Document of The World Bank FOR OFFICIAL USEONLY Report No: 32164-NG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT INTHEAMOUNT OFSDR 113.8MILLION (US$172.0 MILLION EQUIVALENT) TO THE FEDERALREPUBLICOF NIGERIA FOR A NATIONALENERGYDEVELOPMENTPROJECT May 25,2005 EnergyTeam Infrastructure Group Africa Region This document hasarestricteddistribution andmay be usedby recipients only inthe performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective April 30, 2005 Currency Unit = Naira Naira135 = US$1 US$1.51209 = SDR 1 FISCAL YEAR January 1 - December31 ABBREVIATIONSAND ACRONYMS AG Associated Gas BMPIU Budget Monitoring and Price Intelligent Unit BOT Build, Operate, Transfer BPE Bureauo fPublic Enterprises CDM Clean Development Mechanism CFAA Country FinancialAccountability Assessment coo ChiefOperating Officer CPAR Country Procurement Assessment Report CPS Country Partnership Strategy CPSU Corporate Planning and Strategy Unit CQ Consultant Qualifications CREST Commercial Reorientationof the Electricity Sector Toolkit CT Current Transformer DBU DistributionBusiness Unit DISCOS DistributionCompanies DNA DesignatedNational Authority ECN Energy Commission o f Nigeria ERR Economic Internal Rate o f Return EPSR Electric Power Sector Reform Law ERSU Environmental, Resettlement and Social Unit ESMF Environmental and Social Management Framework FGN Federal Government o fNigeria FMF Federal Ministryof Finance FMPS Federal Ministry o f Power and Steel FMR Financial MonitoringReport FMS FinancialManagement System FPM FinancialProcedures Manual FR FinancialRegulations GDP Gross Domestic Product GEF Global Environment Facility GENCOS Generation Companies GIS Geographic Information System GPS Global Positioning System HT HighTension HV HighVoltage HVDS HighVoltage Distribution Systems IAS Internal Audit Section ICB International Competitive Bidding ICR ImplementationCompletion Report IDA Intemational Development Association IFC International Finance Corporation FOROFFICIALUSE ONLY IHCNEPA InitialHoldingCompanyNEPA IPP Independent Power Producers ISA InternationalStandardsof Auditing I S 0 Independent SystemOperator ISR ImplementationStatusReport KVA Kilo-Volt Ampere KW Kilo Watt LNG Liquefied NaturalGas LT Low Tension LV Low Voltage LVDS Low Voltage Distribution System MDG MillenniumDevelopmentGoal MIGA Multilateral Investment Guarantee Agency MSP Medium Sized Project NBU NewBusiness Unit NCB NationalCompetitive Bidding NEDP National Energy DevelopmentProject NEEDS National Economic Empowerment and Development Strategy NEPA National Electric Power Authority NERC Nigerian Electricity RegulatoryCommission NNPC Nigeria National PetroleumCorporation OPEC Organizationo f PetroleumExporting Countries PCB Poly ChlorinatedBiphenyls PHCN Power HoldingCompany ofNigeria PIM Project ImplementationManual PIU Project Lmplementation Unit P M U Project Management Unit PSP PrivatizationSupport Project PT Potential Transformer RCM Revenue Cycle Management REA RuralElectrification Agency ROW RightsofWay RPF Resettlement Policy Framework SBD Standard BiddingDocument SCADA Supervisory Control and Data Acquisition S I L Specific Investment Loan SOE Statement o f Expenditures SRFP Standard Request for Proposals TA Technical Assistance TDP TransmissionDevelopment Project TOR Terms o f Reference Vice President: Gobind T. Nankani Country Director: Hafez M.H.Ghanem Sector Manager: Yusupha B.Crookes Task Team Leader: S. Vijay Iyer ProgramAssistant: LilyWong Chun Sen This document hasarestricteddistribution andmay be usedbyrecipients only inthe performanceoftheir official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. NIGERIA NATIONAL ENERGYDEVELOPMENT PROJECT CONTENTS A. STRATEGIC CONTEXT AND RATIONALE ..............................................................Page4 1. 2. Country andsector issues......................................................................................... 4 Rationale for Bank involvement ............................................................................ 10 3. Higher level objectives to which the project contributes ....................................... 10 B . PROJECTDESCRIPTION ............................................................................................ 12 1 2 3. .. Lending instrument ................................................................................................ 12 Project development objective andkey indicators................................................. 12 4. Project components................................................................................................ 13 Lessons learned andreflected inthe project design.............................................. -17 5. Alternatives considered andreasons for rejection................................................. 18 C. IMPLEMENTATION ..................................................................................................... 19 1. 19 Monitoring andevaluation o foutcomes/results ..................................................... Institutional and implementationarrangements ..................................................... 2 20 3 21 Critical risks andpossiblecontroversial aspects.,.................................................. Sustainability.......................................................................................................... * . . 4... 22 5. Loadcredit conditions andcovenants.................................................................... 23 D. APPRAISAL SUMMARY .............................................................................................. 24 . 2. 1 Economic and financial analyses........................................................................... 24 Fiduciary ................................................................................................................ Technical................................................................................................................ 25 3 . 25 4. 5 Safeguard policies.................................................................................................. 27 6 .. Environment andSocial......................................................................................... 26 PolicyExceptions andReadiness........................................................................... 27 Annex 1:Country and Sector or ProgramBackground .......................................................... Annex 2: Major Related Projects Financed by the Bank and/or other Agencies 32 Annex 3: Results Framework and Monitoring ......................................................................... ..................28 33 Annex 4: Detailed Project Description ................................................................................................................ ....................................................................................... 38 Annex 5: Project Costs 56 Annex 6: Implementation Arrangements .................................................................................. 57 Annex 7: FinancialManagement and DisbursementArrangements ...................................... 58 Annex 8: Procurement Arrangements 67 Annex 9 A: Economic Analysis ................................................................................................... ....................................................................................... 84 Annex 9 B: Sector FinancialSummary 91 Annex 10: Safeguard Policy Issues ............................................................................................. ...................................................................................... 99 Annex 11:Project Preparation and Supervision 101 Annex 12: Documents inthe Project File ................................................................................ .................................................................... 103 Annex 13: Statement of Loans and Credits ............................................................................. 104 Annex 14: Country at a Glance 106 Annex 15: Map IBRD33990 ..................................................................................................... ................................................................................................ 108 NIGERIA NIGERIANATIONALENERGYDEVELOPMENTPROJECT PROJECTAPPRAISALDOCUMENT Date: May 25,2005 Team Leader: S. Vijay Iyer Country Director: Hafez M.H.Ghanem Sectors: Power (100%) Sector Manager: Yusupha B.Crookes Themes: Infrastructure services for private sector development (P); State enterprisehank restructuringandprivatization (S); Rural services and infrastructure (S) Project ID: PO90104 Environmental screening category: Partial Assessment LendingInstrument: Specific Investment Loan Safeguard screening category: Limitedimpact Borrower: Federal Government o fNigeria Nigeria ResponsibleAgency: National Electric Power Authority Plot 441 Zambezi Crescent Maitama Nigeria Tel: +(234-9)-413-6684 nepapmu@,rosecom.net Bureauof Public Enterprises 1, OsunCrescent Federal CapitalTerritory Nigeria Tel: (234-9)-413-4636 Fax: (234-9)-413-4671 www bpeng;.org . FY 2006 2007 2008 2009 Annual 40.00 60.00 60.00 13.00 Cumulative 40.00 100.00 160.00 173.OO The Project's principal objective is to continue support for the Government's energy sector reformeffort and facilitate the sector's smooth transition to thenewmarket and institutionalstructure. The expectation i s to see the emergence of strongerpower companies, policy and regulatory institutions, and increased private sector andcommunity participation, inall aspects of the electricity business. The project-term outcomes include efficiency, supply and service improvements inthe power sector, demonstration of possible models to scale-up electricity access and preparatory work required to launch the gas pipeline and relatedpower generation project. These developments are expected to provide the enabling conditions for the emergenceof a competitive energy industryinNigeria that i s better equipped to contribute to growth and improveddelivery of socio-economic services. The Project i s responsive to the GEF OperationalProgramNo. 6, as itwill address barriers to the expandeduse ofrenewable energy technologies. Project descriptionRe$ PAD B.3., Technical Annex 4 1. The transmission component comprises investments for upgradingand operating the transmission system to higher standards of supply and reliability. Technical assistancecomprises support to establish an operations and maintenance contract for the new Transmission Company, prepare several future investment projects and for management o fpotential environmental impacts. 2. The distributioncomponent comprises investments to scale-up the Commercial Reorientation of the Electricity Sector Toolkit (CREST) programinselected clusters inthe 11new successor distribution companies and technical assistance to develop new models ofprivate sector participationinthe distribution business. 3. The accessexpansion and intensification, andrenewable energy component will support design and implementationo f severalpilots, the National Renewable Energy Master Plan and the development ofmarket models for renewables and cross-sectoral energy applications. 4. Technical assistanceand capacity buildingfor preparatory work relatedto the gas pipeline and gas-to-power project, capacity buildingand operations o f the NEPAProjectManagement Unitand HIV/AIDspreventionandcommunications. 2 5. Continuedsupport for implementationof sector reforms and privatization as mandated under the Electric Power Sector ReformAct, March 2005. I Which safeguardpolicies are triggered, ifany? Re$ PAD D.5, TechnicalAnnex 10 Environmental Assessment (OP/BP/GP 4.01) and InvoluntaryResettlement (OP/BP 4.12) The Project principally involves rehabilitation of existing transmission and distribution infrastructure, involvingtemporary inconvenience to adjacentproperties and commercial activities. Network extensions, where made, will only be along existingrightsof way (ROW) and onunusedland to the extent possible. Therefore potential environmental and social impacts are expected to be generally minimal. Some localizedimpacts may occur, requiringappropriate mitigation. Since the specific sub- project locations have not yet been identified, an Environmentaland Social Management Framework (ESMF), together withaResettlement Policy Framework(RPF) were prepared and disclosedbothin- country and globally. Significant, non-standard conditions, if any, for: Re$ PAD C.5 Boardpresentation: NA Loadcredit effectiveness: NA Covenants applicable to project implementation: 3 A. STRATEGICCONTEXT AND RATIONALE 1. Country and sector issues Introduction 1. Nigeria's National Economic Empowerment and Development Strategy (NEEDS) emphasizes rapid development o f energy resources as beingcritical for growth and poverty reduction. Accordingly, the Federal Govemment of Nigeria (FGN) hasrecently acceleratedefforts for energy reforms and the eventual privatization o f various businesses. This project i s timedto support the Government's accelerated efforts. Its goal i s to facilitate the sector's transition into a competitive and efficient industry, organized along commercial lines, with significant private participationinall its aspects. 2. Therenewedreform momentuminthe electricity sub-sector is triggered bythe passageofthe Electric Power Sector Reform Act inMarch2005. Severalpositive developments preceded the passage of the Act. A high-powered reform implementationcommittee established in 1999initiated steps to secure increased investment, mainly targeting power generation. An incentive programwas mootedto promote private generation through independentpower producers (IPPs) and private sector management o f existingthermal plants through a Rehabilitate-Operate-Transfer mechanism. As a result the first of these PPs, the 480 MW Agip project was commissioned inApril 2005, whilst negotiations andor executions for further addition of 1600M W by way o f IPPs by other companies are inprogress. Taken together, public sector generation plantsand private IPPs now under construction will boost generation capacity bynearly 3000 MW over the next couple o fyears. The Government has allocated increased public capital resources towards transmission systemrehabilitations, inaddition to external donor support.' Inparallel, various facets o fthe reformprogramwere developed and implementedunder the stewardship of the key sector institutions -the Federal Ministryo f Power and Steel (FMPS), the Bureau of Public Enterprises (BPE) andthe National Electric Power Authority (NEPA). Their efforts have consistently receivedBank support through a couple o f Credits2and under a knowledge-based policy dialogue program. The reforms gained momentumwith the unbundlingo fNEPA into eleven distribution business units(DBUs), six generation units and a Transmission Business Unitbetween January and October 2004. These units are now operating as "virtual" companies as a preludeto their eventual set up as registeredpublic companies under the new Act. 3. TheDBUscommenced operations asprofit centersinJanuary 2004 with a substantial devolution o f authority and accountability. Under the knowledge engagement, the Bank helpedNigeria develop the "Commercial Reorientationo f the Electricity Sector Toolkit" or CRESTprogram-a set of initiatives that target loss reductions, energy accounting, commercial improvementsand customer service enhancements. The CREST program seeks to buildvalue inthe distribution business inorder to pave the way for further reforms and private sector participation. The first approach to such value enhancement (i.e. demonstrating a sharp increaseinthe revenues collected ineach distributionbusiness unit),therefore, has been to tackle the unacceptably highlevels of losses, curb theft, rectify inadequate metering, rehabilitate the rundown condition o f assets and improve customer service to mitigate the negative image of NEPA. CREST pilots have been successfully implemented inall the 11DBUs, yielding significant improvements inall these attributes o f the-business. For example, NEPA's revenues increased from approximately Naira four billionper month in2002 to over six billionper month in2004. Business improvements achieved inthese pilots include, new customer service centers, technology-driven ' Nigeria ~~ sought and obtained the Bank's support to finance muchneeded transmission systemrehabilitation through the US$lOO millionTransmission Development Project (TDP) in2001. Besides the TDP, support has come from apower sector component inthe Privatization Support Project (PSP). 4 innovations such as payment o fbills through mobile phone services, and rapid responsevehicular squads to address customer complaint^.^ An innovativeprogramto make loss reductions eligible for carbon finance credits i s also taking shape. Box 1: The CRESTProgram The program seeks to introduce efficiencies into electricity distribution managementthrough a best xactice framework that i s anchored on the following principles: Rightincentivesfor distribution businessto beanet cashgenerator for: (i) reducedtariffs in the longrunand for supply o f quality power; and (ii) gradually eliminate the need for Government support. Operationalphilosophyto change fromthat of a service provider to that ofretail trade in electricity. Reengineeringbusinessprocesseswithinnovative technology adaptations, leveraging InformationTechnology for efficiency, energy balancing, performance monitoring, and new HRpractice. Reorientingthe marketwith introductionof competition, well establishedregulation, standardso f service, retail outsourcing and developing technical and human slulls within the local market, for sustainableprivate sector participation. The key action elements of CREST are: e Distribution business outsourcing (either inring-fenced distributionzones/clusters or inretail pockets such as housingestates, markets, and industrial areas) on bulk service to customers. e Distribution function outsourcing. 0 Metering of all customers. e Rationalizebill estimation value inthe interim. e Electronic and spot-billing of customers, including provisionofprintedbills and collection of `on-the-spot' payments through cashcards (cashless transactions). 0 Energy audit of distribution feeders. e Remote readingof major customers to eliminate fraud inmeter readingand collusionbetween unscrupulous stafflcustomers. e Highvoltage distributionsystemsto reduce theft andlosses. e Internet basedcustomer records for greater transparency and information. e Customer service centers for improving utility-customer interface. e Rapidresponsemobile customer service units. e Focusingon collectinggovernment receivables. e Asset and facilities management. e Performance measurement and monitoring. e Database and data mininginitiatives including GIWGPS techniques. A US$15 millioncomponent to finance the scale-up of CRESTinitiatives is under implementation as part ofTDP. 5 4. A keylesson from CRESTpilots is that investmentsmadeinspecific areas or customer pockets inelectricity distributionyieldhighreturns interms ofoperational, financial andcustomer service enhancements. It is therefore prudent to apply CREST to loadcenters that are critical for growth and where power matters most for overall economic development. The Government's strategy i s to therefore leverage the CREST programto create "islands of excellence" ingroups of selectedareas at a time. These areas or clusters as they are referred to, are the focus of this Project's design. A cluster i s a group of customers that are servedby an electrically demarcateddistribution and sub transmission n e t w ~ r k . ~ The project aims to implementCREST-style improvements inthese clusters andreplicatethe positive outcomes of earlier pilots described above. Efforts will also bemade to ease bulkpower supply constraints inthese clusters by corresponding investments to improve the transmission network. 5. The electricity reformprogram, ofwhich the unbundlingand CREST interventions are a part, has moved into high-gear with the enactment of the Electric Power Sector ReformLaw (EPSR Act).' The Govemment has entered into a secondround o freforms to translate its policy intentions into real changes and achieve sustainable outcomes inthe next 3 - 5 years. Under the stewardship o f the National Council on Privatization, and inpartnershipwith FMPS andNEPA, the BPE i s leadingthe implementation ofthe time-bound provisions ofthe EPSRAct (see Box 2). NEPA hasbeentransformed into an Interim HoldingCompany (referred to as the Power HoldingCompany o fNigeria plc) andthe 18business units are being incorporated as successorcompanies-a singlenational Transmission utility, 11Distribution and 6 Generation companies. Independent management structures andbusinessplans for these companies are being developed. The BPE i s launchinga programto invite private investmentinthese companies, with a strongpreference for outright privatization, where feasible. TheNigerianElectricity Regulatory Commission (NERC) i s being established. Mandatedinstitutions under the EPSRAct include the Rural Electrification Agency and the Rural Electrification Fundto promote country-wide electricity access expansion. The expectation i s that over the next 3 - 5 years, the power sector will emerge as a competitive industry, withprivate sector actors owning and operating significant parts of the business, and operating with viable economic and financial fundamentals. Furthermore, substantial growth in access to electricity is envisagedthrough an efficient combinationo f federal, state, private sector and community models. The emergenceof this commercializedsector would eventually putto rest the tortured legacy o f several years o f chronic power shortages and relatedeconomic blight. 6. Several challenges and choices have to be addressedinthe transition period. The most optimistic scenario for privatization foresees over a half of the 18 companies beingdivested over the next two years. At the end ofthe transitionperiod, companies couldtherefore beunder different forms ofprivate participation or still under public management. Strategic investmentand management choices therefore have to be made ina manner that could enhancethe value o f the companies to attract prospective investors. The transition would also have to cater to consumer expectations of improvedpower supply and service quality. The national debateprecedingapproval o fthe Act has also created expectations for rapid expansion of electricity access. The Government i s already implementing a major program in partnership with oil companies to establish large capacity PPs, such as the recently commissioned 480 MW IPPbyAgip. The Government will not only have to findways to service the growing IPP obligations, but also investintransmission system enhancementsnecessaryto dispatch additional power. Furthermore, there i s a compellingneedto address distribution efficiency enhancement to improve the sector's financial performance. For a more detailed explanation o fthe cluster concept, please refer to Annex 4. Specific clusters for targeted 'improvements2005 are beingpreparedby NEPA for project implementation. EPSRAct dated March 11,2005. 6 The NEPA Initial HoldingCompany (MC) is to be formed within six months, with the shares to beheldjointly byBPEandMinistryofFinance. Assets andliabilities ofNEPA areto be transferredto the MC. Staff o f NEPA are to be transferred to IHC or the Regulatory Commission. All rights and obligations (e.g. pensions) are to beproperlymaintainedandallocated. Incorporation ofNEPA Successor Companies within eight months of initial transfer date with shares insuccessorcompanies to beheldjointly by Ministry o f Finance and BPE, and assets, liabilities, employees of M C to betransferred to successor companies within one year. The Act provides for NERC to be set-upas a formal, independentregulatory agency and govems the appointment and tenure of its six commissioners. NERCand Licensee(s) shall develop: Customer service standards. Customer complaint handling standards andprocedures. Codes of practicefor the needs of special customers. Proceduresfor dealing with customerswho have dificulty paying bills. Proceduresfor applyingfor electricity service. Proceduresfor disconnecting non-paying customers. Information to be made available to consumers,and the manner of its dissemination. A RuralElectrificationAgency will be established and will operateunder the close supervision of the Minister ofPower and Steel. A RuralElectrificationFundwillbe establishedto promote access ofelectricity to rural areas. 7. Compared to power, the reforms inthe gas sector are at an earlier stage o f development. Progress i s beingmade on enacting new legislation for the natural gas sector as well. The reforms would enable Nigeria to harness abundantnatural gas resourcesfor power generation and industrial uses, as against the large scale gas flaring that occurs now. Hence, the support needed i s more inthe realm of technical assistanceto fashion reform instruments. Intensive preparatory work i s neededto realize the vision of developingnaturalgas resources inthe southern parts o f the country and transporting it via pipelineto the northem and eastemregions o f the country. IssuesConstrainingAchievement ofBetter Sector Results 8. Low Access. Access to cost-effective and sustainable energy services i s critical to re-launching theNigerianeconomy andmeetingMDGandNEEDStargets. However, barely40 percent ofall Nigerianshave access to electricity services, with only a fifthofruralhouseholds covered. This leaves about one hundredmillionNigerians literally inthe dark. To increase "real" access to 75 percent by 2020 would require over US$10billion ininvestments. This i s inaddition to the US$6 billion or so required for expanding power generation from the currently available 3,200 MW to about 10,000 MW inthe same period. Total investment costs alone couldbe approximately two to three percent of Nigeria's annual GDP over that period, with financing of operating deficits being additional to this amount. Increasing access at arapid pacewill also require different and more efficient models as opposedto the grid-based expansion-only model employed at present. The capital investmentpart o f the current rural electrification accessprogram i s executedby the FMPS and by the States. Costs are high, sometimes inthe order o f US$1,000 per connection, and community participation and contributions are minimal. Reticulation 7 networks once completed are handedover to NEPA for operations and service to customers. Inview of the chronic shortageofpower inthe systemand the low tariffs for rural domestic consumers, NEPA has little interest or ability to service these networks and supply power to any reasonable standard. The most frequent results observedtherefore are a gradual deterioration of capital assets, large scale vandalism and theft of materials and little or no service. The ongoingreformprocesswill changethe rules of the game, allowing new institutions and stakeholdersto participate inaccess expansion. Therefore, new mechanisms for involving stakeholdersand expanding access have to be developed and tested, to serve as inputsindevelopingaltemative ways ofproviding access. 9. Weak Asset Base and BusinessModel. Power production facilities are inpoor shape and therefore, rarely operatedto capacity. Against a nameplate capacity of nearly 6,000 MW, only a maximum o f 3,200 MW i s available for supply today. Transmission and distributionnetworks are dilapidated, poorlymaintained and inefficiently operated. Onthe business side, there is a large gap between power sold andpower billed, and between power billedand revenue collected. As aresult, the sector loses nearly two Naira for every kilo watt-hour (kWh) o f electricity sold, which, combined with low efficiencies ingeneration and distribution, result inan annual cashdeficit o f over US$120 millionto the utility. Lack o fmetering, outdated information systems andinconsistent billingpractices are the principal causes for severe revenue losses. Electricity tariffs are not cost-reflective, buttariff revisions are not possible unless supply and service conditions measurably improve. Management practice lags what is prevalent inother countries and a lack o f commercial culture pervades the system. Operationand maintenance of the systems to prescribed standards and generating adequate cash from retail operations will requirereengineering of outdated businessprocesses, upgradingofmanagement skills and incentives and appropriate investments inknowledge and humanresources. 10. Absence of Appropriate Regulation. Currently there isno independent price or service regulation for gas or electricity supply. Intheory, the Federal Ministry of Power and Steel (FMPS) i s supposedto exercise regulatorypowers, but it i s not equipped to discharge this function. It does not have the necessarypolicy or technical staff, and the oversight responsibility isnot independent, butrather i s executed through a Technical Committee chairedby the Minister andprimarily staffed byNEPA officials. Lack o f administrative capacity andthe nascent state o f emerging sector regulationposes significant challenges for public or private operators of the various companies inthe transition period. 11. The ChallengeofPrivatization. Privatizationofthe electricity sector is viewed as apanaceafor addressing the sector's problems andreforms are being drivenby expectations that privatization can be quickly realized. Inthe current global environment, where appetite for investment inthe power businesses of developingcountries i s low, it i s unclear to what extent the private sector inNigeria and overseas would respondto the reformsignals. The policy, legal, andregulatory environmentrequired to attract and sustain private investment is nascent. Complex staffing and financial liability issues such as un-serviced debt andun-fundedpension liabilities pose further barriers to attract investors. Nigeria i s a very large country with great diversityinelectricity accessrates, averageper capita energy demand, availability o f energy sources and customer mix. As such, different companies born out o f the restructuringwould require different strategies to attract privateparticipation. Some, for example the largely rural Yola distribution company, maynot be attractive for private participationinany form for some time to come. Other companies or areas may invite investor interest more readily. Privatization op*ons, inaddition to the immediate sale o f assets would need to be considered. Thesrcauld include ~ concessions, outsourcing arrangements and management contracts, arrangementsunder which private sector management can be securedwith little or no investment obligation. The Govemment thus faces the transition challenge o f making the rightchoices, undertakingthe appropriate preparationfor inviting privateparticipation, and sequencing its actions effectively. Although challenging, the transitionperiod i s also an opportunity for the Govemment to "create value" and "reduce risks" o f the sector through the rightinterventions that demonstrate a viable businessmodel to attract private investors intothe sector. 8 12. Absorbing andPayingfor IPPs. The Government has askedoil companies active inthe country to develop large IPPs with a view to bridge the generation gap. These companies are developing large projects, each inthe 400 - 1200MW range, with the security of government guarantees and hedgedby oil revenues. The case for improvements even inthe transition i s made compellingby the emerging needto service these substantial IPPobligations. The obligations are expectedto rise from around US$70million per annumpresentlyto US$230 million in2007. Capital cost obligations to IPPs itselfwould absorb nearly all the revenues that NEPAcollects from sale ofpower today.6 Henceboththe sector and the government are vulnerable, unless efficiency improvements and revenue growth can be quickly realized. As IPPs are commissioned, there is anurgentneedfor concomitant actions to establishtransmission infrastructure to evacuatepower and distribution improvements to mobilize enhancedrevenues to service IPP payments. Government Responseto Resolutionof Sector Issues 13. The Government strategy seeks to strike a balancebetween short- and longer-termactions in managing the transition phase. The key elements of the Government's strategy to be implementedinthe nextthree years andto set the stage for the sector's eventual take-off are to: (i) CompleteNEPA restructuring, audit assets and liabilities and apportionthese among the various companies, and sort out its staffing, pensionand other personnel liabilities, including necessaryright-sizing of staff. (ii) Establishand operationalize the NERC. (iii) Prepareprivate participation solicitations such as sale of assets, concession, management contracts, for an initial slate o f distribution and generation companies. (iv) Continue implementation of distribution commercializationinitiatives to improve efficiency and deliver better services throughpublic private partnership initiatives along with standalone utilityinterventions, especially inareas where electricity is akey input to growth, such as inurban and industrial clusters. (v) Reinforce and expand the transmission system to ensure efficient and reliable power flows; and to develop a framework for a technical operations and maintenance (0& M) contract. (vi) Explore alternatives for reducing government guaranteesto IPPs bypossible direct revenue assignments from upgraded and/or outsourced distribution zones or clusters. (vii) Increasefocus on intensification of access inperi-urban andrural areas through the participation o f communities, stateflocal governments andprivate action. (viii) Commence preparationof a public-private partnership programto develop natural gas for country-wide access -for power generation through IPPs, and industrial use. (ix) Increasediversity o f energy resourcesbypromotingrenewables through a national Renewable EnergyMaster Plan. The tariff obligations to the IPPsrepresent approximately 2 UScikWhinfixed costs against an average tariff of approximately 4.4 UScikWh in2004. Incashterms, the fixed costs alone are approximately equal to the current averagerevenue yield of 2.3 UScikWh. 9 14. The different sector entities (Ministry,BPE, NEPA) broadly agree onthenature and sequencing of reformand investment measuresduringthe transition. The consensus and the way forward i s to be captured ina "Transition Action Plan" paper. BPE is coordinatingthe preparation and execution o f the Transition Action Planwith the principal stakeholdersof the sector. The plandocument will provide a descriptiono fthe short- and medium-termstrategies, their sequencingand the expectedoutcomes from the reformprocess. Itwill also provide clear identificationand definition o fthe roles andresponsibilities of differentpolicy makers and executing agencies. The mechanism and level at which the strategic collaboration will take place will also be described inthe paper. 15. Thisclear government articulationwill facilitatethe focus ofthisproject support andthat of future Bankprojects into the rightareas. The strategy, when articulated, would also be consistent with IDA'Sapproach under the new CountryPartnership Strategy beingpresentedto the Boardwith this Project. While it is hoped that privatization will turn out to be a viable sector remedy, the Federal Government of Nigeria (FGN) i s also realistic regarding expectations -both interms ofmarketrisks and the sector's ability to hedge suchrisks. Thus, and inthe case that large amounts ofprivate sector investment do not materialize, the government intends to seek support for measuresthat strengthen the public sector to achieve increased sustainability and access inthe sector. 2. Rationale for Bankinvolvement 16. Recognizing the central role that electricity plays inthe country's growth and poverty reduction strategy, and inlight of the challenges highlightedinthe previous section, the World Bank's strategy i s one o f consistent and long-term engagement. As o f now, the World Bank is the only large international development institution active inthe sector. Other development partners, such as the African Development Bank are interestedand mightre-engage once the sector begins to show irreversiblereform results. The Bankhas several advantagesinproviding sustained support to the energy sector. Firstly, it can commit the scale o f fundingand the prolongedperiod for which it i s requiredto achieve visible impacts ina large country like Nigeria. Secondly, its staff has the experience to address the key issues- reforms, utilitymanagement engineering, regulation, strategic communications and commercializatiodprivatizationofutilities. Finally, energy utilities will need substantial financing from private sources, and the Bank Group is perhaps uniquely positioned interms of expertise and knowledge to assist the government inestablishing the necessaryconditions andenvironmentto make this possible. The Bank's value-addition comes from: (i) knowledge-based adaptation of global best practice inutility management and innovation to create value in the Nigerian context; (ii) leverage o f IDA resources towards minimizingbusiness and regulatoryrisks andpromotingprivateparticipation; (iii) ability to enhance economic benefitsthrough a focus on growth clusters; and (iv) use of innovative performance- basedmechanisms such as carbon finance to reduce risks and encourageprivateparticipation.' The proposed Project embracesall these principles indesigningits interventions. 3. Higher levelobjectivesto which the project contributes 17. ThisProject ispresentedto the IDABoardofExecutive Directorsfor approval with the new Country Partnership Strategy (CPS) for Nigeria. The CPS will assistNigeria implement the NEEDS' long-termgoals ofwealth creation, employment generation andpoverty reduction. These goals are to be Carbon fmance refers to an innovative mechanismwhere projects indeveloping countries that demonstrate reduction o f greenhouse gas emissions can sell emission credits to globalbuyers seeking to meet their obligations to reduce emissions. This market is created by efforts to reduce global climate change including commitments adopted voluntarily inseveral U.S. states, those embodied by an EuropeanUnion - EmissionsTrading Scheme, (EU-ETS), as well as the CleanDevelopment Mechanism (CDM) created under the UnitedNations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol. 10 achieved through three main interventions: (i) enhancedservice delivery for human development; (ii) improvedenvironment and services for non-oil growth; and (iii) transparency and accountability greater for better governance. The Project will contribute to the realizationof the first two goals. 18. Under EnhancedServiceDeliveryfor Human Development,NEEDS envisages electricity access as one way to improve the delivery o f essential social services and expand economic opportunities. In view o f the difficulties inestimating rural electricity coverageina systemhighlydeficient o fpower supply, the project defines measurabletargetsonthe basisof "how many more households and enterprises" gain accessto electricity. At present, the only mode o f access expansion inNigeria i s network expansion -under which the FMPS and the States execute capitalprojects and hand-over assets to NEPA for operation. As pointedout earlier, this approach is highcost, time taking and produces poor quality outcomes for the beneficiaries. The Project seeks to address the huge challenge of expanding electrificationina modest way by first determiningviable alternatives to the current mode o f grid-based access expansion, and an increasedrole for renewable energy. 19. Under ImprovedEnvironmentand Servicesfor Non-oil Growth,the focus is on improvingthe coverage and quality ofbasic infrastructure to accelerate economic growth. Past experience inNigeria and other similar large countries has demonstrated that pro-growthinterventions fail to generate synergy ifdispersedover awide geographical area. Therefore, theCPSplacesrelianceonselectedinterventions inleadstates to assureremovalofcritical roadblocks to growthinruraland urbanenvironments. The Projecttranslates this "growth focus infrastructure" approach into one of improving power supply and service in"clusters". Thus the Project investments will be channeled into improving the business fundamentals, efficiency o f operations, customer orientationand commercial management inelectrically "ring-fenced" areas or clusters to realize quick results. Such clusters couldbe potential growth centers such as industrialhommercial areas or peri-urban locations with concentration of economic activity. Nigeria has the resources and capacity to scale up successfid models countrywide. The Project will also generate some global environmental benefits inthe form of carbon emission reductions which would be eligiblefor carbon credits. 11 B. PROJECTDESCRIPTION 1. Lendinginstrument 20. The instrumentsare a Specific InvestmentLoan(SIL), anda GEFMediumSizedProject grant, 2. Projectdevelopmentobjectiveandkey indicators 21. The Project's principal objective is to continue support for the Government's energy sector reform effort and facilitate the sector's smooth transition to the new market and institutional structure. The expectation is to see the emergenceo f strongerpower companies, policy andregulatory institutions, and increasedprivate sector and community participation, inall aspects of the electricity business. The project-termoutcomesinclude efficiency, supply and service improvements inthe power sector, demonstration of possible models to scale-up electricity access and preparatory work requiredto launch the major gas pipeline and relatedpower generationproject. These developments are expected to provide the enablingconditions for the emergence of a competitive energy industryinNigeria that i s better equipped to contribute to growth and improveddelivery o f socio-economic services. 22. Progresstoward outcomes will be measuredby: (i) Outputs on reforms that include: (a) emergence of new institutions inthe form of NERC, successor electricity companies, the Rural Electrification Agency and the Rural companies andor clusters; (c) launchof 1- 2 access expansion pilots; and (d) analytical Electrification Fund;(b) development of workable privateparticipationmodels ina few inputsto establishrational and efficient domestic energy pricingstructure. (ii) At a cluster and sector-wide level, as the case maybe, value addition willbe measuredby indicators that include: (a) higher voltage level reliability indices for transmission; (b) improved technical/commercial efficiency and customer service quality indicatorsfor distribution; (c) improvedvalues o f standard financial indicators; and (d) number o fnew consumers connected. Prior to including any cluster under the project, a baseline o f these indicators will be established, against which the Project outputs and impacts will be evaluated. Targets will vary from cluster to cluster depending on initialconditions, customer mix, the location and the type o f interventions made. (iii) Qualitative measures will include periodic customer satisfaction surveys, visual inspections and site visits and feedback from civil society informal and ininformal settings. Monitoring and ex-post independent verification of carbon emission reductions achieved will be undertakeninorder for the sector to earn additional performance-based payments. GlobalDevelopment Objectives 23. The project is consistent with the recognitiono frenewable energy as an important element of overall energy supply. The Project is responsive to the GEF OperationalProgramNo. 6, as it will begin to address barriers to the expanded use of renewable energy technologies, by creatingan enabling environment for grid-connected and off-grid renewable energy sources. The envisaged outcomes are closely linkedto two strategic priorities for the climate change focal area. These include: (a) inputsto develop power sector regulatory framework and policies for renewable energy promotion; and (b) 12 innovative interfaces to other development and investment efforts, that require energy supply, for example inagriculture, water supply, rural small and micro enterprises, education, andpublic health. 3. Project components 24. The Projectproposesto deepenassistance for electricity and gas sector reforms and support investments required for a smooth transition, Inelectricity, such assistancewill include support for the establishment and operationof the market structure and sector institutions; realizationof the transmission system upgrades; and distribution investments and managementinselectedclusters. Inthe gas sector, the Project will support the development of a domestic gas market on the basis of a unified, coherent institutional approach to address all critical issues. This entails unifyingmultiple mandatesinto a single Steering or Oversight Committee reporting directly to the President, assistedby working groups that address different subject areas relating to policy, commercial and technical aspects. Terms o freference for the Committee and the working groups will borrow heavily from those for the existingPresidential Committees -the main difference inapproachbeingreliance on one collaborative, rather than several competing arrangements. Subject to success inachievingthe desired outcomes, and a well managed reformtransition phase, a scaledup IDA operation for further investments couldbe possible within the next two years. 25. Inthe electricity sectorthe Project would finance investments insome system-wide activities, such as equipment for transmission systemloss reduction, power quality improvement and improved control systems as well as creation o fnew IT systems for customer interface and metering of all industrial and commercial customers. The investments indistribution, however, will be cluster-based. One model being contemplated is outsourcing distributionoperations ina cluster to a private entity, which inturncan contract power generation fromNEPA successorcompanies or private IPPs to supply electricity to the cluster with a higher degree o freliability. It i s expected that such operations will create a pool of local and foreign private sector companies that could, through the experience o f managing smaller distribution and generation assets inNigeria, gain the ability to operate larger companies and manageNigerian risk. This approach would enhancethe likelihood of successful privatizationoutcomes for the newcompanies, reduce risks and enhance the retums for public and private investment. Collaboration withIFC and MIGA-as well as the potential for hardcurrency payments from carbon finance -is envisaged in makingprivate participationmodels feasible. A project description by component is attached inAnnex 4. 13 Summary Project Description 26. The following table summarizes the Project description by component, cost and financing. Project Description All figures in US$ million Component Description Total IDA GEF %IDA Cost Fin. Fin. &GEF 1. Transmission System Development System Rehabilitationand Capacity Expansion 105.1 99.8 0.0 Developmentof new lines 2.6 2.6 NationalElectricityLoad DemandStudy 1.5 1.5 Updated TransmissionGrid Design 1.0 1.0 0& McontractingforTransysco 2.0 2.0 Bid preparation Kainji Rehabilitation 0.5 0.5 Engineeringand ImplementationSupervision 2.0 2.0 Environmental,Socialand SolidWaste Management 1.0 1.0 Contingencyand unallocated 10.0 9.5 Sub Total Component 1 125.7 119.9 95 2. Distribution Efficiency Enhancement Distribution system Upgrade 25.0 23.8 0.0 EngineeringSupervision 0.5 0.5 System Protectionand CoordinationWork 0.5 0.5 Databasedevelopment for DistributionOperations 3.0 3.0 Technical and BusinessDevelopmentAdvisors 0.5 0.5 Preparationof BusinessPlans for DistributionCompanies 1.0 1.0 Capacity Buildingfor Distribution Companies 0.5 0.5 Contingencyand unallocated 2.2 2.1 Sub Total Component 2 33.2 31.9 96% 3. Access Expansion, Intensificationand Renewables Cofinancingof Access expansion/intensificationpilots 8.0 6.5 0.6 Design, Developmentand Implementationof pilots 1.1 1.0 0.1 ImplementationSupportfor Renewable Energy Master Plan 0.5 0.3 0.2 Innovationof Cross-sectoral EnergyApplications 0.4 0.3 0.1 Sub Total Component 3 10.0 8.1 1.0 91 4. TechnicalAssistance Project Management Unit - Developmentof Gas Pipeline and Gas-to-Power Projects 5.0 5.0 0.0 Env., Resettlementand Social Unit CapacityBuidiing 1.0 1.0 Developmentof Corporate Planningand Strategy Unit 0.7 0.7 IncrementalOperatingCosts 1.0 1.0 HIWAIDsPreventionand CommunicationCampaign 0.5 0.5 Sub Total Component4 8.2 8.2 100 5. TechnicalAssistance Reforms and Private Participation - Advisory Servicesfor Distribution Business Development 1.0 1.0 0.0 Developmentof Risk Mitigation Instruments 1.0 1.0 Communicationsand Outreach 1.2 1.2 Capacity Buildingfor Sector Institutions 0.7 0.7 Sub Total Component 5 3.9 3.9 100% Total 181.0 172.0 1.0 96% Note: The component on cofinancing of access and intensificationpilots includes an estimated US$O.9 million from local and state govemments and private sectodcommunities. 14 27. Component One: Transmission. This componentwillprincipally support investments in transmission system upgrades including: (a) gridreinforcements; (b) reactive power compensation; (c) transmission supply strengthening for distribution clusters and access expansiodintensificationpilot areas; and (d) system meteringand control enhancements, including extension of the SCADA System and bulkmeteringreinforcement. To the extent that several ofthese interventions will createbetter system optimization and more efficient operations, they will result incarbon emission reductions that can be monetized. The non-investment component will support the development of several new projects including: (a) anew 330 kV transmission line with an eastemroutingto close the loop on the existing U- shapedbackbone 330 kV transmission system. The new line would significantly increasethe grid capacity andreliability of the entire network by enabling supply to the northand eastemparts of the country; (b) a national electricity load demand study and updated transmission griddesign plan; (c) bid preparation for KainjiHydro complex rehabilitation; and (d) engineering and implementationsupervision. A specific provisionhasbeenmadeto defray costs ofenvironmental, social and solid waste management includingbetter management ofPoly ChlorinatedBiphenyls (PCBs) and Sulfur Hexafluoride (SF6), a powerful greenhousegas usedfor insulation inhighvoltage electricity switchgear. The component includes preparatory work to launcha technical operations and maintenance (0& M)contract for the Transysco. The 0 & Mcontract would include knowledgetransfer, enablingthe staff to gain world-class experience inthe field of modemtransmission managementand preventivemaintenance. Payments for carbon savings couldbe linkedto the performance of the 0 & Mcontract to reduce SF6 emissions. 28. Component Two: Distribution. Underthe ongoingTDP, the Bankhasprovidedsupport to NEPA for a knowledge-based CREST program, supported by investments underthe current management.* The results o f the CREST programhave demonstrated substantial technical and commercial value additionto NEPA business. Therefore, under this Project, CRESTinvestmentsand support will be scaled up for NEPA and its successor distribution companies. The substantial technical and business impact o f CREST has now made it a strategic entry point for attracting private participation indistribution. Hence, inadditionto investmentfor CREST scale-uptoNEPA, the Projectwill support through technical assistance(implemented by BPE under Component 9,the actions requiredto further develop and adopt two possible models of public-private partnership to enhance CREST. This will involve leveragingprivate sector capacity to complement IDA financing for the investments necessaryto improve the distribution system, and deliver more efficient and effective services. These two approaches are described below: (i) Distribution business outsourcing, under which a selectedpart o f the distributionnetwork or a customer cluster wouldbe ring-fenced and outsourced to a privateparty for a 3 - 5 year periodunder competitive tender. The biddingwould be on the basis of investments required for achievingdesired performance levels. The cluster operator would managethe retail business by purchasing power inbulkfrom NEPA or other generators and distributingit to customers inthe cluster. The operator would pay wheeling charges to NEPA or its successor for the use o f the distribution network. All investments financedby the Govemment and managedby the operator inimproving the network would be duly accounted for. The Project would assist indevelopingthe model that would include support for the investments in upgradeswhich arerequiredto bemade by the utility. NEPAis already experimentingwith this approach through a pilot inAba with private participation. * Commercial Reorientation o f the Electricity Sector Toolkit or CREST aims at improving efficiencies through businessprocess reorientation and technological innovations. 15 (ii) CRESTdistributionfunction outsourcingwould be developed inother clusters, where investments ingoods and services relatedto implementationof the CREST programwill be finan~ed.~These investments would be targeted to strengthen distribution infrastructure, improve quality of supply and customer satisfaction, curb electricity theft andimprove revenue realization. The Project proposesto develop biddingdocuments and support the biddingprocess for this approach. The contract would be on aBOTbasis for some initiatives meters, meter reading and generation o fbills for the entire BOTperiod of 3 - 5 years. For like meteringwhere the BOT contractor might for example beresponsible for installation of other activities like customer service centers, the contractor couldberesponsible for setting upand operating the center, and for customer grievanceresolutionbycoordinatingwith utilitystaffunder anincentivearrangement,which would have to be worked out underthe proposed TA support to BPE for the design of private participation options. Under this arrangement IDA would support investments as far as the costs of goods and installation are concerned. The borrower utility would bear the cost of services and operating expenses under the BOTarrangement. 29. ComponentThree: Access ExpansionandIntensification, andRenewableEnergy. This component will support the design and implementationof several access expansion, intensification and renewable energy pilot projects. The pilots are expected to provide inputsfor the policy, legal, regulatory and institutional frameworks being developed. This component will help to develop market models for renewables, such as standard, bankable contractual agreement for grid-connected small hydro power and market penetration for solar PV technologies. Support will be extended also for the implementation of the National Renewable Energy Master Planto reinforce its outcomes. The component will also support cross-sectoral energy-baseddevelopment compacts. 30. ComponentFour: TechnicalAssistanceand Capacity Building. This component intends to finance the development work for the proposed South-North gas pipeline and relatedgas-to-power projects. Specifically the following four activities will be financed: (i) gas Act implementation support; (ii) regulatory Commission set-up, capacity buildingand initial operations; (iii) developingrational energy pricingand taxation regimes; and (iv) review o f the financial, commercial and technical viability ofthe gas transmission pipelineand associatedpower projects. The component will also support the capacity buildingand operations o f the PMU, including its Environmental, Resettlement and Social Unit (ERSU) andits eventual re-incarnation as a specializedProjectManagementUnitinthe form ofa Corporate Planning and StrategyUnit for the Government. A small component for HIV/AIDsprevention and communications has also been included. 31. ComponentFive: OngoingSupportto Sector Reforms. Interms ofthe Project's overall development objective o fproviding support to the Government's electricity sector reformprogram, this is a critical component, particularly giventhe leadingmandate of BPE under the provisions ofthe EPSR Act. This component comprises provision of specialized technical assistanceto lay the groundwork for sustainable private sector participation inthe sector. Specifically, the following four activities are contemplated: 0 Continued support for ensuring the speedy establishment, effective operation and capacity buildingneeds for various sector institutions under the reformprogram. These include: high voltage distribution systems, metering withremote reading and automatic reading facilities, reactive power compensation by installation of online capacitors, customer care centers, spot billing and payment mechanisms, andrapidresponse customer service vehicles. 16 e Advisory services to privatize the electricity sector distribution business and to develop two other alternate options: (i) distributionbusiness outsourcing; and (ii) CREST distribution function outsourcing. e Design o f customized privatizationriskmitigation instruments for achievingpositive, sustainable privatizationoutcomes. e Formulate and implement communicationand outreach initiatives for energy sector stakeholders to buildconsensus and facilitate the implementationo f the reformprogram. 4. Lessonslearnedandreflectedinthe projectdesign 32. Lesson1: ProjectDesign. Withregardto the design ofthis Project, some ofthe lessonsof experience considered are as follows: (a) Global experience suggests continuationof investments to the sector duringthe reform transition period, particularly when such investments assistloss reductionand contribute to ending the culture ofnon-payment. Improvements inthe sector's businessprocesses and attributes are important for private sector participation. Investments are also important for the provision of stable services so as to maintainpoliticaland public support for the longer-termreformprocess. (b) Inidentifyingandpreparingbidsfor the areastobe offered for private sector management, it i s important to balance areasrequiringcross-subsidy with areas likely to generate surpluses. Such combinations ofpositive andnegative cash flow areas could possibly be offered to investors under one bidpackage, inorder to limitthe need for continuedGovernment support to "unattractive" areas (i.e. those requiring subsidy and therefore of less interest to the private sector) beyondthe transition stage. The possibility o f differentiatedpricingfor various categories of end-users should also be considered. (c) Customer satisfaction surveys updated at least annually, are a useful tool for monitoring results and keepingstakeholders engagedunder the Project. A competent, domestic civil society organization i s generally best placedto carry out such periodic customer surveys and to provide external monitoring feedback. 33. Lesson2. CustomizedTraining. On training, there will be a growing needfor middleand lower level managerso f the successorcompanies to develop cutting edge management and decision- making skills. A customized training programwas recently formulated inassociation with Virginia Technical University, USA to provide hands-on utilitymanagement training together with site visits to several utilities to complement classroom training. Eachparticipant hadthe opportunity to address specific managementchallenges faced inNigeria. Several outputs from this training have been directly incorporated into the design o f this Project. This helped inimproving boththe quality and timeliness of the project preparation process. The lesson learnt is to customize training and development inputsand to tailor themto real-life situations, rather than to follow a conventional study tour/classroom training approach. 34. Lesson3. ComplementaryKnowledgeProducts are Criticalto Success and CanHelpwith Coordination. The Bank teamhasrecently beenpro-active interms ofknowledge products, such as the Power Sector Leaders' Workshop series, which serves a coordination function and allows unconstrained exchange of views among stakeholders. The successful CREST program is one example o f a knowledge 17 product with very practical and positive applications. Iti s therefore likely that the practice of at least two knowledge workshops ayear will continue duringthe proposedProject, and will also be helpfulin addressingthe capacity buildingand coordination issues for the new actors. The lessonlearned i s that a catalytic role playedby an external party suchas the Bank or another donor, inadding value to Sector Leaders' decision makingprocesses, may oftenbe requiredto share knowledge and improve the quality of decision making. 35. Lesson4. ImprovedCommunicationsTailoredto Various Stakeholders. The impact of positive communications with stakeholderswas evident at a recent National Stakeholders'workshop organized by the BPE. All throughthe transition period, there will be a continuous needto keep stakeholder and public expectations inline with ground realities. A strategic communicationprogram spanning the transition periodhas been shown to produce positiveresults inmitigating risks and fostering favorable investor perceptions inother countries that have gone through similar reformprocesses. 5. Alternatives considered and reasonsfor rejection 36. Implementationthrough multiplesector agenciesversus a single agency. An implementation option that was initially considered and later rejected, was to give each sectoral institution the responsibility for implementingits respective project component. Under this option, for example, Transysco would have been responsible for goods and services procurement pertaining to transmission; the DBUswould eachhaveprocuredtheir part of the CREST distribution investments; and support to the gas sector would have beenprocuredthrough the Ministry. This alternative was rejected, however, in favor of one single implementingagency to executemost components so as to lower transaction costs and develop a core team withproject management expertise that could bepositioned toprovide longer- term strategicsupport to a range of sector clients, in thefuture. 37. Includinglarger distributioninvestmentsinthis projectversus a futurefollow-on project. The Project could have includeda larger distribution investment component to cater to the substantial need for network improvements. Such investments would then have been deployed under private sector distributionbusiness outsourcing or distribution function outsourcingmodels. However, at the intervention of BPE it was recognized that development o fthese privateparticipationoptions couldtake some time. Therefore, the choice was made to include only technical assistanceunder this Project to develop these options and defer the investments requiredto a future project that couldbe developed in tandem with progress inthe privatizationprocess. 18 C. IMPLEMENTATION 1. Institutionalandimplementationarrangements components 1- 4, whilst BPEwill implement component 5. 38. There will betwo implementingagenciesunder the Project: the NEPA-PMUwill implement 39. Rationale for Institutional Arrangements. One of the key lessons leamedfrom the ongoing projects inNigeriai s that project managementcapacity development takes time. Inorder to ensure timely andhigh-quality implementation, established agencieswith demonstratedcapacity shouldbe involved. Bothexecuting agencies-NEPA-PMU and BPE-come with an establishedtrack record. This Project i s designed to eventually decentralize all technical and operational functions, and buildutility management capacity at the individual company level, while retainingpolicy, strategy, and planning functions at the centralized federal level. 40. The P M Uis currently incharge of implementingthe TDP. It is rated satisfactory inall aspects o f project implementation. As an implementationagency for this project, it will have five sets o f clients - transmission (Transysco), all the 11distribution companies, the access component where the clients include State Governments, ECNand Community based organizations, the gas sector PIUoperated by the MinistryofPower andSteel andthe PMU's ownERSUwhichwillhaveto ensurebroadenvironmental and social compliance of all aspects o f the project. This unifiedimplementationarrangement for several clients would be efficient because: (i) project implementation will be coordinated among all relevant institutions and successorentities; (ii)economies o f scale and uniformity inquality and specifications in procurement can be realized; (iii) synchronized policy making (on technical and other aspects) among all the Project stakeholders will bepossible; (iv) the transaction and implementationcosts can be minimized; and (v) single-point tracking of all project outcomes, accounts and safeguardcompliance will be facilitated. 41. Thoughproject implementationwill commence with PMU housedinNEPA,by usingthe capacity createdunder the ongoing project, the PMUwill subsequently be transformed into a "Corporate Planningand Strategy Unit" (CPSU) duringthe life o fthe Project. The PMU/CPSU will be initially overseen by the Board ofNEPA and work inclose coordination with the FGNandProject States, the Bureauo fPublic Enterprises (BPE), the Energy Commission of Nigeria (ECN), the Designated National Authority (DNA -for the carbon components) andthe unifiedSteering Committee for the development o f the Gas Project. The CPSUwill eventually be housed inthe FMPS or folded into one o fthe new sector institutions. Options can be explored indue course to locate the CPSU within the Ministryo f Power and Steel to function as a planning, implementation and monitoringunit for the entire sector and beyond or setting it up as a stand alone company that provides a broadrange o f support inthe same areas to the NEPA-successor entities on a fee-based system. A determinationinthis regardwill be made during the course of the Project. 42. The BPEwill implement component 5. It is currently an implementationagency for the PSP, and has been so for the last three years. After some initial problems, BPEhas now developed requisiteproject management capacity and has therefore beenincluded as an implementingagency under this Project. This component comprises several important consultancy services, critical to the reforms and privatization. 43. Though BPE's core procurement and project accounting staff are familiar with World Bank procurement processing and project management procedures, there are some reservations regarding its 19 capacity to execute the project ina satisfactory manner. These reservations are based on areviewof its performance of executing the ongoing PSP. Weaknesses infinancial management arrangementsinclude: inadequate information systems, poor quality reports, weak control over payments, large amounts of overdue un-retiredadvancesand weak internal audit. Therefore, prior to this Projectbecomingeffective, it i s proposed to strengthenBPE's procurement and financial managementcapacity through the hiringof a consultant specializing inprocurement and execution of major TA activities. A comprehensive review o fprocurement, financial managementand implementation capacity assessment o fBPE will be repeated inthe first six monthsofprojectimplementation. 44. The Finance Section (FS) ofthe PMU(FS/PMU) and the Finance Department ofBPE (FD/BPE) will be responsible for managing the financial affairs ofthe Project. Itwill, amongst other things, be responsible for ensuringcompliance with the financial managementrequirements o fthe Bank and the government, including forwarding the quarterly Financial Monitoring Reports and audited annual financial statementsto IDA. The Internal Audit Sectionsof the PMUand BPE will performnecessary modem internal audit functions for the Project. The IDA Credit Agreement will require the submission of Consolidated AuditedProject Financial Statementsfor the Project to IDAwithin six months after each year-end. Sampleso f audit reports are includedinAnnex XXI ofthe Financial AccountingReporting and AuditingHandbook (FARAH) ofthe WorldBank. Experienced and well-qualified extemal auditors will be appointed by the PMU and BPE (on aTOR acceptable to IDA) to audit Project accounts, financial statementsand transactions, irrespective of the source of financing. The Project financial management riskis assessedto bemoderateandmitigatedthroughadequate supervision byBankstaff, andthe provisionof external independent audit. 45. Flow o f Fundsand FinancialReporting. Through the Federal Ministry o f Finance (FMF), the FGNwould pass on IDA funds to BPEandthe PMU/CPSUrespectively. Theseproject execution entities will inturnallocate credit proceedsto the receivingagenciesbasedontheir share of the investments. Regardingflow of funds and banking arrangements, IDAwill disburse the credit through two Special Accounts: (i) a Special Account for the PMUusingthe report-based disbursement method; and (ii) a Special Account for the BPEusingthe transaction-based disbursement method. 2. Monitoring and evaluation of outcomes/results 46. Performance monitoring o f the proposed Projectwould include: (a) the performance indicators as includedinAnnex 3; (b) the results o fperiodic stakeholder workshops and customer surveys; and (c) progress reports onpreparation o f investment programs and the execution o f contracts. 47. The intendedinterventionand intermediate results byproject component are as follows: 48. Component One: Transmission System Improvements -ifsuccessful, more electricity willbe transported from the generation source to the distributionpoint, ina more efficient way. This will directly increasethe amount o f power available downstream. This investment i s plannedto increase capacity inat least twelve substations. 49. IntermediateResults: Improvedsupply capacity (equivalent to incremental energy flows of 500 MWcapacity) throughthe upgradingof2 transmission substations (330/132 kV) and the upgradingof 10 sub-transmission (132/33 kV) stations byYear 3. 50. ComponentTwo: Distribution Cluster Investments-selectedareas that canbe tracked over the implementationperiod, will be upgraded with appropriate investmentsthat are designed to improve the tail-end voltage that i s suppliedto the final user (i.e. closer to 220 V rather than the present -180 V which 20 can damage and hinder the performance of appliances), reduce system losses, increase collections (through increasedNairakWh), reduce outage times and improve customer satisfaction. 51. IntermediateResults: Improvement intail-end voltage by4% inYear 2 and 10%inYear 3 over the baseline (baseline to be established inYear 1); reduction insystem lossesby 5% inYear 2 and 10%in Year 3 over the baseline (baseline to be established inYear 1). 52. ComponentThree: Electricity accessexpansion andintensification, and support to renewable energy master plan-intensificationrefers primarily to increasing the number of users inperi-urban areas (once the transmission investments permitan increaseo fpower supply to end-users). Expansion will be achieved througha limitednumber of rural electrification pilots, primarily to develop financial and institutionalmodels that can be scaledup under a future project. A renewable energy businessmodel will be developed to provideinputsto the Renewable EnergyMaster Plan. 53. IntermediateResults: Designanddevelopment of 1 2 ruralelectrification pilots per year, and - arenewable energy business model developed bythe end o f Year 2. 54. ComponentsFour andFiveconsist ofinstitutional capacity buildingandthe managementof technical assistance. Progressinachieving intermediate outputs and procurement o f consultancy services will be documentedinongoingreports and supervision. 55. Carbon Credits monitoring will track actual reductions ofgreenhouse gas emissions in transmission and distributionvia independent verificationby a thirdparty entity, prior to carbon incentive paymentsbeing determined. This mechanismprovides additional comfort andreinforces independent monitoringo fproject outputs. 56. The Project willhave a 3-year implementationperiod. There will beno Mid-TermReview (MTR). Insteadthere will betwo annualreviews andanImplementation CompletionReport(ICR) at the endofthe Project, to bejointly preparedby IDAand the concerned implementingagencies. 3. Sustainability 57. Reform outcomes will be sustainedthrough the newregimesand institutions that would emerge over the transition period. These include successorcompanies to NEPA, NERC -the sector's regulator and the Rural Electrification Agency and Rural Electrification Fundto promote rural energy access. Development of appropriate privatizationoptions for the distribution businesseswill enableNigeria to realizevalue and lock-in efficiency gains. The technical 0 & Marrangements for Transysco will be instrumental inlonger-term capacity buildingand institutionalization ofbest managementpractice. 58. The distributionbusiness and function outsourcing models are to be designedto maximize local private sector participationinprovisionof energy services. Power utilities indeveloped countries typically outsource a variety o f businessprocesses, such as metering and billing, customer care services andmaintenance. This efficient practice i s possible becausethere are a number ofproviders of such services available. Nigeria today lacks suchprivate sector capacity. This Projectwill attempt to develop such an energy services market. This development would ensure longer-term sustainability for a competitive electricity market and industry. 59. The carbon credit mechanism for transmission and distribution loss reductions will be available until2012. Thiswillprovide an additionalincentive for maintainingpositiveresults. Intransmission, this will beensuredthroughthe technical 0 &Mcontract andindistribution, via amulti-year performance basedincentive payment regime for carbon emission reduction. 21 4. Critical risks andpossible controversialaspects 60. Itis important that the highdegreeofpolitical commitment to reform, innovate and seeknew solutions to entrenchedproblems is maintained andreinforced. The remarkableprogress inthe last 12 - 18 months has beenmadepossible by the initiative o f the current power sector leadership team inNigeria to be bold and challenge establishedthinkingand perceptions. A lot will dependon this new spirit and enthusiasm being sustainedby the current leadership, and the ability of decision makers to communicate effectively with stakeholders to engendervoluntary active support and buildalliances with private sector, politicians and communities. 61. Inorder for thereformmomentumto be sustainedandacceleratedinthe nextthree years, an extraordinary effort o f consensus buildingand strategic communication, bothwithin the sector and to the public,would beneeded. Agencies responsible for various reformrelated functions have to work in tandem and create synergies. A communicationcomponent has beenincluded inthe Project to facilitate the process of stakeholders' consultation and consensusbuilding. Communication specialists wouldpoll key stakeholders to map interests, values, and perceptions. This will establish a baseline against which reform results can be benchmarked. The programwill include consumers, media, political leaders, private sector and sector staff. 62. The government's ability to recognize the "real costs'' ofthe sector andtranslate thisrecognition into pricing is limitedby the poor service that consumers currently receive. The ongoing difficulties experiencedwith adjusting petroleumproduct prices do not make it any easier for government to increase power tariffs, There is an understanding among decisionmakers that tariff increaseshave to take place in step with improved service delivery. Over the next three years, as the reforms take hold, andthe NERC i s established, a determined move towards cost-effective tariffs shouldbepossible. Inview o f the transition support nature of this Project, tariff revisions are not contemplated as a part of the conditionality fi-amework. Risks RiskMitigationMeasures RiskRating with Mitigation To Project Development Objective Continued Government commitment Phasedand flexible engagement during the S and consensus over the transition transition period to synchronize withprogress on strategy and action plan for the reform. establishment o fnew market structure and privatization. Capacity o f newly formed utilities in Introductiono f private sector management o f S terms o f financial and humanresources investments through turnkey/outsourcing to capture the benefits o fproposed initiatives. investments. Limitedcapacity or interest o f State (a) The value o fthe investment subcomponent has M government entities to develop and beenkept low to concentrate on a limited implement innovative access expansion number o fpilot projects. projects, especially inoff-grid rural (b) Technical assistanceand capital cost subsidy areas. are provided to facilitate designand implementation o f these pilots. 22 Risks RiskMitigationMeasures I RiskRating Lack o f institutional coherence and Dialogue and engagementwith principal S multiplemandates. stakeholders. To Component Results Implementation delays caused due to Introduction o f hot-line technologies. M low level o f systemredundancies. Poor demand side power factor Downstreampower factor management through N management leading to voltage drop introduction o f capacitors inthe distribution despite investments. component. PlannedHVDS investments delayed Use o ftaller poles, insulatedcables and deployment M due to customer densities inselected o f other technical solutions. clusters. Inability to address rent-seeking (a) Efficient management o f business processes S behavior inmetering,billing and through outsourcing. collection processes. (b) Deployment oftechnical solutions like automated meter reading, spot billing, pre-paid meters. (c) HR interventions, communications and training for NEPA staff at customer interface. Overall RiskRating Substantial 5. Loadcredit conditions and covenants 64. There are no Board Conditions. The only effectiveness condition i s that satisfactory legal opinions on the DevelopmentCredit Agreement and Project Agreements are made available. 23 D. APPRAISAL SUMMARY 1. Economic andfinancialanalyses 65. ProjectBenefits andInternalRateofReturn. The Project proposesablendofinvestments in transmission systemrehabilitation, systemreinforcement and strengthening/expansion of distribution facilities inparticular clusters. The economic and financial analysis o fthe Project i s therefore based on a cost-benefit analysis of the maininvestment subcomponentsat the cluster level. Results o fthe financial and economic analysis are shown inthe following table. 66. The Base Case EIRRand FIRRcalculationi s given inthe table below. Value EIRR FIRR Transmission Svstem Develoument Comuonent 43.6% 13.2% I Distribution Efficiencv Imurovement Comuonent I 37.0% I 25.0% I I Total Base case I 43.2% I 16.6% I 67. Net present value for the economic analysis at a 12% discount rate yields approximately US$303 million. The financial NPV again at 12% works out to nearly US$30 million. 68. The project investments yield six distinct benefits: incrementalelectricity demand served, reduction o f losses (technical and non-technical), improvedpower quality and supplyreliability, avoided captive generation, improvedrevenues and enhancedcustomer satisfaction. The incremental demand has been computed on the basis o f the averageacross the boardenergy tariff and the average cost to serve per unitofenergy handledbyNEPA. Theeconomic benefits are sensitive to loss reductions, loadgrowth and revenue improvement. The EIRRvaries from 29% to 47% under different scenarios. Economic benefits are expected to be inthe midto highrange since there is a large unmet demand for power inNigeria. Financial Assessment 69. The Project i s centeredon supporting the transition to reform. One o f the key actions to be accomplished inthe transition is the restructuringo fNEPAand the incorporation of its new successor companies. Financialrestructuring of assets and liabilities, capitalization o f the new companies and development o f 5-year businessplans for each o f the new companies are a part o fthe reform process. A major financial restructuring exercise i s currently underway and, as such, this summary analysis i s limited to taking a short-term and consolidated view of the sector. 70. Since the inception o f the reformprogram in 1999, and its gathering momentum from 2002, NEPA's financial results have shown an improving trend. The positive trends acceleratedin2003 and 2004 as a result of the CREST interventions described earlier. The key highlightsof the operational and financial performance in2003/2004 are as follows: 0 Management actions intackling losses and uncollectedbillinghave increased cash inflows -monthly collections increased to an average o f N5.9 billion in2004, as against N4.2 billion in2002 and N4.9 billionin2003, without any tariff increase. 0 Revenueyield per kWho fbulk energy handledby NEPArose from an average o f 2.68 NkWhin2003 to 3.33 NkWhinthe4thquarter of2004. 24 0 T & Dlossesinthe tenmonths to October 2004 droppedto 34% against40% in2003. 0 Energysold increasedby 6.4% in2004 as comparedto 2003, while energy billingsare nearly 16% higher inthe same period. 71. Despitethese positive developments, the gap betweenNEPA's revenue requirement to cover costs and actual cashreceived i s still high, averaging around two billionNaira per month (roughly US$16 million). To compound the problems, tariffs have beenconstant inNaira terms since 2002.'' Thus there is still a longway to go interms ofimproving the sector's businessfundamentals. Therefore institutionalreformand financial restructuringare critical to obtain positive fiscal results. Inorder to assessthe potentialbenefits o freforms, the project financial analysis comparesa "reform scenario" against a base case of "no-reforms'' inthe sector. More detail on the two scenarios i s provided inAnnex 9B. The fiscal deficit of the sector reduces from approximately US$2.5 billion in2010 inthe Base Case to US$450 Millionin2010 under the ReformCase, with rather conservative assumptions. With a somewhat more aggressivereform track, the deficit situation inthe sector can be completely eliminated over the next five years. This Project's targetingo f support to faster reforms, efficiency improvements andmaximizing revenue growth are therefore the right interventions from a financial standpoint. 2. Technical 72. The investmentsunder the NEDPProject have beendesignedto support Nigeria's electricity sector transition strategy, viz.: 0 Remove immediate bottlenecks inthe transmission and distribution system by improving supply capacity to key growth clusters. 0 Improvepower quality by investments insystemreactive power compensation equipment. 0 Increase supply reliability o f the transmission and distributionnetwork. 0 Reduce energy losses inthe system. 0 Improve cash flows through higher revenue collection. 0 Facilitatethe functioning o f the wholesalehetailmarket structure through improved institutional structures and enhancedprivate sector participation. 0 Enhance customer satisfaction and quality o f service delivery. 73. These investments were identified through studies andpilots prepared under the Bank-supported Transmission Development Project, notably two studies done by Tractebel International (2003 and 2004) and CREST distribution pilots financed by NEPA with knowledge-based inputs from the Bank team. 3. Fiduciary 74. ProcurementIssues. As aresult ofthe CPAR of 2000 and a subsequentInstitutional DevelopmentFacility (IDF) Grant to help execute the agreed actionplan, the Federal Government has made substantial progress with procurement reform. A draft Procurement Law was submittedto Parliament inearly 2005, andcirculars were issuedto Government agencies to establish procurement unitsandrecruitprocurement staff, that would constitute over aperiodoftime, the FederalGovernment's Procurement Cadre. The Budget Monitoringand Price Intelligence Unit (BMPIU), establishedwithin the loCumulative domestic inflationhas reached about 50% over the period 2002-2004; and inthe same period the Naira has depreciated 15% and 44% against the U S dollar and Euro respectively. 25 Presidency, with responsibility for the procurement reform agenda, instituteda due processmechanism for all contracts to ensurethat public procurement i s carried out inaccordancewith the requiredprinciples and procedures. This Unitcurrently carries out prior reviews of contracts above US$500,000 to ensure compliance with existing regulations. The BMPIU i s also a member o f a highlevel CashManagement Committee chairedby the Ministerof Finance to certify that contracts for which budgetary payments are requested, have met the due processrequirements. 75. Inview ofthe continuedprogresson systemicprocurementreforminNigeriaandthe fact that the two implementationagencies that will managethe procurement functions of the proposed Project have considerable experience inimplementingWorld Bank-financed projects, the project procurement risk i s rated as Average. 76. FinancialManagement. The P M U is currently implementing a project financed by IDA. The financial management arrangement for the existingproject, which will be used for this Project, has consistently performed well except for the inadequatestaffing of the internal audit section. The NEPA PMUis the only project implementationagency inNigeria to use the Bank's more sophisticated report- baseddisbursement method. The current arrangementwill require some strengthening to meet the implementationneeds of the new Project. This will involve recruitment o f additional accountantsand internal auditors, training o fnew staffinBank procedures,upgradingof computerized financial management systems, and significant updatingof the financial procedures manual. These capacity buildingactivities canbe carriedout inparallelwithproject implementation, since the PMU, aspresently configured, can commence work on the new Project immediately. Withrespect to BPE, the financial performance under the ongoing PSPis, however, not fully satisfactory. Specific capacity reinforcement o f BPE's procurement andFMfunctions are planned. Annex 7 further details these arrangementsand actions. 77. The 2000 CFAA assessedthe risks arising from the outside environment as high. A review ofthe implementationo f CFAA recommendations inJanuary 2005 revealed that substantial reforms have been implementedover the last two years. Although much still remains to be done, the impact of the reforms hasbeenpositive. The review noted that the fiduciary assurance environment inFGNremains weak. Givensuch an environment, strong internal control is requiredand this canbe achievedby strengthening the project financial management. The controlrisks arising from the Project are assessedas moderate. The overall Projectfinancial managementriskwill continue to beModerate providedthe capacity strengthening actions specifiedinAnnex 7 are implemented. 4. Environment and Social TheProject is rated Environmental CategoryB. 78. The Projectprincipally involvesrehabilitationofexistingtransmission anddistribution infrastructure, involvingtemporary inconvenience to adjacent properties and commercial activities. Network extensions, where made, will only be along existingrightsof way (ROW) and on unusedlandto the extent possible. Although the potential environmental and social impacts o fthe infrastructure investments under the proposedProject are expected to be generally minimal, potentially significant localizedimpacts may occur, thus requiringappropriate mitigation. Since the specific sub-project locations have not yet been identified, an Environmental and Social Management Framework (ESMF), together with a Resettlement Policy Framework (RPF) was prepared. These documents have been placed for public information andreview, in-country through the local media and the national network o fNEPA Zonal offices; and globally, through the Bank's InfoShopandthe NEPA PMU's website (m.nepapmu.org). 26 79. The ESMFand the RPFrespectively provide for a systematic screeningprocess for the investment components, namely: (i) distribution level infrastructure inthe clusters to be selectedduring project implementation; and (ii) transmission level investments such as augmentation and rehabilitation of existinginfrastructure andupgrading the capacity of substations, lines and other transmission systems. They define procedures and institutionalresponsibilities and set out guidelines to be employed for sub- project level environment and social assessments, evaluation o fpotential impacts and preparation o f appropriate mitigation measuresduringproject implementation. A series ofpossible adverse impacts have beenidentified, together with proposed mitigation measures. The Resettlement Policy Framework (RPF) sets out the processandentitlementsto befollowed inthe event that involuntaryresettlement may occur due to re-establishment o f safety margins betweenpower lines and other structures, or acquiring land for substations, customer care centers etc. 80. The existing ERSUinthe PMUwill beresponsible for overseeing project compliance of the environmental and social guidelines establishedunderthe ESMF and RPF. Since its role under this project represents a significant scale-up from its current responsibilities under TDP, suitable capacity enhancementhas beenprovided for (Component 4 -ERSUcapacity building:US$1.O million). A part of these credit proceeds would be usedto establish ERSU-like units inthe new successor companies to NEPA. Furthermore, a specific provision ofUS$1.O millionto handle potential PCB hazards inold transformers has been allocated under the transmission component. A set aside ofUS$1.O million for any potential resettlement claims arisingout o f involuntaryresettlement has also beenmade inthe Project financing. 5. Safeguard policies SafeguardPoliciesTriggered by the Prqject Yes No Environmental Assessment (OP/BP/GP 4.01) I/ NaturalHabitats (OP/BP 4.04) I/ PestManagement(OP 4.09) I/ Cultural Property (OPN 11.03, beingrevisedas OP 4.11) I/ Involuntary Resettlement(OP/BP 4.12) I/ IndigenousPeoples (OD 4.20, beingrevisedas OP 4.10) I/ Forests (OP/BP 4.36) I/ Safetyof Dams (OP/BP 4.37) I/ Projects inDisputedAreas (OP/BP/GP 7.60)* I/ Projects on InternationalWaterways (OP/BP/GP 7.50) I/ 81. The Project has several positive environmentalexternalities. These include, reduction of global greenhouse gas emissions throughpromotiono frenewable technologies, significant systemloss reductions leadingto avoidedthermal generation and control o f SF6, a powerful greenhouse gas used for insulation inhighvoltage electricity switchgear. 6. Policy Exceptions and Readiness 82. The Project complies with all World Bankpolicies andno exceptions are necessary. The Project's procurement plan for the first eighteen months i s ready and has been reviewedby the Bank. * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputedareas 27 Annex 1: Country and Sector or ProgramBackground NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT Geography and Population 1. Nigeria has the largest population o f any country inAfrica, estimated at 132million, growing annually at a rate o f 2 percent. Ithas a land area of 924,000 sq. km, and is richly endowed with energy resources. Nigeria is the largest oil producer insub-SaharanAfrica, and i s ranked sixthinthe world with an output o f over two million barrels per day. Ithas abundantnatural gas resources, with provenreserves of nearly 187 trillion cubic feet (Tcf). Economic and Political Conditions 2. Nigeria has the largest economy inWest Africa with a GDP of US$43.5 billion (2002). Annual per capita income has grown to an estimated US$390 from US$290 just a few years ago, reflecting robust economic performance over the last two years. GDP growth averaged 10.9 percent in2003 and (estimated) 6 percent in2004. Poverty inNigeriaremains highthough, and is widespread inthe northern andremote southern areas o f the country. Urbanpoverty i s also on the rise -it i s estimated that about 48 percent o furban dwellers are living inpoverty. The peaceful transition o fpower to democratic civilian government in 1999, re-elected inMay 2003, has created favorable conditions for economic progress and governancereforms. These favorable trends have re-awakened the interest o fthe international community inNigeria, andre-kindledhope among Nigerians. Electricity Sector 3. NEPA was established in 1972 as the publicly owned utilityresponsible for the power sector in Nigeria. Itis responsible for four functions: generation, transmission, distribution, and since 1990, rural electrification. NEPA has installedpower generation capacity o f about 6,000 MW, o f which about 67 percent is thermal and the balance hydro-based. Generating plantavailability is low with frequent transmission and distribution outages. Dilapidatedtransmission and distribution networks cause high energy losses, which together with low rate of access and uneconomic tariffs, result inpoor operational and financial outcomes. Poor service has forced more than 90 percent o f industrialcustomers and significant numbers of residentialconsumers to install their own power generators, at a highcost to themselves and the Nigerian economy. 4. NEPA's transmission and distribution networks are inpoor condition and overloaded. NEPA's transmission network consists of about 11,000 kmof transmission lines (330 kV and 132 kV), 24,000 km o f sub-transmission lines (33 kV), about 19,000 kmo f distribution lines (11kV) and about 22,500 substations. A substantial part o f the country i s not connected to the grid. The transmission network is poorly configured for reliability -lines have a radialpatternwith few loops and parallel routes to improve the reliability of supply to load centers. The 132 kV transmission and 33 kV sub-transmission lines often extend over distances that are too long for efficient andreliable load flows. 5. NEPA's business operations are inefficient. The system suffers from chronic under-investment, poor maintenance, unrecorded connections andunder-billingarising from a preponderance o f un-metered connections. Furthermore, where these exist, meters are dysfunctional or tampered with, and fraud by customers andmeterreaders is common. NEPA currently has 35,000 staff on its payroll, whereas more efficiently runpower utilities with facilities o f comparable magnitude employ fewer than 20,000 staff. As 28 aresult, NEPA's financial performance, as well as its ability to serve customers satisfactorily hasbeen consistently under par. 6. The capital investment part ofthe rural electrificationaccessprogramis executedbythe FMPS and by States. Costs are high, sometimes inthe order ofUS$l,OOO per connection, and community participationand contributions minimal. Reticulationnetworks once completed are handed over to NEPA for operations and service to customers. Inview of the chronic shortage ofpower inthe system and the low tariffs for rural domestic consumers, NEPA has little interest or ability to service these networks or supplypower to any reasonablestandard. The most frequent results observedare a gradual deterioration of capital assets, large scale vandalism and theft of materials and low expectations o f service from NEPA. 7. The FGNinitiated comprehensive sectorreforms in 1999 to address these deep-rooted problems inthe sector andto hamessthe country's generousenergyresourcesfor the country's benefitthrough rapid access expansion. The reformprogramhas delivereda gradually improving trend ofperformance and capital asset renewal inthe core sector, includingrehabilitation o f generating plants, construction of host power stations, incentives and programs to encourage IPPs, and upgrade and expansion o f distribution andtransmission systems. After some initial setbacks, new electricity reformlegislation has beenenactedinMarch2005, creating the basis for intensive restructuring, setting up a competitive industrystructure andestablishingnew institutionssuch as the NigerianElectricity Regulatory Commission, Rural ElectrificationAgency, and the Market Operator and Independent System Operator. The OilSector 8. The oil industryi s the backbone of the Nigerian economy, accounting for 95% of foreign exchangeearnings and over 80% of Gross Domestic Product. However, no more than 5% ofNigeria's labor force is employed inthe sector. Estimates of the total crude oil reserves are 25 billion barrels, although new offshore discoveries are likely to pushthis figure to 30 billion barrels. Current production i s approximately 2.2 millionbbl/day, all of it from the Delta, with 40% from Delta State and 40% from RiversState alone. Nigeria is the fifthlargest oilproducer inthe OrganizationofPetroleumExporting Countries (OPEC), and sixthlargest inthe world, andplans to double its output by 2010. The country representsapproximately 8% of USA imports, and has eamed some US$300 billion inoil revenue over the past four decades. 9. Nigeriajoined OPEC in 1971 and establishedNNPC in 1977, a state-owned and managed company that operates injoint ventures (JV) with foreign oil companies inboththe upstream and downstream sectors. NNPC further manages four refineries with a total capacity of 430,000 bbl/day, a complex petrochemical plant, maintains 21depots and a network o f pipelines across the country, and markets crude oil and petroleumproducts. It also distributes natural gas through NGC, a wholly owned subsidiary established in 1988. 10. The industryis dominated by five major JV operations managed by affiliates o f a number o f well- knownmultinationals: Shell, ExxonMobil, ChevronTexaco, EniS.p.A., and TOTAL S.A., eachin partnership with NNPC. SPDC (Shell) representshalfo f oil production inNigeria; however, its presence i s felt more strongly than other oil companies inNigeria because its activities are spreaduniformly onshore over the entire Delta andbecauseit was the first company established. Other foreign companies involved are BritishGas, BP, Conoco, Deminex, Petrobras, Statoil, Sun Oil, andTenneco. The production o fthe five major operations i s as follows (2003 estimate). 29 IOperating Partner Volume Produced % of Total (bbl/day) (2.2 mbbYday) SPDC 900,000 41% ExonMobil 600,000 32% CNL 125,000 6% NigerianAgip Oil Co 200,000 9% ElfPetroleumNigeria 125,000 6% Total 5 JVs 1,950,000 89% The GasSector 11. Nigeria's gas reserves are estimated inenergy terms at twice its oil reserves, with apotential for production of around 100 years, compared to that of oil of 30 years. Nigeria has the tenth largest proven gas reserves inthe world, approximately one thirdo f African gas reserves, estimated at about 187 trillion cubic feet (Tcf) in2003. The reserves are equally sharedbetweenassociatedgas (AG), aby-product of oil extraction andnon-associated gas (NAG). Gas is produced bothonshore and offshore. In2003, Nigerian gas productionaveraged5100 h4MScUday equivalent to 50 Bcmper year. Currently, gas that i s not flared, is used for LNG (25%), re-injectedinto the reservoir (15%), and only 11%i s used domestically, most o f it for power generation. 12. Most o f the gas inthe Delta is AG, and i s therefore found inthe same locations as oil. In2003, owing to a lack o f gas utilization infrastructure, legal framework and low domestic gas prices, Nigeria flared 43% o fthe gas it produced through flares located throughout the Delta (20 Bcm). Although the amount of gas flared i s high, this is significantly below the 98% flared in 1971and preliminary figures from 2004 show a decline to 32%. Gas is flared through 100 flaring sites. Nigeria alone flares 17% o f the world total, while representingonly 3% of the global petroleumproduction. 13. Nigeria initially set 1984 as the year to endroutine gas flaring, but failed to meet this deadline. It reset the year 2008 as its target for achieving zero routine gas flaring. All oil companies have committed to the 2008 zero flaring target, and are developing plans to collect and processthe gas. A large number of export projects basedonAG as well as NAGsources, plannedand under implementationwill be adding upto more than 100billioncubic meters ofgasperyear. This includes the current expansionofthe existingLNGexport plant andnewLNGprojects, the West African Gas Pipeline, which i s currently under construction, as well as other major projects. Ifall these projects are implemented, the gas demand from the local market may not even be essential to reach the 2008 flare out. However, to achieve sustainable development inNigeria, a local gas market needs to develop and the power sector is logically the main driver ofthis development. A national development of the gas sector will createmorejobs than projects oriented for exports. The domestic availability o f gas will enhancethe competitiveness of the Nigerian economy as industriesbasedon gas develop andpower supply becomesmore reliable. 14. The Bank has had an extensive policy dialogue supported by donor funding from several agencies includingthe Energy Sector Management Assistance Program(ESMAP), Public PrivateInfrastructure Advisory Facility (PPIAF), U S Department of Energy (US DOE), andthe Global Gas FlaringReduction Partnership. Several workshops and studies such as the Sector Diagnostic and Options Study, Implementation Plan, draft DownstreamGas Act and recommendations for a draft Natural Gas Fiscal Reform Act have been prepared. In2004, the Government prepared a draft Natural Gas Policy statement summarizingits approach to sector reformand programs to develop the gas sector inNigeria, to reachthe flare-out in2008. The draft DownstreamGas Act and draft FiscalAct are awaiting ratificationby the Assembly. The GovernmentofNigeria andNNPC, under the sponsorship of the Global GasFlaring Reduction Partnership hosted a workshop for setting global standards for flaringreductions in2004. The workshop concluded that the Government should establish and leada dedicated collaborationvehicle to 30 drivethe overall effort onassociatedgas utilizationand flare reductionto achieve the gas flare-out in 2008. Nigeriahas alsojoined the Extractive IndustriesTransparency Initiative (EITI). 15. Itis importantto meetthe flare-out because gas flaringwastes resources. Gas flaring inAfrica of around37 billion cubic metersper year, ifdivertedfully for power generation inefficient power plants, would produce approximately 50 percent ofthe current power consumption of the African continent, and more than twice the level ofpower consumption in sub-SaharanAfrica (excluding the Republic of South Africa). Flaring also harms the environment. The emissions from the annual world wide flaring of 100 billion cubic meters of gas produce approximately 300 milliontons of C02equivalent, which i s more than period2008 - 2012. 10percent of the committed emission reductionsby developed countries under the Kyoto Protocol for the 16. While not covered inthe Gas Act, LiquidPetroleum Gas (LPG) featuresprominently inNigeria's gas strategies. An important fuel for the poor, LPGhas a negligiblemarket presenceingas-rich Nigeria, which has the lowest per capita consumption inWest Africa. Buildingon work supervised by the Bank and funded by Energy Sector Management Assistance Program, the Government has established a high- level LPGGas Steering Committee to revive the domestic market. 31 Annex 2: Major RelatedProjectsFinancedby the Bankand/or otherAgencies NIGERIA: NATIONAL ENERGYDEVELOPMENT PROJECT Ratings Sector Issue Project (Bank-financed projectsonly) zompleted Projects OED Ratings Outcome Sustain- IDImpact ability Rehabilitation and maintenance Power System Maintenance and Unsatis- Unlikely Modest o f the power systemand Rehabilitation Project (1990-1995) factory institutional strengthening Loan 3116-UNI Expansion o fthe distribution Power VI (approved 1982) Unsatis- Unlikely Negligible system, training and institution- Loan20854" factory building Hydro-generation, transmission, Power V (approved 1979) Unsatis- Unlikely Negligible village electrification Loan 1766-UNI factorv Latest Supervision (PSR) Ratings OngoingProjects Implementation Development Progress(IP) Objective(DO) Power sector Reform, Privatization Support Project M S S restructuring andprivatization (approved 2001) Credit 3520-UNI TransmissionDevelopment Overall Sector ReformProgram S S (approved 2001) Credit 3559-UNI Community basedUrban (approved 2002) U U Development Credit 36540-UNI NGLagosUrbanTransport (approved 2002) MU Mu Project Credit 37200-UNI NationalUrbanWater Sector (approved 2004) S S Reform Credit 39240-UNI Other development agencies TA inNEPArestructuring USAID TA andpossible investmentin Swiss Government transmission, dispatch and control Note: MS Marginally Satisfactory S Satisfactory U Unsatisfactory Mu MarginallyUnsatisfactory. 32 Annex 3: ResultsFrameworkandMonitoring NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT ResultsFramework Project Development Objective Outcome Indicators Use of Outcome Information Facilitate smooth transition to new Zector-level outcome `0evaluate progress towards narket and institutional structure. TEEDS stated goals onenergy a) Emergence o fnew institutions: ector reform. gERC, REA, Market Operator and so. {valuatelonger-term prospects o f he sector and its economic and b)Undertaking preparations for iscal impact. ichieving increased private ~articipationinthe Nigerian Aectricity market. Outcome 1. (Component One: luster level outcome (before and lemonstrate the potential for scaling rransmission) ifter measure) ipsuch efficiency andsupply :nhancements. Increase efficiency and enhance 10%improvement ininput voltage supplyavailability inthe power it 33111kV interfacebyend ofYear sector. 3 (current baseline to be :stablished). Outcome 2. (Component Two: Zluster level outcomes (before and 3eate confidence andbuildvalue in Distribution) ifter measure) against baseline to be hebusiness modelfor potential :stablished. nvestors. Increase service levels and distribution efficiency inselected [a) Revenue enhanced (10%). %,seminate to improve image o f clusters. rector and strengthen support for (b) Service quality, end-user voltage reforms. at 220 volts (10%). (c) Numbero f consumers connected (10%). Outcome 3. (Component Three: (a) Numbero f consumers connected To serve as inputsto policy and Intensification and Access increasesby 10%over cluster regulationdevelopment. ExpansionPilots) baseline (baseline to be established). To assess the applicability and Demonstration o fpossible models to (b) Cost per connectiondecreased scalability o f models to rapidly scale-up electricity access in 5% relative to cluster baseline enhance access inorder to achieve selected rural clusters and (baseline to be established). NEEDS and SEEDS targets. intensification o f connections in peri-urban areas. (c) Higher degree o f private/community/state level involvement (qualitative measure). Outcome 4. (Component Four: TA Sector-level outcome To assessprogress towards making including for Gas Sector gas resources available countrywide Development) Preparatory work to launchthe gas and the development o f a domestic pipeline andrelatedpower projects. gas-to-power market. Launcho f gas sector reform implementation for development o f natural gas resources. 33 IntermediateResults Results Indicatorsfor Each Use of ResultsMonitoring One per Component Comnonent ComponentOne: ComponentOne: Zomponent One: (a) System wide Transmission (a) Increased Supply Capacity in ncreased supply capacity to Improvements. selectedTransmission Substations aturated bottlenecks inthe grid Alleviation o fbottlenecks and (at least two 3301132kV and at least lirectly increases the amount o f transport more electricity from the ten 132133kV substations). jower available downstream o fthe generation source to the distribution nvestment point. point. IntermediateResults: (b) Cluster leveltransmission (b) Improvement o finputvoltage to deasuring the Voltage level at the improvements. the 33111kV interface improves by lelivery point to the cluster Improvement ininputvoltage at 33 10% by Year 3. Ioundary gives a combined kV level. Lower inputvoltage ndication o fthe upstream results o f compromises enduser voltage levels :apacity increases andreactive making it difficult to use appliances. )ewer compensation investments. ComponentTwo: ComponentTwo: Zomponent Two: (al) DistributionCluster (al) Numbero f clusters developed, Investments. with demonstrable improvement in service levels, i.e. improved tail end Measuredby P M U staff and voltage (a2) Improvement inquality o f voltage. :o be recorded at the tail endof supplyto retail consumers. :very distribution feeder. (a2) Improvement intail endvoltage by at least 10% over the baseline in IntermediateResults: each cluster. (b)Reduction insystem losses. (b)Reduction insystemlossesby Measured byPMU, and will be Systemlossesare a measure o f 25% over baseline. tracked as Naira billedkWho f efficiency indistribution operations energy purchased at bulkvoltage and reduction insystem losses level. indicates a direct improvement in financial viability. Component Three: Component Three: ComponentThree: IntermediateResults: (al) Number o fpilots launched. Provide inputs to policy formulation and access scale-up initiatives. (a) Designand development o f 1- 2 (a2) Number o f customers benefited. rural electrification pilots per year. (b) Renewable energy business (b) Renewable energy business P M U staff will monitor progress in model developed by end o f Year 2. model developed. consultation with FederalMinistry o f Power and Steel. (c) Implementation o frenewable (c) Implementation o frenewable Progress willbe documented and energy master plan commenced by energy master plan commenced. updated inQuarterly Reports end o f Year 2. producedby PMU. 34 ComponentFour: ComponentFour: ComponentFour: rechnical Assistance for P M U and Project performance satisfactory and Annual reviews and quarterly its evolution to CPSU. on schedule; capacity assessmento f progressreports. environmental and social unitrated Zapacity Building for a single satisfactory; coordination with gas Single agency providing services to igency to deliver a range of services sector satisfactory andpreparation all sectoral institutions will improve to all clients interms o f core project for gas pipelineproject and coordination, reduce costs and managementexpertise. associatedpower projects on track. expedite implementation. IntermediateResults: Gas Sector work: Outputs will feed into development Project implementation ratings are o f public private partnershp models satisfactory. for project development. ComponentFive: ComponentFive: Component Five: Support for Reforms and (a) Contracts for various TA TA will directly support progress on Institutional Development by BPE. activities processed and approved. reforms and the development o f public private partnership models for investment inthe power sector. IntermediateResults: (b) BPEmaintains satisfactory project implementation capacity Delivery and communication o f such (a) New institutions established and ratings. models i s a key responsibility vested companies launched. inBPEasaresultofthenew (c) Annual Customer Surveys legislation. (b) Offers for private participation conducted. BPE will produceperiodic progress developed. (d)Number ofstakeholder reports interms o f implementation o f reforms, and will oversee the (c) Stakeholder communications and workshops held. implementation o f a customer outreach strengthened. survey carried out by a civil society organization. 35 9 : g t a m s 2 s 2 4 m sm 5 sm 0 0 , s : 23 a m I I Annex 4: DetailedProjectDescription NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT COMPONENT 1: TRANSMISSION SYSTEM DEVELOPMENT (US$125.7 M) 1. The Nigerianpower systemsuffers endemic problems stemming from an undersized, poorly maintainedtransmission network. The gap between capacity and demand leads to frequent load shedding, leaving large parts of thepopulation and the private sector with poor quality supply or no supply at all. Significant investmentresources-estimatedat US$1.6 billion-are neededinorder for the saturated systemto arrive at sufficient capacity and for the gridto reach an "n-1" redundancy that would allow for maintenance and minor faults to be handledwithout loss of the network supply function. 2. Overall benefits from the transmission investments foreseeninthe project would be an improved capacity and quality of supply to industrial and residential clients andreduced technical lossesthat inturn will improveNEPA's balance sheet andmake more o fthe generatedelectricity available to the clients. The investments willresultinthe generation ofcarbon emission credits that wouldcreateperformance- based incentives for project sustainability." Subcomponent 1: Transmission Grid Reinforcements 3. Due to rapidload increase, many of the transmission substations inNigeria are overloaded or near their designed capacity while others are inacuteneedofrepair. The project will support investments in substation extensions and gridcapacity upgradesto cope with the growing demand and bringservice to the large number o fNEPA clients that are connected but due to supply constraints, do not receive the desired service. The investments are basedonthe current loadsituation andrecommendations made in the Tractebel "Transmission System Development Plan" (financed under the ongoing TDP project). Supply capacity will be increasedparticularly inthe Lagos area, a limitednumber of330 kV stations, as well as ina larger number of 132 kV injection substations supplying electricity to Nigeria's main growth areas. Incases where the line capacity constitutes a significant bottleneck, the project intends to finance line-restringing o f existingtransmission lines with higher capacity conductors. The addedcapacity as a result of this project component will not only leadto improved service, but will also reduce the customers' dependence on expensive andpolluting captive diesel generators. The resultinglower emissions of carbon dioxide will generateemission reductioncredits that will be eligible for payments from the sale o f carbon credits. The investments will be verified for compliance to the Environmental and Social safeguard framework referred to inAnnex 10. A list o f identified investment objects for consideration is includedinthe Table below. '' ~ The WorldBank's carbonfinance business (CFB) has reviewed and cleared a Project IdeaNote (PIN) developed for this Project. 38 GENERAL GRID REINFORCEMENT STATIONS Yo LOADING COST ESTIMATE US$(M) 330/132KV SUBSTATIONS Katampe (Abuja) up-ratingwith Ixl5OMVA 330/132kV transformer 100% 5 Jos up-rating with Ixl50MVA 330/132kV transformer 86% 4.5 lkeja West up-rating with Ixl50MVA 330/132kV transformer 97% 4.5 Akangba up-ratingwith 1XI 5OMVA 3301132kV transformer 82.20% 3 132/33KV SUBSTATIONS lkorodu up-ratingwith IxGOMVA 132/33kV transformer 94% 2.5 Alimosho up-ratingwith IxGOMVA 132/33kV transformer 127% 1.5 Alausa up-rating with IxGOMVA 132/33kVtransformer 92% 1.5 Ejigbo up-rating with IxGOMVA 132/33kVtransformer 99% 1.5 Onitsha up-ratingwith IxGOMVA 132/33kV transformer 96% 1.5 Aba up-rating with IxGOMVA 132/33kV transformer 117% I.5 Port Harcourt (Town) up-ratingwith IxGOMVA 132/33kV transformer 70% 1.5 Port Harcourt (Main) up-ratingwith IxGOMVA 132/33kVtransformer 90% 1.5 Kaduna up-ratingwith IxGOMVA 132/33kVtransformer 92% 1.5 Kumbotso up-ratingwith IxGOMVA 132/33kV transformer 109% I.5 Ogba up-ratingwith IxGOMVA 132/33kV transformer 124% 1.5 Mando up-ratingwith IxGOMVA 132/33kV transformer 88% I.5 llorin up-ratingwith IxGOMVA 132/33kV transformer 110% I.5 Effurum up-ratingwith IxGOMVA 132/33kV transformer 78% I.5 Ojo up-rating with IxGOMVA 132/33kV transformer 100% 1.5 Awka up-ratingwith IxGOMVA 132/33kV transformer 79% I.5 Sokoto up-ratingwith IxGOMVA 132/33kV transformer 90% 1.5 Birnin Kebbi up-rating with IxGOMVA 132/33kV transformer 90% 1.5 Abuja up-ratingwith IxGOMVA 132/33kV transformer 92% 2.5 SUBSTATIONS WITH MOBILE TRANSFORMERS Kubwa constructionof 2xGOMVA 132/33kVsubstation - 77% 5.5 MandoTS reinforcementwith IxGOMVA 132/33kVtransformer 30.60% 2.5 Kumbotso TS reinforcementwith IxGOMVA 132/33kVtransformer 80.80% 2.5 Aba Town TS reinforcementwith IxGOMVA 132/33kVtransformer 84.70% 2.5 Owerri TS reinforcementwith IxGOMVA 132/33kVtransformer 79.40% 2.5 Jericho TS reinforcementwith IxGOMVA 132/33kVtransfomrer 96.70% 2.5 Zaria TS reinforcementwith IxGOMVA 132/33kVtransformer 80.90% 2.5 LINE RESTRINGINGPROJECTS Up-ratingof Afam -Port Harcourt 132kV DCL (32km) 100.00% 4.8 Up-ratingof Alaoji -Owerri 132kVDCL (60k) 100.00% 7.8 SUBSTATION REHABILITATIONPROJECTS Rehabilitationof Switchyard foundationof Alagbon Substation 7.5 TOTAL 88.1 MILLION Subcomponent2: ReactivePower Compensation 4. Ina separate Tractebel study issuedin2004, the Nigeriannetwork is analyzed from areactive power and compensation point of view. The findings point to major savings inlosses as well as possible power quality and voltage level improvementsby introducing reactive power compensation equipment as 39 capacitor banks, reactors and static-Var compensation unitson strategic points inthe 132 and 33 kV part o f the network. 5. Theproject intendsto finance procurement andinstallationofthe relatedequipment estimatedto save up to 42 Mw ofpeak load transmission losseswhile at the same time increasing quality of supply and overall power factor. This loss reduction would create effective capacity without new generation or major gridinvestments and would also bepotentially eligible to benefit from the sale of carbon credits. Subcomponent3: TransmissionSupply strengtheningfor Distribution Clusters 6. Service reliability to customers inNigeria i s currentlyhamperedby a series of constraints ranging from lack o f generating capacity, poor transmission capacity, lacking voltage and frequency control to problems inthe distribution segment with poorly maintainedequipment, electricity theft etc. Inorder for the CREST distribution cluster investments to have the desiredeffect, it i s therefore important to identify and correct as many upstreamconstraints as possible so that sufficient amounts of highquality electricity are delivered to the cluster boundary. Ifnot, the effects of intense distribution improvements riskbeing overshadowed byrecurring supply failures. The transmission investments will comprise substation refurbishments, line restringingand localized gridcapacity increaseswhere needed to reduce some of these upstream constraints to deliver a successful CREST program. Subcomponent4: TransmissionSystemMetering and Control 7. SCADA Systemextension. With the current gapbetween demand and gridcapacity, load sheddingis likely to be arecurringphenomenoninNigeria for years to come. Today the load shedding is done onthe 132kV level and insome rare cases on the 330 kV level, which means that all downstream clients on such selectedfeeders are disconnected. With the state-of-the-art SCADA control systembeing implementedthroughthe ongoing TDP project there is anopportunity to increasethe selectivenessof load shedding and to minimize its impacts on vulnerable clients. This component would therefore extend the reach o fthe National Dispatching Center and the SCADA system to the 33 kV level, making it possible for NEPAto distinguishbetween feeders carryingpower to clients with highcosts of unavailability such as hospitals and larger industriesand feeders mainly supplyingresidentialloads. The component would also finance investments incommunicationequipment linkingthe national control center andthe regional control centers for increasedreliability and added information flows. The added 33 kV supply data made available to the national control center by the investments would inaddition benefit the ISONarket operator when monitoringthe DBUsupply agreementsinthe new market model. A morerational dispatch systemmayhave additionalbenefits resultinginlower carbon emissions. 8. Genco/Transysco/DBUGridMetering. Theproject aims to sustain the investment support already ongoing inthe TDP project for facilitating reforms, unbundlingo f NEPA and the wholesale market structure. The Project will finance bulkmeteringequipment for the gridinterfaces between the newly formed GENCOs and Transysco to facilitate the data collection for the wheeling service performed byTransysco as well as current transformers andtelemetering equipment for improved meter reading ability and information flow from the TransyscoDBUboundary. This investment will, incombination withthe meteringand SCADA systemalready inplace, constitute the requiredtechnologicalbase for a well functioning market governed by the ISONarket Operator. Subcomponent5: Technical Assistance 9. ImplementationSupport. Consideringthe largenumber ofsupply and installation type contracts intended to be procuredunder the credit, the project aims to relieve some o f the detailed supervision workload on the CPSUby fundingconsultant services for implementation support such as 40 site supervision andreview of engineering documentation and deliverables under the different subcomponents. The project will also support implementationo f the environmentalsafeguardframework including a study o f solid waste managementinTransysco for handling o fmaterials detrimental to the environment such as transformer oils containing PCB and SF6 gas from Substation Switchgear. 10. Technical Operations andMaintenanceContract. Inanenvironment o fconstant load shedding, supply interruptions andgridfailures, the current Transysco management is forced to act principally as an emergency service with little or no time for preventivemaintenance and forward looking operations. To remedy this situationand managethe change towards abest practice company, the Transysco management team needsto be improved and invigorated. The NigerianGovernment has therefore decided to issue a contract for technical operations andmaintenance functions ofTransysco. A private operator would take over the managemento f the assets for a pre-determined period of 3 - 5 years while the overall financial responsibility, especially with regardto transfer pricing and contracts with other unbundledNEPA entities, would remainunder current Transysco/NEPA control. The contract would include knowledge transfer, enabling NEPA staffto gain world-class experience inthe field of modem transmission management andpreventive maintenance. The preparation o f a suitable framework for this assignment including identificationof performance indicators and drafting of biddingdocuments i s funded through the ongoing TDP project. 11. The fundingo fthe 0 & Mcontract would partlybe self-generated through the expected additional flow o f Carbon Credit Revenues stemmingfrom the investment projects currently being prepared. This will inturncreate a performance-basedincentive for the future contractor to support high quality and sustainable on-going operations and maintenance. The Project aims to make limitedfinancing available to bridge the gap untilsufficient overall Transysco and carbon credit revenues enable the contract to be financed out of the Transysco balance sheet. Technical Feasibilitvand DetailedEngineerinv Studies 12. DetailedEngineeringstudiesfor the Afam-New Haven-Jostransmission line. TheNigerian Transmission system i s routedina Ushape through the densely populatedWestem states. The power therefore has to make a significant detour inorder to reach the Northern and Easternparts of the country leadingto large losses and saturatedsystems. This situation is likely to worsen as large parts of the plannedIPPbased generation is located inthe country's gas rich south easternstates while the demand growth is principally found inurban growth centerslike Lagos and Abuja making it increasingly important to have the capacity to wheel power over large distances. To relieve this situation NEPA proposes to add an easternrouting to its backbone 330 kV transmission system. The new line would significantly increase the gridcapacity, as it would enable the supply destined for these parts o f the country to take a shorter path while relieving the western route from the addedburdenof providing transfer capacity. Itwould also close the main 330 kV system ina loop feed that would increase availability andreliability also inareas already served through the existing network. Due to the length and voltage level required, significant land areas will have to be allocated to assure the right of way. The Project is therefore likely to warrant substantial studies to findthe optimal line routing and to assure minimalnegative impact on affectedcommunities as well as compliance to World Bank environmental and social safeguards. The project aims to finance a complete set ofpreparatory studies, including environmental and social safeguards, inorder to have the component ready for investment fundingwhen additional sources o f financing become available. 13. BidPreparationtechnical support for the rehabilitationof KainjiHydroPower Station. Buildingon arehabilitationdesign studymade for one o fNigeria's oldest hydropower installations, the Kainji Hydro Power station, the Project will support technical assistanceinpreparingbiddingdocuments and provide advisory services duringthe procurement process for the rehabilitation of the plant. 41 General Grid DesignStudies 14. Loadmemand Study. The state o fthe electricity system and the rapid demand growth in Nigeriahas ledto large pockets of suppresseddemand consisting ofbothresidentialand industrialclients. The size of these latent demandpockets is, however, not fully knownto the government andthe utility. It i s therefore difficult for NEPA to size and correctly plan for future capacity expansion. New investments inadditionalcapacity aredifficult to size correctly inthe absenceofsuchinformation. TheProject therefore intends to funda loaddemandstudy for the complete network and adjacent areas that would enable NEPA to have a clear picture of the real demandpotential and how the future investment program shouldbe sized. 15. TransmissionGrid designplan. Basedon the result ofthe loaddemand study the component will also include fundingfor an updatedtransmission systemdevelopment plan for the NationalGridwith special focus on major loadcenters. This will enable Transysco to address the complex decisions it is facing increatinga reliablebackbone grid-supplyto cities like Abuja, Port Harcourt, etc. The study will buildonthe 2003 development planto correctlyprioritize and size future gridinvestments for incrementaldevelopment. COMPONENT 2: DISTRIBUTIONEFFICIENCY IMPROVEMENT (US$33.2 M) Subcomponent1: Distribution System Upgrade 16. Apart from generation shortagesandtransmission constraints, the distribution segment of the business i s a major barrier inrealizing the objective of continuous andreliable power to consumers. The broken business model ofNigeria's electricity sector is apparent most clearly at the distribution end o f the business where neither customers get the service they deserve nor NEPA gets the revenues itneeds to support better service. Being the part of the businesswith the closest customer interface, distribution performance i s critical to ensure appropriate service delivery that wins the confidence o f the customer by improving the day-to-day lives o fNigerians, while moving toward the millenniumdevelopment goals. 17. The distribution subsector is indireneed o f investments, withpoorly maintained infrastructure and highsystem losseso f around 40%. Outages are frequent due to system failures and overextended networks. Upstreamimprovements are not fully beingtranslated into better supply quality and service at the customer interface level. Maintaining the distribution system to prescribed standards and generating adequate cashinits operation requires reengineering of businessprocesses, improved management slulls and appropriate investments. Furthermore, since the distribution businessprovides cash flows from the customer that sustain the entire sector, the revenue stream for generatiodtransmission activities cannot be securedunless inefficiencies indistribution are addressed. Giventhe problems faced by the Nigerian distribution sector, it i s essential to adopt a comprehensive multi-pronged strategy to ensure viability of the business, secure revenue streams, and sustain upstream investments intransmission and generation sectors. 18. The Bankhas facilitated development o fthe CommercialReorientationo fthe Electricity Sector Toolkit'' (CREST) programto launch such a distribution improvement strategy. Principally, the CREST programcomprises of various initiativesbased on the global insightand experience o f fixing dysfunctionalbusinessmodels. The strategy needs to encompass interface with the customer, correct l2 Improving distribution efficiency, commercial character and customer interface, implementing fast track solutions to the pressing generation shortage with private sector participation andreducing the need for sovereign guaranteesand interventions to enhance the rate of electrification, through grid-based and off-grid approaches are the three maintracks o f this program. 42 investment choices drivenby knowledge inputs,adaptation of innovative technology interventions with reengineeredbusinessprocessesand promotiono fright incentives and adaptation of operational philosophy to foster a customer-focused, efficient electricity market.13 19. The Projectwill support investments that aim at improving the distributionbusiness interms of: (i) networks for reliable supply to be measuredby better voltage and reduced outage times; (ii) commercial character of the business as measuredby enhancedbillingand increased revenues; and (iii) customer interface measuredby time requiredto respond to complaints, new connections, etc. The Project will also facilitate development o f capacity inthe successor distribution entities interms of technical, commercial andpersonnel systems and capabilities. The mainrationale of these investments i s to create value inthe Nigerian electricity business and demonstrate its viability inareplicable manner. 20. Given Nigeria's large investmentrequirements, the desired developmental impact would not be achieved ifinvestments are thinly spreadand ifthey are not directed to achieve specific outcomes in identified areas. Inorder to address this concern, it i s proposed to adopt a cluster approach in implementationo f the Project. A Cluster would be a group of customers that are servedby an electrically demarcateddistribution and sub-transmission network. The CREST program andrelatedinvestments would be implementedinthese clusters to create "islands of excellence". Investments indistribution sub- sector would be coordinated with those intransmission sector so as to ease transmission congestion to these clusters. Hence efforts would be made to develop these clusters in such a way that measurableand tangible improvements take place interms of improveddistribution sector performance. The results would thus be improved revenues, reducedlosses and enhancedcustomer satisfaction interms of quality o f supply, reduced fault redressal times, and reducedbilling complaints. 21. Featuresof a typicalcluster. A cluster would be definedas the electricalnetwork servedby a 33111kV substation. Typically, such a substation would have up to six 11kV feeders. These 11kV feeders, the distributiontransformers (that would step down the voltage from 11kV to 4151220V), the LTnetwork along withthe metering andrelatedarrangements at the customer pointswould together constitute the distributionnetwork. The incoming 33 kV feeder would constitute the sub-transmission network. Each such cluster would be serving around 50,000 consumers or a population o froughly 250,000 each. The clusters are demarcatedthus to facilitate measuremento f energy inputinto the network fedby the 33111kV substation. TypicalInvestments in a Cluster 22. Investments will be made ingoods and service^'^ relatedto implementation of the following initiatives: (a) Improved reliability and quality of supply for customers, firstly through HighVoltage Distribution Systems (HVDS), involving investments insmall capacity transformers, HT and aerial bunchedcable, insulators, poles and other accessories, and secondly by reactive power compensation by installation of online capacitors. (b) Mechanisms to facilitate efficient meteringwould include enhancing the coverage and quality o fmetering for HT and LT customersinvolvingHT trivector meters, LT trivector meters (CT operated) for LV commercialloads above 20 kW, single-phase and three- phase (whole current) meters for other LV loads apart from other metering equipment. Modern meteringoptions such as Automatic Meter Reading, prepaidmetering, spot l3 As described earlier inB o x 1, Section 1. l4 A descriptionofgoods andservices that will beprocured is given inAnnex 8. 43 billingwith hand-heldterminals and otherswill be suitably deployed. Meteringof MaximumDemandconsumer premises and that of non-Maximum Demandconsumer premises, through use ofmodems and other accessoriesfor remote reading would be introducedwhere required. (c) Better cashflow managementby introduction o f spot billing which involves hand-held terminals, printers, modems and associatedaccessories. Inaddition, collections would be improved through opening up alternate avenues for customers to pay their bills. (d) Addressingcustomer concernsthrough set upo fcustomer care centers, and improved attentionto customer concerns through launch o frapidresponseprograminvolving appropriate vehicles with GIs, GPS facilities and equipment, fault repair kits, wireless sets and any other requiredaccessories. 23. These investments are designedto strengthendistribution infrastructure, improve quality o f supply and customer satisfaction and increasecashgeneration. The mainoperational impact of investments would be inthe areas of quality of supply, pilferage of electricity, customer service, and improving distribution business processes. (a) Qualityof supply. Voltage profiles are generally poor, with consumersreceiving 180 volts or even lower instead of the standard 220 V supply. At such low voltages, household consumersriskruiningappliances ifused-often times these cannot be used at all. Business applications for industrial and commercial customers are similarly affected. The CREST initiative will address the voltage problem through reconfiguration o f distribution lines to a HighVoltage Distribution System (HVDS). Under the current system, large capacity transformers are the norm, servingnumerous customers from one transformationpoint. Typically a 500 KVA capacity transformer would supply around 400 customers. This configuration requires electricity at low voltages (LV) of around 400 volts to be transported over longdistances. Becauseo flonglinelengths, customers at the far end of the line experience low voltages. Furthermore, such longlines sag, and are therefore prone to frequent breakdowns and easy theft, besidesbeingunsafe. The HVDSremedies these shortcomings by: e Replacing each such large transformer by several smaller capacity transformers to step-down from 11kV to 220 V at several points along a supply line instead o f at one terminal point. As aresult, transformation occurs closer to the consumptionpoint, i.e. fewer consumers are servedper transformer, thereby limitingvoltage drops anddramatically improving the supplyprofile. Inpilot HVDSprojectsimplementedunder CREST, actual measurementsofconsumer- endvoltages show vast improvement-from 160volts insome cases to the desired level of 220 volts. 0 The higher voltage lines also deter theft, while also dramaticallyreducing technical lossesby reducing the amount o f current output inthe system.15 Technical loss reduction results inhigher energy efficiency and inlowering of l5 These losses are calculated as the square o f the current multiplied by the resistance. Hence with a 500 KVA transformer, the output current is 350 amperes resulting inlosses o f 350x350~ resistance value o fthe wires. Alternatively with a 25 KVA transformer the output current is 31amperes. Inthis case the losses will be 31x3l x resistance value o f the wires. Hence this system will lead to a dramatic reduction intechnical losses. 44 carbon emissionsthat can be monetized into revenuesthrough sale of carbon credits. (b) Pilferage of electricity 0 A longLV line invitestheft as it is relatively simple to tap into. Onthe other hand, HV lines are placedhigher from the ground, and are practically impossible to tap into. Furthermore, a HVDS configuration employs insulatedaerial- bunchedcables to connect the transformer to distribution points, which eliminates all possibility o ftheft. 0 Remote reading of industrial and highrevenue yieldingcustomer premises also reducespilferage o f electricity significantly, while facilitating monitoringthe quality of supply to such customers who are critical to the business. (c) Improving Customer service and distribution businessprocesses. Poor customer service i s one of the major complaints against NEPA. The most frequent ones relate to wrong billing, undeliveredor late delivery ofbills, improper accounting o fpaidbills and apathy to consumersreporting faults or interruptionsinsupply. Also, weak business processesresult ininefficiencies apart from customer dissatisfaction. The CREST interventions that address these issues include: 0 Introductionof customer friendly billingsystems such as spot billing, using hand-held electronic machines. Inthis method, bills are printedand delivered on the spot at the customers' premises when their meters are read, andNEPA's customer database i s updatedelectronically. Customers have the additional advantage of staggeredpayment due dates thus reducingcrowding at cash collectioncenters on or near the due date. Apart from improving customer service, this intervention compressesthe cashflow cycle, andintroduces electronic data recording, facilitating diligence on this critical revenue generating part o f the business. 0 Expansionof the marketing, billdistribution and bill collectionnetwork by outsourcing these activities. Some mechanisms wouldbe internetbasedinterface mechanisms for bill verification and payment, open-accessbill information and payment facilities such as through banks, retail outlets and mobile phone service providers.16 0 Segregation of technical andcommercial functions to improve efficiencies inthe business and creating exclusive machinery for customer interface, such as establishment of multi-level grievance redress systems, email complaint facility and toll-free complaint lines. 0 Inorder toaddresscustomer interfaceissuesandcomplaints rapidlyand effectively, CREST will facilitate establishment o f"networked" customer service centers with trained staff. Such centers and related"phone-in" complaint desks would operate intandem with a system of RapidResponseVehicles equipped with uniformedworkmen andnecessarytoolkitshpares. These vehicles will be l6The Lagos DBUhas introduced a novel method for customers to pay bills over their mobile phones using short- messaging-texts or SMS, into a passkey secured electronic bank account or through cash cards. 45 stationed at strategic points and canbe called infor addressing faults and complaints. Under pilots implementedinIbaadan, Abuja, and Port Harcourt, customer care centers withrapidresponse vehicles have producedpositive results and meritedsignificant customer appreciation. These networked customer service centerswould also facilitate data miningand tracking the revenue streams more efficiently. 0 Assets and facilities managementwould be strengthenedthrough standard software and infrastructure provision as necessary. This would help reduce the 0 &Mand other costsinthebusiness. 0 Performance monitoring mechanisms that draw upon the HRdatabase would be introduced. 0 Critical Databaseand data mininginitiatives (for billingand other business processes) including GIS/GPS techniques. Implementation Strategy - The Cluster Approach 24. Determinationof size of the cluster. A cluster couldcomprise any of the following altematives: 0 The network o f a distributiontransformer and its downstream infrastructure. 0 A 11kV feeder emanatingfrom a 33/11 kV substation. 0 A 33/11 kV substation andthe downstreamnetwork. 25. While eacho fthese alternatives facilitate ring fencing and energy audit, a 33/11 kV substation has specific advantagesover other altematives. Giventhat a 33/11 kV substation feeds substantial load it would bepossible to align decentralized generation to serve the particular cluster. Distribution operations can be carried out with reasonableoverheads and some economies of scale, ifthe cluster size is optimal. This would also facilitate privateparticipationand cluster basedoutsourcing. 26. Rationale behindthe cluster approach. Incontrast with conventionalinvestment approach to electrical infrastructure, the cluster approach would facilitate the following advantagesinthe Nigerian context: (a) The sector ingeneral and the distribution sub-sector inparticular require large investments for efficient operations. The available resource envelope under the Project may not demonstrate clear impact ifit i s too thinly spreadacross the country. Therefore malung investments basedon a result specific strategy, inclearly demarcated areas, would facilitate achievement o ftangible and measurable impacts. (b) Itis easy andpracticalto establishabaseline for keyperformance indicatorssuchas quality o f supply (tail end voltage), distribution losses (technical and commercial), billing and collections, responseand resolution times for various activities that involve customer interfaceand so on at a cluster level. Changesinthese indicators arising from interventionsmade inthese clusters can also be easily measured. (c) The measurement o f impacts inclusters would also facilitate economic and financial cost benefit analysis of investments. 46 (d) Since it is notpossible to remove all the transmission constraints inthe systemthrough this project, transmission investments can be targeted to improve supply to those specific clusters where they can complement CREST distribution interventions. (e) Scaling up a successfulcluster approachto the entire system is only a matter of applying more investments into a larger number o f clusters over time. 27. Horizontalandverticalinvestmentcomponents. Eventhough investments would be principally fashioned as vertical componentstargeted to improve distribution inspecific clusters, certain investmentswould have to be systemwide that would strengthenimprovements across all the clusters on a country-wide basis. It i s expected that with implementationof the NEDP, the number of such clusters ("islands of excellence") would increasesubstantially, eventually covering more ofNigeria by this approach. For realizing this goal some systemwide measures, such as development o f a universal billing systemand software, accounting andfinancial systemsandrelatedhardware and software, local andwide areanetworks andinformation technology infrastructure are essential. The Projectwould therefore apply some of the investments towards activities that have a "horizontal" systemwide scale, and complement "vertical" cluster-based interventions. Together such horizontal andvertical interventions would create the necessary conditionsto improve efficiency, buildbusiness value and enable incremental private sector participation. Typical horizontal investment components that would be implementedon a systemwide basis are: a Development of a universal billingsystemand software. a Accounting and financial systems and relatedhardware and software. a Local and Wide area networks, with relatedinformation technology infrastructure and software. 28. Inordertointegratetheclusterapproachwithvarious initiativesthat aresoughttobefunded underthe distribution component ofthe NEDP, itis proposedto follow anoutput-based disbursement approach. This approach would establish the linkages betweenperformance and disbursement on one hand and enhance DBUinvolvement inpreparation of sub-project proposals under overall P M U coordination. Certain initiatives underthe Project would involve procurement o f goods and services. Typically such components would be implemented by a combination of goods and services and would necessitatea turnkey approach for implementation. Outsourcingof the operation of these components would also be requiredby the utilityafter implementationo f these initiatives. Customer Service centers and Rapid Responsevehicles are examples o f components that would be covered by this approach. InstitutionalArrangements 29. The cluster approach isbeingadopted for the first time inNigeriaonthis scale. Therefore, institutionalarrangements, procurement, and capacity within the executing agencies would have to be developed. As successorentities to NEPA, the DBUsare naturally the front-line implementingagencies. The DBUsare inthe processo fidentifyingclusters that are to be taken upunder the project and establishing the performance indicator baselines for eacho f these clusters. The project coordination for the implementationwill be carried out bythe NEPA PMU, usingthe capacity createdunder the ongoing Transmission Project. For the time being the P M Uwill remain as part o f the NEPNInitial Holding Company. Inrelation to this component, this unit willbe responsible for: (i) project implementation coordination and facilitation; (ii) ensuring economies of scale, uniformity inquality and specifications for all goods and works and canying out the prescribed process; (iii) enabling synchronized policy making (on technical andquality aspects) among all the DBUs; and (iv) overseeing M& Eand project outcome reporting processes. 47 30. Inview ofthe limitedcapacity oftheDBUsto implement severalcluster improvementsub- projects simultaneously, it i s proposed to execute some sub-projects on a turnkey basis. The cluster based tumkey approach would facilitate privateparticipationby establishing market determined implementationcosts, promotingbusiness capacity and skills inthe local markets and ensuring speed and quality. Such a parallel turnkey approach i s necessaryto ensure that the scale of the investments envisaged under the Project i s completed within the 3-year implementationperiod. The turnkey strategy wouldbe complemented by trainingprograms for the chief operating officers and implementingstaffin the DBUs. Thiswill not only enhancetheir skills and implementationcapacity, but also ensure effective oversight of the turnkey sub-projects. Public Private Partnership Initiatives 31. Based onthe learningexperience o f CREST pilots and the turnkey approach described above, the Project envisagessupport for the development of two public-private partnership mechanisms for scaling- upCREST country-wide. Technicalassistancefor this development will be executedbyBPEunder Component 5. RequiredIDA-supportedinvestments to implement these public-private partnership models would follow as part of future projects. OptionI:Distributionbusinessoutsourcing 32. A selectedpart ofthe distribution network or a customer cluster wouldbe electrically ring-fenced and concessionedto a private party. The concessionaire would trade electricity by purchasing power in bulkfromNEPAor other generators, andretail itto customerswithinthe cluster. The concessionaire will pay wheeling charges to NEPA or the successorentity for the use of distributionnetwork. All investments made bythe operator inimproving the network would be duly accounted for. NEPA i s already experimentingwith this approachthrough a small-scale pilot inAba. 33. The details withregardto size o f clusters (whether the entire DBUor part of it), andthe terms, conditions and processfor selection of the concessionaire are to be worked out over the next one year underBPE's stewardship. The 12RevenueCycle Management (RCM) contract areas couldprovide a logicalplace to initiate this approach. A recent study conducted byNEPA has concluded that the current R C M contracts are not achievingtheir purpose. This i s inpart due to the remuneration for the RCM contractors not beinglinked to performance and the absence o f any investment obligationsbyRCMs. The proposedapproach would address these concerns andreorientthe RCM arrangement towards achievinghighercommercialperformance and accountability. 34. The concession couldbe for aperiod o f five years, after whichthe privateparty would transfer the cluster to the MC/NEPA or the private company that couldbe controlling the DBUas the case may be. The distributionbusinessoutsourcing could be for the entire DBUincases where sufficient numbers o fprivate sector parties indicate sufficient interest and appetite to take the marketrisks for the scale o f expected operations under a modest sovereign guarantee framework. Therefore, prior consultations with potential interestedparties, foreign and local, are necessarybefore finalizing the modalities and form o f offers and guarantees. Option11: CRESTDistributionfunction outsourcing 35. This approachwouldbe analternative incases where sufficient interest and/or appetite for taking market riskunder the businessoutsourcing model i s not forthcoming or for those DBUs and clusters that are not attractive from a business standpoint. Modelbidswould be developed for private partiesto undertake CREST programinitiatives, individually or collectively, on a turnkey basis for a fixed time period for the entire DBUor a ring-fencedpart of it. While the contract would be on a BOTbasis for 48 initiatives like various forms o f metering, billpreparationand delivery, andthe constructionand operation of customer service centers and related customer interface initiatives, it would be inthe form of build- transfer for other initiatives like HVDSand reactive power compensation. To illustrate, under the BOT for single and three phase LV meters, the contractor shall be responsible for meter readingand generation o f bills for the entireBOT period, which i s expectedto be around three years. Incase o f customer service centers, the contractor shallbe responsible for operation of the center and for customer grievance resolution by coordinatingwith the utility staff. 36. Under this arrangement the Bank could support investments as far as the costs o f goods and installations are concerned, and the borrower utility will bear the cost o f services and operating expenses under the BOT arrangement. This biddingprocess couldbe attempted inseveral areas including the RCM areas. Other Subcomponents: TechnicalAssistance 37. The component includes severaltechnical assistance activities to support the CREST scale-up, develop the technicalimprovements for the system and acquire and execute the various software and hardware neededto install the horizontal, systemwide improvements discussedearlier. There i s also provision for distributionbusinessplanning for the DBUsand for capacity buildingand training. COMPONENT 3: ACCESS EXPANSIONAND INTENSIFICATION; RENEWABLE ENERGY (US$lO.O M) 38. Nigeria is currently going through aprocessofreforms inthe electricity sector and changes inthe policies, institutions andregulation for rural electrification are contemplated. There i s very littlepractical experience or knowledge outside ofrural electrification projects beingimplementedon a conventional gridexpansion basisby the Federal and Stategovernments' energy ministries. Therefore, to properly informthe policy and strategy development process, it is essentialto explore other feasible models of access expansion, intensification andrenewable energy development. This Project i s designed to deliver that experience through the development andimplementationof specific pilot projects inthree states. 39. The proposedpilots are to consider interventions necessaryfor designing and testing alternate access mechanisms, including low-cost options. The experience o fthe pilots will also provide important inputsto formulation ofaccess policies andframeworks, including the implementation ofthe Renewable Energy Master Planand for expanding the market for renewable energy. Additionally, it isproposed to support the development o f cross-sector energy applications through an "innovation TA" appr~ach.'~ This component is beingdeveloped inconjunction withaMSPGEFproject18which will co-finance the TA support andinvestments neededinorder to establish a levelplaying field for renewable energy. The table below summarizesthe main subcomponents and the relatedfinancing. l7 AnInnovation Solicitationprocess invites new ideas onprojects from the community and private sector through a process of open advertisement. After an initial review, promising ideas are financed under the project for further development and eventual implementation. MediumSize Project. 49 * Thissubcomponent will include aUS$O.1milliontechnicalassistanceprovisionto assessthe different types o f results expected. ** FederalGovernment, StateGovernment, Beneficiaries, Commercial andmicro-finance institutions-to be determinedona case-by-case basis. The amount statedhere is an initial estimate. Subcomponents(la) and (lb): Co-financing of Access Expansion (la) and Intensification Pilots (lb) 40. These two components will enable communities and States to co-finance anddevelop through investment support and TA respectively, electricity access expansion and intensification pilot projects: (a) inareas where the transmission constraints will be overcome to ensure rapid expansion of access to a number ofadditionalrural or peri-urbancustomers; and (b) inruralareasrequiringeither mini-gridor off- gridsolutions, that includerenewable energy options. The intent ofthe pilots is to address at a smaller scale the barriers that prevent low-cost solutions to access and development o frenewable energy options, includingdesign and testingo fnew mechanisms and businessmodelsthat explore new opportunities createdby the EPSR Act. 41. Four different sub sets o fpilot projects are envisioned: (a) Technology driven pilot projects to test low cost distribution design. The feasibility studies o f these pilot projects are beingprepared as a part of the ruralelectrification work being executedby BPE. (b) Intensification pilot projects inperi-urban areas, inthe states o f Cross River, Ogunand Enugu. (c) Expansionpilot projects inrural areas, inthe same states o f Cross River, Ogun and Enugu. (d) Off-gridrural electrification pilot projects, inthe same states o f Cross River, Ogun and Enugu,includingrenewable energy suchas hydro andsolar PV. 42. As part ofthese pilots, suitablework to develop standardizedPower PurchaseArrangements for Grid-connected small hydro projects (less than 20 MW)" will be undertaken. Furthermore, at least one pilot will seek to createreplicable business delivery models for the expansion o frural electrification through solar PV. Itwill pilot altemative service delivery models that may include leasing, micro financing, community participation, etc. l9The new Electricity Act provides that generation ofthis scale canbe developed under license and off-grid 1MW or lessprojects canbe developedwithout license. 50 43. The levels ofinvestmentsubsidyand IDNGEFco-financing requiredbyeachpilotproject will dependon: 0 The businessmodel adoptedfor eachof these pilots projects. 0 The level oftariffthat willbedeterminedaccording to the implementationofthe new Electric Power Sector ReformBill. 0 The share ofrenewable energy inthe project. 0 The result of the competitive procurement processto select goods and servicesproviders. Subcomponent2: Implementation Supportfor the National Renewable Energy Master Plan 44. The EnergyCommission ofNigeriahas developed aNationalRenewable Energy MasterPlanto promote the use o frenewable energy inNigeria. The plan considers addressingbarriers that currently limit suchuse, including the lackofan appropriate legal environment, technical capacity to ensure quality ofrenewable energy equipment, andtrained manpower to develop and operaterenewable energy projects. The Project will finance technical assistance for supporting the implementation of the National Renewable EnergyMaster Plan. Possible objectives of this assistanceare the preparation of the Renewable EnergyPolicy, the drafting of the Renewable Energy Act, the design ofthe Renewable EnergyAgency, training, andthe designof afinancial support for measuresaimedat levelingthe playing field between least costrenewable energy technologies and other conventionalapproaches. Subcomponent3: Innovation of CrossSector Energy Applications 45. Based on internationalexperience on how to increaseimpacts o frural electrification, the pilot projects may include financial and technical support to develop and implement effective cross-sector interface. This will assistprojects inother sectors facing energy supply constraints, and unleash win-win opportunities. Besides the direct support providedto eacho f the pilot projectsmentionedabove, calls for proposals will be initiated for local stakeholders andor implementing agenciesofprojects. These would be aimedto propose, design and implement cross-sectorinterface and initiatives. Consistent with criteria to be delineated inthe calls for proposals, the Projectwill finance incrementalcosts of additional study and equipment requiredto realize corresponding cross-sectorbenefits. COMPONENT 4: TECHNICAL ASSISTANCE: PROJECT MANAGEMENT UNIT (US$8.2 M) Subcomponent1: Development of Gas Pipeline and Gas-to-Power Projects 46. Currently around 6 bcmo f gas i s sold domestically, mainly to the power sector through two unconnected gas systems -the ELPS on the west side of the Niger Delta, andthe Eastern Area system. The ELPS system is also plannedto deliver export gas to the West Afkica GasPipeline. There have been several studies to address different options for the future Nigerian gas transmission system. These studies include the Bank-financed Sector Diagnostic and Options Studies and the National Gas Strategy. The proposed systemincludes apipeline from the producing areas inthe South to the North, serving Abuja, Kaduna and Kano. PIUfor the Gas pipeline and Independent Power ProductionProiect 47. A provisionofUS$lOmillionunderthe PrivatizationSupport Project (PSP) hasbeenmade available by the Bank for the set-up and initial operation of a Project ImplementationUnit(PIU). The provision i s to be employedtowards financing the activities inthe PIU's TOR including the following 51 areas: (a) Gas Demandand Feasibility Study; (b) GaspipelineEngineeringStudy; and (c) Environmental and SocialRiskAssessment. 48. The TORSof the PIUoverlaps with the TOR ofanother committee, establishedinJuly 2004, by the Presidency to develop gas resources for domestic use and exports. Chaired by the Presidential Adviser onPetroleumandEnergy Matters, the membersofthe PresidentialCommitteeincludethe Minister o f Industry, State Ministers of Finance, Power and Steel and Agriculture, and GMDs from NNPC andNEPA and MDof the Nigeria Gas Company. The Presidential Committeehas established a technical sub-committee coordinatedbythe Office ofthe Adviser on Petroleumand EnergyMatters with representation from the relevant ministries and companies. This Committee's TOR is to: (a) confirm the suitability o f L F ConsultingEngineers work on Pipeline System StudyReport onthe project; (b) secure public and private sector funds for the project; and (c) secure private sector execution of power plant and fertilizer plants. The Committee hasrecently prepared an interimreport, which has been submitted to the President. The report seeks the mandateto proceed to the development phase for the project, and employ the consultant ILF,whose work financed byNNPCunder an earlier contract hasbeenthe basis for the report. The Committee asks for US$1.5 millionfor this work. 49. The Bankhasrecommended to the FGNto merge the two committees inan effort to move the work on the gas pipeline forward onthe Nigerian side, inparticular, to establish a single Steering or OversightCommitteereporting directly to the President. Working groups shouldaddress policy, commercial andtechnical issues and mightreside inseparate ministries, reporting through their Ministers, or be separately constituted, reporting directly to the Steering Committee. Terms ofreference for the Committee andthe working groups would borrow heavily fkomthose for the existing Presidential Committees -the maindifference inapproachbeingreliance on one collaborative, rather than two competing arrangements. 50. Thekey objectives ofthe FGN'sreformprograminthe gas sector areto: (a) extend gas penetrationinthe domestic market (especially to power generation, but also to industry); (b) encourage project development and new entrants; (c) capture economic value; and (d) end gas flaring. The main barriersto the achievement o f the goals are: (a) absence of a coherent gas policy; (b) fragmentedoverlapping government sector responsibilities, involving potential conflicts o f interest; (c) vertically integrated government monopoly; (d) non-commercial, non-transparent gas pricing; (e) distortedfiscal regime, resultingingovernment subsidization of major projects and discrimination against new, non-oil producing entrants; (f) project-specific negotiation o f fiscal terms; and (g) lack o f legal framework inthe downstream gas sector. 51. The proposednew Gas Act would addressthese barriers by: (a) assigning sole responsibility for policy to the MinisterofPetroleumResources; (b) establishing an independent Gas Regulatory Commission for technical andeconomic issues (licensing, safety, promotion of competition, thirdparty access compliance); (c) unbundlingo fNigeria Gas Corporation into gas sales and gas marketing companies with private sector participation; (d) creation o f a Transmission NetworkOperator with responsibility for coordinationo fnetwork operations only (i.e. no gas ownership); and (e) ensure transparent pricingbasedon competition and onregulatory ceilings for captive customers. Inaddition, the proposed Natural Gas Fiscal ReformAct will support: (a) eliminationof distortionary tax treatment, such as consolidationof gas costs with oiincome for tax purposes; and (b) introduction o f a comprehensive upstream and downstream, flexible fiscal regime appliedto all projects. 52. The Gas component under this Project aims to support the Government's strategy inthe gas sector andwill include the following four subcomponents: 52 (a) GasAct implementationsupport. Continued legal andregulatory support to the FGN to ensurethe implementationof the DownstreamGas Act and its regulations and the Natural Gas Fiscal ReformAct." (b) RegulatoryCommission. The Commission is introducedbythe Downstream GasAct and this subcomponent supports the set-up o f the Commission, capacity buildingand initial operations: Prepare options andrecommendations for regulations to implement the regulatoryprinciples inthe Gas Act. Examples: Preventingabuse of dominant positions, operations of Transmission NetworkOperator, includingthe possible needfor aNetwork code, codes of conduct dealingwith the behavior ofregulated entities, regulation of health, safety, environment and land use. Conduct analysis and make recommendations onprocesses and procedures for regulation, processesand procedures for interactiono f the regulator with other authorities. Make provisions for transparency inits activities and independent decision- making. NERC. Buildcapacity for the Commission, including staffing, and establish linkages to (c) Energy PricingandTaxation. TheDraftGasLaw gives the Commissionpower to regulate gas prices charged for monopoly services which are not sufficiently competitive to protect the interest of consumers. It also gives the Commission power to undertake periodic pricing methodologyreviewsfor which it shall consult with Licensees. The subcomponent shoulddetermine a rational pricingmethodology for the whole energy chain, from upstream gas productionto enduser gas and power prices. The methodology should fulfill the following primary requirements: (a) economic efficiency; (b) financial viability for the participants inthe market; and (c) avoidance of cross-subsidization. The analyses shall take into account all taxes inthe energy chain, from upstreampetroleum taxes to enduser taxes on gas, power and petroleumproducts. (d) Review the financial, commercial and technical viability o f the transmission gas pipeline. This subcomponent would includereview of: Feasibility studies preparedby the Steering Committee. Coordination of gas market development with power expansion planning. Financing options for the pipeline,focusing on Public-Private Partnership options. Subcomponent2: Environment, Resettlementand Social Unit (ERSU) Capacity Building 53. ERSUis housedwithinthe PMUand isresponsible for monitoringandevaluationofproject- relatedenvironment and social activitieshmpacts. ERSUwill also have responsibility, when necessary, for preparingResettlement Action Plans for future sub-projects inline with the Resettlement Policy 2o The two drafts are yet to be ratified by the Parliament. Regulations for the Downstream Gas Act needto be drafted. This would include Draft licenses and license procedures, licensees' responsibilities and obligations, regulatory techniques and related regulations for Rates transmission and distribution services and Open-access provisions. 53 Framework. The scope of ERSU's work also includes designing and supervising environmental audits to determine the need for remedial actions, ifany, where past waste disposal methods are found to have resultedinPCB contamination of the soil at any of the substations selectedfor reinforcement under the project. Inaddition to resourcesfor ERSUcapacity buildingand additional staffing, a project cost allocation o f up to US$1 millionhas beenprovidedincase it turns out that cleanup of PCBs i s required duringproject implementation, anda similar provisionincase of any landacquisitionand/or involuntary resettlement becomingnecessary. Subcomponent3: Developmentof CorporatePlanning and Strategy Unit 54. Though project implementationwill commencewith the P M Uat NEPA, for which capacity has been created under the ongoing TDP, the PMUwill be subsequently transformed into a "Corporate Planning and Strategy Unit" (CPSU) duringthe life ofthe Project. The PMU/CPSU will be initially overseenby the Boardo fNEPA and work inclose coordinationwith the FGNand Project States, the Bureauo f Public Enterprises (BPE), the Energy Commission ofNigeria (ECN), the Designated National Authority (DNA-for the carbon components) and the unified Steering Committee for the development o f the Gas Project. The CPSUwill eventually be housed inthe Federal Ministryof Power and Steel (FMPS) or folded into one ofthe new sector institutions. Optionscanbe exploredindue courseto locate the CPSUwithinthe FMPSto function as aplanning, implementationandmonitoring unitfor the entire sector and beyond, or alternatively, setting it up as a stand alone company that provides a broadrange of support inthe same areas to the NEPA-successor entities on a fee-based system. A determination will be made duringthe course of the Project. Subcomponent4: Incremental Operating Costs 55. The P M Uwill be supported under the Project to undertake the increasedresponsibilitiesrelative to its performance underthe ongoingTransmission DevelopmentProject. Specifically, the Project would finance the incrementalexpensesincurredbythe P M Uon account of project implementation, management andmonitoring, including office space rental andutilities, office supplies, bank charges, advertising, communications, vehicle operation, maintenance and insurance, buildingand equipment maintenance costs, travel and supervision costs, and salaries of supporting staff, but excluding salaries o f officials o fthe Borrower's civil service. Subcomponent5: HIV/AIDs Prevention and Communication Campaign 56. Provision to implement anHlV/AIDSprevention and awarenessprogramwill be includedinthe biddingdocuments for all construction work (rehabilitation andnew lines andsubstations) andwill commence with Bank-financed sub-projects. The NEPA successorcompanies will also be assistedwith developing an HIV/AIDS prevention and awarenessprogramas part of their respective corporate policies. The HIV/AIDSprevention and awareness programwill be coordinated withthe National Action Committee on AIDS (NACA) indeveloping the corporate policies for the NEPA successorcompanies. COMPONENT5: POWERREFORMS(US$3.9 M) 57. BPE i s the frontline agency for implementation of the reforms. InitialTA and capacity building for reforms, as well as the design of the Market Rules and GridCode has been available to BPE through an ongoing credit, PSP. Most o f the activity to date has been on diagnostics. With the enabling legislation now inplace, IDA will support the implementation of actions mandated by the law and related capacity building. Four key reformactivities are to be supported: 54 e NEPA Restructuring-to support the set-up and operations of an InitialHolding Company (IHC); creation and capitalizationof the successor companies;21establishment o f aproposed specialpurpose entity to deal withNEPA's debt and liabilities including stranded(unfunded) energy purchase obligations infuture; development of a strategy for treatment ofNEPA's pension obligations; and mechanisms for right-sizing of staff. e Establishmentand operationof the regulatoryagency (NERC)-to provide and enforce the technical and economic framework for the operation of the wholesale electricity market. Inparticular, this includes clear definition o fprinciples for tariff adjustment, multi-year tariff order, protection of consumers' and public interest, and articulation of performance and safety standards for licensed market participants. e Capacity building-to support the technical, financial and managementcapacity requiredto enablecredible functioning ofthe new entities. Localparticipation intraining will be akey factor ofbuildingand sustaining skills for the largest number of staffas rapidly as possible. e Legal, regulatoryand contractualarrangementsfor electricity trade -to support the creation and operation o f Market Rules and the GridCode that set out the commercial and technical proceduresby which generatorsand distribution companies may use the transmission system. 58. The component will specifically support advisory services for the development o fpublic-private participationmodels for distribution privatization, distributionbusiness outsourcing and CREST distribution function outsourcing models. These altematives have beendescribed indetail under component 2. Inparallel, work towards design of customized privatizationriskmitigation instruments for achievingpositive, sustainableprivatizationoutcomes would be commissioned. 59. Keyplayers inthe sector have underscored the importance of a well managedcommunications and outreach strategy. Such a strategy will informthe public about the reforms, creation o f successor companies, and the implications of a competitivemarket structure inthe power sector. BPE, which has the mandate to lead the reform effort, has already launched a programof National Stakeholder workshops. These early efforts have only served to emphasize the magnitude of the communications challenge and the need for continuous outreach as the sector evolves. The Projecttherefore proposes to support the BPEPower Sector Communication efforts through provision for: (a) a communications audit and needs assessment; (b) design of a communication strategy for NEPA reform; (c) implementation o f a public communications program for NEPA reformthat will explain the rationale, costs andbenefits of NEPAreformand the costs of not doing so; (d) publicizingregulations and other measures to protect the consumer; (e) enhancing NEPA staffs understanding of the timetable and implications o fNEPAreform; and (0disseminating safety net measuresas and when these are decidedat the key stakeholder level. 21The successor companies needto become stand-alone entities with business plans, share capital, staffing, and fundingsources for working capital. This multi-year effort is unlikelyto befully accomplished withinthe duration ofthis Project; the goal is to putthe process on an irreversible track. 55 Annex 5: ProjectCosts NIGERIA: NATIONAL ENERGYDEVELOPMENT PROJECT 1. The project costs by component details are providedintable at Section B, para. 26. 2. The project financing by expenditure categories i s detailed inthe following table. :ategory Amount of Credit Allocated IDA 1 Works/Supply/Installation 131.4 2 Goods BPE 0.5 NEPA 4.0 3 Consultant Services BPE 3.c NEPA 16.C 4 Training Study Tours Workshops BPE 0.4 NEPA 0.1 5 Incremental Operating Costs 1.( ContingencyRJnallocated 14.; Total Credit Proceeds 172A 3. The project costs breakdown by source o f expenditures i s provided inthe table below. 56 Annex 6: ImplementationArrangements NIGERIA: NATIONAL ENERGYDEVELOPMENT PROJECT IMPLEMENTATION PERIOD: FY2006-FY2009 1. Borrower andExecutingAgency. The Borrower isthe FederalGovernment ofNigeria (FGN), representedby the FederalMinistry o f Finance (FMF). Responsibility for project oversight rests with the Federal Ministryo f Power and Steel. There are two executing agencies-the NEPA P M Uwill implement components 1- 4, while BPE will implement component 5. 2. The P M U i s currently incharge of implementing the TDP. It i s rated satisfactory inall aspects o f project implementation. As an implementationagency for this Project, it will have five sets o f clients - transmission (Transysco), all the 11distribution companies, the access component where the clients include State Governments, ECNand Community basedorganizations, the gas sector PIUoperatedbythe MinistryofPowerand SteelandthePMU's ownERSUwhichwill haveto ensurebroadenvironmental and social compliance o f all aspects of the project. Thoughproject implementationwill commence with thisPMU, byusingthe capacity createdunderthe ongoingProject, the PMUwillbe subsequently transformed into a "Corporate Planningand StrategyUnit" (CPSU) duringthe life o fthe Project. The PMU/CPSU will be initially overseenby the Board ofNEPA and will work inclose coordinationwith the FGNandProject States, the BureauofPublic Enterprises (BPE), the EnergyCommissionofNigeria (ECN), the DesignatedNational Authority (DNA-for carbon components) and the unified Steering Committee for the development of the Gas Project. The CPSU will eventually behoused inthe FMPS or folded into one of the new sector institutions. 3. The BPE will implement component 5 of this Project. It i s currently an implementation agency for the PSP, andhas been so for the last three years. After some initial challenges, BPEhas now developed requisiteproject management capacity and has therefore been includedas an implementation agency under this Project. This component comprises several important consultancy services, critical to the reforms and privatization. Though BPE's core procurement andproject accounting staff are familiar with World Bankprocurement processing andproject managementprocedures, there are some reservations regardingits capacity to satisfactorily execute the Project. These reservations are basedon a reviewo fthe performance under the ongoing PSP. WeaknessesinFMarrangementsinclude: inadequate financial management information system, poor quality FMR, weak control over payment vouchers, large amount o f overdue un-retired advancesand weak internal audit. Therefore, it i s proposed to strengthen BPE's procurement and financial management capacity through the support of a consultant specialized in procurement and execution of major TA activities. A comprehensive procurement, financial management and implementationcapacity assessment of BPE will be repeated inthe first six months o fproject implementation. 4. ProjectImplementationManual(PIM). NEPAPMUwill prepare andadopt a detailed PIMto guide implementation at the utilityand cluster levels. The PIh4 will set forthall operational and procedural steps regarding sub-project evaluation, reviews and approval, flow of information, detailed description o fPIUfunctions, operational agreements amongparticipatingagencies, procurement and financial management arrangements and standards andtasks, standards for reports, change management and amendment procedures. 5. MonitoringandEvaluation. M& Eprocedures andreports are described inSection C2. 57 Annex 7: FinancialManagementandDisbursementArrangements NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT I. Summaryof the Financial ManagementAssessment A. GENERAL Obiective ofthe FinancialManagementSvstem 1. The objective of the FinancialManagement Systems (FMS) is to support the implementing agenciesindeploying Projectresources to produce the requiredoutputs and with attention to economy, efficiency and effectiveness. Specifically, the FMS shouldbe capable o fproducing timely, relevant and reliable financial information. Such information would enablethe implementing agencies to plan, coordinate, monitor and appraise the Project's overall progress towards the achievement of its objectives. Furthermore, it will ensure that costs are minimized and that Project funds are used for the purposes intended. ImplementationArranpement 2. The Federal Ministryof Power and Steel has overall responsibility for the project implementation. However, this responsibility will be delegatedto a PMUthat will use the capacity createdunder the ongoing TDP. The P M Ui s expected to be transformed into the CPSUduringthe course o f this Project. Project implementationwill be carriedout on a day-to-day basis inline with the Project ImplementationManual and Bank guidelines. The reforms and privatizationcomponent, i.e. component 5, will be implementedby BPE, which i s currently implementing the PSP. 3. The Finance Section (FS) of the P M U (FSPMU)and the Finance Department o fBPE (FDBPE) will beresponsible for managing the financial affairs ofthe Project. They will, amongst other thingsbe responsible for ensuring compliance with the financial managementrequirements o f the Bank and the government, including forwarding quarterly FinancialMonitoringReports (FMR) and audited annual financial statementsto IDA. They will maintain adequate FMarrangementsto support the deployment of Projectresourcesinan economic, efficient andeffective manner to achieve the stated development objectives. The arrangementswill provide relevantinformation to the PMU/CPSU and BPE to facilitate the performance of their functions. The Intemal Audit Sections of the PMUand BPEwill carry out the necessaryinternal audit functions. Boththe Finance and InternalAudit DepartmentlSections will be staffed by qualified accountants. 4. All accounting andinternalaudit staffwillbe sufficiently trainedinBankprocedures, including disbursements, financial managementrequirements and procurement. B. RISKANALYSIS InherentRisks 5. The Country FinancialAccountability Assessment(CFAA), which was conducted inCY 2000 assessedthe risk o fwaste, diversion, andmisuse o f funds as high. The risks were to be mitigatedthrough the implementationo f the CFAArecommendations. Inthis regard, substantial reforms have been implementedinthe lasttwo years. A review ofthe implementationofCFAA recommendations in January 2005 revealedthat some o f the identified weaknesseshave been addressedunder the Economic 58 Management Capacity Assistance Project, and through other government initiatives aimed at improving financial management and accountability. The review also established that further improvements remain to be achieved, but the overall trend i s ina positivedirection. The review, however, didnote that the fiduciary assurance environment inFGNstill remains weak. 6. To minimize the aforementioned risks and ensure that appropriate safeguards are inplace prior to Project effectiveness, an assessmentof the financial managementcapacity of the implementingagencies has been carriedout, and appropriate actions andriskmitigation measures identified. ControlRisks 7. Theriskthat the project's financial managementarrangementsare inadequate for economic, efficient use o fproject fkds with properreporting arrangements is assessedas moderate. This i s subject to: (a) the weaknesses described inparagraph9 beingsatisfactorily addressed; and (b) the financial management actionplan described later inthis Annex, i s fully implemented. Strength andWeaknesses 8. Strengths: The mainimplementingagency-the NEPA PMU-is currently implementingan IDA-financedproject -TDP. The financial managementarrangement for the TDP, which will be employed for this project as well, has consistently performedwell. The finance section i s adequately staffed and the personnel are familiar with World Bank procedures. FinancialMonitoringReports, which are produced on a timely basis, are o f a good quality and are being used as a basis for disbursement- TDP is the only project inNigeriathat is usingthe report-based disbursement method. The second implementing agency -BPE-i s currently implementing the PSP and therefore has experience in implementing an IDA-assistedproject. 9. Weaknesses: The mainweaknesses are: (a) Internal audit function is weak interms of quality of staffing and performance inbothimplementing agencies; (b) Withrespect to the PMU, bothfinance and internalaudit staffingwill be inadequateto simultaneously implementthe ongoingTDP and this Project; (c) there are weaknesses inthe BPE FMperformance inthe ongoing PSP, including inadequate financial management information system, poor quality FMR, weak control over payment vouchers, and large overdue and unretired advances; (d) the PMU's computerized financial management system and financial proceduresmanual needto be updated to ensure that the financial management arrangement can fully support implementationo f the new Project as well as the ongoing TDP; and (e) the computerized accounting systemo fBPEneedsto be overhauled to improveits output (including generation of good quality FMRs) and to fully support the needs ofthe new Project. C. FINANCIALMANAGEMENT SYSTEMS 10. FundsFlow andBankingArrangements (a) The overall project fundingwill be from the IDA credit and Government counterpart funding. IDAwill disburse the credit throughtwo Special Accounts, which will be managed by the PMU/CPSU and BPE respectively. (b) The PMU/CPSU andBPEwill eachmaintainthe following accounts: (i) A SA inU SDollars to which the initialdeposit andreplenishments from IDA will be lodged. 59 A Current (Draw-down) Account inNaira with anestablishedcommercialbank to whichdraw-downs from the Special Account will be creditedonce or twice per month inrespect of incurredeligible expenditures. Followingimmediate payments inrespect of those eligible expenditures, the balance onthis account should be zero. A Domiciliary (Interest) Account inUSDollars into which interest onthe SA balanceswill be credited. A Current (Project) Account inNairawith anestablishedcommercialbankto which Counterpart Fundswill be deposited. A Current (Interest) Account inNairawith anestablishedcommercialbankto which interest on project account balanceswill be credited. Also, the PMU/CPSUand BPE will eachmaintainan IDA Ledger LoanAccount (Washington) inU S Dollars/Naira/SDR to keep track o f draw-downs from IDA credit. The account will show: (a) deposits made into an established commercialbankby IDA; (b) directpayments by IDA; and (c) opening and closingbalances. Thisrecordwill be reconciledmonthly with the Disbursement Summary providedby the Bank. All bank accountswillbereconciledwithbankstatementson amonthly basisbythe PMu/CPSUand BPE. The bankreconciliation statementswill be reviewedby designated officials, and identified differences will be expeditiously investigated. The PMu/CPSU and BPEwill beresponsible for preparingand submitting applications for withdrawal to the World Bank. Appropriate procedures and controls will be instituted to ensure that disbursementswould be carriedout inan efficient and effective manner. Detailedbankingarrangements, includingcontrol procedures over all bank transactions (e.g. check signatories, transfers, etc.) and disbursement will be documented inthe Financial ProceduresManual. FundsFlow Diagram Sources ofFunds Government * Project Account (N) balance) Naira A/C vendors, etc. 60 DisbursementArrangements DisbursementMethods 11. All disbursements are subject to the conditions ofthe Development Credit Agreement andthe procedures definedinthe Disbursement Letter. (a) Report-Based Disbursement. The Reports-baseddisbursement methodwill be usedby the PMU. Good quality Financial Monitoring Reports will be submittedon a quarterly basis within 45 days of the quarter endeachtime with a Withdrawal Application and copies ofrecent bank statements. All disbursementswill be subject to the conditions of the Development Credit Agreement, the Project Agreement and the procedures definedin the DisbursementLetter. (b) Transactions-BasedDisbursement. Bythe time of Project effectiveness, the BPE component i s not expected to be ready for report-based disbursements. Therefore, BPE will follow the transaction-baseddisbursementprocedures (as described inthe World BankDisbursementHandbook), i.e. direct payment, reimbursement, and special commitments. All applications for the withdrawal ofproceeds fi-om the credit will be fully documented, except for: (i) contracts with an estimated value o f less than US$200,000 for consulting firms, and lessthan US$lOO,OOO for individual consultants; (ii) studytours,workshops;and(iii) training, incremental operating costs which may be claimed on the basis of certified Statements of Expenditures (SOEs). Documentation supporting all expenditures claimed against SOEswill be retainedby FD/BPE, and will be available for reviewwhen requestedbyIDA supervision missionsandproject auditors. Special Account (c) To facilitate disbursements for goods, works, services, etc., IDA will make advances into a commercialbank to cover IDA'Sshare of eligible expenditures. The initial deposit into the special account for BPE would beUS$200,000, covering an estimated four months of eligible expenditures financed by IDA. For the PMU/CSPU, the initial deposit into the Special Account will be basedon a 6-month forecast prepared by the PMU/CSPU and submitted with the Application for Withdrawal. Subsequentdisbursements into the Special Account will be basedon areview of the 6-month forecast preparedby the PMU/CSPU and included inthe quarterly FMR, and accompanied with Withdrawal Applications, reconciled bank statementsand copies of all bank statements. With respect to BPE, the SA will be replenished through the submission of Withdrawal Applications on a regular basis-at least once amonth-and will includereconciledbank statements and other documents as may berequireduntilsuch time as the borrower may choose to convert to a report-based disbursementmechanism. (d) To the extent possible, all eligible expenditures shouldbepaidthrough the SA. All disbursements will be channeled through SA althoughthe borrower may choose to pre- finance project expenditure and seekreimbursement from IDA. Also, the use of direct payment and special commitmentsmay be allowed. (e) Detaileddisbursement procedures will be documented inthe respective Financial Procedures Manual. 61 Planning and Budgeting (f) Cash Budgetpreparation will follow the financial procedures manual. Onan annual basis, the FSPMUand FDBPE (inconsultation with keyproject implementationstaff) will prepare the cashbudget for the comingyear basedonthe work planandthe procurementplan for the year. The cashbudget shouldinclude the figures for the year, analyzedby quarter. The cashbudget for eachquarter will reflect the detailed specifications for project activities, schedules (including procurement plan), and expenditure on project activities scheduledrespectively for the quarter.22The annual cashbudget will be sent to the Bank at least two months before the beginningof the project fiscal year. (8) Detailedprocedures for planning andbudgetingwill be documented inthe Financial Procedures Manual. Fixed Assets and ContractsRegisters (h) F S P M U and FD/BPE will maintaina FixedAssets Register, which will beregularly updatedand checked. A Contracts Register will also bemaintainedinrespecto f all contracts withconsultants and suppliers. The FSwill prepare Contract StatusReports quarterly. Control procedures over fixed assets and contracts with consultants and suppliers will be inline with the Financial ProceduresManual. Information Systems (i) Boththe PMUandBPE have computerized accounting systems, which will be used for the Project. The PMUwill hirea consultant to upgrade the system so that it can support the newProject as well as the PMU/CPSU. The BPEwill hire a consultant to overhaul its system so that it can meet all project reportingrequirements. Staff will be trained adequately. Financial Reporting and Monitoring 0) Monthly, quarterly and annual reports will be prepared for the purpose ofproject implementation, monitoring and oversight. The reports will be submittedto the Ministry o f Power and Steel, FMFand IDA. Incompliance with government reporting requirements, Monthly Returns will be made to the Accountant General, for incorporation inthe Government's accounts. (k) Monthly. On a monthly basis, FSPMUand FD/BPEwillprepare and submit the following reports to the relevant authorities and the heado f the implementing agency: (i) A BankReconciliationStatement for eachbank account. (ii) Monthly Statement o f cashposition for project funds from all sources, taking into consideration significant reconciling items. 22 Guidance on the preparationofbudgets is available inthe Bank publicationentitled "Financial Monitoring Reports: Guidelinesto Borrowers." 62 (iii) A monthly Statementofexpenditureclassified byproject components, disbursement categories, and comparison with budgets, or a variance analysis. (iv) Statement of Sources and Uses of funds (by Credit Category/Activity showing IDA and Counterpart Fundsseparately). (1) Quarterly. The following financial monitoringreports will bepreparedbyFSPMUand FDBPE on a quarterly basis and submitted to IDA, Ministryof Power and Steel and FMF: (0 Financial Reports which include a Statement showing for the period and cumulatively (project life or year to date), inflows by sources and outflows by main expenditure classifications; beginningand endingcashbalanceso f the project; and supporting schedules comparingactual and plannedexpenditures. The reports will also include cashforecast for the nexttwo quarters. (ii) PhysicalProgressReportswhichincludenarrativeinformationandoutput indicators (agreed duringproject preparation) linkmgfinancial information with physicalprogress, and highlightissues that require attention. (iii) ProcurementReports,whichprovideinformationontheprocurementofgoods, work, andrelatedservices, the selection o f consultants, and on compliance with agreedprocurement methods. The reports will compare procurement performance against the plan agreed at negotiations or subsequently updated, and highlightkeyprocurement issues such as staffing and capacity building. (iv) FMR Withdrawal Schedule listingindividual withdrawal applications relatingto disbursementsby the reports-basedmethod, byreference number, date and amount. (m) Annually. The annual project financial Statements,which will bepreparedbyFSPMU and FDBPE, include the following: A Statement of SourcesandUses of funds (by Credit Categoryhy Activity showingIDA and Counterpart Funds separately). Statementof CashPositionfor Project Fundsfrom all sources. Statementsreconcilingthe balancesonthe various bank accounts (including IDA Special Account) to the bankbalancesshown onthe Statementof Sources and Uses of funds. FMRWithdrawalScheduleslistingindividualwithdrawal applications relating to disbursementsby the reports-based method, by reference number, date and amount. Notesto the Financial Statements. (n) The financial statements will be audited and submittedto IDAbefore June 30 o f each financial year. The following two Bankpublications provide indicative formats for the reports: (a) Financial MonitoringReports: Guidelines to Borrowers -quarterly FMRs; 63 and (b) Financial Accounting, Reportingand Auditing Handbook (FARAH)-monthly and annual reports. The reporting format and all relevant reportingprocedures will be documented inthe FinancialProceduresManual. Accounting Policies and Procedures (0) IDAandCounterpart Fundswill be accountedfor bythe Project on acashbasis. This will beaugmented with appropriate records andprocedures, to track commitments and safeguardassets. Also, accounting records will be maintainedindual currencies (i.e. Naira and $). (p) The Chart of Accounts will facilitate the preparation ofrelevantmonthly, quarterly and annual financial Statements, including information on the following: (i) Totalprojectexpenditures. (ii) Total financial contribution from each financier. (iii)Total expenditure on eachproject component/activity. (iv) Analysis of that total expenditure basedon categories such as civil works, goods, training, consultants and other procurement and disbursement categories. 12. Annual financial Statementswill be prepared inaccordancewith SASs/IFRSs (Statement of Accounting Standardshternational Financial ReportingStandards). (9) All relevant accounting policiesandprocedureswill bedocumented inthe Financial ProceduresManual, a living document that will beregularly updatedby the FS. Audit Arrangements Internal Audit (r) The InternalAudit Sections (IAS) will performinternal audit activities for the Project. Regular internal audit reports will be submittedto the PMs, Head of the implementing agency, IDA and the Accountant General. The I A S will be strengthenedby the deployment o f aprofessionally qualified and experienced internal auditor. External Audit (s) AuditedProject Financial Statementsfor the Projectwill be submittedto IDAwithin six months after year-end. Qualified external auditors will be appointed by the PMUhitial HoldingCompany and BPE, based onTerms o fReference acceptable to the Bank, to performthe audit. (t) Besides expressing an opinion on the Project Financial Statements inaccordance with International Standardson Auditing(ISAs), the auditors will be requiredto comment on whether co-financing funds have beenprovidedregularly and usedinaccordance with the financing agreement. 64 (u) Inadditionto theaudit report, the external auditors will beexpectedto prepare Management Letters givingobservations and comments, and providingrecommendations for improvements inaccounting records, systems, internal controls (including procurement procedures), compliance with financial covenants inthe IDA agreement, andprogressmadewith implementingthe projecb`achieving the development objectives. Impact of ProcurementArrangements (v) A BankProcurement Specialist (PS) has carriedout anassessment oftheProcurement Capacity o f the implementingentities. (w) For both IDA and counterpart funds, the Projectwill use the procurement procedures outlined inthe guidelines: `Procurement underIBRDand IDA Credits and Guidelines for the Use o f consultantsby World BankBorrowers and by the World Bank as Executing Agency'. The Project Accountant, internal auditor and support staff needs to be conversant with the Bank's procurement procedures, as internal control issues andthe incurring of liabilities will be matters of concern to the financial management function. Financial Covenants (x) The Project shall maintain financial management systemsincludingrecords and accounts and prepare financial statementsina format acceptableto the Bank. The accounts and financial statementwill be audited eachfiscal year, and the audited financial statements willbe sent to the Banknot later than six months after period end. A quarterly financial monitoringreports, including financial reports, procurement reports and progress reports, will bepreparedand forwarded to the Bank not later than 45 days after quarter end. Supervision Plan (y) Supervision activities will include review o f quarterly FMRs; review of annual audited financial statements and management letter. They also include follow-up o f issues arising from prior missions; participation inproject supervision missions, SOE review, as appropriate; and updatingthe Financial Management rating inthe Implementation Status Report (ISR). 65 D. ACTION PLAN (z) Prior to the Project launch for implementation, it will be ensuredthat the InternalAudit and Finance functions inthe P M Uand BPE are strengthened, and the necessaryU S Dollar Special Accounts; "Current (Draw-down)" accounts inNaira; and "Interest on Special Account (US Dollar)" accounts are all establishedby the respective implementing agencies. PMUand BPEwill also advise IDA the authorizedbank signatorieshpecimen signaturesfor eachaccount. Inaddition, the following actions are to be implemented as specified. ACTION By Whom By When 1 Appoint extemal auditors for the Project. PMU and BPE August 31,2005 2 Upgradethe computerized financial accounting system to ensure that it PMU/Initial Holding August 31,2005 3 1Ican fully support implementationo fthe new Project as well as the CPSU. This&in ComDanv addition to the ongoing transmission project. 1 . . Upgrade the financial procedures manual to ensure that the procedures IPMU/Initial Holding IAugust 31,2005 uldalso addresscurre 66 Annex 8: ProcurementArrangements NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT A. NIGERIA'S PROCUREMENTENVIRONMENT 1. As aresult ofthe CPAR of2000 and a subsequent IDFGrant to help executethe agreedAction Plan, the Federal Govemment has made substantial progresswith Procurement Reform. A draft Procurement Law was submittedto Parliament inearly 2005, and circulars were issued to Govemment agencies to establish procurement unitsand recruit staff, which over aperiod of time, would constitute the Federal Government's Procurement Cadre. The BudgetMonitoring and Price IntelligenceUnit(BMPTCT), established withinthe Presidency, withresponsibility for the procurement reformagenda, instituteda due process mechanism for all contracts to ensurethat public procurement i s carried out inaccordancewith the requiredprinciplesandprocedures. This Unitcurrentlycarries out prior reviews o f contracts above US$500,000 to ensure compliance with existing regulations. The BMPIUi s also a member o f a high level CashManagement Committee chaired by the Minister of Finance to certify that contracts for which budgetary payments are requestedhave met the due processrequirements. 2. The Unit slated to managethe major procurement functions of the proposed Projecthas considerable experience inimplementing World Bank-financed projects and has a good procurement track record. This fact, taken inconjunction with an assumption that the Government continues to make progress inthe implementationof its procurement reformprogram, the overall project procurement risk has beenrated Average. B. GENERAL 3. Procurement for the proposed Project shall be carried out inaccordance with the World Bank's "Guidelines: Procurement under IBRD. Loansand IDA Credits" datedMay 2004; and"Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, andthe provisions stipulated inthe Legal Agreement. The various items under different expenditure categories are described below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, priorreview requirements, and time frame agreedbetween the Borrower and the Bank are reflectedinthe Procurement Plan. The Procurement Planwill be updatedat least annually or as requiredto reflect the actual project implementationneeds and improvements. The procurement processthat shallbe usedby the implementingagenciesshallbe definedinthe Project ImplementationManual(PIM), which shall include Procurement and Financial Management Manuals. The Bank shall provide Govemment with a copy o f generic Procurement and FinancialManagement Manuals. 4. SupplyandInstallationofcontracts procuredunder the TransmissionSystemDevelopment Componentwould include: (a) GridSubstationReinforcementandRehabilitation (i) Supply and installation o fpower transformers andrelated switchgear (330/132 kV. (ii) Supply and installationo fpower transformers andrelatedswitchgear for substations 132/33 kV). (iii) Supplyand installationofnew line conductors DCL 132 kV. 67 (b) SystemReactivePower Compensation (i) Supplyandinstallationofcapacitor banks, reactors and static Var equipment. (c) Reinforcementof Substation (i) Supply andinstallationofpower transformers (60 MVA 132/33kV). (ii) Supply andinstallationof33 kV circuit breakers. (iii) Supply and installationof33 kV current transformers. (iv) Supplyandinstallationof 33 kV voltage transformers. (d) BulkGridMetering (i) Supply and installationof generatiodtransmission meteringmodules including meters, CTs, VTs and associatedaccessories. (ii) Supplyand installationoftriple core CTs. (iii) Supply andinstallationoftelemetering system. (e) Extensionof SCADAandCommunicationSystem (i) ExtendedSCADNEMSsystem. (ii) Provision of National Control Centre Communications. 5. Procurementof Works/Supply andInstallationofPlantandEquipment: supply and installation contracts procuredunder the DistributionEfficiencyEnhancementComponent would include: (a) Creationof33/11kVInjectionSubstation (i) Reinforcement of 33 kV incomingpower into the injection substation. (ii) Provision o f 33 kV indoor SF6 circuit breakers+all necessarycontrol panels. (iii) Provision o f 2 x 15 MVA 33/11 kV transformer +all necessary control cables. + (iv) Constructionof substation buildingwith all the necessaryfacilities. (v) Provision o f 4 No. 11kV indoor control panels + all necessary control + cablings. (b) ConversionofLVDS Lineto HVDS (i) Supplyandinstallation of50,25 & 15 KVA CSP transformers. (ii) Supply anderection ofHTpoles. 68 (iii) Supplyof cables(AB cables, AAC & 3 Core Cables+neutral). (iv) Supplyofover-head 100mmAA conductor for re-conductoring. (v) Supply and installationof 11kV automatically switched capacitor banks. (c) Supplyof CriticalDistributionNetworkMaintenanceMaterials (i) SupplyofHTpoles. (ii) Supplyo fcables (of various sizes 70 - 185 mm2 3-core HTCables). (iii) Supplyofover-head 100- 150mmAA conductors, (iv) Supply of cablejointing kits ofvarious sizes. (v) Supply of fuses, feeder pillars andRMUs. (d) HTMeteringEquipment (i) Supply andinstallation ofHTPanelMeterswith suitable modem meteringhemote readingoptions as applicable. (e) LTMeteringEquipment (i) Supply and installation of singlephasewhole current meters with suitable modem meteringhemote readingoptions as applicable. (ii) Supply and installation of three-phase whole current meters with suitable modem meteringhemote reading options as applicable. (iii) Supplyand installation ofLTmaximumdemand, tivector meters/accessories with suitable modemmeteringhemotereading options as applicable. 6. Supply andInstallationofequipmentandprocurement ofrelatedservices underthe Access Expansion,IntensificationandRenewablesComponent would include: (a) PilotAccess Expansiom'IntensificationRuralElectrificationProjectsin3 States (IDA and GEF). (i) Intensificationprojects. (ii) 2 pilots for grid extension projects. (iii) 2 pilots for intensification& gridextension. (iv) Pilot for hydro +mini grid. (v) Pilot for intensification, grid extension and hydro projects. 7. Procurementof GoodsandServices: goods and servicesprocuredunderthe Distribution EfficiencyEnhancementComponent would include: 69 (a) Distributionrelays. (b) GIS/GPS Mappingof distributionnetwork. (c) Outsourcingof rapidresponsevehicles. (d) Outsourcingof customer service centers. 8. The Bank's StandardBiddingDocuments (SBDs) willbeusedfor all InternationalCompetitive Bidding(ICB), LimitedInternationalBidding(LIB)andNational BiddingDocuments agreedwith or satisfactory to the Bank. However, since there i s no National StandardBiddingDocument, the Bank`s StandardBiddingDocument for Goods and Works shall be adoptedby the Borrower. For evaluation of bids, the Bank's StandardEvaluationFormswill beused. Contracts, whichmeet the requirements of paragraph 3.13 and 3.16 o fthe Procurement Guidelines, may beprocuredusingBOO/BOT/BOOT, Concessionsand similar private sector arrangements and Loans Guaranteedby the Bank. The detailed procedures when usingthe above will be agreedwith the collaboratingpartners. Procurement for readily available off-the-shelf goods that cannot be grouped or standardspecifications commoditiesfor individual contracts of lessthanUS$50,000 equivalent may beprocuredunder Shoppingprocedures as detailed in paragraphs 3.5 of the Guidelines: Procurement under IBRDLoans and IDA Credits, May 2004 and June 9,2000 Memorandum "Guidance on Shopping" issued by theBank. The implementingagencies will ensure that the most current version ofthe appropriate SBD or SRFP and standard forms o f evaluation are used. Less competitivebiddingand selection procedures shall notbe usedas an expedient to by-pass more competitive methods, and fractioning of large procurement into smaller ones shouldnot be done solely to allow the use of less competitive methods or to avoid IDAreview. 9. Selectionof Consultants: consultancy servicesunderthe TransmissionSystemDevelopment Componentwould include: (a) TechnicalAssistance andCapacitybuilding Feasibility studies for Afam-New Haven-Jos transmission line. Detailed engineering studies for the Afam-New Haven-Jos transmission line. Safeguardsstudies for the Afam-New Haven-Jos transmission line. National electricity loaddemand study. Detailed transmission grid development plan. Technical Operations andMaintenance Contract for TransysCo. Bidpreparationandtechnical support for the rehabilitationofKainjiHydro Power Station. Implementationsupport for environmentalframework. Implementationsupport and engineeringsupervisionof investmentcomponents. 10. Consultancy services under the DistributionEfficiencyEnhancementComponentwould include: 70 (a) Engineeringsupervisiodmanagement. (b) Capacity buildingand training. (c) Protectioncoordination study indistribution system. (d) Development of database for distribution and marketing operations. (e) Business implementation adviser. (f) Business plan. 11. Consultancy services under the Access Expansion,Intensificationand Renewables Component (IDA and GEF) would include: (a) Design, development and implementationof pilots. (b) Implementationsupport for renewable energy master plan. (c) Design, development andimplementationof innovative cross-sectoral energy applications. 12. Consultancy services under the TechnicalAssistance-ProjectManagementUnit Component would include: (a) Developmentof gas pipelineandgas-to-power projects. (b) Environmental resettlement and social unit capacity building. (c) Developmentof Corporate Planning and Strategy Unit. (d) HIV/AIDspreventionandcommunicationcampaign. 13. Consultancy services under the TechnicalAssistance -ReformsandPrivateParticipation Componentwould include: (a) Advisory services for distributionbusiness development. (b) Development ofrisk mitigation instruments. (c) Communications and outreach. (d) Capacitybuildingfor sector institutions. 14. The Bank's Standard Request for Proposals (SRFP) would be usedfor all consulting assignments estimated to cost US$200,000 equivalent or more. For assignmentsless than US$200,000, until acceptablenational Standard Request for Proposal documents are developed, Bank's SRFP document will beused. Short lists o f consulting services estimated to cost lessthan US$200,000 equivalent per contract may be composed entirely of national consultants inaccordancewith the provisions o fparagraph 2.7 o f the Consultant Guidelines. Consultancy services estimated to cost less than US$200,000 equivalent per contract may beprocuredinaccordancewith provisions o fparagraphs 3.6,3.7 and 3.8 o f the Consultant Guidelines. Consultancy services estimated to cost US$lOO,OOO equivalent or more per contract may be 71 procured inaccordancewith provisions of paragraphs 5.1,5.2,5.3 and 5.4 of the Consultant Guidelines. All single-source servicesirrespective ofthe amount maybeprocuredinaccordancewithprovisionsof paragraphs 3.9,3.10,3.11,3.12 and 3.13 of the Consultant Guidelines. The appropriate selection method for each consulting services contract would be establishedinthe Procurement Plan. 15. CapacityBuildingand Training: The capacity buildingand training activities will cover energy sector institutions associatedwith the project components. Overall strategy focuses on on-the-job training and hiringconsultants for developing training material, conducting training, and support for training activities through seminars, workshops and training inthe region and abroad basedon individual needs as well as group requirements. Training and workshops will be carriedout on the basis of approved annual programs that would identify the general framework of training activities for the year, including the nature of traininghtudy tours/workshops, the number oftrainees, and cost estimates, to be reviewed and cleared by IDA. Selection of training institutions for workshopshraining shouldbebasedon a competitive processusingthe Consultants' Qualifications (CQ) methodo f selection. C. ASSESSMENT OF THEAGENCIES CAPACITY TOIMPLEMENTPROCUREMENTAND PROCUREMENTIMPLEMENTATIONARRANGEMENTS 16. An updatedprocurement capacity assessmentofthe PMUwas carriedout bythe Bank's Procurement Accredited Staff duringthe November 2004 supervision mission o f the TDP (Cr. 3559- UNI). The assessmentreviewedamongothers, the organizational structure for implementingtheproject, conducted a procurement post review, the procurement arrangements, control systems and procurement methods and procedures, applicable to eachcomponent and the overall project. The interactionbetween the P M U staff and the NEPNInitial HoldingCompany, and all the successorentities were also assessed. Procurement activitiesunder the proposed Project will be carried out by the PMU, usingthe capacity created and the good track recordunder the ongoing TDP (Cr. 3559-UNI). As a result of new investments inthe proposed NEDP, the PMUwill be expandedto include cells for Rural Energy, Implementation Support and TA andReformsrelatedprograms. 17. The ongoing TDP and the proposed NEDP will be implementedinparallel for some time. Itwill therefore benecessaryto deploy two additional staff, one with engineering background, fromNEPA, who already has adequateexperience inWorld Bank procurement processing and procedures to reinforce the procurement unit of the PMU. The day-to-day procurement managementresponsibilities for Supply and Installation, Goods, Civil Works and Consultancy contracts will be handledby the PMU. The Borrower has inplace qualifiedprofessional staff familiar with IDA-financedprojects. 18. For proper implementationo f procurement functions, the capacity buildingactivities in Attachment 1to this Annex were discussed and agreedduringnegotiations: The implementing agency will comprise of four sub-unitsnamely: (i) TransmissionSystemsDevelopmentInvestmentandTA relatedto transmission-There will beno Disbursement or Effectiveness conditions for this component as there i s capacity within the existingPMU; (ii) DistributionEfficiencyEnhancement Investmentand TA relatedto distribution-Dueto the large increase inthe amount o fthis investment, there i s the need to recruit on a competitive basis, one additional technical staffto complement the two staff within the PMU. The recruitment of the additional one staff will be agreedwith the PMU; (iii) Expansion,IntensificationandRenewablesInvestment,TA -A new sub-unit Access which will be establishedunderthis component, will work closely with the FGN, some States, BPE and the Energy Commissiono fNigeria to design and support implementationo fpilot projects. The P M Uwill recruit a team leader for this sub-unit; and (iv) TechnicalAssistance-Project ManagementUnit- will continue buildingcapacity inthe PMUanddevelop the Corporate Planning and Strategy Unit. 72 19. The P M Uwill train new staff, manager and procurement staff on contract management, implementationscheduling and planning not later than September2005 to strengthen and rebuildthe capacity of procurement staff. Inaddition, the PMUmay hirethe services of a qualified Procurement Specialist for the entire Project on approved terms o freference by IDA. 20. The procurement capacity assessment ofthe PMUis ratedAverage. 21. Implementationofthe Technical Assistance-ReformsandPrivateParticipationwill beby BPE. BPE is currently an implementationagency for the PSP andhasbeenso for the last three years. After some initialproblems, BPEhasnow developedrequisite implementationcapacity andhastherefore beenincludedas an implementingagencyunder this Project. This component will have a limitednumber o f consultancy services procurement which will include: (i) advisory services for distribution business development; (ii) buildingfor sector institutions such as the NERC, ISO, market operator and capacity Rural Electrification Agency; (iii) developing and carrying out privatization options for DBUs; and (iv) developingrisk mitigation instruments. BPE already has an experiencedProcurement Specialist, supported by a ProjectAccountant. Both staff are familiar with World Bank procurement processing and procedures. However, recent implementationperformance assessment underPSP supervision shows slow progress. Therefore, a comprehensive procurement, financial management and implementationcapacity assessment of BPE will be carried out. Disbursemento f this component will be contingent on BPE receiving satisfactory evaluation on all these criteria. 22. The overallProjectrisk for procurement is therefore ratedAverage. D. PROCUREMENT PLAN 23. TheBorrower, at appraisal, developed aprocurement planfor project implementation, which provides the basis for the procurement methods. Thisplanwas discussedindetail duringproject negotiations and acceptedby the Bank after makingthe necessaryrefinements. The Federal Government o fNigeria will agree to the disclosure o f the agreedprocurement plan on the Bank's public website after the Credit has been approved. The agreedprocurement planwill be inthe ProjectFiles. The procurement plan shallbe updatedby the project inagreement with the Bank annually or as requiredto reflect the actual project implementationneeds and improvements ininstitutional capacity and be disclosed after Bank's approval ofthe updated Plan. The plan includes relevant information on supply and installation, goods, works and consulting services under the Project, as well as the timingo f each milestone inthe procurement process. The procurement plan i s attached as Attachment Ito this Annex. E. REWEWBYIDA 24. All supply andinstallation andworks contracts estimated to cost US$1.O millionequivalent or more and goods contracts estimated to cost US$500,000 equivalent or more will be subject to IDAprior review inaccordancewith the procedures set inAppendix Iof the Procurement Guidelines. Any amendmentsto existing contracts raising their values to levels equivalent or above the prior review thresholds are subject to IDA review. All direct contracting, irrespective of value, will be subject to IDA prior review. 25. All single source selection as well as Terms of Reference (TOR) for all consultancy contracts irrespective o fthe contract value, will be subject to IDA prior review. Consultancy contracts with firms with estimated value o fUS$200,000 or more, and consultancy contracts with individuals estimatedvalue o fUS$lOO,OOO equivalent or more will be subject to prior review by IDAinaccordance with the procedures set inAppendix Io f the Consultants Guidelines. 73 26. Post reviews of contracts awardedbelow the above threshold levels will be carried out selectively by IDA duringsupervision missions and/or byanindependentprocurement auditor. F. FREQUENCY OFPROCUREMENTSUPERWSION 27, Inaddition to the priorreviewsupervision to becarried out fromBank office, the updated capacity assessmentof the PMUhasrecommended two supervision missions to visit the field. G. CONTMCTAWARDDISCLOSUREREQUIREMENTS 28. Publication of contract awards inUnited Nations Development Business (UNDB) online and dgMarket would be requiredfor all ICB,NCB, Direct Contractingand the Selection o f Consultants for contracts exceeding a value of US$200,000. Inaddition, where prequalification has taken place, the list o fpre-qualifiedbidderswill bepublished. Withregard to ICB, and large-value consulting contracts, the Borrower would be requiredto assure publicationo f contract awards as soon as the Bank has issued its "no objection" notice to the recommended award. Withregard to Direct Contractingand NCB, publication o f contract awards couldbe inan aggregate form on a quarterly basis inthe local media. All consultants competing for an assignmentinvolving the submission o f separate technical and financial proposals, irrespective of its estimated contract value, should be informed of the result of the technical evaluation(number o fpointsthat each firmreceived), before the opening of the financial proposals. The implementingagency would berequiredto offer debriefings to unsuccessfulbidders andconsultants. H. ETHICS/TRANSPARENCY 29. All procuringentities as well as bidders, suppliersandcontractors shall observe the highest standard of ethics duringthe procurement and execution of contracts financed under the project in accordance with Paragraph 1.15 of the Guidelines: Procurement under IBRDLoans and IDA Credits, May 2004): and Paragraphs 1.22 o f the Guidelines: Selection and Employment of Consultants by World Bank Borrowers, May 2004. I. DETAILS OF THEPROCUREMENTARRANGEMENTSINVOLWNGINTERNATIONAL COMPETITION 30. The Project's detailed activities for the first 18 months o f implementationare detailedinthe procurement plan which was discussedand agreedbetween IDA and the Federal Government of Nigeria duringnegotiations andwillbe incorporated inthe PIM. 74 TableA: Thresholdsfor ProcurementMethodsandPrior Review Contract Value 'rocurement :ontracts Subject to Sxpenditure Category rhreshold (US$) rlethod 'rior Review (US$) ..Works Supply & Installation >=1 million ICB All contracts <1,000,000 NCB None !.Goods >=500,000 ICB/LIB All contracts <500,000 NCB/LIB None <50,000 ShoppingiIAPSO None All Values Direct Contracting All contracts I. Consulting Services >=200,000 -firms QCBS All contracts <200,000 -firms QCBS/LCS/SBCQ None >=100,000 -individuals IC All contracts <100,000 -individuals IC None All values Single-Source Selection All contracts ~ 1. Training Annual Plan All Training Note: ICB InternationalCompetitive Bidding LIB LimitedInternationalBidding NCB NationalCompetitive Bidding DCT Direct Contracting IAPSO Inter Agency Procurement Services Office SHOPPING IntemationaVNationalShopping QCBS Quality- and Cost-Based Selection SBCQ Selection Based on Consultants' Qualification IC Individual Consultants LCS ss Least Cost Selection Single Source 75 ATTACHMENT I-DETAILS OFTHE PROCUREMENTARRANGEMENTINVOLVING INTERNATIONAL COMPETITION I. General 1. Projectinformation: NATIONALENERGYDEVELOPMENT PROJECT. Project IDNo: P090104. Project ImplementingAgencies: NEPA-PMU, BPE. 2. Bank's approval Date of the Procurement Plan: May 4,2005. 3. Dateof GeneralProcurementNotice: OnlineMay 2,2005; Paper form (Issue 655, May 31, 2005). 4. Periodcoveredby this procurement plan: May 2005 to November 2006. IL Goods,SupplyandInstallation and Worksand non-consultingservices 5. PriorReview Threshold: Procurement Decisions subject to Prior Reviewbythe Bank as stated inAppendix 1to the Guidelines for Procurement: ProcurementMethod Prior ReviewThreshold Comments 1. ICB andLIB(Goods) >=500,000 All Contracts 2. ICB (Works/Supply& Installation) >=1.0 million All Contracts 3. ICB (Non-Consultant Services) >=500,000 All Contracts 4. Direct Contracting All Values All Contracts (a) List of contractPackageswhich willbe procured following ICB andDirect contracting. (b) ICB Contracts estimatedto cost above US$500,000 equivalent or moreper Contract andall Direct Contractingwill be subject to priorreviewby the Bank. 6. Prequalification: Bidders for: (i) andinstallation of capacitor banks, reactors andstatic supply Var equipment; (ii) supply and installationofpower transformer andrelatedswitchgear for 2 substations (150 MVA 330/132 kV); (iii) supplyand installationofpower transformers andrelatedswitchgear for selected substations(-60 MVA, 132/33 kV); and (iv) rehabilitationo f 132kV lines shall be pre-qualified inaccordancewiththeprovisions ofparagraphs2.9 and 2.10 ofthe Guidelines. 7. Proposed Procedures for CDD Components (as per paragraph 3.17 of the Guidelines): N/A. 8. Referenceto (if any) ProjectOperationaVProcurement Manual: The Procurement Planwill also formpart ofthe Project Implementation Manual. 9. Any Other SpecialProcurement Arrangements:(including advanceprocurement and retroactive financing, ifapplicable): N/A. 76 10. ProcurementPackageswith MethodsandTime Schedule. Ref. Contract Estimated Procure Prequali Domestic Review Expected Comments No. (Description) cost ment fication Preference by Bank Bid- / Contract Method (yesho) (yes/no) (Prior I Opening Signature - Post) Date Date A TransmissionSystem Development Component 1 Grid Substation 59,600,000 ICB Prior 03/30/06 06/30/06 Reinforcement& Rehabilitation: Lot 1: 3301132kV SIS Reinforcement, Lot 2: 132133 kV SIS Reinforcement, Lot 3: 132133 kV SIS Reinforcement, Lot 4: 132133 kV SIS Rehabilitation, Lot 5: Transmission Line Reinforcement- - 132kV. 2 Systemreactive 20,400,000 ICB Prior 09118/05 11/15/05 - Power compensation. 3 GridSubstation 16,200,000 ICB No I No Prior 02/10106 04/10/06 Reinforcementfor Distributionclusters. 4 Extensionofbulk 4,800,000 ICB No I No Prior 09/29/05 03/01/06 metering and - telemeteringsystem. + 5 Extensionof 4,100,000 ICB Prior 12/01/05 03101/06 SCADNEMSto 33 kVsystems and improvement of communication systems. B Distribution w Efficiency Enhancement Component 1 InjectionSubstation 3,000,000 ICB Prior 03/06/06 05/08/06 Reinforcementin selected Business - units. 2 Conversionof LVDS 6,100,000 ICB Prior 03/13/06 06/05/06 to HVDS (Supply & No I No install CSP Distribution transformers& all necessary accessories inselectedBusiness - Units'). 77 - Ref. Contract Estimated Procure Prequali Domestic Review Expected Comments No. (Description) cost ment fication Preference byBank Bid- I Contract Method (yeslno) (yeslno) (Prior I Opening Signature Post) Date Supply of Critical ,500,000 CB No No ?rior )3/20/06 35/22/06 Xstribution naintenance naterials: Lot 1:HT Poles, Lot 2: 11/33 kV Clables, Lot 3: Aluminum 2onductors (150 d), Lot 4: Cablejointing I cits, fuses Feeder Dillars andWS. Supply& install HT 1,500,000 .CB No No Prior 03/27/06 05/29/06 PanelMeters with suitable modem meteringhemote reading options as applicable inselected business units. 5 Supply & install ~,000,000 [CB No No Prior 04/03/06 06/05/06 Energy Meters with suitable modem meteringhemote reading options as applicable: Lot 1:LT Trivector Meters (CT operated), Lot 2: Single Phase Meters, Lot 3: Three Phase Meters. 6 Replacement of faulty 500,000 ICB No No Prior 01/31/06 03/31/06 - k Relays ininjection II_ substations. 7 Outsourcing of Rapid 1,000,000 ICB Prior ResponseVehicles for (2 stage I No (technical) selectedbusiness bidding) 08130106 units. financial c 8 Outsourcing of 1,500,000 ICB Prior +i%E+m- customer care centers (2 stage (technical) inselectedbusiness bidding) lOlO2106 - units. C AccessExpansion, Intensificationand Renewables - Component I I L 1 Pilot rural 6,500,000 ICB 1No I No Prior 01/30/06 04130106 electrification projects (IDA) I ~ - in3 States. 600,000 Ref. Contract Prequali Domestic Review Expected Comments No. (Description) fication Preference by Bank Bid- I Contract Method (yeslno) (yeslno) (Prior I 0pening Signature Post) Date ~ Date Lot 1: 2-pilots for intensification project, Lot 2: 2-pilots for grid extension projects, Lot 3: 2-pilots for intensification and gridextension, Lot 4: 1-pilot for hydro +minigrid, Lot 5: 1-pilot for intensification, grid I extension and hydro. 79 III. Selectionof Consultants 11. PriorReview Threshold: Selection decisions subject to Prior ReviewbyBank as statedin Appendix 1to the Guidelines Selection andEmployment of Consultants: Selection Method Prior Review Threshold Comments 1. QCBS (Firms) >=200,000 All Contracts 2. IndividualConsultants(IC) >=100,000 All Contracts 3. Single Source (SS) FirmsAndividuals All Values All Contracts 4. Training All Values All contracts 12. Consultancy services estimated to cost above US$200,000 equivalent per contract and Single Source selection o f consultants (firms/individuals) for all assignments will be subject to prior review by the Bank. 13. Short listsentirely of nationalconsultants: Short lists of consultants for services estimated to cost lessthan US$200,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions ofparagraph2.7 of the Consultant Guidelines. 14. Any Other Special Selection Arrangements: None 15. ConsultancyAssignmentswith SelectionMethodsandTime Schedule. Ref. Descriptionof Estimated Selection Review Expected Comments/ No. Assignment cost Method byBank Proposals Contract (Prior/ Submission Signature Post) Date Date A TransmissionSystem DevelopmentComponent 1 Feasibility Studies for Afam- 220,000 QCBS Prior 1O/16/05 02/04/06 NewHaven-Jostransmission line. 2 Detailed Engineering studies 1,880,000 QCBS Prior 11/01/05 04/06/06 for the Afam-New Haven-Jos transmissionline. 3 IIISafeguards studies for the I500,000 IQCBS Prior 10/04/05 02/09/06 Afam-New Haven-Jos I I I[ II II transmissionline. 4 NationalElectricityLoadand 1,500,000 QCBS Prior 12101IO5 05/04/06 Demand Study. 5 UpdatedTransmissionGrid 1,000,000 QCBS Prior 12114/05 05/14/06 Design study. 6 II I Techcal Operationsand I 2,000,000 IQCBS I Prior I 01/10/06 I 06/08/06 MaintenanceContract for Transysco. 7 BidPreparationandtechnical 500,000 QCBS Prior 11/14/05 04101/06 support for the rehabilitation ofKainjiHydro Power Station. 8 Implementationsupport and 2,000,000 QCBS Prior 12/09/05 05/09/06 Engineering Supervision o f TransmissionProjects. 80 ~Ref. Descriptionof Estimated Selection Review Expected Comments/ No. Assignment cost Method byBank Proposals Contract (Prior/ Submission Signature Post) Date Date 9 Implementation support for 1,000,000 QCBS Prior 12/09/05 05/09/06 social andenvironmental framework. B DistributionEfficiency EnhancementComponent 1 EngineeringSupervisionof 500,000 QCBS Prior 01/08/07 04/02/07 DistributionProject. 2 CapacityBuilding and 500,000 Various TBD TBD TBD Training for DISCOM. Methods (TBD) _ _ ~ __ ___ 3 ProtectionCoordination ~ 500,000 QCBS Prior 08/30/05 11/07/05 Study inthe Distribution system. 4 DevelopmentofDatabase for 3,000,000 QCBS Prior 02/01/06 07110106 retailoperations. 5 IIStudies for solid waste I1,000,000 IQCBS IPrior I12/01/05 05101/06 management(PCB and SF6). 6 Business Implementation 500,000 QCBS Prior 06/19/05 09/20/05 Adviser. 7 Services for the preparation 1,000,000 QCBS Prior 12101105 05/01/06 ofBusiness Plans for DBUs. ~ C AccessExpansion, Intensificationand RenewablesComponent 1 Design, developmentand 300,000 QCBS Prior 10/02/05 01/25/06 implementationofpilots. (IDA) 200,000 QCBS Prior 10/07/05 11/21/05 (GEF) 2 Developing innovation of 300,000 QCBS Prior 01116/06 06116/06 03/30/06 02/09/06 12/30/05 TBD TBD TBD and socialunit capacity Methods building. (TBD) 23 Flexibility ofprocurementmethod for US$5 mTA on Gas that will be reflected inProject Agreement. 81 Ref. Descriptionof Estimated Selection Review Expected Comments/ No. Assignment cost Method byBank Proposals Contract (Prior / Submission Signature Post) Date Date 4 HIVIAIDSPreventionand 500,000 Various TBD TBD TBD communication campaign. Methods (TBD) E TA -Reformsand Private Participation Advisory services for 1,000,000 QCBS development. 2 TA for developmentofrisk 1,000,000 QCBS Prior 11/01/05 03101/06 mitigationinstruments. 3 TA for communicationsand 1,200,000 QCBS 11/08/05 03/08/06 outreach. 4 Capacity building for sector 700,000 Various TBD TBD TBD institutions. Methods (TBD) 5 Distribution Business TBD TBD TBD TBD TBD Outsourcing Bids for selected clusters. l6 lDistributionFunction TBD TBD TBD TBD TBD Outsourcing Bids for selected clusters. 82 IV. Implementing Agency Capacity Building Activities with TimeSchedule 16. Inthis sectionthe agreed Capacity BuildingActivities are listedwithtime schedule. No. Expectedoutcome/ Estimated Estimated Start Date Comments Activity Description cost Duration 1 Deployment o f 1Engineer and 1 N/A For the July 2005 FromNEPA additional staff for Procurement duration o f activities. the Droiect Deployment o f 1additional technical N/A For the July2005 FromNEPA staff for distribution sub-unit. duration o f the project Establishment o f rural and renewable 108,000 For the By Project energy sub-unitat the P M Uand duration o f Effectiveness recruitment o f a rural energy the project consultant. Training on Contract 200,000 Ongoing Ongoing admhstratiodmanagement for staff o f PMU. Advance procurement training for staff 40,000 Ongoing Ongoing andmanagers o fPMU. Workshops for ERSU staff to 20,000 Ongoing Ongoing strengthen the capacity o f the sub-unit. Procurement and Financial Ongoing Prior to Project Capacity building Management training for BPE staff Effectiveness to be provided for who will be implementing the project. staff to acquire knowledge in procurement and financial management imdementation. 83 Annex 9 A: Economic Analysis NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT 1. ProjectBenefitsandInternalRateofReturn. The Projectis ablendofinvestments in Transmission rehabilitation, systemreinforcement and strengthening/expansion of distribution facilities in particular areas. The economic analysis o f the Project i s therefore based on a cost-benefit analysis of the maininvestment subcomponents. 2. The Project investments yield six distinct benefits: (i) incrementalelectricity demand served; (ii) reduction of losses (technical and non-technical); (iii) improvedpower quality and supply reliability; (iv) avoided captive generation; (v) improvedrevenues; and (vi) enhancedcustomer satisfaction. The minimumvalue ofthe incremental demandhasbeencomputedonthe basis of a loadgrowth of4% p.a., the average across the board tariff of 4.6 USckWh (2003 NEPA auditedfigures), the alternative supply cost from captive generation of 10.4 USckWh and the average cost to serveper unit o f energy 4.6 USckWh(6.2 NairakWh) handledby NEPA. 3. The Base Case EIRRand FIRRcalculationi s given inthe table below. Value EIRR FIRR Transmission System DevelopmentComponent 43.6% 13.2% Distribution Efficiency Improvement Component 37.0% 25.0% TotalBasecase 43.2% 16.6% 4. Net present value for the economic analysis at a 12% discount rate yields approximately US$306 million. The financial NPV again at 12% works out to nearlyUS$28 million. Resultsof sensitivilyanalysis on the economicandfinancial rate of return Scenario EIRR FIRR Degreeof sensitivity (inYO) (in YO) to change Lower LoadGrowth (1%) 29.2% 11.2% Low Higher Average Tariff (USc 6) 47.4% 30.2% Moderate Lower Average Tariff (USc 3) 39.8% Moderate Lower Alternative Supply Cost (USc 8) 31.4% 16.1% Low 5. The ERR is particularly sensitive to the expected load growth and improvement inrevenues. Dependingonthe assumptions used, the sensitivity analysis with respect to EIRRvaries from29% to 47%. The lower endo f the EIRRis, however, highlyimprobable consideringthe large unserved areas o f suppresseddemand currently existing inNigeria. Also, loss reduction investments are highlybeneficial under any load scenario. Network reinforcements which account for major part o f the Transmission and Distribution investment components -will remaina crucially beneficial element o f the project, considering the delivery constraints already under current load level. The relatively highreturns can be explained with the nature o f the investments beingprimarily gearedtowards increasingcapacity and improving sales inalready existinginstallations and structures. The costs are therefore considerably lower for the similar benefits arisingfrom "green field" investments. 84 Transmission System Development Component 6. The Economic and Financialreturns of investment of the Transmission Component have been based on a conservative cost-benefit analysis as discussedbelow. 7. The physicalbenefits from these investments that have been quantifiedz4are threefold: first, (and most important) the incremental electricity supplied to consumers; second, the reduction intechnical lossesz5arising from reactive power compensation investments, replacement of defective equipment, overloaded transformers and lines etc.; and thirdthe savings to consumers who no longer have to operate their captive generators. 8. For the purposes of the economic and financial analysis, cost-benefits have been estimated during the total lifetime o f the equipment Le., 30 years from project effectiveness. The benefits from incremental sales are basedon a forecast of4% annual load increase inthe affected areas, calculated for the first 10 years o f the project life cycle. The rate of loadincrease inNigeria i s an estimate since no reliable data can be found due to the severe supply constraints inthe current system. The figure i s however considered conservative inthe light of the rapid urban growth inNigeria inthe recent past and the highlevel of suppressedand unserved demand. The estimate is also inthe low end of the simulations adopted inthe 3 - 6%). This figure could behigher inareas where highlevels o f suppresseddemand and load-shedding 2003 Tractebel Transmission GridDevelopment Plan (where simulations usedgrowth rates varying from are re-curring. 9. The additional sales andassociatedcosts havebeenvaluedbuildingonthe NEPA's 2003 cost of service figure of 4.6 USckWhdistributedover the different segments inthe NEPA Value Chain (see further inAnnex 9 B:SectorFinancial Summary) as well asthe averagecosts of self generation. A component wise summary of the economic Benefit calculations is as follows: e Transmission GridReinforcementsandTransmission Supply strengthening for DistributionClusters. The benefits havebeencalculated usingthe additionalkwhsold, valued at the alternative Captive Generation Cost that the consumers otherwise have to bear. To correctly take into account the associatedcosts to other parts of the network from the investment, the corresponding economic costs of generation and distribution have been added. e ReactivePower Compensation. The benefitsfrom the lossreductionhavebeen calculated usingthe kwhsoldvalued at the average tariffreceived byNEPA (USc 4.6). These benefits have been adjusted to reflect the downstream distribution costs o f the incrementalenergy sales. 10. For the FIRR, a simplifiedcalculation has been made usingthe associatedcosts and the actual sales income basedon the averagetariff. ~~ 24 Benefits to consumers arising from improved reliability of service have not beenincluded. 25 A reduction intechnical lossesmeans that energy sales can be increased without a corresponding increase in production. 85 11. Significant assumptions are summarized below: Assumption Value Distribution Efficiency Improvement Component 12. The economic and financial returns of investmentof the distribution component have beenbased on a conservative cost-benefit analysis as discussedbelow. 13. The investment wise physical benefits that have beenquantified are as below: I.HighVoltageDistributionSystem (a) Technical loss reduction. (b) Nontechnicalloss reduction(on account ofreducedpilferage ofelectricity). (c) Enhancedenergy billing due to substitution o f energy from captive generation with grid supply. (d) Increaseinsales owing to loadgrowthonaccount ofincrease indistribution capacity (through new injection substations). 11. HTPanelMeters (a) Higher energy billing due to efficient metering. (b)Increaseinsalesdue to meterednewcustomers (who wouldhavebeensupplied energy without metering inthe absence o fthis investment). (c) reduction o ftransformation losses(with metering on the HV side o fthe transformer). 111. LTPanelMeters (a) Enhanced energy billingdue to efficient metering. (b)Increaseinsalesdue to meterednew customers (who wouldhave beensupplied energy without metering inthe absence o f this investment). (c) Higher energy sales due to segregation of customer premises. IV. RapidResponse Vehicles (a) Increase inbilling due to decrease inoutage times. (b) Reducedenergy lossesdue to detection andelimination o fillegal connections. V. Customer Service Centers (a) Higher recoveries inducedby better customer outreach. (b) Increaseinsalesdue to ease o fobtaining new connections to the grid. 86 14. For the purposes of the economic and financial analysis, appropriate costs andbenefitshave been estimated for a ten year period, as most ofthese equipments require replacement inthat time frame. An average across the board tariff of 4.6 USc/ kwhhas been adopted for quantifyingthe energy gains that result due to these investments. However, incase of HVDSinvestments a value of 10.4 USc/ KWhhas been assigned for monetizing the benefits that accrue due to substitutionof energy from captive generation with gridsupply. This has beendone tahng into consideration the avoidedcosts of expensive captive generation and the utility's cost to serve that demand. Several key assumptions were made while evaluating the costs and benefits o f various distribution investments. The basis for these assumptions i s drawn from an analysis of the historically established distribution costs and benefits inthe power utilities inNigeria, andmeasuredempirical dataemanating fromthe CREST pilots under implementation. 15. The following table details the generalkey assumptionsmade for the economic and financial analysis o f the distributioninvestments: Initiative I Direct Benefits I Other Benefits O & M I I II HVDS +Injection Loss reductionresulting in Voltage improvement resulting in 5% of the cost o f Substations energy saved: 8%. substitution o f energy from investment. captive generation to grid supply: Reductiono fnontechnical 3%. losses due to decrease intheft o f electricity: 5%. Anticipated hike inenergy sales due to loadgrowth onaccount of new injectionsubstations: 5%. HTPanelMeters Increase inHT billing: 5%. Increase inenergy sales on I2% ofthe cost o f account o f new customers: 2%. investment. Meteringof energy due to transformation loss: 1.5%. LVMeter Increase inLV billing: 5%. Increase inenergy sales on 3% o fthe cost o f account o f new customers: 2%. investment. Benefits due to segregation o f customer premises: 1%. RapidResponse Increase inbilling due to Detection o fillegal connection: 15% o fthe cost o f Vehicles decrease inoutage time: 1.5%. 0.5%. investment. Customer Service Increase inrecoveries: 1.5%. Ease o fgetting new connections: 5% o f the cost o f Centers 1%. investment. 87 16. The followingarethe distinct assumptionsmade for computingthe economic and financial internalrates of returnfor the distribution investments. Initiative I EIRR FIRR HVDS Injection Reductioninlosses(8%). + Apart from benefits evaluated for EIRR, an Substations New customers due to voltage additional benefit o f 5% is assumedon account o f improvement (3%). reduction o fnontechnical losses due to decrease in Additional sales due to load growth as theft o f electricity. a result o f the creation o fnew injection substations (5%). HTMeter Increase inbilling (5%). Apart from the benefits assigned for calculation o f EIRR,the energy billed due to transfer of transformation losses have been taken for FIRRas it i s a direct financial benefit to the utility(1.5%). LV Meter Increase inLV billing (5%). Apart frombenefits evaluated for EIRR, an Increase o f sales to new customers additional benefit o f increase inbilling due to (1%). segregation o f customer premises (1%) since it is analogous to theft. RapidResponse Decreaseinoutage time (1S%). Detection andremoval o f illegal connection would Vehicles result infinancial benefits to the utility. Therefore, apart frombenefits evaluated for EIRR, an additional benefit o f detection o f illegal connection has beenassigned for FIRR (0.5%). Customer Service Ease o f obtaining new connections to Ease o f getting new customers may not immediately Center the grid(1%). translate to increase insales. Therefore, for the purpose o f computing the FIRR anticipated energy sales to new customers are not included inthe sales. Associated other costs: (i) Incase o f Customer Service Centres: Computed as % o f (increase inpayments + ease o f getting new connections). (ii) RapidResponseVehicles: Computed as % o f (increase inLV billing due to decrease inoutage time +increaseinbillingdueto detectionof illegalconnection). (iii) For other Investments: Computed as % o f energy delivered inthe various areas covered. 88 DetailedEconomic Analvsis Table Economic Internal Rate of Return (EIRR) investment Associated Total Year Cost MUS$ O&M cost MUS$ incrementalcost Cost Total benefits MUS$ Net Benefit MUS$ FY06 61.630 0.890 1.923 64.443 8.773 -55.670 FY07 54.072 2.344 2.477 58.893 10.224 -48.670 FY08 0.000 2.344 24.672 27.016 64.135 37.119 FYO9 0.000 2.344 40.320 42.664 102.434 59.770 FYI0 0.000 2.344 42.701 45.046 108.263 63.218 FYI1 0.750 2.344 43.579 46.674 110.412 63.739 FYI2 0.000 2.344 44.492 46.837 112.647 65.810 FYI3 0.000 2.344 45.442 47.786 114.971 67.185 FYI4 0.000 2.344 46.430 48.774 117.388 68.614 FYI5 0.000 2.344 47.457 49.801 119.902 70.101 FYI6 0.000 1.454 48.320 49.774 114.034 64.259 FYI7 0.000 1,454 48.527 49.982 114.541 64.559 FYI8 0.000 1.454 48.527 49.982 114.541 64.559 FYI9 0.000 1.454 48.527 49.982 114.541 64.559 FY20 0.000 1.454 48.527 49.982 114.541 64.559 FY21 0.000 1.454 48.527 49.982 114.541 64.559 FY22 0.000 1.454 48.527 49.982 114.541 64.559 FY23 0.000 1.454 48.527 49.982 114.541 64.559 FY24 0.000 1.454 48.527 49.982 114.541 64.559 FY25 0.000 1.454 48.527 49.982 114.541 64.559 FY26 0.000 1.454 48.527 49.982 114.541 64.559 FY27 0.000 1.454 48.527 49.982 114.541 64.559 FY28 0.000 1.454 48.527 49.982 114.541 64.559 FY29 0.000 1.454 48.527 49.982 114.541 64.559 FY30 0.000 1.454 48.527 49.982 114.541 64.559 FY31 0.000 1.454 48.527 49.982 114.541 64.559 FY32 0.000 1.454 48.527 49.982 114.541 64.559 FY33 0.000 I.454 48.527 49.982 114.541 64.559 FY34 0.000 1.454 48.527 49.982 114.541 64.559 FY35 0.000 1.454 48.527 49.982 114.541 64.559 NPV MUSD (12%) 303.459 EIRR 43.21% 89 DetailedFinancial Analvsis Table Financial Internal Rate of Return (FIRR) IncrementalFixed Associated Sales Year Capital Cost O&M cost Incrementalcost (GWh) Revenue MUS$ Net Revenue MUS$ FY06 61.430 1.530 1.900 210.136 9.666 -55.194 FY07 53.820 2.338 2.349 241.672 11.117 -47.390 FY08 0.000 2.338 22.300 894.893 41.165 16.527 FYO9 0.000 2.338 33.096 1208.323 55.583 20.149 FYlO 0.000 2.338 35.030 1264.460 58.165 20.798 FYll 0.750 2.338 35.744 1285.207 59.120 20.288 FY12 0.000 2.338 36.488 1306.785 60.112 21.287 FY13 0.000 2.338 37.260 1329.225 61.144 21.546 FY14 0.000 2.338 38.064 1352.563 62.218 21.816 FY15 0.000 2.338 38.900 1376.835 63.334 22.097 FY16 0.000 1.448 37.704 1187.125 54.608 15.457 FY17 0.000 1.448 37.778 1189.292 54.707 15.482 FY18 0.000 1.448 37.778 1189.292 54.707 15.482 FY19 0.000 1.448 37.778 1189.292 54.707 15.482 FY20 0.000 1.448 37.778 1189.292 54.707 15.482 FY21 0.000 1.448 37.778 1189.292 54.707 15.482 FY22 0.000 1.448 37.778 1189.292 54.707 15.482 FY23 0.000 1.448 37.778 1189.292 54.707 15.482 FY24 0.000 1.448 37.778 1189.292 54.707 15.482 FY25 0.000 1.448 37.778 1189.292 54.707 15.482 FY26 0.000 1.448 37.778 1189.292 54.707 15.482 FY27 0.000 1.448 37.778 1189.292 54.707 15.482 FY28 0.000 1.448 37.778 1189.292 54.707 15.482 FY29 0.000 1.448 37.778 1189.292 54.707 15.482 FY30 0.000 1.448 37.778 1189.292 54.707 15.482 FY31 0.000 1.448 37.778 1189.292 54.707 15.482 FY32 0.000 1.448 37.778 1189.292 54.707 15.482 FY33 0.000 1.448 37.778 1189.292 54.707 15.482 FY34 0.000 1.448 37.778 1189.292 54.707 15.482 FY35 0.000 1.448 37.778 1189.292 54.707 15.482 NPV MUSD(12%) 30.128 FIRR 16.56% 90 Annex 9 B: Sector FinancialSummary NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT Introduction 1. The Project strategy i s centeredon supporting the transition to reform. One o fthe key actions to be accomplished inthe transition i s the restructuring ofNEPA and the incorporationof its new successor companies. Financialrestructuring of assets and liabilities, capitalizationof the new companies and development o f 5-year business plan for eacho f the new companies are a part of this reform process. A major financial restructuring exercise i s therefore currently underway and this summary analysis i s limitedto taking a short-term consolidatedview ofthe sector. 2. Since the inceptiono f the reformprogramin 1999, and its gathering momentum from 2002, NEPA's financial results have been showing an improvingtrend. This positive trend acceleratedin2003 and 2004 as a result of the CREST interventions describedearlier. The keyhighlightsof the operational and financial performance in2003/2004 are as follows. 0 Management actions intackling losses anduncollectedbillinghave resultedinsome increaseto cashinflows. Monthly collections in2004 averagedN5.9 billion, as against N4.2 billion in2002 and N4.9 billion in2003. 0 Revenueyield per kWhofbulk energy handledby NEPA rose from an average of 2.68 NkWhin2003 to 3.33 NkWhinthe4' quarter of2004. 0 T & Dlossesinthe ten monthsto October 2004 dropped to 34% against 40% in2003. 0 Energy soldincreasedby6.4% in2004 as compared to 2003, while energy billings are expected to be 16% higher. 3. Despite these positive developments, the gap between NEPA's revenuerequirement to cover costs and actual cashcollections i s still substantial. The shortfall averages around N2billion per month or roughly US$16 million. Furthermore, NEPAhas not serviced its Government debt for many years and investments from internalresources inrecent years have beenminimal. To compoundthe problems, tariffs have been constant inNaira terms since 2002, whereas cumulative domestic inflation has reached about 50% over the same period, and the Nairahas depreciated against the U S dollar and the Euro by 15% and 44% respectively. Hencethere i s still a long way to go interms o f improving the sector's business fundamentals. Comparable experience from other utilities insimilar developing country contexts show that the government-regulated, integrated utilitybusiness model does not deliver results beyond a point. Therefore the reformand financial restructuring i s necessary. 4. Inorder to assessthepotentialbenefitsofreforms, the projectfinancial analysis comparesa "reform scenario" against a base case of "no-reforms" inthe sector. The base case assumes no efficiency improvements, no tariff increasesor any financial restructuring. The reformscenario, based on the limitedexperience o ftransmission and distribution CREST programresults at a cluster-level, assumes a conservative 5% annual efficiency gain starting in2006, 15% annual tariff increasesstarting in2007 and debtreliefto the extent of 75% of existingdebt onthe books ofNEPA. The financial shortfall under the base case would have risen to nearly US$2.5 billion inthe year 2010, whereas under the reform assumptions, this deficit for 2010 will be inthe order of US$450 million. More aggressive attentionto efficiency gains through introduction o fprivate management, regulated economic pricingo f energy, and quicker reforms couldproduce superior outcomes for Nigeria. 91 5. This Project therefore seeks to support a faster transition to a reformed sector and also targets investments inthe networkto achieve at least aminimumlevel of efficiency improvements andrevenue growth. This will enableNEPA, andby extension, the successor companies to remain functional during the transitionperiod. Review of NEPA`s Recent Financial Performance 6. The underlying financial situation ofNEPA i s still weak and liquidityremains tight. Some operational and financial performance improvements havebeenmade since the last financial review in early 2004. The following tables presentthe financial and operational statistics for NEPA from 2000 through 2004. Table 1: KeyIncomeStatementResults NationalElectric Power Million US$ Authority (NEPA) Actual Actual Actual Actual Provisional - - - - 2000 2001 2002 2003 - 2004 Average Exchange Rate 102 112 122 130 133 during Year (N/lUS%) Electricity Sent Out (GWh) 14,865 17,230 21,020 22,265 23,679 T & DLosses(including Non- 40% 40% 46% 45% 39% Technical) Electricity Sales (GWh) 8,810 10,228 11,242 12,247 14,264 Average Tariff (USc/kWh) 3.84 3.42 4.96 4.67 4.36 Total Operating Revenue 346.0 362.2 648.8 660.3 687.1 Power Purchase, excluding fuel 0.6 21.2 54.4 70.8 63.9 Fuel 10.7 40.1 46.3 36.2 21.7 Payroll 166.9 234.5 200.1 209.2 224.9 Other 0 & M 107.7 109.2 157.0 168.1 194.7 Depreciation 40.9 33.1 37.7 36.6 47.5 BadDebts and Obsolete Stock 51.5 84.6 205.1 172.5 171.9 Write-off Total Operating Expenses 378.4 522.8 700.6 693.4 724.6 Operating Income (37) Interestand Other 128.8 20.0 60.0 42.8 32.9 Net Income (161.3) (180.6) (111.8) (75.8) (70.3) Working Ratio Cash Op Expenses/Op 0.98 1.48 1.16 1.11 1.10 Revenue Operating Ratio Op Expenses/Op 1.09 1.44 1.08 1.05 1.os Revenue Return on Fixed Assets Op Income/Av Net -0.12 -0.47 -0.12 -0.07 -0.07 FixedAssets 92 7. The following are some observations from Table 1. 0 Energy supply (own generationpluspurchasedpower) increasedby 5.8% and 6.2% in 2003 and 2004 respectively and approximately 10%per year on a compounded average from2000 through 2004. Recordedpeakloads duringthe lastthree years were 3,223 MWin2002, 3,479 M Win2003 and3,403 MWin2004. Withthe commissioningof Agip inApril 2005, the energy supply situation is expectedto improve. 0 Energy sales (billing)in2004 are expectedto rise by over 16% and approximately 10% per year on a compounded average from 2000 through 2004. 0 The weighted averageelectricity revenue declined by 3.8% to 5.8 Nkwh and by 6.4% in US dollar terms to US$0.044 kwh. The decline is attributed to the increasing proportion o f subsidized domestic consumption. The erosion of electricity tariffs, which have not been adjusted since early 2002, i s underminingfinancial performance and compounding NEPA's financial difficulties. 0 Payroll represented30% of the annual operating expenses and purchasedpower approximately 10%of the annual operating expenses in2004. 0 The Net Incomehas beennegative from 2000 through 2004 but has been improving. 0 The worlung ratio shows that cashoperating expenses are higher than cashrevenue. 93 Table 2: KeyBalanceSheet StatementResults National Electric Power Authority (NEPA) MillionUS$ Balance Sheet (in Million US$, Current Prices) Actual - - - - - Actual Actual Actual Provisional 2000 2001 2002 2003 2004 Average Exchange Rate during Year 102 112 122 130 133 (N/lUS$) Net Fixed Assets 503.3 907.7 883.4 875.3 1,118.4 Current Assets Accounts Receivables 44.6 43.5 79.9 90.3 88.4 Other 364.6 413.5 407.5 357.4 295.5 Less: Current Liabilities 604.9 692.8 749.9 756.1 810.7 Net Current Assets (195.8) (235.8) (262.5) (308.4) (426.8) Total Assets 307.5 671.9 620.9 566.8 691.7 Long-Term Debt 145.6 259.9 212.9 169.2 121.0 Equity 162.0 412.0 408.0 397.6 570.7 Total Debt and Equity 307.5 671.9 620.9 566.8 691.7 Return on Op Income/Av Net Invested Capital -0.12 -0.34 -0.08 -0.06 -0.06 Invested Capital Debt Service Ratio Internal Cash Generatioaebt 0.53 -2.30 -0.16 0.11 0.05 Service Due Self Financing Funds fromInternal SourcesJAv 3 -0.10 -0.38 -0.39 -0.11 0.05 Ratio Yrs' Capex Return on Equity Net Income/Av Equity -1.05 -0.64 -0.28 -0.19 -0.15 Days Receivable Receivable/Annual Domestic 38.14 37.70 45.38 48.05 45.00 Billing Exports 394.36 253.41 114.23 369.99 125.44 Current Ratio Current Assets/Current Liabilities 0.68 0.66 0.65 0.59 0.47 Debtmquity Ratio LTLiabilitieshnvested 0.47 0.39 0.34 0.30 0.17 Capital 8. The following are some o f the observations from the balance sheet: e NEPA has faced significant liquidityproblems on account o f weak collections which have averagedapproximately 70%. e Accounts receivables are quite significant andneedto be addressed. e The long-termdebt burdenhas reduced, but since the equitybase has gone up, there appears to be some conversion from debt to equity. e Insummary, NEPA's financial performance inrecentyearshasimprovedbutremains far from satisfactory. NEPA i s dependent on significant Government support to maintain its 94 activities, since it does not generate sufficient resources to meet its operation and maintenance requirements and finance its investmentprogram. NEPAFinancial Forecast 9. The financial forecast o fNEPAhas beenanalyzedunder two different scenarios basedon: (a) current operationparametersbeingunchanged (Business as Usualor Base Case); and (b) A Reform Scenario. la) Base Case (no reform) scenario 10. Under this scenario it i s assumed that NEPAwill continue to perform at its present level of efficiency. Basic assumptions for this scenario are as follows: 0 Tariffs are kept at the 2004 levels and no tariff increasesfrom 2005 through 2010. 0 Transmission and distribution lossesremain at the 2004 levels. 0 Collection efficiency doesnot improve. 0 No debt restructuringandthus existingdebt obligations have to be serviced. 11. An Operational and Financial Summary for this scenario is presentedbelow inTable 3. The financial ratios presentedinthe table show the worsening position for NEPA. Table3: OperationalandFinancialPerformanceIndicators(Base Case) 2003 2004 2005 2006 2007 2008 2009 2010 Actual Prov. Forecast Forecast Forecast Forecast Forecast Forecast Monthly average available capacity (MW) 4,110 4,060 4,649 5,081 5,852 7,374 7,832 8,181 Peak load (MW) 3,479 3,403 Energy sent out (GWh) 22,265 23,679 22,817 24,560 28,312 7,259 39,968 42,045 Energy billed(GWh) 12,247 14,264 14,927 16,076 18,548 24,444 26.229 27,598 % growth insales +8.9% +16.5% +4.7% +7.7% +15.4% +31.8% +7.3% +5.2% T & Dlosses 44.5% 39.3% 34.1% 34.1% 34.1% 34.1% 34.1% 34.1% Cash collected as % o f Nigeria billing26 70% 75% 75% 75% 75% 75% 75% 75% Av Elec. Tariff?' m NkWh 6.1 5.8 5.8 5.8 5.8 5.8 5.8 5.8 8 USckWh 4.7 4.4 4.2 3.9 3.8 3.7 3.6 3.5 Net cashbalance at Dec. 31 (US$ millions) 17 6 (237) (574) (913) (1,364) (1,870) (2,478) Working ratio (cash op 1.53 1.57 1.65 explop rev) 1.11 1.10 1.24 141 1s o Returnon fixed assets: m Historical basis -7.1% -7.3% -15.6% -17.7% -15.6% -18.5% -21.7% -25.1% Current ratio 0.6 0.5 1.1 0.7 0.5 0.4 0.3 0.2 Debdequityratio . 30% 18% 11% 16% 15% 15% 17% 22% Historical basis 26Historical cashcollection rates are based on recorded billing statistics which are not reliable. Percentages exclude settlement by FGNo fN2 billionin2003 and anticipated N3 billion in2005 against old dues. 27Average electricity tariff is for sales to the domestic market and is exclusive o f the meter maintenance charge and VAT. 95 12. The projectedfinancial outlook for NEPAwill be unsustainable ifthe efficiency improvements are not achieved, present end customer tariffs remainunchanged and there i s no debt restructuring. The implications for FGNina no reformscenariowould be a very highdegree o f fiscal support -almost to the tune of US$2.5 Billionby 2010. This can only be avoidedthrough continued investments inthe sector even duringthe reform transition period, sustainedattention to improving the business operations inNEPAandthe new successor companies, andachievement ofsubstantial increasesinrevenues. (b) ReformCase 13. Inview of theneedfor sustainedactionsinthe sector duringthe reformtransitionperiod, a reform case has beenconstructed with the following conservative assumptions: a 25% reduction inlosses achieved over a five-year period. Eventhoughthis Project i s approaching efficiency improvements only insome selectedclusters, the 25% reduction i s reasonableon an overallbasis. 0 Tariff increase of 15% per year over the period 2007 - 2010. 0 Overall debt obligations reduced by 75%, i.e., only 25% o f the existing debt obligations to be serviced byNEPA. 14. The operational and financial summary for the ReformCase is presentedinTable 4 below. The results for the Reform Case suggest an improvementinall the indicators, inparticular the working ratio, compared to the Base Case and clearly the level o f fiscal support from the Government reduces substantially to approximatelyUS$450 millionby 2010. Itis important to note that the working ratio in 2009 is lessthan 1.O which shows that the revenues collectedare able to cover the cashrelatedexpenses. 96 Table 4: OperationalandFinancialPerformanceIndicators(Reform Case) 2009 ~ 2003 2004 2005 2006 2007 2008 2010 Actual Prov. Forecast Forecast Forecast Forecast Forecast Forecast Monthly average available capacity (MW) 4,110 4,060 4,649 5,081 5,852 7,374 7,832 8,181 Peak load (MW) 3,479 3,403 Energy sent out (GWh) 22,265 23,679 22,817 24,560 28,312 37,259 39,968 42,045 Energy billed (GWh) 12,247 14,264 14,927 16,297 19,284 26,009 28,508 30,289 %growth insales +8.9% +16.5% +4.7% +9.2% +18.3% +34.9% +9.6% +6.2% T & Dlosses 44.5% 39.3% 34.1% 33.7% 32.4% 30.7% 29.2% 28.4% Cash collected as % o f Nigeria billing28 70% 75% 75% 77% 79% 81% 83% 85% Av Elec. Tariff 29 NkWh 6.1 5.8 5.8 5.8 6.8 8.2 9.9 10.9 USclkWh 4.7 4.4 4.2 3.9 4.4 5.1 6.0 6.5 Net cashbalance at Dec 31(US$ millions 17 6 502 649) (586) (434 Working ratio (cash op exp/op rev) 1.11 1.10 1.24 1.27 1.16 0.99 0.86 0.81 Return on fixed assets: Historicalbasis -7.1% -7.3% -15.6% -16.9% -9.2% -2.6% 4.6% 8.4% Current ratio 0.6 0.5 0.9 1.o 0.8 0.7 0.8 1s I Debdeauitv ratio Historicalbasis I d 30% 18% 11% 14% 13% 11% 11% 10% 15. Comparison of revenue yieldsper unit ofbulk supply betweenthe Base Case andthe Reform Case shows that remarkable improvements can be achieved throughreforms. Revenueyields can be doubled over the next five years through modest improvements intariffs and efficiencies. 28Historicalcash collectionrates are based on recordedbillingstatistics which are not reliable. Percentages exclude settlement by FGNofN2 billion in2003 and anticipatedN3 billion in2005 against old dues. 29Average electricity tariff i s for the domestic market and is exclusive o fthe meter maintenance charge and VAT. 97 Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revenue Yield per unit Bulk Supply (N/kWh) Base 3.32 3.47 3.66 3.98 3.99 4.00 4.02 4.03 4.03 Revenue Yield per unit Bulk Supply (NlkWh) Reform -- 3.32 3.47 3.66 3.98 4.02 4.77 5.94 7.35 8.20 Comparison Between Base Case and Reform Case 10.0 I, 0.o per Bulk Supply (NlkWh) - Base Year per Bulk Supply (N/kWh) - Reform 98 Annex 10: SafeguardPolicyIssues NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT 1. The Project Team has identifiedtwo Safeguardpolicies that may be triggeredunder NEDP EnvironmentalAssessment and Involuntary Resettlement. The Team has receivedthe relevant analysis and proposed mitigation measures from the Government intwo public documents. 2. The proposed implementingagency for the investment component (and associatedsafeguards mitigation) o f the Project i s the Project Management Unit(PMU) for the ongoing Transmission Development Project. The PMUhas well-developed capacity for execution of similar investment activities that have been demonstratedduringits implementationo f the ongoing project. Ithas been proposed that during the course of implementationof the NationalEnergyDevelopmentProject, this unit should be strengthenedand additionally staffed to evolve into a Corporate Planningand Strategy Unit (CPSU) for the Electric Power Sector. The CPSU, ifcreated, will be able to provide a menu of specialized services to various players inthe sector, including the successorentities to NEPA. 3. The capacity of the Environment, Resettlement and Social Unit (ERSU) within the P M Uhasbeen appraised, since this entity i s likely to be the guardian of the relevant SafeguardPolicies and their application, and to be responsible for seeingthat the proposed mitigationmeasuresare implemented under NEDP. Appraisal of the unit'sperformance and capacity has been conducted by the Environmental Specialist on the Bank team, as well as external consultants who evaluated the implementationof the policies under the ongoing project. The findings are that the unitrequires additional capacity interms of staff and training, and this i s accordingly provided for under NEDP. The ERSUhas also been familiarized with the latest Bank Environmental, Healthand Safety guidelines applicable to Electric Power Transmission and Distribution, Occupational Health and Safety, PCBs, and Monitoring. 4. Two safeguardrelatedstudies were undertaken as part o f NEDPpreparation, and the results have been publicly disclosed by the Government as separate documents duringappraisal: one i s the Environmental and Social Management Framework(ESMF)that describes the potential impacts of the operation, specifies mitigationmeasuresto be appliedto all sub-projects, and contains a template for environmentalmanagement plans (EMP), and the other a Resettlement Policy Framework (RPF). The findingso fthe two studies are summarized inTable 1below. 5. The environmentalassessmentindicates that NEDP, which is classifiedas a Category I1project underNigerianregulations (Le., requires only a partialEA innearly all cases), is not likely to have large- scale adverse impacts on the natural environment, health and safety o f communities and individuals. However, NEDP is a sector investment loan, and detailed planning for specific sub-projects will only occur after project implementationbegins. The environmentalor social impacts will be detailed as specific sub-project planningprogresses, for which a framework of general policies and procedures (ESMF andRPF)havebeenprepared. These documents set out the principles, organizational arrangements, design criteria etc. for managingpotential environmentaland social impacts and providing compensation and other assistance, should this become necessary. An EMPwill be prepared, following the template inthe ESMF, for any sub-project involving significant construction(new or substantially expanded substationswould be the only such sub-projects). Ifa particular sub-project seems likely to cause any loss or damage to people's assets or welfare, a Resettlement Action Plan (RAP) will have to be prepared for that sub-project. The Appendix to the RPF contains a template to assist the Nigerian authorities inpreparinga RAP inline withthe Bank's policies. 99 6. Since one of the possible adverseimpacts has been identified as exposure to PCBs during construction, the NEDP has also budgetedup to US$1.O millionto finance any mitigation measuresif required, inconnection with waste disposal facilities for PCB-contaminated waste, basedonthe experience of other countries inthe Region. The mitigation measuresproposed for that particular scenario include Phase 1and Phase 2 Environmental Audits, identificationof a waste disposal facility and contracting an external consultant to evaluate the quality o f the initial audits. 7. This funding, together with strengthening o fthe ERSUinterms of staff and capacity, represent the Project's proposed support to the Safeguards issuesthat may arise from implementation. Table 1: PossibleAdverse Impacts and ProposedMitigation Measures,NEDP AdverseImpacts ProposedMitigation Measures Noise during construction. 0 Limitconstructionto daylight hours. Conduct Phase 1Environmental Audits. Conduct Phase 2 Environmental Audits, where Phase IAudit finds Management o f PCBs. serious contamination. Identify a waste disposal facility for PCB-contaminated waste. Contract external consultant to evaluate quality o f initial audits. Poor environmental 0 ERSUshouldensurethat an EnvironmentalManagement Plan(EMP) is management planning. preparedfor every transformer substation where constructionwill occur. (EMP template provided). A qualifiedNigerian archeologist should beemployedon a consultant basis to review the plans for any sub-project located ina traditional Damage to cultural urban area. property. Constructioncontract documents should contain standard guidelines for responsesto "chance finds" o f archeological resourcesduring construction activities. Make every effort to avoid loss of people's assets by usingtaller poles, Loss o f assets due to re- usinginsulatedwire, re-routing lines, or other means. establishing safety Follow the objectives, policies, and procedures set forth inthe NEDP margin betweenpower Resettlement Policy Framework. lines and structures, or Prepare a Resettlement Action Plan for every sub-project where loss o f acquiring land for assets i s foreseen. substations, customer Familiarize TransysCo and Disco staffwith the NEDP Resettlement care centers, etc.. Policy Framework and the template for aNEDP Resettlement Action Planthrough a series of workshops. Strengthen the public relations capacities o f Discos. NEPAretrenchment, The World Bankmustremain alert to the need to assist with retrenchment packages, as the situation develops. Source: Sections 6 and 7, NEDPEnvironmental and Social Impact Management Framework. 100 Annex 11:ProjectPreparationandSupervision NIGEFUA:NATIONALENERGYDEVELOPMENT PROJECT Planned Actual PCNreview March 1,2005 March 17,2005 UpdatedPID to PIC March 22,2005 Initial ISDS to PIC March 29, 2005 Appraisal April 29,2005 April 29 -30,2005 Negotiations Early May 2005 May 4 - 5,2005 Boardapproval June 16,2005 June 23,2005 Planneddate of effectiveness August 15,2005 Planneddate of mid-term review NA Plannedclosing date July 31,2008 Key institutionsresponsiblefor preparationofthe Project: Federal Ministryof Power and Steel Federal Ministryo f Finance NEPA-PMU, NEPA Successorentities, Transysco BPE Bankstaff andconsultantswho worked onthe Projectincluded: Name Title Unit S.Vijay Iyer Task Team LeadFinancialAnalyst, Team Leader AFTEG Mohua Mukherjee Senior Private Sector Development Specialist AFTEG PrasadTallapragada Senior Energy Specialist -Distribution AFTEG Eric Fernstrom Energy Specialist -Transmission AFTEG Christophe de Gouvello Senior Energy Specialist -Rural andRenewable AFTEG Karan Capoor Senior Financial Specialist -Carbon AFTS4 Jumoke Jagun Investment Officer CASDR Aman Sachdeva Financial Specialist -Utility AFTEG HelenaKofi Procurement Analyst AFTEG Comfort Olatunji Team Assistant AFc12 Lily Wong Chun Sen ProgramAssistant AFTEG Bent Svensson ProgramManager -Oil and Gas COCPO KarenHudes Senior Counsel LEGAF Chau-Ching Shen Senior Finance Officer LOAG2 Thomas Walton LeadRegional Coordinator AFTSD Kristine Ivarsdotter Senior Social Development Specialist AFTS1 Robert Robelus Senior Environmental Assessment Specialist AFTS1 MohamedArbi Ben-Achour Senior Social Scientist AFTS1 Bay0 Awosemusi Senior Procurement Specialist AFTPC Tesfaalem Gebreiyesus Senior Procurement Specialist AFTPC EdwardOlowo-Okere Lead FinancialManagement Specialist AFTFM Adenike Mustafa Financial Management Specialist AFTFM EwahOtu Eleri Rural Energy Specialist 1Consultant AFTEG NovaTech International, Inc. Environment and Social-Consultants AFTEG 101 Name Title Unit Task Team QualityAssurance Team/ Peer Reviewer Yusupha Crookes Sector Manager AFTEG Irene Xenakis Operations Adviser AFTOS Luiz Maurer Senior Energy Specialist EWDEN Chrisantha Ratnayake Senior Power Engineer AFTEG ReynoldDuncan Senior Power Engineer MNSIF Mouradj Belguedj LeadEnergy Specialist COCPO IoannisKessides LeadEconomist DECRG Bankfunds expendedto date on projectpreparation: 1. Bankresources: US$500,000 2. Trustfunds: US$O 3. Total: US$500,000 EstimatedApprovaland Supervisioncosts: 1. Remaining costs to approval: US$O 2. Estimatedannual supervision cost: US$180,000 102 Annex 12: Documentsinthe ProjectFile NIGERIA: NATIONAL ENERGY DEVELOPMENT PROJECT ProjectAppraisal Document. Procurement Capacity Assessment Report, Financial Management Assessment Report. Environmental and Social Management Framework for the National EnergyDevelopmentProject. NEDP Resettlement Policy Framework. Electric Power Sector ReformBill (March 2005). Federal Republic ofNigeria Electricity ACT 1966and associatedElectrical InstallationRegulations. Economic and Financial Internal Rate o f ReturnCalculations (EIRR and FIRR)for the Transmission SystemDevelopmentComponent. Economic and Financial InternalRate of ReturnCalculations (EIRRand FIRR) for the Distribution Efficiency ImprovementComponent. 103 Annex 13: Statementof LoansandCredits NIGERIA: NATIONALENERGYDEVELOPMENT PROJECT Differencebetween expectedand actual OriginalAmount in US$ Millions disbursements ProjectID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO88150 2005 EconomicReformand Govemance Project 0.00 139.99 0.00 0.00 0.00 140.22 0.00 0.00 PO86716 2005 SustainableMngt. Mineral Resources 0.00 120.00 0.00 0.00 0.00 120.25 0.00 0.00 PO83082 2004 NG-MSME 0.00 32.00 0.00 0.00 0.00 33.94 3.37 0.00 PO71817 2004 NG: Local Empowerment& Env.MgtProj. 0.00 0.00 0.00 8.00 0.00 7.43 2.35 0.38 PO71075 2004 NG-Urb Water Sector Reform1SIL 0.00 120.00 0.00 0.00 0.00 122.28 10.89 0.00 (FY04) PO63622 2004 NG:FadamaI1 0.00 100.00 0.00 0.00 0.00 92.37 9.77 0.00 PO69892 2004 NGLocal Empowerment& Envir.Mgmt. 0.00 70.00 0.00 0.00 0.00 75.05 5.78 0.32 PO80295 2003 Polio Eradication 0.00 28.70 0.00 0.00 0.00 50.71 9.37 0.00 PO71494 2003 UniversalBasic Ed. 0.00 101.00 0.00 0.00 0.00 108.38 76.50 0.00 PO74963 2003 NG Lagos UrbanTransport Project 0.00 100.00 0.00 0.00 0.00 97.34 28.01 21.80 PO72018 2002 NG Transmission DevelopmentProject 0.00 100.00 0.00 0.00 0.00 87.97 63.53 49.64 PO69901 2002 CommunityBasedUrbanDevelopment 0.00 110.00 0.00 0.00 0.00 123.97 61.58 37.90 PO70290 2002 2nd HealthSystems Dev. 0.00 127.01 0.00 0.00 0.00 125.31 56.07 6.87 PO70291 2002 HIV/AIDS Prog.Dev. 0.00 90.30 0.00 0.00 0.00 80.76 37.32 -0.31 PO70293 2001 PRIVATIZATION SUPPORT PROJECT 0.00 114.29 0.00 0.00 0.00 103.81 58.30 23.59 PO69086 2001 Com.-based PovertyReductionSIL 0.00 60.00 0.00 0.00 0.00 31.90 10.41 4.91 PO65301 2000 ECON.MGMT.CAP.BLDG. 0.00 20.00 0.00 0.00 0.00 5.14 -3.51 0.00 Total: 0.00 1,433.29 0.00 8.00 0.00 1,406.83 429.74 145.10 104 NIGERIA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillionsofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan EquitV Quasi Partic 1998 AEF Ansbby 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.00 1999 AEF Global Fabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 1999 AEF Hercules 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.00 1999 AEF Hygeia 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2000 AEF Oha Motors 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.00 2000 AEF SafetyCenter 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 1997 AEF Telipoint 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00 1995 AEF Vinfesen 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 1994 Abuja Intl 1.75 0.00 0.00 0.00 1.75 0.00 0.00 0.00 2005 Accion Nigeria 0.00 1.89 0.00 0.00 0.00 0.41 0.00 0.00 2003 Adamac 25.00 0.00 0.00 15.00 11.56 0.00 0.00 6.94 2005 Africa Re 0.00 10.40 0.00 0.00 0.00 0.00 0.00 0.00 2000 CAPE FUND 0.00 7.50 0.00 0.00 0.00 7.09 0.00 0.00 2001 DeltaContractor 15.00 0.00 0.00 0.00 0.20 0.00 0.00 0.00 2000 Diamond Bank 8.00 0.00 0.00 0.00 8.00 0.00 0.00 0.00 2000 FSB 8.40 0.00 10.50 0.00 8.40 0.00 6.00 0.00 1992 FSDH 0.00 0.86 0.00 0.00 0.00 0.86 0.00 0.00 2000/04 GTB 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 2000 IBTC 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1981/88 Ikeja Hotel 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.00 2002 NTEF 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 UBA 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 2004 UPDC Hotels Ltd 11.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Totalportfolio: 133.29 21.09 20.50 15.00 74.05 8.80 6.00 6.94 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2005 Zenith Bank 0.03 0.01 0.00 0.00 Total pendingcommitment: 0.03 0.01 0.00 0.00 105 Annex 14: Country at a Glance NIGERIA: NATIONALENERGY DEVELOPMENT PROJECT Nigeria at a glance Ql2054 Sub- Saharan LOW. Migeria AfrlU inome $35.7 703 2.310 E O 490 450 437 347 1,039 2 4 2 3 I.8 2 5 2 4 2.3 GNI pw 47 3 30 47 48 e4 87 103 02 44 57 58 75 32 35 39 87 82 w -a Bo 85 4993 zwz 2003 Econmkratios' 2%4 48 7 58.4 233 23 1 22.7 47.f 40 8 50.0 Trade 202 25 8 31.8 132 15 1 20.2 -14.3 -1O.f -'ID@ -2.7 2.8 4.# 3 3 2.8 50.3 143.8 652 30.1 23.6 148 154 10.4 Indebtedness '1983-33 199303 2002 2M13 20w-07 ( a v e r a g e m d w ) ODP 4 8 2.8 15 107 5.0 GOP p(r capta 1.9 0 3 -0.7 8 4 2.7 Exportsof@s andA c e s 4.4 2.1 -1t.t 324 4.5 1983 1393 2002 2003 I Growth d invrsbncntand#P (961 I 33.2 242 312 2B.4 a 7 5a 7 43 8 a.45 0.9 4 0 4 8 4.0 370 172 25 0 24.2 714 823 494 44.8 17 7 175 24 7 23.3 17.5 502 41 0 40.8 I -eoi -OP I 198393 1993-03 4.8 4 0 3.8 15 4.7 2 7 8 9 33 -17 4 4 2.2 132 8.5 95 47.0 -11.5 -58 a # 11 B 10.8 We. 2W3 dataarepreliminaryntlnunes Thediamo& showtCrw key irdi~tors the own-ry (inhid)chmparedwith nsinom-gnxy,avenge Ifdataaremsssng. the diarcandwll in be mompie;@ 106 1983 1993 2052 2003 23.2 6P4 12 8 14.0 18 1 52 e 39 21.0 25 6 382 36.5 1.7 80 2 1 4.3 -5.3 -1.3 1483 $993 2oM 2o(M Expwtand importI d s(US$ mill.) 10.370 @,Q24 17.872 27,418 I 8 . W 8,597 75.878 24.883 1.E& 1,925 40 91 QQ 12,698 @,la0 14,770 18.692 1.M& 7Tt 1,016 2.428 188 46 4.473 5.8% 18s 8Q 139 181 62 88 $9 100 288 dolD 156 161 1983 1963 2oM 2003 10,738 10,082 18.F152 28,462 la,=? 10,720 18.m 23.233 -3,B¶8 4% -108 5226 -1.527 -2.38 -8.41 -6.444 847 1.w 1,657 -5.011 -2,158 -5.108 -1.556 3.s158. t ,433 2.366 1,345 1,W5 725 2.742 213 1,015 7.Ml 1.e 1,410 7.46s 46 3 1206 *Z%? 1983 1993 2m 2003 ~ Composition of 2aM deM [US$mill.) 17,581 30,888 30.476 35,079 a24 3,Iea 1.255 1,2R)1 A: 1,275 36 116 0i8 787 F: 3.271 3:676 2,562 1,4Qt 2,QN 2,687 66 588 248 285 1 2 18 22 @(I 51 426 t.015 -88 -810 58t 2.481 3358 0 0 E.22.621 517 158 438 151 $88 302 20 63 38 310 189 220 150 -8 -288 -157 58 2et 75 e4 01 -286 -244 -224 TheWorld Sank Gm,up:Thistabfewas preparedby cwnaryunitstaR fwesmaydiffec fromM a r W d d 5 a k publrsheddata &Qw54 107 Annex 15: Map IBRD 33990 108 IBRD 33990 4° 6° 8° 10° 12° 14° NIGER CHAD NIGERIA To Niamey SOKOTO Lake NATIONAL ENERGY GAZAOUA 1963 Level Chad DEVELOPMENT PROJECT DOSSO SOKOTO 1973 Level R. KATSINA YobeR. 2001 Level Sokoto Rima KATSINA YOBE UNDER TALATA HADEJIA PROJECT CONSTR. EXISTING BIRNIN MAFARA R. KANKIA KADUNA ZONE JIGAWA KEBBI I I I I I I I I I I I I I I KANO ZONE GAGARAWA 330 kV DOUBLE CIRCUIT LINES BORNO GUSAU 330 kV SINGLE CIRCUIT LINES KEBBI ZAMFARA DUTSE 12° I I I I I I I225 kV DOUBLE CIRCUIT LINES KANO MAIDUGURI 225 kV SINGLE CIRCUIT LINES KANO POTISKUM AZARE 161 kV SINGLE CIRCUIT LINES FUNTUA I I I I I I I I I I I I I I132 kV DOUBLE CIRCUIT LINES DAMBOA 132 kV SINGLE CIRCUIT LINES ZARIA I I I I I I I110 kV DOUBLE CIRCUIT LINES YELWA ASHAKA BAUCHI GOMBE CEMENTS 110 kV SINGLE CIRCUIT LINES KADUNA I I I I I I I90 kV DOUBLE CIRCUIT LINES KADUNA BIU Kainji TOWN BAUCHI 90 kV SINGLE CIRCUIT LINES Reservoir KONTAGORA MAROUA BENIN DADINKOWA KADUNA GOMBE 63 kV SINGLE CIRCUIT LINES TEGINA 10° NIGER JOS YOLA ZONE SHIRORO 10° I JOS ZONE GUIDER 330 kV SUBSTATION KAINJI HYDRO I I II I KAINJI ADAMAWA II I I I I I I I I 132 kV SUBSTATION HYDRO I I I I IIMINNA MAKERI SAVANNAH I KWARA I I THERMAL POWER PLANTS I II I I NUMAN I HYDRO-ELECTRIC POWER PLANTS JEBBA TS SULEJA I I I I I I I I I I I I GAROUA I PANKSHIN I I Niger I I I KATAMPE I YOLA I JEBBA II I I I DISTRIBUTION ZONE BOUNDARIES BIDA KUBWA I I PLATEAU I HYDRO R. I ABUJA I I I ABUJA I LAGDO I F.C.T. HYDRO AKWANGA JALINGO ABUJA CITY KEFFI NATIONAL CAPITAL OYO RIVERS ILORIN ABUJA ZONE TARABA IBADAN ZONE NASSARAWA STATE BOUNARIES INTERNATIONAL BOUNDARIES OFFA OMU-ARAN 8° ISEYIN KOGI Benue R. 8° IWO OSHOGBO EKITI ITAKPE MAKURDI ADO-EKITI IBADAN OKENE AJAOKUTA NORTH ILESHA AJAOKUTA BENUE IFE AIYEDE TOWN ONIGBOLD ABEOKUTA OSUN AKURE Nig YANDEV ALIADE NGAOUNDERE JERICHO UKPILLA OTURKPO OGUN ONDO BENIN This map was produced by the Map Design Unit of The World Bank. EDO .Rre The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank SAKETE To Papalanto To Sagamu ONDO ZONE CAMEROON ALLADA IRRUA Group, any judgment on the legal status of any territory, or any I II II I I I I I I I I I I I I I I II I I II I I endorsement or acceptance of such boundaries. I II I II III I I EGBIN IIII ENUGU IKEJA THERMAL II III 12° 14° WEST I AJA II IIII PORTO- I I I NEW HAVEN I I EBONYI COTONOU I NOVO AKANGBA LAGOS BENIN IIIII III NKALAGU To Oshogbo To Aiyede To Aiyede MALI II I To Abeokuta OJI LAGOS 10° For detail, see II IIII I AWKA ENUGU ABAKALIKI PAPALANTO NIGER 6° II inset at right. ANAMBRA IKEJA EKO II III ONITSHA I SAPELE GCM BAMENDA CHAD OKIGIWE ZONE I I I I I SAGAMU ZONE ZONE THERMAL I II I CROSS IJEBU-ODE MBALANO ABIA II I I I I I I BURKINA II I OHAFIA RIVER SAGAMU I I I DELTA II I I OWERRI UMUAHIA CEMENTS THERMAL KWALE I I BAFOUSSAM FASO I I I I I I I I I I I I I I I I I I I I I I I I I I I I IMOI I AROCHUKWU I I I III THERMAL I I OTTA I I I I I DELTA I I I I To Benin I 6° I I NIGERIA I II ALADJA I EFFURUN I I I I I I SAKETE I I I I I AHOADA I I BENIN IIII II I I I ITU I I I I I I 10° ALAOJI ABA IIII I 10° I I I III II I I II IIII I I I I I Niger II I OGBA IIII I I I I I I II I I P.H. TOWN UYO CALABAR I I Gulf of II I N'SAMBA I I I I I I I I I II II I I I I I I I I I I I I Abuja I I I ALAUSA I YENAGOA AFAM IKORODU I RIVERS I III I I II I I I II I II I I I I IKEJA WEST I I II I I I I II IIII I I I I I I I I THERMAL I II I I I I I I I I I I I I I I II I III I I I III I II I I I II II I I I I I I I I I I I Benue I I I I I I I I I I II I I I I I II I I I I I BAYELSA I I I P.H. MAIN EKET I I I I I I I I I I TOGO I I I I IIII II III I II I I I I I I I I I III I I I I II I I I I I I I I I II I P/H ZONE I MARYLAND I I I I I GHANA I I I I II III IKOT-ABASI ALIMOSO I I I I I Guinea AKWA- IIII BEKOKO I I I I I I I I I I I I I I THERMAL LOGBABA I I I I I I I I I I EGBIN I I I I IBOM I I I I I I I EJIGBO ILUPE JU II THERMAL CENTRAL II I I I I I OWORONSOKI II CELLUCAM SONG-LOULOU AGBARA I I ISOLO I I II II I I I II II I I AKOKA I AFRICAN LIMBE HYDRO I I I I I I CAMEROON II I III ITIRE I II I II I I I 4° I I I II I I I I I I REPUBLIC II I OYOMABANG I I I I I AJA II I I I I I I I I III BRGM I I I I EDEA I I I I I I I I I 0 50 100 150 200 250 OJO I I I I I I I IJORO I I I II I I I I I I I HYDRO AMUWO- ALAGBON EQUATORIAL NGOUSSO ODOFIN GUINEA KILOMETERS APAPA ROAD Gulf of Guinea MBALMAYO AKANGBA SÃO TOMÉ 4° 6° 8° Gulf of Guinea CONGO KRIBI 0° & PRÍNCIPE 10° GABON APRIL 2005