Niger - Power Engineering and Technical Assistance Project

Document of The World Bank FOR OMCAL USE ONLY Report No. P-3652Z-I REPORT AND RECO?tEDATION OF TEE PRESIDENT OF THE INTERATIONAL DE OPMET ASSOCITION TO THEE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 7.2 MILLION TO THE BEPUBLIC OF NIGER FOR A POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT July 2, 1984 do dcuamet h. restricted disibution ad may be used by recipients only in the pedfonance of their official duties. Its eontents omy not Otherwise be disclosed without World Bak authorization.  CUERENCY EQUIVALENTS Currency UnLit CFAP l/ US$ 1.00 CFAP 392 ClAF 1,000 = USS 2.55 USS 1.00 = SDR 0.96 FISCAL YEAR Government of Niger - October 1 - September 30 NIGELEC January 1 - December 31 ABBREVIATIONS AND ACRONYIS AEK - Autoritt du Barrage de Kandadji CCCE - Caisse Centrale de Cooperation Economique cmES - Centre de retiers de l'Electricite et de 1'Eau- ESIE - Ecole Superieure Interafrecaine d'Electricit'e FIPEC - Piduciaire Paris Expertise Comptable GON - Government of Niger Gwh - gigawatt hour IDA - International Development Association KfW - Kreditanstalt fUr Wiederaufbau kWh - kilowatt hour LRNC - Long Run Narginal Cost MEI - Ministere des Nines et Industr_es NTP - Ninistere des Travaux Publics et de l'Urbanisme NEPA - National Electric Pover Authority NIGELEC - Soc-ete Nig-reenne d'Electricite PPF - Project Preparation Facility PSN - Power Sector Memorandum SONICHAR - Societe Nig6rienne de Charbon l1 The CF4 Franc (CFAF) ss tied to the French Franc (FF) in the ratio of FT I to CFAF 50. The French Franc -s currently floatJng.  FOR OMFFCIL USE ONLY REPUBLIC OF NIGER PRESIDERT' S REPORT POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT Table of GPatents Page No. Credit and Project Summary ....................... .....* .. i I. THE ECONOMY ....................l.-.9................ Background * Economic Achievements in the Seventies 2 The Early Eighties and the Uranium Crisis .... 3 Public Finance 3 Balance of Payments and Debt 3 Niger's Reaction to the Crisis .................. 4 Struictural Adjustment 5.................... ...... 5 Niger's Future Development Prospects ............ 6 II. WORLD BANK OPERATIONS IN NIGER ....................... 7 III. THE ENERGY AND POWER SECTOR ...............*9**........ 8 A. Energy sector ....... ... ................. 8 B. Power Sector .............................. 10 Power Supply and Demand ...................... 10 Power Sector Organization .................... 11 Existing Facilities ............... ...... .... 12 Sector Development and Planning ............. . 13 NIGELEC Organization, Menpower and Training .. 15 Tariffs *..* ............................... 16 NIGELEC Finances .... .......... ....... 17 Background .............................. 17 Past Financial Performance ............... 17 Present Financial Position .............. 18 Future Finances ... ..o.. ....... ........... 19 Accounting and Audit ........... ....... ....... 20 Sector Development and Rationale for Bank Involvement ...... .............. ...... 20 IV. THE PROJECT ........... **..Owe .... 21 * Background *******............*......**... 21 Project Objectives .................... . ... ...... 21 Project Description ...... ... ... ....... ... .. ... .. 22 Project Cost and Financing Agreements ........... 22 Project Implementation and Monitoring ........... 23 Procurement ....*o .............................. 24 Disbursement ......o.. o.* ** ..*..* **** ***o ... o *** 24 Project Benefits and Risks ......... .............. 25 V. LEGAL INSTRUE3NTS AND AUTHORITY '...'' .............. 25 VI. RECOMMENDATION ***................ *... RECOMMENDA*.ION 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Cont'd) Page No. ANNXES I. Niger Social Indicators Data Sheet ................... 27 II. Status of Bank Group Operations in Niger ............. 32 III. Supplementary Project Data Sheet ...... 0.............. 34 IV. NIGELEC' Income Statements Funds Flow Statements and Balance Sheets: 1979-1987 *........ 36 V. Project Timetable ....... .*.**********.**... ....... 39 VI. Disbursement Schedule ........ .....*..... .......... 40 VII. Selected Documents and Data available in the Project File ..........* .................. 41 NAP Niger Energy Resources and Infrastructure in 1982 (IBD Nap No. 17253)  REPUBLIC OF NIGER POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT Credit and Project Summary Borrover: Republic of Niger Beneficiary: Societe Nigerienne d'Blectricite (NIGELEC) Amount: SDR 7.2 million (US$ 7.5 million) Terms: Standard Relending Terms: The Government of Niger would pass on an amount equivalent to US$ 1.9 million to NIGELEC in the form of equity. The Government would on-lend the remaining US$ 5.6 million to NIGELEC for 20 years, including a 5 year grace period, at an interest rate of 10.08% pa. The foreign exchange risk on the amount re-lent would be borne by NIGMELC. Project Description: The proposed project would assist Government to define a least-cost long-term program of power development and to improve the organization and management of the power sector. The project would also help NIGELEC improve its internal organization, nanpower planning, training, financial management, and its distribution system. The project would provide for: (a) a pover planning study to devise the least-cost program of system development, engineering for preparation of bid documents for the next power project in the program, and technical assistance in the supervision of these studies; (b) a study of future sector organization; (c) a study of NIGELEC's internal organization, management, and manpower requirements; (d) training of NIGELEC engineers and technicians; (e) a study of NIGELEC's tariff based on long-run marginal cost principles; and (f) equipment to rehabilitate and improve the operational efficiency of part of NIGELEC's distribution system.  - ii - Benefits and Risks: No significant technical risks are associated with project implementation. The expected benefits of the project are: definition of future power development, streamlined sector organization and utility management, and improved efficiency of the electrical distribution system. Project Costs The proposed project is estimated to cost US$ 7.9 million, including foreign costs of US$ 6.9 million, and excluding taxes and duties. The Government of Niger plans to exempt imported goods and services from taxes and duties, and to assume responsibility for all taxes on locally supplied goods and services. The breakdown of the project cost estimate follows:  - iii - Nillicn of US$ ----- Local Foreign Total 1. Power Planning Power Planning Study 0.15 1.45 1.60 Engineering for preparation of bid documents for next Power Project 0.19 1.27 1.46 Planning Specialist 0.02 0.05 0.07 Subtotal 0.36 2.77 3.13 - 2. Sector Institutions Study 0.01 0.10 0.11 3. Study of NIGELEC Organization, Management, and Manpower Requirements 0.05 0.17 0.22 4. Training 0.04 0.77 0.81 5. Tariff Study 0.03 0.14 0.17 6. Distribution equipment 0.27 1.70 1.97 7. Base Cost 0.76 5.65 6.41 8. Contingencies Physical 0.04 0.28 0.32 Price 0.18 0.99 1.17 9. Total Project Cost a/ 0.98 6.92 7.90 Financing Plan b/ Millions of US$ - Local Foreign Total IDA 0.58 6.92 7.50 Government and NIGELEC 0.40 - 0.40 Total 0.98 6.92 7.90 a/ Including up to US$ 1.0 million to be financed under the Project Preparation Facility. b/ The proportion of IDA financing forms part of the Special Action Program in Niger.  - iv - Estimated Disbursements (US$ million equivalent) IDA FY84 FY85 FY86 FY87 Annual 0.7 a/ 2.9 2.5 1.4 Cumulative 0.7 3.6 6.1 7.5 Rate of Return: Not Applicable Staff Appraisal Report: None Map: 17253 a/ Including reimbursement of PPF advances.  INTEI. ATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF NIGER FOR A POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT * 1*. I submit the following report and recommendation on a proposed devel- opment credit for the equivalent of SDR 7.2 million (US$7.5 million equivalent) on standard IDA terms to the Republic of Niger to help finance a proposed Power Engineering and Technical Assistance Project. PART I - THE ECONOMY 1/ 2. A report entitled "Economic Memorandum: Niger" (No. 11092-NIR) was distributed to the Executive Directors on May 13, 1976. An economic mission visited Niger in July 1983 in connection with an IMF Standby mission, and the main findings of the mission are incorporated in the following paragraphs. These findings were subsequently updated by a mission in December 1983. Annex I contains updated country data. Background 3. With its 1.27 million km2 of land, Niger is about 2.5 times the size of France. Niger is a landlocked country, and its closest access to the sea is about 600 km from Niger's southern border. Nearly 90% of the total population is concentrated in a thin band along the southern border. Only 12% of the land is considered arable, and only 2.5% is actually under cultivation. Rainfall is limited (350-750 mm) and often irregular, and soil fertility is low and de- clining due to its intensive use. The total population was estimated at 5.7 million in 1982 and is growing at about 3.1% per annum. Per capita income was estimated at US$310 in 1982. Niger's social indicators are among the lowest in the world. Life expectancy at birth, which is only 43 years, is low even by African standards. The adult literacy rate is only 8% and the primary enrollment ratio only 23%. 4. Niger belongs to the West African Monetary Union which Irovides its members with a common currency (the CFA Franc) fully convertible into French Francs. The full convertibility of the CFA Franc and the liberal foreign trade policies pursued by the Monetary Union members have kept the Nigerien economy very open in the past. This openness was further strengthened by the very strong trade links that have always existed between Niger and i.s neighbors, particularly Nigeria. Another particularly important characteristic of the 1/ This section is substantially unchanged from the President's Report for the Economic and Financial Management Improvement Project (Report No. P-3657-NIR).  - 2 - Monetary Union is the strong discipline imposed over monetary and fiscal policies of the member countries, in return for the guaranteed convertibility of the currency. As is generally the case in open economies, exceasive credit expansion quickly leads to increased imports, balance of payments deficits, and a loss of foreign reserves. This being recognized by the Union member countries, their common Central Bank is empowered with strong controls over domestic credit ceilings. 5. Like other Sahelian economies, Niger's is dominated by subsistence agricultural activities with millet and sorghum accounting for 80% of the cultivated area. Livestock is also an important source of income for a large segment of the population and is one of the country's major export commodi- ties. Despite its meager agricultural resource base, Niger has traditionally been self-sufficient in food production except during the Sahellan drought in the early 1970s. The discevery of large uranium deposits in the late sixties and their development, propelled the mining sector into an important position in Niger's economy. The sector is now the country'e principal foreign exchange earner and an important source of government revenues. Economic Development in the Seventies 6. Dur4ng the past decade Niger went from a period of despair to a period of almost unlimited hope for the future. Between 1970 and 1975 Niger experienced one of the severest and longest droughts of its history. Its livestock herd was decimated, and food production declined dramatically. At the height of the drought in 1974/75, Niger registered a food grain deficit of nearly one million tons. Real per capita GDP declined at an average annual rate of 0.5% during the first half of the decade. On the expenditure side, per capita consumption declined by 6% per annum although gross domestic investment grew at a modest annual rate of 3.2% with the help of increasing foreign aid. Uranium production and export began in early 1971, but the impact of the sector on the national economy was only moderate in the first half of the seventies as prices were stable. 7. During the second half of the decade, Niger's fortune improved dramatically. More favorable climatic conditions allowed an accelerated recovery of the agricultural sector. With intensive government programs the Nigerien livestock herd was rapidly reconstituted. Food production steadily increased and by 1979 Niger was once again self-sufficient and even managed to show a substantial surplus. Moreover, the uranium sector experienced a boom. By 1977, uranium exports accounted for 53% of total exports of goods end non- factor services, end that share increased to 70% at the end of the decade. As uranium prices and quantities exported increased rapidly, Niger's total export receipts increased from CFAF 12 billion in 1975 to CFAF 85 billion in 1979. The contribution of the sector to public revenues followed the same trend. The share of uranium in total government revenues increased steadily from 18% in 1975 to an all time high of 46% in 1979. Government uranium revenues grew from CFAF 4 billion to CFAF 25 billion in the same period. As a result of the good performance of agriculture and mining sectors, real GDP grew at an average annual rate of 7.2%; per capita consumption grew at an annual rate of 4.5% and gross domestic -nvestment at an average rate of 16.7%. 8. On balance, therefore, Niger's economic performance during the 1970s was very good, particularly by Sahelian standards. This was due in large part  to the sound economic policies of the Government which encouraged a rational use of foreign a