Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB409 Project Name Brazil National Electrification Program Region LATIN AMERICA AND CARIBBEAN Sector Power, Private Sector Development Project ID P086535 Borrower(s) FEDERAL REPUBLIC OF BRAZIL Implementing Agency Ministry of Mines and Energy Esplanada dos Ministerios Bloco U, 6 andar- Sala 641 70065-900-Brasilia-DF Brasil Tel: 55-61-319-5798 Fax: 55-61-319-5275 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [X] S 2 [ ] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared November 5, 2003 Estimated Date of Appraisal Authorization April, 2004 Estimated Date of Board Approval July, 2004 1. Key development issues and rationale for Bank involvement The Government’s development strategy calls for an effort to reduce poverty and inequality. This objective is in line with the forthcoming Brazil CAS goal expressed as “a more equitable, sustainable and competitive Brazil.” The Government’s Program . The Government’s development strategy includes providing access to electricity to all Brazilians as a spearhead for reducing poverty and increasing productivity. The program will establish the foundation for: (i) delivering social services effectively (e.g. improved school and health facilities); (ii) making a substantial contribution to improving living conditions for the poor through access to modern energy services; and (iii) creating conditions for the development of businesses (e.g. through improved telecommunications services). The Government’s program will support the provision of energy services by financing efficient energy equipment “beyond the meter,” and providing micro-credit to foster productive uses of electricity. Electrification has been addressed through different approaches, supported by state and federal funds, with little coordination. The most successful of these programs has been “Luz no Campo,” which is funded by the Government and managed by Eletrobras. It has connected new users at a rate of 150,000 per year. The Government intends to build upon this excellent track record in several ways: (i) by channeling resources to the DisCos through a new National Electrification Program (Programa Nacional de Universalização do Acesso e Uso da Energia Elétrica), which will group the federal, state and municipal initiatives under standardized and streamlined procedures; (ii) by substantially increasing the scope of the program, with a goal of 400,000 new connections per year on average between 2004-2008; and (iii) by setting the electrification Page 2 program within the overall social development policy, which includes health, education, sanitation, agricultural development and agrarian reform. The National Electrification Program is supported by the Universal Access Law of 2002. In its first phase, to be implemented during 2004-2007, the program will target the connection of two million households and a population of eight million. A further four million are expected to have access to electricity by 2015. The program is oriented primarily towards increasing coverage through grid extensions; a smaller number of isolated rural communities, which cannot be served through grid extensions, will require off-grid solutions. Rationale for Bank involvement. The Bank’s participation is in line with the poverty and inequality objectives set out in the forthcoming CAS. The project is also a component of a broader Bank-supported, policy-based lending approach, which includes the Energy Sector Reform Program Loan, the on-going Energy Sector Technical Assistance Loan, and the current ESMAP Rural Electrification Strategy study. The first Energy Sector Reform Loan in the amount of US$450 million, which was disbursed in a single tranche in July 2002, was declared highly satisfactory by the Bank’s Operations Evaluation Department. The Energy Sector Technical Assistance Loan has a component to support the preparation and implementation of the National Electrification Program. The ESMAP study supports the formulation and evaluation of different approaches to rural electrification. The Bank will contribute its accumulated expertise in sponsoring over 50 electrification projects in different countries, including the successful experience of the on-going Brazil – Rural Poverty Reduction Project, which, using a bottom-up approach, integrates rural electrification in the broader context of rural development. The National Electrification Program will be co-financed by state governments, DisCos, and electricity cooperatives. 2. Proposed objective(s) The project’s objective is to provide access to electricity to more households, social service units (schools and health centers), and businesses. The availability of electricity will allow the primary target group to benefit from: (i) dramatically improved lighting, extended leisure, greater comfort and better communications; (ii) upgraded schools that will be able to apply modern teaching methods, use audiovisual aids, promote computer literacy and access Internet services; (iii) better health centers that will be able to use modern medical apparatus and provide opportune emergency services and childbirth assistance; and (iv) an environment conducive to the development of new businesses and markets. 3. Preliminary description Project design considerations. Due to the national scope of the program and its multi-sector characteristics, its design takes into account: (i) the coordination of existing federal, state, and private electrification programs to increase overall impact; (ii) criteria for resource allocation which seek to attain the primary objective of poverty alleviation and equity, as well as achieve efficiency in the program’s implementation; and (iii) combining access to electricity with improvements in quality of life and economic development through the provision of services made possible by the availability of electricity: better lighting, better health care and upgraded schools. Implementation. Coordination and economic efficiency will be achieved by unifying the administration of diverse electrification programs under a National Management Committee, Page 3 which provides the operational directives of the program, including guidelines for project selection, technical standards, and credit conditions. The Committee comprises representatives from MME (Ministry of Mines and Energy), Eletrobras, ANEEL (the regulating agency), the states, and the DisCos’ association. The Committee will set priorities for grid extension projects by balancing alternative criteria for resource allocation, for example, maximizing poverty reduction impact versus cost-effectiveness. The program will be financed by the Government (around 75%), the states (10%), and the DisCos (at least 15%). Eletrobras (through its Luz no Campo division) and the DisCos will implement and execute the program. The DisCos will submit their sub-projects to Eletrobras for screening. Those projects approved by Eletrobras (according to selection criteria to be established by the Committee) will be financed through soft loans or grants to the DisCos (with Eletrobras providing banking functions). This allows the DisCos to extend electricity service while keeping tariffs at reasonable levels. The DisCos will execute the sub-projects by establishing new connections and incorporating new consumers into their customer base (these constitute the key indicators for the Bank’s output-based lending operations). Funds for financing the project will be delivered to Eletrobras, either by the Treasury or by the states. This organization combines a decentralized execution of the project with unified selection criteria and a streamlined financing procedure. Poverty alleviation and development. A Ministry-level council (Conselho de Universalização) assures that the program will be properly articulated with complementary development projects (e.g. school and health center improvement, micro-credit for small enterprise) and provides links to social sectors, which will benefit from the availability of electricity. The Council comprises representatives from several ministries, including Mines and Energy, Education, and Health. 4. Safeguard policies that might apply During the 1980s, the Brazilian power sector pioneered the implementation of safeguards for social and environmental protection. Rules and regulations are well established. A sector environmental issues paper will be prepared and a “B” environmental classification is proposed. Governance and financial management safeguards will be implemented through the enterprise governance audits. The Bank will assess planning and procurement procedures on a sample basis. Regulatory rules and regulations regarding consultation and disclosure will be posted and debated (and amended if necessary) before approval. 5. Tentative financing Source: ($m.) BORROWER 700 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 200 Others 800 Total 1700 Page 4 6. Contact point The World Bank 1818 H Street, NW Washington DC 20433 Tel: 202-458-5454 Fax: 202-522-1500