Report No. 5083-CUB I_FILE_COPYJ Guinea-Bissau Issues and Options in the Energy Sector August 1984 Report of the joint UNDP/World Bank Energy Sector Assessment Program This document has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. JOINT UNDP/WORLD BANK ENERGY SECTOR ASSESSMENT PROGRAM REPORTS ALREADY ISSUED Country Date Numbers Indonesia November 1981 3543-IND Mauritius December 1981 3510-MAS Kenya May 1982 3800-KE Sri Lanka May 1982 3792-CE Zimbabwe June 1982 3765-ZIM Haiti June 1982 3672-HA Papua New Guinea June 1982 3882-PNG Burundi June 1982 3778-BU Rwanda June 1982 3779-RW Malawi August 1982 3903-MAL Bangladesh October 1982 3873-BD Zambia January 1983 4110-ZA Turkey February 1983 3877-TU Bolivia April 1983 4213-BO Fiji June 1983 4462-FIJ Solomon Islands June 1983 4404-SOL Senegal July 1983 4182-SE Sudan July 1983 4511-SU Uganda July 1983 4453-UG Nigeria August 1983 4440-UNI Nepal August 1983 4474-NEP Gambia November 1983 4743-CM Peru January 1984 4677-PE Costa,Rica January 1984 4655-CR Lesotho January 1984 4676-LSO Seychelles January 1984 4693-SEY Niger March 1984 4642-NIR Ethiopia July 1984 4741-ET GUINEA-BISSAU ISSUES AND OPTIONS IN THE ENERGY SECTOR AUGUST 1984 This is one of a series of reports of the UNDP/World Bank Energy Sector Assessment Program. Funding for this work has been provided, in part, under the supplementary "Small-Country Assessment Program" financed by the Swedish Government through the UNDP, and the work has been carried out by the World Bank. This report has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. ムー… ABSTRACT The consumption of energy in Guinea-Bissau is characterized by a total reliance on imported petroleum fuels for transport, industry and house- hold lighting needs and on woodfuels for almost all household cooking and traditional rural, commercial and artisanal activities. The condition and performance of the energy sector have been adversely affected by the country's severe economic crisis. As a result, the rehabilitation of the sector can only be accomplished within the framework of the overall Economic Stabilization Program. The immediate priorities for the sector will be to adjust energy prices to reflect the real economic cost of im- ported fuels, to complete and consolidate the organization of the sec- torls institutions, and to concentrate investments on rehabilitating and removing the bottlenecks in the existing installations. Consolidation of the power institutions will require an integrated plan of action consist- ing of policy measures, institutional building blocks and investments to improve its existing capacity. The strengthening of the petroleum enter- prises is proceeding at a prudent pace but needs to be complemented by investments to repair deteriorated facilities. Finally, the gradual im- pact of charcoal production on the deforestation process requires that the Forest Service be strengthened so that it can manage the exploitation of the country's forests and assist the charcoal-makers in adopting im- proved charcoal making methods. 1 ACRONYMS ADF African Development Fund DICOL National Enterprise for the Distribution of Fuels and Lubricants DGEA Directorate General of Energy and Water DGF Directorate General of Forestry EAGB Energy and Water Enterprise of Guinea-Bissau INE National Energy Institute (now DCEA and EAGB) MEPCI Ministry of Economic Coordination, Planning and International Cooperation MIE Ministry of Industry and Energy MRNI Ministry of Natural Resources and Industry SIDA Swedish International Development Authority UNSO United Nations Sudano-Sahelian Office ABBREVIATIONS PREFIXES cap capita kilo - 1,000 c.i.f. cost, insurance, freight mega - 1,000,000 f.o.b. free on board giga - 1,000,000,000 GWh Gigawatt hour ha hectare hp horsepower kgoe kilogram of oil equivalent km2 square kilometer kVA kilovolt-ampere kWh kilowatt hour LV low voltage m meter mn million m cubic meter MW Megawatt MV medium voltage n.a. not available ton metric ton toe metric ton of oil equivalent tpy tons per year CURRENCY EQUIVALENTS Currency Unit: Guinea Bissau Peso (PG) Official Exchange Rate: 100.00 PG/US$ 1/ Fuel Conversion Factors (Net calorific content expressed in tons of oil equivalent of 10.2 million kilocalories) Product Conversion Factor Density Electric Power 86.00 toe/GWh a/ - Butane 1.05 toe/ton 0.58 Gasoline 1.03 toe/ton 0.74 Kerosene 1.01 toe/ton 0.83 Jet Fuel 1.02 toe/ton 0.83 Gas Oil 1.00 toe/ton 0.84 Fuel Oil 0.94 toe/ton 0.96 Firewood 0.40 toe/ton 0.70 b/ Charcoal 0.67 toe/ton 0.30 a/ This reflects the energy content of electricity. The amount that is required to generate electricity in Guinea-Bissau is not known pre- cisely, but has been assumed by the mission to be 280 toe/GWh, which implies a conversion efficiency of 31%. b/ Metric tons per stacked cubic meter (stere). This report is based on the findings of an energy assessment mission which visited Guinea Bissau in December, 1983. Its members were Andres Liebenthal (mission Leader), Joao do Nascimento Baptista (power engineer, consultant), Sayuri Carbonnier (forester, consultant) and Guido Marques Kurth (wood and agricultural waste combustion expert, consultant). A draft of the report was discussed with the Government in July 1984. _/ As of early May, 1984. TABLE OF CONTENTS Page SUMMARY ........................... ... . ................ Energy Situation and Prioritiesa........... ......... Principal Recommendations.... ......... o .............. Energy Pricing... ........... ... ... ... . ........ . Rehabilitation of the Power Subsector.ue............... ii Strengthening the Petroleum Subsector.................iii Strengthening the Forest Service....................... iv I. ECONOMIC AND INSTITUTIONAL CONTEXT......................... 1 Energy in the Economy1............................... . 1 Institutional Framework................................. 2 II. ENERGY CONSUMPTION........ .... .......................... 4 The Structure of Energy Consumption..................... 4 The Consumption of Petroleum Products................... 5 The Consumption of Electricity........................... 7 The Consumption of Firewood and Charcoa................ 10 III. ENERGY SUPPLY............................................. 11 Overview................................................ 11 Electricity............................................. 11 Expanding the Electric Supply System................... 13 Consolidating Institutions of the Power Subsector...... 17 The Petroleum Potential................................. 18 Firewood and Charcoal..................... .. 19 Increasing the Supply of Charcoal..................... 20 Agricultural and Sawmill Residues........................ 23 IV. ENERGY PRICING. . ................... ........ ... ........... 24 Petroleum Product Prices................................. 24 Power Tariffs .......... ............ ........ ............ 27 V. INVESTMENT AND TECHNICAL ASSISTANCE PRIORITIES............. 30 Sectoral Development ........ ..... ......... ............ 30 Power Subsector...... ................ .................. 30 Petroleum Subsector..................................... o 33 Firewood and Charcoal .................................... 33 Page TABLES 1.1 Major Economic Indicators.................................. 1 2.1 Summary Energy Balance, 1982............................... 5 2.2 Petroleum Product Imports.................................. 6 2.3 Fuel Requirements for Power Generation in Bissau With and Without Loss Reduction Program.................. 9 3.1 Bissau Generation Expansion Program, 1983-1990............. 14 4.1 Petroleum Product Prices ........... ....................... 25 4.2 Comparative Petroleum Product Prices....................... 26 4.3 Electricity Tariffs ........................................ 28 ANNEXES 1. Selected Bibliography ................. . ...................... 35 2. Energy Balance, 1982 .......................................... 37 3. Electricity Demand 1984-1994..................................38-39 4. Energy Sector Investment Plan................................. 40 MAPS 18216: Power Supply System 18217: Status of Petroleum Exploration 18215: Forest Resources SUMMARY Energy Situation and Priorities 1. Guinea-Bissau has a dual energy economy based on domestic wood- fuels and imported oil. About 90% of total energy consumption is accounted for by firewood and charcoal, which are used in almost all households for cooking as well as in traditional rural, commercial and artisanal activities. Available woodfuel supplies appear to be adequate to meet the demand from rural areas, but deforestation is a problem in areas where charcoal is produced for urban markets. Imported petroleum fuels are used for transportation, industry, and for lighting (where kerosene or electricity is used). Petroleum imports are only about 29 kgoe per capita per year but nonetheless account for 18% of total imports and 86% of export earnings. The public electric power system is in urgent need of rehabilitation, with over half of the installed generating capacity out of service and roughly 40% of the electricity that is pro- duced lost (and stolen) in the distribution network. Outages and voltage fluctuations are frequent and private generating plants have proli- ferated. 2. The rundown condition of the energy sector contributes to the general economic deterioration that afflicts the country; therefore the rehabilitation of the sector should be accomplished within the framework of the Government's overall Economic Stabilization Program. This Program is focussed on overcoming the country's financial bottleneck, liberaliz- ing the ineffective internal marketing circuits, and improving the man- agement of economic institutions. Only after existing production capa- cities have been revived is the Government planning to invest in new capacities in line with the country's resource potential and domestic requirements. In the mission's view, the same phasing of priorities is directly applicable to the energy sector. Thus, the immediate priorities for the sector should be to complete and consolidate the organization of the sector's institutions, and to concentrate investments on the rehabi- litation and debottlenecking of the existing installations. Only after the existing facilities are operating satisfactorily and the rest of the economy is recovering apace will there be a need to expand capacity. Principal Recommendations Energy Pricing 3. The economic costs of petroleum products and therefore electri- city are unusually high in Guinea Bissau because of the high costs of transporting and handling the small volumes consumed. Thus, it is impor- tant to encourage the rational use of energy and the development of domestic energy resources by setting the retail prices of petroleum products at a level that fully reflects their economic costs. This basic - ii - objective of energy pricing has not been implemented in Guinea-Bissau, where all petroleum product prices are substantially below their economic costs, because of the rapid rise in the shadow value of foreign exchange. which was not reflected in the official exchange rate, and the inability of the existing regulatory mechanism to adapt to the circumstances. Therefore, because it would be impractical and inefficient to impose quantitative restrictions on the sale of petroleum products and as long as the availability of foreign exchange for importing all other goods is curbed by a system of highly restrictive controls, the opportunity cost of imported fuels will be higher than current c.i.f. prices and the price of imported fuels should be raised accordingly. In the absence of a more accurate estimate, the parallel exchange rate may be used as a suitable indicator of the opportunity cost of the foreign exchange. Thus, the mission recommends that the price of petroleum products be adjusted to reflect the opportunity cost of foreign exchange as reflected in the parallel exchange rate. The recommended increases have been tentatively estimated at about 127% for butane, 131% for kerosene, 93% for jet fuel, 32% for super gasoline, 16% for normal gasoline, 130% for gasoil and 412% for gasoil used in power general:ion (paras 4.4-4.7). Correspondingly the power tariffs would have to be three to nine times as high just to cover the economic cost of gasoil for power generation (para 4.9). Rehabilitation of the Power Subsector 4. The power subsector is in such a state of disrepair that it would be counterproductive to attempt to install new capacity without first completing the process of institutional organization, obtaining accurate information on the existing system, and putting it back in working condition. To build the Electricity and Water Company of Guinea Bissau (EACB) into a dependable and economically viable supplier of elec- tricity requires an extensive program of policy measures, institutional building blocks and investments that should be implemented immediately and in an integrated fashion. In the mission's view, a minimum core of the most urgent actions should include the following: Policy Measures. (a) complete the proposed separation of EAGB from DGEA (para 1.4); (b) adjust the current tariff to reflect the opportunity cost of foreign exchange (para 4.9); (c) require the public sector agencies to pay their electricity bills (para 4.10). Institutional Buildiny Blocks. (a) establish a training program for plant operators and other staff (para 3.14); (b) strengthen metering, billing, accounting and administrative systems (para 3.15); - 1.11 - (c) strengthen and enforce appropriate procurement procedures (para 3.16); (d) perform a survey of autogenerators and standby plants (para 3.2); (e) prepare a detailed map of the existing power supply system (para 3.7); (f) determine the level and characteristics of electricity demand (para 2.7); (g) prepare a power system master pl n (par 3.15). Investments. (a) repair and rehabilitate units IV and V in Bissau (para 3.3); (b) rehabilitate the LV and MV distribution networks in Bissau (paras 3.6 and 3.7); (c) establish a spare parts inventory (para 3.4); (d) interconnect with the major autogenerators (para 3.5). The above action plan would take about three years to implement and re- quire about US$2 million of technical assistance for institutional build- ing blocks and US$10-12 million for investments. Further preparation is needed to determine its precise scope and financial requirements. The mission recommends that the Ministry of Industry and Energy 1/ concen- trate its scarce available management, technical and financial resources on implementating this plan of action and consider postponing the execu- tion of its other planned power investments until the program is com- pleted, when their design and priority should be reevaluated on the basis of the condition of the economy, EAGB's execution capability, and im- proved basic information that should then be available (paras 5.2-5.5). Strengthening the Petroleum Subsector 5. Given the fair to good prospects of finding petroleum in the offshore continental shelf, the promotion of petroleum exploration de- serves the highest priority (para. 3.16). In addition, in line with the priorities of the energy sector, those of the petroleum subsector are to complete and consolidate the organization of the enterprises and to con- centrate investments on the rehabilitation of existing capacities. In 1/ In July 1984, the Ministry of Industry and Energy and the Ministry of Natural Resources were combined into the Ministry of Natural Resources and Industry (MRNI). The Directorate General of Forestry was transferred to the Ministry of Rural Development. - iv - this regard, the strengthening of the enterprises seems to be progressing at a prudent rate: The petroleum product distribution company DICOL with the assistance of Petrogal, and the petroleum exploration company Petrominas with that of the World Bank. In regard to other investments, the mission recommends that highest priority be given to the repair of Dicol's storage tanks and that the proposed unloading facility (a jetty, a pipeline or the improvement of the existing sealine) be reviewed to select the most economical approach (para. 2.5). Strengthening the Forest Service 6. In view of the impact of charcoal production on the destruction of the natural forests and the absence of affordable substitutes, the Government needs to consider possible measures to reduce the pressure of charcoal supply on the forest cover. In the short term, this can be achieved through the introduction of improved charcoal making methods and the development and implementation of a national forest management plan. One condition for implementing of these two projects is the strengthening of the Forest Service (DGF), which currently is incapable of carrying out its duties because of staff and equipment shortages and an inappropriate legal framework (para 3.21). Therefore the mission recommends that the highest priority be given to the proposed project to strengthen the DGF. Finally, if the existing charcoal production component of the Zone I Forestry Project cannot be activated, the mission recommends that sepa- rate technical assistance be provided to charcoal producers to train them in improved charcoal making methods (para 5.8). I. ECONOMIC AND INSTITUTIONAL CONTEXT Energy in the Economy 1.1 Guinea-Bissau is located on the west coast of Africa, between Senegal and Guinea-Conakry, and has about 830,000 inhabitants. Its total area is 36,125 km2, of which about a quarter consists of rivers and tidal swamps. The monetary economy, public administration and industry are concentrated in the capital, Bissau, a city of about 110,000, or 13% of the population. The country's economic situation has not yet recovered from the destruction of a large part of the limited infrastructure during the 1964-74 Struggle for Independence. Since independence the country has had to depend on international assistance for many essential sup- plies. To rehabilitate and develop the economy, the Government has invested in developing the public and parastatal sector but a lack of administrative experience and unwise investment policies led the country into serious deficits, external indebtness and foreign trade imbalances. Today, the GDP per capita is about US$220, substantially below its level of a few years ago. A few major economic indicators are shown in Table 1.1. The deteriorating economic situation led the Government to adopt in 1982 a three-stage overall development strategy. The first stage (1983- 86) concentrates primarily on economic-financial stabilization, the second of economic recovery, and the third an autonomous economic devel- opment. Table 1.1: MAJOR ECONOMIC INDICATORS 1978 1979 1980 1981 1982 Population (thousands) 751 768 785 802 820 GDP/cap (Constant US$, 1982) 301 286 226 215 216 (Constant US$ million, 1982) Gross Domestic Product 226.1 219.9 177.4 172.8 177.5 Public Investment 65.7 68.2 75.7 48.8 55.0 of which: Energy 1.0 4.2 12.5 4.5 4.5 Imports of Goods and Services 81.5 91.4 78.7 61.6 61.2 of which: Petroleum Products 3.7 8.4 10.8 8.8 11.2 Exports of Goods and Services 19.3 19.7 14.5 14.9 13.0 Source: National Bank of Guinea-Bissau, and Bank staff estimates. 1.2 One of the fundamental questions facing the Government is the severe imbalance between the demand for imports and the supply of foreign - 2 - exchange. This is related to the maintenance of an unrealistic official exchange rate and the inability of the parastatal commercial sector to provide farmers and other producers with essential spare parts and mate- rials for production and the desired consumer goods. This has led to a rapid rise in clandestine exchange, mainly of agricultural products but also including charcoal and petroleum fuels. The magnitude of the price distortion and the clandestine trade is suggested by the following: (a) the official price of 1 kg of unhulled rice is 9 PG. On the parallel market it [s sold for 20 to 25 PG; (b) the official exchange rate is 100 PG/US$ and the parallel market rate is approximately 260 PG/US$; (c) the official estimate of the value of clandestine exports is about equal to that of official exports (about US$14 million/year). While the analysis and review of this state of affairs will necessarily have to be approached from a macroeconomic perspective, there are impor- tant ramifications in the energy sector that will be discussed in this report. Institutional Framework 1.3 The management of the energy sector is centered around two ministries: 2/ (a) the Ministry of Energy and Industry (MEI), which has responsi- bility for supervising the power subsector and the petroleum and butane distribution companies. Within the MEI, the Direc- torate General of Energy and Water (DGEA) is responsible for the power subsector and the development of renewable energy sources. Its organization still contains a mix of policymak- ing, planning and operational functions that reflects an incom- plete separation from EAGB (the Electricity and Water Company of Guinea Bissau), which it supervises. The Directorate General of Industry (DCI) is responsible for the industrial sector which includes the petroleum products distribution com- pany DICOL and the butane distribution company Guinegaz; (b) the Ministry of Natural Resources (MRN), which is responsible for the evaluation and development of the country's hydro- 2/ In July 1984, the Ministry of Industry and Energy and the Ministry of Natural Resources were combined into the Ministry of Natural Resources and Industry (MRNI). -3- logical, mineral and forest resources. The MRN supervises Petrominas, the National Corporation of Petroleum and Mineral Exploration. Within the MRN, 3/ the Directorate General of Forestry (DGF) supervises and regulates the development of the country's forest resources. 1.4 Many of the problems in the energy sector reflect the still evolving organization and definition of the institutions within the sector which have been reorganized and redefined more than once in the short time since independence. The resulting uncertainty about functions and responsibilities has led to ill-advised planning and investment decisions in the past, and continues to detract from the scarce manage- ment and technical capacity available in the sector. The most important aspect of the organizational set up that needs to be clarified is the separation of DGEA and EACB, both of which were formed out of the former National Energy Institute (INE) in 1983. The mission recommends that the Government clarify the respective roles and personnel of DGEA and EAGB by proceeding as soon as possible with the intended separation of the two agencies, by turning EAGB into a financially viable operating entity and DGEA into a planning, regulatory and poLicymaking agency. 3/ In July 1984, the Directorate General of Forestry was transferred to the Ministry of Rural Development. II. ENERGY CONSUMPTION The Structure of Energy Consumption 2.1 The structure of energy use in Guinea-Bissau is determined by the following characteristics:: (a) a dominant rural economy only weakly integrated with the modern sectors that, except for transportation, depends entirely on firewood and exports firewood and charcoal to the urban areas; (b) an embryonic industrial sector which, in the absence of a reli- able power supply, depends almost entirely on gasoil-fueled self-generated electricity; (c) a capital city, Bissau, which concentrates Government, commer- cial and industrial activities, and depends on petroleum pro- ducts and electricity for its economic activities, and charcoal and firewood for its cooking requirements. Basically, firewood and charcoal are used for cooking by almost all households and the traditional rural, commercial and artisanal acti- vities, but transport, industry and household lighting are characterized by a total reliance on imported petroleum fuels. As of 1982, commercial energy consumption was about 29 kgoe per capita, one of the lowest in the region, and firewood and charcoal use about 235 kgoe per capita. Imports of petroleum fuels have declined as a result of the deteriorating economy from 21.0 thousand tons in 1979 to 19.2 thousand tons in 1983, which was equivalent to about 18% of total imports and about 86% of export earn- ings. An important feature of the country's petroleum consumption is that the consumption of transportation fuels appears to be high in rela- tion to the size and condition of the transport fleet, and it is possible that some of these fuels may be illegally reexported to neighboring countries. The final consumption of firewood and charcoal has been ten- tatively estimated at about 158,000 toe per year. The major concern here is that the advance of deforestation, mainly due to clearing land for pasture and the prevalence of slash and burn agriculture, is assisted by the production of charcoal for the urban centers. 2.2 To illustrate the di.scussion of energy consumption, the mission has prepared an energy balance for 1983 included as Annex 2 and sum- marized in Table 2.1. The information on which this balance is based is subject to a high degree of inaccuracy. Nevertheless, it serves to illustrate the dominant role of the woodfuels, which accounted for about 91% of domestic energy consumption, the important role of petroleum products, whose share of domestic energy consumption amounted to 8% in 1983, and the limited role of electricity, which accounted for less than 1% of energy consumption (ever including self-generated electricity). - 5 - Table 2.1: SUMMARY ENERGY BALANCE, 1983 (toe) Electri- Petroleum Firewood Charcoal city Products Total Production 195,000 - - - 195,000 Imports - - - 19,377 19,377 Change in Stock - - -442 Total Available 195,000 - - 23,802 218,802 Charcoal Production (43,000) 10,615 - a/ Power Generation - - (2,950) (9,257) (6,307) Trans. & Dis. Losses - - (800) (800) Spillage & Evaporation - (965) - (1,074) (2,039) Net Consumption 152,000 9,650 2,150 13,471 177,271 Industry 4,000 - 687 386 5,073 Transport - - - 11,915 11,915 Household/Commerce 148,000 9,650 1,463 1,170 160,283 a/ Conversion Losses. b/ Public utilities and autogenerators Source: Annex II. The Consumption of Petroleum Products 2.3 Outside of woodfuels, Guinea Bissau's energy requirements are met entirely by imported petroleum products. As shown in Table 2.2, the country's demand for petroleum products is characterized by an unusually large share of gasoil consumption, which in recent years has accounted for two thirds of total petroleum demand. About 56% of the total gasoil consumption (9,257 toe in 1983 - equivalent to 39% of total petroleum use) was used for power generation - 7,257 toe by the electric utilities and 2,000 toe by self-generators. About 6,300 toe of gasoil consumption may be attributed to road transport and construction equipment and about 700 to 800 toe to river transport and fisheries. Road transport also consumed about 3,900 toe of gasoline. Seventy percent (1,303 toe) of the jet fuel is used by airplanes. The proportion of sales to foreign air- lines is not known, the rest (553 toe in 1983) was sold to households as kerosene, mainly for lighting purposes. Butane consumption is concen- trated in the commercial sector - fewer than a thousand households are reported to use it for cooking and lighting. Thus, on a very tentative basis, the consumption of petroleum products (in 1983) may be attributed to the following activities: (a) 30% to public power generation; (b) 10% to industry, including fisheries, of which about 6% is for power genera- tion; (c) 9% to the residential/commercial sector, of which about 2% is for power generation; (d) 50% to transport; and (e) 5% to handling - 6 - losses. This pattern of consumption and the burden it imposes on the country's balance of payments will make the opportunities for reducing petroleum imports through energy conservation and reduction of leakages in the system a major interest. The high share of transport fuels consumption calls for detailed analysis. In addition, the potential for reducing losses in the power and petroleum supply system appears to be very favorable and will also be discussed. Table 2.2: PETROLEUM PRODUCT IMPORTS (tons) Average Growth 1979 1980 1981 1982 1983 Rate (1979-83) 1983 (%) (Toe) Gasoil 13,883 14,844 12,242 18,859 12,588 -2.4 12,588 Jet Fuel 2,844 2,598 2,327 2,863 1,510 -14.6 1,540 Gasoline (Normal) 2,087 1,638 1,620 1,609 1,755 -4.2 1,807 Gasoline (Super) 1,452 1,572 1,753 3,448 2,730 17.1 2,812 Avgas 114 115 338 475 - - - Butane 600 600 600 600 600 - 630 Total 20,980 21,367 18,880 27,854 19,183 -2.2 19,377 Source: DICOL and Guinegaz. 2.4 The consumption of petroleum products by the transport sector appears to be high in relation to the size and condition of the transport fleet and of the road network. The size of the road transport fleet may be estimated on the basis of the number of vehicles covered by insurance in 1982: 2608 light trucks and cars and 811 trucks. 4/ This is an over- estimate of the available fleet, as probably less than half of the ve- hicles were in working order at any given time. Nevertheless, a recent study estimates the averate utilization rate to have been 2,214 km/month for light vehicles (consuming 12 liters/100 km of gasoline or 17.3 liters/100 km of gasoil) and 1,752 km/month for heavy vehicles (which consume 32.39 liters/100 km of gasoil). 5/ Such high utilization rates, which are compatible with the level of transport fuel consumption, appear to be inconsistent with the poor condition of the vehicle fleet, and the fact that the country's 485 km of paved roads carry mostly very low 4/ Based on the latest available vehicle registration statistics (1981), Guinea Bissau has 1,617 cars, 574 pickups, 760 trucks, 158 buses and 235 mini-buses. In the Round Table document (SEPCI), 1983), it is estimated that the road fleet consists of 100 buses, 200 trucks and 250 pickups, of which Less than 50% are operational. 5/ SNEDE (1983). - 7 - traffic densities (only about 50-100 vehicles per day on average). Thus it is possible that a significant share of the fuel consumption attri- buted to the transport sector may be flowing through clandestine channels to neighboring countries. The incentive for this trade is provided by the large price differential with Senegal 6/ and the difficulty in obtaining any foreign exchange through authorized channels. The exis- tence of this trade undermines the Economic Stabilization Program and underlines the importance of adjusting prices to fully reflect the eco- nomic cost of the fuels, so that at least this clandestine trade is no longer subsidized by the Government. This recommendation is outlined in Chapter 4. 2.5 Petroleum product Losses from evaporation and spillage have long been recognized as a major problem, and are well documented in DICOL's financial report. Thus, for the year 1983, physical handling losses have been estimated as follows: gasoil, 291 toe (0.5% of sales); gasoline (normal), 234 toe (18.9% of sales); gasoline (super), 510 toe (15.4% of sales); and avgas, 23 toe (20.2% of sales). All in all, about 1,074 toe of petroleum products, equivalent to 4.5% of consumption and about US$0.5 million were evaporated and spilled. A major cause of ex- cessive evaporation and leakage is the inadequate maintenance of storage tanks and pipes due to lack of spares and supplies. BY DICOL's own esti- mate, its 20,000 m3 of storage capacity originally built in 1961 is in such a state that it would require about US$100,000 in parts and supplies to rehabilitate. A second major cause of excessive spillage has been the destruction of DICOL's jetty in 1979, which requires the use of a sub- marine sea line for unloading ships -- a time-consuming and costly proce- dure due to the strength of the tidal currents. By DICOL's estimate, it would require about US$2 million to rebuild the jetty. In view of the growing volume and cost of petroleum product losses, it is essential for DICOL to be able to repair its storage tanks and have adequate unloading facilities. Thus, the mission recommmends that the highest priority be given to DICOL's foreign exchange requirement to repair its tanks and that the proposed rebuilding of its jetty be reviewed in comparison to building a 10" product pipeline 2.5 km to the main commercial berth in Bissau, and improving the existing sea line. The Consumption of Electricity 2.6 For the first time since the late seventies, EAGB measured its power generation in 1983 as 23.3 GWh in Bissau, for which it used about 6/ Before the recent price increase in May, 1984, the effective retail price of gasoline and gasoil in Guinea-Bissau was only one-third of their level in Senegal. After the May 1984 price increase, the prices in Senegal are still more than double those in Guinea-Bissau (see para. 4.5) - 8 - 6,166 toe of gasoil. Its reported sales of 9.3 GWh to LV customers and 6.3 GWh to MV customers are consistent with the estimated system losses of 40% and 15%, respectively. Almost nothing is known about electricity consumption in other parts of the country, but based on DICOL's total sales of 7,257 toe of gasoil at the special utility price, the mission assumed that the rural utilities consumed the 1,091 toe of gasoil that were not used by EAGB in Bissau. Assuming an average fuel consumption of 0.28 kg of gasoil per kWh and system losses of 40%, the mission estimated that rural power generation was 3.9 GWh and power consumption about 2.3 GWh. The production of electricity by autogenerators is not known, but on the basis of the 963 toe of gasoil consumed by three major industrial plants, it can be inferred that their total consumption of gasoil for power generation must have been about 2,000 toe, with which they produced about 7.1 GWh. Putting all these figures together, the total consumption of electricity in Guinea Bissau may be estimated at 25.0 GWh, for which 34.3 CWh were generated using 9,257 toe of gasoil. 2.7 The uncertainty associated with the estimate of total electri- city consumption shows that it. is essential to obtain a better under- standing of actual electricity demand. Thus, it is recommended that DGEA collect and process data on electricity consumption and conduct a survey of major consumer groups to determine their installed capacity, pattern of utilization, load diagrams, standby generation capacity, etc. 7/ This action should enable DGEA and EAGB to analyze the structure of energy demand and provide a sound basis for estimating future demand. 2.8 As a complement to the proposed demand survey, EAGB began in 1983 to maintain an hourly record of power generation by each generator at the Bissau power plant. Although the record corresponds to a period with daily load shedding and therefore is of little use in estimating potential consumption, it is recommended that this effort be continued and complemented with daily records of fuel consumption by generator and monthly records of sales in order to obtain a better understanding of system operations. After the rehabilitation of existing capacity and training of plant operators, the dispatching of units could take account of specific consumption to reduce overall fuel consumption. 2.9 The transmission and distribution losses experienced by the Bissau power system are exceptionally high -- they have been measured to range from 35% to 45% on different occasions. The allocation of those losses between technical and nontechnical 8/ causes is not known with accuracy, but DGEA officials attribute less than 1% of the losses to 7/ This survey could also be used to identify situations where load characteristics would justify the installation of power factor correction equipment, so as to reduce the gap between peak demand and required peak capacity. 8/ E.g., theft and non-metered energy. - 9 - illegal consumption. The high level of losses suggests that the least cost way of increasing the supply of electricity will be to implement a concerted program to bring system losses down to a level of 12-15%. The program would include a change in the MV distribution level from 6 kV to 10 kV (already planned) and reconductoring and improvements in LV distri- bution. The obtained savings are important because they translate directly into reduced generation and gasoil consumption. 2.10 To illustrate the value of a Loss reduction program, the mission prepared a tentative electricity demand forecast for Bissau using two alternative cases: one assumes no reduction in system losses and the other incorporates a reduction in average Losses from 40% to 20%. The mission's forecast is explained in Annex 3 and summarized in Table 2.3. Although these demand projections are highly tentative and subject to a wide range of error, they serve to suggest that the rapid implementation of a loss reduction program could lead to gasoil savings of about 27% by 1988, with a discounted economic value of about US$10 million. 9/ The improvement of the distribution network would also translate into a capa- city credit for the plant. A reduction of 20% in average losses would probably correspond to more than a 30% reduction in peak losses, meaning a capacity credit in 1989 of about 2.4 MW. Table 2.3: FUEL REQUIREMENTS FOR POWER GENERATION IN BISSAU WITH AND WITHOUT LOSS REDUCTION PROGRAM a/ System b/ Year Peak Demand Generation Gasoil Requirements - A B A B A B B-A (kW) (MWh) (tons) 1984 6,318 6,318 31,270 31,270 8,756 8,756 - 1985 6,281 6,690 31,362 33,405 8,781 9,353 572 1986 5,885 7,083 29,643 35,677 8,300 9,990 1,690 1987 5,698 7,503 28,950 38,121 8,106 10,674 2,568 1988 5,797 7,949 29,961 41,084 8,389 11,504 3,115 1989 6,036 8,425 31,461 43,913 8,809 12,296 3,487 1990 6,412 8,934 33,421 46,566 9,358 13,038 3,680 1991 6,734 9,369 35,394 49,243 9,910 13,788 3,878 1992 7,074 9,825 37,181 51,640 10,411 14,459 4,048 1993 7,434 10,308 39,073 54,179 10,940 15,170 4,230 1994 7,814 10,817 41,070 56,854 11,500 15,919 4,419 a! Case A: with Loss Reduction Program; Case B: without Loss Reduction Program. b/ Specific fuel consumption assumed: 0,280 kg/kWh. Source: Annex 3. 9/ Based on cumulative gasoil savings of 75,900 tons over a twenty year period, discounted at 12%/year and valued at the economic cost of US$420/ton. - 10 - The Consumption of Firewood and Charcoal 2.11 As pointed out in Table 2.1, firewood and charcoal meet the cooking fuel needs of almost all households and the energy requirements of some industrial and commercial establishments such as restaurants, smithies, bakeries, brick and ceramic kilns. The pattern of consumption has not been surveyed, but overall it is believed that about 80% of the urban population (17% of the total population) uses charcoal, and the rest of the urban households and the entire rural population uses fire- wood. The only exceptions are a few hundred families in Bissau that use butane when it is available. The high proportion of charcoal use appears to be a consequence of the high cost of transport, which favors the haul- age of charcoal, as it contains about 70% more heat content per unit of weight. The amount of woodfuels consumed by households has not been measured, but based on surveys in Senegal, it has been postulated to be about 365 kg/cap/year of firewood or 100 kg/cap/year of charcoal in urban areas and about 547 kg/cap/year of firewood in rural areas. This postu- late implies that in 1983 the households of Guinea-Bissau consumed about 371,000 tons (148,000 toe) of firewood and 14,400 tons (9,650 toe) of charcoal. These estimates may be regarded as the upper end of a range of estimates that could have been made on the level of woodfuels consump- tion. For example, on the basis of the number of truckloads carrying firewood and charcoal that were counted by a Forest Service control post at the entrance of Bissau in late 1983, the consumption of charcoal should be only 42 kg/cap/year (for 80% of the population in Bissau) and the consumption of firewood (for 20% of Bissau's population) should have averaged 21 kg/cap/year. These figures appear to be too low in relation to likely fuel requirements and suggest the need for a more comprehensive survey, such as that proposed below. 2.12 From an energy perspective, the major issue associated with the consumption of woodfuels is that it accelerates the rate of deforesta- tion. While it is beyond the scope of this report to discuss the devel- opment potential of the country's forest resources, the heavy reliance of the urban population on charcoal indicates that measures need to be taken to protect the remaining natural forests (para. 3.18). In addition, to gain a better understanding of the size and structure of the market, it is recommended that the Government undertake a survey of energy use patterns in the households, especially in Bissau. To improve the reli- ability of the survey, it is recommended that the actual consumption of a small stratified sample of survey respondents be measured daily (over one to two weeks) to compare actual with stated woodfuels consumption. This survey should be completed quickly as it would provide an essential input to evaluating the need and viability of a concerted affort to improve the charcoal supply system in Bissau. - 11 - III. ENERGY SUPPLY Overview 3.1 Guinea-Bissau possesses an important natural endowment of energy resources in the form of firewood, hydroelectric power and, pos- sibly, petroleum but continues to depend on imported oil for meeting about one-tenth of its energy requirements. While the consumption of firewood in rural areas appears to be in balance with available supplies, the production of charcoal is a contributing cause of deforestation. To protect the natural forest cover for future management and development and to ensure the continued availability of charcoal to the urban popula- tion that depends on it, the Government needs to develop a long term forest management plan (which also covers the mangroves) and to streng- then the Directorate of Forestry (DGF) so that this plan can be imple- mented. The supply of electricity depends entirely on imported petroleum fuels, so the development of the country's hydroelectric potential should be considered as an option for the future. Nevertheless, the power sub- sector is currently in such a state of disrepair that it would be coun- terproductive to attempt to install any new capacity without first com- pleting the organization of EAGB, obtaining accurate information on the existing power supply system and putting it back in working condition. Finally, in view of the country's shortage of foreign exchange, the pos- sibility that petroleum may be found on its offshore continental shelf is of interest and needs to be explored with all deliberate speed. Electricity 3.2 The installed power generation capacity of the country is not known with accuracy, but is believed to range from 20-27 MW. Most of it is concentrated in Bissau, where EAGB has a 10.4 MW power plant (about half operational) and where the major self-producers are located. These include the brewery, with 1.6 MW, the oxygen-acetylen plant, with 0.7 MW, the Cumer6 Agro-Industrial Complex (not operational), with 1.9 KW, and numerous small standby generators in commercial and industrial establish- ments, public buildings and residences. Their total installed capacity is believed to be between 6-12 MW. In addition to Bissau, there are about 20 isolated rural power systems (of which two are operated by EACB), plus a number of self-generators at the rural industries, with a total installed capacity of 3-4 MW (of which about half is operational). As an essential step towards better understanding the power supply situa- tion, it is recommended that DGEA prepare a complete inventory of all public and private generation capacity. This inventory should state the type, date of installation, rated capacity, fuel consumption, main use of electricity, load diagram, operating condition, and fuel storage capa- city. Particular attention should be given to units in areas where a public supply exists. - 12 - 3.3 At EAGB's main power plant in Bissau, only 4.6 MW out of the 10.4 MW installed capacity (two out of eight units) were operational at the time of the mission. Available capacity falls short of potential capacity mainly due to very defective and careless operations and a lack of qualified personnel and spares. A preoccupation with meeting short- term demand has led to a deterioration in the quality of maintenance with resulting derating of the units. This is a cause of concern because of the continued tight supply situation that is likely to persist over the next years and the system's reliance on diesel machines which require regular maintenance. Therefore, rehabilitation of the non-operational units needs to be considered with urgency. The rehabilitation of units IV and V is urgent and justified. The amount of foreign currency involved is around US$270,000 and should be given the highest priority. With units IV, V and VI available on a regular basis, the peak capacity of the Bissau plant would reach 6.3 MW. The vintage (1953) of units I and II, their high operating hours, and the fact that their rehabilita- tion will amount to a quarter of their replacement cost, indicates that they should not have high priority. For the same reasons, the rehabi- litation of unit III is of no interest and the unit should be dis- mantled. The operating characteristics and rehabilitation potential of units IX and X need to be clarified with the supplier. If, as their nameplate suggests, they are only suited for standby duty (one hour service followed by six hours pause), their usefulness is doubtful even for peaking purposes because the peak should last for 2-3 hours. 3.4 To keep the rehabilitated units operational, it would be important to establish a stock of spare parts for their repair and main- tenance. This stock should be established taking into account the most frequent causes of trouble and down-time. The benefit of keeping such a stock would be immediately reflected in the reduction of maintenance periods and in savings of foreign exchange. 10/ Considering that about US$200,000 should be sufficient to establish a two-year inventory of spares, it is recommended that this investment be given the highest priority. 3.5 Another opportunity for postponing the need for immediate capacity increases is offered by the ready availability of three major self producers (totalling 4.2 MW) in and near Bissau, all of which are owned by the Government. At present, none of these plants can be oper- ated in parallel with EAGB's system because their controls have not been designed to be compatible. Nevertheless, the MV connecting lines have already been built, and it is recommended that the adaptations required for connecting them with the network (and, in the case of Cumer6, its repair) be analyzed and the joint operation of these plants by EAGB be considered. This would take advantage of an existing underutilized 10/ Because of the prevailing foreign exchange bottleneck, spare parts and supplies currently are often obtained through costly and time- consuming emergency channels. - 13 - investment in generation and transmission capacity and increase the reserve capacity of the network, especially during the evening peak when the industrial plants are not working. It would also give EAGB practical experience in operating interconnected plants, as a first step towards operating larger systems in the future. 3.6 As discussed in para. 2.9, the distribution system Losses in Bissau are extremely high -- estimated in the 35-45% range. As the improvement of the distribution network should be able to reduce these losses to 15-20%, such a project deserves the highest priority. The project should include the complete replacement of the network in the more deteriorated zones, the rebuilding or replacement of some substa- tions, the extension of the MV network, and an increase in the MV dis- tribution voltage to 10 kV. EAGB already has designed a project to rehabilitate its lines at an estimated cost of US$3.4 million. A major issue with this project is the possible construction of 37.5 km of under- ground MV lines at a cost of more than four times the equivalent aerial lines. 11/ Given the country's financial straits, the additional cost (about US$600,000) of underground lines is not justified, and the mission recommends that the EAGB consider the adoption of aerial lines as a cost- cutting measure. 3.7 The cost of replacing and rehabilitating the LV distribution system has been estimated by EAGB at US$5.7 million but the mission did not find any information to support that figure. A map of the Bissau LV distribution network does not exist, nor would it seem possible to pre- pare one with the existing data. To prepare an appropriate LV network rehabilitation project it is recommended that a detailed map of the entire network be prepared, including power plants, substations, trans- mission and distribution lines, complete schemes of installation, which indicate main network configurations and load distribution. This infor- mation should be part of a complete register of all the installations. Characteristics of switchgear, current and voltage transformers and re- lays also should be included. In view of the important benefits of re- ducing system losses, this preliminary mapping should be performed as soon as possible to provide a sound basis for preparing and executing a LV network rehabilitation project. Expanding the Electric Supply System 3.8 In addition to rehabilitating existing units, rebuilding the distribution system and interconnecting with self-generators, the avail- able options for expanding power supply in Bissau are limited to instal- ling new diesel units and developing the country's hydroelectric poten- tial. Rising electricity demand in Bissau has to be met at least until 1990 through reduced losses and increased generation from diesel units. Il/ The mission estimates the cost of underground 10 kV lines at about US$22,000/km and aerial lines at about US$5,000/km. - 14 - The use of gas turbines is not recommended because they require a high quality primary fuel that is not available in the country. The use of fuel oil in existing units is a possibility and should be studied further as it will require investments in handling and storage infrastructure at both DICOL and EAGB. Based on these considerations, the available op- tions for the medium-term are very limited and are summarized as a ten- tative generation expansion program in Table 3.1. Assuming a moderate growth in demand and the implementation of a loss reduction program as postulated in Table 2.2, the outlined expansion program would eliminate the need for power rationing after 1985. Assuming that the Cumer6 plant can be rehabilitated in 1986, the Bissau system would have a sufficient reserve margin to allow the postponement of any further generation expan- sion until 1989, when a new unit will probably be needed. A decision on the appropriate timing and size of the new unit could be made in 1987 on the basis of the growth rate in demand and success in reducing losses up to that time. Table 3.1: BISSAU GENERATION EXPANSION PROGRAM, 1983-90 Year Project System Capacity (kW) 1983 Current available capacity - units IV and VI 4,600 1984 Rehabilitation of unit V, major maintenance cn IV and VI 6,312 1985 Interconnection with brewery and oxygen-acetylen plant 8,600 1986 Interconnection with Cumer6 Industrial Complex 10,520 1987 10,520 1988 10,520 1989 New 3 MW unit (?) 13,520 1990 13,520 3.9 For the longer term, the potential of the Corubal River repre- sents the major alternative to a thermal system. The Corubal originates in Guinea-Conakry (where it is known as Koliba and Tomine) and is the only river presenting an intresting hydroelectric potential, with an average stream flow of 425 m-/second and a total head of 32 m within Guinea-Bissau's territory. The total hydroelectric potential of the Corubal-Koliba-Tomin6 basin has been estimated at over 240 MW (641 GWh in a dry year), of which 66 MW (162 GWh) can be developed at Saltinho (19 m head) and 17 MW (46 GWh) at Cusselinta (16 m head), the best two sites in Guinea-Bissau. As the major sites on the Guinea-Conakry side are located far from the main load centers and there are better sites available in other basins, it is still too early to plan for the joint development of - 15 - the Corubal-Koliba-Tomind basin. In addition, as the full development of the Saltinho site would flood some of Guinea-Conakry's territory and no arrangements have been made for this, the recent feasibility study has focussed on a non-encroaching solution, i.e., a project with a 9.6 m head (normal reservoir elevation of 37 m) with the capability for future ex- pansion to a 11.7 m head (reservoir elevation of 40 m). 12/ This flexi- bility was added because of a lack of certainty about the elevation at which encroachment would begin and the extent to which a moderate amount of encroachment may be negotiated with Guinea-Conakry. Given the sub- stantial costs of this over-dimensioning and its impact upon the eco- nomics of the project, it is recommended that the Government determine precisely the reservoir level at which encroachment would begin and nego- tiate an agreement with Guinea-Conakry regarding a permissible level of encroachment (which could be more than the 40 m level which has been assumed, thus improving the economics of the project) as an essential step before any further engineering work on the project. 3.10 As proposed in the feasibility study, the Saltinho project would have an effective installed capacity of 19 MW with an annual energy potential of 90 GWh (in a dry year), with the capability of future expan- sion to 26 MW and 124 GWh. The total project cost, including a 170 km transmission line to Bissau, was tentatively estimated at US$46 million (US$3,185/kW), with an additional US$5-6 million in powerhouse and sub- station equipment for the expansion to 26 MW. The development of the Cusselinta site was considered to be of interest at a later stage. One drawback of developing Saltinho ahead of the rest of the basin is that its reservoir capacity is small in relation to the seasonal fluctuations and irregular character of the streamflow. Thus, the capacity of the sheme would fluctuate from 19 MW -- corresponding to streamflows of 248 m /sec during about eight months a year down to 11 MW -- with a stream- flow of 31 m3/sec during at least one month every year. 13/ To com- pensate for the seasonal fluctuations, the project would have to be complemented with about 11 MW of diesel capacity. This capacity would have a low load factor but would be essential to meet the peak demand during dry months, and its cost would have to be included in any evalua- tion of the feasibility of the project. To obtain a confident estimate of the extent to which this complementary thermal capacity will be needed, it is recommended that systematic streamflow measurements be recorded on a daily or weekly basis at the Saltinho site. Such regis- ters, which are available for only nine years, would also facilitate a better understanding of the hydrology of the river and of the signifi- cance of an apparent downward trend in the region's rainfall and stream- flows. 12/ COBA, 1983. 13/ In the expanded version (with a reservoir elevation of 40 m), the capacity of the scheme would fluctuate from 26 MW - corresponling to streamflows of 276 m3/sec to 14 MW, with a streamflow of 46 m /sec. - 16 - 3.11 A major question relates to the timing of the Saltinho proj- ect. Given the 19 MW size of the project and Bissau's estimated peak demand of 8.4 MW in 1989, the commissioning date proposed in the feasi- bility report, 14/ Saltinho would not be a marginal plant to the system and its timing should be evaluated within the framework of a total system expansion plan. The recent feasibility report does not take this systems approach, as it only compares Saltinho within an "equivalent" thermal plant and does not provide an appropriate indication of the project's economic value. For a correct evaluation of the project, the sensitivity of economic indicators to the assumptions adopted by the feasibility report will also have to be reviewed, particularly those relating to the future demand for electricity. Thus, to prepare a more accurate evalua- tion of the timing of the project within the total system expansion plan, it is necessary first to obtain a better understanding of demand (para 2.7). Finally, the timing of the Saltinho project will also need to be evaluated in relation to the overall development objectives and financial constraints of the country. 3.12 In regard to the interior of the country, the main problems are the absence of any plan prepared from a long-term perspective to deter- mine the most economic and useful sequence of town and village electrifi- cation and the lack of an adequate institutional infrastructure. In Bissau there is no reliable quantitative or qualitative information con- cerning the type, size or operating conditions of the 20-odd isolated systems in the inland. The quality of service is reported to be inferior and subject to frequent interruptions. Even though no overall plan exists, several projects are underway or in preparation. The largest of these is a USSR-financed pro'ject to install new power plants in five rural centers. 15/ Several of these plants have already been installed, and their operation has already been adversely affected by the lack of an adequate infrastructure, i.e., trained personnel, fuel, distribution net- work, recordkeeping, billing systems, etc. The completion of the five power plants will be followed by a US$7.25 million ADF-financed project to rehabilitate seven distribution networks. 16/ As the current rural power tariff of 7.5 PG/kWh covers only one sixth of the fuel cost of power generation (para. 4.9), the projected production level of 5-10 GWh/year (in the seven centers) will require a subsidy of at least US$0.5-1.0 million/year just to cover the fuel costs. In view of the severe and continuing burden that the implementation of the rural elec- trification projects will impose on the country's financial resources, it is recommended that the Government postpone their execution until they can be reevaluated within the framework of a long term power system 14/ COBA, 1983. 15/ BissorA, Farim, Cacheu, BafatA, and Cati6. 16/ BissorA, Farim, Cacheu, BafatA, Cati6, Bolama and Gabu. - 17 - master plan and EAGB and DGEA are strong enough to ensure the technical and financial viability of the rural systems. Consolidating Power Subsector Institutions 3.13 The quality of the current power supply in Bissau -- charac- terized by frequent outages and erratic voltage fluctuation -- imposes heavy costs on the users of electricity and is the major reason for the proliferation of private generating plants. A major contributor to the poor quality of the service and frequent engine damage is the very defec- tive and careless operation, lack of spare parts, and support services. Adequate training of operation and maintenance personnel is crucial to improving the reliability of supply and reducing of operating and mainte- nance costs. An improvement of the present situation requires the prepa- ration of operation and maintenance manuals and their explanation to the operators followed by on-the-job training. After the Bissau plant is operating satisfactorily, additional training will be needed to intercon- nect with the major self producers and operate the plants in parallel (para. 3.5). Such experience with parallel interconnection will be a prerequisite for the satisfactory linkage of the Saltinho project in the future. Improving the current operations will also require the organiza- tion of reliable technical support services, including workshops, trans- portation, communications, and a laboratory for testing and calibrating watt-hour meters and other equipment. 3.14 To complement the operational improvements, EAGB needs to re- view and strengthen its metering, billing, accounting, administrative, and procurement procedures. Defective and out-of-date accounting records in Bissau and especially in the inland seriously impair the company's fi- nancial management and the ability to forecast and control revenues, expenses and investments. Files should be standardized for the different centers so that a centralized financial control can be implemented. Pro- curement procedures need to be tightened and formalized. In view of EAGB's limited experience in this area, it is recommended that it seek outside technical assistance for key aspects of procurement for invest- ment projects, such as the preparation of call for tenders, bid evalua- tions, negotiations with suppliers, contracting and control of equipment both at the manufacturer and in the field. 3.15 The need for a power system master plan is strongly felt by the Government and is included in the priorities for the 1983-86 National De- velopment Plan. The mission agrees with the need for such a master plan, particularly in view of the need to prepare an appropriate framework for evaluating and introducing hydroelectric plants power but recommends that the following prerequisites be completed before preparing of the master plan: (a) the reorganization of the sector into DGE and EAGB (para 1.4); (b) the survey of available standby plants (para 3.2); - 18 - (c) the mapping of the existing system (para 3.7); and (d) the determination of the characteristics of consumption (para 2.7). Once these prerequisites have been met, it is recommended that the power system master plan address the following issues: (a) the establishment of an interconnected network in Bissau incor- porating the main power station and taking advantage of the existing capacity at industrial plants (para 3.5); (b) the standardization of generation and distribution equipment. Bilateral aid from different countries without local coordina- tion has led to a large variety of installations. This situa- tion becomes extremely onerous to maintain and renders prohi- bitive the maintenance of an adequate inventory of spares. Generation and distribution equipment should be limited to just a few types and sizes; (c) the standardization of MV voltage levels, which currently are set at 6 kV, 10 kV, 20 kV, and 30 kV in different parts of the country; (d) careful planning of rural electrification projects to ensure that costs per household and per electrified village are held down and that economic development priorities are observed. Only projects which meet a minimum criterion of economic viabi- lity should be started in the near term; (e) the development of a national industry to make wood poles and cross-arms for power transmission (and telephone) lines. Poles made from timber treated with creosotes (and other chemicals) could provide an economic substitute for the imported concrete poles currently being used for MV and LV lines; (f) the introduction of the Saltinho project within the framework of a system expansion plan (para 3.11). The Petroleum Potential 3.16 Guinea-Bissau includes a sedimentary area of 35,000 km2 on- shore, 42,000 km2 in the offshore shelf area (in water depths up to 200 m) and additional areas in deeper water. The offshore areas are esti- mated to have fair to good petroleum prospects not only because of the possibility of structural and stratigraphic traps indicated by seismic surveys, but also because six exploratory wells drilled by ESSO (US) in the late 1960s and early 1970s all had shows of oil and gas. Well PGO-3 (of 3,880 m depth) was of special interest as it produced a few barrels - 19 - of good quality oil. After Independence, the Government (partly with World Bank financing) collected additional seismic surveys and estab- lished a revised legal framework (including a hydrocarbon law, a model contract for petroleum exploration, and petroleum tax regulations) to replace the obsolete Portuguese concession law. On the basis of this new framework, the Government has succeeded in rekindling the interest of foreign oil companies and signed an agreement with an international con- sortium headed by Elf Aquitaine to explore two blocks in the offshore area (see Map 2). The agreement is for an initial exploration period of three years, renewable twice for two years. The agreement calls for the drilling of one well initially, followed by two more wells if the con- tract is renewed. Drilling began in May 1984. The legal/contractual framework provides for non paying (carried) participation from Petrominas, a royalty scale on production increasing from 12.5% to 20%, and an income tax of 30% to 51% depending on production. Given the suc- cess of the Government's strategy of attracting exploration investors under equitable conditions and the prospect that further blocks will be negotiated in the near future, the mission recommends that the Government continue on its current path of building up Petrominas as the national institution to promote, supervise and monitor petroleum exploration and (eventually) production activities. This strengthening of Petrominas is already underway with financial support from the World Bank's Petroleum Exploration Promotion Projects. 3.17 Given the expected progress of the Government's strategy, a major constraint on future exploration activities is the unresolved offshore boundary disputes with Senegal and Guinea-Conakry. While a discussion of this issue is beyond the scope of this report, the mission recommends that the Government continue its efforts to resolve these problems. Firewood and Charcoal 3.18 According to a 1978 survey, 17/ about 31% of the land area of Guinea-Bissau, or about 10,300 km2, is covered by dense forest, another 31% by degraded forests or savannas with trees, and 8% with mangrove swamps (see Map 18215). The rate of deforestation is believed to be about 300 km2 per year, largely related to shifting agriculture and destructive hunting techniques, with charcoal production as a contribut- ing cause. Many areas around Bissau and other urban centers (Gab6, Bafata, Cacheu) are turning into degraded savannas of limited agricul- tural use. Firewood production for the rural population's own use, on the other hand, does not appear to be a cause of deforestation, as most of it is believed to originate from trees and shrubs on agriculturally used areas (fallow as well as cultivated areas), shade trees, fruit trees 17/ SCET AGRI (1978). - 20 - and shrubs in village and compounds, roadside trees, brush and shrub vegetation managed as a coppice system and mangroves. These sources, which appear to be sustainable in the long term, are exploited by rural inhabitants for their own consumption and for sale in urban markets on a limited scale. There appears to be no shortage of firewood in the rural areas: people still pick and choose the best species for firewood and charcoal making, and undesirable species and thick stems that are difficult to split are left behind. As mentioned before, the indications of shortage are limited to the supply of charcoal to the urban areas. 3.19 The production of charcoal in Guinea Bissau has not been studied and almost nothing is known about it. On the basis of studies done in Senegal, the production of charcoal appears to be a seasonal activity undertaken by farmers during the slack dry season (October-June) when the pits can operate and the forest roads are passable. Nothing is known about the efficiency of charcoal making, but it is believed that 5- 8 tons of firewood are needed to produce 1 ton of charcoal in simple earth-covered pits or mounds. The species commonly used for charcoaling are Prosopis africana (pau carvao), Pterocarpus erinaceus (pau sangue) and Dialium guineense (pau eludo), preferred because of their high density and caloric content. 18/ The frequency of these species in the forest is not known, but their felling is not reported to conflict with logging for timber, which is focussed on Khaya senegalensis (bissilon). Nevertheless, as these species are not replaced, the locus of charcoal production appears to be moving further from Bissau -- charcoal is being trucked over distances in excess of 100 km -- which must eventually be reflected in a higher price. The damage to the forest endowment caused by the existing charcoal industry could be substantially reduced through the adoption of modern production techniques, proper management of the remaining natural forest, including mangroves, and the establishment of energy plantations. Increasing the Supply of Charcoal 3.20 A first practical step towards reducing the impact of charcoal making on deforestation would be through the use of improved mounds or brick kilns 19/ instead of temporary pits. If properly designed, these kilns would require about four tons of firewood or woodwaste per ton of charcoal, which is less than the 5-8 tons observed in Senegal. The introduction of charcoal kilns appears to be desirable on the basis of its reducing firewood requirements to possibly half those of the tradi- tional methods, and it should also contribute to reducing the cost of producing charcoal. Thus, it is recommended that the charcoal producers 18/ However, all these are slow-growing species that are not easy to grow in plantations. 19/ Such as the meule Casamancaise, the Brazilian beehive kiln and the Argentine half orange kiln. - 21 - be given technical assistance to train them in more efficient charcoal making methods. The DGF already plans such an effort in its SIDA-fi- nanced Zone I Forestry Project, but it needs to be activated by the assignment of national staff, of which there is a great shortage. 3.21 The introduction of improved methods is necessary to reduce the destruction of the forest cover caused by charcoal production, but further steps are necessary to increase the supplies of raw materials for the carbonization process. The most immediate resource in this regard is offered by the management of the remaining natural forest. The country is still about one-third covered by dense, dry to sub-humid tropical forests which, if managed in a stable and healthy condition, could not only meet the country's requirements of firewood and timber (with a sub- stantial surplus for export), but also provide the country with a great variety of other needs, e.g., medicinal plants, fruit and nuts, fodder for livestock, and services such as habitat for wildlife, microclimatic stability, etc., that cannot be easily replaced once deforestation has taken place. The DGF is already coordinating some preliminary steps towards the development of a comprehensive forest management plan, such as a national inventory of forests and the Zone I Forestry Project, which includes components to strengthen the DGF, control bush fires, develop community forests, improve charcoal making methods, species trials, reafforestation, etc. These projects are well conceived and respond to the highest priorities in the forestry sector, but their implementation has been slow and their future success is uncertain mainly because of the lack of implementation and absorption capacity in the DGF. The main con- straint here appears to be the shortage of national staff, which is related to the lack of a firm commitment on the part of the Government to establish a sound forest service. A legal framework for strengthening the DGF and regulating the forest sector has already been drafted, and its formal approval is a necessary foundation for developing the sector. Thus, in view of the urgency of controlling the deforestation process and establishing a long term forest strategy the mission recommends that the Government review and approve the proposed forest legislation as soon as possible. 3.22 Once the Forest Law has been approved and the DGF has been built up to the extent that it can provide adequate support to the ongoing foresty projects, including the charcoal-making component, further attention can be given to expanding the scope of its activities beyond the control and management of the existing forest cover. Of particular interest in this regard are the country's extensive mangrove resources which extend all along the coast and also penetrate deeply into the interior, as shown on Map 18215. Traditionally, mangrove wood has been highly valued because it has a high caloric content (0.47 toe/ton on a dry basis), splits readily, burns evenly with little smoke and produces a high quality charcoal. While in colonial times large amounts of fire- wood were obtained from mangroves, most of the barges used for this purpose were sunk during the Struggle for Independence and only very small amounts of mangrove wood are currently sold in Bissau. The large scale exploitation of mangroves (e.g., on a 30-year rotation with a 10- - 22 - year cutting cycle) is likely to be a complex and costly undertaking that has to be prepared with care because of the possible impact on the fish, shrimp and shellfish that play an important role in the diet of many villages. Nevertheless, a substantial share of the mangrove swamps, for example along the Tombali and Cumbija Rivers, have been targetted for damming and conversion into rice fields. As the dams will kill the man- grove forest and the trees will have to be removed in any case, it is recommended that the Government: take advantage of these rice production schemes to establish a mangrove energy pilot project. The purpose of the pilot project would be to test different approaches to mangrove exploita- tion and demonstrate efficient charcoal production methods. The results of the project, along with some parallel studies, would provide a solid basis for designing and evaluating of a national mangrove forest manage- ment strategy that could make a substantial contribution to the supply of energy in urban areas. 3.23 In addition to mangrove forests, the reafforestation of de- graded lands near the urban centers offers the possibility of increasing the supply of woodfuels. While so far the reafforestation program op- erated by the Forest Service has not been successful -- mainly due to inadequate and insufficient protection from bushfires -- the soils and the climate favor the growth of trees, and successful tree plantations are possible, as demonstrated by the existence of several cashew (caju) plantations near Bissau. Thus, the establishment of energy plantations should be considered as an option to reduce the dependence of charcoal supply on the receding natural forest cover and as a source of poles and cross-arms for power transmission lines. The Ministry of Rural Develop- ment is already interested in the establishment of energy plantations and has indicated that about 4,000 ha of degraded savanna with low potential for agriculture could be allocated for this purpose at a site 50 km from Bissau. In view of this opportunity and the need to determine a realis- tic range of planting, protection and exploitation costs, it is recom- mended that the Forest Services' reafforestation efforts include the es- tablishment of a pilot (e.g. 1,000 ha) energy plantation at the proposed site using eucalyptus camaldulensis to get started, trying other species in parallel. If this project develops as expected, the sustainable yield of about 12,600 tpy of firewood 20/ would produce 3,150 tpy of charcoal, or a third of Bissau's estimated current consumption and all the poles needed for the country's transmission and distribution projects. 3.24 Once the supply of charcoal to the urban centers has been made more efficient and reliable through the introduction of improved charcoal making techniques to the private charcoal producers, the systematic man- agement of the forest cover on a sustainable basis and perhaps also the development of mangrove resources and energy plantations, there exists a wide range of opportunities for the development of further markets. 20/ Assumes a mean annual increment of 18m3/ha/year, equivalent to 12.4 tons/ha/year. - 23 - Noteworthy in this regard is the potential for exporting charcoal to other countries in the region, where there is a growing shortage 21/ and the possible utilization of charcoal as a fuel for industrial boilers and for power generation -- using gasifiers. All of these markets appear to be economically attractive on the basis of preliminary impressions 22/ but their development requires a large scale, dependable supply of char- coal such as can be provided by a well-organized and efficient charcoal industry. The economic potential of the charcoal industry underlines once again the importance of rapidly approving the legal framework that will provide the Forest Service with a strong institutional foundation and set the groundrules for the orderly development of the forest-based industries. Agricultural and Sawmill Residues 3.25 The mission was able to sample the energy use situation in Guinea-Bissau's industrial sector through a number of visits to agro- industrial (peanut, rice, cotton and palm-nut milling) plants and saw- mills. With few exceptions, there appears to be no utilization of wastes, even as a substitute for gasoil consumed in the plants them- selves. Only in the sawmills does it seem to be customary for the residues to be taken by the employees for their household use, either directly or in the form of charcoal. The potential for economically using agricultural and industrial wastes is closely tied to the rehabili- tation of the agricultural sector and the operation of agroindustrial plants at levels close to capacity. Given that they are currently oper- ating at about 20% of capacity and their future is uncertain, it would not be economic to undertake the necessary investments (mostly in steam boilers) to utilize the waste material. 21/ E.g., retail prices for charcoal are about US$200-250/ton in Mauritania, US$125/ton in Dakar, and US$500/ton in Cape Verde. 22/ Some charcoal is already believed to be exported through unofficial channels to Senegal. - 24 - IV. ENERGY PRICING Petroleum Product Prices 4.1 The economic cost of petroleum products is unusually high in Guinea Bissau because of the high costs associated with the transport and handling of the small volumes that are consumed. Thus it is important to encourage the rational use of energy and the development of domestic energy resources by setting the retail prices of petroleum products at a level that fully reflects their high economic costs. This basic prin- ciple in ehergy pricing has not been implemented in Guinea-Bissau, where petroleum product prices have fallen far below their economic costs because of the high level of the shadow value of foreign exchange, which is not reflected in the official exchange rate and the inability of the existing regulatory mechanism to adapt to the circumstances. 4.2 Under the existing regulatory mechanism, the Cabinet approves the prices of petroleum products on the basis of a review by the Ministry of Commerce of cost information provided by DICOL and Guinegaz, and fol- lowing the advice and recommendations of other Ministries (including Planning, Finance, Natural Resources, etc.). The structure of prices that resulted from this system is shown in Table 4.1. Thus, until the recent price increase of May 1984, the prices of all petroleum products except the gasolines failed to cover their accounting costs, i.e. their import costs, custom duties and taxes, physical losses from spillage and evaporation, and the administrative and distribution costs of the compan- ies. After the May 1984 price increase, the costs of petroleum products (with the exception of gasoil for EAGB) have been covered in an account- ing sense but not in the economic sense. From an energy policy stand- point, both before and after the recent price increase, the major problem remains that the current approach to pricing does not consider that the accounting cost of petroleum products reflects only a fraction of their economic cost because the official exchange rate greatly underestimates the opportunity cost of foreign exchange. The fact that the prices of most petroleum products are below their economic cost is a major concern because it contributes to the distortion of investment and behavioral decisions that could affect the course and the speed of the country's economic recovery and development. 4.3 To compensate for the scarcity of foreign exchange to import petroleum fuels, the Government would have to raise petroleum prices to reflect the real economic cost of the fuels, i.e., the c.i.f. price plus a distribution margin expressed in Guinean Pesos at a realistic rate of foreign exchange, or otherwise to impose a.set of quantitative restric- tions on energy use. The Government has already set up a rationing system for petroleum fuels, but its implementation has been irregular and ineffective. Given the weakness of the country's administrative control systems, its implementation cannot be expected to improve. The Government also has imposed budgetary limits on the public agencies' - 25 - expenditures on fuel, but these limits are routinely exceeded, and their enforcement would be impractical. This leaves the adjustment of prices as the major practical alternative. Table 4.1: PETROLEUM PRODUCT PRICES (US$/ton) Effective Ratio of Subsidy c.i.f. Retail Retail Retail Economic Implicit to Effective Bissau Price a/ Price b/ Price c/ Cost d/ Subsidy Retail Price Butane 550 513 692 266 605 339 1.27 Kerosene 447 308 554 213 492 279 1.31 Jet Fuel 447 254 663 255 492 237 0.93 Gasoline - Super 500 600 1081 416 550 134 0.32 Gasoline - Normal 420 570 1027 395 462 65 0.16 Gasoil 382 264 476 183 420 237 1.30 Gasoil for EAGB 382 185 214 82 420 338 4.12 a/ As of January 1984, at the official exchange rate of 90 PG/US$. b/ As of May 1984, at the official exchange rate of 100 PG/US$. c/ At the parallel exchange rate of 260 PG/US$. d/ Import cost (Bissau c.i.f.) plus a 10% distribution margin. 4.4 Basically, the opportunity cost of imported fuels will be higher than nominal c.i.f. prices as long as the availability of foreign exchange for the import of all other goods is curbed by a system of re- strictive controls, and the price of imported fuels should be raised ac- cordingly. In the absence of a more accurate estimate of the opportunity cost of foreign exchange, whose determination is beyond the scope of this report, the parallel exchange rate may be used as a suitable indicator on the basis of its convenience and widespread use. The deflation of the petroleum product prices on the basis of the parallel exchange rate will provide an indication of the effective retail price of petroleum products in relation to the value of imported goods. As may be noted from Table 4.1, the effective retail prices of petroleum products are far below the economic costs of importing and distributing them, even after the recent price increase. The difference between the effective retail prices of petroleum products and their economic costs represents a subsidy on the consumption of petroleum products -- which ranges from US$65/ton in the case of normal gasoline to US$338/ton in the case of gasoil for EAGB. If 1984 petroleum product imports are assumed to be the same as in 1983, the implicit subsidy on petroleum consumption will have a total value of US$5-6 million, or about half of the total petroleum import bill of US$10-11 million. This subsidy has no economic justification and the mission recommends that the prices be adjusted to eliminate it. - 26 - 4.5 A particular aspect of the current petroleum product price subsidy that should be of concern to the Government is that it stimulates the clandestine export of petroleum products. The magnitude of this sti- mulus is illustrated in Table 4.2, which compares the effective price of major petroleum products with their price in Senegal. This information suggests that, as seen by the traders engaged in this sort of activity, the prices in Senegal are more than double the prices in Guinea-Bissau. This difference more than compensates for the cost of transporting the fuels across the border. The extent to which this trade is subsidized out of the Government's Treasury is suggested by the difference betweeen the effective retail price of the fuels and their economic cost, i.e., about 237 US$/ton of gasoil and 134 US$/ton of super gasoline. Even though it may be difficult to curb this trade, there is no need to subsidize it by pricing fuels below their economic cost. Table 4.2: COMPARATIVE PETROLEUM PRODUCT PRICES (US$/ton) Effective Retail Ratio of Retail Price Economic Retail Price in in Senegal to Effective Cost Price Senegal Retail Price Gasoil 420 183 491 2.68 Gasoline - Normal 462 395 946 2.39 Gasoline - Super 550 416 980 2.36 4.6 As a first step towards adjusting petroleum product prices the Government already, in May 1984, has doubled the retail price of all petroleum products except gasoil for EAGB, which was only increased by 30%. As suggested by the mission's calculations (shown on the right-hand column of Table 4.1), this increase represents a major step towards rais- ing the price of fuels to their economic levels, but additional increases will be needed. Given the current opportunity cost of foreign exchange, the recommended price increases are about 127% for butane, 131% for kero- sene, 93% for jet fuel, 32% for super gasoline, 16% for normal gasoline, 130% for gasoil and 412% for gasoil used in power generation. A more detailed evaluation of the current pricing structure and recommendation of the appropriate price level for petroleum products will be prepared as part of the pricing study financed under the World Bank's Petroleum Ex- ploration Project. The implementation of such price adjustments will certainly be among the most difficult measures that the Government needs to take in the course of the Economic Stabilization Program. The need for an adjustment is nevertheless obvious when seen in the light of the country's possible alternative uses for foreign exchange. Simply put, the implementation of the recommended adjustments should be seen as a transfer of scarce financial resources (at an annual rate of US$5-6 million) from low priority activities such as smuggling and private - 27 - transport towards high priority activities such as imports of essential spare parts and supplies and energy investments. 4.7 The effect of the price adjustment on inflation is not expected to be major. Almost the entire population depends on charcoal or fire- wood for their cooking needs, and their use of kerosene (and electricity) for lighting should take up only a small fraction of their income. Based on the experience from other countries, the incidence of energy on the total cost of production in the industrial sector should not exceed 10%, even with fully adjusted prices, for the agroindustries and light manu- facturers that are found in Guinea-Bissau. Far higher costs are likely to be imposed by the shortage of spare parts and supplies. The incidence of fuel costs on transport costs should be between 10-20% with fully ad- justed prices. Here again the cost and availability of transport appears to be far more afflicted by the shortage of spare parts than by the cost of fuel. In view of these circumstances, the mission recommends that the Government consider the possibility of moderating the effects of the pro- posed petroleum price adjustment on the productive sectors of the economy with a liberalization of import controls on spare parts. The estimated requirement of spare parts to rehabilitate the transport system, of which more than 50% is currently not operational, is about US$1.3 million. The accessibility of spare parts in Guinea-Bissau also would remove what appears to be one of the major motives for illegal exports of fuels and save energy by reducing the need for many unnecessary trips to Senegal. Power Tariffs 4.8 The lack of adequate documentation and quantitative information does not allow an estimation of the economic cost of electricity and its relationship to the electricity tariff. What is known is that, at least since 1980, inadequate tariffs and/or a large percentage of unbilled and billed but unpaid sales have led INE and now EAGB to operate at a loss, i.e., it covered its labor expenses but only a portion of its fuel bill. The fuel bill in turn covered only a fraction of the economic cost of gasoil, as discussed in para. 4.2. Furthermore, the imported component of maintenance and lubricating oil costs were covered by foreign grants. Overall, published income statements for 1979-81 indicate that INE's budgetted revenues covered only about 70% of its costs in an accounting sense, without adjustment for the opportunity cost of foreign exchange. In view of this situation and the need to identify the real cost of elec- tricity for tariff setting and planning purposes, it is recommended that EAGB strengthen its accounting and administrative systems as part of a comprehensive plan of action to strengthen the institution, such as was discussed in para 3.14. 4.9 In addition to the lack of adequate information about costs, the current electric power tariff has not been fully implemented. Until mid 1983, the tariff in Bissau was simply 4.5 PG/kWh (0.112 US$/kWh at the official exchange rate in 1983) for LV customers and 3.5 PG/kWh - 28 - (0.087 US$/kWh) for MV customers. In mid-1983 a new set of electricity tariffs was formulated and went into effect. This tariff, shown in Table 4.3, represents an improvement in tariff policy because it attempts to bring delivery charges into line with estimated cost and, if implemented, could help promote more efficient electricity use and administration. A practical problem with this tariff is the limited capability of EAGB's current metering and billing systems to implement it. The extent to which it has been implemented so far is not known, but here again a strengthening of the administrative systems would improve the situation. The main issue with this tariff is that the analysis that led to it did not consider the opportunity cost of foreign exchange. Thus, the mission recommends that this tariff be adjusted to reflect the opportunity cost of foreign exchange for both fuel and equipment. The magnitude of the required increase is suggested by the fact that the economic cost of the 0.28 kg of gasoil needed to produce one kilowatt-hour of electricity is about US$0.12. Thus, the energy charge would have to be three to nine times as high just to cover the fuel cost. 23/ In addition as EAGB's accounting and administrative systems are strengthened and more accurate cost-related information becomes available, it is expected that tariffs will have to be periodically reviewed and revised to maintain EAGB's financial and economic viability. Table 4.3: BISSAU ELECTRICITY TARIFFS a/ Consumer Monthly Capacity Energy Estimated number Category Charge b/ Charge of consumers (PG) (USS) c/ (PG/kWh) (US$/kWh) c/ Medium voltage - up to 20,000 kWh 4,500 17.31 10.0 0.038 39 - over 20,000 kWh 7,500 28.85 12.5 0.048 4 Low voltage Government/Public Sector - up to 300 kWh 700 2.69 7.5 0.029 - 301 - 600 kWh 850 3.27 10.0 0.039 136 - over 600 kWh 1,000 3.85 15.0 0.058 55 Domestic - up to 200 kWh 75 0.29 5.5 0.021 3,345 - 201 - 400 kWh 500 1.92 10.0 0.038 328 - over 400 kWh 750 2.88 12,5 0.048 251 a/ As of January, 1984. b/ Based on energy consumption, rather than installed capacity. c/ Converted at the parallel exchange rate of 260 PG/US$. Source: DGEA. 23/ This estimate is based on the assumption of 15% distribution losses for MV customers and 40% distribution losses for LV customers. Of course, a reduction of distribution losses would reduce the extent to which the energy charge has to be adjusted. - 29 - 4.10 An important issue that has to be considered in relation to the adequacy of the tariff level is the existence of a large number of cus- tomers, mostly in the public sector, who do not pay their electricity bills. This encourages the installation of a lot of electricity using equipment, such as air conditioners, that are operated inefficiently and add to the strain on the system's capacity. It also makes it impossible for EAGB to cover its costs and become financially viable. To enable EABG to operate on a sound enough financial basis for it to obtain fi- nancing for its major investments, it is recommended that the Government require the public sector agencies to regularly settle their accounts with EACB. - 30 - V. INVESTMENT AND TECHNICAL ASSISTANCE PRIORITIES Sectoral Development 5.1 The priorities of the energy sector follow directly from the objectives of the Economic Stabilization Program (1982-1986) which is centered around overcoming the country's financial bottleneck, the liberalization of the ineffective internal marketing circuits, and the improved management and operation of the economic institutions. Only after the existing production capacity has been revived will the Government invest in new capacities in line with the country's resource potential and domestic requirements. Based on the discussion of the preceding chapters, the same phasing of priorities is applicable to the energy sector. Thus, the immediate priorities for the sector will be to complete and consolidate the organization of the sector's institutions along the lines that are already envisaged, and to concentrate invest- ments on the rehabilitation and debottlenecking of the existing systems. Once the existing facilities are operating satisfactorily and the rest of the economy is recovering apace, there will be a need to expand capacity. Power Subsector 5.2 As discussed in Chapter 3, the power subsector is in such a state of disrepair that it would be counterproductive to attempt to in- stall new capacity without first completing the organization of EAGB, obtaining accurate information on the existing system and putting it back in working condition. The power supply system suffers from a series of operational, administrative, planning and financial bottlenecks whose re- solution cannot be addressed in isolation, and certainly also not through overloading its very limited execution capacity with additional invest- ment projects. Conversely, the proposed investments are not likely to be successfully implemented except in conjunction with a comprehensive plan of action to consolidate the establishment of EAGB. 5.3 To build EAGB into a dependable and economically viable sup- plier of electricity requires an extensive program of policy measures, institutional building blocks and investments the full scope of which could not be elaborated by the mission because of the absence of much basic information. Thus, the mission concentrated on a minimum core of the most urgent and immediate actions that are needed to get the program started. The elements of this recommended plan of action are below. Policy Measures (a) complete the proposed separation of EAGB from DGEA (para 1.4); - 31 - (b) adjust the current tariff to reflect the opportunity cost of foreign exchange (para 4.10); (c) require the public sector agencies to pay their electricity bills (para 4.11). Institutional Building Blocks (a) establish a training program for plant operators and other staff (para 3.13); (b) strengthen metering, billing, accounting and administrative systems (para 3.14); (c) strengthen and enforce appropriate procurement procedures (para 3.14); (d) perform survey of autogenerators and standby plants (para 3.2); (e) prepare a detailed map of the existing power supply system (para 3.7); (f) determine the level and characteristics of electricity demand (para 2.7); (g) prepare a power system master plan (para 3.15). Investments (a) repair and rehabilitate units IV and V in Bissau (para 3.3); (b) rehabilitate the LV and MV distribution networks in Bissau (paras 3.6 and 3.7); (c) establish a spare parts inventory (para 3.4); (d) interconnect with the major autogenerators (para 3.5). Such a plan of action would take about three years to implement and re- quire about US$2 million of technical assistance for the institutional building blocks and US$10-12 million for the investments. Additional preparatory work is urgently needed to determine the precise scope and financial requirements. 5.4 The recommended investments for the power sector are approxi- mately but not exactly in agreement with the Government's own proposed investment plan, summarized in Annex 4. Basically, the plan of action recommended by the mission will require the same volume of financing as the Government's proposed investments in the power subsector (not in- cluding the US$46 million Saltinho project) but concentrates these re- sources on the implementation (with some adjustments in design and scope) - 32 - of five of the twelve projects proposed by the Government. 24/ The main reason for the difference is that the cost estimates included in the Gov- ernment's investment plan 25/ are substantially below the former MIE's most recent estimates of the cost of the same projects, which were adopted by the mission. In general, the relationship between the offi- cial investment program and the MIE's current project preparation and/or negotiation efforts is not entirely clear. As the mission was informed, there are a number of investment projects that are at an advanced stage of preparation and/or negotiation, such as the installation of a new 4.2 MW unit for Bissau estimated at. about US$3.4 million, the rehabilitation of the MV network estimated at US$3.4 million and the rehabilitation of the LV network estimated at US$5.7 million. In addition to the need to regularize and integrate these efforts into the overall investment plan- ning process, the mission does not agree with the priority of installing a new unit at this time and has reservations regarding some aspects of the proposed network rehabilitation projects (see paras 3.6 and 3.7). Thus, the mission recommends that the Government consider adjusting the scope and timing of these projects in the light of the proposed framework of the plan of action to build up EAGB. 5.5 The completion of the proposed plan of action is likely to im- prove the economic and technical viability of the remaining power related investments in the official investment plan. Only after EAGB has demon- strated that it can operate and maintain the Bissau power system in a satisfactory way can it be expected to successfully implement and operate additional rural electrification schemes. In the same way, only after EAGB has learned to operate an interconnected local system and developed a long term power system master plan will it have the elements required for the successful planning, execution and operation of the Saltinho hydroelectric scheme. Therefore, the mission recommends that the MIE concentrate its scarce available management, technical and financial resources on the implementation of the proposed plan of action and con- sider postponing the execution of its other planned investments until the plan of action is completed, when their design and priority should be reevaluated on the basis of the condition of the economy, EAGB's execu- tion capability, and the improved basic information that should then be available. 24/ I.e., on the projects known as the Energy Master Plan (N11), Repairs at Bissau Plant (N12), Bissau LV and MV Network Rehabilitation (N14), Technical Assistance to EAGB (N15) and Materials for Power Connections (N18). 25/ Especially that of the Bissau LV and MV Network Rehabilitation Project. - 33 - Petroleum Subsector 5.6 In line with the priorities of the energy sector, those of the petroleum subsector are to complete and consolidate the organization of the enterprises, and to concentrate investments on the rehabilitation of existing capacities. Since early 1983, DICOL has been receiving techni- cal assistance from Petrogal 26/ for this purpose. Since this coopera- tion includes the strengthening and development of all aspects of DICOL's activities: purchasing, marketing, operations, administration, personnel, engineering, etc., and is progressing at a prudent pace, the mission sup- ports. the Government's intention to continue it until the company's oper- ations have reached an acceptable standard. Guinegaz does not appear to require technical assistance for its butane bottling operation. 27/ Petrominas is already being assisted by the World Bank. 5.7 With regard to investments, the fair to good prospects of find- ing petroleum in the offshore continental fields indicate that the promo- tion of exploration in that area deserves the highest priority. Indeed, with a budget of US$13.1 million, the Bank-financed Petroleum Exploration Project is the largest being executed in the energy sector. As pointed out in para. 2.5, the investments with the highest priority in regard to DICOL are the provision of spare parts and materials for the repair of its storage tanks and tanker trucks (about US$100-150,000) and the con- struction of a new wharf or pipeline for the unloading of tanker ships. In view of the sector's priorities, the mission recommends that the spare parts and materials be purchased as soon as possible, and the proposed unloading facility be reviewed to select the most economical approach (which could include the improvement of the existing underwater sea line). Firewood and Charcoal 5.8 As discussed in Chapter 3, a reduction in the destruction of the forest cover associated with charcoal production can be achieved in the first instance through the introduction of improved charcoal making methods and the development and implementation of a national forest management plan. A necessary condition for the implementation of these two projects is the strengthening of the DGF, which is currently incap- able of carrying out its assigned duties because of staff and equipment shortages and an inadequate legal framework. To remedy these problems, the Government, with assistance from the UNSO, has already prepared a 26/ Petrogal: the national oil company of Portugal. 27/ Its oxygen-acetylen plant has serious problems but that is beyond the scope of this report. - 34 - project to strengthen the DGF, budgetted at US$1.5 million, that includes the training of 16 local staff, the provision of material and equipment to support the DGF, and the establishment of extension services. From an energy perspective, this project deserves the highest priority. In addi- tion, if the existing charcoal production component of the SIDA-financed Zone I Forestry Project cannot be activated, the mission recommends that separate technical assistance be provided to charcoal producers to train them in improved charcoal making methods. This project should be managed by the DGF and should cost about US$150,000. - 35 - Annex 1 Page 1 of 2 SELECTED BIBLIOGRAPHY Centre Technique Forestier Tropical/Scet International, 1981, Republique du Senegal, Plan Directeur de Developpement Forestier, Paris, Rapport pour le Ministere du Developpement Rural-Secretariat d'Etat aux Eaux et Forets - Senegal. COBA, 1983, Etude de l'amenagement du bassin du fleuve Corubal - Rapport Final, Lisboa, Projet PNUD-GBS/77/001. COBA, 1983, Projet definitif et cahier des charges pour la chute de Saltinho - Rapport Preliminaire - Puissance Installee, Lisboa, Projet PNUD-GBS/77/001. Coyne et Bellier - Sir Alexander Gibbs and Partners - Euroconsult, 1984, Plans Genereaux d'Amenagements Hydrauliques - Plan Directeur Sommaire a l'Echelle Nationale. Conakry, Guinee, Projet PNUD-BIRD- GUI-79-004. Godoy, P. 1982, Bilans Energetiques de Guinee Bissau, Grenoble, Institut Economique et Juridique de l'Energie avec le financement de la Commission des Communaute's Europeenes. Machado, Jorge R., 1982, Tarifacao de Energia Electrica, Bissau, Report #1 for Project UNDP/GBS/78OO1. Moullerat, M., 1982, Republique de Guinee Bissau: Legislation forestiere et financement de la politique forestiere, Montpellier, France, Techno-foret. Polytechna, 1981, Plan General d'Amenagement Hydraulique de la Moyenne Guinee, Prague, Projet OMM-PNUD-GUI-74-014. Programme for Economic Stabilization 1983-1984, Bissau 1982. SCET AGRI International, 1978, Republica da Guinee-Bissau: Potentialites Agricoles, Forestieres et Pastorales, Paris, Etude financee par le Fonds d'Aide et de Cooperation de la Republique Francaise. Secretaria de Estado do Plano e da Cooperacao Internacional (SEPCI), 1983, Table Ronde de Bissau, Rapport Provisoire a Presenter a la Reunion Consultative avec la PNUD, la CEE et la Banque Mondiale, Bissau. - 36 - Annex 1 Page 2 of 2 Secretaria de Estado do Plano e da Cooperacao Internacional (SEPCI), 1983, 1° Plano Quadrienal de Desenvolvimento Economico e Social 1983-1986, Bissau. SNEDE, 1983, Guine Bissau: Estudo da Manutencao Rodoviaria, Lisboa. Vernet, Pierre, 1979, Perspectives Energetiques en Guinee Bissau, Grenoble, France, Institut de Recherche Economique et de Planification. Annex 2 GUINEA BISSAU ENERGY BALANCE, 1983 Kerosene/ Pet. Prods. Firewood Charcoal Electricity Butane Gasoline Jet Fuel Gasoil Total Total Gross Supply Production 195,000 - - - - - - 195,000 Imports - - - 630 4,619 1,540 12,588 19,377 19,377 Change of Stock - - - n.a. (49) (330) (4,046) (4,425) (4,425) Total Available 195,000 - - 630 4,668 1,870 16,634 23,802 218,802 Conversion Charcoal Production (43,000) 10,615 - - - (32,385) a/ Power Generation - - 2,950 - - - (9,257) (9,257) (6,307) a/ Trans. & Dist. Uj Losses - - (800) - - - - - (800) Spillage & Evaporation - (965) - (13) (766) 4 (291) (1,074) (2,039) Domestic Consumption 152,000 9,650 2,150 617 3,902 1,866 7,086 13,471 177,271 Consumption by Sector Industry 4,000 - 687 - - - 38b 386 5,073 Transport - - - - 3,902 1,313 6,700 11,915 11,915 Households/ Commerce 148,000 9,650 1,463 617 - 553 - 1,170 160,283 a/ Conversion losses b/ Public utilities and autogenerators. Source: Mission estimates. - 38 - Annex 3 Page 1 of 2 THE DEMAND FOR ELECTRICITY IN BISSAU, 1984-1994 A. Growth of Sales: (a) Household and Commerce (LV): 5%/year between 1984-1990 4%/year from 1990 onwards (b) Industry (MV): 10%/year between 1984-1990 8%/year from 1990 onwards B. Structure of consumption: On the basis of the available information it was postulated that industrial (including self-generation) consumption, accounted for 33% of the total in the base year (1984) C. Distribution Losses: (a) Average LV losses were assumed to be 25% (b) Average MV losses were assumed to be 15% (c) Power plants own use was assumed at 4% (d) System peak losses were assumed to be 1.5 times average losses These assumptions form the basis for the business-as-usual (Case B) projection shown in Table A-1. To illustrate the effects of a loss reduction program (Case A), it was assumed that both the LV and MV distribution system would be completely rehabilitated. The outcome would be a reduction in MV level losses from 15% in 1984 to 7% in 1986 and after and of LV level losses from 25% in 1984 to 15% in 1986 and after. At the same time the load factor of the total system was assumed to increase from 0.565 to 0.600 by 1989. The adjustment of the demand forecast based on these results is shown in Table 2.3. Annex 3 Page 2 of 2 Table A-1: ELECTRICITY DEMAND IN BISSAU, 1984-1994 CASE B: BUSINESS-AS-USUAL Demand LV LV Demand MV MV MV After Station Demand Peak After MV Consumer's Demand Peak Station Use System Load Peak Losses Consumption Peak Peak Losses Losses Losses Peak Factor Generation (1) (2) (3) (4) (5)=(3)+(4) (6) (7) (8) (9) (10) (11) (kW) (%) (kW) (kW) (kW) (%) (kW) (%) (kW) (MWh) 1983 2,400 38 3,870 800 4,670 23 6,065 4 6,318 0.565 31,270 1984 2,400 38 3,870 800 4,670 23 6,065 4 6,318 0.565 31,270 1985 2,520 38 4,065 880 4,945 18 6,030 4 6,281 0.57 31,362 1986 2,646 32 3$391 968 4,859 14 5,650 4 5,885 0.575 29,643 1987 2,778 28 3,858 1,065 4,923 10 5,470 4 5,698 0.58 28,950 1988 2,917 24 3,838 1,171 5,009 10 5,566 4 5,797 0.59 29,961 1989 3,063 22 3,927 1,288 5,215 10 5,794 4 6,036 0.595 31,461 1990 3,216 22 4,123 1,417 5,540 10 6,156 4 6,412 0.595 33,42) 1991 3,345 22 4,288 1,530 5,818 10 6,464 4 6,734 0.60 35,394 1992 3,478 22 4,459 1,653 6,112 10 6,791 4 7,074 0.60 37,181 1993 3,618 22 4,638 1,785 6,423 10 7,137 4 7,434 0.60 39,073 1994 3,762 22 4,823 1,928 6,751 10 7,501 4 7,814 0.60 41,070 Source: Mission estimates. - 40 - Annex 4 ENERGY SECTOR INVESTMENT PLAN (million US$) Total Pre- Post- Source of No. Project Cost 1984 1984 1985 1986 1986 Finance Ni Catio power plant 0.44 0.34 0.10 - - - USSR N2 Seven centers electri- fication 7.25 - 2.25 5.00 - - ADF N4 Bolama power plant 0.18 - 0.02 0.16 - - SIDA N5 Gabu-Bafata electri- fication 0.55 - - 0.55 - - SIDA N9 New energy sources 0.75 - 0.10 0.30 0.35 - Round Table Nil Energy Master Plan 0.10 - 0.10 - - - Round Table N12 Repairs at Bissau plant 0.63 - 0.30 0.33 - - Round Table N14 Bissau LV and MV Network Rehabilitation 0.20 - 0.20 - - - Round Table N15 T.A. to EAGB 0.70 - - 0.30 - - Round Table N16 Switch to Fuel Oil 0.40 - 0.10 0.30 - - Round Table N18 Materials for power connections 1.70 - - 0.40 0.40 0.90 Round Table N21 Corubal Hydroelectric 46.00 - - - - 46.00 Round Table Total Power 58.90 0.34 3.17 7.34 1.15 46.90 N19 New Jetty for DICOL 2.00 - - - - 2.00 Under study Petroleum Exploration Promotion 13.10 1.50 8.80 2.20 0.60 - World Bank Total Petroleum 15.10 1.50 8.80 2.20 0.60 2.00 Total Energy 74.00 1.84 11.97 9.54 1.75 48.90 Source: SEPCI. iвRO ia2iв � io°зо' ,ь•по' i5°зо� i5°оо' iл•эо' ia•оо' МАУ Ю84 �J 5 Е N Е G А L Г г � / rc аохог то олмог т Влмлг `Г � /'� /С\ пта omboiu� • � 5oreeaco. 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