Senegal - ESMAP country paper

48008 Joint UNDPI World Bank ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) ESMAP COUNTRY PAPER SENEGAL October 1991  JOINT UNDP/WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) ESMAP COUNTRY PAPER (ECP) What Is an ECP? With the cooperation of the government of each participating country, the ESMAP Strategy and Programs Division prepares an ECP, whose overall purpose is to define a multi-year work program for energy sector activities in the country. ECPs are generally divided into four principal parts: (I) main issues in the energy sector and current government policies and programs; (2) critical factors for implementing programs and ensuring the support of the international community (including the Bank and ESMAP) to overcome them; (3) rationale and justification for ESMAP's involvement; and (4) the proposed program, with a description of the basic features of each activity. These include its contribution to the overall energy strategy, operational objectives, priority, budget, and interfaces within the ESMAP program and with other initiatives. Annexes provide further details on the country's energy sector and on proposed activities. ECPs are updated as necessary in light of conditions in the country and progress in the implementation of the work program. The ECP Process An ECP is a process as well as a product. It usually builds on ESMAP's previous experience in the country's energy sector, on sustained dialogue with the government and relevant energy institutions, and on joint missions and discussions with the World Bank, UNDP, and other involved agencies. It involves a preliminary draft by ESMAP, in conjunction with World Bank staff, based on dialogues with local institutions; a mission by an ESMAP staff member to the country, consultation with the UNDP, donors, and government officials; a review and clearance of the draft ECP by World BankIESMAP management, reflecting also the views of the UNDP resident representative; the clearance of the final draft by the government; and presentation of the ECP to the donors.  Joint UNDPWorld Bank Energy Sector Management Assistance Programme (ESMAP) ESMAP COUNTRY PAPER SENEGAL ECP no. 001191 October 1991 This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without UNDP or World Bank authorization.  ABBREVIATIONS CFAF Franc of the African Financial Community kg kilogram kW kilowatt kwh kilowatt-hour t metric tonne toe tons of oil equivalent $Can Canadian dollar $US U.S. dollar ACRONYMS AfDB African Development Bank BOAD Banque O u s t Africaine de Developpment I West Africa Development Bank CIDA Canadian International Development Agency DEMG Direction de I'bnergie, des mines et de la gblogie / Directorate of Energy, Mines and Geology ESMAP Energy Sector Management Assistance Programme FAC Fonds d'aide et de cooperation I Aid and Cooperation Fund (France) EDF European Development Fund GNP Gross National Product IDA International Development Association MDRH Ministere du developpement rural et de I'hydrauliqueIMinistry of Rural Development and Water Resources MICA Ministere de I'industrie, du commerce et de I'artisanatIMinistry of Industry, Commerce, and Craftsmanship OMVS Organisation pour la mise en valeur du fleuve Senegal/Organization for Senegal River Development PCIAC PetroCanada International Assistance Corporation PETROSEN Socibtb petroliere du Senegal (petroleum exploration company) PICOGERNA Programme integrb de conservation et de gestion des ressources naturelles National Resource Conservation and Management Program RENES Programme de redeploiement bnergetique du SBnt5gal SAR Societe Africaine de Raffinage (refinery) SENELEC Socit5td nationale d'dnergie blectrique du Sen6gal (Power company) UNDP United Nations Development Programme USAID U .S . Agency for International Development UNSO United Nations Bureau for the Southern Sahelian Region Note: The exchange rate when this document was written was US$1 = CFAF 300.  ESMAP COUNTRY PAPER SENEGAL TABLE OF CONTENTS EXECUTIVE SUMMARY .................................. vii I . ENERGY SECTOR ISSUES AND OBJECTIVES . . . . . . . . . . . . . . . . . . 1 Energy and the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Energy Resources and Potentials . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Resource and Environmental Problems . . . . . . . . . . . . . . . . . . . . . . 5 Efficiency of Energy Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 I1. CRITICAL FACTORS IN THE ENERGY STRATEGY . . . . . . . . . . . . . . 7 Price and Tax Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Sectoral Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 I11. INTERNATIONAL AND ESMAP ASSISTANCE . . . . . . . . . . . . . . . . . 14 Completed and Ongoing Projects . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Key Factors for Success of Proposed Programs . . . . . . . . . . . . . . . . . 15 ESMAP's Potential Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 16 IV . ESMAP'S PROPOSED PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Summary of ESMAP Program Activities . . . . . . . . . . . . . . . . . . . . . 21 Project Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ANNEX I: SENEGAL'S ENERGY BALANCES . . . . . . . . . . . . . . . . . . . . .31 ANNEX 11: PRICE. TAXATION. AND ADMINISTRATIVE REGULATION SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . 32 ANNEX 111: MAIN DONOR INITIATIVES IN SENEGAL'S ENERGY SECTOR .................... 36  EXECUTIVE SUMMARY Senegal is one of the core countries in ESMAP's work program, and this document constitutes the ESMAP Country Paper (ECP) for Senegal. The ECP is intended to present the objectives, rationale, and priorities of ESMAP's technical assistance program to support the government of Senegal's energy strategy; to constitute a reference instrument for Senegal, ESMAP, and the main donors; and to serve as a basis for mobilizing the necessary resources over the next several years. Although it touches on many energy issues, it is not an exhaustive discussion of the strategies, policies, or programs of Senegal's energy sector. Energy Sector Issues and Objectives Senegal's difficult social and economic situation, its unfavorable physical environment, and its inefficient energy systems are significant barriers to an effective energy policy. For some years now, the government has been carrying out energy policy reforms intended to offset these problems, but the reforms have been only partially successful. Recently, in the context of preparing for a second meeting of sector donors (planned for February 1992 but subject to the approval of a new Forestry Code) and drafting an Energy Redeployment Program for the Horizon 2000 (RENES 2000), Senegal has updated its approach. The basic objectives of the reform program-improving the efficiency of its energy systems, reducing dependence on oil imports, and easing pressure on the country's forests-are still relevant and have not been revised; but the government is now trying to achieve greater transparency in sector management and more involvement of private enterprise and financing. Critical Factors in the Energy Stmtegy Mobilization of financial resources is critical to implementing Senegal's energy policy, but even with adequate financing, success of the energy policy will not be assured unless particular attention is paid to three prerequisites: sectorwide reorganization and institutional development, careful formulation and management of the domestic fuel substitution and rural electrification strategies, and improved efficiency in the energy systems. ESMAP's proposed programs seek to address these problems through six activities relating to institutional development of the sector; control and monitoring of the implementation of the strategy for household fuels; evaluating and defining a new strategy for rural electrification programs; institutional consolidation of PETROSEN (Society for vii viii ESMAP C O U m Y PAPER the Promotion and Exploration of Petroleum and Gas); promoting energy conservation in buildings and possibly in transport; and enhancing the efficiency of the electricity sector. The implementation of the proposed program will be contingent upon the government of Senegal's decisive action to protect the forest environment. The government's commitment to and involvement in institutional development activities will provide a basis for decisions to continue that program. Irtternational and ESMAP Assktance The ESMAP effort in Senegal has been designed as a component of the overall technical assistance and investment programs that Senegal will present at its donors' meeting. ESMAP activities, which been prepared jointly with the government of Senegal, will address mainly institutional and policy issues and will focus on factors that (1) are critical for the successful and durable implementation of the energy strategy that it assisted in designing and (2) require high-level technical, managerial, or institutional skills. At the request of the government of Senegal, the Programme will concentrate on three domains of special interest to Senegal and its donors (including the World Bank) in the forthcoming years: (1) institutional and regulatory development of the energy sector; (2) monitoring of the implementation of complex subsector strategies (rural electrification and fuel substitution in urban and peri-urban areas); and (3) improvement of the efficiency of power and end-use energy systems. The ESMAP program has been designed to complement the World Bank's new energy project. The sequence of ESMAP activities begins with work in energy restructuring and also household energy strategy. Provided that the government remains committed to its reform programs, ESMAP plans to continue with its activities in rural electrification, petroleum, and efficiency. ESMAP's Proposed Progmm The main ESMAP activities are summarized below. Proposed budgets are given in Table 1. Note, in Table 1, that funds listed under 1994 are proposed disbursements for projects begun in 1992-93. New projects may be identified to begin in 1994, and funding for those projects is not included in the totals for this table. The timing of activities is detailed in Table 2. 1. Inslitrrtr'onal Development of the Energy Sedor. A study of the options for the restructuring and the institutional development of the energy sector will aim at improving its governance and increasing private initiatives. Through this activity, ESMAP will assist Senegal in restructuring the energy sector and in setting up programs for implementing institutional measure.. This activity, which has the highest priority, will be central to the overall ESMAP program and will have a large impact on shaping other donors' programs.  SENEGAL ix 2. Monitoring of Household Fuels Stmtegy. This activity supports the government's effort to monitor the implementation of a multifold household energy strategy and the effectiveness of the associated environmental protection measures. The program Senegal has embarked upon is complex, and close coordination is required to keep it on track. Along with the Bank's envisaged project, ESMAP will provide the technical and "catalytical" support needed to manage the monitoring process. 3. Ruml Electrification Evaluation and Stmtegy. This activity seeks to define realistic objectives and strategy options implying a larger reliance on private and individual initiatives and reduced public financing. This activity will assist Senegal and the donors to more clearly define the framework and a long-term perspective of the programs. 4. Institutional Consolidation of PETROSEN. This project aims at determining the needs for institutional consolidation of the local petroleum firm (PETROSEN) with a view toward improving its capability to promote foreign initiatives in exploration for hydrocarbons. PETROSEN is expected to play a central role in promoting hydrocarbon exploration and has already initiated comprehensive promotion campaigns, but its institutional potential has to be increased; the ESMAP activity will focus on assessing the strategy objectives of PETROSEN and on defining institutional consolidation programs (which could be implemented with the assistance of other donors). 5. Energy Efficiency in Buildings and Tmnsport. This activities focuses on elaborating end-use energy efficiency programs for buildings and possibly in the transport sector. The activity will extend an ESMAP energy efficiency project already implemented in the industrial sector and will build on experience and expertise developed similar ESMAP activities in Cote d'Ivoire and Jamaica. This activity will depend on decisions on the overall institutional scene. 6. Eficiency Zntprovement in the Power Sector (SENELEC). The goal of this activity is to provide technical assistance to the power utility (SENELEC) to improve its investment planning functions and reduce its distribution losses. The activity will be initiated only after decisions have been made on the overall institutional scene. x ESMAP COUNTlPY PAPER TABLE 1. Proposed Budget for ESMAP Work Prvgmm, Senegal (US$ '000) ACi7VIZY DONOR 1992 1993 1994" TOTAL 1. Inst. Dev., Energy Sector Unfunded 2. Monitoring Household Fuels Unfunded 3. Rural Electrification Eval. Unfunded 4. Inst. Consolidation, PETROSEN Unfunded 5. Buildings and Transport Eff. Unfitnded 6 . Power Efficiency, SENELEC Unfunded TOTALS Of which unfunded 'Figures listed under 1994 represent disbursements of funding for projects initiated in 1992-93 and do nor include funding for projects that may be initiated in 1994.  SENEGAL xi TABLE 2: Organization and Schdule of ESMAP Activities in Senegal ACTIVITIES SCHEDULE -- 1992 No. Content Priority 1993 1994 I 11 1 Inst. Dev., Energy Sector 1 c b b b b b b b b b -- 2 Monitoring, Household Fuels I-2 RiRRRIR = 3 Rural Electrification 2 r b b w b Evaluation and Strategy 4 Inst. Consol., PETROSEN 2-3 RRRRRA = 5 Energy Saving (Buildings) 2-3 =-- 6 Efficiency, SENELEC 2-3 m m - : preparation of activity (Senegal and ESMAP) : execution of activity : probable complementary activity (not yet defmed) BUDGET LEVEL OF PRIORITY (000 US$) Activities of priority 1-2 Activities of priority 2-3 1,m TOTAL 1,830 xii ESUAP COUhTUY PAPER  ESMAP COUNTRY PAPER SENEGAL I SENEGAL (1989) E x t e n d current occounf (1989-90 deficit): 8.8% Population: 7.4 mdlion of GNP Infklrion: less than 2% in 1989-90 GNP: USs4.7 billion I per capita GNP: ~~$642 Per capitn GNP growth 1980-89: c. 0.10% p.a. I Area: 197,000 k m' Budgetary expenditures: 21% of GNP I I. ENERGY SECTOR ISSUES AND OBJECTIVES Senegal is a Sahelian country that is currently experiencing economic and social difficulties. It is suffering from continuous deforestation and a lack of immediately usable fossil fuel and hydropower resources. The problems of Senegal devolve not only from the paucity of primary energy sources and deterioration of the forest environment but also from inefficient energy production and consumption systems. The management and development of the energy sector, therefore, are subject to considerable social and economic constraints that limit the scope for decisionmaking. Energy and the Economy After a period of relative prosperity during the 1970s, largely based on the good prices then prevailing for Senegal's main exports-peanuts and phosphate-Senegal moved into a period of stabilization and recovery at the beginning of the 1980s. This was followed, beginning in 1985, by a set of structural adjustment programs pursued with the assistance of the international community. These program have brought about a perceptible improvement in Senegal's economic performance, particularly a reduction of its main disequilibria. The external current account deficit (excluding official transfers) diminished from 21.7 percent of GNP in 1982-83 to 9.6 percent in 1988-89; annual 2 E S W COUNIlPY PAPER inflation fell from 11 percent over the 1983-85period to below 2 percent in 1989-90; and public expenditure, which represented 31 percent of GNP in 1981, was down to 21 percent in 1989. Yet despite this progress, Senegal is still in a difficult situation: per capita income has remained static over the past 10 years; the employment rate has not risen; and social tensions have on occasion run quite high. Progress in meeting Senegal's persistent difficulties can rest partly on the fact that the macroeconomic adjustment has created a general framework for enhancing the efficiency of the energy sector. The effort to achieve budgetary equilibrium, in particular, has reduced direct state subsidies and assistance in the energy sector and promoted a policy of higher prices for commercial energy. The effect of this effort apparently has been to induce some improvement in the efficiency of energy use, although in some cases it has reduced the competitiveness of Senegalese industries. Another effect is that the state's withdrawal from intervention has led to increasing autonomy for operators in the energy sector, a trend that is likely to become more pronounced in the years ahead. Energy and the Balance of Tmde. Energy is an important variable in Senegal's quest for external equilibrium; oil and oil products have typically represented between 20 and 25 percent of Senegal's total imports and have been major factors in the country's external imbalance, although recent international price movements have now reduced the relative weight of these imports to 10 to 15 percent. Because Senegal's export potential is largely based on natural resources (peanuts, phosphate, and fishery products) whose international markets are tending to stagnate, possibilities for growth of exports remain limited, at least in the medium term. Holding energy costs to a minimum thus will remain an important variable in economic policy. Growth, Revenues, and Other Issues. Four other issues are particularly important to the overall energy scenario. First, the general level of economic activity, and with it the demand for modem commercial energy, has remained relatively static over the past decade. For oil products, demand has stabilized around 600,000 tons per annum since 1980. The growth of demand for electricity has slowed considerably, from 7 percent per annum over the 1973-80 period to 3.2 percent in 1980-85 and 2.4 percent in 1985-89. Second, because oil products are preferred sources of tax revenues-in 1989, taxes on oil products represented nearly CFAF 60 billion, about onequarter of total public budget resources-consideration~ of budgetary equilibrium are generally instrumental in determining the prices for these products, as well as for most forms of energy in Senegal. Third, because energy can account for as much as 15 percent of the budgets of the most disadvantaged urban households, any measure designed to raise the cost of traditional household fuels (wood and charcoal) toward their economic cost would, in the absence of any improvement in the efficiency of use of these fuels, inevitably erode the real incomes of people whose incomes are already very limited. Such steps are economically necessary but must be kept under tight control.  SENEGAL 3 Fourth, because of the difficult economic environment, the state will be limited in its ability to intervene directly and in its ability to mobilize public resources in energy programs (e.g., rural electrification, exploration for fossil fuel resources) or in making contributions to balance the accounts of state corporations. These constraints can be expected to continue to influence the shaping Senegal's energy policy, its institutional configuration, and its ability to marshal private financing. Energy Resources and Potentials Biomass is Senegal's nearly exclusive source of local primary energy. More than half of the country's primary energy demand, an average of 1.9 million toe over the period 1985-88, has been covered by the local supply of purely plant origin, consisting essentially of wood plus a very minor proportion of peanut shells and bagasse. Local natural gas production has been less than 1 percent of primary energy production. The remainder of primary energy demand has been met by an average of 900,000 tons per year of imported crude oil and oil products. Senegal has some physical potential for expanding its primary energy resource base. However, prospects for some resources are limited or uncertain, and others would require long development times. Hydmelectric. Senegal has no hydroelectric resources of its own, and the regional project to develop electricity generation and transmission at the Manantali Dam, on the Senegal River in Mali, is Senegal's sole prospect for obtaining hydroelectric energy.' The configuration of this project is still under study, but it is clear that a hydroelectric contribution derived from Manantali would only cover part of Senegal's needs and would diminish over time until it became nil. This project will not enable Senegal to free itself fully and permanently from primary energy constraints. Hydrocarbons. Senegal's sedimentary basin offers some attractive prospects for development and has raised hopes for production of hydrocarbons. So far, however, results of exploration have been disappointing. The most promising areas now appear to be the Cap Vert region (Sebikotane zone), where natural gas may be present in producible quantities, and the Flore Dome off Casamance. Exploration of the Flore Dome began several years ago but was halted because of territorial disputes with Guinea-Bissau. These disputes have been resolved, and exploration of the Flore Dome has resumed. 1. fiere are some possible sites on the Senegal (FClau) and Gambia flkkreti) rivers, but zheir economicfeaibiliry is not yet proved, and thcy could be used only in the context of larger-scab developmen~ such as the Manantali project and expansion of the power transmission system.  ESMAP COUATRY PAPER Ped. Senegal has peat reserves in the Niayes region.? Studies in the mid-1980s have persuaded authorities to drop the idea of generating electricity and to investigate the possibility of using peat as a household fuel. Development of peat briquettes capable of taking the place of charcoal will depend on solving certain technical (reduction of ash content) and marketing (product cost and acceptability) problems. The size of the producible peat deposits ranges between 30,000 and 60,000 tons per annum over a 20-year horizon, depending on the quality of the technical process developed. Moreover, lignite has been detected in several regions of Senegal, although the existence of producible deposits has not yet been confirmed. Other Resources. Solar power and wind power potentials are physically considerable in parts of the country. Senegal has carried out numerous research projects and has designed pilot operations, but economic utilization of these resources is still difficult, and for the time being, practically nil. 1 Prospects for Energy for Senegal from the Manantali Dam and Related Projects The hydroelectric projects envisaged in the context of the OMVS program for development of the Senegal River Valley include a 200-MW power station in Manantali, in Mali. Downstream, two further 100-MW plants are also envisaged, at F6lou and Gouina, in Senegal; however, the possible starting date for execution of these plants is still quite distant, and their desirability remains to be confirmed. Studies and discussions are proceeding to determine the configuration of the energy transmission infrastructure from Manantali and how best to interconnect the two national systems. Recent studies indicate that once Manantali is operational, Senegal should be able to count on receiving energy into its system in its initial phase. Thereafter, in accordance with the optimization plans studied, these flows of energy should progressively diminish and eventually reverse as demand grows in Mali. The options regarding this regional project are still under preparation, and its configuration, financing, and schedule for execution have not been made final. t 2. l h e niayes are iwerdune depressionsfound along the conrtfiom Dakar to Saint-Louic in the north of the counrry.  SENEGAL 5 Resource and Environmental Problems Senegal faces problems related to the production and use of woodfuels because of depletion of supply and degradation of the forest cover. The dependence of households on woodfuels also has social costs in the form of the increased time required to gather woodfuels. Depletion of Local Resources. More than half of final energy demand, about 600,000 toe a year, relates to fuelwood and charcoal, which constitute 94 percent of all energy used by Senegalese households. The consumption pattern of this form of energy is characterized by marked predominances. The rural areas consume more than 90 percent of the wood used, and the urban areas more than 90 percent of the charcoal. The urbanization taking place in Senegal thus is accompanied by a shift in consumption to charcoal. Deterioration of the Forest Cover. Senegal's forest cover is being degraded at an average rate of 0.5 percent a year under the combined influence of several factors. The endemic drought afflicting the Sahel is aggravated by human pressure from intensive clearing of new farmlands carved out at the forest's expense, reduction of fallow time, overgrazing, uncontrolled burning, but also the taking of wood for fuel. More than 3 million cubic meters of wood is taken annually for energy purposes. Rural communities, which make up two thirds of Senegal's total population, use wood as virtually their sole household fuel, but they gather dead wood from fallow lands; therefore rural woodfuel consumption creates no more than moderate pressure on the forest cover. On the other hand, charcoal production, which supplies the urban population and is based on the exploitation of forest stands, constitutes an essential pressure factor on energy resources. Urbanization, when it occurs without modification of energy consumption, aggravates this pressure. Long-term Environmental Impacts. If the exploitation of forests continues at the same rate, the long-term effects on Senegal will be catastrophic. Beyond the purely ecological impacts of advanced deforestation, the social cost of obtaining woodfuel supply will mount appreciably. In the most seriously affected regions of Senegal, people must already spend 10 hours and walk 10 krn every day to gather wood. In rural areas, the time and effort needed to gather woodfuel may still increase in proportion to the scarcity of the wood. According to trend-based scenarios prepared by the government, the general wood and charcoal supply may be at risk even before the end of the ~ e n t u r y . ~ 3. The h r sysrematic forest censuses were conducted in the early 1970s. The scale of the quantities exrractedjrom the forest cover and rhe actual impacr of using wood for energy purposes remain far j o m clear. 6 ESh4AP COUKTY PAPER Efficiency of Enera Systems Despite recent progress, Senegal has major inefficiencies in its consumption and supply systems. These inefficiencies pertain to both commercial and traditional energy sources. In regard to modem commercial energy (electricity and oil products), management of demand has been improved appreciably by a vigorous price policy and by implementation of specific energy-saving programs, especially in the industrial sector.' On the supply side, however, the electricity sector remains a considerable concern. Woodfuels. Significant scope remains for efficiency improvement in both supply and demand of woodfuels. On the consumption side, wood and charcoal are still used extensively for cooking in traditional cookstoves-a three-stone open stove for wood and Malagasy metal stove for charcoal. Since the early 1980s, however, more efficient cooking equipment-improved three-stone stoves (known from the French, rrois pierres amkliort!es, as 3PA stoves) and sakkanal stoves-has been developed in Senegal with USAID and FAC assistance. Sakkanal stoves make it possible to reduce specific charcoal consumption by 20 to 40 percent. Distribution of these improved cookstoves has remained very limited, however-about 30,000 3PA stoves and 11,000 sakkanal stoves over the past decade. The reasons for this situation are not altogether clear. Inefficiencies in production also have also characterized the woodfuels subsector. A more efficient carbonization technique was devised in the early 1980s, based on a Casamance-type kiln, that makes it possible to reduce specific wood consumption by about 20 percent.' Several attempts to popularize this technique have not produced decisive results, however. Surveys conducted recently with UNDP support suggest that the main obstacles to acceptance of this technique are lack of incentives for charcoal producers. That is, the manual workers (sourghas) who produce charcoal must make about the same effort in the new production process, and the rules for calculating wood costs give the woodcutters little reason to switch to a technique that would not produce significant monetary benefik6 Hectric Energy. Electricity is still supplied under conditions of marked inefficiency generation, transmission, and distribution. The efficiency of the thermal power stations 4. lhe price policy h a even led to prices above the economic cost threshokisfor electricity and oil products (except for butane, which i s subsidized in order to promote its use as a substitute for charcoal). 5. s a major m e Caramance kiln D named for a region of souhern Senegal where charcoal making i activity. 6. For reasons of accounting and adminisCrative convenience, the stump fee gorest-use fee), which representr the cost of woodpayable by the woodcutter in his charcoal-making operations, is baed not on the quantity of wood actually used b u on the quantiry of charcoal produced.  SENEGAL 7 has not improved for 15 years; and specific fuel consumption has remained stable, for entire period from 1973 to 1988 (it was 331 goelkwh in 1973, 336 in 1988). The global efficiency of the MV and LV transmission and distribution system has in fact declined: estimated at 84 percent in 1977, it deteriorated steadily to reach 79 percent in 1988, reflecting a high level of technical and commercial losses. Several factors are behind this situation. One factor in the inefficiency of the electricity network is the age and obsolescence of some of the generation, transmission, and distribution facilities. Managerial and institutional problems, as well as the external conditions under which the power utility has to operate, constitute another set of inefficiencies. These problems include significant nontechnical losses; difficulties in collecting payments, especially from the public sector, the multiplicity of objectives and responsibilities assigned to the public utility; external administrative interference with internal decisionmaking of the power utility; and weaknesses in the institutional environment that impede the decisionmaking processes in the power utility. II. CRITICAL FACTORS IN THE ENERGY STRATEGY Since 1981, Senegal has been seeking to reduce its dependence on oil imports and ease pressures on its endangered en~ironment.~ These objectives remain incompletely realized because the reforms envisaged have been implemented only partially and because the measures carried out have not produced all the expected effects. In addition to reducing dependence on oil imports and lifting pressure on the environment, Senegal has also targeted four other critical factors in its energy strategy: strengthening the role of price systems; introducing greater transparency in the energy sector's relations and financial flows with the rest of the economy; lowering energy cost as a production factor; and expanding access to electricity service for the rural population. Senegal has adopted an energy strategy based on three main components: developing a more appropriate institutional and regulatory framework; improving the efficiency of the consumption and production systems for both commercial and traditional energy sources; and promoting economic use of local primary resources other than wood. Senegal plans to use both price and tax systems and sector programs to implement this strategy. The sector programs will focus on institutional development, investment, support, or promotion, and will be carried out by central government structures and public sector operators (SENELEC and PETROSEN, in particular). The process of preparing for a second meeting of donors, scheduled for February 1992, has provided . 7 ntese two objectives are nor always murual@ compcuibie. For aample, promorion of LPG to reduce demandfor charcoal to conserveforest resources baa5 to increased imports of oil products. 8 ESUA P COUNTRY PAPER an opportunity to further refine and work up the policy measures and the contents of the energy programs Senegal intends to carry out.' Price and Tar Systems In the 1980s Senegal undertook major reforms in the sphere of energy pricing and ta~ation.~ These reforms related essentially to oil products and electricity and focused primarily on bringing prices and economic costs into line, maintaining price stability, and ensuring, through taxation of oil products, revenues that were easy to collect and significant in amount. The overall outcome of these reforms was high prices of oil products and electricity.'' On the other hand, in regard to woodfuels (wood and charcoal), forest resources are considered free goods, and the economic cost of the wood is not internalized in woodfuel prices; this leads to considerable distortions in the prices of both woodderived and fossil (gas and peat) household fuels. For the past two years, reforms have been under way to correct existing distortions and improve the functioning of the price system. Some of these reforms have been carried out, but in regard to industrial and household fuels in particular, the process is not yet completed. Pricing arui Tarution of Oil Products. With the notable exception of butane gas, oil products are subject to very heavy taxation. In the last quarter of 1990, ex-refinery prices of oil products represented three times their economic cost for automotive fuels and double for fuel oil.'' Annual taxation, based on these prices, amounts to some CFAF 60 billion, after deducting a subsidy on the order of CFAF 2.7 billion for butane gas. With encouragement from the World Bank, Senegal has undertaken a major reform (described in Amex 11) to introduce transparency and rationality into the rules for establishing the level and structure of oil product prices, and into the taxation mechanisms. This reform, the first phase of which was carried out in 1989-91, is currently under way. Pricing ofElectricily. In 1985, electricity prices were readjusted to reflect the structure of long-run marginal costs (LRMC) on SENELEC's general system and to cover its system operating costs. After a slight reduction in 1986 (about 4 percent) intended to partially reflect the fall in fuel prices, electricity prices have remained practically stable up to the present. The essential problem of electricity prices is that they are much above the relevant economic cost. The operating ineficiencies and oversizing of installations, 8. f i e World Bank will lead the Senegal ConrvItmanve Group for this meeting. ESMAP h a been closely involved in preparations for the meeting in the context of a project to support the Ministry of Industry, Trade and Crajis. 9. Annex 111 of this report provides a more detailed analysis of the energy price system. 10. Butane gas is an exceprion to the high pricing rub because ir is heavily subsidized to make it competitive with charcoal (see Annex 1 1). 11, This cost is defined on on import parity basic. the age of equipment, and the level of taxation on fuel supplx are the factors underlying the situation. Price Structure for Woodfuels. The price structure for woodfuels includes some significant distortions. The prices of household fuels are well below their economic cost, the key factor here being the low value placed on the standing timber compared with its economic cost. The cost of renewable development of the wood needed to produce one kilogram of charcoal is currently estimated at approximately CFAF 50; in comparison, the forest-use fee (which is supposed to reflect this cost) is CFAF 5-that is, 10 times less.12 The price of charcoal is presently on the order of CFAF 631kg; if the wood were factored in at its real cost, this price would be about CFAF 100-120lkg. Senegal has recognized the need to correct these price distortions and has recently decided to progressively eliminate them. Two types of measures are envisaged for this purpose: adjustment of the stumpage fee charged in respect of standing timber in order to align it as fully as possible with the economic cost of the wood; and, in conjunction, the gradual elimination of the butane subsidy as the forest-use fee is increased. This reform is detailed in Annex 11. Sectoml Pmgmms In addition to price- and tax-related measures, Senegal intends to pursue or implement two basic types of specific sectoral programs. The first type involve establishing, expanding, or modifying physical energy production, generation, processing, transport, transmission, and distribution and will be implemented by public (SENELEC, PETROSEN) or private (SAR) operators. The second comprise support, promotion, or information activities, generally to be carried by the administration itself. Some details of these different programs are presented below for the sector's main fields of activity. Household Fuels Subsector. Senegal's approach focuses on increasing the eficiency of the woodfuel production and consumption systems; rationalizing the exploitationof forest stands; and promoting, by appropriate pricing, fuels that could replace charcoal. Toward these ends, Senegal envisages complementing the price-related measures for woodfuels themselves (described above) with regulation of or direct intervention in demand and supply. Specific actions contemplated on the demand side consist, for example, of a program to promote improved stoves in urban areas. Other measures relate to developing and promoting substitutes for woodfuels: developing peat-briquette manufacturing processes, and searching for private promoters to handle industrial-scale production; the butanization campaign; kerosene promotion; and so on. These programs have been formulated and will be submitted for financing to the next sector meeting of donors. 12. Zhisjigure is purely indicative and is an average of estimares made in 1985-87. It h also used, PS an order of magnitude, in szudies made by the Ministry 01Rural Development and Waer Resources. 10 ESMAP COUNXRY PAPER On the supply side of the household fuels sector, the government aims to reduce pressure on the forest cover by increasing the efficiency of exploitation of forest resources and of charcoal production. Measures envisaged include (1) transferring to rural communities the responsibility for, and benefits of, forest resources on their land; (2) preparing and implementing master plans for urban woodfuel supply; (3) strengthening and developing control systems for charcoal movements and tax revenue collections; and (4) popularizing more efficient carbonization techniques (general adoption of the Casarnance kiln). Senegal is reviewing the Forestry Code and has drawn up a set of programs that are now ready for application. Most of these programs will be submitted to the next sector meeting on energy. Eledriciry Subsector. Senegal's specific objectives and strategies for the electricity subsector consist first in improving and increasing the system's operating efficiency and quality of service, and developing generation, transmission, and distribution capacity based on least-cost criteria. The emphasis, for the medium term, is on rehabilitation and modernization of the existing system; long-term options are left open. The investment required to implement this program is estimated at nearly US$100 million for the period 1991-95, breaking down into US$85 million for modernization of the interconnected system and US$15 million for development of the regional systems. In view of the minimum times needed to carry out the hydroelectric projects connected with Manantali, assumptions concerning these projects do not markedly influence the optimal electricity generation and transmission capacity development program until after 1995-96. Rural electricity development is a priority within the context of Senegal's limited public resources. Of Senegal's 12,000 rural communities, only some 150 villages currently have electricity service113 through SENELEC and the rest by private enterprise. Current alternatives for promoting rural electrification include (I) continuing the program to extend the electricity system through low-cost solutions; (2),encouraging community self-electrification (diesel sets with microdistribution system); and (3) encouraging adoption of decentralized photovoltaic systems to be used as a pre- electrification solution, on a commercial basis and in a market context. As will be explained later, however, the approach must be determined and refined. Setting up an institutional framework more consistent with Senegal's new liberalization and privatization policies is also a key goal in the electricity subsector. Institutional development needs, which are felt particularly keenly in the subsector, include improvement of SENELEC's management capabilities and its interfaces with its environment (e.g., users and supervisory authorities); and establishment of a more appropriate framework for managing and financing rural electrificationprograms. So far, Senegal has implemented performance contracts with SENELEC and projects to strengthen the utility's management capacity. Most recently, Senegal has initiated a study to explore other institutional development options for the electricity subsector, including different forms of participation by private operators in the subsector.  Main SENELEC Progmms for 1991-95 I. Mdenrizotion of the Interconnected System Rehabilitation and modernization of existing plants @el Air and Cap des Biches) Installation of a 20-MWdiesel component at Cap des Biches Rehabilitation of the 90-kV transmission system Improvement of the MV interurban 30-kV system Upgrading of the urban system serving the Dakar region and medium cities power compensation 11. Tmnsmisswn Improvements ToSue-Sakkal line 111. Drvelopment of Regional Systems Expansion of secondary plants' capacities (Ziguinchor, Tambacounda, Ourossogui) Ziguinchor-!%diou-KoIda interconnection Improvement of distribution to Ziguinchor and Kolda Hydrocarbons Subsector. Two major objectives dominate Senegal's strategy in the hydrocarbons subsector: promoting exploration for hydrocarbons and increasing the transparency of supplying oil products to the market. Work has been proceeding on these two objectives for several years and should result in increased liberalization of the domestic market and greater involvement of the private sector in this segment of the energy sector. Senegal has sought to develop a Petroleum Code that would attract foreign companies without requiring initial outlays of public investment. In essence, private investment would "carry" PETROSEN during prospecting and exploration, and PETROSEN might then participate in subsequent development and production operations. PETROSEN has undertaken promotion activities along these lines with the assistance of PCIAC. Five blocks offshore Casarnance have been promoted; contracts for three of these have been awarded, and a fourth is under negotiation. To strengthen its 12 E S W P COUhTRY PAPER institutional capabilities to monitor these activities, PETROSEN plans to develop a petroleum data bank, implement a technical assistance and staff training program, and continue its geological studies. Regarding the refining and distribution of oil products, SAR, a private company the majority of whose stock is held by foreign interests, possesses refining capacity of the order of 1.4 million tons. An agreement between Senegal and SAR governs the operation of this capacity and the setting of selling prices for refined oil products. A major amendment to this agreement was made in 1990.'3 No significant investment is envisaged in the refinery, whose production capacity is well in excess of Senegal's market requirements. Downstream of the refining stage, four factors characterize the present situation: (1) overcapacity of distribution infrastructure, taking into account the stagnation of demand; (2) low levels of competition; (3) an outmoded system of distribution margins; and (4) the active role of oil companies in the promotion of butane gas. Studies are under way to revise the rules for fixing distribution margins and to introduce more vigorous competition, especially in the transport field. These studies, which are included in the last structural adjustment loan, have not yet been completed. Timely financing of assistance will be a critical factor in the success of Senegal's overall energy strategy. The total needs for the 1991-95 period (see Figure 1) were recently estimated in the context of preparing an upcoming sector donors meeting. For the programs for which public agencies would be responsible, these needs were put at some CFAF 40 billion (approximately US$135 million). This does not include the needs of such private operators as SAR and the oil-product distribution companies, which, according to Senegalese authorities, are relatively small and relate mainly to maintenance or modernization. The figure also does not include financing connected with the Manantali hydroelectric projects. In view of its macroeconomic constraints, Senegal itself will not be able to make more than a marginal contribution to the financing of this program. SENELEC will be in a position to finance around 30 percent of its investment program. Additional resources will therefore have to be obtained from external sources. Accordingly, Senegal has accordingly scheduled a meeting of donors for February 1992. The World Bank has been requested to act as lead institution for this meeting, and ESMAP has been asked to assist with its preparation and organization. The meeting will be a roundtable of Senegal's main energy sector donors. Senegal has committed to taking several institutional and legislative steps before the meeting, including presentation of a new Forestry Code to the Parliament to ensure appropriate protection of the forest environment. The Bank plans to contribute to project financing by means of an IDA credit (the Second Energy Project). 13. See A n n a II.  SENEGAL 13 Fossil Fuels 15 $%:I$&!%% R-oductlon 41% Electricity 66% Dornestlc fuels 9% Rural electrif. Distribution 42% Energy Conseivatlon 3% ------------ FIGURE I : Senegal Energy Sector Financing Requirements, 1991-95 (Source: MICA) 14 ESMAP COUhVRY PAPER ZZZ. INTERNATIONAL AND ESMAP ASSISTANCE Senegal's energy sector has received and continues to receive significant support, including financing of investment and technical assistance programs, from the World Bank, ESMAP, and other international donors (for details on programs see Annex 111). Completed and Ongoing Projects The World Bank and ESMAP have been pursuing a number of projects in Senegal's energy sector, some of them with the support of UNDP, Canada, and the Netherlands. World Bank Projects. The World Bank has carried out two projects in the energy sector. The first, completed in 1989, helped finance PETROSEN's gas field development operations in the Sebikotane zone. The second, begun in 1986 and scheduled for completion in mid-1992, concerns the installation of two diesel groups totaling 40 M W capacity in the Cap des Biches power station; construction of new transmission lines (Cap des Biches-Tobkne, Cap des Biches-Hann); rehabilitation and upgrading of existing lines to 90 kV; and rehabilitation of urban distribution systems, mainly in Dakar. The project also includes an energy conservation component, financed by Canada and carried out by ESMAP. The project is being cofinanced by CCCE, the African Development Bank, and the West African Development Bank. The total cost will be US$90 million, with US$20 million financed by an IDA credit. The World Bank is also supporting a natural resource management program, known by its French acronym, PICOGERNA. This program supports efforts of rural communities to control the exploitation of forest resources for fuelwood. L PICOGERNA PICOGERNA is the French acronym for the Integrated Natural Resource Conservation and Management Program (Programme intigrL & cotwervation et de gestion des ressources mturelles). This World Bank-supported program helps rural communities take over management of the natural resources (land, forests, water, wildlife) in their community lands. At present. the program comprises two components: A regional component covering part of the Tambacounda and Kolda regions and designed to assess the regional natural resource potential and options for managing and conserving these resources in selected pilot zones and communities. A national component designed to disseminate and use the data and experience gained. I  SENEGAL 15 ESMAP Projects. ESMAP has carried out several support activities in Senegal's energy sector. The first, in 1983, was an assessment that helped identify policy options and programs in time to present to its 1985sector meeting of energy donors. Another, carried out in 1987-88, was a study of household fuels strategy. This study has served as a reference for most subsequent studies of Senegal's household fuels subsector; and the government has used its conclusions and recommendations to formulate its household fuels strategy and to prepare the programs that are to be submitted at the next donor meeting. Two other ESMAP activities are now in progress. The first, which began in 1986, concerned energy conservation in industry. Its preliminary phase was financed by UNDP; subsequent phases were supported by Canada. This program is nearing completion and has produced appreciable results. A second current activity, financed by the Netherlands, consists of supporting the Ministry of Industry, Trade and Crafts in updating its energy policy and preparing for the next donor meeting. This activity is also nearing completion. Key Factors for Success of Proposed Pmgrcuns In its present stage, Senegal's energy strategy depends on a number of factors. Crucial among these is Senegal's capacity to mobilize the necessary financing. As already mentioned, a sector meeting of donors, which ESMAP has helped prepare, is to be held in February 1992.'' The World Bank is also envisaging another project (the Second Energy Project) to help finance certain actions in the sector.ls Not only does mobilization of this financing not constitute a sufficient condition for the success of Senegal's policy, but is itself largely dependent on Senegal's progress in managing and developing its energy sector. Progress must be made in four critical areas: First, the management and development of the energy sector, especially in regard to electricity, will have to take place within a new institutional perspective. Second, in view of the magnitude of the economic, social, and environmental stakes, the strategy concerning household fuels will have to be managed with care. Third, Senegal must formulate a realistic rural electrification strategy. Finally, energy efficiency programs must be pursued and expanded where warranted. 14. Whether this meeting in fact fakesplace will depend large@ on the ckarification ufmeasuru that will demonstrate Senegal's commiment to protect its forest enriromcnt. 15. Ihe content of this project, as currently envisaged, is presented chewhere in this paper. 16 E S M P COUMRY PAPER ESMAP's Potential Contributions The nature of Senegal's energy issues and objectives suggest several areas in which ESMAP can make substantial contributions. New Instirutional Perspectives. The problems in Senegal's energy sector have impelled Senegal to work with its main donors to consider new avenues for institutional development. The first area that has been considered is electricity supply, which is presently handled by public service. The unsatisfactory results of SENELEC's recovery plan, initiated in 1986; the deterioration of SENELEC's financial position; and the chronic nature of problems in electricity supply have led the government, in conjunction with the World Bank and other bilateral donors, to consider institutional measures to permanently improve the efficiency of electricity service. Senegal is expected to outline its position on this question at the next sector meeting of donors. Institutional development is not to be limited to the power sector. Both Senegal and its donors feel that there is dramatic need to improve the overall management of the sector, and, in this respect, that is necessary to initiate thorough and innovative restructure measures, which could bring about the needed progress toward efficient management of the sector. In this context, several questions are yet to be addressed: How efficient are the financial instruments associated with the sector, such as the National Energy Fund? How can the flows and events of the energy scene be observed, measured, and understood thoroughly and quickly? What are the new sector regulations and management needs induced by liberalization or by institutional developments planned in other subsectors? How can private initiatives and financing be tapped more intensively? What are the options in the institutional sphere, and how can they be evaluated and implemented? Following what strategy? With what means? Within what time frame? Instituthnal Development of the Energy Sector. The purpose of ESMAP assistance will be to help Senegal to formulate and implement an indepth reform of the sector institutions. This activity will extend the study presently financed by the French Agence de Cooperation Culturelle et Technique (ACCT) relating to institutional development scenarios for SENELEC. It will build on the results of the French study and will consist, in an initial phase, in (1) assessing development options for the other institutions and regulatory mechanisms in the sector, and in (2) helping Senegal to formulate its choices. The study will consider sector administration, regulation, and financing, and the interfaces between administratorsand operators, both public and private. The initial phase will only be concerned with the strategic options that Senegal can make in conjunction with the donors. In subsequent stages, ESMAP would provide technical assistance for implementing these choices. This first activity will have a determining impact on ESMAP's other activities, and will contribute significantly to shaping other donors' assistance programs. The commitment of Senegal to embark on a program of institutional development will be instrumental for the continuation of the ESMAP program. As a follow-up to this activitiy, training and technical assistance actions could be designed to assist Senegal in implementing institutional development programs. Institutional Consolidation of PETROSEN. In parallel with this study and depending on its findings, ESMAP would help PETROSEN to define an institutional consolidation program. This activity would consist of assessing PETROSEN's institutional consolidation needs, and defining and evaluating the components of an activity program (management and information systems, training, technical assistance). If undertaken promptly, this activity could contribute to the preparation and execution of a component of the Second Energy Project designed to enhance PETROSEN's human and institutional capacities. Management of the Household Fuels Stmtegy. Senegal's strategy for household fuels is complex and delicate and involves both supply and demand. One complication is the data on which the strategy is based. These data, on the pressures on forests, on the long- run marginal cost of standing timber, and on the substitutability of different household fuels, all have high margins of imprecision or uncertainty. The strategy also includes such unknowns as international price movements of butane and the actual penetration rates of more efficient equipment (improved stoves, for instance). The social interests of the users, and also of the producers (farmers, carriers, promoters of substitute fuels such as peat) are also involved. The strategy includes as well components whose implement- ation must be continuously coordinated-the respective movements of butane and charcoal prices, among other things-to prevent distortion of their logic or the generation of perverse effects.16 This strategy must therefore be managed with care and be kept under constant supervision. The actions envisaged, in which several donors could conceivably cooperate, will accordingly have to be permanently monitored so that their effectiveness can be regularly and swiftly assessed, and any necessary corrective measures can be taken. The success of this strategy will be directly linked to the quality of its management and the ability of the Senegalese institutions concerned to intervene promptly and judiciously. Support for Implementing the Household Fuels Strategy. The objective of ESMAP assistance will be to help MICA and MDRH in implementing the strategy on urban household fuels. This activity will not be to carry out the different assistance and support programs which form the components of this strategy." It will, rather, consist of support for the MICA and MDRH in supervising implementation of the strategy. This activity will not be demanding in terms of staff time and resources but will ensure the 16. For example, without enhanced water andforest resource administrationcapacities, implementation of a new procedure for computing and collecting the stumpagefee (based on tonnage of wood used, for imtance) wouki probably be worse than the present suuatwn, which does at least allow for collrcling a certain amount of revenue. 17. Several donors (including fhe Workf Bank) are already cornmined or are conridering cornmining themselves to providing support for these program while other parties (NGOs,for example) are, most certainty, better qual$ed than ESMAP to provide direct ussirtance for thir type of action. 18 ESMAP COUhTRY PAPER continuation of work already done.'' ESMAP's specific contribution will be to help Senegal to continuously monitor the reform process, and in particular, to evaluate the effects of decisions on household fuel prices, to coordinate multiple actions, and eventually to take necessary adjustment measures required. This activity will have significant synergy with the Second Energy Project that Senegal and the World Bank are presently discussing and which could include a household energy component. Ruml Eledrificalhn Strategy. Senegal has already shown interest in devising a rural electrification strategy, and needs to devote more thought to the subject. The guiding principles of a strategy have been determined but the content must still be defined. How to set priorities for allocating public resources among alternative objectives: rural electrification and improvement of the electric service, for example. What rural electrification goals can reasonably be set? At what cost? In what institutional and financial frameworks could rural electrification be carried out? How can SENELEC's different responsibilities be made compatible (it is considered a commercial agent, but it also acts on behalf of the state for rural electrification)? What technological solutions can hold electrification costs to a minimum? Is it possible to develop and sustain private initiatives that can ensure widespread use of decentralized photo-voltaic systems in a market economy? How can the accomplishments of a number of pilot projects be perpetuated? How can the beneficiaries contribute to the cost of their electrification, and what instruments will the state have to use to collect their contributions? These questions must be answered if the process of rural electrification is to proceed on a realistic basis. EvaIualion of Ruml Electn!!catratron Programs and Detenn.iMtrMtron of Diredions for Stmtegy. The objective of ESMAP assistance will be to help Senegal devise a rural electrification strategy. Here, too, the work will not involve specific operations (electrification projects, solar power pilot projects) or the drafting of a long-term rural electrification master plan, since several donors are already supporting, or could support, such activities. ESMAP's assistance will, rather, be to evaluate programs that have already been carried out, and to prepare a new strategy framework. The activity will lead to: (1) formulating an institutional and financial framework encompassing all components of the rural electrification process; (2) evaluating the main technological options; and (3) determining ways to popularize individual photovoltaic systems, based on market and private sector mechanisms. This activity will clarify the Framework, economic rationale, and instruments by which rural electrification could be pursued more efficiently. It will also enable Senegal to specify its precise financial needs to other donors. The Need to Pursue and Expand EfJciency Programs. An important energy conservation program in the industrial sector, Industrial Energy Conservation Program (IECP), is being supported by ESMAP, with Canadian financing (CIDA). This program, now nearing completion, has produced some appreciable results: 40 to 45 percent of the identified commercial potential identified for energy savings has already been achieved, 18. W Senegal: Urban Household Energy Strategy, Report 096/89, P .  SENEGAL 19 and the enterprises concerned have announced their intention to take further steps of equivalent magnitude. This program, which covers most of the country's large and medium industrial enterprises, has made extensive use of local consultants over the past year to assist small industrial enterprises. Because this program has achieved its objectives, there is no reason to continue it, especially now that local private capabilities can provide the energy services that local industries are likely to require. However, there is a potential for energy savings in buildings and transport, where there have been no sustained programs. Moreover, on the supply side, the electricity sector offers considerable potential for making more optimal medium- and long-term investments and for reducing losses. Recent planning has revealed that SENELEC needs more sophisticated instruments and procedures to keep pace with the increasing complexity of its system. In regard to loss reduction, the global efficiency of the electricity system fell from 86 percent to 78 percent, and losses of all types increased more than 50 percent between 1973 in 1989, while in-system losses (transmission and distribution) doubled, from 8 percent to 16 percent. The potential for loss reduction is therefore significant. Some Data on the Industrial Energy Consenation Prvgmm (ZECP) UNDP provided USW80,000 toward the initial phase of the IECP, which made it possible to formulate the subsequent goals of the program, define the framework within which it would be executed, and conduct the first survey of energy consumption in industry. Canada then financed the rest of the program, in phases. This program, in which Senegalese private consultants also worked, made it possible to conduct indepth energy audits in more than 45 industrial enterprises, representing about 60 percent of the industrial sector's energy consumption. The results, which are still being evaluated, are most encouraging so far; the enterprises have apparently invested about USS10 million for an annual benefit of about USS6.4 million and have indicated an intention of further investments of about USS10- 15 million to obtain annual benefits of USW-6 million. Support for Energy Efficiency Prvgmms. The objective of this possible fourth line of assistance by ESMAP could comprise energy conservation in buildings and possibly transports and improvement in the efficiency of the power system. In assisting Senegal in improving efficiency in the building and transport sectors, ESMAP would examine the feasibility of action based on ESMAP's experience in Senegal's industrial subsector and on experience in CGte d'Ivoire and Jamaica, where ESMAP has projects proceeding along similar lines. Certain instruments developed in CBte dPIvoire(electricity billing control systems) and in Jamaica (building codes) should be transferable to Senegal. First, however, ESMAP would ascertain the appropriateness of these instruments to the local institutional framework-that is, the client structures in Senegal. 20 ESMAP COUAVRY PAPER In improving the efficiency of the power systems, the objective would be to help SENELEC enhance the quality of its medium- and long-term planning by introducing more appropriate methodologies and software, and reduce technical and commercial losses in the transmission and distribution system. This activity would not be limited to investment questions; it would pay special attention to the organization, operation, and training aspects of the system and would be based on the general and diagnostic studies and audits that SENELEC has already completed. The scope and procedures for this work would not be determined until the study of SENELEC's institutional consolidation is completed. The need for this work would be reviewed in light of these findings and the response of the Senegalese authorities. In this case, too, there would be significant synergy with the Second Energy Project. New ESMAP Activities and Coordination with Donors. The proposed ESMAP program was prepared with support from the World Bank and Senegal; it is the product of the work to be carried out to organize the next donors' meeting on Senegal's energy sector. It takes into account the recommendations of the Commission appointed to review ESMAP, and is intended to be a catalyst for and to support other donor financing and technical assistance initiatives.19 ESMAP will support these initiatives by applying its experience with and knowledge of Senegal's energy sector to strategic and institutional questions. The ESMAP program has been designed and scheduled to support preparation and implementation of the Bank's projects in Senegal, particularly the Energy I1 project, currently being discussed with the government. The objectives of the project could be to contribute to the financing of electricity sector investments and to implement household fuels strategy. The project could also eventually include institutional components. 19. See ESMAP in the Nineteen-Nineties: The Findings of the Commission to Review ESMAP. (Washington, D. C., and New York: Worki Bank and UNDP. Ocrober 19PO).  SENEGAL 21 IV. ESMAP'S PROPOSED PROGRAM The proposed program comprises six potential activities, summarized below. Summary of ESMAP Progmm Activities The following table and text summarize and discuss program activities for Senegal by type. Summary tables of schedule and budget are then presented, followed by detailed tables describing the individual activities. INSTlTUTIONAL. DEWWPMENT Study of institutional development of sector as a whole Peparation of an institutional consolidation program for PETROSEN SECTOR STRATEGIES Support for monitoring and supervising implementation of the household fuels policy adopted Evaluation of rural electrification programs and determination of new strategy directions ENERGY EFFICIENCY Preparation of an energy conservation program for buildings and, possibly, transport Support for SENELEC for improving its medium and long-term planning methods and reduction of its system losses , I There is consensus among Senegal, the UNDP (Resident Mission), the World Bank, and ESMAP on the order of priority for implementing each group of activities. The priorities, based on the urgency of Senegal's need for each activity, are institutional development, formulation of sector strategies, and energy efficiency programs. I n ~ t i r ~ o n Development. al The study of institutional development for the sector as a whole is the main priority, because (1) it will identify institutional development measures, which will have the greatest impact on sector management and development; (2) technically, the configuration and execution of the other activities will largely depend on the outcome of this study; and (3) Senegal's decision to implement an energy sector restructuring and institutional development program will constitute a decisive signal for donors to continue their support. 22 ESMAP COUhTRY PAPER The work relating to consolidation of PETROSEN will be more limited and less strategic than the institutional development at the sectoral level. The consolidation, which could be started shortly after the sector development activity, would apply results of the larger-scale study to the operational sphere. Its priority in the ESMAP program would be of a lower order. Sector Strategies. Sector strategies are also a priority in the ESMAP program, particularly the strategy to monitor and supervise household fuels. This latter activity has a high priority because of (1) the important impact of domestic fuels to the economic, physical, and social environment of the country; because (2) Senegal will soon begin reviewing its domestic fuel prices and general pricing measures; and because (3) it is vital that this complex program, which involves a number of powerful interests, be kept under control from the start. The evaluation of rural electrification programs and establishment of a new strategy framework also call for special attention. Certain components of this activity (review of past actions and assessment of technological options, for example) could be based on Senegal's resources and studies, and be undertaken without significant delays. A new strategy framework will depend, however, on the studies made in the institutional sphere (i.e., the study on SENELEC, and the proposed ESMAP study on the sector as a whole). It is accordingly proposed that this activity should be carried out in two phases. The first, which could begin in 1992, would use Senegalese resources to draw up a balance sheet of past actions and gather basic data on the rural electrification process. The second phase, which would determine the main thrusts of a new strategy, could begin in 1993 and be based on the findings of ongoing or planned institutional studies. The implementation of the first and second activities will depend on the findings and conclusions of the institutional studies in progress on SENELEC or planned for the sector as a whole. Energy Efficiency Progmms. These programs will depend largely on the findings of the institutional studies, especially the program for energy efficiency in the electricity sector, which will be based directly on the institutional development options that Senegal decides to implement for SENELEC. Similarly, the implementation of the building efficiency program will be conditioned by the institutional options decided by Senegal to the extent that (1) Senegal will have to play a major role in executing such a program, and (2) the institutional configuration adopted for the central administration will necessarily impact the program. Therefore, no decision to embark on energy efficiency programs should be made until the institutional development process has been determined. These programs might have to be deferred until 1993, although preliminary preparations could begin in 1992. Organizafion and Schedule of Activities. The following table sets out the schedule and priority of activities: Organization and Schedule of ESMAP Activities in Senegal - --- --- - --- - -- ACTIVITIES SCHEDULE -- 1992 No. Content Priority 1993 1994 1 Inst. Dev., Energy Sector 1 I I1 ... c c .b.b. -- 2 Monitoring, Household Fuels 1-2 lRiRRRir 3 Rural Elwtrification 2 bbbbw Evaluation and Strategy 4 Inst. i on so^.. PETROSEN 2-3 M = 5 Energy Saving (Buildings) 2-3 =-- 6 Efficiency, SENELEC 2-3 m m - : preparation of activity (Senegal and ESMAP) : execution of activity c : probable complementary activity (not yct defined) BUDGET LEVEL OF PRIORITY (000USS) Activities of priority 1-2 830 Activities of priority 2-3 1,Ooo I TOTAL I 1,830 24 ESMAP COUNlRY PAPER Budget for Activities and Hmncing Requirements. The following table shows the total budget for these activities. The budget has been drawn up in accordance with ESMAP practice, using ESMAP standard costs. Summary Budget for ESMAP Activities L I BUDGET (US$ thousands) ACTIVITIES TOTAL 1992 r Priority 1-2 1. Institutional Development, Energy Sector 380 380 2. Monitoring of Household Fuels Strategy 250 100 140 10 3. Rural Electrification Evaluation 200 70 130 Subtotal 1 830 550 270 10 Priority 2-3 4. Institutional Consolidation, PETROSEN 200 150 30 20 - 5. Energy Saving (Buildings) 200 150 50 6. Energy Efficiency (SENELEC) 600 400 200 Subtotal 2 1,000 150 580 270 TOTAL 1,830 700 850 280 1 Project Descriptions The purpose of the project descriptions presented here is to set forth, in brief and relatively standardized form, the main characteristics of the proposed activities and, in particular, the tie-ins between the ESMAP program and each of the envisaged activities. This approach meets the need for reference information that makes it possible to assess the desirability of an activity in the wider context of the program and, ultimately, to ensure the coherence of the program. The data contained in these descriptions are still provisional and will have to be discussed in detail with the Senegalese authorities and ESMAP specialists so that the conditions for execution of the activities can be fully determined.  SENEGAL 25 1. INSTITUTIONAL DEVELOPMENT OF ENERGY SECTOR Confexf: Efforts to investigate new options for institutional development of the electricity subsector, including increased private sector participation, have almdy been begun. Need to expand this study to the entire sector. Senegal has agred to undertake indepth study and draw up an institutional development plan for the 2000 horizon. Marked interest by donors in the operation, which would serve to reveal potentials and capacities for p r o m s in strategic management of the sector. Objectives and results: The aim is to identify and assess options for management (1) of the direction, monitoring, and observation functions relating to the sector; (2) of the interfaces between the administrative and operating structures (SENELEC, PETROSEN, etc.); and (3) of the fmancial instruments associated with the sector. Other goals: formulate a development strategy for the 2000 horizon, support Senegal in its decisionmaking, and prepare implementation programs. Conditions for erecufion: Two main phases are involved. The fmt will consist of a diagnostic study of the situation and determination of the main strategic options and the second will comprise g assisting Senegal in its decision process and p l - e p a ~ detailed development and implementation programs. Subsequent stages (not included in this activity) could involve support for implementation, particularly at the level of the overall administration of the sector. Main tusks: Phase I comprises gathering of basic data (for the most part available in Senegal), formulation of a diagnosis through contacts with Senegal and its main donors, progressive preparation of options and drafting of an intermediate report. Phase I1 comprises discussions with the Senegalese authorities and assistance in examining signifmnt experiments in other countries and in decisionmaking. In addition, preparation of detailed implementation programs for the various alternatives adopted (design of solutions, schedule, resources, etc.) and organization of the subsequent phases are envisioned. Synergies and lhkuges: Project has clear links with the study in progress on possible development options for SENELEC, the preparation and execution of a Sccond World Bank Energy Project and the holding of the sector meeting. The results of these will be decisive for the configuration of the other ESMAP activities and probably those of other donors. Close coordination is necessary with the ESMAP activity for institutional consolidation of PETROSEN. Counterpart sfmctures: MICA w ill organize and supervise the study. It will report, as required, to the Office of the Prime Minister on the progress of the study. Preliminary budget: USS380,000. Budget for services of high-level consultants (USS280.000); ESMAP expenses (USS50,000); and travel, missions, and contingcncics (USS50.000). Proposed schedule: To be started as soon as possible. Expected duration: 6 8 months. Specialprovirions: The continuation of the program will be contingent on the actions taken by the Government as a follow-up to the conclusions and recommendations of the study. 26 E S M P COUhTRY PAPER 2. MONITORING OF HOUSEHOLD FUELS STRATEGY r Contexf: This is an important program begun by Senegal to lessen the energydemandderived pressure on the forest environmcnt. Actions apply to supply and demand for woodfuels and include in particular price measures (on wood and butane gas) staggered over several years. Note the need for careful coordination of the various actions and monitoring of the price measures in order to keep complete control of the strategy and prevent distortion of its rationality. Objectives and resulrs: The purpose of the program is to evaluate the cffects of measures taken and the results expected, coordinate the different actions in order to maintain the cohcrence of the overall program and advise on any adjustments to be made. Activity relates solely to the strategy aspects, does not include any intervcntion in the operating programs that would be supported by other donors (Second Energy Project, for example). Conditionsfor execution: A preliminary phase involves determination of the framework for intervention with MICA and MDRH. Subsequent implcrneniation of the activity will be in coordination with initiatives by other donors (e.g., FAC). Mah tasks: These include preparation of procedures and systems for monitoring variables and indicators about thc strategy and ensuring coordination among the different parties. Also included: analyses of the strategy's effects; formulation of mmrnendations on updating and/or revision of the measures taken; support to Senegalese authoritiu, in the decisionmaking process. Synergies and linkages: The ESMAP activity should make it possible to monitor a possible "household fuels" component in the Second Energy Roject and serve as a support point for coordination of the various other donor initiatives in this substctor. Counterpurl shrctures: DEMG of MICA and MDRH. Respective roles to be clarified. Prelimhaty budget: About US$250,000. The budget covers consultant scrvices (USS180,000); ESMAP expenses (USS30,OOO); and travel, missions, and contingencies (USS40,OOO). Proposed schedule: Reparation of the activity will have to be done during the first half of 1992 (in conjunction with the preparation of a possible Second Energy Project) with startup in the second half of 1992 (at the latest). Specialprovirions: These include the nced to ensure that the legislative (revision of Forest Code), institutional and price measures are actually taken and implemented. The results of the Sector Meeting on Energy should be awaited before the activity is initiated.  SENEGAL 27 3. RURAL ELECTRIFICATION EVALUATION Context: Increasing access of rural population to electricity service is one of Senegal's social goals. However, the macroeconomic context imposes severe constraints and encourages limitation of public resources that might be allocated to pursuing this objective and seeking of means of rural electrification based, on the one hand, on private enterprise and resources and, on the other, on less costly technological options. Several donors have expressed a desire to assist Senegal's efforts in this sphere; however, only the broad lines of an approach have been defined and the content of a strategy remains to be specified. Objectives and resudls: Primary objective i s to evaluate the rural electrification programs carried out to identify economic, social, institutional, and financial stakes associated with this process. Also crucial: deterimine objectives of rural electrification program; redefine the institutional and financial context in which the program could be carried out; prepare the different components of this program for submission to other donors for financing. In a subsequent stage (not covered by the present activity) ESMAP may assist Senegal in management and monitoring of the program. Conditions for execution: The activity should be executed in two phases. Main larks: First phase: gathering of basic data, evaluation of experiments camed out to date, diagnostic study of institutional context, identification of impediments and barriers, evaluation of community solutions implemented. Second phase: preparation of options, support for decisionmaking and definition of key components of the program (objectives, costs, schedule, dc.). The first phase could be based for the greater part on Senegalese reeourcce and expertise. Synergies a n d linkages: Close links are to be promoted with certain donors who have shown an interest in this field. Significant interface with the institutional development study and the studies currently being done on SENELEC. Counterpurl structures: MICA and SENELEC. Preliminary budget: About USJ200.000. Budget will cover consultant services (US$150,000); ESMAP expenses (US$20,000); and travel, missions, and contingencies (US$30,000). Proposed schedule: Reparatory work should be done during 1992; the activity could be fully under way by the beginning of 1993. Speciulproviswns: Activity is to be coordinated with UNIDO and bilateral donors (may include Germany, Japan, Canada, Finland, Italy, Netherlands, Spain). 28 ESMAP COUNTRY PAPER L 4. INSTITUTIONAL CONSOLIDATION OF PETROSEN Confext: PETROSEN is currently carrying out a program to reactivate oil and gas exploration in accordance with the strategy adopted by Senegal: risks lefi to international private corporations, "carrying" of PETROSEN during the exploration phase, pticipation by PETROSEN, as partner, in development and production in the event of economically producible discoveries. Promotion of exploration is, therefore, an essential function for PETROSEN. Objectives ond resub: The general objective of the activity will be to draw up an institutional consolidation program for PETROSEN that will enable it to perform its exploration-promotion function more efficiently. This program will focus on (1) PETROSEN's organization; (2) training; (3) the technical assistance r e q u i d , and (4) development of a petroleum data bank. Conditions for erecution: T his activity will be camed out in one phase. It will be based on the assistance provided to PETROSEN by PCIAC and the experience gained in this sphere. It will be used, if required, for defining and preparing a training and technical assistance component suitable for implementation in a World Bank energy project. Moin &ks: These will relate to (1) gathering of basic data (exploration programs, PETROSEN activity parameters, etc.); (2) analysis of PETROSEN's objectives, purposes, and programs; (3) assessment of institutional resources needed for PETROSEN to function efficiently; (4) determination of training and technical assistance rquirements; (5) determination of the characteristics of a petroleum data bank intended to serve as a promotion instrument, and (6) defmition of a program for implementing the recommendations put forward. The setting up of the data bank does not form part of the activity. Synergies and hknges: This activity will be closcly associated with the studies on institutional development of the sector. It will constitute an operational extension of tho= studies. It will also serve for the preparation of a possible component of the Banlr's h n d Energy Project. &unlerporf structure: PETROSEN. Preliminury budget: About USS200,000. Budget will cover consultant services (USS160,000); ESMAP expenses (USS20,000); and travel, missions, and contingencies (USS20,o@l). Proposed schedule: This activity will have to be started in the second half of 1992 to allow the results of the studies on institutional development of the sector (Activity 1 of ESMAP program) to be taken into account while enabling it to be cornp1m.d sufficiently early for its recommendations to be used for the implementation of a possible Bank project. Speciol provkions: Close coordination will be ensured w ith the Canadian experts and authorities associated with PCIAC's support to PETROSEN.  SENEGAL 5. ENERGY EFFICIENCY IN BUILDINGS AND TRANSPORT Con&xt: Energy control is an important component of Senegal's energy policy, which is itself undergirded by a policy of high prices for modem commercial fuels. Moreover, thanks to CIDA financing and with ESMAP support, Senegal has camed out a major energy-saving program in the industrial sector. This program in near its successful completion, and the Senegalese authorities would like to carry out similar programs in the housing and transport sectors. Objecfives and resuk: The general objective of the activity will be to contribute to improvement of energy efficiency in buildings and (possibly) transport. More specifically, the envisaged activity will be intended to (1) assess potential energy savings; (2) arrive at a decision on the desirability of including transport; (3) establish a program of action; (4) define the institutional framework for the conduct and execution of the activity; and (5) set up, with SENELEC support, a system of electricity b i g control in government buildings. Conditionsfor execution: In a preliminary phase, the desirability of including transport will be assessed (regarding the potential that could actually be exploited and how ESMAP could assist in this). SENELEC must be closely associated with the conduct and execution of this activity, certain components of which (checking of electricity bills, for example) could be managed directly by the corporation. Initiation should await outcomes of ongoing and planned studies of SENELEC. Main tasks: These relate to (1) assessment of the desirability of a subprogram in the transport sector; (2) definition of the program and institutional framework for direction and conduct of the activity; (3) execution of a pilot operation in government buildings; (4) eatablishment of a system for checking electricity bills (public buildings); (5) study of construction standards for achieving bio-climatic housing, and (6) definition of financial instruments to go with the implementation of the program. A pilot operation might be run in a captive fleet. Synergies and Zinhges: This activity will have to be camed out in close coordination with those concerning the electricity subsector and the institutional development of the sector. It will be based to a large extent on the results of similar activities camed out by ESMAP in CBte d'lvoire and Jamaica and will use, if appropriate, certain analytic tools developed in those countries (software for bill checking and evaluating construction standards, for example). Counterpati structure: MICA to provide general direction; in the operating sphere, SENELEC and the ministries responsible for housing and transport will handle technical coordination. Preliminary budget: About US$200.000. Budget will cover consultant services (US$160,000); ESMAP expenses (USf20,000); and travel, missions, and contingencies (US$20,000). Proposed schedule: To prepared in 1992 and started in 1993 (if the prerequisites are met). Special provkions: Two conditions must be satisfied before the activity can be fully started: the future institutional development of SENELEC and of the sector must be clearly mapped out, and an appropriate framework must have been set up for the activity.  ESMAP COUhTRY PAPER 6. EFFICIENCY IN POWER SECTOR (SENELEC) I Conlerl: There is sizable potential for upgrading the electricity system's efficiency. This has already been noted by the Senegalese authorities and SENELEC. Various actions have been undertaken in the past, and an institutional development study is currently under way for SENELEC. Two areas have been identified for improving the system's efficiency: investment planning and reduction of in-system losses. Objectives and resuh: Improvments in the quality of the systems, procedures, and models for medium-term planning and reductions in system losses. Condilions for execution: Execution of this activity and its configuration if undertaken depend on and must await the results of the institutional development study under way. The activity comprises two different components: in the event that the activity is carried out, these components will be executed relatively independently: however, in order not to fragment the dialogue with SENELEC, they should be kept within the framework of a single project. Main tasks: The two components comprise tasks involving development of systems and procedures, installation of software better suited to SENELEC's operating conditions, training and support in utilizing the instruments developed. Synergies and linkages: Significant interfaces with the Second Energy Project envisaged by the Bank and with all the other activities affecting the electricity sector (rural electrification, energy saving) or institutional development. Counterpart structure: SENELEC. Preltntraty budget: US$600.000 (US$200.000 for the fvst component, investment planning, and US$400,000 for the second, loss reduction). Thin budget is still preliminary. Proposed schedule: Activity cannot be started until after execution of the institutional study on SENELEC and decisions on the recommendations arising therefrom. This activity could, therefore, be started in 1993. Specialprovisions: The detailed scope of the activity will be defined in a further phase.  ANNEX I: SENEGAL'S ENERGY BALANCES Yeac I988 Unit: 000 TOE ENERGY BALANCE Primary Enerqy Secondary Energy Total Wood Petrol. Gas Plant Charcoal Elec. Petroleun Wastes products 1 GROSS ENERGY SUPPLY 1,942 1.019 732 8 33 150 2 Production 1,063 1,019 3 8 33 3 Iwrts 993 75 7 236 Source: M i n i s t r y of Industry, Trade and Crafts.  ESMAP COUNTRY PAPER ANNEX II: PRICE, TAXAnON, AND ADMINISTRA T N E REGULATION SYSTEMS In the 1980s, Senegal made some important reforms in its policies for pricing and taxing energy products. In the electricity subsector, the objective of these reforms was to bring the price of electricity into line with its economic cost. For oil products, the objective before 1985 was to maintain price stability, and after 1985, to ensure considerable and easily collected revenues. For commercial energy as a whole, the objective was to reduce its cost as an input in the industrial sector. And finally, for household fuels, the objective was to promote substitution of butane gas for charcoal without raising the real price of charcoal. For the past two years, price reforms have been included in more comprehensive policies that have focused on two objectives: allowing energy prices to play their role of resource allocation role, and maintaining a certain level of revenue from petroleum products while keeping price distortions to a minimum. Some of these reforms were implemented in 1990 and 1991, but for reforms regarding industrial and household fuels in particular, the process will not be completed for another three years. Petroleum Products With the marked exception of butane gas, petroleum products are heavily taxed and therefore are an important vehicle for revenue collection. In the last quarter of 1990, ex- refinery prices of oil products were three times their economic costp for automotive fuels and double their cost for fuel oil, with gasoline used for nonindustrial fishery and kerosene taxed at relatively lower rates. Taxes for SENELEC and other large users are reduced still further. Butane gas for household use (packaged in 6 and 2.7kg bottles) is subsidized to facilitate its penetration into the household sector as substitute for charcoal. On the basis of these price estimates, annual tax revenues amount to some CFAF 60 billion, after deducting the butane gas subsidy, which is on the order of CFAF 2.7 billion. The price-firing mechanism for petroleum products. With encouragement from the World Bank, Senegal has undertaken reforms to introduce transparency and rationality into its oil pricing and revenue collection mechanisms. The first phase of this reform, carried out in 1989-90, consisted of modifying relations between the Societe Africaine de Raffinage (SAR) and the government. This modification took the form of eliminating the cost-plus system to set ex-refinery prices for products, and introducing a system of reference prices that are based on international markets and largely independent of SAR's operating costs. Under the new system, SAR's selling prices for refined products are equal to the cost of obtaining the same products on the international market, plus a fixed margin per metric ton of product sold on the domestic market. This margin represents the protection rate granted to SAR. Prices are updated quarterly, based on international market data. SAR may, moreover, choose between importing and local refining. In 20. This cosr being defined on an import parity b a i s .  SENEGAL 33 parallel with these measures, all levies on oil products have been brought under the tax system. In the second phase of the reform, currently under preparation, rules for taxation and setting retail prices will be specified, and the margin system and distribution regulations will be reviewed. The purpose of this reform will be to intensify competition in this segment. Electricity In 1985, electricity prices were adjusted to reflect the effect of long-run marginal costs (LRMCs) on SENELEC's general system, and to cover system operating costs. After a slight reduction in 1986 (on the order of 4 percent), intended to partially pass on the benefit of lower fuel costs, electricity prices have remained stable. The essential problem is that electricity prices are above pertinent economic costs. Senegal has to bear not only the operating inefficiencies that are reflected in these price levels, but also taxation of its fuel supplies on the order of 40 percent. These costs are then passed to electricity consumers. Household Fuels In contrast to what applies in the case of modern fuels, prices of household fuels are well below their economic cost. Distortions in woodfuel prices. The price structure in the woodfuel subsector (wood and charcoal) is considerably distorted. The essential distortion is the undervaluation of standing timber in relation to its economic cost. The cost of renewable development of the wood needed to produce one kilogram of charcoal is now about CFAF 50,21whereas the stumpage fee (which is supposed to reflect this cost level) is CFAF 5, or 10 times less. The price of charcoal is presently around CFAF 63lkg; if the wood were factored in at its effective cost, charcoal prices would be between CFAF 100 and 120lkg. At this price level, butane would be competitive without any subsidy; and, according to current MICA estimates, peat briquettes would also be competitive. There are also two subsidiary distortion factors: (1) the basis for computing the stumpage fee is the charcoal produced and not the wood used, with unwarranted differentials in the fee depending on the purpose for which the wood is used (firewood or charcoal). The reasons for this situation derive from Senegal's reluctance to increase the cost of fuels used by the poorest segments of the population, and from considerations of convenience in collection of forest-use fees. 21. lhisfigure is pure& indicative and represents an average of estimates made in 1985-87. It is aLFo wed, a s an order of magnitude, in studies by the Ministry of Rural Developmenf and Water Resources. 34 ESMAP COUATRY PAPER Consequences for dernative products. The relatively low price of charcoal means, among other things, that there is less incentive to develop and use other fuels (gas, kerosene, and peat). It also encourages Senegal to directly intervene to raise prices (using measures that also affect the prices of other fuels) in order to promote alternatives. One such measure is the butanization campaign, which encourages the use of butane gas by subsidizing its cost. This subsidy, made possible by the sizable tax revenues from other oil products, was about 35 percent of the cost of butane in mid-1990, and 75 percent by the end of 1990 following the abrupt rise in oil prices. In 1990, this amounted in global terms to a contribution of CFAF 1.5 to 2 billion. Kerosene has not been subsidized for two main reasons. First, fear of its toxic effects-much more marked than for gas;= and second, the fact that Senegal's primary objective is to reduce demand for charcoal in urban areas (the essential component of the pressure on the forests), for which kerosene would not be an acceptable alternative. Recent measures. Senegal has recognized the need to correct price distortions in household fuels, and has recently decided to take decisive action to eliminate these distortions. Two types of measures have been adopted. First, forest-use fees charged on standing timber will be adjusted to bring them into line with the economic cost of the wood; and second, the butane gas subsidy will be progressively eliminated as the forest- use fees are raised. According to the plan adopted by Senegal, these measures are to bring about the following effects: An increase in the stumpage fee in constant 1991 value; this increase will be of CFAF 51kg in 1991, and then of CFCF 1OIkg per year from 1992 to 1995. At the end of the period, in 1995, the stumpage fee would therefore be CFAF SOIkg, with the first adjustment (increase of CFAF 51kg) to go into effect before the end of 1991. An adjustment of the base for calculating the fee, in the context of the new forest code now in preparation. By the end of the adjustment period, the fee would be calculated on the basis of the wood used (expressed in terms of area, volume, or weight) instead of according to the quantity of charcoal produced. A progressive reduction of the butane subsidy, with complete elimination in five years. The schedule calls for an increase in the price of butane before January 1992, and thereafter for increases at a predetermined rate to parallel the rise in the forest-use fee. The subsidy will be completely eliminated by 1995. Conditions governing implementation of the new price measures for household fuels. In view of the economic and social factors involved with these price measures, Senegal has decided to proceed with caution. The new procedures for collecting stumpage fees 22. Kerosene can easily be used-illegally and usofely-as an aurilioryfuel for vehicks. In view of !he high taration on automotive fiiels, this wage, kgal, would creare a high demand for subsidized kerosene.  SENEGAL 35 depend on strengthening the monitoring and control capability of the Water and Forests Administration, and these procedures should not be applied until this capability has been adequately strengthened. There are still uncertainties about the impact on the forest cover of using woodfuels for energy, and about the long-run marginal costs of using these resources. These uncertainties cannot be cleared up until survey work has been completed and master plans for exploiting this resource have been established. These plans will be submitted at the forthcoming meeting of donors. Several factors remain largely unknown: under what condition will increasing the forest-use fee affect the retail price of charcoal? What will be the reactions and behavior of charcoal users following price increases? In view of these uncertainties, the government of Senegal has decided to carefully control the implementation of the household fuels strategy.  ANNEX 111: MAIN DONOR INITIATIVES IN SENEGAL'S ENERGY SECTOR Country Field o r Category of Assistance Belgium Financing of the Tobtne-Sakkal line. Study of complementary fields for cooperation in the energy sector. Shipment of 40 solar lamps. Energy audit of ICS envisaged. Canada PETROCANADA support to PETROSEN; Energy conservation program in industry (with ESMAP support); Biomass compacting project. Denmark Support for peat project study (in collaboration with UNDP and UNSO). Finland Rural electrification projects; Support for peat project study (in collaboration with UNDP and UNSO). France Participation in financing of SENELEC's investment program; Financing of an evaluation study of SENELEC; Sccondment of an adviser on household fuels to MICA; Shipment of solar lamps. Germany Electrification of Lower Valley (Matam-Podor); Solar energy pilot project (2 photovoltaic plants, 300 decentralized systems) completed, 1991. Second phase in prep. Italy Financing of the Tobtne-Sakkal transmission Line; Solar energy projects with the Directorate of Scientific and Technical Affairs (DAST). - Japan Financing of two 4.5-MW sets for SENELEC; Project at Podor to test photo-voltaic pumps and lighting systems; Interest in developing cooperation on solar energy use. Netherlands Wind energy projects. Spain Financing of the Tobtne-Sakkal line. Solar energy: electrification of a village (Noto, near Thihs) in 1987. Preparation of a second project to expand the electrification ndwork (possible use of a counterpart fund). Switzerland Financing of specific energy-saving projects; Institutional support to MICA on methods for analyzing energy systems in Senegal; Next studies on wood and charcoal with ENDA as subcontractor.  ANNEX III, MAIN DONOR INITIATIVES, CONTINUED International Organizations Field or Category of Assistance ADB Participation in First Energy Project. EEC "Butanization" program (with CILSS); Solar energy program, in connection with hydraulic projects in the Podor region. Photo-voltaic lighting. ESMAP Energy conservation program in industry (CIDA financing); Support for RSE preparation (Netherlands financing); Program under preparation (core). Institut PRISME regional project for cooperation on energy efficiency improvement. Francophonie UNDP Participation in peat project (through UNSO) with Scandinavian countries; Projects to popularize improved stoves and Casamance kilns. UNIDO Regional study on mini hydropower units (with Swiss funding) Pilot project for a biomethane digester (in preparation) W. African Devt. Participation in First Energy Project. Bank World Bank Energy Sector Rehabilitation Project (First Energy Project); Preparation of Second Energy Project (in progress). Sources: Ministry of Industry, Trade and Crafts; ESMAP. The World Bank UNDP Headquarters New Y ork 1818 H Street, N.W. United Nations Development Programme Washington, D.C. 20433, U.S.A. 1 United Nations Plaza New York, N.Y. 10017 Telephone: (202) 477- 1234 Telex: WUI 64145 WORLDBANK Telephone: (2 12) 754- 1234 RCA 248423 WORLDBK Telex: 125980 (domestic) Cable Address: INTBAFRAD 232-422 (overseas) WASHINGTONDC Cable Address: UNDEVPRO Facsimile: (202) 477-6391 NEW YORK Facsimile: (21 2) 906-6350 European Office 66, avenue d'ICna Geneva Office 75 1 16 Paris, France Palais des Nations CH- 121 1 Geneva 10 Telephone: ( 1 ) 140-69-30-00 Switzerland Telex: 842-64065 1 Facsimile: ( 1 ) 40-69-30-68 Telephone: 98-84-00 98-58-50 Tokyo Office Telex: (UNDP) 28.96.20 or (UN)28.96.96. Kokusai Building Cable Address: UNDEVPRO 1- 1 Marunouchi 3-chome GENEVA (SWITZERLAND) Chiyoda-ku. Tokyo 100. Japan Facsimile: (022) 98-75-24 Telephone: (03) 214-5001 Tokyo Office Telex: 781-26838 Shin Aoyama Building Facsimile: 32 14-3657 Room 2255 1-1 Minami Aoyama I-Chome Minato-Ku Tokyo 107, Japan Telephone: 03-475-1619/20 Telex: 128 334 AB TKOPI 528 334 Cable Address: UNDEVPRO TOKYO (JAPAN)