Somali Electricity Sector Recovery Project (P173088) Implementation Support Mission January 27 - 31, 2025 Aide-Mémoire I. INTRODUCTION 1. The World Bank Energy Team1 conducted a Project Implementation Support mission during the period Jan 27 to 31, 2025. The mission also undertook a field supervision mission during the period February 11to14, 2025, to Berbera and Baroma. The Bank expresses its appreciation for the support and cooperation accorded by the Ministry of Energy and Minerals (MoEM), the Somaliland Energy Commission (SEC), the Project Implementation Unit (PIU) staff and the Electricity Service Providers (ESPs) operating in Berbera (Berbera Electricity Company-BEC) and Baroma (Awdal Electricity Company-AEC). This Aide-Mémoire (AM) summarizes the mission findings, recommendations and agreements reached during the mission discussions. 2. The main objective of the mission was to review project implementation progress including the agreed actions during the mission that took place in July 2024, among which are: (i) progress towards optimization and reinforcement of distribution network operation in Hargeisa; (ii) progress towards investments related to the installation of the proposed Solar PV and Battery Energy Storage Systems for the selected Electricity Service Providers (ESPs) operating in the load centers of Berbera and Borama; (iii) progress of solarization of education and health institutions; (iv) ongoing sector re-establishment initiatives including institutional arrangements; and (v) Project Implementation Unit staffing. II. PROJECT DATA AND RATINGS Table 1: Key Project Data and Ratings Project Data USD (millions) Original Project Amount 50.0 Total Disbursement up to January 31, 2025 2.92 (5.84%) Closing Date December 31, 2026 Project Ratings: Previous Current Project Development Objective (PDO) Moderately Satisfactory Moderately Satisfactory Project Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Project Management Moderately Satisfactory Moderately Unsatisfactory Procurement Moderately Satisfactory Moderately Satisfactory Financial Management Moderately Satisfactory Moderately Satisfactory M&E Moderately Satisfactory Moderately Satisfactory Environment and Social Moderately Satisfactory Moderately Satisfactory 3. The overall progress towards attainment of the PDO is rated Moderately Satisfactory noting 1 Paul Baringanire (Senior Power Engineer, Task Team Leader), Tigran Parvanyan (Senior Energy Specialist, Co-Task Team Leader), Patrick Mwesige (Senior Energy Specialist), Abdisalam M. Abdullahi (Energy Specialist), Grace Njeru ( Energy Specialist), Haroub Ahmed Haroub (Environment Specialist). 1 the implementation progress to date regarding the following: (i) Hargeisa ESPs merger discussions are ongoing, (ii) preparation of the Solar Photovoltaic (SPV) and Battery Energy Storage Systems (BESS) bids for Berbera and Baroma has advanced with the Request for Bids expected to be issued by February 28, 2025; (iii) Evaluation of bids for solarization of health centers is ongoing and contracts expected to be effective by March 30, 2025 and (iv) the request for bids for solarization of education institutions is ongoing and contracts expected to become effective by May 30, 2025. The Project Management is rated Moderately Unsatisfactory noting the noncompliance with the Project Agreement covenants related to (i) the recruitment of the Owner’s Engineer (still ongoing); (ii) the lack of a substantive Project Coordinator following the termination of the former’s contract in October 2024; and (iii) continued non-submission of quarterly project progress reports. 4. Disbursement Projections: The mission discussions reviewed the status and progress of the various activities and the associated disbursement. Based on these discussions, cumulative disbursement up to June 30, 2025, is projected to be about US$2.8 million; with the cumulative disbursements for the ongoing activities as highlighted in Figure 1 below (Details in Annex 2). The mission discussions noted that the activities related to the Hargeisa distribution network integration and SPV+BESS are on the critical path with a risk of the activities slipping beyond the current project closing date of December 30, 2026. Figure 1. Cummulative Disbursment Forecast $50.00 Millions $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $- FY25Q1 FY25Q2 FY25Q3 FY25Q4 FY26Q1 FY26Q2 FY26Q3 FY26Q4 5. Summary of Agreed Actions. To improve disbursements and project management, it was agreed to: (i) complete of evaluation and award of contracts for the solarization of health and education institutions by the agreed dates by ensuring that the evaluation committee members are appointed prior to receipt of bids and are available for evaluation; (ii) complete contract award of the SPV+BESS contracts by June 30, 2025; (iii) continue to support the ongoing ESP merger discussions and agree on the intent to merge by March 30, 2025 (signature of an MoU and establishment of the merger company); (iv) appointment of a Project Coordinator by March 30, 2025; (iv) in lieu of the OE- recruit a Project Manager and an Engineering Advisory firm by May 15, 2025 and (v) Submit Project Quarterly Progress Report by the end of the month following quarter end with the report for the Quarter ending December 2024 to be submitted by February 28, 2025. 2 III. IMPLEMENTATION PROGRESS AND KEY FINDINGS Component 1. Sub‐transmission and distribution network reconstruction, reinforcement, and operations efficiency in the major load centers. 6. This component is aimed at improving network reliability and operational efficiency by interconnecting the current ESPs’ distribution networks and existing generation to optimize overall distribution network operations in the project area of Hargeisa. The Mission noted that the implementation of the Hargeisa network reinforcement investment plan has been delayed, primarily due to the ongoing merger discussions among the ESPs. The mission was informed that the new government has renewed efforts to incentivize the ESP merger discussions. Key activities in the merger discussions include: (i) the ESPs as advance commitment sign a MoU to merge and thereafter establish a legally recognized Merged Company; (ii) the Ministry and the Merged Company signing a Project Participation Memorandum of Understanding (PPMoU) and (iii) the establishment of Joint technical committee comprising representatives from the Merged Company and the PIU/MoEM to oversee the detailed preparation of network reinforcement and interconnection requirements. Component 2. Generation Hybridization and Battery Energy Storage Systems (BESS). 7. This component is aimed at hybridization and optimization of selected existing diesel-based generation station mini-grids, with Solar Photovoltaic (SPV) and Battery Energy Storage Systems (BESS). The Selected beneficiary centers are Berbera and Borama. The Mission held consultations with the beneficiary ESPs operating in Berbera (BEC) and Borama (AEC) focused on clarifying the roles of the Joint Technical Committees (JTCs) and the actions required to complete the proposed activities within the associated timelines. The discussions noted the critical roles of the JTCs and agreed that the ESPs would be required to appoint the following counterparts to their respective JTC: (i) Generation Engineer, who would work closely with the PIU counterpart in the design, bid preparation, contractor selection and implementation supervision; (ii) Distribution Engineer initially to work with the PIU counterpart in the distribution network analysis and commercial management systems (CMS); and (iii) Environmental and Social Safeguards Specialists to work with the PIU Staff and E&S consultant to undertake the safeguards assessment and take lead in ensuring that the requisite risk mitigations are implemented. The above are critical in ensuring that the ESPs, post commissioning of the facilities, are (i) able to operate and maintain the equipment to expected performance standards; (ii) adhere to the expected Environmental and Social safeguards standards both during the installation of the equipment and during the operations phase, (iii) the distribution networks have adequate capacity to distribute the additional generation and (iv) have in place effective CMS (metering, billing and revenue collection) in place to minimize technical and commercial losses. Additionally, the ESPs are expected to conduct a comprehensive financial modeling exercise including the audited financial statements from previous years in the baseline. This analysis will take into account the anticipated changes in generation capacity and energy mix, as well as improvements in network performance. The goal is to project the ESPs' overall financial performance and tariff trajectory for the next ten years. The findings of the above assessments will inform the Project Performance Agreement (PPA) performance obligations. It was noted that the PPA would have to be initialed prior to the signature of the respective SPV+BESS contracts. Component 3. Solarization of Education and Health institutions. 8. This component will support the electrification of selected health and education facilities with 3 standalone Solar PV and Battery Energy Storage Systems (BESS). The scope of activities includes the design, supply, installation, and commissioning, including initial operation and maintenance (O&M). The selected institutions include 46 health centers (estimated SPV total capacity- 690KWp) and 57 education institutions (estimated total SPV capacity-271KWp). The evaluation of health bids is ongoing, and the contracts are expected to be effective by March 10, 2025, and (ii) the request for bids for solarization of education institutions is ongoing and contracts expected to become effective by May 30, 2025. 9. The mission discussions noted the need to ensure that adequate measures for operations and maintenance are put in place to ensure sustainability of the facilities post project closure. It was agreed that the PIU would prepare a white paper for the Project Steering Committee consideration and endorsement after which the beneficiary ministries (Health and Education) would be required to ensure that the requisite adequate in-house capacity and resources are put in place for the operation and maintenance (O&M) including nominating personnel to be trained during the installation of the facilities. Component 4 – Project Implementation Support and Institutional Development and Capacity Building. 10. This component comprises several activities aimed at enhancing the institutional and regulatory enabling environment in addition to project implementation support. The status of key activities under this component is outlined below: (a) Operationalization of the Electricity Supply Industry (ESI). The Cabinet adopted the ESI institutional structure in January 2024. The discussions noted the need for follow-on action to operationalize the adopted ESI. It was agreed that the MoEM will prepare a roadmap for the operationalization of the ESI among which are strengthening key entities such as the Department of Energy and establishment of a National Utility Company (the Somaliland National Energy Company (NEC). (b) Recruitment of Owner’s Engineers. The mission discussions noted that the OE open competitive selection process had not attracted any qualified firms mainly due to the low market response from qualified consultancy firms attributed to concerns regarding security risks and hence inability to attract qualified experts willing to work and reside in the country. To address these challenges, the mission discussed the following options to breakdown the OE scope into the following: i. Project Manager -heading hunting individual experts willing to work and reside in Somaliland. ii. Engineering Advisory Services- Procure an Advisory Services firm that would virtually support the PIU in review key documents such as designs, protocols and commissioning tests. The experts could also provide site inspections when required. iii. Environment and Social Safeguards Compliance Monitoring including Security Management Plan- Consider direct selection of the E&S firm that has supported the preparation of the upstream E&S instruments. 4 (c) Business Support Services Facility (BSSF). The BSSF is aimed at supporting beneficiary ESPs to strengthen their utility operations to enhance efficiency and sustainability. The Shortlisting of the qualified firm is complete and now at the preparation of the Request for Proposals (RfP) with the contract expected to be effective by May 30, 2025. The Bank team expressed concern regarding the delay in the preparation of the RfP as this could have been undertaken in parallel with the Request for Expression of Interest. Further, to ensure that the beneficiary ESPs have been consulted in the preparation of the ToRs, the PIU will submit a confirmation letter endorsed by the ESPs together with the request for the Bank’s No Objection to the RfP. (d) Generation and Transmission Network Optimized Development Plan. The plan is aimed at having in-place a clear policy for optimized sector investment especially renewable energy-based generation. It was agreed that the PIU would complete the direct selection of the consultant to prepare the plan by February 28, 2025. It was also agreed that the MoEM appoints key counterpart staff from the Department of Energy that would work with the consultant in the preparation of the plan. (e) Sector Regulation. The mission noted the progress made by the Somaliland Electricity Commission (SEC) in the preparation and issuance of the secondary regulations. SEC informed the mission that the Commission has issued interim distribution and generation licenses to Berbera and Borama ESPs (covering 2 years). The discussions advised the SEC to use the interim period to collect data to inform establishment of baselines to set key performance indicators. During the discussion, it became clear that the licenses issued did not specify the performance data that the ESPs were required to submit, nor the frequency of submission. The mission agreed on typical performance data requirements for ESPs. It was recommended that the SEC promptly start the process of amending the licenses to include the necessary data on key performance parameters, whose collection frequency would be monthly and annually. In addition, SEC would be examining the financial models submitted by the ESPs to ensure that the proposed investments are efficient and relevant to attain the required performance and lead to the target tariff and operating efficiency levels that should be sustained over the next 10 years. Financial Management 11. The project is up to date regarding submission of quarterly interim unaudited financial reports (IFR) to the World Bank including the latest IFR for the quarter ended September 30, 2024, which was submitted before the stipulated deadline. The project maintains adequate accounting capacity headed by a Financial Management Specialist at the PIU supported by the team from the External Assistance Fiduciary Section (EAFS) in the Accountant General’s office. Both the level of disbursements at 5.84% and rate of cumulative budget absorption at 4.84% were however noted to be low considering the 50% lapsed implementation period since period effectiveness. The project is advised to submit to the World Bank six (6) months disbursements projection based on the approved annual budget. The PIU was advised to enhance implementation of activities to boost the rate of budget absorption and level of disbursements. 12. The latest FM supervision of the project highlighted concerns related to (i) Gaps in fixed assets register where some procured fixed assets had not been updated and in the Contracts Disbursement Register were some payments made to suppliers had not been captured, (ii) inadequate internal audit oversight and (iii) Inadequacies in SLFMIS especially in payroll module and Key Performance Indicator (KPI) tool. The external audit of project financial statements for FY2023 expressed unqualified (clean) opinion but flagged delays in payment processing, lack of 5 Fixed Assets Register (FAR), low budget absorption, and inadequate internal audit oversight in the management letter. The PIU and MoEM are requested to address these gaps in line with the time bound FM action plan agreed with the Bank. In view of the above the ISR rating for financial management arrangements is therefore considered Moderately Satisfactory while the FM risk is assessed as Substantial. Safeguards. 13. The E&S PIU staff are now fully onboard, and the E&S performance is rated satisfactory. The PIU confirmed that the Safeguards consultant has submitted EHS and ESIA draft reports. The PIU was advised to undertake a quality review based on the approved similar reports for the FGS. The PIU was advised to develop an employer’s representative E&S supervision plan to oversee E&S compliance for Components 2 and 3 during supervision, as an owner's engineer will not be hired. The mission discussions also noted discrepancies between the recommendations of the Security Management Plan and the aspects included in the Request for Bids related to the solarization of education and health institutions. The mission discussions also noted the need to undertake a detailed site-level security assessment for the sites in the Sool and Sanaag regions. The mission discussions also highlighted the need to undertake a land ownership due diligence for the sites proposed for the construction of SPV+BESS in Berbera and Borama. The discussions also highlighted the need to for the ESPs to have designated E&H with the requisite qualifications who will be taking lead in the in the agreed Environmental and Social undertakings jointly with the PIU counterparts. 14. Grievance Redress Mechanism. This mission was informed that a few cases were reported. The PIU was requested to provide a detailed report as to how these have been handled/resolved. Gender 15. The recruitment of the PIU gender Specialist has been completed and the specialist is now onboard. The National Gender Diagnostic Assessment (NGDA) draft report is under review and the final report expected to be ready by March 30, 2025. The project Gender Action Plan is being revised to align with the NGDA findings. Additional ongoing activities include design of pilot incubator for women employment. The mission discussed the importance of achieving the project gender related indicators that include (i) NGDA and (ii) Increase in women's employment in the energy sector. With regard to (i) it was agreed that detailed survey be undertaken to establish baselines and was suggested to be included in the scope for the survey to be undertaken to cover electricity consumer satisfaction surveys by the beneficiary ESPs to launched by June 30, 2025. 16. Project Results Framework: The Mission reviewed the Project Results Framework and noted that the ongoing activities are aligned with the project results targets (details in Annex 3). However, there is a risk that the results may not achieved within the current project implementation period if (i) the agreement to a merge of the Hargeisa ESPs is not reached by March 30, 2025, and (ii) the SPV+BESS contracts are not signed by June 30, 2025. 17. Project Mid-Term Review. In view of the project implementation progress and the closing date of December 31, 2025, it was agreed to undertake the Project mid-term review during the period May 26-June 6, 2025. The objectives of the review shall among others include a detailed review of the project implementation progress to the extent to which project objectives are being fulfilled and remain achievable and will entail detailed review of: (i) project management and implementation performance (ii) specific components progress, (iii) project risks, (iv) review of 6 the results matrix, and (v) agreeing on actions to be taken scope of including project restructuring if deemed necessary. IV. AGREED ACTIONS Actions Responsible Due Date Component 1 1. Hargeisa ESP merger process-Formation of A MoEM/SEC/ESWG March 30, 2025 Legal Entity 2. SEC to share the issued license and regulations SEC Immediate 3. Establish baselines for the ESPs Performance SEC April 15, 2025 Parameters based on Data collected to date 4. SEC to share the list Secondary Regulations SEC February 10, 2025 under development with adoption timelines 5. ESWG Energy Sector Stakeholder ESGW/SEC/MoEM Recurrent Consultations and Dialogue Component 2 6. Issue Request for Bids (Berbera) PIU/MoEM/JTC March 15, 2025 7. Issue Request for Bids (Baroma) PIU/MoEM/JTC March 15, 2025 8. Distribution Analysis and CMS Assessments PIU/JTC March 30, 2025 (Berbera/ Borama) 9. Submission of Copies of Audited financial BEC/AEC/PIU February 15, 2025 statements for the past 3 years 10. Detailed financial operation model including a BEC/AEC/PIU March 15, 2025 10-year forecast (Berbera/Borama) Component 3 11. Contract Effectiveness (Health) PIU March 30, 2025 12. Contract Effectiveness (Educational) PIU May 30, 2025 Component 4 13. Recruitment of Project Manager PIU April 30, 2025 14. Recruitment of the Advisory Service Firm PIU May 30, 2025 15. Recruitment of the BSSF Firm PIU May 30, 2025 16. Recruitment of Least Cost Generation and PIU April 30, 2025 Transmission plan Consultancy 17. Contract for E&S monitoring and compliance PIU May 30, 2025 firm 18. ESI implementation Action Plan MoEM February 28, 2025 19. Quarterly progress reports PIU Recurrent 20. Communication Strategy PIU March 30, 2025 21. Baseline Survey (Customer satisfaction and PIU/BEC/AEC June 30, 2025 Women Employment) 7 Annex 1. List of Meetings Participants Ministry of Energy and Minerals (MoEM) No. Name Designation 1 Eng. Ahmed Jama Barre Hon. Minister of Energy and Minerals 2 Abdirasak Mohamed Abdi Director of Energy, MoEM 3 Dr Fouad Idiris Abdi Minister Advisor 4 Abdifatah Omar Abdilahi Interim Project Coordinator, M&E Specialist 5 Abdirizak Hassan Jibril Procurement Specialist 6 Ahmed Abdi Ali Finance Specialist 7 Mohamed Ahmed Ali Communication Specialist 8 Mohamed Yousuf Elmi Social Safeguarding Specialist 9 Guled Abdi Ahmed Energy Technical specialist 10 Sharmake Abdillahi Farah Renewable Energy Engineer, REE 11 Ahmed Mohamoud Jirde Security Advisor 12 Hafsa Mohamed Abdilahi Gender Specialist 13 Abdilahi Yusuf Muuse Environmental Specialist 14 Ahmed Ali Warsame (Ubahle) ESWG Coordinator 15 Mohamed M. Abdi Malow DG Somaliland Energy Commission 8 Annex 2: Disbursement Forecast Activity Estimated Estimated Q1 2025 Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Contract Contract amount Effective (MUS$) Date Hargeisa Distribution 11.0 Nov 15,2025 1.10 1.10 5.39 2.31 1.10 Network Reinforcement SPV+BESS (Berbera) 20.0 June 30,2025 2.0 2.0 9.80 4.20 2.0 SPV+BESS (Borama) 10.0 July 30,2025 1.0 1.0 4.90 2.10 1.0 Solarization of Health 2.80 Mar 10, 2025 0.56 0.70 0.84 0.42 0.28 Institutions Solarization of Education 1.20 May 30, 2025 0.24 0.30 0.36 0.18 012 Institutions Total 45.0 0.56 0.24 4.0 5.30 1.70 20.09 8.61 4.50 Cumulative 0.56 0.80 4.8 10.10 11.80 31.89 40.50 45.0 9 Annex 3: Results Framework (To be updated Prior to the Project Mid-Term Review) Indicator Name Project SL Target Status/Comments Feb-2025 Target PDO Indicators Increase in electricity supply (GWh)) 237.0 44.2 This is the estimated energy from new SPV+BESS from Berbera and Borama. To be confirmed after the detailed financial modelling. Generation capacity of energy constructed or rehabilitated (MW) 23.0 17.37 This is the sum of capacity installed Renewable energy generation capacity (other than hydropower) 23.0 17.37 under Component 2&3 constructed under the project (MW) Annual GHG avoided (Metric ton) 604,000.0 To be confirmed as avoided emissions under Component ,2&3 Decrease in tariffs under the project (Percentage) 30.0 35 To be confirmed from the financial modelling results Establishment of the Electricity Supply Industry institutions with Yes Yes ESI Adopted. MoEM to prepare the ESI clear roles and responsibilities (Yes/No) operationalization Action Plan Intermediate Results Indicators Component 1-Subtransmission and Distribution network Reconstruction and Reinforcement Distribution lines constructed or rehabilitated (KM) 331 50 Berbera (20); Boram (30)-to be confirmed by the distribution network modeling and updated to include Component-1 (Hargeisa) Sub-transmission lines constructed under the project (KM) 52 18.5 33KV-Berbera (13.5km); Borama (5km) Generators synchronized (MW) 48 22 This is the total capacity to be synchronized with the new SPV+BESS new plants in Berbera and Borama. Technical loss reduction (%) 32 17.5 Berbera (10%), Borama (25%). To be confirmed based on the results of Distribution Network Analysis and CMS assessments. Number of people benefitting (Number) 3,150,000 276,369 Estimated customers (Berbera +Borama)-to be updated based on the CMS assessments 10 Indicator Name Project SL Target Status/Comments Feb-2025 Target Component 2-Hybridization and Battery Storage Systems Generation capacity of energy constructed or rehabilitated (MW) 18 16.80 Berbera (10MW) + Borama (6,8MW). Renewable energy generation capacity (other than hydropower) 18 16.80 constructed under the project (MW) Capacity of solar PV installed (MW) 14 16.80 Capacity of BESS installed (MW) 4 14 Borama (5MW) + Berbera (9MW) Number of people Benefiting (Number) 2,564,000 384,600 Berbera (60,753) + Borama (215,616) Component 3: Solarization of Public institutions (Health and Education) Health facilities connected under the project (Number) 205 46 Selected Institutions Education facilities connected under the project (Number) 380 57 Number of people benefitting (Number) 2,565,000 256,500 Total population served by these institutions Generation capacity of energy constructed or rehabilitated (MW) 5 0.567 Total SPV capacity to be installed Renewable energy generation capacity (other than hydropower) 5 0.567 (education + health) constructed (MW) Component 4: Institutional Development and Capacity Building Regulatory authorities established (Yes/No) Yes Yes SEC Established and has issued interim Adoption of secondary legislation stemming from the Electricity Yes Yes licenses to Berbera (BEC) and Borama Act (Yes/No) (AEC) ESPs Adoption of sector integrated Least-Cost Plan (Yes/No) Yes Yes MoEM to hire a firm-contract expected to effective by March 30, 2025 Completion of the Diagnostic Gender Assessment (Yes/No) Yes Yes Draft Report under review Percentage of women of employed in the energy sector (%) 15 15 Consultancy services contracts to be Incremental satisfaction in beneficiaries survey (%) 50 50 effective by June 30, 2025. Incremental satisfaction of enterprises in beneficiaries survey (%) 50 50 11