Senegal - Energy Sector Rehabilitation Project

Drmm t of The World Bank FOR OFFICIUL USE ONLY Report No. 5808-SE STAFF APPRAISAL REPORT REPUBLIC OF SENEGAL ENERGY SECTOR REHABILITATION PROJECT May 20, 1986 Western Africa Projects Department Energy Division [ This document has a restricted distribution and may be used by recipients only in the performance l of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit = CFA Franc25CFAF) US$1 = CFAF 417 2 CFAF 1 = US$0.00243 CFAF 1,000 = US$2.43 MEASURES AND EQUIVALENTS One kilovolt (kV) = 1,000 Volts One Megawatt (MW) 1,000 kilowatts (kW) One Gigawatt hour (GWh) = I million kilowatt hours (kWh) One barrel (bbl) = 0.16 cubic meter One ton of oil equivalent (t.o.e.) = about 7 bbl of crude oil ABBREVIATIONS AND ACRONYMS AfDB - African Development Bank BADEA - Banque Arabe pour le Developpement Economique en Afrique BOAD - Banque Ouest-Africaine de Developpement CCCE - Caisse Centrale de Cooperation Economiaue CIDA - Canadian International Development Agency CSPT - Compagnie S6negalaise des Phosphates de Talba EdF - Electricite de France EEOA - Compagnie des Eaux et de l'Electricite de l'O-est Africain ESIE - Ecole Superieure Interafricaine d'Electricite FAC - Fonds d'Aide et de Cooperation GOS - Government of Senegal KfW - Kreditanstalt fur Wiederaufbau MDIA (DE) - Ministere du Developpement Industriel et de l'Artisanat, Direction de l'Energie OFIVG - Organisation pour la Mise en Valeur du fleuve Gambie OMVS - Organisation pour la Mise en Valeur du f]euve Senegal OPEC - Organization of the Petroleum Exporting Countries SAR - Societe Africaine de Raffinage SENELEC - Societe Nationale d'Electricit6 L'NDP - United Nations Development Program UPDEA - Union des Producteurs, Transporteurs et Distributeurs d'Energie Electrique d'Afrique FISCAL YEAR Government: Julv I-June 30 SENELEC: January 1-December 31 1/ The CFA Franc is tied to the French Franc (FF) in the ratio of FF 1 to CFAF 50. The FF is currently floating. 2/ Exchange rate prevailing at time of negotiations. However, the current exchange rate is US$1 = CFAF 360.  FOR OMCIAL USE ONLY SENEGAL ENERGY SECTOR REHABILITATION PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page DOCUMENTS CONTAINED IN THE PROJECT FILE ......... .......... iii CREDIT AND PROJECT SUMMARY ...... ............... v I. THE ENERGY AND POWER SECTORS ......................... 1 A. ENERGY SECTOR ....................................... 1 1. Energy Resources and Consumption ................. 1 2. Energy Sector Organization ....................... 2 3. Energy Policy and Pricing ...................... 3 B. POWER SECTOR ......................................... 5 1. Existing Electricity Supply Facilities ........ .. 5 2. Access to Electricity Service ..... .............. 7 3. Sector Development and Investment Program ....... 7 4. Power Sector Issues and Government Policy ....... 9 C. SENELEC - THE IMPLEMENTING AGENCY .................... 10 1. Organization, Management and Staffing .... ....... 10 2. Financial Position .............................. 10 3. Rehabilitation Program and Performance Contract .. 15 4. Financing Plan .................................. 15 5. Future Finances ................................. 16 D. BANK GROUP ROLE IN THE ENERGY SECTOR ....... ......... 17 1. Strategy and Rationale for Involvement .... ...... 17 2. Past Involvement in the Sector .... .............. 18 This report is based on the findings of an IDA appraisal mission in May/June 1985 comprising Messrs. B.C. Davis (Deputy Division Chief), C. Sigwalt (Financial Analyst), S. Mathrani (Economist), S. Ouahes (Power Engineer) and Ms. L. Leach (Administrative Assistant) who also provided editorial assistance. Secretarial assistance was provided by Ms. M. Chung Kong. 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.  - ii - Table of Contents (continued) Page II. THE PROJECT ..................... ..................... 18 A. PROJECT OBJECTIVES .............................. 18 B. PROJECT DESCRIPTION ............................. 18 C. PROJECT COST .................................... 20 D. PROJECT FINANCING ............................... 21 E. PROJECT IMPLEMENTATION .22 1. Status of Preparation and Execution ......... 22 2. Procurement ................................. 23 3. Disbursements ............................... 24 4. Monitoring and Reporting .... ................ 24 5. Environmental Aspects ....................... 24 F. PROJECT JUSTIFICATION AND RISKS .... ............. 24 1. Least Cost Solution ......................... 24 2. Economic Rate of Return ..................... 25 3. Risks ....................................... 25 I11. AGREEMENTS REACHED AND RECOMMENDATION .... ............ 25 ANNEXES 1-1 Electricity System Characteristics ............... 27 1-2 Power and Energy Balance (1982-95) .30 1-3 SENELEC - Capital Expenditures (1985-90) .31 1-4 SENELEC - Organization Chart .32 1-5 SENELEC - Income and Funds Flow Statements and Balance Sheets, (1982-90) and Assumptions for Financial Projections .33 1-6 Existing Tariffs .40 1-7 Rehabilitation Program ............................ 42 2-1 Project Cost Estimates .52 22 Project Financing Plan .55 2 3 Implementation Schedule .56 2-4 Procuremenit Arrangements .57 2 5 Estimated Credit Disbursements .58 2-6 Economic Analvss .59 MAPS: TEBRD No. 19100R1: SENEGAL. - Electricity Supply System [BRI) No. 19101R1: SENEGAL - Dakar and Cap Vert Region Transmission Network  -i,; - SENEGAL ENERGY SECTOR REHABILITATION PROJECT DOCUMENTS CONTAINED IN THE PROJECT FILE Reference Nos. Code A. Selected Documents, Reports and Studies on Sector 1. "Etude de l'Organisation Optimale du Secteur de l'Energie Electrique" - EdF, December 1981. 125 568 2. "Decret No. 83-823 du ler aoiit 1983 portant approbation des statuts de la Societe Nationale d'Electricite (SENELEC)". 228.688 3. "Rapport d'audit" FY79 - Coopers and Lybrand (Paris) and A. Dieve (Dakar) - May 1980. 225 869 4. "Rapport d'audit" FY80 - Coopers and Lybrand (Paris) and A. Dieye (Dakar) - May 1981. 225 870 5. "Rapport d'audit" FY81 - Coopers and Lybrand (Paris) and A. Dieye (Dakar) - May 1982. 225 871 6. "Rapport d'audit" FY82 - Coopers and Lybrand (Paris) and A. Dieye (Dakar) - Mlay 1983. ;'S 871- 7. "Evaluation des Immobilisations EDS/SENELEC en vue de leur fusion au ler janvier 1983" - Coopers and Lybrand (Paris) - September 1983. 225 874 8. "Rapport detaille sur le commissariat approfondi des etats financiers de SENELEC, FY83" - A. Dieye (Dakar) - May 1984. 2-2 873 9. "Rapport du Commissaire, Exercice 84" - A. Dieye (Dakar) - June 1985 22' 899 10. "Etude de Tarification de l'Energie Electrique" - EdF - July 1982. 124 'c69 11. "Etude critique du projet Tourbe des Niaves au S6negal" - IVO (Finland) - February 1984. 22i 958  - iv - Reference Nos. Code B. Selected Reports and Studies Relating to the Project 12. "Etude Diagnostic de la SENELEC pour la preparation d'un projet de Contrat-Plan entre l'Etat et la SENELEC", EdF International, December 1984. 221.132 13. "Projet de Plan de Redressement" - EdF, May 1985. 223.063 14. "Plan Directeur - Secteur de l'Energie Electrique", Shawinigan, July 1981. 124.468(F) 15. "Etude portant sur l'Augmentation de la Capacite de Production du Reseau General Interconnecte du Senegal", Fichtner, July 1981. 124.470(L) 16. "Plan Directeur National d'Electrification au S6n6gal". Shawinigan, July 1984. 221.677 17. "Plan Directeur de la Production et du Transport d'Electricite" - EdF, July 1985. 224.971 C. Selected Working Papers Computer Printouts WAPEG April 1986  - V - SENEGAL ENERGY SECTOR REHABILITATION PROJECT CREDIT AND PROJECT SIMNARY Borrower: Republic of Senegal Beneficiaries: Societe Nationale d'Electricite (SENELEC) GOS (Ministry of Industrial Development) Amount: SDRs 18.3 million (US$20 million equivalent) Terms: Standard IDA Relending Terms: Out of the US$20 million equivalent, the Government would relend US$18 million equivalent to SENELEC, as follows: (i) US$15.5 million equivalent at the prevailing Bank interest for 20 years, including 5 years of grace; and (ii) US$2.5 million equivalent at the prevailing Bank interest for 20 years including 10 years of grace to finance the proposed technical assistance and training components of the project. SENELEC would bear the foreign exchange risk. Colenders: A consortium of cofinanciers would provide about US$41 million equivalent toward project costs. Project The proposed project would assist Senegal Description: in optimizing its use of energy resources by eliminating price distortions and bY adopting conservation measures; reducing the cost of generation; improving system reliability and reducing losses through upgrading of transmission and distribution networks, particularly in the Dakar area; and strengthening the institutional arrangements in the sector through a program of managerial and financial rehabilitation. The proposed project consists of: (a) a 40 MW diesel plant with related engineering services and completion of the rehabilitation of the existing Cap des Biches steam plant; (b) construction of about 50 km of 220 kV and 18 km of 90 kV transmission lines and associated substations, together with rehabilitation of existing 90 kV lines and substations; (c) extension and rehabilitation of distribution system, mainly in Dakar;  - vi - (d) technical assistance to implement SENELEC's rehabilitation program and training; (e) an industrial energy conservation program and petroleum pricing related studies. Project Benefits The main benefits of the project would be to and Risks optimize use of energy resources in Senegal by reducing the cost of power generation and progressively eliminating price distortions. The proposed project consists of normal power utility works, which pose no unusual risks. Estimated Cost: US$ million equivalent Local Foreign Total Generation 6.2 27.0 33.2 Transmission 2.7 7.5 10.2 Distribution 6.5 9.6 16.1 Engineering 0.3 1.3 1.6 Technical Assistance 0.2 1.2 1.4 Training - 0.8 0.8 Energy Conservation 0.2 1.7 1.9 Base Cost 16.1 49.1 65.2 Contingencies: Physical 1.2 3.4 4.6 Price 2.5 8.5 11.0 Total Project Cost 19.8 61.0 80.8 Interest During Construction 3.3 - 3.3 Total Financing Required 23.1 61.0 84.1 Financing Plan: IDA : IDA Lending Terms - 20.0 20.0 Cofinanciers - CCCE : 5% - 28.0 28.0 - AfDB : 10.55% - 8.0 8.0 - BOAD : 12% - 5.0 5.0 Sub-Total 41.0 41.0 SENELEC 22.9 - 22.9 Local Industry 0.2 - 0.2 Total 23.1 61.0 84.1  - vii - Estimated Disbursements: IDA FY 87 88 89 90 91 Annual 4.3 5.7 4.9 3.4 1.7 Cumulative - 10.0 14.9 18.3 20.0 Rate of Return: 17X Staff Appraisal Report: No. 5808-SE Maps: IBRD No: 19100R1: SENEGAL - Electricity Supply System IBRD No: 19101R1: SENEGAL - Dakar and Cap Vert Region Transmission Network WAPEG May 1986  SENEGAL ENERGY SECTOR REHABILITATION PROJECT I. THE ENERGY AND POWER SECTORS A. ENERGY SECTOR 1. Energy Resources and Consumption 1.01 Senegal's energy economy is based on fuelwood and imported oil. In 1984, the primary energy supply was about 2 million tons of oil equivalent (t.o.e.) of which 60% came from wood, and 40% from imported oil. Natural forest could supply fuelvood equivalent to about 2 million t.o.e. annually, but 90% of this potential is in eastern Senegal and Casamance, far from the urban consuming centers of western Senegal. Consequently, fuelwood resources closer to the urban centers are being rapidly depleted. In 1984, imports of crude oil and petroleum products for domestic consumption, amounted to about 720,000 tons, accounting for 18% of the country's imports and costing the equivalent of 32% of export earnings. In 1972, those percentages were 3% and 4%, respectively. Senegal's other indigenous resources comprise a share of the untapped hydro potential of the Senegal and Gambia rivers (combined total estimated at 1,400 MW and 7,500 GWh); some petroleum resources whose exploration is being promoted under an IDA-assisted project li; a small natural gas deposit; and about 4 million tons of peat (1.6 million t.o.e.). There is potential for wind and solar energy, whose commercial prospects have not yet been established. 1.02 Senegal's annual per capita consumption of final energy (about 0.25 t.o.e.) is similar to that of other sub-Saharan African countries. Fuelwood and charcoal are the principal sources of energy for househol.l cooking, although small amounts of LPG are used in urban areas. Petroleum products are used principally for electricity generation (35%), for industry (25%), and for transport (20%). The household sector consumes about 75% of final energy and industry/transport about 20%. The most recent (1982) energy balance for Senegal is as follows: 1/ Senegal - Petroleum Exploration Project (Credit 1323-SEN), February 8, 1983.  - 2 - Energy Balance - 1982 (Thousand tonS of oil equivalent) Prnmary Eiergy SPecndary Energy Total Fuel- CrUde Natural aharcoal Electricity Petrolem YFinal wood Oil Gas _Products , Sources of Supply: Domestic 1,400 - 7 - - - - impqorts - 453 - - - 381 - Less Thqorts - - (260) - Gross Dcmestic Supply 1,400 453 7 - - 121 1,981 Conversion Refinery - (430) - - - 430 - Tlectricity Generation - - (7) - 200 (193) Charcoal (123) - - 123 - - - Conversion losses (287) (23) - - (141) - (451) Tra>sissiou and Distribution losses - - - (13) - - Ner Domestic Consunption 990 - - 123 46 358 1,517 Consmption by Sector: Houseiold 990 - - 109 1L 30 1,140 Industry - - - 10 32 137 179 Transport - - 109 109 Other - - - 4 3 82 89 990 - - 123 46 358 1,517 2. Energy Sector Organization 1.03 The Ministry of Industrial Development and Crafts ("Minist&re du Developpement Industriel et de l'Artisanat" - MDIA) has the main responsibility for the energy sector. It controls the power sector through its Department of Energy (DE) and the petroleum sector through its Department of Mines and Geology (DMG) and is also responsible for energy conservation and the development of new/renewable energy resources. The Ministry of Hydraulics ("Ministare de l'Hydraulique" - MH) is responsible for the development of water resources, including hydro power. At present, coordination between the two Ministries is adequate. A National Energy Committee, chaired by the Minister, MDIA, reviews energy policy options and makes recommendations to the National Energy Commission, which is chaired by the Head of State and is responsible for policy decisions. The Department of Energy, MDIA, acts as a technical secretariat to the Energy Committee. Both DE and DMG suffer from a lack of qualified and experienced personnel, particularly in the areas of economics, finance and specialized fields such as wood and household fuel. Advisors to improve coordin'tion in MDIA on energy  policy were appointed under an ongoing power project. 2/ These efforts are continuing with the recent secondment from the Bank Group of an Energy Advisor to the Minister, MDIA. 1.04 A state controlled company, Petrosen, is responsible for petroleum exploration and production activities and is embarking with Bank assistance (Credit 1323-SE) on a major promotion effort to induce foreign oil companies to explore the Senegalese basin. A private company, `Societe Africaine de Raffinage" (SAR), in which GOS holds a 10% interest and foreign oil companies 90%, owns and operates a refinery near Dakar with a capacity of 1.2 million tons/year. Because of its financial problems, SAR has in recent years increasingly imported refined products which now account for 65% of the total petroleum consumption. Responsibility for the distribution of the petroleum products rests with subsidiaries of foreign oil companies. 3. Energy Policy and Pricing 1.05 In response to the second oil shock, the Government of Senegal (GOS) formulated an ambitious energy policy known as RENES 3/ aimed at reducing the internal consumption of oil products by 50X over the period 1981-1990. The Government's strategy is to substitute indigenous energy such as hydro, or less costly imported fuel such as coal, for imported petroleum and to restrain energy consumption by increasing the efficiency of utilization through energy conservation and an appropriate pricing policy. So far, efforts to develop indigenous resources have not been successful and the consumption of petroleum products has increased from 600,000 to 720,000 tons since 1981. The translation of policy into specific operational programs and projects will require the resolution of some important issues related to the development of hydro resources within the regional context, and in the allocation of resources to the power sector (Section B.3). 1.06 A 1982 study by CIDA-financed consultants (Gaucher Pringle, Canada) identified substantial potential for savings through energy conservation in the industrial sector. An Office of Energy Conservation has been established within MDIA (DE), with the assistance of two Italian-financed experts. The approach to energy conservation has been defined under the Energy Sector Management Assistance Program (ESMAP) 4/ and would consist of energy audits of major industrial users as well as institutional changes. UNDP is financing the first of three years' 2/ Power Engineering and Technical Assistance Project (Credit S-26-SE), May 19, 1980. 3/ RENES: "Redeploiement Energetique du Senegal". 4/ Senegal: Industrial Energy Conservation Project, (Activity Completion Report No. 037/85), June 1985.  activity under this program, CIDA (Canada) is considering financing part of the energy audits and the proposed project includes financing for the second and third years' activities. 1.07 As a follow-up to the Senegal Consultative Group meeting in December 1984, GOS requested IDA to take the lead in organizing a donors' meeting for the energy sector. For this meeting, GOS prepared, with assistance under ESMAP, an analysis of sector problems and a minimum-needs sector investment program for the period 1986-90. The principal purpose of the donor's meeting, held in Paris on July 11-12, 1985, was to review sector development policies and investments and to seek the commitment of the donor community to finance the investment program. During negotiations agreement was reached that GOS would consult with IDA, prior to undertaking any investment in the energy sector exceeding US$3 million equivalent. 1.08 Energy pricing distortions in Senegal were highlighted in the Energy Assessment Report of 1983 5/, and were a principal topic addressed by GOS in its Declaration on Energy Policy presented at the July 1985 donors' meeting. Fuelwood and charcoal prices do not reflect the cost of reforestation. In the Dakar area, there is a need to fin; substitutes for household fuel in order to reduce the current strong demand for fuelwood from local forests and a study of this problem is included in the proposed project. Although overall petroleum product prices exceed the CIF level, the retail prices of products for electricity generation, fishing and household use are subsidized, while others including gasoline is highly taxed. Electricity tariffs in recent years have been inadequate in relation to economic and financial requirements. At the July 1985 donors' meeting, GOS announced that it would elliminate in stages all cross-subsidies on petroleum products. Petroleum product price increases ranging from 4% for a particular grade of gas oil to 60% for LPG cylinders were introduced effective July 1, 1985, and are expected to yield an additional one billion CFAF (US$2 million equivalent) in revenues. At the same time, GOS announced a 1OX increase in average electricity tariffs as of September 1985 to be followed by two further increases in March 1986 and March 1987. However, in view of the reduction of fuel prices for SENELEC to be applied on July L, 1986, the tariff increase of September 1985 will be rolled back and the two further increases are made unnecessary. A nearly ten-fold increase in the forestry tax to 20 CFAF/kg of charcoal was also announced, to take effect from January 1987. This increase is a step towards the elimination of distortions in fuelwood pricing. 1.09 The elimination of distortion in petroleum products pricing requires a review of the refining and distribution activities as well as the functioning of the National Energy Fund (NEF). Retail petroleum 5/ Senegal: Issues and Options in the Energy Sector, July 1983 (UNDP/World Bank).  - 5 - product prices in Senegal are fixed by GOS so as to cover the ex-refinery price. Value Added Tax, distributors' and retailers' margins, and an element of a cross-subsidization as indicated at para. 1.08. As the ex-refinery price is not regularly adjusted to reflect fluctuations in the dollar price of crude and refined products, SAR's profits in excess of a guaranteed return are paid into a National Energy Fund (NEF) and, on the other hand, SAR's losses up to the guaranteed return are made good from the NEF. The policy of cross-subsidization is administered by the distributors' organization (GPP) and the surplus is put into NEF. However, until mid-1985, SAR operated at a loss and NEF's resources were insufficient to meet SAR's accumulated deficit amounting to CFAF 11 billion. The position has changed dramatically in recent months with the declining cost of oil in the world market and the drop of the dollar rate of exchange. SAR's profits soared because GOS did not pass on the benefit of cheaper oil to the domestic market. By end of 1985 NEF had accumulated more than sufficient funds to pay off SAR's deficit. While these circumstances pra-ail, NEF will continue to accumulate substantial funds. Consequently, during negotiations, agreement was reached that GOS would Implement the principles of its July 1985 Declaration on Energy Policy and, in particular (a) would furnish to IDA before July 1, 1986, an action plan for the elimination of price distortions among various petroleum products; and (b) would establish a formula for the regular adjustment of consumer prices of petroleum products taking into account price fluctuations on the world market and fluctuations in exchange rates and regularly consult IDA on the application of this formula. To this end, and to help GOS address this petroleum pricing issue, the proposed project includes (a) a study of petroleum supply refining and distribution of petroleum products in Senegal; and (b) a study to recommend improvements in the functioning of the NEF. Finally, during negotiations, GOS agreed to allocate CFAF 6.9 billion from NEF funds to finance the immediate working capital requirements of the power utility: SENELEC, in a form of a loan over 10 years including 4 years grace and 6% interest. The actual availability of this loan is a condition of Credit effectiveness. In the meantime, a first tranche of CFAF 5.8 billion has already been disbursed to SENELEC, with which SENELEC settled a major part of its arrears to its fuel supplier. B. POWER SECTOR 1. Existing Electricity Supply Facilities 1.10 The "Societe Nationale d'Electricite' (SENELEC), under the supervision of MDIA, is responsible for electricity generation, transmission and distribution throughout the country. The existing electricity supply system in Senegal is shown on Map 19100. SENELEC operates an interconnected power system with a capacity of about 200 MW, and 22 secondary centers totalling less than 10 MW (in 80 diesel units). Detailed characteristics of existing facilities are set out in Annex 1-1.  - 6 - 1.11 The main generating facilities are a 60 MW steam plant at Bel Air in the port of Dakar, and a 124 MW plant at Cap des Biches comprising three fuel oil-fired steam units and two diesel oil-fired gas turbines. The Bel Air plant is obsolete and inefficient (its net specific fuel consumption is over 400 g/kWh) and it should be replaced as soon as possible. Poor operation and maintenance practices at the Cap des Biches plant caused serious outages in 1984. Emergency repairs to the boilers are underway, with financing from BOAD and CCCE. However, a major rehabilitation of the plant is required, the extent of which was recently defined by Electricite de France (EdF), and would be undertaken under the proposed project. As a result of these outages, SENELEC was compelled to install 20 MW of gas turbine plant in October 1984 to reduce load shedding and restore adequate supply, albeit at very high operating cost. Over 50% of the diesel units in the secondary centers are in a bad state of repair. The Bel Air and Cap des Biches generating stations supply a 90 kV interconnected network mainly serving the area of Dakar-Thies-Talba. In 1984, the energy supplied to the system was 756 GWh, with a peak load of 123 MW. Although connected to the main system by 30 kV transmission lines, Saint-Louis in northern Senegal and Kaolack in the southeast are supplied by small 8 MW diesel generating units. The sugar and phosphate industries have about 15 MW installed capacity and other autoproducers account for another 10 MW. 1.12 The existing transmission and distribution facilities are as follows: (a) a 90 kV network, comprising 130 km of overhead lines linking the five 90 kV substations of Bel Air, Hann, Cap des Biches, Thies and Talba; (b) a 30 kV network comprising about 1,050 km of lines and eight 30 kV/6.6 kV substations; and (c) a 6.6 kV primary distribution network in Dakar, Saint-Louis and Ziguinchor. 1.13 The 90 kV and 30 kV transmission lines in and around Dakar are adversely affected by marine corrosion and insulation problems caused by severe contamination from dust and proximity to the ocean, resulting in frequent outages. The transmission network has not been properly maintained. In particular, the 90 kV Bel-Air/Hann/Cap des Biches transmission lines are in poor condition and would be rehabilitated under the proposed project. A second 90 kV transmission line, Cap des Biches/Thies, is needed to guarantee security of supply to Talba and Thies. The distribution system in the Dakar and Cap Vert region, representing 80% of the market, has not been adequately expanded nor properly maintained; this results in poor quality of service and high (about 16%) los3es. There are two primary distribution voltages in Dakar (6.6 kV and 30 kV) but a recent distribution study carried out by  - 7 - Shawinigan (Canada) has recommended that future expansion should be at 30 kV. (Ref. No. 16). 6/ 2. Access to Electricity Service 1.14 SENELEC supplies electricity to about 150,000 consumers accounting for about 17% of the population, or 38% of those living in the supply area. Electricity consumption rose at an annual average growth rate of 6% in the period 1970-1984, from 285 GWh to 643 GWh. Peak demand on the interconnected system grew at about the same rate from 50 MW to 114 MW. Industrial customers account for 70%, residential for 23%, and commercial for 7% of electricity consumption. The phosphate industry at Talba alone accounted for 17% of the total sales in 1984. 3. Sector Development and Investment Program 1.15 As a result of the downturn in the Senegalese economy, demand forecasts made in 1981 have been revised and now assume an average growth of 3.4% through 1990, rising to 4.5% p.a. thereafter. Forecast power and energy balances through 1995 are shown at Annex 1-2. A CIDA-financed Generation and Transmission Master Plan, prepared by Shawinigan in 1981 was recently updated by EdF and a least-cost development program for the period 1985-2005 was prepared which reviewed hydro and alternative thermal solutions (including peat and imported coal) (Ref. No. 17). The program indicates the following sequence and timing of future investments in generating capacity: (a) 2 x 20 MW low-speed diesel plant by 1988, thereby permitting the retirement of the Bel Air plant, followed by another 20 MW unit in 1990 in the Dakar area; and (b) hydro power from the Manantali dam in 1992 (3 x 40 MW) with two 220 kV associated transmission lines to Dakar. This latter development poses complex problems which can only be addressed in a regional context (para. 1.21). 1.16 Following the discovery in 1979 of peat deposits in the Niayes region 150 km north of Dakar, the Government carried out studies for the development of a 2 x 15 MW peat-fired power plant and requested Bank Group assistance in financing the project. After further analysis by consultants financed under the ongoing Credit, such a project was found to involve unusually high technical risks and very great financial cost per unit of power produced (Ref. No. 11). Conlsequently, the Bank Group 6/ Selected documents available in the Project File are listed on pages iii-iv, and referred to in this report by their reference number in that listing.  - 8 - has declined to support the project and GOS will not now proceed with it. 1.17 The Manantali hydro uevelopment would enable the interconnected system to be expanded to all major cities presently supplied by high cost, inefficient diesel plants. Until that time, schemes to expand the secondary centers should only proceed where economically justified and financially viable. Should GOS require SENELEC to proceed with uneconomic schemes, financial compensation should be provided. Agreement to this effect was reached with the Government. 1.18 The most urgent transmission requirement is the construction of a 50 km 220 kV line from Dakar to Thies to secure the supply to the phosphate industry. COS confirmed at the July donors' meeting that the inclusion of this line in the proposed project would enable it to drop the planned investment by CSPT (Talba Phosphate) in a 15 MW captive diesel plant. Such an investment by CSPT would have been inappropriate, as greater benefits would ensue from integrating the plant in the public supply system to take advantage of the future hydro power from Manantali. The Shawinigan study (para. 1.13) has defined a program of urgently needed subtransmission and distribution measures for Dakar, to be implemented by 1988. 1.19 Investment requirements for the power sector were presented to the July 1985 donors' meeting and amount to US$187 million equivalent between 1986-90; they are summarized in the following table and detailed in Annex 1-3. Power Sector Investments FYs86-90 (constant FY85 prices) CFAF Billion US$Million Percent 1986-88 1989-90 Total Total of Total Generation 18 9 27 66 35 Transmission 5 19 24 58 31 Distribution 14 6 20 49 26 Other Expenditure 4 2 6 14 8 Total (constant prices) 41 36 77 187 100 Total (current prices) 47 48 95 230 The 1986-88 program consists of: ongoing, funded projects (22Z), the proposed project (65%); and a planned start on the third 20 MW diesel unit and transmission lines associated with the Manantali hydro development (13%). Completion of the latter two projects accounts for about 78% of the 1989-90 program. The Hanantali hydro power station is  not included in SENELEC's program, as its construction would be the responsibility of OMVS. 7/ Financing of the investment program is discussed at paras. 1.40-1.41 and, having regard to its impact on SENELEC's future financial position, agreement was reached that GOS and SENELEC will consult with IDA annually on the power sector investment program. 4. Power Sector Issues and Government Policy 1.20 The efficient operation of the power sector is critical for the Senegalese economy because of its share of oil imports and the adverse consequences of a deteriorating power supply. GOS's sector policy aims to reduce the consumption of oil through substitution, conservation, and appropriate pricing. As another step towards greater efficiency, GOS merged the institutions in the power sector in 1983 to form a single utility, SENELEC (para. 1.23). However, the development of indigenous resources and institution building remain serious sector issues. 1.21 Exploitation of the hydro power from the Senegal and Gambia Rivers is the responsibiilty of two regional organizations, OMVS and OHVG 8/ and its development poses complex institutional and technical problems. The Manantali project would be the first step in the least-cost sequence of development of hydro resources. OMVS is constructing the dam principally for agriculture, but the design of the dam allows for the generation of 600 GWh of firm energy by the addition of a 200 MW power plant. The dam is due for completion in 1988, but electricity could not now be supplied before 1992 at the earliest. Detailed studies are needed for the two 900 km 220 kV transmission lines, of which 300 km would be within Mali, to supply 130 MW from Manantali to Dakar. Furthermore, given the regional nature of OMVS, any progress will require the resolution of institutional and intercountry issues associated with the development, ownership and management of power facilities. To this end, a recently approved advance from the Special Project Preparation Facility (SPPF) is assisting the financing of the necessary studies. The engineering for the transmission lines would be financed under a separate operation, once the institutional and intercountry arrangements have been agreed. 1.22 Efforts to strengthen the laws relating to public enterprises in Senegal have begun under the Second Parapublic Technical Assistance project (Credit 1398-SE, July 7, 1983). The present legislative framework ("Cahier des Clauses et Conditions G6n6rales") for the power 7/ OHVS: "Organisation pour la Mise en Valeur du fleuve S6negal" (Senegal, Mali and Mauritania). 8/ OMVG: "Organisation pour la Mise en Valeur du fleuve Gambie" (Senegal, Gambia and Guinea).  - 10 - sector has recently evolved from the concession system and is reasonably satisfactory. The annex to this document, which regulates the tariff issue, is being finalized. Strengthening SENELEC's autonomy as a power utility is a longer-term objective which would be further discussed with GOS during implementation of the proposed project. C. SENELEC - THE IMPLEMENTING AGENCY 1. Organization, Management and Staffing 1.23 SENELEC is responsible for public electricity supply in Senegal and has a monopoly of generation (with some restrictions), transmission and distribution. SENELEC's Board ("Conseil d'Administration") consists mainly of Ministry representatives who meet at least three times a year to determine and monitor SENELEC's broad policy. Policy implementation is pursued by a six-man Management Committee ("Comit6 de Direction"). This includes the Chairman of the Board and the General Manager of SENELEC who is responsible for day-to-day management, with little interference from GOS. 1.24 At present, in addition to the supervision of NDIA (DE), ex post control of SENELEC is exercised by the Financial Controller of the Presidency, auditors from the Ministry of Finance, and by a "Conseil de Surveillance" (equivalent to a shareholders' meeting). The Conseil comprises the 16 Board members, a Chamber of Commerce representative, and three SENELEC staff representatives, and its main function is to approve SENELEC's annual accounts and authorize capital changes. However, this supervision process is being reviewed in the broader context of public enterprise reform under the ongoing parapublic sector project. 1.25 SENELEC's existing organization is set out in Annex 1-4. Its headquarters are in Dakar and it has seven regional offices for distribution and remote diesel generation. SENELEC suffers from serious internal organizational and managerial weaknesses, and a precarious financial position. Under the ongoing parapublic sector project, EdF has recently finalized a rehabilitation program ("Plan de Redressement") for SENELEC to address deficiencies identified in an earlier diagnostic study (Ref. No. 12). SENELEC has a staff of about 2,100. By regional standards this level is reasonable, but extra efforts are needed to train staff, and this would be addressed under the rehabilitation program (Section C.3). Furthermore, the proposed project would continue to finance training of suitable candidates at the regional training school ("Ecole Superieure Interafricaine de l'Electricite" - ESIE), begun under the ongoing Power Engineering and Technical Assistance Project. 2. Financial Position 1.26 Accounting, Audits and Insurance. The Power Engineering and Technical Assistance Project provided funds to audit SENELEC's accounts and to review its accounting procedures. The latter have steadily and  - 11 - significantly improved in recent years, and the remaining weaknesses would be addressed !n the rehabilitation program of the proposed project. The audits for 1979-84 have been satisfactorily completed; 9/ agreement was reached that SENELEC will continue to have its accounts audited by independent auditors satisfactory to IDA, and will submit to IDA its audited accounts, and the auditor's report thereon, within 6 months of its fiscal year end. 1.27 SENELEC has made satisfactcry arrangements for insurance against normal power utility risks: It maintains comprehensive coverage against civil liability, fire, explosion and electrical faults. Vehicles and data processing equipment are also adequately insured. 1.28 Past Financial Performance and Present Position. SENELEC's financial performance has deteriorated in recent years, principally because of its high cost of production, and of GOS's reluctance to grant timely and adequate tariff increases necessary to cover rising costs. Consequently, SENELEC has incurred operating deficits in each of the last fonr years. As at end 1985, SENELEC's liquidity was inadequate (the current ratio was 0.9). Primarily, as a result of high public sector receivables (para. 1.28), SENELEC has had to delay payments for fuel (CFAF 8 billion) and to resort to a bank overdraft (over CFAF 1 billion). Due to the revaluation of fixed assets on January 1, 1983, when SENELEC was established, its debt/equity ratio is satisfactory (30:70). A relatively high provision for depreciation of fixed assets (8%) enabled SENELEC to finance 8% of capital expenditure from internal sources. A tariff increase of CFAF 2/kWh (about 3 percent) was introduced from March 1, 1985, but was insufficient to overcome SENELEC's serious financial problems in 1985. Reduction of fuel prices, improved management and maintaining tariffs at adequate levels should help to restore SENELEC's financial viability (para. 1.36). 1.29 Income Statements, Funds Flow Statements and Balance Sheets, which indicate SENELEC's unsatisfactory financial position for 1982-85, are set out in Annex 1-5 and are summarized in the following tables: 91 Audits for 1979, 80, 81 and 82 (Ref. Nos. 3,4,5,6); valuation of assets and opening balance sheet as of January 1, 1983, for the merger of EDS and SENELEC (Ref. No. 7); audits for 1983 and 1984 (Ref. Nos. 8,9).  - 12 - SENELEC: Past Earnings (CFAF billion) 1982 1983 1984 1985 Sales (GWh) 529 596 643 631 Average Tariff (CFAF/kWh) 43 49 55 59 Total Revenues 23.6 29.8 35.8 37.7 Operating Exp., incl. interest 25.5 34.0 40.5 40.4 Deficit (1.9) (4.2) (4.7) (2.7) Operating Ratio (%) 103 108 106 100 Rate of Return on Average Net Fixed Assets in Operation (Z) (0.9) (3.0) (2.7) (0.1) SENELEC: Past Financing Performance (1982-85) Equivalent CFAF Billion US$ Million % Requirements Capital Expenditure a/ 22.4 54 100 Financed by Internal Contribution to Investment 3.2 8 14 Working Capital (0.7) (2) (3) Borrowings 20.3 49 91 Equity bI (0.4) (1) (2) Total Sources of Funds 22.4 54 100 a/ Excluding CFAF 39 billion (US$95 million equivalent) due to the revaluation of January 1, 1983. b/ Equity declined as a result of operating deficits.  - 13 - SENELEC: Balance Sheet as at December 31, 1985 Equivalent CFAF Billion US$ Million Net Fixed Assets in Operation 76.9 186.7 Work in Progress 2.1 5.1 79.0 191.8 Current Assets 16.3 39.6 Less Current Liabilities 18.4 44.7 (2.1) (5-.1) Net Assets 76.9 186.7 Represented by: Equity 55.3 134.2 Long-Term Debt 21.6 52.5 Total 76.9 186.7 Debt Service Coverage 1.5 Debt/Equity Ratio 30:70 Current Ratio 0.9 1.30 Billing and Collection. Accounts receivable, as of end 1984, were over CFAF 13 billion (US$31 million equivalent), representing about four months' billings. This high level was due to the poor payment record of the public sector in particular, whose accounts were more than one year in arrears (about CFAF 4 billion) and, to a lesser extent, to private consumers outside Dakar (five months). However, the level of private consumer receivables in Dakar (less than three months) was satisfactory. 1.31 SENELEC has recently started a serious campaign to recover its receivables, principally by reminder notices followed by disconnection, particularly for private clients. For the public sector, SENELEC has reached agreement with the various agencies on the amounts outstanding, and on a plan to set off the arrears against accounts due by SENELEC in respect of debt service. As of end 1985, receivables had dropped to about CFAF 10 billion (US$24 mil'ion equivalent). The rehabilitation program (Section C.3) proposes comprehensive measures to strengthen SENELEC's control of collections. 1.32 In order to complement the above actions, the following agreements were reached: Cal' From GOS: the annual budgets of all Government departments and local authorities would include sufficient provision to cover the cost of their annual consumption of electricity, and a satisfactory centralized advance payment procedure would be introduced; and  - 14 - (b) From SENELEC: the level of consumer receivables would not exceed the equivalent of 3 months' billings. 1.33 Tariffs. Tariffs for each class of consumers are uniform throughout Senegal. This results in a substantial subsidy to consumers in the secondary centers, where the costs of supply from isolated diesel plants are high. Details of existing tariffs are set out in Annex 1-6. 1.34 The present structure of electricity tariffs was introduced in 1977 following a study by EdF of Long-Run Marginal Costs (LRMC) of supply. In principle, tariffs should have been adjusted according to a formula pegging them to the costs of fuel, labor and materials. In practice, although rates have been periodically adjusted, the formula has not been promptly and correctly applied. To take account of changing patterns of consumption and costs of supply as SENELEC's power system expanded, a further review, including an update of LRMC, was undertaken by EdF in 1982 with IDA financing (Ref. No. 10). However, as agreement could not be reached with GOS on SENELEC's investment plan, which provided the basis for the study, the new proposed tariffs were not implemented. GOS continues from time to time to approve rate increases, but the tariff structure, which is regressive, has remained unchanged. 1.35 Based on the medium-term least-cost development program (Annex 1-3), SENELEC's economic tariff is about CFAF 60/kWh (USt15/kWh) 10/. However, they need to be related more closely in future to costs of supply in order to restore SENELEC's financial viability and enable it to contribute a reasonable proportion of its future investment program from internal funds. Agreement has been reached following a recent tariff study on an acceptable tariff structure and levels, which are to be implemented as a condition of effectiveness. 1.36 In order for SENELEC to contribute to the financing of its investment program as needed to ensure its envisaged implementation, SENELEC's financial position needs to be substantially improved. The reduction in the price of its fuel as of July 1986 would go a long way towards the achievement of this objective. Tariff increases are, therefore, unlikely to be required during the program period, as long as fuel prices to SENELEC (US$23/barrel) remain at about their present level. However, in order to ensure SENELEC's ability to meet that objective, agreement was reached that the Government and SENELEC would undertake whatever measures would be required, including tariff increases, so that SENELEC achieves a contribution to its investments from internally generated funds of not less than 30 percent annually as 10/ Medium-term marginal cost based on diesel investment through 1988, but excluding the cost of isolated secondary centers and investments in transmission lines from Manantali.  - 15 - of 1987. At this stage of SENELEC's development, it was deemed simpler to establish a satisfactory level of internal cash generation, taking into account debt service and working capital requirements, than a rate of return requiring a regular fixed asset revaluation. 3. Rehabilitation Program and Performance Contract 1.37 EdF's diagnostic study identified major weaknesses in all aspects of SENELEC's organization, management and staffing, the principal of which are an unsuitable internal structure, lack of a management information system, poor internal communication between staff and management, archaic methods of work and decision making, resistance to change, overstaffing and chaotic recruitment practices. SENELEC has reduced the number of expatriates from 30 to 2 since the termination in December 1984 of the technical assistance agreement with EEOA, but it is clear that SENELEC still needs technical assistance at senior staff level to improve its management and operational practices. 1.38 Measures to remedy the above weaknesses and problems have been set out by EdF in a rehabilitation program (Ref. No. 13). This rehabilitation program forms part of the proposed project, and agreement was reached to implement it over the period of the performance contract. Details are given in Annex 1-7. Many of the proposed changes will require time to be implemented, particularly, those requiring a change of management style and practices. SETELEC has engaged advisory technical assistance personnel in the areas of finance, customer accounting and operations to assist SENELEC's own staff in the rehabilitation; they are drawn from a power utility under a general "twinning" agreement. 1.39 Agreement was reached between GOS and SENELEC on a framework ("Contrat-Plan") to regulate the performance of SENELEC over a four-year period (1986-89), thus covering the rehabilitation program. The finalizing and signing of this performance contract is a condition of Credit effectiveness. 4. Financing Plan (1986-90) 1.40 SENELEC's financial requirements through 1990, based on the investment program at Annex 1-3, are summarized in the following table, and detailed in the Funds Flow Statement at Annex 1-5.  - 16 - SENELEC: Financing Plan 1986-90 CFAF Billion US$ Million X Requirements Power I Project 33.7 81.8 34 Other 60.9 147.8 64 Total Capital Expenditures 94.6 229.6 100 Financed by Internal Cash Generation: 78.0 189.3 83 Less Working Capital (16.0) (38.8) (17) Debt Service (35.6) (86.4) (38)a Contribution to Investuant 26.4 64.1 28!" Borrowings: Proposed IDA Credit 7.4 18.0 8 Other borrowings 60.2 146.1 63 Total borrowings 67.6 164.1 71 Equity Contribution 0.6 1.4 1 Total Sources of Funds 94.6 229.6 100 a/ Working capital includes the variation in cash between 1986-90; however, the contribution formula excludes cash variations. On this basis, SENELEC would contribute 42% to investment between 1986-90. 1.41 SENELEC has already secured about US$20 million to finance ongoing projects from AfDB, BADEA, CCCE and CIDA. For the proposed project GOS would be the borrower of the IDA Credit of US$20 million, of which US$18 million would be passed on to SENELEC (para. 2.06). An additional US$41 million of the proposed project would be financed by other donors (para. 2.05). Further borrowings of about US$85 million would be needed to finance major new investment from 1988 onward, most of which is attributable to the further 20 MW diesel investment required by 1991 and the construction of the transmission links to the Manantali hydrostation. At this stage, however, the investment program and financing plan after 1988 must remain tentative. 5. Future Finances 1.42 SENELEC's forecast Income and Funds Flow Statements and Balance Sheets through 1990 are set out in Annex 1-5, together with the assumptions used in their preparation. With the progressive implementation of the rehabilitation program and the reduction in fuel prices to be applied in July 1986, SENELEC's financial position would improve: in particular, SENELEC would be L,le to repay its overdraft within one or two years, and maintain adequate levels of working capital  - 17 - and liquidity. Arrears due by SENELEC to its fuel supplier have already been repaid thanks to the first tranche of GOS's loan (para. 1.09). 1.43 However, to protect SENELEC's future financial viability, agreement was reached during negotiations that SENELEC would not incur new debt without IDA's prior concurrence, unless its expected future internal cash generation is at least 1.5 times future debt service, including the proposed borrowing. Salient features of SENELEC's future finances through 1990 are as follows: SENELEC: Salient Aspects of Future Finances (1985-90) (in CFAF billion, unless stated otherwise) 1986 1987 1988 1989 1990 Sales (GWh) 633 663 692 723 756 Average Tariff (CFAF/kWh) 61 61 66 72 77 Revenues 39 41 46 52 59 Operating Expenses 35 38 42 47 53 Net Income 2 2 2 3 3 Operating Ratio (Z) 90 92 91 91 91 Debt/Equity Ratio 34:66 37:63 39:61 39:61 41:59 Debt Service Coverage 2.2 3.4 2.8 1.9 1.9 CurrentVatio 1.7 1.5 1.3 1.3 1.6 CI (Z) -b/ 18 63 48 38 40 ROR (%) - 5.4 4.0 4.3 4.6 4.5 a/ The Contribution to Investments (CI) is computed on a three-year average basis and excludes cash variations in working capital. b/ The Rate of Return (ROR) is computed on currently valued average net fixed assets in operation. D. BANK GROUP ROLE IN THE ENERGY SECTOR 1. Strategy and Rationale for Involvement 1.44 Bank Group strategy aims at assisting the authorities to achieve an optimal use of energy resources, to reduce the cost of supply, meet economic demand and ensure satisfactory service to consumers while, at the same time, reducing the burden of financial demands imposed by the sector on Government resources. These aims are being pursued by a strategy of: (a) continued institution building in the power sector, by way of strengthening SENELEC; (b) assistance to GOS and SENELEC in making optimal decisions on rehabilitation and expansion of power facilities, including the promotion of regional hydro resc-urces; and (c) conservation measures, including economic pricing of energy. The Bank Group role is essentially catalytic. For example, at GOS req'lest, the Bank Group acted as coordinating agency for the July 1985 Energy Sector donors' meeting, which provided a forum for major  - 18 - sector policy reforms and for mobilizing the substantial cofinancing needed for the proposed project (paras. 1.07-1.08). Without our involvement, it is unlikely that the above aims would be achieved in a satisfactory and coordinated way, as other sector aid is predominantly of a bilateral nature. 2. Past Involvement in the Sector 1.45 In FY80, the Bank Group approved the Power Engineering and Technical Assistance project (Credit S-26-SE) to assist GOS to develop an overall energy plan and to reorganize the sector. Several studies (generation/transmission master plan, tariffs, audits) have been or are being completed satisfactorily, and provide the basis for the institutional, technical and financial improvements envisaged under the proposed project. Technical assistance was also provided to NDIA in energy and power sector planning, and an overseas training program for Senegalese officials responsible for energy planning was established. Identification of energy sector reforms was further supported in FY83 through the Second Parapublic Technical Assistance Project which provided funds to finance, inter alia, a diagnostic study and rehabilitation program for SENELEC. Implementation of both projects has been satisfactory. II. THE PROJECT A. PROJECT OBJECTIVES 2.01 The proposed project would assist Senegal to: (a) optimize its use of energy resources through the elimination of price distortions and :hrough the implementation of energy conservation measures; (b) reduce the cost of generation through improved efficiency and availability of existing plant, and through the construction of more fuel-efficient facilities; (c) strengthen and expand the existing transmission and distribution system to improve reliability, reduce losses and generate sales, mainly in the Dakar area; and (d) strengthen SENELEC's management and restore its financial viability through a comprehensive rehabilitation program. B. PROJECT DESCRIPTION 2.02 The proposed project consists of the following components, the principal of which are shown on Map 19101R1:  - 19 - (a) Generation: (i) the installation of 2 x 20 MW of low- (or medium-) speed diesel units at Cap des Biches; and (ii) completion of the ongoing rehabilitation of the existing steam units at Cap des Biches (condenser retubing, sea water intake modification, and spare parts). (b) Transmission: (i) rehabilitation of the existing 90 kV transmission line and substations, Bel Air/Hann and Bel Air/Cap des Biches; (ii) construction of a new 50 km, 220 kV line, Cap des Biches/Thies (operated at 90 kV initially) and a 90 kV substation at Tobene; and (iii) construction of a new 18 km, 90 kV line, Hann/Cap des Biches. (c) Distribution: (i) rehabilitation and strengthening of the Dakar network (75 km of 6.6 kV line and 34 substations); and (ii) rehabilitation of about 100 km of 30 kV line outside Dakar and construction of 45 km of 30 kV line to connect 2 secondary centers to the main grid. (d) Engineering: Consultant services for the generation, transmission and distribution components (135 man-months); (e) Energy Conservation: Consultant services, training and equipment for the industrial sector energy conservation program (1986-88); (f) Studies of: (i) petroleum product supply, refining and distribution arrangements, (ii) organization and operation of the "Fonds National de l'Energie", and (iii) household energy consumption; (g) Technical Assistance: (125 man-months) to SENELEC, as defined in the rehabilitation program; and (h) Training: Continuation of the program of scholarships to ESIE of 7 students annually for the three-year period 1987-89 and provision for about 40 man-months training for SENELEC staff in those areas identified in the rehabilitation program.  - 20 - C. PROJECT COST 2.03 Based on exchange rates prevailing at the time of negotiations, the estimated cost of the project, including provision for physical and price contingencies, but excluding interest during construction, is US$81 million equivalent (including US$2 million of energy conservation), as summarized in the table below. The foreign exchange cost of US$61 million equivalent represents about 75Z of the project cost. Full details of the project cost are given in Annex 2-1. Stmary Project Costs Totasl Foreign as% of CFAF Billion - US$ Milion &pxv.- as % of Base Local Foreig Total Lcal Forei Total Total Cost Generation 2.5 11.1 13.6 6.2 27.0 33.2 82 49 lransid.ssion 1.1 3.1 4.2 2.7 7.5 10.2 73 14 Distrilbtion 2.7 4.0 6.7 6.5 9.6 16.1 59 30 Engineering 0.2 0.5 0.7 0.3 1.3 1.6 82 2 Technical Assistance 0.1 0.5 0.6 0.2 1.2 1.4 86 1 Tralrxng - 0.3 0.3 - 0.8 0.8 100 1 Energy Conservation 0.1 0.7 (J.8 0.2 1.7 1.9 89 3 Total Base Cost 6.7 20.2 26.9 16.1 49.1 65.2 75 100 Cntinecias: Physical 0.5 1.4 1.9 1.2 3.4 4.6 74 5 Price 1.0 3.5 4.5 2.5 8.5 11.0 77 16 Total Project Cost 8.2 25.1 33.3 19.8 61.0 80.8 75 Interest Duing Cmstruction 1.4 - 1.4 3.3 - 3.3 100 5 Total Finmcing Required 9.6 25.1 34.7 23.1 61.0 84.1 75 126 2.04 Project cost estimates are based on recent studies and are at end-1985 prices. Foreign costs of engineering services and technical assistance personnel are based on currently prevailing rates. Cost figures do not include any taxes or duties on the proposed project. The cost of the 40 MW diesel component is based on low-speed units, although bids will be invited for both low- and medium-speed units in mid-1986 (para. 2.11). The project cost includes 10% physical contingencies for all equipment, which is reasonable. Price escalation for both foreign and local costs have been included at rates of 7% in 1986 and 7.5% thereafter. Since these cofinancing amounts are denominated in currencies other than US dollars, fluctuations of the US dollar exchange rate will have no real effect on the financing plan. With respect to the IDA share which is pegged in SDR's to the dollar value in effect at negotiations, when the exchange rate of the US dollar was CFAF 412, used  - 21 - in this project, such fluctuations would have no significant effect, and would, at any rate, be absorbed by the built-in contingencies. D. PROJECT FINANCING 2.05 At the October 1985 cofinanciers' meeting in Dakar, CCCE indicated the availability of about US$28 million to finance the electromechanical part of the diesel plant, and AfDB and BOAD indicated an interest in financing the 220 kV line and some distribution works. The appraisal of their respective components has now been carried out. CCCE is financing the diesel plant package which includes design, electromechanical components and construction. However, formal commitment of CCCE is awaiting a satisfactory agreement between SENELEC and CSPT, its largest industrial customer, on further reduction of the tariff level to be applied to CSPT. We do not anticipate any problems in this respect since all concerned agree on the basic principles being applied in determining this level. AfDB would contribute US$8 million equivalent and BOAD US$5 million equivalent to the financing of the transmission component and the distribution component outside Dakar. BOAD is also financing part of the rehabilitation of the Cap des Biches steam plant. 2.06 An IDA Credit of US$20 million equivalent to GOS is proposed which would finance about 25% of the project cost. IDA would finance a part of the civil works of the new diesel plant, the foreign cost of the Dakar distribution rehabilitation component for Dakar, consultant services for the energy conservation component and energy studies, engineering, technical assistance, and training. Most of the IDA Credit (US$15.5 million equivalent) would be relent by GOS to SENELEC for 20 years, including 5 years of grace at the IBRD prevailing rate. About US$2.5 million equivalent would be relent to SENELEC for 20 years, including 10 years of grace at IBRD prevailing rate, to finance the technical assistance and training component. SENELEC would bear the foreign exchange risk on its share of the Credit. The execution of a satisfactory subsidiary financing agreement between GOS and SENELEC is a condition of Credit effectiveness. The remaining US$2 million equivalent of the IDA Credit would be retained by GOS to finance the energy conservation and energy studies components of the project. The local cost of the project (about US$23 million equivalent) would be covered by SENELEC from internally generated funds. GOS and SENELEC would assume responsibility for any cost overruns. The details of project financing are set out in Annex 2-2 and summarized in the table below.  - 22 - Project Financing Plan US$ MLLUmn Equvalent IelIig TenBs lal Fr Total Interest Maturity (in years) IDA - 20.0 20.0 Stardard IDA (on-lendirg para. 2.06) (X:E - 28.0 28.0 5Z - 15 of ich 7 grace AfDB - 8.0 8.0 10.55% - 20 of which 3 grace B0AD - 5.0 5.0 12% - 13 ofwhich 3 grace Salim 22.9 - 22.9 Internally generated finids LIcal I