A Document of The World Bank FOROFFICIAL USEONLY ReportNo: 43904-CM PROJECTAPPRAISAL DOCUMENT ON A PROPOSEDCREDIT INTHEAMOUNT OF SDR 39.9MILLION (US$65 MILLIONEQUIVALENT) TO THE REPUBLICOF CAMEROON FORAN ENERGY SECTORDEVELOPMENT PROJECT May 29,2008 EnergyGroup Sustainable Development Department Africa Region This document has a restricteddistributionand may be usedby recipientsonly in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS (ExchangeRateEffectiveApril 30, 2008) Currency Unit = CFA Franc FCFA418.73 = US$1 SDRl = US$1.62976 Euro1 = US$1.56655 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AER Agence d 'Electrification Rurale IPP Independent Power Producer AES/SONEL Private Electricity Concessionaire KPDC Kribi Power Development Company AFD FrenchDevelopment Agency kV Kilovolt AfDB African Development Bank kW Kilowatt ALUCAM Aluminum company LPD Lom Pangar Dam ARSEL Agence de Re'gulationdu Secteur LPHP Lom Pangar Project d 'Electricite' BEAC Banque des Etats d'Apique Centrale MINEE Ministzre de I'Energie et de I'Eau CAS CountryAssistance Strategy , MOF Ministry of Finance CCP Chad-CameroonPipeline MTEF Medium Term ExpenditureFramework COTCO CameroonOil TransportionCompany MW Megawatt EDC Electricity Development Corporation NGO Non-governmentalorganization E M EnvironmentalImpactAssessment PANERF' NationalEnergy Planfor Poverty Reduction EIB EuropeanInvestment Bank PDSE Plan du De'veloppement du Secteur d'Electricitt! EPC Engineer, Procure and Construct PES Providersof Energy Services ESDP Energy Sector Development Project Perenco Oil and gas company ESIA Environmentaland Social Impact PPA Power PurchaseAgreement Assessment ESMAP Energy Sector ManagementProgram PPIAF Public PrivateInfrastructureAdvisory Faci1ity ESMP Environmentaland Social PRG Partial RiskGuarantee ManagementPlan FCFA CentralAfrican Franc PRSP Poverty ReductionStrategy Paper FEICOM Fond Spe'ciald'Equipement et RAF ResettlementAction Framework d'Intewention Intercommunale GDP Gross Domestic Product RAP ResettlementAction Plan GOC Government of Cameroon REA RegionalEnvironmentalAssessment GSA Gas Supply Agreement REF RuralEnergy Fund GWh Giga watt hour SA SpecialAccount HFO Heavy FuelOil SDR Special Drawing Rights HIPC Highly IndebtedPoor Countries SME Small and Medium scale Enterprises IBRD InternationalBank for Reconstruction SNH National Hydrocarbons Company andDevelopment IDA InternationalDevelopment SPV Special PurposeVehicle Association IFC InternationalFinance Corporation UICN Union Mondialepour la Nature IMF InternationalMonetaryFund Vice President: ObiageliK.Ezekwesili Country Director: Mary Barton-Dock Sector Manager: SubramaniamV. Iyer Task Team Leader: Astrid Manroth FOROFFICIAL USE ONLY CAMEROON ENERGY SECTORDEVELOPMENT PROJECT CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 1. Country and sector issues .................................................................................................... 1 2. Rationale for Bank involvement.......................................................................................... 5 3. Higher level Objectives to which the project contributes.................................................... 6 B . PROJECT DESCRIPTION .................................................................................................. 7 1. Lendinginstrument............................................................................................................. -7 2. Project development objective and key indicators .............................................................. 7 3 . Project components.............................................................................................................. 8 4. Lessons learned and reflected inthe project design .......................................................... 10 5. Alternatives considered and reasons for rejection............................................................. 12 C . IMPLEMENTATION ......................................................................................................... 13 1. Monitoring and evaluation o f outcomeshesults ................................................................ 15 2. Sustainability ..................................................................................................................... 16 3. Critical risks and possible controversial aspects ............................................................... 18 4. Credit conditions and covenants........................................................................................ 21 D APPRAISAL SUMMARY . .................................................................................................. 22 1. Economic analysis ............................................................................................................. 22 2. Technical ........................................................................................................................... 24 3. Fiduciary............................................................................................................................ 24 4. Social ................................................................................................................................. 25 5. Environment ...................................................................................................................... 26 6. Safeguard policies.............................................................................................................. 27 7 . Policy Exceptions and Readiness ...................................................................................... 27 Annex 1:Country and Sector Background ............................................................................... 28 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies .................-40 Annex 3: Results Frameworkand Monitoring ......................................................................... 41 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 4: DetailedProjectDescription ...................................................................................... 46 Annex 5: ProjectCosts................................................................................................................ 56 Annex 6: ImplementationArrangements .................................................................................. 57 Annex 7: FinancialManagement and DisbursementArrangements ..................................... 59 Annex 8: ProcurementArrangements ....................................................................................... 73 Annex 9: Economic Analysis ...................................................................................................... 89 Annex 10: SafeguardPolicy Issues ............................................................................................. 94 Annex 11: ProjectPreparationand Supervision ...................................................................... 98 Annex 12:Documents inthe ProjectFile .................................................................................. 99 Annex 13: Statement of Loansand Credits ............................................................................. 101 Annex 14: Country at Glance ................................................................................................... 102 Map IBRDCM36160 CAMEROON ENERGY SECTOR DEVELOPMENT PROJECT ProjectPaper DataSheet Date: May 29, 2008 Team Leader: Astrid Manroth Country Director: Mary BartonDock Sectors: Power (80%); Renewableenergy (20%) Sector Managermirector: Subramaniam V. Iyer Themes: Infrastructureservices for private sector ProjectID: PO104456 development (P);Regulation and competition LendingInstrument: Specific InvestmentLoan policy (S) Borrower: The Government of Cameroon ResponsibleAgencies: Ministry of Energyand Water (MINEE) The Electricity RegulatoryCommission(ARSEL) The RuralElectrification Agency (AER) The Electricity DevelopmentCorporation(EDC) Projectimplementationperiod: Start: September, 2008 End: December 28,2013 Expectedeffectivenessdate: October2008 Expectedclosingdate: December31,2013 Doesthe project depart from the CAS in content or other significantrespects?Ref: PADA.3 [ ]Yes [XINO Doesthe projectrequireany exceptionsfrom Bank policies? Ref: PAD D.7 [ ]Yes [XINO Havethese beenapproved by Bank management? [XIYes [ ]No I s approvalfor any policy exceptionsought from the Board? [ ]Yes [XINO iv Does the project include any critical risks rated"substantial" or "high"? Re$ PAD C.5 Environmental,socialandreputationrisks relatedto LomPangar Hydropower [ X]Yes [INo Project(LPHP) preparation are high. Does the project meetthe Regionalcriteriafor readiness for implementation?Re$ PAD D.7 [XIYes [ ]No Projectdevelopment objective Re$ PAD B.2, TechnicalAnnex 3 1. The overallprojectdevelopment objective is to increase access to modernenergy intargetedrural areas and improvethe planningand managementof sector resourcesby all energy sector institutions. Through its intervention,the project is expectedto contributeto improvedreliability of electricity supply. Increasedaccess to and reliability of electricity are key factors inthe realizationofthe Government of Cameroon's (GOC) growthand povertyreductionstrategy. 2. The ProjectDevelopment Objectivewill be achievedthrough: (i) Settingup a financing and planningmechanism for ruralenergy (Rural Energy Fund); .. (ii) Improvingthe legalandregulatory framework and strengthening the capacity of sector institutionsto better execute their mandates(MINEE, ARSEL, AER, EDC); and (iii) Improvingthe preparationof energy projects, includingLPHPandrural energy projects. Projectdescription[one-sentence summary of each component] Re$ PAD B.3.a, TechnicalAnnex 4 1. RuralEnergy Fundto provideinvestment subsidies to ruralenergy projects(US$40 m.); 2. Capacity building for the Ministry of Energy and Water (MMEE); the Electricity RegulatoryAgency (ARSEL), the RuralElectrificationAgency (AER) andthe Electricity DevelopmentCorporation(EDC) (US$15.6 m.) 3. Preparation of energy projects, includingthe LPHPand ruralenergy projects(US$9.4 m.). Which safeguardpoliciesare triggered, ifany? Re$ PAD 0.6, TechnicalAnnex I O For the ruralenergy fund, exact locationsof rural energy projectsare not yet known. Nevertheless, all rural energy projectswill likely have some environmentalimpactand some may requireresettlement. GOC therefore preparedan environmentaland social managementframework anda resettlement policy frameworkto be appliedin case ruralenergy projectswould trigger these safeguards policies. Environmentalprovisionswill be incorporatedin all biddingdocuments. AER as executingagency of the REF will enforce these provisions. The projectfinances technicalassistanceto LPHP preparatory activitieswhich do not trigger any safeguards. The proposedtechnical assistance will help GOC address safeguards issues inconformity with the World Bank guidelines. Public consultationson the existingEIA have been held in2006. Outstandingenvironmentaland social safeguard studiesto be conductedunder the projectwill be made availableto the public throughpublic consultationprocesses. As part ofthe project, the Bank will support all GOC stakeholders, includingMINEE, EDC andARSEL, in developingand implementinga comprehensive communications strategy for LPHP. No commitmentby the World Bank Group is being made at this stageto fund constructionofthe LPHP itself. Sucha possible future constructionof the Recipient's LPHP would trigger 7 out ofthe 10 safeguardpolicies(environmentalassessment,critical naturalhabitat, forests, indigenous peoples, involuntary resettlement, physicalcultural resources,and safety of dams). Significant,non-standardconditions, if any, for: Re$ PAD C.7 Boardpresentation: Full board. Effectiveness conditions V The following event is specifiedas conditionof effectivenessof the FinancingAgreement: The Recipienthas adopted a ProjectImplementationManual, includingannexes on financial and accountingproceduresand on procurement procedures, applicableto MINEE, ARSEL, AER and EDC, all in form and substance satisfactory to IDA; The Recipienthas either appointed or recruited, in accordancewith the provisionsof Section I11of Schedule 2 to this Agreement, within eachof MINEE, AERYARSEL and EDC, a procurement specialist, an accountant anda financial managementspecialist, all with qualifications,experience and pursuant to terms of reference satisfactoryto IDA; The Recipienthas installeda functioning computerized integrated accountingsystem within each of MINEE, ARSEL, AER and EDC and successfully trainedrelevant staff in the use thereof, as assessedby IDA; and AER has recruited(i)an environmentaland social safeguardspecialist, and(ii)a power engineedtechnical expert knowledgeable about ruralenergy technologies, each with qualifications, experience and pursuant to terms of reference satisfactoryto IDA. Covenants applicable to project implementation: Disbursement Conditionsfor Component I: No withdrawal shallbe made: (i) For paymentsmade prior to the date ofthe FinancingAgreement, except that withdrawals up to an aggregate amount notto exceed $6,500,000 equivalentmay be made for paymentsmade prior to this date, but on or after July 31,2007, for Eligible Expenditures; or (ii) Under Component 1, unless(i)the REF has beenestablished in form and substance satisfactory to the Association, (ii) the REFAccount has beenopened, (iii)the MINFIhas assigned a REFTreasury Agent to AER for the REF and specifiedthe management and disbursement modalitiesfor the REF Account, in form and substance satisfactoryto the Association, (iv) the REF Manualhas been adopted by the Recipient,in form and substance satisfactory to the Association, and (v) the REPPChas been established in form and substance satisfactoryto IDA. Other covenants: Project Execution and Environmental and social safeguard measures 1. In carryingout the Project, the Borrower shall ensurethat: The Resettlement PolicyFramework(RPF) and the Environmentaland SocialManagement Framework (ESMF) are adheredto by AER which should ensure complianceby energy service operators andthat the environmentaland social issues, ifany, are addressed inthe sub-project documentation. InstitutionalArrangements vi No later than 3 months after the Effective Date, the Recipient shall have opened the REF Account; No later than 3 months after the Effective Date, the Recipient shall have established REPPC with appropriate resources and staffing, and with a composition and a mandate satisfactory to IDA; No later than 3 months after the Effective Date, the Recipient shall have established the DREFwithin AER, with appropriate resources and staffing, and with a composition and a mandate satisfactory to IDA; No later than 6 months after the Effective Date, the Recipient shall have created the Rural Energy Fund, in form and substance satisfactory to IDA; and No later than 4 months after the Effective Date, the Recipient shall have recruited independent auditors satisfactory to IDA. Implementation Arrangements (i) No later than December 15 o f each calendar year throughout the Project implementation, the REPPC shall adopt the Annual Rural Electrification Priority Program, and the first such Annual Rural Electrification Priority Program shall have been adopted no later than July 30, 2009. (ii) No later than 12 months after the Effective Date, the Recipient shall have adoptedthe updated Rural Electrification Master Plan, in form and substance satisfactory to IDA. (iii) No later than 3 months after the Effective Date, the Recipient shall have adopted the first REPP, in form and substance satisfactory to IDA. vii A. STRATEGIC CONTEXT AND RATIONALE 1. Countryand sector issues 1. Access to electricityremains a top priority for growthand povertyreduction in Cameroon. Electricity accessrates in Cameroonare estimated at about 46% overall' but only about 11% for rural households. The vertically integratedpower utility, the PrivateElectricity Concessionaire (AES Sonel), had 536,974 total connections at the end of 2006. Accordingto the World Bank's InvestmentClimate Assessment, limited access to reliableelectricity is amongthe top 5 obstaclesto doing business in Cameroon. It is estimatedthat the lack of reliableenergy services is costingCameroonclose to 2% ofthe gross domestic product(GDP) growth. Ruralelectrificationhas been challengingand not produced visible results. About 80% of the rural populationuseswoodfuel or charcoal to meettheir energy needs and only about 14% ofthe 15,000 villages of Cameroon have electricity. 2. The Governmentof Cameroon (GOC) initiatedin 1998 a series of policy and structural reformsto promote the efficientoperations of the power sector and increaseprivatesector participation. GOC adopted an Electricity Law in 1998, a complementary Electricity Decree in 2000 and established a sector regulator(ARSEL) and a rural electrificationagency (AER) in 1999. The state- owned vertically integratedpower utility was privatizedthrough a 20-year concessionin 2001 and was granteda monopoly over transmissionand distributionthroughoutits concessionarea in Cameroonand the right to own up to 1,000 MW of installedgeneration capacity. A PresidentialDecree ofNovember 29, 2006, also created the Electricity DevelopmentCorporation(EDC) which, as GOC's asset holding company, is responsiblefor the management of public sector assets inthe power sector, in particular hydropowerassets, as well as the regulationof water flows. 3. The concessionof AES Sonel is working relativelybetterthan in other countrieswhich have knownsimilar experiences. Between 2002-2007, AES Sonel connected about 125,000 customers, investedover US$250m in generation capacityand rehabilitationofthe networkbetween 2001-2007and recentlysecureda EUR260m loanfinancing for its 5-year investmentprogramwhich is mainly focused on rehabilitatingexistinghydropowerstations as well as transmissionand distributionnetworks. AES Sonel has beenpayingdividendssince 20022and Cameroon's electricity sector does not receiveany transfersfrom the nationalbudget. Inaddition, loadshedding in Cameroon is less frequentthan in other African countrieswith unserved energy accountingfor 0.8% of total energy produced in2006. 4. At the same time, AES Sonel's performance leaves room for further improvementsand requires better concessionoversight. The concession contract hadto be renegotiated in 2006 given AES Sonel's difficulties to raise financing for the initial investmentobligations. AES Sonel met its revisedconnectiontarget of 50,5 11 connections for the first time in 2007 only and is behindon meeting some other concessionobligations, suchas providing separate accounts for transmission, generation and distribution activitiesor settingup a transmissionsubsidiary. Furthermore,AES Sonel's operating efficiency leaves roomfor significantimprovementin light of combineddistributionand transmission lossesof 28% in2006. Concessionmonitoringby the sector regulatorARSEL has beenweak, in part due to its limited capacity. Lastly, since the obligationto buildthe LomPangar HydropowerProject(LPHP) has beenremovedfrom AES Sonel's concessionobligationsduringrenegotiations,AES Sonel has only addedthermalcapacityto the system. While this providesa degree of reliability in a mainly hydropower based system, it also increases electricitycosts and does not capitalizeon the opportunitiesof Cameroon's hydropowerpotential. * AES Accordingto householdsurveys- Source: The World Bank's Africa Infrastructure CountryDiagnostic. Sonel paiddividends to AES andGOC in 2002,2004,2005,2006 and2007 5. One of the consequencesof privatizationhas beenthe loss of a coherent sector planning function. Accordingto the electricity law, sector planningis the mandateofthe Ministry of Energy and Water (MINEE) which has, however, limited capacity to execute it. As a result, energy sector development has been subject to political influenceand ongoingweaknesses in sector planning. Inthe contextof Cameroon's HIPC CompletionPointwhich was attained inJune 2006, GOC commissioned several studies including: (i) A least cost power sector development plan (Plan de De'veloppement u Long Terme du Secteur de I'Electricite' - PDSE 2030) - which has not been officially adopted nor published and requires improvement in methodologyand cost assumptions; (ii) An energy action plan for poverty reduction (Plan d'Action National Energie pour la Re'duction de la Pauvrete' - PANERP) - leadingto strong ownership of outcome, while a its leavingthe AER without a clear mandate and adequateresources for its implementation; (iii) -Awhich produced a first attempt to capacity development plan for ARSEL (Plan de Renforcement des Capacite'sde I'ARSEL) increase ARSEL's efficiency in consumer protectionand operator control. 6. In 2000, GOC through Sonel and AER developed a comprehensiveRural Electrification Masterplan(PlanDirecteurd'ElectrificationRurale(PDER)), which has not been officially adopted. Other planningtools like the NationalEnergy Planandthe inventoryof Cameroon's potential hydropowerresources are outdatedand requireupdating. Inthe context ofthe preparationofthe first gas fired power plant at Kribi, there is also a needto clarify the roleof gas in long-termenergy generation. To improve sector planningcapabilities,the World Bank has agreedwith the GOC that the additional studies for recastingPDSE2030 as well as provisionof planningtools andtrainingactivitiesfor MINEE and other relevant institutionswould be financed under the Capacity BuildingComponent ofthe proposed Energy Sector Development Project(ESDP). 7. Rural electrificationin Cameroon has not achieved its desired results to date. Access rates remainvey low with only about 14% of Cameroon's 15,000 villages estimatedto have access to electricity. Accordingto its concession agreement, AES Sonel can (within regionally definedobjectives) chose the locations for meetingits connectionobligations and is therefore focused on urban and peri- urbanconnections. Inthe absence of a clearly definedmandate andavailablefunding, AER has not been able to implementthe RuralElectrification Masterplanor PANERP. Several government ministries and agencies, includingthe Ministries of Energy, HealthandEducationandthe Fond Spe'ciald'Equipement et d 'Intervention Intercommunale(FEICOM), have intervened in rural electrificationin an uncoordinated way and often without respecting minimumtechnical standards. Available funds have not beensufficient to meet the substantial investment needsofthe sector which PANERP estimatesat over $250m. Donor interventionshave equally been limited and uncoordinated. 8. The creation of a Rural EnergyFundwill improveplanning, financing and results orientationfor rural electrification. Over the past months, the World Bank has worked closely with GOC to movetowards a results-orientedapproach inruralenergy basedon an updatedRural ElectrificationMasterplanto be financed by the proposedprojectand the establishmentof a RuralEnergy Fund(REF), as foreseen by PANERPandthe decreeestablishingAER. The World Bank will contribute US$40 m. to the REF. Poolingall funds in one financingmechanismunder the oversightof a rural energy planningcommittee chairedby MINEE and with AER as executingagency of the REF will help improve sector coordinationand results on the ground. The REF will provide investment subsidies to privatesector andcommunity-based operators which will haveto providetheir share of co-financingto Source: Plan directeur de l'e'lectrlfication rurale, Lahmayer,2001 2 demonstratecommitmentandto leverage public funds by attractingprivatesector co-financing. The REF will support grid extensions as well as decentralized electrification projects and be technology-neutral,i.e. award subsidiesto the lowest cost technology, while taking regionalspecificitiesof a specific concession area into account. Other donors have expressedan interest in contributingto the fund once it is established. 9. The recent creation of the ElectricityDevelopmentCorporation(EDC) hasfurther increasedthe institutionalcomplexity of the sector. EDCwas created by Presidentialdecree in November2006 andEDC's managementhasbeenappointed inJanuary 2008. As GOC's asset holding company in the electricity sector, EDC's missionincludes but is not limitedto the constructionand exploitation of regulatingreservoirs in river basins, includingthe Lom Pangar regulatingdam, and the managementand regulationof water flows. Not all applicationdecrees for EDC have been issuedyet and there is a needto clarify its interactionand respectiveresponsibilitiesvis-a-vis AES Sonel, ARSEL, AER and MINEE. In addition, existingsector stakeholdershave not always adheredto their mandate; thereby further increasinggovernance and coordinationchallenges in the sector. MINEE has thereforerequested World Bank support for a reviewof institutionalstructures, rolesand responsibilitiesinthe energy sector. The review will be financed by the proposed project. 10. All of the abovecalls for strengtheningthe capacity of all sector stakeholders to better executetheir mandate and to completeelectricitysector reforms. The proposedprojectwill provide capacity buildingto MINEE to improvesector planningand conduct an institutionalreview, to ARSEL to improve concessionoversightand consumer protection,to AER to implementthe rural energy fund and providecapacity building to rural electrificationoperators, andto EDCto determine the pricing of water and conduct feasibility studies for potentialfuture hydropowerinvestments. Capacitybuilding will includeassistance with communicationstrategies andtrainingfor all institutions. Inaddition, capacity building will focus on those areas which are requiredto complete the sector reforms, includingsettingup a transmission system operator as foreseen under the electricitylaw and attractingadditionalprivate operators, such as Independent Power Producers(IPPs), to large scale generation projectsand rural energy projects. Capacity buildingto manageenvironmentaland social impact of energy investment projectswill be providedby the parallelIDA Projectfor Environmentaland SocialCapacityBuilding for the Energy Sector. 11. Addingleast cost generation capacity on time is the basis for the realizationof GOC's economic growth strategy, includingprivatesector development and several industrialand mining projects. Investmentsin Cameroon's hydrodominated power systemhave not kept up with demand growth, creatingthe risk of power shortages from 2009 onwards. 721 MW of AES Sonel's installed capacity of 933 MW is hydrocapacity (77%), while thermal capacity (diesel and heavy fuel oil) accounts for the balance (212 MW or 23%). Available capacity is significantly lower (about 780 MW in 2006) as the two largest hydropowergeneration plants at Edeaand SongLoulou requirerehabilitation. Historical growth ratesof electricity supply of 2.3% in2005 (4,003 GWh) and 3.6% in 2006 (4,147 GWh) are below projectedaveragedemand growth of 6% going forward. To avoidpotentially significant power shortages from 2009 onwards, AES Sonelthrough its subsidiary KribiPower DevelopmentCorporation(KPDC) is inthe process of installingan 86 MW HFO emergency power plant near Douala(Dibamba) and is developingthe Kribi gas to power projectwith a minimumcapacity of 150MW and an expected commissioningdate inthe first quarter of 2010. Thesethermalpower projectswill bridge a potential supply gap starting in 2009 and increase reliability ofpower supply in a mainly hydropowerbased system. However, the additionof substantial hydropowersupply accordingto an updatedleast cost plan will be requiredfrom 2012-13 onwards to allow for the realizationof a number of planned industrial projects, includingan expansion ofthe aluminumsmelter Alucam, as well as several iron, cobalt, bauxite, and other miningprojectsunder negotiation. 3 12. The realizationof the Kribigas power project and the LomPangar hydropower project,the next least cost capacity additions in Cameroon's electricitysector, have encounteredsignificant delays. The Kribi gas power project, Cameroon's first Independent Power Producer (IPP), will be operated by Kribi Power Development Corporation (KPDC), an affiliate of AES Sonel, as a Built Own Operate (BOO) model under an electricity generation and sales license for up to 25 years. Contrary to the provisions of the electricity law, the project was not competitively bid and awarded to AES Sonel under an emergency procedure in 2005. The project consists of a 150 M W gas-fired power plant located 9 km north of the coastal city of Kribi and a 100 km225 kv dual transmission line connecting the power plant to the existing Mangombe 225/90kV substation at Edea. The plant will runon either simple cycle gas turbines or reciprocating gas engines. The project provides the trigger for the development of the des Hydrocarbures - SNH) and Perenco Cameroun. Gas Supply Agreements (GSA) have been signed offshore Sanaga South gas field by ajoint venture betweenthe national oil company (Societe Nationale betweenPerenco and SNH(GSA1) and SNH and KPDC (GSAZ) at the beginningof 2008, albeit with a delay of over a year. AES Sonel will be the sole off-taker of electricity produced by KPDC under a 20- year Power PurchaseAgreement (PPA). Alucam will take 50 M W produced by Kribi. IDA will support the financing ofthe Kribi project with a Partial Risk Guarantee (PRG) for a syndicated local currency loan from local banks. 13. The LomPangarHydropowerProject(LPHP) is the anchor projectto realizeCameroon's significant hydropower potential. Cameroon's three existing water reservoirs do not have sufficient storage capacity (total of 7.5 km3) to maintainreliable power supply during the dry season. Constructing the Lom Pangar dam at the confluence of the Lom and Pangar rivers will establish a reservoir of up to 7.25 km3 with a useful capacity of about 6 km3 allowing for improved regulation ofthe water flow of the Sanaga river. Economic benefits of the LPHP include (i)increasing generation capacity at existing Song Loulou and Edea hydropower plants by at least 120 MW, (ii)setting the basis for a number of downstream hydropower projects with total capacity of over 2,000 M W including Nachtigal (330 MW), Songmbengue (900 MW), SongNdong (280 MW) and Kikot (500 MW), and (iii)creating 30 M W of additional generation capacity for the electrification of neighboringtowns and villages. A comprehensive analysis of alternatives shows that LPHP is the economically least cost generation option. The closest alternatives to LPHP are other smaller regulating dams, water from which would cost nearly twice as much as that from LPHP per m3stored. 14. Technicalassistanceis requiredto manage the technical, environmentaland social risksof the future LPHP. Beforethe creation of EDC, LPHP preparations were led by MINEEwhich had limited capacity to keep the project on track. With EDC taking over as project company, it will have to build the required capacity quickly to further avoid delays in project preparation and manage the project's technical and safeguardrisks in accordance with international standards. The project's associatedrisks include (i)partial flooding of the Chad-Cameroon pipeline at two intercepts of about 5 km lengths in total, (ii)a number o f environmental and social safeguard risks, amongst others related to the partial flooding of the Deng Deng forest and the threat that increasedaccess to the forest and the dam site will pose to the natural habitat of large primates, and (iii)the needto ensure that benefits of LPHP are shared widely and do not disproportionately accrue to Cameroon's largest electricity customer, Alucam. Project preparations have encountered significant delays and several important environmental, social and technical studies have not yet been completed. The proposed project will therefore provide assistance to EDC with the technical, environmental and social dimensions of project preparations. 15. Leastcost energy sector planningin Cameroon is complicatedby the dominanceof one single customer,Alucam4,which is planningto expand its productioncapacity. Alucam accounts for 35% of total power consumption, but only 7.5% of AES Sonel's revenues (2006 data). Alucam benefits The aluminum smelter isjointly owned by Rio Tinto Alcan (46.7%), GOC (46.7%), AFD (5.6%), other (1.1%). 4 from guaranteed supply of 145 MW duringthe dry season (165 MW duringthe wet season), and a historic 30-year contractwith a tariff cap ofUS cent 1.3 per kW untilthe end of 2009 (compared to tariffs of US cent 11.4/kWhfor MV customersand US cent 13.6/kWhfor LV customers). At the request of the World Bank, the GOC has conducted an economic analysis of the aluminumsector. While the quality of the analysis needsto be improved, it indicatesthat Alucam is makinga positivecontributionto the Cameroonianeconomy. The World Bank is conductingits own study on the aluminum industry in West Africa, includingCameroon, which will be made availableto the public. Rio Tinto Alcan / Alucam is consideringan expansion of its aluminum smeltingcapacity, from 90,000 to 305,000 tons by 2012, which would increase demand for guaranteedelectricitycapacity to about 500 MW. In addition, managementis consideringbuildinga greenfieldaluminaplant near Cameroon's bauxitereserveswhich are not yet exploitedwhich would further increase demand for electricity. NegotiationsbetweenAlucam and AES Sone1on future electricitytariffs are ongoingand will needto reflect actual costs to avoid subsidies to the aluminum industry. Alucam's medium-termstrategy to meet its additionalpower needs is built around the constructionby Alucam ofthe Nachtigalhydropowerproject(at least 330 MW) andthe feasibility of the SongMbengue hdyropower project(900-1,000 MW), bothof which requirethe constructionof the LPHP. 2. Rationale for Bank involvement 16. Improving investment in infrastructure,and in particularelectricitygenerationcapacity and access to electricity is at the heart of the Government of Cameroon's (GOC) revisedgrowth andpoverty reductionstrategy, which is inthe processof beingestablished. The World Bank`s strategy in Cameroon is to support policiesand investmentsthat encourage economic growth and efficiency through social development, public and private capital investments, environmentally-friendlyprojects, and sound public sector management. Inparticular,the World Bank Group's Interim Strategy Note (ISN) identifiesthe support to the development and quality improvementof infrastructureas a focus for Bank assistance. The proposedEnergySector DevelopmentProjectis specifically mentionedin the ISNas an instrumentfor furtheringthis objective. The ISN also put focus on enhancingthe conditionsfor rapidand sustained broadbasedeconomic growth andjob creation. 17. The GOC has shown commitmentand expresseda keen interest in workingwith the World Bank Group as a strategic partner inthe development of Cameroon's energy sector, a key sector in GOC's growth and povertyalleviationstrategy. Sustainedeconomic growth requires (i) the sustainable development of Cameroon's considerable hydropowerpotential,(ii)adequate capacity to plan, regulate and execute investments inpower generation, (iii)access to availability of reliableand affordableenergy, especially in peri-urbanand rural areas, and (iv) consolidationofthe reformachievementsto further improveefficiency inthe sector. The proposedprojectwill thereforesupport preparatory activities for the GOC's Lom Pangar Project(LPHP) and ruralenergy projects, capacity building for all sector stakeholders and sustainable development of grid and off-grid electrificationin Cameroon. 18. The World Bankparticipationin preparatory activities of the LPHP, a key highpriority and economic least cost investment inthe electricitysector, will ensure that project preparation adhere to internationalbest practicesand complieswith the World Bank safeguardpolicies. This will help mitigate and managethe substantialto high project risks which include,in particular:(i)the partialflooding of a section ofthe Chad-Cameroon pipeline,(ii) highenvironmentaland social safeguardsrisk, includingthe partialflooding and increasedaccess to the DengDengforest, a critical naturalhabitatfor large primates, and (iii)reputationrisks arisingfrom the fact that a significant share ofthe benefits of LPHPwill accrue to Cameroon's largestelectricity consumer, the aluminum smelter Alucam. Consequently, areas of particularfocus for the World Bank Group engagementincludeensuring the sustainability of the Deng Dengforest andthe transparentdevelopments of Cameroon's andmineralresourcesto managethe wider impacts onthe development of naturalresources, the environmentandthe populationat large. The World 5 Bank participation in LPHP preparations does not provide commitment that it will finance the construction of the project itself, and any further engagemento f the World Bank inthis project would be conditional upon GOC compliance with all milestones and decision point measures of a decision framework to be agreed with GOC. 19. World Bank support for the proposed project is critical for the following reasons: (a) the proposed capacity building in planning sector investments is important to help GOC prioritize scarce resources in a least cost investment sequence, thereby maximizing fiscal space for infrastructure investments in general and energy investments in particular; (b) the proposed support to project preparation, including future hydropower development, is key to ensure the development of Cameroon's considerable hydropower resources in an environmentally and socially sustainable manner; (c) the success of the proposed project is a critical step inthe gradual but global approach for adapting rural electrification models on a large scale, and World Bank involvementwould leveragetechnical knowledge and international best practice to ensurethe best chances of success of the project; and (d) the potential for cost reduction is high because of the important size ofthe market and the adoption of standardized low-cost technologies suitable for rural areas and appropriate business models. 20. The proposed project also marks the strategic re-engagement of the World Bank in Cameroon's energy sector. The GOC and the World Bank are engaged in an intensive policy dialogue inthis key sector, and a comprehensive program of financial and technical support is being developed through this project and the parallel Environmentaland Social Capacity Building Project for the Energy Sector. IDA is also preparing a Partial Risk Guarantee for a local currency financing of the Kribi Gas Power Project. 3. Higher level Objectives to which the project contributes 21. InDecember 2006, the World Bank's Board ofExecutive Directors discussedthe Interim StrategyNote (ISN)for Cameroon, which covers fiscal years 2007-08. The ISNtakes into account several changes that give Cameroon greater opportunities to foster its development: attainment of the completion point of the Highly Indebted Poor Country (HIPC) initiative in April 2006, eligibility of the Multilateral Debt Review Initiative (MDRI)and the momentum of Paris declaration on aid effectiveness, March 2005. 22. The current World Bank Group support to Cameroon is guided by three principles: addressing governance including anticorruption, reinforcingmanagement for results, and strengthening partnership, alignment and harmonization. The ISNprovides about US$220 million of IDA credit funding for fiscal years 2007-08, in addition to substantial financial resourcesfrom HLPC and MDRIdebt relief and direct investments from the International Finance Corporation (IFC). Furthermore, inorder to improve the development effectiveness in Cameroon, the Bank will pursue all activities in close collaborationwith other development partners. 23. The World Bank's new Country Assistance Strategy for Cameroon 2009-2011 under preparation i s expected to focus on helping Cameroon manage its natural resources in an environmentally and socially sustainable way with the objective to maximize the impact on growth and poverty reduction. This focus i s aligned with GOC's focus on energy investments as a basis for sustainable growth as articulated in the revised PRSP. The proposedproject, which, amongst others, is an instrument for the successful implementation of the least cost energy sector development plan and the National Energy Plan for Poverty Reduction, contributes to these higher level objectives. 6 B. PROJECT DESCRIPTION 1. Lendinginstrument 24. The lendinginstrumentis a specific investment loan (SIL)to be supported by an IDA credit which will be usedto finance the proposed projectby coveringabout 93% oftotal investment costs. The remainder of the project cost will be coveredby government budget contributionsto the REF. IDA support throughthe proposed creditwill helpreducethe costs of ruralelectrificationthroughthe adoption of environmentallyfriendly andcost-effectivetechnologies, will assist Cameroon in extendingaccess to modernenergy in ruralareas, providetechnical assistance to prepatory activities for the plannedLom Pangar Project(LPHP), improve least cost sector investment planningandthe capacity of MMEE, EDC, ARSEL and AER to execute their mandates. 2. Project developmentobjective and key indicators 25. The overall project development objective is to increaseaccess to modernenergy in targeted rural areas and improvethe planningand managementof sector resourcesby all energy sector institutions. Through its intervention,the projectis expectedto contributeto improvedreliability of electricity supply. Increasedaccess to andreliability of electricityare key factors inthe realizationof GOC's growthand povertyreductionstrategy. 26. The ProjectDevelopmentObjectivewill be achievedthrough: (i) Settingup a financing and planningmechanismfor rural energy (Rural Energy Fund); (ii) Improvingthe legal and regulatoryframework and strengthening the capacity of sector institutionsto better executetheir mandates(MMEE, ARSEL, AER, EDC); and (iii) Improvingthe preparationof energy projects, includingLPHPand rural energy projects. 27. Key results indicators for the projectdevelopment objectiveto be monitoredby MINEE/ARSEL/AER/EDC,are: (i) Number of electrifiedvillages (grid and off-grid); (ii) A longterm least cost development planfor the sector is adopted; (iii) Full compliance of AES Sone1with at least two concession obligations; and (iv) Preparatory activities for LPHP in accordancewith internationalbest practicetechnical, environmentaland social standards, as measuredby compliancewith applicableWorld Bank safeguards policies. 28. A detailedresults framework includingintermediateoutcome indicatorsfor each project component is providedinAnnex 3. 29. Regardingthe REFunder component 1, in additionto the key performance indicatorsagreed upon inAnnex 3, the projectwill undertakequalitativeassessmentsto monitor progress and ensure that lessons learnt from the earlier phasesof implementationare captured and integrated into the program. These include: (i) Lessons learnedduringthe early phaseofthe ruralenergy program(feasibility study and biddingprocess, environmentaland social safeguardsand financing.); 7 (ii) Lessons learnedduring the constructionof the rural energy projects; (iii) Lessons learnedfrom the operation ofthe ruralenergy projectsand initial assessmentof the viability ofthe technology usedafter two-threeyears of operation, and (iv) Lessons learnedfrom demand response, barriersand mitigationmeasures. 30. The disseminationand other qualitativeindicatorsare designed to capturethe learningeffect of the project. For replication,they are consideredat least as important as the quantitative indicators. 3. Projectcomponents The project includes the following three components: 3 1. ComponentI($45 million): Rural Energy Fund (REF). This component will help set up a ruralenergy fund as foreseen under PANERPandthe decree establishingAER. A financingmechanism basedon best practice examples from countries such as Mali and Burkina Fasowill streamline interventionsand increase the effectiveness of investmentsin ruralenergy. The fund will be managedby AER as executingagency basedon transparent operationaland fiduciary procedures. Other donors have expressedan interest in contributingto the fund once it is established. Over time, GOC intendsto ensure the sustainabilityofthe REF througha levy on electricity soldand other energy products. The World Bank will contribute US$40million to the REF while the GOC will provideat least US$5 million to the REFthrough budget contributionsover the life ofthe project. 32. The REF creationrespondsto the low leveland limited accessto modem sources of energy in rural areas to date. To achieve quick results, the REFwill initially focus on ruralelectrification, particularly grid extension, while promotingawarenessand building capacity for improvedaccess to decentralized ruralenergy sources at the same time. The first year will be dedicated to capacity building and project preparation. 33. A RuralElectrificationPlanningand ProgrammingCommittee(REPPC) will be created where all institutionscurrentlyengaged in ruralelectrificationwill meet at least semi-annually to agree on a well defined yearly investment program of ruralelectrification andrural energy projectson the basisof an updated RuralElectrificationMasterplanto be preparedby MINEE in collaborationwith all sector stakeholders andto be adoptedby the REPPC. Following the electricity law, ARSEL will be responsible for choosingthe privateoperator for the projects basedon a competitivebiddingprocess, inaccordance with the proceduresofthe NationalProcurement Commissionanddonors. The selection of operators will be basedon their business planandthe selection criteriawill be the lowestsubsidy required, givena specifictariff or the lowesttariffgivena specific levelof subsidy, bothfor a givennumber of connections. 34. The REF would observe technologicaland business modelneutrality (cooperatives, privatelyor community supported and managedrural energy projects, grid and off-grid solutions, etc) andwould support any workable and sustainable solutionto extend access to modemenergy in ruralareas. 35. AER as the executingagency will monitorthe execution of works andthe treasury agent assigned to AER will provide disbursement instructionsto the designated account opened at the centralbank (BEAC) for the REF. In addition, AER will collaborate with and providetechnical assistance as required at all levels, includingto (i)the REPPC in updatingthe RuralElectrificationMasterplanandthe elaborationofthe annual priority investment program, (ii) ARSEL in the technicalevaluationof bids received, and (iii) privateoperators and municipalitieswith feasibility studies, preparation oftheir business plans and environmentalassessments. 8 36. The REFwill only subsidize investments upto 70% oftotal investment costs and not consumption. Initially, the REFwill only providegrants and providersof energy services would rely on their own capacity to mobilizedebt. In a second phase, the REF may also provide guaranteesfor all or partof the loans contracted by ruralenergy providersto encouragethe bankingsector to lendfor rural energy projects. It is foreseen that the needfor guaranteeswill only come at a later date. A detailed descriptionofthe REF is given in Annex 4. 37. ComponentII($15.6 million): CapacityBuilding. The projectwill providetechnicalassistance to MINEE (US$6m.) to (i) improvethe planningof least cost investments; (ii)finalize the legaland institutionalframework ofthe energy sector; (iii)communication;and (iv) complementary studies and providenecessarytrainingand equipment. 38. EDC ($3.6 m.) will benefitfrom technicalassistancefor: (i)developingtools for water basin management, (ii)pre-feasibilityand feasibility studiesfor future hydroelectric projects, (iii) communication;and (iv) associatedtrainingandequipment. 39. ARSEL (US$4 m.) will benefitfrom technical assistanceandtrainingto improve regulatory governance, concession oversightandconsumer protection. 40. Capacitybuilding for AER (US$2 m.) will focus on implementingthe REF, ruralenergy expansionand energy efficiency. 41. Detailsofthe proposedcapacity building activities are includedin Annex 4. 42. ComponentIII($9.4 million): Project Preparation including LPHPpreparation. The project will assist EDC with the preparationof LPHPandAER with the preparationof ruralenergy projects. 43. EDC plansto establish a Special PurposeVehicle (SPV) for the development and management of the LPHPwhich will be 100%ownedby EDC. A projectcoordinationunit will be establishedconsisting of all projectstakeholders, includingEDC, MMEE, Alucam etc. EDCwill appoint a projectdirector for LPHPwho will be assistedby a projectmanager and a team oftechnicalexperts reportingto the project director. EDC is inthe processof puttingin place an interim solutionwhich will be integratedinto the projectunit. The IDA credit will support the team oftechnical experts by financingan independent engineeringfirm which will providean owner's engineer and other technical staffrequiredto facilitate and oversee the preparation of LPHP. The creditwill equally finance outstanding technical, environmentaland social studies andthe preparation of biddingdocuments. In addition, the IDA credit will ensure the ongoingfinancing ofthe independent panel of environmentaland social and dam safety experts. 44. To implementthe REF basedon the updatedRuralElectrificationMasterplanandthe National Energy Planfor the Reductionof Poverty(PANERP), the projectwill providetechnical assistanceto AER to identify, prepare and appraise ruralenergy projects inview oftheir financingby private operators or local communities. The projectwill finance the development of standard biddingdocuments, standard technical specificationsand other projectpreparationdocuments. Inaddition, the projectwill finance consultantswhich will work with AER to providetechnical assistanceto private operators and inthe supervisionof projectexecution. 9 45. A breakdownofthe projectcomponents is providedinthe table below. Indicative Bank % of total Component costs % of financing Bank (US$M) Total (US$M) financing 1.Rural Energy Fund 45.0 64.3 40.0 61.5 2. Capacity building 15.6 22.4 15.6 24.I 3. Project Preparation 9.4 13.3 9.4 14.4 Total Project Costs 70.0 100.0 65.0 100.0 4. Lessons learnedand reflectedinthe projectdesign ComponentI: Rural Energy Fund 46. There are a number of lessons learned from rural energy projectsfunded by the Bankworldwide. Necessity of developinga ruralenergy strategy in line with the nationalenergy strategy and preparingaruralelectrificationmaster planto help inthe planningof rural electrificationprojectsto be undertakennationwideover a mediumto long-termhorizon. The proposedESDP supportsthe preparation ofthe nationalenergy strategy as well as a ruralenergy strategy, includingthe updatingofthe rural electrificationmaster plan developed in 2001; The need for a suitable legal and regulatoryframeworkto ensure a credible and stable contractual framework. The existing legaland regulatoryframework will be reviewed and made clearer andmore explicit in preparation ofthe REF; For ruralenergy projectsto be sustainable, it is crucialthat consumers bear at least the operating and maintenance costs ofthe system supplyingthem. The evidence is overwhelmingthat rural energy projectsthat did not rely on cost recoveryfrom consumers generallyfailed. To avoidrepeatingthis experience under the proposed project, cost recoveryfrom consumers is a requirement for gainingsupport fromthe proposedRuralEnergy Fund(REF); To promote rural electrification andto buy downthe highcost of investmentin rural electrification to make the cost of service affordableto the rural population, the settingup of a ruralenergy fund is necessary. Since extendingaccess to modern sources of energy to the ruralareas is a long-termendeavor, this fund should be funded in a sustainable way throughbudgetallocations,donors' contributionsand possiblya levy on sales of electricityinthe interconnected networks. Subsidies from the REF will be given on the basisof output effectively delivered(e.g. number of householdsconnected, etc.); Capacity building of all stakeholders in ruralelectrification (RE) andcommunication (MINEE, ARSEL, AER and EDC, PrivateEnergy Suppliers - PES), is critical to current and future operations and to the sustainabilityofthe REprogram. The proposed project provides a substantial capacity building component to address identifiedweaknesses and to lay down the conditionsunder which projects and programs could be sustained; 10 The management of funds should be separateandwill be done through adesignated account opened at the centralbank. Disbursementswill be made at the instructionof the treasury agent assignedto AER who will closely cooperate with the financialspecialist of the REF Directoratewithin AER. Furthermore, the REFwill be audited regularlyto make sure that the funds are usedfor the purpose for which they are meant. The call for bids for ruralelectrificationoperators is done by ARSEL, the regulator,in close collaborationwith AER; The involvementof commercialbanksto providedebt and to replace grant fundingover time is vital to the success ofthe ruralelectrificationstrategy. In a second phase, to encourage banksto lend to PES andto get involvedin the financing of rural electrificationschemes, the REF may, under certainconditions(maximum coverage, etc.) extend guaranteesto cover part ofthe loan extended by commercialbanks; Spreadingthe cost of houseconnection over acertainperiod(e.g. several months) has beenshown to be quite effective in increasingthe rate of connectionto the new rural electrificationscheme. The FERwould encourage PES to adopt this policy in order to increase their consumer base; A number of skills andtools are necessary for effective project implementation. The projectprovidesfundingfor stafftraining, consultancy services and information technology(IT) equipment under the capacity buildingand project preparation components. AER will also provide assistanceto PES in designingtheir projectseither directly or throughconsultantsrecruitedfor that purpose; Communityparticipationandregionalequity. Communityparticipationinthe design of the rural electrificationprojectinsuresthat it corresponds to the community's needs. The communitywould therefore be more willingto participate in its sustainabilityby paying its bills regularly. Regionalequity is also an importantdimensionthat the projecttakes into account in project selection to ensure that poorer regions ofthe county are not excluded from benefitingfrom the rural energy program; and The choice oftechnologyis dictatedby economics (Le. pricesand market with regardsto the source of technology)and should not be imposedexogenously. The proposedproject i s therefore technologyneutraland subsidies will be awarded in line with applicable technologystandards, takingthe specificitiesof each region into account. ComponentII: CapacityBuilding 47. The challenge with capacity building activities is to ensure a sustainable transfer of knowledge. The projectaims to meet this challenge by providinga mix of in-country and outside trainingactivities as well as teaming up outside consultants for key technical activitieswith staff of MINEE, AER, ARSEL and EDC. With a view towards improvingcoordinationamong all sector agenciesand ensure synergies betweenactivities, capacity building activities underthe project have been demand-driven and have been developed in a participatorystyle with all sector agencies. ComponentIII: Project Preparation, including LPHP 48. Experience shows that the skills requiredfor the preparationof large energy sector generation investments are not readily available in governments in developingcountries. This can bethe reasonfor poor project preparationand significant delays with potentiallyhigh cost to the economy. Forthe preparation of LPHP, the projecttherefore proposesa pragmatic solution of assistingthe project unit which EDC will put in place with a team of independenttechnical, environmentaland social consultants, which are fully dedicated to projectpreparationandbring internationalbest practiceexperience. Private 11 sector participationcouldbe envisagedto improve accessto requiredskills andcreate incentivesfor a reliableproject executionschedule. 5. Alternatives considered and reasons for rejection ComponentI: Rural Energy Fund 49. Traditional utility ruralelectrificationvs. private sector ledruralelectrification. Inmany parts of Africa, traditionalutility built and managedruralelectrificationschemes have beena failure. Therefore, to increaseaccess to the greatest number with some degree of success, a new business modelhadto be developed. The one adopted, on a nonexclusive basis, in this projectrelies, among other factors, on privateparticipationandcost recovery from consumers as the basis for the sustainability andreplicability of rural energy schemesall over the country. 50. Ruralelectrificationbasedexclusivelyon networkextension. Giventhat the majority of Cameroon's populationlives inthe ruralareas far from any network,optingfor this alternativealone would have meant foregoing supplyinga large share ofthe population. This optionwas rejectedinfavor of an approachrelyingon grid extensionwhenever possible, becausethis is the option likely to result in the greatest number of connections, but also on decentralized ruralelectrificationand energy projects which is likely to be the only solutionfor access to modern sources of energy for many villages and communitiesacrossthe country for many years to come. 5 1. To make electricityaffordableto the greatest number, supply costs haveto be minimized. One way to do this is to adopt a low cost technologymore suitable to ruralenergy. Urbanutility construction standardsmay not be appropriate giventhe levelof needs for rural energy simply becausethe quality of service is too high(daily hours of service, etc.) andthereforetoo costly. Component11: CapacityBuilding 52. The alternativeto the proposedcapacity building component is no capacity building. This alternativewas rejectedfor multiple reasons including(i)the necessity for capacity buildingof MINEE, AER, ARSEL and EDC to achievethe projectdevelopment objective andto improvethe way inwhich each institutionfulfills its statutory mandate, (ii)the demand from GOC for capacity building to consolidate electricitysector reforms and (iii)limited other donor engagement and financing for capacity building inthe energy sector. Component111: Project Preparation, including LPHP 53. The alternativeto the proposedprojectpreparationcomponent is no project preparation component. For LPHPpreparations, this alternativewas rejectedas IDA participationin project preparationsis importantto facilitate the financing andtimely completion of outstanding studies and biddingdocumentsandensure the necessary and independent skill mix for EDC's projectpreparation unit. Detailedeconomic, technical,environmentaland social risk analyses includingan analysis of alternatives shows that (i) LPHP is the next least cost generation investment inCameroon's electricity sector after the Kribi gas power plant, (ii)environmentaland social risks are highbut IDA participation in project preparationsprovidesthe best way of ensuring adequaterisk mitigationmeasures, and (iii) the opportunitycost of lack of IDA and potentially other donor participationinprojectpreparations is high, includingthe risk of overly favorable electricitytariffs to Alucam and insufficientconsiderationto environmentaland social measures, in particularadequate protectionofthe DengDengforest. All of these factors could impedethe sustainability ofthe projectwith a potentialnegative impact on access to concessional financingfor the LPHPas desiredby GOC. No commitmentby the World Bank Group is beingmade at this stage to fund the LPHP itself. 12 C. IMPLEMENTATION Partnershiparrangements 54. The projectis co-financedby GOC and IDA. Their contributionsto the financing ofthe project are respectively7% and 93%. GOC co-financingwill be madethroughannual budget contributionsto the REF. Other donors have expressedinterest tojoin the REFat a later date. Preparatory activities for LPHPhave so far beenfinancedby AFD but its current resourcesare not sufficient to fully finance all remainingprojectpreparationactivities. IDA is closelycoordinatingall energy sector interventionswith other donors active or interested inthe energy sector. Institutional and implementation arrangements Implementation period: 5 years: 2008-2013 Component I: Rural Energy Fund (REF) A summary ofthe implementationarrangement is presented below: 55. Executingagencies: Ministry of Energy and Water (MINEE), ARSEL, AER, REPPC, private operators 56. Project Management: The proposedinstitutionalarrangements rely on: (i)MINEE; (ii) ARSEL; and (iii)AER andthe financingmechanism (REF) througha designatedaccount at the CentralBank (BEAC). Other importantplayers are a RuralElectrificationPlanningand ProgrammingCommitteeto be createdandthe private sector. The institutionalresponsibilitiesare detailedin Annex 4. 57. Incoordinationwith all sector stakeholders, the Ministry ofEnergy(MINEE) will be responsible for developingan energy sector strategy and updatingthe RuralElectrificationMasterplandeveloped in 2001. MINEE should also assist in developingmechanisms that will make ruralelectrificationa sustainable activity, includinga search for finds from donors and possibly a surcharge on electricity tariffs. MINEE presides over the RuralElectrificationPlanningand ProgrammingCommittee (REPPC) where all institutionscurrently engaged in rural electrification andrural energy would come together to agree on a well defined yearly program of ruralelectrificationand ruralenergy on the basis of the updated ruralelectrificationmaster plan. The purpose ofthe planningcommittee is to avoidthe dispersion of efforts amongmany agencies. This also has a financial aspect, as the budget funds of FEICOMand HIPC debt relief, as well as other line ministriesactive in ruralelectrification,would be channeledthroughthe REF. Projects could also be presentedby individual promoters andrural communities, providedfor the latterthat the managementofthe rural electrificationscheme once completed will be entrustedto a qualifiedoperator that has beenchosenon acompetitive basis. The general rulewould bethe choice of the privateelectricity operator through competitivebids issuedby the regulator(for priority electrification programs) onthe basis ofeitherthe lowest subsidy, givena specifictariff, or the lowesttariff given a specific levelof subsidy, both for a fixed number of connections. 58. Basedon its annual investment planand following a competitive bid for selectingthe private energy operator (PEO) ledby ARSEL, AER will monitorproject executionand instructdisbursements to be made from a designatedaccount at the regional CentralBank (BEAC). A REF directorate(DREF) will be created within AER which is responsible for the financial supervisionof the REF and will work with the treasury agent assignedto the REFto request disbursementsof the subsidies from the REF when agreed projectmilestoneshave beenmet. 13 59. To obtain a financial contribution under the REF, PE05smust submitbusiness plans to ARSEL as part o f a formal biddingprocess. AER may assist inthis preparation with the financing o f studies and/or technical assistance. Once the PEO has won the authorization/license/concession for the planned project, the PEO will need to provide proof o f his co-financing o f the investment through a bank loan and/or his own capital. 60. Inaddition, AER would provide technical assistance to: (i)identify, catalyze, and supervise development o f the first rural electrification activities; (ii)train stakeholders (potential PEOs) inthe development of business plans and the actual development o f projects; (iii)analyze and evaluate Business Plans presented by PEOs; and (iv) launch an awareness and information campaign to inform potential beneficiaries. AER would provide assistance to PEOs in preparingproject and grant applications, either directly or through a contract with specialized organizations. AER would be responsible for assuring that the specialized organizations that are hired are qualified, verifying that their work program is consistent with the project output, monitoring the interventions and evaluating their effectiveness. 61. Disbursement from the Rural Energy Fund (REF) will be managed from a designated account to be opened inthe regional CentralBank. Fundingsources o f the REF include the general budget, bilateral/multilateral donors, and possibly at a later date, a levy on electricity and other energy products, to provide grants and, in a second phase, possibly also guarantees to encourage lending by commercial banks. This ensures the long term sustainability o f the financing mechanism which will be the key instrument for achievingan equitable access to electricity. To increase ownership and establish a culture o f maintenance, PEOs would be required to contribute to the financing o f their project out o f their own funds or from a bank loan. Since the commercial financial sector is currently reluctant to provide debt financing to SMEs, AER will work with commercial banks to build capacity in the analysis o f rural energy projects and their sustainability. 62. Specific regulatory rules and procedures for rural energy will be developed inpreparation o f implementing the REF. In general, government agrees that: (i) Specific projects will be developed on a commercial basis; (ii) Sound electricity tariffs need to be proposed by the PEO to reflect economic costs but also take the capacity to pay into account. The tariff proposal will have to be accepted by ARSEL, at the time o f the business plan analysis, in order for the PEO to benefit from the financing mechanism advantages; and (iii) There would be no government intervention in PEO selection which will be based on technical, economic and financial criteria only. Component ZZ: CapacityBuilding 63. MINEE,ARSEL, AER and EDCwill each implementtheir part o fthe capacity building component. Several terms of reference have already been prepared and submitted to the Bank for comments. Requests for proposals are being prepared. Component111: Project Preparation 64. The project preparation component will be implementedby EDC and AER. EDC has the responsibility for LPHP preparation activities. As outlined in more detail in Annex 4, LPHP will be prepared through a Special Purpose Vehicle (SPV) and by a dedicated project unit within EDC. The project will finance independent expert staff to supplement the project unit and work under the project director. A Private EnergyOperator (PEO) could be a private entrepreneur,a cooperativeor a local community. 14 65. For the preparationof ruralenergy investment projects, consultantswill be financed under the projectto assist AER with feasibility studies, the preparationof requests for proposal, technical studies, capacity building for ruralenergy operators and project supervision. Accounting,financial reporting, and auditing arrangements: 66. MINEE,ARSEL, AER and EDCwill cooperateto producethe financial statements andaudits of the project. MINEE will havethe responsibilityfor coordinatingthis effort andprepare integrated financial statements and audits for the project. 67. Financialmanagementofthe REF sub-component will be carried through a designated account to be opened at the centralbank (BEAC). The dedicated treasury agent and the financial analyst in DREF will cooperateto produce the financial statements of the REF. AER will be responsiblefor the preparationof quarterly and annual financial managementreports andtheir submissionto the Ministry of Finance, MINEE andARSEL. 68. All projectaccounts, includingthe REF account, will be audited annually in accordance with OHADA standards in compliance with InternationalStandardson Auditing (ISA) by an experiencedand internationallyrecognized audit firm acceptable to IDA. The audit reportwill be submitted to the Bank no later than 6 months after the closingof each fiscal year. 1. Monitoringand evaluationof outcomes/results Monitoring and evaluation 69. The framework for project monitoringand evaluationhas beenpresentedin section B.2. and in Annex 3. 70. The project's primary purpose is to put inplace mechanisms for increasing access to energy products in rural areas, build capacity in the energy sector and help the government inthe preparationof projectsin the sector's least-costdevelopment plan. Consequently, an adequate project performance monitoring, evaluation, and disseminationsystem is a key component of the project design. 71. The monitoringand evaluationof results and outcomes will be the responsibilityof MINEE, ARSEL, AER and EDC. Datawill be collectedand reportedon by these agenciesto MINEEwhich will coordinate these activities and produceajoint report. This would allow for a continuous monitoringof the project's key indicators. 72. The format, contents and frequency of implementationprogressreports as well as reporting procedureshave beenagreedwith MINEE, ARSEL, AER and EDC. The Bank will closely supervisethe projectover its lifetime to ensurethat the learningfrom its implementationhas beenfully captured and disseminated. A mid-termreviewwill be carriedout after the first two years of operation to evaluate the achievement ofthe projectdevelopment objective andtake corrective action, ifrequired, to ensure an efficient operationofthe project, especially the rural energy fund component. Dissemination 73. AER has the primary responsibilityfor disseminatingthe results from the implementationofthe ruralenergy fund component bothdomesticallyand internationallyas a way to support replicationin Cameroonand other countries. The maincomponents of AER's disseminationstrategy will include: (a) transparency inthe availability of informationfrom monitoringand evaluationactivities; (b) ease of 15 access to relevant monitoringand evaluationinformation, as requiredby decision-makers and other users, includingfull disclosure of non-confidentialinformation; (c) special initiativesto engage policy and operations decision-makersand program stakeholders in internalizingthe lessonsfrom experience and best practices; (d) use of lessons learnedand best practices inthe development of new policiesand projects; and (e) systematic action on findings and recommendations that flow from the monitoringand evaluationprogram. 74. Some ofthe maindisseminationtechniques will include: preparationofreports, summaries and abstracts; management and staff review sessions; wide participationinprojectreview processesby project staff and intendedbeneficiaries; special analyses of experience in project documents; country and regional seminars andworkshops. AER will also make all the informationabout the rural energy fund, includingperformance indicators,availableon its externalweb site which the projectwill help create. 75. Capacity building of AER for the above activitieswill be implemented as part of the capacity building component to be financed by the project. The format will be a combinationof formal and on- the-jobtraining. 76. For LPHPpreparation, a communicationstrategy has beendeveloped together with government. MMEE and EDCwill be responsible for implementingthe strategy together with other relevant shareholders. A consultationplatformwith representatives ofcivil society, NGOs, localcommunities, project affectedpeople, government anddonors will be established. First consultations with these stakeholders have beenheldas part of projectpreparation. Regular consultations will be heldto keep all stakeholders informedof progress inprojectpreparations, inparticularmeasuresto finalize and implementthe ESMP and RAP. Capacitybuilding for MMEE and EDC in communicationwill be providedunder the project. IDA will also regularly post projectinformationon its externalwebsite. 2. Sustainability Project sustainability ComponentI: Rural Energy Fund 77. The effort to extendruralenergy access, throughthis projectand others inthe future, rests on several fundamental elements learned from past successful and not so successful rural electrification programs in Cameroonandelsewhere. The most important elements built inthe design ofthis project are: (i) competitiveaward of concessions/licenses/authorizations; (ii)community participationand privately managedprojects; (iii)suitable low-costtechnology; (iv) building capacity of stakeholders and communication; (v) cost recovery from customers, and(vi) decreasing levelof subsidies, to be replaced overtimeas the ruralelectrificationprogrammaturesassistedby loans from commercialbanks. To create a level playingfield with other competingsources of energy andto encourage electrificationofthe country's ruralareas, the higher capitalcost ofrural energy schemes will be initially offset, inthe vast majority of cases, by grants and other forms of assistanceextendedby the RuralEnergy Fund(REF) to energy service operators (ESO). Component11: Capacity Building 78. Regardingcapacity building, the activitiesfor each institution(MINEE, ARSEL, AER, EDC) have been demand-drivenand are thereforethe resultof a high degree ofownership by the benefiting institution. Inorder to ensure a maximumtransfer ofcompetences,the approachadopted includes a mix of in-house andexternal trainingand consultancy services for key technical studies. A number of these studiesare requiredfor the future development and further reforms inthe electricity sector which government plans to undertake. 16 Component111: Project Preparation 79. Regardingthe preparationof LPHP, GOC is committedto timely and successfulproject preparation. Forthis purpose, GOC has already conducted a number of environmentaland social studies, recruiteda panel of independent experts (financedby AFD) and is finalizing the appropriate institutional structure for LPHPpreparation, includingsettingup a projectunit within EDC. Timely and sustainable projectpreparation and implementationwill depend, inter alia, on (i) the availability of fundingfor complementingthe projectunit with independentexpert consultants, (ii)the realizationof outstanding environmentaland social studies and the drafting of the ESMP before launchingthe formal procurement process of the EPC contractor, (ii)adequate capacity to managethe environmentaland socialrisks associated with the project. This projectwill providefinancingof preparatory studies and capacity building for project preparations. The parallelEnvironmentaland Social Capacity Building Projectfor the Energy Sector will providecapacity building for all stakeholders to improvetheir managementof environmentaland socialrisks associatedwith large scale energy projects. IDA participation in preparatory activities ofthe LPHPwill enhancethe sustainability of projectpreparationand implementationin line with best practiceinternational standardsfor hydropowerprojects. Access to expert World Bank staffwill also allow GOC to obtaina second opinion beforetakingkeytechnical, environmentaland financial decisions related to the project. 80. Another element of sustainability for all project activities is the significant commitmentshown by the government of Cameroonto the project by devotingconsiderableeffort to its preparation. This government commitmentreflectsgrowingconcerns inthe populationabout access to modern energy sources, especially inthe rural areas, and improvementinthe availability and reliability of supply of electricity. Replicability 81. The general approachadopted by the project and especially for the rural energy fund is highly replicableregionally and globally. Successful constructionand operationofthe proposed commercial- scale ruralelectrificationprojectswill convincingly demonstrate a sound and sustainable way to meet growingelectricitydemand in rural Cameroonandthus pave the way for replicatingthe program elsewhere. The project would also promote replicationof the fund design elsewhere by transferring experience inthe design and operationof the REF to other developingcountries. 82. Furthermore andmost importantly for replicability of models basedon relianceon renewable energy technologies, highprice levelsfor fossil fuels so far achieved in internationalmarkets are widely believedto be a long-runtrend not likely to be reversed. This trendwould facilitatethe introductionof renewable energy technologies on a wider scale than would have been possible before the rise inoil prices. Ruralenergy projectsusingrenewable technologies could, therefore, be replicatedmore often. 83. Projectsupportto LPHP preparatory activitiesaims to ensure compliancewith best practice for projectsinterms of technical, environmentaland social standards. Environmentaland socialrisks associatedwith this projectare highand puttingin place a frameworkto successfully addressthem during projectpreparation will help create valuable expertisefor the development of resources in Cameroonand the regionand demonstratethat naturalresources can be developed in a sustainable way. 17 3. Critical risks and possiblecontroversial aspects ComponentsI and 11: Rural energyfund and capacity building Risk Risk Rating Risk MitigationMeasure From Outputs to Objective The continuedcommitmentto business This principle is enshrined in the electricity law. approachesto rural energy is not GOC adopted this principleofficially andthe maintained M Bank will stay continuouslyengagedwith the GOC for the successof the projectthrough sectoral policy dialogue. The level-playingfield between 1. The projectwill finance the technology- stakeholders, technologies, and grid neutralupdatethe 2001 RuralElectrification and off-grid is not established / master planto be adoptedby all maintained stakeholders. M 2. GOC adoptedthe principleof on an annual investment program basedon transparent criteria to be adopted by the Rural ElectrificationPlanningand Programming Committee. Cost of connection may be too highto Willingnessto pay surveys has shownthat be affordableto poor households, commercialoperations can be sustainable. To therefore limiting access. H prevent the cost of connection from becominga barrier to access, incentives will be providedto PEOsto spread its cost over a number of months or even years. The capacity building may fail to A mix of internaland external trainings improvethe efficient managementof combinedwith consultant services for key resources inthe electricity sector. M analyticalwork aims to maximizesustainability of knowledge. The Bank team will ensure regularcoordinationbetweenall sector agencies. From Componentsto Outputs AER will pre-screenpotentialPEOs, work with energy (PEO) services apply for credible ones to buildtheir capacity to develop funding from REF. and present businessplans and conduct training for SMEs to enlarge the number of potential PEOs. Bids will also be open to international participation. There is no incentivefor the PEOto M PEOs needto provide30% of investment cost in ensure that the rural energy project, co-financing. REF features such as lack of 18 Risk Risk Rating RiskMitigation Measure which was in large part financed by a subsidies for consumption and the principleof grant, is sustainable. variabletariffs are designed to ensure financial viability of ruralenergy projects. Commercialbanks may be reluctantto AER will undertake an awarenesscampaign to lendto PEOsfor ruralenergy projects familiarize bankswith ruralenergy projects. In S a second phase, the REF may provide guaranteesto support the development of rural energy transactions increasinglyfinancedby commercialbanks. AER and ARSEL have limited AER and ARSEL staffwill be trained inthe experiencewith rural energy business requisiteskills early in project implementation. models. M Additional specialized staffor consultants (e.g. environmentaland social specialist for AER) will be recruitedbefore projectimplementation. Overall Risk Rating Components 1 and 2 I Risk Rating: H=High; S=Substantial; M=Moderate; L=Low ComponentIII: Projectpreparation, including LPHP From Outputsto Objective Sustainable managementof complex A comprehensive EnvironmentalImpact environmentaland social risks Assessment has beencarried out in 2005 and associatedwith LPHPpreparations is discussed duringpublic consultations. The not ensured given government's weak H projectwill providetechnical assistanceto the technicaland environmental projectpreparation unit to conduct outstanding implementationcapacity safeguardstudies6and preparethe ESMPand RAP in line with internationalstandards. Adequate protectionmeasuresfor the GOC has already banned illegal logginginthe DengDengforest, a critical natural area, is inthe processof dispatchingeco-guards habitat for large primates, may not be S financed by AFD and is takingmeasuresto taken by GOC as part ofproject declare the area a sanctuary. The project will preparation. finance a forestry managementplan. 6Outstandingenvironmentalandsocial safeguardstudies requiredfor compliancewith World Bank safeguard policies include(i) baselineof projectaffectedpeople,(ii) forest management plan,(iii) cumulativeimpact assessment and(iv)regionaldevelopmentplan. These studies will be financedby the project. 19 RiskMitigationMeasure Adequate preparatory measuresto Technicalsolutionshave already beenstudied, mitigatethe impact ofthe partial while financing responsibilitiesremainto be flooding ofthe Chad-Cameroon clarified. The timing of the requiredadaptation Pipelineby the LPHPmay not be taken works has beenfactored into the project timetableand regularconsultationswith M COTCO are taking place. MINEE has launched a study on the risk of oil spills into the reservoir. COTCO will develop and managea Specific Area Oil Spill ResponsePlan (SAOSRP) as part of an update of the oil spill contingency planfor the Chad-Cameroon pipeline. Reputationrisk for bothIDA and GOC At the request ofthe World Bank, GOC has to ensure that the benefitsof LPHP are conducteda study on the economic benefitsof shared widely and do not the aluminum industry. Underthe project, disproportionatelyaccrue to S capacity building will be providedto EDC and Cameroon's largest electricity GOC to ensure transparent and cost-reflective customer, Alucam. water andelectricitytariffs for Alucam once LPHP is onstream. The recent creation of EDC and their EDC is inthe processof recruitingskilled staff lack oftrack recordcouldjeopardize and has already presentedthe institutional the quality andtiming of project S structure for LPHP implementation. The implementation projectwill finance technical consultantsto assist EDCwith project preparations. Not enough rural energy operators will Initial assessmentsshow that there are at least be forthcomingto implementthe REF. 20 ruralenergy operators in Cameroontoday. M AER will providetechnical assistanceto potentialruralenergy operatorsto develop businessplans and apply for subsidies under the REF. From Componentsto Outputs Procurementof constructionworks for The project will providetechnical assistance to LPHP may be initiatedbefore the project preparationunit to coordinate best outstandingenvironmentaland social practice sequencingof outstandingstudies in studies have beencompleted. S line with World Bank safeguard policies, while avoidingunnecessarydelays in project implementation. OverallRisk Rating Component 3 S to H Overall ProjectRiskRating S I I Risk Rating: H=High; S=Substantial; M=Moderate; L=Low 20 4. Credit conditionsand covenants Effectiveness conditions 84. The following event is specifiedas conditionof effectiveness ofthe FinancingAgreement: (i) Developmentof a ProjectImplementationManualfor the project, includingprocurement and financial annexes applicable for MINEE, ARSEL, AER and EDC; (ii) Appoint or recruit a procurement specialist, financial managementspecialist and an accountant respectivelyin MINEE, ARSEL, AER and EDC; and (iii) Procure, installandtrain staff inthe use of a computerized accountingsystem in MINEE, ARSEL, AER and EDC. 85. Inaddition, AER, (executingagency ofthe RuralEnergyFund), should recruitthe following staff deemednecessaryfor the proper implementationofthe project: (i) An environmentaland socialspecialist; and (ii) One powerengineedtechnicalexpert knowledgeable about ruralenergy technologies 86. Disbursement Conditionsfor ComponentI: (i) The REFhas beenestablished in form and substance satisfactoryto IDA; (ii) The designated REF Account inthe CentralBank has been opened; (iii) MINFIhas assigned a REF Treasury Agent to AER for the REF and specifiedthe management and disbursement modalitiesfor the REF Account, in form and substance satisfactoryto IDA; (iv) The REFManualhas beenadopted by the Recipient,in form and substancesatisfactory to IDA; and (v) The REPPC has beenestablished in form and substance satisfactoryto IDA.. Other covenants: Project Execution and Environmental and social safeguard measures 87. In carryingout the Project,the Borrowershall ensurethat the ResettlementPolicy Framework (RPF) andthe Environmentaland Social ManagementFramework (ESMF) are adheredto by AER which should ensure compliance by PES and that the environmentaland social issues, ifany, are addressed in the sub-project documentation. 88. Retroactivefinancing for up to $6.5 m. is permittedfor activities startingin July 2007. Institutional Arrangements 89. No laterthan 3 months after the EffectiveDate, the Recipientshall have openedthe REF Account. 90. No later than 3 months after the EffectiveDate, the Recipientshall have establishedREPPC with appropriate resources and staffing, andwith a compositionand a mandate satisfactory to IDA. 21 91. No laterthan 3 monthsafter the EffectiveDate, the Recipientshall have establishedthe DREF within AER, with appropriate resourcesand staffing, and with a compositionand a mandatesatisfactory to IDA. 92. No laterthan 6 monthsafter the EffectiveDate, the Recipientshall have created the RuralEnergy Fund, in form and substance satisfactoryto IDA. 93. No later than 4 months after the EffectiveDate, the Recipientshallhave recruitedindependent auditors satisfactoryto IDA. Implementation Arrangements 94. No later than December 15 of each calendaryear throughout the Project implementation,the REPPC shall adopt the Annual RuralElectrificationPriority Program, and the first such Annual Rural Electrification Priority Program shall have beenadopted no laterthan July 30, 2009. 95. No later than 12 months after the Effective Date, the Recipientshall have adoptedthe updated RuralElectrificationMaster Plan, in form and substance satisfactoryto IDA. 96. No later than 3 months after the EffectiveDate, the Recipientshall have adoptedthe first REPP, in form and substancesatisfactoryto IDA. D. APPRAISAL SUMMARY 1. Economicanalysis ComponentI: Rural Energy Fund 97. Since the specificrural energy projectshave not yet beenfully identified, one simulationwas carriedout to test the economics of rural energy projects from the grid, which are the most likely to be developed, at least inthe early years ofthe program, usingexistingdataon electrifications as well as those identified inthe 2001 RuralElectrificationMaster Plan. 98. The simulations involvethe connectionof 250 households over a five year periodfrom each of 20 grid extensions. Assuming 8 persons per household in rural/peri-urbanareas, about 40,000 people would receive the benefitsof electrificationby the end ofthe fifth year. The productiveuse of electricity has beentaken into account by includinga number of commercialand industrialconsumers (small shops, and a few industriessuch as rice processing, saw mills, iron works, handicrafts,etc.). It has beenestimated that their number would be about 5% that of connectedhouseholds. Other assumptions are given in Annex 9. 99. The benefitsof electrificationare the revenuesderivedfrom the sale of electricity to consumers valuedat the willingnessto pay of 20 US cents/kWh' and the fuel savings that would accrue from the switch from keroseneto electric lightingestimated at about US$26per household. The cost of bulk electricity supply from the grid is 8 US cents/kWh.Taking into account the subsidy given by the Rural Energy Fund(REF) to providersof energy services (PES), the net presentvalue of this simulatedrural electrificationscheme is positive. With time, as electrificationbecomesan establishedand profitable business, the levelof subsidies will decreaseand commercialbanks, havingovercome the reluctanceto lendto abusinessthey do not know muchabout, will hopefully graduallyreplacethe REF as providerof resources for funding rural energy projects. 'PlanDirecteurd'Electrification Rurale,LahmeyerInternational,2000 22 Component11: Technicalassistance 100. The benefits oftechnical assistanceand capacity to MINEE, EDC, ARSEL and AER will include (i)improvedcapacity ofeachagencytoexecutetheirmandate,(ii)improvecoordinationinthesector, (iii)improvedplanningandmanagementofsectorresources. Thesequalitativebenefitsareexpectedto translate into increasedreliability and generation capacity in the electricity sector over time. Component111: Project Preparation including LPHP 101. LPHP is the anchor project to start realizing Cameroon's significant hydropower (estimated at about 12,000MW) and mineral potential which is at the core of the GOC's growth and poverty reduction program. The lack of reliable electricity supply has been identified as one of the major obstacles to accelerating economic growth and Cameroon's mineral wealth remains largely unexploited. The challenge for Cameroon is to develop these natural resources in a sustainable way through fully transparent partnerships between the publicandprivate sector and in an equitable way with ensuing benefits for the whole economy and population at large. LPHP is the next least cost investment in the sector following the Kribi gas power project. Cameroon currently has 933MW of installed electricity generation capacity, about 80% of which is hydro capacity. Cameroon's three existing water reservoirs do not have sufficient storage capacity (total of 7.5 km3)to maintain reliable power supply duringthe dry season. Serious power shortages are expected from 2009 onwards unless necessary investments in additional generation capacity take place inthe short and medium term*. Constructingthe Lom Pangar dam at the confluence of the Lom and Pangar riverswill establish a reservoir of 7.25 km3with a useful capacity of 6 km3,allowing for improved regulation ofthe water flow of the Sanagariver. Comprehensive economic analysis carried out by GOC under the Plan de Developpement du Secteur d `Electricite (PDSE) 2030 and separately by an independent consultant shows that the Kribi gas power plant (at least150MW)and the LPHP' are the next least cost investments in Cameroon's electricity sector under all scenarios (including closure of Alucam and an analysis of alternatives). The closest alternatives to LPHP are a number of several smaller regulating dams, for which the cost of water per m3stored, would be nearly twice as much as that of LPHP. Economic benefits of LPHP include (i)increasing generation capacity at existing Song Louloulo and Edeahydropower plants by at least 120MW, (ii) setting the basis for a number of downstream hydropower projects including Nachtigal (330 MW)", Songmbengue(900 MW), SongNdong(280 MW) and Kikot (500 MW); and (iii)creating 30 MW of additional generation capacity for the electrification of neighboringtowns and villages and further opportunities for regional development. * The power utility, AES Sonel, is preparingan 80 MW thermal emergencyproject at Dibambato meet the demand in the 2009 dry season. 9 For LPHP, the economic analysis factored intotal costs of $260, includingconstruction costs of about $120mm, environmental and social cost of about $90 mm (including regionaldevelopment measures) and costs for the adjustment ofthe Chad-Cameroonpipeline of about $50 mm. (SOGREAH,October 2007) 10This requires the timely rehabilitationof the Song Louloudam due to an alkali aggregatereaction. The investment is includedin AES Sonel's 5-year capital investment program. I'Rio Tinto/Alcanhas finalized feasibility studies and plansto pay for construction ofNachtigalto ensure reliable electricity supply for its plannedexpansionof its aluminumsmelter from 90,000 tons p.a. to 300,000 tons p.a. and is undertakingfeasibilitystudies for Songmbenguefor a potentialgreenfieldplantto increasetotal productioncapacity to 1 m tons p.a and possiblya alumina processingfacility and bauxite mine 23 2. Technical Component I: Rural Energy Fund 102. The project has opted for neutrality inthe choice o ftechnology. However, AER would ensure that affordability is not impaired by high cost. Therefore, the main technical issue to be addressed is the specification o f low-cost generation, transmission and distribution in order to reduce costs to make rural energy projects affordable and to minimize the level o f the subsidy going to any rural energy project. AER should ensure that the technical standards appropriate for each proposal are indeedadopted by the PES. Component 2: Capacity building 103. The project is based on a demand-driven approach to capacity buildingand will utilize a best- practice approach based on a mix o f in-house technical assistance, consultants and seminars. Component Ill: Project Preparation including LPHP 104. Technical studies conducted on LPHP to date show that L o m Pangar presents a very efficient storage project in terms o f unit cost o f storage, nearly halfthe cost o f the next alternative. Technical studies have determined the optimal useful reservoir size at about 6 km3.GOC has appointed independent panels o f experts including technical and dam safety experts who have reviewed relevant studies conducted to date. GOC has taken their comments into account. Detailed plans to confirm reservoir size, dam design and dam safety will be completed as part o f project preparations. Technical studies for the required adaptation o f the Chad-Cameroon pipeline have been launched and the appropriate technical option has been adopted, while the costing is being updated and financing arrangements are being discussed. 3. Fiduciary Component I: Rural Energy Fund 105. The financial management system o fAER was appraised to determine if it complies with the requirements o fthe Bank in respect to OP/BP10.02. The evaluation o f AER covered the areas o f accounting and financial management, as well as the reporting and auditing process o fthe project. The financial management system, including necessary arrangements to respond to the needs o f the financial monitoring o f the project, satisfies the requirements o f the Bank. 106. The financial management system presents a moderate fiduciary risk. The project will be carried out while being based on the procedures and the accounting and financial organization o f AER, which has a financial management system considered to be moderately satisfactory. As an autonomous public entity, AER has financial autonomy and is subjected to the financial control o fthe State. Its accounting system is based on the rules applicable to the state owned enterprises and its financial statements are submitted to an annual external audit. In addition, AER has acquired some experience in financed project management. 107. The financial management will be ensured by the finance division o f AER, in coordinationwith the concernedtechnical departments, the Directorate for the REF and the treasury agent appointed for the REF within AER. Specific arrangements for the needs for financial reporting were approved during appraisal. An Interim Financial Report (IFR), which will cover all the activities and sources o f funds o f the project, will be prepared quarterly by AER and transmitted to MINEEfor consolidationand transfer to the Bank 45 days after the end o f each period at the latest. An annual audit report o f the project accounts, transmitted to the Bank no later than six months after the end o f each exercise, will be carried out in accordance with the Bank guidelines by an acceptable auditor and according to acceptable terms o f reference. 24 108. Flows of funds between IDA andthe designatedaccount at BEAC will be organized accordingto traditionaldisbursement procedures ofthe Bank and as designated by the Minister of Finance. Component11: Capacity Building 109. Each beneficiaryagency (MINEE, ARSEL, AER and EDC) will manage its capacity building activitiesthrough four separate special accounts. This will reducecoordination challenges and potential delays in executingprojectactivities. All the agencieswould hire qualifiedstaff in accordance with World Bank guidelines. Flowsof funds betweenIDA and commercialbanksmanagedby the CAA will follow disbursement guidelinesfor World Bank-financedprojectsin Cameroonas detailedinAnnex 7. Component111: Project Preparations including LPHP 110. Projectsupport to LPHPpreparation will be administered by EDC and support ruralenergy projectpreparationwill be administered by AER. Flowsof funds betweenIDA and commercialbanks managedby the CAA will follow disbursement guidelinesfor World Bank-financedprojectsin Cameroon as detailedin Annex 7. 4. Social ComponentI: Rural Energy Fund 111. The projectprimary objective is to raise the standardsof living in rural andperi-urbanareas where the majority ofthe populationlives. Access to modern source of energy in rural areas is expected to have a positive social impacton the local populationand the localeconomy (i)providingbothdirect (and indirect) sources of employment duringthe constructionand operation phases - the majority of workers will be locally recruited; (ii)leadingto improvements in local infrastructure;and(iii)improving access to electricityparticularlyfor poor ruralfamilies who are currently not connected. The project outcome is also expectedto leadto more social inclusionand increasedequity between urban and rural areas. 112. Duringthe preparationof the 2001 RuralElectrificationMaster Plan, AER and its consultant conducteda series of informalconsultations in ruraland peri-urbanareas across the country. The local populationviewedrural electrificationas an asset given its employmentgeneration potentialand improvedavailability of electricityto raisethe standardsof living. 113. A potentialnegative socialimpactofthe projectmay be that not all ruralor peri-urbandwellers will havethe capacity to access electricity, despite all incentivesput in placeto give access to the greatest number. This may create resentmentand divisionsinthe communities. To minimizethis risk, costs of rural energy projectsshould be reducedto the greatest extent possible. Projectselection criteria ofthe REF will include equity aspectsto reducethis risk. Component11: CapacityBuilding 114. This component does not directly imply any socialsafeguard issues. Other social impacts, such as increasedcapacity ofthe staff of MINEE, EDC, ARSEL and AER to executetheir mandate are expectedto be positive. Component111: Project Preparation including LPHP 115. Social aspects linkedto the constructionof the LPHP are generallybeneficial,as the projectwill providea trigger for regionaldevelopment in one of Cameroon's poorest regions, includingemployment creation, opportunitiesfor ruralelectrificationetc. The constructionof LPHPwill requirethe resettlement of an estimated 250 people livingin 13 encampments and the loss of land for use by communitiesfrom the formationofthe reservoir. The baseline of project affectedpeople has yet to be established, but may amount to as many as 10,000 affectedpeople (possibly includingnomadic tribes). Other socialrisks 25 associated with LPHPconstructionapart fromthe compensation issuesconcern potentialtensions, safety issues andthe influx of healththreats, such as HIV/AIDS causedby the influx of constructionworkers. Projectimplementationmay also touchon people's livelihoodsfrom fisheries andon physicalcultural resources such as archeologicalresources and community culturalproperty. Since the project only finances preparatory activitiesfor LPHP, it will ensurethat outstanding studies, includinga baselineof projectaffected people, a regionaldevelopment plan, and a Resettlement Action Planwill be conducted in conformitywith applicable World Bank safeguardpolicies. Preparatory activities supported by this projectwill also focus on ensuringthat the ESMFadequately treats social aspects. All studieswill be made availableto the public andtheir opinionwill be sought in public consultations. 5. Environment ComponentI: Rural Energy Fund 116. Environmentalimpacts are expectedto be minor due to the very small scale of projects, decentralizationofthe energy productionand use renewable of energy sources. Ifone were to take into account the reductionin carbon emissions, these impacts may be positiveat the global level. 117. Since the sites ofthe future sub-projects are not yet known, an Environmentaland Social ManagementFramework (ESMF) has beenprepared: (i)to establish mechanismsto determine and assess future potentialenvironmentaland social impacts; and(ii) to put in place mitigationmeasuresto be taken into account inthe design, constructionand operationof the sub-projectsto reduce, offset or eliminate adverse environmentaland socialconsequencesof sub-projects. The ESMF identifies specific steps involvedinthe environmentaland social assessmentprocessand gives examples of specific impacts to assist stakeholders with the process of formulating an environment and social impactanalysis. To build its capacity for handlingenvironmentaland socialissues, AER will recruit an environmentalspecialistto screen PEO's proposals from the environmentalpoint ofview and make surethat the ESMF is properly appliedin case any Bank environmentalpolicy is triggered. He will also assist PEOs in formulatingtheir proposalfrom an environmentaland social perspective. 118. A Resettlement Policy Framework(RPF) has also beingpreparedto deal with cases where the Bank policy is triggered by any sub-project financedby the REF under the project. ComponentII: CapacityBuilding 119. This component does not directly imply any environmentalsafeguardissues. A strategic environmentaland socialassessmentfor the energy sector will be preparedunder the parallel Environmentaland Social Capacity BuildingProject for the Energy Sector. ComponentIll: Projectpreparation including LPHP 120. This project only finances preparatory activities ofthe LPHP inthe form oftechnical assistance and studies. These activitiesdo not trigger any safeguardpolicies. However, the potentialconstructionof LPHPwouldtrigger 7 out of the Bank's 10 safeguardpolicies. Giventhe sensitivity ofthe projectandfor the benefitoftransparency, they are beingdiscussedand disclosedas part ofthis projectdocument. A comprehensive EnvironmentalImpactAssessment for the Lom Pangar project has beencarriedout in 2005 and submitted to public consultations and additionalstudies havebeencarriedout at the requestof the World Bank and AFD, includingabiodiversitystudy, analysis of large primates, alternativeaccess routes etc. As part of preparatory activities for the Lom Pangar project, the projectwill finance a regional environmentalassessmentand a forestry management planfor the LPHPas requiredby World Bank safeguardpolicies. The World Bankwill also work with GOC to ensurethat the commitmentsit has taken to protect the DengDeng forest, inparticularthe establishment of a sanctuary for the protectionof large primates, will be honored. GOC has already bannedillegal logginginthe area anddispatchedeco- guards with AFD financing. 26 6. Safeguard policies 121. Forthe rural energy fund, exact locationsof rural energy projectsare not yet known. Nevertheless, all rural energy projectswill likely have some environmentalimpactand some may require resettlement. GOC thereforepreparedan environmentaland social management framework and a resettlementpolicy frameworkto be applied in case ruralenergy projects would trigger these safeguards policies. 122. Regardingthe LPHP, this project only finances preparatoryactivitiesfor the LPHP. These activitiesdo not trigger any safeguardpolicies. No commitmentby the World Bank is beingmadeat this stageto fund constructionof LPHP. However,the potentialconstructionwould trigger 7 out ofthe Bank's 10 safeguard policies(EnvironmentalAssessment,Natural Habitat, Cultural Property,Involuntary Resettlement,IndigenousPeople, Forests, Safety of Dams). Giventhe sensitivity ofthe project and for the benefit oftransparency, they are beingdiscussedand disclosed as part of this project document. Safeguard PoliciesTriggered by the Project Yes No EnvironmentalAssessment (OP/BP/GP4.01) [XI [I Natural Habitats(OP/BP 4.04) [XI [I PestManagement (OP 4.09) [I [XI CulturalProperty(OPN 11.03, beingrevisedas OP 4.11) [I [XI InvoluntaryResettlement(OP/BP4.12) [XI [I IndigenousPeoples (OD 4.20, beingrevisedas OP 4.10) [I [XI Forests(OP/BP4.36) [I [XI Safety of Dams(OP/BP4.37) [I [XI Projectsin DisputedAreas (OP/BP/GP 7.60)' [I [XI Projectson InternationalWaterways (OP/BP/GP 7.50) [I [XI 7. Policy Exceptions and Readiness 123, There is no policy exceptions sought underthis project. 124. For component 1, about twenty electrificationschemesrelyingmostly on grid extensionhave been identifiedand more, including decentralizedschemes, are beingidentified. Bidding documents for these schemeswill be ready to be issued under the new rural electrificationsetup duringthe first year of the project. The work on the REF procedures and requiredlegaltexts for the creationofthe REF is being carriedout under the ongoingESMAP trust fund program. 125. For component2, all implementingagencies are inthe processof recruitingthe requiredexpert staff. The World Bank hasalready receivedseveralterms of reference for the plannedcapacitybuilding activities and studies. The procurementof somepriority activitieswill be launched so that activitiescan start immediatelyafter projecteffectiveness. 126. For component3, LPHP preparatoryactivitieswill continuethe ongoingwork which has been conductedover the past years and focus on clearly identifiedinterventions. Projectpreparationfor rural energy projectsis ongoing. 'Bysupportingtheproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputedareas 27 Annex 1:Country and Sector Background CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT I.TheEconomy 1. Improvinggrowth and governance are keyfocus areas of Cameroon's growth andpoverty reduction strategy. Cameroon's economic performance has beenbelow its potential given its rich natural resource endowment, relativelywell trained labor force, bilingual population, and access to the sea. Real GDP growthrates of2.3% in2005, 3.2% in2006 and 2.9% in 2007 have remained significantlybelow growthtargets set inthe government's first PRSPwhich aimed for 5.2% growthp.a. over the 2003-2006 period. Oil revenuesonly partially compensatedfor the poor performanceofthe non-oil sector which is, amongothers, due to a poor investment climateand delays in implementingthe public investment program. Stronger and more diversifiedgrowth includingthe development of agriculture, services and manufacturingsectors will requiretacklingthe constraints to private investment. These constraints includecorruption, inefficienttax administration, limited access to and high costs of financing, and unreliablepower supply. 2. While incomeper capitalof $1,080 (2006 data) compares favorably to other African countries, poverty inCameroonremains widespreadwith about 40 percent ofthe country's morethan 16million people living under the povertythresholdof about US$1 per day. The country is off track for meeting most ofthe Millennium DevelopmentGoals (MDGs) and will have difficulty inreachingthem. 3. Improvementin governance includinganticorruptionmeasuresis necessary ifthe country hopes to improvethe businessclimateand enhance growthprospects. Inthis respect, Cameroon has made progress inthis area inthe past few years12and recentlyundertooka number of measuresto improve public financialmanagement and reducecorruption. 4. Debt relief has created additionalfiscal spacefor growth investments. Cameroonreceiveddebt relief under two major international initiative^'^, clearingthe way for a write-downof its externaldebt from about 40 percent of GDP in 2005 to 5 percent of GDP in 2006. Onthis basis, GOC can focus on makingprogress in improving livingconditionsand reducingpoverty. Cameroon is usingthe freed-up resources to increase priority spending, includingon health, education, agriculture, infrastructure development, and institution building. Highercurrentspending, however, couldundermine fiscal sustainabilityifthe debt relief is not managedproperly. The quality of public expenditures needsto be improvedand the reductionof subsidies to public enterprises needto be a priority. 11.The Energysector 5. Improvingaccess to electricityand reliabilityof power supply is a top priority for acceleratinggrowth inCameroon. Electricity access rates in Cameroonare estimatedat about 46% overall14but only about 11% for rural households. The vertically integratedpower utility, AES Sonel, had 536,974 total connections at the end of 2006. Accordingto the World Bank's investment climate assessment, limited access to reliableelectricity is a core obstacle to doing business. It is estimated that AlthoughTransparencyInternationalcorruptionratingrose from last placeinthe late 1990sto 138* of 163 countriessurveyedin2006, corruptionremainsa major problem. l3Cameroon's debt declinedunderthe enhancedHeavily IndebtedPoor Countries (HIPC) initiative andthe MultilateralDebt ReliefInitiative (MDRI). HPIC debt relief cut Cameroon'sdebt by about US$1.3billion innet presentvalue terms. Debtreliefunderthe MDRIamounts to a hrtherUS$l.1billioninnominalterms. l4Accordingto householdsurveys: Source: The WorldBank's Africa Infrastructure Country Diagnostic. 28 the lack of reliableenergy services is costingCameroon close to 2% of GDP growth. Reliableelectricity supply is the basis for Cameroon's growth strategy which is centeredon exploitingthe country's substantial mineralreserves(bauxite, iron, gold et al.) and developingagriculture. In rural areas, only about 14%of Cameroon's 15,000 villages have accessto electricity. 80% ofthe ruralpopulationuses woodfuel or charcoalto meet its energy needs. a. Improving least costgeneration capacity and sector planning 6. Investmentsin Cameroon's hydro dominated power system have not kept upwith demand growth, creatingthe riskof significant power shortages from 2009 onwards. 77% (721 MW) of AES Sonel's installedcapacity of 933 MW is hydrocapacity, while thermal capacity (diesel and heavy fuel oil) accounts for the balance (212 MW). Available capacity is significantly lower (about 780 MW in 2006) as necessaryrehabilitationofthe two largest hydropowerplants at SongLoulou and Edeahas not yet taken place. Historicalgrowthrates of electricitysupply of 2.3% in 2005 (4,003 GWh) and 3.6% in2006 (4,147 GWh) are below the projectedaverage demand growth of 6%. To avoidpotentially significant power shortagesfrom 2009 onwards, AES Sonel through its subsidiary Kribi Power Development Company (KPDC) is inthe process of installingan 80 MW HFO emergency powerplantnear Douala (Dibamba). KPDC is also planninga 150MW gas fired power plant at Kribi which will be a trigger to start exploitingCameroon's gas resources. 7. The Kribi gas power project, Cameroon's first IndependentPower Producer (IPP),will add at least 150 MW to the system in 2010. The projectwill be operatedby Kribi Power Development Corporation(KPDC), an affiliate of AES Sonel, as a Built, Own, Operate (BOO) modelunder a 25-year electricity generation and sales license. The project consists of a 150MW gas-firedpower plant located9 km northof the coastal city of Kribi and a 100km 225 kv dual transmission line connectingthe power plantto the existingMangombe 225/90kV substation at Edea. The plantwill run on either simple cycle gas turbines(with a possibilityto adda combined cycle unit later) or reciprocatinggas engines. The projecttriggersthe development ofthe offshore SanagaSouth gas field by ajoint venture betweenthe nationaloil company (Societe! Nationale des Hydrocarbures - SNH) and PerencoCameroun. Gas Supply Agreements (GSA) have beensignedbetweenPerenco and SNH(GSAl) and SNHandKPDC (GSA2), albeit with significantdelays. AES Sonel will be the sole off-takerofelectricityproduced by KPDC under a 20-year Power PurchaseAgreement (PPA). The electricityregulatorARSEL, with technical assistance financed by the World Bank, will conduct areview of all gas andpower purchase agreements relatedto the project with a view to ensure the financialequilibriumofthe electricity sector. IDA plans to support the financingof the Kribi projectwith a PartialRisk Guarantee (PRG) for a syndicated local currency loan from local banks. 8. The Lom Pangar Project(LPHP) is the anchor project to realizeCameroon's significant hydropower potential. Cameroon's three existingwater reservoirs do not have sufficientstorage capacity(total of 7.5 km3)to maintainreliablepower supply duringthe dry season. Constructingthe Lom Pangar dam at the confluence ofthe Lom and Pangar riverswill establisha reservoir of up to 7.25 km3 with a useful capacity of about 6 km3allowing for improvedregulationofthe water flow of the Sanaga river. Economicbenefitsofthe LPHP include(i)increasinggenerationcapacity at existingSongLoulou and Edeahydropowerplants by at least 120MW, (ii)settingthe basis for a number of downstream hydropowerprojects with total capacity of over 2,000 MW includingNachtigal(330 MW), Songmbengue (900 MW), SongNdong(280 MW) and Kikot (500 MW), and (iii)creating30 MW of additional generation capacity for the electrificationof neighboringtowns and villages. A comprehensive analysis of alternativesshows that LPHP is the economically least cost generation option. The closest alternatives to LPHP are other smaller regulatingdams, water from which would cost nearlytwice as much as that from LPHP per m3stored. 29 9. Technicalassistanceis requiredto managethe technical, environmentaland social risksin the preparationof LPHP. Before the creationofEDC, LPHPpreparationswere ledby MINEE which had limited capacity to keepthe project ontrack. With EDC taking over as projectcompany, it will have to buildthe requiredcapacity quickly to further avoiddelays in projectpreparationandmanagethe project's technical and safeguardrisks in accordancewith internationalstandards. The project's associatedrisks include(i)partialflooding ofthe Chad-Cameroonpipelineat two intercepts of about 5 km lengths intotal, (ii) a number of environmentalandsocial safeguardrisks, amongst others relatedto the partialfloodingofthe DengDengforest andthe threat that increasedaccess to the forest andthe dam site will poseto the naturalhabitat of large primates, and (iii)the needto ensure that benefits of LPHP are sharedwidely and do not disproportionatelyaccrueto Cameroon's largest electricity customer, Alucam. Projectpreparationshave encountered significantdelays and several importantenvironmental,socialand technicalstudies have not yet beencompleted, the proposedprojectwill thereforeprovideassistanceto EDC with the technical, environmentaland social dimensions of projectpreparations. Capacity building for the managementof environmentaland social impacts of energy investment projectswill be provided under the parallelProjectfor Environmentaland Social Capacity Building inthe Energy Sector. 10. Sector planningneedsto be improvedto ensure the long-termsustainabilityof the electricitysector. Followingthe privatizationof Cameroon's utility, energy sector development has suffered from weaknesses in sector planning,as no single clearinghouse exists anymore. Accordingto the electricity law, sector planningis the mandate of MINEE which has, however, limited capacity to execute it. As a result, energy sector development has been subject to political influenceand ongoing weaknesses insector planning. Inthe context of Cameroon's HIPC CompletionPoint which was attained in June 2006, GOC commissioned several studies including: (i) A least cost power sector development plan(Plan de De'veloppementaLong Termedu Secteur de I 'Electricite' -PDSE 2030) -which has not been officially adoptednor publishedand requires improvement inmethodologyand cost assumptions; (ii) An energy action planfor poverty reduction(Plan d'Action National Energiepour la Re'ductionde la Pauvrete' PANERP) leadingto a strong ownershipof its outcome, - - while leavingthe rural electrijcation agency AER without a clear mandateand adequate resources for its implementation;and (iii) A capacity development planfor ARSEL (Plan de Renforcement des Capacite'sde I'ARSEL)- which produceda first attempt to increase ARSEL's efficiencyinconsumer protectionand operator control. 11. In 2001, a comprehensive RuralElectrificationMasterplan(Plan Directeur d'klectrijication Rurale (PDER) has also beendeveloped but not beenofficially adopted. Other planningtools like the National Energy Plan and the inventoryof Cameroon's potentialhydropowerresources are outdated and requireupdating. In particular, least cost investments in hydropowergeneration capacity following LPHP haveto be studied in more detail. To improve sector planningcapabilities,the World Bank has agreed with the GOC that the additionalstudies for recasting PDSE2030 as well as provisionof planningtools andtrainingactivitiesfor MINEE and other relevant institutionswould be financedunder the Capacity BuildingComponent (CBC) ofthe proposed Energy Sector DevelopmentProject(ESDP). 12. Inthe context ofthe preparationofthe first gas firedpower plantat Kribi, there is also a needto clarify the role of gas in long-termenergy generation. The Kribi Gas Power Project is the trigger for the greenfielddevelopment ofthe gas reserves inthe Sanaga South gas field which are larger than the needs of the Kribi project. GOC lacks a clear strategy regardingthe role of naturalgas inthe electricity generation mix which has so far not beentreated inthe existingpower system planningstudies. 30 13, Opportunitiesfor the development of Cameroun's gas reserves have been identifiedinthe Cameroon Gas Masterplandeveloped by Cameroon's oil company, Societe Nutionale des Hydrocurbures (SNH)).Among others, opportunitiesto achieve value-added to the country's gas resourcesexist in the following areas: (9 Reductionof gas flaring (approx. 3 million cubic feet per day in Rio del Rey); (ii) Supply ofthe localmarket (new Kribi andconverted Limbethermalpower generation plants, the SONARA refinery and possibly some industrialconsumers in Douala); (iii) Extractionof condensates and LPG(the LPGconsumptionis 60,000 tons per year, at presenthalfproducedby SONARA and half importedin small cargoes at a highprice); and (iv) Exportofthe dry gas to EquatorialGuineafor liquefactionand LNG exports. 14. The capacity building component of the proposedprojectincludesfunds for the development for a strategic planfor the role of gas inthe nationalenergy balance by MINEE. 15. Leastcost energy sector planningin Cameroonis complicated by the dominanceof one single customer, Alucam15,who plans to expand its productioncapacity. Alucam accounts for 35% oftotal power consumption, but only 7.5% of AES Sonel's revenues (2006 data). Alucam benefitsfrom guaranteedsupply of 145 MW duringthe dry season (165 MW duringthe wet season), and a historic 30- year contract with atariff cap ofUScent 1.3 per kW until the end of 2009 (compared to tariffs of US cent 11.4/kWhfor MV customersand US cent 13.6/kWh for LV customers). At the request ofthe World Bank, GOC has conductedan economic analysisofthe aluminum sector. Whilethe analysis needsto be improved, it indicates that Alucam is makinga positivecontributionto the Cameroonian economy. The World Bank is conductingits own study onthe aluminumindustry in West Africa, includingCameroon. Rio Tinto Alcan / Alucam are consideringan expansion of its aluminum smeltingcapacity, from 90,000 to 305,000 tons by 2012, which would increase demand for guaranteedelectricitycapacity from 200 MW in 2008 (50MW of which would be supplied by Kribi Power Project)to 450-500 MW. Inaddition, management is consideringbuilding a greenfieldaluminaplant near Cameroon's bauxitereserveswhich are not yet exploited. Alucam's medium-termstrategy to meet its additionalpower needs is built around the constructionby Alucam of the Nachtigalhydropowerproject(at least 330 MW) andthe feasibility of the SongMbenguehdyro power project(900-1,000 MW), bothof which requirethe constructionofthe LPHP. 16. Ahead ofthe expiry ofthe current Power PurchaseAgreement (PPA) betweenAES Sone1and Alucam in 2009, bothparties are negotiatinga new off-takeagreement. Ina Letterof Intentbetween GOC and Alucam of 2005 (and its amendment in 2007), bothparties agreedon indicativeelectricity prices for future Alucam expansionswhich however requireupdatingfor actual equipment prices and other cost factors. To ensure the financial sustainabilityofthe electricity sector and avoid a distortion in the distributionof benefitsamongelectricityconsumers'6,it will be importantthat the renegotiatedtariff for Alucam reflectthe higher cost element ofthermal power to be supplied by Kribi, transport costs, water usage andthe observed substantial world-wide increasesof most infrastructuredevelopment costs which have occurred over the past several years in responseto highdemandandmajor increasesof key commodity prices. Any sustained increase of power supply to Alucam would be drawn from new hydro- electric facilities whose development costs will be considerably higherthan the costs reflectedinthe The aluminumsmelter isjointly ownedby Rio Tinto Alcan (46.7%), GOC (46.7%), AFD (5.6%), other (1.1%). l6Inthe developmentof significant resourcesthroughthe plannedconstructionofthe Lom Pangar regulationdam byGOC andthe NachtigalhydropowerplantbyAlucam, it needsto be ensuredthat the majority ofbenefitsfrom these projects accrue to the wider economy andnot to Aucam. 31 PDSE2030 (now severalyears old and undercostedeven at the time). The implicationsof the future PPA for Alucam on potentialsubsidies andthe sector's financial health requirefurther analysis. Itwill be importantthat the renegotiatedPPA:(i)will be subjectedto an independent reviewby the sector regulator ARSEL who has the mandateto ensure the financial equilibriumof the electricity sector; and (ii)does not increase subsidies to the aluminumsector. 6. Improving access to electricity 17. Rural electrificationinCameroon hasnot achieved its desired resultsto date and requires improvedcoordinationand resourcesto be scaledup. Access rates remainvery low with only about 14%of Cameroon's 15,000 villages estimatedto have access to electricity. Accordingto its concession agreement, AES Sonel can (within regionally definedobjectives)chose the locations for meetingits connectionobligationsand is therefore focused on urban and peri-urbanconnections. Giventhe absence of aclearlydefinedmandate and lack of availablefunding, AER has not beenable to implementthe Rural ElectrificationMasterplanor PANERP. Several government ministriesand agencies, includingthe Ministriesof Energy, Health and Educationand FEICOM, have intervened inrural electrificationunder competingmandates, without a strategic plan, adequatecoordinationor respect of minimumtechnical standards, thereby reducingthe impactof investments. Available funds have not been sufficientto meet the substantial investment needs of the sector which PANERPestimatesat over $250 m. Donor interventionshave equallybeen limitedand uncoordinated. 18. Cameroon hasan important hydroelectricpotentialestimated at about 12,000 MW. Despite this, over the last 30 to 35 years, all ruralenergy programs were basedonthe use of existinghydropower stations and networkextension and the constructionofdiesel power stations in isolatedareas. Untilthe power sector reformof December 1998, little roomwas left to private operators andthere was no sustainable financingmechanism. A number of projectsundertakenwere politically motivated. Most projectscarriedout were non-economic as rural areas inCameroonhave a dispersed population, low specific consumption and a limitedcapacity to pay for electricity services. The technologies themselves were often too costly and little attention, ifany, was paidto cost recovery (and therefore sustainability) andto managementof rural electrificationschemes. Many failed as a result. The power sector reformof 1998 with the privatizationof the power utility (SONEL) andthe creationofthe RuralElectrification Agency (AER) have openednew possibilities,includinga greater role for the privatesector anda relative freedom intariffsettings in ruralareas to promote a rapid expansion of access. The projecttakes advantageofthis new environment to promote a greater access to modernenergy sources in rural areas boththroughgrid extensions and off-grid approaches. 19. The creation of a RuralEnergyFundwill improveplanning,financing and results orientationfor rural electrification. Over the past months, the World Bank has worked closely with GOC to move towards a results-orientedapproach in ruralelectrificationbasedon an updated Rural ElectrificationMasterplanto be financed by the proposedproject and the establishment of a RuralEnergy Fund (REF), as foreseen by PANERPandthe decree establishingAER. The World Bank will contribute $40 m. to the REF. Poolingall funds in one financing mechanismunder the oversightofa ruralenergy planningcommittee andwith AER as executingagency will help improve sector coordinationand results on the ground. The REFwill provideinvestment subsidies to private sector andcommunity-based operators which will have to providetheir share of co-financingto demonstratecommitmentand to leveragepublic funds by attractingprivate sector co-financing. The REFwill support grid extensions, in close coordinationwith AES Sonel, as well as decentralized rural energy projects, in close cooperation with localcommunities andthe private sector. The REFwill betechnology-neutral,i.e. award subsidies to the lowest cost technologywhile takingthe specificitiesof a specific concessionarea into account. Other donors have expressedan interest in contributingto the fund once it is established. 32 e. Governmentreform program 20. The Government of Cameroon (GOC) initiatedin 1998 a series of policyand structural reforms to promotethe efficientoperationsof the power sector and increase privatesector participation. GOC adopted an Electricity Law in 1998, a complementary Electricity Decree in2000 and establisheda sector regulator(ARSEL) and a rural electrificationagency (AER) in 1999. The state- owned vertically integratedpower utility was privatizedthrough a 20-year concessionin 2001 and was granted a monopolyover transmissionand distributionthroughout its concession area in Cameroonand the right to own upto 1,000 MW of installedgenerationcapacity. A PresidentialDecree ofNovember 29, 2006, also createdthe Electricity DevelopmentCorporation(EDC) which, as GOC's asset holding company, is responsible for the management of public sector assetsinthe power sector, in particular hydropowerassets, as well as the regulationof water flows. 21, The concessionof AES Sonelis working relatively betterthan in other countries which have knownsimilar experiences. Between2002-2007, AES Sonel connected about 125,000 new customers, investedover $250 m. inthe sector between2001-2007, and recently secured a EUR260m. loanfinancing for its 5-year investment programwhich is mainly focused on rehabilitatingexistinghydropowerstations as well as transmissionand distributionnetworks. AES Sonel has beenpayingdividends since 2OO2I7 and Cameroon's electricity sector does not receive any transfers from the nationalbudget. In addition, load shedding in Cameroonis less frequentthan in other African countrieswith unserved energy accountingfor 0.8% of total energy producedin 2006. 22. At the same time, AES Sonel's performance leavesroom for further improvements and requires betterconcessionoversight. The concession contracthadto be renegotiatedin 2006 following a severe draught in 2001-2and AES Sonel's difficulties to raise financing for the initial investment obligations. AES Sonel met its revisedconnectiontargets of 50,5 11 connections per year for the first time in2007 only and is behindon meetingsome other concession obligations, such as providing separate accounts for transmission, generationand distributionactivities or settingup a transmissionsubsidiary. Furthermore,AES Sonel's operatingefficiency leavesroom for significantimprovement in light of combineddistributionand transmissionlossesof 28% in 2006. The performanceof AES Sonel is summarized below. Lastly, since the obligationto build the Lom PangarProject(LPHP) has been removed from AES Sonel's concessionobligationsduringrenegotiations, AES Sonel has only added thermal capacity to the system. While this providesa degree ofreliability in a mainly based system, it also increases electricitycosts and does not capitalizeon the opportunitiesof Cameroon's hydropower potential. 23. Sector regulationand concessionmonitoringby the sector regulatorARSEL hasbeenweak, leadingto poor service quality. ARSEL's technicalcapacityto effectively execute its mandateis limited. The regulatorhaspreviously benefitedfrom capacitybuilding underthe World Bank's PPPCRP project, but muchremains to be done to align its capacities with internationalstandardsand makethem a true counterpart to the concessionaire. Inaddition, ARSEL needsto be moreforthcomingusingsanctions to improvethe concessionaire's performance. For example, not a single fine has been imposedto date on AES Sonel for unmet concession obligations. As a result,service quality hasremainedpoor and consumer interestsare not alwayswell represented. The projectwill providecapacity building for ARSEL to improve its regulatorskills, concessionoversightand consumer protection. Further capacity building is requiredfor ARSEL to regulatethe outstandingreformelements, such as the transmission system operator which the law foresees to be createdand to pronounce itselfon a numberof critical sector issueswhich will becomerelevant inthe comingmonths, includingthe new electricity tariff for Alucam startingin2009, water pricing for future hydropowerprojects, P P regulationetc. "AESSonelhas beenpayingdividendsto AES and GOC in 2002,2004,2005,2006, and2007 33 24. The recent creation of the ElectricityDevelopmentCorporation(EDC) has further increasedthe institutionalcomplexityof the sector. EDCwas created by Presidentialdecree in November 2006 and EDC's managementhas beenappointed inJanuary 2008. As GOC's asset holding company inthe electricitysector, EDC's missionincludes but is not limitedto the constructionand exploitationof regulatingreservoirs in river basins, includingthe Lom Pangarregulatingdam, andthe management and regulationof water flows. Not all applicationdecrees for EDC have beenissuedyet and there is a needto clarify its interactionand respectiveresponsibilitiesvis-a-visAES Sonel, MINEE, ARSEL and AER. MINEE has therefore requestedWorld Bank support for a reviewof institutional project. structures, roles andresponsibilitiesinthe energy sector. The review will be financed by the proposed 25. Completingsector reforms, increasingprivateinvestment in electricityand improving coordination betweenall sector stakeholders requires further capacity building. The capacity to develop policies, plan and implementprograms andmonitor and evaluate results and outcomes is limited in all sector institutions, aggravatedby limited coordinationbetweenthem. For MINEE, whose role is to set policiesand planprograms and projects inthe energy sector in least cost way, this capacity is particularly limited and building it is an urgent task, especially giventhe new generationcapacity being planned, includingthermaland plants. The performanceof ARSEL, the regulator,in monitoringthe concessionaire AES Sonel has beenweak. To discharge its obligationsto the public through improved consumer protectionand to the sector through improvedconcession monitoringand the fosteringof competition,ARSEL will receive capacity building inthese areas. Finally, in order for AER to carry out an importantprogram of rural energy and particularly rural electrificationprogram as executingagent of the REF, its capacity to evaluate proposals, while taking into account all relevantfactors including environmentaland social considerations, andprovide capacity building to potentialrural energy operators would also be built. Lastly, the project will providetechnical assistance to EDCto, in line with its mandate, develop andmanageGOC's assets. d. Performance of AES Sonel 26. Regarding its technical performance, AES Sonel met its revisedconnection targets of 50,5 11 connections per year for the first time in 2007 only. Total connections between2002-07 were about 125,000, averaging 25,000 per year, significantlybelow its original and revisedconcessiontargets. Transmission losses have been in the area of 5% over the past 3 years, with a significant increaseto 7.2% in 2007. This reflectsthe urgent needto rehabilitatethe transmission networkswhich is programmedin AES Sonel's investment program. Distribution losses have beenextremelyhigh, but improvedfrom 27% to 22% between2004-2006; as a resultof AES Sonel's investment in a comprehensive anti-fraud campaign. However, distribution losses increasedagain to 25.6% again in 2007. AES Sonel has a very low share of prepaid meters. Table1 summarizes AES Sonel's operatingperformance. Table 1: AES Sonel's operatingperformance Alucam 1,385 1,379 1,338 1,426 1,443 1,752 Hv 58 59 64 65 90 91 MV 749 782 782 806 859 925 LV 1,072 1,153 1,171 1,328 1,546 1,743 Energytransmittedto MV/LV grid (GWh) 2,4 13 2,486 2,627 2,770 3,015 3,306 Distributionlosses 24.5% 22.2% 25.6% 23.0% 20.2% 19.39 34 I ransmission losses 5.0% 5-4% 7.2% 5.9% 4.4% otal losses 29.5% 27.6% 32.9% 28.9% 24.6% 22.7% nservedenergy 1.15% 0.8% n.a. n.a. n.a. verage tariffs (FCFAkWh) 41.62 42.24 42.40 43.30 45.26 43.10 lucam/1 7.11 8.04 8.47 8.55 8.55 V L V 70.74 69.37 68.82 69.27 70.11 69.07 umber of subscribers (MV&LV) 526,351 536,974 588,398 648,622 709,542 771,111 ew connections 14,545 21,239 56,778 60,223 60,9 19 61,568 /o oftarget 3 1% 46% 112% 118% 119% 121% umber of employees 3,05 1 3,160 3,23 1 3,291 3,302 3,320 umber of customers/employee 173 170 182 197 215 I I 1: AssumingexistingAlucamtariff in 2008-2010 Total assets 776,947 754,939 862,887 1,15 1,222 970,93 1 1,2 13,283 Net fixed assets 600,004 583,449 626,411 873,801 925,397 968,359 Total debt 105,899 79,897 113,199 365,344 417,671 408,202 Equity 263,346 294,660 301,552 360,718 331,511 336,774 Revenues 279,599 287,626 317,639 388,268 394,442 428,771 EBITDA 119,659 115,896 76,061 131,195 113,130 106,626 Net profit 53,393 50,129 16,988 32,049 22,181 5,262 Investments -47,355 -42,903 -52,550 -274,879 -23 1,262 -128,241 Free cash flow 72,303 72,993 23,511 -143,684 -118,132 -21,615 Dividends paid 16,824 11,347 33,608 15,316 Kev ratios EBITDA margin(.3) 43% 40% 24% 34% 29% 259 Net profit margin(%) 19% 17% 5% 8% 6% 19 DebtEBITDA (x) 0.89 0.69 1.49 2.78 3.69 3.83 Returnon assets (%) 6.9% 6.6% 2.0% 2.8% 2.3% 0.49 Returnon equity (%) 20.3% 17.0% 5.6% 8.9% 6.7% 1.69 e. Ensuring the application of international bestpractice in thepreparation of large scale electricity projects, including theLPHP 27. Giventhe significantenvironmentaland social impacts associatedwith the development of large scale energy projectssuch as the LPHP, a coordinated cross-sectoralapproachtowards energy sector projectdevelopment, includinganalysis, design, oversightand mechanismsto ensure compliance with environmentaland social managementframeworksis neededto comply with internationalbest practice standards. GOC recognizesthat the various projects under preparation in Cameroon's energy sector, in particularthe LPHP, will generate potentially adverse environmentaland social impacts which must be evaluated, systematicallyincludedin projectcosts andproperly mitigated. At the same time, GOC is 35 conscious that the best technicalstandards for dam constructionand security should be appliedand contractors chosen basedon internationalbestpractice. 28. The World Bank Group has agreed as part of this projectto finance technical assistance for projectpreparation of LPHP. This is not an indicationof World Bank's commitmentto finance the projectitself. Technicalassistance inprojectpreparation would help GOC inprogressing alongthe lines of a decision makingframeworkto be agreed with GOC whichwill be requiredfor World Bank's engagement inthe LPHPbeyondtechnical assistance. 29. Key risks associatedwith LPHPconcern (i)the partialflooding ofthe Chad-Cameroonpipeline (CCP) as well as direct and indirect linkages associatedwith this project; (iii)substantial reputationrisks as well as environmentaland socialsafeguard issuesrelatedto GOC's weak technical and environmental implementationcapacity; and (iii)reputationrisks relatedto ensuringthat benefitsofthe LPHP are shared widely and do not disproportionallyaccrue to Cameroon's largest electricity customer, the internationally owned aluminumsmelter Alucam. 30. Technical risks related to the partial flooding of the Chad-Cameroon pipeline have been studied and found to be manageable. Risks relatedto the ChadCameroonpipelineconcernthe partial flooding ofthe pipelineover a 5.4 km stretch as a resultof the associatedreservoircreated by LPHPand the risk of an oil spill intothe reservoir. A detailedtechnical options study, taking into account technical, economic and environmentalconsiderations, recommendedreinforcingthe pipelineover two 12.5 km stretches at an estimated cost of $35 m.I8insteadof reroutingat a significantlyhigher cost and additional studies and delays. GOC throughSocie`te` Nationale des Hydrocarbures (SNH)and COTCO have officially adoptedthis recommendation. Financingarrangements are beingnegotiated betweenGOC and COTCO. Potentialliabilities to COTCO for interruptionof oil delivery are expectedto be smallto zero, as the adaptationdoes not normally requiresupply interruptions." As part of the outstandingobligations under the CCP, the Bank Group would requirethat the National Oil Spill ResponsePlanbe updatedto take into account the inundationof part of the pipelineandthat an Area Specific Oil Spill Planbe developed by COTCO to address any risk of an oil spill inthe reservoirconsistent with the EMP for the CCP. Approval from senior lenders to COTCO includingIFCwill also haveto be obtained. 3 1. GOC's track recordwith respect to compliance with the obligationson the EMP for the CCP has beenmixed. A key issue is the inadequatefunding availablefrom the Foundationfor the Environmentand Development in Cameroun(FEDEC) to adequately maintainthe two offsets ofthe CCP andto implement the Indigenous PeoplesDevelopment Plan.*' These andother related issues are beingaddressedas part of the ongoingPFSEandthe proposed Environmentaland Social Capacity Building Project inthe Energy Sector. The latterwill providefinancingto FEDEC for the implementationof the CCP's Indigenous People's Development Plan. Any further involvementby the World Bank inthe LPHPbeyondproject preparationswould requirethe revisionofthe NationalOil Spill ResponsePlan, the development of an Area Specific Oil Spill Planby COTCO, the adequate maintenanceof the CCP off-sets and adequate funding for the implementationofthe CCP's IndigenousPeople's DevelopmentPlan. 32. The highest reputation risks associated with the World Bank involvement in LPHPconcern GOC'sweak capacity in adequately handlingsafeguard issues. The proposed projectwill only finance ~ The amount includesadaptationand equipmentfor the reinforcedpipelineandincrementalenvironmental costs which are estimated to be limited,as the pipelinewill bereinforcedwithin the existingcorridor. Synergies with constructionworks for the dam itselfare factored into these costs. Basedoncurrent equipmentprices, adaptation costs are expectedto increase to about $50 mm. l 9Since only two parts of the pipelinewill berenewedandthe oldpipeline will be maintainedas backup,supply interruptionscan be avoided(Stopplemethod).This was confirmedina recent meetingwith Exxonofficials. COTCO providedthe initial fimding for this to FEDEC. 36 preparatory activitiesfor LPHPwhich will not trigger any safeguards. The constructionof LPHPwould trigger 7 safeguards(environmentalassessment, critical naturalhabitat, forests, indigenous peoples, involuntary resettlement, physicalculturalresources, and safety of dams). Inparticular,project constructionwill Result inflooding a small portionof the DengDengforest, althoughbasedon available informationthis part does not includeany critical habitatfor the endangered large primates or biodiversityissues; Put pressure on and increase opportunitiesfor illegal'loggingin the DengDengforest, part of which is classifiedas a critical habitat for endangeredlarge primates and protectionof which hadmotivateda decisionby the World Bank Group to requirea re-routingofthe CCP. This raisesconcerns regardingwhat various parties' (Government ministries,COTCO) obligations are regardingenvironmentalandsocialprotection. Forthe World Bank Group, historically weak monitoringofthe primatepopulationand slowness of Government to implement mitigationmeasuresto date creates a substantialreputationrisk. As illustratedbelow, a number of measureshave been identifiedand startedto be implementedto address this risk; Requirethe resettlement of an estimated 250 people living in 13 encampments andthe loss of landfor use by communitiesfrom the formationof the reservoir. The baseline of project affected people has yet to be established, but may amount to as many as 10,000 affected people (possibly includingnomadic tribes); and Give rise to social risks associatedwith LPHPconstruction, includingcompensation issues, potentialtensions, safety issuesand the influx of healththreats, such as HIV/AIDS from the influx of constructionworkers. 33. GOC's track recordin ensuring compliance with internationalstandards in managing environmentaland social safeguardrisksto date is weak andthe legal framework to ensure adequate environmentaland socialmanagementhas notyet beenfully adopted. The proposedEnvironmentaland Social Capacity Building Project inthe Energy Sector is designedto providetargeted capacity buildingto GOC to addressthese issues and an action planfor the protectionofthe DengDengforest has been developed under the existingforestry project(PSFE). 34. In responseto donors' concerns,the Ministry ofForestryis implementinga numberof measuresto protectthe DengDengforest. As part of LPHP, a smallproportionofthe DengDeng forest will be flooded, but basedon available informationthis part does not includeany critical habitator biodiversityissues. Detailedforest protectionmeasureswere agreed during a recent forestry missionfor the multi-donor Forest and EnvironmentalSector DPL(PSFE) andthe Ministry of Forestryhas started their implementation,notably in form of a stop to illegal loggingand a moratoriumto the nationalrailway company (Camrail) prohibitingthe transport of "illegal" wood from the area. Inaddition, steps have been initiatedto declare part ofthe DengDengforest a wildlife sanctuary in line with GOC commitments under the PSFEproject. AFD has made financing availableto hire local ecoguards which are inthe process of beingmobilized. Adequate modelsto ensure long-termfunding for the sustainable protection of the DengDengforest are beingdiscussedwith GOC and other donors and will be an integralpart of LPHPpreparations. As part ofthe projectpreparation ofthis project, fundingwill be made availablefor a forestry management protectionplan in line with World Bank safeguardpolicies. 35. Outstanding environmentalstudies to be completed have been identified. A comprehensive EnvironmentalImpactAssessment for the LPHPhas been carriedout in 2005 and has beenreviewedby the World Bank andAFD. GOC has subsequently conducted additionalstudies requestedby the World Bank andAFD. Inorder to ensure full compliance with World Bank environmentaland social safeguard policies, the following additionalstudies needto be undertaken: (i)a cumulative environmentalimpact 37 study; (ii) a baseline for affected people; (iii)a forestry managementprotectionplanto avoid incursion and protectbiodiversity for the DengDengForest and to managethe forestry areas around the reservoir; and (iv) a regionaldevelopment plan. These studies will be financedby the project preparation component ofthe proposedproject. These studies will providethe outstanding input requiredto finalize the detailed engineering designs andthe Environmentaland Social Mitigation Plan(ESMP). Further World Bank's involvement inthe LPHPwould be conditionaluponsatisfactoryconclusionofthese studies, the ESMP, as well as public disclosure and consultationon all ofthese studies. 36. In linewith internationalbest practice, GOC has engaged internationalpanels of environmental, socialand damsafety experts. All ofthese panels have providedtheir detailed comments on studies undertakento date which have beentaken into account by GOC. The proposed project foresees financingto ensurethe ongoing work ofthe panels during project implementation. The World Bank leaddam safety specialist is working with GOC and the dam safety panelto review preliminaryengineering designs and providethe technical input requiredfor finalizing detailed engineering designs. The World Bank has recommendedthat requiredenvironmentaland social measures be includedinthe biddingdocumentsfor contractorsto ensure their satisfactory and integrated implementation. 37. Avoidinga disproportionateallocationof benefits from LPHP to the aluminumsmelter Alucam is the key in managingpotentialreputationrisks associatedwith the project. Alucam is the largest electricityconsumer in Cameroon, consumingabout 40% of existingelectricitysupply. Planned productionexpansions requireaccess to guaranteedincreasedelectricitygenerationcapacity. LPHPwill allow Alucam to construct downstream plants such as Nachtigalwhich supply a significant share of its power to the aluminum smelter, while also increasing generation capacity for the rest of the electricity sector.2' Inorder to ensure an equitable distributionof LPHP's benefits,transparent andcost-reflective water andelectricitytariffs for Alucam will needto be established. As this implies an increase inthe historicallyvery low electricitytarifffor Alucam, implementingthis transparency is an uphill battle, as it challenges strong interests of some stakeholders includingAlucam. Potentialhidden subsidiesto the aluminum industry create a reputationalrisk for GOC and donors involvedinthe project andneedto be avoided, also as consumer tariffs are significantlyhigher,creatingpotentiallysignificant economic opportunitycosts for the low tariff to Alucam. Following the World Bank recommendations, GOC has conductedan assessmentofthe economic costs andbenefitsofthe aluminumindustry inCameroon. The study has beenconcluded but suffers from methodologicalweaknessesand does not containall required informationto ensure that the cost of additionalinvestmentsinthe electricity sector can be fully recoveredfrom all users includingAlucam. The projectpreparationcomponent ofthe proposedproject will providetechnicalassistanceto conduct the requiredanalyticalwork on cost-reflectivepricing of electricityfor Alucam. 38. Since its capacity to prepare large scale projectssuch as LPHP is limited andthere is an urgency to complete the Kribi and LPHPprojectsto avoid future power cuts, GOC agrees on the need for enhancedcapacity building inthe management of environmentaland social compliance of large scale energy projects in general and inthe preparation of remainingLPHP activities inparticular. The proposedprojectthereforeincludes assistance to EDC's projectunit for LPHPto finalize outstanding environmentaland social studies and prepare biddingdocuments. Giventhe reputationrisks related to the LPHP, the proposedprojectwill also includeassistance to EDC and MINEE to develop a comprehensive communicationstrategy andregular consultations with civil society, NGOs, localcommunitiesand projectaffectedpeople. FurtherWorld Bank participationinLPHPwould be contingenton regular *' Initially,Nachtigalwas plannedfor a capacity of 330 MW, ofwhich260 MW would be requiredby Alucam and 60 MW would bemadeavailableto the public sector. EDC is inthe process of reviewingthe optimal size of Nachtigalwith the objective to increaseavailablepower for the public sector. 38 consultationmeetingsand the reflectionoftheir comments and conclusionsinthe preparationofthe ESMPand other relatedprojectactivities. 39. To strengthenenvironmentaland socialmanagementcapacityof large energy projects in general, the World Bank proposesto strengthenenvironmentalmanagementcapacity in each ofthe relevant administrationsaccordingto its statutorymandate. This will be financedby a parallelWorld Bank project under preparationfor Environmentaland SocialCapacityBuildingfor the Energy Sector. 39 Annex 2: Major RelatedProjects Financed by the Bankand/orother Agencies CAMEROON: ENERGY SECTOR DEVELOPMENTPROJECT 1. The Bank has not been active inthe power sector in Cameroon for the last ten years. The only operation now under supervision is an ESMAP study on CapacityBuilding amongSmall-Scale Off-Grid Energy Suppliers due to close inJune 30,2008 and whose objective is to promote small and medium scale enterprises inthe provision o f rural energy services inthe context o f establishing a rural energy fund. 2. Inaddition, the World Bank's Public Private Partnership for Growth and Poverty Reduction Project has supported selected capacity building activities for the electricity sector regulator ARSEL and the rural electrificationagency AER. 3. The proposed project is being developed in parallel with the Partial Risk Guarantee (PRG) for the KribiGas Power Project which will provide a PRGfor a localcurrency loanfrom local commercial banks. 4. Inaddition, a parallel Environmental and Social Capacity Buildinginthe Energy Sector Project is being developed to increase the capacity o f all stakeholders to manage large scale energy sector investment projects, in particular hydropower projects, in an environmentally and socially sustainable way. 5. Other lenders/donors such as EIB, AFD and AfDB support the development o f the power sector in Cameroon as outlined below. Agency Project TargetIssue (s) AFD Lom Pangar: financing o f Preparation o f L o m Pangar project environmental studies and o f the and subsequent investment lending independent panel o f experts to date AfricanDevelopment Generation Increase supply o f electricity Bank Transmission Increasetransfer capacity and Rural Electrification enhance security o f supply Regional Interconnection Study REMaster Plan (2001) Establish a roadmap for regional interconnection inthe Central African Power Pool EU, Spanish Small scale rural electrification Improve access in selected regions cooperation and projects IslamicDevelopment Bank PPIAF Grant to ARSEL for economic and Improved sector regulation financial sector regulationmodel 40 Annex 3: ResultsFrameworkand Monitoring CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT ResultsFramework Project Development ProjectOutcomeIndicators Use of Project Outcome Objective(PDO) Information The overallproject 1. Number of electrified development objective is to villages (grid and off-grid) Lessons learnedwill serve in increaseaccess to modern 2. A longterm least cost the design offuture rural energy intargeted rural areas development plan for the energy and capacity building and improvethe planningand sector is adopted projects, managementof sector 3. Full compliance of AES resources by all energy sector Sonel with at least two institutions. Through its concessionobligations intervention,the project is 4. Preparatory activities of the expectedto contributeto Lom PangarHydropower improvedreliability of Projectin accordancewith electricity supply. Increased internationalbest practice access to and reliability of technical, environmentaland electricityare key factors in socialstandards, as measured the realizationof GOC's by compliance with applicable growth andpovertyreduction The World Bank safeguard strategy. policies IntermediateOutcomes IntermediateOutcome Use of Intermediate Indicators OutcomeMonitoring Component One: REF Component One: An effective mechanism for 1. Number of household Low achievement of financing and planningrural connections in electrified intermediateoutcomes is electrificationexpansion in towns andvillages, bothgrid symptomatic of management, place and off-grid incentivesand operational 2. Average levelof subsidy as problems that need immediate a percentage of average cost resolution of a project for grid and off- grid solutions 3. Number of private operators for grid and off-grid rural electrificatiodenergy Droiects. Component Two: Capacity Component Two: buildinginMINEE,AER, 1. An institutionalreview has Low achievement of ARSEL and EDC beencompleted. intermediateoutcomes is Improvedlegalandregulatory 2. A longterm development symptomatic of management, framework and strengthened planfor the sector is adopted incentivesand operational capacity of sector institutions by GOC problems that need immediate to better executetheir 3. Number of applicationsfor resolution mandates (MINEE, ARSEL, ruralenergy operators AER, EDC) acceptedby ARSEL 4. Improvedcomplianceof AES Sonel with at least 2 41 concession obligations (such as connection targets, separation o f accounts) 5. Number o f hydropower projects evaluated by EDC 6. Transparent water pricing mechanism adopted by GOC Component three: Projects Componentthree Preparation 1, EDC has prepared ESMF 1. Supporting preparation o f for L o m Pangar in line with energy projects, including the World Bank safeguard Lom Pangar Dam and rural policies energy projects. 2. Number of rural energy projects prepared. 42 9 L 0 0 0, IA 4 I 0 X X X z" 0 3 0 0 X X 0 00 0, 0 l x X Gd ga ga we! Gd e! 2.E: v, c Y 3 I x m 3 0 0 0 0 a, u2 E: x m 3 &58 &58 3 n 4: 0 3 4: 0 0 3 XI 3 u E: 0 0 3 9 E: X X 3 m n rg 0 0 3 N 0 0 0 3 Annex 4: DetailedProjectDescription CAMEROON:ENERGY SECTORDEVELOPMENT PROJECT 1, The maincomponents of the proposedproject are: (i) RuralEnergyFund; (ii) Capacity buildingfor MMEE, ARSEL and AER; and (iii) Project preparation including preparatory activities o f the L o m Pangar Project (LPHP) and rural electrification projects. 2. ComponentI($45 million): Rural Energy Fund (REF). This component will help set up a rural energy fund as foreseen under PANERP and the decree establishing AER. A financing mechanism based on best practice examples from countries such as Mali and Burkina Faso will streamline currently fragmented interventions in rural energy by a multitude o f players and increase the effectiveness of investments in rural energy by pooling all funding sources under one planning and executing mechanism. The fund will be managed by AER as executing agency based on transparent operational and fiduciary procedures. Other donors have expressed an interest in contributing to the fund once it is established. 3. The creation o fthe Rural Energy Fund(REF) responds to the low level and limited success o f rural electrificationand access to modern sources o f energy in rural areas to date. To achieve quick results, the REF will initially focus on rural electrification, particularly grid extension, while promoting awareness and building capacity for improved access to decentralized rural energy sources at the same time. 4. Rural electrification in Cameroon is currently suffering from several challenges, including (9 The absence of defined objectives and a validated strategy: Cameroon currently does not have concrete and validated objectives for rural electrification in terms o f access rates based on economic and territorial criteria. A clear strategy regardingthe role o f the private sector, municipalities, contractual arrangements for project development, tariffs etc. has been lacking to date; (ii) Lackof coordinatedplanning: Amultitudeofactors(includingMINEE,AER, FEICOM, Ministries o f Health and Education, donor programs etc.) currently intervene in rural electrification without coordination, leadingto poor results interms o f sustainability and technical quality o f investments. MMEE, ARSEL and AER are not fully aware o f all ongoing interventions; and (iii) Incompletelegalfiamework: Theelectricitylawanditsapplicationdecreeshavenot fully clarified the roles and responsibilities o f the various sector stakeholders inrural electrification. As a result, several government institutions are active in the sub-sector with unclear mandates and only one private operator (AES Sonel) is active inthe sector 10 years after the reform. 5 , At the same time, Cameroon has significant opportunities for rural electrification, including: (i) An attractive market: The Rural Electrification Masterplan which was developed in 2001 (but never adopted) pointsto over 500 municipalities with 400,000 households which provide an economically viable `market' for private operators; 46 (ii) Reasonableprivatesectorcapacity: Initialscreeninghasestablishedthatatleast20 Cameroonian SMEs havethe capacity today to become operators for ruralelectrification and further capacity building will be providedunder the project. The size ofthe market is also attractive for internationaloperators; (iii) Thepotentialfor municipalities toplay an increasedrole in rural electrijkation: Ina decentralizingenvironment, the municipalitiescan play an importantrole in rural electrification, as longas they are subject to the same projectselection criteriaand rely on experiencedoperators; and (iv) Several interestedfinancing sources; Inadditionto the World Bank's contributionto the plannedREF under this project, other donors includingthe European Union, African DevelopmentBank and UNDP have expressedinterestto contributeto the Fundinthe future. Inaddition, GOC is keen to pool its various budget funds inthe REF and is willing to exploreways to ensurethe sustainability of the REFthrough levies inthe future. 6. The planneddesign ofthe REF respondsto these challenges and opportunities. A number of key principleshave beenestablished and adopted by all sector stakeholders, includingagreement on: Two complementary project developmentapproaches in form of RuralElectrification Priority Programs(REPP) and LocalProjectInitiativesof RuralElectrification(LPIRE). Both ofthese will be implemented in parallelbasedon an annual planningprocesswhich defines geographic connection and coverage targets, taking into account the available financingenvelope; Adherence to the spirit ofthe electricitylaw which foresees that ruralelectrification project should be mainly carriedout by privateservice operators which haveto co- financing investments andensure their maintenance. Territorial zones which do not meet the economic criteriaof private sector operators will be proposedunder the LPIRE window ofthe REFand can be operatedby: (a) an affermage contract, (b) communal regimeor (c) rural electrificationcooperatives; Neutrality ofthe REFon choice oftechnologyand award of concessions basedon the least cost businessplan; Limitation of subsidies to be paidby the REFto a percentage of investment costs ( e g a maximumof 70%) and no payment of subsidies for electricityconsumption; and The principlesof variable tariffs which will be based on financial viability of the rural electrificationprojectsandtake the regionalcapacity to pay by consumers into account. 7. The following institutionalstructure has beenagreed by all stakeholders: 8. The proposed institutionalarrangements rely on: (i)a RuralElectrificationPlanningand ProgrammingCommittee(REPPC) chaired by MINEE; (ii) ARSEL; (iii)AER; (iv) the financing mechanism(REF) through adesignated account inthe centralbank (BEAC); and (v) commercialbanks and/or microfinance institutionthat couldprovideco-financingto privatesector operators ofrural electrificationin case these do not have sufficient capitalto contributetheir share of investments. 9. A RuralElectrificationPlanning-and ProgrammingCommittee(REPPC) will be createdby decree where all institutionscurrently engaged in ruralelectrification(Ministriesof Energy, Finance, Economy, AER, ARSEL, FEICOM, EDC, representatives of municipalities,donors, private sector, consumer associations, NGOs, the bank administeringthe fund etc.) come together to agree on a well 47 definedyearly programof ruralelectrification and ruralenergy projectson the basis of an updatedrural electrificationmaster planto be preparedby MINEE in collaborationwith all sector stakeholders andto be adoptedby the REPPC. The annual priority projectswill be subject to transparent eligibility criteria includingeconomic viability, financial viability after subsidies, connectiontargets and geographic equity. Under the LPIREwindow, projects can also be presentedto REPPCby individual promoters andrural communities, but will be subjectedto the same eligibility criteria as the REPP. The REPPC also controls the execution ofthe REFby commissioningperiodic independent audits. 10. MINEE chairs the REPPCandthe technical secretariat of the REPPCwill be ensured by the Directorateof Electricity at MINEE. MINEE will also assist in developingmechanisms that will make ruralelectrificationa sustainable activity, includinga search for funds from donors and a surcharge on electricitytariffs. 11. AER as the executing agency ofthe REF providestechnicalassistance to REPPCand assistswith projectpreparation and evaluation. The REPPCvalidate projectssubmitted by AER for considerationin the annual priority program basedon the agreed eligibility criteria. Once the REPC approves the annual priority program, ARSEL launches a competitivebiddingprocess for these projectsto select the operator. 12. ARSEL will be responsiblefor choosingthe privateoperator for the REPP and LPIRE according to an expression of interest andthen acompetitivebid, in accordancewith Cameroonianlaw and accordingto the proceduresofthe NationalProcurementCommissionanddonors. The selection of the operators will be basedon their business planandthe selection criteria will be either the lowestsubsidy, given a specific tariff, or the lowest tariff given a specific levelof subsidy, bothfor an acceptednumber of connections. ARSEL will award the authorizationand submit the award of licenses and concessionsto the Minister of Energy who signs them. 13. AER as the executingagency of the REF will collaborateat all levels ofthe process and provide technical assistance as requiredto: (i) The REPCC by providingtechnicalassistance inthe elaborationofthe annual priority program basedon pre-feasibility studies conductedby AER; (ii) ARSEL with the technical evaluationof bidsreceived; (iii) Privateoperators with feasibility studies, environmentalassessmentsandthe preparation of their businessplans; and (iv) Municipalitieswith feasibility studies, environmentalassessmentsandthe preparationof business plans. 14. Inaddition, AER would: (i)identify, catalyze, andsupervise development ofthe first rural electrificationactivities;(ii) train potentialoperators and SMEs inthe developmentof business plans and the actual development of projects; and (iii)launchan awarenessand informationcampaignto inform potentialbeneficiariesabout the REF. AER could, either directly, or througha contract with independent consultants, provide assistanceto private sector operators in preparingprojectandgrant applications. AER would be responsible for assuringthat the independent consultants hiredare qualified, verifying that their work program is consistent with the project output, monitoringthe interventionsandevaluatingtheir effectiveness. 15. To monitorthe executionof the REF, a REF directorate (DREF) will be created within AER which is responsiblefor the technical supervisionofthe REF and instructssubsidies from the REFwhen agreed project milestoneshave beenmet. To effectthe disbursements andensure the fiduciary oversight of the REF, a dedicatedtreasury account will be opened in BEAC and will be managedaccordingto an 48 instructionto be issuedby the Ministerof Finance. Disbursementrequestswill be made by the treasury agent assignedto AER/DREF. 16. Financingsources ofthe RuralEnergyFund(REF) will include contributionsfrom the general budget, bilateral/multilateraldonors, and at a later date, from a levy on electricity consumptionand other energy productsto ensurethe sustainabilityof the fund. 17. Commercialbanks and/or microfinanceorganizations can provideco-financingto private sedtor operators of rural electrificationincase these do not have sufficient capitalto contributetheir share of investments. The commercialfinancialsector would normally be expectedto provide debt financingon commercialterms for ruralenergy investments. However, inthe early stage of implementingthe REF until it has beenfully established, rural energy operators would likely be requiredto contributeto the financing oftheir projectout oftheir own funds. Ina secondphase, the REF may also provideguarantees for all or part of the loans contracted by ruralenergy operators to encouragethe bankingsector to lendfor rural energy projects. It is foreseen that the needfor guarantees will only come at a later date. Initially, the FER will only providegrants and providersof energy services would rely on their own capacity to mobilizedebt. However, AER will conduct awarenesscampaigns with localbanksto increasetheir understandingofruralenergy projectsandtheir willingnessto lendto ruralenergy operators. 18. The financingplanof an approvedproject would be constituted, on average, by 50 to 70% grant, and from 50 to 30% equity. The grant element will depend on the technology, power and services delivered,geographical setting, etc., but will be limitedto 70% oftotal investments for all projectsunder the REF. The REF wouldobserve technologicalandbusiness modelneutrality (cooperatives, privatelyor community supported and managed REprojects, grid and off-grid, etc) andwould support any workable and sustainable solutionto extendaccess to modernenergy in ruralareas. 19. The following schema illustratesthe institutionalstructure of the REF. 49 0 vl L: 20. ComponentII($15.6 million): Capacity building. The projectwill providetechnicalassistance to MINEE, EDC, ARSEL and AER to improvetheir capacity to better executetheir mandates. 21. For MINEE (US$6 m.) activitieswill focus on: (i)improvingthe planningof least cost investments; (ii)finalizingthe legaland institutionalframeworkofthe energy sector; (iii)conducting complementary studies; (iv) improvinginstitutionalcommunication, especiallywith civil society and NGOs on criticalsector issues; and(v) andprovidenecessarytrainingandequipment. Table 3 details activitiesprogrammedfor MINEE. Table 3 : Capacitybuildingactivities programmedfor MINEE kmponenta ACtiVitk btknatea Eatimatm in FCFA inu8t ,Energy Strategy and least-cost f.f. Preparationofa letter of sector po/lcy/strategy nvestment planning 1.1.1,Updatingthe National Energy Plan(NEP) 450,000,000 1,000,000 1.2. Preparation of a development plan for the power sector 1.2.1. Updatingof Rural ElectrificationMasterplan 225,000,000 500,000 1.2.2.Updatingof the the PDSE 2030 500,000,000 1.111,111 1.2.3.Strategic plan on the role of natural gas in the nationalenergy balance 100,000,000 222,222 1.2.4.Inventoryof hydrologicalresources 225,000,000 500,000 1.2.5.Investment planningsoftware optionsstudy 10,000,000 22,222 ~ f.3. Prospective development plan of the petroleumproducts'subsector 1.3.1. Preparationof demandforecast and masterplans in refining,storage,distribution 90,000,000 200,000 1.3.2.Study on the economic and technicalregulation of the sector 25,000,000 55,556 1.3.3. Promotionstrategyfor the domestic use of naturalgas 25,000,000 55,556 1.3.4. Study on impactof petroleum productprices on the the power sector 10,000,000 22,222 il.Finalisationof institutional 2. lnstitutlonal andlegalreview of the energy sector 100,000,000 222,222 and legal framework of the sector Ill. Capacity Building 3.1, Support to the draftingof terms of reference 45,000,000 100,000 3.2. Study on the standards of paver safety 45,000,000 100,000 3.3.Audit of skills and staff capacityat MINEE 22,500,000 50,000 3.4. Preparationof a mid-termexpenditureframework for the sector 25,000,000 55,556 3.5. Studieson climate changeadaptationsactivities 45,000,000 100,000 3.6. Study on the technical solutionfor an informationtechologyplatform 13,500,000 30,000 for the integratedenergy informationsystem 3.7. Support to the sustainabilityof the energy informationsystem (MINEE) 22,500,000 50,000 3.8. Project management(financialmanagement,accountants,etc.) 90,000,000 200,000 3.9. Young ProfessionalsProgram 90,000,000 200,000 1.Communication strategy 4.1. Preparation of a communicationstrategy 13,500,000 30,000 4.2. Preparation of communicationtools and communicationcampains 30,000,000 66,667 4.3. Setting up of a web site and intranetnetwork 9,000,000 20,000 4.4. informationtechnologyplatform 13,500,000 30,000 5. Training 5.1. Preparation of a training plan 50,000,000 111,111 5.2. Implementationof the training plan 50,000,000 111,111 5.3.Validationworkshopsof ail studies 56,500,000 125.556 6. Audits 6. Audit of annual accounts andfinancial statementsof the ESDP 90,000,000 200,000 7. Equipment, other 7.1. Acquisition of softwarefor the national energy plan 10,000,000 22,222 Goods 7.2. Establishmentof an informationcenter 30,000,000 66,667 7.3. Reproductionand distribution of documents 9,000,000 20,000 7.4. Purchaseof informationtechnoloov eauioment . . 150.000.000 333.333 I, 7.5 Internet acces and connection 30,000,000 66,867 TOTAL 2,700,000,000 6,000,000 22. EDC($3.7 m.)will benefitfromtechnicalassistance for (i)developingtools of water basin managementand regulation,(ii)pre-feasibilityandfeasibilitystudies for futurehydroelectricprojects, (iii)communication,and(iv)associatedtrainingandequipment. Table4detailstheactivitiesbyEDC which will be supported by the project. 51 Table 4 : Capacity buildingactivitiesprogrammedfor EDC rechnical Assistance Development of manaaement tooia EDC,ARSEL, 1 1 Settina UD of an informationsvstem on watershedsand 67 500,000 150,000 waterito be mgulated MiNEE a dynamicbaia bank (hydroelectn; componentof the integrated energy informationsystem 1.2.Strengtheningof capacities in the coliectionand use of information 13,500,000 30,000 EDC, MINEE, 1.3 Study of the legalframework for the managementof waters of 67,500,000 150,000 ARSEL hydroeiectncdams Feaaibility atudiea, PEDlDEDetc. EDC 2.1 Optimizationstudy of the Sanaga hydroelectric3111)s hydroelectric projects 2.1 1. PreliminaryEngineenng Design (PED) of the Meseki reservoir 45,000,000 100,000 dam on the Meng 2.1 2. PED of the Litalareservoirdam on the Lom 45,000,000 100,000 2.1.3. PED of the Kikotpower stationdownstream on the Sanaga 45,000,000 100,000 2.1.4. PED of the Point rail resewoir dam on the Djerem 45,000,000 100,000 2.1.5. PED of a HV transmissionline Edea-Kikot-Nachtigal- 45,000,000 100,000 Lorn Pangar-Garoua-Yola(Nigeria) 2.2. Study of the interconnectednationalnetworks 2.2.1. Study on the dimensioningof the transmissionnetwork 180,000,000 400,000 2.3. Preparationor updatingof the EnvironmentalImpactAssessments 202,500,000 450,000 (EIA) of the reservoirdams of Maps, Eakaouand Bamendjin 2.5. Updatingor Preliminary studies of mini hydroelectricsites 112,500,000 250,000 2.6. Updatingof the data of hydrographicnetworks 112,500,000 250,000 of the hydrologicalbasinsin Cameroon 2ommunication 3.1. Awarenessworkshops 3.1 1.PmparaBonand organization 45,000,000 100,000 3.1.2 logistics 13,500,000 30,000 3 2. Organisationof informationcampains in the provinces 3.2.1. Preparationand organization 45,000,000 100,000 3.2 2. Logistics 13,500,000 30.000 3.3.1. Preparationof communicationtoolkitson dams mangement 9,000,000 20,000 3.3.2. Reproductionof toolkits 9,000,000 20,000 Humm Reaoumea 4.1. Operationaltrainingprogram 4.1 1.Studies linkedto the estabiishmentof EDC 67,500,000 150,000 (organization,Rnanuaimodel,etc,) 4.1 1.Training in the management of waters of hydroiogicalbasins 45,000,000 100,000 4.1.2.Training in the managementof regulationand generationdams 45,000,000 100,000 4 1.3.Training in other fields 67,500,000 150,000 4.1.4. Study tnps 76,500,000 170,000 Equipment 5.1. Environmentalmonitonngand evaluationequipment 56,250,000 125,000 5.2. Equipmentfor the diagnosticand monitoringof dams 56.250.000 125,000 5.3 EauiDmenlfor the monitonnaand evaluation of water basins 56,250,000 125.000 5 4 EaulDmentfor the control ofihe stability of the transmisisonnetwork 56,250,000 125,000 tal f ,642,500,000 3,653,000 23. ARSEL (US$4 m.) will benefit from technicalassistance and trainingto improve regulatory governance, concessionoversight and consumer protection. Table 5 detailsactivities for ARSEL. 52 Table 5 : Capacity building activities programmed for ARSEL 1. Development of regulation tools - 1,I, up of an informationsystem Setting 45,000,000 100,000 (regulationcomponent of the integratedenergy informationsystem) 1.2.Preparationof a manualof regulationprocedures 1.2.1,Developmentof a manual of procedures 46,500,000 103,333 1.2.2. Printing and distributionof a manualof procedures 10,000,000 22,222 1.3. Developmentof a transmissionand network access tariff model 100,000,000 222,222 1.4. Developmentof an economic and financial monitoringmodel 119,250,000 265,000 of the power sector 1.5.Assistance to ARSEL in the establishmentof the transmisison 72,000,000 160,000 network operator (legalframework, etc.) 1.6.Reviewof contractswith significant impact on the sector 101,250,000 225,000 2. Monitoring of the concession 2.1. Evaluationof AES-Sonelbusinessplan for 2007-11 75,000,000 166,667 2.2. Control of the annual implementationof the concession contract 75,000,000 166,667 and license 2.3. Financialand accounting audit of AES SONEL: 249,750,000 555,000 (2007 and 2011) 2.4. Control of AES/SONEL's investmentprogram 50,000,000 111,111 2.5. Technical audit of the generation,transmissionand distribution 202,500,000 450,000 assets in AESISONEL's concession. 2.6. Study on the impactof taking regulatingdams out of concession 80,000,000 177,778 3. Institutionalcommunication 3.1 Training of consumers associationson opportunitesto get involved sur leur mode d'intervention 3.1.I. Preparationand organization 135,000,000 300,000 3.1.1. Logistics 24,750,000 55,000 4. Ressources humaines 4.1. Preparationof a general staff training plan 22,500,000 50,000 4.2. Implementationof the training plan 225,000,000 500,000 4.3. Consultantservicesfor project implementation 90,000,000 200,000 5. Equipement 5.1, Preparationof an informationtechnology (IT) deployment plan 22,500,000 50,000 5.2. SUDD~Vof IT eauiment .. . . 45,000,000 100,000 5.3. Developmentof an intranet network 9,000,000 20,000 TOTAL 1,800,000,000 4,000,000 24. Capacity building for AER (US$2 m,) will focus on implementingthe RuralEnergy Fund, promotingruralenergies and energy efficiency as well as associatedtrainingand equipment. Table 6 illustratesthe technicalassistance program for AER. 53 Table 6 : Capacity building activities programmed for AER Components Actlvltles Estimates Estimates inFCFA inUS$ I. Technical assistance 1. Preparation and implementation of the Rural Energy Fund (REF) 1.I. Updatingof the rual electrificationmaster plan (PDER) 225,000,000 500,000 1.2.Preparationof a manual of proceduresfor the REF 4,500,000 10,000 1.3. Promotionof the REF and communication 1.3.1. Preparationof toolkits 9,000,000 20,000 1.3.2. Productionof toolkits 9,000,000 20,000 1.3.3.Media, publicity,etc. 9,000,000 20,000 1.3.4. Awarenessworkshops 45,000,000 100,000 Capacity strengthening 2.1. Methodologicaltools 1.2.1. Stock taking and setting up of an energy data base 22,500,000 50,000 on key sectors of the economy (componentof the integratedenergy informationsystem) 1.2.2. Etablishmentof a managementsystem for a data 45,000,000 100,000 basefor rural energy (componentof the integratedenergy information system) 3. Promotion of rural energ 3.2. Promotionof energy savings 90,000,000 200,000 3.3. Promotionof moderncooking energy sources - butane 90,000,000 200,000 gas, etc. 4. Training 3.1 Preparationof a training plan 13,500,000 30,000 3.2 Training 135,000,000 300,000 3.3. Consultantsfor project and REF management 135,000,000 300,000 5. Equipment 4.1 IT equipment 45,000,000 100,000 4.2 Creation of a web site 13,500,000 30,000 4.3 Installationof an intranet network 9,000,000 20,000 Total 900,000,000 2,000,000 25. ComponentIII($9.3 million): Projectpreparation. The project will assist EDCwith the preparation ofthe LPHP andAER with the preparation of ruralenergy projects. 26. For LPHP,the project implementationstructure will be as follows: Following standard project finance practice, EDC will establish a Special PurposeVehicle (SPV) for the development and management of the LPHPwhich will be 100%owned by EDC. A projectcoordinationunit will be established consistingall projectstakeholders, includingEDC, MINEE, Alucam etc. EDC will appoint a projectdirector for LPHPwho will be assistedby aproject managerand a team oftechnicalexperts reportingto the projectdirector. The IDA creditwill support the team oftechnical experts by financing an independentengineering firm which will providean owner's engineer and other technical staff requiredto facilitate and oversee the preparation andconstructionof LPHP. Inaddition,the IDA credit will ensurethe ongoing financingofthe independentpanelof experts. The creditwill equally finance outstanding technical,environmentaland social studies andthe preparationof biddingdocuments (see Table 7) 54 Table 7 : Projectpreparationactivities for LPHP to EDC Ii. Preparatlonofthe LomPangar Project I.Financingoftheremainingstudies 1 1. Census of the affectedpersonsor groups 90 000.000 200.000 (includingretroactive financing) 1.2. Resettlement and compensationaction pian 45,000,000 100,000 1.3. Cumulative environmental impact assessment 90,000,000 200,000 1.4. Forestry management study 45,000,000 too,ooo 1.5. Preparationof the Environmentaland social management plan (ESMP) 135,000,000 300,000 1.6. PED,DED,ElAs of the hydroelectricplant at the foot of 90,000,000 200,000 the Lom Pangar dam and the transmisisonline. 1.7. Impactassessment of the hydrocarbon spills 67,500,000 150,000 1.8. Publicconsultations linkedto the updating of the EIA of the dam 45,000,000 100,000 2. Financing of the Independent Panel of Expertsll 225,000,000 500,000 3. Financing of an englnearing firm,ll 1,575,000,000 3,500,000 Total 2,407,500,000 5,350,000 27. For AER, the projectwill financethe development of standardbiddingdocuments, standard technicalspecifications andother aspectsrelatedto preparingruralenergy projects for financingunderthe RuralEnergyFundas illustratedinTable 8. Table 8 : Projectpreparationactivities for AER Preparation of rural electrification and energy projects for the REF 2.1. Project identification 270,000,000 600,000 2.2. Preparationof projects (DED and Biddingdocuments) 495,000,000 1,100,000 2.3. Assistance in the evaluation of projects 270,000,000 600,000 2.4. Monitorina and evaluation 315.000.000 700,000 2.5. Technciaj support ot promoters/operators I,aoo,ooo,ooo 450,000,000 1,000,000 Total 4,000,000 55 Annex 5: Project Costs CAMEROON: ENERGYSECTORDEVELOPMENTPROJECT IDA Project Cost By Component andor Activity Local Total US $million US $million Foreign US $million us$ Financing 1 million 1. RuralEnergy Fund' 10.0 35.0 45.0 40.0 2. Capacity building2 2.9 12.7 15.6 15.6 a. MINEE 1.3 4.7 6.0 6.0 b. EDC 0.6 3.O 3.6 3.6 c. ARSEL 0.8 3.2 4.0 4.0 d. AER 0.4 1.6 2.0 2.0 3. Project preparation2 1.6 7.8 9.4 9.4 a. EDC 0.6 4.8 5.4 5.4 b.AER 1.o 3.O 4.0 4.0 TotalProject Costs3 14.5 55.5 70.00 65.0 lcomponent 1 includes an estimated$5 m. equivalent of budget contributionby GOC. Detailsare given in Annex 4 -DetailedProjectDescription Projectcost are inclusiveof taxes other than customs duties andVAT 56 Annex 6: ImplementationArrangements CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT Partnership arrangements 1. The project is financedby the Government of Cameroon (GOC) and IDA..GOC is contributing7% oftotal project costs in kind andthe IDA credit is financing 93% oftotal project costs. Institutional and implementationarrangements ComponentI: Rural Energy Fund 2. The RuralEnergy Fund (REF) component will be implemented by: A RuralEnergy PlanningandProgrammingCommittee (REPPC) to be establishedby decreeandchaired by MINEEwill be incharge of approvingthe updated RuralElectricityMasterplan, approvingannual RuralElectrification Priority Programsand Local Initiative Projectsfor RuralElectrificationand commissioningperiodicaudits for the REFaccount managedby a commercial bank. The REPPC meetsat leasttwice ayear; ARSEL will be responsiblefor managingthe competitive biddingprocess for ruralenergy concessions, licenses andauthorizationsand will receive technical assistancefrom AER in bid evaluation; AER will be the implementingagency of the REF andprovidetechnical assistanceto REPPC, ARSEL andrural energy operators. A REF Directorate (DREF) will be established inAER to supervisethe technicalexecutionof projectswhich benefitfrom a subsidy under the REF. AERDREF will be assisted by independentconsultantsto carry out supervisionactivities. Following technicalverification, DREFthroughthe treasury agent assignedto AER andthe FER will request, disbursement ofthe subsidies from the designatedREF account at BEAC; and A dedicated treasury account will be opened for the REF at the centralbank (BEAC) and will be subject to periodic independent audits commissioned by the REPPC. 3. The institutionaldetailsofthe REFare explainedfurther in Annex 4. Component2: Capacity building 4. Eachbeneficiaryunder the project(MINEE, ARSEL, AER, EDC) will be responsible for implementingtheir respectivecapacity building component and for procurement and financial managementactivities relatedto their component. Component3: Projectpreparation 5. The projectpreparation component for the LPHPwill be implemented by EDC. The projectpreparationcomponent for ruralenergy projectswill be implemented by AER. 6. MINEEwill have the responsibilityfor overallprojectmanagement. It will ensure the coordination, andthe technical and administrativemanagementof the project. Itwill work in close collaborationwith ARSEL, AER and EDC for controls and oversight. MINEE will be in charge of producingthe quarterly progressreports, consolidated projectaccounts and hiring for 57 an independent project auditor. IDA will closely supervise and monitor the implementation o f the activities through local, decentralized and headquarter-based staff and will call on specialized staff or consultants as required. 58 Annex 7: FinancialManagementand DisbursementArrangements CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT 1. This is a recordofthe results ofthe assessmentofthe proposedfinancial management arrangements for the Energy Sector Development Project(ESDP). The maincomponents of the projectare: (i) RuralEnergy Fund; (ii)Capacity Buildingfor MINEE, ARSEL, AER, and EDC (iii) projectspreparationincludingthe preparationofthe Lom Pangar Project(LPHP) and rural energy projects. 2. The Ministry of Energy (MINEE), the Electricity RegulatoryAgency (ARSEL) and the RuralElectrificationAgency (AER) will implement the (i)RuralEnergy FundComponent. MINEE, the Electricity RegulatoryAgency (ARSEL), AER andthe Electricity Development Corporation(EDC) will each implementits partofthe (ii)Capacity buildingcomponent. The (iii) projectspreparationcomponent will be implementedby EDC andAER. 3. Basedon project implementationarrangements, the overall responsibility for financial managementwill remainwith the Ministry of Energy (MINEE). It will ensure the coordination andthe technicaland administrative managementofthe projectandwill therefore work close in collaborationwith ARSEL, AER and EDC for controland oversight.The objective ofthe assessment is to determine: (a) whether MINEE andthe other implementingagencies have adequate financial management arrangementsto ensurethat the ESDP funds will be usedfor purposes intended inan efficient andeconomical way; (b) the ESDPfinancial reports will be preparedinan accurate, reliableandtimely manner; and (c) the project's assets will be safeguarded. 4. The financial management(FM) assessmentwas carriedout in accordance with the FinancialManagement PracticesManualissuedby the FinancialManagement Sector Boardon November 3,2005, The conclusionof our assessmentis that: The overallfinancial management is consideredHigh at this point oftime. The residualrisk would be moderate providedmitigation measures are implementedsatisfactorilyin a timely manner accordingto the action planagreed upon. A. Country issues 5. Cameroon is formulatingaPublic FinancialManagement (PFM) ReformStrategy that is supported by various development partners. The overall objectiveof the PFM ReformStrategy is to improvethe efficiency and effectiveness of Centraland Local Government PFM and accountability processes, includingan increase intransparency inthe use of public funds and reducedopportunitiesfor corruption. 6. A PEMFARwas conductedand issuedinJune 2006. The PEMFAR (incorporatingPER, CFAA and CPAR) recognizedthat substantial fiduciary risksremain inthe following areas: (a) absenceof controls ofthe materialityof expenditures inthe administrativephase of spending; (b) adequatecontrols are not implemented at the payment phase of spending; (c) recurrentrisk related to the payroll; (d) excessiveuse of exceptionalprocedures in budget expenditures. In addition,the combination of weak internal controlandweak financial reportingleadsto a high fiduciary risk. The risk is systemic on treasury managementsince there is not independent and effectiveinternalcontrol.Conversely, progress has been registeredwith the implementationof Medium-term ExpenditureFramework (MTEF) in some key ministriesduringthe last decade. 59 7. On governance and corruption issues, the Government has initiated a series of initiatives to strengthenGovernancethrough the adoption of a five year National Governance program (PNG). The Government has establishedanticorruption units in all ministries and in some public agencies. Their activities are coordinated by a national Anticorruption Observatory under the authority of the Prime Minister's office. Moreover, various anti-corruption institutions have been set-up in the framework o fthe HIPC program completion. Still, Cameroon has a long way to go to overcome endemic corruption and improve governance as well as PFM. B. Risk Assessment and Mitigation 8. Inadditionto the ESDP project financial management system objectives statedabove, the following features of a strong financial management system will be required: The internal control system should ensure the conduct of an orderly and efficient payment and procurement process, and proper recording and safeguarding o f assets and resources; The project team should be able to perform properly.Arrangements on adequate selection and training on Bank procedures are considered; The riskof delays on implementation will be mitigated by capacity building and regular supervision; Weak capacity for AER to provide technical assistance will be mitigated by the recruitment of consultants; The accounting system should support the Project's requestsfor funding and meet its reportingobligations to fund providers including LDA, and other donors; Strong collaboration between MINEEand different implementingagencies should contribute to avoid delays in accounting and reporting; The system should be able to provide financial datato measure performance when linked to the output of the Project; An independent, qualified auditor should be appointed to timely review the Project's financial statementsand internal controls for MINEEand agencies involved inthe project; The budget contributionto the REF needs to be properly inscribed in the budget and appropriate funds allocated through the annual finance law; and The creation by decree of the Rural Electrification Planning and Programming Committee (REPPC), the REF Directorate in AER and the creation of the REF through the 2009 finance law may be delayed and should be adequately monitored. 9. The table below shows the results o f the risk assessment from the Risk Rating Summary conducted for the ESDP. This identifies the key risks the Project management may face in achieving Project objectives and provides a basis for determining how managementshould address these risks. 60 Table..: Financial Manapement Risks Rating Summary nherent Risk Zountry Level H The Cameroon2006 InterimstrategyNote (ISN) which proposesa support strategy in FY07-08 is focusingon improvinggovernance, including addressingcorruptionand transparency in rural electrification. The ESDPwill contributeto that objectiveby establishinga ruralenergy fund which will provide investment subsidies to competitively selectedprivateoperators for on and off- grid rural electrificationprojects in accordance with World Bank procurementand fiduciary standards htity Level H 0 GoC has recognized its weaknesses in project preparationandrequestedassistanceincapacity building. 0 Carry out institutionalassessmentand identify capacity buildingneedsand providecapacity building for the relevant implementingagencies (MINEE, ARSEL, AER, EDC) 0 Designclear implementationarrangements for the ESDP, delineatingresponsibilitiesbetween all and each of the entities. 'roject Level S 0 The Bank is helpingto ensureeffective financial managementwithin MINEE which is entrustedwith the overall financial management responsibility. herall inherent risk 3udgeting S 0 MINEE, ARSEL, AER and EDC should be trainedto set up an appropriate budgeting system. 61 Risk Risk Rating iccounting S Acquisitionand installationand trainingto staff Conditionof for the use of integratedfinancial management effectiveness software under the ESDP; MINEE, AER, ARSEL and EDC are recommendedto purchase the same software to facilitate consolidationby MINEE. Recruitmentof afinancial management specialist and an accountant respectivelyin MINEE, AER, ARSEL an EDC. nternalControl H Development of a single ProjectImplementation Manualand its annexes on administrative, financial managementandprocurement procedures for MINEE, ARSEL, AER and EDC respectively. Development of a specific manual for the Rural ElectrificationFund. :unds Flow Use of Bank fiduciary standards and safeguards inthe financial andprocurementactivities. :inancia1 The integratedfinancialmanagement software Leporting includingan adequate accountingsystem will help in achievingBank reportingrequirements by MMEE and in the implementingagencies. iuditing S Selection of independentauditors satisfactoryto months afie Bank staff F ffectiveness herall control risk H herall Risk Rating H lesidual risk rating M H-High S - Subs1 tial M- Modest L-Low 10. Followingthe assessment, the belowactionplan illustratedbelow has beendeveloped and indicatesthe actions to be undertakento strengthen financial managementofthe Projectand due completiondates. 62 FinancialManapementActionPlan Datedue by Responsible 1 Agreement on InterimFinancialReport(IFR) Negotiation formats and annual projectfinancial statements ARs&EDcandthe formats, the TOR for external auditors. Developmentof a single ProjectImplementation Credit Effectiveness Manualand its annexes on administrative, FMand procurement proceduresfor MMEE, ARSEL, AER and EDC respectively. Development of a specific manual for Rural ElectrificationFunds Selection of independent auditors Four months after Credit Effectiveness 4 Annual independent financial audits includingan Within 6 months of independent technicalauditofthe REF shall be made close of financial availableto IDA vear Recruitmentof a financial managementspecialistand Credit effectiveness MINEE,AER, an accountant respectivelyin MINEE, AER, ARSEL ARSELand EDC and EDC. Procure, install andtrain staff inthe use of a Credit effectiveness MINEE computerized accountingsystem inMINEE, ARSEL, AER and EDC C. Strengthsand weaknesses of the FMS 11. While there are no direct strengths, the Projectfinancial managementis weakened by the following salient features: The accountingpersonnel in MINEE and other implementingagencies are not experienced in the World Bank procedures; There is not yet a good understandingof the FinancialReportingrequirements in MINEEand EDCwhich have not implemented World Bank projectsbefore and have not beentrained in FinancialManagement and Disbursement procedures of the World Bank; There is no existingaccountingsoftwarein MINEE, AER and EDC. The accountingsystem in ARSEL is not fully integrated; Existingproceduresmanuals in ARSEL and AER do not comply with the Bank minimum requirements. There is no proceduresmanual in MINEE and EDC; FinancialStatementsof some implementingagencies involved inthe project (ARSEL andAER) are presentedwith significantdelays and have not been subject to external audits (Audit Bench or external auditors).AER has recently submittedits Management accounts as of December2005 that are currently audited by the Audit Bench; AER and ARSEL and EDC are all autonomous public enterprises applying privateaccountingrules andregulationsbut they do not comply with the accountingstandards applicable in Cameroon (OHADA); 63 (vii) There is quite a large number of implementingagencies involvedinthe project, therefore, timely reportingand auditpreparation are challenging; and (viii) Institutional and technical arrangements requiredfor the REF may delay project implementation. Institutionaland implementationarrangements 12. The IDA-financedprojectwill be implementedthroughthe Government's own institutionalarrangementsthroughdifferentexecutingagencies: The Ministry of Energy (MMEE), the RuralElectrificationAgency (AER), the Electricity RegulatoryAgency (ARSEL) and the ElectricityDevelopment Corporation(EDC). The MINEE will be responsible for coordinationof implementationofthe IDA project, and it will rely on AERYARSEL, and EDC staff to playtheir role, to maintainadequate financial managementsystems and ensure that implementationis undertakenas planned inthe different components of the project.The following implementationarrangements are envisaged: (i) MINEE is vested with the operationalcoordinationand follow-up ofthe project activities; (ii) Day-today operationalcoordinationofthe proposedprojectwill be ensured by MMEE to oversee the reformprocess, assist inplanningof activities and budget, facilitate contractingand coordinatingof activitiesandtechnicalassistancefrom various donors, and also play a critical role inmonitoringand evaluationfor the broader outputs and outcomes from the actionplans; (iii) As executingagency ofthe REF, AER has a key roleto play in coordinationand supervisionduring the implementationofthe component 1: RuralEnergyFund; and (iv) During projectexecutionthe MINEE (supportedby ARSEL andAER in component 1) shall coordinate and manage: a. Project monitoring, reportingand evaluation; b. Contractualrelationshipwith IDA; c. Consolidated financial management and record keeping, accounts and disbursements, d. The consolidated work program of the project in close coordinationwith the other implementingagencies; and e. Externalaudits ( financial andtechnical ) and supervisionmissions 13. The proposedinstitutionalarrangements for the REF rely on: (i)a RuralElectrification Planningand ProgrammingCommittee(REPPC) chairedby MINEE; (ii)ARSEL; (iii)AER; and (iv) the financingmechanismof the REFthrougha designatedaccount at the Central bank (BEAC). 14. A RuralElectrificationPlanningand ProgrammingCommittee(REPPC) will be created by decree where all institutionscurrently engaged in ruralelectrification(Ministriesof Energy, Finance, Economy, AER, ARSEL, FEICOM, EDC, representatives of municipalities,donors, private sector, consumer associations, NGOs, the bank administeringthe fund etc.) come together to agree on a well definedyearly programof rural electrificationand ruralenergy projectson the 64 basis of an updatedrural electrificationmaster planto be preparedby MINEE in collaboration with all sector stakeholders andto be adoptedby the REPPC. 15, AER as the executingagency ofthe REF providestechnical assistanceto REPPCand assists with projectpreparationand evaluation. The REPPC validatesprojectssubmitted by AER for consideration inthe annual priority program basedon the agreed eligibility criteria. Oncethe REPPCapproves the annual priority program, ARSEL launchesa competitivebiddingprocessfor these projectsto select the operator. 16. ARSEL will be responsiblefor managingthe selection processfor the ruralenergy concessions, licenses and authorizations with the assistance of AER in bid evaluation.The selection processofthe operators will be done in accordancewith the provisionsofthe World Bank procurement Guidelines.The detailed selection process as well as the biddingdocument to be usedwill be reflectedin a procedures manualapproved by the Bank and applicableto the managementof the RuralEnergy Fund". 17. AER as the executingagency of the REF will collaboratewith all stakeholders and providetechnicalassistanceat all levels of the processas requiredto: (i) The REPCC in the elaborationof the annual priority program based on pre- feasibility studiesconducted by AER; (ii) ARSEL with the technicalevaluationof bidsreceived; (iii) Private operators with feasibility studies, environmental assessments and the preparationoftheir businessplans; and (iv) Municipalities with feasibility studies, environmental assessments and the preparationof businessplans. 18. In addition, AER would: (i)identify, catalyze, and supervise development ofthe first ruralelectrificationactivities; (ii) train potentialoperators and SMEs inthe development of businessplans andthe actual development of projects; and (iii)launch an awarenessand informationcampaignto inform potentialbeneficiariesabout the REF. AER could, either directly, or througha contract with independentconsultants, provide assistanceto private sector operators inpreparingproject and grant applications. AER would be responsible for assuringthat the independent consultantshiredare qualified, verifying that their work program is consistent with the project output, monitoringthe interventionsand evaluatingtheir effectiveness. 19. To monitor the executionofthe REF, a REF directorate (DREF) will be createdwithin AER which is responsible for the technicalsupervisionofthe REFand instructsthe public accountant ofthe Treasury Directorateto disbursethe subsidies from the REF when agreed project milestoneshave beenmet. 20. Commercialbanks and/or microfinanceorganizations can provideco-financingto private sector operators of rural electrificationincase these do not have sufficient capital to contribute their share of investments. The commercialfinancial sector would normallybe expectedto providedebt financing on commercialterns for ruralenergy investments. However, inthe early stage of implementingthe REF until it has beenfully established, rural energy operators would likely be requiredto contributeto the financingof their projectout oftheir own funds. 21. The financingplan of an approved project would be constituted,on average, by 50 to 70% grant, and from 50 to 30% equity. The grant element will depend on the technology, power 65 and servicesdelivered, geographical setting, etc., butwill be limitedto 70% oftotal investments for all projects under the REF. The REFwould observetechnologicaland business model neutrality(cooperatives, privately or community supported and managedRE projects, grid and off-grid, etc) and would support any workableand sustainable solutionto extendaccess to modernenergy in ruralareas. a. BudgetingArrangements 22. The proposedIDA financed projectwill be implemented by separateagencies(MINEE, AER, ARSEL andEDC includingthe structures involvedinthe RuralEnergy Fund). Each implementingagency will prepare an annualwork program, includinga procurement plan.A focal personwill be appointed ineach implementingagency to work on technical and financial managementaspects and on procurementaspects. Underthe supervision of MINEE, each implementingagency concernedwill be responsiblefor preparation and implementationoftheir work programs for components2 and 3. The ESDP budget is presentedby MINEE in consultationand with extensive detailedinput by the respective implementingagenciesand has to be adoptedbefore the beginningof each fiscal year. 23. Concerningcomponent 1 : A RuralElectrificationPlanningand ProgrammingCommittee (REPPC) will be createdby decree where all institutionscurrentlyengaged inruralelectrification (Ministries of Energy, Finance, Economy, AER, ARSEL, FEICOM, EDC, representatives of municipalities,donors, private sector, consumer associations, NGOs, etc.) come together to agree on awell definedyearly program of ruralelectrificationand ruralenergy projectson the basis of an updatedruralelectrificationmaster plan. The annual priority projectswill be subject to transparent eligibility criteria includingeconomic viability, financial viability after subsidies, connectiontargets and geographic equity.The REPPCfollows and controlsthe executionof the REF by commissioningperiodic independentaudits. 24. The capacity ofthe accounting staffto fulfill budgetingneedsofthe Projectis not adequate in MINEE and in the implementingagencies. Therefore, MMEE shouldensurethat its budgetingarrangements are acceptable to IDA. Inaddition the staffof MINEE and implementing agencies involved inthe project needsto be trained in budgeting. b. AccountingArrangements 25. The implementingagenciesconcernedwill be responsiblefor preparation and implementationoftheir work programs. The supportingdocumentation will be keyed inthe accountingsystem installedin each implementingagencies. The accounting data will be transferredperiodically to MINEE by each implementingagency for consolidation. Information on the periodicityandthe format of suchtransfer will be providedby MINEE. Books of accounts and list of accounting codes 26. MINEE andthe implementingagencieswill maintainaccountingsystem similar to those for other IDA funded projects. The Projectspecific accountingbooks have to encompass: a cash book, ledgers,journal vouchers, fixed asset registerand a contracts register. 27. This accounting book will be updatedelectronically.A list of accounts codes (chart of accounts) for the Project should be drawnup. This should match with the classificationof expenditures and sources and applicationof funds indicatedinthe FinancingAgreement. The 66 chart of accounts should be developed in a way that allows Projectcosts to be directly relatedto specificwork activitiesandoutputs ofthe Project. 28. The chart of accounts andthe Accountingbooks to be usedfor the Projectneedto be completed in accordancewith the requirements ofthe FinancingAgreement. Information systems 29. The IDA funds will be handled in a separatedatabase and its specific financial statements will be consolidated for reportingpurposes.To achieve an effectiveand efficient accounting consolidation,MMEE andthe other implementingagenciesare recommendedto installthe same computerized accounting system. A fully functioningfinancial managementsystem satisfactory to the Bank inMINEE and other implementingagencies is consideredas a conditionof effectiveness. Staffing Arrangements 30. To ensurethe Projectis effectively implemented, MINEE and implementingagencies needto guaranteeappropriate staffingarrangements for the whole Project life. MINEEwill have an accounting unit headedby a FinancialSpecialist to be recruitedwho will be responsiblefor keepingIDA-relatedaccounts. The Financial Specialist will be assistedby aProjectAccountant to be recruited. ARSEL, AER and EDCwill respectivelyreinforcetheir staffby recruitingan accountant anda financialmanagementspecialist.Staffingarrangements are thereforeadequate for the projectto ensure that the IDA funds are well managed. 3 1. A public accountant will be attachedto the DREF in AER in conformitywith the existing regulationin Cameroon to disburse subsidies from the REF designatedaccount at BEAC. For this purpose, fiduciary instructionwill be issued by the Ministry of Finance on the management of the REF designatedaccount at BEAC. c. Internal Controls and Financial Management Manual 32. A ProjectImplementationManualwith annexes on financial managementand procurement should be developed for the projectand appliedto MINEE and for each implementingagency. .The financialmanagementannex of will describe the accountingsystem: the major transaction cycles ofthe Project; funds flow processes; the accountingrecords, supportingdocuments, and specific accounts inthe financial statements involvedin the processingof transactions; the list of accountingcodes usedto group transactions (chart of accounts); the accountingprocessesfrom the initiation of a transaction to its inclusioninthe financial statements; authorizationprocedures for transactions; the financialreportingprocess usedto prepare the financial statements and interim financial reports, includingsignificant accounting estimates and disclosures; financialandaccountingpoliciesfor the Project; budgeting procedures; financial forecastingprocedures; procurement andcontract administrationmonitoring procedures; proceduresundertakenfor the replenishment ofthe DesignatedAccount; and auditing arrangements. 33. A proceduresmanualwill be developed specifically for the RuralEnergy Fund. d. Flow of Funds arrangements Bank Accounts. 67 34. The following Bank accounts will be maintained for the purposesof implementingthe project: Four DesignatedAccounts and one projectaccount openedby the CAA incommercial banks acceptableto the Association, the fifth designated account openedat the centralbank (BEAC). 35. Four DesignatedAccounts for the Projectwill be kept respectivelyby MINEE, AER ARSEL, and EDC throughthe CaisseAutonome d'Amortissement (CAA) representingthe Ministry of Finance(MINFI) for component 2 and 3. MINEE, AER, ARSEL andEDC have respectivelybeensubject to a financial managementassessment.All expenditureswill be paid centrally from the CAA through commercialBankswith the approvalmechanismapplicableto the Borrower.Eachbank account shallbe opened inFCFA in a commercialbank acceptableto IDA in accordancewith the FinancingAgreement. It will be usedto cover expenses incurredby the implementingagencies. Disbursements from the IDA Credit will be deposited inthe different DesignatedAccounts. 36. The fifth DesignatedAccount is specificto the RuralEnergy Fund. It will be managedby BEAC as a designatedTreasury account under the supervisionofAER. Budget and donor allocationsto the RuralEnergy Fundwill be channeledthroughthe designated account inthe CentralBank (BEAC) 37. The designatedTreasury account will be opened at the CentralBank to receive external fundingfor the RuralEnergyFund. Thesefunds are reflectedinthe approvednationalbudget, with appropriatetags for spendingselectedinthe project supported by externalfunding. IDA will annuallycommissionan externalaudit of the designated account. 38. Pro-iectAccount: This will be denominated in localcurrency.Counterpart funds and transfers from the DesignatedAccount (for payment oftransactions in localcurrency) will be deposited on this account inaccordance with projectobjectives. Initial Advance. 39. IDA will disburse an initial advancewithdrawnfrom the proceedsofthe Credit and by depositinginto a Borrower-operatedDesignatedAccount. Actual expenditures will be reimbursedthrough submission of Withdrawal Applications supported by Statements of Expenditures (SOE) for components 2 and 3 andCustomized SOE for component 1 which will be approved in accordance with internal control measuresappliedto IDA funds. DisbursementArrangements and methods 40. Disbursementsfrom IDA would be initially made onthe basisof incurredeligible expenditures (transactionbaseddisbursements). The IDA advanceto the DesignatedAccount would also be usedby the Borrowerto finance the project's eligible expenditures under the proposedCredit. Another acceptable methodofwithdrawingfunds from the Credit is the direct paymentmethod, involving direct payments from the Credit to a third party for works, goods and services uponthe Borrower's request. Another option is for IDA to make paymentsto a third party for eligibleexpenditures under special commitments entered into, inwriting, at the Borrower's request and on terms and conditionsagreed betweenthe Bank andthe Borrower. IDA'SDisbursementLetter stipulates a minimumapplicationvalue for requests for reimbursement, direct payment and special commitment 68 41. For disbursements relatedto the projectcomponents2 and 3, MINEE andrespective implementingagencies will be requiredto submit withdrawal applicationsfor an initial deposit intotheir respective DesignatedAccounts, drawn from the IDA Credit, in a total amount up to the authorized ceiling for each component specifiedinthe Disbursement Letter.Replenishment/ reimbursement of funds from IDA to the DesignatedAccounts will be made upon evidence of satisfactory utilization of the advance, reflectedin Statement of Expenditures (SOEs) and/or on full documentation for paymentsabove SOEdocumentation thresholds Replenishment applicationswould be requiredto be submitted regularlyon a monthly basis. Ifineligible expenditures are found to have beenmade from the DesignatedAccount, the Borrowerwill be obligatedto refundthe same. Ifthe DesignatedAccount remains inactivefor more than six months, the Borrowermay be requestedto refundIDA amounts advancedto the Designated Account. 42. Disbursement onthe RuralEnergy Funds(REF) will be made following specific arrangements: The GOC will open a DesignatedTreasury Account specificallyfor the Rural Energy Fund(REF) as a sub account to the single Treasury account at the CentralBank (BEAC) into which IDA will advance projectfunds accordingto then terms detailedinthe disbursement letter. The designated account will be operated in linewith instructionsto be issued by the Minister of Finance. 43. supported by a "Customized SOE" - an SOEwhich is tailoredto the purposesofthe Subproject Withdrawal applicationsfor the REF would be submitted to IDA on a monthly basis and grants under component 1 ofthe project- inthe form attachedto the disbursement letter. The Customized SOEwill reflect paymentsmade by the REFto Operators pursuant to the terms and conditionsof a Subproject Grant Agreement which will includemilestones linkedto the payment made). The Customized SOE will be signed by the personsresponsible for the REF - completion of outputs as triggers for subsequent paymentsto the Operator (2nd,3rd, until full and basedon site supervisionmissions completed by AERYthe agency responsible for the REF - certifying the completionof outputs pursuantto the terms of the Subproject Grant Agreement. A technical audit will be conductedon an annual basisto ensure that work was completed pursuant to the Subproject Grant Agreement and that funds were usedfor the purposes intendedby the FinancingAgreement. All relevant documentation must be retainedby the REF made available to technicalauditors and financial auditors. 44. RuralEnergy funds are reflectedinthe approved nationalbudget, with appropriate tags for spending selected inthe projectsupported by external funding. IDA (and other donors) will annually commissionan externalaudit of the designatedaccount. Budget appropriationsnot used duringa given fiscal year should be carriedover to the following year, without beingdeducted from the budget ofthe new fiscal year. 45. All transactions on these accounts will be reported monthlyand substantiated with source documents to the Public accountant andthe ProjectAccountantto allow them to prepare a report on the programexecution. 46. Detailedarrangements, includingcontrol proceduresover all financial transactions will be documented inthe program implementationManual(PIM). 47. Financingsources ofthe RuralEnergy Fund(REF) will include contributionsfrom the general budget, bilateral/multilateraldonors, from a levy on electricity consumption and other energy productsto ensure the sustainability ofthe fund. 69 Taxes 48. Funds will be disbursed in accordancewith Project Categories of expenditures, as shown inthe FinancingAgreement. Financingof each category of expenditures will be authorized at 100 percent inclusive of taxes except VAT and duty as these taxes will be absorbedby the GOC through a mechanism already established to that effect. Applications for withdrawal of funds will be submitted to IDA net of VAT and duty. ESDPFLOW OFFUNDSCHART Use of Statement of Expenditures (S0E)s 49. Disbursements for all expenditures under components 2 and 3 of the project would be made against full documentation, except for the following items of expenditures: (a) contracts for works in an amount inferior to US$250,000; (b) contracts for equipment and goods in an amount inferior to US$150,000; (c) contracts for consulting firms in an amount inferior to US 100,000 equivalent per contract, and contracts for individual consultants in an amount inferior to US$ 50,000 equivalent per contract, as well as all operating costs, which would be claimed on the basis of Statement of Expenditures (SOEs). All supporting documentation for SOEs would be retained at the CAA or by each implementationagency and readily accessible for review by periodic IDA supervision missions and internal and external auditors. 50. IDA will have the right, as reflectedinthe FinancingAgreement, to suspend disbursement of funds ifreporting requirements are not complied with. To move from transaction based disbursement to report based disbursement where six monthly expenditure forecasts are quarterly made available on the Designated Account MINEEand the respective implementingagencies would have to meet the following requirements: (a) sustain satisfactory financial managementrating duringthe Project's supervision; (b) submit Interim Financial Reports consistent with the agreed form and content within 45 days of the end of each reporting 70 period, and (c) submit the expectedAudit Reports by the due date namelythe reporton Financial statementsandthe management letter. e. FinancialReportingArrangements 5 1. Formats of the various periodic financial monitoringreports to be generatedfrom the financial managementsystem will be developed in MINEE and other implementingagencies. There will be clear linkagesbetweenthe informationinthese reports and the chart of accounts. The financial reports will be designedto provide quality and timely informationto the Project management, implementingagencies, and various stakeholders monitoringthe Project's performance. 52. The following quarterly InterimFinancialReports (IFRs) will be producedby the MINEE (basedon its own expenditures andonexpendituresmadeby all implementingagencies) andprovidethem to IDA andthe Borrower: (i) Sources andUses of Funds; (ii) Uses of Fundsby ProjectActivity/Component; and (iii) DesignatedAccount reconciliationstatement includingBank Statement. 53. The formats havebeenagreed duringtechnicaldiscussions prior to negotiations.MINEE andthe implementingagencies must demonstratetheir ability to producethese IFRs.Inaddition, MINEE is expected to show, by projecteffectiveness, its capacity to produce IFRs, consolidating all project activitiescarriedout by the respective implementingagencies. 54. The financial statements should be preparedin accordance with InternationalPublic Sector AccountingStandards(which inter alia includes the applicationofthe cash basis of recognitionoftransactions). The FinancingAgreement will requirethe submissionto IDA of audited financial statements for the funds providedwithin six months after the end of the year. 55. The Financial Statementsfor the funds provide by IDA will comprise: (i) A Statementof Sources and Uses of Funds/ Cash Receiptsand Payments, which recognizes all cash, receipts, cash payments and cash balances controlledby the entity; and separately identifies payments by third parties on behalfofthe entity; (ii) The Accounting PoliciesAdopted and ExplanatoryNotes.The explanatorynotes should be presented in a systematic manner with items on the Statement of CashReceipts and Paymentsbeingcross-referencedto any relatedinformationinthe notes. Examplesof this informationinclude a summary of fixed assets by category of assets, and a summary of SOE WithdrawalSchedule, listing individual withdrawalapplications;and (iii) A ManagementAssertion that IDA funds have been expended in accordancewith the intendedpurposes as specifiedinthe relevantfinancing agreement. 56. Indicativeformats of these statements will be developed in accordance with IDA requirementsand agreed with the Country FinancialManagement Specialist. 71 f. Audit Arrangements 57. The Bankrequiresthat the audit scope andterms of reference, the auditor, andthe audit standards appliedto be acceptable to it. Audit will be undertakenby privateauditingfirms, IDA funding may be usedto pay for the audit.The scope ofthe audit should includean opinionon whether the funds have beenusedfor the purposes intended as specifiedinthe Financing Agreement. Audits will be done in accordancewith OHADA standards in compliance with InternationalStandardson Auditing (ISA). 58. The responsibilityofthe presentationof consolidated financial statements and audit preparation for the projectremains with MMEE. 59. Inaddition, the responsibilityto extendthe audit on financial statements for the managementof RuralElectrificationFund (Audit ofthe DesignatedAccount inthe CentralBank (BEAC) remains with the RuralElectrificationPlanningand ProgrammingCommittee(REPPC) chaired by MINEE. 60. Any firm of auditors contractedto carry out the audit should meet IDA'Srequirements in terms of independence, qualificationsandexperience. 61. The arrangements for the externalaudit ofthe financial statements ofthe funds provided by IDA shouldbe communicatedto IDA through agreedterms of reference.Appropriateterms o f reference for the externalauditormust be developed beforeproject effectiveness and the selection of the auditor should be made withinfour months of Credit Effectiveness. 62. The new Audit Policy Guidelinesallowsthe projectto providetwo separateaudit reports: (i) the report on financial statement with a unique opinionon financial statements, which may includea special opinion on the Statementsof Expendituresor interimreports and Designated Account; and (ii)the managementletter. 63. The audit report for IDA funds andthe management letter must be submitted to IDA within six months after the endof each fiscal year. 64. Technicalaudit: Contracts with operators, for which templates are appendedto the PIM, will be subject to subprojects technicalaudits. These may be ordered and managed systematically by the externalauditor or randomlyby AER. For this purpose, the projectwill hire an audit firm. D. Conclusionofthe assessment 65. The overall financial managementrisk is consideredHigh at this point oftime. The residualrisk would be moderateprovidedmitigationmeasuresare implemented. E. Supervisionplan 66. Supervisionmissions will be conductedat least three times duringthe first year basedon the risk assessmentofthe Project.The mission's objectiveswill includethe evaluationof financial managementsystems. A reviewwill be carried out regularlyto ensure that expenditures incurredby the Projectremaineligible for The World Bank funding. The ImplementationStatus Reportwill include financial managementratingsthat are preparedby the Country Office FinancialManagement Specialist. 72 Annex 8: ProcurementArrangements CAMEROON: ENERGY SECTOR DEVELOPMENTPROJECT A. General ProcurementEnvironment 1. The adoptionofthe new procurementcode, approved on September 24,2004, improved the legal and institutionalframeworks.No special exceptions, permitsor licensesneedto be specifiedinthe Grant Agreement since the new procurement code allows IDA procedures to take precedenceover any contrary provisions in local regulations.However, the latest audits of public contracts by independent experts revealedpersistentweakness in procurement operations and practices 2. The Country ProcurementAssessment Review(CPAR) conducted in2005 indicates significant achievements inthe procurement reformundertakenover the past five years. Given that the four pillars of the systems are inplace(the ratingofthe Baseline IndicatorsSystem is 69 percent), the Government should now focus on capacity building as well as on monitoringand evaluationofthe performance ofthe system inthe public and privatesectors. The Government actionplan, adoptedat the end of2005, includes:(i)preparation and adoptionof a procurement capacity building program; (ii)implementationof a procurement computerized system to better manageplanning,executionand monitoring& evaluationof procurement operations; (iii) building capacity to supervise and follow-up contract execution; and (iv) implementationof specific actions to ensure compliance with and sanctions of infractionsofthe Procurementrules and regulations. Guidelines 3. Procurementfor this projectwould be carriedout inaccordance with the World Bank "Guidelines: Procurement under IBRDLoans and IDA Credits" dated May 2004 andrevisedin October 2006; and "Guidelines: Selection and Employmentof Consultants by World Bank Borrowers" dated May 2004 and revisedin October 2006, andthe provisionsstipulatedinthe LegalAgreement. Procurement(works, goods andnon-consultingservices) or consultant selection methods, prequalification,estimatedcosts, prior review requirements, andtime-frame would be agreed inthe ProcurementPlan.The Procurement Plan will be updatedat least annually or as requiredto reflectthe actual project implementation. The Bank's StandardBidding Documents or Cameroon's NationalStandardBidding Documents satisfactoryto the Bank will be used. Advance contracting and retroactivefinancing 4. In order to accelerate program implementation,the borrower has expressed its intention to proceed with the initial steps of procurement before signing the relatedFinancial Agreement. The procurement procedures, including advertising, will be done in accordance with the Bank's Guidelines in order for the eventual contracts to be eligible for Bank financing, and the normal review process by the Bank will be followed in accordance with the Procurementand Consultant Guidelines. 73 Advertising 5. A comprehensiveGeneral ProcurementNotice(GPN) will be preparedby the Borrower and publishedinthe UnitedNationsDevelopmentBusiness online (UNDB online) and inthe DevelopmentGateway Market(dgMarket)following BoardApproval, to announce major consultingassignmentsand any ICB22.The GPNshall includeall ICB for works and goods contracts and all large consultingcontracts (Le., those estimatedto cost US$200,000 or more).In addition, a specific procurement notice is requiredfor all works and goods to be procuredunder ICB in dgMarket and UNDBonline. Requestsfor expressions of interestfor consultingservices expectedto cost morethan US$200,000 shall be advertised in UNDBonline and indgMarket.An Expressionof Interest (EOI) is requiredinthe nationalgazette or a nationalnewspaperor in an electronicportalof free access for all consultingfirm services regardless ofthe contractamount. Inthe case of NCB23,a specificprocurement noticewill be publishedinthe nationalgazette or a nationalnewspaper or an electronic portalof free access. Contracts awards will also be published in UNDB and dgMarket, in accordance with the Bank's ProcurementGuidelines(para. 2.60) and Consultants Guidelines(para. 2.28). Procurementof Works 6. Works procuredunder this projectconsist of rural electrificationworks particularly grid extension, through a rural energy fund as foreseen under PANERPand the decreeestablishing AER. 7. Regardingthe rural electrificationworks to be conductedthroughthe rural energy fund, their financing, basedon OBA approach, will be subsidizedto a limit of 70% oftotal investment and due to their demand-drivennature, it is not possible to predetermine the exact works to be procuredin connectionwith these activities.An ex-post review of randomsub-projects will be conductedperiodicallyby the Bank and independent technical auditors. 8. Civil works costingmorethan US$500,000 equivalentwill be procuredthroughICB. Civil works costingless than US$500,000 equivalent(excluding OBA approach) will be procured throughNCB. Procurementwill be done usingthe Bank's StandardBidding Documents(SBD) for all ICB and National SBD agreedwith or satisfactoryto the Bank. Smallworks estimatedto cost less than US$50,000 equivalent per contractmay be procuredthrough shopping, basedon pricequotationobtained from at least three contractors in responseto a written invitation to qualifiedcontractors. Procurementof Goods 9. Goods procuredunderthis projectwould include: goods througha rural energy fund as foreseen under PANERPand the decree establishingAER, Computingequipments, furniture, and office equipments. Goods estimatedto cost more than US$200,000 will be procuredthroughICB. Goods (excludedthose needed for OBA contracts) estimatedto cost morethanUS$50,000 but less than US$200,000 will be procuredthroughNCB. The procurementwill be done usingthe Bank's SBD for all ICB and National SBD agreedwith or satisfactoryto the Bank. 10. Inthe absenceofnationalstandardbiddingdocuments, the Bank SBDwill be usedfor NCB, with appropriatemodificationsrelatingto provisionsfor "advertising and notification", 22ICB:International CompetitiveBidding 23NCB:NationalCompetitive Bidding 74 "currencies of bid and payment", "settlement of disputes", deletion ofthe domestic preference provision, etc. This should ensure that: (i)methods usedto evaluate bids and award contracts are knownto all bidders and not appliedarbitrarily; (ii) all bidders have adequate responsetime (four weeks) to prepareand submit bids; (iii) bid evaluationand bidder qualificationare clearly specifiedin biddingdocuments; (iv) no preference margin is grantedto domestic manufacturers; (v) eligible firms are not excluded from participation; (vi) awards are madeto the lowest evaluatedbidder inaccordancewith pre-determinedandtransparent methods; and (vii) bid evaluationreports clearly statethe reasons for the rejectionof any non-responsivebid. 11. Procurementof readily availableoff-the-shelfgoods that cannot be grouped into bid packages of US$50,000 or more may be procuredthrough shopping inconformitywith the clause 3.5 of the procurement guidelines. Procurement under authorizations, licenses, BOO/BOT/BOOT, Concessions and similar privatesector arrangementswith OBA approach 12. Activities under component Irelatedto the ruralenergy component will be done through an OBA approach. The type of OBA is openand all possibilitiescouldbe incurred.Services under OBA will cover investment cost to a maximumof 70%, andthere will be no payment of subsidies for electricityconsumption. The proposedinstitutionalarrangement rely on: (i)Rural ElectrificationPlanningandProgrammingCommittee(REPPC/COPPER) chaired by MINEE, (ii) ARSEL, (iii)AER, (iv) the financingmechanism (REF)through a designatedaccount inthe centralbank (BEAC); and(v) commercialbanks and/or micro finance institutionthat could provideco-financingto privatesector operators of rural electrificationin case these do not have sufficient capital to contributetheir share of investments.. ARSEL will be responsible for managingthe selection process for the rural energy concessions, licensesandauthorizationswith the collaborationof AER in bid evaluation.The selection of operators may follow two ways: *3 The Operator may be selectedcompetitively under ICB processacceptable to the Word Bank and in accordance with the provisionsof paragraph 3-13(a), 3.14 and 3.15 ofthe Guidelinesfor procurementunder IBRDloans and credits versionMay 2004, revisedin October 2006. Sincethe World Bank as well as Cameroon has no StandardBidding Document (SDB) for this type of procurement,the borrower will preparea Bidding Document (BD).Forthat, the borrower may adapt the World Bank's SDB such as those relatedto "non-consultantservices" or "works and services under Output and performance basedroadcontracts". Inany case, the biddingdocument to be usedwill be preparedby borrowerand submitted to the Bank no laterthan effectiveness. The agreed Standard BiddingDocumentsmay includeseveral stages or may be prepared on post- qualificationbasisusingaward criteria that may deal with: (i) levelof subsidy; and (ii) tariffs of consumer and other pertinentaspects. *:* The Operator may be selectedwithout competition only in the case of an agreement by the Association. Inthat case, goods works and services to be financed by the Bank shall be procured in accordancewith ICB, NCB or shopping procedures(depending on the amount. To that extent, the above thresholdset for goods and works will be used in accordance with the paragraphs3.13 (b), 3.14 and 3.15 ofthe procurement guidelines. 13. The detailedselection process as well as the biddingdocument to be usedwill be reflectedin a proceduresmanualapproved by the Bank and applicableto the managementofthe RuralEnergyFund. 75 Procurementof non-consultingservices 14. Non-Consulting services under this project include maintenance o f the office electronic equipment and other services such as printing, and editing. Non-Consulting services are likely not to exceed the equivalent o f US$50,000 per contract. Procurement o f such services will be done usingprudent shopping procedures in conformity with the clause 3.5 o f the procurement guidelines. Selection of Consultants 15. Consulting services will be for the following activities: (i)technical assistance; (ii) feasibility studies;, (iii)financial and technical audits; (iv) training plan; (v) environmentaland social impact studies, and (vi) resettlement action plan studies etc. These consulting services will be procured with the most appropriate method among the following which are allowed by Bank guidelines and included inthe approved procurement plan: Quality-and Cost-Based Selection (QCBS), Quality-Based Selection (QBS), Selection under a Fixed Budget (SFB), Least-Cost Selection (LCS). Selection Based on Consultants' Qualifications (CQ) will be used for assignments that shall not exceed US$lOO,OOO. Single Source selection shall also be used in accordance with the provisions o f paragraphs 3.9 to 3.13 o f the Consultant Guidelines, with IDA prior agreement. All Terms o f Reference will be subject to IDA prior review. 16. Short lists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 ofthe Consultant Guidelines. 17. Assignments inexcess o f US$200,000, and specialized technical assistance assignments, must be procured on the basis o f international short-lists after appropriate advertisement in UNDBon line, DgMarket and inthe national gazette or a national newspaper or inan electronic portal o f free access. 18. Consultant for services meetingthe requirements o f section V o f the consultant guidelines, will be selected, under the provisions for the Selection of Individual Consultants, through comparison o f qualifications among candidates expressing interest inthe assignment or approached directly. OperationalCosts 19. With respect to services (car maintenance, computers maintenance, etc), the project will procure by service contracting for a defined period. Trainings, Workshops, Seminars and Conferences 20. Training, workshops, seminars and conferences attendance and study tours will be carried out on the basis o f approved annual programs that will identi@ the general framework o f training and similar activities for the year, including the nature o f trainingstudy tours/workshops, the number o f participants, and cost estimates. B. Assessment of the borrower'scapacity to implementprocurement Procurement capacity 76 21. The procurement capacity assessmentconducted by IDA concerned MINEE, ARSEL, EDC and AER. 22. Key issuesand risks concerning procurement for implementationofthe project have been identifiedand usedto preparean action plan(see tables of schedule of actions to be carriedout below). The procurement capacity assessmentsofthe three implementingentities(MINEE, ARSEL, AER) pointedto aweak capacity ofthese three previouslymentionedentitiesand a lack of capacity for the recently createdEDC. 23. The overall projectrisk for procurement is high. 77 a ..e Y c 4 I ..ezf C c 5E c fccc a c z E! 4 &a 5c. .-M c M Y e, .-u C .-M C a, Y 2 a2 a, E 2 m z .- i? Y iE 0 e, 0 Y .-8 k Procurement institutionalresponsibilityand implementationarrangement 24. EDC has only recentlybeencreatedand has a lack of capacity to managethe procurement and other fiduciaries aspects of its parts of projectssubcomponents. Itwas agreedduringthe negotiationsthat EDCwill take over the procurementresponsibilitywhen this entity has acquiredthe requiredcapacity ina satisfactory manner to IDA before crediteffectiveness Likethe other implementingagencies, EDCwill among others hirelappointa procurement specialistsatisfactoryto IDA (See table 10 for detailedactions to be set up by EDC before crediteffectiveness). Therefore, the following executingagencies will have the procurement responsibilityand managementas follows: (i)MINEE for overallprojectcoordination and its part ofthe capacity building component (Component 2); (ii)ARSEL for its part ofthe capacity buildingcomponent andthe procurement responsibilityon the biddingprocess for rural energy concessions, licensesand authorizationsunder the component 1; (iii)EDC for their part ofthe capacity buildingandthe projectpreparation component relatedto Lom Pangar, and (iv) AER for their parts of the capacity buildingcomponent andthe projectpreparation component relatedto the rural energy fund. A manualof procedureswill be draftedin order to outlinethe relevantprocedures includingprocurement applicable to the managementof the RuralElectricity Fund. 25. Regardingthe implementingentities, namely MINEE, AER, ARSEL and EDC, their assessments were conducted before appraisal (see above table ofthe schedule of actions to be carriedout). With the exception of EDC, each entity has its own independenttender board.A procurement specialistwith an acceptable knowledge ofthe World Bank selectionof consultants' procedures has beenappointed by ARSEL. AER has decided to recruit a procurement specialist on a competitivebasis andMINEE will appointor recruit a procurement specialist.The procurement specialists will havethe mainresponsibility for procurement activitieswithin the implementingentities.The specialists of AER and MINEE needs to have acceptable experience in procurement, includingimplementingBank-or donor-financedProjects. EDC will equally recruit/appointa procurement specialist whose qualificationis acceptableto the Bank. 26. Regardingthe evaluationoftechnical proposals for consultingservices assignment, all the Sub- commissions shall evaluate proposals usinga minimumof three specialists inthe sector. 27. MINEE, ARSEL, EDC andAER will be responsiblefor compliance with relevantprocurement procedures.All awards of contracts will be realizedindue respect ofthe government public contract code regardingthe compositionandthe mandatesofthe membersofthe procurement commissions such as: (i) the tender board(Procurement Commission:"Commission depassation des marches"); and (ii)the specialized contracts control board("Commission spe`cialise`esde contrdle des marches 'I),Procuring entities are responsible for ensuring that the necessary nationalclearances and approvals have been received before the No-Objectionrequests are transmittedto the World Bank.Procurement steps at national levelthat needapprovalfrom particularpublic tender boards, with respect to specific price thresholds, will be defined intheir respective ImplementingAgency AdministrativeFinancialand Accountant Manual.For large contracts, ContractingAuthorities shall refer matters to these following specializedcontracts control Boards accordingto the type of contract to be executed, whose priceexceed respectively the following thresholds set hereafter: 0 1 billion CFA francs, equivalentof US$2million for the Specialized Contracts Control Board for Roadsandother Infrastructure; 0 500 million CFA francs, equivalentofUS$ 1 million for the Specialized Contracts Control Boardfor BuildingsandPublic Amenities; 0 150million CFA francs, equivalentof US$300,000for the Specialized Contracts ControlBoard for General Procurement;and 0 100million CFA francs, equivalentof US$200,000 for the Specialized Contracts ControlBoard for Intellectualand other Services. 28. The responsetime for the specialized contracts control boards varies between one to two weeks. 82 ProcurementPlan 29. At pre-appraisal, the Borrower has prepareda procurement planfor project implementation providingthe basisfor the procurement methods. This plan, coveringthe first 18 months of project implementation,has been updated duringappraisal andhas been discussed and agreedupon by the Borrowerandthe projectteam at negotiations.Itwill be available inthe Project's databaseand a summary will be disclosedon the Bank's external website once the project is approved by The World Bank Boardof ExecutiveDirectors.The Procurement Plan will be updated in agreementwith the Project Team annuallyor as requiredto reflect the actual project implementationneeds and improvement in institutionalcapacity. Publication of Resultsand Debriefing: 30. Publicationof results of the biddingprocess is requiredfor all ICBs, LIBs and Direct Contracting. Publicationshould take place as soon as the no objection is received, except for Direct Contractingwhich may be done quarterly and in asimplified format. Publicationof results for NCB and Shopping should follow the requirementsofthe procurementcode of Cameroon.The disclosure of results is also required for selection of consultants.All consultantscompetingfor the assignment should be informedofthe result ofthe technicalevaluation(number of pointsthat each firm received) beforethe openingofthe financial proposals, andat the endofthe selection processthe results should be published.The publicationof results in selection of consultants applies to all methods, however for CQS and SSS the publicationmay be done quarterly and in a simplified format. The publicationmay be done throughClient Connection. Losingbidders/consultants shall be debriefedon the reasonswhy they were not awardedthe contract if they request explanation. Fraud,Coercionand Corruption 3 1. The procuringentity as well as Bidders/Suppliers/Contractorsshall observe the highest standard of ethics duringthe procurement and executionof contracts financedunder the program in accordance with paragraphs 1.15 & 1.16 ofthe Procurement Guidelines and paragraphs 1.25 & 1.26 ofthe Consultants Guidelines. C. Frequencyof Procurement Supervision 32. The capacity assessment ofthe implementingagencieshas recommendedsupervisionmissionsto visit the field at leasttwice a year to carry out post review of procurement actions. D. Technical Audit 33. The projectfinancing and activitiesunder the ruralenergy fund will be subject to technicalaudits. These should be conducted, at 100%contracts on an annual basis by independentauditors recruitedby the RuralElectrificationPlanningand ProgrammingCommittee (REPPC). Besidesthese technical audits, AER may order andmanagerandomcontrols of the execution ofthe rural electrificationfund management.During project implementationand upto two years after the closingdate ofthe Financing Agreement, all documentation with respectto each activity carriedby an implementingagency shall be kept for examination. 83 E. Detailsof the ProcurementArrangements 1. Works, Goods, and NonConsultingServices (a) List ofcontractpackagesto be procured: 3 Estimated Review Expected cost Contract (US$ 000 (Prior / (Description) equivalent) 220 Prior computing nal March 2009 equipments for Competit 2009 ive Bidding I (ICB) Supply of I 1 computing equipment for 333 ICB NO No Prior March July 2009 2009 34. (b) ICB Contracts estimatedto cost above US$500,000 for works and US$200,000 for goods per contract, the first three NCB contracts through each implementingentity, all Direct Contractingwill be subject to prior reviewby the Bank, the first three Sub-projectGrantAgreementsto be signedwith an Operator, andeach Sub-projectGrantAgreementto be signedwith an Operator estimatedto cost the equivalentof $500,000 or more.. 2. ConsultingServices List of consultingassignmentswith selectionmethods and time schedule. 1 2 3 4 5 6 7 Estimated Review Expected cost by Bank Proposals Comments/ Ref. (USSO00 Selection (Prior / Sub- Completion No. Descriptionof equi- Method Post) mission Date Assignment valent) Date March October and Cost Based Selection distribution 2 Master planofthe oil delivery relatedto the production,the storage, the distributionand 84 Implementation of a 122 QCBS Prior June 2009 December systeminformation tool 2009 for the regulation ofthe energy sector Accounting and 556 LCS Prior October April 2009 financial audit of AES 2008 SONEL (2007-2011) 5 Hydrological resources 500 QCBS Prior August February200 inventory study 2009 9 6 Update of PDSE 2030 1,111 QCBS Prior August February 2008 2009 7 Update of the EIAs for 450 QCBS Prior Year 1 November the regulatingdams of 2009 Mape, MBakaou and Bamendjin 8 Institutional and legal 222 QCBS Prior May 2009 September audit o fthe energy 2011 sector (electricity, oil and gas) 9 Accounting audit 200 LCS Prior October June 2009 2008 10 Climate change study 100 QCBS Prior October June 2009 2008 11 Training plan of October MMEE 111 QCBS Post 2008 June 2009 12 Studies for the 500 QCBS Prior February November optimization of the 2009 2009 installation of the river Sanaga (5 sites/reservoirs) 13 Technical Assistance to ARSEL for defining the access rules to the August electricity transmission 161 QCBS Prior 2008 April 2009 network (Regulatory framework) 14 Manual of procedures 103 September of sector regulation QCBS Prior 2008 March 2009 15 Study ofthe 400 hydroelectric QCBS Prior Year 1 March 2009 transmission network 16 Accounting financial and technical audit for December December the project (First 2 200 QCBS Prior 2008 2010 vears) 17 Study on database of September AER for rural energies 100 QCBS Prior 2008 May 2009 18 Review of key contracts in the energy August sector (Alucam/AES 100 QCBS Prior 2008 January 2009 SONEL, etc.. .) 85 19 Study on resettlement December actionplanfor LPHP 100 JCBS ?rior 2008 luly 2009 ~ 20 Environmental and social cumulative 200 ?CBS Prior February Vovember impact study for LPHP 2009 2009 21 Study on project affectedpeople for 200 Prior July 2009 Yovember LPHP 2010 22 Study on forest January November management 100 ?CB S Prior 2009 2009 23 Detailed study of the Lom Pangar dam February November reservoir and 200 QCBS Prior 2009 2009 transmission line 24 Elaboration of the ~ Environmental and March November Social Management 300 QCBS Prior 2009 2009 Plan "ESMP" for LPHP 25 Update of rural 500 QCBS Prior August April 2009 electrification master 2008 plan 26 Additional public 100 QCBS Prior February October consultations of the 09 2009 update of "EN" o f the LPHP 27 Financingof 500 QCBS Prior January March 2010 independentexpert 2009 panels for LPHP 28 Impact of oil spills into 150 QCBS Prior February March 2009 the LPHP reservoir 2009 29 Technical assistance to 1,500 QCBS Prior April 2009 June 2010 EDC on LPHP project preparation (engineering firm) 30 Implementation of an ~ information system on the water basins and 150 QCBS Prior January September dynamic databases 2009 2009 (hydroelectric aspect) 31 Study and preparation of the legal framework for the water management of 150 QCBS Prior January November hydropower stations by 2009 2009 an independent commission 32 Study on the national 400 QCBS Prior Febrary November inter-connected 2009 2009 transmission networks 34 Pre-feasibility studies 250 QCBS Prior March November or update of the sites o f 2009 2009 the mini hydropower plants 35 Update o f the 250 QCBS Prior March November 86 hydrographic databases 2009 2009 of the hydrologic basins inCameroon 36 Update of the National 1222 QCBS Prior August April 2009 energy plan (PEN) 2008 37 Study on the strategic August role o f gas inelectricity 222 QCBS Prior 2008 April 2009 38 Assistance to AER for September project identification 306 QCBS Prior July 2008 2009 39 Elaboration o f detailed studies and bidding 1000 QCBS Prior September November documents for the REF 2008 2009 40 Assistance to AER on Project evaluation 700 QCBS Prior June 2008 January 2011 41 Supervision and control of iura1energy project 800 QCBS Prior May 2009 September execution 2011 42 Information campaign for rural energy 133 QCBS Prior June 2011 January 2012 43 Elaboration of standard and norms for the 100 QCBS Prior September February security in electricity 2008 2009 44 Investment program October control of AES SONEL 111 QCBS Prior July 2008 2009 45 Annual control the concession and license 167 QCBS Prior June 2008 March 2009 contracts 46 Economic and financial impact analysis of the withdrawal of the September regulating dams from 178 QCBS Prior 2008 March 2009 AES SONEL's concession 47 Evaluation of 5 years business plan for AES 167 QCBS Prior September March 2011 SONEL (2007-201 1) 2008 48 Tariff model for transport and access to 222 QCBS Prior September March 2009 transport network 2008 49 Economical and financial model for the September monitoring o f the 267 QCBS Prior 2008 March 2009 enerm sector 50 Implementation of an information system related to energy (for 100 QCBS Prior June 2008 April 2009 the regulatory aspects) 35. Consultancy services estimated to cost ab0v.eUS$lOO,OOO for firms and US$50,000 for individuals per contract, and Single Source selection of consultants (firms and individuals) will be subject to prior review by the Bank, as well as the first three contracts o f consulting firms and the first three contracts of individual consultants regardless of contract amount to be procured by each implementing entity. 87 36. Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely of national consultants inaccordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 88 Annex 9: EconomicAnalysis CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT 1. Since the specific rural energy (RE) projects are inthe process of beingidentified, two simulationswere carriedout to test the economics of REprojectsby grid extension, which are the most likely to be implementedfirst inthe early years ofthe REprogram, and by a mix oftechnologies(grid extension, isolatedand individual systems. The simulationsuse currentdata as well as data available in the 2001 RuralElectrificationMaster Plan. I.Domestic,commercialandindustrialconsumersconnectedthroughgridextensions 20 extensions over a five year period Each electrification: 250 households (6 persons per household). Furthermoe, a number of commercial and industrial consumers (small shops, and a few industries such as rice processing, saw mills, iron works, handicrafts, etc.) will also be connnected. It has been estimated that their number would be about 5% that of connected households. Their monthly consumption is conservatively estimated as similar to that of connected households. Households Commercial BulkSupply Year Connected Domestic 8 Industrial Total Requirements (a) kWh kWh kWh kWh 2010 500 240000 12000 252000 264600 2011 1500 720000 36000 756000 783800 2012 2500 1200000 60000 1260000 1323000 2013 3500 1680000 64000 1764000 1852200 2014 5000 2400000 120000 2520000 2646000 2015 5000 2400000 120000 2520000 2646000 2016 5000 2400000 120000 2520000 2646000 2017 5000 2400000 120000 2520000 2646000 2018 5000 2400000 120000 2520000 2646000 2019 5000 2400000 120000 2520000 2646000 2020 5000 2400000 120000 2520000 2646000 2021 5000 2400000 120000 2520000 2646000 2022 5000 2400000 120000 2520000 2646000 2023 5000 2400000 120000 2520000 2646000 2024 5000 2400000 120000 2520000 2646000 2025 5000 2400000 120000 2520000 2646000 2026 5000 2400000 120000 2520000 2646000 2027 5000 2400000 120000 2520000 2646000 2026 5000 2400000 120000 2520000 2646000 2029 5000 2400000 120000 2520000 2646000 2030 5000 2400000 120000 2520000 2646000 (a) Bulk supply total sales x 1.05 (based on approximately 5% losses in RE networks) Average monthly consumption per household 40 kWhlmonth Annual savings due to electric lighting Electricity Kerosene Wiring Costs 50000 FCFA 6135 FCFA One storm Lamp annuitizedover 10 years@lO% 2500 FCFA annuitizedover 10 years@lO% 407 FCFA FCFA 250 per bulb Fuelcost of 480 kWh equivalent of and a life of 1000 hours 2190 FCFA Kerosene at 95FCFNkWh 45600 FCFA Costof 460 kWh at 50 FCFAlkWh 24000 FCFA Total Cost 34325 FCFA Total cost 46007 FCFA Annual cost savlng = 11682 FCFA per household or 25.96 US0 per household 89 Project components and Costs US$ per connectlon Item Foreing Costs Local Costs Local Costs Total Costs Domestic Border Border With 70% Prices Prices (a) Prices Subsldy Invest. Cost per household 900 10 8.5 908.5 273 (a) Border price domesticprice x local costs conversion factor (10.65) 0.08 Usdollarlkbulk supply 0.2 Usdollarlksales price (WTP) Capital Cost Bulk Kerosene Year $ Supply Total Value of savings total Net Benefits cost sales s $ $ 2010 143089 21168 164257 50400 12980 63380 -100877 2011 429266 63504 492770 151200 38940 190140 -302630 2012 715444 105840 821284 252000 64900 316900 -504384 2013 1001621 148176 1149797 352800 90860 443660 -706137 2014 1430668 211680 1642568 504000 129800 633800 -1008768 2015 211680 211680 504000 129800 633800 422120 2016 211680 211660 504000 129800 633800 422120 2017 211680 211680 504000 129800 633800 422120 2018 211680 211680 504000 129800 633800 422120 2019 211680 211680 504000 129800 633800 422120 2020 211680 211680 504000 129800 633800 422120 2021 211680 211680 504000 129800 633800 422120 2022 211680 211680 504000 129800 633800 422120 2023 211680 211680 504000 129800 633800 422120 2024 211680 211680 504000 129800 633800 422120 2025 211680 211680 504000 129600 633800 422120 2026 211680 211680 504000 129600 633800 422120 2027 211680 211680 504000 129800 633800 422120 2028 211680 211680 504000 129600 633800 422120 2029 211680 211660 504000 129600 633800 422120 2030 211680 211680 504000 129800 833800 422120 pr~vnaioo/c 221189 2. 11: Simulation for about 10,000 consumers over a three-year period. About 1700 other consumers, including schools, health centers, and small shops have also beentaken into account. Type of consumer Example of use of electricity Maximum tariff (US$/month) Very small 3 light bulbs + radio 8 to 11 Small 5 light bulbs + radio or 13 to 17 radio/tape player Average +8 black and white TV light bulbs radio/tape player + 18 to 22 Larger Lighting, audiohide0 + some 7 to 9 capacity charge appliances/small machine tools, and 14to 16 UScentskWh etc. Technology Number of villages/towns Number of residential consumers after 3 years Extensionof MV network 23 6000 Isolated network 14 3600 Photovoltaic systems 400 Total 10000 90 Type of consumers Distribution Verv small 50% Small 20% Average 10% Financialindicators Project cash flow MI ource: MARGE consulting 91 II: 20 extensions over a five year period Each electrification 250 households 8 persons per household At the end of the fifth year, there would be 5000 households connected through the grid (or 40.000 persons) Households Bulk Supply Year Connected (a) Domestic Total Requirements (b) kWh kWh kWh 2010 500 20000 20000 20000 2011 1500 60000 60000 60000 2012 2500 100000 100000 100000 2013 3500 140000 140000 140000 2014 5000 200000 200000 200000 2015 5100 204000 204000 204000 2016 5202 208080 208080 208080 2017 5306 212242 212242 212242 2018 5412 216486 216486 216486 2019 5520 220816 220816 220816 2020 5631 225232 225232 225232 2021 5743 229737 229737 229737 2022 5858 234332 234332 234332 2023 5975 239019 239019 239019 2024 6095 243799 243799 243799 2025 6217 248675 248675 248675 2026 6341 253648 253648 253648 2027 6468 258721 258721 258721 2028 6597 263896 263896 263896 2029 6729 269174 269174 269174 2030 6864 274557 274557 274557 (a) Growth of connections is assumed to be 500 per year from 2010 tp 2014 and 2% per year from 2015 to 2030 (b) Bulk supply = total sales x 1.05 (based on approximately 5% losses in RE networks) Average monthly consumption per household 40 kWhlmonth Annual savings due to electric lighting Electricity Kerosene Wiring Costs 50000 FCFA 8135 FCFA One storm Lamp annuitized over 10years@lO% 2500 FCFA annuitizedover 10 years@lO% 407 FCFA FCFA 250 per bulb Fuelcost of 480 kWh equivalentof and a lifeof 1000hours 2190 FCFA Keroseneat 95FCFAlkWh 45600 FCFA Cost of 480 kWh at 50 FCFNkWh 24000 FCFA Total Cost 34325 FCFA Total cost 46007 FCFA Annual cost saving 11682 FCFAper household or 25.96 US$ per household 92 Projectcomponentsand Costs US$ per connection Item Foreing Costs Local Costs Local Costs Total Costs Domestic Border Border With 70% Prices Prices (a) Prices Subsidy Invest. Cost per household 100 10 8.5 108.5 33 (a) Border price = domestic price x local costs conversion factor (=0.85) 0.04 Usdollarlkbulk supply 0.21 Usdollar/ksales price (WTP) Capital Cost Bulk Kerosene Year $ Supply Total Value of savings total Net Benefits cost sales $ $ $ 2010 16275 800 17075 4200 12980 17180 105 2011 48825 2400 51225 12600 38940 51540 315 2012 81375 4000 85375 21000 64900 85900 525 2013 113925 5600 119525 29400 90860 120260 735 2014 162750 8000 170750 42000 129800 171800 1050 2015 166005 8160 174165 42840 132396 175236 1071 2016 169325 8323 177648 43697 135044 178741 1092 2017 172712 8490 181201 44571 137745 182316 1114 2018 176166 8659 184825 45462 140500 185962 1137 2019 179689 8833 188522 46371 143310 189681 1159 2020 183283 9009 192292 47299 146176 193475 1182 2021 186949 9189 196138 48245 149099 197344 1206 2022 190688 9373 200061 49210 152081 201291 1230 2023 194501 9561 204062 50194 155123 205317 1255 2024 198391 9752 208143 51198 158225 209423 1280 2025 202359 9947 212306 52222 161390 213612 1306 2026 206406 10146 216552 53266 164618 217884 1332 2027 210534 10349 220883 54331 167910 222242 1358 2028 214745 10556 225301 55418 171268 226686 1385 2029 219040 10767 229807 56526 174694 231220 1413 2030 223421 10982 234403 57657 178188 235845 1441 NPV@lO% 7733 93 Annex 10: SafeguardPolicyIssues CAMEROON:ENERGY SECTORDEVELOPMENTPROJECT 1. GOC is conscious of the environmental and social implications of energy investment projects and has requestedthe World Bank assistancein managing them with in accordancewith the World Bank safeguard standards. At the same time, GOC has recognized the importance o f strengtheningnational environmental and social safeguard policies and their implementation. The World Bank will provide technical assistance for this objective under the parallel Environmental and Social Capacity Building Project for the Energy Sector Project 2. This annex lays out how compliance with World Bank safeguards will be ensuredfor the activities included inthis project, namely (i)the rural energy fund and (ii)the technical assistanceand studies financed for the preparatory activities o fthe LPHP. (i)RuralEnergyFund 3. The project primary objective is to raise the standards of living in rural and peri-urban areas where the majority o fthe population lives. Access to modern sources of energy is expected to have a positive social impact on the local population and the local economy: (i)providing both direct (and indirect) sources of employment during the construction and operation phases - the majority of workers will be locally recruited; (ii)leading to improvements in local infrastructure; and (iii)improving access to modern sources of energy particularly for poor rural families. The project outcome is also expected to lead to more social inclusion and increasedequity between urban and rural areas. 4. Duringthe preparation ofthe 2001 Rural ElectrificationMaster Plan, a series of informal consultations in rural and peri-urban areas across the country were conducted. The local population viewed rural electrification as an asset given its employment generation potential and improved availability of electricity to raise the standards of living. 5. A potential negative social impact ofthe project may be that not all rural or peri-urban dwellers will have the capacity to access electricity and modern sources of energy, despite in-built incentives to provide access to the largest number of people. Project selection criteria of the Rural Energy Fund will include equity aspects to reduce this risk. 6. Environmental impacts are expected to be minor due to the very small scale o f projects, decentralization of the energy production and use renewable of energy sources. Ifone were to take into account the reduction in carbon emissions, these impacts may be positive at the global level. 7. Since the sites of the future sub-projects are not yet known, an Environmental and Social Management Framework (ESMF) has been prepared: (i)to establish mechanisms to determine and assess future potential environmental and social impacts; and (ii)to put inplace mitigation measuresto be taken into account inthe design, construction and operation of the sub-projects to reduce, offset or eliminate adverse environmental and social consequenceso f sub-projects. The ESMF identifiesspecific steps involved inthe environmental and social assessment process and gives examples of specific impacts to assist stakeholders with the process of conducting an environmental and social assessment. A Resettlement Policy Framework (RPF) has also being prepared to deal with cases where the Bank policy i s triggered by any sub-project financed by the REF under the project. The ESMF and RPF have been publicly disclosed in Cameroon and at the World Bank's InfoShop. 94 8. To build its capacity for handlingenvironmentaland social issues, AER will recruit an environmentaland social specialist to screen privaterural energy operators' proposals from the environmentalpoint of view and make sure that the ESMF is properly applied in case any Bank environmentaland socialpolicy is triggered. AER will be assistedby consultants inthe evaluationof proposals to ensurecompliance with the ESMF andAER will also assist operators in formulatingtheir proposal from an environmentaland socialperspective. 9. Compliance with the ESMFand RPF is a conditionfor subproject financingby the REF. The World Bank team will work closely with AER to ensure adequatecapacity buildingfor AER to apply World Bank safeguard rulesandto train operators. (ii)PreparationsoftheLornPangarProject(LPHP) 10. No commitmentby the World Bank Group is made at this stage to fund the constructionof LPHP. Furtherthe World Bank participationinthe LPHPwill dependon verification that LPHP is sustainable in all its aspects andthe associatedrisks are manageableand any further engagementof the World BankGroup in LPHPwould requirethe elaborationof a decisionmakingframeworktogether with GOC. 11. Regarding the LPHP, this projectonly finances preparatory activities for the LPHP. These activities do nottrigger any safeguardpolicies. However,the potentialconstructionof LPHPwould trigger 7 out of the Bank's 10 safeguard policies. Giventhe sensitivity of the project and for the benefit of transparency, they are beingdiscussedand disclosed as part ofthis projectdocument. 12. The constructionof LPHPwould trigger 7 World Bank safeguard policies(environmental assessment, critical naturalhabitat, forests, indigenous peoples, involuntary resettlement, physicalcultural resources, and safety of dams). These andassociated risks of LPHP includethe fact that the construction of LPHPwill: Floodabout 5 kmof the Chad Cameroonpipeline(requiring about 12km ofthe pipelineto be modified), creatingthe risk of an oil spill intothe reservoir; Increaseelectricity supply to AES SONEL, which distributespower in its concessionarea, includingto the aluminum industry which is Cameroon's single biggest electricity customer. This creates the challenge to ensurethat benefitsof LPHPare appropriately shared between the Camerooniansand the internationallyowned aluminum industry; Flooda small portionof the DengDengForest Reserve. Avoidance of the DengDengForest Reservehadmotivatedadecisionby the World Bank Groupto requirea re-routingof the Chad-CameroonPipeline. However, basedon availableinformationthe areas flooded do not include any critical naturalhabitat, includingcritical habitats for endangered large primates (gorillas and chimpanzees); Require the loggingof riparianforest alongthe Lom and Pangarrivers, and induce opportunitiesfor illegal logginginthe areas surroundingthe future reservoir unless control measuresare put in place; Require the monitoringof downstreamwater quality andthe impacton fisheries as the basis of local livelihoods; Require the resettlement of an estimated250 people livingin 13 encampments andthe loss of landfor use by communitiesfrom the formation ofthe reservoir. The baselineofproject affected people has yet to be established, but may amount to as many as 10,000 affected people(including nomadic tribes); and 95 (vii) Give riseto social risks associatedwith LPHPconstruction,includingcompensation issues, potentialtensions, safety issuesandthe influx of healththreats, such as HIV/AIDS from the influx of constructionworkers. 13. Inthe absence ofa dedicatedcounterpartonthe side ofthe GOC beforethe creationofEDC, projectpreparationshave encounteredsignificantdelays and several importantenvironmental, socialand technicalstudies have not yet beencompleted. Inaddition, GOC's track recordto manageenvironmental and socialsafeguards inother large scale energy investment projectshas beenmixed, as illustratedby its weak capacity to monitor the implementationofthe Environmentaland SocialManagementPlanofthe Chad CameroonPipeline. Recognizingthese challenges, GOC has requestedIDA funding as part ofthe proposedprojectfor technical assistance to complete preparations ofLPHP inaccordancewith World Bank safeguardguidelines. 14. GOC has already undertaken several studies in compliance with World Bank safeguards standards. With financing from AFD, a comprehensive EnvironmentalImpactAnalysis (EM) in 25 volumes has beencarriedout in 2005 and is publishedon the EDC website (www.edc-cameroon.com). Publicconsultations on the E M have been held in 2006. Followingthe review ofthe EM, the World Bank requestedadditionalstudies on large primates and alternativeaccess routes which have beencarried out in2006/7. In line with internationalbest practice and World Bank guidelines, GOC has appointed an environmentaland socialanddam safety panel. Bothpanels have started work and publishedtheir studies on the IUCNwebsite (http://www.iucn.org/en/projects/cameroon_lomgangar.htm). 15. More recently,GOC has acceleratedmeasuresto ensure adequate protectionof the DengDeng forest througha moratoriumon the transport of illegally loggedwood from the forest andthe recruitment of eco-guards financed by AFD. As part of IDA'S ForestryandEnvironmentalDevelopmentProgram (PSFE) a comprehensive action planhas beenestablished for the protectionof the DengDengforest, includingmeasuresto declare the area a sanctuary. 16. At the requestofthe World Bank, GOC has equally carried out a study on the economic benefits of the aluminumindustrywhich is publishedon the EDCwebsite (www.edc-cameroon.com). 17. Technicaland environmentalstudies for the requiredadaptation ofthe ChadCameroon pipeline have equally beencarriedout and are inthe process of beingupdated. 18. To facilitate the completionof outstanding preparatory studies andrelatedactivities for the LPHP in line with World Bank guidelinesand safeguards, the proposed projectwill: (i) Providefinancing for outstanding environmentaland social studies, including a. a baselinesurvey of affectedpeople b. a cumulativeenvironmentalimpactassessment c. a forestry managementprotectionplan d. a regionaldevelopmentplan 19. These studies will needto be completed before the AFD-financedEnvironmentaland Social ManagementPlan (ESMP) and ResettlementAction Plan(RAP) can be finalized. All studies including the ESMPand RAPwill be subject to public consultationsand will bedisclosed locally andon EDC's website; 96 (ii) Ensurefinancingfor the ongoingwork ofthe environmentaland social and dam safety panel. All studies conductedby the panelwill be disclosed on the TUCN website (www.iucn.org); (iii) Providefinancingandtechnicalassistanceto conduct further analysesrequiredto achieve fair and transparent pricing for power andwater for all consumers, includingthe aluminum industry; (iv) Ensure financingandtechnicalassistanceto finalize biddingdocuments and ensure that environmentaland social mitigationmeasuresare includedinthe cost ofthe projectand biddingdocuments; and (v) Providefinancingandtechnicalassistancefor a comprehensive communicationand consultationstrategy by all GOC stakeholders (EDC, MJNEE, ARSEL). 20. The World Bank has developed a comprehensive communicationstrategy to explain its approach to energy sector interventionsand its planned support to preparatory activities for the LPHPto civil society, NGOs and other stakeholders. The communicationswork undertakento date has focused mainly on the primary audience within the country andto some extent on internationalCSOs and NGOswho have followed the proposedprojectin Cameroon. The following communicationactions have already beenundertaken: Support for the preparationand disseminationof analytical work on political economy issues around the project; for example, sustainable management ofthe DengDengforest andthe pricing of powerfor the aluminum industry; Promotionof proactive,open consultationwith stakeholders includingCSOs andNGOs. For example: (a) the CameroonMinistry of Environmenthas heldconsultations with civil society and project-affectedpeople as partofthe project'senvironmentalimpact assessment; (b) in February 2006, the electricityregulator,ARSEL, held formal consultations with the generalpublic about the project; (c) meetingswere held inNovember2007 at the Bank office inYaounde with CSOs to discuss the Bank's energy work in Cameroon; (d) inearly April 2008, a consultationamong donors, Government and CSOs was organizedto review options for expanding electrificationin Cameroon; and(e) a consultationon the proposed LPHP was conductedwith several CSOs and NGOs in April 2008 in Yaounde; and Communicationon the scope and objectivesofthe Bank safeguard policieswhich the Government is usingas a reference point for the study program, since they provide internationally recognizedenvironmentaland socialstandards and proceduresfor public consultationand disclosureof information. 21. As part ofthe proposed project,the Bank will support all GOC stakeholders, includingMINEE, EDC andARSEL, in developingand implementinga comprehensivecommunicationsstrategy for the proposed LPHPthat will target the following key audiences: (a) Camerooniandecisionmakers and public, particularlyconcerned localgovernment andproject-affectedcommunities; (b) CSOs andNGOs at the national, regionaland internationallevel; (c) local, regionaland internationalnews media; and (d) internationalparliamentarians and membersof governments who have expressedconsiderable interest in the project inthe past. 97 Annex 11: ProjectPreparationand Supervision CAMEROON: ENERGY SECTOR DEVELOPMENTPROJECT Planned Actual PCN review 03119/2QQ7 03/19/2007 Initial PID to PIC 02/05/2007 07/03/2007 Initial ISDS to PIC 02/05/2007 07/03/2007 Appraisal 03I2712008 04/16/2QQ8 Negotiations 0411812008 05/28/2008 Board Approval 06/24/2008 06/24/2008 Effectiveness 12/24/2008 Planned date of mid-termreview 11/24/2010 Planned closing date 04/30/2013 Key institutionsresponsible for preparation of the project: 0 MinistryofEnergy and Water (MMEE); 0 Electricity Development Corporation (EDC); 0 Electricity Regulatory Agency (ARSEL);and Rural ElectrificationAgency (AER). Bank staff and consultants who worked on the project included: Name Function Astrid Manroth Task Team Leader, Energy Specialist Tjaarda Storm van Leeuwen Lead Financial Analyst NoureddineBouzaher Senior Energy Economist Ahoulou Aka Power Engineer, Consultant Koffi Ekouevi Senior Economist Alessandro Palmieri Lead Dam Specialist Emmanuel Noubissie Senior Country Officer Yves Prevost Senior Environment Specialist Robert Robelus Environment Specialist, Consultant Mohamed Arbi Ben-Achour Senior Social Scientist Kouami Messan Procurement Specialist Fridolin Ondobo Financial Management Specialist Aissatou Diallo Finance Officer Nathalie Munzberg Senior Counsel Christopher Walsh Communication Specialist Abdoulaye Seck Senior Economist Rita Ahiboh Program Assistant (Project Processing) Raima Oyeneyin Language Program Assistant Laurence Hougue Bouguen Team Assistant Saturo Ueda Water Resources Management Specialist Estimated Approval and Supervision costs: 1. Remainingcosts to approval: $ 50,000 2. Estimated annual supervision cost: $ 150,QQQ 98 Annex 12: Documentsinthe ProjectFile CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT REFERENCES: Component1 : Rural Energy Fund Cameroun : Etude de Plan Directeur Electrification Rurale - Synthkse, Lahmeyer International,2001 Republique du Cameroun Plan National Energie pour la Re'duction de la Pauvrete' (PANERP), Decembre 2005, ESMAP/UNDP/The World Bank Mise en Place d 'un Fonds d 'EnergieRurale, RapportProvisoire, Margeconsultants, Fevrier2008 RepubliqueduCameroun, Projetde DCveloppementdu Secteur de l'Energie, Cadre de Gestion Environnementaleet Social, Fevrier2008 RepubliqueduCameroun, Projetde Developpementdu Secteur de 1'Energie, Cadre de Politique de Recasement,Fevrier2008 Component2 : CapacityBuilding Capacity building action planand procurement plan, MINEE Capacity building action planand procurementplan, ARSEL Capacity building action planand procurement plan, AER Capacity building actionplan and procurement plan, EDC Component3 : Projectpreparation including LPHP Avant-projetDetail16de 1'Amenagement Hydroelectriquede Lom Pangar, Loin Pangar, Etudes Economiques et Financieres, Coyne Bellier, Janvier 2008 Etude Economique du Projet de Centrale Thermique au Gaz de Kribi, Rapport Final, SOGREAH, Octobre 2007 Etude d 'Impact Economique et Social de la Filikre Aluminium au Cameroun, Rapport Final, Prescriptor, Avril2008 Etude Environnemental du Barrage de Lom Pangar, 24 Volumes, ISD, Oreade-Breche, 2005, www.edc- cameroon.com Etude Environnementale du Barrage de Lorn Pangar, Republique du Cameroun, Commentaires de la BanqueMondiale, Decembre 2005 Etude Environnemental du Barrage de Lom Pangar, Optimisation de la capacite' de la retenue, ISD, Oreade-Breche, SOGREAH, Juin 2007 99 Etude Environnemental du Barrage de Lom Pangar, Analyse des Impacts et Proposition de Mesures Compensatoires en Vue de l'lnstallation des Equipements et des Cites de Chantier en Rive Droite du Lom,,ISD, Oreade-Breche, SOGREAH, Juin2007, www.edc-cameroon.com Etude Environnemental du Barrage de Lom Pangar, Etude Comple'mentaire Visant Renforcer Les Connaissances des Grands Primates en Foret de Deng Deng, ISD, Oreade-Breche, SOGREAH, Mars 2007, www.edc-carneroon.com L'Ame'nagement de Lom Pangar, Adaptation de 1'0le'oduc Tchad-Cameroun, Comparaison Technico- e'conomique et Environnementale entre les diverses solutions pour 1'adaptation de 1'0le'oduc et de ses iquipements, Rapport Provisoire,Coyne et Bellier, Septembre 2006, w.edc-cameroon.com Projet du Barrage de Lom Pangar, Republique du Cameroun, 1'Analyse de 1'Avant-Projet Detaille, Rapport du PanelTechnique d'Experts Independants,L'Union Mondialepour laNature, Janvier 2008 Republique du Cameroun, DCcret No. 2006/406 du 29 Novembre 2006 portant creations de la societe ELECTRICITY DEVELOPMENT CORPORATION 100 Annex 13: Statement of Loans and Credits CAMEROON: ENERGY SECTOR DEVELOPMENT PROJECT Proiect ID FY PurDose IBRD IDA SF Grant Cancel. Undisb. Oria. Frm Rev'd ~~ ~~~~ ~~~ ~ ~~ PO48204 2000 (Pipeline) CM-CAPECE Env Oil TA (FYOO) 0.00 5.77 0.00 0.00 0.00 1.07 0.45 O.O0 PO73629 2004 CM-Com Dev Prog Sup APL (FY04) 0.00 20.00 0.00 0.00 0.00 7.96 -1.40 0.00 PO74490 2003 CM-Douala Infrastructure(FY03) 0.00 56.35 0.00 0.00 0.00 36.00 15.32 4.65 PO75964 2005 CM-Edu Dev CB (FYOS) 0.00 18.20 0.00 0.00 0.00 15.91 7.61 0.00 PO70656 2006 CM-Forestry & Env DPL (FY06) 0.00 25.00 0.00 0.00 0.00 15.96 -0.24 0.00 PO65927 2000 CM-PubPriv Partnership & Growth (FYOO) 0.00 20.90 0.00 0.00 0.00 6.28 4.70 4.70 PO54786 2003 CM-Railway Concession SIL (FY03) 0.00 21.39 0.00 0.00 0.00 4.48 0.63 0.00 PO84002 2007 CM-Urban and Water D. SIL (FY07) 0.00 80.00 0.00 0.00 0.00 84.27 2.27 0.00 PO73020 2006 Forest& Env DPL (FY06) 0.00 0.00 0.00 10.00 0.00 6.20 0.00 0.00 PO89289 2006 GEF Sst AgroPastor & Land Mgmt (FY06) 0.00 0.00 0.00 6.00 0.00 5.03 0.00 0.00 Total 0.00 247.61 0.00 16.00 00.00 16.00 183.17 9.35 CAMEROON STATEMENTOF IFC's Held and DisbursedPortfolio In Millions of USDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2006 Aef 3t Cameroun 1.32 0.00 0.00 0.00 1.32 0.00 0.00 0.00 2000 Aef Hobec 0.53 0.00 0.00 0.00 0.22 0.00 0.00 0.00 2005 Aef Nosa iii 1.15 0.00 0.00 0.00 0.68 0.00 0.00 0.00 1996 Aef Notacam 0.99 0.00 0.00 0.00 0.99 0.00 0.00 0.00 2006 Aes Sonel 100.92 0.00 0.00 0.00 3 I.58 0.00 0.00 0.00 2000 Bicec 0 0.90 0.00 0.00 0.00 0.90 0.00 0.00 2000 Cotco 40.64 0.00 0.00 40.64 40.64 0.00 0.00 40.64 2008 Fme-Gaz 2.74 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998103 PectenCameroon 27.57 0.00 0.00 36.06 27.57 0.00 0.00 36.06 Total Portfolio: 175.86 0.90 0.00 76.70 103.00 0.90 0.00 76.70 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2000 AEF Complexe I1 0.00 0.00 0.00 0.00 101 Annex 14: Countryat Glance Cameroon at a glance 91?&07 sub- Lcw- POVERTYaod SOCIAL Saharan middle- Cameroon Africa I~cwna Deueioomrnt diamond' 167 770 2276 1 U e expectancy i ao 842 2,637 848 4.635 T 1 9 2.4 0.9 19 2.8 1.4 GNI Gmss per primary C a p i t a enrollmenk 40 55 46 L ar i a Arne= to hprovedwater 66 68 59 a9 117 92 113 126 98 i t 7 107 816 114 is36 2005 m Eeonomla ralios' 9 1 16.4 18.3 154 48.1 184 225 23.2 26.0 Trade 173 15.9 27.3 11 2 14.5 I 7 3 41 -34 -OB 26 1 4 DOtneSbC Cap& 1079 42 4 savings f m a ? m 24 6 19 9 2 6 11 0 2005 2006 2006-10 2 0 3 8 4 6 a 3 15 26 01 1 9 50 STRUCTURE dthe ECONOMY $986 1996 2005 2006 mofGDF7 G r w t h of CJFI~JI OOP iU1 and AgricMure 22 4 41 3 20.2 199 33 lndusby 33 6 227 31.4 33 2 M fdrcnufscturing 124 102 (8.3 i a I 12 Sewices 44 0 360 48.4 46 9 0 Householdfinal mnwinpmiexpenditure 62 7 74 2 73.7 72 2 -lC Generalgov't fine3 mnsurnptmexpenditure 113 A4 10.4 105 lmpotlsof p o o hand servzces 22 7 m5 25.4 167 1986-96 199646 2005 2006 I (areregea m 4gmt!?) Growth of exports and imports (%) I 4riculture -3.1 4.4 3 0 Industry 6123 13.5 0.5 2.3 Manutaetunng -2 0 17.9 4.0 4.7 %races 3 7 3.4 6.7 5 5 Hodlaehddh a 4cnnsumptmnexpenditure -2 6 5.1 7.3 3I a O Generalgov't fmel cnnsurnpmnexpenditure -1 9 5.6 30.4 Gross cajntalfamswn 93 7.6 3.3 26.2 lmporrsof goodsandservtces 4 0 8.9 23.3 104 Note 2-306 dolo are preliminor, esNoate5 Tha lab&was producedfrom the Develapiwnt comicsLDB dababase *The d i e m s s hfour heyMdicBtorsin 8~ cwnny (inhklicmiperedvnth its incme-group evernge Ifdata are nilssang the dmrnmdwil be incomplete 102 PRICES and GOVERNMENT FINANCE 1986 1996 2005 Dotneatic prices lss chsnge9 5 Consumer pncea 7 8 3 9 2.0 Implicit GDP &Rator 0 2 5 5 4.7 3 7 ; Government finsnce 1 (96 of GDP, Ebckfes cumnl grantsj 0 Cwent revenue 21 4 106 12.2 39 2 Cwent budgetbalance 10 3 -0 I 5.0 Owrat1surpiuddeftcit -12 -54 2.7 TRADE 1986 1996 2005 (US%nxlbns] Total exports (fob) 2,043 1.605 2 861 016andrefinedwI 1.228 57I 1.446 Cecoe beans,Mer, cake 274 247 246 Manufacture 253 302 Total imports (cir) 1,601 'I.200 2.7.55 Food 110 '138 285 Fuel snd energy 17 151 48 Capitalgoords 505 362 435 Export pnce index ( Z ~ t 0 ~ 2 ~ 70 95 114 lniportprice index (2000=100J 49 95 109 Terms of trade (,?NO=lOOJ 141 100 104 103 1- I BALANCEof PAYMENTS I986 1996 2005 (US%rnmnSJ Currentaccount balancQ to GDP (le) Exportsof gods and sewices 2.473 2.048 3,958 4758 , -- Jr lmporrsof goodsandsemces 2 414 1,867 4.282 4,897 Resourcebalance 59 181 -324 -139 Netincmie -260 -591 -462 -251 0 Netcurrenttransfers 21 34 217 252 Current account balgnce -180 -375 -559 -t38 F m c ~ items(net) g 10 456 798 641 4 Changesw net resmea I70 -81 -229 -503 4 M-0: Reservesmcludinggdd (US$ mlhoos) 14 801 1,026 Ccnvwsim rate (DC,loc8lUSJl 3M.6 so18 527.5 522 4 I EXTERNALDEBT and RESOURCEFLOWS 1986 1996 2005 (US%m!hnsl Composrbonof 2005 debt (US$ mil!.) Total debt outshding anddrsbursed 4.126 9.829 7,151 2o06 l8RD 390 508 84 IDA 231 513 1032 Totaldebt m c e 673 506 800 13RD 49 126 37 IDA 3 8 XI Ccmpoaitwnof net remrceflow ORtcialgrants 59 239 308 Officialcreditors 152 -16 -237 Fnraie crectnOrs 85 -23 -44 Foreigndirect rwe~hient inflows) (net -91 101 18 PorffdKlw a y (net mflaws) 0 Wwld Bank program Cmimitmesrts 48 254 18 Dtsburwments 67 90 31 Pnnctpalrepaynlenb 20 85 44 Netfmws 46 6 -13 Interestpayments 31 49 13 Neteanafem 35 -43 -26 The Wcrld Bar& Gnwp. Ttw t8Me waa preparedbycountfy unflstaff,figures may&ffef fmniother World Bank publisheddata. 9;28/07 103 104 IBRD 36160 CAMEROON 12° E 14° E 16° E GENERATION ASSETS Lake This map was produced by 1963 Level the Map Design Unit of The AND STORAGE DAMS Chad World Bank. The boundaries, 1973 Level colors, denominations and 2001 Level any other information shown on this map do not imply, on HPP HYDRO POWER PLANTS To the part of The World Bank Group, any judgment on the STORAGE DAMS Fotokol Massaguet legal status of any territory, or any endorsement or HYDRO STORAGE (PLANNED) Maltam a c c e p t a n c e o f s u c h To boundaries. THERMAL POWER STATION (PLANNED) Maiduguri To 12° N Mandélia MAIN CITIES AND TOWNS 0 40 80 120 160 Kilometers PROVINCE CAPITALS To Maiduguri NATIONAL CAPITAL 0 40 80 120 Miles RIVERS MAIN ROADS Mora RAILROADS PROVINCE BOUNDARIES E X T R E M E To INTERNATIONAL BOUNDARIES Maroua Guelengdeng N I G E R I A N O R D Yagoua 10° N LAGDO 72 MW Kaélé 10° N 4.5 bn m3 Figuil To To Kim MBAKAOU 2.2 bn m3 To Pala MAPÉ 3.6 bn m3 Leré BAMENDJIN 1.8 bn m3 Garoua HPP TOTAL 7.7 bn m3 CHAD Touroua Bénoué ÉDÉA 265 MW SONG LOULOU 384 MW TOTAL - HYDRO 721 MW 77% N O R D THERMAL GRID: Faro 8° N HFO 122 MW 13% 8° N DIESEL 66 MW 7% Mbé ISOLATED 24 MW 3% Vina Ngai TOTAL - GENERATION 932.7 MW 100% Ngaoundéré A D A M A O U A Banyo Djérem Wum Ngaoundal N O R D - Tibati To Ikom O U E S T Kumbo 6° N Bamenda Bankim To Sangbé 6° N Bouar Mamfe Mbu Garoua Boulai Foumban Dschang Bafoussam HPP O U E S T Yoko Lom S U D - Lom Pangar Bafang C E N T R E O U E S T Bélabo CENTRAL AFRICAN Nkongsamba Mbam Kumba REPUBLIC Bertoua WouriYabassi Nanga Kadei Eboko Batouri Buea L I T T O R A L Ntui Tiko HPP 4° N Limbe Douala Akonolinga Abong Mbang Yola 4° N YAOUNDÉ Edéa HPP Eséka EQUATORIAL Nyong E S T GUINEA Mbalmayo Boumba Echambot Kribi Ebolowa Sangmélima Lokomo S U D Ambam Kom Dja Mouloundou 2° N To 2° N Oyem Gulf of EQUATORIAL GABON Guinea GUINEA CONGO 10° E 12° E 14° E 16° E MAY 2008