Mali - Second Power Project

Docunent of The World Bank FOR OmcaAL USE ONLY Reprt No. P-4974-MLI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 24.2 MILLION TO THE REPUBLIC OF MALI FOR A SECOND POWER PROJECT MARCH 2, 1989 This document has a resricted 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 EQUIVALENS Currency Unit - CFA Franc (CFAF) 11 US$1.00 - CIAF 300 MEASURES AND EQUIVALENTS One Kilovolt (kV) - 1000 volts One Megawqatt (MW) . 1000 Kilowatts (kW) One Gigawatt hour (GWh) 1 million Kilowatt hours (kWh) One Barrel (bbl) - 0.16 cubic meter One ton of oil equivalent (toe) a about 7 bbl of crude oil ABBREVIATIONS ANM ACRONYMS AfDB/F - African Development Bank/Fund CCCE - Caisse Centrale de Cooperation Economique CIDA - Canadian International Development Agency DNHE - Direction Nationale de l'Hydraulique et de l'Energie EDM - Energie du Mali EIB - European Investment Bank FAC - Fonds d'Aide et de Cooperation GOM - Government of Mali KfW - Kreditanstalt fur Wiederaufbau MIHE - Ministry of Industry, Hydraulics and Energy OERHN - Office pour l'Exploitation des Ressources Hydrauliques de Haut Niger OMVS - Organisation pour la Mise en Valeur du Fleuve Senegal FISCAL YEAR January 1 - December 31 1/ The CFA Franc is tied to the French Franc (FF) in the ratio of FF 1.00 = CFAF 50. The FF is currently floating.  FOR OMCIAL USE ONLY MALI: SECOND POWER PROJECT CREDIT AND PROJECT SU)MARY Borrower Republic of Mali Beneficiaries Energie du Mali (EDM). Ministry of Industry, Hydraulics and Energy (MIHE). Amount SDR 24.2 million ( US$33.0 million equivalent). Terms Standard, with 40 years maturity. Onlending Terms The Government would relend 85Z of the Credit (US$28 million) to EDn at the prevailing Bank interest rate (currently 7.65Z) for 25 years including a five-year grace period. EDM would bear the foreign exchange risk on that amount of the Credit. An amount of US$3.2 million equivalent (101 of the Credit) to finance technical assistance and training would be passed on to EDM as Government equity or as grant. Financing Plan Total (USS million) IDA 33.0 AfDF 11*8 CCCE 12.5 CIDA 8.6 EIB 6.8 KIW 11.5 FAC 1.9 EDM 17.4 Total 103.2 Economic Rate of Return 15l Staff Appraisal Report No. 7466-MLI Mao No. IBRD21018 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A SECOND POWER PROJECT 1. The following Memorandum and Recommendation on a proposed develop- ment credit to Mali for SDR 24.2 million (US$33.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and help finance a Second Power Project. The project would be cofinanced by AfDF, CCCE, CIDA, SIB, FAC and KfW. Background 2. Only about 41 of Mali's populatiorn currently has access to electricity. About 75Z of Mali's electricity is supplied from the Selingue hydroelectric plant, which was commissioned in 1980. The present installed generating capacity is sufficient to meet electricity demand in the intercon- nected system until the early 1990's, but over the medium term, the existing hydroelectric plants need to be rehabilitated, and the transmission and distribution facilities need to be extended. Beyond that, the least cost supply of electricity could be from power facilities to be installed at the Manantali dam, which was recently completed by OMVS (a regional entity grouping Mali, Senegal, Mauritania and Guinea). Development of the power sector to date has been hampered by a fragmented organization which splits sectoral responsibility among three agencies: the Direction Nationale de l'Hydraulique et de l'Energie (DNHE), a government department whose function is to plan and construct major power and water schemes and provide technical supervision; Energie du Mali (EDM), the utility responsible for operation and maintenance of most power and urban water facilities, including those con- structed by DNHE; and Office pour l'Exploitation des Ressources Hydrauliques du Haut Niger (OERHN), which was created to operate the Selingue hydroelectric plant and to promote irrigation and fishery activities. This situation has led to poor coordination of investment planning and difficulties in systems operations. EDM is still faced with a precarious financial situation due to a high level of accounts receivable from both the Government and private sector and its poor operational efficiency. 3. Agreement has been reached on the principles of the institutional reform of the power sector, which provides for the unification of sector responsibilities into EDM. The Government of Mali (GOM) would be in charge of policy making, overall planning and regulatory matters, and be responsible for regional and multipurpose projects. EDM has started to implement measures aimed at improving its efficiency and this will continue under the proposed project. 4. Rationale for IDA Involvement. IDA's continued involvement in the power sector is needed in order to: (i) help resolve the sector's complex organizational and institutional issues; (ii) ensure that power sector investments are integrated in a least cost development program; (iii) assist the Government in mobilizing financing for the sector's investment program while ensuring that it is directed to priority projects. IDA has taken a  - 2 - leading role in the preparatory work for restructuring the sector, in invest- ment planning, and in articulati:g measures to restore financial health to the sector. IDA's presence in the sector is important to ensure the complete rehabilitation of EDM's facilities and the optimization of investment deci- sions taken in connection with the regional Manantali multipurpose project. IDA has also taken the lead in organizing donor meetings whose purpose was to ensure optimal coordination among all the aid and development agencies active in the sector. 5. Project Obiectives. The proposed project aims at correcting the most critical deficiencies in the power sector by: (i) consolidating into EDM the responsibility for planning, construction and operation of all power sector facilities and separating its water and power activities; (ii) stream- lining the relationship between Government and EDM; (iii) effecting improve- ments in all aspects of operations, including the introduction of a perfor- mance contract with specific efficiency targets; and (iv) financing part of the investment program of the power sector for the period 1989 to 1994, including the continuation of the rehabilitation of generation and distribu- tion systems and extension of the power grid to meet economically justifiable loads. The rest of the investment program includes ongoing projects financed by other donors and GOM, and projects related to Manantali. In addition, assistance to GOM will be provided to develop and implement a household energy strategy. 6. Project Description. The project comprises an institutional component which would support the implementation of the sector's reorganiza- tion and strengthen the utility's general and financial management by: (i) providing training and technical assistance; and (ii) financing materials and essential spare parts, thereby strengthening EDM's working capital position. The other components are: (a) Generation: li) rehabilitation of the Sotuba hydroelectric plant; (ii) repairs to the cooling water intake and major overhaul of the Selingu4 hydroelectric plant; and (ii) rehabilitation and extension of diesel stations in Bamako and four isolated centers; (b) Trans- mission: construction of a 230 km, single circuit, 150 kV transmission line to extend the grid supply from Bamako to Segou; (c) Distributions (i) rehabil- itation of medium and low voltage lines and substations in Bamako; (ii) construction of about 200 km of new medium and low voltage lines and as- sociated substations in the unelectrified neighborhoods of Bamako; and (iii) rehabilitation of the existing distribution system and construction of about 275 km of medium and low voltage lines and substations in seven isolated load centers; (d) Engineering: consultant services for the engineering, preparation of bid documents and construction supervision for the generation, transmission and distribution components; and (e) System Studies for improving efficiency and preparation of future power sector investments. The project also includes financing for the implementation of a household energy strategy. 7. The project, to be implemented over six years, is est.mated to cost US$103.2 million equivalent (including interest during construction estimated at US$5.2 million), with a foreign exchange component of US$82.6 million (812). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project  - 3 - processing events and the status of Bank Group operations in Mali are given in Schedule C and, D respectively. A map and the Staff Appraisal Report No. 7466-MLI dated March 2, 1989 are also attached. 8. Agreed Actions. The Government and EDM have agreed to implement: (i) a detailed program to strengthen EDMs organization; (ii) a comprehensive plan to reduce energy losses and the level of accounts receirable and; (iii) the institutional reform of the power and water sectors, which include the transfer of the technical responsibility for planning, construction and operation of all power facilities to EDM, with the exception of regional and multipurpose projects, a performance contract for EDM and the signing of a management contract between EDM and OERHN for the operation of the Selingue hydro-electric plant. They also agreed to an annual review of the power investment program, limit on EDM's level of indebtedness and reasonable con- tribution to EDM's capital expenditure from internal resources. Adoption of the revised legislation and signing of the contracts would be a condition of effectiveness, as well as the execution of a of a subsidiary Loan agreement between the Government and EDM. 9. Benefits. The proposed project would strengthen the institutional framework of the power sub-sector as well as the power utility so as to improve efficiency and facilitate future development. Rehabilitation of generation and distribution facilities would be completed and the power grid would be extended to meet economically justifiable loads. The rehabilitation would reduce both the cost of generation and energy losses. The household energy component would initiate a concerted effort to protect the fragile environment around urban areas. 10. Risks. There are no unusual technical risks associated with the project, given EDM's experience under the First Power/Water Project and the use of competent consulting engineers for design, execution and supervision of. the different project components. The main risks are institutional, namelys (i) the functioning of the power sector entities after the reforms have been introduced; and (ii) the power utility's ability to effectively reduce system losses and improve billing and collection. GOM and EDM's management are committed to improving EDM's efficiency and are supporting the reform mea- sures. Moreover, the training and technical assistance components are being designed to minimize these institutional risks. The use of performance contracts would enable close monitoring of institutional and efficiency improvements. 11. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. March 2, 1988  -4- Schedule A Page 1 of 2 MALI: SECOND POWER PROJECT SUMMARY OF PROJECT COST ESTIMATES 1/ A. ELECTRIC POWER 1. Generation Local Foreign Total -------USS Million-------- Hydro Rehabilitation *t Repair 0.6 4.0 4.6 Diesel, Extension, Rehabilitation and Spare Parts 0.9 10.0 10.9 Sub-total 1.5 14.0 15.5 2. Transmission Bamako Segou Transmission Line 1.9 19.0 20.9 3. Distribution Rehabilitation and Extention Bamako System 2.4 9.8 12.2 Up-Country Systems 3.5 13.3 16.8 Sub-total 5.9 23.1 29.0 4. Technical Assistance, Training and Studies 1.1 9.9 11.0 S. Equipment, Materials and Miscelleneous - 2.5 2.5 6. Buildings 1.2 0.3 1.5 B. HOUSEHOLD ENERGY _ 1.0 1.0 Total Base Costs 11.6 69.8 81.4 Contingencies: Physical 1.1 5.8 6.9 Price 3.5 6.2 9.7 Total Project Cost 16.2 81.8 98.0 Interest During Construction 4.4 0.8 5.2 Total Financing Required 20.6 82.6 103.2 1/ The Project is exempted from taxes and duties.  Schedule A Page 2 of 2 MALI: SECOND POWER PROJECT FINANCING PLAN Local Foreign Total (US$ million) IDA 1.0 32.0 33.0 AfDF - 11.8 11.8 CCCE 0.4 11.8 12.2 CIDA 0.2 8.4 8.6 EIB 1.1 5.7 6.8 FAC 0.1 1.8 1.9 RFW 1.2 10.3 11.5 EDM 16.6 0.8 17.4 Total 20.6 82.6 103.2 ~~~.  -6, Schedule B Page 1 of 2 MALIt SECOND POWER PROJECT PROCUREMENT ARRANGEMENTS a/ (US$ Million) Project Component Procurement Method Total Cost ICB LCB Other Generation 6.5 11.7 18.2 (5.9) (5.9) Transmission 23.8 23.8 Distribution 33.7 2.0 35.7 (13.7) (13.7) Engineering and Studies 3.9 3.9 (3.9) (3.9) Technical Assistance and Training 8.9 8.9 (3.2) (3.2) Building 2.9 2.9 (1.7) (1.7) Equipment, Vehicles and Miscellaneous 2.6 1.0 3.6 (2.6) (1.0) (3.6) Household Energy 1.0 1.0 i1.O (1.0) Total 42.8 2.9 52.3 98.0 (22.2) (1.7) (9.1) (33.0) mmm mmmmnm a/ Figures in parenthesis denote IDA financing ESTIMATED IDA DISBURSENENTS IDA FY 90 91 92 93 94 95 96 Arsuual 4.3 5.9 7.3 6.3 4.6 3.0 1.6 Cumulatives 4.3 10.2 17.5 23.8 28.4 31.4 33.0  -7- Schedule B Page 2 of 2 MALT: SECOND POWER PROJECT DISBURSEMENT PLAN Category Amount 2 of expenditure to US$million be financed by IDA. 1. Repairs and overhaul of Selingue hydro-electric plant 1.0 100I of foreign expencitures 2. Rehabilitation and extenbion of diesel generation (supply and erection) 4.3 1001 of foreign expenditures 3a. Distribution Materials except S#gou includirg installation 5.0 1002 of foreign expenditures 3b. Distribution Materials for Segou including installation 6.4 10O of foreign expenditures 4a. Feasibility study of Kdni6 0.6 1OOS hydro-electric plant 4b. Technical assistance 1.4 1002 4c. Engineering and other studies 2.2 1OOS other than Kenie 5. Training Services 1.7 1OO2 of foreign expenditures 6. Buildings 1.5 602 of total cost 7. Vehicles, Tools, Material. Telecommunication and other equipment (incl. installation) 2.7 1002 of foreign expenditures 8. Household Energy 1.0 1002 of total expenditures 9. Refunding Project Prep. Advance 1.1 10. Unallocated 4.1 Total 33.0 rnr  Schedule C MULI. SECOND POVER PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time taken to prepare 48 months (b) Project prepared by Government/Consultants/IDA Cc) First IDA mission October 1984 sd) Departure of appraisal mission June 1987 Ce) Negotiations December 12, 1986 gf) Planned date of effechiveness June 1988 5g) List of relevent PPARS none  ScLedule D Page 1 of 2 Republic of Mali STATUS OF BANK GROUP OPERATIONS A. Summary Statement of IDA Credits (as of September 30, 1988) Credit IDA Fiscal Amount less Number Year Purpose Cancellations Undisbursed -_US$ million-------- Twenty three credits fully disbursed 195.23 986-MLI 1980 Industrial Sector Development 8.00 0.45 1200-MLI 1982 Second Telecommunications 13.50 1/ 0.53 1282-MLI 1983 Water/Power 24.00 1.81 1307-MLI 1983 Economic Management and Training 10.40 2.03 1403-MLI 1984 Biomass Alcohol and Energy Efficiency 7.60 4.15 1415-MLI 1984 2nd Mali-Sud Rural Development 25.90 1.28 1422-MLI 1984 Health Development 16.70 7.00 1431-MLI 1984 Rural Water Supply 4.60 1.14 1442-MLI 1984 Third Education 4.60 0.84 1597-MLI 1985 Mopti Area Development 19.50 18.10 1629-MLI 1986 Fifth Highway 48.60 46.23 1654-MLI 1986 Second Forestry 6.30 3.01 1677-MLI 1986 Second Urban 28.00 20.95 F007-MLI 1984 Rural Water Supply 6.30 2.78 FolO-MLI 1984 Third Education 4.90 1.48 A035-MLI 1988 Office du Niger Consolidation 9.00 9.16 1906-MLI 1988 Office du Niger Consolidation 39.80 40.00 1937-MLI 1988 Public Enterprise Sector Adjust. 40.00 37.90 1938-MLI 1988 Public Ente trise Institutional Dev. 9.50 9.03 Total 522.43 207.87 of which has been repaid 6.73 515.70 Total now held by IDA 515.70 Total Undisbursed 207.87 1! Beginning with Credit 1200-MLI, credits have been denominated in Special Drawing Rights. The dollar amounts in these columns represent the dollar equivalents at the time of credit negotiations for the IDA amounts and the dollar equivalents as of September 30, 1988, for the undisbursed amounts.  Schedule D Ptle 2 of 2 ltopublic of Mali 5. Statement _of irc -investaent (as of September 30. 1968) Loan original Number Year Borrower hurUoo hCmmlnt Xuity Soi .-n - .. n8 $ million---------- 403.MLI 1207 SocLit6 MZmadou Bleach sad 0.63 0.00 0.63 Sada Diallo Plastic et file Products 612-MLI 1982 Soclt6 Indus- Shoemut 1.84 0.45 2.29 trielle de butter Karit6 du Mali, for ezport S .A. Total Gross Commitmentst 2.47 0.45 2.92 Less cancellations, repayments, and sales 0.461 Equity 0 45 Total 0.*6 Total Comaitaset now held by IMC: 2.06 Equitys 0 00 Totals 2.06 Total Undisbureeds 0.00  ORD 21018 M A L I SECOND POWER PROJECT Powor Facilities 4' Propo.ed ' C %f undete pje*ot Future EKietin Power Punts: - - SWAMP C Di*eSL - VE RS 30 - - H~~YoRto -i LIn.s> * TOWNS zl u*9 NATiONAL OAPITAL - 220 kV _ REGION BOUNDARIES 150 kV INTERNAflONAL BOUNDARNES - ~~00 kV -_ _*-- :0 kV |sstr. SE3,,EGAL 7 g7 N I G E R t~~~~~~M 8 K I N A On < G U I NI ~ E N