Document of The World Bank FOR OFFICIAL USE ONLY Report No: RES10850 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF MALI ENERGY SUPPORT PROJECT CREDIT MAY 22, 2009 TO THE REPUBLIC OF MALI JULY 15, 2013 AFRICA ENERGY GROUP AFRICA REGION This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS AMADER Agence Malienne pour le Développement de l'Energie Domestique et d'Electrification Rurale (Malian Rural Energy Agency) CCP Cellule de Coordination de Projet (Project Coordination Unit) CFL Compact Fluorescent Lamp CREE Commission de Régulation de l’Eau et l’Electricité (Water and Electricity Regulatory Commission) DAF Direction Administrative et Financière (Administrative and Financial Directorate) DNE Direction Nationale de l’Energie (Energy Directorate) EDM-SA Energie du Mali, Société Anonyme (Electricity Utility) FCFA Francs CFA (local currency) G/L Gram per Liter GoM Government of Mali HFO Heavy Fuel Oil HV High Voltage ISR Implementation Status Report IFR Interim Financial Report LV Low Voltage MEE Ministère de l’Energie et de l’Eau (Ministry of Energy and Water) MV Medium Voltage MWH Megawatt Hour PIU Project implementation Unit PDO Project Development Objectives SDR Special Drawing Right SREP Scaling-up Renewable Energy Program ToRs Terms of References USc US cent Regional Vice President: Makhtar Diop Country Director: Ousmane Diagana Sector Manager: Meike Van Ginneken Task Team Leader: Fabrice Karl Bertholet 2 MALI MALI ENERGY SUPPORT PROJECT CONTENT Page A. SUMMARY ........................................................................................................................... 9 B. PROJECT STATUS .............................................................................................................. 9 C. PROPOSED CHANGES ................................................................................................... 11 D. APPRAISAL SUMMARY................................................................................................. 16 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ............................................. 18 ANNEX 2: ECONOMIC AND TECHNICAL ANALYSIS OF NEW INVESTMENT ACTIVITIES ............................................................................................................................... 20 3 DATA SHEET Mali Mali Energy Support Project (P108440) AFRICA AFTG2 Report No: RES10850 Basic Information Project ID: P108440 Lending Instrument: Specific Investment Loan Regional Vice President: Makhtar Diop Original EA Category: Partial Assessment (B) Country Director: Ousmane Diagana Current EA Category: Partial Assessment (B) Sector Director: Jamal Saghir Original Approval Date: 18-Jun-2009 Sector Manager: Meike van Ginneken Current Closing Date: 30-Sep-2014 Team Leader: Fabrice Karl Bertholet Borrower: Responsible Agency: Energie du Mali (EDM-SA), Cellule de Coordination de Projet (CCP) Restructuring Type Form Type: Full Restructuring Paper Decision Authority: Country Director Approval Restructuring Level: Level 2 Financing ( as of 24-Jun-2013 ) Key Dates Effectiveness Original Revised Project Ln/Cr/TF Status Approval Date Signing Date Date Closing Date Closing Date P108440 IDA-46170 Effective 18-Jun-2009 26-Jun-2009 25-Nov-2009 30-Sep-2014 30-Sep-2014 Disbursements (in Millions) % Project Ln/Cr/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P108440 IDA-46170 Effective XDR 80.70 80.70 0.00 10.71 69.99 13 Policy Waivers Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? Does the project require any policy waiver(s)? Yes [ ] No [ X ] 4 A. Summary of Proposed Changes The proposed changes include: dropping existing investment activities and adding new ones, reallocating Credit proceeds, cancelling a portion of the Credit (USD 25 M equivalent), extending the Credit closing date an additional fifteen months from September 30, 2014 to December 31, 2015. Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ ] No [ X ] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ ] No [ X ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ ] No [ X ] Change in Loan Closing Date(s) Yes [ X ] No [ ] Cancellations Proposed Yes [ X ] No [ ] Change to Financing Plan Yes [ ] No [ X ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ X ] No [ ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Change in Institutional Arrangements Yes [ X ] No [ ] Change in Financial Management Yes [ ] No [ X ] Change in Procurement Yes [ ] No [ X ] Change in Implementation Schedule Yes [ X ] No [ ] Other Change(s) Yes [ ] No [ X ] Appraisal Summary Change in Economic and Financial Analysis Yes [ X ] No [ ] Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ] Appraisal Summary Change in Social Analysis Yes [ ] No [ X ] Appraisal Summary Change in Environmental Analysis Yes [ X ] No [ ] Appraisal Summary Change in Risk Analysis Yes [ ] No [ X ] B. Project Status The project ratings for "Overall Implementation Progress" and "Progress towards the PDO" were both downgraded to “Moderately Unsatisfactory” in June 2012, due to the political situation in Mali and the de facto halt in project implementation. The ratings remained unchanged in the latest ISR (March 2013) given that project implementation had at the time only fully resumed for 3 months. As of June 21, 2013, 5 project disbursements stood at SDR 9,287,722 equivalent to a 11.51% disbursement rate. Taking into account contracts which have been signed, the total rate of disbursement and undisbursed commitment represents 30.8% of the current value of the credit. Development Objectives/Results Project Development Objectives (P108440 - Mali Energy Support Project) Original PDO The project development objective is to improve the access and efficiency of electricity services in Bamako and in other targeted areas of the country. Change in Project's Development Objectives Change in Results Framework Explanation: The result framework has been revised to better capture the expected impacts from project activities after the restructuring and to facilitate the monitoring. In particular the targets related to access expansion at the end of the project have been increased to reflect implementation progress and the extension of the project life. With regards to distribution losses, a single indicator for total losses will replace two separate existing indicators (one for technical and one for non technical losses) which cannot be measured separately with adequate precision. Concerning energy efficiency, targets related the diffusion of CFLs will be reduced and an indicator related to the deployment of solar public lighting will be introduced. Financing Change in Loan Closing Date(s) Explanation: The proposed restructuring would extend the closing date by fifteen (15) months, from September 30, 2014 until December 31, 2015. This would be the first closing date extension for this project. The length of the proposed extension reflects (i) a revised implementation schedule and recent progress in project implementation, and (ii) a revised scope of activity reducing the risks of delays. Original Closing Current Closing Proposed Closing Previous Closing Ln/Cr/TF Status Date Date Date Date(s) IDA- Effective 30-Sep-2014 30-Sep-2014 31-Dec-2015 30-Sep-2014 46170 Cancellations Explanation: The restructuring will drop investment activities currently in components 1 and 2, revise downward the cost of other activities and introduce a few new activities. The overall net impact of the changes is the reduction of total project costs from US$120 million to US$ 95 million. Consequently, an amount of US$25 million will be canceled from the credit. 6 Current Amount Cancelled Amount Proposed Amount (in Ln/Cr/TF Status Currency (in currency) (in currency) currency) IDA-46170 Effective XDR 80,700,000.00 0.00 80,700,000.00 Reallocations Explanation: The reallocation between disbursement categories will reflect the new cost estimates by activity after the restructuring. Current Category of Disbursement % Ln/Cr/TF Currency Allocation Expenditure (Type Total) Current Proposed Current Proposed GDS,CW,CS,TR, OP C IDA-46170 XDR 72,900,000.00 55,500,000.00 100.00 100.00 PART A and C1 GDS,CW,CS,TR,OP C 7,800,000.00 8,400,000.00 100.00 100.00 PART B and C2,C3 Designated Account 0.00 0.00 0.00 0.00 Total: 80,700,000.00 63,900,000.00 Disbursement Estimates Change in Disbursement Estimates Explanation: The disbursement estimates will reflect the revision in project costs and the new implementation schedule. Fiscal Year Current (USD) Proposed (USD) 2010 18,374,000.00 0.00 2011 39,442,000.00 0.00 2012 33,735,000.00 0.00 2013 18,105,000.00 0.00 2014 10,344,000.00 0.00 Total 120,000,000.00 0.00 Components Change to Components and Cost Explanation: The proposed restructuring would result in dropping investment activities currently included in component 1 and 2, which appear less relevant and/or urgent in the current context than at the time of project preparation. The restructuring would introduce new activities which are simpler and less costly. 7 Current Component Proposed Component Current Cost Proposed Action Name Name (US$M) Cost (US$M) Transmission and Distribution 107.00 81.00 Revised Reinforcement and Extension Energy Efficiency and Demand-side 5.00 5.00 No Change Management Capacity and Institutional Strengthening of Key 8.00 9.00 Revised Sector Institutions Total: 120.00 95.00 Other Change(s) Change in Institutional Arrangements Explanation: The responsibility for implementing Component 3 would be entirely transferred to the Project Implementation Unit (Cellule de Coordination de Projet - CCP). The CCP already assumes the fiduciary responsibility (procurement, financial management) for this component and has the capacity to handle this additional responsibility. Change in Implementation Schedule Explanation: Based on the implementation schedule prepared by the Client, a 15 month extension, leaving 30 months until the project closing date, would be sufficient to allow the Client to complete project activities. Change(s) in Appraisal Summary Appraisal Summary Change in Economic and Financial Analysis Explanation: The proposed new investment appear to have a compelling economic justification from the first year of operation, with an adequate rate of return for the utility without taking into consideration the positive externalities for electricity users. Appraisal Summary Change in Environmental Analysis Explanation: The activities which were likely to require resettlements and expropriations will be dropped from the project scope as part of the restructuring. 8 MALI ENERGY SUPPORT PROJECT RESTRUCTURING PAPER A. SUMMARY 1. This restructuring proposes to: drop existing investment activities and add new ones, consolidate implementation arrangements, reallocate Credit proceeds, cancel a portion of the Credit (USD 25 million equivalent), extend the Credit closing date an additional fifteen months from September 30, 2014 to December 31, 2015 and modify the results matrix to better capture the expected impact of the project post-restructuring. The change in the investment activities contributes to and does not necessitate a change in the original project development objective. Also, the restructuring does not involve a change in safeguard category or trigger a safeguard policy not triggered originally by the Project. As such, the restructuring qualifies as a level two (“Level Two”) restructuring under OP 10.00 which is submitted to the Country Director for approval. Overall, the restructuring is expected to substantially simplify project implementation. 2. The rationale for the restructuring request, submitted by the Government of Mali (GoM) by letter dated April 3, 2013, is that some important activities included in the original project scope are not sufficiently advanced technically to be implemented within a reasonable timeframe, and/or appear less relevant and urgent in the current context than at the time of project preparation. The proposed restructuring would therefore drop those investments from the project scope and add new investments activities, contributing to the strengthening of Bamako distribution and transmission network. 3. The revised activity plan will result in a reduction of total project costs by USD 25 million (20.8% of initial IDA amount) which would be cancelled from the credit and the GoM has requested that this amount be used for the preparation of a new IDA operation in the energy sector in support rural electrification to be delivered within the IDA 16 cycle1. B. PROJECT STATUS 4. The Mali Energy Support Project (Credit no. 46170-ML) (P095240) in the amount of SDR 80.7 million was approved by the World Bank Board on June 18, 2009 and became effective on November 25, 2009. The project development objective is to improve the access and efficiency of electricity services in Bamako and other targeted areas of the country. 5. Since effectiveness, project implementation has been significantly slower than originally anticipated due to a variety of causes, resulting in a low disbursement rate at 1 Preparation of the Mali Rural Electrification Hybrid System Project (P146287) is ongoing with the objective of a presentation to the board of Directors in December 2013. 9 this stage of the project life. The three main causes for slow implementation have been (i) delayed preparation of bidding documents by external procurement assistant, (ii) insufficient implementation capacity and resources at the level of the implementing agency, EDM-SA, and (iii) political events in Mali in 2012 which resulted in a temporary freeze on disbursements and project activities. 6. Delayed preparation of bidding documents by external procurement assistant: EDM-SA has the responsibility for implementing Component 1 to which most of project funds (88%) are allocated. Given the assessment at the time of project preparation of a limited technical and procurement capacity on the part of EDM-SA, it was decided in the design of component 1 that EDM-SA would benefit from the support of a specialized consulting firm for all procurement related operations (preparation of technical specifications, bidding documents, evaluation). However, the recruitment of the specialized consulting firm took significantly longer than anticipated. In addition, the firm recruited for the assistance was not able to mobilize its staff within the contractual schedule (Ivorian firm impacted by the political events in Cote d’Ivoire surrounding the presidential election) thereby creating substantial additional delays. The absence of procurement assistance during the first year of Project implementation therefore created significant lags in implementation, which were only partially mitigated by the agreed decision between the PIU and the Bank to have EDM-SA prepare and launch without external assistance bids for investment activities which were technically simple (sub- stations, 30 KV line extensions) and for which contracts could be signed in the summer of 2010. 7. EDM-SA’s limited implementation capacity: Even after obtaining external procurement assistance, delays in implementation were observed. The EDM-SA implementation was insufficiently staffed, with several EDM-SA staff members working only part-time on the project. This resulted in a variety of delays in the conduct project activities (for e.g. evaluation and contract negotiations) and insufficient day-to-day communication with and supervision of the procurement assistant firm. 8. Political events in Mali in 2012 and freeze on disbursements: Starting in January 2012, the armed secession in Northern Mali and the coup which ensued in March 2012 resulted temporarily in an effective halt in project implementation. Under OP/BP 7.30, disbursement under the project was temporarily frozen for 6 months until September 2012. Procurement, relating to new activities, was stopped given the uncertainties for potential bidders and contracts under implementation were impacted as well (demobilization of contractors). 9. Recent developments have made possible a resumption of project activities with significant progress over the last 6 months. First, in September 2012, the Bank decided in principle to allow a resumption of disbursements under the Mali portfolio with additional fiduciary safeguards. In practice, project disbursements have fully resumed since December 2012. All interrupted construction contracts have resumed. In addition, the EDM-SA implementation unit has been considerably strengthened, with 4 full time staff hired. This decision to strengthen EDM-SA implementation unit was agreed in February 2012, but its implementation was put on hold due to the political events and the halt on 10 disbursements. In practice, the strengthened EDM-SA implementation unit has been operational and fully staffed since January 2013. 10. In view of the political situation in Mali and the de facto halt in project implementation, the project ratings for ‘Overall Implementation Progress’ and ‘Progress towards the PDO’ were both downgraded to “Moderately Unsatisfactory” in June 2012. The ratings remained unchanged in the latest ISR (March 2013) given that project implementation had at the time only fully resumed for 3 months. 11. As of June 21, 2013, project disbursements stood at SDR 9,287,722 equivalent to a 11.5% disbursement rate. 12. Expressed in percentage of the credit after restructuring, the disbursement rate would be 16.4%. Undisbursed commitments will represent around 22% of the revised credit amount. Activities for which bids have been issued represent an estimated 35% of total revised project costs. An additional 16% of revised project costs correspond to activities for which draft bidding documents have been received by the Bank but which are not yet finalized. A remaining 10% of the revised project cost corresponds to activities which are less advanced in terms of preparation (e.g. bidding documents or ToRs still under preparation) or to unallocated costs (contingencies). Status of project activities ( as of June 20, 2013) % of restructured USD millions project Disbursed 15.6 16.4% Committed 21.4 22.5% Bidding documents issued 33.1 34.9% Bidding documents under review or revision 15.1 15.9% Other unallocated and bidding documents under preparation 9.8 10.3% Total 95.0 100.00% C. PROPOSED CHANGES 13. The proposed restructuring would result in dropping investment activities currently included in component 1 and 2, which appear less relevant and/or urgent in the current context than at the time of project preparation. The restructuring would introduce new activities which are simpler and less costly. The proposed changes also include: revision of the project implementation schedule, consolidation of implementation arrangements, reallocation of funds, cancellation of funds due to reduced project costs, extension of the closing date by 15 months and a revision results matrix. Changes in the result matrix are aimed at better capturing the expected impact from the project activities after restructuring. Overall, the restructuring is expected to substantially simplify project implementation. 11  Components 14. Component 1- Transmission and Distribution Reinforcement and Extension: The proposed restructuring would drop the following investments from the project scope: (i) new 150 kV transmission lines to form a complete transmission loop around Bamako, and (ii) connection to the main grid of three secondary centers. The state of technical preparation of the construction of a 150 kV transmission loop around Bamako is not sufficiently advanced to expect its completion before the closing date. In addition, the technical and economic justification of this line needs to be reassessed given (i) recent development in the sector (location of demand growth, connection from future generation projects) and, (ii) increase in the estimated cost of the loop. There is economic justification for the connection to the main transmission grid of three secondary centers at some future stage in electricity sector development. However, the current level of demand in the concerned centers, and the fact that in the medium term, incremental demand to the interconnected network will continue to be served with domestic thermal generation, justify postponing the interconnection schedule. As part of the restructuring, the program of works to upgrade and reinforce the transmission and distribution facilities around Bamako will be expanded with targeted additional investments, contributing to the overall strengthening of Bamako distribution and transmission network even in the absence of a complete transmission loop around Bamako. The additional investments have been selected on the basis of an immediate and strong cost benefit justification (removing transmission and distribution bottlenecks). 15. Component 2 – Energy Efficiency and Demand-side Management: A study carried out at the end of 2010 to help define the deployment strategy for CFL lamps has demonstrated an already large penetration and adoption by customers of CFL lamps in Mali. On this basis, the original project target (deployment of 1,000,000 CFLs), which was designed to jumpstart the local CFL market, appears less relevant. Also, the organization of promotional campaigns to promote CFLs appears less useful. Based on the client request, no additional procurement of CFLs would be carried out (beyond the 250,000 already procured and deployed in households and public buildings). The funds would be reallocated towards an expanded and revised street lighting program which would support the procurement and installation of public solar lamps. 16. Component 3 – Capacity and Institutional Strengthening of Key Sector Institutions: The issues encountered for the implementation of component 1, and the lack of sufficient technical and economic analysis of some investment projects (including analysis of alternatives) have highlighted the need to restore a more technically grounded approach to power sector investments. On the request of the Malian authorities, and consistent with the objective stated in the Financing Agreement to enhance “energy sector strategy development and planning”, the restructuring would therefore allocate resources for the preparation of a new sector investment master plan so as to provide the analytical and technical elements for sector decision-makers to plan future investments on the basis of a consistent least-cost development strategy. 12  Implementation arrangements 17. As requested by the GoM, as part of the restructuring, the responsibility for implementing Component 3 would be entirely transferred to the Project Implementation Unit (Cellule de Coordination de Projet - CCP). The CCP already assumes the fiduciary responsibility (procurement, financial management) for this component and has the capacity to handle this additional responsibility.  Results/indicators 18. The changes in the result indicators are presented in Annex 1. The proposed revisions in indicators aims at better reflecting the expected impact from the project after the restructuring as well as facilitating monitoring (information readily available). The changes can be summarized as follows: a. Access: Indicators and targets related to access to electricity remain unchanged with regard to their definition and measurement. The targets at the end of the project would be revised upwards to reflect implementation progress and the extension of the project life. b. Distribution losses: A new single indicator for total distribution losses would be substituted to the two existing indicators for Transmission and Distribution loss reduction (one for technical losses and the other for non-technical losses). Since the bulk of project investments after the restructuring will be targeting electricity distribution (rather than transmission), it is proposed to monitor the evolution of total distribution losses (aggregating technical and non- technical). In practice, only total losses can be measured, and the breakdown between technical and non-technical is based on estimates requiring modeling work which cannot realistically be carried out annually in a country like Mali (it requires external consultants with sophisticated modeling tools and significant data collection work). Also, Mali has decided to reduce aggregate generation costs by importing more electricity from neighboring countries (recent commissioning of T-line with Cote d’Ivoire). This strategy is justified in terms of overall least-cost/efficiency but will mechanically increase transmission losses. c. Energy efficiency: In order to reflect the changes in resource allocation introduced in component 2 (Energy Efficiency), targets related the diffusion of CFLs (peak load reduction in MW, number of CFLs deployed, promotional campaigns) would be revised and an indicator related to the deployment of solar public lighting would be introduced. 13  Financing o Project Costs Current Proposed Project Components and Activities Transmission and Distribution Reinforcement and Extension Transmission investments 31.00 7.50 Distribution investments (Bamako area and isolated areas) 53.90 60.50 Equipment and vehicles 13.60 7.40 Technical assistance and studies 6.40 3.50 Unallocated 2.10 2.10 Subtotal 107.00 81.00 Energy Efficiency and Demand-side Management Compact Fluorescent Lamps 3.00 0.48 Public lighting 0.80 4.27 Information and promotional campaigns 0.20 0.09 Distribution and installation of lamps 0.50 0.04 Technical assistance 0.50 0.12 Subtotal 5.00 5.00 Capacity and Institutional Strengthening of Key Sector Institutions Support to CCP 4.90 7.01 Support to DNE 0.90 0.30 Support to CREE 0.60 0.10 Support to DAF 0.10 0.09 Support to EDM SA 1.50 1.50 Subtotal 8.00 9.00 Total 120.00 95.00 19. Financing Plan (see data sheet) 20. Reallocations Category of Expenditure Allocation in SDR Percentage of Expenditures to be Financed Current Revised Current Revised Current Revised (1) Goods, works consultants' services, including Training, and Unchanged 72,900,000 55,500,000 100% 100% Operating Costs for Parts A and C.l (support to EDM-SA) of the Project (2) Goods, works, consultants' services, including Training, and Unchanged 7,800,000 8,400,000 100% 100% Operating Costs for Parts B, C.2 and C.3 of the Project Total 80,700,000 63,900,000 14  Cancellation of credit proceeds 21. The total credit amount would be reduced from SDR 80.7 million to SDR 63.9 million which reflects the reduction in total project costs by USD 25 million based on the revised activity plan. The GoM has requested that this amount be used for the preparation of a new IDA operation (within the IDA 16 cycle) in the energy sector in support rural electrification to be co-financed by resources from the Scaling-Up Renewable Energy Program (SREP). The SREP Committee approved the Investment Plan for Mali in March 2012 and allocated funds for three of the components of the proposed project. The rural electrification through hybrid solar/diesel component has been allocated USD 15.5 million which would be added to the IDA contribution.  Revised implementation schedule and closing date 22. The proposed restructuring would extend the closing date by fifteen (15) months, from September 30, 2014 until December 31, 2015. This would be the first project extension. The length of the proposed extension reflects (i) a revised implementation schedule and recent progress in project implementation, and (ii) a revised scope of activity reducing the risks of delays. 23. Based on the implementation schedule prepared by the Client, a 15 month extension, leaving 30 months until the project closing date, would be sufficient to allow the Client to complete project activities. Together with the implementation schedule, the client has also transmitted an action plan, satisfactory to the Bank, detailing how project performance would improve and return to satisfactory status. The identified actions relate primarily to component 1 (procurement and safeguards) and have been substantially implemented. 24. The restructuring will simplify project implementation by removing from the project scope the activities which would be the most challenging to implement, in terms of procurement and safeguards management. In particular, the new project scope would not include the construction of new high voltage transmission lines (it includes a rehabilitation of an existing HV line and the doubling of capacity of another one without installation of additional poles). The new investment activities added as part of the restructuring are smaller and simpler (Medium Voltage lines construction and sub-station strengthening). The proposed additional MV investments are similar to ongoing project activities thereby facilitating procurement, evaluation and monitoring of contractors. Also, the relative simplicity and small size of each activity guarantees that there will be sufficient interest from potential contractors, including sub-regional firms which are less likely to be deterred by uncertainties regarding the political and security situation in Mali. 25. The Task Team confirms that the requirements of OP/BP10.00 regarding closing dates have been or will be met, specifically, (i) the project objectives continue to be achievable, within the time afforded by the proposed revised closing date; (ii) the performance of the Borrower will be upgraded to satisfactory based on recent progress in project implementation and the effects of the planned restructuring; (iii) the Bank and the Borrower have agreed on a realistic and implementable action plan and revised 15 implementation schedule for project completion, which the Borrower has already begun to implement; and (iv) there are no outstanding audits, or IFRs for the Credit. All legal covenants have been complied with. D. APPRAISAL SUMMARY  Economic and technical analysis 26. Methodology: The new investment activities added to component 1 as part of the restructuring will contribute to reduce bottlenecks in the transmission and distribution network in and around Bamako. Electricity demand is growing at a steady pace in the Bamako area, requiring additional investments in order to maintain acceptable reliability of service and level of technical losses. In this context, the main focus of the economic and technical analysis of investments is not to assess the economic justification of investments over their entire life (almost all network reinforcement/upgrade investments will be justified at some point given the increased volumes of energy), but to make sure that priority investments are made first. For this reason, the economic analysis included in this restructuring paper analyzes the expected benefits from the proposed investments in their first year in service. The main economic benefits expected from the proposed network investments are two-fold: (i) a reduction in the volume of technical losses, and (ii) a reduction in the volume of un-served energy. Assuming that electricity tariffs remained unchanged, the first type of benefit will be captured by the utility company (reduction of generation costs), and the second type of benefit (reduction in load- shedding) will be captured by electricity consumers. The second type of benefit is typically quite large, but relatively difficult to quantify. For the purpose of this restructuring, in the absence of reliable data regarding the expected reduction in the probability of loss-shedding, only the first type of benefit (loss reduction) has been evaluated. The estimated economic rate of return therefore does not capture all the benefits from the proposed investments. 27. Results: The impact of the proposed investments on technical loss reduction has been quantified by comparing two recent load flow modeling scenarios prepared by EDM-SA, one with the proposed investments, and the other without. Based on the modeling, the Bank team has assessed that, for the first year, the proposed investments would reduce technical losses by 6,394 MWH and reduce fuel costs for generation by USD 1.9 M. The fuel saving on the first year would represent 11.6% of the total capital costs. On this basis, the proposed new investments appear to have a compelling economic justification from the first year of operation, since the investments have an adequate rate of return for the utility (operating cost reduction) without taking into consideration the positive externalities for electricity users (reduced loss shedding). The detailed assumptions and calculations are presented in Annex 2.  Safeguards 28. Overall, the activities supported by the project do not raise major or complex safeguard issues. Furthermore, the activities which were likely to require resettlements and expropriations will be dropped from the project scope as part of the restructuring. Still, the February 2013 supervision mission has identified deficiencies with safeguard 16 management (deficiency in screening, lack of stakeholders consultation, deficiency in documentation and reporting). Consequently, the overall safeguard compliance was downgraded to unsatisfactory in the latest ISR. The problems observed are not related to insufficient human resources for safeguard management since two specialists are available for project implementation (one in the PIU, one within EDM-SA). A series of steps to return to adequate safeguard management and documentation have been recorded in the mission Aide-mémoire. Their implementation, which has already substantially advanced, is being monitored by the Bank team’s Senior Safeguard specialist. 17 ANNEX 1: Results Framework and Monitoring Project Development Objective (PDO): The project development objective is to improve the access and efficiency of electricity services in Bamako and other targeted areas of the country. D=Dropped Target Values C=Continue N= New R=Revised Original Revised Core Unit of Achieved Data Source/ Responsibility for PDO Level Results Indicators Baseline end of end of Frequency Measure YR 1 to date Methodology Data Collection project project (CY2012) (YR 5) target Indicator One: Number of households R Number 252,000 272,000 382,200 338 000 350 000 Annual Annual Activity EDM-SA connected by EDM-SA in Report Bamako Indicator Two: Increase in the Number of R Number 131,000 138,000 182,000 176 000 190 000 Annual Annual Activity EDM-SA households connected by Report EDM-SA outside Bamako Indicator Three: Annual Activity Reduction of technical losses D % 12% 12% 10% 8,6% NA Annual Report EDM-SA Indicator Four : Annual Activity Reduction of non-technical D % 7% 7% 5% 6.6% NA Annual Report EDM-SA losses Indicator Five: Peak load reduction from R MW 0 0 20 6.9 6.9 Annual CCP energy efficiency: Indicator Six: EDM-SA Total distribution losses on N % 15.2% 13.7% Annual technical EDM-SA the interconnected grid statistics Indicator Seven: Project CCP Number of Project N Number 0 NA NA 19,150 285,950 Bi-annual implementation Beneficiaries, of which female 9,766 145,834 reports INTERMEDIATE RESULTS Revised Intermediate Results (Component One): Intermediate Result indicator: Annual Activity Number of connections R Number 201,539 216,100 296,700 290,042 330,000 Annual Report EDM-SA established Transmission lines constructed Project or rehabilitated under the N Km 0 0 0 0 221 Bi-annual implementation CCP/EDM-SA project reports MV distribution lines Project constructed or rehabilitated N Km 0 0 0 0 80 Bi-annual implementation CCP/EDM-SA under the project reports LV distribution lines Project constructed or rehabilitated N Km 0 0 0 0 746 Bi-annual implementation CCP/EDM-SA under the project reports Number of MV/LV Project transformers installed under the N Number 0 0 0 0 80 Bi-annual implementation CCP/EDM-SA project reports Revised Intermediate Results (Component Two): Public solar lamps installed Bi-annual Project CCP N Number 0 NA NA 150 2,150 implementation reports Number of CFL used by Bi-annual Project CCP households R Number 0 0 1,000,000 250,000 250,000 implementation reports Number of efficient lamps 0 0 15,000 NA NA NA NA NA installed for public lighting D Number Promotional campaigns 0 0 50 2 NA Bi-annual Project CCP organized D Number implementation reports Revised Intermediate Results (Component Three): Planned periodic M&E reports Project submitted on time (Y/N) C NA Y Y Y Y Bi-annual implementation CCP reports Implementation calendar for Project key activities in annual work C NA N N N Y Annual implementation CCP program adhered to (Y/N) reports Sector Investment Plan realized N Project (Y/N) N N N N Y Bi-annual implementation CCP reports Number of staff trained under 0 0 0 529 1,130 Bi-annual Project the project (utility, MEE) N implementation CCP reports 19 ANNEX 2: Economic and technical Analysis of new investment activities The overall methodology used for the analysis is described in paragraph 25 and 26 of the main text of the project paper. This Annex presents the assumptions and step-by-step calculations. Table 1: Description and cost of new Transport and Distribution Investments Cost (USD Description Million) New 30 KV underground lines (Badala-Kalaban and Badala-Balingué). 5.6 Doubling of capacity of Kodialani-Sirakoro T-line (150 kV) 1.5 Substation upgrading (Kalaban and Sotuba) 7.0 Subtotal 14.1 Contingencies 2.1 Total capital costs 16.2 Table 2: Load flow modeling for estimated peak demand in first year of service (2015) Scenario 1: without reinforcement Peak demand MW 371.705 Technical losses in Bamako at peak demand MW 11.809 Scenario 2: with reinforcements Peak demand MW 310.117 Technical losses in Bamako at peak demand MW 10.236 Difference in technical losses at peak MW 1.573 Source: Load-flow modeling prepared by EDM- SA - May 2013 Table 3: Load factor distribution and avoided generation Loss Marginal Avoided load factor Frequency differential generation losses % of peak demand % of year MW type MWH/year Gas 100% 20.0% 1.573 Turbine 2755.9 80% 20.0% 1.007 HFO 1763.8 60% 20.0% 0.566 HFO 992.1 40% 40.0% 0.252 HFO 881.9 Weighted Average /Total 64.0% 0.730 6393.7 Table 4: Estimates for short-run marginal cost of generation Heavy Fuel Oil engines fuel price FCFA/l 430 density g/l 920 specific cons. g/kWH 220 Unit price FCFA/kWH 102.8 Unit price Usc/kWH 20.6 Gas Turbine fuel price FCFA/l 530 density g/l 850 specific cons. g/kWH 330 Unit price FCFA/kWH 205.8 Unit price Usc/kWH 41.2 Table 5: Annual fuel savings Type of generation Loss reduction Cost reduction MWH/year USD million/year Heavy Fuel Oil engines 3637.8 0.75 Gas Turbine 2755.9 1.13 Total 6393.7 1.88 Table 6: Rate of return in year 1 (fuel savings only) Rate of return in first year Annual fuel savings USD million 1.88 Investment costs USD million 16.22 Rate of return % 11.6% 21