Djibouti - Geothermal Development Project

Document of ne World Bank FOR OFFICIAL USE ONLY Repot No. P-5075-DJI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 7.1 MILLION TO THE REPUBLIC OF DJIBOUTI FOR A GEOTHERMAL DEVELOPMENT PROJECT JUNE 8, 1989 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.  CURRENCY EQUIVALENTS Currency Unit = DF US$1.00 = DF 177.72 WEIGHTS AND MEASURES 1 cm - centimeter = 0.39 inches 1 m - meter - 3.28 feet 1 m - cubic meter = 264 US gallons 1 1 - liter = 0.26 US gallons 1 bbl - barrel = 42 US gallons 1 kg - kilogram = 2.2 pounds 1 km - kilometer = 0.62 miles 1 km2 - square kilometer 0.39 square miles 1 t - ton 2,205 pounds 1 kW - kilowatt = 1,000 watts 1 MW - megawatt = 1,000 kilowatts 1 kWh - kilowatthour = 1,000 watthours 1 GWh - gigawatthour = 1 million kilowatthours ABBREVIATIONS EdD - Electricite de Djibouti ENEL - National Italian Power Board ISERST - Institut Superieur d'Etudes et de Recherches Scientifiques et Techniques OPEC - Organization of Petroleum Exporting Countries UNDP - United Nations Development Program GOVERNMENT OF DJIBOUTI FISCAL YEAR January 1 - December 31  FOR OMCIL USE ONLY DJIBOUTI GEOTHERMAL DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Djibouti Beneficiary: Electricite de Djibouti (EdD) Amount: SDR 7.1 million (US$9.2 millica) Terms: Standard, with 40 years maturity Oalend'ng Terms: Fifty percent of credit proceeds onlent from Government to EdD at 8.5Z (IBRD rate at negotiation plus 102 thereof), repayment over 20 years including a grace period of five years. EdD carries the foreign exchange risk. The remaining fifty percent is an equity contribution of Government to EdD. Financing Plan: Government EdD USS 5.40 Italy USS 22.04 IDA US$ 9.20 OPEC/UNDP US$ 1.60 TOTAL US$ 38.04 Economic Rate of Return: 122 Staff Appraisal Report: Report No. 7762-DJI Map: IBRD No. 21648 This document has a restricted distribution and ma:' be used by recipients only in the performance of their official duties. Its contents may not othf;rwise L't disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF DJIBOUTI FOR A GEOTHERMAL DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Republic of Djibouti for SDR 7.1 million (US$9.2 million equivalent) is submitted for approval. The proposed credit would be on standard IDA t?rms with 40 years maturity and help support the development of geothermal resources in Djibouti. The project would be cofinanced by an Italian grant of US$ 22.0 million equivalent, and by a joint grant from OPEC/UNDP of US$1.4 million equivalent. 2. Background. Djibouti's energy sector is marked by its overwhelming dependence on imported fuel oils (87 percent) to meet the national energy balance. In the absence of hydropower, the Government is pursuing a policy of research for alternative energy (solar and wind energy in addition to geothermal sources) and actively promotes energy conservation methods. Geothermal and solar energy are Djibouti's only significant energy resources. So far, they remain largely untapped. A national energy plan was completed in late 1987. 3. The main sector institutions are public. ISERST carries out research on energy issues with foreign technical assistance and EdD (the power utility) generates electricity using diesel thermal plants fueled with imported oil. Current power tariffs, which were last adjusted when oil prices were relatively high, reflect production costs except for modest subsidies in remote areas. Because of their link to oil prices, power tariffs are high. This has been one of the factors discouraging industries from coming to Djibouti in spite of the country's strategic location, transport and banking facilities, and freely convertible currency. 4. IDA's involvement in Djibouti's energy sector started in 1984. The Geothermal Exploration Project, co-financed with other donors, led to the discovery of one of Africa's most powerful geothermal sources in the Assal region. The findings under the project (which closed on June 30, 1988) have confirmed that the proven steam sources are sufficient to generate electrical power on an initially modest but economical basis. This least cost solution of the power plant requires, however, that the steam resources be developed as soon as possible and in any case before the economic life of the traditional diesel generators comes to an end. 5. Rationale for IDA involvement. IDA's country strategy aims at improving the exploitation of Djibouti's main assets and at helping the Government identify a viable long-term development strategy, within which IDA and other donors can provide assistance to help diversify the economy. Geothf-mal energy, one of the country's few natural resources, is therefore a su- able sector in which to pursue such a strategy. IDA's involvement is justified for three main reasons: (i) the experience gained under the exploration project would help assure satisfactory project implementation;  (ii) IDA financing of upstream activities (drilling and steam production) is necessary to develop the downstream activities (power gene:ation bad distribution) eligible for the Italian grant financing; and (iii) IDA involvement would contribute to improve management of electricity demand and to introduce an adequate tariff structure, reflecting the lower cost of electricity generation. 6. Project Objectives. The main objective is to help reduce Djibouti's dependence on imported fuel oils through the further development of its geothermal resources, in line with the least cost power development plan. Other objectives are to assure an appropriate tariff structure in view of the expected decreases of the production price of electricity, and to strengthen the operating division of EdD responsible for geothermal production, especially through staff training. 7. Project Description. The proposed project would include the following components: (i) completion of development of the first section of the Assal Geothermal Steam Field. This includes drilling of four development wells in addition to the two existing ones to provide for additional steam yield to drive two 5MW and one 1 MW well-head generating units; (ii) construction of the required steam gathering system. Both of these components would be implemented between 1990 and 1991. These components will also rrovide support for management and supervision as well as technical assistance for geological surveys and studies, including (a) a 'scaling" study to insure that the generating equipment is designed in a way which takes full account of the specific nature of the corrosion effects 1/ linked to the salinity of the brine; and (b) a study to spell out issues which might arise from the potential settlement of nomads around the drilling site; (iii) installation of two 5 MW back-pressure well-head generators (including all related equipment and controls) and a 1 MW well-head unit for the desalination plant, training, camp and demonstration purposes. Geothermal electricity would supply approximately 35 percent of the country's base load. Construction would begin in mid-1990 so as to commission the 5 MW units in 1991, when current diesel generating units will have to be replaced. The 1 MW unit would also be installed in 1990; (iv) construction of a single circuit 132 kV transmission line of 100 km from the well-field substation to the main power station in the capital, to be implemented in 1990/91; and (v) provision of technical assistance for institution-building, mainly financing the foreign expenditures component of EdD's training program. 1/ To take corrosion effects into account, the project's economic and financial evaluation includes the most conservative assumptions for determining the cost of generating the steam based energy.  -5- SCHEDULE A DJIBOUTI GEOTHERMAL DEVELOPMENT PROJECT ESTIMATED COSTS AND FINANCIAL PLAN Estimated Proiect Costs: USS million Local Foreign Total ----(US$ million equivalent)---- .. Bidding Documents & TORs 0.10 0.10 2. Special Studies 0.95 0.95 3. Purchase & Work-over of Assal Wells 4.83 0.12 4.95 Sub-total 4.93 1.07 6.00 4. Drilling (4 wells) & consumables 1.28 6.12 7.40 5. Well field Equipment 0.45 2.55 3.00 6. Power Plant (2 x 5 MW) 0.70 6.30 7.00 ? Power Plant (1 x 1 MW)1/ 0.13 1.17 1.30 8. Electrical transmission 0.67 3.80 4.47 9. HousinglControl Building 0.50 - 0.50 10. Drilling Supervision 0.12 0.50 0.62 11. Project Management 0.29 0.43 0.72 12. Technical Assistance to EdD TrainingiInitial Operation 0.48 0.72 1.20 - Project Engineering 0.18 0.43 0.61 Total Base Cost 9.73 23.09 32.82 Physical Contingencies 10 0.48 2.32 2.80 (except for #3) Price Contingencies 1.03 1.39 2.42 Total Proiect Cost 21 11.24 26.80 38.04 t1 For desalination purposes. 21 Net of Taxes and Duties Financin2 Plan: US$ million Local Foreign Total --------(US$ million