Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB4956 Project Name Rural Electrification Phase II Project of the Rural Electrification (APL) Program Region EAST ASIA AND PACIFIC Sector Power (85%); Renewable energy (15%) Project ID P110978, P117177 Borrower(s) LAO PDR (GOL) Implementing Agency Ministry of Energy and Mines and Electricite du Laos PO Box 4708 Nong Bone Road Lao People's Democratic Republic Tel: (856-21) 451-519 Fax: (856-21) 416-381 solarred@laotel.com; edlpj@laotel.com Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared July 27, 2009 Estimated Date of Appraisal Authorization Ocotber 2, 2009 Estimated Date of Board Approval November 24, 2009 1. Key development issues and rationale for Bank involvement The Government of Lao PDR (GoL) sets an ambitious plan for power sector expansion, with a goal of connecting 90% of households by 2020 with intermediate targets of 70% by 2010 and 80% by 2015, while also promoting hydropower export for revenue earning. In October 2004, the Bank approved the Rural Electrification Phase I Project (REP I) of the Rural Electrification APL Program, a two-phase Adaptable Program Loan (APL) to be implemented over a six-year period. The objectives of the APL program are to (i) increase access to electricity of rural households in villages of targeted provinces 1 ; and (ii) achieve sustainability of power sector development. The objectives of the REP I are to (i) increase access to electricity of rural households in villages of targeted provinces; and (ii) improve financial performance of the power sector. Implementation Progress towards Project development Objectives (PDOs) . To date, the implementation status of the REP I is satisfactory. Out of the targeted 42,000 households through 67 sub-projects for grid extension, about 65% of the target has been achieved. The price escalation during 2006-2007 created a financing gap of about $6.00 million for the grid extension sub-projects. The remaining one third of the sub-projects for about 11,000 households 1 Seven southern provinces, namely: Bolikhamxay, Khammouane, Savannakhet, Salavan, Xekong, Champasak, and Attapeu for grid extension and seventeen provinces for off-grid electrification. Page 2 targeted will not be completed without additional financing. AusAID has provided the funds to fill in the gap and the fund is under processing as additional financing. Regarding the off-grid component, implemented by Ministry of Energy and Mines (MEM), targeting 10,000 households in remote rural villages, about 9,000 households have been provided with access to electricity by September 2009. The project has contributed to the fast growing of rural electrification rate in Lao PDR, from about 17% in 1995 to 63% by June 2009. The implementation status of the Action Plan for Financial Sustainability of the Power Sector is also progressing on-schedule. The progresses and results of the tariffs reform and Electr icité du Laos (EdL)’s system loss reduction are highly satisfactory. EdL reported an operational profit in 2007 for the first time in history and again in 2008. This partially reflects the improved financial sustainability of the power sector. In addition, safeguards performance has been satisfactory and all legal covenants have been satisfied except for the submission of audit reports, which have been submitted with delays. Triggers Conditions : The majority of the triggers are successfully met or on track to be met by REP I completion date. One activity and associated trigger has been dropped. An independent review of REP I progress has been made by peer reviewers in the Bank to determine whether the APL is ready to move on to Phase II. The outcome of the independent review is that the performance has been highly satisfactory and the project is ready to move on to the second phase. 2. Proposed objective(s) The objectives of the Rural Electrification Phase II Project (REP II) of the APL Program are to (i) increase access to electricity of rural households in villages of targeted provinces; and (ii) further improve financial performance of the power sector. Global Environment Objectives . As in REP I, global environmental objectives are: (i) substantial adoption of off-grid renewable energy in Government’s rural electrification program; and (ii) increased efficiency of energy supply by EdL and consumption by customers, resulting in greenhouse gas emission reductions as increased hydropower exports and reduced thermal power import reduce thermal power production in Thailand. Key Performance Indicators (KPIs). The project consists of EdL Component and MEM Component. KPIs for EdL Component are (i) Number of households electrified through grid extension; (ii) EdL’s system loss; and (iii) Implementation status of the Action Plan for Financial Sustainability of the Power Sector. KPIs for MEM Component are (i) numbers of households electrified through off-grid renewable technologies; and (ii) number of off-grid renewable energy projects underpublic private partnership supported by the Rural Electrification Fund (REF). 3. Preliminary description For EdL Component, most activities are the continuation from REP I. The component will support (i) distribution grid extension; (ii) technical assistance for EdL system loss reduction; (iii) roll-out of EdL’s IT system for billing and accounting and financial management; (iv) promotion of DSM and Energy efficiency; (v) EdL’s safeguard management capacity building. Page 3 In addition, the agreed tariff adjustment for 2005-2011 and later reform will continue but funded under the on-going GMS Power Trade Lao project and REP I, and it will also continue to be monitored closely as part of the Action Plan for Financial Sustainability of the Power sector. For MEM Component, most activities are the continuation from REP I. The component will support (i) off-grid electrification through solar home systems; (ii) operation of the Rural Electrification Fund to support private sector participation in off-grid electrification services; (iii) technical assistance for alternative renewable energy delivery models such as biomass or pico/micro-hydro energy; (iv) capacity building in master planning of rural electrification; and (v) technical assistance to the PMU for project implementation. The total project cost is estimated at US$ 46.66 million. Financing sources include, IDA Grant US$10.0 million, GEF Grant US$1.25 million, NORAD funding of US$ 4.0 million, IFC loan and service US$15.35 million, EdL counterpart fund US$10.20 million, MEM (REF) funds US$0.19 million, and consumer contribution US$3.17 million. Lessons learned from REP I suggest that safeguards activity has to be designed taking into consideration the capacity of the implementing agencies and the local context. The safeguards process will be streamlined and based on the compliance of project activities with the Environment and Social Safeguard Framework. 4. Safeguard policies that might apply [Guideline: Refer to section 5 of the PCN. Which safeguard policies might apply to the project and in what ways? What actions might be needed during project preparation to assess safeguard issues and prepare to mitigate them?] 5. Tentative financing Source: (US$ m.) Recipient (MEM and EdL) 10.39 International Development Association (IDA) 10.00 Global Environment Facility (GEF) 1.25 International Finance Corporation (IFC) 15.35 Norwegian Agency for Development and Cooperation (NORAD) 4.00 Energy Sector Management Assistance Program (ESMAP) 0.50 Local communities and consumers 3.17 TOTAL 46.66 6. Contact point Contact: Jie Tang Title: Sr Energy Spec. Tel: 5778+8347; +66 (0) 2686 8347 Fax: +66 (0) 2686 8301 Email: jtang@worldbank.org Location: Bangkok, Thailand (IBRD) Page 4