Energy Report No: ; Type: Report/Evaluation Memorandum ; Country: Niger; Region: Africa; Sector: Distribution & Transmission; Major Sector: Electric Power & Other Energy; ProjectID: P001966 The Niger Energy Project, supported by an IDA credit of US$31.5 million equivalent, was approved in FY88. The credit was closed, after two one-year extensions, on December 31, 1996. About half the credit (US$15 million) was canceled. The project was co-financed by the Krediet Anstalt für Wiederaufbau (KFW) of Germany for US$10 million, the European Investment Bank (EIB) for US$6.3 million; and the Danish International Development Agency (DANIDA) for US$10.3 million.. The amounts of KFW and EIB are the appraisal estimates, the actual amounts are not known. The Implementation Completion Report (ICR) was prepared by the Africa Regional Office. The borrower contributed to the preparation of the ICR, but there were no contributions from the cofinanciers. The principal objectives of the project were to (a) strengthen the planning, operations and management of the government agencies responsible for household energy, power and petroleum; (b) restructure the fuelwood supply system, restrain demand and encourage fuel substitution so as to reduce pressure on the forests; (c) support the expansion and rehabilitation of Niger Electric's (NIGELEC) power transmission and distribution facilities; and (d) prepare and implement a petroleum exploration promotion strategy. The household energy objectives were to be achieved by vesting fuelwood supply responsibilities in local communities, rationalizing trade through licensing and taxation, promoting the use of more efficient stoves and encouraging the substitution of kerosene for fuelwood through appropriate pricing. In the power sub-sector, the project provided for the construction of a new interconnection with Nigeria and the strengthening of the existing transmission and distribution system. To promote petroleum exploration, the project supported measures to improve the geologic information data base, review the legal and fiscal regimes, and promote private sector interest in available areas. The project substantially achieved its objectives in the petroleum sector, had promising success in the household energy component, but failed to meet its objectives in the power sector. In petroleum, the project improved the regulatory framework and strengthened the government's promotional capabilities which helped to stimulate private sector interest and led to the signing of new exploration contracts. The project fell short of its overly ambitious demand reduction objectives in the household energy component, but was instrumental in establishing a well functioning system for the management of scarce forest resources by local communities. This experience is now being replicated elsewhere in the Sahelian area. As a result, the reestimated rate of return of this component was only 8.5%, compared with the SAR estimate of 30%. In the power sector, the interconnection with Nigeria was constructed, but could not be brought into operation, because of the failure of NIGELEC to comply with the financial covenants led to the cancellation of the portion of the Credit that included the complementary distribution links. This cancellation led the Government of Niger to initiate, with Bank assistance, a process of privatization which would establish the sector on a much stronger footing than envisioned at appraisal. OED rates overall project outcome as unsatisfactory, its sustainability as unlikely, and its institutional development impact as modest. The corresponding ICR ratings for outcome as satisfactory and sustainability as likely, appear to reflect the undue importance that the ICR places on the government's commitment to restructure the power sector, rather than its analysis of the actual project results. OED agrees with the ICR in rating Bank performance as satisfactory. The project experience in the power sector shows how important it is that project design strike a reasonable balance between the need for thoroughgoing sector reform and the extent to which reform is realistically achievable. In this project, failure to strike an appropriate balance led to a situation in which cancellation became "unavoidable" even though it had the effect of precluding any benefit from the project investment during its lifetime. Where compliance is uncertain, up front actions should be required before a project becomes effective. The household energy component's supply side successes show that difficult social and institutional changes can be accomplished where there is real government commitment and real beneficiary involvement. Its shortcomings on the demand side, especially as regards encouraging fuel substitution, may underscore the critical need to get the overall pricing and policy framework right. The ICR gives a satisfactory account of the implementation experience but could have included more information on some key subjects, specifically the circumstances that made the cancellation of power sector funds unavoidable, and the role of prices on the demand side in the household energy component. No audit is planned.