Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Report No: xxxx-se ELECTRICITY SECTOR EFFICIENCY ENHANCEMENT PROJECT CR. 4060-SE April 25, 2005 TO THE REPUBLIC OF SENEGAL December 28, 2010
ABBREVIATIONS AND ACRONYMS DO GoS HFO IDA IP ISR MW PDO SAR SDR Development Objective Government of Senegal Heavy Fuel Oil International Development Association Implementation Progress Implementation Status Report Megawatt Project Development Objective Société Africaine de Raffinage (Refining Company) Special Drawing Right Société Nationale d Electricité (National Power Utility of Senegal) Regional Vice President: Country Director: Sector Manager / Director: Task Team Leader: Obiageli K. Ezekwesili Habib Fetini Subramaniam V. Iyer Stephan Garnier 2
SENEGAL P002797 CONTENTS Page A. SUMMARY... 6 B. PROJECT STATUS... 6 C. PROPOSED CHANGES... 8 ANNEX: RESULTS FRAMEWORK AND MONITORING... 13 3
RESTRUCTURING PAPER SUMMARY 1. The proposed restructuring will consist of a partial cancellation of the Credit and a reallocation between Credit categories 1, as requested by the Government of Senegal (GoS) in a letter of cancellation dated and received on December 28, 2010 (Attachment 1). The cancelled funds will be recommitted to the Senegal - Fifth Poverty Reduction Support Credit (PRSC-5) under preparation, as allowed under the Investment Lending Reform approved by the Board of Executive Directors of the World Bank on October 22, 2009. The cancelled amount primarily relates to proceeds under the credit currently allocated to a subcomponent of the Project, which, to date, has not started implementation. 2. The Government of Senegal has informed the Association that they do not seek further extension of the Credit closing date (December 31, 2010), because the length of extension needed to contract and execute pending rehabilitation works under the above subcomponent would be excessive (2 years). 3. This subcomponent is part of a broader component which primary objective is to increase the electricity supply and reliability of the electricity services through investments in generation, transmission and distribution, including: (i) the development of a new private generation plant (with IFC financing) and (ii) rehabilitation/maintenance works in the existing Cap-des-Biches steam generation units, and rehabilitation/reinforcement of existing network. The new generation plant was commissioned in January 2008. The other activities of this component, relating to the rehabilitation of existing generation facilities and reinforcement of transmission lines, (SDR 6.4 million - approx USD9.7 million or 60 percent of the credit amount), will be entirely cancelled. 4. The proposed cancellation of the above project subcomponent does not change the Project Development Objectives (PDO) PROJECT STATUS 5. The Credit in the amount of SDR 10.5 million (equivalent to about US$ 15.6 million) was approved on May 17, 2005, signed on June 28, 2005, and became effective on December 9, 2005. A first extension of the credit closing date was granted from 1 In accordance with Section 6.01 of the General Conditions Applicable to Development Credit Agreements of the Association, dated January 1, 1985 (as amended through May 1, 2004) incorporated to the PRESELEC Credit Agreement by reference.
January 31, 2009 to December 31, 2010. To date the amount of US$ 4,646,908.21 has been disbursed (29.33%). 6. The Development Objectives of the Project are to: (a) assist the Borrower in maintaining and increasing the electricity supply and the reliability and cost-effectiveness of the electricity services; and (b) enhance the performance of key institutions of the energy sector. 7. The Project includes two main parts: Part A focuses on strengthening s power generation through the involvement of the private sector and rehabilitating its transmission and distribution systems. It also supports the Government and in the development of a master plan for electricity generation, transmission and distribution investments. Part B supports the government's efforts to strengthen sector institutions, implement public/private partnership arrangements for, and monitor and evaluate project implementation. 8. Despite the slippage in project implementation that has resulted in low disbursements, the current ISR rating is moderately satisfactory for DO and moderately unsatisfactory for IP. Implementation status as of November 2010 Part A. Support to Component A1. Generation, transmission and distribution investments and guarantees 9. The Kounoune Project: the Kounoune IPP 67.5 MW HFO fired diesel power generation plant located at Kounoune, in the eastern suburbs of Dakar, is fully commissioned since January 2008. The project provides a partial risk guarantee (PRG) 2 (US$ 7.2 million) and an IFC corporation A loan in the amount of US$22 million. The Kounoune Project was developed as a joint venture between Matelec S.A.L. ( Matelec ) from Lebanon, and MHI Equipment Europe B.V. ( MEE ) from the Netherlands, a wholly subsidiary of Mitsubishi Heavy Industries Ltd. Of Japan. The Kounoune Project is selling energy to under a 15 year Power Purchase Agreement (PPA). 10. Rehabilitation/reinforcement investments: To date rehabilitation/reinforcement works in generation and transmission have not started due to delays in (i) the selection of investments by in view of insufficient funding 3 and (ii) the preparation of bidding documents once the choice was made. While the task team, at the time of the last closing date extension in January 2009, had still good reasons to believe that the bidding process would be successful; the call for bids was, however, not successful in attracting responsive bidders and had to be called off. The bidding documents have been revised to make them more responsive to bidders concerns and the tender has been relaunched and 2 The PRG allowed the sponsors to mobilize commercial debt. However, the agreement has not yet been signed, the main sponsors consider they don t need it anymore. 3 Originally, the Project was designed as a two-phase APL. Due to constraints on the IDA 13 allocation, the financing of the APL1 was divided into two stages; the first stage was financed under IDA13, while the second stage was supposed to be financed under IDA 14. However the energy sector allocation under IDA 14 was not directed to PRESELEC but instead to budget support through an energy sector development policy operation. 7
is currently being evaluated; award is scheduled for March 2011. The GOS and intend to use their own funds to finance this contract. Component A2. Capacity Building for 11. This component was originally designed to support s capacity building efforts by financing part of: (i) part of s Human Resources action plan 4, (ii) part of the rehabilitation of s Training Center ( Centre de Formation et de Perfectionnement Professionnel CFPP- ), (iii) safety equipment for s staff, and (iv) specific training for s staff regarding environment, quality and security issues. 12. Due to constraints in IDA 13 allocation, it was decided to reduce IDA financing for this Component and to substitute it with s own resources. The component was mostly completed with the exception of the rehabilitation of s Training Center. Component A3. Technical Assistance to 13. Taking into account the IDA 13 constraint, this Component was designed to finance key planning studies including a generation and transmission master plan and a distribution master plan, as well as to provide retroactive financing for part of s project preparation and start-up activities related to the Kounoune I Project. All activities have been completed. Part B. Institutional Development and long Term Development of the Energy Sector 14. This part comprises three components: Component B1: Communication and project monitoring and evaluation; Component B2: Energy sector long term development, including s institutional reform; and Component B3: Capacity building for the energy sector institutions. 15. Due to the IDA 13 constraints, financing for components B1 and B3 was significantly reduced. 16. Most of the activities conducted under Part B of the project were thus related to Component B2, including (i) monitoring and evaluation of the project and (ii) activities related to the unbundling of with the financing of various consultants to help the authorities and in the implementation of the reform. These activities have now been completed. Cancellation, savings, reallocation of credit proceeds, and re-commitment of cancelled IDA funds 17. The cancelled funds will be reallocated to the Senegal - Fifth Poverty Reduction Support Credit (PRSC-5) under preparation. The proposed re-commitment of cancelled IDA resources under the PRSC-5 will give an opportunity to the Government and the Bank to re-align their vision on sector development objectives and strategy, in the context 4 s Human Resources Action Plan is based on the January 2004 audit report on s human resources (HR). 8
of the energy sector restructuring and recovery plan that is under preparation by the new sector authorities in place since October 2010. This re-commitment is fully consistent with the CASPR 5 which stresses the efforts to be undertaken by the Government and the Bank to design a medium-term reform agenda to be supported under the new PRSC series starting in FY10. 18. In addition, savings under various other components of the project (resulting from activities financed with other funding sources or contracts signed for lower-thanestimated amount) will be used to finance cost overruns mostly in the category Consultants' services in Component B2. The Government has therefore asked for a reallocation of the Credit proceeds, as shown in Table 2. PROPOSED CHANGES 19. The GOS, by letter dated December 28, 2010, requested to IDA a partial cancellation of SDR 6,400,000 and a reallocation of remaining funds from Credit 4060- SE, after cancellation as shown in table 2 below. C.1 Results/indicators 20. While the PDO is not affected by the cancellation, some of the Outcome Indicators will not be met, as shown in the revised Results Framework in the Annex hereto. With the cancellation of the rehabilitations/reinforcement investments, the Intermediate Result indicator Two (i.e. Award the contracts and completion of works relating to the transmission and distribution networks and rehabilitation of generation facilities) will be dropped. C.2 Components Cancellations 21. As mentioned above, the proposed cancellation would mean not financing rehabilitation/reinforcement investments under Component A1. The component was to finance rehabilitation/maintenance works at the existing Cap-des-Biches steam generation units, and the rehabilitation/reinforcement of existing network. The GOS and intend to use their own funds to finance the Cap-des-Biches rehabilitation contract and the reinforcement of the existing transmission and distribution network. C.3 Financing Project Costs: 5 Report 48600-SN of May 28, 2009 9
22. The proposed SDR amount cancellation is SDR 6.4 million (equivalent to approx. USD 9.7 million). The Table 1 below shows the project s initial costs by component and the proposed revised amounts, after cancellation and reallocation. Table 1: Project Costs Overview Project Costs (US$ million) Components/Activities Initial Proposed A1: Generation, Transmission and distribution rehabilitation and reinforcement 9.7 0.0 A2: Capacity Building for 0.0 0.0 A3: Technical Assistance to 1.65 1.65 B1: Communication and project monitoring and evaluation 0.475 0.345 B2: Energy Sector Long Term Development 1.06 1.72 B3: Capacity Building for the Energy Sector Institutions 0.655 0.225 Refinancing of Project Preparation facility (PPF) 2.26 2.26 Unallocated (Contingencies) 0.1 0 TOTAL 15.9 6.2 Reallocation of proceeds: 23. T SE T Category Table 2: Pre-Post Cancellation Overview Amount of the Credit by Category Pre Re-Allocation and Cancellation (SDR) Amount of the Credit by Category Post Cancellation Amount of the Credit by Category Post Re Allocation (SDR) 1 Works under: (a) Part A.1 5,400,000 0 0 2 Goods under: (a) Part A.1 (b) Part B.1 (c) Part B.3 3 Consultants services under: (a) Part A.3 (b) Part B.1 (c) Part B.2 (d) Part B.3 1,000,000 85,000 170,000 1,090,000 100,000 600,000 210,000 0 85,000 170,000 1,090,000 100,000 600,000 210,000 (SDR) 0 0 100,000 1,090,000 100,000 965,000 0 4 Training and Travels: 200,000 200,000 200,000 5 Operating Costs (Part B) 80,000 80,000 80,000 6 Refunding of Project Preparation Advance 1,490,343 1,490,343 1,490,343 7 Unallocated 74,657 74,657 74,657 10
TOTAL 10,500,000 4,100,000 4,100,000 11
ANNEX Results Framework and Monitoring i SENEGAL: ELECTRICITY SECTOR EFFICIENCY ENHANCEMENT PROJECT Project Development Objectives (PDO): The Development objectives of the Project are to: (a) assist the Borrower in maintaining and increasing the electricity supply and the reliability and costeffectiveness of the electricity services; and (b) enhance the performance of key institutions of the energy sector. Revised Project Development Objective: PDO Level Results Indicators Indicator One: New generation facility of 67.5 MW commissioned (Kounoune I project) - CORE indicator Core ii NA D=Dropped C=Continue N= New R=Revised Unit of Measure Baseline (2004) X C Text No plant Progress to date (2010) The 67.5 MW Kounoune I IPP plant was commissioned in January 2008. As of end January 2008, 9 out of 9 units were producing. Some technical problems occurred in 2009 and the plant was functioning only 80% of its capacity. Technical problems have been resolved in 2010. End of Project Target Values Facility commissioned and functioning at 100% of its capacity. Target achieved Frequency Data Source/ Methodology - Kounoune Power IPP - - (PCU) within the Ministry of Energy Responsibility for Data Collection Indicator Two: s energy sales (GWh/year) net C Gwh/year 1,538 GWh electricity consumption 2008: 1,868 GWh 2009: 1,956 GWh (+5%) 2010: estimates: 2,100 GWh (+7%) Original target by end 2008: 1,987 GWh Estimation by end 2010 is based on electricity consumption by end August 2010. Target achieved in 2010
Indicator Three: Undelivered energy reduced from 14GWh in 2004 to 8 GWh in 2007 C GWh/year Undelivered energy: 14 GWh in 2004 Undelivered energy increased in the last years and reached a peak in 2008 (105) and 2009 (88). It is expected to be around the same level (100 GWh) in 2010. Target 8 GWh by 2008 Target not achieved. Indicator Four: Reduction in the variable costs of s generation and purchase C - Index=100 for baseline year After a considerable reduction in generation costs (based on the 2004 petroleum products price levels) with the commissioning of new power generation facilities (Bel Air (60MW), Kahone (60MW) and Kounoune (67.5MW), the variable costs have been significantly increasing over the last two years (2009 and 2010) due to a lack of maintenance in the existing generation facilities. Objective : reduction by 7% Target was reached in 2008 but not in 2010 Indicator Five: Electricity system losses (in % of net generation) (technical and non technical) X C % 20% in 2008 No decrease in technical and non technical losses since 2004. As of December 2009, level of losses was estimated at 21,4%. Target: 15,5% Target not achieved Indicator Six: Monitoring and Evaluation (M&E) system for the energy sector set up C Text No M&E system for the energy sector in place With the creation of an Audit Department within, there has been progress in settingup an M&E system for s Board Monitoring and Evaluation (M&E) system for the energy sector set-up Target partially 13
s Board. achieved Indicator Seven: New electricity tariff mechanism set-up C Text Existing tariff setting mechanism needs to be reviewed every 5 years. To be reviewed for the 2005-2009 period The tariff setting mechanism was reviewed twice during the project. The first time in July 2005 The second time in May 2010 New tariff adjustment mechanism in place Target achieved However, the current formula was found to be inadequate, in view of s and the sector context and is expected to be revised in 2011. Yearly PCU PCU / Ministry of Energy / CRSE Indicator Eight: Adoption of a training program for public sector staff C Text No training program in place Despite the lack of financing due to IDA 13 constraints staff from the Ministry of Energy, the Rural Electrification Agency (ASER) and the regulator (CRSE) have been trained over the project implementation. Adoption of a yearly training program for the public energy sector staff. Target not achieved Each public entity prepares its own training program. However, due to the lack of financing the training program was not adopted every year. Yearly PCU PCU / Ministry of Energy / CRSE / ASER / PETROSEN / CNH Indicator Nine: Implemented the public/private partnership arrangements decided by GOS for C Text No decision from GOS, action plan not yet under implementation The Government has confirmed its choice regarding s reform and private sector participation, as reflected in the Letter of Sector Policy of February 2008. An action plan has been prepared on this basis and consultants have been recruited to help and the authorities in the implementation of s unbundling. Action plan fully implemented. Target only partially achieved The studies to create the three subsidiaries and holding company have been completed. The accounting systems have been separated. However, due to the financial difficulties of, the unbundling process PCU PCU / Ministry of Energy / GTAH 14
unbundling process with subsequent private participation has been put on hold by the new sector authorities in November 2010. Indicator Ten: Electricity collection rate (%) X C % New baseline 2009: 97,5% Value in 2008: 98,5% 99% Target not achieved Intermediate Result (Component A1): Additional generating capacity available INTERMEDIATE RESULTS Revised Intermediate Result (Component A1): Intermediate Result indicator dropped Intermediate Result indicator One: Beginning of construction by selected Sponsors and commercial commissioning of the Kounoune I IPP Intermediate Result indicator Two: Award the contracts and completion of works relating to the transmission and distribution networks and rehabilitation of generation facilities C Text Kounoune I generation capacity not available Plant construction was completed by end 2006 and fully commissioned by January 2008 Dropped Text No contract awarded Activities related to this indicator have been cancelled. 67,5 MW additional generating capacity available Achieved Procurement completed and rehabilitation completed. Indicator dropped. Yearly Intermediate Result (Component A2 and A3): Determine s investments needs Revised Intermediate Result (Component A2 and A3): NA 15
Intermediate Result indicator Three: Award and completion of Master plans studies for generation, transmission and Distribution C Text No updated Master Plans. Two Master Plans have been completed (Final report submitted in September 2010) Two Master Plans completed Achieved Yearly Intermediate Result (Component B1: Communication and M&E): Assess effectiveness of communication plan and disconnects Revised Intermediate Result (Component B1): NA Intermediate Result indicator Four: Completion of a Communication Plan. Compiling/Setting up of Monitoring and Evaluation Data Base C Text No communication plan in place and no M&E database Communication strategy still under preparation by with own resources. Monitoring and evaluation Data Base in place within the Ministry of Energy Communication plan implemented Not achieved M&E database operational Achieved Intermediate Result (Component B2: Capacity Building): Monitor execution of GOS action plan for implementing the public/private partnership in the electricity sector Progress & Supervision reports Ministry of Energy and Revised Intermediate Result (Component B2): NA Intermediate Result indicator Five: Implementation of the public/private partnership arrangements decided by GOS for C Text No new PPP arrangement in place Kounoune IPP completed. A new coal IPP is under development with AfDB financing (commissioning expected in 2013/2014) PPA was signed in January 2009. PPP arrangement implemented Partially achieved Progress & Supervision reports Ministry of Energy and Regarding s unbundling, the new Minister of Energy decided in November 2010 to put on hold the creation of the three 16
subsidiaries. The separation of accounting systems was completed in November 2010. 17
i The original (2004) Results Framework for this Project was based on a different format. The values from the current RF of 2009 were therefore transferred into this new mandatory template of the new standard for Restructuring Papers. Progress To Date values have been taken from the last available ISR ii This Project and its results framework were developed and updated in the last restructuring of January 2009 when the Bank s Core indicators did not exist. Furthermore the Core Indicators on Energy have not yet been formalized. Some Intermediate Outcome Indicators (IOI) relate to sectors other than energy (Water, ICT and Transport) that have already approved Core Indicators. However the IOIs relating to those non-energy sectors were already achieved by the time Core indicators were introduced. 18