PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB4411

Project Name

/ Increased Access to Modern Energy
Region / AFRICA
Sector / Power (75%); General energy sector (15%);Renewable energy (10%)
Project ID / P110075
Borrower(s) / GOVERNMENT OF THE REPUBLIC OF BENIN
Ministere des Mines, de l'Energie et de l'Hydraulique
04 BP 1412
Benin
Tel: (229) 21312904
Implementing Agency
Societe Beninoise d'Energie Electrique (SBEE)
Rue 637, Avenue du Gouverneur General Wi
01 BP 123 RP
Benin
Tel: (229) 21312145
Communaute Electrique du Benin (CEB)
BP 1368
Togo
Tel: (228) 2216132
Agence Beninoise d'Electrification Rurale et de la Maitrise d'Energie (ABERME)
10 BP 302 Cotonou
Benin
Tel: (229) 21313863
Direction General de l'Energie
06 BP 2049
Benin
Tel: (229) 21317322
Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared / March 25, 2009
Date of Appraisal Authorization / February 4, 2009
Date of Board Approval / May 21, 2009

1.  Country and Sector Background

1.1 Benin’s economy: Benin is a small country with a population of 8.7 million in 2006 and a per capita income of US$540 in 2006 located in the Gulf of Guinea next to Nigeria. GDP growth rates averaged 4.3 percent annually during the period 1996-2006. However, poverty is still important with 31 percent of the population living below the poverty line. While in 2007 80% of Benin’s population is living in rural areas, urbanization is predicted to shift the weight of population from rural to urban areas with about 43% of the population predicted to remain in rural areas by 2025.

1.2 Access to Electricity and Modern Energy Services: Like for most countries in Sub-Saharan Africa, Benin's energy sector is dominated by the use of biomass-based energy sources. Use of traditional biomass-based products such as firewood and charcoal constitute about 67% of Benin’s energy balance. Most of this biomass is used in an unsustainable manner and has contributed to a serious decline in forest cover. The use of electricity is limited to 1.8 million people equivalent to 25% of the population. Nevertheless, Benin’s rate of electrification is above the average of Sub-Saharan Africa, which is 17%, and has been increasing steadily from its level of only 8% in 1990. Access to electricity in urban areas is at 53% while access to electricity in rural areas remains at levels of less than 2%. Demand for electricity in 2007 was at 580 GWh, with the heaviest load stemming from the coastal area around Benin’s capital Cotonou.

1.3 Structure of Energy Sector: Energy policy and regulation are handled through the Ministry of Energy and Water. The Communauté Electrique du Bénin (CEB) is the import, generation and transmission company of both Togo and Benin, with headquarters in Togo. CEB is traditionally responsible for planning and procurement of generation and transmission resources needed to meet Benin's demand, including through independent power producers (IPPs). CEB supplies power to the Benin distribution company Société Béninoise d'Energie Electrique (SBEE), the Togo distribution company Compagnie d’Energie Electrique du Togo (CEET), and large industrial customers. SBEE is Benin’s electricity distribution company for Benin and serves 346,273 customers at an average end-user tariff of FCFA 82 or UScents 18. While SBEE is traditionally not engaged in power generation, the increasing demand-supply gap due to steadily increasing demand in Benin has been met by SBEE through diesel generation. Rural electrification is the responsibility of the rural electrification and energy efficiency agency “Agence Béninoise d’Electrification Rurale et de la Maîtrise de l’Energie” (ABERME), which was established in 2004.

1.4 Energy Supply: In 2007 579 GWh or 76% of Benin’s energy demand were met through supplies from CEB, and 180 GWh or 24% were provided by SBEE mainly from own diesel generation. CEB’s own production through hydropower generation at the Nangbeto hydropower plant (65MW) and production of electricity from gas turbines (50MW) amounted to 121 GWh, corresponding to 16% of Benin’s electricity supply. The gas turbines continue to operate on jet kerosene (JET A1), until gas can be supplied from the West Africa Gas Pipeline (WAGP), which is expected for 2010. CEB’s gas turbines are foundation customers of the WAGP. Benin is highly dependent on electricity imports from abroad, which represented 60% of total consumption in 2007. In 2007 the main source of electricity imported through CEB came from Nigeria with 251 GWh, corresponding to 33% of Benin’s electricity supply. Other imports came from Ghana with 107 GWh, corresponding to 14% of Benin’s supply, and Côte d’Ivoire with 99 GWh, corresponding to 13% of Benin’s supply. This represents a shift toward imports from Nigeria in place of imports from Ghana and Côte d’Ivoire following the completion of the transmission interconnection with Nigeria on 13 February 2007. In order to meet the growing demand for fuel, Benin is constructing thermal power plant, thus leaving thermal power plant production increasingly to their distribution-level utilities. In Benin, 80 MW (8x10 MW) of dual fuel power plant have been procured, which are capable of running on both jet fuel and gas. Total system losses are estimated at 21 percent, with 17 percent from distribution. Compared with international standards, these are high, but in the context of West Africa, these represent a moderate level of losses.

1.5 Challenges and Government Strategy: Looking forward, the challenge will be to improve the energy supply characteristics and efficiency of the power sector, its financial viability and the reach of modern energy services to a broader part of the population. These accomplishments will enable the country to serve existing customers better, ensure financial viability, and generate the opportunity and means to bring more power to more people. The Government in place since 2006 has taken decisive steps to strengthen the sector's governance and to redress the financial viability of the sector. First results are already felt at both CEB and SBEE, whereby the immediate strategy has focused on issues of financial accountability and management. Overall the Government follows a pragmatic approach to solving problems in the energy sector with an emphasis of regaining transparency and financial viability. A new sector-wide strategy for Benin’s energy sector has been adopted in November 2008.

2.  Objectives

2.1 The project's objective is to improve reliability and access to modern energy services in Benin.

2.2 Progress towards achieving these objectives will be measured by the following key output indicators:

·  Reliability of electricity grid improved through completion of key new transmission lines (Onigbolo-Parakou and Sakété-Porto Novo);

·  Reduced distribution level losses and power outages;

·  Establish at private operators to supply power in rural areas through the Rural Electrification Fund;

·  Setting aside 300,000 ha under sustainable forestry management to ensure sustainable supply of charcoal and firewood;

·  Reduction of the energy consumption and peak load in Benin through energy efficiency measures, including efficient lighting.

2.3 CAS and PRSP links: The development of the project is closely linked with and in close support of the principles of the 2009 Country Assistance Strategy (CAS). The new CAS supports the implementation of the Government's Poverty Reduction Support Paper (PRSP) by utilizing a mix of budget support and investment lending. The CAS emphasizes the need for energy sector development in order to create a good environment for private sector investment and growth, which in turn leads to poverty alleviation. In the context of the energy sector it highlights (i) the need for the creation of an adequate institutional, legal, and regulatory framework for the sector; (ii) a consolidated framework strategy and inscribed investment activities; (iii) the cost efficient use of energy resources; (iv) the diversification of energy resources, including hydropower (Adjarala) and gas; (v) the valorization of domestic energy resources; (vi) the improvement of the tariffs system; and (vii) the reduction of the time required to connect households to the electric grid. The proposed project particularly inscribes itself in (i), (iii), (v), and (vii).

3.  Rationale for Bank Involvement

3.1 A long history of partnership in the energy sector places the World Bank in a unique position to continue to assist Benin at this important juncture of the country's energy sector development. The existing Energy Services Delivery (ESDP) project is targeting the interconnection of northern Togo and northern Benin, and the WAPP APL 1, Phase 2 project is in support of the coastal transmission backbone between Ghana, Togo, Benin, and Nigeria. Based on lessons of experience, the Increased Access to Modern Energy Project focuses on establishing access to electricity or other modern energy services, and rendering those services more sustainable. The World Bank targets those elements for which financing from Government or partners are not available. The World Bank’s involvement with ECOWAS countries to expand regional energy and gas trade provides an additional dimension to its partnership with Benin.

4.  Description

4.1 The project as envisaged has three major components that target the operational efficiency of the existing electricity system and increasing access to in both urban and rural areas to modern energy services. The project overall financing envelope is US$152 million.

4.2 Component A: Electrical Network Up-grading. This component will provide for necessary investments to allow for continued operation of the existing transmission and distribution grid, as well as for an upgrade of its functionality. The upgrading of the network will enable the further expansion of the network for further electrification. Under this component, two transmission lines will be constructed and distribution networks in key urban centers will be rehabilitated. Finally measures to enhance lighting and appliance efficiency implemented under this component will help reduce peak load and energy consumption.

4.3 Component B: Electrification and Modern Energy Services. This component aims to extend the provision of modern energy services in rural and urban areas. The project is targeting modern energy services for both lighting and appliances through the provision of electricity in rural areas and for cooking through the provision of modern biomass energy and substitute fuels. Through its design, this component seeks to actively engage the concerned communities and local private sector to enable them to provide these services for themselves. This component therefore substantially relies on capacity building and institutional development as well as targeted subsidies for the poor.

4.4 Component C: Sustainable Energy Services. Change to commercially oriented governance is fundamental to achieving sustainable reform of power markets. Commercially oriented governance irreversibly removes the management and development of power supply from political and bureaucratic control to achieve commercial standards in management practices, financial performance, and the pricing of products and services. Changing these deeply ingrained attitudes is a major challenge for power sector reform in many developing countries. This component will focus on rendering energy services to consumers more sustainable by focusing on improved financial autonomy and performance of key sector institutions.

5.  Financing

Source: / ($m.)
BORROWER/RECIPIENT / 51.85
Sub-Borrower / 8.25
International Development Association (IDA) / 45.00
EC: European Investment Bank / 23.09
GERMANY: KREDITANSTALT FUR WIEDERAUFBAU (KFW) / 18.70
Global Environment Facility (GEF) / 1.82
Free-Standing Cofinancing TF / 2.00
French Global Environment Facility (FFEM) / 1.30
Total / 152.01

6.  Implementation

6.1 The project will have four implementing agencies: the Directorate General for Energy (DGE) at the Ministry of Energy, SBEE, CEB, and ABERME. The DGE, SBEE and CEB are already implementing agencies under the existing ESDP project. Capacity building for ABERME under the project is designed to enhance its capacity to enable it to manage activities foreseen for this agency diligently.

6.2 Parallel and co-financing financing: it is planned that the project be financed jointly with (i) Kreditanstalt fuer Wiederaufbau (KfW), who will finance the Sakété – Porto Novo transmission line in parallel; (ii) European Investment Bank (EIB), who will co-finance the Onigbolo-Parakou transmission line; (iii) The Global Environment Facility (GEF), who will finance the energy efficiency component; (iv) The French GEF (FFEM), who will co-finance the biomass energy component; and (v) Trustfunds, which will co-finance the biomass energy component.

7.  Sustainability

7.1 Following project implementation, results achieved need to be maintained. The project thus focuses on rendering result to be achieved sustainable by enabling the power utilities and the rural electrification agency to service consumers on a more sustainable basis.

8.  Lessons Learned from Past Operations in the Country/Sector

Component A

8.1 Implementing Agency for Energy Efficiency: it is proposed to use the energy efficiency unit at the DGE as the operational entity for implementing the energy efficient sub-component: While ABERME is the agency responsible for energy efficiency, the DGE currently has the only active energy efficiency program. The creation of a dedicated unit for the energy efficiency sub-component under the ESDP has led to significant improvements in the sub-component management and implementation. The energy efficiency sub-component under the IAME will be built on the success of ESDP by involving the energy efficiency unit while developing capacity of the ABERME on energy efficiency.

Component B

8.2 Contractual Framework for Private Operators operating under the REF: An important lesson from recent experience in Mali with private operators under the rural electrification program has been that a sound contractual framework at the outset is a critical factor in helping safeguard longer term stability of contracts. For this reason, the project design envisages a slower build-up initially of new operators, not only to ensure the quality of operators but also that new contracts are satisfactory to all parties and reflect the early operating experience of ongoing schemes.

8.3 Setting Up Effective Institutional Structures for Rural Electrification: the lessons of experience show that no one institutional model for rural electrification appears unquestionably superior, common factors in cases where rural electrification has worked well include (i) a high degree of operating autonomy of the responsible agency, and (ii) strict accountability of the agency for meeting its targets. [1] Benin’s ABERME is already set up as independent agency, and Component B aims at establishing it as an independent agency through the building of institutional capacity.

9.  Safeguard Policies (including public consultation)