Mali - Power - Water Project

Document of Z - - 2 "- 24- The World Bank f E FOR OFFICIAL USE ONLY ReportNo. 3227-MLI STAFF APPRAISAL REPORT REPUBLIC OF MALI POWER/WATER PROJECT June 10, 1982 Regional Prjocts Department Western Africa Regional Office 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 = Malian Franc (MF) 1/ US$1.00 = MF 500 MF 1 = US$0.0020 MF 1000 = US$2.0 ABBREVIATIONS AND ACRONYMS ADB - African Development Bank CCCE - Caisse Centrale de Cooperation Economique CEAO - Communaute Economique de 1-Afrique de l'Ouest DHE - Direction de l'Hydraulique et de l'Energie ECICA - Ecole Centrale pour l'Industrie, le Commerce et l'Administration EDF - Electricite de France EDM - Energie du Mali ENA - Ecole Nationale d-Administration ENI - Ecole Nationale d-Ingenieurs FAC - Fonds d'Aide et de Cooperation FED - Fonds Europeen de Developpement KfW - Kreditanstalt fuer Wiederaufbau OMVS - Organisation de Mise en Valeur du fleuve Senegal OPEC - Organization of the Petroleum Exporting Countries MEASURES AND EQUIVALENTS One Kilovolt (kV) = 1,000 Volts One Megawatt (MW) = 1,000 Kilowatts (kW) One Gigawatt Hour (GWh) = 1 million Kilowatts hours (kWh) One Ton Oil Equivalent (TOE) = Approximately 7.33 barrels of crude oil One Kilo calorie (kcal) = 3.97 British thermal units (BTU) EDM-s fiscal year is the calendar year. 1/ The Malian Franc is tied to the French Franc in the ratio of one French Franc to 100 Malian Francs. The French Franc is currently floating.  REPUBLIC OF MALI FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT FOR POWER/WATER PROJECT OUTLINE OF REPORT Page No. I. INTRODUCTION . * .......................... ... 1 II. THE ENERGY AND WATER SUPPLY SECTORS ....................... 2 Country Energy Outlook ........ . . . . . . . . * ................. . . ....... ... . 2 Water Supply and Sanitation ............. .......... 3 Sectors' Organization .................................... 3 The Electric Power Market ....... . .* .............................. . 4 Existing Electric Power Facilities ............ ....... 5 Existing Water Supply Facilities ................. ft... f...............f.......f 6 Tariffs ft ff t ff f ff ft fff..........................................t........ 7 Sectors' Planning .f.. ft...ffffffffftttttt.......................... t ttt............. 7 Power Sector Planning ftft ftft.......................... t.......t 7 Water Supply Sector Planning ................................... ................ 8 III. THE IMPLEMENTING AGENCY ........................ o..ft......... , 9 Background ft................................................ 9 Concession System ftftftftftftftftff............ f .......... a .. ... t .......... 9 Management, Organization and Operations ............ ft.....................f 10 Staffing and Manpower Requirements ....................... 11 Training .ft f fft f f fft................................................ 11 Technical Assistance fftfffttffftffftffffttt.......................... f.......... 13 Metering, Billing and Collection ......................... 15 Accounting and Information System ........... ............. 16 Budgeting .................................. ft ....... 17 Audits ................. 17 Insurance ............................................. 17 IV. THE PROJECT_ROJECT...fft ft ....... 18 The Program and the Project ............................... 18 Program Objectives ........................... I . . .19 Project Composition ............................ ft ....... 19 Technical Assistance Component . 19 Power Component .............. . ,..................... 20 Water Supply Component ................................t21 General Plant Component . 21 Studies Component ................. .................. 22 Project Management 22 Project Costs ....................................... 23 Project Financing ................................ f..... 25 Project Execution . 26 Project Implementation Schedule ............................ . . . t 27 Project Monitoring and Reporting . 27 Procurement .............................................. 27 Disbursement ............................................. 28 Environmental Impact ..29 Project Risks ............................................ 29 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.  Table of Contents cont. V. ECONOMIC JUSTIFICATION .................................... 30 Power Components ......................................... 30 Rehabilitation and Extension of Bamako System ............................................ 30 Mopti/Sevare Biomass Power Scheme .... ............... 31 Water Supply Component ................................... 32 Technical Assistance ..................................... 32 VI. FINANCIAL ANALYSIS ....................................... 33 Introduction ......... .................................... 33 Background: Status of Assets in the Concession System..... 33 Past Earnings ............................................ 35 Present Financial Position ............................... 36 Tariffs ............ ...................................... 38 Revenue Covenant ......................................... 39 Financial Projections .................................... 40 Future Finances .......................................... 41 VII. SUMMARY OF PROPOSED AGREEMENTS AND COVENANTS .43 Assurances and Covenants .43 Recommendations .45 LIST OF ANNEXES Annex No. 1.1 Documents and Data Available in the Project File .46 2.1 Bamako Electric System - Actual and Projected Generation, Peak Demand, System Capability and Energy Sales 47 2.2 Electric Systems in Provincial Centers (Excepting Segou- Markala and Mopti-Sevare) - Actual and Projected Generation and Energy Sales .48 3.1 Organization Chart of EDM. 49 3.2 Summary of the Rehabilitation Plan for EDM . .50 4.1 Breakdown of Technical Assistance Costs . .51 4.2 Project Monitoring and Reporting Requirements . .52  - iii - List of Annexes (continued) 5.1 Extension of Bamako Distribution - Tabulation for Rate of Return Calculation ..................................... 53 5.2 Mopti/Sevare Biomass Power Plant - Tabulation for Rate of Return Calculation ..................................... 54 5.3 Water Supply Component - Tabulation for Rate ofE Return Calculation ............................................ 55 6.1 Income Statements Power ................................... 56 6.2 Income Statements Water ................................... 57 6.3 Consolidated Income Statements ............................ 58 6.4 Balance Sheets ............................................ 59 6.5 Sources and Applications of Funds ......................... 60 6.6 Assumptions for Financial Projections ..................... 61 Map of Mali--Power Sector (IBRD 15332) Map of Mali--Water Supply Sector (IBRD 15472)  I  REPUBLIC OF MALI Energie du Mali First Power/Water Project I. Introduction 1.01 The Government of Mali has requested the International Development Association (IDA) to participate with Caisse Centrale de Cooperation Economique (CCCE), the Fonds d'Aide et de Cooperation (FAC) and the OPEC Special Fund in the financing of the first phase (the project) of a two-phase program designed to rehabilitate and extend the services of Energie du Mali (EDM), the para- statal water supply and power utility. The project, which is centered around a core of technical assistance to redress EDM's current managerial and opera- tionLal problems, would permit better use of Mali's renewable energy resources by extending the service area and coverage of the Selingue hydroelectric power scheme, commissioned in August 1981, and by the use of agricultural residues for power production in a biomass plant to be built at Mopti/Sevare. Besides provriding for urgent improvements in Bamako's water supply system, the project wil:L also cover project preparation works for the second phase of EDM's reha- bil:Ltation program. Total cost of the project is estimated at US$43.20 mil- lion, including contingencies, with a foreign component of US$41.25 million. 1.02 The Government has asked IDA to assist in financing the foreign exchange cost of: (i) the technical assistance component; (ii) the rehabili- tation of the Dar Salam diesel electric power plant in Bamako; (iii) a commu- nication system by power line carrier between the Bamako end of the transmis- sioni line from Selingue and the Dar Salam and Sotuba power plants in Bamako; (iv) the strengthening of the Bamako distribution system and a first phase of extensions; (v) urgent works in Bamako's water supply system; (vi) service vehicles, tools, and office furnitures; and (vii) pre-construction design studies for extension of the Sotuba hydroplant, the Bamako-Segou transmission link, and the extension of the Bamako water supply system. An IDA credit of US$24.00 million is proposed for this project. The beneficiary and implement- ing agency would be EDM. Proceeds of the credit would be onlent by Government to EDM at 9.6% interest rate, over a period of 20 years, with a 5-year grace period. However, the 9.6% rate shall be reviewed annually by the Government and IDA, as the financial conditon of EDM permits, with a view to its progres- sive modification to conform to the then generally applicable relending rate for proceeds of IDA's credits (para. 6.19). CCCE/FAC would finance 50% (US$10.8 million) of the total combined foreign exchange cost of the technical assistance component and rehabilitation of the Dar Salam power plant; and the OPEC Special Fund loan -- US$6.45 million--would finance the proposed biomass power plant at Mopti/Sevare (Table 4.2). 1.03 The Malian request for IDA to participate in financing a power investment program dates back to mid-1977. A Basic Health Needs mission in Jur,e 1978 identified justification for IDA assistance in the water/sanitation sector. A full project identification mission visited Bamako in January/ February 1979 and discussed possible components of a water/power project and  -2- the means of preparing it. The identification mission agreed with the Government on the scope of the studies needed to prepare a project. The total cost of these studies was estimated at US$0.97 million, almost all in foreign exchange. The Government subsequently requested an advance for this amount from IDA's Project Preparation Facility, which was granted in October, 1979. The project was appraised in June 1980 and post-appraised in April 1981 because of change in management. This report is based on the findings of the appraisal and subsequent post appraisal missions and detailed studies of EDM's technical assistance needs which were done by a team of specialists from Electricite de France (EDF). Documents and data available in the Project File are listed in Annex 1.1. II. The Energy and Water Supply Sectors Country Energy Outlook 2.01 Mali's hydroelectric potential is estimated at 10,000 GWh per annum, of which less than 0.3% has been developed so far. Although Mali is not endowed with abundant forests, firewood constitutes the main source of non- commercial energy. Limited use is now being made of agricultural residues as an energy source in sugar production (bagasse) and cotton ginning. A project to produce ethanol from surplus molasses at two refineries seems feasible, and the Bank Group has agreed to assist financially in project preparation. Ethanol from this project could replace about 5% of Mali's current gasoline consumption. Solar energy is being used experimentally in a number of small water pumping installations. Exploration and drilling for oil has taken place in Mali's four main sedimentary basins, but these efforts are insufficient to reach definite conclusions. A PPF-financed study concluded that a detailed field survey and drilling would be needed to evaluate the oil-bearing possibili- ties of the Taoudeni Basin, which is the most promising of these sedimentary basins. The Bank Group is currently financing a petroleum exploration project for this purpose. 2.02 In the meantime, Mali has to rely on its precarious supply of firewood (2.2 million tons per year), some hydroelectricity (30 GWh per year), and import of petroleum products (159,000 tons in 1979). Mali's total current energy consumption is 690,000 TOE per year, which, for a population of six million, represents only 115 kg per capita, among the lowest energy usage in the world. 2.03 Electric service is supplied to 28,000 consumers in Bamako and in ten lesser urban areas. Assuming an average of ten persons per consumer connection, electric service is supplied to 280,000 people, which is about 30% of the urban population of Mali and less than 5% of its total population. Electric service in rural areas is minimal. The proposed project includes financing of a study to survey the needs and possibilities of rural electri- fication (para. 3.21 (v)).  -3- Water Supply and Sanitation 2.04 According to a recent basic needs study, about 20% of the urban population in Mali is adequately served by water supply; 12 towns have distribution systems executed or extended over the past ten years. These systems, however, serve only a small percentage of the population. Bamako, the capital city, has the largest level of service with 40% of the population served about equally between standpipes and connections. It is estimated that only 25% of the rural population is served by boreholes and water wells, but many rural water supply programs providing a water point are under way or about to start with multi- or bilateral aid. The Association is currently assisting Mali in preparing a rural water supply project parallel to a health project in the western part of the country. There are no sewerage disposal systems in any town, and Bamako's limited drainage system is clogged due to lack of maintenance. Sectors' Organization 2.05 Governmental institutions involved in the two sectors are: Direction de! l'Hydraulique et de l'Energie (DHE) under the Ministry of Industrial Devel- opment, the Selingue Authority under the same ministry, and EDM under the Ministry of State Enterprises. DHE is theoretically responsible for planning and implementation of water supply projects and large power schemes, but in fact does little planning and only implements water supply projects. The coordination between DHE and EDM on new system and reinforcement planning has been very weak, to the extent that EDM is informed of the new assets it must take over only when works are completed. The Selingue Authority is currently operating the Selingue 44 MW hydropower project commissioned in August 1981. The Authority's revenues will derive essentially from sales of energy to EDM, and will be used to pay operating expenses of the entity and to service the de!bt incurred by loans used to finance the construction of the dam, power plant, and transmission to Bamako. EDM, which was created in 1961, is conceded water and electric power installations for their management and operation (para. 3.02). EDM-s shareholders are the Government with 55% participation, and French public interests (EDF and CCCE) with 45%. 2.06 In the last five years EDM has been in disarray through a combina- tion of circumstances, but mainly because of lack of leadership, neglect, arnd financial problems originating from the large increase in petroleum fuel prices after 1973/74 and difficulty in collecting revenues, particu- larly from governmental departments and agencies. These problems are analyzed in Chapter III, together with other aspects of EDM's organization and overall management. 2.07 IDA considers that as a long term strategy it would be desirable that: (i) power and water activities be split and managed separately; and, (ii) that the power sector (EDM and the Selingue Authority) be united under a single entity with investment planning and financing responsibilities. How- ever, in the short and medium terms only the rehabilitation and strengthen- ing of EDM can be considered a realistic target as described in paras. 4.01  -4- and 4.02. The long term objectives will be addressed in the secona power project, which is expected to help finance Phase II of the program. To prepare this long term approach, the proposed project includes the financin6 of studies to: look into the advantages and disadvantages of a single power entity versus the current organization of combinea power and water entity (para. 3.21 (vii)); and (b) assess the advantages and disadvantages of con- tinuing with the concession system for EDM (para. 3.03). The Electric Power Market 2.08 No interconnection exists between Mali's electric systems, and public supply of electricity is heavily concentrated in the hydro-thermal system supplying Bamako and the surrounding towns of Kati and Koulikouro as shown in the following table: 1/ Table 2.1: EDM -- ELECTRICITY CONSUMPTION AND GENERATION IN 1979 Consumption GWh Y. of Total Bamako/surroundings 72.4 86% Segou/Markala 3.3 4% Mopti/Sevare 1.4 2% Other urban areas 6.7 8% Subtotal 83.8 100% 63% Losses, unaccounted for and own use 17.5 17Z TOTAL 101.3 UO1% Generation Hydro 34.6 34% Thermal (diesel) 66.7 66% TOTAL 101.3 100% Source: EDM--Statistiques Analytiques. 2.09 Consumption of electricity from the public supply is roughly divided equally between medium-voltage and low-voltage consumers. Medium voltage consumers are essentially industrial customers and governmental 1/ See Annexes 2.1 and 2.2 for actual (1976/79) and projected (1980/88) generation and energy sales.  agencies, while low voltage consumers are mainly residential and commercial users. For 1979, consumption was divided approximately as follows: resi- dential and commercial, 42X; industrial, 36%; governmental departments and agencies, 15%; EDM's own water supply systems, 6%; and public lighting, 1%. Losses and unaccounted for in Table 2.1 appear to be understated by not less than 10%. This is due mainly to overestimation of unmetered consumption. 2.1.0 Peak demand in the Bamako electric system, the only sizeable system in Mali, grew from 7 MW in 1971 to 15.4 MW in 1978. Electricity consumption increased steadily during the same period at an average 12% per year, although insufficient capacity has plagued the system except in 1971, 1974 and 1978 when new diesel units were commissioned. The 1981 unsuppressed peak demand was estimated at 20 MW but the available generating capacity without Selinque was well below this figure because of breakdowns and poor maintenance. The nuraber of consumers increased about 7% per year from 10,800 in 1971 to 18,500 in 1978, following approximately Bamako's growth in population. Ex_Lsting Electric Power Facilities 2.11 In 1979 the total installed generating capacity in Mali was 35 MW with an annual generation of 135 GWh. EDM's share is 25 MW and 101 GWh. Captive plants make up the balance. With the exception of the 5 MW Sotuba hy,lroelectric plant on the Niger river near Bamako and the small--500 kW-- hydroplant at Kayes, all generation was diesel electric. 2.12 Bamako is supplied by the Sotuba hydroplarnt and the 15.5 MW Dar- Salam diesel electric plant through a primary distribution system at 30 and 15 kV which services only a fraction of the city. Low voltage distribution is done at 220/380 V, 50 Hz. A 30 kV line connects Koulikouro with the Bamako electric system. The Dar Salam power plant is in precarious condition and is in need of total rehabilitation to serve as stancdby now that Selingue is fully commissioned. The Bamako distribution system, likewise, requires strengthening and rehabilitation of certain facilities. Both problems will be addressed by the proposed project. Public electric service in other regional centers originates in small diesel electric plants. 2.13 A 48 MW hydroelectric power plant has been built at Selingue on the Sankarani river, a tributary of the Niger, to meet the power requirements of Bamako and southern Mali. Selingue's average annua'L generation is estimated at 218 GWh delivered at the Balingue substation in ]3amako. Power generation from Selingue started in August 1981, and the station is now working at about 25% of its energy potential due to lack of demand. Hydroelectric energy from Selingue, by substituting for diesel-electric generation, will reduce Mali's gas oil imports, with consequent foreign exchange savings. EDM is purchasing electric power from the Selingue Authority at the Balingue terminal of a 140 km, 150 kV transmission line from Selingue. Selingue has been conceived as a multipurpose project with power, navigation, fisheries, and agricultural benefits, but if the total cost of the dam is allocated to its power function, the economic cost per kWh sold would be FM 48 at a discount rate of 10%, which is the opportunity cost of capital in Mali. This cost compares favorably with  EDM's current running cost (excluding financial charges) of FM99 per kWh for diesel generation. Up to now EDM has been paying FM 34 per kWh for the energy delivered by the Selingue Authority. However, the Government has lately decided that with effect from July 1, 1982 EDM will pay MF 40 per kWh for Selingue power and thereafter automatically adjust tariffs to cover any increases in the cost of purchased power beyond the MF 40 price. Existing Water Supply Facilities 2.14 Of the 21 towns which have adequate facilities, 10 are managed by EDM, and the remainder are, up to now, managed by Local Governments. Most of these schemes have been financed by the Government almost entirely from external grants. Most production facilities are based on treatment of surface water from the Senegal and Niger rivers and require large supplies of chemicals and appropriate maintenance, which have not been available lately. Distribution networks cover only parts of the urban areas and extensions are usually provided on a piecemeal basis. EDM has some 14,000 registered private connections of which 9,500 are in Bamako; the number of unregistered connections appears sizable. While 90% of connections have a meter, no work- shop and spares are available to repair broken meters. As a result, meters are not read in the field, and billing is determined on outdated records. Many standpipes are either inoperative, or turned off because of the large payments due to EDM by the municipalities. The poor physical condition of many facilities and lack of attention to providing appropriate spare parts is due to the low level of qualification and insufficient training of staff, the lack of a maintenance budget and insufficient qualified staff at headquarters level to cope with problems arising from water supply operations. 2.15 The Bamako s stem consists of two treatment units, each with a daily capacity of 750mU, which were constructed in 1974 and 1976 under a grant from Fonds Europeen de Developpement (FED); these units are now utilized at full capacity during normal periods and cannot meet the entire water demand. An older plant built in the 50s composed of two 375 m3 units was shut down in 1975. The latter could be utilized again at least partly with direct filtration during the dry season when the water has little turbidity and the water demand reaches its peak. An additional daily capacity of 750 m3 intended to supply Bamako and Kati, (14 km from the capital city) is being constructed under a credit from Kreditanstalt fuer Wiederaufbau (KfW) and would be completed by 1982. The water supply system also suffers from insufficient and unreliable pumping units at the raw and treated water stages, and would need urgent reinforcement, if not dealt with under the KfW credit, to ensure appropriate distribution of the produced water. The distribution system is not sufficiently extended to serve all the town areas, in particular the newly developed and populated areas south of the Niger river. Significant extensions to the first network date back to the early 60's when Bamako had only 1/3 of its current population. Several bottlenecks like uncompleted looping in the transmission mains, and too small booster stations, prevent proper distribution to too elevated or remote city areas.  -7- Tariffs 2.16 The average price of electricity in Mali during 1979 was FM 55/kWh (US311). On March 1, 1980 the tariffs were increased by 30% across the board; the new tariffs' average price of FM 69 (USJ13.8/kWh) is below the average for landlocked Sahelian countries (US4l6/kWh in Upper Volta, and USJ23/kWh. in Chad). 1/ The water tariffs were also increased by 30% on March 1, 1980. With this increase, the average price for water is now MF 79 per m3 (USd15.8/m3). Sales taxes of MF 2 per kWh and MF 20 per m3 are added to the respective tariffs. Both electricity and water tariffs were increased by 11% effective February 1, 1982. Adequacy of both power and water tariffs is analyzed in Chapter VI (paras. 6.11 through 6.13)1. Sectors' Planning 2.17 Planning in the power sector, which was st:imulated during the late 60's and early 70's, deteriorated during the last few years. Some planning action has resumed in this sector prompted by the Bank Group's assistance with the PPF advance (para. 1.03). Likewise, in the water supply sector, where planning has been haphazard, a development program i-or Bamako (Plan Directeur) has been prepared with the help of consultants financed by the PPF advance. Power Sector Planning 2.18 Broadly speaking, the long term electricity needs of southern and western Mali could be met by the proposed 200 MW Manantali hydroplant (800 GWh per year) on the Bafing river, a tributary of the Senegal river. Manantali would be built by OMVS 2/ for flood control and irrigation in the lower reaches of the Senegal river. Power production is a secondary benefit incidental to its main purposes. Power from Manantali could not be available before 1989/90 and increasing amounts of thermal generation will be needed to meet the peak demand in the dry season from 1987 onwards, (See Annex 2.1), it is planned to extend by 7 MW the Sotuba hydroelectric plant to better use the Niger river flow regulated upstream by the Selingue dam. In the event Manantali is not built, a power project can be developed on the Niger rapids at Kenie, about 35 km downstream of Bamako. Preliminary assessments indicate that two power plants could be installed at Kenie with total annual generation of about 800 GWh. This power generation program will be complemented by building a transmission link between Bamako and Segou, which can be extended in the longer term to form a loop tying the main urban centers of southern Mali. These actions on medium/long term power system development planning will be reviewed, coordinated and finalized by a study to be financed in the proposed project (para. 3.21 (v)). 2.19 Development programs for distribution systems (Master Plans) have been completed recently for Bamako and four other urban centers. These studies were financed with the PPF advance. 1/ However, Mali is the only landlocked Sahelian country which benefits from a relatively substantial amount of hydrogeneration. 2/ "Organisation pour la Mise en Valeur du Fleuve Senegal", an interna- tional entity created by Mali, Senegal, and Mauritania.  - 8 - 2.20 There are a number of urban centers in Mali to which it is not feasible to extend a central electric system because of long distances and light loads. For these centers, located particularly in central and northern Mali, power production will continue to be thermal. The possibility of using agricultural residues is being explored by EDM, and a PPF-financed study has demonstrated the feasibility of biomass plants if these residues can be gathered economically. Water Supply Sector Planning 2.21 Investments in the water supply sector over the past five years amount to about US$12 million and are expected to bring service to an addi- tional 100,000 people. They include: (i) installation of a public water system in Kita, and the extension of the Bamako treatment plant, both financed by KfW; (ii) extension of the Gao water supply system financed by FAC; (iii) minor reinforcements of four secondary centers' systems with a CEAO grant; (iv) extension of public water systems in small urban centers with Canadian assistance; and (v) reinforcement of distribution networks in Bamako and Gao under the IDA financed urban project (Credit 943). Studies for strengthening existing water supplies in the capital city and four other centers are also underway. A Water Master Plan for Bamako carried out by French consultants (SAFEGE) under the PPF aims at the supply of all the city population with water by 1986 either by private connection for about 30%, or by standpipes for the remainder. Although these criteria look acceptable, the objectives are slightly ambitious because the investments required to catch up with the backlog are estimated to amount to US$55 million in 1980 costs. Other alter- native investment plans have been drawn up on the basis of slower execution targets and of shifting the full coverage objective to 1990; this would result in an initial investment of about US$19 million. The same consultants have also been commissioned to study the strengthening of four large centers under ADB financing. The Directorate of Hydraulics and Energy (DHE) has also subcontracted studies, funded under a PPF advance, to review the use of alternative sanitation technologies in Bamako. Reinforcement of water supply alone without commensurate improvement of the precarious sewage disposal conditions would likely result in further deterioration of health and living standards. It is imperative that appropriate, affordable individual and semi-collective sewage disposal systems be identified now and implemented jointly with the large water supply investments scheduled for the second phase of the proposed program (para. 4.02). 2.22 In mid 1980 DHE submitted to the Ministry of Plan proposals for water supply and sanitation over the next four year plan period (1981-1985). These proposals call for extension of water schemes in about 12 towns, six of them to be reinforced and the remainder to be provided with simple supply systems. Resulting cost estimates amount to FM 8.6 billion (US$17 million); they exclude strengthening of schemes mentioned in para. 2.21 still under study, which would increase these estimates by about 250%. Even with the assistance of multi- and bilateral aid agencies which have already expressed interest, it is unlikely that these targets can be met since all investments have been obtained and will likely continue to come from external financing, with minimal contribution from State or cash generation funds.  -9- III. THE IMPLEMENTING AGENCY Background 3.01 EDM was established in 1961 as a "mixed economy" company, i.e., a joint Government/private owned company, with the Malian Government presently holding the majority of the share capital of 55%, and two French public agencies, CCCE and EDF respectively holding 39% and 6% of the shares. The Company is administered by a Board of eight members consisting of the Minister of "Tutelle" as chairman, three other Malians including the Director of the "Direction de l'Hydraulique et de l'Energie" of the Ministry of Industrial Development, one staff representative, and three French shareholder nominees. For the last few years, the Board has met irregularly and thus has played onlv a liLmited role in the management of EDM. Concession System 3.02 EDM operates under the "Concession System" still often used in French-speaking countries which gives the company the right, for a fixed tenn, to operate, manage and develop the power/water undertaking. This includes the right for the company to levy agreed tariffs and to recover its investment by the end of the concession period. The company does not own all of the assets it operates. Several major categories of assets, usually hydro-power installations, main water works, and most of the distribution networks are regarded as public property ("public domain"), and must be returned in good working order by the company to the Government when the concession agreement expires, even if part or all of their cost has been financed by the Company. A specific system of depreciation and renewals appropriations is designed to allow the company to satisfy its various financial obligations (para. 6.02). The advantage claimed for the conces- sion system is that it permits private capital venture into the field of public monopoly whilst ensuring a measure of state control and final owner- ship. However, since the majority of the assets are directly owned by the Government, the development of the sector can easily be planned beyond the control of the utility as it is currently happening in Mali. In addition the complexity of the concession system makes its understanding and correct application difficult, and results in confusion for management. 3.03 EDM-s concession agreement was signed in 1961 for a 30 year period, which gives EDM the "concession for production and distribution of power and water over the territory of the Republic of Mali". A Government decree specifying EDM-s organization and operations ("Cahier des Charges") was issued in 1962 which satisfactorily defines EDM-s legal position toward its customers and public authorities. These arrangements provide for the parti- cipation of CCCE and EDF in EDM's management, while the Malian Government retains control over policy issues through the majority it holds of the Board. In light of the difficulties pointed out in para. 3.02, the proposed project includes financing of a study to assess the advantages and disadvan- tages of continuing with the concession system for EDM.  - 10 - Management, Organization and Operations 3.04 EDM's General Manager is appointed by Presidential decree. A new General Manager was appointed recently. He is a young and promising official, but inexperienced in the field of public utilities. Considering the variety and magnitude of the problems that EDM encounters in almost all aspects of its organization and operations, the new General Manager will need to be supported for some years by an experienced expatriate project manager (para. 3.20). 3.05 EDM's current organization chart gives a pivotal role to the Gen- eral Manager, under whose direct authority are placed a cluster of functional and operational units. EDM has no overall technical direction, which means several services report directly to the General Manager including: the dis- tribution service for both power and water, two recently organized production services (diesel generation and water production outside of Bamako, power generation and distribution in Bamako), a planning service, and a purchasing service. Commercial activities are also not grouped, and responsibilities for customer activities are spread under different department heads. No clear-cut management or organizational distinction is made between water and power activities. This dispersion of responsibilities places a heavy burden on the General Manager, and does not foster coordination between services, delegation of authority, or adequate evaluation of sector-specific problems. Because of his very recent appointment, the new General Manager has not yet implemented any reorganization of the company. However during the post appraisal mission the general framework of EDM's future organization was agreed (Annex 3.1). In addition to the already agreed creation of a water supply service department, the new organization chart translates the consolidation of all generation and transmission activities in and outside Bamako in a single department, and the reorganization of the Planning and Engineering Departments which will report to the Deputy General Manager. 3.06 EDM's general organizational pattern can also be found at the operational units' level, where the chief of each unit retains all authority. Indeed, for most of the outstations, communication problems and low level of staff expertise do not allow for any other scheme to be developed. However, the organization of the Bamako unit, which accounts for more than 80% of EDM's total operational activities, will be considered as a specific problem and will be addressed by the technical assistance team in parallel with the general reorganization of the utility. In addition, the proposed project includes financing new buildings to better house the Bamako unit and ease current communications and other day-to-day problems. 3.07 These organizational deficiencies have been discussed with EDM's management who agreed that improvements are required. EDM's management has recognized that part of the problem was due to shortages of skilled, exper- ienced, and reliable management and staff. To overcome the organization deficiencies, as a first step, EDM has commissioned an ongoing organization, manpower and training study by EDF, due for completion by June 30, 1982 (para. 3.15). The proposed project includes a technical assistance component that implements the recommendations of EDF's study (preliminary report) after review by S'ZI's management, the VRalian authorities and the Association.  - 11 - 3.D8 Apart from the organizational and staffing problems, EDM's opera- tiDns are hampered by poor and difficult communicatiLons. Moreover, the company's past financial constraints (para. 6.04) resulted in totally inade- quate maintenance and a scarcity of spare parts and tools. Consequently service quality deteriorated sharply (para. 2.06) and staff morale is low. Clearly EDM needs assistance to raise standards to acceptable levels. In the short term, this would comprise technical assistance, rehabilitation support, and consultancy (para. 4.03). To meet longer term requirements, the project would support training for all staff levels through: (i) on-the-job training of Malian counterparts by the technical assistance expatriates; (ii) training in Europe of Malian staff; and (iii) physical expansion of EDM's training center, and expatriate support to increase the capacity and efficiency of EDM's present training facilities and program (para. 3.16). Staffing and Manpower Requirements 3.09 Staff are engaged and dismissed by the company's General Manager. At end 1980, total staff numbered 806, of which there were 20 engineers and executives, 145 technicians and 641 skilled and unskilled workers. Two hundred staff were working at headquarters, 410 at c:he Bamako unit and the remaining in various outstations. EDM has one employee for every 35 customers in both power and water, which is comparable ratio for the prevailing standards in West Africa power and water utilities. 1/ Staff increased slowly by only 0.5% per year from 1970 to 1976, but increased by 18% in 1977 and 5% in 1978. Since 1979 a hiring freeze has been imposed by the management to forestall over-generous staffing, as a result of which the total staff has declined by 59 persons since then. 3.10 In general, new staff are hired under the existing Personnel Statute (Convention du Personnel) dating back to 1959 which comprehensively covers salaries and conditions of employment, which were in line with practices often found in other utilities in French speaking countries but now needs major revision. Some senior staff also retain their civil servant status by being simply "seconded" by their Government administration. A new personnel statute has recently been negotiated between EDM's management and its staff but requires the Ministry of Tutelle's review and approval before implementation. Due to ministerial changes and the need to coordinate a coherent personnel policy for all nationalized enterprises, approval is still awaited by EDM. Training 3.11 EDM has only a few well-trained and competent power engineers. Many of the younger power engineers or administrative managers have been trained locally, mostly at ENI (Ecole Nationale d'Ingenieur) or ENA (Ecole Nationale d'Administration), whilst others have received basic engineering training in Eastern Europe. However, most require additional training before they can be really efficient in their present positions. There are a few well-trained 1/ Benin 1 to 30 (power and water, 1979), Senegal 1 to 47 (power, 1977).  - 12 - and experienced technicians working mainly in the power sector. The older technicians who learned on the job lack theoretical knowledge, while newly appointed technicians, mostly graduates from the local ECICA (Ecole Centrale pour l'Industrie, le Commerce et l'Administration), lack practical experience. At the blue collar level, skill is often minimal and the management estimates that almost half the total staff are illiterate. The proposed project will address the illiteracy problem through the training component. 3.12 There are no specific training facilities in Mali for water plant and water network management and maintenance. In addition, qualified plumbers are very few and very difficult to hire under prevailing labor market condi- tions. Adequate staffing of its water operations constitutes a crucial problem for EDM-s management. Consequently, the training component of the proDosed Droiect would specifically address the water sector needs. 3.13 Training has always been a crucial problem for EDM because of the generally low qualification of its staff and the complete lack in Mali of some categories of specialists required for power and water operations (paras. 3.11 and 3.12). In 1965 EDM. with EDF's assistance, opened a training center in Bamako to address these needs. The first programs were mainly aimed at training of diesel and power network specialists through long-duration seminars (18 months). When the need for such specialists was felt to have decreased, around 1970, training was focussed on literacy programs and shorter professional seminars extended to accounting and administration staff. However, by the mid-seventies the center's activities had both diminished and deteriorated following the lack of equipment, and a lack of commitment by EDM's management. 3.14 In 1979 EDM reactivated the training activities with the assist- ance of two experts seconded from EDF. The center was rehabilitated and incentives instituted to attract junior staff interest in training; the training service was also placed under the General Manager's direct respon- sibility. Training activities have been reoriented toward the neglected technical fields, and a special program has been set up to broaden the prac- tical experience of younR technicians hired from the local ECICA. During that year, the center's activities were substantial and included 353 man-weeks of training, and 225 man-weeks of upgrading. In addition, consistent with a training policy followed for years by EDM, nine engineers and technicians were sent for training to power utilities abroad for one- to three-month training periods as part of the Company's upgrading program. However, the current training capacity of EDM falls short of the substantial needs. Water sector activities are almost ignored, and the integration of training programs to operations should be improved. Moreover, training equipment shortages hamper effective training. 3.15 In order to assist EDM to formulate a personnel and training program, the ongoing EDF organization, manpower and training study (para. 3.07) includes: (i) assessment of EDM's organization; (ii) assessment of manpower requirements and training needs; (iii) design of adequate training programs; and (iv) plans for extension of EDM's existing training center to provide for the needs of both the power and water sectors. A preliminary  - 13 - report was available and reviewed during the appraisal mission, and was found satisfactory for power sector activities. In addition, a Bank appointed water sector training specialist complemented EDF's work and prepared detailed andb costed manpower and training requirements through 1985. While his proposals need to be reduced to account for the small involvement of this project in water supply, the consultant's recommendations have been discussed in the field, and will be incorporated in EDF's global proposals to be imple- mented under the project. 3.16 Following joint discussions with Malians and CCCE/FAC, the IDA appraisal mission concluded that training activities should be more closely linked to operations. Therefore, a large part of training would be accom- pl:ished on the job under the supervision of the expatriate technical assistants. Nevertheless, three full-time training specialists who will be part of the technical assistance team will be financed under the project to assist the Malian chief training officer and to implement EDF's manpower and training study recommendations. Financing to extend and to aLdequately equip the training center is also included in the proposed prcject. Technical Assistance 3.17 In the mid-60s an agreement was negotiatedl between EDM's management and FAC to provide financing for technical assistance. This assistance coasisted of the provision of middle management staff, mainly seconded from EDF, who have been employed in production, distribution, accounting and training. For the past several years, lack of commitment both by EDM's management and by their French counterparts has caused the quality and bene- fits of this assistance to deteriorate. At appraisal, only three positions out of five available were filled. 3.18 Clearly this technical assistance, which was introduced in the mid- 60s, no longer suits EDM's needs and as a result has not been able to prevent the erosion of EDM's operations. EDM's management, a CCCE/FAC/ EDF mission, and the appraisal mission jointly reviewed EDM's problems and concluded they were due to a combination of factors: (i) the inadequate caliber of the assistance provided; (ii) the insufficient number of expatriate technicians only in advisory positions; (iii) the lack of coord:Lnation between assistants; (iv) EDM management's lack of commitment; and (v) EDM's financial difficulties. The present trend in declining operating standards must be reversed by rein- forcing both the level and scope of technical assistance, and by supplementing this assistance with adequate consultancies. The appraisal mission noted that even the best among the Malian personnel become rapidly discouraged by the volume and magnitude of the problems encountered in their work, and as a result, the normal on-the-job training is not available. The only way to reverse these trends is to help the company operate satisfactorily again. 3.19 However, since introducing a large team of relatively well-paid expatriates could result in a general "giving up" by local staff who could get the feeling of a "takeover" by foreigners, a preliminary agreement was reached in Bamako between the Government, EDM's management, and the IDA and CCCE/FAC/EDF missions on a limited but highly experienced team of 13 managers/ technicians. The Government and EDM, with IDA's support, expressed the desire  - 14 - that the technical assistance be provided by one entity and that could be EDF. EDF were preferred because of : (i) their experience and well established competence in technical assistance; (ii) their knowledge of local problems; and (iii) the significant share of the related cost which will be borne by CCCE and FAC. Farming out of the services to EDF would of course be subject to the conclusion of a satisfactory agreement between them and EDM on indi- vidual terms of reference for the expatriates, general conditions concerning EDF's performance, and prices. Further discussions concluded that expatriates would be integrated into the organization and given direct operational respon- sibilities, and each of them would be assigned one or several Malian counter- parts to train, such training role to be included in their terms of reference (see Annex 3.2 and Project File). Close monitoring of this program would be carried out jointly by EDM's management and EDF. The technical assistance team would also be supported by a number of studies and programs to be financed by the project (para. 3.21). 3.20 Specifically the technical assistance team to be financed under the project would consist of: - 1 qualified chief accountant to head the Financial and Accounting service; - 1 customer specialist to head the customer division; - I data processing specialist; - 1 power generation engineer specialized in diesel generation; - I diesel technician; - 1 water supply engineer to become the deputy chief of the water supply department; - 1 water supply technician; - 2 construction engineers to staff the Engineering Department; - 3 technical teachers (1 diesel specialist, 1 water supply specialist and 1 power supply specialist) one of them to become the deputy chief of the training department; - 1 experienced project manager to be in charge of the coordination of the project including supervising its implementation and reporting periodically to cofinanciers. This "coordinator" would report directly to the General Manager, and would be recruited independently of the team provided by EDF. He would also serve as the General Manager's adviser. Terms of reference of this co-ordinator were agreed with the Government and EDM during negotiations. Housing for expatriates is difficult to obtain in Bamako and EDM has only three houses appropriate for members of the technical assistance team. In order to provide residential accomodations for the balance of the team 10 prefabricated houses would be financed under the project.  - 15 - 3.21 Studies and actions to be carried out by specialized firms within short term assignments (para. 4.03), and financed under the technical assistance package would include: (i) inventory of service connections to update EDM's customers files and accounts, review of EDM's billing system, and organization of a Commercial Department; (ii) assistance to review and strengthen EDM's accounting procedures; (iii) assistance in the optimal operation of the Bamako system, which involves two hydro-plants and a diesel plant; (iv) assistance in organizing a preventive maintenance system for both power and water; (v) assistance in building up a short-medium t:erm planning capability for the power and water sectors and; financing of a study on medium/long term system planning to: - determine the optimum development of the Bamako power system into an interconnected grid in southern Mali; - assess medium-term rural electrification needs and make proposals for a realistic rural elect:rification plan; (vi) power and water tariff studies (para. 6.12); and (vii) studies of: (i) the advantages and disadvantages of continuing the concession system for EDM (para. 3.03); (ii) the advisability of splitting the water and power activities and managing them separately (para. 2.07); and (iii) the merits of unit:ing the power activities of Selingue authority with a strengthened EDM into a single entity with investment planning and financing responsibilities (para. 2.07). Terms of reference for the technical assistance package including these studies and actions are satisfactory to the Association and are detailed in th,s rehabilitation plan prepared by EDF (Annex 3.2 and Project File). Every effort will be made to reduce the number of consulting firms involved in the provision of the services listed above, in order to minimize the coordination burden on EDM. During negotiations, EDM and the Government have agreed to the technical assistance package (described above in paras. 3.19 to 3.21). Me_ering, Billing and Collection 3.22 EDM's Billing Department shows 28,000 power customers and 14,000 water customers, of which 18,500 for power and 9,500 for water are in Bamako. The accuracy of these figures has been questioned by the auditors (para. 3.25) since figures for recorded connections given by technical services are signi- ficantly higher. In addition, EDM's management assumes that there is a large number of non-registered customers, particularly for water. A recent (1979) CCCE-financed program using an expatriate expert supported by EDM  - 16 - staff was aimed at updating the company's customer files for Bamako, but failed due to lack of sufficient personnel and material means. Experience in Cameroon and Gabon suggest that this type of task is better conducted by a specialist consulting firm without reliance on the utility's own staff. Financing of block-mapping and updating of customers' files for the Bamako area by a specialized firm is included in the project (para. 3.21). 3.23 Meters are read monthly. Whilst most of the power meters are in working condition, approximately two-thirds of the water meters are inopera- tive and corresponding customers are charged minimum amounts. Power and water billing for Bamako and outstations is computerized and performed by EDM. EDM recently replaced its old computer, following numerous failures which contributed heavily to the disruption of the company's commercial activity. The new replacement has been operational since June 1980. For Bamako, bill collection is done at headquarters and at four new collection offices, the opening of which was part of a plan by EDM to ease specific Bamako collection difficulties. Bill collection at the outstations is done by local units. As a result of EDMi's current organizational problems and the present general economic difficulties in Mali, collection has been poor auring the last few years. The proposed project addresses the organizational proDlems through the provision of technical assistance (paras. 3.20 and 3.21). Accounting and Information System 3.24 EDM's accounting system is based on accrual accounting principles using the Malian Chart of Accounts which has been derived from the 1957 French Chart. According to the concession system, Government and customer financed assets in the "public domain" are recorded separately in an annex to EDM's balance sheet but corresponding renewals provisions are charged to the company operating account (para. 6.02). EDM has a simplified cost- accounting system and shows separately operating accounts for power and water. Accounting work is partially computerized on EDM's own computer. 3.25 A PPF-financed audit of EDM's 1977 accounts revealed serious defi- ciencies and the auditors were unable to form an opinion on the accounts. Major problem areas were in the recording of fixed assets, receivables and current liabilities. Problems with recording of fixed assets primarily relate to Government failing to formally transfer to EDM new water assets in the "public domain" (para. 6.03); poor recording of suppliers' accounts, customers' accounts as well as Bank and Postal accounts. EDM's method of apportionin8 indirect cost between the power and the water sectors is also somewhat arbi- trary and does not truly reflect the incidence of costs of each sector; this method requires improvement. In general, current accounting procedures are weak and staff need upgrading. Accounting deficiencies are partially respon- sible for EDM's present serious financial problems. 3.26 Improvement of EDM-s accounting system implies in the short term that new and safe procedures be defined, that specific actions be taken to deal with accumulated past delays and errors and that in the long term, adequate on-the-job training and support is provided to the accounting staff. As part of the general technical assistance the proposed project would finance assistance by a qualified accounting firm to:  (i) review existing accounting and billing procedures and computer programs; (ii) define new procedures; (iii) deal with past customer receivables and past supplier payables; (iv) reconcile current assets and liabilities; (v) prepare assets register and review depreciation policy; (vi) improve cost accounting. In addition, the project would also finance an experienced professional accountant to head EDM's accounting service for four years and train its Malian counterpart. In order to allow separated financial management of the power and the water sectors, during negotiations, ED)M's agreement was obtained that separate accounts for power and water operations would be established and a complete cost accounting system will be implement(ed by January 1, 1984. 3.27 Budgeting. EDM does not have budgetary systems for operations or investments. Operational expenditures payments have been made in recent years on a routine regular basis. However, with the present declining cash posi- tion, payments are now effected on an intermittent basis as and when funds are available. Lack of financial planning has contributed to the present finan- cial deterioration of EDM. The technical assistance accountant's terms of reference will include setting up of a budgeting procedure coupled with a monitoring system to control operating and capital expenditures throughout the yeiar. Establishment of a technical planning capacity (para. 3.21 (v)) will facilitate the preparation of future investment plans and financing plans. 3.28 Audits. Control of EDM's accounts is done by two "Commissaires aux Comptes", one of whom is the Financial Controller of the Republic of Mali, and the other is privately appointed by the Company. However this control does not address all aspects of the accounts and, as shown by the external audit re!cently performed (para. 3.25), is inadequate for IDA requirements. Conse- quiently, audits satisfactory to IDA will be required yearly. To help EDM overcome its current difficulties, financing for such audits has been provided under the project for two years. In view of the current poor state of EDM's accounts and the time required to significantly improve them, it is proposed that EDM not be required to submit formal audited accounts for FY 1982. IDA would be satisfied for that year with (a) a brief joint report on EDM's yearly accounts by EDM and the accounting consulting firm hired under the project, and (b) an external audit of the project related expenditure (para. 3.26). Assurances were obtained during negotiations that in addition to the above, st:arting with accounts for FY83, EDM will have its annual accounts audited by an independent auditor under terms and conditions satisfactory to IDA and that the reports would be made available to IDA within four months of the end of each fiscal year. 3.29 Insurance. Current insurance contracts cover, in theory at least, third party liabilities and risk to property and inventory. However, EDM has been warned by its European insurers that values covered by current c--tzacts may significantly differ from real values and that an updating of  - 18 - all properties insured is necessary. The poor state of the company's assets register and accounts in general constitutes a serious handicap to perform such updating. During negotiations agreement was reached that EDM will submit to IDA by March 31, 1984 (i.e., 3 months after revaluation of assets) a proposal to adjust its insurance contracts, for IDA approval. IV. THE PROJECT The Program and the Project 4.01 The program to rehabilitate EDM (Annex 3.2) and to extend and improve its service coverage has been conceived in two phases, of which the first is the proposed project for IDA financing. This first phase would be developed between 1983 and 1987 and would essentially seek to rehabilitate EDM's opera- tions and management, remove critical bottlenecks, support urgently needed extensions and, prepare the second phase to be executed during the 1984-87 period. During appraisal the Government, EDM, IDA and the other lenders agreed that the proposed IDA project would consist of the following components: (a) Technical assistance component - Secondment of experts to strengthen EDM's management (para. 3.20) - Studies and actions to be carried out by specialized firms within short-term assignments (para. 3.21) - Physical facilities to house EDM's Bamako Unit (para. 3.06) and data processing equipment - Extension of EDM's training center (para. 3.08) - Construction of 10 pre-fabricated houses to accomodate the technical assistance experts (b) Power component - Rehabilitation of the Dar Salam diesel electric power plant in Bamako during 1984 to 1987 - Installation of powerline carrier communication from Selingue's substation at Balingue to Sotuba and Dar Salam power plants - Reinforcement and extension of Bamako's distribution system - Construction of a biomass power plant at Mopti/Sevare (c) Water supply component - Resolution of main bottlenecks in distribution and production facilities in Bamako  - 19 - (d) General plant component - Supply of vehicles, tools and instrumLents for EDM's operations throughout Mali (e) Technical studies component - Pre-construction design for extension of the Sotuba hydro- electric power plant - Pre-construction design for the Bamako-Segou transmission link - Pre-construction design for extension of water supply faci- lities in Bamako (f) Other - Refinancing of PPF Program Objectives 4.02 The rehabilitation and extension program, as conceived, aims at: (i) institution building by alleviating EDM's managerial and operational constraints; (ii) ensuring improvement and increased water and power supply to Bamako's population; (iii) extending the service area to be supplied by hydroelectric energy from Selingue to replace costly diesel electric generation; (iv) supplying electric power for rural loads in the Segou area; and (v) using agricultural residues for electric power production in the Mopti/Sevare area with consequent savings of imported gas oil. The bene- ficiaries of the program would be: (i) for the power and water component in Bamako, the city's inhabitants, particularly people with medium and low incomes; (ii) for the power transmission study component, Segou/Markala and Fana/Dioila inhabitants and industrial users, as weLl as rural loads within the "Office du Niger" 1/ area of operation; and (iii) for the biomass power scheme component, Mopti/Sevare's inhabitants and farmers. Project Composition Technical Assistance Component 4.03 The technical assistance component is designed to rehabilitate EDM, to strengthen EDM's management, and to supply on-the-job training to its personnel. The extent of the technical assistance (52.5 man-years of experts' services) its composition, and its duration (four years, except for the project coordinator 4.5 years), have been discussed with CCCE, FAC, and 1/ The "Office du Niger" is a governmental authority responsible for agricultural production in 60,000 ha. of irrigated land downstream of the Markala barrage on the Niger river.  - 20 - agreed upon with the Malian authorities (paras. 3.17-3.21). In essence, the technical assistance will consist of a team of experts to advise EDM's manage- ment and to help manage the water and power utility. The experts will be seconded mainly from EDF (para. 3.04). To complement the work of this tech- nical assistance team, several specific tasks and studies will be carried out by specialized firms as explained in para. 3.21. The technical assistance package will include necessary offices and accommodations for the experts, two buildings to properly house data processing equipment and Bamako's operational unit, and 10 housing units to lodge the technical experts. EDF will assume overall responsibility for the success of the technical assistance team. Power Component 4.04 The Dar Salam diesel electric power plant in Bamako is in precarious condition; most of the units are out of commission for various defects and the foundation blocks of two units will have to be recast. The project provides for the complete overhaul of units that can be repaired, spare parts, recasting of foundation, and repair of building. In addition, funds are provided to install a unified control board, since at present control of units is dispersed at various locations in the power house which makes operation difficult. The decision to install this control board will be based on an engineering study to be commissioned by CCCE which is financing 90% of the Dar Salam rehabilita- tion. 4.05 The "Autorite de Selingue" has installed a power line carrier commu- nication system between the hydro plant at Selingue and the Balingue substa- tion at the Bamako end of the 150 kV transmission line. Nevertheless there is only precarious radio communication between Balingue and the power plants at Bamako, Sotuba and Dar Salam. In order to control operation of the system from Balingue it is necessary to extend the power line carrier communication system to these two power plants using the existing 30 kV subtransmission links. The project will cover the financing needed for this extension. 4.06 In February 1980 EDF completed a PPF-financed study for medium-term development of Bamako's power distribution system. The study's main objectives were: (a) to determine the configuration of the 30 and 15 kV distribution networks up to 1990; (b) to locate bottlenecks and propose solutions; and (c) to extend electric supply to new areas of the city. In terms of primary distribution, and as a result of the study, the project consists of the addition of: (i) a 30 kV underground cable link between Badalabougou substa- tion south of the Niger river and the Dar-Salam diesel electric power plant to reinforce the existing link which has suffered several defects; (ii) two new 15 kV feeders out of the new Balingue substation, to reinforce the modifica- tions being done with CCCE-financing in the primary distribution of the city by rerouting certain feeders to the Balingue substation; and (iii) a 30 kV overhead link between the Sotuba hydroplant and Balingue. The project will also extend the distribution system to ten new sections of the city 1/ with about 5,000 potential customers. 1/ Sogoniko, Korofina, Dielebougou, Boulkassoumbougou, Mali, Torokoro- bougou, Djikoroni, Banankabougou, Faladie, and Hippodrome Nord.  - 21 - 4.07 EDF has prepared the conceptual design for the biomass power scheme. This scheme consists of the construction of a thermal power plant at Mopti/ Sevare to use rice husks as fuel. The 2 MW power plant will have three dual-fuel engines burning a mixture of low-heat values gas (1000 kcal per m3) and 10-20% gas oil. The low-heat value gas is obtained by controlled combus- tion of rice husks in gas producers (one gas producer per generating set). The power plant will be located adjacent to the existing 13,000 tons per year rice mill at Sevare which will be expanded in 1983 to 45,000 tons. Roughly 25% of the rice paddy ends up as rice husks, and approximately one kWh is prc,duced per kg of rice husk burned in a power plant of the type described above. During the week preceding negotiations, we learned that the Cameroon biomass project, the prototype for the proposed Mali project, is having tech- nical problems which relate to the quality of rice husks being used in the process. Electricite de France (EDF), consultant for the Cameroon project and the Mali project, confirmed that a study to determine the exact nature of the problem will be completed by April 1982. Following this study a decision will be made by Mali and OPEC Fund (who is financing this plant) on whether to proceed with the Mali project. The prequalification. process for construction of the Mali biomass plant, which will be completed in January 1982, has generated considerable response with a wide range of variations proposed for the process, thereby increasing the likelihood that the problems can be over- comne and the project started. In view of the high probability that the problems will be solved, and at the request of the Malians and the OPEC Fund, with whom this matter was discussed during negotiations, IDA has agreed to retain this component in the project pending the outcome of the EDF study. Water Supply Component 4.08 The small water supply component of the proposed project is intended to resolve the most crucial material problems encountered in the operations of the Bamako water system, pending a larger participation in the second phase. It would consist by order of priority of: (i) reinforcing pumping stations supplying treated water to the main network and, if need be, adding additional raw-water pumping facilities for the new treatment plant (para. 2.15); (ii) converting the old treatment plant into a pilot filtration unit to investigate the feasibility of continuous utilization of the Niger River after direct filtration only; (iii) supplying water meters and meter repair facilities; (iv) supplying and laying about 6 km of trunk and secondary mains for the improvement of distribution flows to peripheral areas; and (v) providing spare parts and equipment to rehabilitate existing production facilities of EDM's secondary center systems in the course of a water supply training program. General Plant Component 4.09 The general plant component consists of the provision of 22 vehicles for various purposes, a mobile maintenance shop, tools and instruments to re-equip EDM's maintenance shops and power plants, and office equipment. This general plant equipment will help assure the success of the technical assistance team by providing material means which EDM now lacks.  - 22 - Studies Component 4.10 As indicated in para. 2.18, EDM plans to extend the Sotuba hydro- electric plant to supply additional power demand in Bamako between the commis- sioning of Selingue and Manantali. The studies included in the project will cover the pre-construction design of this extension and the preparation of a contractor-type costs estimate. The extension consists of enlarging the power house to accommodate two 3.5 MW turbine generator units, and modifications to the diversion works on the Niger river. With the planned extension, Sotuba's capacity will be increased from 5 MW to 12 MW, and its generating capability from 38 GWh to 91 GWh per year. 4.11 The feasibility of a transmission link between Bamako and Segou was investigated by EDF in 1972 and re-examined recently by a PPF-financed study. This study demonstrates that the transmission link is feasible. The transmission link would consist of a 235 km 150 kV line beginning at the Balingue substation in Bamako. A 150/15 kV substation is planned at Segou, as well as a 150/30 kV substation at Fana to supply Fana, Dioila, and two cotton ginning mills. The cost of engineering services to design the trans- mission link and to prepare tender documents is included in the project. 4.12 The preparation of detailed design for a first stage extension and reinforcement of the Bamako water supply production and distribution would be included under the proposed project. This follow-up of the completed Master Plan financed under the PPF would enable DHE and EDM to obtain precise figures on the amount of distribution extension and cost estimates. Project Management 4.13 A project coordinator who will be an experienced manager with engineering background, recruited internationally on terms of reference already agreed with the Association, will be responsible for supervision of overall implementation (of both power and water components) and liaison with the IDA and the other donors. The project coordinator will report directly to the General Manager. His recruitment is underway and he is expected to assume his responsibilities by the time of effectiveness of the proposed project. EDM's construction supervision capability would be reinforced by the presence of two expatriate engineers also provided within the technical assistance team of experts, who will be assigned to the Engineering Department. In addition EDM agreed to use consulting engineering firms to supervise the construction works financed under the project, since these works require engineering design, construction supervision, and inspection which exceed largely the normal capability of EDM's staff even with the assistance of these two experts. These construction works are: (i) rehabilitation and extension of the Bamako electric distribution system; (ii) construction of a biomass power plant in Mopti/Sevare;  - 23 - (iii) urgent works on the Bamako water supply system; (iv) construction of new building to house the Bamako unit; (v) construction of new building for data processing activities; (vi) extension of a communication system between Balingue and Sotuba and Dar Salam power plants; (vii) extension of EDM's training center; and (viii) construction of 10 houses to lodge expatriate technical assistance staff. Project Costs 4.14 The project comprises the five components described in paras. 4.03 tc 4.12 and the refinancing of the 1979 PPF advance of US$0.97 million; its estimated cost totals US$43.20 million, of which US$41.25 million is in foreign exchange. The cost estimates on the basis of the most recent avail- able data, including contingencies and repayment of the PPF advance, are summarized in the following table. During negotiations, the Government has confirmed its intention to exempt the project from duties and taxes, which have been excluded from these costs.  - 24 - Table 4.1: COST ESTIMATES (in US$ million) Local Foreign Total A. Base Line Costs (mid-1981 prices) 1. Technical Assistance Component (see Annex 4.1 for details) - 1/ 13.59 13.59 2. Power Component: - Rehabilitation of Dar Salam power plant - 3.53 3.53 - Power line carrier communication from Selingue's substation at Balingue with Sotuba and Dar Salam power Plants - 0.24 0.24 - Reinforcement and extension of Bamako distribution 0.56 5.06 5.62 - Mopti/Sevare biomass power plant 0.53 5.03 5.56 3. Water Supply Component: - Urgent Works in Bamako's Water Supply System 0.19 1.65 1.84 4. General Plant Component: - Vehicles, Tools and Office Equipment - 0.82 0.82 5. Studies Component: - Pre-construction design of extension to the Sotuba hydroelectric plant 0.08 0.76 0.84 -Pre-construction design of the Bamako to Segou transmission link 0.08 0.74 0.82 -Pre-construction design for extension of water supply in Bamako 0.08 0.74 0.82 6. Engineering and Construction Supervision 0.19 1.37 1.56 Total Base Line Cost (mid-1981 Prices) 1.71 33.53 35.24 B. Contingencies: (a) Physical 0.08 1.68 1.76 (b) Prices 0.16 5.07 5.23 C. Repayment of PPF Advance - 0.97 0.97 TOTAL COSTS 1.95 41.25 43.20 1/ EDM will provide local costs in kind.  - 25 - 4.15 The base line costs in terms of mid-1981 prices, for the power component have been supplied by EDM's consultants, EDF (in terms of 1980 prices), reviewed and adjusted to mid 1981 by the Association. Base line costs for the water supply component are firm and cover the crash program ment:ioned in para. 4.08. For the studies component of the project, base line costs have been computed at an average cost of US$14,500 per man-month for a total of 154 man-months of consulting engineering services. Cost of personnel for technical assistance (52.5 man-years of experts) has been based on current EDF prices (see para 4.16 on technical assistance financing). A breakdown of teclnical assistance costs is shown in Annex 4.1. Th,e engineering services costs for detailed design and construction supervision have been computed separately for each construction work component. The estimate includes physi- cal contingencies for the power component, amounting to 10% on civil works and equipment. To take into account cost escalation, price contingencies have beena provided at the rate of 9% for 1981, 8.5% for 19i82, and 7.5% for 1983 to 198.5 and 6% thereafter. Project Financing 4.16 The financing plan for the proposed project: assumes that the foreign exchange cost will be financed by foreign loans. CCCE and FAC have agreed to finance jointly 50% of the combined cost of the technical assistance component, and the rehabilitation of Dar Salam power plant, thal: is US$10.8 million. FAC has agreed to provide $4.8 million equivalent on grant basis while CCCE will provide $6.0 million equivalent at about 5% interest for 15 years includ- ing five years of grace. The exact terms of the CCCE loan are yet to be finalized, however, they are not expected to be subslantially different. This has been confirmed during negotiations. Of the technical assistance component IDA would finance: (a) the services of an expert to act as project coordinator, the services of two construction engineers (one civil and one electric) and the services of a chief accountant to head the Financial and Accounting Services (paras. 3.20, 4.13 and 4.17); (b) the services of con- sulting firms to update customers files and accounts, review EDM's billing system, organize a Customer Department including follow up personnel; carry out power and water tariff studies; review and strengthen EDM's accounting services; assist in organizing a preventive maintenance system for both power and water supply; assist in building up a short, medium and long-range planning capability; study the merits of uniting power activities in a single entity; and. study the advantages and disadvantages of the concession system for EDM; (c) overseas training of EDM's staff; (d) EDF's fee for supervision of the technical assistance team; and (e) the construction of buildings to house EDM's Bamako operations and data processing activities, and an extension of thE Training Center to house water supply related activities. CCCE and FAC wouLld finance the technical assistance team (except the project coordinator and three other experts financed by IDA), and housing for technical assistance experts as listed in Annex 4.1. IDA would finance approximately 10% of the cost of rehabilitation of the Dar Salam power plant. OPEC Special Fund has signed a loan agreement with the Government of Mali for US$6.45 million at no interest for 20 years including 5 years of grace, to finance the Mopti/Sevare biomass power scheme. In the financing plan shown in Table 4.2 below it has been assumed that the Association would cover the balance required to fund the foreign exchange requirements of the project.  - 26 - Table 4.2: FINANCING PLAN (in US$ Million) IDA CCCE/FAC OPEC EDM TOTAL 1. Technical Assistance Component 10.30 6.70 - - 17.00 2. Power Component: - Rehabilitation of Dar Salam power plant 0.48 4.10 - - 4.58 - Power Line Carrier Communication 0.29 - - - 0.29 - Reinforcement and extension of Bamako's Distribution 6.60 - - 0.73 7.33 - Mopti/Sevare Biomass Power Scheme - - 6.45 0.72 7.17 3. Water Supply Component: - Urgent Works in Bamako's Water Supply System 2.00 - - 0.20 2.20 4. General Plant Component: - Vehicles, Tools and Office Equipment 0.98 - - - 0.98 5. Studies Component: - Pre-Construction Design of Extension to the Sotuba Hydroelectric Plant 0.80 - - 0.10 0.90 - Pre-Construction Design of the Bamako to Segou Transmission Link 0.78 - - 0.10 0.88 - Pre-Construction Design for Extension of Water Supply in Bamako 0.80 - - 0.10 0.90 6. Payment of PPF Advance 0.97 - - - 0.97 TOTALS 24.00 10.80 6.45 1.95 43.20 Project Execution 4.17 As explained in para. 4.13 a Project Coordinator will be provided under the technical assistance component to manage the project's implementa- tion. EDM plans to employ EDF to prepare detailed design and to supervise the construction of the biomass power plant at Mopti/Sevare and of the extension to the Bamako electric distribution system. For the water supply component, EDM plans to continue with the services of the consulting firm SAFEGE, which prepared the Master Plan for the water supply of Bamako. The supply of equip- ment and construction of civil works will be done by contractors. Engineering consultants will be employed by EDM to carry out the different studies con- templated in the studies component of the project. These arrangements have been confirmed during negotiations.  - 27 - Project Implementation Schedule 4.18 The prompt setting up of the technical assistance support to EDM is necessary before any of the physical or study components of the project are started. In agreement with CCCE and FAC, and in line with the EDF-designed rehabilitation plan (Annex 3.2) a detailed scheduling of the technical assis- tance personnel required has been prepared by EDF. This work is being financed out of an existing CCCE loan to EDM. On the assumptLion that the project coordinator (whose recruitment is now underway), could be recruited during the last quarter of 1982 and that the main group of technical assistants could be mobilized by early 1983, the power, water supply technical assistance and study components could be started by late 1983 and finished by June 1987. Since thermal power for peaking purposes will not be required in the Bamako area until 1987 the reconditioning of the power plant can be deferred until 1984 and spread over three years. Project Monitoring and Reporting 4.19 Monitoring criteria and reporting requirements have been discussed with EDM during negotiations, and assurances were o01tained that EDM will submit reports to the Association on a quarterly basis. Annex 4.2 gives the proposed project monitoring guidelines. Procurement 4.20 All contracts for supply of equipment or civil works construction will be awarded as a result of international competitive bidding in accordance with Bank Group Guidelines. The selection of consultants for the studies included in the study component of the project will be done by EDM following selection procedures agreed upon with the Association. For the technical assistance component, the project coordinator will be recruited interna- tionally, and all other staff will be recruited through EDF. Regarding the rehabilitation of Dar Salam, in view of the nature of this component, being rehabilitation of existing equipment and purchase of spare parts, ICB would not be required. Genuine local contractors for civil works will be eligible for the 7.5% margin of preference as stipulated in the IDA guidelines for bid evaluation.  - 28 - Disbursement 4.21 The proposed IDA credit would be disbursed as shown below: Table 4.3: DISBURSEMENT OF IDA CREDIT (i) Electrical works, equipment and installation 100% of foreign exchange (US$6.1 million) (ii) Water supply works, equipment and installation 100% of foreign exchange (US$1.8 million) (iii) Civil works (buildings for Bamako's operation 100% of foreign exchange and for data processing and extension to expenditures or if purchased training center, (US$1.67 million) locally, 80% of local expend. (iv) Studies (US$2.14 million) 100% of foreign exchange (v) Vehicles, tools, and office equipment 100% of foreign exchange (US$0.9 million) (vi) Services of consultants, experts and special- 100% of foreign exchange ists, fellowships (US$7.59 million) (vii) Rehabilitation of Dar Salam power plant 10% of foreign exchange (US$0.43 million) (viii) Unallocated Credit (US$2.4 million) In addition, the PPF advance of US$0.97 million would be refunded upon effec- tiveness of the Credit. Withdrawal requests for disbursement would be fully documented. Under category (vi) the IDA Credit would finance: (a) the services of the project coordinator and three experts; two construction engineers and one accountant; (b) the service of consulting firms to carry out various management and policy studies and to provide assistance as detailed in para. 4.16 and Annex 4.1; (c) overseas training for EDM's staff; (d) EDF's fee for supervision of the technical assistance team; and (e) the services of consulting engineering firms to prepare engineering design, supervise construc- tion, and perform factory inspection for the works listed in para. 4.13. The estimated schedule of disbursement is as follows and is considered realistic for this project: Environmental Impact 4.22 The biomass power plant units would use low-heat value gas and gas oil, which are both clean burning fuels. About 20% of the rice husk ends up as ashes in the gas producer. At the rate of approximately one kg of rice husk per kWh, generation of B QAh per annum would produce an estimated 1,600 tons per year of ashes. These ashes will be disposed of by filling large depressions at a short distance from the power plant.  - 29 - Table 4.4: PROPOSED IDA CREDIT DISBURSEMENT SCHEDULE IDA FY and Quarter Cumulative Disbursement % of Credit (US$ Million) 1983 - 1st Quarter 1.0 4.2% - 2nd Quarter 1.2 5.0% - 3rd Quarter 1.7 7.1% - 4th Quarter 2.5 10.4% 1984 - 1st Quarter 3.8 15.8% - 2nd Quarter 5.1 21.2% - 3rd Quarter 6.4 26.7% - 4th Quarter 7.8 32.5% 1985 - 1st Quarter 9.2 38.3% - 2nd Quarter 10.6 44.2% - 3rd Quarter 12.1 50.4% - 4th Quarter 13.5 56.2% 1986 - 1st Quarter 14.9 62.1% - 2nd Quarter 16.3 67.9% - 3rd Quarter 17.1 73.7% - 4th Quarter 19.1 79.6% 1987 - 1st Quarter 20.5 85.4% - 2nd Quarter 21.8 90.8% - 3rd Quarter 23.0 95.8% - 4th Quarter 24.0 100.0% Closing date would be December 31, 1987. Project Risks 4.23 The risks involved in the implementation of the physical aspects of the project are no greater than normal for projects of this type, since all phases of work will be supervised by competent consultants acceptable to the Association. Regarding the biomass power plant, a decision will be made by Ma:Li and OPEC Fund on whether to proceed with this plant, based on the outcome of EDF's study to determine the exact nature of the problem experienced with the Cameroon biomass project. However, the prequalification process for the construction of the plant, now underway, has generated considerable response with a wide range of variations in process, thereby increasing the likelihood that the project would be successful.  - 30 - 4.24 Experience in West Africa with technical assistance to power and water utilities indicates that concrete results can only be achieved through sustained effort over a number of years. In EDM's case the massive technical assistance included in the project can go a long way to arrest further deteri- oration of EDM's operations. Nevertheless, it must be recognized that there is still risk of failure and that further assistance would be necessary in subsequent phases of EDM's development. V. ECONOMIC JUSTIFICATION Power Components Rehabilitation and Extension of Bamako System 5.01 The Association has reviewed the electric demand forecast for Bamako prepared by EDF for the period 1980 to 1990. According to this forecast Bamako's power load is expected to increase from 81 GWh in 1979 to 275 GWh in 1990. The forecast is shown in the following table: Table 5.1: BAMAKO DISTRIBUTION Actual and Projected Electricity Supply and Peak Demand Actual Forecast Growth Rate % Year: 1976 1979 1980 1981 1985 1990 1976-79 1981-90 GWh Generated 63 81 88 110 171 275 8% 10% GWh Sales 56 71 78 98 152 245 Technical Losses in % 11% 11% 11% 11% 11% 11% Peak Demand MW 13 15 20 22 34 53 System Capability MW 13 15 20 22 49 90 Annual Load Factor 0.58 0.64 0.51 0.57 0.57 0.57 Power Service in Bamako has been heavily curtailed in the last few years by breakdowns of the generating units of the Dar Salam plant, due to poor mainte- nance, and inadequate distribution capacity. A number of power users had to install and run private diesel electric power sets. This situation was expected to improve with commissioning of Selingue but in fact demand appears to have been static in 1980 and 1981. The EDF forecast has therefore been recast to show a 10% increase per annum from EDM's current forecast for 1982 (see Annex 2.1). The project provides funds for expansion of the distribution system and rerouting of the main supply feeders in Bamako which will provide the basis for further growth in demand.  - 31 - 5.02 The rehabilitation of the Dar Salam power plant when compared with the only alternative of adding new plant, presents the least cost solution to meet the generation reserve required.. This plant when reconditioned at a cost of $3.5 million will defer major expenditures on additional generating plant to meet the peak demand until about 1992 at realatively little cost in fuel for the short period it will be required to optsrate on the daily peak for the two or three months of the dry season each year. 5.03 The rate of return on investment in the distribution system (which comprises 17.0% of total project cost) has been calculated by equalizing the present worth of costs (investment and direct operating expenses) and the present worth of benefits. The benefits have been valued as the incremental sales over the 1984 base at the average price currently paid by the ultimate consumers. After 1985 the benefits are kept constant because a new extension will be necessary to accommodate the increasing load in the distribution system. In the costs calculations, energy up to 19,35 is taken at the oppor- tunity cost of energy supplied from Selingue which is zero, since Selingue is a sunk cost. After 1985 the energy cost is taken at the long term marginal costs, which is the cost of energy produced by the (extension of Sotuba which is the next least cost source of power (para. 2.18). Incremental cost of operating the distribution system extension, financed under the project, is taken as the variable expenses in distribution adjusted upward to reflect adequate maintenance. On this basis, the rate of return for the proposed investment is computed at 21% using current tariff 'Levels as proxy for benefits. Annex 5.1 shows the tabulation of costs and benefits and the assumptions used in the calculations. Mopti/Sevare Biomass Power Scheme 5.04 The only alternative to the proposed biomass power scheme is a purely diesel electric power plant burning diesel oil. The diesel units (500 kW) in the existing power plant are completely worn out and would have to be replaced. This power plant is located over an embankment adjoining the dike connecting the island of Mopti with Sevare. Serious settling has occurred in the structure of the power house and foundation of the sets so that any expansion of capacity will have to be done elsewhere. Due to the condition of the diesel units and lack of sufficient generating capacity, less than one-third of Mopti/Sevare's power requirements are being met by EDM's power plant. Private power plants supply all industrial loads and the water supply treatment plant. The demand forecast laas been prepared by EDF taking into consideration the supply to these loads, once the new power plant is commissioned. According to this forecast, power load in EDM's system is expected to increase from 1.4 GWh in 1979 to 8.2 GWh in 1990. The forecast is shown in the following table:  - 32 - Table 5.2: MOPTI/SEVARE SYSTEM ELECTRICITY DEMAND FORECAST Actual Forecast Growth Rate % Year 1979 1982 1985 1990 1982/85 1985/90 Generation, GWh 1.4 3.6 5.2 8.2 13% 10% Peak Demand, MW 0.5 0.8 1.1 1.6 Gen. Capacity, MW 0.5 2.0 2.0 2.0 Firm Capacity, MW - 1.65 1.65 1.65 The forecast takes into account an exceptional increase in demand in the first year caused by the phasing out of private generators when the biomass plant is commissioned early in 1982 and public supply is satisfactory. 5.05 The least-cost comparison has been made by equalizing the present worth of costs for both alternatives, the biomass plant and the diesel electric plant. Since the rice husk burned in the biomass plant is an agricultural waste, with no other use, its opportunity cost is zero. In the biomass alternative, up to 20% of the fuel burned will be diesel oil and has been priced accordingly. The equalizing discount rate, assuming an increase of diesel oil cost at 3% per year, is computed at 25%. The rate of return of this component is computed at 11% using current tariff levels as proxy for benefits. Annex 5.2 shows the tabulation of costs and benefits and the assumption used in the calculations. Water Supply Component 5.06 The investment carried out for water supply under the Project would complement the ongoing works on the treatment plant financed from the KfW credit. Whereas the latter consists of extending the production facilities, the project investment would supply and install the necessary pumping instal- lations and distribution network to make the water available to customers. Areas would be selected which so far have not benefited from a distribution system or from adequate water pressure in their neighborhood. As a result, the project would, with a minimum amount of investment, benefit approximately 60,000 people who thus far had to rely on unsafe and more expensive sources of water supply, and increase the reliability of service to the 150,000 people already served. Using current water tariffs as proxy, the net benefits from the projected additional water sales have been calculated to yield a rate of return of 11% on the proposed investment. Annex 5.3 shows the tabulation of costs and benefits and the assumptions used in the calculation. Technical Assistance 5.07 The massive technical assistance component (about 50% of total project costs) obviously would be instrumental in bringing about the projected improvement in EDM's institutional capabilities and efficiency. However,  - 33 - because of the comprehensive and pervasive nature of this technical assistance- concerning as it does both power and water supply operations and mainly institutional improvements per se-it is not possible to meaningfully allocate part or parts of it to the specifically revenue producing components of the project. Nor would it be meaningful to lump these revenue producing projects together, add some arbitrary proportion of the techrLical assistance into their jo:int costs and calculate an economic rate of return on that basis. There- fore, the costs of technical assistance are here left entirely out of account as not being quantifiable in terms of EDM's future efficiency and revenue genieration. VI. FINANCIAL ANALYSIS Introduction 6.01 In March 1980, Audit Continental (France), a correspondent of Peat, Marwick, Mitchell & Co., prepared a report on EDM's finances based on the data as of December 31, 1977. That report plus some unaudited information obtained from EDM, form the basis of IDA's review of EDM's past financial achievements and present financial position. This chapter summarizes the available informa- tion and gives indications of the magnitude of the company's future financial requirements. However, with regard to the numerous accounting deficiencies already pointed out in this report (para. 3.25), each of the figures below should only be considered as indicative. In general, orders of magnitude are plausible but a large possibility of error remains. As a consequence, the basis for designing a financial recovery plan is not: available at the moment and the project focuses rather on two basic objectives: (i) improvement of EDM's accounting and commercial organization; and (ii) securing enough local funds for the proposed project. Background: Status of Assets in the Concession System 6.02 In accordance with the normal practice of the concession system (paras. 3.02 and 3.03), EDM owns only part of the assets it operates, which it depreciates on a straight line basis. The remaining assets are considered part of the "public domain" and are "conceded" to the company for the duration of the concession. "Public domain" assets may be financed either by the Government or consumers, or by EDM itself. "Public domain" assets which have not been financed by EDM are recorded in an annex at:tached to the annual financial statements. EDM-financed assets in the "public domain" are shown in EDM's balance sheet as expenditures incurred on behalf of the Government. In order to be able to surrender all assets in the "public domain" in good working condition at the end of the concession as required by the concession agreement, EDM charges to its operating account a renewals provision calculated on the historical values and useful lives of the corresponding assets. Also, for public domain assets financed by EDM, the company is entitled to amortize its investment over the duration of the concession through provisions charged to its operating account; for these assets a double amortization charge is  - 34 - reflected in the income statement and balance sheet. Starting with the balance sheet for the period ending December 31, 1984, the double amortization is assumed to be eliminated as a result of the government decisions based on the proposed concession system study (see Annex 6.6). 6.03 In the early 1960's, the Government undertook the construction of the Sotuba hydroelectric scheme and transferred it when completed, including the related debt and debt service, to EDM as an additional EDM-financed "public domain" asset. In the mid-1970's, the Government undertook the construction of the Selingue hydroelectric scheme which is not planned to be transferred to EDM, but instead will be operated by the Selingue Authority,l/ from which EDM will buy power. All other power investments have been financed by EDM while all major water works so far have been financed by the Government and then transferred to EDM for operation as Government-financed "public domain" assets. However, for the last several years, adequate financial information about such Government-financed new assets in the water sector has not been provided by the Government to EDM, which has introduced, but only for part of them, estimated values in its records. Therefore, calculation of the renewal provision in the water sector cannot be properly made and corresponding capital replacements are underprovided for in EDM's accounts. Correct valuation of such fixed assets requires a direct inquiry into the records of both the Ministry of Industrial Development and the Ministry of Planning. It was agreed during negotiations that by December 31, 1982, the Government will furnish to EDM appropriate values, e.g., book value, for all public assets operated in the water sector by EDM. These "values" will be revalued as a part of the overall asset revaluation excercise (para. 6.07). 1/ The Government has established a new organization to assume the functions of the Selingue Authority to be called l'Office pour l'Exploitation des Ressources Hydrauliques du Haut Niger (OERHN).  - 35 - Past Earnings 6.04 As shown by EDM's books, unaudited earnings for the power and water sectors for FYs 77-81 are: Table 6.1 POWER FY 1977 1978 1979 1980 1981 Sales (Gwh) 76.3 82.3 83.8 99.9 74.0 --------- Maliarn Francs Million --------- Total revenue 4,861 5,009 4,964 7,449 6,405 Cash operating expenses 3,832 3,762 3,858 6,115 4,860 Depreciation and Renewals 783 1,054 1,085 1,003 1,324 Total Exp. before Interest 4,615 4,816 4,943 7,1:L8 6,184 Interest 166 105 111 2:L8 117 Ne: income (deficit) before tax 80 88 (90) 113 104 Operating ratio 0.95 0.96 1.00 0.96 0.97 Table 6.2 WA'EER FY 1977 1978 1979 1980 1981 Water sold (million cubic meters) 8.4 8.4 8.7 9.3 8.0 -------- Malian Francs Million -------- Total revenue 979 845 939 1,180 1,097 Operating expenses 980 1,230 1,270 1,5-33 1,719 Nel: income (deficit) before taxes (1) (385) (331) (352) (622) Operating ratio 0.99 1.45 1.35 1.29 1.56 a/ Including depreciation, renewals and interest. Table 6.3 Total EDM FY 1977 1978 1979 1980 1981 --------- Malian Francs Million --------- Tot:al Revenue 5,840 5,853 5,903 8,629 7,502 Operating Expenses 5,589 6,040 6,207 8,645 7,898 Surplus (Deficit) before taxes 79 (297) (421) (239) (518) Operating Ratio 0.96 1.03 1.05 1.(0 1.05  - 36 - 6.05 Revenues from power operations did not cover operating expenses in FY1979, whilst revenues from water operations did not cover operating expenses in any of the past five FYs. In FYs 78 and 79, when EDM introduced into its accounts the renewals provision for some of the "public domain" water assets it operates, the operating deficit increased dramatically. Had adequate maintenance been performed, both power and water sectors would have shown larger deficits. Present Financial Position 6.06 Using EDM's most recent provisional balance sheet as of December 31, 1979, information given by DHE on the "public domain" water sector assets, and adjusted cumulated depreciation for the "public domain" assets, a summary of the assets and the liabilities of the two sectors as of December 31, 1979 has been established and is shown below: Table 6.4 Equivalent MF Million US$ Million Assets Net fixed assets: power 9,117 18.2 water 8,608 17.2 17,725 35.4 Less Net Consumer and Government financed assets a/ 9,310 18.6 Net EDM Financed Asset 8,415 16.8 Work in progress b/ 736 1.5 Current assets 4,866 9.7 14,017 28.0 Liabilities Share capital and Reserves 7,223 14.4 Long term debt 2,604 5.2 Current liabilities 4,190 8.4 14,017 28.0 a/ Gross value is estimated at MF 14,300 million. b/ No breakdown available; mostly relates to power.  - 37 - 6.07 The net fixed assets above include assets in the "public domain" contributed by the Government or customers, which normally appear in the annex to EDM's balance sheet (paras. 6.02 and 6.03). Offsetting financing is shown as "Net consumer and Government Contributions". In accordance with Ma:Lian law, all EDM's assets and the "public domain" assets are valued at historical cost. Since some aspects of the concession agreement, for instance the amortization of the company's financings for "public domain" assets, conflict with the principle of revaluation of assets, a formal revaluation in the books of account will not be required. However, in order to allow sound monitoring and management of its operations, EDM has agreed to annually revalue assets in operation in the power and in the water sectors on a proforma basis, to allow calculation of rates of return on such revalued assets. In view of the current lack of adequate records and the time required to assemble basic data, agreement was obtained during negotiations that such initial pro forma revaluation would be performed by December 31, 1983 for both the power and the water sectors including the assets to be conceded by the Government under the concession system to EDM (see para. 6.03) using a methodology satisfactory to IDA. 6.08 Current assets as of December 31, 1979 include receivables amount- ing to about MF 4 billion (US$8.0 million). These debts represent about 8.5 months of billing for FY79. They are owed by: private consumers, 60%; municipalities, 14%; national Government departments, 11%; and state enter- prises, 15%. At year-end 1979, the Government agreed to allow EDM to offset taxes owed to Government against bills outstanding i-rom Government amounting to approximately MF400 million and, as a result, reduced its debt by approxi- mately half to about MF500 million. In addition, the recent improvement of EDM-s computerized billing system helped reduce domestic customers' arrears. Further reduction of EDM's receivables would require the implementation of the specific actions included in the proposed technical assistance component (para. 3.21(i)), and additional EDM and Government measures. During the negotiations, the Government gave assurances in the form of a supplemental letter that (a) it has recently paid all its outstanding electricity and water bills to EDM, and (b) in accordance with overall policy, it has authorized EDM to disconnect the delinquent consumers including the State owned enterprises and municipalities. The Government gave assurances that it will continue to pay its own bills on time and will continue to support the above disconnection policy. More specifically assurances were obtained from the Government that (a) its budgets for 1982 and subsequent years will allocate its agencies sufficient funds for prompt payment of water and electricity bills, (b) by September 30, 1982, municipalities and state agencies and enterprises will adapt procedures to ensure prompt payment, (c) beginning December 31, 1982, arrears by these agencies and enterprises will be kept at levels not exceeding 2 months' billing, and (d) beginning June 30, 1983, arrears by the municipali- ties will be kept at levels not exceeding 2 months' billing. Assurances were also obtained from EDM that it will carry out the above mentioned commercial improvement program as detailed and scheduled in the rehabilitation plan proposed by EDF, in such a way as to reduce overall consumer arrears to not more than 3 months' billing by the end of 1982 and to not more than 2 months- billing by the end of 1983.  - 38 - 6.09 Share capital and reserves amounting to MF 7,223 million (US$14.4 million) are made up of EDM's equity capital of MF 100 million (US$0.2 million), government net investment contribution of MF 471 million (US$0.9 million), earned surplus, general reserve, and renewal provision. Long-term debt includes debt related to the Sotuba dam which is part of the "public domain" but is being paid by EDM. Pending agreement with IDA on future of concession system and tariffs, the Government has agreed to assume debt service related to public domain assets starting January 1, 1982 (see para. 6.14). Since no major renewals works in the "public domain" have been charged to the renewals reserve, the corresponding amounts have over the years constituted a major source of funds for the company's new investment financing. The long-term indebtedness of the company illustrates that many of the new major works in the water sector have been contributed to the company by the Government, and also that EDM has financed from internal funds a significant share of its investment in the power sector (see annex 6.6). 6.10 Current liabilities as shown in EDM's books include supplier's accounts of MF 1,278 million (US$2.6 million), and short-term debt of about MF 2,100 million (US$4.2 million). Short-term debts mostly relate to taxes owed to the Government and mostly correspond to IAS tax on customers' arrears, funds provided to EDM on a short-term basis by CCCE and FAC to help ease treasury constraints, and commercial credits obtained by EDM from its sup- pliers. The level of this indebtedness is too high, and during the last few years suppliers have been reluctant to extend credit for supply. These figures have been particularly questionned by the auditors, and the terms of reference of the proposed technical assistance team include a specific action to assess the level of the company's short term indebtedness (para. 3.26). Tariffs 6.11 EDM has uniform national tariffs for power and water which have remained unchanged for past several years, and a Government tax (IAS) of MF 20 (USd4) per cubic meter, and of MF 2 (US40.4) per kWh is currently levied. Both power and water tariffs were increased by 30% effective March 1, 1980, and are expected to produce average revenues, net of IAS tax, of MF 69/kWh (US i13.8) and of MF 79/m3 (US415.8). Small domestic power consumers pay a flat rate of 74 MF/kWh (USJ14.8). Larger domestic consumers pay according to a declining-block structured tariff from MF 97/kWh (USd19.4) to MF 64/kWh (US412.8). Public lighting is charged to municipalities according to a similar declining-block tariff with prices varying from MF 88/kWh (US417.6) to MF 59/kWh (US411.8). Small commercial consumers are charged a flat rate of MF 88/kWh, whilst larger commercial consumers pay a fixed charge according to their installed capacity with different unit rates for peak and off-peak consumption. Industrial consumers also pay a fixed charge based on their installed capacity, with unit energy prices varying from MF 80/kWh (US416.0) during peak hours to MF 45/kWh (US49.0) during off-peak hours. All above unit energy prices include the MF 2/kWh IAS tax. For water, all consumers pay a flat rate consumption charge of MF 99 per cubic meter (USd19.8) IAS tax included, except for standpipe consumption which is billed to municipalities at MF 94 per cubic meter (USJ18.8) IAS tax included. Additional revenues from meter rentals average MF 1.5/kWh (USe0.3) and XF 13/m3 (US62.6).  - 39 - 6.12 Following commissioning of the Selingue dam and further expansion of EDM's hydrogeneration capacity (see Chapter II), Mali's power production pattern will be completely changed, and power tariff structures will have to be reviewed. Water tariffs will also have to be reviewed to take into account investment plans, operating costs, debt service requirements and social aspects of water consumption. As agreed during negotiations, the proposed project includes financing of tariff studies for power and water, taking into account marginal cost of supply and financial requirements, to be completed before December 31, 1983. Revenue Covenant 6.13 Given the lack of adequate information, the definition of suitable long-run financial objectives is difficult at this time for either the water or power sectors separately or for EDM as a complete entity. As a, consequence, it is proposed that the definition of such targets be deferred until the time of' the second phase of the rehabilitation program. In addition, with regard tc the poor service that EDM has been providing to its power customers, it has been difficult to ask EDM to raise its power tariff, even though such tariff increase appears to be urgently needed. However, since the recent introduc- tion of a reliable supply of power from Selingue will gradually improve service in the Bamako area, a tariff increase should now become possible. During negotiations the Government and EDM agreed to the basic principle that appropriate managerial and tariff actions should be taken so that EDM's consolidated net cash generation for the two sectors calculated as the dif- ference between consolidated revenues and (a) consolidated cash operating expenses, (b) consolidated debt service and, (c) consolidated working capital requirements, be at least equal to 10% for 1984 and each year thereafter of total capital expenditures for the year. Pending completion of the tariff study and subsequent agreement on tariffs, it is assumed in this report that EDM will be responsible for the 10% internal cash generation related to EDM-financed capital expenditure only. The government will be responsible for 1CO% of public domain capital expenditure during the same period. From FY84 onwards EDM would satisfy the same net cash generation target but for the pcwer and the water sectors individually. This will allow EDM to generate sufficient cash to finance local costs of the proposed investment program which would allow the company to renew its past practice (see para. 6.09), a practice which proved to be beneficial since it allowed EDM to keep a certain amount of autonomy in a country where the Government has been facing persistent financial difficulties. In order to achieve the above minimum targets, the Government has implemented an 11% increase in EDM's electricit:y tariffs ef'fective February 1, 1982. Furthermore, EDM will (a) by July 1, 1982, increase electricity tariffs by an additional 8%; (b) automatically adjust tariffs to cover any increases in the cost of purchased electricit:y; (c) automatically adjust tariffs to compensate for increases in the cost of operations due to inflation; and (d) by January 1, 1983, increase water tariffs by 10%. At the time of a subsequent loan, appropriate long-term arrangements would be adopted based on more accurate financial dat:a and the completed tariff studies.  - 40 - 6.14 The Government shall also assume as of January 1, 1982 the services, as to both principal and interest, of all debt incurred prior to such date for the financing of power or water facilities in the public domain, as defined in the relevant concession agreements, until otherwise agreed by the Borrower and the Association on the basis of the results of the exchanges of views on the tariff and concession system studies included in the Project. Financial Projections 6.15 Tentative capital investment requirements for the two sectors for the period FY82-87, and tentative corresponding financial sources based on the assumption that the above revenue targets (para. 6.13) are satisfied, are summarized in Table 6.5. Further details are given in Annex 6.5. Table 6.5 1982 - 87 --------- MF US$ million million % REQUIREMENTS Capital expenditures - project power 18,757 37.5 water 2,361 4.7 s/total a/ 21,118 42.2 98 - others EDM-financed 477 1.0 2 Total capital expenditures 21,595 43.2 100 SOURCES Depreciation and renewals prov. 13,299 26.6 62 Income before interest net of taxes 8,471 16.9 39 Total cash generated 21,770 43.5 101 less Income Tax 1,434 2.9 7 Increase in working capital 5,668 11.3 26 Debt service 12,047 24.1 56 Net internal cash generation 2,621 5.2 12 External sources - Proposed IDA credit b/ 11,995 24.0 55 - Proposed cofinanciers 8,625 17.2 40 Total external sources 23,240 46.4 107 Less increase surplus (1,645) (3.2) (7) Total Sources 21,595 43.2 100 a/ PPF refinancing not included. b/ PPF refinancing included.  - 41 - 6.16 EDM financed capital expenditure for the two sectors for the period FY82-87 totals about MF 21.6 billion (US$43.2 million). The proposed project capital expenditure of MF 21.1 billion (US$42.2 million), which provides MF 18.8 billion (US$37.5 million) for power, and MF 2.3 billion (US$4.7 million) fo:r water would represent about 98% of EDM's total program for the power and wai:er sector over 1982-87 period. Power sector capital expenditures have also been assumed for (a) the Bamako-Segou transmission line; (b) the first tranche of the extension of the Sotuba hydroplant; and (c) miscellaneous extensions of distribution and generation facilities in Bamako and in outstations (Annex 6.5). However these are assumed to be fully financed by the Government pending resolution of tariff and concession studies (see para. 6.13). Accordingly these have not been included in the Table 6.5. 6.17 EDM's internal cash generation net of debt: service as a percentage of total capital expenditures is estimated to be above the minimum 10% for 1982 through 1987. Further power tariff increases of 4% in 1985 and 7% in 1986 and 12% in 1987 have been assumed in order to eliminate operating deficit and maintain a reasonable debt service coverage. These figures will be firmed up on completion of tariff and various accounting studies. Similarly, the information about composition of the investments in 1985 onwards will be known better on completion of various studies which will be undertaken as a part of this project. Accordingly the 1985 onward data ref:Lected in Tables 6.4 and 6.5 are very preliminary. The above level of internal cash generation would be sufficient to cover all local costs which normally do not exceed 10% of total costs. Other requirements would be covered by: (i) the proposed IDA credit of MF 12 billion (US$24 million); and (ii) associated project cofinancing of MF 8.6 billion (US$17.2 million) - fulfillment of all conditions precedent to their disbursement will be a condition of effectiveness of the proposed credit (para. 4.17). Future Finances 6.18 Tentative income statements cash flow, and balance sheets for FYs 82-87 are given in Annexes 6.1 to 6.5; relative assumptions are in Annex 6.6. The main features of the financial projections for the two sectors are given below:  - 42 - Table 6.6 FY1982 1983 1984 1985 1986 1987 Power Sales (Gwh) 89.4 98.4 108.2 119.0 130.9 144.0 Net Income (deficit) (MF million) 744 453 430 19 82 72 Operating ratio % 0.89 0.91 0.89 0.90 0.88 0.89 Water Sales (mm3) 11.7 12.9 14.1 16.4 18.1 19.2 Net income (deficit) (MF million) 39 (38) 178 242 339 308 Operating ratio 0.96 1.00 0.90 0.89 0.86 0.88 Total EDM Funds Available From Operations 100 370 570 585 500 495 EDM Capital Expendi':ure 830 3,520 5,040 5,265 4,445 2,495 Funds available as % of Tot. Cap. Exp. 12% 11% 11% 11% 11% 12% Debt/Equity 41/59 52/48 61/39 67/33 72/28 71/29 Debt Service Coverage 3.22 2.72 2.05 1.58 1.57 1.42 6.19 On the basis of available information and assumptions outlined in Annex 6.6, meeting the financial targets set out in para. 6.13 would require periodic tariff increases. For the power sector, 11% increase on February 1, 1982, 8% effective July 1, 1982 and others as discussed in para. 6.17 have been assumed. For I:he water sector, 10% increase on January 1, 1983, has been assumed. The Government has agreed (see para. 6.13). 6.20 It was agreed during negotiations that the Government would onlend the IDA credit to E])M at 9.6% interest for a period of 20 years including five years' grace. However, as the financial condition of EDM permits, the 9.6% rate shall be reviewqed annually by the Government and IDA with a view to its progressive modification to conform to the then generally applicable relending rate for proceeds o" IDA's credits. It was agreed that the foreign exchange risk would be borne by EDM. It has been assumed future external assistance would bear an average interest rate of 7% p.a. and have an average repayment period of 15 years. On the basis of these assumptions the proposed tariff increases would permit EDM to cover its debt service from FY82 onward. 6.21 In order to be assured that debt service will not be excessive, and that availability of both local and foreign costs will be assured, the Government and EDM agreed during negotiations: (i) to exchange views with the Association on the costs and benefits and on the economic justification  - 43 - of the investment before incurring any debt in excess of US$1 million for each operation on behalf of the power or the urban water sectors; and (ii) to submit to IDA annually by March 31 of each year, a program detailing all investments planned in the power and the water sectors, and corresponding sources of both local and foreign funds, for the next three years. VII. SUMMARY OF PROPOSED AGREEMENTS ANI) COVENANTS Assurances and covenants 7.01 Agreement was reached with the Government and with EDM during negotiations, upon the following matters: A. Conditions of Credit Effectiveness (i) EDM will recruit a project coordinator on terms of reference already agreed with the Association (para. 4.13); (ii) EDM will sign a contract for the provision of a team of experts to assist EDM's management on terms and conditions acceptable to IDA (para. 4.03); (iii) IDA will be notified by FAC, CCCE and OPEC Fund that all conditions precedent to the disbursement of their respective grants or loans (except for the effectiveness of the proposed IDA Credit) have been fulfilled (para. 6.17); B. Other Conditions (iv) EDM will implement a complete cost accouniting system to allow separated financial management and accounts of the power and the water sectors by January 1, 1984 (para. 3.26); (v) Starting with its accounts for FY83, EDM will have its annual accounts audited by an independent auditor under terms and condi- tions satisfactory to IDA, and reports will be made available to IDA within four months of the end of each fiscal year. For FY1982 EDM will provide: (a) a brief joint report on EDM's account by EDM and the accounting consulting firm hired under the project; and (b) an external audit of the Project relaited expenditure (para. 3.28); (vi) EDM will submit to IDA, by March 31, 1984, for IDA's approval, a proposal to adjust its insurance contracts (para. 3.29); (vii) The Government will carry out studies to determine the merits of: (a) combining EDM and OERHN in a single power utility; (b) separation of power and water utilities; and (c) concession system (para. 4.16).  - 44 - (viii) The Government will set at a planning office and prepare medium and long term plans for the optimal development of the electrical sector in Mali, including a rural electrification plan (para. 4.16); (ix) EDM will engage consultants to design the physical components of the Project, to prepare tender documents, and to supervise construc- tion (para. 4.17); (x) Monitoring criteria and reporting requirements were agreed, and EDM will submit reports to the Association on a quarterly basis (para. 4.19); (xi) By December 31, 1982, the Government will furnish to EDM appropriate values for all public assets operated in the water sector by EDM (para. 6.03); (xii) EDM will revalue assets in operation in the power and in the water sectors (including the assets to be conceded to EDM by Government), on a pro forma basis, using a methodology satisfactory to IDA, by December 31, 1983 (para. 6.07); (xiii) the Government will: (a) continue its recently introduced policy of paying electricity/water bills on time; (b) continue to support disconnection policy for all consumers; (c) ensure that budgets for FY82 and subsequent years will contain sufficient funds for payment of power and water supply by all Government agencies; (d) set-up appropriate arrangements by September 30, 1982 for municipalities and state enterprises to pay their bills promptly; and (e) take appropriate action to reduce the arrears of the state enterprises and the municipalities to no more than 2 months of billing by December 31, 1982 and June 30, 1983 respectively (para. 6.08); (xiv) EDM will: (a) implement a commercial improvement program satisfac- tory to IDA; (b) reduce total consumer arrears to 3 months of billing by year-end 1982, and to no more than 2 months of billing by year-end 1983 onwards (para. 6.08); (xv) A power tariff study and a water tariff study taking into account marginal cost of supply and financial requirements will be completed before December 31, 1983 (para. 6.12); (xvi) EDM would take appropriate managerial and tariff actions so that its consolidated net cash generation for the two sectors calculated as the difference between consolidated revenues and (a) consolidated cash operating expenses, (b) consolidated debt service and (c) consolidated working capital requirements be at least equal to 10% in 1984 and each year thereafter of total capital expenditures for the year. From FY84 onwards EDM would satisfy the same net cash  - 45 - generation target, but for the power and water sectors individually. In order to achieve the above minimum targets, in addition to the already implemented 11% increase in electricity tariffs effective February 1, 1981, EDM will: (a) by July 1, 1982, increase elec- tricity tariffs by an additional 8%; (b) automatically adjust tariffs to cover any increases in the cost of purchased electricity; (c) automatically adjust tariffs to compensate for increases in the cost of operations due to inflation; and (d) by January 1, 1983, increase water tariffs by 10% (para. 6.13); (xvii) The Government shall assume as of January 1, 1982 the services, as to both principal and interest, of all debt incurred prior to such date for the financing of power or water facilities in the public domain, as defined in the relevant concession agreements, until otherwise agreed by the Borrower and the Association on the basis of the results of the exchanges of views on the tariff and concession system studies included in the Project (para. 6.14); (xviii) Government will on-lend proceeds of the Credit to EDM, at 9.6% interest rate, for a period of 20 years including 5 years grace. However, as the financial condition of EDM permits, the 9.6% interest rate will be reviewed annually by the Govesrnment and IDA with a view to its progressive modification to confonn to the then generally applicable relending rate for IDA credits (para. 6.20); (xix) EDM will assume the exchange rate risk (para. 6.20); and (xx) The Government and EDM will: (a) exchange views with IDA on the costs and benefits and economic justification, before incurring any debt in excess of US$1 million for each operation on behalf of the power or of the urban water sectors, and (b) submit to IDA annually, by March 31 of each year, a program detailing all investments planned in the power and the water sectors, and corresponding sources of local and foreign funds, for the next three years (para. 6.21). Recommendations 7.02 Subject to reaching agreement on the subjects listed in the paragraph above, the proposed project is suitable for an IDA credit of US$24 million. The credit would be onlent to EDM at 9.6% interest, for a period of 20 years including 5 years- grace. The foreign exchange risk would be borne by EDM (para. 6.20).  - 46 - ANNEX 1.1 REPUBLIC OF MALI ENERGIE DU MALI First Power/Water Project Documents and Data Available in the Project File 1. Etude de Rentabilite de l'Interconnection Bamako-Segou, Decembre 1979, EDF; 2. Plan Directeur du Reseau de Distribution de la Ville de Bamako, Fevrier 1980, EDF; 3. Plan Directeur d'Alimentation en Eau Potable de Bamako, Juin 1980, SAFEGE; 4. Report on Upgrading of the Bamako water treatment plant, by G. Wagner, June 1980; 5. Rapport Provisoire d'un Schema Directeur de la Formation Professionnelle des Personnels du Secteur de 1'Eau Potable, par G. Castegneau, Juillet, 1980; 6. Statistiques Analytiques des Activites de l'Energie du Mali, Annees 1977 et 1980; 7. Plan de Redressement de l'Energie du Mali, draft, Octobre 1980, EDF; 8. Arrete No. 531/MFC-CAB, 7 Fevrier 1980, abrogeant et remplacant l'arrete No. 1357 du 30 Avril 1976 portant homologation des Tarifs de Consommation de l'Eau et de l'Electricite; 9. Centrale Mopti/Sevare, Avant-Projet, Aout 1980; 10. Ivory Coast First Power Project - Staff Appraisal Report: June 18, 1980 Annex 10: "The Concession System in public utilities".  ENERGIE DU MALI Bamako Electric System Actual and Projected Generation, Peak Demand, System Capability and Energy Sales Actual Projected Year ending December 31, 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Generation (GWh): 66.4 75.0 83.8 85.8 104 74 90 99 109 120 132 9 175 Sctuba Hydro 33.0 37.6 32.9 34.6 35 35 35 35 35 35 35 35 Selingue Hydro 1/ - - - - 32 35 55 64 74 85 97 139 Dar Salam Diesel 33.4 37.4 50.9 51.2 37 4 - - - - - 1 Statt0n Use (GWh): 3.1 3.4 4.4 4.5 3.0 1.2 0.8 0.8 0.8 0.8 0.8 '0.9 Net eeneration (GWh): 63.3 71.6 79.4 81,3 101.0 75.2 89.2 98.2 108.2 119.2 131.2 174.1 Energy Sales (GWh): 56.3 63.7 70.6 72.4 90.5 67.0 81 89 98 108 119 155 EnerRy Losses and Unaccounted for in % of net gen, 11% 11% 11% 11% 10% 11% 11% 10% 10o 10% 10% 11% System Capability (MW) 20.9 20.9 49.1 -11 49.1 49.1 49.1 49.1 49.1 Peak Demand (MW) 13.0 13.1 15.4 15.4 20.0 20.0 19.5 21.5 23.6 26.0 28.6 37.9 Reserve 0.9 0.9 29.6 27.6 25.5 23.1 20.5 11.2 Annual Load Factor 0.58 0.65 0.62 0.64 0.59 0.42 0.53 0.53 0.53 0.53 0.53 0.53 / Selingue's generation is referred to Bamako's substation. 2/ Includes energy transmitted to Segou-Markala 3/ Consists of 5.4MW at Sotuba, 15.5MW at Dar Salam, and 28.2MW of firm output at Selingue . Note: Bamako's Electric System includes presently Koulikoro . From 1986 onward Segou-Markala and Fana will be linked to Bamako. > x  ENERGIE DU MALI Electric Systems in Provincial Centers (Exceptin Segou-Markala and Mopti-Sevare) Actual and Projected Generation and Energy Sales Actual Projected Year ending December 31 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 Generation (GWh): 7.5 7.4 9.6 9.7 10.0 10.3 10.7 11.0 11.4 11.9 12.3 12.7 13.1 Sales (GWh): 4.8 5.7 6.5 6.7 7.0 7.2 7.5 7.7 8.0 8.3 8.6 8.9 9.2 EnergY Lost, Unaccounted 36% 23% 32% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% for and Station Use, as % of Gross Generation Segou-Markala Electric System Generation at Markala (GWh): (Diesel) 3.7 4.1 4.1 4.1 4.1 4.5 4.5 4.5 X Sales (GWh) 2.8 3.3 3.5 3.3 3.3 3.6 3.6 3.6 EnergY Lost, Unaccounted 24% 20% 15% 20% 20% 20% 20% 20% for and Station Use, as % of Gross Generation Note: Segou-Markala is linked to Bamako in 1984 onward Mopti-Sevare Electric System Generation (GWh): Mopti Diesel 1.4 1.7 1.9 1.7 1.9 2.0 2.0 Sevare Biomass Thermal 4.1 4.7 5.2 5.8 6.8 7.1 Sales (GWh) 1.2 1.2 1.7 1.4 1.6 1.7 1.7 3.4 3.9 4.3 4.8 5.6 5.8 EnergY Lost, Unaccounted 16% 25% 13% 15% 15% 15% 15% 18% 18% 18% 18% 18% 18% for and Station Use, as % of Gross Generation  ORGRANIZATlON CUARl PO EDM GENERAL MANAGER DEPUTY GENERAL_ HANAGER | COANIDIATOR |INSP,CTION| SUPPLY | |TRAINING I |ADMINISTRATIVEl FINANCIAL | |WATER SUPPLY | POWER iPRODUCTION AND OPERATIONS OUTRIDE | BMAKO I D PLANNING I |ENGINEERINGI | ~~ ~SERVICE | L!VC SERVICE S 1ERVICE| SERV ICE i DISTRIBUTION TRANSMISSION OP RAMARO SERVICEu OPERAT IONSJ| DEPARTMENTf DEPARTMENT| TRAINING PRODUCTION DISTRIBUTION EN INEERING INTERCONNECTED PRODUCTION OUTSIDE CENTER GRID OF BAMAKO WATER SUPPLY POWER CUSTOMERS OPERATIONS DISTRIBUTION AND FINANCES DATA PROCESSING ACCOUNTING CUSTOMERS CASN MANAGEMENT WATER SUPPLY POWER CUSTOMERS OPERATIONS DISTRIBUTION AND FINANCES OPERATIONS METER CALIBRATION WORYSRNOP  - 5s - ANNEX 3.2 SUMMARY OF THE REHABILITATION PLAN FOR EDM The decision to design a complete rehabilitation plan for EDM was taken in June 1980 following a common mission in Mali by IDA, CCCE, FAC and EDF. The study was financed by CCCE and performed by EDF. A first draft was available in October 1980 and further reviewed with EDM and cofinanciers. The Malian Government's agreement on a general outline for the study was given in June 1980 and the Government has been kept informed ever since of the progress of the study, particularly by IDA's post-appraisal mission of December 1980. The draft rehabilitation plan is available, in French, in the project file. A summary of its contents is given below: 1st volume 1- Environment of the study 2- Introduction 3- Objectives 4- Method 5- Means 6- Schedule 7- First phase 8- Second phase Annex I: Terms of reference of the EDF study Annex II: Structure of action Annex III: Status of the experts and organization of their work Annex IV: Detailed terms of reference for each of the proposed experts Annex V: Internal control of the objectives of the technical assistance Annex VI: Housing of the experts Annex VII: Training program for EDM's staff Annex VIII: Follow-up of actions and performance measurement - detailed reporting Annex IX: Terms of reference for the assistance to the accounting service Annex X: Terms of reference for the assistance to the maintenance of technical facilities Annex XI: Proposals for a better involvement of the Malian staff Annex XII: Existing Malian students in French engineering schools Annex XIII: Calculation of experts' salaries Annex XIV: Complementary studies requested by EDM. 2nd volume 1- Detailed terms of reference for the rehabilitation of the Dar-Salam thermal plant 2- teims of fetr:nc ioo thk~e ntoxy of sevi-ce c co', update of customers' files and accounts, review of EDM's billing system and organization of a commercial department.  - 51 - ANNEX 4.1 ENERGIE DU MALI First Power/Water Project Breakdown of Technical Assistance Costs 1/ US$ million CCCE/ Total IDA FAC 1. Technical assistance personnel -- 52.5 man-year at: an 5.70 2.08 3.62 aiverage of US$108,570 per man-year 2/ 2. Studies and actions to be carried out: <'a) updating of customers files and accounts, 2.94 2.94 - review of EDM's billing system, and organization of a Customers Department, including follow-up personnel (b) assistance to review and strengthen EDM's 0.29 0.29 - accounting services (c) assistance in organizing a preventive maintenance 0.24 0.24 - system for both power and water supply (d) assistance in building up a short/medium term 0.88 0.88 - planning capability for the power and water sectors and financing of a study on medium/long term system planning to: (i) determine the optimum development of the Bamako power system into an interconnected grid in southern Mali; and ' (ii) assess medium-term rural electrification needs and make proposals for a realistic rural elec- trification plan (e) power and water tariff study 0.24 0.24 - (f) study on the merits of a single power entity 0.12 0.12 - which would result from merging EDM with the power activities of the Selingue Authority once EDM is strenghened (g) study on the advantages and disadvantages of the 0.06 0.06 - concession system in EDM's case 3. 'Physical facilities to house the Bamako operation and 1.47 1.47 - the data processing equipment, and extension of training center to house training in water supply 4. Construction of 10 housing units for technical assistance 1.28 - 1.28 specialist 5. Overseas training for EDM's staff -- 36 man-months 0.08 0.08 - 6. EDF's fee for supervision of technical assistance 0.29 0.29 - Total Base Line Cost (mid 1981 prices) 13.59 8.69 4.90 Contingencies: physical 0.70 0.45 0.25 prices 2.71 1.16 1.55 Total Technical Assistance Cost 17.00 10.30 6.70 1/ Foreign exchange costs. EDM will provide local costs in kind1 2/ Includes depreciation, maintenance and operation (including gasoline) for a private vehicle supplied to each expert.  - 52 - ANNEX 4.2 PROJECT MONITORING AND REPORTING REQUIREMENTS Project and program reporting 1. Within 60 days of the end of each calendar quarter, a progress report is required which would provide detailed information and comments on project execution/procurement; existing and potential delays - and causes - comparatively to original implementation schedules; actual and final project cost broken down between local and foreign cost by credit categories; disbursement schedule; and on any event affecting - or which could significantly affect - the project execution, with actions recommended to safeguard satisfactory progress of the project. 2. Within 60 days of the end of each calendar semester, a semi-annual progress report is required which would provide information on the execution of all of EDM or DHE investment programs in the power or the water sector - programs which are not part of the project itself - this report will mainly focus on construction schedule and potential execution delays (and their causes) and on cost estimates. Other technical matters 3. Within 60 days of the end of each calendar semester, a semi-annual progress report will be established by EDM and sent to IDA which would include: (i) power and water sales (GWh and m3) in Bamako and outstations; (ii) monthly peak power demand in Bamako; (iii) a summarized description of power and water operations during the past semester outlining main problems encountered and solutions proposed. Commercial reporting 4. Within 60 days of the end of each calendar semester, a semi-annual report on progress achieved in the commercial field including: (i) a statement of actual total sales by consumers category; (ii) number of consumers; and (iii) a statement on receivables broken down between main categories of consumers. Financial reporting 5. An annual financial report would be required within four months of the end of each fiscal year which would comprise: (i) income statement and balance sheet, including annexes related to "public domain" assets; (ii) fund flow statement showing the calculation of net cash generation and capital expenditures in the public and private domains; (iii) starting with report on fiscal year 82, a statement showing historical and revalued values of assets in operation. 6. In addition, by September 30 of each year, a financial plan for the three sub- sequent years will be submitted to IDA. This plan will detail: (a) capital expendi- tures under consideration in the power and water sector, by EDM, and Government and other third parties and, (b) related sources of fund.  Extension of Bamako Distribution Tabulation for Rate of Return Calculation Increment GWh in Sales Incremental Expenses Net Cash Supplied Sales over 1984 Benefits Investment Generation 0 & N1 Flow Year to Grid GWh GWh US$million US$million US$million US$ million US$ million 1982 124 110 0.86 (0.86) 1983 139 124 3.43 (3.43) 1984 154 137 1.61 (1.61) 1985 171 152 15 -2.17 0.36 1.8 1986/2016 171 15 2.17 0.36 0.42 1.39 Equalizing discount rate: 21%. Note: ( ) means negative figure. Assumptions: 1. Useful life of distribution extension: 33 years ul 2. Sales attributable to the project are the difference between sales in any given year(up to year 1985)and sales in 1984 when the distribution extension is completed. From 1985 onward and up to 2016 sales attributable to the project are kept constant at the figure for 1985. 3. Sales of power have been computed by deducting from net energy supplied to the system 11% losses in the distribution system. 4. Benefits are computed at the current (1980) average tariff. 5. Cost of energy up to year i185 is taken at the opportunity cost of energy supplied from Selingue, which is zero. After 1985 the energy cost is taken at the long term marginal cost of generation, which is the cost of energy produced by the extension to the Sotuba hydroelectric plant. This cost is computed at US24.2 mills per kWh. 6 TncrPmPntl-.1 ePvnpnse for distribtiion are the variable expenses for maintenance- trans- port and supplies adjusted to a level reflecting adequate maintenance. 7. A conversion factor of 0.85 was used for all local costs and benefits.  Mopti/Sevar6 Biomass Power Plant Tabulation for Rate of Return Calculation Gross Incremental Net Generation Sales Benefits Investment Fuel cost 0 & M Cash flow Year GWh GWh US$million US$million US$million US$million US$million 1983 1.97 (1.97) 1984 2.69 (2.69) 1985 4.1 3.6 0.52 0.10 0.03 0.39 1986 4.7 4.1 0.60 0.11 0.03 0.46 1987 5.2 4.5 0.65 0.49 0.12 0.03 0.01 1988 5.8 5.1 0.74 0.14 0.03 0.57 1989 6.8 5.9 0.85 0.16 0.03 0.66 1990 7.1 6.2 0.89 0.17 0.03 0.69 1991 7.8 6.8 0.90 0.19 0.03 0.68 1992/2005 8.2 7.1 1.03 0.20 0.03 0.80 Equalizinig discount rate: 11%. Note: ( ) means negative figure. Assumptions: 1. Useful life of power plant: 20 years 2. Benefits are computed at the average tariff prevailing at the time of appraisal. 3. Sales of power have been computed by deducting from gross generation the station's own consumption 5% and technical losses in distribution 8% 4. Cost of fuel is taken at zero for rice husk throughout the life of the plant and at US$0.024 per kWh for gas oil (20% of total fuel used). 5. Incremental 0 & M expenses are computed at US$15 per kW of installed capacity per year. 6. A conversion factor of 0.85 was used for all local costs and benefits.  Water Supply Component Tabulation for Rate of Return Calculation Incremental Incremental Net Water Sales Benefits Investment 0 & M Cash Flow Year Thousand m3 US$ million US$ million US$ million US$ million 1982 0.64 (0.64) 1983 1.29 (1.29) 1984 1,314 0.26 0.02 0.24 1985/2013 1,314 0.26 0.02 0.24 Equalizing discount rate: 11%. Note: ( ) means negative figure. Assumptions: 1. Useful life of investment: 30 years. 2. Incremental water sales are computed at an average of 60 liter per day for 60,000 people. L 3. Benefits are computed at the current (1980) average tariff. 4. Incremental 0 & M expenses are calculated at US$0.02 million per year. 5. A conversion factor of 0.85 was used for all local costs and benefits. LO  A C 0 E F G H I T K L H N 2 6 -9-ss I NCOME POWER -f PM MIALI FT RST POWER-WATER PRO JECT - ENERG I E DIJ MRL I RNNEX 6.1 4 PNCOME STATEMENTS - POWER 5 (MILLION MALIAN FRANCS) 6 7 1979