Guinea - First Power Project

Document of The World Bank FI y FOR OFFICIAL USE ONLY Report No. 3055-GUI PEOPLE'S REVOLUTIONARY REPUBLIC OF GUINEA STAFF APPRAISAL REPORT FIRST POWER PROJECT November 25, 1980 Regional Projects Department Western Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALENTS The official monetary unit is the Syli Syli 1 US$0,053 US$1 Syli 19.00 J MEASURES AND EQUIVALENTS gram (g) = 0.0022 pounds kilometer (km) = 0.62 mile meter (m) = 39.37 inches kilovolt (kV) = 1,000 volts kilowatt (kw) = 1,000 watts kilovolt-ampere (kVA) = 1,000 volt amperes Megawatt (MW) = 1,000 kilowatts (kW) Gigawatt hour (GWh) 1 million kilowatt hours (kWh) Tons crude oil equivalent (TOE) = 85.71 GWh ABREVIATIONS AND ACRONYMS SNE - Societe Nationale d'Electricite KfW - Kreditanstalt fuer Wiederaufbau CCCE - Caisse Centrale de Cooperation Economique DEG - Direction des Eaux de Guinee OCOFI - Office de Coordination Financiere de l'Industrie MINEK - Ministere de l'Energie et du Konkoure MIP - Management Improvement Program BGCE - Banque Guineenne du Commerce Exterieur SOGUILEC - Societe Guineenne dlImportation de Materiel Electrique IMPORTEX - Societe d'Importation et d'Exportation EECI - Energie Electrique de La Cote d'Ivoire SERCOM - Service Commercial FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY PEOPLE'S REVOLUTIONARY REPUBLIC OF GUINEA APPRAISAL REPORT OF THE FIRST POWER PROJECT Table of Contents Page No. I. BACKGROUND ............................................... l Introduction ..................... 1 The Economy ................................ . 2 Il. THE POWER AND ENERGY SECTOR .............................. 2 A. Country Energy Outlook ............................. 2 Energy Uses and Resources ...... ..................... 2 Tariffs ...... 4 Energy Sector Organization .......................... 4 National Energy Planning ............................. 5 Proposed Konkoure Hydro-Electric/Aluminum Smelter Project ............................................ 5 Bank Asslstance Strategy in the Energy Sector ....... 6 B. Power Sub-Sector ...................................... 7 Subsector Organization .............................. 7 Electric Service Coverage ........................... 8 The Electricity Market ........................... 8 Existing Facilities ........................ . 9 Subsector Planning and Development ...... ............ il SNE's Rehabilitation Program ......................... il III. IMPLEMENTING AGENCY ......................... 12 Organization and Management .......................... 12 Staffing and Manpower Development .................... 13 Manpower Development Evaluation ..... ................ 14 "A Priori" Controls for Local Purchases .............. 15 Availability of Foreign Exchange for Operations ..... 15 Meter Reading, Billing and Collection ................ 16 Accounting ........................................... 17 Budgeting ............................................. 18 Audits ........ 18 Insurance ........ 18 The appraisal of the project was carried out in November/December 1979 by Messrs. B. M. Thiam (Engineer), E.J.W. Gilling (Economist), J-M. Boudier (Financial Analyst), WAPEW; Messrs. W. Cooper of the West Africa Projects Education Division (WAPED) and R.R. Buhler of the Legal Department (LEG) participated in the appraisal mission and appraised the training requirements of SNE and the legal status of the power sector organization. This report was prepared by Messrs. Thiam, Gilling and Boudier, with edi- torial assistance from Mrs. L. Leach. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  - ii - Table of Contents (Cont'd) Page No. IV. SNE'S REHABILITATION PROGRAM AND THE IDA PROJECT ........... 19 A. SNE's Rehabilitation Program .. 19 B. The Proposed IDA Project . . . . ............................ 22 Project Objectives ...... 22 Project Components ...... 23 Project Costs .. . . ......... 27 Project Financing . . . . . .................... 29 Project Execution . . .... 29 Construction Schedule . . ..................... . . 30 Procurement .. . .. ....................... 30 Project Monitoring and Reporting ....... 30 Disbursement ................................ 31 Environmental Impact ............................ . . . 32 V. ECONOMIC JUSTIFICATION ........................ ... .. 32 Benefits of the Rehabilitation Program. 32 Population to be Served . .33 Consumption Forecast.. 34 Least Cost Solution . .34 Generation . .34 Transmission and Distribution Facilities . .37 Return on Investments . .37 Pricing Considerations . .39 VI. FINANCIAL ANALYSIS .39 Introduction ..39 Past Earnings ..40 Present Financial Position . .41 Tariffs . .42 Financing Plan ..42 Future Finances ..44 VII. SUMMARY, AGREEMENTS TO BE REACHED AND RECObIENDATIONS .... 45 Summary . .45 Project Risks ..45 Agreements to be Reached ................. 46 Recommendations ............. ............ 47  - iii - Table of Contents (Cont'd) Page No. LIST OF TABLES Table No. 2.1 1978 Primary Energy Consunption .......................... 4 2.2 Total Electricity Consumption and Generation, (1978) ..... 8 4.1 SNE's 1980-84 Rehabilitation Program Costs .... ........... 19 4.2 Project Total Costs Estimates ............................ 28 4.3 Disbursement Schedule .................................... 32 5.1 Population Forecast in Conakry ........................... 35 5.2 Forecast of Total Consumption in Conakry/Kindia Network ... 36 5.3 Internal Economic Rate of Return ......................... 36 6.1 SNE's Past Income Statements ............................. 40 6.2 SNE's Past Balance Sheets Summary ........................ 41 6.3 SNE's Future Earnings .................................... 43 6.4 SNE's Financing Plan over the Project Period .... ......... 44 LIST OF CHARTS Chart No. 4-1 Rehabilitation, Reinforcement and Expansion Program: Conakry High and Medium Tension System .... ............... 20 LIST OF ANNEXES Annex No. 1 Conakry Interconnected System's Total Output .48 2 Existing Tariffs .49 3 Technical Assistance and Training .51 4 Management Improvement Program (MIP) .53 5 Development of Project Costs ......................... ..... 55 6 Project Construction Schedule .58 7 Project Monitoring and Reporting Requirements .59 8 Electrical Energy Consumption Forecast .61 9 SNE's Organization Chart .64 10 Income Statements: 1976-1985 .65 il Cash Flow Statements: 1976-1985 .66 12 Balance Sheets: 1976-1985 .67 13 Assumption for Financial Projections .68 14 Documents and Data Available in the Project File .70 15 Economic Evaluation of SNE-s 1980-84 Rehabilitation and Expansion Program .72 Maps IBRD 14974 IBRD 14975  PEOPLE'S REVOLUTIONARY REPUBLIC OF GUINEA SOCIETE NATIONALE D'ELECTRICITE (SNE) FIRST POWER PROJECT I. BACKGROUND Introduction 1.01 The Guinea Government and Societe Nationale d'Electricite (SNE) have requested IDA to participate with Kreditanstalt fuer Wiederaufbau (KfW) and Caisse Centrale de Cooperation Economique (CCCE) in the financing of SNE's 1980-84 Program for the Reinforcement, Rehabilitation and Expansion of the Power Generation, Transmission and Distribution System for the City of Conakry - Guinea's only extensive interconnected power system, in and around the capital city. Total cost of the program is estimated to be US$66.6 million equivalent, including contingencies, with a foreign exchange component of US$58.7 million equivalent. 1.02 The Conakry power system today suffers from the consequences of years of low maintenance and weak institutional capability. Frequent power outages and excessive voltage drops disrupt production and damage industrial and domestic electrical equipment. Institutional weaknesses reduce the effectiveness of SNE in operating and maintaining the existing facilities with the result that rehabilitation is required to virtually all generating, transmissiion, and distribution facilities. A reinforcement of transmission lines and substations plus an extension of the distribution network is also required to serve industrial and domestic load growth. 1.03 The proposed IDA credit of US$28.5 million would finance the foreign exchange component of a project for reinforcement of the Conakry Il 1/ dis- tribution system (Map 14975) and technical assistance. The total estimated cost is US$32.5 million, including the refinancing of PPF advances in 1978 and 1980 totalling US$520,000, and Credit S-22-GUI which was made in 1979 in the amount of US$1.13 million to provide urgently needed engineering and repair services in the power sector. The project is based on a feasibility study carried out by a Canadian consulting firm, 2/ and financed under the PPF advance. The Bank Group participated in formulating both SNE's 1980-84 rehabilitation program and the IDA project through identification, preparation of the feasibility study's terms of reference, preappraisal and appraisal missions in 1978-1979. 1/ The city of Conakry is composed of (i) Conakry I which is a peninsula and the administrative and business center and the original residential area and (ii) Conakry II which is the mainland, industrial and more recent residential area. 2/ Tecsult International Ltd., Montreal, Canada.  -2- The Economy 1.04 Guinea has an area of 246,000 km2 and a population of about 5.3 million growing at 2.6% per annum. The country<s varied and fertile natural conditions provide potential for a diversified agriculture and animal hus- bandry, while its substantial water resources are suitable for irrigated agriculture and hydroelectric power. Mineral deposits include bauxite, of which the country is estimated to possess the largest reserve in the world, and considerable quantities of high-grade iron ore. 1.05 Economic performance during the 1960s and early 1970s was disappoint- ing. After independence (1958), the Government placed emphasis on reorganizing economic and social activities towards a socialist economy with trade, banking and manufacturing handled almost exclusively by state enterprises with highly centralized control. Inadequate planning, managerial inexperience and short- ages of skilled manpower limited productivity, and public enterprises absorbed increasing amounts of Government resources to the detriment of investments for development. The capital costs and recurrent deficits of public investment soon exceeded budgetary savings resulting in heavy foreign borrowing. in- creasingly unmanageable debt obligations, and expansion of the money supply. This resulted in galloping inflation, overvaluation of the local currency- sharp curtailments on imports of raw materials and consumer goods, and development of an active parallel market with prices substantially higher than official levels. The economy thus entered a downward spiral of foreign exchange shortages, poor incentives, and declining investments, output and exports. 1.06 From 1973, after the start up of two large bauxite mines, the economy picked up and per capita GDP has since grown at an average of 3.2% per annum in real terms to reach US$292 in 1979. Most of Guinea's modern sector economy and industry is located in and around Conakry which is the largest urban center. 1/ One of the factors which contributes to poor industrial performance is the lack of reliable electricity supply, which would be a prerequisite for industrial rehabilitation. II. THE POWER AND ENERGY SECTOR A. Country Energy Outlook Energy Uses and Resources 2.01 As with many aspects of the Guinean economy statistical informa- tion regarding the energy sector is inconsistent and incomplete. Hence, it 1/ Forty-nine percent of employees in manufacturing, and 21 of the 34 public enterprises are located in Conakry,  is possible only to present a broad picture of the national energy situa- tion, as shown