ENVIRONMENT AND SOCIAL SYSTEMS ASSESSMENT – ADDENDUM A. Introduction 1. Access to electricity has remained a major challenge limiting Nigeria’s development. To address sectoral challenges and achieve universal access, the Federal Government of Nigeria (FGN) developed and initiated the implementation of a comprehensive 2017 Power Sector Recovery Program (PSRP). The PSRP is a comprehensive package of financial, operational, governance, and policy interventions for restoring the sector’s financial viability, improving service delivery, reducing its fiscal burden on the government budget, strengthening sector governance and transparency, and ensuring that reforms are communicated. 2. To achieve reforms in the sector, the World Bank is supporting the FGN through a comprehensive programmatic engagement that is aligned with PSRP. This includes infrastructure investments aimed to support immediate measures under the PSRP’s infrastructure area, and a comprehensive portfolio of projects that address ongoing critical challenges within the broader power sector of which, the parent program, the Power Sector Recovery PforR (PSRO), is one of them. 3. In line with this, the World Bank is proposing to support the FGN, based on their request, with Additional Financing (AF) to the Power Sector Recovery Performance Based Operation (PSRO) Program for Results (PforR) in the amount of US$750 million to build upon PSRO successes and move the reform process to the next level. While significant results have been achieved under the parent Program, additional support will be needed to achieve the Project Development Objective (PDO) of the Program. B. The Parent Program: Power Sector Recovery Performance-Based Operation (PSRO: P164001) 4. The PDO of the parent Program is to improve the reliability of the electricity supply, achieve financial and fiscal sustainability, and enhance accountability. The parent Program finances activities under two components: (i) a Program-for-Results Financing (PforR) in the amount of US$730 million; and (ii) a technical assistance (TA) component, using the Investment Project Financing (IPF) instrument in the amount of US$20 million. The PforR component supports the implementation of the selected policy and regulatory actions included in the FGN’s PSRP, approved in March 2017 to turnaround sector financials, that the FGN has prioritized for implementation in 2020-2022; and the IPF component finances the TA to key sector agencies to support their implementation of the PforR component. The Program was approved by the Board on June 23, 2020 and became effective on December 17, 2020. 5. The PforR component (US$730 million) supports the implementation of a sub-set of PSRP interventions in the following three broad areas: (i) improve reliability of electricity supply; (ii) achieve financial and fiscal sustainability, and (iii) enhance accountability. The disbursements under the component are governed by eight DLIs, consisting of two Global DLIs and six standard DLIs. The DLIs articulate the actions necessary to recover the sector and set it on the path to financial and operational sustainability. The two Global DLIs that are most critical to the success of the Program – MYTO minor and extraordinary reviews; and PSRP Financing Plan – have been designated as Global DLIs. Disbursements of the six standard DLIs can only be completed upon verification that both Global DLIs have been achieved. The achievement of the DLIs is verified by the independent verification agency (IVA). Detailed information on the parent Program DLIs and the result areas they address is presented in Table 1. 6. The TA component (US$20 million) supports capacity building and institutional strengthening. It does so at key sector agencies that play an important role in the implementation of the critical PSRP actions and the PSRO PforR component linked to these actions and has been earmarked for implementation support and capacity building through the IPF component. The PSRO Secretariat is responsible for the implementation of this component, including procurement and financial management (FM) activities. Table 1: DLIs of the parent PforR and Results Areas They Address Global Disbursement-Linked Indicators Global DLI #1 NERC sets revenue requirement for TCN and DisCos based on MYTO Minor Reviews and a MYTO Extraordinary Review Global DLI #2 A credible and fiscally sustainable PSRP Financing Plan is approved and executed to fully cover tariff shortfalls Standard Disbursement-Linked Indicators Results Area 1: DLI #1 Implementation of approved PIPs is enforced Improve reliability of DLI #2 Business continuity arrangements are implemented for DisCos electricity supply Results Area 2: End-user electricity tariffs are adjusted consistent with the PSRP Achieve financial and DLI #3 Financing Plan, including its measures for protection of the poor fiscal sustainability DLI #4 Payment discipline is enforced on DisCos to reduce non-tariff shortfalls Results Area 3: DLI #5 Financial and operational transparency of DisCos is improved Enhance accountability DLI #6 Stakeholder and citizen engagement and communication are improved C. Implementation Progress and Performance of the Parent Program 7. The parent Program has already demonstrated strong results and is on a positive trajectory to achieve its objectives and indicators given the high level of ownership, proactivity, and buy-in at the political and technical levels. The implementation of the parent Program initially was affected by the steep learning curve, exacerbated by the impact of the COVID-19 pandemic, but improved drastically as the parent Program progressed. A steep learning curve affected all MDAs involved in the achievement of the DLIs, PSRP Technical Committee, PSRP Secretariat as well as the IVA. Confusion between roles, mandates, and expectations among the stakeholders, PSRP Secretariat, and the IVA hampered the timely implementation of the DLRs under each DLI, as well as the collection, analysis, and verification of the supporting evidence. Lack of face-to-face interactions due to pandemic restrictions added an additional challenge to the monitoring of the parent Program implementation and verification, making it difficult to escalate issues to the decision-makers in a timely manner as well as collect and discuss evidence of DLRs completion. However, as the parent Program implementation progressed and PSRP Technical Committee, PSRP Secretariat and the IVA developed and implemented a coordination structure that, despite the impact of the pandemic, allowed for consistent monitoring of the DLRs’ implementation, timely interference of the Technical Committee when implementation delays were observed and consistent evidence collection, the parent Program progress improved drastically. The first disbursement against Prior Results was done in November 2021, and the second disbursement against the next set of results was completed just four months later, in March 2022. The parent Program was restructured in August 2022, and the third disbursement was completed in November 2022, bringing the parent Program fully on track. 8. The overall progress towards achieving the parent Program’s PDO is Satisfactory; the overall implementation progress is Satisfactory as well. The progress towards achievement of the PDO is rated Satisfactory on account of the advancement shown by the FGN in fulfilling the parent Program DLRs. Progress towards meeting the PDO indicators has also been advancing well; most of the indicators are likely to be achieved by the end of the Program. 9. The tangible results achieved by the parent Program are impressive. Annual electricity supply has been increased from 27TWh in 2018 to 30TWh in 2021. While this figure was only 28 TWh in 2022 due to gas constraints, it is expected to increase to 31 TWh in 2023. Because of the actions supported by the parent Operations Global DLIs, tariff shortfalls have been reduced drastically between 2019 (₦581 billion/ US$1.6 billion) and 2022 (₦166 billion/ US$389 million) and expect to go down further in 2023 (about ₦100 billion/ US$216 million). As a result of the actions achieved under parent DLI 3 that supported consistent end-users tariff adjustments, the sector reached 94 percent regulatory cost recovery as of December 2022. Because of the actions supported by parent DLI 4 that targeted enforcement of payment discipline of DisCos, the payments received by NBET from the DisCos increased from 28 percent of the invoiced amount in 2019 to 80 percent in 2021. As a result of actions under DLI 1 that supported enforcement of DisCos’ PIPs implementation, NERC set new conditions for DisCos operations in the sector that triggered a change in the technical management of a number of DisCos in an effort to improve their performance. In three of these DisCos, NERC brought in new management using newly established business continuity arrangements, an action supported by the DLI 2. Because of the actions supported under DLIs 5 and 6 that aimed at improving sector transparency, NERC started publishing quarterly sector data, as well as DisCos started disclosing their IFRS-compliant financial statements. 10. In line with DLI 6 and to ensure effective stakeholder consultation and citizen engagement, the program through the Nigerian Electricity Regulation Commission (NERC) has approved a communication strategy by the Public Affairs Department. The communication strategy was presented to all relevant stakeholders in the power sector and an agreed implementation plan was reached. Under the AF, PSRO is expected to speed up the delayed implementation of the public communication campaign to raise awareness about the PSRP program. Additionally, creation of a PSRP website is underway that will enable Nigerian citizens to track PSRP progress and results to address the high level of distrust that was reported with regards to government's commitment to improving power supply. Similarly, PSRP has also completed the establishment of a stakeholder feedback mechanism where stakeholders can express their concerns and get feedback. The implementation of this activity will be monitored under the AF. 11. As of November 2022, the parent Program’s disbursements are US$535 million, or 72.5 percent of the total parent Program financing. The remaining financing, US$154 million allocated to the original 2022 Results and US$34 million allocated to new 2022 DLRs added through Program restructuring is expected to be disbursed fully by the parent Program closing date of June 30, 2023. The detailed information on the Program ratings and disbursement rate is presented in Table 2 below. Table 2: Overview of the Program Ratings and Disbursement Rate Previous Rating Previous Rating Previous Rating Current Rating Program Rating (October 27, (January 3, (June 25, 2021) (August, 2022) 2020) 2022) Progress towards Satisfactory Satisfactory Satisfactory Satisfactory achievement of PDO Overall Implementation Moderately Moderately Satisfactory Satisfactory Progress Satisfactory Satisfactory US$ million Disbursed 0 0 96 535 % Disbursed out of 0% 0% 12% 72.5% US$750M 12. Although the parent Program has had a transformative effect on the financial performance and viability of the power sector in Nigeria through the successful implementation of Global DLI 1 and 2, there is a need for the gains made under the two Global DLIs to be sustained, hence the need for additional financing. Besides, there is a long way to go before achieving financial and fiscal sustainability of the sector. While the sector is closer to cost recovery, the tariff shortfalls in the sector have not been eliminated. Also, the additional financing will further improve the reliability of electricity supply. While the gains on financial side are sustained, the AF will usher in new reform measures to unlock generation to improve energy availability. 13. Although the parent program has made tremendous progress in achieving the PDO, there were delays as all agencies involved, including the PSRP Secretariat, took some time due to steep learning curve to get a deep understanding of the reform actions that were required of them by the PSRP, as well as of the PSRO’s Action Plan and results verification mechanisms. Lack of face-to-face interactions due to the pandemic restrictions made addressing these misunderstandings less efficient and much more time- and effort-intensive. Additionally, confusion between roles, mandates, and capacity constraints added an additional challenge to the monitoring of the parent program implementation, making it difficult to escalate issues to the decision-makers in a timely manner. This experience resulted in the PSRP Technical Committee, PSRP Secretariat and the IVA developing and putting in place a coordination structure that streamlined monitoring and verification of the Program. Regular Technical Committee meetings, chaired by DG Budget, to closely monitor time bound PSRP Action Plan were key to identifying issues on time and elevating those to decision makers for swift resolution. To accelerate and improve the PAP implementation under the AF, it is recommended that an environmental and social safeguards consultant should be engaged to support the PSRP Secretariat in ensuring full implementation of the delayed and additional PAPs. The PAP implementation progress is provided in table 3 below. Table 3. PAP Implementation Progress S/N PAP Action Status 1 Establishment of stakeholder feedback mechanism Completed 2 Disaggregating NERC’s current data on electricity-consuming In progress households by income level and gender, commencing by accessing data gaps and developing terms of reference for a pilot study 3 Strengthening of the mandate of the gender focal point in the MoP by Delayed (discussions in developing a work plan and clear lines of responsibility for the gender progress) desk/focal point 4 Design and implementation of a public communication campaign as the Completed market transitions to financial self-sustainability 5 Enhancing women’s agencies as providers of information and customers In progress related to energy sector reform through a focus on advocacy and employment 6 Evaluate and report on the Environmental and Social Risk Management Delayed (PSRP Secretariat Actions of the Program working on it) 7 Preparation of guidelines and manual for mainstreaming stakeholder Delayed (guidelines are engagement process and integrating environmental, health, and safety being prepared) issues into the implementation of the Program 8 Annual evaluation, monitoring, and reporting of progress on Delayed (audits are ongoing environmental and social issues, especially regarding the compliance of and will be approved by the Program activities with the existing environmental standards and NBET Board) regulations 9 Public consultation on tariff adjustment In progress (happens on a periodic basis through the regulator) D. Description of the AF 14. The proposed AF will build on the tangible results achieved under the parent Program, taking into account lessons learned during parent Program design and implementation. The proposed AF will continue supporting the implementation of the FGN’s PSRP and its critical actions aimed at tackling the next set of Nigerian power sector challenges as well as facilitating the achievement of the FGN’s ambitious access and energy transition targets. Proposed Changes Change in Program Development Objectives and Result Indicators The proposed AF will maintain the PDO of the parent Program and support the same results areas. The PDO of the proposed AF remains to improve the reliability of the electricity supply, achieve financial and fiscal sustainability, and enhance accountability. The proposed AF supports the same three results areas as the parent Program: (i) reliability of electricity supply is improved; (ii) financial and fiscal sustainability is achieved; and (iii) accountability is enhanced. 15. The five PDO indicators of the parent Program are kept and one new PDO indicator is added under the proposed AF. These are:  Improve the reliability of electricity supply o Annual electricity supplied to the distribution grid (Gwh) o Net greenhouse gas (GHG) emission (Metric tons/year)  Achieve financial and fiscal sustainability o Annual tariff shortfalls decline o New tariff shortfalls are funded from non CBN sources once the Payment Assurance Facility (PAF) is depleted (percentage)  Enhance accountability o Public awareness about ongoing power sector reforms and performance increases (percentage) o Public awareness about ongoing power sector reforms and performance among women increases(percentage) Change in Program Scope, Boundaries, and Activities The Program boundary has been expanded in the proposed AF but remains within the boundary of the PSRP. The parent Program supported critical PSRP reforms under PSRP Pillar 1 (Financial interventions to fully fund historical and future sector deficits), Pillar 2 (Operational and technical interventions), and Pillar 3 (Governance interventions). In order to accommodate the support to the set of PSRP critical reforms that are a natural continuation of the parent Program, the Program boundary has now been expanded to include Pillar 4 of PSRP (Policy interventions) (Table.3). Inclusion of Pillar 4 in the boundaries of the parent Program was discussed with the FGN during the parent Program preparation, but it was agreed to keep the focus of the parent Program on actions that directly affected immediate sector challenges at the time: sector financial and fiscal sustainability, and regulatory efficiency and predictability. Including the intervention envisioned by Pillar 4 of PRSP in the proposed AF is the next logical step in supporting the Nigeran power sector turnaround. Table 4 Pillars of the PSRP and AF Program Boundary Legislative and Procedural Changes 16. The environmental and social system described in the parent ESSA is still applicable both in terms of laws, regulations, standards and in terms of procedures and actual implementation of those laws and standards. There have been no changes in terms of legislation or procedures in relation to the nature and the type of activities implemented under the parent program. Besides, the AF activities are not likely to require changes to the borrower’s overall environmental and social systems. Generally, the implementation of the AF Program is likely to have positive social impacts on the lives and livelihoods of many beneficiaries and indirect environmental benefits such as a reduction in carbon emission. E. Environmental and Social Risks and Impacts of the AF 17. The overall environmental and social risks and impacts of the AF activities and implementation challenges have been assessed during the preparation of this addendum to the parent ESSA. The overall environmental and social risks were assessed as moderate because of the envisaged environmental and social impacts that could result from the implementation of DISCOs and TCN Performance Improvement Plans (PIPs). The TCN PIP program will involve the rehabilitation and refurbishing of existing substations. This activity has the potential to cause noise pollution, loss of flora and fauna, dust and air pollution, and also impact on worker and public safety especially due to potential electric shock, etc., that may occur during the refurbishment of transmission substations. Similarly, the review of MYTO under Global DLI 1 and 2 may lead to minor increases in tariff for customers. These increases are, however, not expected to result in an increase in poverty, as the social tariff (household consuming less than 50kWhs per month) is in place and will be maintained. 18. In addition, the AF risks and impacts are not likely to be significant, not complex, low in magnitude, predictable, and expected to be temporary and/or reversible; and low probability of serious adverse effects to human health and/or the environment and mitigation measures are readily available, including use of exclusion list. Additionally, the government of Nigeria has several policies, instruments, and laws which support environmental and social management and environmental and social impact assessment processes. There are a number of sectoral policies which provide directives to integrate environmental and social considerations in the decision-making process to avoid or minimize impacts associated with program implementation. 19. As a result, of the AF expanded scope and proposed activities, the environmental and social risks and impacts are judged to be Moderate. F. Consultation Process 20. The consultation process under the AF builds on the consultation conducted under the parent program in line with the World Bank Policy and Directive for Program for-Results Financing and Access to Information Policy. The consultation was held on Thursday, October 27, 2022 held as part of the preparation of the ESSA. The consultation involved participants from the Bureau of Public Enterprises (BPE), Nigeria Bulk Electricity Trading (NBET), PSP secretariat, office of the Vice President, and representatives of Civil Society Organizations (CSO). During the consultation issues around the need to set up a consumer protection policy and implementation unit for consumer issues and proper enlightenment were raised and discussed. Issues around assessing the performance of the Discos in terms of transparency and accountability, consumer survey in terms of service delivery and the need to conduct a consumer protection survey among other issues were also discussed. The outcome of the consultation informed the design of the PAP. See annex for additional consultation information. G. Recommendations to Strengthen the Environmental and Social System 21. Based on the analysis carried out for this ESSA addendum with respect to the six Core principles, the following action plan has been recommended to strengthen the PAP implementation. The PAP achieved in the parent program did not form part of this PAP. This PAP is reflected in Annex 5 of the Program Paper. Table 5: Program Action Plan (PAP) Action Description Due Date Responsible Completion Measurement Party 1 Strengthen the framework Prior to another MYTO NERC Further adjustments in MYTO under MYTO reviews to ensure reviews under the AF maintain mitigation measures that tariff adjustments are Program introduced in previous MYTO accompanied with mitigation reviews measures 2 Build on current system and 4 Months after program Project Developed/updated guidelines institutionalize/develop effectiveness implementation for stakeholder engagement, guidelines to strengthen team (PSRP number of stakeholder stakeholder and citizen secretariat) and meetings, workshops and town engagement and implement NERC hall meetings held etc. and report the grievance redress mechanism operation. The GRM should include clear targets and monitoring criteria for NERC’s customer complaints system. 3 Evaluation and Reporting on the Commence 6 months Project Quarterly, Bi-Annual, and Environmental and Social Risk after AF Program implementation Annual Progress Reports Management Actions of the effectiveness team Program 4 Formulate guidelines and 4 months after the AF NERC, FMOP, EAD, Completed guidelines in booklet manuals to mainstream Program effectiveness NESREA form disseminated to environmental, health, and stakeholders, training provided, safety issues into the and the guidelines implementation of the Program operationalized. 5 Conduct annual monitoring of Within 12 months of the NERC, FMOP, and Completed report with progress on environmental and end of each FY Project recommendations about E&S social issues, especially implementation issues, including the progress of regarding the compliance of the team the implementation of actions Program activities with the indicated in this table. environmental standards and Follow-up measures to the regulations recommendations taken in the following FY. 6 Enhance women’s agencies as 4 months after AF Project Terms of Reference for providers of information and Program Effectiveness implementation Customer Information customers related to energy team and NERC Campaign driven by Women’s sector reform through a focus Groups on advocacy and employment 7 Disaggregating NERC’s current Commence 6 months NERC Terms of Reference for data data on electricity-consuming after AF Program gap assessment and pilot study households by income level and effectiveness gender, commencing by assessing data gaps and developing terms of reference for a pilot study 8 Engage external Environmental 2 months after AF PSRO Secretariate CV of consultant and letter of and social safeguards Program effectiveness engagement consultant to support PSRP E&S staff for rapid implementation of Program Action Plan 9 Develop and implement ESMP Prior to TCN ESMP developed and for all substations that will be upgrading/rehabilitating implemented. upgraded/rehabilitated under the substations the TCN PIP H. Recommended Step to Accelerate PAP Implementation 22. To accelerate and improve the PAP implementation under the AF, it is recommended that the PSRO Secretariat commits to both implementing all delayed PAP actions under the parent program and the additional PAP actions in the addendum ESSA and reporting on these on a regular (semi-annual basis). In addition, an external environmental and social safeguards consultant should be engaged to support the PSRO E&S staff to speed up full implementation of the PAP. Pending the engagement of this consultant, the PSRO secretariat should discuss with TCN to provide short-term E&S capacity support. The Bank E&S team will also provide additional oversight implementation support in this regard. Following the recommendations, the breakdown of safeguards actions (PAP) above are included in the Program Action Plan (PAP) in Annex 5.