INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: AB496[OPCS1]
Project Name
SN-ELECTRICITY EFFICIENCY ENHANCEMENT PROJECT
Region
AFRICA
Sector
General energy sector (100%)
Project ID
P073477
Borrower(s)
Republic of SENEGAL
Implementing Agency
Senelec, Petrosen
Environment Category
[ ] A [X] B [ ] C [ ] FI [ ]
Safeguard Classification
[ ] S1 [w2] [X] S2 [w3] [ ] S3 [w4] [ ] SF [w5] [ ]
Date PID Prepared
February 24, 2004 (update)
Estimated Date of Appraisal Authorization
April 1, 2004
Estimated Date of Board Approval
June 24, 2004
1. Key development issues and rationale for Bank involvement
1.1 CAS
A new CAS was presented for Senegal and approved by Bank Board on April 17, 2003. A major objective of the CAS is to expand the supply of infrastructure services, to lower service costs and to promote private sector development. The proposed IDA program of about US$100 million (Two-phase APL) for FY04 has been included in the base case scenario of the CAS.
1.2 Electricity Sector Issues and Government Strategy
Electricity services in Senegal are currently provided by SENELEC, a public sector company covering the whole country. Starting in 2004, the provision of electricity services will be provided by SENELEC for the urban areas and by the Rural Electrification Agency (ASER) for the rural areas. The Bank is currently supporting Senegal in these two areas.
SENELEC faces three major issues : (i) The quality of service is relatively poor because its electricity generation, transmission and distribution facilities are in relatively poor condition due to age (about 30% of its production facilities are more than 25 years old), lack of maintenance and renewal; (ii) the cost of generation is very high in part due to an inadequate mix of generation units; and (iii) SENELEC’s facilities cannot meet the rapidly growing demand for power, growing annually by 25-30 MW. As a result power outages and load shedding are fairly common, quality of services is inadequate, losses are high and the needs of the economy and the population are not met. This coupled with weak commercial performance has led also to a weak financial and technical performance for SENELEC. These problems, if not addressed urgently, could lead to significant economic and social costs.
The Government’s strategy for the energy sector is outlined in a Letter of Sector Development Policy adopted by the Government in April 2003. It outlines the progress, and in some instances the lack of it, since the last Letter was adopted in January 1997, some six years ago. In the power sector, and starting in 1997, reforms were initiated aimed at introducing private sector participation in investments and management, encouraging higher efficiency and ensuring adequate supply. The Government of Senegal (GOS) had complied well and opportunely with its power sector reform program as stated in the Policy Letter.
There were two serious attempts at “privatizing” SENELEC over a three year period but both failed. Relatively little new investment were made in the sector during that period while the demand for electricity increased substantially which, added to the poor reliability of the generation equipment, resulted in capacity shortages and brown outs. Public outcry due to poor service and continuous energy shortages, black outs and brown outs increased.
Reflecting on the two failed privatization experiences GOS has concluded that: (i) the financing of the electricity sector investment program will require a combination of private and public sector financing and that private sector should be mostly relied on for financing power generation, through IPPs; (ii) the concept of a private concession for SENELEC should be adopted while recognizing that public financing will still be required to a significant degree; (iii) the Strategic Partner should have a majority of the shareholding, but not required to make a substantial financial commitment at the outset; and hence (iv) the Donor Community would continue to finance a substantial share of the investment plan, at least for the next five years.
On this basis, GOS has prepared a ten year investment plan (2004-2013). In a first phase (2004-2006), critical investments should be made in new generation and rehabilitation of generation and of the transmission and distribution networks to ward off further technical and financial deterioration of the sector. These investments should have been made some years ago, but were neglected because efforts and attention were focused on privatization of SENELEC. In a second phase (2007-2009), investments should be made to expand access and improve the commercial and technical efficiency of the sector and increase access.
1.3 Lessons learned
Lessons from the Senegalese experience as well as from recent international developments in the energy sector have been incorporated in project design. The main lessons are as follows:
· Privatization is a complex and long process involving public and political support. The main reason why the privatization of SENELEC failed appears to be a lack of a clear agreement within the GOS and with the external partners regarding the main objectives and features of the privatization and inadequate managerial autonomy granted to the strategic partner.
· The privatization of a power utility should not be the end of the Bank’s role; a continued involvement to ensure sustainability is needed. In projects with high reform content, Bank continuous support to the sector objectives as well as continuous and frank policy dialogue with the Government are of paramount importance to achieve results. The provision of financing to address the investment needs of the electricity sector should have been secured.
· Public/private partnership is essential to finance the investment program and leverage private financing. This partnership should be flexible, combining financing instruments (guarantees, direct financing, etc.) and institutions.
· Obligations to invest must be clearly stated in the concession contract and funding must be secured up-front to achieve the predefined improvements in quality of service, access and costs reductions.
1.4 Indications of borrower commitment and ownership
The political and economic implications of this proposed operation are considerable as the proposed program is a key ingredient for the economic and social development of SENEGAL. Hence, the Government's commitment to and sense of ownership of the project and Senelec’s commitment for the technical, financial, and managerial rehabilitation and development of the electricity sector are very high.
1.5 Value added of Bank support in this project
The proposed program allows the Bank Group (World Bank and IFC) to strengthen a constructive dialogue with the GOS, started initially under the Energy Sector Adjustment Operation. The value added of Bank assistance is substantial as it should: (i) provide private sector investors and operators needed comfort; (ii) help strengthen the supply of electricity at a critical time, when the economy has again begun to expand; (iii) result in a reduction in the cost of electricity services; and (iv) set the stage for a technical, reliable, and financially sustainable electricity sector (also critical to the development of rural electrification).
2. Proposed objective(s)
The main development objective of this two-phase APL is to support the delivery of quality electricity services at the lowest cost possible within the SENELEC perimeter and also to the rural concessions (a separate program is also prepared to develop electricity services in rural areas), and to promote increased private sector participation in SENEGAL’s electricity sector.
3. Preliminary description
The proposed program directly supports the CAS objective of expanding infrastructure services through the implementation of SENELEC’s investment program. It provides IDA financial resources and Bank’s support to SENEGAL to: (i) leverage private sector financing in new power production facilities (IPPs); (ii) select in a transparent manner a strategic partner for SENELEC granted with full decision-making authority; (iii) rehabilitate and expand some of the existing generating units on the interconnected system and some isolated centers; (iv) rehabilitate and expand SENELEC transmission and distribution networks; and (v) promote private sector investments in the hydrocarbon sector in order to reduce input costs to the electricity sector. Overall program costs are currently estimated to be $250-260 million.
The proposed World Bank program would be implemented in two phases as an APL. During the first phase (mid-CY2004 to end CY2006) IDA would support: (i) the commissioning of a 60 MW net IPP (IDA partial risk guarantee); (ii) the hiring of qualified advisors to assist SENEGAL in the selection of a strategic partner for SENELEC (IDA credit); (iii) the implementation of essential rehabilitation of the transmission and distribution systems and possibly of some generating units (IDA credit); (iv) the promotion of SENEGAL’s hydrocarbon potential to private investors (IDA credit); (v) capacity building, studies required to implement Phase II and monitoring of project implementation (IDA credit); and (vi) refinancing of the PPFs (IDA credit). IDA resources requirements for this first phase are estimated at about $50 million. The second phase (early 2007-end 2009) would be effective once the strategic partner confirms the priorities of the investment program and other agreements with SENEGAL
are reached. For this second phase, IDA would support: (a) the commissioning of a new IPP of about 100 MW net (PRG Guarantee); (b) the “new SENELEC” in mobilizing commercial financing (PRG Guarantee); (c) the rehabilitation and extension of the generation, transmission and distribution facilities (IDA credit); (d) capacity building, studies, etc. required to support the continuous development of Senegal’s electricity sector (IDA credit). IDA resources requirements for this second phase are estimated to be about $50 million.
4. Safeguard policies that might apply
Two Bank environmental and social safeguards policies (Environmental Assessment and Involuntary Resettlement) may be trigerred by the proposed program. Environmental assessments and environmental management and resettlement policy frameworks have been prepared and reviewed.
5. Tentative financing
Source:
($m.)
BORROWER/RECIPIENT
20
INTERNATIONAL DEVELOPMENT ASSOCIATION
100
OTHERS (PRIVATE and PUBLIC)
140
Total
260
6. Contact point
Michel E. Layec
Title: Lead Energy Economist
Tel: (202) 473-3231
Fax: (202) 473-5123
Email: [log in to unmask]
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[OPCS1]The report number is automatically generated by the Internal Documents Unit (IDU) and should not be changed.
[w2]The project has significant, cumulative and/or irreversible impacts; where there are significant potential impacts related to several safeguard policies.
[w3]One or more safeguard policies are triggered, but effects are limited to their impact and are technically and institutionally manageable.
[w4]No safeguard issues
[w5]Financial intermediary projects
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