of 576MW (2x 288MW), because of the poor operating state of several key components of the system. Further deterioration will continue at a rapid rate which will lead to the total failure of the entire transmission system in a few years. Under such circumstances, power transfers from Inga to the mines and other industries in the Katanga Province will be curtailed, which will have significant negative impacts on economic growth. In addition, DRC will not be in a position to honor its obligations under export contracts, and interest in the development of the future large hydro schemes in the DRC will wane. Future SAPP Transmission Backbone and the Project 12. The SAPP Pool Plan Studyanalyzed and derived the least-cost future high voltage transmission backbone development for the SAPP that would transfer power from the major power generation sources in the long-term least-cost power generation expansion program of SAPP to the major demand centers within the SAPP. The least-cost transmission backbone expansion program will comprise new 4x5 kv direct current (HVDC) of 3, MW of power transfer capability from Inga to Kolwezi, 5x7kV high voltage AC lines from Kolwezi through Zambia, using the existing transmission corridor from Inga to the border with Zambia, to South Africa, and linking similar size transmission lines from the large hydro power schemes in Mozambique. The existing high voltage transmission system (the Project) following its rehabilitation and reinforcement will need to be further reinforced with the installation of additional 5 MVA power transformers at Inga and Kolwezi, and to construct a double circuit 22kV from Kolwezi to Solwezi in Zambia to shore up its power transfer capability to 1, MW as an integral part of the future SAPP backbone transmission system. These developments should be in place prior to the completion of construction and commissioning of Inga 3 in , and are critical for the realization of the significant export potential from Inga 3. Thus, in the regional context, the Project is part of the future least-cost transmission backbone development of SAPP, and will reduce transmission related cost of Inga 3 development by about $44 million. Economic Rate of Return 13. The economic rate of return on the investment in the Project is re-evaluated at the higher project cost, and taking into account the additional five years required to complete the Project at end- December 212. All costs and benefits were expressed in constant prices of September 28. The analysis followed the standard approach of comparing economic costs to economic benefits. The assumptions underlying the analysis for the Base Case are stated below. 14. Costs; These comprise: Capital cost of the Project - estimated at US$394 million. It is made up of the cost of rehabilitation and reinforcement of the HVDC and HVAC systems from Inga to the 88

97 border with Zambia, including the associated telecommunication system, the institutional aspect for implementation, the engineering and procurement services, as well the environmental and social mitigation measures to be implemented as part of the Project. The costs are based on the values of the bids received for most of the main components, and estimates. The estimates are based on detailed engineering studies, which established the needs, the costs of which were based on recent international market prices of electricai equipment and materials, and adjusted for industry accepted criteria for physical contingencies for rehabilitation of projects of this nature, but excluding price contingencies. Cost of engineering service was based on the results of the international competitive bidding. For the purpose of the analysis, costs of components for which contracts have been awarded are not considered as sunk or committed, since physical implementation of those components has not begun, by themselves could not constitute the project, and could also be terminated if the additional financing to complete implementation of the whole project is not secured. Annual Fixed Operation and Maintenance Cost: is based on standard industry practice. for large transmission systems of 1% of the cost of installing a new similar transmission system. For the project, the estimate is US$12 million as 1% of the cost of installing a new transmission system of same structure and power transfer capability at the cost of US$1.2 billion. Enerm cost into the transmission svstem: Cost of energy into the transmission system is based on the cost of Inga 3 as a proxy for the marginal cost of generation. Inga 3 is the next in-line candidate development in the least-cost generation expansion program of DRC, which is entirely hydro-based. The next developments will be the Grand Inga schemes, which are further in the future. Inga 3 is expected to be the main source of electricity supply to meet the incremental demand from 218 into the foreseeable future. The output of the rehabilitated Inga 1 and 2 would be committed to mostly meeting the existing demand that had been severely suppressed due to inadequate generation and the dilapidated state of Inga 1 and 2. Inga 3 is also included in the least-cost generation expansion program of the S'APP, as discussed above. The cost of Inga 3 is based on recently completed pre-feasibility study by international consultants for DRC, as well as the estimate used in the Pool Plan study. The installed capacity is expected to be 4,32MW at an estimated installed cost of US$4.32 billion, excluding interest during construction. The marginal cost of generation from Inga 3 is estimated at US$.2/kWh based on: a. net capacity = 3,58 MW ( allowing for reserve margin); b. availability of about 82%, (45 days scheduled maintenance and 18 days per year of forced outage - 5% rate); c. auxiliary consumption of.5% of output (1 8 MW); d. over-night capital costkw (net) = $12 e. cost/kw/year = $ Benefits: The benefits comprise the incremental energy transfers from the Inga 1&2 hydropower plants starting from January 213, following the completion of the Project in 212, as well as energy transfers from Inga 3 hydropower power station following its commission in years to the Katanga Province, and for exports into the SAPP. It is assumed that 89

98 DRC will meet its commitments under the existing and recently concluded export sales contracts Total export into SAPP is set at 2 1 M W at 1% load factor from 21 3 onwards following the completion of the Project. The trade-off in this regard is that demand in Kinshasa would remain suppressed, and would grow moderately at about 2.6% per year from 6 M W in 28 to about 7 MW in 215. However, the suppressed demand is eliminated when Inga 3 comes into service beginning in year 218. This is also consistent with the time that will be required to rehabilitate and expand the distribution system in Kinshasa in order to remove the supply constraint and enable normal demand growth in Kinshasa. In addition, a slower growth in demand in the Katanga Province, including, especially the mining sector, is projected taking account of actual and expected situation in the mining sector, and expectations of the immediate future evolution of the international metal markets. The net energy transfers from Inga into the Katanga Province and into SAPP are summarized in Table 15.5 below. The transfers are limited by the capacity of the transmission system at 5 MW or 3942 GWh at 9% load factor. This limit is reached in 21 8 for the transfers into the Katanga Province. As a result, the mining load is capped at about 195 MW from 21 8 onwards. The energy transfers are net of transmission losses of about 6.5%. The loss level reflects the long-distance nature of the transmission system, and the typical high energy losses in the HVDC inverter/converter systems. Table Net Energy Transfers to Katanga Province and into SAPP The timing and magnitude of the energy flows are based on the assumption that the rehabilitation of Inga 1 and 2 hydropower stations to restore the original installed capacity of 161 MW will be completed in year 22. In addition, the rehabilitation of the smaller power stations, Zongo l(75mw) and Sanga (12 MW), as well as the existing 445 MW of hydropower plants in the Katanga Province will have been completed in Furthermore, it is assumed that three new green -field power plants of total installed capacity of 34 MW would 9

99 have been commissioned, followed by the commissioning of Zongo 2 (1 6 MW), Busanga (24 MW), Nzilo 2 ( 12 MW) in 216/17, and Inga3 in The above energy transfers show the limitation of the fully rehabilitated transmission system, and, as a result, the significant amount of electricity that becomes available, after the demand in Kinshasa and other areas in the West are met following the commissioning of Inga 3 cannot be transferred into the Katanga Province and for exports. To be able to reap the full economic benefits of Inga 3, the power transfer capability of the existing transmission system would need to be augmented to 1, MW at an additional cost of about US$2 million by end- 217 to complement the transmission development associated with Inga 3. The impact is examined as one of the scenarios of sensitivity analysis. 18. Valuation of benefits: The Willingness -to -Pay (WTP) of SAPP is used as the basis of determining the value of a unit of electricity consumed in the mining sector and also exported from DRC into SAPP. The WTP is based on the cost of the alternative source of supply to SAPP in-lieu of imports from DRC. This is estimated as the average incremental cost (AIC) of supply derived from the long-term least-cost generation expansion program of SAPP. The expansion program comprises a mix of hydro, coal, nuclear plants for base load and mid-range duty, and pump-storage, oil and gas plants for peaking duty. 19. The AIC is estimated at USc. 8.69/kWh based on the weighted average of incremental cost of base-load plants at about USc 7lkWh and of peaking plants at USc 18/kWh. The price of a unit of electricity (kwh), as the value to DRC of export into SAPP is estimated as the net-back of the AIC of SAPP, adjusted for incremental transmission cost of USc.65/kWh, and cumulative transmission losses of about 12% from the off-take point at DRC/Zambia border to South Africa. This is estimated to be USc7/kWh. This price level is based on the principle that energy supply from DRC is available all the time and could be used to serve both base-load and peaking loads on a sustained reliable basis. The WTP is achievable by the time the project is completed, as time is also required for DRC to re-establish confidence in the market that it is capable of providing electricity into the markets on a reliable basis. For several years now, supplies to the mines, domestic consumers, and customers in the SAPP have been subject to high levels of unreliability. Impact on the project economics is assessed under a sensitivity test that considers the energy supply from DRC as predominantly for serving based load. In this case, energy is valued at USc 5.65/kWh, based on an AIC of USc 7/kWh for base- load supply in the SAPP, adjusted for transmission cost and losses. 2. The energy transferred by the transmission system to the mines and other industries in the Katanga Province as well as the exports into SAPP are valued at USc 7/kWh, since the value to DRC is the same regardless of the market, and enables DRC to capture significant consumer surplus in relation to its own long-run marginal cost of USc 2.75/kWh for bulk power at the transmission level In addition, there is willingness to pay on the part of the mines as compared to the cost of the alternative oil-fired generation, which some mines have resorted to using due to the supply shortage Power Sales Contracts: SNEL is negotiating new power sales contracts with the mines and other utilities in the region. 91

100 Sensitivity Analyses 22. Ten alternative sensitivity cases were considered to test the robustness of the economic rate of return (ERR) on the investment in the Project. The cases are mentioned below Results 2% real increase in the capital cost of the Project, which could occur due to unforeseen physical contingencies associated with rehabilitation projects of this nature; value of energy to DRC is set at USc 5.65kWh reflecting net-back of AIC of base-load supply in the SAPP; 2 years delay in completing Inga land 2; combined effect of 2% capital cost increase, and 2 years delay in completing Inga 1 and 2 at energy values of USc7kWh and USc 5.65kWh respectively; Increase in power transfer capability to 1 MW with additional investment of US$2 million; 5 years delay in completing new additional generation of about 5 MW in the Katanga Province to complement existing supply and to enable exports into SAPP; the combined impact of 5 years delay in completing Inga 1 and 2, 5 years delay in construction of new generating capacity additions; 2% increase in capital cost, and energy valued at USc 5,65kWh; electricity transfers from the West to the Katanga Province, and export sales valued at US$O.O35kWh, average of existing power tariffs to bulk consumers in DRC and the negotiated export prices, as a proxy for the willingness-to-pay over the long-term; and a 2% decline in power transfers from the West into the Katanga Province reflecting potential decline in the demand of the mining sector. 23. The Base Case ERR on the investment in the Project is estimated at 31%. The sensitivity analysis confirms the robustness of the ERR on the investment in the Project. In all the sensitivity cases considered, the ERR remains above 1 O%, the estimated long-term opportunity cost of capital to DRC. The ERR is most sensitive to price and delays in rehabilitation of Inga 1 &2, than to real increases in the capital cost. Even, in the event of a combined capital cost increase, two years delay in the rehabilitation of Inga 1&2, as well in the completion of Inga 3, the ERR drops to only 21%. In the event of even 2% decline in power transfers into the Katanga Province due to the decline in the mining demand, the ERR still remains high at 26%. In the highly unlikely, but possible event that the willingness to pay for bulk supply remains at the current average bulk supply price of US$.35/kWhY the project is still viable with ERR equal to the long-term opportunity cost of capital of 1%. The analysis further shows that the coming into service of Inga 3, provides significant opportunity for additional exports into SAPP subject to additional investments being made to increase the power transfer capability of the existing transmission line after rehabilitation to 1, MW. This latter point is only illustrative, since the expanded power transfer capability is beyond the scope of the Project, but shows the impacts on DRC of additional transmission investments to enable additional power exports into the SAPP. Results of the sensitivity analysis are shown in Table

101 Table Results of Sensitivity Analysis Base Case and Sensitivity Cases Considered Base Case: (i) power transfers fiom West to Katanga take account of distribution system constraints in Kinshasa in the early years until Iga3 comes into service; ii export contractual obligations fully met; (iii) cost of energy delivered to the transmission system based on marginal cost of generation fiom Inga 3 at USc2,2/kWh; and iv. electricity sales valued at USc77/kWh as the WTP of the integrated SAPP for DRC power net back to the DRC border with Zambia Alternative 1: capital cost increase of the Project by 2% Alternative 2: enera value at UScS.tWkWh for base-load supply Alternative 3: 2 years delay in completing Inga 1 &2 Alternative 4: 2%capital cost increase + 2 years delay in completing Inga I and2+energy value at USc 7/kWh Alternative 5: 2 years delay in completing Inga I and 2 +2 % capital cost increase + energy value at USc 5.65/k Wh Alternative 6: increase power transfer capability to 1 OOOMW Alternative 7: 5 years delay in completing 52 MW of new capacity, Alternative 8: combined effect of 2% capex increase, 5 years delay in completing Inga 1 and 2, 5 years delay in completing new additional generating capacity; and lower energy value of USc5.65kWh Alternative 9: 2% reduction in energy transfers to the transmission line due to decline in mining sector demand Alternative 1: energy valued at USc$3SkWh, the current average bulk supply to the mining sector, as an estimate of the long-term willingness-to-pay Other Benefits Net Present Value (US$ Million) at 1% Discount rate Economic Rate Return ( /) The other benefits of the Project not considered in the above analysis include: The benefits to DRC of the use of the excess telecommunication capacity to be made available for all the various forms of communication and information for private and public business, and household applications. It will provide the first broad-band telecommunication back-bone infkastructure for DRC, and expected to reduce the cost of telecommunication services by about two-thirds. An approximate conservative estimate of the incremental revenue to accrue to the industry is estimated at about US$1 billion in the first 6-7 years of coming into operation of the telecommunication system; Provision of social infrastructure to the communities along the transmission line corridor under the Project, comprising water supply and sanitation systems, construction of schools and clinics, including provision of school furniture and six months supply of basic medicines, electrification, and the implementation of HIV/Aids awareness campaign will bring added improvement in the quality of life of the communities, and generate more economic activity in the communities; 93

102 The catalytic effect of the Project in attracting private investments into the rehabilitation of Inga 1852, as well as of Inga 3 because of the access it will provide to the power markets in the Katanga Province and in the SAPP. Although, additional investments will be required to increase power transfer capability of the Project, it will reduce the transmission investments of Inga 3 by nearly $44 million. The Project will in the future serve as the main backbone for cost-effective electrification of the interior of the country to extend access to the majority of the population in the hinterland of the country. There are a number of major towns with large populations with no electricity supply. Electrification of these will not only improve levels of economic activity and incomes, but would also enable improvements in the quality of life. 94

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107 ANNEX 16: FINANCIAL MANAGEMENT, AUDIT AND DISBURSEMENT ARRANGEMENTS Democratic Republic of Congo: Southern African Power Market Project (SAPMP)-APL1 Additional Financing A. Summary Risk Analysis and Mitigations 1. An effective financial management system is vital for the project because of the need to deliver services quickly to a wide variety of stakeholders. The objectives of the project s financial management system are to: (i) ensure that funds are used only for their intended purposes in an efficient and economical way while implementing agreed activities; (ii) enable the preparation of accurate and timely financial reports; (iii) ensure that funds are properly managed and flow smoothly, rapidly, adequately, regularly and predictably to implementing agencies; (iv) enable project management to monitor the efficient implementation of the project; and to (v) safeguard the project s assets and resources. 2. To ensure a strong financial management system, the implementing agencies should have an adequate number and mix of skilled and experienced staff, the internal control system should ensure the conduct of an orderly and efficient payment and procurement process, and proper recording and safeguarding of assets and resources. The accounting system should support the project s requests for funding and meet its reporting obligations to fund providers including IDA and other donors. The system should also be capable of providing financial data to measure performance when linked to the outputs of the project. Lastly, an independent, qualified auditor should be appointed to review the Project s financial statements and internal controls. 3. The overall FM risk rating is Substantial based on the update made following the last supervision mission carried out on July 28. The risks of lack of transparency, corruption and misuse of funds are high in DRC and ensuring fiduciary compliance in DRC remains a major concern. The SAPMP will be implemented through a ring-fenced mechanisms (UGP) set up at the SNEL offices with relatively stringent financial management and audit arrangements. Moreover, the fiduciary aspects of the project will be contracted to BCECO and the supervision by the Bank will be carried out with a mixed team of FM, procurement, Disbursement and M&E colleagues to verify the use of resources (materiality of expenditures). The fiduciary arrangements agreed upon with the Borrower, include: (i) an appropriate financial management system; (ii) contracting of the fiduciary aspects of the project to BCECO, a implementation unit created since 22 and managing several donors-financed projects; (iii) enforcement of double signature on all payments and withdrawal applications by the Financial Director and the Managing Director of BCECO; (iv) internal auditing department to review transactions; (v) prior review and approval of the SNEL team to any payment made by BCECO; (vi) annual financial audits covering expenditures incurred at central and decentralized levels. B. Financial management arrangements 4. Financial management of the Additional Financing will follow the same approach as the implementation arrangements in place for the ongoing Project. The FM activities will be contracted to BCECO composed of experienced and skilled FM staff including a strengthened internal audit department. These FM arrangements are considered appropriate by IDA for having 99

108 been improved through the implementation of the action plans prepared by the GoDRC following the auditing firms reports and Bank team implementation support missions. So far Interim Un-audited Financial Reports (IFR) are submitted to the Bank regularly in a form and substance that comply with IDA Financial Management requirements, and are current. The overall FM rating is deemed Satisfactory. The last FM implementation support mission carried out in July 28 did not reveal significant FM weaknesses except for the lack of a proper budget, the low disbursement rate and the issue of percentage of eligibility of some categories of expenditure. An action plan to improve the weaknesses of the FM system of the project is in place and being implemented satisfactorily by the project. Most of the issues identified in the auditor reports are currently being addressed. It is agreed that BCECO will provide skilled and experienced staff to handle more efficiently the key FM functions (e.g. financial reporting, treaswer/disbursement, financial control and budgeting and internal audit). 5. Independent external auditors acceptable to IDA are also appointed to carry out the audit of the Project. So far the financial statements of the SAPMP have been audited annually since project effectiveness. The external audit reports are submitted to IDA within six months after the end of each year. The last audit reports of project financial statements for the period ended December 3 1,27 were unqualified (clean). 6. Similarly to the existing arrangements under the project, the disbursements under the project will be made through Direct Payments (DP) or Special Commitment methods of disbursing funds from IDA (see Disbursement Letter and Guidelines for details), as well as through one pooled Designated Account (DA) denominated in US dollars and managed by BCECO. All payment invoices for activities under the project in excess of 2% of the ceiling of the DA will be made through Direct Payments on the basis of requests for payment certified and submitted by BCECO to IDA. The DA will finance invoices for expenditures under the Project up to 2% of the ceiling of the DA. Upon effectiveness of the grant and receipt of a withdrawal application to that effect from the Borrower, an advance will be made to the Recipient up to the ceiling indicated by IDA from time to time in the disbursement letter to pay for eligible project expenditures. The Recipient can submit requests for reimbursement for eligible expenditures incurred under the project. For the sake of simplification, disbursements from the IDA grant will be supported by Statements of Expenditures (SOE), also known as SOE- based or Transaction-based disbursements. Thereafter, the option to disburse against submission of Interim Financial Report (also known as the Report-based disbursement method) could be considered subject to the quality and timeliness of the consolidated IFR submitted to IDA by the SAPMP. In this case, cash forecast for the next six months will be included in the quarterly IFRs submitted to the Bank. 7. Funds will be disbursed in accordance with Project categories of expenditures, as shown in the financing agreement. 1

109 ANNEX 17: ESTIMATED REVISED DISBURSEMENTS OF TOTAL IDA FINANCING Democratic Republic of Congo: Southern African Power Market Project (SAPMP)-APL1 Additional Financing 1 Fiscal Year (FY) I Cum. I29 I21 I211 I212 I213 I Total Additional Financing (US$ million) Total - Credit and Additional Financing (US$ million)

110 ANNEX 18: PROCUREMENT Democratic Republic of Congo: Southern African Power Market Project (SAPMP)-APLI General Additional Financing 1. As per the Project Agreement dated January 21, 24, Goods and Works were to be procured in accordance with the provisions of the Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 and revised in January and August, 1996, September 1997 and January 1999, and consultants' services were to be procured in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in January 1997 and revised in September 1997, January 1999 and May 22. However, due to the delays that occurred in procurement under the project, which did not begin until 27, the Guidelines: Procurement under IBRD Loans and IDA Credits published by the Bank in May 24 and revised in October, 26 have been and will continue to be used. In addition, the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in May 24 and revised in October 26 will be applied to the new contracts for consultancy services to be procured under the additional financing". Institutional Arrangement 2. The institutional arrangement as set out in the above-mentioned Project Agreement has been maintained with BCECO as the procurement agent to: (a) support SNEL in carrying out the following tasks through the project management unit, UGP: (i) financial management and disbursement; (ii) procurement; (iii) monitoring and evaluation; (b) compliance with those obligations pertaining to SNEL referred to in Section 4.1 and 4.2 of the Project Agreement. Capacity assessment 3. The proposed procurement agent has demonstrated capacity in handling procurement matters of several Bank financed projects. The capacity assessment conducted by the Bank Procurement team based in Kinshasa reviewed the procurement organizational structure and the interaction between the project's staff responsible for procurement and the other members of the team, and found it acceptable. The procurement and financial management services provided by BCECO have been good. Although some delays have occurred in the procurement of the major contracts, such delays are due to circumstances other than the quality of procurement services. Procurement Plan 4. The Updated Procurement Plan of the project prepared in 25 has been followed for the procurement of all the main contracts of the various project components. International Competitive Bidding (lcb) procedure has been followed for all the Goods, and supply and installation works, following a detailed pre-qualification process conducted by the Borrower under Bank procurement guidelines. Procurement of the main contracts of the various project components is almost complete. Small civil works and small supply installation contracts are being procured under Local Competitive Bidding (LCB) procedure. There are six of such small contracts under the community development component. Procurement of the consultancy 12

111 services for training and studies is to be done in accordance with the latest Bank Guidelines for the appointment of consultants. The Procurement Plan was re-confirmed at appraisal with SNEL and BCECO. The detailed procurement plans are provided in the Project Files. Table 1 below shows project cost by procurement arrangement. Frequency of Procurement Supervision 5. In addition to the prior review to be catried out from the Bank Country Office, the Bank will on a quarterly basis carry out, through supervision missions, post-review/audits, and capacity assessment of the implementing agencies to assess their levels of risk. Table 1 below shows project cost by procurement method. Expenditure Category Works: Supply and Installation Goods Services Consultants Training Table 1 - Project Cost by Procurement Arrangement (US$ Million) Procurement Method International N ationalllocal Other Bidding Competitive Competitive Method Bidding Bidding (Other) (lcb) (N/LCB) (263.73) (3.21) (.) (39.63) (2.27) (.) (.) (.) (1.2) (34.63) (.) (.) (.) (.) (4.45) Total (266.94» (41.9) (1.2) (34.63) 4.45 (4.45) Total Project Cost of which IDA financing (337.99) (5.48) (14.65) (358.12) Foot notes: N/LCR - national/local competitive blddmg for small works, and local services. Others comprise contracts financed by EIB and CEC, local sole-sourced services, such as procurement services from BCECO, UGP services, cost of establishing letters of credit. 6. All consulting services are to be provided by firms to be selected on Quality and Cost- Based Selection (QCBS) method. Thresholds for Procurement Methods and Prior Review 7. Table 2 below provides the prior r~view thresholds. Procurement of IDA financed supply.and installation of plant and equipment estimated to cost US$3,, equivalent or more per contract and Goods contract estimated to cost US$ 5, equivalent or more per contract as well as consulting contracts of US$2, equivalent or more per contract for hiring firm; and US$1, equivalent for contract or more for hiring individual consultants will be subject to prior review by IDA. The first two NCB contracts for procurement of works and Goods 13

112 respectively will also be subject to IDA prior review. All single-source selection of consultants and terms of reference for consulting services, irrespective of contract value, will be subject to IDA prior review. All other contracts will be subject to post review which will be conducted by IDA during supervision missions and/or by an independent procurement auditor. Table 2 - Thresholds for Procurement Methods and Prior Review Expenditure Category Contract Value Procurement Contracts Subject to Threshold (US$) Method Prior Review (US$) Works, Supply and ~ $3,, ICB All contracts Installation < $3,,, NCB First two contracts ~$5, Shopping, All subject to post Minor civil works < $5, review Goods ~ $5, ICB All contracts < $5,, ~$5, NCB First two contracts < $5, Shopping All subject to postreview Services: Firms ~ $1, QCBS/LCS All contracts ~ < $1, CQS $2,, Individuals IC All post review All contracts ~ $1,,,,, Footnotes: ICB- InternatIOnal Competitive Blddmg; NCB- NatIOnal Competitive Blddmg; QCBS- Quallty- and Cost Based Selection; CQ- Selection based on Consultants' Qualifications; IC - individual consultant; LCS - Least- Cost Selection 14

113 MAPS Map 1: DRC - Southern African Power Pool (Map 35356) Map 2: DRC - Southern African Power Market Project (Map 35198) Map 3: DRC - Southern African Power Market Project; Sub Saharan Regional Optical Fiber Telecommunication Backbone Networks with World Bank Support (Map 37 1) Map 4: DRC - Southern African Power Market Project; Central Africa Optical Fiber Telecommunications Backbone Configurations (Map 372) 15

114

115 DEMOCRATIC REPUBLIC OF CONGO SOUTHERN AFRICAN POWER MARKET PROJECT SUB-SAHARAN REGIONAL OPTICAL FIBER TELECOMMUNICATION BACKBONE NETWORKS WITH WORLD BANK SUPPORT CENTRAL AFRICAN BACKBONE CAB/RCIP BACKBONE RCIP COUNTRIES EASSy CABLE SOUTHERN AFRICA POWER MARKET TRANSMISSION LINES IBRD 371 MOROCCO TUNISIA FORMER SPANISH SAHARA ALGERIA LIBYA ARAB REP. OF EGYPT CAPE VERDE MAURITANIA MALI NIGER SENEGAL CHAD THE GAMBIA BURKINA GUINEA-BISSAU FASO GUINEA BENIN NIGERIA SIERRA LEONE CÔTE D IVOIRE GHANA CENTRAL AFRICAN REPUBLIC LIBERIA TOGO CAMEROON EQUATORIAL GUINEA SÃO TOMÉ AND PRÍNCIPE CONGO GABON DEM. REP. OF CONGO SUDAN UGANDA RWANDA BURUNDI ERITREA ETHIOPIA KENYA DJIBOUTI SOMALIA TANZANIA SEYCHELLES Atlantic Ocean ANGOLA ZAMBIA ZIMBABWE MALAWI MOZAMBIQUE COMOROS MADAGASCAR MAURITIUS NAMIBIA BOTSWANA This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. SOUTH AFRICA LESOTHO SWAZILAND Indian Ocean JUNE 29

116 DEMOCRATIC OF CONGO SOUTHERN AFRICAN POWER MARKET PROJECT CENTRAL AFRICA OPTICAL FIBER TELECOMMUNICATION BACKBONE CONFIGURATIONS EXISTING UNDER CONSTRUCTION Kilometers SAT-3/WASC AND WAFS PIPELINE OPTICAL FIBER CENTRAL AFRICAN BACKBONE (CAB) RCIP & EASSy OTHER NETWORKS MAIN CITIES AND TOWNS NATIONAL CAPITALS INTERNATIONAL BOUNDARIES Miles This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 1º Niger 5º Minna Aba Zaria Kaduna ABUJA Enugu Awka Jos Calabar Port Harcourt MALABO EQUATORIAL GUINEA SÃO TOMÉ AND PRÍNCIPE º 5º 1º SÃO TOMÉ Lafia Bauchi Makurdi Kumba Bamenda Foumban Bafoussam Tiko Port- Gentil NIGERIA I Benue Bata 1º S O U T H A T L A N T I C O C E A N Nkongsamba Douala Edea Kribi EQU. GUINEA LIBREVILLE Kango Lambaréné Gombe Mouila Tchibanga Mayumba Yola Ngaoundéré YAOUNDÉ Mbalmayo Oyem Booué Loubomo Mandingo-Kayes Pointe-Noire Moanda Soyo Ambriz Garoua CAMEROON O GABON ANGOLA (Cabinda) Bertoua Makokou Lastourville Mossendjo Boma Porto Amboim Lobito Benguela Maroua Franceville Matadi Pala Bongor Kelo Moundou Berberati Bozoum Bouar Ouesso Oyo Djambala Nkayi BRAZZAVILLE LUANDA 15º Uíge Laï Nola CONGO O Owando Congo Huambo Koumra Doba Yumbi Bolobo KINSHASA Malanje Impfondo Kwango Bossangoa Mbaïki Bossembele BANGUI Bandundu C H A D Sarh Sibut Mbandaka Kikwit Rio Oubangui Cuango Kaga Bandoro Gemena Inongo Kasaï A N G O L A 2º Luena Ndele Gbadolite Bambari Boende Ilebo Lucapa Saurimo Birao CENTRAL AFRICAN A REPUBLIC Congo Bria Bangassou Mobaye Lisala Bumba Lodja Bondo Yangambi Tshuapa Buta DEMOCRATIC C REPUBLIC OF THE CONGO O Lusambo Ubundu Punia Kindu Kananga Mbuji-Mayi Kabinda Kabalo 25º Kamina Kolwezi Kisangani Kabongo Solwezi Likasi Isiro Beni Butembo Lake Edward Lubutu Rutshuru Masisi Walikale Sake Goma Kalima Bukavu Kasongo S U D A N Shabunda Uvira Kongolo Manono Kasenga Kasomeno Waw Lake Mweru Lubumbashi Fizi Kalemie Moba Mansa Chililabombwe Chingola Mufulira Kitwe Ndola Luanshya Aba Bunia Kigoma Ujiji Fort Portal KAMPALA Kasese Entebbe Masaka Mbarara Kasama Juba Arua Bukoba KIGALI BUJUMBURA Mpulungu Bor RWANDA BURUNDI Albert Nile Lake Albert Mpanda Lake Tanganyika White Malakal Nimule Gulu Sumbawanga Mbala Nile Z A M B I A Chipata Lira U G A N D A Victoria Nile Jinja Port Bell Lake Victoria Mwanza Tabora Mbeya Karonga Soroti Mbale Mzuzu Moroto Musoma Lake Nyasa MALAWI Lodwar Nek'emte Kitale Gore Eldoret Kisumu Nanyuki Nakuru Kericho Nyeri DODOMA NAIROBI Arusha Iringa Songea Lichinga Debre Mark'os Jima Ārba Arba Minch' Lake Rudolph (Lake Turkana) Thika Moshi T A N Z A N I A Morogoro Nile Blue Āwasa Awasa Meru Machakos Nazret Kibre Mengist Moyale Marsibit Desē Dese 35º 4º Debre Birhan Shashemene Goba Negele - - Mombasa Tanga Mkoani Dar es Salaam ADDIS ABABA E T H I O P I A K E N Y A MOZAMBIQUE 1º 15º 2º 25º 3º 35º 4º 3º Moyale Moyalē Garissa Zanzibar Lindi Mtwara Wajir Wete Lamu Malindi Pemba IBRD 372 Dire Dawa Harer Dolo Odo SOMALIA 1º 5º º 5º I N D I A N O C E A N 1º JUNE 29