Document of The World Bank FOR OFFICIAL USE ONLY Report No: 54291-SN PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 9.9 MILLION (US$15 MILLION EQUIVALENT) TO THE REPUBLIC OF SENEGAL FOR A SECOND SUSTAINABLE AND PARTICIPATORY ENERGY MANAGEMENT PROJECT (PROGEDE II) May 20, 2010 Energy Group Sustainable Development Group Country Department AFCF1 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2010) Currency Unit = FCFA SDR 1.0 = FCFA 739 US$ 1.0 = SDR 0.658657 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS AAA Analytic and Advisory Activities AG/NRM Agriculture and Natural Resources Management Program APL Adaptable Program Loan ARD Agence Régionale de Développement (Regional Development Agency) ARMP Agence de Régulation des Marchés Publics (Public Procurement Regulatory Authority) ASER Agence Sénégalaise d'Electrification Rurale (Senegal Rural Electrification Agency) BAGE Bureau de l'Administration Générale et de l'Equipement (Administrative and Financial Office) BCR Biodiversity Community Reserves CAS Country Assistance Strategy CBO Community Based Organization Centre Africain d'Etudes Supérieures en Gestion (Institute of Post- CESAG graduate Management Studies) CDM Clean Development Mechanism CFAA Country Financial Accountability Assessment CIA Central Intelligence Agency CIVGD Comité Intervillageois de Gestion et de Développement (Inter-villages Committee for Management and Development) CO2 Carbon Dioxide CPAR Country Procurement Assessment Report CPPR Country Portfolio Performance Review CSO Civil Society Organization CVGD Comité Villageois de Gestion et de Développement (Village Committee for Management and Development) DAGE Direction de l'Administration Générale et de l'Equipement (Administrative and Financial Directorate) DGIS Directorate General for International Cooperation (Netherlands Bilateral Aid) ii DPHE Directorate of Petroleum Products and Household Energy (Direction des Hydrocarbures et Combustibles Domestiques) within the Ministry of Energy DPO World Bank Development Policy Operation DSA Debt-Sustainability Analysis DWF Directorate of Water and Forests, Hunting and Land conservation (Direction des Eaux et Forêts, Chasse et Conservation des sols) within MEPBNBRLA Ministry of Environment (Ministère de l'Environnement, de la Protection de la Nature, des Bassins de Rétention et des Lacs Artificiels) ESDP Energy Sector Development Policy Letter ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework FMPD Forestry Management Production Division GDP Growth Domestic Product GEF Global Environment Facility GIS Geographical Information System GPN General Procurement Notice GTZ Gesellschaft fur Technische Zusammenarbeit (Corporation for Technical Cooperation- Germany) ha Hectare HEPDL Household Energy Sub-sector Development Policy Letter HIPC Heavily Indebted Poor Country IC Individual Consultant ICB International Competitive Bidding IDA International Development Association IMF International Monetary Fund IREF Inspection Régionale des Eaux et Forêts (Regional Inspection of Water and Forests) ISADE Institut Supérieur Africain pour le Développement de l'Entreprise (African Institute of Post-graduate for Entrepreneurial Development) LPG Liquefied Petroleum Gas M&E Monitoring and Evaluation MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative MEPNBRLA Ministère de l'Environnement, de la Protection de la Nature, des Bassins de Rétention et des Lacs Artificiels (Ministry of Environment, Protection of Nature, Retention Basins and Artificial Lakes) NBP National Biogas Program NCB National Competitive Bidding NDF Nordic Development Fund NGO Non Governmental Organization NPV Net Present Value iii NRM Natural Resources Management NUCP National Union of Charcoal Procedures PADEC Projet d'Appui au Développement de la Casamance (Casamance Development Support Project) PAFS Plan d'Action Forestier du Sénégal (Senegal Forest Action Plan) PASEF Projet d'Appui au Service des Ecosystèmes Forestiers (Support to Forest Ecosystems Project) PCU Project Coordination Unit PDDF Plan Directeur de Développement Forestier (Forest Development Master Plan) PERACOD Electrification and Household Energy Supply Program PEFA Public Expenditure and Financial Accountability report PFM Public Financial Management PFS Politique Forestière du Sénégal (Senegal Forestry Policy) PGIES Program for Integrated Soil and Water Management PIU Project Implementation Unit PLDP Participatory Local Development Project PROGEDE I Projet de Gestion Durable et Participative des Energies Traditionnelles et de Substitution (Sustainable and Participatory Energy Management Project, IDA Credit No, 2963-SN, dated August 27, 1997) PROGERT Projet de Gestion Durable et de Restoration des Terres Dégradées du Bassin Arachidier (Sustainable Management and restoration of Degraded Land in the Peanut Basin Region Project) PRSP Poverty Reduction Strategy Paper QCBS Quality-and Cost-Based Selection RDA/ARD Rural Development Agency R&D Research & Development RFP Request for Proposal RRI Rapid Results Initiatives SBD Standard Bidding Document SFAP Senegal Forest Action Plan SFP Senegal Forestry Policy SIEF Système d'Information Ecologique Forestier et Pastorale (Forestry-based geographical information system) SIEP Système d'Information et d'Evaluation Permanent (Permanent energy- based evaluation and information system) SIL Sector Investment Loan SIP Sector Investment Program SPN Specific Procurement Notice SRD Senegal River Delta SS Sole Source SYSCOHADA Système Comptable des pays francophones de l'Afrique de l'Ouest et de l'Afrique Centrale (Accounting System used by francophone countries in iv Western and Central Africa) Teq Toxicity equivalent UNDP United Nations Development Program USAID United States AID WAEMU West African Economic and Monetary Union (UEMOA) WNP Wula Nafaa Project Vice President : Obiageli Katryn Ezekwesili Sector Director Inger Andersen Country Director : Habib M. Fetini Sector Manager: Subramaniam V. Iyer Task Team Leader: Awa Seck v SENEGAL Second Sustainable and participatory Energy Management Project (PROGEDE II) CONTENTS I. STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 A. Country and sector issues..................................................................................................... 1 B. Rationale for Bank Involvement .......................................................................................... 3 C. Higher Level Objectives to which the Project Contributes ................................................. 4 II. PROJECT DESCRIPTION .................................................................................................. 5 A. Lending instrument .............................................................................................................. 5 B. Project Development Objectives and Key Indicators .......................................................... 5 C. Project Components ............................................................................................................. 6 D. Lessons Learned Reflected in the Project Design................................................................ 9 E. Alternatives Considered and Reasons for Rejection .......................................................... 11 III. IMPLEMENTATION ......................................................................................................... 12 A. Partnership Arrangements .................................................................................................. 12 B. Institutional and Implementation Arrangements ............................................................... 12 C. Monitoring and Evaluation of Outcomes and Results ....................................................... 13 D. Sustainability...................................................................................................................... 13 E. Critical Risks and Possible Controversial Aspects ............................................................ 15 F. Loan and Credit Conditions, and Covenant ....................................................................... 19 IV. APPRAISAL SUMMARY .................................................................................................. 20 A. Economic and Financial Analyses ..................................................................................... 20 B. Technical ............................................................................................................................ 21 C. Fiduciary ............................................................................................................................ 21 D. Social.................................................................................................................................. 23 E. Environment ....................................................................................................................... 24 F. Safeguard Policies .............................................................................................................. 25 G. Policy Exceptions and Readiness....................................................................................... 27 Annex 1: Country and Sector or Program Background............................................................... 28 Annex 2: Major related projects financed by the Bank and/or other agencies ............................ 33 Annex 3: Results Framework and Monitoring ............................................................................ 37 Annex 4: Detailed Project Description ........................................................................................ 43 Annex 5: Project Costs ................................................................................................................ 58 Annex 6: Implementation Arrangements .................................................................................... 59 vi Annex 7: Financial Management and Disbursement Arrangements ........................................... 64 Annex 8: Procurement ................................................................................................................. 73 Annex 9: Economic and Financial Analysis ............................................................................... 84 Annex 10: Safeguard Policy Issues ............................................................................................. 90 Annex 11: Project Preparation and Supervision .......................................................................... 92 Annex 12: Documents in the Project File.................................................................................... 94 Annex 13: Statement of Loans and Credit .................................................................................. 95 Annex 14: Country at a Glance ................................................................................................... 97 Annex 15: Map (s) ....................................................................................................................... 99 IBRD No. 37861 vii SENEGAL SECOND SUSTAINABLE AND PARTICIPATORY ENERGY MANAGEMENT PROJECT (PROGEDE II) PROJECT APPRAISAL DOCUMENT AFRICA AFTEG Date: May 28, 2010 Team Leader: Awa Seck Country Director: Habib M. Fetini Sectors: Renewable energy (70 percent); Sector Manager/Director: Subramaniam V. Forestry (30 percent) Iyer Themes: Gender (50 percent) Other environment and natural resources management (50 percent) Project ID: P120629 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC: Joint Level: Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 15.00 Proposed terms: Standard IDA terms, maturity 40 years, including a grace period of 10 years Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 0.00 0.00 0.00 International Development Association 9.65 5.35 15.00 (IDA) Nordic Development Fund 0.00 4.37 4.37 Total: 9.65 9.72 19.37 Borrower: World Bank Corniche Ouest x David Dakar, Senegal Tel: 33 859 41 19 Fax: 33 859 42 83 Responsible Agency: Ministre de l'Environnement Direction des Eaux et Forets Dakar, Senegal Tel: 221 33 831 01 01 Fax: 221 33 832 04 26 viii Estimated disbursements (Bank FY/US$m) FY 2011 2012 2013 2014 2015 2016 Total Annual 5.79 3.32 2.44 1.37 1.06 1.02 15 Cumulative 5.79 9.11 11.55 12.92 13.98 15 Project implementation period: Start June 24, 2010 End: November 30, 2016 Expected effectiveness date: November 1, 2010 Expected closing date: November 30, 2016 Does the project depart from the CAS in content or other significant respects? []Yes [X] No Ref. PAD I.B. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. []Yes [X] No Have these been approved by Bank management? []Yes [] No Is approval for any policy exception sought from the Board? []Yes [X] No Does the project include any critical risks rated substantial or high? [X]Yes [] No Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [X]Yes [] No Ref. PAD IV.G. Project development objective Ref. PAD II.B., Technical Annex 3 The project development objective is to contribute to increase the availability of diversified household fuels in a sustainable and gender equitable way, and to contribute to increase the income of participating communities while preserving the forest ecosystems. This will be met by: (i) increasing wood-fuels production; (ii) increasing alternative household fuels for cooking purposes; (iii) reducing deforestation in target zones; (iv) reducing net CO2 emissions through the regeneration and protection of forests put under sustainable management; (v) increasing income of participating villages, and local communities, with special attention to women and youth, both from charcoal production and other income generating activities; (vi) completing the reform of the charcoal value chain; and (vii) improving the training, information, and participation of women in all economic activities and improving their participation in decision- making institutions and processes. Project description [one-sentence summary of each component] Ref. PAD II.C., Technical Annex 4 The project will have four major components: (i) Institutional Reforms of the Charcoal Value Chain; (ii) Sustainable Wood-fuels Supply Management; (iii) Promotion and Diversification of Modern Household Energy, and (iv) Institutional Arrangements for Project Management. Component I: The Institutional Reforms of the Charcoal Value Chain will address the political economy and equity issues (income and decision making) particularly in the (supplying) regions, and in the country as a whole. It will support central and decentralized government, local government, as well as communities for a full implementation of the reform. Component II: The Sustainable Wood fuels Supply Management will finance technical assistance, logistical support and equipment to central and decentralized forestry services, local collectivities, including Community-Based Organizations (CBOs) and Non Governmental Organizations (NGOs) involved in forest/natural resource management/biodiversity and environmental-social protection activities; and communities to carry out: Component III: The Promotion and Diversification of Modern Household Energy will ix finance technical assistance, logistical means and equipment for the Directorate of Petroleum Products and Household Energy (DPHE) and private entrepreneurs to support massive production and dissemination of improved stoves and alternative wood fuel. Component IV: The Institutional Arrangements for Project Implementation will support government institutions and community organizations to play their rightful role in scaling up the program; hence the consultants will play a more catalytic, supportive and advisory role. Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10 The following two safeguard policies are triggered by this project: OP 4.01 - Environmental Assessment OP 4.36 - Forestry. It has also been assigned the environmental category B due to the planned charcoal and wood fuel production activities afferent to some sub-projects in suggested regions. Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: None Effectiveness Conditions: (a) The Recipient has adopted the Project Manual of Procedures, which includes the Project Implementation Plan, in form and substance satisfactory to the Association. (b) The Recipient has recruited the following staff within the DWF (DWF): a head of operations, a financial management manager, an accountant, a procurement specialist and an executive assistant. Dated covenants: (a) The Recipient shall establish a technical steering committee by no later than 3 months after the Effective Date. (b) The Recipient shall by not later than 2 months after the Effective Date: (i) train BAGE staff on the Association's financial management procedures, (ii) recruit an internal auditor on a part-time basis within DWF; and (iii) upgrade the accounting software of PROGEDE I from mono-post to multi-post and network. (c) The Recipient shall by not later than 4 months after the Effective Date, recruit the external auditors. (d) The Recipient shall by not later than 2 months after the Effective Date recruit the following experts: three forest and biodiversity management experts, a household energy expert, an extension and communication expert, a monitoring and evaluation expert, an information system expert, an expert in capacity building and income generating activities, an expert in organization of local actors and gender, and an environmental, social and climate change expert. (e) Mid-Term Review 36 months after the Effective Date, which shall include an assessment of the transfer of knowledge from the consultants recruited for the Project to the staff of the Recipient x (f) The Recipient shall provide the necessary financing for any consultant recruited pursuant to the terms of the legal agreement for the first phases of Project implementation (other than the Head of Operations), that will have been determined to need to be maintained following the assessment performed during the Mid-Term Review. (g) The Annual Work Plan is due on November 15 of each year. xi I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues 1. Senegal is a Sahelian country located in the most western part of Africa with a national territory of 196,722 km2. Its landscape is mostly flat with an altitude of less than 50 meters in 75 percent of the country. Distinct rainfall patterns determine the vegetation, with bushy steppes in the north (250 mm/year) to closed forests in the south and southeast (over 1,000 mm/year). 2. In 2009, the population of Senegal was estimated at around 13.7 million, growing at an annual rate of 2.7 percent (Central Intelligence Agency-CIA, 2009). More than 41 percent of the population lives in urban areas. Since 2003, Senegal's economy has displayed robust growth at an average annual rate of around 4 percent. Even though agriculture contributes only about 12.5 percent to the national Growth Domestic Product (GDP) (2005-2009), 72 percent of the population is employed in the sector. 3. Deforestation, overgrazing, soil erosion, and desertification constitute Senegal's major environmental challenges. Between 1995 and 2005 Senegal had to bear an average annual deforestation rate of 0.5 percent (United Nations Development Program-UNDP, 2007), attributed to the excessive consumption of charcoal in urban areas, wood consumption in rural areas, and the increasing land-use for agriculture. Eighty-four percent of households still depend on wood- based fuels for their basic energy needs (mostly cooking): 26 percent rely on charcoal and 58 percent on firewood (Directorate of Petroleum Products and Household Energy-DPHE, 2007). Biomass continues to dominate national energy consumption patterns (58 percent), as compared to oil products (38 percent), and other energy sources (4 percent). The bulk of wood-based fuels is supplied from the southern and south-western zones (Kolda, Tambacounda), which account for around 80 percent of the country's standing stock. 4. A forest contains more above ground carbon per ha than any field of annual crops or pasture, therefore when forests are harvested, or worse, burned, large amounts of carbon are released from the vegetation and soil to the atmosphere. The net reduction in carbon stocks is not simply equal to the net CO2 flux from the cleared area. It is widely agreed that 30 percent of the carbon dioxide added to the atmosphere over the past 150 years has come from deforestation. The potential for mitigation through avoided-deforestation in Africa accounts for 29 percent of the global total. 5. Senegal's energy policy addresses environmental, economic, and social aspects with the key objective of improving access to modern energy, so as to release the excessive pressure on forests and meet people's basic energy needs (DPHE, 2007). To this end, Senegal started a Liquefied Petroleum Gas (LPG) dissemination program in the 1970s, which is widely regarded as a success story of inter-fuel substitution. Subsidies to this program, provided by the government over decades, were eliminated in June 2009 due to budget constraints. In 2008, LPG consumption was about 130,000 tons and accounted for less than 7 percent of total energy consumption. In Dakar, households predominantly use a mix of energy: 90 percent avail of LPG, whilst continuing to use charcoal (Dia et al., 2008). Other cities or secondary towns primarily use 1 charcoal and/or fuel wood. With the elimination of subsidies and the rise of the world market prices, there is a risk of the LPG market shrinking. 6. Senegal's forests belong to the State1. In the past, the DWF had the exclusive prerogative to assign commercial exploitation rights over forest resources nationwide. These rights were assigned mainly to urban-based traders, on the basis of an annually determined and centralized charcoal quota system. Over the years, this practice gave rise to an oligopolistic industry, economic and social inefficiencies, and negative environmental impacts. Income gained by local producers through charcoal production was estimated at about 7 percent of market gross revenues (Sène, 2008), the balance of 93 percent going to the other actors of the sector, particularly to charcoal traders. 7. Senegal's first strategy for forest resource conservation goes back to 1981 with the preparation of the Forest Development Master Plan (Plan Directeur de Développement Forestier-PDDF), which generated additional public investments in the forestry sub-sector. In 1993, given the global awareness and urgency for forest protection, the PDDF was revised in a participatory manner and became Senegal's Forest Action Plan (Plan d'Action Forestier du Sénégal-PAFS). In 2005, taking into account the transfer of environment and natural resources management to local governments stipulated by the 1996 Decentralization law, the PAFS was revised and became Senegal's Forestry Policy (Politique Forestière du Sénégal-PFS). Its main goal was to reinforce forest resource management decentralization and fight against rural poverty. Senegal's Forest Policy is based on the following guiding principles: (i) more responsibility given to local governments; (ii) community forest management; (iii) wealth creation and its equitable distribution; (iv) sustainability of interventions made; (v) eco- geographical zones approach; and (vi) gender approach promotion. 8. In February 2008, the Government elaborated a development policy letter for the household energy sub-sector, whose main objective is to meet urban and rural demand for household fuels in an environmental sound manner. Four strategic foci have been indentified: (i) sustainable wood fuels supply management through participatory community forest management, to be extended to regions other than Tambacounda and Kolda; (ii) demand management and inter-fuel substitution options through energy efficiency and use of efficient cooking stoves, diversification of energy sources, R&D on alternative energy sources and cooking appliances; (iii) improvement of the institutional and regulatory framework; and (iv) modern energy access in rural areas to contribute to the reduction of poverty. 9. Despite these decentralization efforts, and major achievements made by donor-supported projects, there is a need for a significant increase of local income deriving from the wood and charcoal supply chain from these areas. To this end, and following intensive consultation with donors, the government has taken three major steps: (i) the elimination of the charcoal quota system that favored whole sale traders, effective in 2010; (ii) the geographical restriction of charcoal production only in sustainably managed forests; (iii) the ongoing revision of the 1998 forestry code, in order to adapt tax regulations and provide higher returns to local communities. 1 Domaine national 2 10. Among others to empower women and focus on equity issues between men and women at all level, in 2008, Senegal adopted its National Strategy on Gender Equality and Equity2. The Strategy aims at (i) valuing women's social standing and strengthening their abilities; (ii) promoting women's economic empowerment in rural and urban areas; (iii) promoting women's and men's rights and obligations and strengthening women's participation in decision-making; and (iv) improving the impact of interventions related to gender equality and equity. B. Rationale for Bank Involvement 11. The Government of Senegal has requested support from the Bank to build on the highly successful first Sustainable and Participatory Energy Management Project (PROGEDE I), during which all outcome indicators exceeded their original targets. PROGEDE I had three main components: (i) the implementation and monitoring of 300,000 ha of environmentally sustainable community-managed forest resource systems in the Tambacounda and Kolda regions of Senegal, and the creation of a protection zone around the Niokolo-Koba National Park (Biosphere Reserve); (ii) the promotion of private sector inter-fuel substitution and private sector and Non Governmental Organization (NGO) - based improved stoves initiatives; and (iii) the strengthening of the institutions involved in the management of the sector, and the promotion of the participation of the civil society (private sector, academic institutions, and NGO community) in the operation of the sector. 12. PROGEDE II has been designed to tackle the following remaining challenges: (i) the exclusivity detained by charcoal traders to produce charcoal; (ii) not suitable legislative and regulatory texts for a full involvement of local actors in charcoal commercialization in urban markets; (iii) the limited revenues of local communities and local government derived from charcoal production and distribution; (iv) the risks linked to the potential decrease in some charcoal traders' revenues; (v) the degradation of forest resources due to non sustainable charcoal production; (vi) the progressive loss of biodiversity including in the surroundings of the Niokolo Koba Park; (vii) the inefficient use of cooking fuels; (viii) the strong dependence of households on wood fuels which leads to environmental degradation; and (ix) the lack of reliable data on which optimal and rational decision-making can be based. 13. Previous substantial investments in forestry management in the 1980s and 1990s did not succeed in producing any sustainable results. PROGEDE I was the first to count on the active participation of the local communities and has become a model for similar interventions within the sub-sector. The highly successful implementation rating of PROGEDE I has led the Bank to support the proposed new project PROGEDE II. 14. Given that Senegal will continue to rely on forest-based traditional fuels to meet its household energy demand for years to come, and that the large price increases in petroleum imports experienced during the 2000-2008 crisis cannot be sustained, PROGEDE II has been designed to: (i) scale up key elements of sustainable forestry management; (ii) institutionalize the sustainable, participatory community-based forest management model under the responsibility of central government institutions and their decentralized offices, regional development agents, and 2 Strategie Nationale pour l'Egalite et l'Equite de Genre (SNEEG) 3 other actors intervening in the sub-sector; and (iii) focus on policy issues, while pursuing sustainable wood fuels supply management activities and household energy inter-fuel substitution options. It also aims at making the charcoal industry more economically and socially efficient and equitable. 15. The IDA allocation for PROGEDE II of US$ 15 million is fully consistent with the Country Assistance Strategy (CAS), the Poverty Reduction Strategy Paper (PRSP), the Senegal forestry policy, the recent Energy Sector Development Policy Letter, and the Decentralization law and the Forestry code. A modular approach to project financing is being pursued. For example, the project will include parallel financing from the Nordic Development Fund (the NDF's Board of Directors approved on March 9, 2010 that PROGEDE II will be included in NDF's pipeline of projects currently eligible for NDF grant). Financing under the Spanish Debt Swap Program for Africa may also become available in the near future to finance capital investment up to US$1 million. The Bank also collaborates closely with a number of bilateral partners who are intervening in the sub-sector. Currently, USAID is funding 80,000 ha of participatory forest management using the PROGEDE model. UNDP-GEF is funding a biodiversity management project. Canada is financing a project on participatory forest management by female entrepreneurs. Germany is financing a project on household energy and rural electrification. 16. The NDF expected parallel financing to PROGEDE II is US $ 4.37 million (3 million Euros equivalent). This parallel financing is in line with NDF's new mandate to support projects contributing to climate and development objectives. Under this mandate, the NDF focuses on three areas: (i) Infrastructure and Energy, including energy efficiency, renewable energy and access to energy, (ii) Natural Resources Management including sustainable land use and forestry, and (iii) Climate Change Related Capacity Building, including enhancing of awareness and strengthening of the knowledge base. PROGEDE II comprises activities under each of these focal areas. C. Higher Level Objectives to which the Project Contributes 17. PROGEDE II is in line with the Household Energy Sub-sector Development Policy Letter (HESDP), which is a synergy between the Environment Development Policy Letter (EnDPL) of the Minister of Environment and the Energy Development Policy Letter of the Ministry of Energy (ESDP). This operation complements IDA assistance to other energy subsectors, such as the Development Policy Operation, the Electricity Service for Rural Areas Project and the Electricity Efficiency Enhancement Project. 18. The project will contribute to the poverty reduction agenda of the PRSP, particularly to strategy 1 (wealth creation), through job creation in rural areas, redistribution of revenues from the charcoal value chain to local communities and valorization of agricultural residues for household fuels production and the increase in the income of artisans producing improved stoves; strategy 2 (promotion of basic social services), through the development of natural endowment and habitat; and strategy 4 (good governance and participatory local development), through the decentralization of the management of forest resources. The project will also 4 contribute to the Millennium Development Goals (MDG) in terms of sustainable development and gender equality, in particular to MDG 3 on women's economic empowerment. 19. Through the proposed field investments and activities, PROGEDE II will contribute to making the development of the national forestry sector climate-resilient; thus contributing to the implementation of pillars 1 and 2 of the World Bank Climate Change strategy for Sub Saharan Africa. PROGEDE II will also contribute to the Bank's Gender Action Plan (2006-2010) which is focused on women's economic empowerment through access to land, finance, product, and labor markets. It will also meet the requirements that gender be reported in the IDA 16 monitoring indicators. Integrating gender in the Bank's energy activities is one way to ensure that client countries capitalize on one hundred percent of their human resources, i.e. on both women and men, and that its development interventions in sustainable energy yield the highest possible social and economic returns. II. PROJECT DESCRIPTION A. Lending instrument 20. The proposed lending instrument would be a Sector Investment Loan (SIL) with IDA funding of US$15 million. A SIL is the most appropriate instrument to provide financing for the investments, training, advisory services, technical assistance, equipment, materials, and activities identified to meet the project objectives. A SIL will enable the government to pursue the ongoing reform agenda, build-up on missed opportunities and achievements made on the previous project (PROGEDE I), and scale-up progressively taking over full responsibility for program activities. B. Project Development Objectives and Key Indicators 21. The project development objective is to contribute to increase the availability of diversified household fuels in a sustainable and gender equitable way, and to contribute to increase the income of participating communities while preserving the forest ecosystems. 22. By achieving these objectives, the project will contribute to mitigate climate change issues in forestry areas in Senegal, and promote gender equity. 23. A detailed list of indicators can be found in Annex 3, but the key outcome indicators are as follows: (i) increased sustainable wood fuels production; (ii) increased alternative household fuels; (iii) reduced deforestation in target zones; (iv) reduced net CO2 emissions; and (v) increased income of participating communities, with special attention to women. 24. Through its proposed objective, PROGEDE II aims to keep forests healthy and maintain their biodiversity and the environmental services they provide, including carbon storage for climate change mitigation. In the long-term, the project activities will help to maintain or increase above and below ground forest carbon stocks, while producing an annual sustained yield of timber, fiber, energy, and other non-fibrous forest products. PROGEDE II also aims to generate income increases and welfare improvements for the population in the target zones. The 5 projects beneficiaries are: local communities, charcoal traders, household in targeted zones, local governments, private operators and artisans producing improved stoves. C. Project Components 25. The project will have four major components: (i) Institutional Reforms of the Charcoal Value Chain; (ii) Sustainable Wood-fuels Supply Management; (iii) Promotion and Diversification of Modern Household Energy, and (iv) Institutional arrangements for Project Management. Component I: Institutional Reforms of the Charcoal Value Chain (IDA: US$ 1.46 million) This component has three subcomponents: Subcomponent 1.1.: Support to the setting up of a system of allocation of charcoal production concessions (IDA: US$ 0.30 million) This subcomponent will finance: (i) the organization of workshops on reforms of the forestry code and forestry taxes; (ii) the implementation of an information and education campaign on climate change, the forestry sector and charcoal production concessions; (iii) the printing, and dissemination and translation of the forestry code in two main local languages of the project area of intervention; (iv) the carrying out of studies on wood fuels and the charcoal market; (v) the carrying out of studies to assess the capacity of local charcoal producers to access urban markets; and (vi) the training of women and men involved in the charcoal value chain in small business management. Subcomponent 1.2.: Facilitate access to urban markets of local charcoal producers (IDA: US$ 0.72 million) This subcomponent will finance: (i) the rehabilitation of forest trails to facilitate access to charcoal production sites; and (ii) the purchase of trucks for each of the regions of Tambacounda and Kolda for the commercialization for urban market of locally-produced charcoal. Subcomponent 1.3.: Diversification of income of charcoal traders (IDA: US$ 0.44 million) This subcomponent will finance: (i) the implementation of a sensitization campaign on the reform of the charcoal value chain; (ii) the carrying out of a program of business skills training for charcoal traders; (iii) the carrying out of feasibility studies of sub-projects submitted by charcoal traders and a feasibility study on the establishment of energy efficient charcoal processing units; and (iv) the provision of Sub-grants to eligible charcoal traders for eligible sub- projects that contribute to the household energy subsector development or for the establishment of energy efficient charcoal processing units. Component II: The Sustainable Wood Fuels Supply Management (IDA: US$ 8.74 million, NDF: 2.03 million) This component has three subcomponents: 6 Sub-component 2.1.: Sustainable community forests management (IDA: US$ 7.3 million, NDF: 2.03 million). 26. NDF will finance: opening and maintenance of firebreaks in new and old zones, nurseries materials, tree planting, a restoration of degraded land, training in sustainable charcoal production, in fire fighting techniques, exchange visits, firefighting equipment. 27. This subcomponent will finance: (i) the integrated and participative community forest resources management, through the opening and maintenance of firebreaks around old (450,000 ha) and new forest zones (425,000 ha), the establishment of tree nurseries, tree plantings, the training of local actors on forest resource management, climate change issues, gender sensitive aspects and the facilitation of transportation means; (ii) strengthening of local governments' technical capacities on the reform of charcoal value chain and awareness raising on linkages between forestry and climate change, with special attention given to vulnerable groups including women and youth, to enable them to participate in decision making; (iii) institutionalization of forestry based geographical information system in the DWF, in its decentralized offices and in the regional development agencies; (iv) hiring consultants/experts to strengthen capacities and support the implementation of the sustainable wood fuels supply component as well as the monitoring and verification of environment, social and climate change, impacts of the project activities; and (v) strengthening the DWF's capacities through the provision of logistical support and training. Sub-component 2.2.: Consolidation and establishment of biodiversity community reserves (IDA: US$ 0.48 million). 28. This subcomponent will finance: (i) the elaboration of forests and pastoral inventories of existing community biodiversity reserves; (ii) the repair of two ponds and trails; (iii) the restoration of natural habitats around the Niokolo Koba park; and (iv) the reintroduction of threatened forest species and the restoration of degraded lands in existing community reserves. All these activities will contribute to increase carbone sequestration in these areas. Sub-component 2.3.: Promotion of eco-friendly agro-forestry income-generation activities (IDA: US$ 0.96 million) 29. This subcomponent will finance materials and equipment for activities benefitting women, men, and youth: (i) inputs, wells/tanks, fencing, nursery material for gardening and orchards and local production of bio-fuels; (ii) bee keeping, aviculture, and honey production; and (iii) training and inter-community visits for community based organizations. Component III: Promotion and Diversification of Modern Household Energy (IDA: US $1.26 million; NDF: US$ 1.92 million) This component has three subcomponents: 7 Sub-component 3.1.: Sensitization and Promotion of efficient cooking equipment and sustainable biomass energy (IDA: 0.03 million, NDF: US$ 1.92 million) 30. Except for the costs related to travel for sensitization, communication, and promotion of efficient stoves covered by IDA, this sub-component is financed through grant by NDF. It will finance: (i) the promotion of production of improved stove manufacturing and charcoal briquettes through the provision of sub-grants to eligible producers and the training of local artisans on improved stove dissemination; (ii) the carrying out of a national social marketing campaign to raise awareness on advantages of improved stoves; (iii) the provision of technical assistance to national associations of stove artisans to improve production techniques and material quality; and (iv) the provision of technical assistance to the Recipient to facilitate market conditions for international high quality stove producers. Sub-component 3.2.: Planning of the Demand Management for cooking fuels (IDA: US$ 0.78 million 31. This subcomponent will finance: (i) the elaboration of wood fuel supply master plans for four main urban centers; (ii) the update and development of existing information systems; (iii) the carrying out of a national survey on household energy consumption and equipment; (iv) the carrying out of two seasonal studies on wood fuels supply; (v) the carrying out of a gender- sensitive survey on household fuel prices; (vi) the provision of support to DPHE to monitor gas volumes in LPG bottles; and (vii) the elaboration and dissemination of the household fuels observatory bulletin produced by DPHE. Sub-component 3.3.: Institutional strengthening of DPHE (IDA: US$ 0.45 million) through the provision of technical assistance and the carrying out of a training program for civil servants involved in the implementation of the project, on household energy related topics. Component IV: Institutional arrangement for project implementation (IDA: US$ 2.04 million) 32. The project will be under the administrative supervision of the Ministry of Environment. A steering committee headed by the Director of the DPHE will supervise the project implementation. The DWF will play the secretariat role. Other members will include representatives from the Ministry of Finance, the Directorate of local collectivities, members of the civil society, the private sector, and local leaders. 33. The DWF will be the implementing agency and its Director will be the project administrator. To build the required capacity within the ministry, the institutionalization will be conducted in two phases: (i) Consolidation (3 years). During this phase, under the supervision of the Director of Water and Forestry, a consultant/expert will be hired to conduct the technical coordination and financial management of the project. A fiduciary team (principal accountant, accountant, procurement specialist) will be hired and located at the DWF to provide technical assistance to their peers. Consultants/technical experts will be hired under performance contract to provide 8 support at the national, regional, and local level. One of their mandates will be to transfer knowledge to government staff, local leaders to enable them to take over project implementation in the second phase. Government staff performance will be assessed to ensure their ownership; (ii) Ownership building (2 years). Based on assessment of knowledge transfer to civil servants of the Borrower, during this phase, most positions previously held by the consultants will be held by ministry staff. Both Ministers of Environment and Energy agreed on a six-month project implementation progress review meeting with the participation of the World Bank. These reviews will be combined with an assessment at the end of the year 2 and year 3 to make adjustments as needed (for more details see Annex 6 on Implementation Arrangements). 34. The institutionalization phase will be facilitated by this Rapid Results Institute (RRI) that has extensive experience building capacity of government to successfully implement program. This component will finance the coordination, monitoring and evaluation of the project: (i) the salaries of the consultants/experts; (ii) logistical support; (iii) training in financial management, monitoring and evaluation, and procurement; (iv) annual audits and update of the financial management system; (v) workshops/seminars; (vi) the salaries of support staff; and (vii) and other recurrent costs. 35. All transportations facilities that will be supported by this project will be encouraged to use locally produced bio-fuels. D. Lessons Learned Reflected in the Project Design 36. Significant lessons were learned from the PROGEDE I implementation, in terms of forest and natural resource management at various levels, charcoal trade, household fuel demand management, gender equality, and institutional development. These are summarized below: (i) Involvement and commitment from the population and their respective local government is crucial. The establishment of environmentally and socially sustainable wood fuel and charcoal supply systems can only be achieved by introducing a fully integrated community-based forestry and natural resource management. Household fuels diversification success is subject more and more to real market prices. The next steps to be tackled in PROGEDE II are (a) to increase the share of the wood and charcoal value chain to local producers, while preserving good local governance; and (b) integrating all economic activities in sustainable forest management system, with equal opportunity given to women and men to engage in these activities. (ii) The PROGEDE's model of sustainable community-based and participatory forest management needs to be scaled to the entire country. Out of 70,000 tons of charcoal produced in 2009 at the forests put under sustainable management, 80 percent come from PROGEDE zones, and 20 percent from a USAID project. Both interventions are in the regions of Tambacounda and Kolda. (iii) For the model to be fully sustainable, it will be necessary to end unmanaged production of wood fuels in the country. The partial implementation of taxes on sustainably-produced charcoal 9 and on the unsustainably-produced one limits the competitiveness of sustainable forest management. For this reason, the government has agreed to complete the sub-sector reform by: (a) eliminating the charcoal quota system which allowed unsustainable charcoal production by speculators; and (b) conducting charcoal production exclusively in sustainably-managed forests. (iv) The institutionalization of the forestry-based Geographical Information System (GIS), which enables the elaboration of computerized forest management plans and the household energy data base system, has to be implemented by the DWF both at the central and decentralized levels, the regional development agencies, technical advisors of the local Government and the DPHE. (v) PROGEDE's model of sustainable community-based and participatory forest management, based on an eight year rotation starting in 2005, needs to be completed. The forest management plans are based on hypotheses that need to be verified, in order to specifically fine tune the model of sustainable forest management put in place. (vi) Supply-side management is essential. Traditional energy sector stabilization essentially depends on the implementation of comprehensive changes in the wood fuels supply systems and chains. While demand management interventions are important and need to be pursued ­ especially, dissemination of improved end-use technologies and practices­, they alone simply cannot resolve the existing problems. A credit scheme was put in place with a financial institution to give artisans access to loans for the manufacturing of improved stoves. However, standard microcredit conditions with high interest rates and collaterals could not be met by artisans; the credit was not used by local artisans as initially anticipated and is currently stopped. It has also been demonstrated that the price for the improved stove which is the most known in Senegal (Diambar) is relatively high for poor urban households. With regards to this, massive production would enable private entities to reduce price while making profits. (vii) Ownership at the Government institutions level is key. (viii) Last year irregularities have been raised in the charcoal value chain in some of the intervention zones of PROGEDE. Specific studies are planned to improve local governance, and more forest control actions were taken into account in the proposed project. (ix) The monopoly of charcoal traders is being broken progressively since the establishment of PROGEDE's sustainable community based forest management systems. The following developments have contributed to this break up: (a) communities are now producing charcoal and some of them discovered the huge profit potential when selling it in urban markets; (b) PROGEDE has established a system where a wood cutting license is only delivered by the Forestry service based on a notification issued by inter-village committees demonstrating that charcoal is already produced and is on the site; (c) the communities and the local collectivities will no longer let themselves be deprived of the income and other benefits they are getting through sustainable forest management systems being put in place; and (d) the collapse of the charcoal traders association where real traders will benefit from the reform of the charcoal value chain compared to the non relevant traders who will disappear over a long run. The proposed operation will support charcoal traders through business skills training, the setting up of a system of allocation of charcoal production concessions (adjudication), and income diversification, etc. 10 (x) Gender is a crucial issue in poverty alleviation work. Women play a specially critical and multifaceted role in the African societies. Yet, they are frequently sidelined in terms of investments, capacity development opportunities, and representation. PROGEDE made an explicit and concerted effort to identify specific activities and investments (targeted capacity development in organization and activity management, establishment of rural vegetable gardens, construction of water wells, animal husbandry, honey production, etc.) which benefited women. These resulted in significant and tangible poverty alleviation impacts, especially in terms of the health, nutrition and education of the beneficiary population. However, the representation of women in decision-making village committees continues to be very weak, and they were largely excluded from the fuel-wool and charcoal value chain. The wood-fuel needs of rural households were not systematically taken into account in the forestry management plans. Thus, PROGEDE constitutes an operational demonstration that, it is crucial to consider: (a) equitable access of women and men to planning and decision-making committees and processes; and (b) equal access of women and men to all economic activities supported by the project, be they the wood and charcoal supply chain, the vegetable gardens, cropping, or animal husbandry activities. This approach will give both women and men the opportunity to choose in which economic activity they want to engage as well as equal access to project benefits. The approach will also ensure that women and men may equally contribute to the success of project interventions. The gender dimension has therefore been integrated in the project objectives and in all the PROGEDE II axes and components. (xi) PROGEDE's evaluation highlighted the fact that this project has contributed to the reduction of CO2 emission through improved stoves, forest management and charcoal production systems. This will be scaled up in PROGEDE II, also with a view to attracting new carbon financings E. Alternatives Considered and Reasons for Rejection 37. The status-quo alternative on wood-fuels management was ruled out as it would result in the disruption of wood-fuels supplies and on severe social and environmental consequences. The Government of Senegal lacks the financial means to set-up large scale government-run forest resource/stock management systems. The private sector has little or no incentive at all to invest in the sustainable management of wood fuel supply systems, as the time horizon for return on investment is too long, the risks are too high and the possible profit margins are way too small. Hence, promoting operationally proven community-based sustainable forest/wood-fuels supply systems was the retained project option. 38. Concerning household energy demand management the Government initiated an LPG program since 1974. This program has been cited as a success story, but due to the elimination of subsidies, the low income level of the majority of consumers, and the high petroleum fuels prices, inter-fuel substitution based solely on petroleum fuels was rejected to promote biofuels. 11 III. IMPLEMENTATION A. Partnership Arrangements 39. The NDF will provide parallel financing of US$4.37 million (Euros 3 million equivalent) for specifics activities related to climate change. The World Bank is coordinating its work with other donors in the sub-sector: (i) the Rural Electrification and Household Energy Supply Program or PERACOD is supported by Gesellschaft fur Technische Zusammenarbeit (GTZ) to implement forest management activities in the Peanut Basin and the Casamance Regions; (ii) The Wula Nafaa project (WN) is a major Agriculture and Natural Resources Management Program (AG/NRM), currently being carried out with the support of USAID; (iii) GEF is funding a biodiversity management project, and Canada is financing participatory forest management for female entrepreneurs. All these projects have integrated decentralization processes in their approaches ­strong collaboration is fostered within these projects to tackle issues in the sub-sector. Financing under the Spanish Debt Swap Program for Africa may also become available in the near future to finance capital investment up to US$1 million. B. Institutional and Implementation Arrangements 40. The project will be managed by the Ministry of Environment, the DWF will be the implementing agency and the Director of the DWF will be the project administrator. In order to build the required capacity within the ministry, the institutionalization will be conducted in two phases: (i) Consolidation (3 years); during this phase, under the supervision of the Director of Water and Forestry, a consultant/expert will be hired to conduct the technical coordination and financial management of the project. A fiduciary team (principal accountant, accountant, procurement specialist) will be hired and located at the DWF to provide technical assistance to their peers. Technical experts will also be hired under performance contract to provide support at the national, regional, and local level. One of their mandates will also be to transfer knowledge to government staff, local leaders to enable them to take over project implementation in the second phase. Government staff performance will also be assessed to ensure their ownership; and (ii) Ownership building (2 years): based on assessment of knowledge transfer to civil servants of the Borrower, during this phase, most positions previously held by the consultants will be held by ministry staff. Both Ministers of Environment and Energy agreed on a six-month project implementation progress review meeting with the participation of the World Bank. These reviews will be combined with an assessment at the end of the year 2 and the year 3 to make adjustments as needed. (See Annex 6 on Implementation Arrangements). 41. With regards to implementation, the sustainable wood fuel supply will be under the direct supervision of the DWF and its decentralized services and activities (related to the promotion and diversification of alternative energy sources) will be supervised by the DPHE. Overall project implementation will be supervised by a steering committee composed by representatives from the ministries of Environment, Energy and Finance, the local government, civil society, and the private sector. Government agencies, namely, the DWF and DPHE will work closely with local governments and community organizations, including the Village Management and Development Committees (CVGD) and the Inter-Village Management and Development Committees (CIVGD). A special effort will be made to increase the active participation of women in the CVGD and CIVGD, with a target of at least 2/5 of members to be women at the 12 beginning of PROGEDE II to reach 50/50 women and men by the end of the project. A manual of procedures will be prepared to take into account the new implementation arrangements. It will include inter alia the criteria of eligibility for both male and female candidates to the positions of President, Treasurer and Members of the Executive Bureaus of the CVGD and CIVGD, the consultation process between Local Governments, the Directorates and local communities, and the use of proceeds from wood and charcoal trade. 42. Even though the NDF funding will be under the overall implementation arrangement of the project, it finances specific activities. Under component II, the NDF will finance: opening and maintenance of firebreaks in new and old zones, nurseries materials, tree planting, a restoration of degraded land, training in sustainable charcoal production, in fire fighting techniques, exchange visits, and firefighting equipment. The NDF will also finance the subcomponent 3.1. on sensitization, and promotion of efficient cooking equipments and sustainable biomass energy, except for the costs related to travel for sensitization, communication, and promotion of efficient stoves, covered by IDA. 43. In accordance with World Bank guidelines (para 1.5), For the procurement of those contracts for goods and works not financed from a Bank loan, the Borrower may adopt other procedures. In such cases the Bank shall be satisfied that the procedures to be used will fulfill the Borrower's obligations to cause the project to be carried out diligently and efficiently, and that the goods and works to be procured: (a) are of satisfactory quality and are compatible with the balance of the project; (b) will be delivered or completed in timely fashion; and (c) are priced so as not to affect adversely the economic and financial viability of the project." C. Monitoring and Evaluation of Outcomes and Results 44. The project will build on earlier efforts and experience and seek to institutionalize the Monitoring and Evaluation (M&E) system within both Ministries. This is already the case with the forestry-based GIS system, which is housed in the Ministry of Environment, DWF. Within the DPHE, a permanent information and evaluation system (SIEP) has been developed but needs to be consolidated. The Project will seek to link both systems for better coordination and monitoring of the wood supply and demand management. 45. The M&E system will be based on the agreed Results Framework and monitoring arrangements (see Annex 3). The DWF and DPHE will be responsible for conducting M&E activities. Baseline data collection for the agreed upon indicators will be initiated by the DWF and DPHE in partnership and collaboration with the technical ministries during project start up. The implementing agencies will be responsible for the data collection and reporting of their respective activities. The beneficiaries' associations will participate in the data collection at their point of operation in collaboration with the DWF (See details in Annex 3). D. Sustainability 46. The first operation (PROGEDE I) was rated as Highly Satisfactory. The long-term sustainability of the project's development objectives and outcomes depends on two main 13 factors: (i) the beneficiaries' commitment to maintain the project achievements; and (ii) the Government's commitment to extend sustainable forest resource management to the rest of the country. Specific activities and monitoring systems have been included in the project design, in order to address all these issues. 47. Presently, villages are covering some costs related to forest management: salary of 10 local extension workers or six months for about US$6,700; preparatory costs for the 2010 charcoal production campaign; and other recurrent costs. Two regional umbrella organizations for the two regions of Tambacounda and Kolda and a national one were put in place in 2009. These actions are geared towards sustainability but also to face the charcoal traders. A study is planned under the project to better assess the capacity of the communities, and local governments to cover costs related to forest resources management and to attract new carbon funding. Based on the results of the study, a suitable management plan will be developed. 14 E. Critical Risks and Possible Controversial Aspects Risk factors Description of risk Rating of Mitigation measures Rating of risk residual risk I. Country and/or Sub-National Level Risks Macroeconomic Background: Senegal is a member of a regional currency union, with monetary and exchange rate policies under the regional BCEAO (central bank of Framework West African states). The regional currency (CFA franc) is pegged to the euro. In this context, inflation and fiscal monetization risks are low. Foreign reserves of fellow union members are pooled at the BCEAO. Fiscal policy is thus the main macroeconomic policy instrument under the direct control of national authorities.. Risks of budget slippage are moderate. The volatility of Moderate The authorities have adopted corrective fiscal actions since Low donor support is not considered a significant risk. end-2008, including the settlement of domestic arrears incurred in 2008. Going forward, the authorities' medium- Debt indicators are low, but a prudent stance remains in term fiscal targets aim at keeping the overall (debt-creating) order. Senegal has exited from the enhanced HIPC fiscal deficit below 4 percent of GDP per year, consistent Initiative with a good basis for maintaining sustainable with the maintenance of debt sustainability. A broad agenda external debt levels over the medium term, especially if of fiscal structural measures, focusing on budget systems borrowing remains at concessional terms. and controls and accountability, should support improvements in fiscal policy and expenditure management. The authorities' external borrowing policy is to rely on concessional support, with recourse to non-concessional borrowing only on an exceptional basis. The government has developed an agenda to improve debt management and the design of its debt management strategy. The economy remains vulnerable to shocks: Moderate The positive growth outlook for Senegal and its strong Moderate fiscal position, with low debt ratios, should help the country - As the global economic slowdown is waning, its to absorb unexpected economic shocks. lingering impact on Senegal should prove moderate over the next 18 months, but this will hinge on the The Government is putting together a set of policy reforms depth and duration of the global crisis. to improve the business environment, diversify and strengthen exports, and improve infrastructure and the - Over the longer term, the lack of diversification of the energy sector. economy creates a potential risk. Expansion has been concentrated in services, such as telecommunications, The CAS places emphasis on (i) accelerated growth/wealth 15 and construction of large infrastructure projects, such creation in order to promote a competitive business climate, as roads, while the agricultural sector has performed build infrastructure for growth, facilitate access to finance, poorly. promote a diversified agricultural sector, and develop skilled labor; (ii) increased access to social services and the - Another risk if the country's weak external creation of opportunities for poor and vulnerable groups; competitiveness in light of the continued sluggishness and (iii) rural and urban synergies. of its exports. Country Engagement Overall IDA portfolio management is satisfactory. Moderate A number of factors have helped maintain portfolio Low With World Bank performance, including (i) regular dialogue with stakeholders, (ii) regular monitoring of projects through portfolio reviews (quarterly mini-CPPRs and annual results- based CPPRs), (iii) AAA to underpin lending program, and (iv) decentralization of Bank staff to Dakar Office. Country Weak There remain issues of limited administrative capacity in Moderate Capacity building issues are built in the design of projects Moderate capacity for program some areas in Senegal, with shortages of skills and risks of and interventions. implementation slow program implementation. This risk is highest at the sectoral level and in local Governments. Country Governance Substantial With regard to public finances, although the preparation of Moderate The political climate for economic reforms in the next few years is likely to become markedly more complex, with the the budget and its approval by the Parliament come under upcoming presidential elections in 2012. In this context, scrutiny in Senegal (the budget is published on the ambivalence toward developmentally important but Government's website), ex-post controls by the judiciary politically difficult reforms, and pressures on the public and the legislative power are weak. A PFM reform action finances are all likely to be part of the political economy of plan was adopted in late 2009 to address a broad array of economic management over the next two years. issues in these areas. Country Inherent Risks Public Financial Management System. Risks remain in Moderate It is not expected that these country issues will impact the Low terms of quality and timeliness of in-year budget reports proposed project which will be coordinated by an and annual financial statements and effectiveness of implementing agency with the support of a fiduciary team external audit and legislative scrutiny of the annual budget and Head of Operations. The project will be under the law. supervision of a steering committee. Country Political Risks Senegal is vulnerable to regional instability. In Substantial The authorities are consolidating their strategy toward local Moderate Casamance, with a minority of rebel groups still not communities and providing direct support to key sectors signatory to the peace accord, military action picked up in such as education, health, and governance. March April 2006. 16 II. Sector Governance, Policies and Institutions Reform of the charcoal value Upon results of consultation with donors, the Government Moderate A workshop brought all key players together and they Low chain passed a ministerial order eliminating charcoal production agreed to an action plan to: (i) help traders diversify their quotas. The system allowed purchasers of these quotas income sources, and (ii) closer monitoring of production in by non producers, who then sold them to traders. The managed and non managed forests, and a stronger system allows producers in managed forests to determine communications strategy. how much they will produce on their own and how much to contract with traders and as a result, the trader's revenue is likely to decrease. The other risk is that traders might seek to exploit non-managed forests to compensate for lost income. III. Operation-specific Risks Small producers in managed A key outcome of the project is to reform the charcoal Moderate Certain inter-village committees went to Dakar and Moderate zones don't increase value chain and break up the oligopolistic role of discovered huge profit potential in selling directly to substantially share of middlemen and increase share of small producers. Risk is consumers. The project will provide technical and financial revenue from value chain. that small producers might not have the management support to help local producers enter urban markets capacity, knowledge and financing to undertake the progressively. The feasibility of establishing charcoal packaging, marketing, distribution and transport necessary processing units will be assessed. to that. Implementation Capacity In first Phase project was jointly managed by the Ministry Substantial Ministry of Energy has been given chair of supervisory Moderate of Energy and the Ministry of Environment. This phase, committee, to involve them more fully in all decisions. the Ministry of Environment will have primary responsibility and the PIU is ultimately being phased out Management consultants are being recruited to support a to build capacity within the Ministry. Risk is that Ministry strategy for phasing out the PIU and get full buy in from all of Energy might feel excluded and block important players. decision. Second, the transfer of competencies might not happen if the PIU staff don't see what's in it for them. Increase the motivation of State agents involved in the Finally, the unequal pay between PIU consultants and civil implementation of the project through capacity servants might reduce incentive to perform. strengthening. Complexity and Possible delay in project implementation in new areas Low This is Phase II of a highly satisfactory project and it is Low Understanding about scaling up successful model of sustainable management. Income generation and other project benefits have been heard by neighboring regions and they are eager to participate in project implementation 17 Financial Management The DWF will be the implementing agency, however its Moderate In order to build the required capacity within the directorate, Moderate FM unit called Bureau de l'Administration Générale et de some experts will be hired for providing financial l'Equipement (BAGE) is not yet experienced in managing management assistance for the first three years called Bank financed projects. anchor phase. And, also, transfer them knowledge to the BAGE of the DWF to enable them to take over project implementation in the second phase called ownership phase. Procurement Most of the issues/ risks concerning the procurement Substantial The corrective measures are: (i) elaborate an administrative Moderate component for implementation of the Project have been and financial procedures manual and a project identified and include: (i) The DWF has not yet developed implementation manual; (ii) recruit an archivist for a short an Administrative Manual; (ii) Equipment for filing term contract to help DWF to organize the archives then to procurement files or any other administrative records does transfer and file PROGEDE's documents; (iii) train all not exist although the team benefit from training on DWF' project team in World Bank basic procurement archive and is ready to use the ARMP's manual of archive; procedures; and (iv) to recruit a procurement specialist for a and (iii) the DWF is not familiar with Bank's procurement permanent position during the first three years of the Project procedures and has insufficient experience in managing implementation (anchor phase). directly a project although they are managing other project's support. Social and Environmental The proposed project would benefit from environmental Substantial The borrower has prepared both (i) an Environmental and Moderate Safeguards. and social management capacity established under Social Impact Assessment (ESIA) of phase 1; and (ii) an PROGEDE I at the local and regional levels. However, Environmental and Social Management Framework there is a need to further strengthen this capacity to ensure (ESMF). As part of the ESMF report, issues of forestry and that, like the previous ones, the planned investments do not natural habitats have been taken into consideration, and the have adverse social and environmental impacts. proposed social and environmental screening forms and tangible mitigation measures have been proposed to adequately address any potential risk. To do so, the Borrower hired qualified Consultants who took into account experience gained under PROGEDE I and provided relevant recommendations for further strengthening both environmental and social management capacity of both the implementing agency (national and regional levels) and the beneficiary communities under the proposed project. IV. Overall Risk (including Reputational Risks) Overall Risk This is a moderate risk project. Moderate Memo items: a Rating of risks on a four-point scale ­ High, Substantial, Moderate, Low ­ according to the likelihood of occurrence and magnitude of potential adverse impact. 18 F. Loan and Credit Conditions, and Covenant 48. Effectiveness Conditions: (a) The Recipient has adopted the Project Manual of Procedures, which includes the Project Implementation Plan, in form and substance satisfactory to the Association. (b) The Recipient has recruited the following staff within the DWF: a head of operations, a financial management manager, an accountant, a procurement specialist and an executive assistant. 49. Conditions of disbursement There are no conditions of disbursement. 50. Dated covenants (a) The Recipient shall establish a technical steering committee by no later than 3 months after the Effective Date. (b) The Recipient shall by not later than 2 months after the Effective Date: (i) train BAGE staff on the Association's financial management procedures, (ii) recruit an internal auditor on a part-time basis within DWF; and (iii) upgrade the accounting software of PROGEDE I from mono-post to multi-post and network. (c) The Recipient shall by not later than 4 months after the Effective Date, recruit the external auditors (d) The Recipient shall by not later than 2 months after the Effective Date recruit the following experts: three forest and biodiversity management experts, a household energy expert, an extension and communication expert, a monitoring and evaluation expert, an information system expert, an expert in capacity building and income generating activities, an expert in organization of local actors and gender, and an environmental, social and climate change expert. (e) Mid-Term Review 36 months after the Effective Date, which shall include an assessment of the transfer of knowledge from the consultants recruited for the Project to the staff of the Recipient (f) The Recipient shall provide the necessary financing for any consultant recruited for the first phases of Project implementation (other than the Head of Operations), that will have been determined to need to be maintained following the assessment performed during the Mid-Term Review. (g) The Annual Work Plan is due on November 15 of each year. 19 IV. APPRAISAL SUMMARY A. Economic and Financial Analyses 51. An economic and financial analysis of the project was conducted, combining the costs and benefits derived from the four components of the project: (i) Reform of the charcoal value chain; (ii) Sustainable wood fuel supply; (iii) Promotion and Diversification of Household Energy, and (iv) Institutional Arrangements for Project Management. 1) Time horizon and Discount rate. Given the long-term nature of the expected project impacts, a minimum 20-year horizon ­including the 5 year of project duration­ was adopted for the evaluation of the project. A discount rate of 12 percent was applied to project components and sub-components. 2) Project costs. All budgeted costs during project implementation (5 years) were included in the economic analysis of the project. From years 6 to 20, continued implementation costs will be assessed at approximately 10 percent of year 7, gradually decreasing at a relative rate of 10 percent per year until year 20. The analysis included costs and benefits related to the consolidation of the 450,000 ha already put under sustainable forest management, and the demand side. 3) Project benefits. While the proposed project is expected to result in a large number of quantifiable and non-quantifiable benefits, the economic analysis was limited to the following benefits: Value of sustainable wood production due to the implementation of the sustainable and participatory forest/natural resource management systems; Value of incremental charcoal production due to the promotion of improved kilns; Value of global environmental impacts (CO2 abatement and biodiversity conservation) due to the implementation of the sustainable and participatory forest/natural resource management systems; Value of rural income generation and transfer due to the direct sales of wood fuel by the participating rural communities; Value of other rural revenues due to the development of parallel agro-forestry production activities in the participating communities; Value of charcoal saving due to the promotion of biogas; Value of charcoal saving due to the promotion of Jatropha oil; Value of charcoal saving due to the development of charcoal Briquettes from agricultural residues; Value of charcoal saving due to improved charcoal stoves; Value of charcoal saving due to the wood-based charcoal stoves. 52. The expected benefits were evaluated based on the items listed above. These benefits were consolidated year after year. At the end of the project, a conservative annual growth of 1 percent is projected. 20 53. Based on this hypothesis, the Economic Rate of Return (ERR) is estimated at 47 percent, with a Net Present Value (NPV) of about US$78 million equivalent. This result points to the economic efficiency of the investments agreed by the proposed project. According to these economic evaluation results, the proposed project would be a fully justifiable and competitive developmental investment for Senegal. Also, the financial return of the project is high at 50 percent. 54. Sensitivity analysis: Sensitivity analyses were done for four key parameters: (i) Charcoal market prices; (ii) Productivity gain from use of Casamance kilns; (iii) level of greenhouse emissions; and (iv) level of use of alternative sources of bio-energy. On the basis of the results of the sensitivity analyses conducted, the proposed project would continue to be a fully justifiable and competitive developmental investment for Senegal. These results show that the switching values (Value for which ERR = 0) are reached only in the case of a decrease of Charcoal market prices by 83 percent, a decrease of the productivity gain from use of Casamance kilns by 80 percent, and a decrease of greenhouse emissions by 50 percent. However, results are slightly sensitive to decrease in the level of use of alternative source of bio-energy for which the switching value is reached at 30 percent decrease from the baseline. B. Technical 55. This project consists of consolidating achievements made in the first operation and scaling up in new areas. Since overall activities have been implemented satisfactorily, there are no operational challenges. Activities will be implemented by the local communities with the support of local extension workers, local leaders, decentralized government institutions, and local development agencies. C. Fiduciary 56. Financial Management: Institutional and implementation arrangements. The FM unit called Bureau de l'Administration Générale et de l'Equipement (BAGE) of the DWF (implementing agency) is not yet experienced in managing Bank financed projects. In order to build the required capacity within the Directorate, some experts will be hired for providing financial management assistance for the first three years called anchor phase. The previous operation's (PROGEDE I) FM manual will be updated with a clear description of the budget and accounting processes as well as assets safeguards. 57. Critical risks and possible controversial aspects. The inherent risk of the public financial management system in Senegal is rated Substantial at the country level. The 2007 Public Expenditure and Financial Accountability (PEFA) report shows that the reform program has yielded progress in Public Financial Management (PFM) but a number of challenges remain, including: (i) putting in place a reliable system to track expenditure payment arrears and avoid budget deviations; (ii) eliminating delays in the consolidation of budget information and the production of comprehensive and regular in-year annual budget execution reports; (iii) reinforcing the internal and external controls of budget execution and, state-owned enterprises and national agencies; and (iv) strengthening the external scrutiny and audit by increasing the capacity of the Section of Accounts of the Supreme Court and the effectiveness of the legislative scrutiny. 21 58. With the support of donors group, the government will implement the action plan resulting from the conclusions of the PEFA exercise to address the key challenges and strengthen the public financial management system. 59. However, these country issues would not impact the project as it is being implemented through the DWF under the oversight of a technical committee headed by the DPHE, and under the Administrative supervision of the Ministry of Environment. 60. Credit conditions and covenants. The Borrower shall appoint the fiduciary team (FM manager, accountant), and update the FM manual with a clear description of the budget and accounting processes as well as assets safeguards, by effectiveness. 61. The Borrower shall establish and maintain a financial management system including records, accounts and preparation of related financial statements in accordance with accounting standards acceptable to the Bank. The Financial Statements will be audited in accordance with international auditing standards. The Audited Financial Statements for each period shall be furnished to the Association not later than six (6) months after the end of the project fiscal year. The Borrower shall prepare and furnish to the Association not later than 45 days after the end of each calendar quarter, interim un-audited financial reports for the Project, in form and substance satisfactory to the Association. The Borrower will be compliant with all the rules and procedures required for withdrawals from the Designated Accounts of the project. 62. Fiduciary. The financial management arrangements for the Project need to be established to satisfy the World Bank's minimum fiduciary requirements under OP/BP10.02, after which they will be adequate to provide, with reasonable assurance, accurate and timely information on the status of the Project as required by the Bank. The main areas of focus will be on staffing; accounting; and auditing. 63. The overall fiduciary risk rating is assessed as Modest based on a qualified fiduciary team consultant that will be hired to handle FM aspects of the project the first three year and, also, transfer them knowledge to the BAGE of DWF to enable them to take over project implementation in the second phase called ownership phase. 64. The implementing entities are compliant with the Bank's financial management requirements; and there are no overdue audit reports and interim financial reports from these entities. 65. Procurement. The assessment carried out during Project preparation showed that the main issues/risks concerning the procurement activities for the Project's implementation are: (i) the DWF has not yet developed an administrative and financial procedures manual for the proposed operation; (ii) PROGEDE I's archives occupied all rooms of the former PIU and there is a great need of equipment and space to file the documents of the proposed Project; (iii) with the end of PROGEDE I, there is no procurement specialist in the DWF; (iv) although the DWF manages several projects in the sector (PROGERT, PASEF, PADEC, etc.), they are not familiar with World Bank procurement procedures. 22 66. To address these risks, the proposed Project will finance four activities: (i) elaboration of a procedures manual and a project implementation plan; (ii) recruitment of an archivist for a short term contract to help the DWF organize the archives then to transfer and file the second PROGEDE II's documents; (iii) training of all DWF's project team in World Bank basic procurement procedures; and (iv) recruitment of a procurement specialist for a permanent position during the first three years of the Project implementation (anchor phase). The approach will be to provide basic procurement training to technical specialists and experts. The technical responsibilities in preparing procurement packages ­ including technical specifications and terms of reference ­ and amending basic procurement document templates, such as data sheets, will be carried out by the relevant specialists/experts and not passed to the procurement team. Particularly, the BAGE (Administrative and Financial Office) of the DWF will be trained in World Bank's procurement procedures, in appropriate institutions, to be able to carry out procurement activities during the second phase. 67. The overall project risk for procurement is Substantial and is expected to be moderate once the mitigation measures, and hiring the above mentioned team, are implemented. 68. Procurement would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised October 2006. D. Social 69. This is a follow-up project which builds on good practices and missed opportunities of PROGEDE I. The field assessment undertaken during this appraisal mission has shown how happy local communities and local governments have been with the previous project, PROGEDE I. Both women and men have openly testified the positive way PROGEDE I has impacted both their livelihood and social environment. Even some people who used to be reluctant in participating in the sustainable management of forest resources have ended up joining the charcoal traders and eco-friendly honey production systems. Furthermore, the quickness and the effectiveness of the revenues gathered thanks to these new harvesting techniques have shed some lights on the need to pursue their efforts. In fact, although the previous project PROGEDE I closed almost a year ago, communities have managed to keep their income generating activities, taught to them by the PROGEDE, going. Ultimately, this has contributed to strengthening their social cohesion and grounding more peace in the regions. Women have gained more visibility, enlightenment and social responsibilities as they have been more and more involved in the decision-making processes (Treasurer, President, Traders). 70. Some of the most tangible lessons learned is the need for a strong ownership of project activities by beneficiary communities, particularly women and youth; as well as the vibrant social accountability shown by the various stakeholders in the field. This second phase, though much more ample in terms of geographical coverage, intends to value and capitalize on these tangible factors by strengthening its social engagement on the ground. Gender dimensions will be particularly taken into consideration, including through the social and environmental screening of potential sub-projects. Specific attention will also be given to the social dimensions 23 of climate change and to the poor and most vulnerable groups such as women, youth and the elderly, in order to make the project more socially responsible. 71. Consultations with key stakeholders ­private sector, public sector, civil society at large, and the most vulnerable groups: e.g., women and youth­ have been conducted up to this appraisal stage. Moreover, since public consultation is in fact an ongoing process, it will be adequately pursued throughout the project cycle to further boost stakeholders' engagement and ownership, as well as to tangibly foster their social accountability. Key actors have been involved in the definition of the scope of activities and will be engaged respectively throughout the project cycle. 72. To ensure efficient implementation process, the project will: (i) support gender sensitive training for all stakeholders; and (ii) recruit a Social, Environmental and Climate Change Specialist. The social, environmental and climate change monitoring will be the responsibility of local service providers selected among existing NGOs. The project's implementation agency will be trained on World Bank social and environmental safeguard policies as well as on Gender and Climate Change mitigation; and work collaboratively with the social, environmental and climate change specialist on the social, gender, environmental and climate change screening and impacts assessment aspects of the proposed sub-projects. E. Environment 73. The project will: (i) consolidate the achievements made in 450,000 ha of managed forests under the second PROGEDE II; (ii) implement and monitor in a participatory manner about 325,000 ha of environmentally and socially sustainable community-managed forest systems, in non managed zones in the regions of Tambacounda, Kedougou, Kolda, and Sedhiou; (iii) restore in a participatory way a severely degraded area of about 60,000 ha, in the regions of Kaolack, Kaffrine, and Tambacounda as well as protect and manage the biodiversity of about 40,000 ha in the Matam region; (iv) diversify modern household energy sources and promote improved stoves initiatives, both in rural and urban areas; (v) increase the revenues of the participating local communities from the sale of charcoal and other locally based income generating activities; and (vi) strengthen the major institutions involved in the management of the sector and the inclusive participation of civil society organizations (private sector, academic institutions, and NGOs community) in the successful operation of the sector. 74. Some of these activities are likely to incur in adverse environmental, social and climate change impacts such as natural resources scarcity due to an extensive tapping or an increase in the incidence of malaria, due to activities related to wood fuels production. However, negative environmental and climate change impacts from charcoal and wood fuels production are expected to be minimal, site specific and easily manageable. 75. The consultant's field visit to representative small micro-projects has helped in facilitating the elaboration of a comprehensive Environmental and Social Management Plan (ESMP) as part of the global Environmental and Social Management Framework (ESMF). Possible negative project impacts were captured, adaptable measures to mitigate such site specific impacts were suggested and their costs were evaluated. The Bank team, in collaboration with the implementing agencies and the beneficiary communities, will further continue assessing 24 the implementation progress of these aspects, including gender and climate changes issues, throughout the project cycle. 76. To ensure efficient implementation, the project will: (i) support training for stakeholders; and (ii) make the necessary arrangements to recruit a knowledgeable Social, Environmental and Climate Change Specialist. F. Safeguard Policies 77. The project has triggered OP 4.01 Environmental Assessment and OP 4.36 Forestry. It has also been assigned to the social and environmental category B (Partial Assessment) due to the planned charcoal and wood fuel production activities afferent to some sub-projects in suggested regions. 78. To ensure environmental and social sustainability of future sub-projects, the Borrower has prepared an ESMF for future Sub-Projects which lays forward the basic principles and procedures through which the social and environmental dimensions of the project will be adequately dealt with. To capitalize on past PROGEDE I positive lessons learnt, the Borrower prepared also a quick impact evaluation of the second PROGEDE II's missed opportunities and main achievements. The ESMF was disclosed both in-country (February 10, 2010) and at the InfoShop (February 12, 2010) prior to appraisal. 79. Though the project involves some minor rehabilitation and/or construction works of already existing offices (a GIS office at the DWF, and 5 small forestry control posts in rural areas), OP 4.12 has not been triggered as there will be neither new land acquisition nor loss of shelters and other socioeconomic assets. In fact, all these structures are on government own lands since colonial time, and have been operational ever since and properly fenced/delimitated. Moreover, none of these 5 forestry control posts established along the road at specific points in the rural areas are close to any human settlements. OP/BP 4.01 Environmental Assessment 80. The first operation (PROGEDE I) had a tremendous positive impact on natural forest habitats in its areas of intervention which led to the increase in the trees and vegetation covers; a reduction of conversion of land from natural forest to rain fed agriculture due to improved agricultural practices introduced by PROGEDE I in the farming systems of beneficiary villages (improved seeds, use of manure, high yield crops, etc.) as opposed to extensive agriculture; increase in biodiversity in natural habitats; the appearance of large and small mammals in the established Biodiversity Community Reserves covering about 56,000 ha. 81. As demonstrated during the precedent project, PROGEDE II proposed activities are not expected to have negative social and environmental impacts; to the contrary, they will strengthen the positive impacts of the project notably by: (i) reducing deforestation and soil degradation; (ii) contributing to reducing the loss of carbon sequestration capacity and of biodiversity; (iii) reducing CO2 emissions; (iv) reducing urban charcoal pollution and contamination (soil and water); (v) reducing indoor air pollution and health risks to women and children through the 25 promotion of improved wood fuel and charcoal stoves; and (vi) improving the participation of women in all economic activities and decision-making processes. OP/BP 4.36 Forestry 82. As stated above, the project is not expected to have negative environmental and social impacts. The relocation of production sites to other areas is not likely to happen because there are no forest areas of sufficient capacity to support the urban markets and areas which are of sufficient size are too far away to be economically viable for forestry exploitation. 83. The environmental assessment has addressed the potential impacts of the project on forests and/or the rights and welfare of local communities and an action plan was prepared and budgeted under the proposed project. 84. Consultations with key stakeholders involving the private sector, the public sector, the civil society at large, and the most vulnerable groups (e.g. women and youth) have been conducted during project preparation. As public consultation is in fact an ongoing process, it would be continued throughout the project cycle to further boost stakeholders' engagement and ownership as well as further foster their social accountability. Key actors have been involved in the definition of the scope of activities and will be engaged respectively throughout, appraisal, implementation, supervision and evaluation stages of the project. As stated above, youth and women in particular, are expected to benefit from the project as they will be heavily involved in most of the activities and processes along charcoal supply chains and other economic activities linked to the use of natural resources. Such activities of community natural resources management are expected to improve, with a successful adoption of the proposed production, storage, and marketing technologies and know-how. Moreover, the project is expected to not only enhance the incomes and livelihoods of all beneficiaries, particularly women, youth and the most vulnerable groups, but overall, all stakeholders along the demand and supply chains. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [x] [] Natural Habitats (OP/BP 4.04) [] [x] Pest Management (OP 4.09) [] [x] Cultural Property (OPN 11.03, being revised as OP 4.11) [] [x] Involuntary Resettlement (OP/BP 4.12) [] [x] Indigenous Peoples (OP 4.10) [] [x] Forests (OP/BP 4.36) [x] [] Safety of Dams (OP/BP 4.37) [] [x] Projects in Disputed Areas (OP/BP/GP 7.60)* [] [x] Projects on International Waterways (OP/BP/GP 7.50) [] [x] By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties'claims on the disputed areas. 26 G. Policy Exceptions and Readiness 85. The project does not present any policy exceptions. A draft Manual of Procedures including a Project Implementation Plan, draft terms of reference of the external auditor and a 18-month procurement plan have been prepared. Progress on meeting the effectiveness conditions can be summarized as follows: (i) the draft Manual of Procedures is being reviewed by relevant implementing entities and a validation workshop will be conducted upon finalization of the report; (ii) the TORs of the cored team is under preparation; and (iii) the hiring commission is being constitute. 27 Annex 1: Country and Sector or Program Background SENEGAL: Second Sustainable and Participatory Energy Management Project 1. Senegal, a Sahelian country located at the westernmost part of the African continent, has a surface area of 196,722 Km2. It is bordered on the North by Mauritania, on the East by Mali, on the South by Guinea Bissau and Guinea Conakry and on the West by the Atlantic Ocean. The country has a generally flat relief with a maximum altitude of 50 m in 75 percent of the country. It has a sudano-sahelian climate of the tropical semi-arid type with a relatively insignificant temperature range and average temperatures of between 20 °C (from November to April) and 35 °C (from May to October). Senegal's climate pattern is characterized by the existence of two seasons, a hot and rainy season lasting 4 months (July to October) and an 8-month long dry season (November to June) marked by blowing continental trade winds mainly from the North/North East. 2. Annual rainfall follows a north-south gradient with accumulations of 200 mm in the north and over 1000 mm in the extreme south. Several climate variations have been observed, and have resulted in a series of droughts with damaging ecological and socio-economic consequences. These changes contributed decisively to aggravating the rural populations' poverty status since they became increasingly vulnerable to the unpredictable climate changes. Thus a sizeable number of people were compelled to move from the rural areas to urban centres. In 2009, the population of Senegal was estimated at 13.7 million inhabitants with an annual demographic growth of 2.7 percent (CIA, 2009). 3. To face up to this situation, the State formulated a Poverty Reduction Strategy in 2003. However the economic and financial performances registered by this strategy over the past few years are still not significant enough to notably reduce poverty. Indeed, with the current pace of economic progression, it would take about 30 years to double the country's GDP per head which is among the lowest in the world (US$635 in 2003). Significant poverty pockets still persist, with huge disparities between the urban and rural areas. 4. The analysis of the household fuels sub-sector revealed a structural trend marked by: - the dominance of woodfuel in the country's energy balance, as observed in Sahelian countries, while their exploitation continues to cause damage to forest resources which play a decisive role in the country's economy and environment. - the imbalance of the energy wood sub-sector marked by: The economic benefits of local charcoal producers are still low, since a sizeable share of the sub-sector's added value is distributed among operators, carriers and middle-men, even though this distortion has been considerably scaled down at the start of implementation of the participatory management plans (2005) prepared during PROGEDE I; Inadequate improvement of the profitability of wood because the taxes and consumer prices are way below the economic and environmental value of the wood resource. This often translated into resource wastage due to the use of inefficient carbonization techniques such as the traditional mound kilns 28 progressively replaced by the Casamance kilns which proved more efficient in participatory forestry management; An ineffective, small-scale and uncontrolled fuelwood distribution channel. - Insufficient knowledge of both the country's forest potential, resources in terms of biodiversity and the specific effects of resource degradation, even though the inventories done during PROGEDE I came up with information which currently constitutes a reliable but non-exhaustive reference. - Small variety of alternative fuels to replace wood, apart from butane gas. - National butane gas consumption which reached 127 000 tons in 2008, and was supported by subsidies that weighed heavily on public coffers. This subsidy, abolished in June 2009, can expose consumers to risks of slipping into charcoal consumption, which represents a serious threat to the conservation of forest resources in the absence of a sustainable forestry management system. - Insufficient control of cooking energy consumption and their interrelation. - the need for continuing consultations between services responsible for the administration of the sub-sector (DWF, Directorate for Petroleum Products and Household Energy, Domestic Trade Directorate in charge of Forecasting and Statistics, etc.) to avoid distortions caused by isolated measures taken by each of them. 5. The sub-sector's institutional context is also marked by the true resolve to involve the rural populations in the management of forest resources through legislative and statutory provisions, adopted in 1996, on the transfer to local governments, of responsibilities relative to natural resources and environmental management. Likewise, the reforms of the Energy sector led to the institution of the Senegalese Rural Electrification Agency and a more elaborate strategy for the development of new and renewable energy, particularly bio-energy and bio fuels. Besides, the creation of a Directorate for Petroleum Products and Household Energy attests to the Public authorities' political will to include the sub-sector among their priorities with a view to providing the country with a sustainable supply of cooking fuels. For its part, the Forestry Sector was endowed with a code promoting the enhanced responsibility of populations living near the forest in the latter's management in order to give concrete expression to the State's decentralization policy. However, after being tested by the implementation of the first management plans, prepared during the first phase of the project, the 1998 Forest Code is being revised to among other things ensure that the exercise of transferred responsibilities becomes operational. 6. The project's implementation is thus justified for several reasons, the most decisive being: - The necessary consolidation of the achievements of PROGEDE I. Concerning participatory management for the production of bio-energy, the key achievements to be consolidated should favor: - The institutionalization of the Ecological and Forestry information system (SIEF). The SIEF is an integrated Data Base (SGBD) and geographical information system providing 29 sound knowledge about the forestry and pastoral resources as well as biodiversity. With the prospect of institutionalizing the SIEF, emphasis will be placed on: the effective transfer of SIEF to the DWF, more specifically to the Forestry Management and Production Division with one (1) central coordination office (concurrently covering the regions of Dakar and Thies) and four (4) decentralized offices including one (1) North office (covering the regions of Louga, Matam and Saint-Louis), one (1) Central Office (Kaolack, Diourbel and Fatick), one (1) South Office (Kolda, Ziguinchor Sédhiou) and one (1) East Office (Tamba, Kaffrine, Kédougou); an enhanced training of the forestry service and ARD staff on the importance, scope and use of the tool as well as its improvement; integrating the tool into the institutional and structural machinery of the forestry service; using the tool to develop forestry resources (quantitative and spatial projections of samples , etc.) on a rational basis; harmonizing data collection procedures used by all DWF and Project structures; the regular upgrading of data, using plots to monitor the vegetation process and inventories of the new forests to be developed, including data concerning plantations etc. 7. Capitalizing the participatory management model. A methodology for the elaboration of management plans was developed with the help of the SIEF and a plot was designed on the basis of the energy wood potential. The forestry service should be perfectly familiar with the process to enable its staff assigned forest management duties, to take ownership of it and extend the model to the country's other forests. 8. In the same vein, the project's monitoring-evaluation system can contribute significantly to improving that of the forestry service which is still not operational, despite its crucial role in boosting and taking control of the implementation of the forestry development strategies. 9. As regards the improvement of agricultural and pastoral production systems, the project's intervention led to an increase in the income of rural producers and a decline in the degradation of forestry resources through the intensification, rationalization of practices and the diversification of activities. Within the framework of this project, the sustainability of the system established in the forest that is being developed will be guaranteed through the promotion of independent management by local actors. To improve agricultural and pastoral production systems, only priority actions relating to and having a direct interaction with wood-energy production and the conservation of ecosystems, will be carried out in the new project zones. The intervention package developed so far by PROGEDE I will be considerably lightened and the supervision will leave ample room for local initiatives. 30 10. As regards to climate change issues, developing a sustainable fuel-wood and charcoal production is the most feasible and significant carbon sequestration practice that will help the country mitigate climate change and mainstream forestry sector resilience to climate adverse. 11. Complete a rotation of the ongoing wood-energy production cycle. The first development plans implemented within the framework of PROGEDE I are in their fifth year of implementation. Since the duration of the rotation is 8 years, this second phase will provide the opportunity to monitor the implementation of these development plans in order to capitalize and evaluate the results at the end of the first rotation. Thanks to this exercise, the assumptions on which the technical choices were based will be verified with a view to fine-tuning them to ensure a more precise forest development planning. Indeed, verifying the regeneration achieved after eight years of exploitation will make it possible to better appreciate the productivity of forests and their post-exploitation behavior. It will, at the same time, contribute to meeting the expectations of local actors involved in the implementation of development operations, but also: 12. The consolidation and extension of the biodiversity conservation strategy. The state of degradation and the threats on the periphery of the National Niokolo Koba Park (PNNK) justified the inclusion of a highly conservationist strategy in the biodiversity management program. It consisted in, first, stabilizing or even reversing the PNNK periphery degradation process, with visible effects on the park. Since this objective has been achieved, this phase will be profitably employed to finalize the strategy by launching initiatives to enable the populations to generate substantial income from the biological potential. This second phase should, in the long term, help ensure endogenous resource conservation through the economic benefits which the populations draw from their biodiversity conservation efforts. 13. A pillar of the country's environmental and energy policy. The option to sustainably manage forest resources by rationalizing the exploitation and consumption of energy wood is an abiding feature of both the environmental and energy policy letter and of that of the household fuels sub-sector. The abolition of butane gas subsidization in June 2009 reinforces the strategic position of charcoal to meet the households' cooking energy needs. Since the exploitation of energy wood still contributes considerably to the degradation of forest resources, if this operation is taken on within a sustainable management framework, stepping up efforts to increase the availability of these resources will provide a more accessible alternative for the State to guarantee the supply of cooking fuels to households while preserving the environment. The project will work with the actors concerned to make projections relative to the trend of production possibilities in the developed areas. 14. Finally, the integrated rural development experiments, initiated by PROGEDE I in the regions of Tamba and Kolda are worth extending to other regions of the country in order to better reinforce the State's option to develop the sustainable management of forest resources with a view to conquering poverty and restricting migration flows from the rural areas. As regards access to the basic energy service, the context is marked by: 15. The need for a more assertive energy wood substitution strategy. There is need to strongly examine methods like the utilization of rice husk, wild plants like typha and bio-energy (ethanol) while continuing to bank on butane gas which has become the preferred fuel of Senegalese living in the urban areas. Even the rural populations dream of owning a gas cooker (2002 consumption survey) 31 16. The definition of a strategy in support of a more efficient rationalization of energy wood consumption. As regards the rationalization of cooking energy demand, innovative and energy- saving cooking equipment were developed by local expertise under PROGEDE supervision. There is now need to put them into use with the backing of a more efficient promotion strategy. The support funds instituted by PROGEDE I were not properly mobilized by artisans because of the high interest rate and hurdles like the collateral they are requested to provide. Energy shops were initiated to improve the distribution of products. The concept should be developed to establish the connection with the distribution of convenience items. However, these achievements need to be consolidated and developed extensively by encouraging the strong involvement of the private sector and local artisans. 32 Annex 2: Major related projects financed by the Bank and/or other agencies SENEGAL: Second Sustainable and Participatory Energy Management Project A. Bank-funded projects 1. The World Bank has a well integrated portfolio in Senegal targeting rural areas including among others: 2. The Sustainable and Participatory Energy Management Project (PROGEDE I - P046768, IDA US$5.2, closed in December 2004; and PROGEDE I transition phase - P085708, IDA US$7.2, closed in December 2008). The objective was first to meet the urban demand for household fuels without the further loss of forest cover and the ecosystem's carbon sequestration potential and biodiversity, and second to generate opportunities for employment and income generation in the participating communities. Overall, implementation and progress towards achievement of PDO were rated highly satisfactory. The DPO (FY10 ­ US$43 million) is under preparation and its proposed Board date is June 1, 2010. The proposed project which is a follow up operation will build on significant achievements made during PROGEDE. 3. Development Policy Operation IDA US$60 million (FY09). The activities related to the proposed operation can be summarized as follows. The long standing subsidy on LPG has been eliminated on June 2009. The rationale for this decision is based on both the substantial fiscal cost of the subsidy, and evidence of its very poor targeting. For instance, it was estimated for the 2005-2006 period that the share of the poorest fifty percent households (roughly the total fraction of the population below the poverty line) in Senegal's total consumption of LPG was less than13 percent, implying that the bulk of the subsidy benefit the richest fifty percent households. LPG remains a product largely consumed by the urban, more well-to-do population. Hence, wood fuels remain the poor households' main energy source. 4. The government's policy framework for forest resources management entails a transfer of responsibility to local communities. However, progress towards a strict law enforcement underpinning the policy and the achievement of its objectives has continued to be undermined by the persistence of an outdated charcoal quota system. Because of its origin as a centrally- controlled administrative allocation system for wood cutting licenses, the quota system is fundamentally inconsistent with the government's policy objectives of transferring forest resource management to local communities. 5. In this regard, Governmental measures towards the elimination of the charcoal quota system and the restriction of charcoal production to forests put under sustainable management was put as disbursement conditions of the FY 09 DPO. As a result, the minister of environment issued an order in March 2009 to eliminate the charcoal quota system and allow charcoal production in managed zones. The current FY10 PRSC in preparation and other subsequent PRSCs have indicators related to the implementation of this measure. The proposed operation will also closely monitor the reform of the charcoal value chain. 33 6. The Electricity Service for Rural Areas Project ­ ASER Cr. 3981; IDA US$29.9 million: GEF USD$5 million. The program's development objective is to support the progressive transformation and improvement in the living conditions of rural Senegal. 7. The Participatory Local Development Project (PLDP, P088656, ongoing, IDA US$50 million) is a follow-up of both the National Rural Infrastructure Project (PNIR) and the Social Development Fund Project (PFDS). The PLDP supports the Government's decentralization and local development agenda. The project allocates resources to local governments and poor communities to improve the provision of social and economic infrastructures, as well as for productive and income-generating activities. The project provides small grants to community based producer organizations for technical assistance in the design and implementation of productive, income-generating, and natural resource management activities. These activities are identified through participatory approaches, following key strategic local development objectives spelled out in local development plans. Overall Implementation Progress: Moderately Satisfactory (30 June 2009); Progress towards achievement of PDO: Satisfactory (30 June 2009). The proposed operation will closely collaborate with PLDP as both are reinforcing decentralization. The proposed operation will provide technical capacity of Regional Development Agencies (ARDs) in Sustainable forest management. The ARDs are the technical bodies of local governments. 8. Regional Implications of Climate Change (P108965, ongoing), and (2) Global Study on Territorial Development and Adaptation to Climate Change (P112517, ongoing, TFESSD), which will provide detailed information on the capacity of local institutions, including those targeted by the proposed operation in order to adapt to the effects of climate change. B. Projects funded by other donors 9. USAID Agriculture and Natural Resources Management Program ­Second Phase (2008) (Wula Nafa) ( USAID: US$ 26 million; GOS: FCFA 80 million) is a major component of the Agriculture and Natural Resources Management Program currently being carried out with USAID support. Wula Nafaa promotes conservation, poverty reduction and good governance. It adopts the Nature, Wealth and Power approach based on experience gained by USAID throughout Africa over the last 20 years. Around 70,000 ha are being sustainably managed under the responsibility of community authorities in the Tambacounda and Kolda regions. Strong collaboration exists already between PROGEDE and Wula Nafa as the latter is using the PROGEDE model of sustainable forest management. Currently, both projects, with the support of the World Bank and USAID, are closely following the modality of charcoal implementation along with other donors intervening in the areas of household energy. The proposed operation will strengthen the existing collaboration and share the best practices on the ground. 10. The Rural Electrification and Household Energy Supply Program (PERACOD) supported by GTZ operates in the Peanut Basin and the Casamance Region of Senegal. High population pressure and the resulting need for farmland caused large-scale forest conversion and fragmentation. Ample experience has been gained on a pilot basis (25,000 ha) in rehabilitating these remaining but heavily degraded forests. At the end of 2008, replication was underway in 50,500 ha of state forests in ten rural communities. Today, the sustainably managed zones created under these three programs account for more than 20 percent of Senegal's current 34 household energy supply from renewable resources. This program is also using PROGEDE I's sustainable forest management and the proposed operation will complement the activities being carried out. Wula Nafa, PROGEDE, and PERACOD are pushing effective decentralization of environment and natural resource management. They are members of the Environment donor commission and they meet on a regular basis. The proposed operation will consolidate the existing collaboration and share the best practices on the ground. 11. Program for Integrated Soil and Water Management (PGIES). This Program was prepared by the Government (Ministry of Agriculture) in 2005. It aims at increasing agricultural production and improving soil and water management in the Groundnut Basin and Casamance. The components of the PGIES are the following: (a) Strengthening communities' capacity in soil and water management; (b) restoration and intensification of agro-sylvo-pastoral systems; (c) improvement of the enabling environment; and (d) coordination, management, monitoring and evaluation. Four demonstration sites (i.e. wildlife migration corridors) are chosen to test land use planning models: (a) The Wildlife and Sylvo-pastoral Reserves in the Ferlo Steppe; (b) the Niokolo-Koba National Park and its associated Classified Forests in the South-East Sudanin- Guinean zone; (c) The proposed operation in the Niayes coastal dunes and classified reserves along the northern sea front; and (d) the Saloum Delta National Park and associated classified forests and mangrove/marine systems in the South-eastern coastal area. The program's cost was estimated in 2004 at 17.5 billion FCFA (about US$ 32.8 million). UNDP, in partnership with GEF and within the framework of the GEF-SIP, is committed to supporting implementation of the Program over a 10 year period. A first phase, which focused on strengthening the(enabling environment), has been completed. A second phase (US$ 7.279 million, with contributions from GEF and UNDP of US$ 3.640 and 1.251 million, respectively) is currently under implementation. PROGEDE has a very important biodiversity management program around the Niokolo-koba National Park to reverse degradation in the Park, and to create biodiversity community reserves. PGIES is using the PROGEDE model of Sustainable forest management These activities will be consolidated by the proposed operations. 12. UNDP/GEF Integrated Ecosystem Management in Four Representative Landscapes of Senegal - Phase 2 (ongoing, total budget: US$11.4 million, with a contribution from GEF of US$3.6 million): This project, one of those under the GEF-SIP, aims at preventing and reducing environmental degradation in four major ecosystems in the country (i.e. the Wildlife and Sylvo- pastoral Reserves in the Ferlo Steppe; the Niokolo-Koba National Park and its associated Classified Forests in the South-East Sudanin-Guinean zone; the Niayes coastal dunes and classified reserves along the Northern sea front; and the Saloum Delta National Park and associated classified forests and mangrove/marine systems in the South-eastern coastal area) by promoting sustainable use of natural resources through community-based integrated ecosystem management. PROGEDE I provided technical support and shared its monitoring and evaluation system with this project. The proposed project will consolidate collaboration by sharing other achievements made. 13. National Biogas Program 2010 -2014: DGIS, UDS$6 million. The program's objective is to facilitate access to modern household energy in rural areas. This program covers the peanut basin zone. Biogas systems will be financed in the proposed operation in PROGEDE II's zones of intervention. PROGEDE II will benefit from this operation in terms of TA. The Biogas program will also benefit from PROGEDE II in terms of Community Based Organization, and expertise in terms of support for the implementation of successful income generating activities. 35 14. Dutch Cooperation Budget Support to the Ministry of Environment: 2008-2010: 2010- 2012. The Dutch Cooperation is providing budget support to the ministry of Environment. In fact, since the proposed operation will be managed by the Directorate of Forestry, best practices as well as issues in the sub-sector will be closely monitored by donors. It is worth mentioning that the Dutch Cooperation was a major co-financing partner of PROGEDE I with IDA and GEF. 36 Annex 3: Results Framework and Monitoring SENEGAL: Second Sustainable and Participatory Energy Management Project PDO Project Outcome Indicators Use of Project Outcome Indicators To contribute to increase the 1. Increase sustainable wood- Evaluate project success; availability of diversified fuels production assess relative effectiveness of household fuels in a various components to inform sustainable and gender future Government policy equitable way, and to increase formulation and programs the income of participating 2. Increase alternative communities while preserving household fuels the forest ecosystems. 3. Reduce deforestation in Establish forest resources target zones conservation strategies to inform future Government policy formulation and programs 4. Reduce net CO2 emissions Improve Government's strategies in the inventory of greenhouse gas emissions 5. Contribute to the increase of Better understand the income of participating contribution of sustainable communities, with special wood fuels strategies to rural attention to women poverty alleviation, particularly for women Intermediate Outcome Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring Component 1: Institutional 6. Increase the share of income To measure the increase of Reform of the Charcoal Value from charcoal production share of charcoal value chain Chain. retained by local producers going to local producers and and local governments local governments Political economy and equity issues addressed in the charcoal value chain in providing regions. Component 2: Sustainable 7. Increased charcoal To consolidate and maintain Wood-fuels Supply production from 44,000 tons 450,000 ha developed under Management. (in 2009) to 130,000 tons PROGEDE I model of from the 875,000 ha of forests sustainable forest management put under sustainable management in old and new To measure the scale up of the PROGEDE I model of zones by end of project PROGEDE I model of sustainable and participatory sustainable forest and forest and biomass energy 8. Extend Sustainable and biodiversity management 37 management scaled up. Participatory Community towards a national model forest management to 325,000 ha in the regions of Tambacounda, Kolda, Sédhiou, Kédougou. 9. Extend restoration of severely degraded land over to 60,000 ha in Kaolack and Tambacounda regions. 10. Extend biodiversity protection and management over 40,000 ha in the region of To measure deforestation and Matam. its impact on CO2 emissions. 11. Increase the quantity of CO2 sequestration. Component 3: Promotion and 12. Establish 520 biogas To measure the number of Diversification of Modern systems in the target zones. households using alternative Household Energies. wood fuels energy sources To measure the consumption 13. Increase charcoal of alternative wood fuels Increased production and local briquettes production from energy sources consumption of alternative agricultural residues from 500 household fuels and energy tons to 1,500 tons by end of saved. project To measure the consumption 14. Increase jatropha oil of bioenergy as a cooking fuel production from 5,250 to (and other uses) in rural areas 10,500 liters by end of project To measure the saving of 15. Disseminate 420,000 wood fuels and charcoal by improved stoves to households the use of improved stoves by end of project 16. Reduce CO2 emissions Number of direct/indirect 17. Number of direct/indirect To measure how women are beneficiaries from the beneficiaries benefiting from the project. sustainable community forest management activities Percentage of women Number of direct/indirect 18. Number of direct/indirect To measure how women are beneficiaries from beneficiaries benefiting from the project. alternative household energies Percentage of women 38 Arrangements of Results Framework Cumulative Figures Data Collection and Reporting Project Outcome Baseline YR1 YR2 YR3 YR4 YR5 Frequen Data Collection Responsibility for indicators cy Instruments Data Collection Reports 1. Increase sustainable 180,000 230,000 465,000 865,000 1,335,000 1,875,000 Once a Direction of DWF wood-fuels production m3 per year Forest and Water (m³ per year) year (en annual report 2009) (DWF) 2. Increase alternative household fuels 0 percent 1 percent 2 percent 3 percent 4 percent 5 percent Annual DPHE DPHE consumption at the local level 3. Reduce deforestation From 0 ha 7 100 14 200 28 400 42 600 71 000 Two Inventory of DWF in target zones times established (Ha/year) during permanent plots life of project 4. Reduce net CO2 From 0 T - 854,700 - 2,850,000 Two time Inventory of DWF emissions (T eq) eq during established T eq CO2 life of permanent plots project 5. Contribute to the $18m/yr 18,500,000 18,600,000 25,900,000 30,000,000 34,000,000 Annual Annual report DWF increase of income of 39 participating (in 2009) communities, with percentage distribution between women, men and youth ($/year) Intermediate Outcome Indicators Component 1: Institutional Reform of the Charcoal Value Chain 6. Increase the annual 6 percent 10 percent 15 percent 20 percent 30 percent 40 percent Annual Annual DWF share of charcoal sold at report market prices by local communities (not cumulative, but yearly basis) Component 2: Sustainable Wood-fuels Supply Management. 7. Quantity of charcoal 44,000 (in 56,000 56,000 100,000 115,000 130,000 Annual Annual DWF produced from 875,000 2009) report ha of forests put under sustainable management in PROGEDE I&II (Tons per year; for a total of 330,000 by end of project) 8. Sustainable and 400,000 450,000 450,000 480,000 600,000 720,000 ha Annual Annual DWF Participatory Report Community forest 40 management in the regions of Tambacounda, Kolda, Sédhiou, Kédougou (Ha) 9. Increase community 52,000 52,000 62,000 72,000 72,000 92,000 Annual Report DWF biodiversity reserves in the Matam region (Ha) 10. Restoration of 00 10,000 15,000 35,000 55,000 60,000 ha Two Report DWF severely degraded land time in Kaolack and during Tambacounda regions life of (Ha). project 11. The quantity of - 540,000 - - 1,800,000 t eq DWF C02 sequestration CO2 increase to 1,800,000 Tons eq between 2010 and 2015. Component 3: Institutional and Capacity Building for the Promotion and Diversification of Modern Household Energy. 12. Biogas system 0 20 70 170 320 520 Annual Report DPHE developed in targeted zones by end of project (Units) 13. Charcoal briquettes 500 700 900 1,100 1,300 1,500 Two Report DPHE production from time agricultural residues during increase from 500 tons life of 41 per year to 1,500 tons project per year in target zones by end of project 14. Households energy 5,250 6,000 6,500 7,000 9,000 10,500 Two Report DPHE consumed at the local time level derived from during jatropha oil (liter/year) life of project 15. Dissemination of 500,000 520,000 570,000 650,000 770,000 920,000 Annual Report DPHE improved stoves (Units) Number of 108,000 158,666 209,332 260,000 260,000 260,000 Report To measure direct/indirect how women 50 percent 50 percent 50 percent 50 percent 50 percent 50 percent are DWF beneficiaries from women women women women women women benefiting sustainable community forest from the management project. Number of 250,000 358,333 466,666 575,000 575,000 575,000 Report To measure DWF direct/indirect how women 80 percent 80 percent 80 percent 80 percent 80 percent 80 percent are beneficiaries women women women women women women benefiting from the project. 42 Annex 4: Detailed Project Description SENEGAL: Second Sustainable and Participatory Energy Management Project 1. The project objective is to contribute to increase the availability of diversified household fuels in a sustainable and gender equitable way, and to contribute to increase the income of participating communities while preserving the forest ecosystems. The project consists of four components: (i) (reform of the charcoal value chain (IDA: US$1.46 million); (ii) Sustainable wood fuel supply (IDA: US$8.74 million, NDF: US$2.03 million); (iii) Promotion and Diversification of modern household energy (IDA: US$ 1.26 million, NDF: US$1.92 million); and (iv) Institutional arrangement for project implementation (IDA: US$2.04 million). 2. Through its objective and activities, PROGEDE II will demonstrate how adaptation and mitigation can be usefully combined in a way that enhances incomes and diversifies livelihoods of the poor, while also securing benefits for biodiversity, gender equality and carbon sequestration. Project Components 3. The project will have four major components: (i) Institutional Reforms of the Charcoal Value Chain; (ii) Sustainable Wood-fuels Supply Management; (iii) Promotion and Diversification of Modern Household Energy, and (iv) Institutional arrangements for Project Management. Component I: Institutional Reform of the Charcoal Value Chain (IDA: US$ 1.46 million) This component has three subcomponents: Subcomponent 1.1.: Support to the setting up of a system of allocations of charcoal production concessions (IDA: US$ 0.30 million) 4. This sub-component will support the DWF to conduct sustainable charcoal production through competitive bidding. Eligibility criteria include: experience in sustainable charcoal production, respect of specification in the biding document, skilled labor, readiness in investing in forest resources management, availability to the required financial means. The project will build the capacity of potential concessionaires. This sub-component will finance: (i) information, education, and communication campaigns (IEC) on the impact of climate change, on the forestry sector and on charcoal production concessions for women and men in local communities and local governments, wood and charcoal traders, the private sector, regional development agencies (ARD), the forestry service, and NGOs; (ii) a series of workshops on the forestry code reforms, forestry taxes adaptation; (iii) printing, disseminating and translating the forestry code in at least two of the main local languages of the project areas; (iv) studies on wood fuels and charcoal market; (v) a study to evaluate the capacity of local charcoal producers (women and men) to access the urban markets; and (vi) the training of women and men involved in the charcoal value chain in small business management. 43 Subcomponent 1.2.: Facilitate access to urban markets for local charcoal producers (IDA: US$ 0.72 million) 5. This subcomponent will finance: (i) the repair of trails within forests to facilitate access to charcoal production sites; (ii) the purchase of two trucks (one for each of the regions of Tambacounda and Kolda) for the commercialization of charcoal produced by villagers in urban markets. Subcomponent 1.3.: Diversification of income of charcoal traders (IDA: US$ 0.44 million) 6. This subcomponent will finance: (i) the sensitization on the reform of the charcoal value chain; (ii) the training of women and men charcoal traders in order to develop their business skills; (iii) feasibility studies of sub-projects submitted by charcoal traders; and on the establishment of energy efficiency charcoal processing units; and the provision of sub-grants that contribute to the energy sub-sector development for the establishment of charcoal processing units. Each charcoal trader has to demonstrate that he/she has 50 percent of the financing of the sub-project. The project will finance 50 percent of the total cost of a sub-project. The activities to be financed should contribute to the household energy subsector development (establishment of LPG depot, charcoal packaging unit, energy shops, non-fibrous forest product, bee-keeping). 7. Charcoal traders selection criteria include: have the required skills for sustainable charcoal production; be able to mobilize 50 percent of the funding required for a sub-project; activity does not have any negative impact on the environment and does not require resettlement. Interested charcoal traders will have to submit their sub-projects proposals to the DWF for review and approval. Detailed eligibility criteria for sub-grants will be included in the procedures manual. 8. The operator selection criteria include: technical and economic feasibility of the unit proposed, have the required skills for sustainable charcoal production; be able to purchase the rest of the required equipment to run the unit. Interested operators will have to submit their projects (charcoal processing unit) to the DWF for review and approval. A detailed procedures manual will be prepared before the establishment of any charcoal processing units. Component II: Sustainable Wood Fuels Supply Management (IDA: US$8.74 million; NDF: US$2.03 million) This component has three subcomponents: Sub-component 2.1.: Sustainable community forests management (IDA: US$7.3 million, NDF: US$2.03 million). 9. The NDF will finance: opening and maintenance of firebreaks in new and old zones, nurseries materials, tree planting, a restoration of degraded land, training in sustainable charcoal production, in fire fighting techniques, exchange visits, firefighting equipment. Under this subcomponent, several activities will be financed: (a) Integrated and participative community forest resources management: (i) the opening and maintenance of firebreaks around old (450,000 ha) and new forest zones (425,000 ha) (through forest mapping, forest inventory, material for regeneration of degraded lands, production of seedlings, tree planting, fire fighting equipments, etc.); (ii) the establishment of tree nurseries, 44 tree plantings, training of local communities on forest resources management aspects, (iii) the elaboration of community forests management plans; (iv) the training of local communities on climate change issues related to forestry, tree harvesting and sustainable charcoal production techniques, bushfire fighting, administrative and financial management, and local governance; (v) gender-sensitive rapid rural appraisals in beneficiary villagers to identify basic needs, assess existing capacity, review ongoing activities and sources of financing assess decision making process at all level, etc. and socio-economic study; and (vi) transportation means for decentralized forest offices and local extension workers for the implementation and monitoring of project activities. (b) Strengthening of local governments' technical capacities: (i) the training of local government representatives and inter-village development and management committees on the reform of charcoal value chain and awareness raising on linkages between forestry and climate change. Special attention will be given to vulnerable groups including women and youth to enable them to participate in the executive bureaus of local governments and village committees. (c) Institutionalization of forestry based geographical information system: (i) the rehabilitation of five existing forest control posts in government owned land to control wood fuels flux, particularly to prevent charcoal production in non-managed zones; (ii) the rehabilitation of a small office (first floor of an existing forest Directorate building) to host the forestry based geographical information system (SIEF) team and for archiving documentation; (iii) the integration of the forestry based geographical information systems (acquisition of software, updating of the data base, strengthening of the agents' capacities, computers and material and equipment of forestry decentralized offices , etc.). (d) Consultancy to strengthen capacities and support the implementation of the sustainable wood fuels supply component as well as the monitoring and verification of environment, social and climate change, impacts of the project activities. Consultants will be hired to work with decentralized offices of the Forestry Directorate, beneficiary communities, and local governments: (i) three experts in sustainable forest resources management and biodiversity; (ii) three experts in stakeholder organization, with gender and youth competencies; and (iii) three office executive assistants. (e) Strengthening the DWF' capacities: (i) provision of logistical support (vehicles, motorcycles) and office equipment and (ii) training of the Directorate's staff. Sub-component 2.2.: Consolidation and establishment of biodiversity community reserves (IDA: US$0.48 million) 10. This subcomponent will finance: (i) the elaboration of forests and pastoral inventories of existing community biodiversity and small wildlife reserves management; (ii) the repair of two ponds and trails; (iii) the restoration of natural habitats around the Niokolo Kba park; and (iv) the reintroduction of threatened forest species and the restoration of degraded lands in existing community reserves. All these activities will contribute to increase Carbone sequestration in these areas. 45 Sub-component 2.3.: Promotion of eco-friendly agro-forestry income-generation activities (IDA: US$0.96 million) 11. This subcomponent will promote activities benefitting women, men, and youth: (i) inputs, wells/tanks, fencing, nursery material for gardening and orchards and local production of bio- fuels; bee keeping, honey production and poultry raising; and (ii) training and inter-community visits for community based organizations. Component III: Promotion and Diversification of Modern Household Energy (IDA: US$1.26 million; NDF: US$1.92 million) This component has three subcomponents: Sub-component 3.1.: Sensitization and Promotion of efficient cooking equipments and sustainable biomass energy (IDA: 0.03 million; NDF: US$ 1.92 million) 12. Except for the costs related to travel for sensitization, communication, and promotion of efficient stoves covered by IDA, this sub-component is financed through grants by NDF. It will finance: (a) The promotion of 420,000 improved stove manufacturing, including equipment purchases to two existing centers to develop massive production of improved stoves manufacturing; to develop two modern existing production units of ceramic inserts ( Diambar models) and one biofuel stoves production unit (using jatropha oil). Women potters will be particularly encouraged to participate. These ceramic and biofuels units are very small and do not require any involuntary resettlement. (b) The financing of equipment for the improvement of production of charcoal briquettes from agricultural residues and/or typha to consolidate the three existing pilot units, and support the creation of two small enterprises (only equipment is financed); b) establish 520 biogas small plants. (c) Households in Tamba and Kolda ; c) acquiring and establishing multi-functional platforms to be managed by women's groups, using jatropha oil fuel; and d) village jatropha oil presses. (d) Training and capacity building for women and men on improved stoves dissemination, including the development of communication materials, testing social acceptability of stoves and fuels which contribute to climate change and health impact mitigation, socio-economic studies, field trips to other areas with successful dissemination of efficient stoves, mechanical equipments, and alternative fuels. (e) To increase the adoption of the stoves, the proposed project will develop a national social marketing campaign with the objective to raise awareness of the advantages of improved stoves among the population and to increase sales by stoves producers. The social market campaign will be designed taking in consideration the latest experiences in other countries with such public campaigns, and will only promote stoves of certified quality. To improve the quality of the stoves, PROGEDE II will provide technical assistance to the national 46 association of stoves artisans to improve the production technique and material quality of the stoves, and as well will work with international producers of high quality biomass related stoves to enable the local market conditions in order to attract their investments to the Senegalese market (temporary tax exemption, social marketing, contacts with local distributors). PERACOD is developing a national standard of quality for biomass stoves that will serve to label stoves of quality, so to orient customers about the quality of stoves in the market. PROGEDE II will be using this result in its program. 13. All sub-projects will be submitted to the DPHE. These sub-projects will be reviewed by a committee composed of representatives from the DPHE, the DWF, the Ministry of Finance, and the Direction of local government. All projects that are technically, economically viable, and environmentally sound will be financed by the project through direct payment to suppliers. The grant will be 50 percent of the total cost of equipment required. Selected operators will have to mobilize the rest of the funding required to purchase the rest of the equipment. A procedure manual will determine for each sub-project, specific selection criteria, the domain and the funding provided. 14. A NGO will be hired through competitive bidding to monitor the implementation of sub- projects. Monitoring costs of the NGO will be covered by the project and a protocol agreement defining roles and responsibilities of the project as well as of the NGO will elaborated. Sub-component 3.2.: Planning of the Demand Management for cooking fuels (IDA: US$0.78 million) 15. This subcomponent will finance: (i) the elaboration of wood fuels supply master plans for four main urban centers (Touba, Dakar, Kaolack, Saint Louis); (ii) the update and development of existing information systems; (iii) a households survey on' cooking fuel and equipments; (iv) a gender-sensitive survey of household fuel prices in urban centers; (v) support to the Directorate of Petroleum Products and Household Energy to monitor gas volume in LPG bottles; and (vi) support the publication and dissemination of the Household Fuels Observatory bulletin. Sub-component 3.3.: Institutional strengthening of DPHE (IDA: US$ 0.45 million) 16. This subcomponent will finance: (i) support to the DPHE (vehicles and equipments, staff training on household energy and climate change related topics); and (ii) the salary for three years of consultants (experts in household energies, extension agents, executive assistant) who will support the DPHE in the implementation of the activities linked to the demand management component. 17. As described above, this component will promote sustainable management of household energy resources, contribute to the reduction of deforestation and green house gas emissions, and help reduce the negative impact on women's and children's health of exposure to smoke as well as the time spent collecting fuelwood. It will also help reduce cash expenses on fuel purchases. Component IV: Institutional arrangements for project implementation (IDA: US$2.04 million) 18. Institutional arrangements were extensively discussed with the government over the past 18 months. After working sessions involving senior staff from the relevant technical 47 Directorates, Ministries, Permanent Secretary, government projects, and the PIU, the issue was raised to the Minister of Finance and the Prime Minister's office for arbitrage between the Ministries of Energy and Environment. The conclusion was submitted in a letter to the World Bank. 19. The project will be under the Administrative supervision of the Ministry of Environment. A technical committee headed by the Director of the DPHE will supervise project implementation. The DWF (DWF) will play the secretariat role. Other members will include representatives from the Ministry of Finance, the Directorate of local collectivities, members of the civil society, the private sector, and local leaders. The DWF will be the implementing agency and the Director of Forestry the project administrator. To build the required capacity within the ministry, the institutionalization will be conducted in two phases: (i) Consolidation (3 years), during this phase, under the supervision of the Director of Water and Forestry, a consultant/expert will be hired to conduct the technical coordination and financial management of the project. A fiduciary team (financial management, accounting, procurement) will be hired and located at the DWF1to provide technical assistance to their peers. Technical experts will also be hired under performance contract to provide support at the national, regional, and local level. One of their mandates will also be to transfer knowledge to government staff, local leaders to enable them to take over project implementation in the second phase. Government staff performance will also be assessed to ensure their ownership; and (ii) Ownership building (2 years): based on assessment of knowledge transfer to civil servants of the Borrower, during this phase, most positions previously held by the consultants will be held by ministry staff. Both minister of Environment and Energy agreed a six-month project implementation progress review meeting with the participation of the World Bank. These reviews will be combined with an assessment at the end of the year 2 and the year 3 to make adjustments as needed (see Annex 6 Implementation Arrangement). 20. The institutionalization phase will be facilitated by this Rapid Results (RRI) that has extensive experience building capacity of government to successfully implement program. 21. This component will finance: (i) the salaries of the consultants/experts (Head of operations, principal accountant, accountant, procurement specialist, expert in monitoring and evaluation, expert in information systems, organization of local actors and gender specialist, Environment, social, and climate change specialist, executive assistants); (ii) logistical support (vehicles, motorcycles); (iii) training in financial management, monitoring and evaluation, and procurement; (iv) the annual audits and update of the financial management system; (v) the workshops/seminars for the discussion of issues and sharing of project results among regions; (vi) the salaries of the staff that will support the administration (drivers, janitors, guards); and (vii) the material, equipment, transport means, mission costs, and office material. 22. All transportations facilities that will be supported by this project will be encouraged to use locally produced bio-fuels. 48 FORESTS PUT UNDER SUSTAINABLE MANAGEMENT IN PROGEDE I AND PROGEDE II AREAS OF INTERVENTION 49 Typical Senegalese 15 Ton Charcoal Truck 50 Diagram: Institutional Framework 51 Household Energy Development Policy Letter (Unofficial Translation from French) I. CONTEXT AND JUSTIFICATIONS The Domestic Energy Strategy (DES) is integrated in the Poverty Reduction Strategy, as a framework adopted by the Government of Senegal for all its development policies. The strategy is also inspired by the Millennium Development Goals and the Accelerated Growth Strategy. Moreover, the DES pays a particular attention to the social, economic and environmental dimensions of households' access to different sources of energy (modern energies included). The reforms made for the last years at the energy sector have lead ­among other results­ to the creation of an agency dedicated to rural electrification (Agence Sénégalaise d'Electrification Rurale). The objectives pursued by these reforms do not integrate domestic fuels in a significant way, and that is why there is a need of a specific policy in this sector. The situation of domestic fuels in Senegal is characterized by the strong pressure put on the scarce forest resources that nowadays are located farther from the places of consumption. The other constraint that impedes the promotion of substitutive fuels is linked to UEMOA's directive on the suppression of subsidies. Today, forest resources assure energy supply to rural populations, but also to a big amount of urban households, in order to respond to its cooking needs. The use of wood ­and most of all charcoal obtained from wood­ must be contemplated in a context of deforestation that puts majors risks to environment that could undermine the pillars of all the activities that take place in the affected areas. Solar potential is non negligible in Senegal, with sunshine equivalent to 5.8 KW/m2/day. This way, solar energy may respond to certain needs, in competition with other traditional solutions (electricity production, water discharge height, cold production, water heating, drying of fishes and agricultural goods, etc.). Wind potential is favorable close to the sea, most of all on the coast line (around 50 Km between the national road and the Western Atlantic coast), where wind speed reaches 4 to 5m/s. This opens a window to energy production for domestic use (pumping or electricity production). In the energy domain, the State ­through is energy and forest Directorates­ is focusing more and more on the strengthening of capacities to formulate strategies and push forward the sectors of domestic fuels and rural electrification, given their economic, social and environmental impacts. This Letter of Domestic Fuels Sectoral Development Policy is integrated in the global framework of the LPDSE (April 2003). It reinforces the content and principles of the domestic energy programs put in place in Senegal. II. SECTORAL CONSTRAINTS In the domestic fuels sector, the size of wood fuels stays predominant due to: (i) the evolution of households' habits (also in rural areas) that tend to use charcoal from wood, instead of wood, which leads to a more important consumption of primary energy, since transformation losses are 52 bigger; (ii) the small size of LPG in the final energy consumption balances (7.8 percent in 2005), after the State's option to promote this fuel; (iii) the weakness of rural electrification ratings. In terms of final energy, wood fuels represent 55 percent of the country's total consumption. They are exclusively used by households and certain crafts workshops. However, recent evolution in the level of penetration of LPG is changing these trends. The speed and extent of these changes must be integrated in future strategies in the area of domestic energies. The main constraints remain: (i) a non-too rational method of exploitation of forests for energy purposes, which leads to a fast degradation of forest landscape; (ii) the policy of substitution of wood fuels by butane gas, expensive for the State due to the subsidies (30 billion in 2006). Even though the launch of the reform in the energy sector, the energy balance for Senegal has remained almost unchanged and shows ­at the level of primary energy­ a predominance of biomass, even though: (i) the progression in butane gas consumption, (ii) the hydroelectric power station of Manantali in July 2002, and (iii) the efforts to promote Kerosene as a domestic fuel. The introduction of alternative fuels other than butane faces most of all socio-cultural, technologic and tariff obstacles, which makes them less attractive to potential investors. The population's access to modern forms of energy is limited by the lack of financing allocated to the energy sector ­most of all to the electricity sector, even though the deep modifications made at the legal and regulatory frameworks. III. OBJECTIVES AND STRATEGIES A. Objectives 1. General Objective The Government's objective at the sector of domestic fuels is assuring in a sustainable way the supply of cooking energies to urban and rural households, while preserving forest and environmental resources. 2. Specific Objectives We refer mainly to: 1. Integrating the forest exploitation in a system based on the rational management of resources. 2. Promoting alternative energies in an effective way. 3. Readapting the institutional, regulatory and fiscal framework, enlightened by past and current experiences. 4. Capitalizing experiences for the diffusion of best practices. B. Strategies Four axis of strategic intervention have been identified to serve as a permanent orientation for the elaboration and launch of the Domestic Energy Strategy: 53 1. Strategic Axis 1: Supply Management Effective launch of the sustainable management of forest resources by local populations; Rationalization of forest exploitation; Capitalization, documentation and diffusion of experiences at the participatory forest development domain; Extension of management to regions other than Tambacounda and Kolda (intervention zones for PROGEDE). 2. Strategic Axis 2: Demand Management Energy savings: rationalization of domestic fuels consumption through the diffusion of efficient cooking equipments; Diversification: continuation of the spread of butane and the promotion of alternative energies (Kerosene, biomass bricks, gel fuel, etc.); Continuation of the research on and development of alternative fuels and cooking equipments. 3. Strategic Axis 3: Improvement of the institutional, regulatory and fiscal framework At the institutional level: - Redefinition of the missions of institutions already existing before the reforms; - Strengthening of the private sector and the NGOs' implication; - Strengthening of the State agents' capacities, as well as those of the local representatives and populations; - Improvement of the system of monitoring and evaluation; - Launch of a system of information and planning. At the regulatory and fiscal levels: - Harmonization between the code of behavior and the forestry code; - Revision of the forestry tax system and distribution of resources between the State and the local communities; - Institutionalization of the truth of prices. IV. UNEXPECTED RESULTS The unexpected results should consolidate the objectives of the current projects and programs (PROGEDE, PERACOD, etc.). We refer ­among others­ to the next results: 1. Forest areas being developed for energy production are extended to regions with a certain potentiality, apart from Tambacounda and Kolda; 2. Incentive measures are taken for the regeneration of deteriorated forest spaces (protection, reforestation); 3. Forest controls to fight against fraudulent exploitation is strengthened; 4. The level of tax revenues is improved; 5. Domestic fuels consumption is rationalized thanks to the promotion of efficient equipments; 54 6. The lessons of the policy of promotion of butane gas are maintained; 7. The promotion of alternative energies (kerosene, biomass, etc.) is assured; 8. The research (on) and development of fuels continues; 9. The missions and attributions of existing institutions are redefined, by paying attention to the reforms launched; 10. The capacities of State agents, local representatives and populations are strengthened. 1. Public-Private Partnership The politics of spreading butane gas have opened a window to an exemplary partnership between the public and private sectors. This partnership has been one of the keys to the success of this policy, thanks ­among others­ to the creation and development of stocking infrastructures, as well as infrastructures for the packaging and transport of butane gas. The instauration and continuation of this partnership demand a clear definition of the State's missions and the private sector's attributions ­notably with regards to the import, production and distribution of butane gas. V. INSTITUTIONAL FRAMEWORK AND LAUNCH OF THE STRATEGY 1. Institutional organization It is necessary to update the missions and attributions of the institutions in charge of energy and forest resources, in compliance with the adopted reforms (reform of the energy sector and decentralization law). This implies: - The adjustment of the missions of the Directorate of Energy; - The effective transfer of competences in the domain of natural resources management from the Forestry Service to the decentralized local governments; - The launch of a permanent and unified monitoring and evaluation system for the supply and the demand. (a) Improvement of the regulatory dispositive The improvement of the regulatory dispositive should integrate: - The study of the taxation modalities for wood and not for the final product (charcoal). - The limitation of the level of charcoal production and the response to the deficit by substitution energies (notable, butane gas) and the energy savings thanks to improved stoves. (b) Tax system and actions on prices It will be necessary to launch an adapted tax system and a policy for prices, through: - The progressive increase in forestry royalties in order to acknowledge the price of collected wood at the medium term; - The revision of the way of calculating the royalty so that it will be based on the collected quantities, instead on the produce ones; - The suppression of subsidies for butane gas and the harmonization of its price in the national territory. 55 - The eventual reduction of taxes on substitution fuels or imported fuels (kerosene, gel fuel and others), depending on their possible use as cooking fuels. (c) Interventions on supply management - Substitution products At mid-term, it will be necessary to use the stocking capacities of LPG for: - The security of supply; - The decrease of freight costs and prices; - The reduction and elimination of subsidies. - Participatory management and decentralized forestry resources The activities proposed are: - The technical and financial support to forestry management of villages' lands; - The application of the forestry code that transfer the responsibility and the forest exploitation revenues to local populations. - Control of wood energy exploitation for trade This control will be translated into: A study on the possibilities of spreading the wood fuels exploitation to certain regions, in order to promote their forestry potential; The establishment of schemes to conduct supply of cities, based on an acute knowledge of the resources, the human dynamics and the production; The modernization and strengthening of the institutional arrangements for the control of wood/charcoal exploitation and trade. The adoption of a system to mark the charcoal bags from the working sites, in order to avoid the fraudulent manipulation of the bags; The continuation of the experience of packaging of charcoal in small bags (from 1.5. to 3 Kg). (d) Measures to support local communities - Moving the charcoal exploitation to the areas of participatory management or those where production is controlled, in a maximum of seven years; - Developing an information, education and communication program for the local communities. (e) Support to private sector and financial mechanisms - Continuation of the generalization of the use of Casamance's kiln for the production of charcoal: training and aid to financing of equipments; - Technological innovations in the use of butane gas; - Incentive to the private sector for the creation of units of production of substitution fuels; - Support to charcoal production with biomass obtained from agricultural residues and aquatic plants (Typha). 56 (f) Training - Development of information, education and communication programs for the general public about energy issues; - Training of the different actors about the lessons learned and the best practices in the area of natural resources management; - Information and education on the decision making for the reduction of wood and carbon sampling, and the promotion of butane gas. (g) Monitoring and evaluation - Constitution of a structure in charge of the monitoring and evaluation of the Domestic Energy Strategy; - Periodical training for all the actors concerned about the main issues, the innovations and the actions and operational programs at the different phases of the strategy. 2. Launch of the strategy With regards to the strategic axis defined previously, the Domestic Energy Strategy has set four priority themes of intervention. They constitute the bone structure of the program, at the short term: - The realization of schemes to conduct the supply to the main regional capitals and the secondary cities, at a rhythm that will be defined among the different projects and programs; - The realization of an assessment of the methodologies of development and management of forestry resources applied in the different projects and programs, for the definition of a standard approach towards the transfer of management to local communities, as well as for the reformulation of the regulatory and fiscal context for wood energy; - The continuation of the development of butane gas, for the strengthening of the market with: (i) the support in terms of communication of the liberation of gas prices; (ii) the strengthening of the stocking and packaging capacities for the consolidation of the current national market and the promotion of rural areas; and (iii) the development of exports towards neighboring countries at the long term; - The organization of a program of information for the private sector operators, about the results reached at the domain of research in new fuels. An investment program in the sector or a National Plan on Domestic Energy will be elaborated. It will cover the basic activities that constitute the strategic axis defined at the Letter of Domestic Fuels Sectoral Development Policy. Minister of Environment Minister of Energy Ministry of Economy Djibo Leity KA Samuel A. SARR Adboulaye DIOP 57 Annex 5: Project Costs SENEGAL: Second Sustainable and Participatory Energy Management Project IDA Financing Total US Project Components Local Foreign Total NDF Million US US US Million Million Million Component 1: Reforms of the charcoal value chain 0.80 0.65 1.46 1.46 1.1. Support of a setting up of a system of allocation of charcoal 0.30 production concessions 0.18 0.12 0.30 1.2. Access to urban markets 0.25 0.47 0.72 0.72 1.3. Diversification of income of charcoal traders 0.37 0.07 0.44 0.44 Component 2: Sustainable wood-fuels supply management. 6.65 2.09 8.74 2.03 10.77 2.1. Sustainable community forests management. 5.48 1.83 7.30 2.03 9.33 2.2. Consolidation and establishment of biodiversity community 0.48 reserves 0.41 0.07 0.48 2.3. Eco-friendly agro forestry income generating activities 0.76 0.19 0.96 0.96 Component 3: Promotion and diversification of modern household 0.83 0.43 1.26 1.92 energy. 3.18 3.1. Promotion of efficient stoves 0.03 0.00 0.03 1.92 1.95 3.2. Planning of demand management 0.51 0.27 0.78 0.78 3.3. Institutional strengthening of the directorate of household energy. 0.29 0.16 0.45 0.45 Component 4: Coordination, monitoring and evaluation 1.37 0.68 2.04 2.04 4.1: Project Coordination 0.56 0.14 0.71 0.71 4.2: Monitoring and Evaluation 0.80 0.53 1.34 1.34 Total Baseline Cost 9.65 3.85 13.50 13.50 Physical Contingencies 0.00 0.85 0.85 0.422 1.27 Price Contingencies 0.00 0.65 0.65 0.65 Total Project Costs 9.65 5.35 15.00 4.37 19.37 58 Annex 6: Implementation Arrangements SENEGAL: Second Sustainable and Participatory Energy Management Project 1. From June 2008 to January 2009 discussions (meetings, letters) were held between the government (Ministry of Finance, Environment, Energy) and the World Bank on PROGEDE II institutional arrangement. As a result of these discussions, the following institutional arrangement has been agreed upon: (i) The Ministry of Environment (MEPNBRLA) shall be entrusted with the project's administrative supervision: This supervision is justified by the huge volume of activities of the Woodfuel Supply component compared to those of the Demand Management component and helps to avoid the ambivalence sometimes caused by dual supervision. (ii) The steering committee which supervises the implementation of PROGEDE II, notably the adoption of its work plan and the project's annual budget, shall be chaired by the Director of the Petroleum Products and Household Energy. As Implementing Agency, the Director of Water and Forestry or his representative shall provide secretariat services. In addition to the members that served in it during the first phase, this committee shall be broadened to the Local Government Directorate. Its composition is intended to ensure that the Ministry of Energy is provided with a comprehensive report on project activities. (iii) The project shall be attached directly to the DWF which is its implementing agency. (iv) However, given the need to guarantee an efficient and effective organization, build on the Director of Water and Forestry's experience in the implementation and management of projects, and avoid delays, the responsibilities will be transferred in two phases: a first three-year phase (2011-2013) referred to as the anchorage phase and a second phase of 2 years (2014-2015) referred to as the ownership phase. Phase 1: consolidation phase 2. During this anchorage phase, the project shall be under the administrative supervision of the Director of Water and Forestry who is the Project Manager. An Operations Officer shall be entrusted with the technical and financial management as is currently the case in projects supervised by the Director of Water and Forestry (PROGERT, PASEF, PADEC, etc.). This officer is accountable to the Director of Water and Forestry to whom he reports directly and who signs his contract. The intervention mechanism during this phase shall comprise as follows: At national level: An Administrator (Director of Water and Forestry) assisted by consultants, namely: An Operations Officer; A Financial Management Manager; A Procurement Specialist; A Monitoring-Evaluation Assistant; An Information Systems Assistant; An Assistant in charge of IGA, training and capacity building; and 59 Support staff. 3. This structure shall work in close collaboration with the divisions of the two technical Directorates, more specifically the Forestry Management and Production Division (FMPD) of the DWF and the Household Fuels Division of the DPHE. It shall assist the two divisions to plan, enhance and coordinate the implementation of activities through harmonized actions, to monitor and evaluate the program's performance and ensure financial management. 4. On the basis of a work plan and an annual budget, these two divisions shall send financing requests backed by the terms of reference of activities to be financed, to the support team. These requests shall be examined and processed by the support structure in accordance with a manual of procedures to be prepared up to the time the financing is obtained. 5. Within the framework of this institutionalization, the consultants' performance shall be assessed on the basis of their capacity to transfer their knowledge to State structures and local actors. These performances will also be measured in relation to the expected results. The approach will be facilitated by the Rapid Results Institute which has proven experience in this area. 6. An inventory and Mapping Office shall be established within the Forestry Management and Production Division run by former SIEF officers, some of whom (government officials) have already been posted to this office but occupy other positions. This division shall be primarily supported by the assistant in charge of the development of information systems (ADSI) for the reinforcement and creation of regional inventory and mapping offices. It shall also contribute to the migration of the SIEF, from a data base to a real information system, the current SIEF. 7. Similarly, the assistant in charge of the development of information systems (ADSI) shall support the DPHE's Household Fuels Division to ensure the migration of the current Information and Permanent Evaluation System (SIEP) to a real Information System linked to the Energy Information System (SIE). It shall ensure coherence and integration between the SIEF (Supply Component) and the SIEP (Demand Component) with a view to having reliable tools to better plan the household fuels sub-sector. 8. The senior accountant should work in close collaboration with the Administrative and Financial Department of the Directorate of Forestry (BAGE) to help it strengthen its capacities to take ownership of the World Bank's financing procedures. 9. The Demand Management Component to be implemented by the Directorate of Petroleum Products and Household Energy shall be assisted by consultants to take up the activities to be accomplished. The consultants include: An expert in household fuels; An outreach/sensitization assistant; and Support staff. 60 At regional level: 10. At regional level, as is the case with the Demand Management component, consultants shall support Regional Forestry Offices (IREF) in the implementation of integrated participatory management. These consultants include: An expert in forestry management and biodiversity; An expert in gender and the organization of local actors; and Support staff 11. Since it would be difficult for each concerned IREF to be assisted by these experts full time, the latter shall be based in the central regions and will work with IREFs who belong to all these central regions. Those to be based in Kolda will support the IREFs of Kolda and Sédhiou, those to be based in Tambacounda, the IREFs of Tambacounda, Matam and Kédougou, those to be based in Kaffrine, the IREFs of Kaffrine and Kaolack. The performance of these experts shall be evaluated on the basis of their efficiency in providing technical support to IREFs for the preparation and implementation of integrated participatory forest management plans, in strengthening the technical and operational capacities of the forestry service, Regional Development Agencies (ARD) and Village Development Groups (CVGD) staff to ensure their autonomy in forest management. All the conditions being equal, this arrangement has the advantage of significantly reducing the technical staff, considering the project's extension in the regions of Matam, Kaolack and Kaffrine. 12. For specific technical support needs both at national and regional levels, the project shall favor the signing of memoranda of understanding with State technical services or contracts with service providers (consulting firms, NGOs etc.). 13. Community supervisors shall be under the administrative authority of the decentralized IREF services (brigade, patrol) and shall have operational relations with local governments and village committees. The consultants supporting State structures and local actors in this anchorage phase will be paid by the project. 14. At the end of the first phase, an organizational and institutional diagnosis shall be undertaken in all the structures involved in the implementation to improve on the planning of the second phase. The project shall also examine ways and means of transferring to the government, the payment of salaries to staff members considered essential for the ownership phase. Concerning the forests put under sustainable management, the salaries of community supervisors shall be paid progressively by local governments and the CIVGD from funds generated through management activities. Phase 2: Ownership Phase 15. Based on assessment of knowledge transfer to civil servants of the Borrower, during the ownership phase, the Technical Directorates and their decentralized structures supposed to have acquired enough capacities during the first phase, shall take over. They shall thus be fully responsible for the implementation of project activities. The Director of Water and Forestry shall therefore be entrusted with implementing the project's Wood fuel Supply component (Component 2 of the Project) through its competent divisions (Forestry Management and Forest 61 Resources Production Division) and the IREF. At the Directorate of Petroleum Products and Household Energy, the Household Fuels Division is responsible for the implementation of the « Demand management» component(Component 3 of the Project), under DWF's coordination 16. The Director of Water and Forestry is still the Administrator of project funds and shall jointly manage the sub-account with the Head of BAGE. The BAGE team (accounting and procurement) shall be entrusted with financial management in place of the senior accountant. The ongoing FM assessment of the World Bank will provide specific recommendations in this aspect. At national level: 17. The project implementation support structure shall be composed as follows: The Manager (Director of Water and Forestry); An Operations Officer; The Head of BAGE at the DWF; The Monitoring Evaluation Division at the DPHE; The Monitoring Evaluation Division at the Directorate of Petroleum Products and Household Energy; and Support staff 18. This structure shall work in close collaboration with the divisions of the two Technical Directorates and assist them to plan, enhance and coordinate the implementation of activities through harmonized actions, to monitor and evaluate the program's performance and ensure financial management. 19. Due to the workload, the Household Fuels Division staff shall be strengthened with: An assistant specialist in household fuels; and Skeleton support staff. 20. On the basis of a work plan and an annual budget, these structures shall send financing requests backed by the terms of reference of activities to be financed, to the support structure, as was the case during the anchorage phase. These requests shall be examined and processed by the support structure in accordance with a procedures manual to be prepared up to the time the financing is obtained. At regional level: 21. The IREF shall be in charge of preparing and implementing management plans. In view of their workload, on the one hand, and the need to have technical expertise, on the other, each IREF (excepting Kédougou and Sédhiou) shall be provided with additional support staff composed as follows: A forest management adviser; A reduced number of community supervisors supported by representatives selected from CVGDs; and 62 Support staff 22. During this phase, the capacities of local actors (Village Committees and Local governments) to pay for the salaries of some supervisors in the already developed forest massifs shall be evaluated. In any case, supervisors should work in close collaboration with the decentralized structures of IREFs (Forest Brigades and patrols). The project continues to pay the salaries of supervisors recruited in newly developed forests, because the project activities would have not yet reached cruising speed and the beneficiary populations have not yet generated sufficient revenues. 63 Annex 7: Financial Management and Disbursement Arrangements SENEGAL: Second Sustainable and Participatory Energy Management Project A. Summary of the Financial Management Assessment 1. The objective of the Financial Management Assessments is to determine whether the implementing unit of the project namely PROGEDE II under the Administrative tutelage of the Ministry of Environment, and a technical committee headed by the Director of the Directorate of Petroleum Products and Household Energy, has acceptable financial management arrangements in place to take on the project's fiduciary responsibility. These arrangements include the existence of an accounting system and reporting, auditing, and internal controls. The implementing unit financial management arrangements are acceptable if: (i) it is capable of recording correctly all transactions and activities; (ii) it supports the preparation of regular and reliable financial statements; (iii) it safeguards its assets, and (iv) it is subjected to a satisfactory auditing process. The financial management (FM) assessment of PROGEDE II was carried out in accordance with the Financial Management Practice Manual issued by the Financial Management Sector Board on November 3, 2005. 2. The precedent project (PROGEDE) had a Project Implementation Unit (PIU) but for the second operation PROGEDE II, the DWF will be the implementing agency, however its FM unit called Bureau de l'Administration Générale et de l'Equipement (BAGE) is not yet experienced in managing Bank financed projects. In order to build the required capacity within the directorate, some experts will be hired for providing financial management assistance for the first three years called anchor phase. And, also, transfer them knowledge to the BAGE of the DWF to enable them to take over project implementation in the second phase called ownership phase. 3. The conclusion of the assessment is that the financial management arrangements for the Project need to be established to satisfy the World Bank's minimum fiduciary requirements under OP/BP10.02, after which they will be adequate to provide, with reasonable assurance, accurate and timely information on the status of the Project as required by the Bank. The main areas of focus will be: Staffing; Accounting; and Auditing. 4. The overall fiduciary risk rating is assessed as Moderate based on a qualified fiduciary team consultant that will be hired to handle FM aspects of the project the first three years. B. Country issues 5. The inherent risk of the public financial management system in Senegal is rated Substantial at the country level. The 2007 Public Expenditure and Financial Accountability (PEFA) report shows that the reform program has yielded progress in Public Financial Management (PFM) but a number of challenges remain, including: (i) putting in place a reliable system to track expenditure payment arrears and avoid budget deviations; (ii) eliminating delays 64 in the consolidation of budget information and the production of comprehensive and regular in- year annual budget execution reports; (iii) reinforcing the internal and external controls of budget execution and, state-owned enterprises and national agencies; and (iv) strengthening the external scrutiny and audit by increasing the capacity of the Section of Accounts of the Supreme Court and the effectiveness of the legislative scrutiny. 6. With the support of donors group, the government will implement the action plan resulting from the conclusions of the PEFA exercise to address the key challenges and strengthen the public financial management system. 7. In line with the Paris Declaration, the institutional arrangements of this project have been designed under both Ministries of Environment and Energy. The project will be under the Administrative supervision of the Ministry of Environment, and a technical committee headed by the Directorate of Petroleum Products and Household Energy who will supervise project implementation. The DWF will play the secretariat role, will support the project's implementation and the use of country system will be based on a gradual approach depending on progress made in strengthening the PFM system. C. Fiduciary Risks and Mitigation Measures Effectiveness Risk Residual or Risk Rating Risk Mitigation Measure Risk Negotiation Rating Condition (Yes/No)? Inherent Risks: S S Country: risks related to The 2009 PFM reform No public financial management action plan, drawing on the governance. 2008 PEFA and other inputs, is under Risks remain in terms of implementation. A series quality, comprehensiveness of public expenditure and timeliness of in-year reviews, developed in budget reports and annual partnership between the financial statements, medium- S S Bank and the authorities, term budgeting, the will shed light on issues of effectiveness of external efficiency, effectiveness control and legislative and accountability in scrutiny of the budget. public expenditure management. Entity: No While legal and institutional S The Bank will monitor the S 65 framework is in place, implementation plan, the implementation may be annual action plan, and the hampered by political budget to make sure that interference on which they are in line with the attention should be paid. objectives the FM capacity Also, direction of forest and will be strengthened during water FM capacity is weak. the anchor phase. Project: The PROGEDE 1 FM No manual will be up dated Lack of FM capacity of the S and training will be M BAGE team and weak provided to the BAGE internal control environment. team. Control Risks: M M Staffing: A contract will be signed Yes with an FM manager and Effectiveness The BAGE team of the an accountant who would Direction of Forest and Water M provide an assistance for at M does not have the capacity least 3 years during which and experience to manage the they will build the capacity project of BAGE. Budgeting: The PROGEDE 1 FM No manual will be updated in The existing manual of order to give more details procedures of PROGEDE I on the budget preparation will be used, but it does not M L and execution processes give any detail on budget within two months after preparation, and execution effectiveness. procedures. Accounting software: The accounting software of No PROGEDE 1 will be used The existing software of and will be moved on PROGEDE 1 is a TOMPRO S network and multi- post. M mono-post software and does not allow a proper follow up of the project's expenditures. Internal Control: The FM manual will be Yes updated with a clear Effectiveness The existing manual of M M description of the budget PROGEDE I does not give and accounting processes enough details on accounting, 66 the budget preparation and as well as assets approval and assets safeguards. safeguards. Funds Flow: The fiduciary team No consultant will have the Timely submission of experience in submission acceptable WA to avoid delay of WA. However, training in funds mobilization. M L of BAGE staff on Bank's FM, procurement and disbursement procedures, should be provided. Reporting and Monitoring: The fiduciary team No Delays in the submission of consultant will have the agreed IFRs and annual experience in the M M project financial statements submission of agreed IFRs and annual project financial statements Internal Audit : The project will support No the internal auditor The direction of forest and consultant recruitment to water doesn't have an internal carry out a quarterly auditor S M internal audit of the project with ToR acceptable for IDA and will issue a report on each intervention Auditing: Recruitment of qualified, No experienced and The lack of capacity of the M independent external L Court des Comptes auditors with TORs acceptable to IDA. Overerall Risk: M M H ­ High S ­ Substantial M ­ Modest L ­ Low D. Strengths and weaknesses Strengths 8. The financial management capacity built under the closed PROGEDE will be consolidated and used to manage the Financial Management System of the project for the first three year called anchor phase. A qualified financial manager and an accountant (consultants) will provide technical assistance, particularly, the transfer of knowledge to BAGE team of the 67 DWF to enable them to take over project implementation in the second phase called ownership phase. Weaknesses 9. The project financial management is weakened by the following salient features: Non-familiarity of the staff with IDA financed-projects and FM procedures, Weak internal control environment: the internal auditor is not in place and the procedures manual need to be up dated. E. Financial Management Action Plan ACTION When By whom 1. FM arrangements By effectiveness DWF Appoint the fiduciary team (FM manager, accountant) Adopt a satisfactory financial management system for the project 2. Accounting By two months after DWF Training of BAGE staff on Bank's effectiveness FM procedures; Upgrade the accounting software of PROGEDE I from ­mono-post to multi-post and network. 3. Internal controls By effectiveness DWF Update the FM manual with a clear description of the budget and accounting processes as well as assets safeguards. recruitment of the internal auditor consultant to carry out a quarterly internal audit of the project with ToR acceptable for IDA and will By two months after issue a report on each intervention effectiveness 4. External Audit By negotiations DWF Draft the ToR for the financial audit of the Project By four months after Selection of the auditor effectiveness F. Implementing Entity 10. The BAGE of the DWF will have the overall coordination of the FM and accounting activities. It will be supplied by FM team consultants during the anchor phase. The FM staff with the oversight of the coordinator will oversee the financial management aspects of the project 68 including the consolidation of financial statements for project activities, providing quarterly Interim Financial Reports, monitoring financial transactions on the project's account through the DDI and making the necessary arrangements for the annual financial audit. DDI is the entity of Ministry of Economy and Finance in charge of managing the designated accounts in Senegal. All payments under the project will be paid through DDI channel. G. Budgeting arrangements 11. The PROGEDE FM manual will be updated to include the procedures related to budget preparation and execution. The update will notably include the adoption of the budget by the technical Committee before the beginning of the year. Annual budgets will also be submitted to the Bank's non objection before adoption and implementation. H. Accounting policies and procedures 12. The current accounting standards in use in Senegal for on-going Bank-financed projects will be applicable. SYSCOHADA is the assigned accounting system in West African Francophone countries. Project accounts will be maintained on a cash basis, supported with appropriate records and procedures to track commitments and to safeguard assets. Annual financial statements will be prepared by the BAGE of the DWF in accordance with the SYSCOHADA. The ROSC Accounting and Auditing identified some differences with the International Accounting Standards but they are not expected to impact the project. Accounting and control procedures will be documented in the Administrative, Accounting and Financial Manual. I. Reporting and Monitoring 13. Interim Un-audited Financial Reports (IFRs) would be prepared by the DWF. The IFR will include sources and uses of funds by project expenditures classification. It will also include a comparison of budgeted and actual project expenditures (commitment and disbursement) to date and for the quarter. The DWF will submit copies of the IFRs to the Bank within 45 days following the end the calendar quarter. The format and contents of the IFR were agreed on during negotiations. 14. The BAGE will produce Annual Financial Statements, and these statements will comply with SYSCOHADA and World Bank requirements. These Financial Statements 3 will comprise of: A Statement of Sources and Uses of Funds A Statement of Commitments Accounting Policies Adopted and Explanatory Notes A Management Assertion that project funds have been expended for the intended purposes as specified in the relevant financing agreements 3 It should be noted that the project financial statements should be all inclusive and cover all sources and uses of funds and not only those provided through IDA funding. It thus reflects all program activities, financing, and expenditures, including funds from other development partners. 69 J. Audit arrangements Internal Audit 15. The project will support the internal auditor consultant recruitment to carry out a quarterly internal audit of the project with ToR acceptable for IDA and will issue a report on each intervention. In addition, internal controls under the project will be reinforced by the DDI which will control ex ante all expenditures and withdrawal applications before sending them to the Bank. External audit 16. The Financial Agreement will require the submission of Audited Financial Statements for the project to IDA within six months after year-end. External auditor with qualification and experience satisfactory to the World Bank will be appointed to conduct an annual audit of the project's financial statements. A single opinion on the Audited Project Financial Statements in compliance with International Standards on Auditing (ISA) will be required. The external auditors will prepare a Management Letter giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the Financial Agreement. 17. The table below summarizes the auditing requirements: Audit report Due Date Financial Statements End of June Management letter K. Funds Flow and Disbursement arrangements Disbursement methods 18. Disbursements under the Credit would be transactions based. Direct Payment and SOE (Statement of Expenditures) methods will apply as appropriate. A Designated Account (DA) will be opened at a commercial bank acceptable to the World Bank to facilitate payment for eligible expenditures. The DDI will manage the funds according to the disbursement procedures described in the Administrative, Accounting and Financial Manual and Disbursement Letter which was discussed in detail with the relevant Government officials during negotiations. The DA would be managed by DDI in coordination with the DWF. 19. The allocation of the Designated Account will cover approximately four months expenditures. The minimum value of applications for reimbursement, direct payment and special commitment is 20 percent of outstanding advance made to the designated account. Report based disbursement 20. The conversion to report-based disbursements may be envisaged once PROGEDE II has demonstrated the capacity of produce reliable IFRs. 70 Disbursement schedule 21. The table below sets out the expenditure categories to be financed out of the credit proceeds. Categories referenced are the ones of the FA. The allocations are the following: Category Amount of the Credit Percentage of Allocated (expressed Expenditures to be in SDR) Financed (inclusive of Taxes) (1) Goods, works, Training and consultants' 800,000 100 percent services for Part A of the Project (except Part A.3(iv) of the Project) (2) Goods, works, Training and consultants' 5,750,000 100 percent services for Part B of the Project (except Parts B.1(a)(i), (ii), (iii) and (iv) of the Project) (3) Goods, Training, Operating Costs, works 830,000 100 percent and consultants' services for Part C of the Project (except Part C.1(a) of the Project) (4) Goods, Training, Operating Costs, works 1,350,000 100 percent and consultants' services for Part D of the Project (5) Goods and equipment under PartA.3(iv) of 170,000 100 percent of the Project amounts disbursed through Sub-grants (6) Unallocated 1,000,000 TOTAL AMOUNT 9,900,000 71 22. Flow of funds arrangement: IDA DDI Designated Account DDI PROGEDE Suppliers Transfer of Funds Transmission of documents L. Supervision Plan 23. Supervision activities will include: (i) review the financial management aspects of quarterly IFRs; (ii) review of annual audited financial statements and management letter as well as timely follow up of issues arising; (iii) and participation in project supervision missions, as appropriate. The Bank FMS in charge of this project will monitor the timely implementation of the financial management arrangements. However, intensity of supervision could be reassessed upon the evolution of the rating for the overall control risk. M. Financial Covenants 24. The Borrower shall establish and maintain a financial management system including records, accounts and preparation of related financial statements in accordance with accounting standards acceptable to the Bank. The Financial Statements will be audited in accordance with international auditing standards. The Audited Financial Statements for each period shall be furnished to the Association not later than six (6) months after the end of the project fiscal year. The Borrower shall prepare and furnish to the Association not later than 45 days after the end of each calendar quarter, interim un-audited financial reports for the Project, in form and substance satisfactory to the Association. 25. The Borrower will be compliant with all the rules and procedures required for withdrawals from the Designated Accounts of the project. 72 Annex 8: Procurement SENEGAL: Second Sustainable and Participatory Energy Management Project A. General Procurement in the context of the country 1. Following the government's approval of the 2003 CPAR action plan, the government has adopted in 2007 a new Procurement Code (decree n° 2007-545 dated April 25, 2007) which complies with the WAEMU's Procurement Directives and best international practices. In accordance with this code, (a) a Public Procurement Directorate was created in 2007 (decree N° 2007-547 dated April 25, 2007) for controlling procurement transactions of any public contracting authority and (b) a Public Procurement Regulatory Authority (Autorité de Régulation des Marchés Publics-ARMP) was set up in 2007 (Decree n° 2007-546 dated April 25, 2007) for handling policies, complaints and audits. These two entities are operational. In addition, the government already prepared main national bidding documents which have been adopted by the ARMP. Except the limitation to bidders from WAEMU for NCB, there is no major deviation of the national Code from the Bank's Directives. Applicable guidelines 2. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits," dated May 2004 and revised by October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised by October 2006, and the provisions stipulated in the Legal Agreement. The items under different expenditure categories are described in general 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, prior review requirements, and timeframe are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan, defining the procurement and selection methods and the requirement of IDA prior review, will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement Documents 3. The procurement will be carried out using the Bank's Standard Bidding Documents (SBDs) or Standard Request for Proposal (RFP) respectively for all ICB for goods and recruitment of consultants. For National Competition Bidding (NCB), while waiting for the government and the Bank to respectively validate and give the no objection on the national bidding documents in preparation, the Borrower will use the WB's SBD for ICB for goods and the WB's RFP for recruitment of consultants. In the same vein, the Sample Form of Evaluation Reports developed by the Bank, will be used until the new national samples are reviewed and satisfactory to the Bank. The ICB's Threshold for goods in Senegal is US$500 000. 73 Advertising procedure 4. General Procurement Notice (GPN), Specific Procurement Notices (SPN), Requests for Expression of Interest, results of the evaluation and contracts award should be published in accordance with advertising provisions in the following guidelines: "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised by October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised by October 2006. Procurement of works 5. Civil works procured under this project would include but are not limited to: rehabilitation of trails, rehabilitation and repair of fire breaks, rehabilitation of headquarters, repair of two (2) ponds. Civil works contracts financed under the credit will be awarded through NCB procedures. Due to spread high transportation costs, these civil works contracts are unlikely to attract foreign or large firms that use modern equipment. Foreign bidders, however, would not be precluded from submitting bids. 6. Civil works contracts with an estimated value of less than US$50,000 per contract may be awarded through Shopping, with at least three quotations obtained from qualified contractors in response to a written invitation, giving the description of works, the basic specifications, and the required completion time. Procurement of Goods: 7. Goods procured under this Project would include but are not limited to the acquisition of office equipment and furniture, IT equipment and software, vehicles (and motorcycles), forest fires fighting equipment, small tools and field equipment for rural communities, office and field equipment for the Forest Service (regional offices), small forest fire control equipment and purchase of equipment for the implementation of supporting community projects. Goods estimated to cost above US$500,000 equivalent per contract may be procured under ICB. Goods estimated to cost less than US$500,000 may be procured under NCB. Goods estimated to cost less than $50,000 equivalent per contract may be procured under contracts awarded either on the basis of shopping procedures, depending on local availability. Selection of Consultants 8. Consultants Services procured under this Project include but are not limited to: consultants for technical assistance, capacity building for institutional reform, training activities and execution of studies (vegetation cover assessment, design of monitoring and supervision systems, energy demand), external audits. Short lists of consultants for services estimated to cost less than $200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The procurement plan will indicate the selection methods and all cases where IDA review and no objection are needed. Procurement of non-consulting services 9. Non-consulting services to be financed under the Credit will include mainly communication, small operating needs for the project execution. Those services are likely to be of small values, and as such, they may be procured by shopping in accordance with paragraph 74 3.5 of the procurement Guidelines. In case of large value, NCB procedures will be used in accordance with the same provisions as procurement of goods. Operating Costs 10. Incremental recurrent expenditures will be procured using the implementing agency's administrative procedures which will be elaborated and found acceptable to the Association. Therefore, procurement procedures and SBDs to be used for each procurement method, as well as model contracts for goods procured, will be presented in the Administrative Procedures Manual that will be developed by the DWF. B. Assessment of the Agency's capacity to implement procurement 11. Procurement activities will be carried out by the DWF (Direction of Water and Forestry). The DWF is staffed by an Administrator (The Director of Water and Forestry), supported by a team of consultants/experts: a Head of operations, a Principal accountant, an Assistant in charge of the monitoring and evaluation, an Assistant in charge of IT system, an Assistant in charge with Income-generating activities (AGR), Training and Capacity building, and a personnel of support (particularly an Assistant). This staff will be responsible for preparation of terms of reference, technical specification, bidding documents and draft contracts. The procurement functions are handled by the Procurement Unit (Cellule Passation de Marchés) of the MEPNBRLA for the funds allocated by the government to DWF. For the implementation of the Senegal Sustainable and Participatory Energy Management Project (PROGEDE II), the strategy is to reinforce DWF as executing agency which will be fully responsible of the fiduciary function. The sole agent in place after the closure of PROGEDE is the Principal accountant who has been trained on both World Bank and public procurement procedures and on World Bank financial management procedures. 12. An assessment of the capacity of the Implementing Agency to implement procurement actions for the Project has been carried out by the Bank's procurement specialist on March 16, 2010. The assessment reviewed the organizational structure for implementing the Project and the interaction between the Project's staff responsible for procurement and the DWF. Most of the issues/ risks concerning the procurement component for implementation of the Project have been identified and include: (a) The DWF has not yet developed an Administrative Manual, (b) Equipment for filing procurement files or any other administrative records does not exist although the team benefit from training on archive and is ready to use the ARMP's manual of archive, (c) the DWF is not familiar with Bank's procurement procedures and has insufficient experience in managing directly a project. 13. The agreed corrective measures are to (i) elaborate an administrative and financial procedures manual and a project implementation manual;(ii) recruit an archivist for a short term contract to help DWF to organize the archives and then to transfer and file PROGEDE's documents, once the appropriate space has been rehabilitated; (iii) train all DWF' project team in World Bank basic procurement procedures, in appropriate institutions; and (iv) to recruit a procurement specialist for a permanent position during the first three years of the Project implementation (anchor phase). The approach will be to provide basic procurement training to technical specialists and experts. The technical responsibilities in preparing procurement packages ­ including technical specifications and terms of reference ­ and amending basic 75 procurement document templates, such as data sheets, will be carried out by the relevant specialists/experts and not passed to the procurement team. Particularly, the BAGE (Administrative and Financial Office) of DWF will also be trained in World Bank's procurement procedures, in appropriate institutions, to be able to carry out procurement activities during the second phase (ownership phase) 14. The overall project risk for procurement is Substantial and is expected to be moderate with the mitigation measures. Procurement Plan 15. The Borrower is developing a procurement plan for project implementation which will provide the basis for the procurement methods. This plan was agreed between the Borrower and the Project Team before the negotiations and is available at DWF, BP 1831, Hann - Dakar (Senegal), Tel. +221 33 859 2051 and +221 33 832 51 95. It will also be available in the project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. C. Frequency of Procurement Supervision 16. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended supervision missions at least every six (6) months to visit the field to carry out post review of procurement actions D. Details of the Procurement Arrangements Involving International Competition 1. Goods, Works, and Non Consulting Services (i) List of contract packages to be procured: Prior review: Method Levels Comments 1. Goods =ou>500 000 USD Prior review 3. Works =ou>5000 000 USD Prior review 5. Direct Contracting All contracts Prior review 76 1 2 3 4 5 6 7 8 9 Review Expected Estimated Domestic Contract Procurement by Ref. Preference Bid- Cost P-Q Bank Comments No. (Description) Method Opening (USD) (yes/no) (Prior / Date Post) 1 Component: Institutional Reform of the Charcoal Value Chain 1.1 Two (02) trucks 444,500 ICB NA NO Prior Jan.2, 15T 2012 1.2 Trails repair 110,000 NCB NA NO Prior April 15, 2011 2 Component: Sustainable Woodfuel Supply 2.1 Finalizing 89,000 NCB NA NO Prior April 30, construction of 2011 Tambacounda Forestry Office Headquarters 2.2 Building of 5 forest 78,300 NCB NA NO Post August One control posts and 30, 2011 bidding rehabilitation of document regional forestry and several headquarters packages 2.3 Forest inventory 110,000 NCB NA NO Post April 30, materials 2011 2.4 Fencing 244,400 NCB NA NO Post June 30, 2011 2.5 Delimitation of 400,200 NCB NA NO Post Feb.15, forest areas 2012 2.6 Forest fire fighting 110,000 NCB NA NO Post July 29, tools 2011 2.7 Computers 334,000 ICB NA NO Prior June 30, 2011 - Equipment for inventory and mapping for four 77 1 2 3 4 5 6 7 8 9 Review Expected Estimated Domestic Contract Procurement by Ref. Preference Bid- Cost P-Q Bank Comments No. (Description) Method Opening (USD) (yes/no) (Prior / Date Post) decentralized offices, six forest control posts and seven regional forestry offices - Purchase of software for the GIS forestry based information system 2.8 Wells and tanks 67,000 NCB NA NO Post Aug. 10, basins 2011 2.9 Honey production 100,000 NCB NA NO Post July 30, equipment 2012 2.10 Input for gardening, 110,000 NCB NA NO Post April 15, animal husbandry 2011 and forest related activities 2.11 Fencing materials 66,700 Shopping NA NO Post Oct. 15, 2011 2.12 Honey production 11,000 Shopping NA NO Post June 17, materials 2011 2.13 Bee hives 44,500 Shopping NA NO Post June 30, 2011 2.14 Nursery bags 100,000 NCB NA NO Post April 15, 2011 2.15 Construction of 23,000 Shopping NA NO Post Aug. 30, small office for GIS 2011 system team and for archiving 78 1 2 3 4 5 6 7 8 9 Review Expected Estimated Domestic Contract Procurement by Ref. Preference Bid- Cost P-Q Bank Comments No. (Description) Method Opening (USD) (yes/no) (Prior / Date Post) 2.16 Gas to perform 223,000 NCB NA NO Post May 30, sustainable forest 2011 management (over 450,000 ha in new zones and 425,000 ha in old zones) 3 Component: Promotion and Diversification of Modern Household Energy 4 Component: Technical Assistance 4.1 Office furniture 13,500 Shopping NA NO Post Dec.15, 2010 4.2 Office renting in 4,900 Direct NA NO Prior Sept.1, Tambacounda Contracting 2010 PURCHASE FOR THE FOUR COMPONENTS 5.1 Vehicles and 1,368,900 ICB NA NO Prior April 30, One motorcycles 2011 bidding document and two packages - 03 véhicule 4x4 station wagon - 18 vehicule 4x4 79 1 2 3 4 5 6 7 8 9 Review Expected Estimated Domestic Contract Procurement by Ref. Preference Bid- Cost P-Q Bank Comments No. (Description) Method Opening (USD) (yes/no) (Prior / Date Post) pick up - 01 véhicule berline - 40 Moto 5.2 Computers 67,000 NCB NA NO Post Nov 30, 2010 5.3 Furniture and office 78 ,000 NCB NA NO Post Nov.30, material 2010 5.4 Gas for project 202,000 NCB NA NO Post Nov. 30, supervision and 2010 monitoring (ii) ICB contracts estimated to cost above US$ 500,000 per contract, the first two contracts irrespective of the cost estimate and all direct contracting will be subject to prior review by the Bank. 2. Consulting Services Prior review: Selection method Prior review level Comments 1. Selection of firms >ou=200 000 USD Prior review 2. Selection of individual consultants >ou=100 000 USD Prior review 3. Single source for firms and All contracts Prior review individual consultants 80 1 2 3 4 5 6 7 Review Expected Estimated Ref. Selection by Bank Proposals Description of Assignment Cost Comments No. Method Submission (Prior / (USD) Post) Date 1 Component: Institutional Reform of the Charcoal Value Chain 1.1 Study on fiscality reform 22,200 QCBS Prior April 1, 2011 1.2 Market study on wood energy 22,200 QCBS Post July 15, 2011 1.3 Study on stakeholders capacity 51,100 QCBS Post July 15, 2011 1.4 Feasibility study on charcoal 55,600 QCBS Post Aug.15, processing units 2011 1.5 Charcoal traders projects 8,900 IC Post Nov.30, 2011 2 Component: Sustainable Woodfuel Supply 2.1 Implementation capacity 100,000 SS Prior Oct.1, 2011 strengthening at the Ministry and community levels (Rapid Result Institute) 2.2 Reference socio-economic studies 55,600 QCBS Post Jan.10, 2011 2.3 Action plan for the implementation 177,800 QCBS Post Aug.30, of the social and environmental 2011 safeguards 2.4 Information system design 44,500 QCBS Post Sept.15, 2011 2.5 Expert in forest resources 282,480 IC Prior Aug. 15, management and biodiversity (03) 2010 81 1 2 3 4 5 6 7 Review Expected Estimated Ref. Selection by Bank Proposals Description of Assignment Cost Comments No. Method Submission (Prior / (USD) Post) Date 2.6 Expert in organization of local 282,480 IC Prior Oct. 15, actors and gender issues 2010 (03) 2.7 Executive assistant (05) 128,900 IC Prior Aug.15, 2010 2.8 Environmental, climate change and 73,400 IC Prior Oct. 10, social monitoring assistant 2010 3 Component: Promotion and Diversification of Modern Household Energy 3.1 Woodfuel supply master plan for 206,700 QCBS Prior June 1, main urban consumption centers 2011 (Dakar Kaolack , Saint Louis, Touba,) 3.2 Fuel consumption survey 133,300 QCBS Post Sept.15, 2011 3.3 Woodfuel supply survey 66,700 QCBS Post 3.4 Expert in household energy (01) 142,200 IC Prior Aug.15, 2010 3.5 Communication/sensibilisation 71,100 IC Post Aug.15, assistant (01) 2010 3.6 Executive assistant (01) 44,500 IC Post Aug.15, 2010 4 Component: Technical Assistance 4.1 Archiving documentation 11,400 IC Post April 15, 2011 4.2 Upgrade of accounting software 8,900 QCBS Prior April 15, and installation of network 2011 82 1 2 3 4 5 6 7 Review Expected Estimated Ref. Selection by Bank Proposals Description of Assignment Cost Comments No. Method Submission (Prior / (USD) Post) Date 4.3 Annual external audits 66,600 QCBS Prior April 15, 2011 4.4 Head of operations 300,000 IC Prior Aug. 15, 2010 4.5 Principal accountant 128,900 IC Prior Aug.15, 2010 4.6 Procurement specialist 93,400 IC Prior Aug.15, 2010 4.7 Expert in monitoring and 93,400 IC Prior Sept.30, evaluation 2010 4.8 Information system expert 140,000 IC Prior Sept.30, 2010 4.9 Capacity building and income 93,400 IC Prior Sept.30, generating activities expert 2010 4.10 Executive assistant 80 ,000 IC Post Aug.15, 2010 4.11 Accountant 64,000 IC Prior Aug.15, 2010 (iii) Consultancy services estimated to cost above US$200,000 per contract for firms and US$100,000 per contract for individual consultants, the first two contracts irrespective of the cost estimate and every single source selection of consultants (firms) for assignments will be subject to prior review by the Bank. (iv) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 83 Annex 9: Economic and Financial Analysis SENEGAL: Second Sustainable and Participatory Energy Management Project 1. Methodology 1.1. Approach and evaluation 1. The methodological approach used refers to three levels. The first level is the documentation on the projects already achieved at the acting structures, such as the Ministry of Energy and the Ministry of Environment, through their experts on the supply and demand sides. A large documentation has supported the identification of the parameters for the evaluation, as well as the hypothesis for the calculation of costs. The second level has been participative and has focused on the cooperation and collaboration among the partners. This level has been based on field works and interviews with partners at the precedent project's intervention zones (CIVGD, CVGD, traders, rural communities, local producers and their associations) and in certain points at the new zones (representatives of the DWF and their partners). The field work has allowed us to get a technical picture of the situation. It has also allowed the identification of obstacles and opportunities of forest management, technical problems linked to control issues, fires, strategies developed and their implementation conditions, etc. This mission has in fact allowed us to define, identify and validate the hypothesis and possible scenarios for the potential effects 2. The discussions with the institutions and partners involved have also allowed identification of the hypothesis on the cost of the expected private investment. In the different localities, the interviews with actors such as producers, farming counselors, local authorities, etc. have focused on the current level of productivity, the patrimony of the forest reserve, the problems faced with regards to resource preservation, the possible solutions and their perception on the infrastructures proposed at the local level. The discussions have also focused on the prices and costs of the factors that play a role at the sustainable management of forest resources, the different needs, the level of their involvement with regards to the project organization, etc. The diagnosis based on the interviews and the brainstorming with the populations had the purpose of identifying the constraints and the obstacles that the populations face and that hamper the protection of the environment. This level of consultation has enabled the update of the estimations made by the project experts and has allowed us to determine the feasible contributions that local populations could make to project investments. 3. The economic analysis of the project is based on the determination of the project's direct effects in terms of revenues and costs. The method used is a costs/benefits approach. It consists on the evaluation of trends in the costs and benefits. 4. Each investment is evaluated by paying attention to the performance indicators at the global level, but also at the individual level ­in order to determine the beneficiary actors' capacity to participate in the promotion, creation and maintenance of the proposed investments. Due to the long term perspectives applied to the agro-forest sector, a twenty year-duration has been previewed. When it comes to indicators, the main synthesis criteria will be determined: the updated net value (sum of the economic and financial flows for the whole project, between 2010 and 2029); the rate of internal profitability (level of productivity of the project investments by contrast with other alternatives) and the report cost/benefit (approach of the results to the total cost) for the repayment period (recuperation time). The objective is to justify the opportunity of 84 the investments for a period of 20 years. A sensitivity analysis has been made to appreciate the strength of results for certain risk parameters, those which are more sensitive and random, and that can influence the performance of the obtained results. 1.2. Hypothesis 1.2.1. Identification of parameters 5. The economic and financial analysis is based on the revenues and costs induced by the project, in terms of wood fuels production gains and wood gains (through the use of charcoal and bio fuels and the prices obtained by contrast with the situation without project). The financial analysis takes into account the market prices. The economic prices will be obtained by adjusting the identified financial prices distortions (taxes, etc.). With regards to the supply component, the charcoal taxes are 5 percent and the taxes on the estimation of financial prices are 2 percent. With regards to the elements that compose the demand (improved stoves or units for the use of alternative energies), the taxes are estimated at 8 percent. All the prices of goods and services, as well as investment costs (public or private) are expressed in constant value (2010). Consumer price index is used as deflator. Manufactures Unit Value Index is used as deflator of the imports. This way, the hypothesis on the calculation parameters is based on the evaluation of the effects of PRODEGE II, in terms of revenues and additional real costs. This approach consists in the evaluation of the trends in these parameters, with and without project. The indirectly induced effects will be calculated in terms of employment, revenues, taxation and reduction of expenses (urban households), etc. 6. With regards to the estimations on the presence or absence of the project, the study has focused on the productivity gain for the sustainable forest management (the supply component). In effect, the production of wood will be made with or without project. However, the sustainable management of this patrimony strongly depends on the instrument of participative management that will be adapted to local populations. Experiences in the pilot zones have proved a real appropriation by local populations and its impact on the preservation of forest resources. The project experts and the populations consulted have pointed that the implementation of this sustainable management will strongly reduce the degradation of 71,000 ha in the new intervention zones and will consolidate the achievements made at the 89,034 ha of the precedent project's zones. This sustainable management implies the saving of a tone of sustainably produced charcoal per ha, and half a tone at the precedent project's intervention zones, where the management plans are in the middle of the rotation. It has also been previewed a higher charcoal productivity thanks to the use of the technology of the Casamance kiln by contrast with the traditional practices. This new technology will also produce gains in terms of reduction of emissions. For example, a FAO study (2000) pointed that carbonization through the Casamance kiln allows to win 8 Teq CH4 by contrast with traditional practices. This implies a reduction of 168 Teq CO2, given that one CH4=21 CO2. Moreover, avoided deforestation will produce a biomass of 1m3=0'7 t or 25 662 TC/year, which is to say over 77,000 tones of C or 849,000 Teq CO2 emissions avoided in a period of 30 years (estimations for the supply component). With regards to this data, an annual evaluation is previewed and will be proportional to the expected annual charcoal production. 7. With regards to the demand component, the diversification of energy sources will take some time. In effect, the introduction of improved stoves dates back in time, but their performances have been limited due to different factors such as the access to financing and the adequateness of equipments, as well as their cost. PROGEDE II will work on all these elements. 85 This way, an update of the supply status for these assets has been made. The economic analysis will be based on the model « Diambar », made with a metal sheet in which a ceramic piece is inserted. The analysis on bio charcoal will focus on raw materials, such as typha, rice residues, etc, with a substitution rate with regards to charcoal of 75 percent. This means that a production of 100 kg of bio charcoal can substitute a production of 75 kg of charcoal. The expected productions will be estimated through the demand component. With regards to biogas, a bio plant can save up to 9 Kg/day of charcoal to rural households. We take into account the fact that the bio plant will not be producing gas in a uniform way (reload, gas production curve, etc.). The substitution of 75 percent of households' consumption seems more realistic. This way, the production of the bio plant would be: 9kg/day X 75 percent X 50fcfa/kg X 365day. The amount of bio plants is estimated at an annual basis by the demand component. With regards to bio fuels, the substitution rate is equal to 1 liter of bio fuel for 3 kg of charcoal. Different budgets have been elaborated for the different operators in order to identify the effects induced, in terms of employment creation and revenues. 8. Given the nature of the project's expected results, the economic evaluation refers to a period of at least 20 years, with an opportunity rate of 12 percent. Thus, the expected public and private investment costs for these five years are estimated by taking into consideration the project's components. After these five years, there will be maintenance costs and expected results. It is estimated that from the sixth year and until 2029 the maintenance costs will be digressive. This way, at the sixth year the costs will be 10 percent of the investment costs for the fifth year, and these costs will decrease in 10 percent every year until year 29. 9. The benefits are evaluated based on the expected annual charcoal savings, linked to the introduction of the project and the recommended practices (Casamance kiln). These benefits will be consolidated year after year. For the end of the project, we have estimated an annual conservative increase of 1 percent thanks to the project. 1.2.2. Expected benefits 10. The benefits induced by the project on the supply side are a product of the increase in the expected charcoal production volumes with and without the project. This increase should derive from the sustainable management of forests, the use of the Casamance kiln technology instead of the traditional practices and the reduction of emissions due to the preservation of biomass and the avoided deforestation thanks to the Casamance kiln. This additional production provided by the supply component of the project (charcoal gain and reduction of CO2) is valued with the prices of charcoal and the greenhouse emissions. This way, the charcoal production volumes and the emission gains are estimated based on the planned trends for both the surfaces of the intervention zones and the profitability of charcoal and greenhouse emission gains with and without project. The improvements of the production level and the preservation of the environment depend on the surfaces at the intervention zones. We suppose that this land settlement contributes to the sustainable management of resources and the preservation of the environment. 11. The additional benefits induced by the project on the demand side are a product of the increase of alternative energy sources consumption that contributes to charcoal gain and wood fuels preservation. Thus, the gains are obtained through the savings in charcoal and wood fuels consumption due to the extended use of alternative energy sources (improved stoves, biogas, bio charcoal, etc.). The obtained gains are evaluated in relation with the prices for charcoal and wood 86 fuels. These two levels of revenues are the expected revenues for PROGEDE II. In the hypothesis, the estimations have been highly realistic and conservative. 1.2.3. Costing 12. The costs of the program can be resumed in three types: public investments (the State and its partners for development, such as the World Bank and the Nordic Development Fund), private investments (equipment investments, ironworks units, bio fuels) and production additional costs induced by the increase of the production units depending on entrepreneurs and their budgets. 13. Public investments are sustained by the State with the support of the World Bank (through taxes exemptions, subsidies, etc.). The total amount is estimated at US$ 19,122 million, or 8'6 million FCFA. This investment is shared among three main categories (services, material and works). Disbursement will begin in year one or 2010 (studies, consultations and preparation of the project implementation) and will finish in 2014 (for the investments of this project). However, a digressive investment of 10 percent has been previewed from the sixth year. The costs of the investment are valued using international prices. These public investments will allow the realization of PROGEDE II's program (infrastructures planning, monitoring of the access to credits, capacity strengthening, etc.). 14. Private investments refer to investments in equipment and other material for the production and exploitation introduced by the project and for the private sector (local producers, blacksmiths, ceramicists, bio fuels entrepreneurs, traders, etc.) to make the most of public investments. It is expected that the project will provide an increase in the number of entrepreneurs and private investors for the services concerned. The number of investments by actor is estimated based on the discussions with the potential beneficiaries for the next five years. Apart from the State's contribution and the support of its development partners, private investments should reach the 3.5 billion FCFA in 2029. 15. Additional production costs will be calculated based on the hypothesis of an increase in the expected production, after the realization of the two components (supply and demand) of the project. The costs will be calculated based on the increase of the operations previewed for each component. The difference among all the costs constitutes the additional production cost induced by the project. This nominal cost is adjusted by the domestic consumer price index, given that these costs are mostly goods and services acquired at the national level. 16. The analysis of the revenues with regards to the costs induced by the project allows us to determine its economic and financial impact. However, the results might be affected by different hazards appearing while the development of the project. Thus, a sensitivity analysis has been effectuated in order to appreciate the strength of the results for certain risk parameters, those which are more sensitive and random, and that can have an influence in the performance of the obtained results (price, charcoal production, use of alternative energy sources and greenhouse emissions). 87 2. Economic and financial analysis 2.1. Financial analysis 17. The impact of the project on the sustainable production of wood fuels (that would be lost without the sustainable forest management), the supplementary charcoal production (that would be lost without the use of the Casamance kiln) and the effects induced on the pressure of charcoal and wood fuels (with the diversification of alternative energy sources) are taken into account in this analysis. We detect a slow evolution in the first years of the project. The charcoal production goes from 218 t to more than 110,000 t in 20 years, with a rationalized management of the exploitation of forests. CO2 reduction due to the reduction of deforestation preserves a biomass equivalent to more than 2,849,000 Teq CO2 for the 30 years. The project will progressively benefit from these elements. At the demand level, the introduction of other energy sources will strengthen the preservation of resources and produce a gain in charcoal and wood fuels production at the urban households. These practices will limit the forests degradation due to abusive exploitation practices, with the appropriate involvement of the populations. 18. With regards to the hypothesis on the increase in the sustainable production of charcoal and the emission gains, and the related effects on the rationalization of wood fuels consumption, it is expected an internal financial profitability rate of 50 percent and an updated net value of 38 billion FCFA (or US$ 85 million) for the repayment 20 years period. This rate is estimated at 15 percent at the end of the first five years of project. This justifies the interest of the project. This result is justified by the high level of financial returns for the charcoal production and the reduction of CO2, as well as the relatively lower financial costs. However, given the long term perspective applied to the agro-forest sector, these positive returns might take a time to appear. Thus, the project is more profitable for all the actors involved in the intervention zones. All this, combined with the notable improvements that are expected with regards to the instauration of the Casamance kiln practice, points towards more substantial revenues from CO2 reductions. This way, the project investments in the strategic axes that will provide an improvement in the sustainable management of forest resources is financially profitable. 2.2. Economic analysis 19. With regards to these hypotheses, the economic evaluation has proved the social profitability of PROGEDE from the point of view of the national economy, with a correction of the financial indicators. The economic internal rate of return should reach 47 percent in the horizon 2029. This rate is much higher than an opportunity cost of investment of 20 percent. This proves that the project is satisfactory with regards to the alternative opportunities. The returns for the first five years induce an internal profitability rate of 12 percent equal to the current credit rate for the agricultural sector. In the horizon 2029, the net present value of the global project is 35 billion FCFA, or US$ 78 million. This proves the economic viability of the project for the development of the country. Thus, the project is satisfactory when it comes to the alternative opportunities. In a 20 years horizon, the updated net value of the economic evaluation of the project would be four times bigger than the starting investments. 88 2.3. Sensitivity analysis 20. The impact of the program is judged as beneficial for Senegal, with regards to the expected results. However, in order to appreciate the strength and firmness of the results of the evaluation of the project's impacts, a sensitivity analysis has been made on certain parameters considered as critical and variable. The price of the products (charcoal, greenhouse emissions, wood fuels) observed at the market, the level of charcoal production, the gains derived from the use of alternative energies and the level of CO2 reduction are the most sensitive and hazardous variables that can have an influence in the performance of the obtained results. Thus, the critical value of a parameter is the value at which the updated net value calculated for the opportunity cost of the capital (estimated at 20 percent and corresponding to the actual interest rate) becomes zero; or the economic internal rate is equal to that opportunity cost of the capital. 21. We can deduce from these results that a less than probable decrease in the products' market price (charcoal, wood fuels and estimated price of the emissions) of 83 percent with regards to the actual market price would bring the internal economic profitability rate to the level of opportunity cost of the capital. 89 Annex 10: Safeguard Policy Issues SENEGAL: Second Sustainable and Participatory Energy Management Project 1. The project's goal is to increase (i) the availability of diversified household fuels in a sustainable way; and (ii) the income of local beneficiary communities while preserving the overall forests' ecosystems. To achieve this important objective, the project would (i) consolidate the achievements made in 500,000 ha of sustainably managed forests resources under the past PROGEDE; (ii) implement and monitor in a participatory and gender sensitive manner about 325,000 ha of environmentally and socially sustainable community-managed forest resources systems in non managed zones in the regions of Tambacounda, Kedougou, Kolda, and Sedhiou; (iii) restore in a participatory and gender sensitive way severely degraded areas of about 60,000 ha in the regions of Kaolack, Kaffrine, and Tambacounda; as well as protect and manage in a more efficient manner the biodiversity of about 40,000 ha in the region of Matam; (iv) diversify modern household energy sources and promote ongoing improved stoves initiatives, both in rural and urban areas; (v) increase the revenues levels of all participating local communities from the sale of charcoal and other locally based income generating activities (such as tree planting, horticulture and eco-friendly honey production); and, (vi) strengthen the major institutions involved in the sustainable management of the sector and the inclusive participation of civil society organizations (private sector, academia, and gender sensitive NGOs community) in the successful operations of the sub-sector. 2. The proposed project activities will incur adverse environmental, social, gender sensitive and climate change impacts such as wildfire, natural resources scarcity due to an extensive tapping of forest resources or an increase in the incidence of malaria, due to activities related to wood fuels production. Negative environmental, social, gender sensitive and climate change impacts from charcoal and wood fuels production are expected to be minimal, site specific and easily manageable. The Borrower has not only prepared a comprehensive impacts evaluation of PROGEDE, but also an environmental and social management framework (ESMF) to comply with Bank safeguard policies. The ESMF that contains a comprehensive Environmental and Social Management Plan (ESMP) lays forward the basic principles and procedures through which the social and environmental dimensions of the project will be adequately dealt with. It was disclosed both in-country (February 10, 2010) and at the InfoShop (February 12, 2010) prior to appraisal. 3. The project has triggered two Bank safeguard policies, namely OP 4.01 (Environmental Assessment), and OP 4.36 (Forestry). It has also been assigned the social and environmental category B due to the planned charcoal and wood fuel production activities afferent to some sub- projects in suggested regions. OP/BP 4.01 Environmental Assessment: 4. The first operation (PROGEDE) had generated tremendous positive impacts on natural forest habitats in its areas of intervention which led to the increase in trees and vegetation covers; a reduction of conversion of land from natural forest to rain-fed agriculture due to improved agricultural practices introduced by PROGEDE in the farming systems of beneficiary villages (improved seeds, use of manure, high yield crops, horticulture, agro-forestry, etc.) as opposed to extensive agriculture; increase in biodiversity in natural habitats; the appearance of large and small mammals in the established Biodiversity Community Reserves covering about 56,000 ha, 90 especially in those forest neighboring the Niokolo Koba National Park, the flagship of Senegal parks-tourism. 5. As was demonstrated during the first phase, PROGEDE II proposed activities that are not expected to have negative social and environmental impacts, on the contrary, they will strengthen the positive impacts of the project notably by: (i) reducing deforestation and soil degradation ; (ii) contributing to reducing the loss of carbon sequestration capacity and of biodiversity ; (iii) reducing CO2 emissions; (iv) reducing urban charcoal pollution and contamination (soil and water); and (v) reducing indoor air pollution and health risks to women, children and the elderly through the promotion of improved wood fuel stoves OP/BP 4.36 ­ Forestry: 6. As stated above, the project is not expected to have negative environmental, social and climate change impacts. The relocation of production sites to other areas is not likely to happen because there are no forest areas of sufficient capacity to support the urban markets and areas which are of sufficient size and too far away to be economically viable for sustainable forestry exploitation. 7. The environmental assessment (OP/BP 4.01) through the ESMF has provided the necessary framework to help address the potential impacts of the project on forests and/or the rights and welfare of local beneficiary communities. The ESMF was disclosed both in-country (2/10/2010) and at the InfoShop (2/12/2010) prior to appraisal. 8. Consultations with key stakeholders ­private sector, public sector, civil society at large, and the most vulnerable groups: e.g., women and youth­ have been conducted up to this appraisal stage. Moreover, since public consultation is in fact an ongoing process, it will be adequately pursued throughout the project cycle to further boost stakeholders' engagement and ownership, as well as to tangibly foster their social accountability. Key actors have been involved in the definition of the scope of activities and will be engaged respectively throughout the project cycle. 9. As stated above, youth and women in particular, are expected to benefit from the project because they are heavily involved in most of the activities and processes along charcoal supply chains. Such activities of community natural resources management are expected to improve, with a successful adoption of the proposed production, storing, and marketing technologies and know-how. Moreover, the project is expected to not only enhance the livelihoods of all beneficiaries, particularly women, youth and the most vulnerable groups, but overall, all stakeholders along the demand and supply chains. 10. To ensure efficient implementation process, the project will: (i) support gender sensitive training for all stakeholders; and (ii) recruit a Social, Environmental and Climate Change Specialist. The social, environmental and climate change monitoring will be the responsibility of local service providers selected among existing NGOs. The project's implementation agency will be trained on World Bank social and environmental safeguard policies as well as on Gender and Climate Change mitigation; and work collaboratively with the social, environmental and climate change specialist on the social, gender, environmental and climate change screening and impacts assessment aspects of the proposed sub-projects. All these key recommendations will be summarized and retrofitted into the Procedural Manual for easy use and consideration during project implementation. 91 Annex 11: Project Preparation and Supervision SENEGAL: Second Sustainable and Participatory Energy Management Project Planned Actual PCN review 06/06/2008 06/06/2008 Initial PID to PIC 09/30/2008 Initial ISDS to PIC 01/13/2009 Appraisal 04/05/2010 04/05/2010 Negotiations 04/28/2010 04/28/2010 Board/RVP approval 06/24/2010 Planned date of effectiveness 11/01/2010 Planned date of mid-term review Planned closing date 11/30/2016 Key institutions responsible for preparation of the project: DWF (Ministry of Environment), DPHE (Ministry of Energy) Ministry of Finance. Bank staff and consultants who worked on the project included: Name Title Unit Awa Seck Sr. Economist/Traditional Energy AFTEG Stephan Garnier Sr. Energy Specialist AFTEG Nathalie Munzberg Sr. Counsel LEGAF Wolfgang Chadab Sr. Finance Officer CTRFC Ronnie Hammad Sr. Operations Officer AFTRL Moctar Thiam Sector Leader AFTTR Denis Jean Jordi Sr. Environmental Specialist AFTEN Cheikh Sagna Sr. Social Safeguard Specialist AFTCS Taoufiq Bennouna Sr. Natural Resources Management AFTCS Specialist 92 Demba Balde Sr. Social Development Specialist AFTCS Maimouna Mbow Fam Financial Management Specialist AFTFM Fatou Fall Samba Financial Management Specialist AFTFM Koffi Ekouevi Sr. Economist ETWEN Rogerio de Miranda Sr. Energy Specialist ETWES Erik Yoboue Sr. Procurement Specialist AFTPC Mamadou Mansour Mbaye Procurement Specialist AFTPC Ritin Singh Sr. Operations Officer AFTEG Sara Nso Junior Professional Officer AFTEG Seynabou Thiaw Seye Program Assistant AFTEG Lu Ha Sr. Program Assistant AFTEG Ndambaw Kama Intern (Research Analyst) Senegal CO Bank funds expended to date on project preparation: 1. Bank resources: US$ 166,537.32 2. Trust funds: None 3. Total: US$ 166,537.32 Estimated Approval and Supervision cost: 1. Remaining costs to approval: US$ 30,000 2. Estimated annual supervision cost: US$ 100,000 93 Annex 12: Documents in the Project File SENEGAL: Second Sustainable and Participatory Energy Management Project (i) Development Policy Operation IDA $US 60 million (FY09) (ii) DWF Annual Report (iii) Electricity Services for Rural Areas Project--Project Appraisal Document (2005) (iv) Energy Efficiency Program Action Plan (January 2008)--Ad-Hoc Committee on Energy Efficiency (v) FY09 Development Policy Operation (vi) PROGEDE II Environment and Social Management Framework (vii) PROGEDE--Project Appraisal Document (viii) Program for Integrated Soil and Water Management (PGIES) (ix) Senegal Forestry Policy (2005) (x) The Electricity Service for Rural Areas Project--ASER Cr. 3981 Project Appraisal Document (2005) (xi) The Participatory Local Development Project - Project Appraisal Document (xii) The Sustainable and Participatory Energy Management Project--Phase 1 (PROGEDE, and transition phase) (xiii) The Rural Electrification and Household Energy Supply Program (PERACOD) (xiv) USAID Agricultural and Natural Resources Management Program--Second Phase (2008) (Wulu Nafa) 94 Annex 13: Statement of Loans and Credit SENEGAL: Second Sustainable and Participatory Energy Management Project 95 (IFC) for Senegal Senegal Committed and Disbursed Outstanding Investment Portfolio As of 4/30/2010 (In USD Millions) Committed Disbursed Outstanding **Quasi Partici **Quasi Partici FY Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 1980 Bhs 0 0.46 0 0 0 0 0.46 0 0 0 2008 Chain hotel 9.32 0 0 0 0 9.32 0 0 0 0 2010 Comasel st louis 0 0.75 0 0 0 0 0 0 0 0 1997/98 Gti dakar 4.15 1.04 0 1.2 5.01 4.15 0.86 0 1.17 5.01 2005 Kounoune 15.08 0 0 0 0 15.08 0 0 0 0 0 Mc senegal 0 1.21 0 0 0 0 1.21 0 0 0 2007 Sococim 22.82 0 0 0 0 22.82 0 0 0 0 Total Portfolio: 51.37 3.46 0 1.2 5.01 51.37 2.53 0 1.17 5.01 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 96 Annex 14: Country at a Glance SENEGAL: Second Sustainable and Participatory Energy Management Project 97 98 Annex 15: Map (s) SENEGAL: Second Sustainable and Participatory Energy Management Project 99 18°W 16°W 14°W SENEGAL MAURITANIA SECOND SUSTAINABLE AND Sénégal PARTICIPATORY ENERGY Podor Doué MANAGEMENT PROJECT SENEGAL Rosso Richard-Toll Dagana Ndiayène Haïré Lao (PROGEDE II) Lac de NEW COMMUNITARY FORESTS Guier SAINT-LOUIS Kaedi PREVIOUS COMMUNITARY FORESTS 16°N Saint-Louis BIODIVERSITY AREAS 16°N Thilogne Mpal CITIES AND TOWNS V Lagbar REGION CAPITALS al ed lé Léona u Ferlo Ndiaye Matam NATIONAL CAPITAL Louga Koki REGION BOUNDARIES Tioukougne Peul Linguère Kébémèr Daraa INTERNATIONAL BOUNDARIES Fâs Boye LOUGA Val lée du Darou Khoudos This map was produced by the Map Design Unit of The World Bank. Sé Mékhé né Fe The boundaries, colors, denominations and any other information Darou Mousti Mamâri ga rlo l shown on this map do not imply, on the part of The World Bank Tivaouane Vélingara Group, any judgment on the legal status of any territory, or any Kayar Bakel endorsement or acceptance of such boundaries. DAKAR DIOURBEL Mbaké M ATA M Thiès Rufisque Val l ée du Mboun DAKAR Diourbel THIÈS Gossas Mbour FATICK KAFFRINE Payar Nayé Fatick Toubéré Bafal ou m Guinguinéo Sal Falém Kaolack Kaffrine TAMBACOUNDA um lo é Ndangane Sa 14°N Niahène 14°N Sakone KAOLACK Koungheul Nganda Koussanar Keur Madiabel Nioro du Rip Tambacounda MALI Maka ATLANTIC Karang San dou gou OCEAN T HE HE G A MB I A AMB Dialakoto Vélingara Meedina Ko Gounas KÉDOUGOU u Diouloulou Bounkiling lou KOLDA nto Diana ZIGUINCHOR SÉDHIOU u Malari ga Kolda Kayan Mako Saraya Bignona Ga mbie Casamance Sédhiou Tanaf Ziguinchor Kédougou Goudomp Diembéreng Oussouye 0 25 50 75 100 Kilometers GUINEA-BISSAU IBRD 37861 0 25 50 75 Miles MAY 2010 12°N GUINEA 12°N 18°W 16°W 14°W 12°W