FOR OFFICIAL USE ONLY Report No: PCBASIC0119446 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 18.1 MILLION (US$25 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF SDR 18.1 MILLION (US$25 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA FOR THE GUINEA ELECTRICITY ACCESS SCALE UP PROJECT January 25, 2019 Energy and Extractives Global Practice Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2018) Currency Unit = Guinean Franc (GNF) US$ 1 = GNF 9,182 US$ 1= SDR 0.72294557 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank AGER Agence Guinéenne d’Electrification Rurale (Guinea Rural Electrification Agency) ARSEE Autorité de Régulation des Secteurs de l’Electricité et de l’Eau (Electricity and Water Sectors Regulatory Authority) AWPB Annual Work Plan and Budget BERD Bureau d'Electrification Rurale Decentralisée (Office of Decentralized Rural Electrification) CAPEX Capital Expenditure CLSG Interconnector Project integrating Côte d’Ivoire-Liberia-Sierra Leone and Guinea CPF Country Partnership Framework DPO Development Policy Operation EBITDA Earnings before Interest, Taxes, Depreciation, and Amortization ECREE Economic Community of West African States Center for Renewable Energy and Energy Efficiency EDG Electricité de Guinée (National Electricity Utility) EIB European Investment Bank EIRR Economic Internal Rate of Return ESEIP Electricity Sector Efficiency Improvement Project ESMAP Energy Sector Management Assistance Program ESMF Environmental and Social Management Framework EU European Union FCV Fragility, Conflict and Violence FIRR Financial Internal Rate of Return FM Financial Management FY Fiscal Year GDI Gender Development Index GDP Gross Domestic Product GHG Greenhouse Gas GNF Guinean Francs GoG Government of Guinea GRS Grievance Redress Service GWh Gigawatt Hour HDI Human Development Index HV High-voltage IFC International Finance Corporation IFR Interim Unaudited Financial Report IMF International Monetary Fund IPF Investment Project Financing IPP Independent Power Producer IRP Internal Recovery Plan IsDB Islamic Development Bank kW Kilowatt kWh Kilowatt Hour LV Low-voltage M&E Monitoring and Evaluation MEH Ministry of Energy and Hydraulics MSC Management Services Contract MSME Micro-, Small-, and Medium-Size Enterprises MV Medium-voltage MW Megawatt NGO Non-governmental Organization NLCEAP National Least Cost Electricity Access Scale Up Program NPV Net Present Value OMVG Organisation pour la Mise en Valeur du Fleuve Gambie (Gambia River Basin Development Organization) OPEX Operating Expenditure PDO Project Development Objective PERD Projet d’Electrification Rurale Décentralisée (Decentralized Rural Electrification Project) PIM Project Implementation Manual PIU Project Implementation Unit PNDES Plan National de Développement Economique et Social (National Economic and Social Development Plan) PP Procurement Plan PPP Public-private Partnership PPSD Project Procurement Strategy for Development PRSP Power Sector Recovery Project PV Photovoltaic RAP Resettlement Action Plans RMR Risk Mitigation Regime ROGEP Regional Off-Grid Electrification Project SDG Sustainable Development Goal SDR Special Drawing Rights SEforALL Sustainable Energy for All SHS Solar Home Systems SME Small and Medium Enterprise STEP Systematic Tracking of Exchanges in Procurement SWAp Sector Wide Approach TA Technical Assistance TCoS Total Cost of Service TF Trust Fund ToR Terms of Reference UN United Nations VfM Value for Money WAPP West African Power Pool WTP Willingness to Pay Regional Vice President: Hafez M. H. Ghanem Country Director: Soukeyna Kane Senior Global Practice Director: Riccardo Puliti Practice Manager: Charles Joseph Cormier Task Team Leader: Yussuf Uwamahoro The World Bank Guinea Electricity Access Scale Up Project (P164225) TABLE OF CONTENTS DATASHEET ................................................................................. Error! Bookmark not defined. I. STRATEGIC CONTEXT .......................................................................................................... 8 A. Country Context ............................................................................................................................... 8 B. Sectoral and Institutional Context .................................................................................................. 9 C. Relevance to Higher Level Objectives ........................................................................................... 18 II. PROJECT DESCRIPTION ..................................................................................................... 20 A. Project Development Objective .................................................................................................... 20 B. Project Components ...................................................................................................................... 21 C. Project Beneficiaries ...................................................................................................................... 27 D. Results Chain.................................................................................................................................. 28 E. Rationale for Bank Involvement and Role of Partners ................................................................. 28 F. Lessons Learned and Reflected in the Project Design ................................................................... 30 III. IMPLEMENTATION ARRANGEMENTS .............................................................................. 31 A. Institutional and Implementation Arrangements ........................................................................ 31 B. Results Monitoring and Evaluation Arrangements ...................................................................... 32 C. Sustainability .................................................................................................................................. 33 IV. PROJECT APPRAISAL SUMMARY ..................................................................................... 34 A. Technical, Economic, and Financial Analysis ................................................................................ 34 B. Fiduciary ......................................................................................................................................... 37 C. Safeguards ...................................................................................................................................... 40 V. KEY RISKS ........................................................................................................................ 43 VI. RESULTS FRAMEWORK AND MONITORING ..................................................................... 47 ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN ................................... 54 ANNEX 2: DETAILED DESCRIPTION OF PROJECT COMPONENT 2 ............................................ 57 ANNEX 3: NLCEAP TARGETS AND INSTALLED GENERATION CAPACITY .................................. 67 ANNEX 4: FINANCIAL MANAGEMENT ASSESSMENT.............................................................. 71 ANNEX 5: PROCUREMENT .................................................................................................... 75 ANNEX 6: SUMMARY OF THE ECONOMIC AND FINANCIAL ANALYSIS .................................... 81 ANNEX 7: EDG FINANCIAL POSITION ANALYSIS .................................................................... 82 ANNEX 8: MAP .................................................................................................................... 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) DATASHEET BASIC INFORMATION BASIC INFO TABLE Country(ies) Project Name Guinea Guinea Electricity Access Scale Up Project Project ID Financing Instrument Environmental Assessment Category Investment Project P164225 B-Partial Assessment Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 15-Feb-2019 31-Dec-2023 Bank/IFC Collaboration No Proposed Development Objective(s) The project development objective is to increase access to electricity in selected areas of Guinea Components Component Name Cost (US$, millions) Page 1 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Reinforcement and expansion of grid access in selected regions and reduction of 86.50 illegal consumption Electrification of remote localities with privately operated hybrid systems (solar PV 7.00 with storage/diesel) mini grids Owner’s Engineer, Access Program Coordination, Technical Assistance, Capacity 15.00 building and project implementation support Organizations Borrower: Republic of Guinea Implementing Agency: Electricité de Guinée Agence Guinéenne d'Electrification Rurale (AGER) PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 108.50 Total Financing 108.50 of which IBRD/IDA 50.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 50.00 IDA Credit 25.00 IDA Grant 25.00 Non-World Bank Group Financing Other Sources 58.50 FRANCE: Govt. of [MOFA and AFD (C2D)] 58.50 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount Page 2 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) National PBA 25.00 25.00 0.00 50.00 Total 25.00 25.00 0.00 50.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2019 2020 2021 2022 2023 2024 Annual 2.50 7.50 17.50 20.00 2.50 0.00 Cumulative 2.50 10.00 27.50 47.50 50.00 50.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Energy & Extractives Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance z High 2. Macroeconomic z Substantial 3. Sector Strategies and Policies z High Page 3 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 4. Technical Design of Project or Program z Moderate 5. Institutional Capacity for Implementation and Sustainability z High 6. Fiduciary z Substantial 7. Environment and Social z Substantial 8. Stakeholders z High 9. Other z High 10. Overall z High COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Page 4 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Legal Covenants Sections and Description Financial restructuring of EDG and post Management Services Contract Governance Structure. The Recipient shall: (a) not later than twelve (12) months after the Effective Date, implement a financial restructuring of EDG; and (b) not later than October 31, 2019, adopt and implement a new governance structure for EDG including the appointment of a board of directors with independent board members; all in a manner satisfactory to the Association (Schedule 2, section IV.1 of the Financing Agreement) Sections and Description Electricity tariff adjustment methodology. The Recipient shall, not later than (3) three months after the Effective Date, adopt a transparent tariff adjustment methodology, including appropriate compensation and safety net mechanism in a manner satisfactory to the Association (Schedule 2, section IV.2 of the Financing Agreement) Sections and Description New electricity connections guidelines. The Recipient shall, not later than (6) six months after the Effective Date, adopt guidelines defining the administrative, technical and financial and legal modalities for new electrical connections to the national grid satisfactory tothe Association (Schedule 2, Section IV.3 of the Financing Agreement) Sections and Description Electrification prioritization guidelines.The Recipient shall, not later than (6) six months after the Effective Date, approve guidelines defining criteria prioritization of connections sites in manner satisfactory to the Association (Schedule 2, Section IV.4 of the Financing Agreement) Sections and Description Project Steering committee. The Recipient shall, no later than two (2) months after the Effective Date, establish and maintain, throughout the Project implementation period, a Project steering committee, with composition, mandate and resources satisfactory to the Association, including inter alia representatives of the President Office, the Prime Minister’s Office, the MEH, the ministry responsible for economy and finance, the ministry responsible for the budget, the ministry responsible for planning and economic development, EDG and AGER (the “Steering Committee”) (Schedule 2, section I.A.1 of the Financing Agreement) Sections and Description AGER PIU staffing. The Recipient shall cause AGER to, not later than one (1) month after the Effective Date, recruit an accountant and a procurement analyst under terms of reference and with experience and qualifications acceptable to the Association (Schedule 2,section I.A.2 (a) (i) of the Financing Agreement) Sections and Description AGER PIU accounting software. The Recipient shall cause AGER, not later than three (3) months after the Effective Date, install, and thereafter maintain throughout the Project implementation period, an accounting software for the Project acceptable to the Association (Schedule 2, section I.A.2 (a) (ii) of the Financing Agreement) Page 5 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Sections and Description EDG PIU staffing. The Recipient shall cause EDG not later than one (1) month after the Effective Date: (A) establish and maintain, throughout the Project implementation period, a project implementation unit (EDG PIU), with composition, mandate and resources satisfactory to the Association; (B) recruit an accountant and a procurement specialist under terms of reference and with experience and qualification’s acceptable to the Association; and (C) recruit an environmental safeguard specialist and a social and gender safeguard specialist for the implementation and supervision of the Project activities’ (under Part A, B and C of the Project) in compliance with the Safeguard Instruments, under terms of reference and with experience and qualification’s acceptable to the Association (Schedule 2, section I.A.2 (b) (i) of the Financing Agreement) Sections and Description EDG PIU accounting software. The Recipient shall cause EDG not later than three (3) months after the Effective Date install, and thereafter maintain throughout the Project implementation period, an accounting software for the Project acceptable to the Association; (Schedule 2, section I.A.2 (b) (ii) of the Financing Agreement) Sections and Description Appointment of an external auditor. The Recipient shall cause EDG to, not later than five (5) months after the Effective Date, recruit and thereafter maintain, at all times during Project implementation, an external auditor, with experience and qualifications and under terms of reference acceptable to the Association, to audit the Project (Schedule 2, section I.A.2 (b) (iii) of the Financing Agreement) Sections and Description First annual work plan and budget. The Recipient shall furnish to the Association, no later than one (1) month after the Effective Date, the annual work plan and budget for the Project for the first year of Project implementation; and not later than November 30 each year (Schedule 2, section I.D.2 of the Financing Agreement). Conditions Type Description Disbursement Project Implementation Manual. Notwithstanding the provisions of Section III.A of Schedule 2 of the Financing Agreement, no withdrawal shall be made for payments under any Category (1) and (2) defined in this same Section, until and unless the Recipient has adopted, and furnished to the Association satisfactory evidence that AGER and EDG has adopted, the Project Implementation Manual, in form and substance satisfactory to the Association (Section III.B.1 (a) of Schedule 2 of the Financing Agreement) Type Description Disbursement Board of Directors of AGER. No withdrawal shall be made for payments to be made with respect to AGER, under any Category (2) and (3), until and unless the Recipient has furnished to the Association evidence satisfactory to the Association that a board of directors, with Page 6 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) members with appropriate experience and qualifications, have been appointed for AGER (Section III.B.1 (b) of Schedule 2 of the Financing Agreement) Type Description Effectiveness Subsidiary Agreements.The Additional Conditions of Effectiveness consist of the following, namely that the Subsidiary Agreements have been duly executed under terms and conditions acceptable to the Association (Article 4.01 of the Financing Agreement) Page 7 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) I. STRATEGIC CONTEXT A. Country Context 1. Although Guinea is well endowed with mineral and energy resources, it is among the poorest in the world with a GDP per capita of only USD 825 in 2017. Guinea has a population of 12.7 million (2017), which is increasing at a high rate of above 3 percent per year. A series of external shocks that took place in 2014, including the Ebola crisis and the sharp decline of commodity prices, have further raised the poverty rate which was close to 58 percent at that time. The Ebola epidemic had a dramatic impact on the economy, as demonstrated by the estimated loss of US$535 million in the Gross Domestic Product (GDP) in 2015. The country ranks fifteenth from the bottom of the Human Development Index (HDI, 2017), with 35 percent of the population living on less than US$1.90 a day (2011), whereas only 22 percent of the population has access to sanitation (2015), and the adult literacy rate is 32 percent (2014). The female HCI value for Guinea is 0.35, which contrasts with an HDI of 0.38 for males, resulting in a Gender Development Index (GDI) value of 0.810 in 2017. These results place the country in the last fifth group of the ranking, notably below the GDI values for Sub-Saharan Africa and among low HDI countries, which are 0.893 and 0.862, respectively, in 2017. 2. Guinea also faces a set of interrelated drivers of fragility, conflict and violence (FCV). Four key drivers of fragility have emerged from the 2017 Risk and Resilience Assessment: (i) exposure to external shocks and high food prices; (ii) youth exclusion and underemployment; (iii) weaknesses in the delivery of services that undermine state legitimacy; and (iv) the political instrumentalization of identity in a context of significant social fault lines. Poor service delivery, contributing to the population’s lack of support for state institutions, is arguably a central element. Whether in providing health, education, security, electricity, or social protection, the administration is perceived as underfunded, insufficiently trained, and accordingly inefficient. Lacking access to key public services constitutes a major grievance among Guineans today. It results in regular protests and upsurges of urban violence. Non-policed urban spaces are particularly at risk, in view of the multiple challenges they face in terms of access to services and infrastructures, which prompt grievances that lead to recurrent episodes of social unrest. Guinea’s capital city, Conakry, provides evidence of how unregulated and rapid rural-urban migrations and urbanization, an undiversified labor market, and demographic stresses may conspire to produce political instability. 3. To get the economy back on a solid footing, and support human and social development, the Government developed a post-Ebola recovery plan for 2015–2017, followed by the 2016–2020 National Economic and Social Development Plan (Plan National de Développement Economique et Social, PNDES), which covers all key sectors of the economy. The overall objective of the PNDES is to stimulate strong and high-quality growth to improve the well-being of Guineans and to initiate the structural transformation of the economy, while putting the country on the path toward sustainable development. The PNDES strategy is based on four development pillars: (a) promotion of good governance for sustainable development; (b) sustainable and inclusive economic transformation; (c) development of inclusive human capital; and (d) sustainable management of natural resources. It forecasts an average economic growth rate of 9.4 percent per year for 2018–2020 supported by ambitious infrastructure projects, particularly in the energy and transport sectors. Page 8 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 4. The energy sector will play a crucial role as the prime mover for the implementation of the PNDES. The National Energy Policy (NEP) will contribute to fast-track the implementation of the PNDES through its objectives to (a) guarantee the availability, quality, and reliability of electricity supply to contribute to the provision of social services, social transformation, and poverty reduction; and (b) to promote renewable energy and energy efficiency programs to reduce the dependency on fossil fuels and enable exports. The PNDES explicitly highlights the need to increase access to sufficient, reliable, and affordable modern energy services for socioeconomic transformation and industrial growth. A key challenge is to achieve the goals of the PNDES while improving the sustainability of the national electricity utility (Electricité de Guinée, EDG) and maintaining electricity tariffs at a socially acceptable level. 5. According to the World Economic Forum’s 2017 Global Gender Gap Report, Guinea ranks 113 out of 144 countries, despite being included in the group of countries that have recently closed more than 80 percent of their gender gap. Guinea holds one of the last three spots together with Benin and Chad in educational attainment, having closed less than 70 percent of its education gender gap. Men continue to be more literate than women: 89 percent of young males and 38 percent of adult males are literate versus 78 percent of young females and 22 percent adult females. Although the Guinean Constitution (Article 180) provides equal access to employment, women continue to suffer from additional barriers in the workforce: professional segregation, unskilled and low-paid or informal jobs that provide no social protection, among others. Furthermore, less than 20 percent of women in Guinea have an account at a financial institution or with a mobile money service provider and they still have limited access to credit by requiring in many cases their husbands´ permission1 . Furthermore, 9 percent of firms have female participation in firm ownership, and 6 percent of firms have females in top management positions.2 B. Sectoral and Institutional Context 6. The sector institutions in Guinea are undergoing a major restructuring toward liberalization, but the sector is still dominated by public sector players. The Ministry of Energy and Hydraulics (MEH) sets the sector’s policy and plays an overarching custodian role of the sector. The recently established Agence Guinéenne d’Electrification Rurale (Guinea Rural Electrification Agency, AGER), created on May 9, 2017, will oversee the development of rural electrification programs including decentralized off-grid electrification solutions. A law establishing the independent regulator was adopted by the Parliament on November 24, 2017, and the Government of Guinea (GoG) has recently appointed the regulator’s managing director. The Electricity Law is being updated with support from the African Development Bank (AfDB), to reflect new developments in the sector and to encourage private participation in solar power generation in the short term and in hydropower in the longer term. It will be approved in March 2019. A set of regulations are expected in 2019 to enforce the Electricity Law. There are already four thermal independent power producers (IPPs) in the country, and the Kaleta Hydropower Project has been structured as a public-private partnership (PPP), which enabled the Government to raise equity in the Souapiti Hydropower Project3. The state-owned electricity utility EDG is currently managed by a private 1 WORLD BANK GROUP, Women, Business and the Law 2018, available at wbl.worldbank.org/en/reports 2 WORLD BANK GROUP, Enterprise Survey 2016, available at www.enterprisesurveys.org 3 The Government sold 51 percent of the shares in Kaleta hydropower plant to raise equity to invest in the new Souapiti 450 MW hydropower project, upstream Kaleta project. Kaleta and Souapiti are owned by one investor and are interrelated as Souapiti will regulate the energy output of Kaleta. Page 9 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) operator, under a World Bank-supported Management Services Contract (MSC). The Rural Electrification Law governing the concession for small power plants of less than 500 kilowatt (kW) was adopted in 2013 and standard concession agreements for mini grids operated by private operators were already developed by the Decentralized Rural Electrification Project (Projet d’Electrification Rurale Décentralisée, PERD) in 2005. 7. The key Guinean electricity sector challenges are (a) low level of access rate to electricity and high number of illegal connections; (b) poor performance of EDG; (c) financial sustainability of the sector; and (d) high electricity system inefficiencies. Table 1 summarizes key sector indicators for the country. Table 1. Key Energy Sector Indicators (2017) Sector Indicators Guinea Legal access to electricity (% of population) 18.1 Installed capacity (MW) 699 Annual energy generation (GWh) 1,740 Number of registered customers 271,249 System losses (%) 35 Average electricity tariff (US$ per kWh) 0.10 (2018) Average cost of service (US$ per kWh) 0.25 (2018) Annual turnover (million, US$) 100.2 Billing rate (%) 64.2 Collection rate (%) 83.4 Number of utility staff 1,597 Source: EDG Annual Report 2017. 8. Even when counting illegal connections (which stand at 11 percent of the population), the rate of access to electricity in Guinea of 29.1 percent continues to be below the Sub-Saharan African average of 43 percent. Moreover, there is a wide disparity between electricity access in the Conakry area, and access in central, western regions (Guinée Maritime and Moyenne Guinée), and the area of northeast of Siguiri. In rural areas, the level of access is only 3 percent while it is about 48 percent in urban areas. While EDG officially serves about 160,000 clients in the capital city of Conakry alone, the actual consumers are estimated to be two times that figure when taking into account illegal connections and electricity theft. Informal connections in urban areas result from (a) delays in grid expansion resulting in makeshift connections; (b) high cost of connection for certain consumers in addition to high cost of internal house wiring; (c) low capacity of EDG to respond to new requests for connections; (d) poor billing practices which enable legal connection owners to sell electricity to informal consumers or sub-clients; and (e) outright fraud or theft of electricity. 9. EDG’s assessment is that there is a relatively high potential to reduce commercial losses and increase revenues through regularization of illegal connections. The Power Sector Recovery Project (PSRP) (P146696) is financing a general census of EDG’s consumers to provide a more accurate number of illegal connections and their profiles. The results of the first phase of the census done in August 2018 in two of EDG’s commercial branches (Lampanyi and Kountia) in Conakry, indicate that only 31 percent of consumers have legal connections, and 69 percent of the consumers were illegal. Of the total, 48 percent Page 10 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) are unsafely hooked to legal EDG consumers. As these legal customers do not have metering, they generally pay a flat fee to EDG regardless of the quantity of electricity consumed, and they therefore capture rents from illegal consumers, without providing EDG with additional revenues. Finally, 21 percent of consumers surveyed were considered to have clandestine connections, whose regularization will require accompanying campaign measures to be successful. Based on the records from the commercial department of EDG on the collection rate from regularized clients, these consumers are not necessarily poor and can afford to pay electricity bills. The experience from the PSRP which also finances a component of regularization of informal connections in three districts in Conakry, has indicated that regularized beneficiaries, with meters, consume about 330 kWh per month each and increase revenues of EDG. The Steering Committee of the MSC between EDG and the Government is a champion for the reduction of illegal connections and anti-fraud reforms. 10. The National Least Cost Electricity Access Scale Up Program 2016–2020 (NLCEAP) will accelerate electricity access for the population and businesses. The GoG has adopted a target to increase legal access to electricity from 18.1 percent in 2017 to 36 percent by 2020 towards universal access by 2030 as indicated in the Figure 1. The GoG commissioned the preparation of the NLCEAP based on optimizing grid and off-grid technologies which were designed through geographical information system modeling financed by the World Bank’s Energy Sector Management Assistance Program (ESMAP) (TF015026). It was presented by the Government to the donor consultative group in Paris on November 17, 2017, as a first step to mobilize the required financing of around US$644 million over 2016–2020, including technical assistance (TA) funds in the order of US$36 million, which together would increase the number of connections through grid extensions (662,280) and off-grid solutions (57,000). At that meeting, donors pledged around US$388 million and committed to provide additional financing in their respective country partnership strategies over the PNDES implementation period. Out of the pledges, the Government has already mobilized about US$288 million with ongoing projects financed by different donors including the World Bank, AfDB, Islamic Development Bank (IsDB), French Development Agency (Agence Française de Développement, AFD), European Union (EU), and the Government budget, as shown in Table 3.3 in Annex 3. The NLCEAP confirms that for 95 percent of localities, the least-cost electrification option is mainly but not exclusively, through connection to the main grid. According to the program, mini grids will be developed temporarily to electrify remote localities where grids cannot reach in the next 10–15 years, with a priority given to localities with relatively high revenues and willingness to pay (WTP). Solar home systems (SHS) will be distributed by private operators, and the Regional Off-Grid Electrification Project (ROGEP) (P160708) will provide credit and guarantee facility for further market penetration. A market analysis study for SHS in Guinea was conducted by the ROGEP implementing agency, Economic Community of West African States Center for Renewable Energy and Energy Efficiency (ECREE), to suggest the required incentives to facilitate expansion of the SHS business. The access program is expected to be implemented in three phases based on the sequencing of funding from donors and considering the implementation constraints of the country. 11. The access program will prioritize connection of communities closer to the existing medium- voltage (MV) lines, with high population density and capacity to pay. As such, the program will allow the utility to optimize its efficiency in electricity supply to households and businesses and contribute to improve EDG’s financial sustainability. To ensure that the NLCEAP is implemented in an equitable and transparent manner, the least-cost access study presented technical, commercial, and economic Page 11 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) electrification prioritization criteria that guided the selection of the proposed investments. The Government will adopt site prioritization guidelines by February 2019 to guide future implementation of investments in grid expansion access. Site selection process will be sector policy-based and enforceable for the overall electricity access program. Figure 1. Planned Pace of Electrification in Guinea Source: National Least Cost Access Scale Up Program, Castalia, 2016. 12. Stakeholders supported the concept of a sector wide approach (SWAp) to implement the NLCEAP in a closely coordinated manner. The SWAp structure of the access program reflects the joint commitment of development partners to the objectives of the access program and the commitment at the highest level of the Government. In addition, the SWAp enables Government to work with different development partners to meet the national access target. However, it should be noted that the SWAp does not necessarily require donors to harmonize administrative and fiduciary processes, although this is an objective that is desirable in the long term. The program seeks to balance the delivery of access through established practices for grid-based access and off-grid, with the reinforcement of access institutions EDG and AGER, and commercial measures for revenue protection. 13. The NLCEAP covers the costs of household connections while beneficiaries pay for the internal house wiring which is expensive in Guinea. The average estimated cost of connection in the project areas (urban and peri-urban areas) is about US$160, and it could be as much as ten times higher in rural areas. In addition, the cost of internal house wiring is high with an average of US$1004 per household, making connecting to the grid prohibitively expensive for poor households. Given that an average household cannot afford such high initial costs, the NLCEAP will cover the costs of connections, while the internal house wiring costs will be borne by beneficiaries. However, for low-income households, the access program provides for the standard ready-board electrification kits at subsidized cost for basic electricity 4 The cost of internal house wiring ranges between GNF 800,000 to GNF 1,100,000. Page 12 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) services, especially in rural areas. Connections that fall under rehabilitation and regularization of obsolete and informal connections are also subsidized to realize the benefits of a reduction of technical and commercial losses and additional revenues to the utility. The Commercial Department of EDG will be the main implementing vehicle for the ‘last mile’ grid access as it is responsible for customer connections and collecting revenues, through tariffs, from newly connected clients under the program. 14. The WTP in the project areas is compatible with applied tariffs and the level of electrified customer consumption, and grid electricity is affordable. The household electricity access baseline survey supported by ESMAP TF015026 in 2016 revealed that an average household in Guinea is willing to pay GNF 105,023 (US$12.15) per month for electricity. The same survey indicated that in the project area, the average household consumption per month will be 207 kWh. At the current subsidized tariff, this amount of energy would cost GNF 52,785 (US$6) which is 1.2 percent of the average monthly income per household. At the full cost of supply, the same amount of energy would cost about GNF 468,441(US$52), equivalent to 10.6 percent of the household monthly income as shown in Table 2. Based on lessons learned, if the electricity bill does not exceed 10 percent of the income, it is considered that the household can afford electricity. From the analysis, even at the full cost of service, grid electricity is affordable. An information campaign is underway to support the Government’s effort to increase electricity tariffs for high value consumers which is required to improve the quality of service. In any case, consumers to be connected from this project will pay a tariff set by the regulator at the national level, which is likely not to exceed the willingness to pay as the cost of service will decrease over time. Table 2. Willingness To Pay Versus Household Income Monthly Monthly Share of Share of expenses expenses electricity electricity Household for for expenses expenses Share monthly WTP electricity electricity at at cost of WTP income (GNF) at current at cost of subsidized service /income (GNF) subsidized service tariff tariff tariff tariff /income /income (GNF) (GNF) Average 4,401,589.12 105,023.00 52,785.00 468,441.00 1.20% 10.64% 2.39% Source: Electricity baseline survey in Guinea, Econoler, 2016. 15. The proposed project will contribute to FCV risk mitigation by increasing the population with access to electricity and improving reliability and security of supply. Although there has been significant improvement in power generation and distribution over the last five years, Guinea was characterized by frequent protests and riots against prolonged electricity outages, both in Conakry and regional towns including Boke, Kamsar, Siguiri, etc. Lack of access to sufficient, affordable and reliable electricity service delivery contributes to the population’s grievances, leading to lack of support for state institutions, since the public administration is perceived as inefficient in providing electricity services. As such, it fuels one of the key drivers of fragility in Guinea. The proposed project will not only increase the population with electricity services, but also improve the reliability and security of the supply as result of strengthening the distribution system and regularizing substandard and unsafe illegal connections. This will contribute to reinforcing the state legitimacy in the eyes of the public. Page 13 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 16. The demand-supply analysis shows that the existing and planned bulk generation capacity is sufficient to support the planned project, the access program in general, and other economic activities. The current domestic electricity demand is about 335 Megawatt (MW) while the installed capacity is 699 MW. The demand is expected to grow at about 10 percent per year in the next five years. The peak demand forecasted for 2022 is estimated at 810 MW, driven by (a) meeting unserved demand; (b) the implementation of NLCEAP with an estimated households demand of 192 MW by 2022, including the demand of about 25 MW from the implementation of the proposed project; and (c) the likely development of industrial activities including major mining projects which would require about additional 230 MW. The projected installed capacity will be about 1400 MW in 2022 as shown in the Table 3.4 and will be sufficient to meet the domestic demand and the excess power will be exported to neighboring countries. To meet the medium- to long-term energy needs, the country has started to develop its hydropower potential5 with the completion of Kaléta (240 MW) with Chinese financing in 2015, and the launching of the construction of Souapiti (450 MW) also with Chinese support. Other projects that are being considered by the Guinean authorities include Sambangalou (128 MW) regional hydro plant on the Gambia River (bordering Senegal and Guinea), Amaria (300 MW), Korafindi (100 MW), and Kogbedou- Frankonedou (90 MW). The country is also considering developing several solar photovoltaic (PV) plants with the International Finance Corporation (IFC) and the World Bank technical support through Korea World Bank Partnership Facility (TF072713). Owing to these projects, Guinea will have enough capacity to retire some of its high cost thermal plants (by 2023 when some of these generation projects are operational), while meeting future domestic demand and exporting in the regional market. On the transmission side, the existing and planned high-voltage (HV) backbone transmission network, including the interconnections (Organisation de Mise en Valeur du fleuve Gambie [Gambia River Basin Development Organization, OMVG], Guinea-Mali (P166042) and Interconnector Project Integrating Côte d’Ivoire- Liberia-Sierra Leone and Guinea [CLSG - P113266]) is covering large parts of the country and makes the access target feasible as investment requirements in medium-voltage (MV) and low-voltage (LV) lines are relatively cheaper and such lines are faster to implement. 17. Grid access expansion is financially viable and will have a positive impact on EDG’s cash flow and revenues. Positive cash flows which will increase EDG’s revenues will be generated from two sources: (i) legalizing many illegal connections and (ii) new connections through network expansion and densification covering high income households in Conakry and secondary cities. The financial analysis shows that at the project completion in 2023, the project cumulative cash flows will be US$41 million, and the project annual Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) will be US$26 million, which will be 20 percent of the total EDG’s EBITDA. 18. Household consumption of electricity in Guinea is among the lowest in the world, and therefore, the impact of expanding access on financial deficit of EDG is marginal and will be offset by other ongoing interrelated programs that aim at increasing financial viability of the sector and gradually reducing subsidies. The energy consumption by new households to be electrified under the proposed project will be less than 10 percent of the total annual consumption, and hence the impact on the financial deficit of 5Guinea is the West African country with the highest hydropower potential. Based on the recently commissioned hydropower atlas financed by the World Bank Group, the estimated potential of the country is 6,200 MW, most of which is located in the Konkouré basin. Page 14 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) EDG will not be significant. In addition to the tariff adjustment plan, the ongoing programs to (a) shift the energy generation mix towards cheaper renewable sources; (b) improve EDG’s efficiency and commercial performance through the implementation of the MSC; (c) provide power supply to mines and other high consumers not connected to the grid yet but willing to pay a high tariff6, will reduce the operating financial deficit of EDG and subsidies will drop as a result. Projections from EDG show that by 2023, the Government subsidies will not be required. To avoid negative impact on the financial situation of EDG, the project will focus on areas where the cost of expanding the grid is lower, and most of the new consumers will be equipped with prepayment meters. 19. The technical, commercial, and financial performance of the sector is poor by regional standards but expected to improve with the implementation of the MSC and additional actions supported by the PSRP (P146696). As part of the electricity sector recovery plan adopted by the Government in 2012, an MSC was signed on June 19, 2015, between the GoG and the consortium Veolia-Seureca to improve the performance of EDG, under the financing of the PSRP. Over the past three years of implementation, there has been a marked improvement in the operation and maintenance of the grid infrastructure, as documented in the midterm review of the PSRP held in November 2017 and the recent audit report of the first semester of 2018. However, the MSC contractor needs to improve the commercial7 performance and increase its efforts to achieve the MSC objectives regarding human resources capacity development. An additional financing project to PSRP (P160771) was approved by the Board of the World Bank Executive Directors on March 16, 2018, to support the MSC to reach its objectives, as outlined in the Government- adopted Internal Recovery Plan (IRP) of EDG, including (a) improvement of service delivery and grid efficiency: increase reliability of power supply and reduction of technical losses; (b) improvement of commercial performance: reduction of commercial losses, reduction of illegal connections, increase of billing and collection rates8; and (c) capacity building of human resources of EDG to sustain performance progress after the MSC. These would in turn contribute to improve the financial performance of the sector. 20. Table 3 shows the evolution of main sector performance indicators since the effectiveness of the MSC. Table 3. Performance of EDG from 2015 to 2017 Indicator 2015 2016 2017 Progress Annual generation (GWh) 1,180 1,530 1,700 44% Number of substations built (MV/LV) 2,270 2,410 2,485 10% Annual duration of power outage (hour) — 350 210 −40% Demand growth (MW) 245 295 335 36% System Average Interruption Duration Index (MT) outside Conakry — 177.5 153.7 −23.8 (hour) Rate of non-planned outage of generation plants (%) - 33 23 −10 6 Discussions between the GoG and active mining companies on the possibility to connect mines to the grid have started. 7 Number of consumers billed on meters is still low at 23 percent compared to the target of 80 percent in 2018, billing collection rate for LV consumers is still low at 87 percent compared to the target 93 percent in 2018, and so on. 8 Improvement of billing and collection rates is the priority of the MSC in 2019. Page 15 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Indicator 2015 2016 2017 Progress Annual sales of electricity (GNF, billions) 524 780 902 70% Revenues collected (GNF, billions) 407 449 554 36% Billing rate (%) - 64.1 64.2 0.19 Collection rate (%) 60 79 83 23 Average generation cost (GNF per kWh) 1,766 1,261 1,184 −33% Average unit price (GNF per kWh) - 719.5 770 7% Source: EDG. 21. The country is committed to fully implement the IRP and sustain technical and commercial performance of EDG. The Government is analyzing different options for the management and the supervision of the performance of EDG after the expiration of the MSC by the end of October 2019. A decree defining the new governance structure along with an implementation road map, which will follow the expiration of the MSC, is expected by February 2019. The Development Policy Operations (DPO) series under preparation (P166322), to be delivered in July 2019, will support the reform to ensure sustainability of EDG performance improvement. 22. Electricity tariffs in Guinea are not cost-reflective and have not kept up with inflation, and therefore the long-term financial sustainability of the sector is uncertain. The main drivers of the poor financial health of the sector is an expensive energy mix, combined with relatively low consumer tariffs that are well below the cost of supply. Electricity tariffs for households, which represent 45 percent of the consumption are currently US$0.01–0.03 per kWh for households (one of the lowest tariffs in West Africa), whereas they are in the order of US$0.17–0.26 per kWh for public institutions and industries. The cost of supply of power to end users is about US$0.25 per kWh due to (a) the high proportion of costly diesel generation resulting from the seasonality of hydropower generation, and poor investment planning resulting in the construction of emergency thermal generation capacity; and (b) grid losses, rampant power thefts, and poor billing practices. Even if the theft and billing issues were addressed, as expected under the EDG MSC, there would remain a considerable gap between tariff and cost of supply until the energy mix is substantially shifted towards cleaner and more affordable electricity. 23. To reduce the operating financial deficit of EDG, the Government is committed to adopt a gradual electricity tariff increase and reduce subsidies over time. The gap between electricity tariffs and cost of supply leads to EDG being in a critical financial situation with an operating deficit of US$92 million in 2017, after deduction of Government subsidies totaling about US$116 million. The Government has implemented in May 2018, according to the International Monetary Fund (IMF) program,10 tariff increases of about 10 percent for residential and tertiary categories of consumers and 25 percent for industrial consumers and administrations. A transparent financial model of the sector, defining a progressive tariff adjustment methodology and a road map that will enable the sector to reach a cost recovery tariff in the 9The MSC did not improve the billing rate. This is an area of focus in 2019. 10The Government concluded a new IMF-supported program in December 2017, which includes fiscal consolidation measures needed to maintain fiscal deficit at a sustainable level. Tariff increase was identified as critical measure to gradually reduce Government subsidies. Page 16 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) medium term,11 has been commissioned in June 2017. Its conclusions will be reviewed and adopted by the Government by February 2019 and will serve as a tool for further tariff adjustments by the electricity regulator. A tariff study reflecting the adopted tariff increase in different categories of consumers has been conducted in December 2018, under the financing of the AfDB, and its recommendations will be adopted by March 2019. Through the DPO series (P166322), the World Bank will continue to assist the Government to develop enabling activities to improve the likelihood of success for the Government’s tariff adjustments. Through the ESMAP TF (TF0A7498)12, the World Bank is supporting (a) the elaboration of a communication plan for effective implementation of ongoing power sector reforms including tariff adjustment; and (b) distributional analysis of tariff increases and subsidies to ensure the tariff increases are less regressive and subsidies are pro-poor. 24. The Government is also pursuing parallel efforts to address the situation of arrears and high debts of the sector. The Government is conducting an analytical study that will confirm the amount of arrears of electricity consumption by public institutions and public lighting accumulated as of December 31, 201813, and result in a plan to clear them in the medium term. It will also put in place a robust and reliable system to ensure regular payment of electricity bills by the public sector and parastatal institutions. The Government is also preparing a financial restructuring plan of EDG that will include recapitalization of EDG and assets transfer from the Government to EDG to be implemented in 2019. The restructuring plan will facilitate the Government to address the debts of around US$330 million (about 3.2 percent of GDP or two years of annual turnover) that EDG owes to fuel suppliers and IPPs. 25. The Government strategy to address the sector sustainability and financial issues is four- pronged: (a) proper sector planning to promote the shift in the energy mix toward cheaper and cleaner hydropower and solar energy, and elimination of expensive thermal generation; (b) addressing the issues linked to EDG governance, management, and commercial policy (power thefts, illegal connections, billing and collection, development of supply to industries) through investment projects such as the PRSP (P146696) which is focused on EDG reform; (c) reducing the level of subsidy required over time, with a mix of tariff increases and efficiency gains along the value chain, which will be achieved through cooperation with the IMF and various donors; and (d) increasing revenues to the utility through improved services to high value customers such as the industrial, mining, and exports sectors to some extent. The access program will be phased in a way to match progress on both the generation capacity and utility performance improvement, focusing first on improving revenues by regularizing illegal connections and piloting PPP for mini grids, which, if successful, can reduce the pressure on EDG to overextend to remote rural areas, and so on. 26. The World Bank is engaged in addressing the sector issues and supporting the sustainable development of Guinea's energy sector through policy dialogue, investment activities, and TA. The World Bank’s ongoing operations in the power sector include (a) the PRSP (P146696) and the additional financing (P160771); (b) regional interconnection projects: CLSG Project (Côte d'Ivoire, Liberia, Sierra 11 The physico-financial model recommends three scenarios of tariff increase to reach financial equilibrium in three years, five years, and seven years. The GoG will decide on the appropriate scenario in February 2019. 12 The trust fund (TF) finances the Electricity Subsidy Reform in Guinea, Mali, and Togo (P166128). 13 EDG estimates the arrears to be around US$70 million. Page 17 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Leone, and Guinea interconnector), OMVG Project (Gambia, Guinea, Guinea Bissau, and Senegal), and Guinea – Mali, which are financed by IDA together with other donors; and (c) the Second Macroeconomic and Fiscal Management DPO series (P161796), which includes energy sector-related prior actions14 and a new DPO series (P166322) that is under preparation. The Electricity Sector Efficiency Improvement Project P077317 (ESEIP) with an overall financing of US$30 million closed on June 30, 2016, and the PERD with financing of US$7 million which closed on June 30, 2013 (P042055). The US$2.1 million World Bank- executed Sustainable Energy for All (SEforALL) TA (TF015026) closed on August 31, 2017. It financed the preparation of the electricity access scale up investment prospectus to mobilize concessional financing for access, the monitoring and evaluation (M&E) framework to track the performance of the power sector, capacity building of the MEH in PPPs, and the development of the hydropower atlas for the country and Internet viewer for potential investors. The Regional Off-grid Electrification Project (P160708) under preparation will also provide financial support to promote privately financed SHS in Guinea by creating credit line and risk mitigation facilities through the Banque Ouest Africaine de Développement (West African Development Bank) and the Economic Community of West African States Bank for Investment and Development. 27. Other donors are willing to co-finance the national electricity access program, but complementary measures need to be taken in parallel to ensure that the extension of supply to clients who pay a tariff well below the cost of supply does not further deteriorate the financial position of EDG. The donor roundtable organized in Paris during November 16–17, 2017, mobilized US$21 billion for PNDES implementation, including the funding for electricity access scale-up. The AFD will co-finance the proposed project with Euro 50 million in addition to its ongoing operation in distribution rehabilitation and access of Euro 50 million. Other ongoing donor financing include the AfDB and the IsDB implementing a joint project to connect about 135,038 households (Units of Account 60,850,000; equivalent to US$84.2 million); the AFD through its distribution rehabilitation project will connect around 50,000 households; the World Bank through rehabilitation of Dixinn and rehabilitation of distribution systems in Ratoma, Matoto, and Kaloum will connect around 58,000 households; EU and AFD will co-finance the construction of four mini hydro plants, and connect around 30,000 households in remote areas. Through the national budget, the GoG is also expanding access in regional cities and will connect about 87,000 households. With the above grid extension initiatives, a total of 330,000 connections will be connected leaving a gap of 332,000 connections to reach the targeted 662,000 new connections under the NLCEAP by 2020. C. Relevance to Higher Level Objectives 28. The proposed project will contribute to the implementation of the PNDES, to the United Nations (UN) Sustainable Development Goal 7 (SDG7) and to the SEforALL access target. The proposed Electricity Access Scale Up Project will specifically contribute to two of the four pillars of PNDES: the sustainable and inclusive economic transformation pillar and the development of inclusive human development pillar. It will support the goal of the Government toward universal access of rural and urban households by 2030, 14 Two energy sector prior actions include (1) the Recipient, through the MEH, has (a) adopted EDG’s Management Improvement Plan, which includes, among others, a revenue protection system for high-valued customers, and (b) committed to provide budgetary transfers for the first year of the associated business plan; and (2) the Recipient’s Council of Ministers has submitted to Parliament a draft law establishing an independent regulator for the electricity sector to monitor financial compliance with electricity. Page 18 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) in line with the UN SDG7 and SEforALL. The project aims to provide reliable electricity access to households, small and medium enterprises, and public social institutions in selected areas in Guinea that currently have no access or extremely limited access to affordable and reliable power sources. The increase in availability, access, and reliability of power supply is expected to (a) increase productivity of businesses and services in the selected regions through reducing costs of electricity services for industries which will shift from high cost and CO2 emitting individual generators to grid connection; (b) improve the availability and quality of social services; and (c) accelerate social transformation and welfare of residential consumers. 29. The proposed project is well aligned with the recently adopted Country Partnership Framework (CPF) FY18–2315. It contributes specifically to the CPF objective 7 “Better access to energy and water services through improved management of utilities” and Indicator 7.1 “increased access to electricity in urban and rural areas.” The CPF confirms the role of electricity access to boost agricultural productivity and economic growth (third pillar) and to promote women’s empowerment, economic diversification, and resilience (key cross-pillar objectives). The framework also underlines the impact of higher electricity supply in supporting Ebola recovery plan. 30. The proposed project is anchored in the World Bank’s twin goals of ending extreme poverty and boosting shared prosperity and will contribute to the human capital project. Timely investments to expand access to electricity in rural areas and foster economic growth are foundational to the achievement of the twin goals. Low access to electricity tends to undermine poverty eradication efforts. Energy is also a key driver of socioeconomic development and an important means of improving equity and reducing poverty. Access to electricity is also key for delivery of quality social services, such as health and education, and expansion of electricity supply services is essential for continued economic growth in Guinea. The project will create synergies with other World Bank investments in agriculture and health in selected secondary cities of Dubreka, Forecareah, and Kindia to increase the development impact in these areas. The proposed project will sustainably build capacity of electricity sector institutions’ staff, local small and medium enterprises (SMEs) to provide electricity services connections, house wiring, and private operators involved in the development of mini grids. 31. The proposed project benefits from a US$20 million allocation from the IDA18 FCV Risk Mitigation Regime (RMR) and is well aligned on the RMR objectives and Implementation Note for Guinea. The Implementation Note for the IDA18 RMR that was annexed to the recent CPF describes the role played by poor service delivery, in particular the lack of access to electricity and the frequent electricity shortages, in the mistrust of state institutions on the part of the population, which has frequently translated into violent indignation. The note emphasizes the need to address these grievances through quick wins and longer-term improvements at the local level. It states that through the RMR, the World Bank program in Guinea will increase access to electricity in urban and rural areas and support EDG in its efforts to meet the challenges of electricity distribution in Conakry, the secondary cities, and rural areas. It also mentions that in addressing the inadequacy of electricity tariffs, it will also be important to pay close attention to the potential social and political unrest that any tariff increase could cause if not managed carefully. The project will support EDG in increasing electricity access and improving the reliability of the supply, both in urban (including Conakry) and rural areas. The ESMAP TF0A7498 will assist 15 Guinea - Country partnership framework for the period FY2018-FY23, report # 125899 Page 19 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) to analyze the adequacy of the tariff structure and the impact of potential tariff increases on household consumers. The RMR allocation will enable the GoG to improve the network conditions through rehabilitation of distribution network and hence reduce power outages and social discontent. 32. The proposed project is well aligned with the principles of ‘Maximizing Finance for Development’. It brings financing for the construction of network infrastructure where commercial financing is not considered viable given the weak financial position of EDG, and the inability of recovering investment costs from newly connected consumers. The project however supports private sector participation in independent concessions for the creation of mini grids in a sustainable manner based on the lessons learned from the World Bank-financed PERD in Guinea, in cases when private ventures can be profitable assuming an adequate level of subsidy for investment costs is provided. The rationale for public financing for electricity access in Guinea is that (a) electricity access rates are still low in the country and access is a development priority to spur more widespread, equitable economic growth; (b) the current sector structure presents significant uncertainties and risks which deter private investment; (c) high capital investment cost of access in rural and remote areas for consumers who have a limited monthly consumption and low ability to pay renders provision of unsubsidized access impractical; (d) cross subsidies from wealthier existing customers and industries to finance new connections have limitations due to current tariff structures, early stages of the electrification process, and generally low incomes of the population (that is, too few wealthy customers and industries, pending the development of the mining sector); and (e) as long as the cost of supply is well above the tariff, private sector financing is not feasible without substantial financial support from the GoG, funded through concessional financing to avoid a negative impact on the Government budget deficit. Virtually every country in the world has recognized the public good aspect of electricity access and has provided some element of concessional finance to promote access in rural, remote areas and for lower income and vulnerable consumers, especially at the early stages of development. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 33. The Project Development Objective (PDO) is to increase access to electricity in selected areas of Guinea16. PDO-Level Indicators 34. The expected PDO indicators are the following: (a) People provided with new or improved electricity service (CRI), of which female (number) (b) People provided with new electricity service with IDA financing (number) 16 Main selection criteria include the following: (i) technical criteria: priority will be given to areas that are closer to the existing interconnected grid where the cost of electrification is low; (ii) financial criteria: priority will be given to areas with low poverty incidence, high potential economic development and high affordability of electricity consumption; and (iii) commercial criteria: priority will be given to regularization of illegal connections in urban areas and then to new densely populated areas. Page 20 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) (c) People provided with improved electricity service with IDA financing (number) (d) New or improved electricity service connections with IDA financing (number) B. Project Components 35. The proposed project will be the cornerstone of the SWAp. Specifically, the project will combine financing for energy access investments and support to EDG’s revised commercial policy to increase revenues, with TA and capacity strengthening to establish the SWAp framework and institutional mechanism for coordinating the contributions of the other donors. The program implementation will start with regularization of illegal connections and densification of grid extension in sub-urban areas (low- hanging fruits) in Conakry and regional cities connected to the national grid, including Dubreka, Maneah, Coyah, Forécareah, and Kindia. Specific gender activities will be carried out to ensure that women will be further represented in the workforce in the energy sector and that as consumers they will benefit from access to electricity to improve their livelihoods. 36. The proposed lending instrument is a four-year Investment Project Financing (IPF) financed by IDA and AFD. The proposed project will be co-financed with the AFD.17 AFD’s financing will be a parallel co-financing, where the investments depend on one another to reach the national access targets, but with separate investment locations. The financing of AFD will follow the World Bank’s procurement and safeguard guidelines. Joint safeguards instruments have been prepared. Other donors with whom discussions are ongoing, including the AfDB, European Investment Bank (EIB), and IsDB, will provide parallel financing at a later stage. Program-for-Results was considered as an alternative instrument; however, it was not judged a viable option, given that the implementing entity (EDG) is overstretched with performance improvement under the MSC and the capacity for procurement and safeguards implementation is still limited. IPF is an appropriate instrument for Guinea. Project Components 37. The proposed project will comprise three components. Component 1: Reinforcement and expansion of grid access in selected areas and reduction of illegal consumption (US$86.5 million equivalent, including US$31.5 million from IDA and US$55.0 million from AFD) 38. This component will provide the financing needed to expand access to electricity services to multiple market segments in selected areas where the interconnected grid can reach, based on the timing and number of connections included in the electricity access program adopted by the Government in 2017. This component will focus on improving and expanding electricity access in urban and relatively high-density areas with demonstrated capacity to pay. This component also includes financing for the supply and installation of last mile connection equipment, including smart meters for large consumers, prepaid meters, and ready boards for low voltage customers. Any connection charges related to internal 17 In the AFD-World Bank co-financing framework, there are two types of co-financing: joint co-financing and parallel co-financing. This will be a parallel financing with each donor fully financing activities in separate locations. The World Bank will manage the project implementation and AFD will pay project management fees. Page 21 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) house wiring and opening accounts with the utilities concerned are expected to be marginal and paid by the consumers. It will include three subcomponents. 39. Subcomponent 1.1: Regularization of illegal connections in Conakry (US$16.0 million, including US$6.0 million from IDA and US$10.0 million from AFD). This subcomponent will finance the supply and installation of standardized materials to regularize about 100,000 illegal and unsafe connections in the urban areas in Conakry (Kaloum, Ratoma, Matoto, Matam, and Dixinn), where distribution networks have been rehabilitated. The regularized connections will be equipped with new consumption meters (mostly prepayment). Regularization of illegal connections will target as priority relatively large consumers who may consume most of the illegally supplied electricity and will be expanded gradually to smaller consumers, while managing carefully the potential sociopolitical reactions to regularization in certain areas. Accompanying citizen engagement measures will be implemented to ensure full understanding and support from the community. 40. Subcomponent 1.2: Rehabilitation and extension of distribution networks of Maneah, Dubreka, and Coyah in Greater Conakry (US$49.5 million, including US$20.5 million from IDA and US$29.0 million from AFD). This subcomponent will finance supply of materials for rehabilitation and construction of about 295 MV/LV substations, MV and LV lines, connections, and installation of meters in the three districts of Maneah, Coyah, and Dubreka that are in critical need of distribution network rehabilitation. These investments will reduce technical losses in the network and connect about 56,100 new customers including 50,400 single-phase and 5,600 three-phase customers. x Subcomponent 1.2.1: Rehabilitation of distribution network in Maneah (US$20.5 million from IDA). The project will finance the construction of about 19.1 km of MV lines of 148 mm 2 cross- section and 70 mm2 for public lighting, construction of 34.5 km of MV lines with 54.6 mm2 and 70 mm2 for public lighting, construction of 121 distribution substations (250 kV transformers), 262.7 km of LV lines, and 9,100 public lighting spots. It will finance about 28,400 household connections including 25,560 single-phase and 2,840 three-phase connections. It will finance the removal of obsolete infrastructure including 43 substations, 11.9 km of MV lines, and 14 km of LV lines. x Subcomponent 1.2.2: Rehabilitation and extension of distribution network in Dubreka (US$17.0 million from AFD). The project will finance the construction of about 10 km of MV lines of 148 mm2 cross-section and 70 mm2 for public lighting, construction of 46 km of MV lines with 54.6 mm2 and 70 mm2 for public lighting, construction of about 12 km double circuit/148 mm2 MV lines, construction of 111 distribution substations (250 kV transformers), 149 km of LV lines, and 5,900 public lighting spots. It will finance about 12,000 household connections including 10,800 single-phase and 1,200 three-phase connections. It will finance the removal of obsolete 9 substations, 7.2 km of MV lines, and 4 km of LV lines. x Subcomponent 1.2.3: Rehabilitation and extension of distribution network in Coyah (US$12 million from AFD). The project will finance the construction of about 22.5 km of MV lines of 148 mm2 cross-section and 70 mm2 for public lighting, construction of 25.2 km of MV lines with 54.6 mm2 and 70 mm2 for public lighting, construction of 63 distribution substations (250 kV transformers), 75 km of LV lines, and 3,600 public lighting spots. It will finance about Page 22 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 15,600 household connections including 14,040 single-phase and 1,560 three-phase connections. It will finance the removal of obsolete infrastructure including 13 substations, 6 km of MV lines, and 4 km of LV lines. Figure 2. Map of Donors Financing Rehabilitation and Extension of Distribution Network in Greater Conakry Source: EDG, 2018 41. Subcomponent 1.3: Rehabilitation, densification, and extension of distribution networks in secondary cities of Forecariah and Kindia (US$21.0 million, including US$5.0 million from IDA and US$16.0 million from AFD). This subcomponent will finance the upgrading of an existing substation in Kindia and two existing MV lines to be able to densify and extend the distribution network in these secondary cities and localities along the MV lines. This will involve the rehabilitation and construction of new MV lines, installations of new MV/LV transformers, associated distribution (LV) networks, and consumption meters to new customers. Specifically, the subcomponent will finance the following activities: (a) reinforcement of the existing 75.16 km/117 mm2/20 kV MV line Maneah-Forecareah that is overloaded to be able to supply Forecareah, improve quality of services for the existing 15,000 customers, and supply new customers in surrounding areas; (b) densification of the distribution network in Forecareah center and connect about 4,000 new customers; (c) reinforcement of the existing 15 MVA/110 kV/15 kV Kindia substation that is extremely overloaded by adding in two new transformers 40 MVA/110 kV/20 kV to be able to meet the current increasing demand of the city; and (d) rehabilitation, densification, and extension of the distribution grid in Kindia and connect about 34,000 clients. Page 23 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 4. Activities to Be Financed under Rehabilitation, Densification, and Extension of Distribution Network in Kindia and Forecareah Area Activity Estimated Costs (US$, millions) Kindia Upgrading the existing substation 110 kV and densification 4.5 Upgrading the existing 20 kV line Donkeah-Kindia 1.5 Rehabilitation, densification, and extension of distribution and 10.0 new connections Forecareah Upgrading of the 90 km MV line Maneah - Forecareah 2.5 Distribution grid densification and new connections (4,000) 2.5 Total 21.0 42. The proposed network reinforcement investments in Subcomponents 1.2 and 1.3 will rebalance transformer loads, as many of EDG’s distribution transformers supplying Conakry and other grid- connected cities are heavily overloaded and have to be switched on/off manually on a daily basis to avoid damage. The reinforcement will, therefore, reduce power outages and technical losses, improving the quality of supply for connected users while allowing a fair management of electricity sales and consumption. The installation of new transformers is expected to make available enough capacity to provide electricity to previously unelectrified households and profitable business customers in the localities along the MV line. Component 2: Electrification of remote localities with privately operated hybrid systems (solar PV with storage/diesel) mini grids (US$7.0 million equivalent, including US$3.5 million from IDA and US$3.5 million from AFD) 43. This component aims at setting up a pilot of privately operated mini grid subprojects in about 10 locations which are not expected to benefit from the national grid connection in the next 10 years under current least-cost electrification plan. This component will build and improve on the previous World Bank- financed PERD. It constitutes the first phase of a long-term engagement in mini grids and it will be scaled up, should the pilot be successful, either through an additional financing, or financing from other donors that are participating in the Sector Wide Approach, to support the national off-grid program with an objective to electrify about 50,000 households by 2022. The pilot will promote a replicable PPP model including a targeted subsidy scheme or subgrant, to make the project tariff affordable with private sector equity financing. To maximize private sector interest in the pilot, localities that will benefit from this subcomponent will be prioritized based on the following criteria: (a) far from national grid to mitigate risk of grid encroachment, that is, more than 100 km away from the closest substation and more than 10 km away from any planned HV line; (b) high population headcount exceeding 1,000 households; (c) ability and WTP given the expected level of tariffs; (d) easy to moderate accessibility to the site to facilitate operations (that is, close to practicable roads); (e) existence and potential development of small and medium enterprises; (f) potential supply to social institution (health centers, primary schools, supply of drinking water, public lighting, youth centers, cultural centers, worship centers); and (g) expressed preliminary interest of private sector participation. Eligible localities in the areas where the World Bank has investments in agriculture and health will be selected. Private operators will be selected Page 24 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) competitively, as part of a transparent, fair, and open selection process. Most of the standard upstream documents such as concession agreements, business plans, and standard specifications were developed by the closed World Bank-financed PERD and will be reviewed in the execution of investments under this component. Prefeasibility studies conducted by AGER for the preselected sites will be used to prepare the competitive selection. The project will finance part of capital expenditure (CAPEX) as subsidies to reduce the price of electricity to end users. The expected subsidy level to each locality would be around 60–80 percent of the initial investments to reduce the electricity tariff to US$0.2 per kWh, which is considered to be affordable. Concessions agreements will be signed by the Minister in Charge of Energy, upon payment of equity contribution by the operator. The component is designed to maximize ownership to the private operator, while providing the required TA to AGER for administering and monitoring the PPP transaction, as well as support operators as needed. 44. The component will also support off-grid electrification innovations such as using telecommunication infrastructure power supply (developed by telecom operators) to electrify the surrounding eligible localities. Special attention will be provided to female entrepreneurs, female-headed households, and female customers through information campaigns. A social and gender approach will be applied in the rural communities to ensure equal access to electrification. Considering how closely women’s gendered responsibilities within the home are connected to their under-recognized role as energy consumers and producers, as well as energy entrepreneurs, mini- grid operators have an incentive to enhance women’s participation in mini-grid operations to increase sustainability of operations. Mini grids have the potential to spur productivity and thereby drive income-generating activity of micro, small and medium businesses, including home-based livelihoods. Applications of electricity in rural areas such as milling, grinding, carpentry, food processing, phone charging and tailoring help save the time, labor burden of men and women, and contribute to income-generating opportunities. The potential installation of multifunctional platforms18 that require electricity supply, will contribute to enhance women´s economic opportunities in rural settings. However, women’s access to productive resources and community participation are usually more restricted and limited. They often lack knowledge about business opportunities, technology options and maintenance services to equipment. In this context, information campaigns will be designed jointly by AGER, local women´s associations and gender-focused non-governmental organizations (NGOs) to effectively communicate the benefits of the energy access. Prior to that, a behavioral analysis and mapping exercise with the communities involved will be carried out to inform the gender-focused interventions implemented under this component. Component 3: Owner’s Engineer, access program coordination, technical assistance, capacity building, and project implementation support (US$15.0 million equivalent from IDA) 45. This component will center on establishing and/or strengthening the institutional capacity needed specifically for the access program implementation and social inclusiveness. It will complement the limited capacity-building support provided under the PSRP (P146696) to the MEH and EDG for the 18 The multifunctional platform consists of a diesel engine that can power a variety of tools, generate electricity for lighting and refrigeration or to pump water. Installation, management, and maintenance of the machines are community based, with registered women's associations responsible for these activities. This simple machine assists women with long and laborious chores and allows them time to generate new income streams. They have been implemented in several countries in West Africa, Guinea being one of them (UNDP 2010, UN Women Watch website). Page 25 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) implementation of the communication plan, operationalization of AGER and Autorité de Régulation des Secteurs de l’Electricité et de l’Eau (Electricity and Water Sectors Regulatory Authority, ARSEE), and other parallel TA activities financed by the AfDB and AFD on legal and regulatory framework of the sector. To that effect, it will include the following subcomponents. 46. Subcomponent 3.1: Owner’s Engineer (US$4.0 million from IDA). This subcomponent will finance services of consultant to support the implementing entity for Component 1 (EDG) to better supervise construction works. 47. Subcomponent 3.2: Establishment of the National Access Program Coordination Unit (SWAp Secretariat) to coordinate and optimize the support of donors for access through grid extension and mini grids (US$1.1 million from IDA). This subcomponent will finance the establishment and functioning of a SWAp Secretariat (Access Program Coordination Unit) within the MEH, composed of a coordinator, a program implementation M&E expert and power planning expert. The SWAp Secretariat will support the MEH to oversee Project Implementation Units (PIUs) in EDG and AGER for the grid extension and off-grid components of the access program, respectively. It will have no fiduciary role. 48. Subcomponent 3.3: Project implementation support (US$4.5 million from IDA). This subcomponent will finance the operationalization and running of the PIUs within EDG (including staff of the commercial unit involved in the implementation of new connections) for grid access, and AGER for off-grid access for the duration of the project. Specifically, costs will include (a) the recruitment of fiduciary, engineering, and safeguard consultants; (b) office equipment; (c) transport equipment needed for capacity development and supervision in the provinces; and (d) specialized consultants as needed. 49. Subcomponent 3.4: Studies and technical assistance (US$3.4 million from IDA). The subcomponent will finance (a) the update of the geospatial planning model taking into account cost reduction of off-grid technologies, specific technical studies for the electrification of the remaining regional capital cities, and the development of supply of electricity to industries and mines to reduce the financial losses of EDG through increased supply of electricity to large businesses with a high WTP; (b) TA to AGER for the implementation of projects—studies, planning and promotion; (c) TA for the MEH to define the role of SHS in the national access program and design financial incentives for market development following recommendations of the market assessment study financed by the ROGEP; and (d) any critical TA for the implementation of the project. 50. Subcomponent 3.5: Capacity building and social inclusiveness of access and regularization of illegal connections (US$2.0 million from IDA). The subcomponent will finance capacity-building program to strengthen staff skills and expertise to reinforce technical, commercial, financial efficiency, and gender equality in the energy sector within the MEH, AGER, and EDG. Following the World Bank´s experience in an electricity access project in Comoros19, a behavioral analysis and a mapping exercise will be carried out to evaluate the gender, social and trust dynamics related to commercial losses in the specific context of 19In Comoros, the national energy utility partnered with local women’s organizations to sensitize communities and raise awareness among 5,000+ energy customers. Through face-to-face advocacy, the women’s groups were able to build trust and improve accountability. As a result, 32 percent of unpaid bills have been collected from customers with low-voltage disc meters and prepaid meters and the number of outstanding bills dropped by 79 percent in 100 days in the two pilot regions. Page 26 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) the project. The results of these activities will contribute to design concrete interventions based on the needs of the communities involved. Engaging community leaders and women´s associations has proven to generate positive results. 51. This subcomponent will also finance TA activities to support enhancing women´s employment by improving recruiting, retention and promotion practices at EDG with a target of increasing the share of female staff at EDG staff by 3 percent. As of October 2018, there are 1,597 employees of which 280 (17.5 percent) are women working at EDG. This means that with that increase, women would represent 20.5 percent of the EDG workforce at the end of the project period in five years’ time. Consultations with EDG teams revealed that women are mainly concentrated in specific departments, such as communications, marketing or human resources, with a low representation of women as technical staff and managers in the sector. The Executive Committee is composed of seven members, all of which are men. In order to close gender gaps in technical and management positions, EDG will be encouraged to (a) publish job advertisements promoting women´s participation with inclusive language and implement non- discriminatory policies to fostering better working environment; (b) set up gender-sensitive program that may include internships, training and mentorship programs for young women students, but also from mid- career to management for retention and promotion of adult women; and (c) partner with relevant technical schools and educational institutions in Conakry to identify female students in technical careers and facilitate school-to-work-transition. C. Project Beneficiaries 52. Direct beneficiaries. The proposed project’s direct beneficiaries will include newly connected electricity consumers who do not currently benefit from electricity connectivity due to lack of distribution networks in urban and rural areas, including social institutions such as schools, health centers, religious centers, local administrative offices, and local businesses which will have an economic benefit with a special focus on rural female-managed businesses. The project will also provide targeted capacity-building support to stakeholders involved in project implementation such as the MEH, EDG, and AGER. EDG will also benefit from the regularization of illegal connections, which is expected to improve the company’s financial position. 53. Indirect beneficiaries. The grid rehabilitation subcomponents of the proposed project will help increase the reliability of the electricity grid. The project benefits not only the electricity consumers but the underserved population through job creation and improving the prospects for shared prosperity in Guinea. Increased equal access to electricity is a key element needed to generate income and jobs, as well as promote productive uses of electricity in urban and rural areas. Page 27 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) D. Results Chain Figure 3. Results Chain Chart E. Rationale for Bank Involvement and Role of Partners 54. The case for the World Bank’s engagement is compelling. The World Bank played an important role as the lead coordinating institution of the access program design and financing mobilization in Guinea. The World Bank will continue playing that coordination role in addition to investment financing. 55. A central challenge in the energy sector is strengthening EDG and AGER, the pivotal implementing agents for access scale up in the sector. Here as well, the World Bank’s role is key as it played a pioneer role in supporting off-grid electrification through the PERD. The World Bank facilitated the preparation and implementation of the MSC of EDG with a private operator. The World Bank has also served to keep the GoG abreast of relevant good practices for planning access and distribution. Page 28 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 56. The World Bank’s convening power is critical to rally other donors to support the implementation of the investment prospectus for access. This collective effort is key to meet the 2020 targets of the National Electricity Access Program. The AFD will commit Euro 50 million to the project under ‘parallel co- financing with services’ procedure, in line with the co-financing framework agreement signed in June 2018 between the World Bank Group and AFD. Other donors, such as the AfDB, the IsDB and the EIB are expected to support similar projects in the near term. The Arab Bank for the Economic Development in Africa, as well as the Saudi Fund for Development, have also shown interest to finance electrification projects in Guinea. Hence the value added of the World Bank’s support is threefold: (a) share unique experience with the SWAp approach; (b) help establish the institutional framework for a sustainable electricity access program; and (c) provide an example for, and help coordinate, support from other donors, private sector, and so on. 57. From a portfolio perspective, the project has strong complementarity with the current World Bank energy activities in Guinea. It builds on the outcomes of the PSRP, as EDG operational and commercial effectiveness are critical prerequisites to ensure that added customers do not impact negatively the quality of electricity service for current or future clients on the grid. Synergies are also expected to be created with the ROGEP. Table 5. Project Cost and Financing by Component Project Cost IDA Financing IDA AFD Financing Project Financing (US$, (US$, Financing (US$, millions) millions) millions) (%) Component 1. Reinforcement and expansion of grid access in selected areas and reduction 86.50 31.50 55.00 36 of illegal consumption Subcomponent 1.1: Regularization of illegal 16.00 6.00 10.00 38 connections in Conakry Subcomponent 1.2: Rehabilitation and extension of20distribution networks of 49.50 20.50 29.00 41 Maneah, Dubreka, and Coyah in Greater Conakry Subcomponent 1.3: Reinforcement, densification, and extension of distribution 21.00 5.00 16.00 24 networks in secondary cities of Forecariah and Kindia Component 2: Electrification of remote localities with privately operated hybrid 7.00 3.50 3.50 50 systems (solar PV with storage/diesel) mini grids Component 3: Owner’s engineer, access program coordination, technical assistance, 15.00 15.00 0.00 100 capacity building, and project implementation support 20The World Bank will finance the construction rehabilitation and extension of distribution network in Maneah and the owner’s engineer while the AFD will finance rehabilitation and extension of network in Coyah and Dubreka. Page 29 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Project Cost IDA Financing IDA AFD Financing Project Financing (US$, (US$, Financing (US$, millions) millions) millions) (%) Subcomponent 3.1: Owner’s engineer 4.00 4.00 0.00 100 Subcomponent 3.2: Establishment of the National Access Program Coordination Unit (SWAp Secretariat) to coordinate and 1.10 1.10 0.00 100 optimize the support of donors for access through grid extension and mini grids Subcomponent 3.3: Project Implementation 4.50 4.50 0.00 100 support Subcomponent 3.4: Studies and technical 3.40 3.40 0.00 100 assistance Subcomponent 3.5: Capacity building and Social inclusiveness of access and 2.00 2.00 0.00 100 regularization of illegal connections Total Financing Required 108.50 50.00 58.5021 46 F. Lessons Learned and Reflected in the Project Design 58. The design of this project has benefited from relevant lessons learned from similar rural electrification operations in Africa and beyond, as well as other completed and ongoing World Bank- financed projects in Guinea, including in the energy sector. 59. Strong Government commitment, strong institutions, and clarity of roles among institutions involved were key to success in most electrification projects. Meeting ambitious electrification targets requires strong Government commitment and strong public sector support and should be viewed as a long-term investment in social welfare. The capital costs of establishing new connections in rural areas typically exceed US$1,000 per new connection including grid extension and connection fees. Consumers in rural areas initially consume small amounts of electricity, falling generally within the subsidized segment of tariff structure, the so-called ‘social’ tariff. The social tariff cannot meet the capital costs of establishing new connections in rural areas. Thus, rural electrification must be viewed as a long-term investment in social welfare. Investment in rural electrification is not profitable within the time frames normally considered attractive to the private sector unless they can be blended or supplemented with resources from the public sector. A clear institutional structure for project implementation with efficient and motivated implementing agencies and with adequate human capacity is key for successful project implementation. Project institutional and implementation challenges need to be addressed during implementation. 60. Deploying mini grids where main grid will not reach within a reasonable time and integrate productive uses in design are key to the success of decentralized electrification. Grid-compatible mini grids will be built where (a) the main grid will not reach on time, with provisions for synchronization with the main grid; and (b) off-grid electrification does not meet the energy needs in a cost-effective manner, 21The AFD’s financing is Euro 50 million. This figure keeps changing with respect to the exchange rates of Euro versus U.S. dollar. Page 30 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) in the sense that the selection of mini grid location will carefully consider the potential for productive use of electricity. 61. The project will build on the lessons learned from the closed World Bank PERD (P042055): (a) emphasis on the need of AGER for adequate support and capacity building to be able to fully support PPP transaction and monitoring, as well as private developers of mini grids during project implementation, and (b) shift from full diesel fuel to relatively cheap solar PV with battery storage and diesel fuel at peak hours. 62. Engaging broadly with all relevant stakeholders is fundamental to successful project design. This includes all levels of government, private sector, development partners, financiers, and consumers. During preparation, the GoG/World Bank team has sought to consult with all these actors. Numerous project details were designed to address specific concerns that arose. Ongoing collaboration with development partners, including AFD, AfDB, and IsDB, is being actively pursued. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 63. A Project Steering Committee, composed of representatives of the main stakeholders, including the President Office, the Prime Minister’s Office, the MEH, the Ministry of Economy and Finance, the Ministry of Budget, the Ministry of Planning and Economic Development, the Public Procurement Control Authority, EDG and AGER, will be established. EDG's ability to use funds and to exercise fiduciary responsibilities effectively will be further enhanced. A PIU will be created within EDG, accountable to the Steering Committee and to the management of EDG. This PIU will have fiduciary management capacity (for example, for financial management [FM] and procurement) and environmental and social safeguard management with procedures that meet the requirements of the World Bank and AFD and other donors who would join later. EDG already has experience with the management of distribution system rehabilitation projects under the World Bank, AFD, AfDB, and IsDB financing. The fiduciary management and safeguards team of current PSRP (P146696) will be maintained and strengthened to manage this project. The PIU within EDG will be responsible for deploying the network by outsourcing connections to private companies. The commercial unit of EDG will be involved in administrative, financial, and commercial activities related to the implementation new connections. A Project Implementation Manual (PIM) describing roles and responsibilities of different actors will be prepared before the disbursement under Component 2. 64. For the execution of Component 2 of the project, AGER will be the executing agency. It will expand its capacity acquired under the World Bank-financed PERD (P042055) to implement such a project. AGER will be involved in the selection of private operators and provide them with the required TA to implement their business plans. The MEH will sign concession agreements, on AGER’s recommendation, with the selected operators. The newly created Electricity and Water Sectors Regulator, ARSEE, will not initially be involved in the regulation of mini grids. The PIM will describe roles and responsibilities of AGER and ARSEE during the implementation of Component 2. Page 31 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 65. EDG’s PIU and AGER’s PIU will have the responsibility for the day-to-day management of the project and coordination of project-related activities, including (a) ensuring the timely implementation of the project in accordance with the PIM; (b) preparing annual work plans and budgets and annual procurement plans (PP); and (c) assuming overall responsibility for, among others, such fiduciary tasks as procurement, FM, M&E (for example, developing and maintaining a system for monitoring the project’s key performance indicators), communications, and environmental and social safeguards (ensuring adherence to the safeguard documents). As part of the project’s implementation arrangements, an Owner’s Engineer will be contracted to assist the PIU of EDG to implement Component 1. EDG’s PIU will assist the implementation of Component 2 by AGER, as the environmental safeguard specialist and the social and gender safeguard specialist hired by EDG’s PIU will support AGER’s PIU in its role. EDG will also hire an external auditor for the whole project. Figure 4. Implementation Arrangement B. Results Monitoring and Evaluation Arrangements 66. The project-level M&E framework will track progress during implementation, measure intermediate outcomes, and evaluate project impacts. The Results Framework outlines key performance indicators, data collection methods, frequency of collection, and responsible agencies. This framework will be used to supervise and monitor project implementation. Page 32 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 67. The PIUs (EDG, AGER) will be responsible for the overall monitoring and reporting of project progress. Both EDG and AGER will monitor their respective activities and send progress reports to the SWAp Secretariat which will add M&E data and information on its components, consolidate, and send overall project progress reports in a form and substance satisfactory to the World Bank. The MEH, EDG, and AGER will convene frequent meetings to review progress and address issues that arise. 68. Progress reports will be prepared for at least each semester during project implementation and will be submitted to the World Bank no later than 30 days after the end of the period covered by the reports. Monitoring of results and outcomes, in accordance with the project Results Framework (Section VI of this document), will be reported in the project progress reports. The project outcomes will be assessed through surveys before (for baseline), during, and after project implementation. An M&E specialist of the PSRP will be retained at SWAp Secretariat to implement and coordinate all M&E activities under the project. Furthermore, the World Bank will supervise the project over its lifetime and monitor its results and outcomes on a regular basis to evaluate the achievement of the PDO and implementation performance. 69. A project midterm review will be carried out two and-a-half years after project effectiveness. The midterm review will provide the opportunity to thoroughly assess overall project performance in achieving the development objectives and ensure that lessons learned are taken into account during implementation over the remaining period. Adjustments, including funding reallocation and implementation arrangement changes, and wider restructuring to build on the approaches that work best will be discussed, agreed, and implemented as necessary. C. Sustainability 70. The sustainability of the Guinea energy sector and the investments financed under this project will depend upon (a) the GoG’s continued commitment to support a power sector reform program, including the implementation of a tariff adjustment process that will progressively reduce Government subsidies; (b) the financial health of EDG and its ability to generate sufficient revenues to fully cover its expenditures; (c) the ability of new consumers to pay the electricity consumption once connected; and (d) EDG’s ability to maintain and operate the assets sustainably. The project is part of a large sector development program to invest in lower cost hydropower generation to reduce the supply costs; reform EDG to improve management performance, reduce losses, and increase tariffs and revenues; and expand access. The project’s impact on EDG’s financial deficit is marginal and it will not significantly contribute to increasing subsidies. The project will support activities to promote the productive use of electricity in selected areas for mini grids. The involvement of private sector in the mini grid will ensure sustainability of service delivery. The financial restructuring of EDG to be implemented within 12 months after effectiveness and the tariff adjustment and compensation methodology to be adopted within 3 months after effectiveness of the project, which are covenants of the project, will constitute a foundation for the financial sustainability of the sector. 71. Implementation of the NLCEAP requires strengthening of institutions in charge of electrification. To this end, the project will provide TA to EDG, AGER as well as the Program Coordination Unit within the MEH. Page 33 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic, and Financial Analysis Technical 72. The proposed project includes works and equipment related to rehabilitation/reinforcement and construction of MV and LV distribution lines to expand access to electricity. The project does not present any unusual design, construction, and operational challenges. The technologies such as single-phase and three-phase connections, metering with smart meters and prepayment meters, hybrid solar PV with storage, standards, and guidelines to be used are well-known and proven in Guinea. The investments are selected based on the national least-cost access rollout program investment prospectus, which details investments’ requirements for access expansion in Guinea for 2016–2020 and defines eligibility and selection criteria to guide prioritization of areas to electrify. The design, including technical parameters and estimated project costs for the grid reinforcement and extension component are based on a feasibility study prepared by international reputable consultants for EDG. Economic Analysis 73. World Bank’s added value. The World Bank Group has over the years been a close partner of EDG in the development of its electricity sector through TA as well as investments in transmission and distribution. The World Bank is therefore well positioned to continue its commitment to the expansion and modernization of electricity supply in Guinea, also building on its experience in similar projects in the region. Due to its convening power, the World Bank can effectively coordinate with other development partners such as AFD to address the urgent need to improve electrification rates in Guinea as part of the National Electricity Access Program. The magnitude of the challenges and resources required to improve the electricity sector in Guinea depends on a sustainable collaboration among stakeholders over the long term. 74. Rationale for public sector financing. EDG is a financially weak utility with little or no access to commercial loans for capital-intensive projects. The long tenor and low return on capital for investment projects such as distribution network rehabilitation for a low customer base make them unattractive for private sector financing. If available, commercial loans would only increase the burden on the stretched public utility. Moreover, improvement in the low electricity access rate in the country is dependent on Government support in the form of subsidies for the utility as well as for connection costs. For these reasons, it is highly unlikely that a private investor would finance the proposed investments. 75. The proposed project will deliver benefits to the end consumers of electricity (households, commercial, and industrial enterprises) through (a) expanded access to electricity and (b) improvement in quality of service for consumers already connected through the reinforcement of the overall distribution. The economic analysis was carried out for Components 1 and 2 of the project following the standard cost-benefit framework. The approach estimated the economic benefits to the beneficiaries of the project by conservatively calculating avoided costs. Details of the analysis are shown in Annex 6. Page 34 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 76. Component 1 will (a) (Subcomponent 1.1) regularize about 100,000 illegal connections22 whose consumption would most likely reduce once legal, thereby providing savings in avoided generation costs for EDG; the analysis assumes 25 percent less consumption than the average; (b) (Subcomponent 1.2) rehabilitate and extend the distribution networks in Maneah, Dubreka, and Coyah regions of Greater Conakry and connect 50,000+ customers resulting in benefits from reduced technical losses and supplying electricity at an economic cost below consumers’ WTP (estimated based on avoided costs of lighting and appliances services such as candles, batteries, kerosene, alternative diesel-based generation); and (c) (Subcomponent 1.3) reinforce, densify, and extend the distribution network in the secondary cities of Kindia and Forecareah, resulting in benefits accrued through the reduction in losses and meeting unserved demand, valued according to (b). 77. Component 2 will provide economic benefits to the remote villages that will be connected to the mini grids accruing from the avoided costs of alternative modes of supply for lighting and appliances services using candles, batteries, kerosene, or small diesel generators. Small businesses, schools, health centers, and other institutions will substitute diesel generators with connection to the mini grid, the avoided cost of which is estimated at US$0.36 per kWh. For the 8,000 households connecting to a mini grid, the benefits are calculated as the avoided cost of alternative lighting options in urban areas, estimated at US$6.75 per month per customer. Financing under Component 2 will target high-income remote villages. 78. The overall project is economically viable with a baseline economic internal rate of return (EIRR) of 14.3 percent and net present value (NPV) of US$402 million without greenhouse gas (GHG) reduction, and EIRR of 15 percent and NPV of US$431 million with GHG reduction as shown below. Table 6.EIRR and NPV EIRR EIRR (excluding CO2) (percent) 14.3 EIRR (including CO2) (percent) 15 NPV (at 6 percent discount rate) NPV (excluding CO2) (US$, million) 402 NPV (including CO2) (US$, million) 431 79. Although much more difficult to quantify, access to electricity will enhance the economic opportunities of connected communities and has also been shown to contribute toward improved quality of education, health, and overall quality of life. To the extent that renewable energy displaces fossil fuels (kerosene/candles), global environmental benefits would also accrue from reductions in carbon emissions. Costs associated with the investments include both capital expenditures and operating and maintenance costs, including periodic refurbishment. There will also be benefits from the impact of actions focused on social inclusiveness and gender equality, which are not quantifiable. 22Out of 100,000 connections to be regularized, IDA will finance regularization of 37,500 connections and AFD will finance regularization of 62,500 connections. Page 35 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 80. Sensitivity analysis in the form of switching values has been performed to the economic analysis to test the robustness of the economic results to changes in the cost components of the project. The analysis is performed as a stress case scenario, assuming all capital expenditure (CAPEX) or operating expenditure (OPEX) components increase at the same time. The results show that the project remains economically viable if the CAPEX increase remains below 260 percent, and the OPEX increase remains below 280 percent. Separately, the CAPEX increase must remain below 410 percent and OPEX remain below 470 percent for the project to maintain its economic viability. Financial Analysis 81. The financial analysis of the overall project illustrates that it is viable, largely due to the large financial contribution of legalizing many illegal connections to the total revenues of EDG. The consumption of the regularized customers is expected to reduce in response to being legal and receiving regular invoices. This reduction has been assumed to be 25 percent for the purposes of the analysis. New connections in the secondary cities with network expansion and densification will also generate additional revenue for EDG albeit to a lesser extent. 82. To be conservative, the financial analysis does not assume tariff increases in line with the progressive annual electricity tariff increase proposed in the power sector financial model of the utility, that will enable the sector to reach a cost recovery tariff. The overall financial internal rate of return (FIRR) is 12.07 percent with an NPV of US$331 million, largely attributed to the pace in improvement of billing collection rate. The implementation of the activities of the IRP of EDG, namely, (a) the new commercial management system since January 2018; (b) the Revenue Protection Program for large consumers; and (c) the rollout out prepayment meters, will significantly increase the commercial performance, especially the billing collection rate of EDG. 83. Given the fragile situation of EDG, the financial impact of the project to EDG cash flow was also assessed using the model. As depicted in Table 7, the net cash flow contribution from the project to EDG overall cash is positive largely due to the financial gains to EDG of legalizing many illegal connections in the Conakry areas. On the other hand, even though connections in the regions with network extension and densification will also contribute to increasing the financial revenue for EDG, the development of access in remote areas represents a financial burden as the cost of supply to rural areas is even higher than the cost of supply in areas presently served. In addition, retail tariffs of US$0.10 per kWh remain below average costs of service of US$0.25 per kWh. EDG will therefore continue to rely on subsidies from the Government until the tariff adequately reflects costs to EDG of supplying electricity. Consequently, the project’s contribution to EDG’ cash flow will be negative until 2021, whereby the cumulative cash flow becomes positive. However, the impact of added customers will be marginal, and the regularization of illegal connections aim to offset those losses. Table 7. Impact of the Project on EDG Cash Flow Project Impact 2018 2019 2020 2021 2022 2023 2024 2025 Annual project impact on EDG cash flows (US$, 0 (291) (623) 11,893 13,307 17,040 13,505 12,768 thousands) Page 36 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Project Impact 2018 2019 2020 2021 2022 2023 2024 2025 Cumulative project impact on EDG cash flows (US$, 0 (291) (914) 10,978 24,285 41,326 54,831 67,598 thousands) 84. An assessment of the project impact on EDG was also carried out and it showed that the project will have a positive impact on EDG’s EBITDA, starting from 2021 when the initial commercial operation commences. The impact will grow with the full implementation of the project starting from US$18 million (33 percent) in 2021 to US$33 million (26.0 percent) in 2026. Table 8 summarizes the impact assessed. Table 8 Project Impact on EDG’s EBITDA - Base Case 2018 2019 2020 2021 2022 2023 2024 2025 2026 US$, million (Projected) Annual EDG EBITDA −121 −5 71 55 90 128 136 123 126 Annual Project EBITDA 0 0 0 18 20 26 27 27 33 Project EBITDA impact as (%) of EDG EBITDA 0 0 0 33 23 20 20 22 26 85. Greenhouse gas (GHG) accounting has been analyzed for the project,23 which will result in GHG emission avoidance by replacing usage of kerosene, gasoline, and diesel in households, businesses, and institutions. GHG accounting analysis shows that the project will result in net reduction of 470,689 tCO2eq of GHG over 30 years. 86. Climate co-benefits. At the project appraisal stage, assessment estimated climate co-benefits to be around 9 percent of total IDA commitment, equivalent to US$4.5 million. B. Fiduciary Financial Management (FM) 87. A FM Assessment was conducted on the FM arrangements for the project that will be implemented by EDG and AGER. 88. The objective of the assessment was to determine: (a) whether these implementing entities have adequate FM arrangements (planning, budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements) to ensure that project funds will be used for purposes intended in an efficient and economical way; (b) project financial reports will be prepared in an accurate, reliable and timely manner; and (c) the project’s assets will be safeguarded. The FM assessment was carried out in accordance with the Financial Management Manual for World Bank IPF Operations that became effective on March 1, 2010 and was last revised on February 10, 2017. In this regard, a review of the FM arrangements has been conducted for the above entities as detailed in the following paragraphs. 23 Using World Bank guidelines described in ‘Greenhouse Gas Accounting Methodology for Energy Access Investment Operations’. Page 37 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 89. EDG has experience in managing financial resources of the World Bank-financed PSRP. The FM specialist of the PSRP will carry out the FM management responsibilities of the project and will be strengthened with an experienced accountant. 90. The overall FM risk for AGER is rated Substantial because AGER lacks experience and familiarity with World Bank-FM procedures. The project will finance an experienced accountant to support AGER, and the Director of Administration and Finance of AGER will be trained on FM of World Bank-financed projects. Financial Management Action Plan 91. The FM Action Plan described in Table 9 has been developed to mitigate the overall FM risks. Table 9. FM Action Plan for AGER Action Responsible Timeline Party Prepare and adopt implementation manual including AGER Before disbursement fiduciary procedures Install project accounting software or customize current AGER Three months after effectiveness accounting software to generate project financial report and statement Recruit an accountant with qualifications and AGER One month after effectiveness experience satisfactory for the World Bank Table 10. FM Action Plan for EDG S.A. Action Responsible Timeline Party Prepare and adopt implementation manual including EDG Before disbursement fiduciary procedures Install project accounting software or customize current EDG Three months after effectiveness accounting software to generate project financial report and statement Recruit an accountant with qualifications and EDG One month after effectiveness experience satisfactory for the World Bank Recruit an external auditor (for AGER and EDG activities) EDG Five months after effectiveness 92. The FM staff of AGER will be trained on World Bank’s FM procedures and guidelines. Procurement 93. The Recipient will carry out procurement for the proposed project in accordance with the World Bank’s ‘Procurement Regulations for IPF Borrowers’ (Procurement Regulations) dated July 2016 and revised in November 2017 and in August 2018, under the New Procurement Framework; the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, dated July 1, 2016; and other provisions stipulated in the Financing Agreements. Page 38 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 94. A procurement capacity and risk assessment has been carried out by the World Bank. It recognizes that EDG has implemented World Bank-funded projects including the ESEIP (P077317) and the ongoing PSRP (P146696) and is familiar with World Bank procurement procedures stated in the old guidelines. However, in view of the size and scope of the project, the multiple levels of implementation, the limited prior experience in procuring and managing World Bank procurement through the New Procurement Framework, the overall procurement risk is rated High. A procurement specialist will be hired to implement Component 1 of the project within the EDG PIU. 95. Procurement shall be carried out by PIUs located within EDG and AGER. The PIUs will be composed of existing staff from EDG and AGER, reinforced as need be by consultants that will be procured and financed under the project. All procuring entities as well as bidders and service providers, that is, suppliers, contractors, and consultants, shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with Paragraph 3.32 and Annex IV of the Procurement Regulations. 96. The Recipient with assistance from the World Bank, has prepared a Project Procurement Strategy for Development (PPSD) which describes how procurement activities will support project operations for the achievement of PDOs and deliver value for money (VfM). It considers institutional arrangements for procurement; roles and responsibilities; thresholds, procurement methods, and prior review; and the requirements for carrying out procurement. It also includes a detailed assessment and description of the state government’s capacity and the implementing agencies for carrying out procurement and managing contract implementation, within an acceptable governance structure and accountability framework. Other considered issues include the behaviors, trends, and capabilities of the market (that is, market analysis) to respond to the PP. The country presents a fragile socio-political situation with limited market capacity. The main consultant selection, will be for an Owner’s Engineer, and will be subject to international competitive selection (SFQC method). The main contracts for works are related to rehabilitation and extension of distribution networks and connections. They will be subjected to international tender process. Concessions for mini grids development in rural areas under PPP framework will be tendered internationally. There are no complex supplies of goods and services, both national and international tenders will be used, based on the contract amounts. A summary of the PPSD is provided in Annex 5. 97. AGER is composed of former staff of the World Bank-financed PERD (P042055) implementation unit but the institution has no institutional procurement capacity. A procurement analyst will be hired to implement Component 2 of the project. 98. Private operators to develop mini grids will be selected as part of a transparent, competitive selection process open to local and international mini grid operators. Selection criteria will be highlighted in the call for proposals. 99. Systematic Tracking of Exchanges in Procurement (STEP). The project will use STEP, a planning and tracking system, which will provide data on procurement activities, establish benchmarks, monitor delays, and measure procurement performance. The first 18-month Procurement Plan (PP) has been approved at negotiations and shall be submitted through STEP. This PP shall be updated at least annually. Page 39 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) All procurement to be carried out under the project shall be included in the PP and prior cleared by the World Bank. C. Safeguards Environmental Safeguards 100. Environmental and social assessment category and safeguard policies triggered. The project triggers five safeguard policies: OP/BP 4.01 (Environmental Assessment), OP/BP 4.04 (Natural Habitats), OP/BP 4.36 (Forests), OP/BP 4.11 (Physical Cultural Resources), and OP/BP 4.12 (Involuntary Resettlement). The project is Category B as the rehabilitation and extension of distribution networks (Subcomponent 1.2), the rehabilitation and construction of new MV lines, installations of new MV/LV transformers, associated distribution (LV) networks (Subcomponent 1.3) and the establishment of hybrid systems (solar PV/storage/diesel) mini grids (Component 2) are expected to generate potential social and environmental risks and negative impacts. The negative impacts are expected to be moderate and mostly site-specific with regard to the project scope. 101. Site-specific safeguard studies and framework approach. To be in compliance with OP/BP 4.01, an Environmental and Social Management Framework (ESMF) was developed by the borrower. The ESMF contains specific chapters to address all issues related to Natural Habitats, Forests, and Physical Cultural Resources. The ESMF was consulted and disclosed within Guinea on October 25, 2018, and by the World Bank on October 25, 2018. The ESMF outlines an environmental and social screening process, including institutional responsibilities for screening, review and clearance, and implementation of mitigation measures and monitoring, for future investments. The ESMF also provides procedures for handling ‘chance finds’ (Physical Cultural Resources - OP/BP 4.11, Natural Habitats - OP/BP 4.04, and Forests - OP/BP.4.36) during implementation project activities. In addition to the ESMF, an Environmental and Social Impact Assessment (ESIA) for the rehabilitation, densification, and extension of distribution grid in the districts of Maneah, Coyah, and Dubreka, which is the main project activity, has been prepared, consulted and disclosed in-country on November 7, 2018, and by the World Bank on November 7, 2018. 102. Safeguard institutional arrangements. The PIUs at EDG for grid access and AGER for off-grid access will be responsible for the overall monitoring and reporting of project progress, for the duration of the project. For this purpose, the PIU of EDG will have a qualified full-time social development and gender specialist and a qualified full-time environmental safeguard specialist with the role and responsibility of ensuring the project’s compliance with social and environmental safeguards for both components, including the component executed by AGER. The Bureau Guinéen d’Etudes et d’Evolution Environmental (Guinean Office of Environmental Study and Compliance - BGEEE) has extensive experience monitoring World Bank-funded operations in Guinea and has continuously dealt with World Bank safeguard policies, both in terms of project preparation and implementation. All project activities will be systematically subject to safeguard screening, which will determine which safeguard instruments are relevant to the subproject’s environmental and social risks and impacts and its mitigation measures. 103. Safeguard implementation and monitoring. The PIU will detail the safeguard screening and mitigation processes. Regular monitoring reports on the implementation of environmental and social safeguards provisions will be provided to the World Bank for approval. These reports will be verified Page 40 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) during project supervision missions, which will include environmental and social safeguard experts. The Financing Agreement requires the GoG to prepare and submit to the World Bank for prior approval and disclosure any required ESIAs including ESMPs in accordance with the ESMF, for the activities proposed to be carried out during implementation. Before commencing any works, the GoG will take all actions required by the ESMP and obtain the World Bank’s confirmation that the works may commence. Finally, the GoG, through the PIU, will report quarterly to the World Bank on the environmental safeguard measures taken through a specific Safeguard Monitoring Report and a summary of this report will be included in the periodic project progress reports. 104. Climate and disaster risk screening. The project was screened through the World Bank Climate and Disaster Risk Screening Tool. The screening exercise showed that the geographical location is highly exposed to extreme precipitation and flooding and moderately exposed to extreme temperatures in the future. Such conditions can affect power transformers, which can lead to substation or other distribution failures. The non-physical components of the project, capacity building, TA, feasibility/design studies and outreach will modulate and reduce the risk on the service delivery. The geographical location will also be highly exposed to drought in the future as annual average rainfall is expected to decrease, which will affect Guinea hydropower generation. This risk will be mitigated by increasing the use of thermal sources as well as interconnecting the national grid to West Africa Power Pool (WAPP) regional network after 2020. Social Safeguards 105. Social risks management. The project proposes to implement a line-up of infrastructure and technical assistance interventions for increased access to electricity in Guinea. Some of the proposed physical activities under Component 1 include the financing of electricity distribution network expansion to multiple market segments in selected areas where the interconnected grid in urban and relatively high- density areas with relatively high-income per household. It also proposes under Component 2 the setup of privately operated mini grids in selected locations in remote areas which are not covered by the national grid. Evidently, these interventions may result in (a) land acquisition and (b) impact on people and properties along the lines and so on. In response to these risks, OP/BP 4.12 (Involuntary Resettlement) is triggered. This requires project owners to (a) scope and assess the social impacts associated with subprojects; (b) undertake census, asset enumeration, and valuation of affected properties; (c) determine workable arrangements/framework for compensation payment; (d) initiate and sustain meaningful consultation with local communities with the aim to create awareness about the positive and negative impacts of the project; (e) resolve and/or incorporate stakeholder concerns in project design and implementation; (f) ensure client has budget for compensation; (g) hire experienced and well-qualified safeguards personnel; and so on. Some of the sites for investment are currently not determined and the project has prepared a Resettlement Policy Framework which has already been disclosed within Guinea on October 25, 2018, and by the World Bank on October 25, 2018. Site-specific Abbreviated Resettlement Action Plans and Resettlement Action Plans (RAPs) will be developed once sites are determined and involuntary resettlement is unavoidable. These RAPs will also be disclosed and implemented before civil works commence. For the rehabilitation, densification, and extension of distribution grid in the districts of Maneah, Coyah, and Dubreka, a RAP has been prepared, consulted and disclosed in-country on October 31, 2018 and by the World Bank on November 7, 2018. The RAP will be implemented before the commencement of civil works. Page 41 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 106. Gender. In the energy sector, women are under-represented in the workforce, indicating that the field remains male-dominated. In technical and leadership positions, women’s participation in the sector is still weak. From the energy users´ perspective, women are over-represented among the poor, especially in rural areas. They have more difficulties to access energy and they are mostly responsible for collecting traditional fuels and for using energy at the households. Women and girls are responsible for most of the domestic tasks, such as household cooking, which often puts them at greater risks of the negative health impacts of cooking with solid fuels24. Productive uses of energy through multifunctional platforms for instance might contribute to improving their livelihoods in different ways. 107. Gender data and monitoring and evaluation. Given the limited sex-disaggregated data available in the sector, attention will be paid in the project Results Framework to male and female-headed households’ and businesses access to electricity by mini grids, especially in the context of rural areas where a gender gap could possibly arise. Moreover, there will be a special focus on enhancing female employment at the EDG through a proposed employment program to attract more women to EDG’s new positions and to retain and promote women already working in the utility to management positions. Actions have been identified as part of the M&E system to track sex-disaggregated data related to the household and business connections, as well as to female employees at the EDG. The proposed gender- sensitive indicators are micro-, small-, and medium-size enterprises (MSMEs) with new electricity service, of which female headed MSMEs (Component 2); % increase of women in positions at EDG (Component 3). 108. Gender-based violence. Important social risks have been identified by the ESMF in other World Bank’s projects regarding the impacts of the labor influx for infrastructure construction. The arrival of outside workers for the construction and rehabilitation of energy infrastructure can have negative effects on the local population, especially on children and women. The types of civil works envisaged in the project are not expected to result in large numbers of workers from outside the communities; however, the project will be mindful of this risk and take appropriate measures to prevent and address the negative consequences. Often women and girls engage in transitory relationships with construction site workers, exposing themselves to different risks, such as sexually transmitted infections, including HIV/AIDS, teenage pregnancy, and gender-based violence. In this context, specific instruments as well as codes of conduct on gender-based violence will be incorporated into the tender documents and contracts for entrepreneurs, employees, and consultants to mitigate these risks and to provide guidance to remedy the situation if a problem of this nature takes place. 109. Citizen engagement. The citizen engagement plan will highlight methods to be used by the PIU to communicate with stakeholders who may be affected by the project including information and education campaigns as well as consultations that reach groups that typically do not have access to information (women, the poor, and youth), setting up ways for citizens (including disadvantaged groups). Citizens and civil society organizations are key partners in the planning and implementation of project activities and will be involved in monitoring and assessing implementation. Women’s groups and gender-focused NGOs and community-based organizations will also be consulted and involved in project implementation. This will help improve the economic, social, and environmental performance of the project, its sustainability, 24 Boîte à Outils Genre Énergie. AFD, 2015. Page 42 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) community ownership, gender equality, and transparency and accountability in implementation. In this regard, the PIM will include a specific section on citizens’ engagement. 110. Strengthening environmental and social safeguards and gender capacity. During appraisal, the World Bank safeguard team undertook an assessment of the capacity of the implementation agencies to deal with the above agenda, which proposed specific actions to address the identified capacity gaps. Strengthening the institutional capacity of the MEH, AGER, and EDG staff to recognize and address existing gender gaps in energy access, to treat equally female and male customers when providing assistance linked to electricity connections, and to monitor progress and results of gender-sensitive activities will require trainings and TA throughout the project implementation. This entails hiring a gender consultant, preferably with experience in energy access projects, to support the mainstreaming of gender in the project implementation. This will require assigning project funding to cover the costs of the gender consultant, the capacity-building activities, and monitoring and reporting on gender activities and results. 111. Grievance redress mechanism. The project design includes development of a proper grievance redress mechanism. The ESMF defined guidelines for establishing a project level grievance redress mechanism to manage any complaints that may arise during project implementation. Grievance management will aim at providing a two-way channel for the project to receive and respond to grievances from the PAPs, stakeholders, or other interested parties. EDG and AGER will establish a project level grievance redress and beneficiary feedback mechanism. The mechanism will help provide a forum for resolving grievances including GBV grievances and disputes at the lowest level, resolve disputes relatively quickly before they escalate to an unmanageable level, facilitate effective communication between the project and affected persons, and win the trust and confidence of project beneficiaries. 112. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. V. KEY RISKS . 113. The overall risk of the project is rated High, given the scope and nature of works to be supported by the project, the implementation arrangements, and the sector performance. The major risks and possible mitigation measures are discussed in table 11. Page 43 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 21. Risk Rating Summary Risk Rating 1. Political and Governance High 2. Macroeconomic Substantial 3. Sector Strategies and Policies High 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability High 6. Fiduciary Substantial 7. Environment and Social Substantial 8. Stakeholders High 9. Other: Sector Financial Viability Risk High Overall High 114. Political and governance. Risks in this area are assessed as High. The commitment of the GoG to reform the energy sector, particularly tariff increases, is dependent on the local social and political climate, and the ability of the Government to increase tariffs remain uncertain. The willingness of the GoG to implement politically unpopular measures of power metering and elimination of illegal connections will depend on the political economy of such reforms. In the absence of these reforms, the sustainability of the project may be called in question. Mitigation measures: The World Bank will support sector reforms through DPO and work hand in hand with the IMF program that also supports the implementation of tariff reform. The ESMAP TF (TF0A7498) and the IDA operation under implementation (P146696) will support the preparation of the communication campaign plan and its implementation to reduce resistance of the consumers against metering, regularization of illegal connections, and so on. 115. Macroeconomic. Although the macroeconomic policy framework is adequate, risks in this area are assessed as Substantial. Policy slippages, delays in structural reforms, and external vulnerabilities constitute important risks. External risks also include a further growth slowdown in China and advanced economies, which could reduce investment in Guinea and demand for its mineral resources; tighter or more volatile global financial conditions, such as a surge in the US dollar which could impair competitiveness and strain reserve buffers; and another decline in commodity prices. Mitigation measures: The country’s engagement in macroeconomic stabilization programs and budget support with development partners, particularly the IMF, the World Bank, the EU, and the AfDB, provide adequate safeguards against extreme deterioration of the macroeconomic situation. The on-going three-year IMF ECF program approved in December 2017 is an important mitigating factor. 116. Sector strategies and policies. Risks in this area are assessed as High. The energy sector is going through an institutional reform, with the establishment of a new rural electrification agency and a new independent regulator. EDG is facing financial distress and requires huge subsidies to survive, or substantial tariff increases. Hence, the sector’s financial viability is an area of high risk. It will take some time to reach financial equilibrium. The World Bank, through the PSRP, is providing support to EDG for further improvements in its operations through the MSC and beyond its expiration and associated investments to turn around operational and commercial performance. However, the sustainability of the Guinea Electricity Access Scale-up Project will depend critically on the timely adjustment of tariff and commercial improvement plan. The decision to revise tariff is politically sensitive, and the capacity of the Page 44 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) GoG to implement it on the required scale is untested. Mitigation measures: Through the DPO series, the World Bank team will maintain a close sector dialogue with the GoG and EDG to mitigate risks related to the sector’s poor performance. Through ESMAP TF (TF0A7498), the World Bank will support the communication plan to reduce resistance of the consumers against meters and nonpayment for electricity. The project will support EDG’s plan to connect large consumers such as industries and mines that would subsidize access. Ongoing interconnections will enable the country to export energy and generate more revenues. 117. Institutional capacity for implementation and sustainability. This risk is assessed as High. Institutional capacity for implementation of the national electricity access program is low resulting in significant risks to fiduciary integrity and sustainability of the broader access mechanisms established by the project. As AGER is newly established and though it is built upon the prior experience of the PERD, a learning curve is expected with regard to FM, procurement, safeguards, and contract management. This is despite some of the staff of the PERD being still in place and able to provide on the-job training to new recruits at AGER. The PIU of the ongoing electricity project at EDG is familiar with donors’ procedures, but its capacity to implement a program which will multiply the number of connections to be made annually by a factor of 10, coordinate and manage numerous contracts with local enterprises, and coordinate several subprojects involving several donors is untested and will need to be strengthened. The capacity of EDG to roll out meters has been limited given the resistance of the population and staff within EDG. Mitigation measures: The project will provide TA to the MEH, EDG, and AGER for the implementation. An Owner’s Engineer to supervise Component 1 of the project will be hired to support the PIU at EDG. An expert in rural energy will be hired to support AGER. IFC Advisory will provide assistance on business development to selected operators for Component 2. 118. Fiduciary. This risk was assessed as Substantial following the primary procurement risk assessment which considered the country’s overall procurement risk level and the limited capacity of AGER for fiduciary management. To mitigate this risk, the project will finance a procurement specialist and an accountant to strengthen the PIU of EDG, and a procurement analyst and an experienced accountant to support the PIU of AGER. A PIM will also be prepared by the client. 119. Environmental and social. The environmental risk of the project is rated Substantial. This reflects the risk on which the project will be implemented within EDG and AGER. The two institutions have low technical human capacity (environmental safeguards) to address all inadequacies identified by the environmental and social impact assessment. Mitigation measures: The project will reinforce the capacity of EDG and AGER by hiring safeguards specialists by EDG to support the implementation. The World Bank safeguards specialists will also support the implementation. 120. Stakeholders. This risk is assessed as High. The regularization of illegal connection is likely to face resistance of beneficiaries of illegal connections. This project is also co-financed by two different donors: the World Bank and AFD. If disbursement is delayed or suspended for a reason, it can jeopardize the results of the project. Mitigation measures: The project will finance a TA for community engagement campaign, in addition to a communication campaign supported by the PSRP to reduce resistance against regularization of informal connections and thefts. The team has designed the project components in such a way that activities to be financed by the two donors are independent. Close collaboration with the AFD team during the implementation will mitigate the risk. Page 45 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 121. Sector financial viability. This risk is considered High. The electricity tariff revenues cover only 45 percent of the cost of operations and maintenance. The overall sector financial viability depends on timely payment of the compensation of tariffs gaps by the Government, as well as on-time payment of its electricity consumption bills and the electricity bills of parastatals. Any substantial delay of the Government payment and accumulation of arrears by parastatals, will result in a cash flow deficit for EDG and will negatively affect its creditworthiness (that is, EDG will not be able to make timely payments to different suppliers, including IPPs and fuel suppliers). Furthermore, a sustained deterioration of EDG finances could affect its ability to borrow the capital needed for urgent infrastructure rehabilitation and for bolstering its operational performance. Mitigation measures: The MSC is expected to improve grid efficiency and commercial performance. The sector’s financial viability has been integrated in prior actions and triggers in the ongoing DPO series. The IMF program also supports financial viability of the sector. Finally, the cost of generation is expected to decrease with the commissioning of the Souapiti Hydropower Plant and other planned least-cost hydro and solar projects and subsidies are expected to lower significantly from 2020 onward. The financial restructuring of EDG to be implemented within 12 months after effectiveness and the tariff adjustment and compensation methodology to be adopted within 3 months after effectiveness of the project, which are covenants of the project, will enable the financial viability of the sector. Page 46 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) VI. RESULTS FRAMEWORK AND MONITORING25 Results Framework COUNTRY: Guinea Guinea Electricity Access Scale Up Project Project Development Objectives(s) The project development objective is to increase access to electricity in selected areas of Guinea Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 The project development objective is to increase access to electricity in selected areas of Guinea People provided with new or improved electricity 0.00 397,373.00 603,096.00 service (CRI, Number) People provided with new or improved 0.00 205,272.00 311,542.00 electricity service - Female (CRI, Number) People provided with new electricity service with 0.00 270,843.00 350,037.00 IDA financing (Number) People provided with improved electricity service 0.00 126,529.00 253,059.00 with IDA financing (Number) New or improved electricity service connections 0.00 59,150.00 89,900.00 with IDA financing (Number) 25 Intermediate targets refer to the Mid Term targets Page 47 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Component 1: Reinforcement and expansion of grid in selected areas and reduction of illegal connect Percentage of the population with access to electricity through grid extension and 0.00 2.70 3.74 regularisation of illegal connections (Percentage) Power outages per year in Maneah and Forecareah, imputable to the HV/MV substation 1,688.00 1,266.00 844.00 (Number) Regularized illegal connections in Conakry (IDA financing only) (Number) 0.00 37,500.00 37,500.00 Revenues of EDG coming from regularized consumers, per year (IDA financing only) 0.00 1,593,750.00 3,187,500.00 (Amount(USD)) New and rehabilitated MV/LV distributing lines in Maneah district (Kilometers) 0.00 158.00 316.00 Technical losses in Maneah district (Percentage) 24.50 20.00 15.00 Upgrade of the 20 kV MV line from Maneah to Forecareah (Kilometers) 0.00 45.00 90.00 Technical losses in Forecariah district (Percentage) 30.00 24.00 18.00 Component 2: Electrification of remote villages/localities with privately operated hybrid systems Localities electrified with privately operated mini grids (IDA financing only) (Number) 0.00 3.00 5.00 Schools, health centers and town halls connected 0.00 5.00 10.00 to the mini grids (IDA financing only) (Number) Micro-, Small-, and Medium-Size Enterprises (MSMEs) connected to the newly created 0.00 15.00 30.00 minigrids (Number) Page 48 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 of which headed by women (Number) 0.00 4.00 8.00 Percentage of the population with access to 0.00 0.11 0.22 electricity through mini grids (Percentage) Component 3: Owner’s Engineer, Access Program Coordination, Technical Assistance, Capacity building Staff trained within MEH, AGER, EDG and AREE (Number) 0.00 30.00 60.00 - of which female (Number) 0.00 8.00 15.00 Beneficiary satisfaction survey (Number) 0.00 0.00 1.00 Project-related grievances addressed under the 0.00 100.00 100.00 project grievance redress mechanism (Percentage) Percentage of women in positions at EDG (Percentage) 18.00 19.50 21.00 IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Project Monitoring Report. This indicator Project measures the People provided with new or improved Annually Monitoring number of people EDG and AGER electricity service Report provided with new or improved electricity service with IDA financing only. Page 49 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Project monitoring reports. This indicator Project measures the people People provided with new or Annually monitoring People provided with EDG and AGER improved electricity service - Female reports new or improved electricity service - Female The indicator measures the number of people provided People provided with new electricity with new electricity service service with IDA financing by grid extension and privately managed mini grids with IDA financing only number of people with improved services through information from People provided with improved electricity regularization and annual EDG reports EDG PIU/EDG service with IDA financing rehabilitation of distribution network in the project areas with IDA financing The indicator measures the number of households and New or improved electricity service non households provided connections with IDA financing with new or improved electricity services with IDA financing only ME PDO Table SPACE Page 50 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Percentage of the population with access to electricity through grid extension and regularisation of illegal connections The indicator measures the Project Power outages per year in Maneah and number of 250 kV Project monitoring Annually monitoring EDG Forecareah, imputable to the HV/MV transformers constructed or reports reports substation rehabilitated in Maneah district The indicator measures the Project number of illegal connection Project monitoring Regularized illegal connections in Conakry Annually monitoring EDG that were regularized in reports (IDA financing only) reports Conakry, for the portion of project financed by IDA The indicator measures the revenues of EDG coming Project Project Project Monitoring Revenues of EDG coming from regularized from regularized consumers, monitoring Monitoring EDG Report consumers, per year (IDA financing only) per year, reports Report for the portion of project financed by IDA The indicator measures the Project length of the new and Project Monitoring New and rehabilitated MV/LV distributing Annual Monitoring EDG rehabilitated MV/LV Report lines in Maneah district Report distributing lines in Maneah district The indicator measures the Projet Monitoring Annual EDG Technical losses in Maneah district level of technical losses in Report Maneah district Page 51 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) This indicator measures the Project Project Monitoring Upgrade of the 20 kV MV line from length of 20 kV MV line Annual Monitoring EDG Report Maneah to Forecareah upgraded from Maneah to Report Forecareah Project This indicator measures the Project Monitoring Annually Monitoring EDG Technical losses in Forecariah district technical losses in report report Forecariah district The indicator measures the number of localities Project Project Monitoring Localities electrified with privately electrified with privately Annually Monitoring AGER Report operated mini grids (IDA financing only) operated mini grids, for the Report portion of project financed by IDA This indicator measures the number of Schools, health Project Schools, health centers and town halls centers and local Project monitoring Annually monitoring AGER connected to the mini grids (IDA financing administration offices report report only) connected to the mini grids, for the portion of project financed by IDA Project Micro-, Small-, and Medium-Size The indicator measures the Project Monitoring Annually Monitoring AGER Enterprises (MSMEs) connected to the number of small businesses Report Report newly created minigrids connected to mini grids of which headed by women Percentage of the population with access to electricity through mini grids The indicator measures the Project Project Monitoring MEH, AGER, EDG and Staff trained within MEH, AGER, EDG and Annually number of technical staff Monitoring Report AREE AREE from MEH, AGER, EDG and Report Page 52 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) AREE trained under the projects - of which female Project The indicator measures if a Project Monitoring MEH, AGER, EDG and Annually Monitoring Beneficiary satisfaction survey beneficiary satisfaction Report AREE Report survey has been conducted. Project-related grievances addressed under the project grievance redress Project Project-related grievances addressed Project Monitoring mechanism, as a percentage Annually Monitoring EDG and AGER under the project grievance redress Report of project-related Report mechanism grievances registered under the project grievance redress mechanism Percentage of women in positions at EDG ME IO Table SPACE Page 53 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN COUNTRY: Guinea Guinea Electricity Access Scale Up Project Strategy and Approach for Implementation Support 1. The strategy for implementation support has been developed based on the nature of the project and its risk profile. The Implementation Support Plan has been designed to guarantee efficient and flexible support to the Client, facilitate implementation of the risk mitigation measures, and ensure that the implementing agencies implement the project successfully to achieve the PDO. It will also ensure that the World Bank’s resources and staff are sufficient to supervise and support project implementation. The World Bank team members will be based at headquarters, in the region and in the Guinea Country Office to ensure timely and continued coordination with the Borrower, perform close project implementation support, and provide advice on implementation issues as they arise. Implementation Support Plan 2. First phase. Technical implementation support will focus on ensuring timely establishment of the Access Program Coordination Unit and the PIUs at EDG and AGER, and that appropriate technical design of the project components is carried out. Additionally, the World Bank support under this phase will focus on the procurement process for concluding the tendering of the major infrastructure packages. In this regard, terms of reference (ToR) for the additional staff required for the PIUs at EDG and AGER have been prepared by the Client and reviewed by the World Bank to ensure that tasks are appropriately defined, and the required qualifications and experience are adequate to perform the key functions necessary for project implementation. The World Bank team will include staff and consultants, complemented with specialized expertise as required. 3. Second phase. After completion of the first phase, the World Bank team’s support will focus on construction process monitoring, contracts management, disbursements, and effectiveness of capacity building and TA activities. The World Bank team will include staff and consultants, with specialized expertise as required. Procurement and Technical Aspects 4. The World Bank procurement specialists will regularly participate in implementation support missions to assist in monitoring procurement procedures and plans. The World Bank team will include World Bank staff engineers, with specialized expertise, depending on the nature and scope of each component, to review project technical designs, specifications and proposals. Field visits will be carried out to the construction sites to monitor progress including environmental and social safeguards implementation. During the regular implementation support missions, the PPs will be updated at least once each year (or more often as required to reflect the actual project implementation needs), and post-procurement reviews will be carried out at a minimum once annually. Page 54 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Monitoring and Evaluation Aspects 5. In addition to monitoring the impact of the project on the ground, the World Bank team will be regularly reviewing the overall sector performance as a result of all the investments to the sector. FM Aspects 6. FM supervision will start by assessing the progress of the PIU staffing and reviewing the plan in place to execute disbursements following FM guidance. This supervision will take place before contracts are awarded in case improvement measures need to take place before disbursement. The FM supervision will also review quarterly progress and financial audits. A field-based FM specialist will dedicate at least eight weeks per year for project implementation support. Environmental, Social and Gender Aspects 7. Environmental safeguards support will include regular visits to project areas and the monitoring of mitigation measures. During construction, monitoring is necessary to ensure compliance with environmental and social safeguards related to the infrastructure projects. Senior environmental and social safeguard specialists from the region will supervise and support the implementation of the project and contribute to building the capacity of the client. The World Bank’s gender specialist will provide technical and advisory assistance to support the development of the gender-targeted interventions. Audit 8. The World Bank’s project team will closely monitor FM activities to identify in advance potential delays in the preparation of the financial and audit reports and undertake corrective measures. Project financial statements will be audited by an external auditor hired in EDG PIU under the project under ToR acceptable to the World Bank. Overall Support for Implementation Needs 9. The World Bank team should be composed of a mix of skills and experience for successful project implementation. Table 1.1 outlines the expected staff weeks and travel required to make sure the actions and schedule are appropriately resourced. Table 1.1. World Bank Implementation Support Time Focus Skills Needed Resource Estimate (US$, thousands) First 12 Preparation of procurement Engineering, procurement, FM, 200 months documents, implementation of the environmental, social and gender. ESIA and RAP. 12-48 Review of progress in construction and Engineering, sector regulatory and 300 months capacity building, review of sector planning, M&E specialist, financial technical and financial performance, analyst, environmental and social. Page 55 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) procurement, M&E, safeguards, and FM. Table 1.2. Skills Mix Required Number of Staff Number of Trips Comments Skills Needed Weeks per year Team leader 8 0 Field staff Rural electrification expert 8 4 From the region Procurement specialist 6 0 Field staff Environmental specialist 6 2 From the region Social development specialist 6 2 From the region Gender specialist 2 1 Specialized technical experts 2 As required Financial analyst 2 1 From headquarters Administrative support 3 0 From the field FM specialist 5 0 Field staff M&E expert 2 1 From headquarters Business development expert 8 4 From the region Page 56 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 2: DETAILED DESCRIPTION OF PROJECT COMPONENT 2 COUNTRY: Guinea Guinea Electricity Access Scale Up Project Component 2: Electrification of remote localities with privately operated hybrid systems (solar PV with storage/diesel) mini grids (US$7.0 million equivalent, including US$3.5 million from IDA and US$3.5 million from AFD) 1. This component aims at setting up a replicable framework for mini grid PPPs in Guinea, through the implementation of a pilot project for privately operated mini grid subprojects in about 10 locations that are not expected to benefit from the national grid connection in the next 10 years under the current least-cost electrification plan. To maximize private sector interest, communities to benefit from this subcomponent will be prioritized based on the following criteria: (a) far from the national grid to mitigate the risk of grid encroachment, that is, more than 100 km away from the closest substation and more than 10 km away from any planned HV line; (b) high population density headcount exceeding 1,000 households ; (c) ability and WTP given the expected level of tariffs; (d) easy to moderate accessibility to the site to facilitate operations (that is, close to practicable roads); (e) existence and potential development of small and medium enterprises; (f) potential supply to social institutions (health centers, primary schools, supply of drinking water, public lighting, youth centers, cultural centers, worship centers); and (g) expressed preliminary interest of private sector participation. The expected subsidy or subgrant level to each locality would be around 60 - 80 percent of initial investments. The project will create synergies with the ROGEP under preparation, to be executed by ECREEE, which is focusing on home-based solar systems. A. Lessons learned about electrification of localities by diesel generators under the 30-site private sector-led electrification project, the World Bank-financed PERD: 2. Key lessons from the PERD World Bank-funded 30-site private sector led electrification project, include the following: (a) The system was based on diesel generators only. Nowadays, solar has become cost competitive and hybridization has become technically and financially optimal. (b) The equipment and mainly their installation do not comply with the technical specifications for efficiency and sustainability, according to international standards. The quality of the mini grids is completely archaic where wires are fixed on substandard poles‘trunks or branches of trees’. The technical losses are very high. Electricity services are limited in time and quantity. Customers can abuse the use of ‘plugs’ by energy- consuming devices. The means of control are almost absent except for the occasional unannounced visits made by the operator who does not live in the village from time to time. Commercial losses are also very high. The sustainability of this project was not guaranteed. Page 57 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) (c) Viability of projects: The price per liter of fuel has increased dramatically from GNF 4000 to GNF 8,000–10,000, which affects the viability of the project on several levels: the cost of electricity service is high, the purchasing capacity of the electricity service by the population is low, and the number of potential customers who have benefited from limited electricity services is very low or 10–20 percent. This has considerably affected the revenues of private operators, most of whom eventually abandoned their projects. (d) Insufficient technical capacity of selected private operators and lack of ownership of projects by different stakeholders highlight the need for attention given to TA support to AGER and operators. (e) Lack of commercial acumen/motives. Some private operators/investors involved in the implementation of the projects had the objectives to help their localities of origin or political objectives and to a lesser extent, commercial and business objectives. (f) All these factors have led to rethinking the key aspects of the project including sites and operators’ selection, performance incentives and preferred technologies. It is expected that such improvements would allow better and more sustainable electricity services at an attractive cost and relatively accessible to different social strata. B. Building upon the relevant achievements of the PERD (a) The PERD developed a mechanism to screen local consulting firms capable of helping potential investors in preparing quality business plans. The same certification approach will be applied in the proposed project component. (b) The PERD put in place a certification procedure for local entrepreneurs capable of delivering construction services of good quality. Minimal technical criteria will be revised so that up to date, quality equipment is used in Guinea. (c) The PERD had organized a system of inspection for mini grids, although the lack of resources prevented it from providing sufficient technical and management support, which emerged as an important condition for sustainability. (d) The PERD designed a system for management of subsidies through an Electrification Fund coordinated with the Bureau d'Electrification Rurale Decentralisée (Office of Decentralized Rural Electrification, BERD) and screened local banks for providing commercial loans to mini grids when needed. (e) These mechanisms, procedures and operational manuals are still in place and will be reactivated and improved upon under the present project component, with TA to compensate for the loss of key staff in the BERD/AGER but by building on the experience acquired under the PERD by the remaining technical and administrative staff of the BERD, which has been transferred to AGER. Page 58 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) C. Appropriate business model: benefits of renewable-based hybrid mini grids for rural electrification in the context of Guinea 3. Renewable based hybrid systems are constituted by a combination of multiple technologies and energy sources, that is, one or multiple renewable sources (solar or wind, hydro, geothermal, biogas, and so on) coupled with a conventional source (fuel/diesel, natural gas), and storage as needed. Hybrid renewable- based systems constitute a combination adapted to rural locations which offer advantages: o Optimization of electricity generation costs, better management of systems and promising prospects for development in the context of rural electrification programs through mini grids. o The solar PV/diesel generator hybrid system is an optimized combination of two energy sources. PV solar panels produce the direct current electricity stored in batteries and then, connected to a mini grid running on alternating current through inverters that convert the direct current into alternating current. o The advantage of the hybridization of generators with PV solar panels and batteries is the optimization of operating costs, the optimization of the production costs of kWh and the offering an electricity service that is always available and reliable. 4. In this case the sharing of the use of both energy sources is as follows: Figure 2.1: Daily Demand Curve kW / kWh 2 3 1 1 0 6 12 18 24 hours Page 59 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 2.1: Demand Curve and Generation Technology Hourly Energy Source Advantages Disadvantages Range of Electricity Demand Batteries charged The battery provides Diesel generator: by solar PV electricity at a lower cost - Load factor of a generator is low, - The engine deteriorates From midnight to - Low efficiency 8:00 a.m. - High diesel consumption Low electricity - Cost of production of kWh demand increases - Profitability decreases Solar Energy Solar energy available to meet the needs of all users and charge From 8:00 a.m. to batteries 6:00 p.m. Diesel Generator Peak electricity demand - Solar energy not available is met - Batteries require a higher Generator operation is at investment and hence a higher 6:00 p.m. to full load cost of kWh midnight High efficiency High electricity Low kWh cost demand D. Ensuring affordability: prepayment and energy efficiency 5. Up-to-date mini grid systems usually include prepayment and energy efficiency as core to their business models. Together, they improve affordability for the rural poor and ease mini grid commercial operations from a private operator stand point. Their uses by private operators will be encouraged under the project. o Prepayment, just like for the grid, allows customers to pay for the energy upfront, in small quantities. It allows the rural poor to consume only the quantity of electricity they can afford, and to control their consumption accordingly. Most important, it is a key piece of commercial mini grid operations with drastically reducing commercial losses and community engagement issues for mini grid operators. Usually, smart meters are remote controlled, and allow operators to optimize their generation planning as well as detect both frauds and technical issues, toward ensuring continued quality services. Page 60 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) o Energy efficiency of appliances are critical to ensure affordability. In recent years, efficiency of appliances that are designed specifically for the off-grid market has rapidly improved, and further gains are projected (Figure 2.2). For instance, one classic incandescent bulb electricity consumption can power today one off-grid refrigerator, a TV and two LED bulbs. From a customer standpoint, it means that the cost of electricity services is drastically reduced, even if tariff is higher than usually sold in the country. Incidentally, the value of services is augmented, leading to increased WTP for it. Figure 2.2. Past and Projected Evolutions of Off-grid Appliances’ Energy Efficiency E. Localities’ pre-selection and selection 6. The pre-selection of localities will be made based on the following criteria: ƒ Distance from the existing and planned grid networks (100 km from substation and 10 km from transmission lines) – this will be an exclusion criterion ƒ Absolute number of households (above 1,000 preferred) ƒ Density of population (that is, high population density favors mini grid economics by reducing distribution system costs) Page 61 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ƒ Proximity to access road, to optimize operational costs ƒ Poverty levels (that is, as a proxy to ability to pay to be confirmed at the selection stage) ƒ Particular attention will be given to communities close to mining locations where electricity may be or have been provided for free in the past (to mitigate payment acceptability issues) 7. A total of 20 localities were preselected based on the criteria mentioned earlier. The pre-feasibility study carried out by AGER will inform the more detailed selection criteria (see in the following paragraphs) and allow the final decision on the 10 localities to be considered under the project. 8. The selection of localities proposed for electrification by private sponsors will be prioritized using the following indicative criteria. These criteria will be validated as part of tender preparation, including in consultation with private operators: ƒ Far from the national network to mitigate grid-encroachment risk ƒ Accessibility (that is, presence of roads), to facilitate construction and operations, as well as management and M&E ƒ The capacity to purchase electricity by the population: requisite survey before the decision of choice of the locality ƒ The existence of productive and income-generating activities ƒ Ownership of the project by the local authorities: sub-prefects and mayors ƒ The existence of public institutions: administrative offices, health centers, schools, cultural centers, youth centers ƒ The density of the population to optimize the implementation of the mini-network and justify the viability of the projects ƒ The typology of the construction of fireplaces to support electrical installations and fixing of cables, switches, sockets, and antennas for TV ƒ Economic nodes: the region where the locality is situated is known for its economic diversity: agricultural development and processing chain, fishing, mining, breeding, others ƒ The presence of mobile network in the locality. Page 62 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) F. Eligibility of private operators 9. The eligibility and selection criteria for operators to be used as part of the competitive tender will be further validated as part of tender preparation. Indicatively, these will include dimensions related to ƒ Commercially and business-oriented objectives; ƒ The ability to develop business plans - the decision to invest would be based on the criteria of the financial viability of the project; ƒ The financial capacity to participate in the investment as part of a PPP; ƒ Experience in the field of project management related to rural development, renewable energies and others; ƒ The availability of a team of qualified installers and commercial staff; ƒ Availability of logistics tools and resources; and ƒ Experience in the field of development and/or management of mini grids (desirable). G. Example of the electricity needs in a typical locality Table 2.1. Estimates of Electricity Requirements by Type of User and by Use User/Electricity Consumer Needs of Electricity per day (kWh/d) 1 household 0.5 (60 Wh/d–2 kWh/d) 1 health center 9 (7–10 kWh/d) 1 school 5 (2–5 kWh/d) 1 municipality office 0.5 (0.2–0.5 kWh/d) 1 subprefecture office 0.5 (0.2–0.5 kWh/d) 1 cultural center 0.5 (0.2–0.5 kWh/d) 1 income-generating activities 1 (0.5–2 kWh/d) 1 adduction to drinking water 15 (10–30 kWh/d) 1 public lighting point 0.6 (0.5–0.8 kWh/d) Page 63 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) H. Sizing of the hybrid power generation plant Table 2.2. Design of Power Generation Sources According to Locality Needs Madina Locality/Subprecture Maréla Dounet Kolaboui Beinty Bangouya Oula Households (number) 800 300 700 3,000 500 500 Subtotal electricity needs per 787 306 527 2,137 412 452 day (kWh/d) Annual subtotal (MWh/y) 287 112 192 780 150 165 Solar capacity (kW) 175 68 120 450 90 90 Diesel generator (kVA) 250–350 100–150 150–250 750–1,000 150–200 150–200 Note: This list is for reference only. Feasibility studies on the final list will be carried out before the development of business plans. I. Estimation of investments breakdown and unit cost (per kWh) of localities visited Table 2.3. Summary of Investment Data and Electricity Costs by Locality (US$, unless otherwise specified) Madina Locality/Subprecture Maréla Dounet Kolaboui Beinty Bangouya Oula Number of households 800 300 700 3000 500 500 Electricity needs (kWh/d) 787 306 527 2137 412 452 Annual production of 287,000 112,000 192,000 780,000 150,000 165,000 electricity (kWh/y) Electricity production over 20 5,740,000 2,240,000 3,840,000 15,600,000 3,000,000 3,300,000 years (kWh) Capacity of solar plan (kW) 175 68 120 450 90 90 Capacity of diesel generator 250–350 100–150 150–250 750–1000 150–200 150–200 (kVA) Initial investment of solar plant 830,000 323,000 570,000 2,137,000 427,000 427,000 Cost of diesel generator 40,000 35,000 35,000 80,000– 35,000 35,000 100,000 Cost of concrete poles 97,000 42,000 85,000 160,000 63,000 63,000 Cost of distribution network 30,000 13,000 26,000 75,000 19,000 19,000 (mini grid) Number of transformers 106,000 16,000 93,000 160,000 50,000 50,000 Initial investment 1,103,000 429,000 809,000 2,612,000 594,000 594,000 Maintenance cost with spare 440,000 172,000 324,000 1,000,000 240,000 240,000 parts (2% for 20 years) Investment over 20 years 1,543,000 601,000 1,133,000 3,612,000 834,000 834,000 taking into account maintenance costs Page 64 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Madina Locality/Subprecture Maréla Dounet Kolaboui Beinty Bangouya Oula Average consumption of diesel 125,000 50,000 92,000 285,000 70,000 70,000 (20 years)26 Total investment over 20 years 1,668,000 1,080,000 1,225,000 3,897,000 904,000 904,000 Cost of kWh production at 0.192 0.1915 0.21 0.167 0.198 0.18 initial investment27 Cost of kWh considering 0.268 0.268 0.295 0.232 0.278 0.252 maintenance (20 years) Cost of generation taking into 0.29 0.482 0.319 0.249 0.301 0.274 account diesel per kWh Purchase price by the customer 0.38 0.63 0.41 0.32 0.39 0.36 per kWh28 J. Subsidy per kWh 10. The subsidy has in fact two objectives: ƒ The electricity tariff to be accessible to the different social strata ƒ Sustainability and financial and economic viability of projects 11. As can be seen in Table 2.4, the estimated average selling price per kWh for maintenance, operation, and management costs could be as high as US$0.63. This cost remains attractive only for a small part of the population and does not justify the investment to be made for this purpose. 12. Option selected. The option selected is to set the purchase price of the kWh by the customer and grant a subsidy at the initial investment level taking into account the power plant and the mini grid. The subsidy will be calculated on the basis of the business plan presented by the private promoter and analyzed and validated by AGER. 13. Knowing that the proposed hybrid prepayment system would allow any household to benefit from electricity services in accordance with their financial capabilities and if we take the purchase price of kWh by the customer of US$0.20 considering that this price is affordable, the subsidy would range from 63 percent to 85 percent. This is an estimate; the calculation of the final subsidy will be done in two steps: o Through project feasibility studies; and o Through the business plan presented by private operators 26 Average fuel consumption for 20 years is based on the daily consumption throughout one year. This consumption depends on the capacity of the generator, consumption per hour and duration of consumption fuel price. For example: a generator of 150 kVA has a specific consumption of 35 liters per hour and fuel price is GNF 1,000 per liter. 27 Initial investment cost of the generation of electricity over 20 years. 28 Unit price of a kWh to the client with interest margin of the private operator, estimated at 30 percent. Page 65 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 14. In conclusion, taking into account (a) the estimates of investment budgets to be achieved for the generation of electricity through solar PV / diesel hybrid / storage power plants and the distribution of this electricity through mini grids and (b) the subsidy rates ranging from 63 percent to 85 percent of the cost of kWh, the electrification of a dozen rural communities (in this case, 10) would require a subsidy of about US$7 million. K. Activities for the implementation of project: 15. The next steps in the implementation of the project are summarized into the following main activities: (a) The final list of 10 localities out of 20 preselected: Confirm the selection of the list of localities to be considered to benefit from this electrification project (a minimum of 10 localities) and to be approved by AGER and MEH with the consensus of World Bank and AFD; (b) Conduct pre-feasibility studies for the 20 localities within the framework of the MEH / AGER / World Bank/ AFD consensus and the selection of 10 localities. These 10 localities will be proposed to private operators as part of the competitive selection; (c) Develop a business plan template that can be made available to private operators and develop the procedures for granting subsidies (adopt the business plan developed under the PERD); (d) Develop minimum technical and performance standards to be complied with by operators; (e) Organize a competitive selection process to select operators; and (f) Start the implementation of rural electrification projects. This activity includes several tasks related to promotion, awareness, coordination, planning, M&E, and so on. Page 66 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 3: NLCEAP TARGETS AND INSTALLED GENERATION CAPACITY COUNTRY: Guinea Guinea Electricity Access Scale Up Project Figure 3.1: Optimal Sequence of Electrification by Region Page 67 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 3.1 Capital Expenditures per Year under the NLCEAP Page 68 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 3.2 Summary of Investments and Connections Targets under the NLCEAP (2016-2020) Source: Castalia, investment prospectus for electricity access scale up in Guinea, 2017 Table 3.3 Ongoing Access Expansion Initiatives PSRP (WB) (Rehabilitation and extension of Rural Dixinn Rural electrification EU/AFD distribution electrification Projects PREREC.II PER component of (mini network + component (Donors) (AfDB+IsDB) (AfDB) Guinée-Mali hydropower regularization of of interconnector plants) illegal CLSG(AfDB) (AfDB) connections in Kaloum, Ratoma and Matoto disctricts 52304 en Number of 81000 60000 1600 10438 30000 Monophasé et connections 5587 en Triphasés Commitments 40,000,000 19,448,000 10,276,000 19,500,000 68,000,000 17,500,000 in US$ Page 69 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 3.4: Existing and Planned Power Plants Power plant Installed capacity (2017) Installed capacity (2022) (MW) (MW) Hydropower 474.37 1103.17 Interconnected grid 472.4 1101.2 Garafiri 75 53.8 Samou 47 47 Grandes Chûtes 27 27 Donkéa 15 15 Banéah 5 5 Kaleta 240 240 Kinkon 3.4 3.4 Souapiti 0 450 Korafindi 0 100 Mini hydro 60 60 Solar PV 0 100 Regional grid 1.97 1.97 Tinkisso 1.65 1.65 Samankou 0.16 0.16 Loffa 0.16 0.16 Thermal power 224.6 301.6 Interconnected grid 215.2 292.2 Kaloum 1 24 24 Kaloum 2 26 26 Kaloum 3 44.8 44.8 Kaloum 5 32.4 32.4 Kipé 50 50 Guinéenne d’Energie (GDE) 38 38 Import from Ivory Coast 0 27 Endeaver 0 50 Regional grid 9.4 9.4 Boké 2.4 2.4 Faranah 1.4 1.4 Kankan 2.8 2.8 N'Zérékoré 2.8 2.8 Total capacity 698.97 1404.77 Total demand 335 142129 Source: Castalia, investment prospectus for electricity access scale up in Guinea, 2017. 29 Total demand in 2022 including mining demand. Page 70 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 4: FINANCIAL MANAGEMENT ASSESSMENT COUNTRY: Guinea Guinea Electricity Access Scale Up Project EDG 1. A new PIU will be created and will have the overall fiduciary responsibility of the project. The FM arrangements for this project will be similar to the existing arrangements in place under the ongoing World Bank financed PSRP (P146696). The overall FM performance of this ongoing project is Satisfactory. Staffing has remained adequate and proper books of accounts and supporting documents have been kept in respect of all expenditures. The PIU is familiar with the World Bank FM’s requirements. The audit for the year ended December 31, 2016 for this ongoing project was submitted on time, and acceptable to IDA. The interim un- audited financial reports for the on-going project are also submitted on time. The FM specialist of the PSRP will manage FM aspects of the new project. A senior accountant will be recruited to support the new PIU. AGER 2. The FM assessment of AGER concluded the following: (i) capacity shortage in the areas of FM human resources; (ii) lack of familiarity of the FM team with World Bank-financed project procedures and requirements; and (iii) lack of project accounting software and efficient internal audit function. 3. The conclusion was that AGER could be in a position to manage World Bank’s funds once many measures are implemented to strengthen its current FM system: (i) preparation of a PIM including FM procedures; (ii) acquisition or customization of the accounting software to allow the recording of project transactions; and (iii) recruitment of a senior accountant supervised by the FM specialist of EDG. These actions will be completed on time to help implement the project. Planning and Budgeting 4. AGER and EDG will prepare a detailed consolidated annual work plan and budget (AWPB) for implementing the activities of the project. The AWPB will be submitted to the Steering Committee for approval and thereafter to IDA for no-objection, not later than November 30 of the year preceding the year the work plan should be implemented. Internal Control System and Internal Audit 5. Internal control system is designed to ensure (i) the effectiveness and efficiency of operations; (ii) the reliability of financial reporting; and (iii) the compliance with applicable laws and regulations. For this project, the accounting, financial and administrative procedures manual, to be developed, will document, explain and describe work processes, information flow, authorization and delegation of authority, timing, job segregations, auto and sequential controls, compliance with project objectives, micro and macro rules and regulations. Application of the procedures set up in the manual will be mandatory for all staff at all levels. The internal auditor recruited under project P160771 will extend his workplan to cover this new project. Page 71 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Accounting Arrangements 6. The prevailing accounting policies and procedures in line with the West African Francophone countries accounting standards—SYSCOHADA—in use in Guinea for ongoing World Bank-financed operations will apply. The accounting systems and policies and financial procedures used by the new project will be documented in the project’s administrative, accounting, and financial manual to be developed before effectiveness. EDG and AGER will purchase or customize the accounting software to meet the project requirements. This software should be capable of recording transactions and reporting project operations in a timely manner including preparation of withdrawal applications and periodic financial reports (unaudited interim financial reports (IFRs) and annual financial statements). The software should include budgeting, operating, and costs accounting systems to facilitate monitoring, evaluation, and reporting. Disbursement arrangements 7. Disbursements under this project will be carried out in accordance with the provisions of the Disbursement Guidelines (“World Bank Disbursement Guidelines for Investment Project Financing”, dated February 2017), the Disbursement and Financial Information Letters and the Financing Agreements. Funds will be disbursed against eligible expenditures incurred from the signing date of the Financing Agreement to the Closing Date specified in the Financing Agreement. Funds will be disbursed for 100 percent of eligible expenditures. 8. Disbursement categories and percentages. IDA will finance 100% of eligible expenditures for the project components. The table of eligible expenditures which sets out the allocation of financing proceeds to disbursement categories is shown below. Table 4.1 Expenditure categories Category Amount of the Credit Amount of the Grant Percentage of Allocated (expressed in Allocated (expressed in Expenditures to be SDR) SDR) Financed (inclusive of Taxes) (1) Goods, works, 18,100,000 4,700,000 100% non-consulting services, consulting services, Training and Operating Costs under component 1 of the Project for EDG. (2) Subgrants under 0 2,200,000 100% of amounts component 2.1 of disbursed, payable under the Project the respective Subgrants (excluding innovations) for AGER Page 72 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) (3) Goods, non- 0 3,600,000 100% consulting services, consulting services, Training and Operating Costs under component 2.2 (innovations) and component 3 of the Project for AGER. (4) Goods, non- 0 7,600,000 100% consulting services, consulting services, Training and Operating Costs under component 3 of the Project for EDG TOTAL AMOUNT 18,100,000 18,100,000 Interim Financial Reporting 9. The unaudited IFRs will be prepared every quarter and submitted to the World Bank regularly (for example, 45 days after the end of each quarter) and on time. The consolidated quarterly IFR for the project includes the following financial statements: (a) Statement of Sources of Funds and Project Revenues and Uses of funds; (b) Statement of Expenditures (SOE) classified by project components and/or disbursement category (with additional information on expenditure types and implementing agencies as appropriate), showing comparisons with budgets for the reporting quarter, the year, and cumulatively for the project life; (c) cash forecast; (d) explanatory notes; and (e) Designated Account (DA) activity statements. Annual Financial Reporting 10. In compliance with International Accounting Standards and IDA requirements, both implementing entities will produce annual financial statements. These include (a) a Balance Sheet that shows assets and liabilities; (b) a Statement of Sources and Uses of Funds showing all the sources of project funds and expenditures analyzed by project component and/or category; (c) a DA Activity Statement; (d) a Summary of Withdrawals using SOEs, listing individual Withdrawal Applications by reference number, date, and amount; and (e) notes related to significant accounting policies and accounting standards adopted by management and underlying the preparation of financial statements. The financial statements will be audited annually by the external auditor. Page 73 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) External Auditing 11. The external audit of the project’s funds will be done by a private audit firm acceptable to the World Bank based on ToR cleared by the World Bank. The audit will be carried out in accordance with the International Standards on Auditing. The audit report together with the Management Letter will be submitted to the World Bank within six months after the end of the financial year. The financial years for preparing audited accounts will follow financial year of the implementing entity. In addition, AGER and EDG will submit the audit report on consolidated financial statements and the Management Letter. 12. Audit reports will be publicly disclosed by the World Bank in accordance with the World Bank disclosure policy. Table 4.2 Due Dates of the Audit Report Audit Report Due Date Responsible Party Two audited financial (a) Not later than June 30 (2000 + N) if effectiveness has EDG and AGER statements including occurred before June 30 (2000 + N-1). audit report and (b) Not later than June 30 (2000 + N+1) if effectiveness has Management Letter (for occurred after June 30 (2000 + N-1). project and consolidated financial statement) for each entity. Page 74 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 5: PROCUREMENT 1. The Recipient will carry out procurement for the proposed project in accordance with the World Bank’s “Procurement Regulations for IPF Borrowers” (Procurement Regulations) dated July 2016 and revised in November 2017 and in August 2018, under the “New Procurement Framework” (NPF), and the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated July 1, 2016 and other provisions stipulated in the Financing Agreements. 2. A procurement capacity and risk assessment has been carried out by the World Bank. It recognizes that EDG has implemented World Bank-funded projects including the Electricity Sector Efficiency Improvement Project (P077317) and the ongoing PSRP (P146696) and is familiar with World Bank procurement procedures stated in the old Procurement Guidelines. However, in view of the size and scope of the project, the multiple levels of implementation, the limited prior experience in procuring and managing World Bank procurement through the New Procurement Framework, the overall procurement risk is rated ‘High’. 3. Procurement shall be carried out by PIUs located within EDG and AGER. The PIUs will be composed of existing staff from EDG and AGER, reinforced as need be by consultants that will be procured and financed under the project. All procuring entities as well as bidders and service providers, i.e. suppliers, contractors and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraph 3.32 and Annex IV of the Procurement Regulations. 4. The recipient (with assistance from the World Bank) has prepared a PPSD which describes how procurement activities will support project operations for the achievement of project development objectives and deliver Value for Money (VfM). The procurement strategy is linked to the project implementation strategy at sub-regional, country, and the state levels ensuring proper sequencing of the activities. It considers institutional arrangements for procurement; roles and responsibilities; thresholds, procurement methods, and prior review, and the requirements for carrying out procurement. It also includes a detailed assessment and description of state government capacity and the implementing agencies for carrying out procurement and managing contract implementation, within an acceptable governance structure and accountability framework. Other considered issues include the behaviors, trends and capabilities of the market (i.e. Market Analysis) to respond to the PP. 5. Consistent with the PPSD, the initial PP has been developed and agreed with the client, covering the activities of the first 18 months of the project implementation. The PP will be updated in agreement with the World Bank annually or as required to reflect the project’ s actual implementation needs and improvements in institutional capacity. 6. Staffing. A procurement specialist will be hired to implement Component 1 of the project within EDG PIU. Page 75 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 7. AGER is composed of former staff of the World Bank financed Decentralized Rural Electrification Project (P042055) implementation unit but has no institutional procurement capacity. A procurement analyst will be hired to implement Component 2 of the project. 8. Private operators to develop mini grids will be selected as part of a transparent, competitive selection process open to local and international mini grid operators. Selection criteria will be highlighted in the call for proposals. 9. Procurement methods. The borrower will use the procurement methods and market approach in accordance with the Procurement Regulations. 10. Systematic Tracking of Exchanges in Procurement (STEP): The project will use STEP, a planning and tracking system, which will provide data on procurement activities, establish benchmarks, monitor delays, and measure procurement performance. The first 18-months PP has been reviewed and cleared by the World Bank. This PP shall be updated at least annually. All procurement to be carried out under the project shall be included in the PP and prior cleared by the World Bank. 11. Operating costs: Operational costs financed by the project would be incremental expenses, including office supplies, vehicles operation and maintenance cost, maintenance of equipment, communication costs, rental expenses, utilities expenses, consumables, transport and accommodation, per diem, supervision costs, and salaries of locally contracted support staff. Such services’ needs will be procured using the procurement procedures specified in the PIM approved by the World Bank. 12. Record keeping: All records pertaining to award of tenders, including bid notification, bid opening minutes, bid evaluation reports and all correspondence pertaining to bid evaluation, communication sent to/with the World Bank in the process, bid securities, and approval of invitation/evaluation of bids will be retained by respective agencies and uploaded in STEP. 13. Disclosure of procurement information: The following documents shall be disclosed: PP and updates; invitation for bids for goods and works for all contracts; Request for Expression of Interest for selection/hiring of consulting services; and contracts awards for goods, works and non-consulting and consulting services. 14. Complaints handling: For the procurement-related complaints, the project will follow the procedure prescribed in the procurement Regulations (paragraphs 3.26 and 3.31). In order to deal with the complaints from bidders, contractors, suppliers, consultants and general public at large, a complaint handling mechanism will be set up and detailed procedure will be prescribed in the Procurement Manual. 15. Fiduciary oversight and procurement review by the World Bank: The World Bank shall prior review contracts according to prior review thresholds set in the PP. All contracts not covered under prior review by the World Bank shall be subject to post review during implementation support missions and /or special post review missions, including missions by consultants hired by the World Bank. Page 76 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 16. Contract management capability: The implementation agencies remain overall responsible for compliance to the agreed procurement procedures and processes and shall monitor the contractual performance including contract management issues, if any. 17. Project Procurement Strategy for Development (PPSD): The PPSD for the project has been prepared by the borrower during the project preparation and is summarized in the Table 5.2. 18. The project will comply with the new provisions of the National Procurement Code and the enforcement regulations provided that these provisions do not contradict those of the World Bank's Procurement Regulations. 19. In order to comply with the provisions of the Regulations and Procurement Procedures of the World Bank, the following measures will be applied in national competitive bidding to supplement or modify the applicable laws and regulations in Guinea: (i) The prior review of procurement documents by the World Bank; (ii) The inclusion in the tender documents of the provisions of the new World Bank Procurement Regulations, including the complaints mechanism; (iii) The application of the eligibility conditions defined in the World Bank's Procurement Regulations; Eligible bidders, including foreigners, must not be prevented from participating; (iv) Each competitive bidding record and contract shall specify that bidders and their subcontractors, agents or personnel will, at the request of the World Bank, authorize the inspection and audit of their accounts, records and other records. documents relating to the submission of tenders and the performance of contracts by auditors appointed by the Bank; and admit that the deliberate and material violation of such a provision may amount to obstruction; (v) With equal qualifications, the contracts are awarded to the lowest bidder; (vi) Publication of all contract awards; and (vii) The filing and archiving of project procurement files at the EDG and AGER level by the project. 20. Procurement risk and mitigation measures: Considering the level of perception of corruption in Guinea and the lack of experience of the PIUs, project procurement risk is rated as ‘High’. The main risks identified as potentially affecting project procurement and the mitigation measures to be implemented to reduce the risk to a ‘Moderate’ level are summarized in table 5.1. Page 77 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 5.1 Procurement risks and mitigation measures Responsibility/d Risk Level of risk Mitigation measure ate 1. Risk related to Recruitment of procurement specialist for EDG and a PIUs/one month limited capacity procurement analyst for AGER. An experienced High after in procurement regional procurement specialist will be hired for 12 effectiveness months to support the PIUs. 2. Risks associated x Solve all upstream environmental and social with issues (land acquisition, RAPs, and so on) in environmental advance High x Sensitize local authorities and opinion leaders on MEH and social aspects (land, social economic benefits of the project. impacts) 3. Institutional Program conflicts among Coordination Prepare a PIM for procurement for the PIUs. It will be many actors High Unit/ approved by the World Bank. involved in Disbursement procurement condition 4. Delays in the x Start preparation of ToR as soon as the PP is preparation of adopted. technical x Seek from the World Bank models and templates specifications of ToRs and tender documents/RFP for principal. Technical and ToR Departments of Substantial activities; EDG; x Outsource expertise to draft ToRs in case of PIUs limited in house capacity. x Regular monitoring of the implementation of the PP. 5. Difficulties to Hire consultant to elaborate technical specifications; consult users and beneficiaries of services. Technical quantify Moderate departments; procurement PIUs needs 6. Long x Reduce time for reviews and approval of tender Public Tenders procurement documents by the Government institutions and Regulation process the World Bank; Authority (ARMP); Public Substantial x Reduce time for bids evaluation; Tenders National x Reduce the number of actors involved in the Department awarding and signing of a contract. (DNMP); World Bank Page 78 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Responsibility/d Risk Level of risk Mitigation measure ate 7. Delays in x Reduce the number of actors involved in the contract signing awarding and signing of a contract; ARMP Substantial and awarding x Revise the ceilings for different sector institutions MEF involved in procurement. 8. Social unrest x Consider the presidential election agenda in the and political procurement planning; High PIUs instability risks x Sensitize opinion leaders and the population on the project activities. 9. Lack of knowledge of PIUs, six months the new Moderate x Capacity building of the involved actors. after the procurement effectiveness framework of the World Bank 21. As summary of PPSD, the major procurements include details in the Table 5.2. Table 5.2 Summary of PPSD Contract Name, Estimated World Selection Method/Market Evaluation Method Description and Category cost in Bank approach: • Rated Criteria US$/risk Review • National (VfM) rating • International • Lowest Evaluated • Open Cost • Limited • Direct • Single source • SBQC / SBQ etc. • Negotiations • BAFO Regularization of informal 16,000,000 Yes RFB / International, Open Lowest Evaluated connections in five US$/High Cost districts of Conakry Rehabilitation, 49,500,000 Yes RFB/ International, Open Lowest Evaluated Densification and US$/High Cost Extension of distribution network in Maneah, Dubreka and Coyah Page 79 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Upgrading of Substation 8,500,000 Yes RFB/ International, Open Lowest Evaluated and MV distribution lines US$/High Cost Reinforcement, 12,500,000 Yes RFB/ International, Open Lowest Evaluated Densification and US$/High Cost Extension of distribution networks in secondary cities of Forecariah and Kindia districts Electrification of 10 7,000,000 Yes PPP PPP localities with Mini grids US$/High Owner’s Engineer of the 4,500,000 Yes QCBS/ International, Open Rated Criteria construction works of US$/ High Rehabilitation, densification and extension of distribution network in Conakry and Secondary Cities consultants 4,000,000 Yes QCBS/ International, Open Rated Criteria US$/ High Note: RFB: Request for Bidding; QCBS: Quality and Cost Based Selection ; CQS: Consultant’s Qualification Based Selection Page 80 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 6: SUMMARY OF THE ECONOMIC AND FINANCIAL ANALYSIS COUNTRY: Guinea Guinea Electricity Access Scale Up Project The economic and financial analyses were performed based on the following main assumptions as listed in the table 6.1. Table 6.1 Assumptions Parameters Unit Value Economic Discount rate % 6 IDA Loan Rate % 0.75 IDA Grant % 0 AFD Loan % 1.10 Expected reduction in Electricity Consumption Rate % 25 Alternative Cost of Generation USc/kWh 19 Average Cost of Generation USc/kWh 14 Average Tariff USc/kWh 9 Willingness To Pay (WTP) USc/kWh 39 Minimum Collection Rate (2019) % 70 Maximum Collection rate (2024 onward) % 99 The tables 6.2 and 6.3 summarize the results of the economic and financial analysis. Table 6.2 Economic Analysis Results With GHG Reduction Without GHG Reduction PV(Benefits) 605,585 594,223 PV(Costs) -482,621 -482,621 Discount Rate % 6 NPV (@DR) 000 USD 431,141 402,323 EIRR % 15.0% 14.3% Benefit-Cost Ratio 1.3 1.2 Table 6.3 Financial Analysis Results Average WACC (cost of Capital) % 4.8 FNPV (@DR) 000 USD 330,879 FIRR % 12.07% Page 81 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 7: EDG FINANCIAL POSITION ANALYSIS COUNTRY: Guinea Guinea Electricity Access Scale Up Project 1. The financial viability of the sector is highly influenced by the financial situation of EDG as the sole state-owned electric utility. A financial analysis of EDG undertaken to assess its financial viability by analyzing the historical performances and the financial projections shows that the financial position of the company is weak and will materially improve from 2022 onward. A. Historical Operational Performance Analysis 2. EDG’s average cost of service which is around GNF 2,478 per kWh sold (US$0.272 per kWh) in 2015–2017 is considered relatively high. The cost of service followed a seesawing trend, decreasing by 25 percent in 2016 before increasing by 4 percent in 2017. This movement was due to both fuel price and the commissioning of the Kaléta dam. 3. The energy supply is mainly coming from the hydropower plants, including Garafiri and Kaléta which were commissioned in May 2015. As the country was facing load shedding, the Government was using IPP thermal plants with costly power purchase contracts, locked by a take or pay under a power purchase agreement (PPA). 4. The energy supplied by thermal IPPs, Kaléta, and Garafiri, and fuels were the main cost drivers of the company. The energy purchased from the IPPs (thermal, Kaléta, and Garafiri) represents 23 percent of the total cost of service in 2015, 47 percent in 2016, and 42 percent in 2017. Similarly, the fuel cost represents 14 percent, 16 percent, and 22 percent respectively of the total cost of service in 2015, 2016 and 2017. Table 7.1 shows the impacts of these drivers on the energy supplied cost. Table 7.1. Drivers of Energy Supplied Cost Elements Unit 2015 2016 2017 Energy purchased IPP GNF, million 510,048 1,042,117 1,067,852 Fuel GNF, million 310,431 347,363 552,846 Selling, General and Administrative (SG&A) GNF, million 1,044,679 502,478 259,201 Financial Charges GNF, million 48,576 254,762 48,031 Salaries GNF, million 110,301 119,397 132,553 Depreciation and Amortization GNF, million 248,952 200,600 507,118 Total Cost of Service (TCoS) GNF, million 2,224,411 2,211,955 2,567,601 Energy Sold GWh 759 1,003 1,117 Cost of service GNF/kWh 2,931 2,205 2,299 Source: EDG financial statements and Annual Report 2017. 5. EDG is facing significant losses on average around 35 percent, despite operating only MV and LV networks. The distribution networks are outdated, and the level of fraud is high and unsustainable. The company is tentatively trying, by investing in rehabilitation and reinforcement programs focusing on the distribution system, to resolve this situation and by introducing secured prepaid meters. Nevertheless, Page 82 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) more rehabilitation and reinforcement are needed in the distribution system. Table 7.2 shows the trend in demand, energy sold, and losses. Table 7.2. Demand, Energy Sold, and Losses Trend Elements Unit 2015 2016 2017 Energy supplied GWh 1,118 1,532 1,742 Energy sold GWh 759 1,003 1,117 Losses GWh 359 529 625 Losses % 32 35 35 Source: EDG financial statements and Annual Report 2017. 6. EDG’s commercial performance is poor, characterized by a low performance of the employees and inadequate and poor collection rate of state-owned enterprises and public administration. The revenue collected per kWh sold is below cost recovery, was around GNF 648 per kWh (US$0.071 30 per kWh) in 2015, increased to GNF 778 per kWh (US$0.0853 per kWh) in 2016 and further increased to GNF 808 per kWh (US$0.0886 per kWh). As a result of the low level of revenue collected relative to the cost of service, EDG experienced a negative margin albeit decreasing during 2015–2017 averaging 2.4 times the revenue collected per kWh sold. Table 7.3. Cost of Service and Deficit Trend Elements Unit 2015 2016 2017 Energy Sold GWh 759 1,003 1,117 Revenue per kWh Sold GNF/kWh 648 778 808 Revenue collected per kWh sold GNF/kWh 537 448 496 Cost of Service per kWh Sold (TCoS) GNF/kWh 2,931 2,205 2,299 Deficit per kWh Sold GNF/kWh 2,283 1,427 1,491 As a percentage of TCoS % 78 65 65 Deficit per kWh Sold - Including Subsidy & Others GNF/kWh 828 902 508 As a percentage of TCoS % 28 41 22 Deficit per kWh Revenue Collected GNF/kWh 2,394 1,757 1,802 As a percentage of TCoS % 82 80 78 Deficit per kWh Revenue Collected - including Subsidy & GNF/kWh 939 1,231 819 others As a percentage of TCoS % 32 56 36 7. Even with the operating subsidy provided by the Government and other revenues are accounted for, EDG is still facing a chronic deficit as the revenue from energy sale, subsidy and ancillary activities covers on average only 59 percent of the cost of service (during 2015-2017). 30 US$1 = GNF 9,125 as of September 30th, 2018 Page 83 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 8. The margins have been low or negative because of the level of losses and poor commercial performance. This latter is characterized by low energy sold by employees of around 477 MWh in 2015, increased to around 645 MWh in 2016 and reached 700 MWh in 2017. Referring to the collection, while there is an improvement in 2016 and 2017, the level is still very low when compared to the average collection rate realized by electric utilities in West Africa. Table 7.4 shows the evolution of the commercial performance indicators. Table 7.4. Commercial Performance Indicators Elements Unit 2015 2016 2017 Number of employees # 1,592 1,555 1,597 Number of customers # 238,469 246,527 271,249 Energy Sold MWh 759,000 1,002,852 1,117,358 Energy sold per Employee MWh/employee 477 645 700 Energy sold per Customer kWh/customer 3,183 4,068 4,119 Collection % 60 79 83 Source: EDG financial statements. B. Historical Financial Position Analysis 9. The financial performance of the company was poor from 2015 to 2017 despite the support provided by the Government through the operating subsidy. The profitability, liquidity, asset efficiency, and leverage are weak keeping the company in a poor financial situation. Profitability 10. EDG remains in deficit territory during the period. The operational margin was very low in 2015 and negative in the following two years. The operating charges were not covered by revenues collected, resulting in low and negative returns on equity during the last three years. The net margin ratio has oscillated between 1 percent in 2015, –111 percent in 2016, and 0 percent in 2017 even with the Government subsidy included. 11. The company is highly leveraged with no internally generated financial resources. The return on equity was slightly positive in 2015 and in 2017 (owing to the high injection of Government subsidies - three times the level of equity) but was in negative territory in between. It returned to breakeven in 2017, owing to a larger additional capital injection from the Government. Furthermore, the operational cash flow is negative and too low to cover the other cash expenses in all three years (2015, 2016 and 2017 without subsidy). Table 7.5 summarizes the company profitability position from 2015 to 2017. Page 84 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 7.5. Profitability Ratios Elements Unit 2015 2016 2017 Operating margin % 6 -86 -10 Net margin % 1 -111 0 Operating charges coverage ratio (+ subsidy) % 121 69 110 Return on equity (ROE) % 10 159 0 Return on capital employed (ROCE) % -38 -45 -37 Source: EDG financial statements. Liquidity 12. The liquidity of the company worsened during the period dropping from a weak current ratio position of 0.89 in 2015 to a weaker position of 0.50 in 2017. As a result, EDG was struggling to pay its current expenses accumulating thus mounting unpaid suppliers’ bills. The collection days trended up from 243 days in 2015 to 406 days in 2017 signaling an accumulation of receivables that may never be collected. Not surprisingly, the payables days followed the same trend, it went from 312 days in 2015 to 456 days in 2017 with an average level of 387 days on the period 2015-2017which is very high when compared to the average of West African utilities (60 days). On a positive note, the cash conversion cycle stayed negative, signaling that EDG is collecting faster than it is paying its suppliers. Finally, the day’s cash on hand improved in all three years from 17 days in 2015 to 34 days in 2017. Table 7.6 shows the trend of the liquidity ratios. Table 7.6. Liquidity Ratios Elements Unit 2015 2016 2017 Quick Ratio # 0.84 0.57 0.45 Current ratio # 0.89 0.59 0.50 Collection days Days 243 388 406 Days in payables Days 312 394 456 Cash conversion cycle Days -69 -6 -50 Days cash on hand Days 17 28 34 Source: EDG financial statements. Solvency 13. EDG is a highly indebted company that funds its investment with mainly debts which were twice as large as the equity of the company in 2015 and 2016. The debt/equity ratio improved in 2017 because of the repayment of half of the company’s long-term debt. Chronic deficit has fully eroded the net worth of the company. The company indebtedness ratio has gone from 94 percent in 2015 to 112 percent in 2017 which technically should be ground for declaring the company bankrupt and not legally be able to operate as going concern. 14. The utility is trapped in a ‘vicious circle’ characterized by a high indebtedness combined with a chronic deficit and a tariff which is not able to cover the resulting high costs. The debt ratio increased significantly during the period, while the short-term financial position was negative. The credit quality of EDG has been weak and was characterized by its inability to honor its debt service obligation, due to its Page 85 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) negative debt service coverage ratio during the period despite the subsidies from the GoG. The financial position of the company, which is practically in quasi bankruptcy is described in Table 7.7. Table 7.7. Solvency Ratios Elements Unit 2015 2016 2017 Leverage (debt/equity ratio) % 188 203 107 Indebtedness (liabilities/assets) % 94 123 112 Interest coverage ratio % -1,420 -214,008 -272 Debt Service Coverage Ratio (DSCR) % -1,420 -4,591 -272 Source: EDG financial statements. Asset Efficiency 15. The conservative commercial and collection policies have maintained a low level of receivables turnover during the period. It is expected that the introduction of prepaid meters combined with a strong communication and/or marketing plan will improve the receivables turnover. On the other hand, the payables turnover worsened in 2017 as EDG continues to have difficulties to pay its suppliers on time (Fuel and IPP). Finally, Fixed assets turnover remained relatively stable and within the range that is expected for assets of this nature. Table 7.8 shows the trend in the asset efficiency ratios. Table 7. 8. Asset Efficiency Ratios Elements Unit 2015 2016 2017 Receivables turnover number 1.499 0.941 0.899 Payables turnover number 1.382 1.714 0.856 Fixed assets turnover number 0.691 0.504 0.510 Source: EDG financial statements. C. Projected Operational Performance Analysis 16. The financial projections prepared by the World Bank Group finance team based on assumptions collected from EDG and validated by the World Bank Group finance team are the following: (a) Financial statements for FY2014, FY2015 and 2017, (b) Investment plan will be financed with concessional loan, (c) No subsidies are expected from the Government from FY2021 onward, (d) Tariff is increased on average by 25 percent in May 2018 for all customers except social and export categories, (e) Tariff is subsequently increased by 5 percent in 2019, 2020, and 2021 for all customer categories excluding social and export, (f) Tariff of export is increased by 2.5 percent (inflation rate) in 2019, 2020, and 2021, (g) The total energy sold in FY2017 was 1,742,736,358 MWh. Domestic energy sold growth is expected to be 25 percent in 2018 (regularization of illegal customers), 11 percent during Page 86 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) 2019- 2021 and on average 12 percent up to 2026 can be expected. EDG’s projections for new generation implementation plan are the following: a. Kaléta exports of 30 percent will start in FY2020; b. Souapiti exports of 20 percent will start in FY2022; c. Mining demand is pushed to FY2020; d. Baneah: one group 2.5 MW currently operational. It will operate at full capacity from FY2019 onwards after rehabilitation; e. Kaléta will start producing at maximum capacity in FY2022 when Souapiti is operational; f. Koukoutamba will start producing in FY2022 and a quarter (of 840 GWh) will be meant for Guinea; g. Sambangalou is likely to be onboard in FY2022 and a quarter comes to Guinea; and h. Imports from Côte d’Ivoire will come from FY2020 when CLSG is completed (27 MW). 17. EDG’s cost of service while already relatively high at GNF 2,300 per kWh sold (US$0.25 per kWh) in 2017, is projected to decrease by half starting in 2020 and will stay stable up to 2026, averaging GNF 1,194 per kWh (US$0.131 per kWh). The main cost drivers of the company are expected to be the energy purchased (hydro and thermal IPPs). Table 7.9 shows the evolution of the drivers of the energy supplied cost. 18. The technical and commercial losses are projected to fall drastically. The losses which were 34 percent in 2017 will drop continuously to reach 13 percent 2026 thanks to the program of rehabilitation of distribution network, regularization of illegal connections and the installation of prepaid meters. Table 7.10 shows the trend of the energy losses. Commercial Performance 19. The overall commercial performance of EDG is expected to stay weak with a forecast low collection rate for public administration. The metrics related to the energy sold per employee with an average of 700 MWh per employee in 2017, is expected to increase only slightly during the upcoming period, around 2 percent per year. 20. However, the metric related to kWh sold per customer will decline from 1,980 kWh in 2018 1,087 kWh in 2026 to due to the addition of a sizeable number of new customers with lower unit consumption rate. 21. Similarly, the unit revenue collected per kWh sold around GNF 496 per kWh (US$0.054 per kWh) in 2017 is forecast to increase up to GNF 1,222 per kWh (US$0.134 per kWh) in 2026. Table 7.11 summarizes the commercial performance indicators. Page 87 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 7.9. Drivers of Energy Supplied Costs Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Energy purchased IPP GNF, million 510,048 1,042,117 1,067,852 1,850,914 2,001,937 2,859,639 2,823,257 3,853,586 5,462,427 Fuel GNF, million 310,431 347,363 552,846 961,981 1,206,852 0 0 0 0 Selling, general and GNF, million 1,044,679 502,478 259,201 133,313 141,781 153,850 161,260 183,360 200,573 administrative Financial charges, net GNF, million 48,576 254,762 48,031 18,562 34,744 36,067 41,749 44,183 45,854 Salaries GNF, million 110,301 119,397 132,553 104,700 96,980 100,688 104,532 108,515 112,644 Depreciation GNF, million 248,952 200,600 507,118 73,858 114,126 159,235 186,846 197,928 201,609 Total cost of service GNF, million 2,224,411 2,211,955 2,567,601 3,143,328 3,596,420 3,309,480 3,317,644 4,387,572 6,023,107 Energy Sold GWh 759 1,003 1,117 1,396 1,589 2,653 2,704 3,513 5,070 Cost of service GNF/kWh 2,931 2,205 2,299 2,252 2,263 1,248 1,227 1,249 1,188 Source: EDG financial model. Table 7.10. Energy Losses and Trends Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Demand GWh 2,039 2,215 3,298 3,356 4,249 5,914 7,140 7,144 7,144 Energy sold GWh 1,396 1,589 2,653 2,704 3,513 5,070 6,228 6,243 6,313 Losses GWh 643 626 645 652 737 844 912 902 831 Losses % 32 28 20 19 17 14 13 13 12 Source: EDG financial model. Table 7.11. Commercial Performance Indicators Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Unit revenues collected GNF/kWh sold 850 906 1,010 1,215 1,323 1,305 1,244 1,234 1,222 Energy sold per employee MWh/employee 804 894 887 880 873 866 860 853 846 Energy sold per customer MWh/customer 1,980 1,836 1,698 1,568 1,433 1,317 1,200 1,087 1,087 Collection % 93 95 98 99 99 99 99 99 99 Source: EDG financial model. Page 88 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) D. Projected Financial Position Analysis 22. The operational performance of EDG while improving will not be enough to have a material impact on the financial position of the company during 2018–2021 without continuing financial support of the Government through operating subsidies. Based on the projections, EDG is expected to continue facing poor profitability, liquidity, leverage, and asset efficiency during the period, but will see improvement in its financial position starting from 2022. Profitability 23. The utility is expected not to be able to pay its fixed cost, such as interest on debt, selling, and general and administrative expenses before 2022. The net margin is forecast to be positive from 2022 onward with average annual deficit of GNF 2.7 billion before the breakeven period starting from 2022. Consequently, EDG’s profitability is expected to be negative during the period, save the last three years. 24. The company cost recovery situation is also expected to improve from 2021. The revenues will cover the operating charges from 2021 to 2026 without additional operating subsidy. Similarly, the return on capital employed (investments of EDG) is expected to be positive from this period, resulting in the utility being profitable starting from 2021. Table 7.12 summarizes the profitability ratios. Table 7.12. Profitability Ratios Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Operating margin31 % -21 -4 -5 9 13 14 13 12 12 Net margin % -22 -6 -6 8 12 14 13 11 11 Operating charges coverage % 48 50 95 116 120 121 119 117 117 ratio32 Operating charges coverage % 92 101 101 116 120 121 119 117 117 ratio33 Return on equity % 62 31 55 733 87 66 46 31 25 Return on capital employed % -41 -38 -6 6 12 19 18 15 14 Source: EDG financial model. Liquidity 25. EDG’s short-term financial position, being weak at the start of the projection period, is expected to see a gradual improvement up to 2026. Although, the company will not be able to pay off its current liability on time, the trend in liquidity metrics indicates that the situation is expected to move in the right direction. 26. This positive outlook is due to the expected improvement in collection days during these upcoming years. EDG’s cash will stay mainly stay locked in the receivables until 2022 before having significant improvement in collection days. The company will be mainly relying on its suppliers to operate; in the end this can lead to a supply of energy and fuel cut. Table 7.13 shows the forecast trend of the liquidity ratios 31 Ratio including Operating Subsidy. 32 Ratio excluding Operating Subsidy. 33 Ratio including Operating Subsidy. Page 89 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Table 7.13. Liquidity Ratios Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Quick ratio % 0.34 0.34 0.41 0.47 0.42 0.38 0.40 0.50 0.66 Current ratio % 0.36 0.36 0.44 0.50 0.45 0.41 0.43 0.54 0.73 Collection days Days 264 229 129 108 78 56 49 50 51 Days in payables Days 428 433 373 308 255 207 155 117 78 Cash conversion cycle Days -165 -204 -244 -200 -177 -151 -107 -66 -27 Days cash on hand Days 0 0 0 17 115 164 179 183 189 Source: EDG financial model. Solvency 27. EDG is a highly leveraged company. The investments are mainly being forecast to be funded using concessional loan. With a forecast of a poor operating performance, the company is not expected to have positive retained earnings to bolster its equity position, which could potentially pave the way for it to participate in the financing of its investment program. Moreover, the growth accumulated in the past and projected deficit will keep eroding the equity of the utility. 28. With expected negative equity, EDG’s capital structure is and will remain meaningless. Unless a capitalization is pursued, the company will technically be bankrupt during the period 2018-2021. In fact, the long-term liabilities are forecast to be more than the long-term assets. The cash flow is mainly used to repay the debts, sowing the seeds for the company’s lack of resiliency to withstand revenue and expense volatility. Table 7.14 shows the expected trend in the solvency ratios. Table 7.14. Solvency Ratios Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Leverage (Debt/Equity Ratio) % 509 605 550 467 361 295 249 216 190 Indebtedness (Liabilities/Assets) % 135 127 112 105 93 84 76 67 59 Interest Coverage Ratio (TIR) % -8,494 -4,937 -414 1,214 1,887 2,604 2,691 2,368 2,346 Debt Service Coverage Ratio % -4,072 -3,113 -158 504 491 694 734 660 668 Source: EDG financial model. Asset Efficiency 29. During the projection period, EDG is forecast to maintain the speed of supplier’s payment despite the critical financial situation. These payments are mainly energy purchased from the hydro and thermal IPPs. Consequently, the utility is and will stay in a situation of bankruptcy and the cessation of operations is hanging on EDG’s head unless the Government provides adequate subsidy and a financial restructuring plan. 30. The extremely high working capital turnover shows that the company does not have enough capital to support it sales growth, despite the efficient uses of the assets. Table 7.15 shows the trend in the assets efficiency ratios. Table 7.15. Assets Efficiency Ratios Elements Unit 2018 2019 2020 2021 2022 2023 2024 2025 2026 Receivables turnover # 1.385 1.592 2.834 3.383 4.671 6.531 7.486 7.272 7.120 Payables turnover # 0.786 0.592 0.717 1.029 1.578 1.919 2.303 2.812 4.186 Page 90 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) Working capital turnover - -0.527 -0.615 -1.505 -2.305 -2.647 -3.037 -3.845 -5.875 # 13.396 Fixed asset turnover # 0.488 0.448 0.734 0.912 1.311 1.907 2.299 2.362 2.446 Source: EDG financial model. 31. Several scenarios have been simulated to assess the impact of various operating drivers on EDG’s EBITDA. The results of the analysis are summarized in the Table 7.16 below. Table 7.16. Impacts of Scenarios analyzed on EDG’s EBITDA US$ million 2018 2019 2020 2021 2022 2023 2024 2025 2026 Base EBITDA -173 -187 -16 55 90 128 136 123 126 Change in EBITDA Scenario with highly probable hydrology -10 -15 0 -1 1 0 -1 -5 -7 Scenario with no Improvement in collection rate -8 -12 -5 -7 -9 -11 -14 -18 -20 Scenario with no improvement technical losses rate -19 -34 -26 -52 -89 -69 -86 -105 -117 Scenario with deterioration in technical losses tate -32 -58 -48 -123 -193 -167 -175 -310 -292 Scenario with no improvement in commercial losses rate -11 -20 -17 -22 -27 -33 -41 -51 -56 Scenario with deterioration in commercial losses rate -13 -25 -25 -32 -39 -48 -59 -73 -82 Scenario with 5% increase in fuel cost -14 -20 -5 -7 -9 -11 -14 -18 -20 32. Agreed actions to improve financial viability include undertaking a financial restructuring of EDG and adopting a tariff adjustment and compensation roadmap. In addition, ongoing actions to improve commercial performance of EDG under the MSC will result in improved financial viability. Page 91 of 92 The World Bank Guinea Electricity Access Scale Up Project (P164225) ANNEX 8: MAP Source: World Bank, GSDPM Page 92 of 92