The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) REPORT NO.: RES53216 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LESOTHO RENEWABLE ENERGY & ENERGY ACCESS PROJECT APPROVED ON JANUARY 30, 2020 TO THE KINGDOM OF LESOTHO ENERGY and EXTRACTIVES GLOBAL PRACTICE EASTERN AND SOUTHERN AFRICA REGION Regional Vice President: Victoria Kwakwa Country Director: Asmeen Khan Regional Director: Wendy E. Hughes Practice Manager/Manager: Yadviga Semikolenova Task Team Leaders: Vonjy Rakotondramanana, Joseph Kapika The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) ABBREVIATIONS AND ACRONYMS CERC Contingent Emergency Response Component EMP Electrification Master Plan EIRR Economic Internal Rate of Return ESMP Environmental and Social Management Plan FM Financial Management GoL Government of Lesotho IDA International Development Association LCEP Least Cost Generation and Transmission Expansion Plan LEC Lesotho Electricity Company LREEAP Lesotho Renewable Energy and Energy Access Project LNDC Lesotho National Development Corporation MNR Ministry of Natural Resources NES National Electrification Strategy P&A Processes and Activities PAPs Project-Affected Parties PDO Project Development Objective PIU Project Implementation Unit PIP Performance Improvement Plan SDR Special Drawing Right SREP Scaling-up Renewable Energy Program USD United States Dollar WB The World Bank The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) BASIC DATA Product Information Project ID Financing Instrument P166936 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 30-Jan-2020 31-Jan-2027 Organizations Borrower Responsible Agency Kingdom of Lesotho Project Development Objective (PDO) Original PDO The Project Development Objective is to increase access to electricity in rural and peri-urban areas of Lesotho. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-65320 30-Jan-2020 13-Mar-2020 31-Jul-2020 31-Jan-2027 40.00 11.34 28.15 TF-B1683 30-Jan-2020 13-Mar-2020 31-Jul-2020 31-Jan-2027 8.00 1.03 6.97 TF-B1681 02-Dec-2019 13-Mar-2020 31-Jul-2020 31-Jan-2027 4.90 1.79 3.11 The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No ORIGINAL PROJECT DESCRIPTION 1. Lesotho Renewable Energy and Energy Access Project (LREEAP, P166936) provides support to Lesotho's goal of achieving universal access to electricity stated in the Lesotho Energy Policy 2015–2025. With electricity access rates of 71 percent, 44 percent, and 11 percent for urban, peri-urban, and rural households, respectively, Lesotho's overall electrification rate reached 50 percent in 20211. The project comprises of four components to achieve the project development objective (PDO) of increasing access to electricity in Lesotho's peri-urban and rural areas. Component 1 is to expand the grid to six industrial zones and peri-urban areas, whereas Component 2 seeks to electrify rural areas using mini-grids. Component 3 offers technical support and assistance for project implementation and Component 4 is a contingent emergency response component. The project was approved by the World Bank's (WB) Board of Executive Directors on January 30, 2020, with an effective date of July 31, 2020, and a closing date of January 31, 2027. 2. Component 1 was designed to connect six industrial zones to the electricity grid along with approximately 1,400 households within 600m of the electricity network that would be constructed. The six industrial zones for the electrification were selected by Lesotho National Development Corporation (LNDC) in line with Lesotho Electricity Company (LEC’s) grid extension plan, National Development Strategic Plan II 2019-2023, and LNDC’s Strategic Plan 2018–2022. The targeted industrial zones were Belo Industrial Park, Teyateyaneng Town Industrial Park, Mokhotlong Industrial Park, Qacha's Nek Town Industrial Park, Butha-Buthe Distillery and Tikoe Phases 1, 2 and 3 (Tikoe). 3. Component 2 focuses on rural electrification by mini-grids. Subcomponent 2A targets the rehabilitation and upgrading of the Semonkong mini-grid, operated by LEC. Challenges such as technical issues and low hydrology have rendered the hydro turbine inoperable, necessitating rehabilitation and capacity expansion with solar PV and storage. Moreover, expansion of the distribution network and connections to approximately 100 additional customers will be funded. Subcomponent 2B aims to develop mini-grids under public-private partnership models, facilitating electrification in areas where mini-grids offer the least-cost option. Up to 39 mini-grid sites will be selected based on high-priority areas proposed by the Government of Lesotho and geospatial analysis. The subcomponent will utilize a market-based approach, with the private sector developing mini-grids on a build-own- operate basis, complemented by extensive technical assistance to confirm sites, promote efficient energy use, provide legal and procurement support, and increase local capacity. 4. Component 3 consists of two sub-components: (i) Sub-component 3A Supporting project implementation and coordination and (ii) Sub-component 3B Enhancing the role of women in the energy sector, educating and engaging customers, and promoting productive uses of energy. Subcomponent 3A aims to enhance sector 1 https://trackingsdg7.esmap.org/country/lesotho The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) stakeholders' capacity for coordination, project management, and implementation. This includes activities such as hiring independent verification agents, monitoring and evaluation staff, and establishing a Project Implementation Unit (PIU) with dedicated coordinators. Furthermore, this subcomponent will support the preparation of feasibility studies, transaction advisory services for mini-grids, and supervision of energy asset construction. Subcomponent 3B focuses on women's employment, female entrepreneurship, consumer education, citizen engagement, and productive uses of energy. It aims to address gender gaps in the energy sector by supporting women's employment, executing community awareness campaigns, and enhancing productive uses of electricity to increase the income of women's enterprises and livelihoods. Additionally, it targets closing gender gaps related to enterprises and livelihoods at the community level by promoting activities such as agro-processing, manufacturing, and services that utilize electricity. 5. A Contingent Emergency Response Component (CERC) with initial zero allocation was included as Component 4 of LREEAP. The CERC was designed to partially cover emergency response through implementation of key activities by the appropriate agencies to respond to the emergency. For the Lesotho energy sector, emergency conditions may arise subsequent to droughts, flooding, or energy import shortage. PROJECT STATUS 6. The project's PDO rating is Moderately Satisfactory and the Implementation Progress (IP) rating is Moderately Unsatisfactory. Component 1 activities for Belo industrial zones is ongoing and the works for TiKoe industrial zone is being procured. However, the requisite infrastructure such as factory shells and water supply for the remaining four industrial zones are not there yet and the construction of these four industrial zones will not be completed during the current lifespan of LREEAP. Component 2 shows slow progress with the ongoing procurement process for feasibility studies for Semonkong mini-grid rehabilitation and expansion. For mini-grid PPP, a recently hired transaction advisor is conducting a study to identify an adequate PPP scheme. Under Component 3, a series of capacity building and technical assistance activities are ongoing along with gender targeted activities. CERC activities for electrification of schools and health facilities are slowly progressing under Component 4, with some activities remain pending. This overall slow progress is due to delays in finalizing activity scope and design, preparing necessary environmental and social safeguards instruments, and compensating project affected people (PAPs). Also, there were two non-compliance issues which further deteriorated the project performance, namely, the Subsidiary Agreement between the Government of Lesotho and LEC was not signed, and the submission of audited financial statements was significantly delayed. 7. Outstanding non-compliance issues have been recently resolved. The Subsidiary agreement (SA) was signed by both parties on September 14, 2023, allowing the project funds related to implementation of Component 1 (Grid Extension to Peri-Urban Areas of Lesotho) and Component 2A (Rehabilitation and Upgrading of LEC Mini-Grid at Semonkong) flow to LEC. The SA gives clear responsibility and accountability to LEC on the implementation of the project; this clear delineation is expected to fast-track project implementation. The delayed audited financial statements for the period ending March 31, 2023, along with the statement of the information regarding the period ending March 31, 2022 was submitted on March 15, 2024 after a significant delay. There are no overdue audited reports. The Overall performance of the project is expected to be upgraded to Moderately Satisfactory by June 30, 2024. 8. The Project's environmental and social (E&S) performance is rated as Satisfactory. Under Component 1, construction activities in Ha Belo Industrial Zone align with Environmental and Social Management Plan (ESMP) requirements, demonstrating good occupational health and safety practices and environmental stewardship. There were health and environmental concerns regarding the storage of wooden electric poles treated with carcinogenic The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) pentachlorophenol (PCP) and three minor worksite accidents that occurred. The WB team advised the LEC Project Implementation Unit (PIU) on how to address the issues. For Tikoe Industrial Zone, the corrective action plan concerning the premature issuance of procurement documents before the completing the ESMP has been rectified, with the ESMP cleared by the WB. In Component 2A, a feasibility study for upgrading the mini-grids in Semonkong. will include a safety assessment of the weir on the Maletsunyane river in line with the WB OP 4.01 and OP 4.37. In anticipation of the forthcoming restructuring to include village electrification in Component 1, E&S safeguard instruments for the first three identified villages have been completed, with provisional clearance by the WB pending internal project restructuring approval. Finally, there have been no new complaints and grievances registered for the last six months. 9. Measures are under implementation to address the current Unsatisfactory rating of the project’s procurement performance. Although 44 contracts have been signed, none have reached completion, indicating insufficient procurement capacity within the PIUs, and weak project oversight. Particularly, activities within Component 2 remain in the identification or design stages, three years into project implementation. To ensure the timely and cost-effective delivery of activities in line with standards, several corrective measures are being implemented under the close supervision of the WB team. To bolster the procurement capacity of the LEC PIU, a contract management consultant is expected to be recruited by June 2024. Additionally, the Department of Energy PIU has enlisted the services of a transaction advisor for Component 2B. This advisor will craft a public-private partnership model, facilitating the procurement of private partners for the advancement of mini-grid development. The rating is expected to be upgraded by June 2024 given that capacity strengthening activities are ongoing and the signed Subsidiary Agreement has provided clarification on roles and responsibilities of LEC in the implementation of the project. 10. Financial Management (FM) rating is Moderately Satisfactory. There were delays in the submission of both audit reports for the fiscal years ending March 31, 2022, and March 31, 2023. There was also a time when the project did not have a Financial Management Specialist (FMS). The issue, however, was addressed by completing the transactions reconciliation of errors discovered in expenditure documentation. Both audit reports have been submitted to the Bank on March 15, 2024, validating the FM rating of Moderately Satisfactory. 11. Measures have been implemented to strengthen the PIU’s project implementation capacity. To prevent the FM issue from occurring in the future again, the PIU has hired an FM specialist with a qualification acceptable to the Bank. Procurement and contract management capacity also require enhancement to prevent further delays in project activity preparation and implementation. To address these challenges, the PIU has hired two engineers and is in the process of recruiting a contract management specialist to support Component 1. Additionally, for Component 2B, the PIU recruited a Transaction Advisor who will advise on private sector-led mini-grid development. Moreover, there is an ongoing exercise for the merging of responsibilities between the PIU at LEC and the one at the Ministry of Energy (MoE) to increase efficiency. RATIONALE FOR RESTRUCTURING 12. The proposed restructuring of Component 1 is necessary to achieve the PDO within the Project implementation period before the current closing date of January 31, 2027. It has become apparent that, to achieve the PDO, reallocation of part of the International Development Association (IDA) financing toward other country’s priority activities is needed. Only two out of the six industrial zones will be ready for electrification within the timeframe of the project closing date, namely Belo and Tikoe Industrial Parks. Extension of the grid to about 9,916 households The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) in 12 villages in Botha-Bothe, Maseru, Mafeteng, Berea, Quthing, and Qacha's Nek districts that are ready for electrification has been selected to substitute the four remaining industrial zones which will not be ready. It will help the Government to accelerate the national electrification agenda. The proposed electrification of villages remains aligned with the PDO and national plans such as the Electrification Master Plan (EMP) 2018-2038 and the National Electrification Master Plan (NEMP) 2007. The villages with public facilities, such as health facilities and schools, will be prioritized for electrification to maximize the socio-economic benefits of access to electricity. 13. Multiple discussions regarding the development of the sustainable energy sector—including the sector performance assessment carried out in May 2023—led to the understanding that the sector needed a range of various technical assistance activities immediately. Three activities have been identified to be implemented under Component 3 (in addition to the ongoing activities): (i) the development of an Least Cost Generation and Transmission Expansion Plan (LCEP) as an initial step to address energy security issues at optimized costs; (ii) the preparation of a National Electrification Strategy (NES) to expedite the electrification agenda at minimal cost and with strong government ownership; and (iii) the formulation of a Performance Improvement Plan (PIP) to enhance the operational performance of LEC, ensuring the sustainable provision of quality electricity services to existing customers. Additional activities could be identified and implemented later based on the ongoing discussions with the sector entities in the country. 14. There is a need to support population affected by flood. A National Emergency Flood Assessment Report from March 2022 highlighted extensive damage to electricity and telecommunication infrastructure caused by heavy rainfall and subsequent flooding. The most severely affected areas included institutions of higher learning, health centers, and civic centers. Consequently, allocation of funding to Component 4 is essential to support the Government to enhance the safety and well-being of the affected population among others by promoting productive energy usage to improve livelihoods and providing lighting to enhance education for students and electrifying public health facilities and public schools. DESCRIPTION OF PROPOSED CHANGES 15. The PDO which is to increase access to electricity in rural and peri-urban areas of Lesotho remains relevant and unchanged. 16. This Restructuring Paper presents the proposed restructuring of LREEAP, aligning with requests from the GoL which was received by the WB on March 05, 2024. The restructuring entails the following changes: (i) revising the scope of Component 1 to include grid extension to villages, replacing electrification of four industrial zones out of originally planned six; (ii) expanding the scope of Component 3 to include various technical assistance activities for the sustainable development of Lesotho’s energy sector, including the development of LCEP, NES, and PIP for Lesotho Electricity Company (LEC); (iii) Reallocating US$ 4 million of IDA financing from Component 1 to the CERC (Component 4). Upon the approval of the proposed restructuring, the Project Implementation Manual will be updated by the PIU to reflect the changes. 17. Component 2 remains unchanged. The project continues to support the electrification of areas where electricity supply through mini-grids represents the least-cost option from a country perspective, as underpinned by the EMP and geospatial analysis. Substitution of electrification of four industrial zones and change of the names of Component 1 and its sub-components The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) 18. A new subcomponent will be introduced under Component 1 to replace the electrification of four industrial zones with electrification of 12 villages. To encompass all activities and reflect the proposed scope, the name of the Component 1 and its sub-subcomponents will be changed. It is proposed to change the name of Component 1 from “Grid Extension to Peri-Urban Areas of Lesotho” to “Grid Extension to Industrial Zones and Villages.” The two sub-components of Component 1 will be: (i) Electrification of Belo and Tikoe industrial areas (new Subcomponent 1A) and (ii) Grid extension to villages (new Subcomponent 1B). Description of activities under Subcomponent 1A: Carrying out of the design and construction of electrical grids, substations and 33kV/11kV distribution lines to electrify Belo and Tikoe Special Industrial and Economic Zones and provision of grid connections to residential customers located nearby these two industrial zones, including the provision of technical assistance to carry out associated feasibility studies, engineering designs and address fiduciary, environmental and social related matters Description of activities under Subcomponent 1B: Carrying out of the design and construction of electrical grids, substations, 33kV/11kV distribution lines, low voltage (LV) distribution lines, and last mile connections to electrify households and public facilities in selected villages including the provision of technical assistance to carry out associated feasibility studies, engineering designs and address fiduciary, environmental and social related matters. Table 1. Original and Revised Cost and Financing by Component (US$, millions) Project Components IDA IDA SREP Loan SREP Grant Total (Original) (Revised) (Unchanged) (Unchanged) Component 1: Grid Extension to Peri-Urban Areas of 30.0 26.0 — — 26.0 Lesotho Sub-component 1A: Electrification of Belo and Tikoe — 11.0 11.0 Industrial Areas Sub-component 1B: Grid extension to villages N/A 15.0 15.0 Component 2: Rural Electrification by Mini-grids 10.0 10.0 8.0 2.0 20.0 Subcomponent 2A: Rehabilitation and Upgrading of LEC — — 3.5 2.0 5.5 Mini-grid at Semonkong Subcomponent 2B: Mini-grid Deployment under PPP Models — 10.0 4.5 — 14.5 Component 3: Technical Assistance and Implementation — — — 2.9 2.9 Support Subcomponent 3A: Project Implementation and Coordination 0 — — 2.5 2.5 Support Subcomponent 3B: Women’s Employment, Female — — — 0.4 0.4 Entrepreneurship, Consumer Education and Citizen Engagement, and Productive Uses of Energy Component 4: Contingent Emergency Response Component — 4.0 — — 4.0 Total project cost 40.0 40.0 8.0 4.9 52.9 19. As a result of this change, US$15 million of the total US$30 million IDA financing for Component 1 will be redirected to electrify households under the new Subcomponent 1B. US$15 million allocated for the electrification of four industrial zones will be released and will facilitate the electrification of about 9,976 households across 12 villages, estimated to cost 271,100,000 Lesotho Loti (US$ 14,763,201 equivalent). The villages will be selected based on the criteria described in Annex 1. The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) 20. Preparation of safeguard documents for the newly added village electrification activities is underway. The risks and potential adverse impacts on PAPs are likely to be minimal (i.e., no physical resettlement) and would focus primarily on land acquisition of small parcels, temporary restriction of access during works, and/or easement. Hence, Abbreviated Resettlement Action Plans (ARAPs) will be prepared in place of Resettlement Action Plans. ARAPs for the first three identified villages have been completed, with provisional clearance by the Bank pending internal project restructuring approval. Changes to the Results Indicators 21. Modifications to the results indicators will be undertaken to align with the project changes. Specifically, results targets associated with Component 1, encompassing factors such as the types and quantity of electrified sites, connected households and individuals, lengths of constructed distribution lines, the count of new and rehabilitated substations, and anticipated greenhouse gas emission reductions, will be adjusted to reflect the altered scope of the Component. While Component 2 will remain unchanged, certain target numbers for its indicators will be revised to account for outcomes from a feasibility study, which became available subsequent to the initiation of project implementation. The updated target numbers will pertain to households, public facilities, and enterprises set to receive electricity services through mini-grids. In addition, a new intermediate result indicator will be incorporated to track the number of public facilities electrified under the CERC. This addition aims to capture the impact of this specific Component. The adjusted results targets can be referenced in the following table. Table 2 Revised Project Results Framework Original Baseline Revised Target Target Project Development Objective Indicators Industrial/Economic Zones connected to main grid (Number) 0 6 2 People provided with new or improved electricity service (Number) 0 22,825 67,375 of which female 0 11,751 34,685 Renewable energy generation capacity of minigrids constructed under the project (Megawatt) 0 4.09 4 *Aligned with World Bank Group New Scorecard Community facilities provided with access to electricity service by mini-grids 0 245 91 (Number) Small and Medium enterprises provided with access to electricity service by 0 490 199 mini-grids (Number) Intermediate Results Indicators by Components Component 1 Households provided with access to electricity services by grid extension 0 1,400 9,916 (Number) Medium Voltage Distribution lines constructed or rehabilitated under the 0 240 80 project (Kilometers) Low voltage distribution lines constructed or rehabilitated under the project 0 90 30 (Kilometers) Distribution substations constructed or rehabilitated under the project 0 6 2 (Number) Volume of CO2 emissions reduced from electrification by grid extension per year (Metric tons/year) 0 12,064 5,195 *Aligned with World Bank Group New Scorecard The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) Component 2 Mini-grids constructed or rehabilitated under project (Number) 0 39 39 Households provided with access to electricity services by minigrids (Number) 0 4,165 3,011 Health facilities provided with access to electricity service (Number) 0 30 11 Schools provided with access to electricity service (Number) 0 205 25 Agricultural Resource Center provided with access to electricity service 0 10 3 (Number) Volume of CO2 emissions reduced from electrification by minigrids per year (Metric tons/year) 0 1,571 1,571 *Aligned with World Bank Group New Scorecard Volume of additional financing for clean energy investment leveraged (USD) 0 10,000,000 10,000,000 (Amount(USD)) Component 3 Independent verification of new connections completed (Yes/No) No Yes Yes Consumer awareness program developed, with a focus on female members of No Yes Yes households and businesses (Yes/No) Assessment of barriers to female entrepreneurship completed and action plan No Yes Yes for in mini-grid sector delivered (Yes/No) Percentage of female engineers employed at LEC (Percentage) 5 10 10 *Aligned with World Bank Group New Scorecard Grievances received and addressed (Percentage) 0 100 100 Component 4 Community facilities provided with access to electricity service under 0 N/A 39 Contingent Emergency Response Component (Number) Addition of new activities to Component 3 22. Component 3 will be expanded to include various technical assistance activities for the sustainable development of Lesotho’s energy sector. The new activities include: (i) the development of LCEP; (ii) the preparation of NES; (iii) the preparation of PIP to improve the operational performance of LEC, and (iv) hiring of a Technical Advisor to the Minister of Energy. 23. The preparation of a LCEP would aid in addressing the issue of regional and national electrical supply security. Given the persistent power shortage in South Africa, one of the primary import sources, the Minister of Energy also stressed the government's goal of developing the country's endowment of clean energy resources—wind, solar, and hydropower—to meet local electricity demand and to export into the region and requested the WB to support the development of an LCEP which is expected to be available in September 2024. The formulation of the LCEP will involve a comprehensive analysis of every feasible option that the country has to expand firm supply in a manner that aligns with all relevant public policies and regulations, including those concerning environmental protection, climate change mitigation and adaptation, and Lesotho's development goals. 24. Achieving the GoL ambition to reach universal access to electricity by 2030 at the least cost requires the development of a NES. Based on successful experience elsewhere, it is imperative for the Ministry of Natural Resources (MNR) to lead the preparation and implementation of a NES, comprising institutional, technical, and financial aspects to ensure sustainability of electrification efforts. The NES will be developed, taking stock of EMP The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) developed in 2018 and other relevant sector policies, regulations, and plans and includes concrete plan to implement the strategies for electrification. 25. The operational performance of LEC needs substantial improvements to provide good quality electricity services to its existing customers in a sustainable manner. Improving the operational performance of LEC should be tackled through the preparation and implementation of a PIP, strongly focused on reengineering of processes and activities (P&A) in key business areas. The scope of the PIP will also include identification of urgent investments in rehabilitation and the upgrade of existing infrastructure needed to correct areas where the quality of service is significantly compromised. Private Sector Participation in the management of LEC could be also envisaged. Reallocation of funding from Component 1 to Component 4 26. US$ 4 million of IDA financing from Component 1 will be reallocated to the CERC (Component 4) Description of activities under Component 4 27. The CERC was activated in December 2022 and the Government started implementing activities to respond to crisis resulting from a flood. The following activities will be covered under the Component 4 of the project: electrification of public schools, health facilities, and other public facilities; and installation of streetlighting. I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Economic and Financial Analysis ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Grid Extension to Peri-Urban Grid Extension to Peri-Urban 30.00 Revised 26.00 Areas of Lesotho Areas of Lesotho Rural Electrification by Mini- Rural Electrification by Mini-grids 20.00 No Change 20.00 grids Technical Assistance and Technical Assistance and 2.90 Revised 2.90 Implementation Support Implementation Support Contingent Emergency Response Contingent Emergency 0.00 Revised 4.00 Component Response Component TOTAL 52.90 52.90 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-65320-001 | Currency: XDR The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) iLap Category Sequence No: 1 Current Expenditure Category: Gds,Wks,N/CS,Tr OC Pt 1 18,991,078.55 4,903,349.32 18,991,078.55 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Gds,Wks,N/CS,Tr OC Pt 2b 7,200,000.00 305,971.17 7,200,000.00 69.00 69.00 iLap Category Sequence No: 3 Current Expenditure Category: Emergency Expnd Part 4 3,008,921.45 19,243.07 3,008,921.45 100.00 100.00 Total 29,200,000.00 5,228,563.56 29,200,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2019 0.00 0.00 2020 1,000,000.00 0.00 2021 2,500,000.00 7,428,568.30 2022 6,500,000.00 1,452,437.60 2023 8,500,000.00 5,284,502.00 2024 10,100,000.00 5,000,000.00 2025 8,500,000.00 9,850,000.00 2026 1,900,000.00 14,000,000.00 2027 1,000,000.00 9,884,492.10 . The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) . Results framework COUNTRY: Lesotho Lesotho Renewable Energy & Energy Access Project Project Development Objectives(s) The Project Development Objective is to increase access to electricity in rural and peri-urban areas of Lesotho. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 increase access to electricity in rural and peri-urban areas of Lesotho Industrial/Economic Zones connected to main grid 0.00 2.00 (Number) Action: This indicator has been Revised People provided with new or improved electricity 0.00 67,375.00 service (CRI) (Number) Action: This indicator has been Revised People provided with new or improved 0.00 34,685.00 electricity service - Female (CRI) (Number) Action: This indicator has been Revised People provided with access to electricity under the project by household connections 0.00 8,000.00 22,825.00 (grid or off-grid). (CRI) (Number) The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 Action: This indicator has been Marked for Deletion Renewable energy generation capacity of mini- grids and off-grid solutions constructed under the 0.00 2.00 4.00 project (Megawatt) Action: This indicator has been Revised Community facilities provided with access to 0.00 91.00 electricity service (Number) Rationale: The indicator name is being revised to capture the results under both Component 2B and Component 4. Additionally, a change in the Action: This indicator has been Revised target number is proposed to reflect new findings from a feasibility study for Component 2B which was conducted during the early stages of the project implementation. Small and Medium enterprises provided with access to electricity service by mini-grids 0.00 199.00 (Number) Rationale: A change in the target number is proposed to reflect new findings from a feasibility study for Component 2B which was conducted during Action: This indicator has been Revised the early stages of the project implementation. PDO Table SPACE The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline End Target Grid Extension to Peri-Urban Areas of Lesotho Households provided with access to electricity services by grid 0.00 9,916.00 extension (Number) Action: This indicator has been Revised Medium Voltage Distribution lines constructed or rehabilitated 0.00 482.00 under the project (Kilometers) Action: This indicator has been Revised Low voltage distribution lines constructed or rehabilitated under 0.00 436.00 the project (Kilometers) Action: This indicator has been Revised Distribution substations constructed or rehabilitated under the 0.00 2.00 project (Number) Action: This indicator has been Revised Volume of CO2 emissions reduced from electrification by grid 0.00 5,195.00 extension per year (Metric tons/year) Action: This indicator has been Revised Rural Electrification by Mini-grids Mini-grids constructed or rehabilitated under project (Number) 0.00 39.00 Households provided with access to electricity services by mini- 0.00 3,011.00 grids (Number) Rationale: A change in the target number is proposed to reflect new findings from a feasibility study for Component 2B which was Action: This indicator has been Revised conducted during the early stages of the project implementation. The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline End Target Health facilities provided with access to electricity service 0.00 11.00 (Number) Rationale: A change in the target number is proposed to reflect new findings from a feasibility study for Component 2B which was Action: This indicator has been Revised conducted during the early stages of the project implementation. Schools provided with access to electricity service (Number) 0.00 25.00 Rationale: A change in the target number is proposed to reflect new findings from a feasibility study for Component 2B which was Action: This indicator has been Revised conducted during the early stages of the project implementation. Agricultural Resource Center provided with access to electricity 0.00 3.00 service (Number) Rationale: A change in the target number is proposed to reflect new findings from a feasibility study for Component 2B which was Action: This indicator has been Revised conducted during the early stages of the project implementation. Volume of CO2 emissions reduced from electrification by mini- 0.00 1,571.00 grids per year (Metric tons/year) Volume of additional financing for clean energy investment 0.00 10,000,000.00 leveraged (USD) (Amount(USD)) Technical Assistance and Implementation Support Independent verification of new connections completed (Yes/No) No Yes Consumer awareness program developed, with a focus on No Yes female members of households and businesses (Yes/No) The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline End Target Assessment of barriers to female entrepreneurship completed No Yes and action plan for in mini-grid sector delivered (Yes/No) Percentage of female engineers employed at LEC (Percentage) 5.00 10.00 Grievances received and addressed (Percentage) 0.00 100.00 Contingent Emergency Response Component (Action: This Component is New) Community facilities provided with access to electricity service 0.00 39.00 under Contingent Emergency Response Component (Number) Action: This indicator is New IO Table SPACE The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) Annex 1. Methodology for selecting villages for grid extension Criteria Size and number Weight Distance to the closest grid 3.5km to 15 km 2 Belo Industrial Park Factory Shells Botha-Bothe Distillery Teyateyaneng Town Industrial Park Economic Zone planned 6 Tikoe Industrial Park Mokkhotlong Industrial Park Factory Shells Tikoe Phase 2 ad 3 Distance from the road 2 Number of schools: Vocational, Primary Schools and high schools 4 Number of Health Facilities 5 Number of potential household customers: (Densification) 2 Public institutions: police stations, agricultural centers, churches 3 Target year of electrification in EMP 3 Availability of Electricity Scheme 1 Equity (Geographical coverage of the Country) 1 The World Bank Lesotho Renewable Energy & Energy Access Project (P166936) Annex 2. Updated Economic Analysis 28. The project's economic analysis has been updated to reflect changes in component 1, namely the reduction of connected industrial zones from six to two and grid extensions to villages to connect 9,916 households to the main grid. Estimates for project costs, incremental electricity consumption, and project benefits have been updated to reflect the adjustments that will be introduced. Other parameters and assumptions, including oil prices, emission factors, and the cost of incremental generation, remain unchanged from the original project economic analysis. 29. The economic analysis indicates that the project will remain economically viable in both cases of accounting and not accounting for environmental externalities. The proposed project's baseline NPV is US$ 60.0 million (at a 6.75 percent discount rate) with a 38.9 percent economic internal rate of return. When accounting for the environmental benefits of net GHG emission reductions, the NPV of the project is US$ 66.4 million and the EIRR is 40.8 percent when assuming a low social price of carbon of US$ 30 per ton in the early years of the analysis period and increasing to US$ 50 per ton in the later years of the analysis period. 30. The project's Net Present Value (NPV) and Economic Internal Rate of Return (EIRR) remain robust, albeit reduced in comparison to the original projections. The primary factor contributing to this reduction is the decrease in the number of industrial parks connected under the project. These connections would yield substantial incremental electricity consumption from the grid, replacing more expensive fossil fuel-based self-generation. In contrast, for equivalent levels of network investments, the incremental electricity consumption is considerably lower for households, assuming a conservative rate of 60 kWh/month/household. The estimated EIRR for industrial parks stands at 58.6 percent, whereas it is 9.1 percent for village connections. Nevertheless, the electrification of villages is anticipated to stimulate the emergence of new commercial activities, contributing to revenue generation and progressively enhancing electricity consumption. In this context, connecting villages and economic activity zones should be perceived as complementary investments rather than competitive endeavors. Table 3: Summary of Economic Analysis Parameters Value Discount rate 6.75% Economic Analysis without CO2 Externality Overall EIRR, of which 38.94% Component 1A: Grid extension - industrial parks 58.59% Component 1B: Grid extension - villages 9.09% Component 2: Mini-grids 0.74% Overall Project NPV USD 59.98 million Economic Analysis with CO2 Externality Overall EIRR 40.75% Overall Project NPV USD 66.44 million