Sierra Leone - Power Sector Rehabilitation Project

The WAd Bank FOR OMCAL USE ONLY MICROFICHE COPY Report No. P-5312-SL Report No. P- 5312-SL Type: (PM) BOROUMAND,/ X34987 / / AF4IE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 15.3 MILLION TO THE REPUBLIC OF SIERRA LEONE FOR A POWER SECTOR REHABILITATION PROJECT MARCH 31, 1992 This document has a restricted distribution and may be used by reciplents only In the performance of their ofiicial duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EOUIVALENTS (November 1991) Currency Unit = Leone US$1 = LA420 Lel = US$0.002 WEIGHTS AND MEASURES Kilowatt (kW) = 1,000 watts Megawatt (MW) = 1,000 kilowatt (kW) Kilowatt hour (kWh) = 1,000 watt hour Gigawatt hour (GWh) = 1 million kilowatt hour (kWh) Kilometer (kM) = 1,000 m or 0.62 miles Kilovolt (kV) = 1,000 volt Kilovolt ampere (kVA) = 1,000 volt ampere Megavolt ampere (MVA) = 1,000 kilovolt ampere (kVA) One barrel (bbl) = 0.16 cubic meters One ton of oil equiv. (TOE) = About 7.5 bbl of crude oil One imperial gallon (IG) = 1.2 U.S. gallons ABBREVIATIONS AND ACRONYMS AfDB - African Development Bank DANIDA - Danish International Development Agency EdFP - Electricite de France International EC - Commission of the European Communities EIB - European Investment Bank GSL - Governmneti of Sierra Leone GTZ - German Technical Cooperation Agency MLEP - Ministry of Labor, Energy and Power MOF - Ministry of Finance NP - National Petroleum Company Limited NPA - National Power Authority SLEC - Sierra Leone Electricity Company SLPRC - Sierra Leone Petroleum Refining Company Limited UNDP - United Nations Development Program MPA's FISCAL YEAR April 1 - March 31 FOR OFFICIAL USE ONLY Borrower: Republic of Sierra Leone National Power Authority (NPA) Amount' SDR 15.3 million (US$21 million equivalent) imul: Standard IDA, with 40-year maturity Onlending-rm: The Credit would be relent to NPA for 20 years, including a 5-year grace period at the prevailing IBRD interest rate. NPA would bear the foreign exchange risk. Finacin Plan* Eman Loda In9tl I US$ Million - j NPA 0.0 17.3 17.3 IDA 18.7 2.3 21.0 Cofinanciers 34.1 2.1 36.2 Total 2A .I 2. Economicgat of Ret : 28% Staff AMorisa Kw0d Report No. 8572-SL Mge: IBRD No. 22273 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 witt-* W orld Ba uthorization ITRNATIOA DEVLMENT ASSOATIO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF SIERRA LEONE FOR A POWER SECTOR REHAMIAIN= RJC 1. 1 submit for your approval the following report and recommendation on a proposed development credit to the Republic of Sierra Leone for SDR 15.3 million, the equivalent of US$21.0 million, on standard IDA terms with a maturity of 40 years to help finance a Power Sector Rehabilitation Project. The proceeds of the credit would be relent to the National Power Authority (NPA) for 20 years, Including 5 years of grace, at the prevailing IBRD interest rate. NPA will bear the foreign exchange risk. The project is expected to be funded (US$36.2 million) by cofinanciers including the European Community (EC) and the European Investment Bank (EIB). 2. BKewn. NPA has the responsibility for generation and d'stribution of electri:ity in Sierra Leone. It opjrates a major power grid (the Western Are.. System) which serves Freetown and is supplied by a main thermal plant with an installed capacity of 33 MW at present. NPA's power generation has declined rapidly at an annual ite of 10 percent since 1982, and its main power plant was completely shut down last July leaving Freetown with no public supply of electricity for about a month. The Government, with financing from the Italian Government and the AfDB, is proceeeing with the construction of a 47 MW capacity run-of-the-river seasonal hydro scheme, known as the Bumbuna hydro project. However, it will be several years before hydro-electricity could become available from this prolect. At present, NPA is very weak institutionally and financially and its generation and distribution facilities are in such poor condition that it is often unable to provide electricity to most areas of Freetown, facludinj those with hospitals and Government offices. The inadequate and unreliable power supply hs seriously inconvenienced residential consumers and adversely affected economic activities across a wide spectrum of users, from tourist hotels to commercial and industrial establishments. Also, the lack of adequate supply from NPA has caused a proliferation of auto-generation utilizing a large number of economically inefficient small power generator sets. In addition to the general deterioration of the economy, the main causes of NPA's problems are a combination of the following elements over the years: lack of autonomy from the Government, poor managerial capabilities, and lack of access tL foreign exchange. The Government is quite concerned about the lack of public power supply in Freetown, and has come to recognize that fundamental changes are required to improve the situation. 3. PrjCt Oectie. The objectives of the proposed project are: (a) to assist NPA to carry out long delayed maintenance and rehabilitation of its power generation and distribution facilities, in order to restore an adequate and reliable supply of electricity to Freetown; and (b) to strengthen NPA as an institution in order to lay the foundations for an autonomous and commercially viable entity, capable of delivering a reasonably priced and reliable service to its customers. The project would also assist the Government to develop a comprehensive sector development strategy. 4. Ptect The proposed project includes three main components: (a) maintenance and rehabilitation of generating facilities, and replacement of three -2- decommissioned generators with two new ones at the NPA's main power plant (Kiingtom station); (b) rehabilitation and improvements in the sub-transmission and distribution network of the Western Area system; (c) Institutional strengthening of NPA through revision of the NPA Act, contracting a private firm to manage NPA, and training of NPA staff; and (d) studies for sector development. The project emphasizes the institutional and managerial strengthening of NPA, but is limited in scope and only restores NPA's generation and distribution capability in Freetown to its previous level of a decade ago. The total project cost (ncluding taxes and duties, but excluding US$4.6 million in interest during construction) is estimated at US$69.9 million equivalent of which the foreign exchange component is US$52.8 million (76%). About US$36.2 million equivalent in cofinancing is required for the project. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Sierra Leone are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report No. 8572-SL, dated March 31, 1992 is being distributed separately. 5. oec Ipementation. All project components will be implemented by NPA through a project laplementation unit to be established for the project. NPA's management capabilities to Implement the project will be substantially improved by hiring a private firm under a performance-based management contract. In order to avoid delays in procurement and dis a det-iled project scope, and an implementation schedule have been prepared and agreed upon. Since this is the first IDA power sector operation in Sierra Leone in a decade, a project launch workshop would be organized soon after the Board approval. 6. hroaect SU b. It is expected that by revising the National Power Authority Act of 1982 and utilizing the services of a private firm to manage NPA, a basis would be established for NPA to become an autonomous and commercially viable utility. NPA has during the past two years gone through capital restructuring and a set of minimum financial objectives for NPA has been agreed to under the project. Electricity tariffs have been increased substantially during the past two years (115 percent in January 1990, 100 percent in July 1990, and 280 percent In August 1991), and would be increased further as agreed under *e project in order for NPA to meet its fimancial objectives. 7. Leomn &Mf Previous IDA nLeymeM. The last Project Completion Report (PCR) is a decade old, and the last IDA Credit (Credit 1265-SL) for the power sector which was made in FY82, is yet to be fully disbursed since to Sierra Leone were suspended in 1987. Nevertheless, lessons learned from IDA's involvement in the power sector indicate that the required institutional and policy reforms should be addressed early on in the project preparation cycle. Therefore, in close coordination with other donors, agreement was reached with the Government and NPA on a graduated response to the rehabilitation of the power sector whereby phases of project preparawa and processing have been based on measures taken by the Government and NPA, including: (a) agreement on sector investment program; (b) implemenatio of NPA's capital restructuring; (c) change in Ministry of Energy and Power, which is expected to lead to less interference in NPA's affairs; (d) appointment of a new NPA Board; (e) substantial tariff increase; and (t) agreement on the hiring of a private firm to manage NPA. S. Rationale fo MIAI nvo l . IDA's involvement is necessary to assist the Government and NPA to effectively carry out the much needed institutional and managerial -3- reforms. Under the proposed project, IDA would provide the financing to hire a private firm to manage NPA under a performance-based management contract. IDA's Involvement, particularly in Implementation of the Institutional reforms, is needed to mobilize the financing required from other donors to rehabilitate the power sector. Also, since the public supply of electricity is severely constrained, any Improvement to the power system, in addition to an Immediate positive impact on the economy, will have a high visibility in Freetown which would be helpftl to the Government in carrying out difficult economic and social reforms needed to restructure the economy. 9. Agred Actio. Agreements were reached on the following dedag nga s (a) terms of reference for the following studies: consolidation of energy sector activities, power sector master plan, and environmental impact of Bumbuna project; (b) NPA would review annually with IDA its five-year rolling investment program and no investment exceeding one million dollars per year other than the agreed investment program would be carried out without an agreement with IDA, and IDA would be properly consulted if the ongoing hydro-projects (particularly Bumbuna) were to be transferred to NPA; (c) the supervision of Bumbuna project civil works would be placed under NPA, and technical studies to connect Bumbuna to NPA network would be prepared; (d) the main elements of the management contract; (e) a joint mid-term review of the project; (f) assurance that price of fuel oil is governed by the petroleum pricing formula, (g) NPA according to agreed targets would improve its consumer billing, reduce accounts receivable, and reduce non-technical losses; (h) NPA would prepare the FY92 audited annual reports by April 1, 1993; (1) except for the first 50 kWh of consumption, residential tariff would be brought more in line with the cost of providing the service; 0) NPA's revenues during FY93 to cover cash operating expenses and interest charges; (k) NPA would autonatically adjust and maintain electricity tariffs, to earn rates of return on revalued not fixed assets in operation of at least 4.5% in FY94 and 6.0% in FY95 and onward, and make a semi-annual report on the adequacy of tariffs and its effects on auto-generation; (1) increase average tariff to a level equivalent to US*19/kWh by October 1, 1992 and US022/kWh by April 1, 1993; (m) conversion to equity of NPA's import duty obligations to the Government; (n) NPA not to incur long-term debt unless the debt service coverage ratio is at least 1.5; (o) revisions to the NPA's 1982 Act. The following would be a condit of Board nton: settlement of Sierra Leone's arrears with the Bank and IDA. The following would be : (a) submission of the revisions to the NPA Act to the Parliament; (b) Implementation of 45% staff reduction plan; (c) submission of FY90-91 audited aanal reports; (d) signing of the subsidiary Loan Agreement between the Goveunent and NPA; and (e) confirmation of a satisfactory financing plan. The following woutd be condition odisbursemet for the new geerating unit and general plant components of the project: hiring of the private firm under the performancobased management contract. 10. E m ental Asc. The impact of the proposed project on the environment is expected to be basically positive. The project will only involve the construction of small buildings and the installation or replacement of equipment in existing facilities which have not been harmful to the environment. There is a considerable amount of fuel oil that has been spilling Into the ocean from the Kingtom power station and which pollutes the nearby coastal areas. This problem will be corrected under the proposed project by the installation of an oil and water separator and an incinerator. A similar installation will be made in connection with the new generating capacity. The project does not Involve any extension of the sub-transmission and distribution system to new areas, and the improvements proposed to the existing system will have no harmful effects on the environment. Also, an -4- environmental Impact study of the Bumbuna hydro project will be financed under the proposed project which would Include a mitigation plan. 11. EM=m Obective Ctory=. The project will support public enterprises reform in Sierra Leone by establishing the basis for the commercialization of a major public sector entity (NPA). The project will also have some effect on alleviating pov,ty in low income areas of Freetown which, at present, do not even have street lighting. 12. Rmfis. The power sector is a high priority sector, whose rehabilitation is essential for Sierra Leone's economic recovery. The proposed project will help: (a) restore an adequate and reliable supply of electricity to meet the unserved demand in the NPA's Western Area system; (b) reduce technical losses; () reduce auto-generation by costly small generators; (d) Improve NPA's operational efficiency; and (e) establish the basis for NPA to become an autonomous and commercially viable utility. Without the rehabilitation of the NPA's generation and distribution facilities envisaged under the proposed project, the available capacity that ih being restored under an emergency rehabilitation program will collapse in less than two years, and the experience of July 1991 (when Freetown was left without public power supply) would be repeated. 1.ae investment proposed under the project is the least-cost option to provide reliable and adequate supply of electricity through mid- 1990s. Construc"n of the Bumbuna hydro project will take several years to complete and even after it is c. ipleted, adequate thermal capacity is required to complement Bumbuna's output during the dry season and to provide standby generation. The economic rate of return is estimated at 28 percent The sensitivity analysis with respect to various parameters indicates that the rate of return is robust and the project is economically viable. 13. BlWM. The major risks to a successful Implementation of the project are the Government's commitment to NPA's autonomy and the management capabilities of NPA itself, which are required if the project is to :hieve its objectives. The NPA's management problem is addressed by involving the privr i sector in managing the utility under a performance-based management contract . ensure adequate commitment on the part of the Government, in coordination with other , )rs, a graduated response to the rehabilitation of the power sector has been adopted whereby project preparation has been based on measures taken by the Government. Although mut. has been accomplished so far, adequate Government commitment in the future to NPA's autonomy remains at risk. 14. RommeNio I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President Washington, D.C. March 31, 1992 Attachments POWER SEC:nR RElABI=ATINP~ 1C STMA D CCS AND FI PLAN Fathmain Project COst Foreign Local Total US S MUlion Equåvalent New Generation 11.7 2.6 14.3 Generation R Mabilitation 11.8 1.6 13.5 - -1-nenm n Rban t 3.9 0.2 4.1 Distribution Reabilitation 3.9 0.4 4.3 General Plant 1.6 0.0 1.6 Eng ing and Conmltancy Services 3.3 0.2 3.5 Pumbuna Supervision 0.9 0.0 0.9 Studies 0.9 0.1 1.0 Management Contact 4.1 0.5 4.5 Trainng 0.4 0.1 0.5 Rfunding PPF 0.8 0.0 0.8 Lubricating Oil 0.8 0.0 0.8 I~port Duties .Q& 192 102 Bo t 44.0 15.9 59.9 Physical Contingenoces 5.4 0.7 6.2 Puice Contin~en.ies - .J2 Ta P c C52.8 17.1 69.9 Interest During Comtuction .UA ._ .. Towa Ha~cn Reurdg2 ,JM Fiacigba-rin lal T9-tal US S million eanivalent NPA 0.0 17.3 17.3 IDA 18.7 2.3 21.0 Cofinanen 3L 2,. I§2 Total 2,,74. Page 1 of 2 PROCURMEN METHODS AND DISBURSEMNMT A. Procunent PROCUEMENT METROD Il (US$ nowusa"dk) Coaponent ICB Other N.A. Total New Generation 8,305 8,650 16,955 (8,305) (8,305) Generation Rehabilitation 17,045 17,045 Subtransmission Rehabiitation 4,855 4,855 Distribution Rehabilitation 5,090 5,090 General Plant b/ 1,600 300 1,900 (1,390) (300) (1,890) Engineering & Consultancy Services 1,160 2,945 4,105 (1,160) (1,160) Bumbuna Supervision 1,075 1,075 (1,075) (1,075) Studies 1,175 1,175 (1,175) (1,175) Management Contract / 5,385 5,385 (5,385) (5,385) Training 555 555 (460) (460) Lubricating Oil 800 800 (800) (800) Miscellaneous 15,580 15,580 (750) 4/ (750) TOTAL 76.09 ,265 54A165 ,520 (16,080) (4,170) (750) (21,000) At Figures in parentheses indicate amounts to be financed by IDA. h/ Vehicles, communications equipment, tools, etc. g/ This would be subject to prequalification. d/ PPF refund. Page 2 of 2 B. Category Amount % of Expenditure to US$ Thousands be financed by IDA Credit New Generation 6,900 100% General Plant 1,610 100% of Foreign Expenditure Engineering and Consuitancy Services 980 100% Bumbuna Supervision 900 100% Studies 1,000 100% Management Contract 4,500 100% Training 385 100% of Foreign Expenditure Refund PPF 750 100% Lubricating Oil 800 100% of Foreign Expenditure Unallocated &2 Total A IA EcaY <- TS$ million equivalent) -> Annual 3.3 6.6 7.4 3.7 Cumulative 3.3 9.9 17.3 21.0 TIMETABLE OF KEY PROJECT PN (a) Time taken to prepare the project: Two and a half years (b) Project prepared by* NPA with IDA assistance. (c) First IDA mission: November 1989 (d) Re-appraisal mission departure: November 1991 (e) Negotiations: March 1992 (1) Planned Date of Effectiveness: June 1992 (g) List of relevant PCRS: Third Power Project PCR No. 4525, dated May 31, 1983. SCHEDULE D Page 1 of 2 STATUS OF BANK GROUP OPERATIONS IN SIERRA LEONE STATEMENT OF BANK LOANS AND IDA CREDITS (As of December 31, 1991) Loan or Amount in US$ Million Credit (less cancellation) tank IDA Undisbursed Fully Disbursed Loans and Credits Five Loans and Ten Credits 18.70 57.53 Not Fully Disbursed Credits Cr. 1265 82 Power Sector Engineering 5.00 1.37 Cr. 1353 83 Third Education 20.00 19.82 Cr. 1501 84 Agricultural Sector Support 21.50 19.51 Cr. 1695 86 Health and Population 5.30 5.30 TOTAL 18.70 109.33 46.00 of which repaid 0.54 0.95 TOTAL now held by Bank and DA 7.21 126.57 Amount sold 0.54 0.00 of which repaid 0.54 0.00 TOTAL undisbursed 46.00 SCHEDULE D Page 2 of 2 (As of aember 31, 1991) Amount In US miin Date Borrower Type of Business Loan Equity Total 1980 Sierra Leone Cement Company Cement Company Total 2.05 2.05 Les Repayments and Writeoffs Total Commitments Now Held by IFC 1/ Fuly disbursed. ______________________________IBRD 22273 MAURI TANIA iý112° 27 SENEGA A L ~SIERRA LEONE THE GAMI Y GEl POWER SECTOR REHABILITATION PROJECT GA Gu NEA Tn Potentil hydroelectric lites a-MW Potential maximum installed SERRA c8rt NGIERA capacitv n megawatts LEONE ( oAN NPA diøes. generating plants LS ER1 Mines with private thema TOGO IENIN pow plants Hydrolectrlc plant. - ExI.ting transmission lIne -10*_-__-_--__-_-__-_--__-_--__--_*-'--*-PP_rOjected ttransmisgion lines o0 13° KULE 61MW 0 G UINEA\ TENDATA 504MW KA8ALA IASAL 2"6MW £ GUINEA %KOMolA 25.6MW %BANDA-KARAFAIA 12.1MW KAMBIA U AKENSoo POR T LOKO RA ETMA MAGBURAKY" IIENKONGOR n ROKON - -Mg9Ma ENONSEFADu Kmko,d& FREETOWN ' SENKONGORI#E'"o Yonb.nog Yel 262MWE GUMNYANDENUN Wo erooIAA ZA1.AHUN 21w OT KeM Beno GOMAg MOYAMBA LEVUMA QStoo- OMn 65.2MW% bn ,Mokange 60 sle4mcoMAMBOMA "Gopeokn O % I LAOMA 0 KENEMA Gbogbtok B3AW% 22M mEEM Slere "ANDOR,<Um GAND UtsI* 5MW BARAKA Slermco- m K-nbund. 375MWb Diesel> oo' - - -- 0Ana~g r IAtr, Sumbya OBno>m L I B E R I A BONTHC ormobumM ANO PUJEHU RIVER ZP u PROJECT r- 180MW Fa.r0 Riv KILOMETERS 0 20 40 60 80 100 , aon pt )0 6 Nationl ..pita MI70I0 ^0 Province capitals MILES 0 20 40 60 Itmernational bounderies MARCH 1990