34614 Assessment of Energy Access and Renewable Energy in PRSP and CAS Process Ted Kennedy (Consultant, ENV) and Yabei Zhang (EWDES) March 2004 - 1 - Assessment of Energy Access and Renewable Energy in PRSP and CAS Process Ted Kennedy (Consultant, ENV) and Yabei Zhang (EWDES) Executive Summary The objective of this review was to assess treatment of the energy sector, particularly in terms of how issues of scaling up access to energy and renewable energy related to poverty reduction, in Poverty Reduction Strategy Papers (PRSPs) and World Bank Country Assistance Strategies (CASs). It was prepared as part of work currently underway for development of a `Road Map for Scaling up Access to Energy Services and Renewable Energy' being prepared by the World Bank's Energy Unit. While seeking to identify inclusion of energy issues overall, the review focused on energy access issues related to scale-up, including, but not limited to, modern energy services, traditional biomass, and renewable sources. `Access' was considered in the context of developing country populations who lack access to adequate, affordable, and sustainable sources of energy linked in a meaningful way to their economic and social development needs and potential. Reviews were made of 20 sets of PRSP/CAS (as well as IPRSC, JAS, and PRSC) documents for IDA countries in Sub-Saharan Africa, South Asia, East Asia, and Latin America, as well as a range of documents evaluating the PRSP process and outcomes. Document reviews were accompanied by interviews with operational staff (in energy and other sectors, and from the Poverty Reduction and Economic Management [PREM] Unit responsible for PRSPs). Review Conclusions: · PRSPs and CASs give very limited attention to energy in general, and when mentioned, tend to focus on large infrastructure. Energy access issues are conspicuously absent, leaving important linkages with productivity and cross-sectoral applications unaddressed; · Traditional biomass also receives very little attention, particularly considering its central role in most IDA countries, overlooking significant long-term sustainability issues. Collectively, there appears to be a significant disconnect between the important contribution that increased energy access can make to poverty reduction and the role assigned to energy access in these documents. As PRSPs are supposed to increasingly influence CASs, this disconnect may grow over time. While PRSPs can be valuable in facilitating country-driven strategy, rebuilding country capacity, and guiding resource prioritization, their focus appears to be on relatively easily-measured fiscal balances and sectoral indicators (education, health, water/sanitation). At the same time, PRSPs themselves are under growing internal competitive pressures to include more sectors, ironically undercutting a central desired benefit of resource prioritization. And although PRSCs are expected to comprise only 30-40% of IDA flows, leaving significant operating space for project work apart from direct PRSP frameworks, the influences on energy access issues are symptomatic of other factors. A very limited number of PRSPs and CASs did exhibit a relatively comprehensive view of energy and energy access issues, and/or referenced specific energy access projects. These examples illustrate the value of ensuring that staff familiar with energy access issues are positioned (in the Bank or in country) to address these issues during strategy development. However, these outcomes need to result from a more strategic and systematic approach, and not by happenstance or opportunistic action. - 2 - In sum, this situation poses potentially significant risks to countries and the World Bank (even if results are due to omissions in PRSPs) in terms of overlooked development opportunities and poverty alleviation, and unsustainability in terms of continued practices with traditional fuels. These influences represent a particularly significant strategy and investment disconnect for the African and S. Asia regions. Overlooking Energy Access in PRSPs and CASs ­ Contributing Factors: · Initial PRSPs were often rushed in order to respond to pressures to achieve HIPC debt relief, some countries incorrectly believed a focus on social investments (health, education, water, sanitation, etc.) were a prerequisite. While newer PRSPs are better prepared, large gaps remain, and availability of funds within the current IDA envelope remains an upper constraint. · As most traditional biomass fuels are not traded, they are not captured in PRSP macro- analysis, despite being the most significant source of energy in many IDA countries outside of urban areas. · Energy access issues are not limited solely to electricity, but represent a wide range of diffuse lighting, heating, cooking, and other productive applications that may be difficult for PRSP participatants to capture and present as a distinct sector. Further, the correlation between access and poverty may be measurable, but causality may be more difficult to establish, thus making it more difficult to address within a single strategy. · PRSPs tend to mirror the Millennium Development Goals, and sectoral investments in PRSPs reflect this with a heavy focus on social sectors such as education, health, and water/sanitation. Combined with the diffuse nature of many energy applications, this objective-based focus appears to overlook many important links to energy, development, job creation, and environmental sustainability that would facilitate poverty reduction. · As significant economic and sector work (ESW) resources have been shifted to core diagnostics and ESMAP analysis of issues and opportunities in the energy sector have shifted to more specialized, Bank-driven work (awarded through a competitive process), actors in PRSP and CAS processes find it harder to gain predictable access to ESW resources to sufficiently develop and communicate energy access priorities and linkages. · Within the energy practice (and the WB's Infrastructure Action Plan), there has been a focus on INFRASTRUCTURE' (i.e. large discrete investments, and a focus on electricity, in order to meet lending targets) vs. `infrastructure' (i.e. smaller activities and investments for expanding access, which typically require different information, skills, and management directives). Energy Ministries or utilities in countries may take a similar `urban' infrastructure view, or lack adequate knowledge to better address rural energy needs and linkages. · A strong focus on sector reform and/or utility sector privatization ­ while critically important to control fiscal losses and offering other benefits to country economies ­ may overlook or delay meeting the access needs of poorer, more dispersed, low-load customers unless other arrangements are included as part of the process. - 3 - · In relation to the CAS in particular, rural access and renewable energy projects have a reputation of being expensive to prepare and have lower lending volumes compared to generation, transmission, distribution projects (or other large infrastructure such as roads and ports). As such, they may appear less attractive to country leaders, and to WB Country Directors (CDs) and Sector Managers (SMs), and are less able to compete for lending program `slots'. Recommendations: To take advantage of the strategic focus offered by the PRSP and CAS papers requires development of a more holistic, integrated approach to buttress the important MDG goals (which are targeted at outcomes) and provide a strategic framework (currently lacking in the MDGs as represented in the PRSPs) that maximizes cross-sectoral linkages related to energy access in support of poverty reduction. The disconnect between `INFRASTRUCTURE' and `infrastructure' was noted by several staff representatives as significant enough to warrant treatment of smaller-scale energy access issues as a separate sub-sector (particularly for lower- income countries in Africa and S. Asia) While there is in fact a steady continuum bridging these two views of energy investments, this is a useful observation at least in terms of approach, strategic response (to analysis, staffing, country engagement, and potential investment), and development of cross-sectoral linkages, if not in actual practice. There are several straightforward suggestions to improve participation in the PRSP process (and thus to achieve better leverage in the CAS), and improve treatment of energy access issues in overall World Bank Strategy. While requiring some additional resources, these recommendations imply more a change in organizational focus than a major level of innovation from current practice. Recommendations include: 1. Needs and priorities assessment: Clearly establish and communicate the role and importance of energy access in the World Bank's poverty reduction agenda A targeted investigation is required to determine if, and the degree to which, the limited treatment of energy access issues and linkages represents a shortcoming in country prioritization and in World Bank strategy, mission, and poverty alleviation impacts. The suggested format would be a `results-based' identification and assessment of country energy and development needs, linkages with poverty reduction and the environment, and potential linkages with, and prioritization within, the larger menu of World Bank sectoral investments. This analysis could begin as a composite study, modeled in part on previous ESMAP `Issues and Opportunities' papers to describe the broadest possible view of the energy sector in developing countries. It would investigate and define: · The role of energy access in helping meet MDG targets; in general and for specific countries. · The role of energy access in terms of enhancing local economic growth, business development, and employment (elements which are related to, but not directly addressed by, the MDGs) · The potential role of renewable energy technologies and projects in addressing poverty alleviation · Country needs and linkages (even if not currently expressed in PRSPs). It should not ­ in the immediate analysis - be subject to World Bank infrastructure supply drivers, sector reform imperatives, or pressures to build the portfolio; - 4 - · Key risks/benefits for clients and the Bank from a business-as-usual approach; and · Potential indicators for prioritizing energy access work, both within individual countries, and for World Bank targeting of efforts across countries and sectors, and as the basis for comparison with current investment patterns. This analysis should be coordinated with related planning work being done by various partnerships to build synergies and avoid duplications. This action would form the initial basis for consultations with management on establishing the importance of energy access activities and seeking additional resources. Costs for this activity would range from $500k-$1M; some ESMAP and other resources have already been identified. Based on results, this effort could form an important cornerstone for further development of the "Energy Access Roadmap". The framework for the initial analysis could then be adapted for replication on a country by country basis (below). 2. Develop the Message to Sell This activity would require action and resources to build an unequivocal case for supporting energy access and renewables at two levels: · World Bank management, particularly at the Country Director and Sector Manager level · At the Country level to raise awareness and operating space within budget prioritization This activity would be based primarily on obtaining, coordinating, and expanding information resources and capabilities to buttress the findings from the initial problem investigation on a per- country basis. This data is essential to further define the scale/scope of needs, problems, and opportunities at the country level and to raise awareness within the Bank and in countries on potential linkages with poverty reduction. In addition to expanding traditional ESW, other sources of ESW data relevant to scaling up energy access should be tapped and coordinated: · As an initial stage of a phased project approach, ESMAP resources could be deployed to identify priority energy access needs and renewable energy opportunities. (Currently, ESMAP support is allocated based on "previous/ongoing relevant activities and proposal complements to these efforts, fits with national strategies and priorities in the client countries and the CAS", implying that countries where access is not already identified as a priority may get less ESMAP attention). · Analytical and Advisory Services (AAA) provided to countries on a more informal basis to facilitate efficiency in and across sectors, and provide a basis for engagement; · Poverty and Social Impact Analysis (PSIA),which can draw out distributional impacts that are particularly important in the PRSP context; · Living Standards Measurement Studies (LSMS) and other household surveys, which are important tools that can help improve the representation of energy access use indices; and · Recent Economic Developments in Infrastructure (REDI) country-specific standardized yet flexible diagnostics of the infrastructure sectors (and recommended under the Infrastructure Action Plan) to identify lending opportunities and policy based operations. 3. Business Planning to Implement the Roadmap: Concurrent with expanded ESW and analysis noted above, there are several strategic business planning elements required to support implementation of the Roadmap and greater inclusion of energy access issues in PRSPs and CASs. These include: - 5 - · Energy staffing and resource analysis to identify adequate skills and assignment balance to support greater participation in PRSP/CAS dialogue and develop/implement energy access projects. · Mobilization of additional resources and staff time (outside the existing CD and SM budget allocations) to actively engage in the PRSP and CAS consultations (up to two years upstream) and incorporate the more detailed ESW data (noted above) as it emerges. Success indicators would be greater inclusion of energy access/renewable energy in CASs and PRSPs. Sources could include Bank Budget, ESMAP, and other donor sources. · Development of broader cross-sectoral linkages (potentially in agriculture, rural development, education, health, transport, etc.) to identify and deliver projects, and to build on existing project examples. · More efficient packaging of energy access and renewables as part of an overall infrastructure development program for a country or region. This action will require closer examination of current financial vehicles (IBRD, IDA, GEF and other grants, Carbon Finance, and other) to determine how energy access can be balanced and integrated with traditional, larger-scale infrastructure in a manner that maximizes the poverty reduction impact of the World Bank. - 6 - Introduction The objective of this review was to assess treatment of the energy sector, particularly in terms of how issues of scaling up access to energy and renewable energy related to poverty reduction, in Poverty Reduction Strategy Papers (PRSPs) and World Bank Country Assistance Strategies (CASs). It was prepared as part of work currently underway for development of a `Road Map for Scaling up Access to Energy Services and Renewable Energy' being prepared by the World Bank's Energy Unit. While seeking to identify inclusion of energy issues overall, the review focused on energy access issues related to scale-up, including, but not limited to, modern energy services, traditional biomass, and renewable sources. `Access' was considered in the context of developing country populations who lack access to adequate, affordable, and sustainable sources of energy linked in a meaningful way to their economic and social development needs and potential. Reviews were made of 20 sets of PRSP/CAS (as well as IPRSC, JAS, and PRSC) documents for IDA countries in Sub-Saharan Africa, South Asia, East Asia, and Latin America, as well as a range of documents evaluating the PRSP process and outcomes. Document reviews were accompanied by interviews with operational staff (in energy and other sectors, and from the Poverty Reduction and Economic Management [PREM] Unit responsible for PRSPs). Background During the Annual Meetings of the WBG and IMF in September 1999, agreement was reached that nationally-owned participatory poverty reduction strategies (building on the principles of the Comprehensives Development Framework) should provide the basis of all World Bank and IMF concessional lending and for debt relief under the Heavily Indebted Poor Country Initiative for debt relief (HIPC). The approach generally adopts the Comprehensive Development Framework principles, suggesting that the strategic framework be: · country-driven -- involving broad-based participation by civil society and the private sector in all operational steps; · results-oriented -- focusing on outcomes that would benefit the poor; · comprehensive in recognizing the multidimensional nature of poverty; · partnership-oriented -- involving coordinated participation of development partners (bilateral, multilateral, and non-governmental); · based on a long-term perspective for poverty reduction As PRSPs are national planning frameworks for low-income IDA countries, they are expected to delineate the situation in the country, improve government budgeting and management, and outline a broad strategy for use of funds freed up by HIPC, as well as future IDA financing. Debt relief under HIPC is expected to free up internal country funds for poverty reduction expenditures and qualify the country for additional IDA credits (Poverty Reduction Support Credits, or PRSCs). The PRSP process is also anticipated to provide central inputs to the World Bank's development of Country Assistance Strategies (the WB's near-term `roadmap' for expected adjustment and lending operations in the respective countries). Thus, the PRSP process could have a potentially significant impact on the nature and scale of particular sectoral operations in client countries. - 7 - The Poverty Reduction Strategy Paper process typically begins with preparation of Initial PRSPs, developed by the countries in conjunction with the World Bank and IMF. The inputs underlying PRSP work have ranged from very broad consultative process within countries to relatively macro-based analysis primarily by government staff. Initial PRSPs (IPRSPs) then undergo a Joint Staff Assessment (JSA) by WB and IMF staff. Countries reach a `decision point' upon completion of an interim PRSP accepted by the WB and the IMF. A full PRSP paper is then completed and submitted, and provides the basis for PRSCs (Poverty Reduction Support Credits ­ additional IDA flows to the country). Countries reach the `completion point' once they have implemented a full PRSP for a year. As of December 2003, approximately 35 low-income countries have prepared full PRSP strategies and an additional 19 have prepared preliminary or interim strategies, including approximately 28 in Sub Saharan Africa. Much of the initial HIPC effort was driven by IMF. As the World Bank was not organized to develop rapid programs of debt relief, it was done through IMF, which had an existing ESAF (External Structural Adjustment Facility). This was effectively re-labeled PRGF (Poverty Reduction Grant Facility). Due to the urgencies of the debt relief agenda, many initial IPRSPs were said to be prepared too quickly, and the full PRSPs in many cases represented only marginal improvements. In order to retain a World Bank role in an agenda that was shifting towards wholesaling, the Poverty Reduction Support Credit (PRSC) process was developed as the longer- term alternative. PRSCs represent a programmatic/structural adjustment flow as the funding vehicle to follow PRSP prioritization. While energy could potentially be supported through PRSCs, energy investments (particularly conventional) tend to be discrete investments for hard infrastructure, and may fit well under the budget support focus of Press. Large infrastructure may be better served as distinct investment operations. Some smaller access-type projects ­ possibly representing an aggregation of activities or a country-wide program supported as an ongoing budget item ­ could potentially be served well through PRSCs, but only if appropriate safeguards, procurement, and accountability guidelines were established. The Document Reviews: The initial intention was to review all PRSPs and related CASs for references to energy and energy needs that could offer opportunities for "Scaling Up Energy Access", the broader Bank strategy effort that sought the review. Africa was considered an early priority as the majority of the region is composed of IDA countries that are participating in HIPC. An earlier brief ESMAP effort had attempted to catalogue energy and energy linkages referenced in a set of PRSPs for consultations in Africa1, and it was believed that this information could be collected for a all PRSP countries and expanded in content. However, it became apparent that direct references to energy in PRSPs were so infrequent that there was little additional useful data to be collected, and even indirect or implicit references to energy within descriptions of other sectors (agriculture, health, education, water/sanitation, etc.) typically held little detail that would support strategy or dialogue on energy access scale-up 1 ESMAP did a brief review of energy issues and related sectoral priorities (agriculture, education, health, water, and small enterprise) mentioned in PRSPs for Ethiopia, Ghana, Kenya, Tanzania, Uganda, and Zambia; additional countries were reviewed as well but the results are in French. This effort was performed to support regional energy workshops to increase understanding in client countries of linkages across multiple sectors, which may have a positive effect for increasing treatment of energy issues in future and revised PRSPs. - 8 - As a result, the analysis shifted more to the PRSP process itself, its relationship to the CAS process and implications for addressing energy scale up issues within this framework. In addition to reviews, selected interviews with energy and sector staff in gender and education provided additional observations and reactions to the PRSP process. Findings are thus more oriented toward a possible plan of action to identify and promote energy access issues and ensure that energy's relevance to poverty reduction is adequately represented in future investment programming. Countries Reviewed The reviews began with Africa, as most sub-Saharan countries are IDA countries participating in the HIPC process. Some countries have completed Implementation Progress Reports; others have gone on to complete Poverty Reduction Support Credits (additional IDA financing that follows after initial debt relief and reorganization of country budget process/government systems, and reiteration of budget priorities). Countries reviewed included: Africa: East Asia Burkina Faso Mongolia Mauritania Cambodia Mozambique Indonesia Tanzania Vietnam Uganda Cameroon South Asia Ethiopia Nepal Zambia Bangladesh Madagascar Sri Lanka Pakistan Latin America Nicaragua Honduras Bolivia Staff from regions and various sectors (energy, education, transport, gender, rural development) were interviewed to solicit their views on the PRSP and CAS processes and its relevance to current and expected future operations. Energy Access Considered: For this review, `energy access' was defined at a fairly specific level: for those that do not have it. This was interpreted across two basic dimensions: · Physical availability of adequate energy sources; first for meeting basic human needs such as cooking and lighting; secondarily as a tool to engage in useful work and improve productivity in the local economy, and finally as a means to augment quality of life (in terms of limiting indoor emissions, facilitating delivery of health, education, and other services, telecommunications, etc.) · Affordability, which generally dictates choices among fuels, with the poorest generally using locally available biomass; while often a `free' source, this use generally comes with - 9 - significant trade-offs in terms of labor, time, and foregone opportunity; and poor efficiency and air quality impacts (all of which are burdens disproportionately borne by women and girls). The share of energy in total spending of low-income households is high, up to 15% of income; additional household impacts in terms of time and labor make the effective burden even higher. Given that the review addressed PRSPs and CASs that increasingly form the strategy basis for alleviating poverty and guiding concessional investments in IDA countries, the focus was on the energy needs of the poor. Energy can, of course, can be considered much more broadly than this. For higher-income countries, increasing energy access may remain an important development issue, but as existing services and capacities are higher, these needs may be addressed through gradual expansion and/or `trickle-down' from the more established sectors. For the poorest countries, the very low levels of energy access comprise a larger and more critical development barrier. The Document Reviews: The range of PRSP, PRSP, JSA, CAS, and PRSC papers (when applicable) were reviewed to determine: 1. How is energy addressed (i.e. in terms of large infrastructure, grid, grid extension, rural electrification, off-grid, traditional fuels, etc.)? 2. Is there basic recognition of the energy investments required as part of an overall development strategy? 3. How is the poverty context treated from an energy perspective? 4. Is there identification of energy constraints, financial barriers, non-financial barriers (policy, institutional, delivery mechanisms, etc.) related to energy applications? 5. Are there mentions of delivery capacity requirements for energy supplies and services? 6. Are there examples of `Best Practice' where PRSPs identify the complex issues underlying energy, how energy access contributes to development, to poverty reduction, or addresses the varied energy needs of poor people? 7. What monitoring indicators are presented, if any? 8. Was the treatment of energy different in progression from Interim PRSPs to Full? 9. Do Joint Staff Assessments (JSA) provide additional references to energy? 10. Are there indications of a connection between the PRSP and CAS processes in terms of applications relevant to increasing energy access and reducing poverty? This scorecard evolved through the process of the reviews. There was frankly very limited mention of energy issues in the documents in general, and even less directly related to energy access issues. Highlights of the review findings are in the next section. Summary notes from the reviews are provided as Annex I; these include specific quotes from PRSP, CAS, and other documents, reflecting the visibility of energy issues and other comments. It should be noted that grading the documents was inherently subjective, and represents relative rankings among the 20 document sets to indicate the `sufficiency' of the energy access message it conveyed. Many of the documents were well over 100 pages (some over 200), and energy was clearly only one topic or sector to be addressed among a wide range of descriptions, data, priority actions in governance, budgetary command and control, and development issues in general. A few documents essentially overlooked energy almost entirely (Indonesia). Some addressed energy reasonably well, but only on the large infrastructure side, so from the access view, did not score well. Some documents provided a relatively high level of detail on energy, but did not communicate it in a manner that conveyed an understanding or strategic view of access, productivity, and sustainability tie issues. A few documents included relatively little direct information on energy, but managed to convey an understanding of the issues nonetheless. - 10 - It should also be noted that the review's focus on energy access issues provided different results than earlier reviews judging similar PRSP and CAS documents for broader energy issues. For example, an internal review of CASs (Energy Strategy Implementation Progress Report 2) for the treatment of energy found that, of CAS documents, 40% included energy as `central to logic'. However, 2/3rd's of these were ECA countries, where issues of access are arguably different than in most IDA countries. In PRSPs reviewed for the same paper, a review of 37 I-PRSPs or PRSPs found that 54% had energy as being `central to the logic'(but only half of these were in AFR countries. While this current note generally agrees with the findings of the Energy Strategy Implementation Progress Report, it should be understood that when examined through the sharper focus of `energy access' for the IDA countries - including energy productivity (especially in rural areas), and biomass issues (particularly long term sustainability), the `central to logic' description diminishes considerably. It should also be noted that the reviewers, in gaining input primarily from the PRSP and CAS documents, were working in a relatively abstract atmosphere, and without benefit of all of the broad experience that may be available by the relevant country teams and country representatives. It would be useful in a more detailed review to compare various aspects of the PRSPs and CASs directly with the Bank's current and planned portfolio. Nevertheless, if the PRSP and CAS documents do not communicate energy access issues any better than was observed, then these issues will likely be overlooked in the future. Document Review Findings: PRSPs generally provide little data or guidance in the energy situation of the countries. Some provided basic data on MW capacity and overall electrification levels and express a need for additional infrastructure investment to support business production for economic growth. Even when these factors are mentioned, they are either generic and tend to be directed at the more advanced and urban segments of the economy. Rural electrification does receive mention in a number of PRSPs, albeit quite briefly and with little specificity on strategy or applications. A few PRSPs provided targets for rural electrification, but specific levels of investment requirements were seldom expressed. Expansion of electrification coverage was seldom linked to other service delivery or productive applications, or in terms of supply, price, sustainability, alternatives, policies to introduce fuel switching or other substitution. Energy was generally not discussed as a direct dimension of the poverty problem in a country (either directly or as underpinnings for cross-sector applications that require energy). This disconnect is especially notable in relation to the needs of the rural poor and poverty alleviation strategies suggested by the documents. In PRSP macro analysis, for example, traditional energy is generally not included in energy balances. Since these sources are often not traded, they are not captured in energy/GDP elasticities. For IDA countries, Sub-Saharan Africa in particular, the very high reliance on traditional energy sources exacerbates this apparent data gap in the macro analysis. Monitoring indicators were generally not present in PRSPs, and only somewhat more strongly in CASs as a function of WB portfolio development. Some cross-cutting thematic issues are addressed ­ including rural development which is key for most IDA countries ­ with interventions frequently targeted toward increasing access to and the productivity of natural assets such as land and water. However, discussion of rural issues tends to be generic and brief, and institutional frameworks for their implementation tend to be vague. 2Renewing Our Energy Business ­ Energy Strategy Implementation Progress Report, Energy and Mining Sector Board, November 2003. - 11 - Energy as a function of productivity ­ for agricultural processing or irrigation, for human and livestock water supply, and for local, rurally-based economic enterprise is conspicuous by its absence in these documents. In terms of poverty reduction, for instance, the Bangladesh PRSP noted rural electrification issues, and loss of livelihood resulting from environmental degradation, but there was no mention of biomass at all in the PRSP, related to energy use or otherwise. Joint Staff Assessments provide almost no references to energy ­ this is an overlooked opportunity for staff to bring attention to what they perceive as shortcomings in the PRSP documents. In terms of Best Practice, the Mongolia PRSP provided the most comprehensive treatment of energy issues overall. This included both modern energy and traditional forms, and a clearly articulated focus on energy and productivity across a range of sectors. Factors contributing to a relatively strong PRSP include the unique energy requirements of the country (needs for urban services as well as a significant nomadic population; an extreme climate making energy not only a requirement for cooking and production, but also for survival in winter months; and a heavy concentration on coal with its related environmental impacts). It was the only PRSP reviewed that addressed global climate as a significant environmental issue that required redress through energy sector activities. In terms of inputs to both the PRSP and the CAS, it became clear that representation of energy in these documents was due to a pro-active task manager with previous experience and connections in the country who saw the importance of articulating these issues to address development imperatives and investment prospects. The Uganda PRSP and CAS both addressed some important elements of energy needs, including rural energy, and specifically mentioned the WB/GEF "Energy for Rural Transformation" project. However, it was recognized that this was a deliberate insertion on the part of the team ­ while it is to their credit that they undertook the effort to do so, this practice is not considered to be a viable substitution for broad-based sector analysis and engagement in the PRSP and CAS processes. It was observed (by this review as well as several external reviews performed internally in the World Bank and by other donors) that PRSP documents, and the treatment of energy issues in general, can be said to improve somewhat in later PRSPs. However, this appears to be a function of improvement in PRSPs overall, as consultations have been broadened, understanding of the process has improved, and the focus has moved beyond the immediacy of qualifying for debt relief. However, it should be noted that while later PRSPs include a greater number of references and somewhat more detail, they still fail to go beyond very basic objectives of grid expansion and do not address many potential linkages of energy with economic and social development. At the same time, there are also a greater number of other Sectoral issues and greater level of detail overall included in later PRSPs as internal and external actors attempt to `catch-up' in the process, and the participatory process raises expectations in the country. Indeed, there is concern of `hyper-competitiveness' as more Sectoral influences are expressed through the PRSP, potentially undercutting country abilities to prioritize budgets - one of the key benefits that is sought by the PRSP process.3 3Poverty Reduction Strategy Papers ­ Detailed Analysis of Progress in Implementation, prepared by the Staffs of the IMF and the World Bank, September 15, 2003. - 12 - The Relationship Between PRSPs and CASs The Country Assistance Strategy represent the Bank's business plan, developed and agreed with the client country, summarizing the status of the country in a development context, and the prioritization of Bank operations over the near-term horizon. Priorities stated in the CAS tend to define the resource envelope envisioned for adjustment and investment operations and the general topics for project activities. A direct mention of a prospective project tends to validate it for investment, and the degree to which a prospective project `fits' priorities stated in the CAS (whether the operation is specifically mentioned or not) has a strong bearing on whether a proposed project will receive country and management support. The PRSP process introduced a new layer of inputs to CAS development and prioritization. These include new macro-level participation by IMF and WB staff combined with generally broad consultation at the country level. In the future, the PRSPs are intended to serve as a guide for CAS development. Currently, there is a temporal disconnect between most PRSPs and CASs. The HIPC process began in 1999, and CASs are developed on a rotating basis every three years ­ as a result, many were prepared in overlapping timeframes or in reverse of the order that is ultimately expected for the process. Thus, it is too early to judge whether CAS actions result from PRSP priorities, or whether PRSPs undercut or ignore expected Bank programming. However, while CASs tend to include a somewhat more detailed integration of energy issues than PRSPs (as well as references to specific projects), CASs in general do not adequately represent the underlying importance of energy in development and poverty alleviation. The addition of the PRSP process will likely exacerbate this shortcoming. CASs still fail to describe issues such as affordability of energy services for the poor, the role of energy in delivery of health and education services, and the heavy reliance on traditional biomass fuels (both current usage and expected growth in demand), and related environmental sustainability issues. Also generally lacking are policies, pricing, and distribution investments to encourage fuel switching. Similar to PRSPs, productive use applications and linkages tend to be associated with large infrastructure, and not strongly with rural development, job creation, and poverty alleviation. A few CASs included references of specific projects (Uganda, Nepal, Bangladesh, Ethiopia). Staff interviews indicated that in some cases this was indicative of special attention and/or good timing in terms of participation in the process. The CASs do generally provide a view of the importance of sector reform, which is recognized as not only important for the current fiscal and operational state of the sector but also in terms of prospects for expanding coverage. Treatment of shortcomings in the energy sector are often more direct, addressing the need to reduce subsidies that undercut the growth potential and sustainability of the energy sector (Bangladesh, India, Indonesia), and greater willingness to discuss conditionality as a means to exert influence on the sector.4 (PRSPs themselves tread much more lightly on sector reform, but some recognize it as part of the overall package of budgetary stabilization, efficiency, and prioritization that is driven by the PRSP process). Summary data and rankings are provided in Table 1. 4 staff comments, and observations from "Renewing Our Energy Business ­ Energy Strategy Implementation Progress Report, Energy and Mining Sector Board, November 2003. - 13 - Table 1 - Energy and Poverty Data in Reviewed PRSP and CAS Countries Electrificatio HDI value Per Capita GDP Per Energy Analysis Energy Analysis n Rate 20001 20012 Energy Capita 20024 in PRSP: Rating in CAS: Rating6 (%) Consumptio (PPP USD) 5(0-no mention (0-no mention to n to 3-good) 3-good) 2000 3 million BTUs per capita Uganda 3.7 0.489 1.03 1260 1 1 Mozambique 7.2 0.356 2.39 1000 2 2 Tanzania 10.5 0.4 1.21 630 1 2 Burkina Faso 13 0.33 1.38 1080 1 1 Mauritania N/A 0.454 18.26 1900 3 1 Cameroon 20.0 0.499 3.90 1700 1 1 Ethiopia 4.7 0.359 0.81 750 2 ¿ Madagascar 8.0 0.468 1.72 760 1 N.R. (1997) Zambia 12.0 0.386 5.12 800 2 1 Sub-Sahara 22.6 Cambodia 15.8 0.556 0.61 1500 3 3 Indonesia 53.4 0.682 17.49 3100 0 0 Vietnam 75.8 0.688 7.28 2250 3 2 Mongolia 90 0.661 46.68 1840 3 3 East 86.9 Asia/China Bangladesh 20.4 0.502 3.86 1700 1 2 Nepal 15.4 0.499 1.91 1400 2 2 Pakistan 52.9 0.499 12.71 2100 1 1 Sri Lanka 62.0 0.730 8.42 3700 1 1 South Asia 40.8 Nicaragua 48.0 0.643 9.94 2500 0 1 Honduras 54.5 0.667 10.52 2600 2 2 Bolivia 60.4 0.672 18.06 2500 2 N.R. (1998) Latin 86.6 America Developing 64.2 32.1 1.6 avg. 1.53 avg. Countries Sources: 1. International Energy Agency, 2002, World Energy Outlook 2002: Energy & Poverty 2. Human Development Report 2003. http://www.undp.org/hdr2003/ 3. Energy Resources and Global Development Supplemental Material. Resources for the future. http://www.rff.org/rff/News/Features/Global-Energy-Resources-Supplemental-Material.cfm 4. World Facts and Figures. http://www.worldfactsandfigures.com/gdp_country_desc.php 5. Document sets were rated by different reviewers (O'Sullivan, Zhang, Kennedy) - 14 - Observations on PRSP and CAS Rankings Regional Differences. Sub-Saharan Africa countries, especially the selected sample countries, have much lower electrification rate and per capita energy consumption than the average of developing countries. Not surprisingly, their human development index (HDI) value and GDP per capita are also very low. East Asian countries have much better performance in these indicators (except for Cambodia). Energy and Poverty. Roughly speaking, there is positive relationship between energy access (e.g. electrification rate, per capita energy consumption) and human and economic development. Indonesia and Mongolia are seemed to be exceptions which need more investigation and analysis. The following figure is based on data from 100 developed and developing countries. There is a steep increase in HDI as per capita energy consumption increases in countries whose per capita energy consumption is less than about 1 ton of oil equivalent (i.e. 42 million BTUs). All reviewed countries except for Mongolia fall in this category which means that modest increases in per capita energy consumption for these poorest countries can lead to significant improvements in quality of life in these countries. - 15 - The reviewed East Asian countries have a better electricity access situation. Note that Cambodia has a very low electrification rate which is well below other Asian countries. Both PRSP and CAS have relatively good reflection of energy access needs and policies for Cambodia, Vietnam, and Mongolia. Among the reviewed countries, Mongolia has the highest electrification rate (90%) and per capita energy consumption, however, the GDP per capita is low. The energy access needs are emphasized and the energy sector reform and policies which are aimed to increase economic efficiency of the sector are highlighted in both PRSP and CAS. PRSP and CAS have similar ratings in most countries. In some cases, the CAS rating is lower than the PRSP, showing that the World Bank does not necessarily place a higher emphasis on energy access issues than the countries. Staff Level Observations: A number of interviews were conducted with energy, transport, gender, and education staff to get their views on the potential strategy and development influences of the PRSPs and CASs. While it is generally accepted that energy and energy access is central to economic growth and poverty reduction objectives, these interviews indicated concern about the limited focus on energy, linkages with poverty reduction, and how the PRSP process (overall resources and country spending priorities) relates to the CAS (the Bank/country near term roadmap for strategic priorities and operations). These inclu · PRSPs are performed at a very macro level, both in the countries themselves and at the WB/IMF level, and were often developed quickly with inputs from a range of actors that may be similarly macro, potentially overlooking more detailed examination of needs and opportunities on the ground relative to poverty (particularly in rural areas), and offering few specifics on operational approaches to address issues that are identified. · The countries themselves are expected to complete PRSPs, but country capacity to do so varies considerably. As PRSPs are country-driven and represent the result of often broad consultation processes and are represent a platform of country priorities, they are generally not subject to heavy criticism. The Interim PRSPs were criticized as being `rushed' in order to qualify countries for debt relief, and then insufficiently improved at the full PRSP stage. · The WB assigns staff for PRSP work with the expectation that they are fully fungible - i.e. that they can perform the macro analysis required, as well as the consultations required to receive country inputs and identify priorities for future programming. The concern stated was that these staff may be skilled at macro analysis and extraction of data, but may not have the experience at the detailed sub-sector level and are often not well suited to doing consultations at the on-the-ground level. Further, they generally lack the time and resources to engage in more detailed communications. In the PRSP strategies that result, this represents a potentially significant disconnect from important realities of poverty reduction. · Staff expressed concern over an apparent disconnect between the PRSP and CAS processes, and particularly over the expectation that PRSPs in the future would be intended to guide CAS development (but not provide sufficient details to suggest potential strategies). It was noted that the process will induce a shift toward macro and Sectoral adjustment operations in general, shift future Bank work away from operations, - 16 - and limit it more to knowledge/capacity building (`it's difficult to deliver knowledge and capacity outside the context of a project'). · The breadth of consultation, resources and time available for participation, and the macro-focus have all been criticized by different stakeholders within countries. In some cases (Uganda, for example), initial criticisms were said to have ultimately resulted in a broader consultation basis. It was cautioned that it was not realistic to rely on the Joint Staff Assessment as an opportunity to address overlooked issues ­ that by the time of the JSA, the die for the PRSP was cast. · Difficulties in accessing sufficient funds for ESW was noted by numerous staff (in transport, education, and gender, as well as energy). It was noted that, for energy, ESMAP had previously performed much of the ESW, with over 75 `Issues and Opportunities in the Energy Sector' being completed. These documents provided a comprehensive view of the energy sector in client countries, including rural and renewable energy issues. There were differing views of the utility and consistency of these documents, which were said to decline in quality after 1995 or so. Partly because of the perception that this work was becoming too 'botiqued', donor views that ESMAP should not focus on preparing Bank projects, and other organizational changes that resulted in about 1997, this ESMAP focus was phased out. Some staff and analysis were placed back in the regions, but did not continue this ESW on a consistent basis. ESMAP is still seen as key, and has more recently become more streamlined, but is an uncertain sources of funding for ESW-type work on a mainstreamed basis. · In a similar time frame (1997) there was a change in how ESW was funded, with 60% of funds shifted to Core Diagnostics - while this provided the country/regions with better information on general creditworthiness analysis for countries, it came at the cost of some $50M in funding that would otherwise support ESW. · While there was some agreement that PRSPs had, on balance, improved since the initial efforts in 1999, they were fundamentally limited by being written (typically) by a central Ministry of Finance team, and thus represented an `urban bias', and not the typical resident or country farmer. · 'You get what you measure' ­ in this context, it was noted several times that it is inherently easier to measure budget expenditures in general, and to count numbers of schools, students, clinics, well heads, sanitation points. For energy, it is far easier to count installed MW or miles of transmission lines, so the focus in PRSPs (and the Bank in general) is from the Ministry of Energy and power engineer perspective and focuses on these indicators · Opinions differed on whether Sectoral projects could be pursued if not strongly endorsed in the PRSP. Some staff noted that, despite various issues being poorly represented in PRSPs there was still `plenty of operating room' for project based work outside the PRSP process. They noted that PRSCs are not anticipated to ever take up more than 30-40% of the portfolio, and likely would not even approach that level for many IDA countries due to low implementation capacity (and consequently, unwillingness on the Bank's part to provide large sums on an adjustment basis). Others noted that PRSP priorities, while relatively new, were increasingly influencing the portfolio and could `squeeze out' certain project types if efforts weren't made to represent their value. · Many staff seemed curiously detached from the PRSP and resulting documents, viewing it as something not in their purview, not in their control, or not directly relevant to their - 17 - work at hand. Some staff saw PRSP as a `fad', introduced as a HIPC mechanism and as an attempt to buttress pursuit of the MDGs, which would diminish in overall importance and influence over time. Others were quite cognizant of the strategic importance of PRSPs and CASs, despite the potential limitations on getting their respective sectors represented. · While accepting some of the limitations of the PRSPs, some staff viewed CASs as a much larger institutional problem and much more relevant to decisions underlying the investment portfolio and staff work programs. The CAS outcomes were viewed as `highly dependent on dynamics of country teams', involving complex 'horse-trading on' operations to be prioritized. It was noted that the most successful actors in the CAS process are the ones armed with the best ESW. Those regions/sectors without access to trust funds to pursue specialized analysis are at a disadvantage. · One staff member noted that in Vietnam, which had a very active `model' PRSP process, there was no mention of energy, and the CAS was not reflective of the PRSDP, but there is a very dynamic rural electrification process going on regardless. · One point noted in defense of the PRSP process was that it demands a balance between resource envelopes: on one hand, the financial resource envelope of the country (internal and from external donor sources, and from debt relief offered under the HIPC program itself); and the natural resource envelope of the country (firewood and other biomass availability in particular, as they come under greater pressure from a growing population traveling greater distances for collection; diverting more biomass from field fertilization). This balance is particularly strained at both ends in many African countries. While the thrust of the HIPC program is to achieve basic fiscal adjustment so that these and other pressures can be dealt with more effectively in the future, there was concern that the PRSP process may result in a `dry spell' during which energy issues and natural resource pressures are not focused on. · Perhaps out of respect for the country-driven nature of PRSPs, the changes in World Bank portfolio programming resulting from the introduction of PRSPs are left somewhat ambiguous, per the following text in the Uganda CAS (which is typical of language describing PRSPs): "PRSPs represent a shift from a traditional combination of adjustment operations with discrete investment projects to supporting a comprehensive reform program through the government's budget, via a series of PRSC's. In addition to PRSC's, the Bank [will] continue supporting some self-standing projects for capacity building and infrastructure investments directly targeted to poverty alleviation and private sector development". The interplay of these issues tend to distract and under-incentivize staff engagement, inhibit a more holistic approach to sustainable development, and reduce development results for the large clientele in the developing world that would benefit most from clear efforts to expand energy access. Collectively, they represent a challenge in organizational behavior for the World Bank. Several staff members expressed a concerned that the PRSPs (and the approaches used to attain the MDGs as well) would ultimately lose much of their value if they focused primarily on direct benefits for the poor and were not embedded in broad-based economic development. This general view can be summarized as follows: "[PRSPs] may result, for a time, in healthier, better - 18 - educated people that have better access to water and sanitation services, but the gains will be undercut if there are no local jobs or if the local environment is stripped bare". In terms of infrastructure service delivery, this concern is mirrored in other reviews of PRSPs and MDGs. A recent DFID review of a range of PRSPs noted a similar concern, and further noted that PRSPs have a: `recognition of the link between poverty and infrastructure services in general terms, but a tendency to treat separately with different strategies and timescales, two levels of infrastructure. Major or national infrastructure (including cross-border infrastructure) is separated from the provision of local services for poor people''5 Summary of Observations of PRSP and CAS Process and Next Steps The driving force behind HIPC and the PRSP process was debt relief. The existing debt burden was in some circles considered to be resulting in budget cuts in IDA country economies that reduced needed services (it's beyond the scope of this note to say to what degree this is true). Debt relief was likely necessary for most of these countries, and produced a double benefit when it's delivery was coupled with a rationalization of government fiscal systems and prioritizations. However, while helping east debt burdens and providing additional IDA resources in a more efficient manner, this shift in focus may overlook a broad range of micro solutions at the delivery end or overlook their inter-connectivity by disaggregating them into separate sectors or otherwise removing them from the dialogue. Energy, as part of virtually all sectors, but often subsumed well below the surface, may be disproportionately in this process. While it is perhaps not realistic to expect PRSPs to include detailed descriptions of the many subtleties of energy that underlie development priorities, the PRSP process does no offer a particularly accessible environment for introducing these dimensions. The PRSPs remain a macro-economic process, oriented at structural adjustment and stabilizing fiscal flows and government management capabilities; combined with debt relief under HIPC, this approach can give countries a `fresh-start' on the pursuit of sustainable economic growth. PRSPs present prioritization of objectives across available funds, and do not generally provide detailed project level strategy. In this sense, CASs provide only somewhat more detail on project delivery mechanisms to turn PRSP priorities into action, except on a selective basis. For mainstream sectors, such as health and education, the PRSP process may help somewhat because it helps clarify and protect budgets for these sectors; however, if it isn't done in cognizance of other issues (energy, gender, etc.) that results will be in isolation (i.e. increased health spending may affect childbirth mortality and illness parameters that respond to immunization, but may not address incidence of respiratory problems resulting from indoor cooking with poor fuels) However, development impacts rely on more than just this ring-fencing (protecting categories of public budgets/expenditures) ­ what is also needed is concurrent investments so that human capital can grow. Energy is most typically addressed in the PRSPs as electricity, usually in terms of expanding country generation (which would tend to serve urban centers first), and secondarily as rural electrification. In the PRSPs, what is generally missing are descriptions of practical energy inputs that would facilitate populations in moving up to the next level of capability and productivity 5 DFID ­ Making Connections, 2003 - 19 - within their specific circumstances. This aspect is especially absent in regards to the rural poor. While access to reliable electricity is often a prerequisite for economic development, it is not always a sufficient condition. In the absence of complimentary inputs like adequate water supply, agricultural inputs and capacity building, access to markets, schools, and health facilities, electricity service often does not lead to an income-augmenting opportunity, unless explicitly coupled with some of these other inputs. Energy is also not only electricity: productive uses include economically tangible income-augmenting activities such as water pumping, agricultural processing, small enterprises and other rural industry development, was well as the more `social' though equally important applications of providing electricity and energy to health centers, schools and education facilities, and for rural telecommunications. Such applications do not generally arise spontaneously, but in response to a more detailed strategy that highlights the underlying aspects of energy with other sectoral development efforts. Translation of PRSPs to the CAS If a general recognition of energy access needs and opportunities is not included at the sector- level activity in the PRSP, it will be increasingly difficult to make a case for it in future CASs. A forward-looking CAS could conceivably identify gaps in a PRSP, but this strategy may not be sufficient if resources are already allocated and/or if the detailed justification is not made at the country level . While some CASs include a mention of energy projects (e.g. Uganda Energy for Rural Transformation), relying on such a per-project, `opportunistic' basis overlooks the broader context and does not provide an effective alternative to a longer-term country strategy. Potential opportunities to facilitate poverty alleviation, rural development, and environmental sustainability could go unrecognized, posing a potential reputation risk to the World Bank even if it resulted from an oversight in the country priorities. Implications for World Bank Energy Strategy This review was not intended to criticize the HIPC/PRSP process; it is understood that PRSPs are country-driven and by necessity are very macro oriented. Similarly, it is understood that the CAS process may address only a broad discussion of energy (and possibly mentions of specific projects). The note also does not attempt to review the current energy portfolio of the Bank ­ there are a range of existing and planned projects that may be responsive to strategies and goals stated in PRSPs and which may contribute directly to the MDGs; this portfolio should be reviewed separately. The thrust instead is to see how energy issues are treated and included, the implications for how energy is viewed as an important strategic and poverty alleviation input in development activities, and the potential role the World Bank might take in using these strategy documents in increasing `energy access' as a significant and sustainable component of development. Dupe stuff ­ carry to later summary Indeed, this review concludes that while PRSPs may contribute to significant potential to the development process by facilitating developing country government decision-making, capabilities, and budget prioritization, their limited treatment of energy and energy access issues is symptomatic a much larger tangle of energy strategy issues in the World Bank in general. Many of these issues have been previously acknowledged but are brought into sharper relief when focused through the lens of increasing energy access. Treatment of energy access issues in PRSPs and CASs is merely symptomatic of: - 20 - · The MDGs and PRSPs combined form much of the impetus behind Bank strategy, yet do not directly include energy (although many linkages can and should be inferred). As currently applied in this context, they tend to address important human needs and indicators but overlook economic productivity that will sustain growth, and `stovepipe' attention away from the holistic poverty reduction view they were intended to foster. · Economic sector work, for PRSP and CAS involvement, and energy strategy in general, is inadequate, under-funded, and fragmented in funding sources and in country-level activity. Careful attention is required to focus, coordinate, and standardize ESW work, and simplify access to funding required to perform it. · The focus on sector reform (while critically important for reducing financial losses and improving operational efficiency in client countries), is a `blunt instrument' in terms of stalling potentially beneficial energy development in the poorer areas of countries. Treating this as an `either-or' tradeoff inhibits continued development and energy access needs of the poor, and requires alternative delivery models to maintain progress in access while continuing to demonstrate potential for alternative energy sources at the distributed level. · The slump in progress on Private Sector Energy Development (PSDE) - due to slow sector reform, financial setbacks in countries and regions, and higher than expected risk aversion by private investor - has further undercut availability of resources for expanding generation and distribution, with negative knock-on effects for activities and investments that would expand access and increase economic opportunity for the poorest · Similarly, internal pressure to expand the energy/infrastructure portfolio (dollar volume) has resulted in a bifurcation between `INFRASTRUCTURE' and `infrastructure' that undercuts import access and development opportunities and needs for the poor. Smaller- scale infrastructure attuned to energy access needs and development opportunities of the poor require different skills, staffing, and specialized analysis, and should be considered as a separate sub-sector to distinguish it from large, capital-intensive infrastructure. · the focus on energy-related global environmental benefits, delivered through the Global Environment Facility (GEF) and the Prototype Carbon Fund PCF, can be useful in delivering important new funding streams and in developing longer term alternatives, but many of the resulting projects are not oriented at expanding access. The role of these facilities should be re-evaluated to determine if they can better address access issues and to ensure that they do not take staff attention from the World Bank's central role in poverty reduction. · In terms of expanding energy access, virtually all of these factors at most significant in the poorer IDA countries, particularly Sub-Saharan Africa and South Asia (the countries that are perhaps in greatest need of broad-based energy development and which are the primary targets of the PRSP process). The Role of Energy in Poverty Alleviation It is understood that energy alone, whether it be electricity, thermal, shaft power, or traditional energy that each can provide a multitude of uses ­ is itself not directly productive, and is often a derived demand that underlies a wide range of end uses and productivity measures. What is striking is that this underlying requirement for all human activity is not well captured in the overall strategy process. When energy is mentioned in PRSPs/CASs, it is mostly in terms of modern energy ­ as a manifestation of `infrastructure investment' that is often not directly relevant to the needs of the predominantly rural populations in sub-Saharan Africa. This raises the question of whether the macro-level focus of the PRSP process - without judging its - 21 - importance in stabilizing fiscal flows in countries - takes attention away from the more elemental realities and poverty reduction needs faced by IDA clients. The relative absence of energy references in PRSPs, CASs, and in the Millennium Development Goals reflects the difficulty of capturing the core relevance of energy: energy underlies virtually all human activity, but because it is often subsumed within broader sectoral activities, it becomes almost invisible. This is particularly true in the use of traditional energy (which, as noted earlier, is the predominant portion of total energy in many IDA countries but is not captured in the macro energy balances addressed by PRSPs). Energy Access in Terms of Electricity and Biomass: In investigating energy access issues for the developing world, electricity and biomass tend to form a striking contrast. Development objectives for "expanding energy access" often include access to electricity, or substitution for traditional biomass with other modern fuels, including use of renewable energy sources and better end-use efficiency. While use of traditional biomass and lack of access to electricity are often considered trademarks of poverty, they represent the reality faced in much of the developing world: "Some 1.6 billion people ­ one-quarter of the world population ­ have no access to electricity. In the absence of vigorous new policies, 1.4 billion people will still lack electricity in 2030. 4 of 5 of these people are in rural areas of the developing world, primarily in S. Asia and Sub-Saharan Africa - about 2.4 billion people rely on traditional biomass ­ wood, agricultural residues, and dung ­ for cooking and heating. This figure will increase to 2.6 billion by 20306 Poverty (including the ability to pay for electricity, and low density which can make power investments untenable) is both cause and effect of poor energy access. Sub-Saharan Africa has the lowest electrification rate at 23%, leaving 500 million Africans without access. 580 million people are without access in India, despite much of the country being nominally connected.7 While modern energy substitution (particularly with electricity) may be a positive objective, it may not be broadly attainable in the short and medium term for a very large section of the World Bank clientele, particularly in the poorest IDA countries. And while electricity is indeed key to many industrial activities, it is only part of the range of energy sources, including biomass, that are needed for mechanical, thermal, and other applications to contribute to productive, income- generating applications and job creation. Access to electricity and other modern energy sources does not, by itself, assure development and poverty reduction, but must be considered in a comprehensive view of development. 6World Energy Outlook 2002 International Energy Agency, Chapter 13 on Energy and Poverty 7ibid - 22 - Poverty and Share of Traditional Biomass in Residential Energy Consumption source: IEA analysis and World Bank Development Indicators The other side of this contrast is the reality that meeting energy access needs is sought (though not necessarily met) through traditional biomass, which is still 70-80% of the primary energy use by people in poor countries. This is particularly in rural areas, but also for cooking with charcoal in urban areas in many countries. This reality, and mixed prospects for substitution in the medium term, raise important strategic questions about the sustainability of current biomass use and how it should be addressed in an energy access scale up strategy. The graphic below provides and enhanced radar image that shows patterns of biomass fuel extraction pressures near population centers and along tracks and roads in Africa. Radar Image of the "Charcoal Web" in Central Africa Republic - 23 - Local collecting for household fuel (itself a significant development issue in terms of time, labor, and lost opportunity) is only one pressure on biomass resources. When combined with other pressures of land clearing for agriculture, timber extraction, and urban charcoal needs (particularly in more arid regions), the results (besides being environmentally unsustainable) may undercut existing energy access patterns Improving Energy Access Issues In PRSP/CAS: The main conclusions of this review, focused on PRSPs and CASs but also including broader considerations of the MDGs and World Bank energy strategy in general, are that energy receives limited attention, and energy access issues are seldom addressed. When energy is addressed, it typically addresses larger-scale investments, and linkages with small-scale, off grid, and/or traditional energy needs for the rural poor, are very limited. Energy productivity linkages, particularly in rural areas, are largely absent. Traditional biomass energy ­ the predominant reality in most IDA countries, receives very little attention, overlooking potential opportunities for development linkages as well as long-term sustainability. Thus, while PRSPs may contribute to significant potential to the development process by facilitating developing country government decision-making, capabilities, and budget prioritization, their focus on MDG targets and relatively easy-to-measure social investments may actually distract from key poverty reduction linkages with energy access. These omissions pose significant risks: lost opportunity for countries, and reputational risk for the Bank due to inaction. The risk of lost opportunity is significant in the IDA countries overall, and is most pronounced in the poorest countries ­ particularly those in Sub-Saharan Africa and in South Asia ­ which currently have the lowest energy access levels yet are least likely to benefit from traditional energy infrastructure solutions in the near and medium-term horizon. In the larger World Bank energy context overall, limited treatment of energy access issues in PRSPs and CASs is merely symptomatic of: · internal WB pressures to expand the energy/infrastructure portfolio in terms of dollar volume (represented by the bifurcation between `INFRASTRUCTURE' and `infrastructure' noted earlier, which inhibits the emergence of energy access projects which are typically of smaller scale · Inadequate, under-funded, and fragmented Economic Sector Work, for PRSP and CAS involvement, and energy strategy in general, is in funding sources and in country-level activity. · A focus on sector reform which acts as a `blunt instrument' in terms of stalling potentially beneficial energy development in the poorer areas of countries. While critically important for reducing financial losses and improving operational (and indeed highly compatible with PRSP objectives), focusing on sector reform as an `either-or' tradeoff inhibits continued development and energy access needs of the poor. · The slump in progress on Private Sector Energy Development (PSDE) resulting from slow sector reform, financial setbacks in countries and regions, and higher than expected risk aversion by private investor, has further undercut the expected availability of resources for expanding generation and distribution, with negative knock-on effects for activities and investments that would expand access and increase economic opportunity for the poorest. - 24 - The Bank's central mission of poverty alleviation means that the development needs of the rural poor cannot be ignored. The challenge in this situation is to develop alternative delivery models, even as reforms are stalled or making slow progress, to maintain progress in access while continuing to demonstrate potential for alternative energy sources at the distributed level. Collectively, these issues represent a challenge in organizational behavior for the World Bank. And while energy access issues remain particularly diffuse, indirect demands in development, the low representation of these issues in PRSP, CAS, and broader strategy remains a key responsibility of the energy practice in the Bank. The `Infrastructure Challenge': Closing the energy access gap is not simply a matter of spending more money on infrastructure. Special attention and targeted interventions are required, as `trickle down' effects will take too long and continue to overlook present needs and opportunities. Sound polices and institutions are important; delivery models that fit the needs of client are as well. Many energy access solutions may not be utility or government driven, and may be much more local in nature: when offered a choice of service level and voice in the design of service delivery and financing mechanisms, rural communities are often willing to pay and operate systems ­ if they have a role they can perceive8. These solutions, however, are more complex and idiosyncratic to the country, and will require special attention to leverage capital and stimulate and support delivery models and institutions to make them work. Expanding and replicating services will be a greater and different challenge. The disconnect between `INFRASTRUCTURE' and `infrastructure' was noted by more than one staff representative as significant enough to perhaps warrant treatment of smaller-scale energy access issues as a separate sub-sector. While there is in fact a steady continuum bridging these two views of energy investments, this is a useful observation at least in terms of approach and strategic response (to analysis, staffing, country engagement, and potential investment) if not in actual practice. `INFRASTRUCTURE' vs. `infrastructure' `Examination of the pattern of energy consumption in Uganda reveals that more than 90% of total energy consumed is comprised of "traditional" fuels: fuelwood, charcoal, residues. Electricity comprises 1% of total energy consumption in Uganda. The coverage of rural electrification is around 5%. Examination of the pattern of energy investment in Uganda reveals that around 90% of total investment is related to the power sector. Around 0.05% of the sector's investment program is for "renewables and energy efficient technology" This suggests already an imbalance in the relationship between energy consumption and investment which is not pro-poor. Traditional energy does not appear to be a very high priority. This is not to deny the importance of prioritizing power (electrification) investments, even if it is improbable that substantial gains in per capita coverage are feasible in the foreseeable future, given both the costs of electrification schemes and the high rate of demographic growth. The issue is more one of considerably raising the effective priority given to, and investment in, "traditional" energy, in order to strengthen the "pro-poor" focus of the sector.' From "Gender and Energy in Uganda - A Brief Summary of Issues for the PEAP Revision"; Mark Blackden (AFTPM) 8Water Supply and Sanitation Business Strategy ­ Fiscal 2003-2007, Water Supply and Sanitation Sector Board - 25 - Traditional large infrastructure may be relatively easy to measure (in terms of MW, MW hours, miles of distribution lines), these standards often do not capture the needs and opportunities in areas that lack significant access. Energy access issues are often distinct from large-scale infrastructure investment in terms of scale, costs, end-users, delivery modalities, and often include more complex poverty reduction linkages that need to be drawn out. While efforts to increase energy access might prefer to focus on substitution with modern energy sources, the practicality and affordability of doing so (as well as availability of fuel substitutes) may be limited in the short and medium term. This implies that, rather than ignoring the traditional biomass sector, strategy efforts should increase focus on this sector to achieve productivity, social, and environmental gains. In the poorer IDA countries, where lack of energy access is the norm, high political risk and regulatory deficiencies disproportionately deter private sector investors, and may require special efforts to develop modalities or aggregate customer bases to encourage private investor entry. This is not to say that access issues are unimportant in IBRD lending, but they are not as pressing and are more likely to be addressed by traditional infrastructure solutions. Recommendations: To take advantage of the strategic focus offered by the PRSP and CAS papers requires development of a more holistic, integrated approach to buttress the important MDG goals (which are targeted at outcomes) and provide a strategic framework (currently lacking in the MDGs as represented in the PRSPs) that maximizes cross-sectoral linkages related to energy access in support of poverty reduction. Formal opportunities for better engagement in PRSPs, including working more closely with the PREM/IMF teams and within the country consultations themselves. While most (initial) PRSPs have already been written, revisions continue and provide adequate entry points for broadening discussion with wider range of energy actors (including, but not limited to, Energy Ministry and utilities officials. Most of these require better data on energy needs and opportunities linked to development. Other options include the Joint Staff Assessment (which can attempt to overcome weaknesses in the PRSP), and the CAS (which can interpret linkages expressed in the PRSP). While PRSCs are expected to continue to grow, they will still only take up 30-40% of IDA flows, leaving room for other programming. On the other hand, PRSPs are expected to increasingly influence CASs and all donor financing, so representation in both PRSPs and CASs will remain important. There are several straightforward suggestions to improve participation in the PRSP process (and thus to achieve better leverage in the CAS), and improve treatment of energy access issues in overall World Bank Strategy. While requiring some additional resources, these recommendations imply more a change in organizational focus than a major level of innovation from current practice. Recommendations include: 1. Needs and Priorities Assessment: Addressing the disconnects in the PRSP and CAS process requires investigation to clearly establish and communicate the role and importance of energy access in the World Bank's poverty reduction agenda. This would reveal if, and the degree to which, identified gaps in PRSPs and CASs represent a broader shortcoming in country prioritization and in World Bank strategy, mission, and poverty alleviation impacts. - 26 - The suggested format would be a `results-based' identification and assessment of country energy and development needs, linkages with poverty reduction and the environment, and potential linkages with, and prioritization within, the larger menu of World Bank sectoral investments. This analysis could begin as a composite study, modeled in part on previous ESMAP "Issues and Opportunities "papers to describe the broadest possible view of the energy sector in developing countries. It would investigate and define: · The role of energy access in helping meet MDG targets; in general and for specific countries. · The role of energy access in terms of enhancing local economic growth, business development, and employment (elements which are related to, but not directly addressed by, the MDGs) · The potential role of renewable energy technologies and projects in addressing energy access and poverty alleviation (in terms of substitution ability, potential for alternative financing such as CDM and other sources, and potential improvements in terms of environmental sustainability (local and global). · Country needs and linkages (even if not currently expressed in PRSPs). It should not ­ in the immediate analysis - be subject to World Bank infrastructure supply drivers, sector reform imperatives, or pressures to build the portfolio; · Key risks/benefits for clients and the Bank from a business-as-usual approach; and · Potential indicators for prioritizing energy access work, both within individual countries, and for World Bank targeting of efforts across countries and sectors, and as the basis for comparison with current investment patterns. This analysis should be coordinated with related planning work being done by various partnerships to build synergies and avoid duplications. Potential linkages include: · Global Village Energy Partnership (GVEP), which is assisting countries prepare Country Action Plans for addressing energy-poverty, · EU Energy Initiative for Poverty Eradication and Sustainable Development (EUEI); · Global Network on Energy for Sustainable Development (GNESD), · LP Gas Rural Energy Challenge, and the · Renewable Energy and Energy Efficiency Partnership (REEEP). This action would form the initial basis for consultations with management on establishing the importance of energy access activities and seeking additional resources. Costs for this activity would range from $500 - $1M. Some ESMAP and other resources have already been identified. Based on results, this effort could form an important cornerstone for further development of the "Energy Access Roadmap". The framework for the initial analysis could then be adapted for replication on a country by country basis (below). 2. Develop the Message to Sell This activity would require action and resources to build an unequivocal case for supporting energy access and renewables at two levels: · World Bank management, particularly at the Country Director and Sector Manager level · At the Country level to raise awareness and operating space within budget prioritization This activity would be based primarily on obtaining, coordinating, and expanding information resources and capabilities to buttress the findings from the initial problem investigation on a per- - 27 - country basis. This data is essential to further define the scale/scope of needs, problems, and opportunities at the country level and to raise awareness within the Bank and in countries on potential linkages with poverty reduction. To facilitate this analysis, and develop data that can be practically employed in building the case for energy access in specific countries and with Bank management, simplifying access to funding for this analysis is key.9 In addition to expanding traditional ESW, other sources of ESW data relevant to scaling up energy access should be tapped and coordinated: · As an initial stage of a phased project approach, ESMAP resources could be deployed to identify priority energy access needs and renewable energy opportunities. (Currently, ESMAP support is allocated based on "previous/ongoing relevant activities and proposal complements to these efforts, fits with national strategies and priorities in the client countries and the CAS", implying that countries where access is not already identified as a priority may get less ESMAP attention). · Analytical and Advisory Services (AAA) provided to countries on a more informal basis to facilitate efficiency in and across sectors, and provide a basis for engagement; · Poverty and Social Impact Analysis (PSIA),which can draw out distributional impacts that are particularly important in the PRSP context; · Living Standards Measurement Studies (LSMS) and other household surveys, which are important tools that can help improve the representation of energy access use indices; and · Recent Economic Developments in Infrastructure (REDI) country-specific standardized yet flexible diagnostics of the infrastructure sectors (and recommended under the Infrastructure Action Plan) to identify lending opportunities and policy based operations. All of these analytical sources can be valuable in addressing energy access scale up, both individually and in combination, but need to be adapted to the task and made consistent in their approach and in their availability to staff and countries. The PRSP Sourcebook includes a Chapter on Energy, which is a well prepared tool and includes coverage of energy access linkages. Although there is little evidence that it has been used in preparing PRSPs to date, this document could be very useful in articulating this case and in calibrating ESW work to more adequately capture energy access issues. Guerrilla Tactics Applied: An approach suggested by a set of operational staff (in energy, transportation, education and gender) was described as 'guerrilla tactics' to effectively intervene in the PRSP process by enabling the participation of the non-macro, sector stakeholders in the country and support them with analytical skills as required to substantiate their case. In a composite model of this approach, the staff identified when a PRSP process is scheduled in a particular country, prioritizing countries that had potentially glaring disparities in the selected sector and identifying sectoral financing gaps in countries that were close to finalizing a PRSP or revision. They targeted donor trust funds to support analytical capabilities and key data, which were then development and implementation of a national strategy, as well as for informing the budget used in targeted engagement with country ministry and sector staff, teaching data technologies prioritization process. Most IDA countries still require additional assistance to define adequate and developing examples of relevant interventions and outcomes. In some cases, exceptions data, analysis, baseline, and M&E protocols. The World Bank can assist in this work, but needs were negotiated with different donors to permit use of Trust Funds for these purposes (many toTF's completely integrate it's own analyses with those of the client country to achieve better morestipulate that they are supposed to be for more general knowledge and sector work and not integration, build capacity while minimizing duplication, and support agreement on conclusions for preparation of Bank projects per se); as well as obtaining authorization to use the TF's for Improved ESW will help countries and staff go beyond the general message of energy access, travel costs. This technical assistance was oriented at not only building capabilities in the productivity, and sustainability. Analytical work is key to improving the knowledge basis for and country but is directly aimed at helping them participate more effectively in the PRSP consultations. The teams coordinated closely with closely with WB Task Managers responsible 9"Writing the PRSP paper is cheap; it's the up-front analysis and implementation that costs a lot" - Christina for developing and delivering the final products. Direct action was taken to `create demand' at Malmberg Calvo, Lead Economist, Transport Unit. the Ministry level during PRSP preparation, and to achieve some early successes. Elements of such approaches need to be standardized if the energy practice is to more - 28 - effectively engage in PRSP consultations and outcomes, while improved ability to perform ESW will benefit energy access options in the CAS as well. budget priorities. More ESW is now done jointly with clients, which should help build inclusion of energy access issues in both PRSPs and CASs if done deliberately. More informally, contacts can be established and maintained during other mission work. Improving Integration of Energy in the Burkina Faso PRSP ­ 2000-2006 The starting point: The first version of the Burkina Faso PRSP (2000) had very little reference to energy: It contained a factual paragraph called "living environment" describing rate of access to electricity, a mention to electricity in the "reduction of factor costs" paragraph and a brief description of the importance of a potential rural electrification program to be developed in the following years. Other sources of energy were barely mentioned. This was not found satisfactory by the energy community, which tried to improve energy references in the Progress Report issued in 2002, but met with little success beyond the description of the "reforms of the sector". A key reason was the difficulty in relating to the broader issues treated in the PRSP, hence attempts for more inclusion were rejected as being self-promoting. The change in approach: A delegation of 10 people, led by the Minister of Energy, participated in February 2003 in the multi-sector regional workshop on Energy and Poverty, funded and organized by ESMAP for the GVEP partnership. The 3 day workshop provided the Ministry of Energy an opportunity to see the PRSP from the standpoint of other sectors represented in the delegation. The team collectively wrote an initial draft Energy Action Plan that outlined how energy could contribute to the achievement of other sector's goals within the PRSP. The Ministry of Energy later enriched this document and, with the support of several donors, used it a tool to engage the Ministries in charge of the PRSP revision process through late 2003. The result: The 2004 PRSP now includes more frequent and widespread mentions and references to energy. It still includes all references present in the 2000 PRSP and the 2002 Progress Report, but also now refers to energy in several other parts of the report that could seem unrelated to energy. These include paragraphs addressing `means to promote growth in remote rural areas', several mentions in `access to water', `agriculture development' and `gender promotion', a better mention of wood fuels and an entire page on the `rural electrification program'. More importantly, it now includes an allocation of Heavily Indebted Poor Countries (HIPC) funds and a new energy-related indicator in the monitoring sequence. The HIPC allocation is still only a very modest 2%, but this is in line with the expected 2.5% contribution of the energy sector to the GDP growth and the `rate of electrification' indicator. Additional work needed: The Ministry of Energy is now concentrating on its contributions to the Implementation Program of the PRSP that runs from 2004 to 2006. It has set out details in this document related to its direct contributions in both its core business and in its contribution to other sectors. For example, it has committed to contribute to electrify a specific number of school and health centers over the next 3 years to support the education and health sectors. While improved, the contribution is still highly centered around electricity (and mostly grid issues), which reflects the competencies currently available at the Ministry. The Ministry realizes the limitation of this all-electricity approach and is willing to better integrate all sources of energy services to be more responsive to the needs of other sectors and improve its contribution to the PRS. Both ESMAP and the European Union Energy Initiative are looking into supporting this process hoping that the improvement of energy contribution to the PRS will later be reflected in the CSA and PIN (EU equivalent of the CAS). Contributed by Laurent Durix, ESMAP - 29 - 3. Business Planning to Implement the Roadmap: Concurrent with expanded ESW and analysis noted above, there are several strategic business planning elements required to support implementation of the Roadmap and greater inclusion of energy access issues in PRSPs and CASs. These include: · Additional resources and staff time (outside the existing CD and SM budget allocations) need to be made available to actively engage in the PRSP and CAS consultations (up to two years upstream) and incorporate the more detailed ESW data (noted above) as it emerges. Success indicators would be greater inclusion of energy access/renewable energy in CASs and PRSPs. In terms of selecting focus countries, it will remain important to stay abreast of the processing schedule for PRSP revisions, and look at candidate countries up to a year ahead of the upstream CAS reviews to ensure that there will be an opportunity to engage. While there is potentially a risk of being too pro-active in the trend toward client-driven prioritizations, if there is a substantive message this should not be an obstacle. · Improve internal understanding of the PRSP process, through clinics and designation of key staff as information resources, and including sector-specific PRSP training. · Encourage proactive involvement early in PRSP (or revision) process. · Improve understanding of energy access and poverty linkages in quantitative and qualitative terms. The PRSP Sourcebook, the good practice guidance, studies and surveys available on the PRSP website: http://www.worldbank.org/poverty/strategies/. · Encourage country energy actors to assume an active role in PRSP development and revision. This will include Ministry of Energy and utility representatives, but for many smaller-scale energy applications, a much broader array of stakeholders (including local private sector, village elders, other donors, etc.) needs to be sought. · Encourage treatment of PRSP and CAS inputs as a central part of staff business and continuous client engagement ­ in analysis, during mission work and consultations, and in follow-up, tracking stages of these strategies to time their participation. · Participate in PRSPs to the degree possible, recognizing that it is a government-driven document; if energy access is not included, include views in the Joint Staff Assessments. · Support and cultivate multi-sectoral linkages and projects (social development, health, educations, transport; environment) to counteract `stove-piping'. · Give greater emphasis to the mainstreaming of poverty reduction and environmental objectives in the development and implementation of energy access activities · Facilitate more systematic monitoring and evaluation of impacts to sustain energy access priorities over time. Management Signals: No efforts to expand energy access, whether directed at country-driven aspects of the PRSP process or at internal WB project prioritization, will be effective unless the entire chain of management facilitates the process, based on a carefully considered balance of development opportunities, abilities, and resources within a growing but balanced portfolio. Otherwise, the Bank will perhaps be successful in a small handful of countries, but miss many broader needs and development opportunities related to expanding energy access. Where prioritization at the PRSP level requires engagement with the client country itself, prioritization at the Bank level is much more reliant on the Country Director ­ both entry points require improved ESW to clarify the case for energy activities, build ownership, and translate opportunities into investment action. Finally, outcomes will be significantly tempered by the overall level of the IDA envelope for the country. - 30 - Determining an appropriate prioritization at the Bank level will require a carefully orchestrated communication effort, led by the Center, to engage with selected Country Directors and Sector Managers to determine key issues and opportunities for expanding energy access and agree on an Managing for Results: Many of these recommendations build on more general suggestions from the "Managing for Development Results" initiative, recently discussed by donors and developing countries in Marrakech: · Focus national strategies and systems on country results in their PRSPs and other strategy documents and establishing useful monitoring and evaluation systems. · Clearly aligning Bank support (and cooperation with other donors) to country results. · Harmonize results reporting, and reduce the burden of multiple, donor-driven reporting · Improve statistical systems ­ internally and with clients - for measuring progress · Assess development agency performance through clear definition of desired results and transparent assessment of progress. · Disseminate good practice to improve donor and client understanding on managing for results linked to poverty reduction and economic growth In accordance with this agreed plan of action, the recommendations in this note provide not only additional specificity on achieving results in the energy sector, but also on the introduction of energy access issues as underlying a broad range of other development outcomes and objectives. appropriate level of activity. All three management layers should participate in country engagement and facilitate staff efforts to follow through. Prioritization, at the CAS level as opposed to the PRSP level, depends heavily on internal incentives, guidance, pressures ­ ultimately it depends on the country director, inputs from the sector leaders, the credibility of CAS, the nature of the IDA envelope, etc. Sector managers should be supported in development of a reasonable timeline and access to energy staff budget for ESW and contributions to the PRSP, JSA, and CAS process. Priorities will have e to be weighed against short-term performance, which may be a particular challenge for smaller-scale energy access issues due to the need to aggregate smaller projects, or start from a relatively low level of activity. · Energy staffing and resource analysis to identify adequate skills and assignment balance to support greater participation in PRSP/CAS dialogue and develop/implement energy access projects. An analysis of core competencies is need to guide allocation of resources and hiring to adapt to broader energy access interventions, to support both specific ESW, to engage more actively in PRSPs, and to do project development work. Key competencies to build could include: a) Rural energy service delivery and financing b) Promotion of rural energy, renewables, carbon finance c) Poverty and public expenditure analysis d) Communications - 31 - e) Rural and social development, transport, etc. These are generally different competencies than traditional energy/utility expertise, and will require special efforts cross-fertilization efforts with conventional energy skills to develop a broader, more holistic approach to energy access. · Development of broader cross-sectoral linkages (potentially in agriculture, rural development, education, health, transport, etc.) to identify and deliver projects, and to build on existing project examples. This might include more efficient packaging of energy access and renewables as part of an overall infrastructure development program for a country or region. This action will require closer examination of current financial vehicles (IBRD, IDA, GEF and other grants, Carbon Finance, and other) to determine how energy access can be balanced and integrated with traditional, larger-scale infrastructure in a manner that maximizes the poverty reduction impact of the World Bank. Annex I: Scaling Up Energy Access Compilation ­ Country Review Notes - 32 -