Cambodia - Rural Electrification and Transmission Project

Report No. PID9274 Project Name Cambodia: Rural Electrification ... @ and Transmission Region East Asia and Pacific Sector Electric Power & Other Energy Adjustment Project ID KHPE64844 Borrower Kingdom of Cambodia Implementing Agencies Ministry of Industry, Mines and Energy (MIME), Electricite du Cambodge (EDC) Contacts: H..E. Ith Praing Secretary of State, MIME Tel. 856-23-723447 Fax. 856-23-427-852 e-mail: energydept@camnet.com.kh Mr. Ty Norin Corporate Management Director, EDC Tel. 856-23-426938 Fax. 856-23-426018 e-mail: norin@bigpond.com.kh Date of PID October 3, 2001 Projected Appraisal Date February 26 , 2002 Projected Board Date June 4 , 2002 Background 1. In many respects, these are hopeful times for Cambodia. The country is at peace, the economy is stabilizing, and recent economic performance is promising. With its accession to ASEAN, Cambodia is redefining its political and economic position in the region. Yet Cambodia faces an array of development challenges. This is a post-conflict country where many of the foundations for growth and development -physical, social, human, and economic- were shattered and are being put back in place. Annual percapita income is $290. Over one-third of the population live below the poverty line, 90 percent of them in rural areas. They lack voice and access to services and opportunities. Both human and physical capital have been depleted by decades of conflict, resulting in severe capacity constraints, and social indicators are among the worst in the region. Social capital, also has to be restored, and trust in public institutions re-established. The private sector, the driving force behind the country's economic recovery in rural and urban areas and essential for poverty-reducing growth, is constrained by limited and high-cost infrastructure, uncertain land and property rights, limited access to credit, and a weak regulatory framework. 2. A significant fraction of power demand continues to be supplied from large and small generators owned by consumers. Despite the Government's efforts, its institutions remain weak, and power supply is costly and mostly limited to urban areas. Electricite du Cambodge (EDC) is the state power company which serves the capital (Phnom Penh), two main provincial cities  (Sihanoukville and Siem Reap) and other provincial towns. Other provincial cities are served by local Government or licensed enterprises with unreliable and expensive service. Villagers in more isolated locations fulfill very modest energy needs with simple but high cost solutions such as batteries. Since 1996 there has been a gradual normalization of supplies from EDC and the very small generators (e.g. gasoline powered sets) are either no longer in use or have been left on standby as backup. 3. To support the country's development strategy and its continued recovery, the power sector needs to confront issues related to efficiency, institutional structure and electricity coverage. Since 1996 there has been a Bank-supported effort to restructure the sector and promote private sector participation. An Electricity Law was enacted in February 2001 which establishes a separate regulatory body: the Energy Authority of Cambodia. To address efficiency and coverage issues power sector investments will be necessary; investments in grid extension projects in rural areas and solutions for isolated communities are a high priority for supporting rural development and improving living conditions; investments in transmission projects are required to reduce production costs and capture economies of scale. Project Objectives 4. Within the above context, the primary objectives of the project are to reduce poverty and support the foundations for sustainable development in the long term. The project will seek to accomplish these objectives by (a) promoting rural development by providing the economic benefits of electricity; and (b) improving power sector efficiency, by consolidating the sector restructuring efforts, reducing electricity costs and removing infrastructure bottlenecks. Project Description 5. The project has been broken down into four principal components: Rural Electrification,OkV and 115kV Transmission, and Technical Assistance. The rural electrification component will support a long-term effort to provide electricity to rural areas for direct and indirect contribution to economic development and poverty alleviation. This will be achieved by strengthening of the institutional framework, capacity building of t he stakeholders, and improve the living situation of individual households. The project will support: (a) institutional development and capacity building; (b) grid extension to rural areas by EDC; (c) off-grid electricity expansion and quality improvement of Rural Electricity Enterprises; (d) commercial investments in mini hydro projects; (e) solar home systems and improved used of batteries for household electricity supply. It is expected that up to 100,000 new customers would receive electricity. The off-grid pilot projects are expected to constitute the basis for further initiatives to supply electricity to currently isolated population centers; The transmission component including: (a) 230 kV transmission -- is the major physical element of the project which will enable the system to access lower cost power through an interconnection with Vietnam. This component will include a 220kV transmission line from Phnom Penh to an intermediate substation (Takeo) and to the Vietnam border, over a total distance of around -2 -  109km; and (b) a 115kV transmission component -- will consist of a connection from the 220kV system to an existing substation in Phnom Penh and reinforcements to existing lines and substations; Technical assistance will be provided for (a) the consolidation of power sector regulatory reforms, including items such as training for the regulator (EAC); (b) strengthening the policy making capability of the MIME; and (c) improving EDC's commercial and financial performance, together with strengthening of its capabilities for detailed engineering, procurement and construction supervision. Preliminary Project Financing The following project financing is being proposed Source of Funds Local Foreign Total Government 9.9 0.0 9.9 11.6- JB IC 6.5 33.5 40.0 46.7 Th IDA Credit 4.1 29 . 9 3O . O 30.0 35.5 GEF Grant 0.0 5.7 5.7 6.79, Total 20.5 65.1 85.6 1009 Project Implementation 6. Project preparation arrangements. For project preparation,MIME has established a Project Management Unit (PMU) which is responsible for all project preparation activities to be executed by the Government side, including the management of locally-executed funds,coordination and review of -3 -  consultants' work, organization of seminars and consultation events, preparation of a Project Implementation Plan (PIP) and overall coordination with IDA. The PMU is responsible for both the rural electrification and transmission components of the project. It consists of a Steering Committee, with participation from EDC and MIME, and a Working Group, chaired by a Project Manager, and composed of technical staff from EDC and MIME.The project is being prepared with the financial support of grants from Japan (PHRD), Finnida and GEF. The PHRD grant is being executed following a split execution modality whereby the Recipient (MIME) manages funds for local costs; and IDA manages the funds used for international consultants. As of September 2001, almost all studies have been completed. 7. Project implementation arrangements. Detailed institutional and implementation arrangements would be finalized during project preparation. The executing agency for the project will be EDC. During Project implementation, two Project Management Units will be set up, one for the T/L component, staffed by EDC, and the other for the RE component, including staff from EDC and MIME. The two PMUs will include staff from the PMU for Project preparation, as well as project-specific staff with more specialized skills in project management,procurement, transmission and distribution, inventory control, and accounting. The PMUs will be in charge of overall project implementation and coordination, including procurement, and project management of the construction works. To this end, both PMUs will avail themselves of the services of a project management and supervision consultant. A Rural Electrification Fund(REF) will be established prior to project effectiveness. The REF will channel subsidies for the promotion of Rural Electrification and development of renewable energy. The procedures of the REF are being finalized. Lessons Learned 8. Key lessons learned from other Bank credits include the need to: (a) position infrastructure projects within a sector-wide institutional context; (b) complement investments with technical assistance components to ensure that projects do not fail due to inadequate institutional framework; (c) systematically assess the economic and financial sustainability of tariff levels; and (d) embed projects within a balanced investment program. The project will internalize these lessons by: (a) coordinating the proposed actions with those recommended in the Cambodia Power Sector Strategy as well as within the broader CAS; (b) providing specific specialized training and technical assistance in the power planning, dispatch and operations areas; and (c) by designing the project to support the overall institutional framework of the sector. 9. Successful projects require strong commitment and ownership on the Borrower's part and, in this case, support from local government. Sector reform has been taking place with Government support since 1997, including the preparation, drafting and passage through the Legislature of the Electricity Law. It has also endorsed the organization of the EAC. A continued emphasis on the implementation of key policy reforms is being incorporated into project design (through the TA component) to preserve this momentum. The extent of involvement of local government has been addressed during the execution of the feasibility studies; particular care will be given to this aspect insofar as it relates to rural electrification promotion, acquiring rights of way and resettlement. -4-  10. Regarding rural electrification, the project will seek to replicate the Bank's experience in similar projects. In Indonesia a very successful program was established which encouraged rural enterprises to convert to electricity once it was available. In Uganda, the Bank is piloting "Multipurpose Telecommunications Centers" which can be as simple as a pre-wired shipping container fitted out with basic office equipment and telephones. The Bank will also take into account its experience with other rural electrification projects regarding technical design questions by adapting standards and procedures to rural conditions. As a result, it is expected that the costs of rural electrification can be reduced significantly with little, if any, loss in quality of service. The Rural Electrification strategy study examined the appropriate technologies for implementation. 11. Regarding the transmission component, the Bank's experience includes, for instance, a recent project which funded the interconnection between the small system of Belize and the large Mexican grid, which has improved service quality and has substituted high cost diesel generation by lower cost imports produced with natural gas; in addition to reducing costs, this project has had significant environmental benefits; its lessons would be applied in Cambodia. 12. Key lessons from other projects in Cambodia have been identified through the Cambodia Country Assistance Evaluation (CAE), executed by OED and completed in June 1999, which covered the 1992-99 period. The project will incorporate the lessons from the CAE by simplifying project design and tailoring it to the available implementation capacity. The project will emphasize the technical assistance component in order to build up human capital and it will liaise with other support organizations. During project preparation there has been permanent communication and coordination with the Asian Development Bank and other donors. Environmental Aspects 13. The environmental impacts associated with the project are likely to be minor. The transmission component crosses areas where the predominant land use will be agriculture, mostlyrice farming. It does not cross national protected areas and no forest area will be affected. Similarly, due to the generally low density development along the proposed route, a number of cultural elements such as temples can be avoided through careful alignment. An Environmental Impact Assessment (EIA) has been completed and is being consulted with shareholders. Contact Point: Mr. Enrique Crousillat The World Bank Patou Xay, Nehru Road Vientiane, Lao PDR Tel. (856-21) 414209; Fax. (856-21) 414210 e-mail: ecrousillat@worldbank.org For information on other project related documents contact: - 5 -  The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. This PID was processed by the InfoShop during the week ending November 16,2001 - 6 -