Madagascar - Power and Water Sectors Recovery and Restructuring Project

Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2402 Project Name MG Power/Water Sectors Recovery and Restructuring Project Region AFRICA Sector Energy (100%) Project ID P095240 Borrower(s) GOVERNMENT OF MADAGASCAR Implementing Agency Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared May 26, 2006 Date of Appraisal Authorization May 19, 2006 Date of Board Approval July 13, 2006 1. Key development issues and rationale for Bank involvement 1.1. Country and Sector Background. Madagascar has a population of over 17 million, a third of which is urbanized. Average per capita income is about US$290. About 70% of the population is deemed to be at or below the poverty line. The primary sector of the economy accounts for a third of GDP but 80% of employment. Despite some macroeconomic instability in 2003-2004, characterized by high inflation and a rapidly depreciating currency, the real economy grew by over 5% in 2004 and by 4.6% in 2005. The overall macroeconomic situation has stabilized and in the medium-term, real GDP growth is expected to average 6 percent annually. This implies robust growth in the demand for electricity. Unfortunately, power shortages have become a bottleneck to growth as the demand for electricity recovered strongly in 2003-04, without any accompanying increase in supply capacity. The majority of enterprises in the Export Processing Zones, which employ over 100,000 workers (mainly in garment manufacturing) were not equipped with standby generators, so the adverse impact on output was acutely felt when power cuts began in mid-2005. Load shedding is estimated to have cut 0.5% off last year