Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004964 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD 8278 EG) ON A LOAN IN The AMOUNT OF US$ 585.4 MILLION TO THE ARAB REPUBLIC OF EGYPT FOR THE EG - HELWAN SOUTH POWER PROJECT APRIL 30, 2020 Energy and Extractives Global Practice Middle East And North Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective {Oct 09, 2019}) Currency Unit = Egyptian Pound (EGP) 16.25 EGP= US$1.00 FISCAL YEAR July 1 - June 30 Regional Vice President: Ferid Belhaj Country Director: Marina Wes Regional Director: Paul Noumba Um Practice Manager: Erik Magnus Fernstrom Task Team Leader(s): Paul Baringanire ICR Main Contributor: James Sayle Moose ABBREVIATIONS AND ACRONYMS CCGT Combined Cycle Gas Turbine (power plant) CPF Country Partnership Framework DPF Development Policy Financing EEAA Egyptian Environmental Affairs Agency EEHC Egyptian Electric Holding Company EETC Egyptian Electric Transmission Company EGP Egyptian Pounds ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan FY Fiscal Year GASCO Egyptian Natural Gas Company (gas pipelines) GDP Gross Domestic Product GWh Gigawatt Hours HFO Heavy Fuel Oil ICR Implementation and Completion Results Report ISES2035 Integrated Sustainable Energy Strategy to 2035 ISN Interim Strategy Note ISR Implementation Status Report KWh Kilowatt Hours LPG Liquefied Petroleum Gas M&E Monitoring and Evaluation MMBTU Millions of British Thermal Units MW Megawatt NPV Net Present Value OCC Opportunity Cost of Capital PAD Project Appraisal Document PLR Performance and Learning Review PDO Project Development Objective(s) RAP Resettlement Action Plan RE Renewable Energy SME Small and Medium Enterprises UEEPC Upper Egypt Electricity Production Company WDGC Western Desert Gas Complex TABLE OF CONTENTS DATA SHEET ..................................................................................................................................................1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES .......................................................................... 5 A. CONTEXT AT APPRAISAL ................................................................................................................... 5 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ............................................. 9 II. OUTCOME ........................................................................................................................................... 11 A. RELEVANCE OF PDOs ...................................................................................................................... 11 B. ACHIEVEMENT OF PDOs (EFFICACY) ............................................................................................... 12 C. EFFICIENCY ...................................................................................................................................... 14 D. JUSTIFICATION OF OVERALL OUTCOME RATING ........................................................................... 16 E. OTHER OUTCOMES AND IMPACTS (IF ANY).................................................................................... 16 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME .................................................. 17 A. KEY FACTORS DURING PREPARATION ............................................................................................ 17 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME ................... 19 A. QUALITY OF MONITORING AND EVALUATION (M&E) ................................................................... 19 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ........................................................... 20 C. BANK PERFORMANCE ..................................................................................................................... 23 D. RISK TO DEVELOPMENT OUTCOME ............................................................................................... 25 V. LESSONS AND RECOMMENDATIONS .................................................................................................. 25 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ................................................................................ 28 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ............................................ 36 ANNEX 3. PROJECT COST BY COMPONENT ................................................................................................. 38 ANNEX 4. EGYPT NATURAL GAS AND GENERATION MIX SECTOR CONTEXT .............................................. 39 ANNEX 5. EFFICIENCY ANALYSIS ................................................................................................................. 41 ANNEX 6. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ..................... 43 ANNEX 6. SUPPORTING DOCUMENTS ........................................................................................................ 44 The World Bank EG - Helwan South Power Project (P117407) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P117407 EG - Helwan South Power Project Country Financing Instrument Egypt, Arab Republic of Investment Project Financing Original EA Category Revised EA Category Full Assessment (A) Full Assessment (A) Organizations Borrower Implementing Agency Egyptian Electricity Holding Company, Egyptian Natural Arab Republic of Egypt Gas Company (GASCO) Project Development Objective (PDO) Original PDO The project development objective is to increase power generation capacity in an efficient manner within the Borrower’s territory. Page 1 of 45 The World Bank EG - Helwan South Power Project (P117407) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 585,400,000 419,213,909 419,213,909 IBRD-82780 Total 585,400,000 419,213,909 419,213,909 Non-World Bank Financing 0 0 0 Borrower/Recipient 921,800,000 921,800,000 165,225,000 Arab Fund for Economic and 193,500,000 193,500,000 139,350,000 Social Development Islamic Development Bank 449,900,000 449,900,000 383,801,000 KUWAIT: Kuwait Fund for Arab Economic 213,800,000 213,800,000 172,225,000 Development OPEC FUND 40,000,000 40,000,000 41,556,000 Total 1,819,000,000 1,819,000,000 902,157,000 Total Project Cost 2,404,400,000 2,238,213,909 1,321,370,909 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 27-Jun-2013 30-Apr-2014 22-Oct-2017 30-Jun-2019 30-Jun-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 02-Jun-2016 64.46 Change in Results Framework Change in Components and Cost Change in Procurement KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Moderately Satisfactory Substantial Page 2 of 45 The World Bank EG - Helwan South Power Project (P117407) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 26-Dec-2013 Satisfactory Satisfactory 0 02 23-Jun-2014 Satisfactory Moderately Satisfactory 0 03 26-Dec-2014 Moderately Satisfactory Moderately Unsatisfactory 0 04 25-Jun-2015 Moderately Satisfactory Moderately Unsatisfactory 46.53 05 21-Dec-2015 Moderately Satisfactory Moderately Unsatisfactory 46.53 06 15-Jun-2016 Moderately Satisfactory Moderately Satisfactory 64.46 07 18-Dec-2016 Moderately Satisfactory Moderately Satisfactory 115.72 08 09-Jun-2017 Satisfactory Satisfactory 159.01 09 28-Dec-2017 Satisfactory Satisfactory 219.84 10 12-Jun-2018 Satisfactory Satisfactory 260.34 11 24-Dec-2018 Satisfactory Satisfactory 312.46 12 24-Jun-2019 Satisfactory Satisfactory 341.93 SECTORS AND THEMES Sectors Major Sector/Sector (%) Energy and Extractives 100 Oil and Gas 14 Non-Renewable Energy Generation 86 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 33 Jobs 33 Job Creation 33 Page 3 of 45 The World Bank EG - Helwan South Power Project (P117407) Urban and Rural Development 66 Urban Development 33 Urban Infrastructure and Service Delivery 33 Rural Development 33 Rural Infrastructure and service delivery 33 ADM STAFF Role At Approval At ICR Regional Vice President: Inger Andersen Ferid Belhaj Country Director: Hartwig Schafer Marina Wes Director: Junaid Kamal Ahmad Paul Noumba Um Practice Manager: Charles Joseph Cormier Erik Magnus Fernstrom Task Team Leader(s): Waleed Saleh I. Alsuraih Paul Baringanire ICR Contributing Author: James Sayle Moose Page 4 of 45 The World Bank EG - Helwan South Power Project (P117407) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. When the project was prepared in fiscal year (FY) 2012-13, Egypt was undergoing a major political, economic, and social transition. Egypt’s economic growth had slowed significantly following a period of economic and political transition following the revolution of 2011, which in turn followed the World Recession of 2008-9. Economic growth was only 2 percent in 2012 down from a high of 7 percent in 2008. Unemployment rates were high at 13 percent overall with a youth unemployment rate of 41.4 percent. The overall fiscal deficit was 10.2 percent of Gross Domestic Product (GDP) in FY 2012 and the current account deficit was 3.1 percent of GDP. Given the challenges, Government had started to take important steps to address some of the root causes of the fiscal imbalances. Specifically, it had started on a program of targeted energy pricing and fuel subsidy reforms to achieve cost recovery (on energy prices) and replace untargeted subsidies with targeted social safety nets programs. Electricity prices for household and commercial consumers had been increased by 15 percent in two steps in late 2012 and early 2013, while for energy intensive users they were increased by 50 percent in two steps in 2012. Overall, these reforms reduced subsidies by 0.7 percent of GDP and ultimately were expected to reduce them by 2.7 percent of GDP annually upon full implementation. 2. Electricity demand had been growing quite rapidly in Egypt and was exceeding available capacity in periods of peak demand (Details in Annex 4). Peak electricity demand increased from 15,678 MW in 2005 to 21,330 MW in 2009, and higher to 24,400 MW in 2011, a 14 percent increase in just two years. Peak demand, on average, had grown by 6.8 percent per year in the previous five years (FY 2007- 12) and electricity consumption had increased 6.6 percent per year over the same time period- faster than capacity. For the years (FY 2009-12), the country experienced frequent electricity supply interruptions. Nevertheless, the country had adequate nominal capacity in FY 2012-2013 but was short of available capacity at periods of peak demand due to a number of factors, among which are: (i) temperature derating of the generators, especially during the summer (about 8 to 10 percent for the Egyptian climate), (ii) aging of power plants, and (iii) dependence of hydropower plants on the amount of water allowed to be used by the Ministry of Irrigation and Water Resources. Egypt needed nominal capacity of around 15 to 20 percent above peak in addition to keeping up with capacity growth in order to meet peak periods of demand. 3. The Egypt Electricity Holding Company (EEHC) Five Year Plan (FY 2012-17) forecast growth of peak electricity demand and overall consumption continuing at 6 per cent per year with 11,000 MW of additional capacity being required to meet this growth and satisfy peak demand. It was planned that this capacity increase would be mostly: (a) combined cycle power plants (CCGT) using natural gas and (b) steam plants (mostly more efficient supercritical plants such as Helwan South) capable of using either natural gas or heavy fuel oil (HFO). The EEHC plan meant increased reliance on natural gas. Egypt natural gas production started declining in the period 2009/11 and the country became a net importer of natural gas in 2014/15 as a result of growing domestic demand and declining production levels (Annex 4). To satisfy domestic Page 5 of 45 The World Bank EG - Helwan South Power Project (P117407) demand, Egypt had to divert its natural gas supply away from exports to the domestic market and had to rely on liquefied natural gas (LNG) imports to address the shortfall in consumption and increased power generation as per the EEEHC five-year plan. The decline in the natural gas production, had an impact on the project design as discussed later in the report (Paragraph 10). 4. The Helwan South Power Project was fully supportive of the Government’s Strategy to increase generation capacity using more efficient combined cycle gas turbines and supercritical steam powerplants. The Government’s strategy was to not only have the EEHC build these new generation plants as rapidly as possible but also to restart private investment in power plants and raise electricity prices closer to costs. The project was also consistent with the World Bank Interim Strategy Note for Egypt (ISN) FY 2013 to FY 2014. The ISN had three pillars: “(a) improving economic management, (b) job creation through direct emergency lending and initiating steps to improve the environment for private sector led growth and job creation, and (c) fostering inclusion which involves ensuring broader access by disadvantaged segments of the population (women, youth, the poor)-to services”. The Helwan South Power Project directly supported the second pillar by helping fund a new 1,950 MW supercritical power plant to provide reliable electricity for productive enterprises and to prevent black outs and brown outs. It supported the third pillar by providing additional power to the households where women are the main users of electricity. Finally, the project had complimentary technical assistance and advisory services which would enhance management of the power sector, thus contributing to the first pillar. This technical assistance and advisory services were financed through other loans and grants and counterpart funding by the borrower. 5. The World Bank was one of the co-financiers of the Helwan South Power Project. In addition, the Islamic Development Bank, the Arab Fund for Social and Economic Development, the EEHC, the Kuwait Fund for Arab Economic Development and the OPEC Fund for International Development all provided financing. Theory of Change (Results Chain) 6. The theory of change of the project is shown below. The first component, construction of the Helwan South Power Plant, would increase generation, leading to increased electricity supply to meet rising demand. The second component, construction of natural gas pipelines, would supply the plant with natural gas for fuel and strengthen the gas grid to support rising gas demand. The use of natural gas for generation would enhance the generation efficiency. 7. The project also has two activities which are not financed by the Helwan South Loan. The first is the associated transmission investment consisting a transmission line and substation to evacuate the power produced by the power plant. This investment was financed from the Ain Sokhna IBRD Loan (P100047) savings. The second parallel activity consists of technical assistance and advisory services. These services cover a range of activities from upstream policy advice to transaction services designed to enhance the sustainability of the power sector and the project. Their overall aim is to address the priority areas in the sector: (a) advancing energy pricing and fuel subsidies reform as well as reforming social safety nets; (b) attracting private investment; (c) strengthening sector governance, transparency, and accountability; and (d) advancing energy efficiency and renewable energy. Page 6 of 45 The World Bank EG - Helwan South Power Project (P117407) THEORY OF CHANGE FOR HELWAN SOUTH POWER PROJECT Activities Output Project Outcomes Long Term Outcomes Build Power Increased Plant Electricity Generation New Supercritical 1950 MW Power Plant with Transmission and Gas Supply Lines Increased Security Build Transmission of Supply through Increased Lines Increased Capacity welfare of the population through enhanced security of electricity Increased Gas supply, increased Supply for Strengthen Gas gas supply and a Industry, Build Gas Grid more efficient Households, Supply Lines power sector Power Generation with better targeted subsidies for the poor and Studies and vulnerable. advisory services on Provide energy pricing, fuel More cost reflective Complementary T.A. subsidies reform, tariffs, improved and Advisory Services attracting private subsidies, more funded by other investment, private investment, sources governance, energy better governance, efficiency more energy efficiency Page 7 of 45 The World Bank EG - Helwan South Power Project (P117407) Project Development Objectives (PDOs) 8. The project development objective (PDO) “is to increase power generation capacity in an efficient manner within the Borrower’s territory.” Key Expected Outcomes and Outcome Indicators 9. The major expected outcome was an efficient, steam powered super critical power plant with 1950 MW of capacity using natural gas as the main fuel but with the capacity to use HFO. In addition, as part of supplying natural gas to the power plant, the gas grid would be strengthened. There were five project development/outcome indicators: • Generation Capacity of Conventional Generation constructed under the project with a target of 1950 MW. • Annual net electricity generation with a target of 13,477 GWh per year. • Minimum thermal energy conversion efficiency with a target of 40 percent. • Direct Project Beneficiaries with a target of 7,391,000 persons. • Percent of beneficiaries who are female with a target of 49 percent. Components 10. The project had two main components. The first was the construction of a supercritical (high pressure, high temperature, more efficient) power plant at Helwan South on the Nile River south of Cairo. The plant was designed to have 1,950 MW of generating capacity fired by natural gas as the primary fuel and by HFO as a backup. The decision to have the plant capable of using HFO as well as natural gas substantially increased its cost and lowered the plant’s efficiency compared with building a CCGT, which can only use natural gas or light fuel oil. The choice of the supercritical steam technology, compared to the lower cost(CCG), was premised on the following considerations: (i) dual fuel to hedge against natural gas supply constraints (annex 4); (ii) lower cost maintenance; (iii) lower derating during the peak summer temperatures; and (iv) system stability due to the plant’s ability to serve both base load and intermediate load and thus increased power supply reliability. A subsidiary of EEHC, Upper Egypt Electricity Production Company (UEEPC), implemented this component. 11. The second component included two gas pipelines capable of supplying 12.5 million cubic meters of gas per day. One pipeline, 36 inches in diameter and 93 kilometers (km) in length would connect the Helwan South power plant to the existing gas pipeline network at the compressor station at Dahshour. The other pipeline, 32 inches in diameter and 65 km in length, was aimed at strengthening the gas transmission network by eliminating a bottleneck that otherwise would prevent normal gas supply to the Helwan South power plant by connecting to the gas grid to the floating storage and re-gasification units (FSRUs) imports (Annex 4). The cost of this component was estimated to be a total of US$ 235.5 million, with a base cost of US$ 212 million and contingencies of US$ 23.5 million. The Egyptian Natural Gas Company (GASCO) implemented this component. Page 8 of 45 The World Bank EG - Helwan South Power Project (P117407) 12. An associated component includes a transmission line and substation to evacuate power from the power plant. This component was financed from the IBRD Ain Sokhna Loan (P100047) savings. This component consisted of a 500/220 kV substation (Zahraa El-Maadi) and the interconnector transmission lines. The interconnector lines were also aimed at strengthening the national grid. The total cost of this component was about US$ 90.9 million, and it was implemented by the Egyptian Electric Transmission Company (EETC). 13. Complementary Activities: Technical Assistance and Advisory Services. Helwan South was designed with complementary technical assistance and advisory services to be implemented in parallel with the Project. These services cover a range of activities from upstream policy advice to transaction services that are designed to enhance the sustainability of the power sector and this project. Their overall aim is to address the priority areas in the sector: (a) advancing energy pricing and fuel subsidies reform as well as reforming social safety nets; (b) attracting private investment; (c) strengthening sector governance, transparency, and accountability; and (d) advancing energy efficiency and renewable energy. Technically, these activities are not part of the Helwan South project. However, they are described here because of their importance to enhancing the sustainability of the power sector generally as well as the Helwan South project. The technical assistance and advisory services activities were financed through grants from a number of donors1, complemented by contributions from the Borrower and the recipient agencies. 14. The complementary parallel services were implemented under: 1) the Energy and Social Safety Nets Sector Reforms and Technical Assistance Project (FY 2014-2019), 2) the Wind Power Development Project (2010-19), and 3) the Ain Sokhna Power Project (2010-2018). The Energy and Social Safety Nets Sector Reform and Technical Assistance Project (the TA Project) had nine activities of technical assistance and advisory services, among which are advisory services for energy pricing, fuel subsidies reform, social safety nets, sector governance and accountability, renewable energy and energy efficiency, attracting private investment in electricity and reducing risks. The Ain Sokhna Project included technical assistance for attracting private investment, while the Wind Power Development Project (P113416) had technical assistance for attracting private investment in wind power. In addition to the Bank technical assistance, several technical assistance activities were undertaken under the European Union Technical Assistance and Partnership Program which included the Energy Sector Policy Support Program and EU-Egypt Association Agreement Program. With all these advisory services and technical assistance under way, it was not thought necessary to include any TA in the Helwan South Power Project. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 15. The PDO was not changed nor were the outcome targets. 1These include: (i) the European Union Technical Assistance and Partnership Program (€891,750) (ii) IBRD Bank Multi-Donor Trust Fund (US$6.5 million; and (iii) Energy Sector Management Assistance Program (ESMAP) (US$120,000). Page 9 of 45 The World Bank EG - Helwan South Power Project (P117407) Revised PDO Indicators 16. One PDO Indicator “kilometers of gas pipelines constructed” was added when the project was restructured in June 2016. The purpose of this restructuring was to modify the natural gas pipeline component of the project implemented by GASCO. No PDO indicators were removed. Revised Components 17. The gas pipeline component was revised. The original component included construction of two gas pipelines capable of supplying 12.5 million cubic meters of gas per day; (i) one pipeline, 36 inches in diameter and 93 kilometers (km) in length to connect the Helwan South power plant site to the existing gas pipeline network and (ii) another pipeline, 32 inches in diameter and 65 km in length to strengthen the gas transmission network by eliminating a bottleneck that otherwise would prevent normal gas supply to the Helwan South power plant by connecting to the grid supplied from FSRUs LNG imports (Annex 4). 18. The gas pipeline component was revised to adapt to the changing gas infrastructure expansion plan following the gas discovery in Egypt. The change entailed dropping the 93 km gas pipeline to the power plant, as this component was no longer necessary given that gas would be transmitted to the power plant through the nearby pipeline (1,2 km) to supply gas to the power plant. The component was thus revised to include construction of: (i) a gas pipeline capable of supplying about 12.5 million cubic meters of gas per day, of about 1.2 km in length to connect the power plant to the existing gas pipeline network, and (ii) a gas pipeline of about 70 km in length from the gas receiving facility at Raven gas facility to the Western Desert Gas Complex ( WDGC) in Alexandria to strengthen the gas transmission network. Annex 4 provides highlights of the natural gas production changes over the project design and implementation period, covering a period of decreased production, imports and recent discoveries in the Mediterranean sea. 19. The revised gas pipeline component was considerably smaller with only 71.2 Km of gas pipeline to be constructed, while the original component had 158 km. The main difference was that the connector line to the power plant dropped from 93 km to 1.2 km due to the decision to tap into the existing pipeline near the power plant compared to the earlier proposal to construct a 93 km pipeline. The new line to connect the Raven gas receiving facility to the WDGC was aimed at supporting the PDO regarding efficiency in power generation. The new gas pipeline supported the adopting to the recent major gas discovery in Egypt which changed the energy landscape, reducing the country's dependency on gas imports in the future. For the new Raven-WDGC pipeline, the Bank would finance the needed materials and equipment whereas GASCO would finance the actual construction. This implementation approach was in recognition of the borrower’s preference to use a State-Owned Enterprise to undertake the pipeline construction. Other Changes 20. There were no other changes. The project was implemented within the original implementation Page 10 of 45 The World Bank EG - Helwan South Power Project (P117407) period and the project closed at the original Project Closing Date of June 30, 2019. Rationale for Changes and Their Implication on the Original Theory of Change 21. The changes did not negatively impact the original theory of change, but instead enhanced the project PDO regarding efficient power generation within the borrower’s territory. The changes were made because the country’s gas supply situation changed with the recent major gas discoveries and thus a reprioritization of the gas expansion plan. The long gas supply line for Helwan South was no longer appropriate given that gas would be transmitted to the power plant through the nearby pipeline (1.2 km). The new activity, the Raven-WDGC 70 km pipeline was introduced to enable increased gas processing at the WDGC facility and thus enabling to have increased gas supply in the existing gas pipeline grid. II.OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 22. The relevance of the PDO is rated Substantial. The PDO was to “increase power generation capacity in an efficient manner within the Borrower’s territory.” The Helwan South power plant’s technical relevance is substantial as it is expected to remain part of the country’s least cost generation mix in medium to long term, since it is more efficient than steam turbines and provides enhanced grid stability due to its ability to operate as a base load plant. At the project preparation, the project was aligned to the EEHC Five Year Plan for the period 2012/17 that aimed at increasing the country’s generation capacity (Paragraph 3). This strategic plan was further accelerated, among others, by directly contracting new capacity of combined cycle gas turbines of capacity of about 14.4GW, leading to an increase in the country’s generation installed capacity from about 25.0GW in 2010 to about 55.0 GW in 2018. This has led to a reserve margin of over 25MW compared to a peak load of 30.8GW in 2018. However, the power plant remains relevant as per the Egypt Integrated Sustainable Energy Strategy to 2035 (ISES2035), approved by cabinet in 2016. The ISES2035 envisages diversification of the country’s generation mix to include coal, nuclear and renewable energy (RE) in the electricity mix by 2035 (Annex 4). Given the forecasted increase in variable RE, the Helwan South power plant is critical to maintaining reliability and integrity of the national grid, given its ability to operate both as a base load plant and superior load- following operating characteristics compared to the more efficient CCGTs. 23. The PDO is aligned with the Country Partnership Framework (CPF)2 FY2015 to FY2019 Focus Area 2 “Improved opportunities for private sector job creation” by providing electricity for economic development. Particularly, it supports CPF Objective 2.2 “Improved energy generation capacity and improved efficiency”. The CPF highlights that “Egypt is a fully electrified country with more than 99 percent of households connected to the electricity grid. Consequently, the power sector has a direct impact on every household, business, school, and hospital in the country. Availability of reliable energy supply has been identified as a major constraint by the private sector in expanding businesses and therefore job creation. The 2 Report 94554-EG November 20, 2015. Page 11 of 45 The World Bank EG - Helwan South Power Project (P117407) brisk energy demand growth is expected to continue for the foreseeable future, and investments in the supply side of the power sector and efficiency enhancing measures will have to expand significantly.” 24. The project contributes to the World Bank Group (WBG) twin goals of eliminating extreme poverty and promoting shared prosperity in a sustainable manner. Further the project is aligned with the WBG’s expanded Middle East and North Africa (MENA) Regional Strategy (March 2019) first pillar “Renewing the Social Contract” regarding creating opportunities for structural transformation and sustainable, inclusive growth. By increasing power generation and thus power supply to the private sector and the poorer residential areas, the project will improve quality of life and enhance job creation and thus the disposable incomes of consumers. 25. The April 2019 Performance and Learning Review of the Country Partnership Framework for the Arab Republic of Egypt for the Period FY 2015-19 (PLR) among other things, “introduces adjustments to the program. These adjustments include a proposed extension of the CPF period and update the CPF results framework. The CPF PLR no longer mentions additions to conventional generation noting that “outcomes on conventional and renewable power generation capacity have been achieved”. The relevance of the Helwan South PDO for the extended CPF period following the PLR is also considered high because the goals set out in the CPF have been achieved3. Thus overall, the PDO relevance is Substantial. B. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 26. The efficacy of the project is rated as Substantial since the PDO was achieved and almost all PDO- level indicators were overachieved. The objectives/outcome was to increase power generation capacity in an efficient manner within the Borrower’s territory. This has been achieved in twofold: (i) increased generation capacity, and (ii) the use of more efficient natural gas-based technology. Table 1. PDO Indicators Indicator Baseline Target Value at Closing Achievement rate (%) Generation capacity constructed (MW) 0.0 1950 2010 103 Annual net electricity generation (GWh) 0.0 13447 13860 103 Gas pipelines constructed (km) 0.0 71.2 1.20 1.7 Energy Conversion Efficiency (%) 0.0 40.0 42.0 105 Direct Project Beneficiaries (number) 0.0 7,391,000 7,676,000 104 3The Bank Guidance for Implementation Completion and Results Reports for Investment Project Financing mentions that if the PDOs are no longer mentioned in the CPF (or PLR) because they have been achieved, the project should “still be rated favorably on relevance of objectives.” Page 12 of 45 The World Bank EG - Helwan South Power Project (P117407) Female Beneficiaries (%) 0.0 49 49 100 27. Generation capacity of Conventional Generation constructed under the project. The target was generation capacity of 1950 MW. In fact, the plant has a capacity of 2010 MW or about 60 MW more than planned. At Loan closing all three generating units (670 MW each) were synchronized, meaning they could provide power to the system. They were not all in commercial operation but that was achieved later in 2019. Indicator achieved. 28. Annual net electricity generation. The target was 13,447 GWh. Expected annual generation, as per the commission test results, is 13,860 GWh. However, the plant longer term actual annual generation will be dependent on the adopted plant dispatch regime noting that the country commissioned other plants and the forecasted longer-term generation capacity mix (Annex 4). Indicator achieved. 29. Kilometers of gas pipelines constructed. This indicator was added following the project restructuring including the construction of a 71.2 km gas pipeline consisting of: (i) 1.2 km of gas line connecting the power plant; and (ii) 70 km of line strengthening the gas supply system by connecting the Raven gas field to the Western Desert Gas Complex (WDGC). The construction of the 1.2 km connecting the power plant to the gas grid was completed, whereas the construction of the 70 km is still ongoing and expected to be completed by end 2020. The ongoing construction has not impacted commissioning of the power plant (indicators 1 and 2 above), and its completion will be helpful in the long run to the project sustainability as the power plant is able to get the requisite natural gas supply for its efficient operations. Further, the project scope to supply of the materials and equipment with the loan proceeds has been completed. Indicator partially achieved. 30. Thermal energy conversion efficiency. The plant has a target of 40 percent efficient. According to plant commissioning test results, the power plant is 42 percent thermally efficient. Indicator achieved. 31. The number of direct project beneficiaries. The target was 7,391,000 beneficiaries. This target was obtained by dividing estimated generation in FY 2018, when the plant was expected to enter operation, by estimated generation per capita in the same year. Estimated generation per capita in 2018 was in turn based on 2012 generation per capita and assuming 2.7 percent growth per year. The actual generation capacity of the plant is higher than previously estimated and the generation per capita is also higher because the plant’s later coming into operation than estimated at appraisal, the number of beneficiaries rises but not greatly. Instead of 7, 391,000 beneficiaries previously estimated, the current estimate for beneficiaries using the same approach is 7,676,000 beneficiaries. Indicator achieved. 32. The percentage of female beneficiaries. The target was that 49 percent of beneficiaries should be female. Indicator achieved. Justification of Overall Efficacy Rating 33. This project efficacy is rated Substantial. The power plant was constructed at below estimated costs and above estimated capacity. Five of the six PDO indicators have been overachieved and one partially achieved. However, there remains uncertainty regarding the power plants utilization as this Page 13 of 45 The World Bank EG - Helwan South Power Project (P117407) would be dependent on the longer term plant dispatch in view the country’s evolving planned generation mix (Annex 4). C. EFFICIENCY Assessment of Efficiency and Rating 34. The efficiency is rated High. As is discussed below, the benefits exceed the costs and the Economic Rate of Return (ERR) is greater than the opportunity cost of capital in Egypt. 35. At project appraisal, the economic efficiency of the plant was derived by comparing its economic costs to its estimated benefits. At appraisal, the Helwan South Power Plant was also ranked as part of the country’s least generation cost expansion plan. 36. At project appraisal, the project benefits were taken to be the willingness of consumers to pay for electricity. The consumer’s willingness to pay was estimated based on a demand curve for electricity in Egypt derived from past consumption and prices. It produced a series of values for the consumer’s willingness to pay that started low and rose steadily over time, reaching fairly high levels. This set of values for the willingness to pay was used for the first calculation of the ERR for the project. 37. Two other measures of willingness to pay were also used as in other two similar projects in Egypt. The second estimate of willingness to pay is based on the approach taken in the Ain Sokhna project where the willingness to pay is taken to be the cost of diesel generation. It was assumed that the alternative to power from large power plants, such as Ain Sokhna (or Helwan South), was generation from diesel generators, and consumers would not pay more than this. The cost of diesel generation was then obtained from EEHC, based on the performance of their diesel plants. The third approach is used in the Giza North Power Plant Project. Here, the willingness of consumers to pay is also based on a demand function which produces a series of values, which start low and rise sharply overtime but is lower than the willingness to pay estimates for the Helwan South Project. 38. Since all these measures of willingness to pay are at the final consumer level, distribution and transmission costs and losses have to be subtracted from them to get the value of the electricity at the power plant. The information on distribution and transmission costs and losses was obtained from the EEHC and its subsidiary, the Egyptian Electric Transmission Company (EETC). 39. In calculating the economic rates of return (ERRs), the actual capital cost of the Helwan South Power Plant was used, which was about 72 percent of the estimated cost at project appraisal. Also, the cost of the two gas pipelines (the connector line to the plant and the WDGC line) were included. The appraisal had included the costs of two gas pipelines, the connector line and a debottlenecking line, so the ERRs at appraisal and at ICR stage are comparable. 40. A second set of cases was run adding to the above plant costs, notably the cost of the transmission line and substation needed for evacuating power from the plant. This was done since the transmission infrastructure is an associated facility even though not financed from the project loan proceeds4. 4 The PAD on page 17 notes that the Ain Sokhna Loan would finance the required transmission facilities for the project but does Page 14 of 45 The World Bank EG - Helwan South Power Project (P117407) 41. The power plant generation (energy produced) is assumed to start at a fairly low level (40 percent5 capacity utilization) and then rise slowly over time. Natural gas costs were assumed to remain at US$ 3.00/MMBTU. 42. With this information and including the estimated operating costs, the ERR was calculated for the project using the three alternative estimates of the willingness to pay and in the base case excluding the transmission investments. This was done to be consistent with the appraisal methodology. Using the estimate of the willingness to pay used at appraisal, the ERR is 26.0 percent compared to 20.2 percent at appraisal. Using the cost of diesel-generated power adjusted for inflation as a measure of willingness to pay, the ERR is 32.7 percent. Using the estimates of the willingness to pay that were used for the Giza North Power Plant, the ERR is 15.0 percent. These three ERR estimates all exceed the assumed opportunity cost of capital (OCC) in Egypt, which is 10 percent, and therefore show that the efficiency of this project is substantial. 43. The primary reason that the appraisal estimate ERR (20.2 percent) is lower than the ICR estimate (26.0 percent) is that the Helwan South Power Plant’s actual cost was substantially less than the appraisal estimated cost. This in turn was due to several factors, including a drop in global power equipment costs, competitive bidding and local currency devaluations. 44. A second case was running including transmission investments. In this case all the ERRs given above decreased slightly. (For example, the ERR drops from 26.0 percent to 25.5 percent.) However, all three scenario ERRs remain above the assumed opportunity cost of capital of 10 percent. (Details are included in Annex 5). 45. The Helwan South Power Plant was part of the least cost generation expansion, and its technical design took into account several considerations: (i) dual fuel to hedge against natural gas supply constraints (Annex 4); (ii) lower cost maintenance; (iii) lower derating during the peak summer temperatures; and (iv) system stability due to the plant’s ability to serve both base load and intermediate load and thus increased power supply reliability. Though the dual fuel design reduced its efficiency compared to a CCGT power plant, and increased the cost of construction, the Helwan South power plant offers several advantages with regard to security and reliability of electricity supply. 46. The project was efficiently implemented within the project timeframe, with no cost overruns. Further, advance procurement saved about one year and half of the implementation period compared to normal procurement process that commence after project effectiveness. TABLE 1 Efficiency of Project (excluding transmission investments) Measure of Willingness to Pay Used ERR NPV (10%) US$ mil. From Helwan South PAD 26.0% 7,435 Based on Cost of Diesel Generation 32.7% 5,361 From Giza North PAD 15.0% 1,104 not include them in the cost of the project. 5 40% is the estimated utilization rate in 2020. In 2019 it is 25% as the plant is just starting up. Page 15 of 45 The World Bank EG - Helwan South Power Project (P117407) D. JUSTIFICATION OF OVERALL OUTCOME RATING 47. The overall outcome rating is Satisfactory based on the Substantial ratings for relevance and efficacy; and High rating for efficiency. The project remains relevant for the sector as highlighted in the Egypt INES35 albeit the sector evolving context (Annex 4). It remains relevant to the Bank CPF for 2015- 2019, which was still in effect on the day the project closed and the follow-on PLR. The power plant was constructed at below estimated costs and above estimated capacity. Five of the six objective/outcome indicators were clearly met with one indicator partially achieved at project closure. The ERR for the project, using the same willingness to pay estimates as at appraisal is 26.0 percent- substantially above the OCC of 10 percent. Also, the other two measures of willingness to pay produced ERRs above 10 percent. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Poverty Reduction and Shared Prosperity 48. All electricity consumers in Egypt benefit from the project. The increased supply of electricity assists everyone across the income distribution. In addition to households, productive enterprises businesses benefit by having a more reliable electricity supply, which is catalytic for increased productivity and job creation. Specifically, the project provided job opportunities to Egyptian nationals equivalent to about 110,000 man-months over the period November 2014 to March 20196. Furthermore, there is also a human capital development impact as schools and health facilities benefit from improved electricity services, which contribute to improved quality of services delivery. Gender 49. This project benefits both men and women. However, women and children spend more time at home and make decisions on electricity consumptions during their daily routines. They are the ones that do most of the household work including cooking, washing, ironing, and a reliable source of electricity is very important for them. While men (and women) also need it at work, there are often back up diesel generators there, so that electricity shortages have less of an immediate impact. Mobilizing Private Sector Financing 50. Mobilizing private sector financing is not a direct objective of this project. Nevertheless, some of the technical assistance and advisory services which were complimentary to the project but financed separately involved encouraging and facilitating private investment. The longer-term energy strategy in Egypt has always been to encourage private firms to provide more electricity especially in the area of renewables. 6 Source: Helwan South Power Project Progress Report No. 82; March 2019. Page 16 of 45 The World Bank EG - Helwan South Power Project (P117407) Other Unintended Outcomes and Impacts- There are no other known unintended outcomes. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 51. The project was prepared in FY 2012-13 when Egypt was undergoing a major political, economic, and social transition which had a positive impact on project preparation. Egypt’s economic growth had slowed significantly following a period of economic and political transition post the 2011 revolution. In this regard, there was strong Government commitment to address issues, among which was lack of reliable electricity supply, feeding into citizen dissatisfaction on the one hand and further affecting economic growth on the other. 52. The project design was straight forward drawing on other projects and technical advisory work, simple and realistic which increased its chances of success. • The PDO was simple “to increase power generation capacity in an efficient manner within the Borrower’s Territory”. The PDO was clear and achievable”. • The project design was quite straightforward but also drew on other projects and technical advisory work. The goal was to build the dual fuel supercritical power plant at the Helwan South site and to provide a gas pipeline to supply natural gas to it. In addition, there was another gas pipeline to strengthen the grid to ensure long term gas supply and thus the efficiency of the plant operations. Electricity transmission investments needed for the plant were associated facilities financed through the Bank financed Ain Sokhna project. In addition, the project also took advantage of the many studies and technical advisory services being funded from other Bank Projects and by other donors. • The Results Framework and initial project outcome indicators were simple, reasonable, and likely to be achieved by the project. The initial indicators were: 1) Generation Capacity constructed under the project, target 1950 MW, 2) annual net electricity generation, target 13,447 GWh, 3) minimum thermal energy efficiency, target 40 percent, 4) Direct project beneficiaries, target 7,391,000 persons, 5) percent female beneficiaries, target 49%. All of these indicators were clear. • Monitoring of the project was done through the outcome indicators mentioned above and intermediate outcome indicators. The intermediate outcome indicators were procurement progress and construction progress for the plant and gas pipelines, actual versus estimated costs and financial ratios (current ratio, debt service coverage ratio) for both EEHC and EGAS. Procurement and construction progress were important in assessing progress implementation process. The financial ratios were less useful because they were available only once a year when the annual reports were prepared. Also, they were related to the financial health of the companies which was not part of the PDO, though addressing the ability of the companies to implement the project. • A reasonable assessment of risks was undertaken. The financial ability of EEHC to carry out Page 17 of 45 The World Bank EG - Helwan South Power Project (P117407) the project was of concern as noted at appraisal. An initial plan was in place to steadily increase tariffs and in addition, given the importance of electricity for Egypt’s economy it was noted that the Government was likely to provide budget support to the sector and to the project even under adverse fiscal conditions. Social and Environmental risks were rated as High and this area was to be closely monitored during project implementation. The risk of the capacity of EEHC to undertake this project was rated Substantial as was the risk of having insufficient natural gas supplies. The latter was mitigated by the fact that the plant could also utilize HFO. None of these risks adversely impacted the project implementation. B. KEY FACTORS DURING IMPLEMENTATION 53. Power Plant Construction. Advance procurement activities enabled signing of the major contract (under component 1- the boiler package) shortly after the loan effectiveness. The Loan was declared effective on April 30, 2014, and the contract for the major package (the boilers) was awarded on November 3, 2014 following the Invitation for Bids issued on March 28, 20137. Advance procurement saved about a year and half of project implementation time post effectiveness compared to the time it would have taken if the bidding process was to be initiated after the loan effectiveness. Once the contract was awarded, construction went relatively smoothly, and the plant construction was completed within the original project closing date. Major achievements were: 1) considerable construction cost savings compared with the estimate of costs at appraisal, 2) no major contract disputes and 3) prudent project management by UEEPC of seventeen separate contracts with different financing agencies which enabled the construction of the plant to proceed smoothly without major mismatches between the various contract packages. However, due to the different contract packages, the components financed by the loan proceeds could not be tested independently leading to delays in the issuance of the final takeover certificates, post the project closing date8 albeit the works having been completed before the project closing date. 54. Power shortages in 2014. As detailed in Annex 4, Egypt started experiencing electricity supply shortages in 2011 which reached its peak in summer of 2014, with rolling blackouts across the country and frequent electricity supply interruptions. The power supply potentially fed into citizen dissatisfaction on the one hand and further affected economic growth on the other. To address the challenges, the government fast tracked construction of additional generation capacity that increased the installed capacity from about 25.0GW in 2010 to about 55GW in 2018 leading to a reserve margin of over 25MW compared to a peak load of 30.8GW in 2018. This could impact the expected annual generation plant output/utilization as the new power plants are of lower merit dispatch (combined cycle gas turbine). Though considered low, this remains a risk as highlighted in Paragraph 75. 55. New Gas in the Mediterranean Sea led to a change in the national gas strategy and thus the change in the original scope of Component 2. The original design took into consideration the reduced gas domestic gas supply. The gas sector which was prior to 2011 considered as a source of Egypt’s richness, found itself in a financially unstainable situation while being unable to meet the domestic demand. Thus following the new gas discoveries in 2015/16, the gas pipeline component was revised to adapt to the changing gas infrastructure expansion plan (Refer to Paragraphs 17-19).This had an impact on the component implementation (Paragraph 29) with the expected results being partially achieved by the 7 It also worth noting the long procurement period of about 20 months. 8 The last takeover certificate was issued October 2019. Page 18 of 45 The World Bank EG - Helwan South Power Project (P117407) project close. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 56. M&E design was straight forward. The initial M&E included five PDO outcome indicators: 1) “generation capacity of conventional generation constructed under the project”- target 1950 MW, 2) “Annual net Electricity Generation”-target 13,447 GWh , 3) “Minimum Thermal Conversion Efficiency”- target 40 percent, 4) “Direct Project Beneficiaries”- target 7,391,000 persons and 5) percent of beneficiaries which were female- target 49 percent. A sixth outcome indicator, kilometers of gas pipeline constructed -target 71.2 Km, was added when the project was restructured. 57. There were nine intermediate indicators: (a) “ procurement progress ( power plant) (Bank financed packages) “ (b) “ construction progress ( power plant)”, (c) “ actual cost versus cost estimates” d) “EEHC’s current ratio”, e) “EEHC’s debt service coverage ratio ( DSCR)”, f) procurement progress (gas pipelines)”, g) “construction progress (gas pipelines)”, h) “EGAS’ current ratio”, i) EGAS’ DSCR. Five of these intermediate indicators (those having to do with procurement progress, construction progress and power plant costs) were aligned with the PDO-level indicators and allowed monitoring progress toward reaching the PDOs. 58. Targets were assigned to each of the PDO indicators and the intermediate-level indicators by year. The first two intermediate indicators for the power plant and the gas pipelines, Bank financed procurement and construction progress, were followed closely and could be monitored easily. The fifth intermediate indicator, actual costs versus estimates, could also be monitored. The four financial ratios, the current ratio and debt service coverage ratio for EEHC and EGAS, could be accurately determined only yearly with, when the audited financial statements were available. These indicators were not tied closely to the PDO though they were useful for monitoring the financial health of these companies. 59. There was no indicator related to the transmission line and associated substation though this was an associated facility necessary to evacuate the power from the power plant. Though this was not financed by Helwan South loan proceeds, it would have been useful to track them since they were as important as the power plant in terms of getting power to the market, especially noting the need to avoid mismatches during the implementation. M&E Implementation 60. M&E implementation proceeded relatively smoothly. Implementation Status Reports (ISRs) Page 19 of 45 The World Bank EG - Helwan South Power Project (P117407) were prepared twice a year and provided the status of the various indicators as well as comments on other aspects of the project. Usually, these ISRs were accompanied by Aide Memoires with more detailed information. A midterm review was also conducted during the last quarter of 2017 which noted that (i) the project remains relevant due to the need for increased generation capacity to meet present and future electricity demand in Egypt and (ii) implementation progress was satisfactory and there were no major implementation challenges noted. 61. The task team leadership was changed only twice over the project duration of six years. In addition, several specialists (environmental, social, financial management, and procurement) were based in the field (Cairo Office) supported the task team and were able to routinely follow-up on the project implementation issues. M&E Utilization 62. The information obtained from M&E was reported regularly to project management in Implementation Status and Results Reports (ISRs), Aide Memoires, and emails. It was used to discuss the progress of the power project with the EEHC, UEEPC, and GASCO. When the M&E information showed that the project was falling behind schedule (as it was during the first two years of implementation), the ratings on the project were downgraded and an action plan agreed. When the M&E information and discussions with UEEPC showed that implementation was accelerating, the ratings on the project were reviewed and it was again rated satisfactory starting in mid-2017. Justification of Overall Rating of Quality of M&E 63. The overall rating of the quality of M&E is Substantial. The indicators were adequate to track progress of the project. ISRs were issued regularly using these indicators and necessary actions were taken when the ISRs and indicators indicated there were issues that needed to be resolved. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 64. Environmental, social, and fiduciary compliance were generally Satisfactory over the course of this Category A Project. The project triggered the two safeguard policies—OP 4.01 - Environmental Assessment and OP 4.12 - Involuntary Resettlement. An Environmental and Social Impact Assessment (ESIA) as well as a Resettlement Policy Framework (RPF) were prepared and disclosed before the project Board approval for both the power plants and the gas pipelines. An ESIA and RAP were prepared for the new pipeline construction (Raven-WDGC) as part of the project restructuring in 2016. In addition, a Resettlement action Plan (RAP) for the Raven-WDGC pipeline has been prepared and disclosed in November 2019 prior to the commencement of the pipeline construction. 65. Environment The main environmental and social issues that arose over the course of the project are discussed below. Land Acquisition Page 20 of 45 The World Bank EG - Helwan South Power Project (P117407) • Land for Power Plant. The 90 feddan plot of land (about 38 hectares or 93 acres) needed to build the power plant was state owned desert land. The land was transferred to UEEPC in February 2010 under Presidential Decree 43. The site had about 24 feddans of land that were utilized by 8 families with no title to the land. For the 24 feddan, UEEPC compensated the users for any structures and crops based on the market price. In addition, it was agreed that the families would be offered two jobs per feddan of land taken from them. The job offer agreements were signed between the families and UEEPC. An additional 15 feddan of land between the plant and the Nile River was required to build: 1) the water intake structure, 2) the water line to the power plant, 3) the water discharge line, and 4) the discharge structure to the Nile river. These 15 feddans were purchased through negotiated settlements between the land owners and UEEPC at a price of EGP 400,000 per feddan. This price was higher than the prevailing market price at the time when the land sale contract was signed. In addition, UEEPC agreed to offer 6 jobs per feddan to the land owners as part of the sale agreement. Thus, the final negotiated price, which the land owners accepted, was 400,000 EGP and 6 jobs per feddan9.” Later during the construction phase (November 2015), UEEPC purchased an additional 15 feddans, through negotiated settlement arrangements, between the intake and discharge structures. UEEPC indicated that there was no operational need for the land, but they preferred to obtain this land for security purposes. The agreed price was UEEPC offered EGP 650,000 per feddan without any offer for jobs. During the project implementation, there were delays in the offering of jobs mostly because some of the respective families did not have applicants who met the jobs’ eligibility criteria. Subsequently, an agreement was reached between UEEPC and the families to adjust the job eligibility criteria, so that more distant relations of the families would be eligible to apply. In addition, the families were offered the option to either receive additional cash compensation in lieu of owed jobs or put jobs “on hold” until they had eligible candidates (e.g. children finishing school). By project close, UEEPC had offered a total of 163 jobs: (i) 90 jobs to land owning families of which 86 family members have been employed and 4 are pending availability of eligible candidates; and (ii) 73 jobs to qualified members of non-land-owning families, of these 73 jobs, 63 have been filled and 10 are pending availability of eligible candidates. There are no outstanding issues with respect to land acquisition for the power plant. • Land for gas pipelines Connector line. The 1.2 km connector line to the power plant is located in an empty unoccupied desert area, and no private land was needed for its construction. The associated pressure reduction station is located within the boundaries of the power plant. Therefore, there was no need to prepare a RAP under OP 4.12. This gas pipe line is completed and functioning. The Raven-WDGC gas line. The pipeline transverses through agricultural land, wood land and 9A RAP was not required according to the Resettlement Policy Framework (p.9) if the land was being bought on a “willing seller willing buyer basis”. Page 21 of 45 The World Bank EG - Helwan South Power Project (P117407) river sections with fishing activity. The pipeline will result in temporary economic displacement during construction, but minimal post construction as the pipeline will be underground. An ESIA was prepared in 2016 as part of the project restructuring and the RAP was completed in October 2019 post project closure. Land owners will be compensated for affected assets, mainly the crops and trees, at replacement cost in accordance with OP 4.12 and GASCO policies. The pipeline construction is to be undertaken by GASCO. The Bank team will continue to conduct regular supervision until the Final Evaluation and Impact Report prepared by the external consultant, is completed to the Bank’s satisfaction. The WDGC pipeline has several upstream and downstream facilities that are considered associated with the pipeline construction. The downstream associated facilities are the Western Desert Gas Complex and Amreya LPG Plant, both of which have been in operation for several years. GASCO commissioned a due diligence audit for both facilities conducted by an independent consulting firm, considered to be adequately competent by the Bank. The audit reports concluded that the facilities were in compliance with the national environmental legislation; were certified to ISO 14001, ISO 9001 and OSHAS 18001 standards; and no major risks were identified with their operations. As for the upstream Raven Gas Field, the Raven onshore gas facilities and the underwater pipelines (connecting Raven field with onshore facilities), these associated facilities are currently under development. All have ESIAs that were reviewed and approved by the Egyptian Environmental Affairs Agency (EEAA). Construction. The overall environmental safeguards performance during construction was Satisfactory. The various environmental parameters were monitored against the Environmental and Social Management Plan (ESMP) requirements. These parameters included air emissions, Nile river surface water, ambient air emissions, noise levels, solid and hazardous wastes and occupational/community health and safety. The Project Management Unit, with support from the Owner Engineer, submitted regular monitoring reports which included the monitoring of environmental parameters, which all complied with the ESMP requirements. Key concerns raised during construction by the Bank supervision teams were: 1) management of hazardous wastes and 2) occupational health and safety. These concerns were gradually addressed as the project implementation progressed and there no non-compliances by the project closing date. All environmental aspects related to the construction of the interconnector gas pipeline were regularly monitored and no cases of non-compliance were noted. Incidents during construction. The project, including all components, did not have any serious or severe incidents (e.g. fatalities) during construction. Operations. The following are the main environmental aspects and the proposed mitigation measures during operations. • Air Emissions. Except during gas supply shortages, which are not anticipated to be regular given the recent gas discoveries in Egypt, the power plant will run on natural gas. The controlled emissions of any significance with natural gas are NOx. The main emissions are CO2 and water vapor which are not controlled. There should be little or no SOx (sulfur oxide) emissions as the gas is clean. The plant meets the Egyptian and International Emissions Standards for NOx Page 22 of 45 The World Bank EG - Helwan South Power Project (P117407) emissions. If for some reason, the plant is run using HFO, which contains more sulfur, there are flue gas desulfurization units to remove the SOx from the emissions. The air quality will also be regularly monitored. Initial results during the commissioning phase indicate compliance with the determined air emission levels in the ESMP. The plant air quality monitoring system will be connected to the Egyptian Environmental Affairs Agency (EEAA) air quality monitoring network. In case of exceedance of limits, the EEAA would notify the Power Plant operators (UEEPC)to take the necessary corrective actions. • Water Supply and Discharge. Water for the power plant cooling system is taken from the Nile River and returned to the river thereafter. Intake of water from the Nile is around 82,000 cubic meter per hour of which about 0.7% is consumed and the other 99.3% is returned to the Nile river. The returned water is required to be no more than 3 degrees centigrade warmer than the river water. Both the water intake and discharge are continuously monitored. Tests during the plant commissioning showed full compliance with this requirement. • Solid and hazardous wastes. The Power Plant operation will result in generation of solid and hazardous wastes (e.g. empty chemical containers). The power plant management has a contract with a solid and hazardous wastes disposal contractor who will dispose of this waste. The contractor is licensed by EEAA. • Liquid wastes. All liquid wastes will be treated by the wastewater treatment facility within the power plant. 66. Financial Management. Financial Management was on average rated Satisfactory throughout the project implementation duration. An independent auditor audited the project accounts, as required in the Loan Agreement. No significant problems emerged, although some of the audits were late. 67. Procurement. Procurement for the power plant was on average rated Satisfactory throughout the project implementation period. The cost of the plant was significantly less than appraisal cost estimates. This is partly attributed to several factors among which are: (a) the Egyptian pound and to a lesser extent other relevant currency were devalued relative to the U.S. dollar; and (b) the open international competitive procurement process attracted international qualified firms and resulted in very competitive prices. C. BANK PERFORMANCE Quality at Entry 68. The quality of the project at entry is rated Satisfactory. As mentioned above, it would have been better to include the monitoring indicators regarding the transmission and substation associated facilities. However, this did not impinge the project implementation, and there was no mismatch regarding the completion of the facilities. Advance procurement led into time savings regarding the procurement of the largest component (the boiler package). In addition, international open competitive Page 23 of 45 The World Bank EG - Helwan South Power Project (P117407) bidding process resulted into significant savings of about 30 percent compared to the appraisal cost estimates. 69. The project was consistent with the Interim Strategy Note (ISN) at the time and the CPF that followed. The project design was simple and robust. Project effectiveness conditions were kept to a minimum in addition to advance procurements which highlight the project readiness by Board approval. No environmental safeguards were waived. The M&E design was also simple and robust. The risk assessment correctly identified the major risks including the highest risk which was the social and to a lesser extent environmental risk. The project preparation was somewhat sanguine about the job offerings. While there seems to have been goodwill due to the prospect of job creation aspects, there were several complexities involved as highlighted above with regard to the eligibility criteria. Quality of Supervision 70. The quality of the World Bank supervision is rated Moderately Satisfactory. World Bank supervision and implementation support of the project was regular. Emerging issues were identified, and corrective actions taken in due time. This was in part enabled by the continuity of the task team leadership and having field-based staff on the task team (social, environment, financial management, procurement and technical specialists). However, the Supervision seem to have underrated the implementation challenges following the project restructuring, especially with regard to the Raven- WDGC gas pipeline as the construction works were to be undertaken by the Borrower (GASCO) leading to significant delays in preparation of the RAP and the construction not completed by the project close thus necessitating continued Bank team supervision post project close. 71. ISRs were issued regularly and Aide Memoires written. A mid-term review was done. The project closed on time and there were no extensions of the term of the loan. 72. There were no major environmental or social issues as the power plant met Egyptian Environmental Standards and most of the land on which construction took place was Government owned. The farmers and non-land owners were adequately compensated on a negotiated settlement basis with substantial payments for the land and in addition jobs were provided to members of the families. Page 24 of 45 The World Bank EG - Helwan South Power Project (P117407) Justification of Overall Rating of Bank Performance 73. The overall rating of Bank Performance is Moderately Satisfactory. Though the rating for quality at entry is Satisfactory, the overall rating is considered Moderately satisfactory noting the delays related to Component 2 as a result of some oversights at the project restructuring and agreeing to have GASCO be responsible for the Raven-WDGC Gas pipeline construction (Paragraph 19). D. RISK TO DEVELOPMENT OUTCOME 74. The risks to the development outcomes are Modest but not nonexistent. The first risk, which applies to the sector in general, is that electricity tariffs are not cost reflective, and the inability for the power plant to generate enough revenues for fuel purchase, labor, maintenance and major plant repairs. If this were to happen, the plant’s performance would deteriorate over time, and it would become unreliable and prone to breakdowns. Government has committed to keeping tariffs high to at least cover the operating costs and it has raised tariffs overtime. 75. A second risk is that the Helwan South supercritical steam plant may not be fully dispatched because of (i) the new CCGT power plants recently commissioned are more energy efficient with lower operating costs and thus could take precedence in power plant merit order dispatch; and (ii) increased uptake of renewable energy especially given the country’s extensive wind and solar resources. This should, however, not be a major problem since the central dispatch center does not dispatch purely on a merit order basis but takes other factors into consideration such as transmission congestion and grid stability. Further, the power plant’s ability to operate on dual fuel offers increased generation supply reliability and security in addition to grid stability in view of the increased variable RE (Annex 4). V. LESSONS AND RECOMMENDATIONS 76. The environment in terms of gas availability due to gas discoveries changed, and flexibility was needed to adopt to these changing circumstances. Bank teams need to be flexible and make use of project restructuring to quickly enable the use of available funds to adopt to a changing environment without impacting the overall project development objective. One of the key considerations at project preparation was the need to ensure reliability of natural gas supply. Initially, there was a long connector line feeding gas to the plant and a debottlenecking line with both lines totaling 158 km in length. Following huge gas discoveries in 2015, the country had to review the national gas pipeline infrastructure development, which resulted in project restructuring in 2016, with the interconnector reduced to 1.2 km and a 70 km line connecting the new gas fields to the processing facilities at the WDGC. 77. Optimized design considerations lead to enhanced project efficiency. The key lesson and recommendation is that designs should be optimized; not only seek to optimize economic efficiency and lower running costs but should also include other operation factors, which - when holistically assessed - provide more economic efficiency and financial savings: reduced power plant downtime in case of natural gas interruptions, system wide blackouts due to network instability as result of weak load following, among others. The power plant was designed to utilize dual fuel, both natural gas and HFO. This partially reduced the overall plant efficiency compared to CCGT power plant. However, the Page 25 of 45 The World Bank EG - Helwan South Power Project (P117407) design did take into cognizance of other key operational aspects: (i) dual fuel to hedge against natural gas supply constraints at the time of the project preparation; (ii) lower cost maintenance; (iii) lower derating during the peak summer temperatures; and (iv) system stability due to the plant’s ability to serve both base load and intermediate load. 78. Power plant actual cost was about 40 percent lower than the appraisal cost estimates. An emerging country lesson is that cost estimates based on the government’s past similar contracts could lead to high cost estimates, and thus project cost estimates should not only be benchmarked on country/sector historical data but also on global market prices. This was also noted in other World Bank financed projects of Ain Sokhna Power Project (P100047), the Wind Power Development Project (P113416) and the Giza North Power Project (P116194). Though, the cost savings could be partially attributed to a sharp decline in equipment costs due to the global recession, open international competitive bidding led to substantial cost savings as opposed to the country’s hitherto use of limited competitive bidding process (preferred bidders) approach. 79. Effective and continuous project management was instrumental to ensure sound supervision of the power plant’s several contract packages (seventeen), which were financed by different lenders. It is recommended to have in place an experienced Owner’s Engineer who can help to ensure effective project management and coordination to avoid major mismatches between the various contracts. Further, the continuity of the task team leadership (with only two TTLs) and having field-based staff on the task team (social, environment, financial management, procurement and technical specialists) ensured effectiveness on project implementation support. 80. Including incentives in the project impact mitigation measures to address key concerns potentially enhances the project affected communities’ buy-in as the incentives ensure that they directly benefit from the project. A key and unique aspect learned from this project is the safeguards approach of the “willing-buyer/willing-seller” regarding the power plant site land acquisition, which included job offerings to the affected households. This greatly enhanced the relationship between the project and effected households and the surrounding communities. The project consultations, noted among others, that unemployment was a major concern for the project affected communities as noted in the PAD: “Interviews with the farmers confirmed that unemployment is a major concern therefore power was viewed as a good source of potential employment, especially for sons and this has influenced their decision to sell the land”. 81. The project benefited from parallel technical assistance to provide upstream policy advice to enhance the sustainability of the power sector and this project. This approach is recommended as sector-wide policy support is more impactful in enhancing specific project sustainability . Priority areas that were addressed in the sector were: (a) advancing energy pricing and fuel subsidies reform as well as reforming social safety nets; (b) attracting private investment; (c) strengthening sector governance, transparency, and accountability; and (d) advancing energy efficiency and renewable energy. This sector- wide support enabled sector wide reforms that greatly contributes to the project sustainability, among which are: (i) energy subsidy reforms that have led to increase in electricity tariffs and thus increased revenues required for the power plant operations; and (ii) integrated system planning including renewable energy integration that enhances the power plant’s role in providing base load and grid stability. These key aspects could not have been achieved if they were project specific, given the time it took; and some of the key decisions were beyond the reach of the project, such as presidential decrees Page 26 of 45 The World Bank EG - Helwan South Power Project (P117407) on tariff reforms and adoption of the ISES2035. . Page 27 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Increase power generation capacity in an efficient manner within the Borrower’s territory Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Generation Capacity of Megawatt 0.00 1950.00 2010.00 Conventional Generation constructed under the 27-Jun-2013 10-Jun-2019 10-Jun-2019 project Comments (achievements against targets): Target achieved. The plant commissioned capacity is 3 percent higher than target capacity. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Gas Pipelines Kilometers 0.00 158.00 71.20 1.20 Page 28 of 45 The World Bank EG - Helwan South Power Project (P117407) 27-Jun-2013 10-Jun-2019 10-Jun-2016 10-Jun-2019 Comments (achievements against targets): Following new gas discoveries, the longer pipelines were no longer required. The project was restructured in 2016, with the interconnector to feed the power plant reduced from 93km to 1.2km, whereas the one for gas grid reinforcement was changed to 70km from the earlier planned 63km. Target partially achieved. The construction of the 1.2km interconnector was completed before project close in addition to the supply of the materials for the 70km gas pipeline whose construction is the responsibility of GASCO with their funds. Construction of 70km pipeline is expected to be completed by mid-2020. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Annual net electricity Gigawatt-hour 0.00 13447.00 13860.00 generation (GWh) 27-Jun-2013 10-Jun-2019 30-Nov-2018 Comments (achievements against targets): Target achieved. Expected annual generation is about 3 percent higher than the target value. Page 29 of 45 The World Bank EG - Helwan South Power Project (P117407) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Thermal energy conversion Percentage 0.00 40.00 42.00 efficiency 31-Dec-2013 10-Jun-2019 10-Jun-2019 Comments (achievements against targets): Target achieved. The plant thermal efficiency as per the commissioning test results is about 5 percent higher than the target value. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0.00 7391000.00 7676000.00 27-Jun-2013 10-Jun-2019 10-Jun-2019 Female beneficiaries Percentage 0.00 49.00 49.00 17-May-2018 Comments (achievements against targets): Target achieved. The higher actual value is the adjusted number taking into account population growth, Page 30 of 45 The World Bank EG - Helwan South Power Project (P117407) A.2 Intermediate Results Indicators Component: The Helwan South Power Plant Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Construction Progress Percentage 0.00 100.00 100.00 27-Jun-2013 10-Jun-2019 31-Oct-2019 Comments (achievements against targets): Though the power plant construction was completed before the project closing date, the later date of reflects the date of the issuance of the takeover certificates. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Actual cost vs Cost Estimates Text 0 0 0 (overruns if >100%) 31-Dec-2013 10-Jun-2019 10-Jun-2019 Comments (achievements against targets): Target achieved as there were no cost overruns. For the Bank financed activities, the actual cost was US$394.0 million compared to the appraisal estimate of US$503.80 million. Page 31 of 45 The World Bank EG - Helwan South Power Project (P117407) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion EEHC's current ratio Text 0.5 0.5 0.5 27-Jun-2013 10-Jun-2019 10-Jun-2019 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion EEHC's DSCR Text 1.1 1.1 1.1 27-Jun-2013 10-Jun-2019 10-Jun-2019 Comments (achievements against targets): Component: Gas Pipelines Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Procurement progress (Bank Percentage 0.00 100.00 100.00 financed packages) 27-Jun-2013 10-Jun-2019 10-Jun-2019 Page 32 of 45 The World Bank EG - Helwan South Power Project (P117407) Comments (achievements against targets): All Bank financed procurements' were completed by the project close. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion EGAS's current ratio Text 1.0 1.0 1.0 27-Jun-2013 10-Jun-2019 10-Jun-2019 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion EGAS's DSCR Text 1.3 1.3 1.3 27-Jun-2013 10-Jun-2019 10-Jun-2019 Comments (achievements against targets): Page 33 of 45 The World Bank EG - Helwan South Power Project (P117407) B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1 “Increase Power Generation Capacity” 1. Generation Capacity Constructed under the project, target 1950 MW 2. Annual Net Electricity Generation, Target 13,447 GWh/year Outcome Indicators 3. Direct Project Beneficiaries of Generation, Target 7,391,000 4. Percent of Beneficiaries that are female, Target 49% 5. Kilometers of Gas Pipelines Constructed, Target 71.2 km. 1. Plant Procurement Progress 2. Plant Construction Progress 3. Actual cost vs Estimate 4. EEHC’s current ratio Intermediate Results Indicators 5. EEHC’s DSCR 6. Procurement Progress Gas Pipelines 7. Construction Progress Gas Pipelines 8. EGAS current ratio 9. EGAS DSCR 1. Capacity of 2100 MW added to system 2. Generation of 13,860 GWh or more Key Outputs by Component 3.7,676,00 Beneficiaries (linked to the achievement of the Objective/Outcome 1) 4.49 percent female beneficiaries 5.1.2 Km gas pipelines built, 70 km materials supplied Objective/Outcome 2 “Efficient Generation” 1. Minimum Thermal Energy Efficiency of Power Plant is 40 percent Outcome Indicators Page 34 of 45 The World Bank EG - Helwan South Power Project (P117407) None Intermediate Results Indicators Key Outputs by Component 1. Average Thermal Efficiency of Plant is 42 percent. (linked to the achievement of the Objective/Outcome 2) Page 35 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Waleed Saleh I. Alsuraih Task Team Leader(s) Luis R. Prada Villalobos Procurement Specialist(s) Mohamed Yahia Ahmed Said Abd El Karim Financial Management Specialist Knut Opsal Social Specialist Nina Bhatt Social Specialist Zia Al Jalaly Social Specialist Sanjay Srivastava Social Specialist Africa Eshogba Olojoba Social Specialist Supervision/ICR Paul Baringanire Task Team Leader(s) Luis R. Prada Villalobos Procurement Specialist(s) Wael Ahmed Elshabrawy Financial Management Specialist Syed I. Ahmed Counsel Chaogang Wang Social Specialist Mark M. Njore Team Member Elisabeth Maier Team Member Ehab Mohamed Mohamed Shaalan Environmental Specialist Hebatallah Mohamed Mady Abdelz Aboelleil Team Member Saba Nabeel M Gheshan Counsel Marwa Mostafa Mohamed Mohamed Khalil Team Member Page 36 of 45 The World Bank EG - Helwan South Power Project (P117407) B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY11 30.268 210,150.31 FY12 41.488 294,161.70 FY13 57.375 403,775.18 FY14 2.287 63,290.62 Total 131.42 971,377.81 Supervision/ICR FY14 23.006 155,300.60 FY15 15.849 129,246.97 FY16 32.135 173,802.13 FY17 21.767 116,352.86 FY18 14.922 99,091.23 FY19 20.981 144,283.59 FY20 11.659 91,279.97 Total 140.32 909,357.35 Page 37 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Components Percentage of Approval (US$M) Closing (US$M) The Helwan South Power 2168.9 1294.44 60.0 Plant Gas Pipelines 235.5 25.93 11.0 Total 2404.4 1321.3710 55.0 10 The reasons for the difference of actual project cost compared to estimated amounts at approval are related several factors: (i) drop in global power equipment costs, (ii) competitive bidding and (iii) local currency devaluations. The Borrower contribution was parallel financing and a detailed breakdown on cost and savings of Borrower’s finance contracts was not available. Page 38 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 4. Egypt Natural Gas and Generation Mix Sector Context 1. Egypt natural gas production started declining in the period 2009/11 and became a net importer of natural gas in 2014/15 as a result of growing domestic demand and declining production levels (Figure A1). To satisfy growing Figure A1. Egyptian Gas Production vs Demand domestic demand, Egypt has had to divert its natural gas supply away from exports to the domestic market and to rely on liquefied natural gas (LNG) imports to address the shortfall in consumption. Egypt acquired two floating storage and re-gasification units (FSRUs) in 2015. Total natural gas reserves are expected to significantly increase within the next few years because of the recent natural gas discoveries. The Egyptian government has fast-tracked the development of the Zohr and Atoll fields and the West Nile Delta (WND) project. These fields are expected to make substantial additions to overall supply. Discovered in August 2015 and labeled as the largest offshore natural gas field in the Mediterranean, the Zohr gas field has an estimated reserve of 30 Tcf. Natural gas production began in 2017, and peak plateau production is estimated to be 2.7 Bcf/d and is expected to be reached by the end of 2019. Natural gas production at the Atoll field also began in February 2018 and the field has an estimated 1.5 Tcf of natural gas and 31 million barrels of condensates, with other areas still under evaluation. The WND project started producing natural gas in March 2017 and expected to produce close to 1.5 Bcf/d” (Source-EIA Report May 2018)11. As a result of the entry of new fields on production, Natural gas exports to Jordan were resumed in September 2018, and also LNG import was stopped in September 201812. Over the medium-long term, Egypt is expected to be a net exporter of natural gas. 2. Electricity demand had been growing quite rapidly in Egypt in the mid-2000’s (Figure A2). Peak electricity demand increased from about 15.70 GW in 2005 to 21.3 GW in 2009. Around FY09, the country started experiencing frequent electricity supply interruptions as the high growth demand was not matched with increased capacity, and demand started exceeding available capacity in periods of peak demand. In parallel with the declining gas production, Egypt started experiencing severe electricity supply shortages in 2011, which reached its peak in summer of 2014, with rolling blackouts across the country and frequent electricity supply interruptions. The power supply shortages were due to several factors: (a) lack of available capacity during peak periods- nevertheless, the country 11 U.S. Energy Information Administration, Country Analysis Brief: Egypt, May 2018 12 Egyptian Natural Gas Holding Company (EGAS) 2018/19 Report 2081-19. Page 39 of 45 The World Bank EG - Helwan South Power Project (P117407) had adequate nominal capacity but was short of available capacity at periods of peak demand due to a number of factors, among which are: (i) temperature derating of the generators, especially during the summer, (ii) aging of power plants, and (iii) gas supply shortages starting 2011. The Figure A2. Egypt Electricity Installed Capacity, Peak power supply potentially fed Demand and Average Annual Load Growth-2005/18 60 12% into citizen dissatisfaction on 10% the one hand and further 50 affected economic growth on 8% the other. To address the 40 6% challenges, the government fast 4% tracked construction of 30 2% additional generation capacity that have increased the installed 20 0% capacity from about 25.0GW in -2% 10 2010 to about 55GW in 2018 -4% leading to a reserve margin of 0 -6% over 25MW compared to a peak load of 30.8GW in 2018 (Figure A2). Installed (GW) 3. However the high reliance on Peak (GW) natural gas and generation overcapacity of the country’s Annual Load Growth (%) generation mix and capacity is Log. (Annual Load Growth (%)) forecasted to change in the Figure A3. Forecasted Generation Mix (Source: ISES2035) long-term. The Egypt Integrated Sustainable Energy Strategy to 2035 (ISES2035), approved by cabinet in 2016, envisages diversification of the country’s generation mix to include 16% coal, 3.3% nuclear and 42% RE in electricity mix by 2035. Although the power demand fell slightly in 2013/14 (Figure A2), the power demand has been growing year by year. The average of annual growth rate for power demand from 2010 to 2018 was 5.4% and is forecast to fall to about 4.5 by 2035. The 1% change takes into account the effect of more efficient use of energy. Figure A3 provides a highlight of the expected energy mix by type by 2035. Page 40 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 5. EFFICIENCY ANALYSIS Economic Efficiency 1. At appraisal, the economic efficiency of the Helwan South Power Plant, a supercritical steam plant, was measured by comparing its economic costs to its estimated benefits. At appraisal, the power plant ranked as part of the least cost plan for supplying electricity to Egypt. The choice of the supercritical steam technology, compared to the lower cost combined cycle gas turbine (CCGT), was premised on the following considerations: (i) dual fuel to hedge against natural gas supply constraints; (ii) lower cost maintenance; (iii) lower derating during the peak summer temperatures; and (iv) system stability due to the plant’s ability to serve both base load and intermediate load. Economic Rate of Return (ERR) for Helwan South Plant 2. Value of Electricity. The key issue in calculating the ERR is the value of the electricity produced. As there is no wholesale market for electricity in Egypt, and retail prices are set by the Government, usually below cost recovery, the appraisal used the consumer’s willingness to pay methodology to derive the value of the electricity. The consumer’s willingness to pay was estimated based on a demand curve for electricity in Egypt derived from past consumption and prices. 3. A second approach used to calculate the ERR assumes that consumers would be willing to pay the cost of generation by small diesel generators which is the alternative to grid supplied electricity. This approach was also used in calculating the economic efficiency of a similar Bank financed project, the Ain Sokhna Power Plant). This cost of diesel generation (estimated at US₵18.8/KWh13), adjusted for inflation, was then used to calculate a second ERR for the project. 4. A third approach used is the willingness to pay values used for a similar project, the Giza North Power Project. In this case, a different demand function was used to calculate the yearly estimate of willingness to pay. 5. Project Cost. In the base case, the capital cost of the Helwan South Power Plant was used along with the gas pipeline investments. 6. In a second case, the cost of the transmission line and substation needed to evacuate power (associated facilities) were added to project costs. These investments were financed from another Bank financed project. 7. Two sets of ERR calculations were undertaken; with and without the cost of the transmission facilities in the cost of the Helwan South Project. The base case being the without. The results indicate a negligible difference between two sets of ERRs because the transmission facilities are only a modest part of the total cost of the plant (Refer to Tables 5.1 & 5.2 below). 8. Plant Capacity Utilization. Energy generated by the plant, capacity utilization, was assumed to start 13 Source: EEHC Page 41 of 45 The World Bank EG - Helwan South Power Project (P117407) at fairly low levels and then build over time with increase in demand in addition to retiring the older and less efficient plants in the Egypt electricity system. Natural gas costs were assumed to remain at US$ 3.00/MMBTU in constant dollar terms. 9. Based on the above assumptions including annual operating costs, the ERR was calculated for the Helwan South Power Plant using the three alternative estimates of the consumer’s willingness to pay and with and without the transmission component. Using the appraisal estimates of the willingness to pay, the ERR is 25.5 percent and 26.0 percent for with and without the transmission component costs respectively, compared to 20.2 percent appraisal estimate. The increase in the ERR is attributed to the lower project cost compared to the appraisal cost estimates. Using the inflation-adjusted estimate of diesel generation as a measure of willingness to pay, the ERR is 31. 7 percent and 32.7 percent for the with and without the transmission component costs respectively. Using the estimates of the willingness to pay used for the Giza North Power Plant, the ERR is 14.6 percent and 15.0 percent with and without the transmission component cost respectively. 10. Annex Table 5.1 shows the ERRs for the Helwan South Power Plant, excluding transmission investments, with different measures of the consumers’ willingness to pay. Also shown are the net present values (NPVs) discounted at 10 percent. The ERR(s) exceed the opportunity cost of capital in Egypt of 10 percent, and the project is therefore economically attractive. Annex Table 5.2 provides the same information for the project including the transmission component. Because of the additional cost of the transmission component, the ERRs and NPVs of the table 5.2 are slightly lower than those in table 5.1. However, all the ERRs exceed the cost of capital showing that both with and without the transmission component the project is economically attractive. Annex Table 5.1. Efficiency excluding Transmission Component Helwan South Plant with different estimates of the Consumer’s ERR (%) NPV Willingness to pay (US$, Millions) Helwan South Plant Using the appraisal willingness to pay estimate 26.0 7,435 Helwan South Plant Using willingness to pay based on current cost of 32.7 5,361 diesel generation adjusted for inflation-Second Scenario Helwan South Plant Using the Willingness to Pay from the Giza North 15.0 1,104 PAD- Third Scenario Annex Table 5.2. Efficiency including Transmission Component Helwan South Plant with different estimates of the Consumer’s ERR (%) NPV Willingness to pay (US$, Millions) Helwan South Plant Using appraisal the willingness to pay estimate 25.5 7,370 Helwan South Plant Using willingness to pay based on current cost of 31.7 5,297 diesel generation adjusted for inflation- Second Scenario Helwan South Plant Using the Willingness to Pay from the Giza North 14.6 1,039 Project- Third Scenario Page 42 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 6. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Team has reached out to the Borrower but no comments were provided by neither GASCO nor EEHC. Page 43 of 45 The World Bank EG - Helwan South Power Project (P117407) ANNEX 6. SUPPORTING DOCUMENTS • AHC-DFK International selected dates, Audits of Helwan South Power Project • Arab Republic of Egypt, Ministry of Electricity and Renewable Energy, Egyptian Electric Holding Company. Annual Reports FY2009, FY2010, FY2011, FY2012, FY2013, FY2014, FY2015, FY2016, FY 2017. (2018 Annual Report not yet available) • Bechtel Corp. Presentation on Super Critical Boilers • EcoConServe Environmental Solutions, September 2019 Raven Natural Gas Pipeline, Resettlement Action Plan • EGAS Annual Report 2018 • Engineering Consultants Group. May 2013. Environmental and Social Impact Assessment Helwan South Power Plant 500 kV Interconnection. • Engineering Consultants Group May 2013 Environmental and Social Impact Assessment of the Helwan South Power Plant. • Engineering Consultants Group May 2013 Resettlement Policy Framework Helwan South Power Plant • World Bank. June 3, 2013. Project Appraisal Document (PAD) on a Proposed Loan in the Amount of US$585.4 million to the Arab Republic of Egypt for a Helwan South Power Project. • World Bank. November 2013. Loan Agreement (Helwan South Power Project) between Arab Republic of Egypt and International Bank for Reconstruction and Development. • World Bank. November 2013. Project Agreement (Helwan South Power Project) between GASCO and International Bank for Reconstruction and Development. • World Bank November 2013, Project Agreement (Helwan South Power Project) between EEHC and International Bank for Reconstruction and Development • World Bank, June 2016, Arab Republic of Egypt, Helwan South Power Project, Amendment to the GASCO Project Agreement • World Bank, June 2016, Arab Republic of Egypt Helwan South Power Project, Amendment to Loan Agreement • World Bank. April 2019, Performance and Learning Review of the Country Partnership Framework for the Arab Republic of Egypt for the period FY 2015-FY 2019. Page 44 of 45 The World Bank EG - Helwan South Power Project (P117407) • World Bank, Nov. 2015 Country Partnership Framework for the Arab Republic of Egypt • World Bank. 2012. Interim Strategy Note for the Arab Republic of Egypt. • World Bank, Aide Memoires FY 2015-19 on Helwan South Project • World Bank. November 2017. Mid Term Review Mission Aide Memoire for Helwan South Project. • World Bank. 12 ISRs, December 2013-June 2019, on Helwan South Power Project. Page 45 of 45