Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 4748 1 - BJ

PROJECT APPRAISAL DOCUMENT

PROPOSED CREDIT

IN THE AMOUNT OF SDR 47.5 MILLION (US$70 MILLION EQUIVALENT)

AND

A PROPOSED GRANT FROM THE

GLOBAL ENVIRONMENT FACILITY TRUST FUND

IN THE AMOUNT OF US$1,818,182

TO THE

THE REPUBLIC OF BENIN

FOR AN

INCREASED ACCESS TO MODERN ENERGY PROJECT

May 28,2009

Energy Group Sustainable Development Department 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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 27,2009)

ABE ABERME

ACFCam

AFD AFIC ANCB APL BCEAO

BIDC CAS CAA CEB

CEBENOR

CEET CFAF

CFL CIE CPAR DNMP

CNRMP

COFORMO

CPMP DGE DGIS ECOWAS

Currency Unit = CFA F CFAF450 = US$1

US$1 = SDR 0.67747

FISCAL YEAR January 1 - December 3 1

ABBREVIATIONS AND ACRONYMS Agence BCninoise pour ltEnvironnement (Benin Environmental Agency) Agence BCninoise dlElectrification Rurale et de Maitrise d'Energie (Benin Rural Electrification Agency) Association des Communes Forestieres du Cameroun (Cameroun Association of Forestry Towns) Agence Franqaise de Developpement (French Development Agency) Agence Forestihe Inter-Communales (Inter-towns Forestry Agency) Association Nationale des Communes du Benin (Benin Association of Towns) Adaptable Program Lending Banque Centrale des Etats de llAfrique de llOuest (Central Bank of the West African States) Bank for Investment and Development Country Assistance Strategy Benin Central Bank (Caisse Autonome d 'Amortissement) CommunautC Electrique du BCnin (Benin/Togo Generation & Transmission Power Company) Centre BCninois de Normalisation et du Contrdle de la QualitC (Center for Setting Up standards and quality control for importes or manufactures products in Benin) Compagnie Energie Electrique du Togo (Togo Power Distribution Utility) ComrnunautC Financiere Africaine Franc (currency used in the African Financial Community) Compact fluorescent light bulb Compagnie Ivoirienne dlElectricitC (CGte drIvoire Power Utility) Country Procurement Assessment Report Direction Nationale des MarchCs Publics (National Directorate for Public Procuremeno Commission Nationale pour la RCgulation des MarchCs Publics (National Commission of Public Procurement Regulation) CommunautC Forestiere du Moyen OuCmC (Association for Forest Resource Management in the Moyen Oue'me region) Cellule de Passation des MarchCs Publics (Public Procurement Units) Direction GCnCrale de 1'Energie (Directorate of Energy) Directorate General for International Cooperation (Netherlands Bilateral Aid) Economic Community of West African States (CEDEAO)

FOR OFFICIAL USE ONLY

ELI EIB ESDP ESD unit ESIA ESMF ESMP EU FFEM

FM FNCoFor

IDA GBAR GDP GEF GOB GTZ GWh ha HIPC HSP IFR IGM

IPP

kV kwh KfW LPG MIGA MMBTU MV MWh MoE NCB OPIC p.a. PAP PEFA PEMFAR PIU PPA

Efficient Lighting Initiative European Investment Bank Energy Services Delivery Project Energy Services Delivery Unit Environmental and Social Impact Assessment Environmental and Social Monitoring Framework Environmental and Social Monitoring Plan European Union Fonds Franqais pour lYEnvironnement Mondial (French bilateral fund for the protection of global environment) Financial management FedCration Nationale des Communes Forestiitres de France (French National Association of Forestry Towns) International Development Association Government's Policy Framework for Budget Management Gross domestic product Global Environment Facility Government of Benin Gesellschaft fuer Technische Zusammenarbeit Giga Watt hour Hectar Heavily Indebted Poor Countries Health and Safety Plan Interim Unaudited Financial Reports Inspection GCnCrale du Ministere de 1'Energie et de 1'Eau (Internal Audit Department of the Ministry of Energy and Water) Independent Power Producer Kilometer Square kilometer Kilovolt Kilowatt hour Kreditanstalt fuer Wiederaufbau Liquified Petroleum Gas Multilateral Investment Guarantee Agency Million British Thermal Units Megavolt Megawatt hour Ministitre de 1'Energie et de 1'Eau (Ministry of Energy and Water) National Competitive Bidding Overseas Private Investment Corporation Per annum Priority Action Program Public Expenditure and Financial Accountability Public Expenditure Management and Fiduciary Assessment Review Project Implementation Unit Purchasing Power Agreement

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

PRSC PRSP RAP REF RPF SBEE SIGFIP

SIL SONEB SOE TOR WAEMU WAGP WAPP

Poverty Reduction Strategy Credit Poverty Reduction Strategy Paper Resettlement Action Plan Rural Electrification Fund Resettlement Policy Framework SociCtC BCninoise dYEnergie Electrique (Benin Power Utility) Systkme IntCgrC de Gestion des Finances Publiques (Computerized Expenditure Management System) Sector Investment Loan SociCtC Nationale d'Eau du BCnin (Benin National Water Utility) Statement of Expenditure Terms of reference West African Economic and Monetary Union West African Gas Pipeline West African Power Pool

Vice President: Obiageli K. Ezekwesili Country Director: Madani M. Tall

Sector Manager: Subramaniam V. Iyer Task Team Leader: Fanny Missfeldt-Ringius

BENIN Increased Access to Modern Energy Project

CONTENTS

Page

I . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 ................................................................................................. A . Country and sector issues 1

......................................................................................... B . Rationale for Bank Involvement 4 C . Higher Level Objectives to which the Project Contributes ................................................. 4

I1 . PROJECT DESCRIPTION .............................................................................................. 5 .......................................................................................................... A . Lending Instrument 5

........................................................ B . Project Development Objective and Key Indicators 5 ............................................................................................................. C . Project Components 5

..................... . ................ D Lessons Learned and Reflected upon in the Project Design ... 11 ....................................................... . E Alternatives Considered and Reasons for Rejection 12

................... .......... I11 . IMPLEMENTATION .. ..... .................................................. 1 2

......................................................................... A . Partnership Arrangements (if applicable) 12 ............................................................... B . Institutional and Implementation Arrangements 13

....................................................... C . Monitoring and Evaluation of Outcomes and Results 13 .................................................................................................................... D . Sustainability 1 4

. ............................................................ E Critical Risks and Possible Controversial Aspects 14

. F Loan and Credit Conditions and Covenant ........... .. ....................................................... 15

............................................................................................ IV . APPRAISAL SUMMARY 16

.................................................................. ........... A . Economic and Financial Analyses .. -16 . B Technical ...................................................................................................................... 17

......................................................................... ....................................... . C Fiduciary .... 18 ....................................................................................... .................... D . Social .................... 1 9

................................................................................... .................... E . Environment .... 1 9 ........................................................................................................... . F Safeguard Policies 20

.................................................................................... G . Policy Exceptions and Readiness -21

Annex 1: Country and Sector or Program Background .......................................................... 22 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 27 Annex 3: Results Framework and Monitoring ......................................................................... 29 Annex 4: Detailed Project Description ...................................................................................... 33 Annex 5: Project Costs (millions of US$) .................................................................................. 44

Annex 6: Implementation Arrangements ............................................................................... 46

Annex 7: Financial Management and Disbursement Arrangements ..................................... 50

Annex 8: Procurement Arrangements ....................................................................................... 63

Annex 9: Economic and Financial Analysis .............................................................................. 71

Annex 10: Safeguard Policy Issues ............................................................................................. 87

Annex 11: Project Preparation and Supervision ...................................................................... 90

........ Annex 12: Incremental Cost Analysis for the GEF Energy Efficiency Subcomponent 91

Annex 13: Documents in the Project File ................................................................................ 107

Annex 14: Statement of Loans and Credits ............................................................................. 109

Annex 15: Country at a Glance ................................................................................................ 110

Annex 16: Maps IBRD 36963 and IBRD 36679 ...................................................................... 112

List of Tables ............................................................................. .......................... Table 1 : Risk Ratings ... 1 4

....................... Table 2: Economic Analysis for the Increased Access to modern Energy Project 16 Table 3: Safeguards Policies Triggered by the Project .................................................................. 20

..................................................................................... Table 4: Results Framework ............... ... 29 ..................... Table 5: Arrangements for Results Monitoring ....................................................... 31

Table 6: Project costs by component ........................................................................................ 44 ............................................... Table 7: Conclusions from Financial Management Assessments 50

Table 8: Country Issues ................... .. ....................................................................................... 50 Table 9: Benin SBEE ..................... .. ........................................................................................... 52

.......................................................................... Table 10: Benin ABERME ........................ .......... 53 ................................................................................. Table 1 1 : Type of Accounts and Currency -57

................................................................. Table 12: Credit and GEF Grant Allocation Proceeds -57 ............................................................. Table 13 : Thresholds for Expenses Paid or Reimbursed 58

................................................................... Table 14: Financial Management Supervision Plan 60 ..................... Table 15: Action Plan for Strengthening Project's Financial Management System 61

.......... ......................................................... Table 16: Institutions for Governance Monitoring .. 61 ................................................................................... Table 17: Project Preparation Action Plan -67

..................... Table 18: Economic Analysis for the Increased Access to Modern Energy Project 71 ..................................................................................... Table 19: Breakdown of Project Costs 72

Table 20: Economic Analysis for the Onigbolo-Parakou and SakCte-Porto-Novo Transmission .............................................................................................................................................. Lines 73

.......................................................................... Table 2 1 : SBEE Regional Department Littoral 1 73 Table 22: Economic Analysis for the Rehabilitation and Reinforcement of SBEE's Network

.......................................................................................... ............................... Subcomponent .. 74 Table 23: Economic Analysis for the Improved Lighting and Appliance Efficiency Component74

Table 24: Switching values of investments costs and benefits (Base Case) ................................. 75 ....................................................................................................... Table 25: Sensitivity Analysis 75

.................................... Table 26: Cost of "Additional Energy" .... ................................................. 76 Table 27: CEB's Demand-Supply Balance ......................... .. ................................................. 78

............................................................................................ Table 28: CEB's Financial Summary 79 .......................................................................................... Table 29: SBEE Historical Financials -81

............................................................... Table 30: Government Payments to SBEE (2007 data) 82 ................... ................. Table 3 1 : Pro-forma Adjustments for SBEE's 2007 Balance Sheet .... 83

Table 32: SBEE's Financial Performance - Base Case ........................... ... ............................. 85 .................................................................... Table 33:SBEE's Financial Performance - Scenario 86

.............................................................. Table 34: Incremental Cost Table ................... .... 100 ......................................................... .................... Table 3 5: GEF Results Framework .. 1 0 2

Table 36: Project Financing ................... .... ....................................................................... 105 ......................... Table 37: Project Financing by Sub-component ... ................................... 105

List of Figures Figure 1 : Schematic Routing of Onigbolo-Parakou and SakCtC-Porto-Novo Transmission Line 34

.................................................................................. Figure 2: CEB Organizational Structure 46 ..................................................... ....................... Figure 3 : SBEE Organizational Structure .. -47

Figure 4: ABERME Revised Organizational Structure ............. .. ............................................... 48 Figure 5: Structure of the Efficient-Lighting Subcomponent ................................................... 98

BENIN

INCREASED ACCESS TO MODERN ENERGY PROJECT

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTEG

Date: May 28, 2009 Team Leader: Fanny Missfeldt-Ringius Country Director: Madani M. Tall Sectors: Power (75%); General energy sector Sector ManagerIDirector: Subramaniam V. (1 5%); Renewable energy (1 0%) Iyer Themes: Rural services and infrastructure Project ID: P110075 (40%); Other urban development (40%); Environmental Assessment: Partial Regulation and competition policy (20%) Assessment Lending Instrument: Specific Investment Loan Global Supplemental ID: P 1 15064 Team Leader: Fanny Missfeldt-Ringius Lending Instrument: Specific Investment Loan Sectors: General energy sector (1 06%) Focal Area: C-Climate change Themes: Access to urban services and housing Environmental Assessment: Not Required (1 00%) Supplement Fully Blended?: Yes

Project Financing Data [ ] Loan [XI Credit [XI Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 70.00 Proposed terms: Standard, with 40 years of maturity including a grace period of 10 years

Financing Plan (US$m) Source

BorrowerIRecipient International Development Association (IDA) Global Environment Facility (GEF) European Investment Bank (EIB) Fonds Franqais De L'Environnement Mondial (FFEM)

Local 15.60 15.92

0.18 6.5 1

ESMAP Kreditanstalt f i r Wiederaufbau (KFW) Sub-borrower(s)

... V l l l

0.65

, ,

Total:

Foreign 36.25 54.08

1.64 16.58

1.00 6.57 2.63

Total 5 1.85 70.00

1.82 23.09

0.65

49.06

1.30

1 .OO 12.13 7.1 1

2.00 18.70 9.75

129.44 178.50

The co-financing sources for GEF supplemental are (in US$): 1,8 18,182. The IDA funds associated with the GEF are (in US$ million): 70.00. These amounts are not additional to the amounts shown in the Financial Plan table above. Borrower: Ministkre de 1'Energie et de 1'Eau 04 BP 1412, Cotonou, BCnin Tel: (229) 213 12904 Responsible Agencies: Societe BCninoise dlEnergie Electrique (SBEE) 01 BP 123 RP, Cotonou, BCnin Tel: (229) 21312145 Communaute Electrique du Benin (CEB) BP 1368, LomC, Togo Tel: (228) 2216132 Agence BCninoise dtElectrification Rurale et de la Maitrise d'Energie (ABERME) 10 BP 302, Cotonou, Benin Tel: (229) 213 13863 Direction GCnCrale de 1'Energie (DGE) 06 BP 2049, Cotonou, BCnin Tel: (229) 213 17322 I \ I P J

1 Estimated disbursements (Bank FY/US$m)

~umulative1 5.00 1 15.00 1 35.00 1 55.00 1 70.00 1 GEF Estimated disbursements (Bank FY/US$m)

FY Annual

Project implementation period: Start: June 23,2009 End: June 30,201 5 Expected effectiveness date: December 15,2009 Expected closing date: June 30,2015

10 5.00

FY Annual Cumulative

Does the project depart from the CAS in content or other significant respects? [ No Ref: PAD I. C.

Does the project require any exceptions from Bank policies? Ref: PAD IK G. [ ]Yes [XI No Have these been approved by Bank management? [ ]Yes [ 1 No Is approval for any policy exception sought from the Board? [ ]Yes [XI No Does the project include any critical risks rated "substantial" or "high"? Re$ PAD III. E. [XIYes [ ] No

Does the project meet the Regional criteria for readiness for implementation? Ref: PAD IK G. [XIYes [ ] No

Project development objective Ref: PAD I1.B.. Technical Annex 4 The objective of the Project is to improve reliability, efficiency and access to modern energy services in Benin.

11 10.00

10 0.32 0.32

12 20.00

11 0.5 0.82

13 20.00

12 0.4 1.22

14 15.00

13 0.4 1.62

14 0.2 1.82

Global Environment objective Re$ PAD I1.C. TechnicalAnnex 12 Through the introduction of energy-efficient appliances in Benin's residential and commercial sector,-the project will reduce global greenhouse gas emissions. Project description Re$ PAD I1.C.. Technical Annex 4

The project consists of three main components and is estimated to cost US$178.5 million (excluding physical and price contingencies as well as duties and taxes).

Component A: Electrical Network Upgrading (US$98.32million). Under this component 3 10 km of transmission line will be constructed and the distribution network in key cities in

I Benin rehabilitated. It will also introduce peak load management through the introduction of I energy efficiency appliances in the residential and comm&cial sector. - Component B: Electrification and Modern Energy Services (US$65.50 million). Under this component, Benin's rural energy agency will be operationalized and 4 pilot projects will be implemented. The component also supports improvement of traditional biomass energy services. Component C: Sustainable Energy Services (US$6.68 million). This component aims at rendering energy services to consumers more sustainable through the development of an overarching sector plan and through business plans at the level of power utilities.

Which safeguard policies are triggered, if any? Re$ PAD IKF., TechnicalAnnex 10 Environmental Assessment (OPIBP 4.01), Natural Habitats (OPIBP 4.04), Physical Cultural Resources (OPIBP 4.1 I), Involuntary Resettlement (OPIBP 4-12), Forests (OPIBP 4.36).

I Significant, non-standard conditions, if any, for: 1 Re$ PAD III.8'. Board presentation: None. CreditIGEF Grant effectiveness:

The CEB Subsidiary Agreement, SBEE Subsidiary Agreement and ABERME Subsidiary Agreement have been executed on behalf of the Government of Benin and CEB, SBEE and ABERME respectively. The GEF Financing Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Government of Benin to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled. The Government of Benin has established the ESDP unit within the DGE under terms of conditions, composition and resources satisfactory to the IDA and has staffed the unit with a project coordinator, and an environmental and social safeguards specialist, under terms of reference and with qualifications satisfactory to IDA. The SBEE shall adopt the SBEE Financial Improvement Plan, under terms and conditions satisfactory to IDA. The CEB Subsidiary Agreement, the SBEE Subsidiary Agreement, the ABERME Project Agreement and the ABERME Subsidiary Agreement have been duly authorized or ratified by the Government of Benin and the Project Implementing Entities and are legally binding upon the Government of Benin and the Project Implementing Entities in accordance with their respective terms.

Condition for Withdrawal of Component B 1 No withdrawal shall be made unless the Recipient has provided evidence satisfactory to the Association that ABERME is fully operational in terms of financial management, including financial and accounting procedures prepared by ABERME, under terms satisfactory to the Association and a computerized accounting and financial management system satisfactory to the Association.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Benin's economy: Benin is a small country located in the Gulf of Guinea next to Nigeria with a population of 8.7 million and a per capita annual income of US$540. Following an economic collapse and political crisis in 1989, the country moved to a pluralist democracy and free market economy. This resulted in three peaceful democratic transitions and enhanced political and social stability over the past decade (1996-2008). The democratic process is sustained by the inclusion of civil society in the political process and by freedom of the media. In addition, the country has undertaken important structural reforms that have helped establish fiscal discipline, open up the economy, privatize some public enterprises, and improve incentives for the private sector. Most social indicators improved steadily throughout the 1990s, including those for education, health, water supply, rural sanitation, and access to modem energy services.

2. Economic and population growth: GDP growth rates averaged 4.3 percent annually during the period 1996-2006. However, with a population growth rate of 3 percent per year during the same period, the per capita income growth remains well below the Sub-Saharan average and is insufficient to achieve more inclusive economic growth. As a result, poverty is still important with 3 1 percent of the population living below the poverty line. Economic growth was slower in recent years: 3.3 percent for the period 2002-2006 compared with 4.3 percent for 1991-1996 and 4.9 percent for 1997-2001. While in 2007, 80 percent of Benin's population was living in rural areas, urbanization is predicted to shift the weight of population from rural to urban areas. Only about 43 percent of the population is predicted to remain in rural areas by 2025.

3. Access to Electricity and Modern Energy Services: As in most countries of Sub- Saharan Africa, Benin's energy sector is dominated by the use of biomass-based energy sources. Use of traditional biomass-based products such as firewood and charcoal constitute about 60 percent of Benin's energy balance. Most of this biomass is used in an unsustainable manner and has contributed to a serious decline in forest cover. The use of electricity is limited to 1.8 million people, equivalent to 25 percent of the population, which is in line with the average for Sub- Saharan Africa of 25 percent. It has been increasing steadily from its 1990 level of only 8 percent. Access to electricity in urban areas is 53 percent, while access in rural areas remains at levels of less than 2 percent. The geographical shape of Benin makes the country an excellent candidate for rural electrification, and presents good low-cost options for the extension of the electric grid.

4. Electricity Demand: Demand for electricity in 2007 was 758 GWh, with the heaviest load stemming from the coastal area around Benin's capital, Cotonou. Average household consumption has remained almost stable in the last few years and, as of late 2008, was 1.23 MWWyear. Over the last two decades, electricity demand has continually increased at a rate of about 7 percent per year. Most of the demand for electricity stems from households. In the industrial sector, the use of electricity is limited to a few industries (agricultural foodstuffs, cotton, textiles, pharmaceuticals, and cement). In early 2007, industrial consumption remained well below 5 percent of the total demand for electricity. Limited access to electricity adversely affects economic growth.

5. Organization of the Electricity Sector: The "CommunautC Electrique du BCnin" (CEB) is the import, generation, and transmission company for both Benin and Togo, with headquarters in Togo. CEB is traditionally responsible for planning and procurement of generation and transmission resources needed to meet Benin's demand, including through independent power producers (IPPs). In early 2009, CEB supplied power to Benin's distribution company, "SociCtC BCninoise d'Energie Electrique" (SBEE), Togo's distribution company, "Compagnie d'Energie Electrique du Togo" (CEET), and large industrial customers at CFAF 5l/kWh, or US cents1 l/kWh. SBEE serves 346,273 customers at an average end-user tariff of CFAF 82, or US cents 18. While the SBEE is traditionally not engaged in power generation, it has met the increasing demand-supply gap in Benin through supplemental diesel generation (both rented and owned).

6. Energy Policy, Legislation, and Regulation: The formal responsibility for sector regulation per Benin's Electricity Code of 2007 rests with a regulatory agency. Because downstream legislation to set up the agency has yet to be adopted, a committee was established in November 2008 to, inter alia, prepare this legislation. In the absence of this regulatory body, sector regulation continues to be exercised by the Ministry of Energy and Water (MoE).

7. Rural Electrification: Traditionally, the SBEE has had responsibility for both urban and rural electrification. Yet progress in rural electrification has been slow, as the 2 percent rural electrification rate attests. Recognizing the need for a targeted effort to advance access to electricity in rural areas, the 2006 Rural Electrification Policy set out a new approach. Part of this approach was the creation in 2004 of the "Agence BCninoise dYElectrification Rurale et de la Maitrise de 1'EnergieW (ABERME). Law no. 2006-16 of 27 March 2007 formally established the Rural Electrification Fund (REF), to be managed by ABERME. The law designates the REF to be the unique funding mechanism for rural electrification. SBEE will remain responsible for the existing network and for any ongoing rural electrification projects. The laws allow for two types of approaches to be pursued for rural electrification under ABERME leadership: (i) attribution of concession; and (ii) local electrification initiatives. Both on-grid extensions and off-grid systems are eligible. The 2006 Rural Electrification Policy delineated 15 possible concessions for rural electrification with a clientele ranging from between 230,000 to 420,000 people. It also designed a subsidy mechanism for private operators. In late 2008, the Government of Benin (GOB) took important steps to operationalize ABERME and its REF by adopting a set of necessary decrees and drafting the operational manual for the REF.

8. Energy Supply: In 2007, 579 GWh, or 76 percent of Benin's energy demand, were met through supplies from CEB, and 180 GWh, or 24 percent, were provided by the SBEE mainly from own diesel generation. CEB's own production through hydropower generation at the Nangbeto hydropower plant (65 MW) and production of electricity from gas turbines (2x25 MW) amounted to 12 1 GWh, corresponding to 16 percent of Benin's electricity supply. The gas turbines will continue to operate on jet kerosene until gas can be supplied from the West Africa Gas Pipeline (WAGP), which is expected by 2010.' Benin is highly dependent on electricity imports from abroad, which represented 60 percent of total consumption in 2007. In 2007, the main source of electricity imported through CEB came from Nigeria and totaled 251 GWh, corresponding to 33 percent of Benin's electricity supply. Other imports came from Ghana, 107

' CEB's gas turbines are foundation customers of the WAGP.

GWh, corresponding to 14 percent of Benin's supply; and CGte dYIvoire, 99 GWh, corresponding to 13 percent of Benin's supply. The shift toward imports from Nigeria in place of those from Ghana and CGte dYIvoire followed completion of the transmission interconnection with Nigeria on 13 February 2007. Total system losses are estimated at 21 percent, with 17 percent from distribution. Compared with international standards, these are high, but in the context of West Africa, these represent a moderate level of losses.

9. Gas for Benin: Benin is one of the shareholders of the WAGP, which is scheduled to make Nigerian gas available to Benin in 2010. The WAGP is estimated to reduce fuel costs for existing power-generating facilities in Ghana, Togo, and Benin by between 30 and 60 percent while providing opportunities for diversifying energy supply. A take-or-pay contract with CEB provides 5,200 MMBTU off-take per day for each of CEBYs two 25 MW gas turbines. Use by other parties in Benin is to be contracted for separately.

10. Future Supply Options: In order to meet the growing demand for fuel, the GOB is constructing a thermal power plant,2 an 80 MW (8x10 MW) dual fuel plant capable of running on both jet fuel and gas. Operation of the power plant will be entrusted to a private operator. The turbines are expected to be completed by October 2009. Until the WAGP is connected and a gas contract with Nigeria signed, this power plant will be run on jet fuel, and is expected to help handle the peak load. A 400 MW regional gas-fired power plant spearheaded by the West African Power Pool (WAPP) Organization is also being developed in Benin, from which Benin could potentially off-take additional power. Finally, Benin and Togo are now actively pursuing the completion of the proposed 147 MW Adjarala hydropower plant, which should provide a good complement to the overall power mix. These efforts will lead to closing the supply gap in Benin and to enhancing Benin's energy independence.

11. Challenges and Government Strategy to address these: For the future, the challenge will be to improve the energy supply characteristics and efficiency of the power sector, its financial viability, and access of modern energy services to a broader part of the population. These accomplishments will enable the country to serve existing customers better, ensure financial viability, and generate the opportunities and means to bring more power to more people. The Government in place since 2006 has taken decisive steps to strengthen the sector's governance and to redress its financial viability. First results have already been felt at both CEB and SBEE, as the immediate strategy has focused on issues of financial accountability and management. Overall, the Government follows a pragmatic approach to solving problems in the energy sector, with an emphasis on regaining transparency and financial viability. A new sector- wide strategy for Benin's energy sector was adopted in November 2008.

12. Meeting the challenges in the power sector must entail enhancing the capacity of CEB and SBEE to fulfill their respective roles, and allowing them to focus on their core activities. Since plans for additional power plants are under way, CEB needs to focus on improving the existing transmission network so that it can supply power more reliably and to a larger part of the country. SBEE in turn will need to focus on distributing power to its existing customer base. As new power plant becomes available, it should be possible for SBEE to reduce diesel production. The currently existing contract for diesel power rentals, which in 2007 alone generated 74 GWh,

Power plant purchase and construction are overseen by a joint team at the MoE and SBEE.

or 10 percent of Benin's total energy supply, can be discontinued over time. Meanwhile, rural electrification, which is generally loss making, will be increasingly entrusted to ABERME, which will administer upfront subsidies to investments. It is estimated that it will take another two years before ABERME and its REF are fully functional. During this time, the SBEE will continue to complete ongoing rural electrification programs.

13. The proposed IAME project serves this process by targeting network reliability, quality of service, and access to modern energy services. It will help build a transmission network that is capable of providing the backbone for the expansion of future access, and will allow the system to comply with critical technical design criteria. Investments in distribution and energy efficiency are aimed at increasing the resilience of the power system through reduced outages, ~losses, and peak load. The IAME project complements these efforts through a bottom-up approach that aims at engaging the private sector and local rural communities to provide modem energy services for lighting and cooking through the operationalization of the rural electrification fund (REF) and enhanced biomass energy services. This includes institutional support to render the ABERME and the REF fully operational.

B. Rationale for Bank Involvement

14. A long history of partnership in the energy sector places the World Bank in a unique position to continue to assist Benin at this important juncture of the country's energy sector development. The ongoing Energy Services Delivery Project (ESDP) is financing the interconnection of northern Togo and northern Benin, and the WAPP APL 1 (Phase 2) project supports the coastal transmission network covering Ghana, Togo, Benin, and Nigeria. Based on the lessons of experience, the IAME project focuses on establishing access to electricity or other modern energy services, and rendering those services more sustainable. The World Bank targets those elements for which, financing from the government or partners is not available. The World Bank's involvement with ECOWAS countries to expand regional energy and gas trade through WAGP and WAPP provides an additional dimension to its partnership with Benin.

C. Higher Level Objectives to which the Project Contributes

15. The project is inscribed in the World Bank Group's Sustainable Infrastructure Action Plan (SIAP) (FY09-12), which emphasizes the need to improve the reach and quality of infrastructure service delivery in a sustainable manner through increased financing and leverage. The SIAP is funded on the recognition that cost-effective, reliable and affordable infrastructure services are critical for sustainable development and a necessary condition for reaching economic, social, and environmental goals. The energy infrastructure gap is particularly large in Sub-Saharan Africa, and Benin's energy sector infrastructure has been outstripped by growth in demand.

16. CAS and PRSP Links: The development of the project is in close support of the principles of the 2009 Country Assistance Strategy (CAS). The CAS supports the implementation of the Government's Poverty Reduction Support Paper (PRSP) by utilizing a mix of budget support and investment lending. The CAS emphasizes the need for energy sector development in order to create a good environment for private sector investment and growth, which in turn leads to poverty alleviation. In the context of the energy sector, it highlights (i) the

need for the creation of an adequate institutional, legal, and regulatory framework for the sector; (ii) a consolidated framework strategy and inscribed investment activities; (iii) the cost-efficient use of energy resources; (iv) the diversification of energy resources, including hydropower (Adjarala) and gas; (v) the valorization of domestic energy resources; (vi) the improvement of the tariffs system; and (vii) the reduction of the time required to connect households to the electric grid. The proposed project particularly inscribes itself in (i), (iii), (v), and (vii).

17. Climate Change: Through the introduction of energy-efficient appliances in Benin's residential and commercial sector, the project will reduce global greenhouse gas emissions. The project is therefore consistent with the GEF-4 Strategic Program CC-SPl "Promoting Energy Efficiency in Residential and Commercial Buildings under the Climate Change focus area". The proposed project is part of GEF's West Africa Energy Program which focuses on practical interventions and projects to demonstrate the technical and economic viability of promising technologies and measures for renewable energy and energy efficiency.

11. PROJECT DESCRIPTION

A. Lending Instrument

18. The proposed lending instrument is a five-year Sector Investment Loan (SIL), complemented by a GEF grant.

B. Project Development Objective and Key Indicators

19. The objective of the Project is to improve reliability, efficiency and access to modern energy services in Benin.

20. Progress toward achieving these objectives will be measured by the following project outcome indicators:

Reduction of Benin's transmission losses from 5 1 to 24 GWh through the construction of 3 10 km of new transmission lines (Onigbolo-Parakou and Sakete-Porto-Novo); Ensure Benin's transmission network responds to (N-1) criteria; Providing 400,000 people with improved access to modern energy and electricity services;

21. Progress towards achieving these objectives under the GEF-financed Component A.5 is measured by the following intermediate outcome indicators:

Reduction of the energy consumption in Benin by about 18 GWh annually (or 2.6 percent of Benin's annual demand) and the peak load by about 9.8 MW (or 5 percent of Benin's peak load), and the promotion and dissemination of energy efficiency measures, including efficient light bulbs.

C. Project Components

22. The project as envisaged has three major components that target the operational efficiency of the existing electricity system and increasing access in both urban and rural areas to

modern energy services. The project's overall financing envelope is US$178.50 million. A detailed description of the components is presented in Annex 4, and a detailed cost breakdown is presented in Annex 5.

23. Component A: Electrical Network Upgrading (US$98.32 million, of which US$43.32 million from IDA). This component will provide for necessary investments to allow for continued operation of the existing transmission and distribution grid, as well as for an upgrade of its functionality. The upgrading of the network will enable the expansion of the network for further electrification. Under this component, two transmission lines will be constructed, and distribution networks in key urban centers will be rehabilitated. Finally, measures to enhance lighting and appliance efficiency implemented under this component will help reduce peak load and energy consumption.

Subcomponents Al , A2 and A3 (implemented by CEB)

24. Al: Construction of 161 kV Interconnection between Onigbolo and Parakou (IDA-, EIB-, and CEB-financed): A key element is the 280 krn transmission interconnection between Onigbolo (south-eastern Benin) and Parakou (northern en in).^ In addition to electrification, this transmission line will allow the Benin network to meet necessary stability criteria and address energy security concerns. The transmission line will complement the interconnection between northern Togo and northern Benin that is being constructed under the World Bank Energy Services Delivery Project (Cr.395 1-BEN).

25. A2: Construction of 161 kV Interconnection between SakCtC and Porto-Novo (KfW- and CEB-financed). This critical transmission line will interconnect Benin's most important industrial zone, located around Porto-Novo, with the existing coastal transmission line and the WAPP Coastal Transmission Backbone that is already complete between Lagos and Sakete. In addition to the industry already located in and around Porto-Novo, the "Benin Free Processing Zone" is being developed, which needs an interconnection with the main grid in order to ensure power supply for the industries located there. Availability of power is crucial for the zone's development .4

26. A3: Associated Supervision Consulting Services (IDA-financed). Consulting assignments associated with the construction of the above transmission lines would be provided for under this component. An option to extend existing consulting assignments for feasibility study and bidding documents to a supervision contract exists.

Subcomponent A4 (implemented by the SBEE)

27. A4: Rehabilitation and Reinforcement of the SBEE network (IDA and SBEE- financed). The purpose of this subcomponent is to strengthen the distribution network of the SBEE in the bigger cities in Benin, including Cotonou, Porto-Novo, Ouidah, Lokossa, and Natitingou. Reducing unscheduled power outages and distribution level losses will improve the

3 In addition to the construction of the high voltage line, this will involve the displacement of the substation at Onigbolo and the extension of the substation at Parakou.

More information on the industrial zone is available on their website: http://www.a-zfibenin,com~Eng/index.htm.

quality of power supplied. Consulting services for the supervision of rehabilitation measures are required.

Subcomponent A5 (implemented by the ESDP unit at the DGE)

28. A5: Improving Lighting and Appliance Efficiency (GEF-financed). This subcomponent aims to improve the energy services in urban areas for those customers who already have access to electricity. The goal is to introduce energy efficiency standards for key household appliances in Benin, and reduce energy consumption and greenhouse gas emissions. By focusing on lighting, which has a particular importance during peak demand hours the need for peak reserve capacity will be reduced. The project foresees two activities:

Sale of 350,000 subsidized Compact Fluorescent Light bulbs (CFLs), which are to be procured through a bulk procurement scheme in exchange for the incandescent light bulbs they replace. The CFL bulk procurement scheme envisages selling the CFLs at a subsidized level to ensure the light bulbs are used and to encourage the return of incandescent light bulbs. In order to establish an adequate pricing level, a market survey has been conducted in JanuaryIFebruary 2009 and will be followed by the implementation of a small pilot program. Introduction of energy-efficient product standards and a labeling scheme for air conditioners and CFLs selected for their effect on the peak load. In addition to establishing adequate standards and public awareness programs, the component will help establish the capacity for testing the efficiency of CFLs.

In addition to Annex 4, this component is discussed in detail in Annex 12, which also sets out the incremental cost analysis.

29. Component B: Electrification and Modern Energy Services (USS65.50 million, of which US$12.00 million from IDA). Component B will extend the provision of modern energy services in rural areas. The project is targeting modem energy services (i) for lighting and appliances through the provision of electricity in rural areas, and (ii) for cooking through the provision of modern biomass energy and substitute fuels. Through its design, this component seeks to actively engage the concerned communities and local private sector to empower them to provide these services for themselves. Therefore, the component substantially relies on capacity building and institutional development as well as targeted subsidies for the poor.

Sub-component Bl (implemented by ABERME)

30. B1: Rural Electrification Fund (GOB- and IDA-financed). The goal of this subcomponent is to increase access to electricity in rural areas by (i) developing a sustainable institutional framework to support rural electrification, and (ii) demonstrating its capacity to engage in rural electrification through at least four pilot operations. Therefore, the component will be divided into subcomponents. Subcomponent B1.l will allow ABERME to build its capacity to satisfactorily fulfill its roles in the area of rural electrification as envisaged under the law. Under subcomponent B1.2, ABERME staff will gain hands-on experience by undertaking at least four pilot operations to establish the working of ABERME and its REF. The law allows for two approaches to rural electrification in principle: (i) attribution of a concession; and (ii)

local electrification initiatives. The draft operational manual of the REF describes the project cycles for both approaches (see Box 2 in Annex 4)

3 1. The activities envisaged under subcomponents B 1.1 and B 1.2 are as follows:

Subcomponent B1.l - Planning and Development of Modern Energy Services for Rural Areas: The aim of this sub-component is to build the institutional capacity of the newly created rural electrification agency, ABERME, to adequately fulfill its functions, and to establish a clear and transparent environment of intervention for all actors working at the crossroads of rural electrification, including SBEE. The following activities are planned:

o Enhancement of ABERME's Institutional Framework: Upgrading of ABERME's Rural Electrification Department so that it can respond to its future role (suitable staffing with engineers and financial analysts); Enhancing the Financial Department of ABERME to respond to World Bank requirements; Establishing a separate unit for procurement at ABERME that directly reports to ABERME's Director; Establishing a monitoring and evaluation function in ABERME that is able to follow baseline and follow-up surveys to ensure achievement of results; Establishing of an environmental and social function at ABERME that directly reports to ABERME's Director.

'0 Conducting Preparatory Studies: I Comprehensive technical and economical analysis of the potential rural

electrification concessions and their dimensions o Development of an Enabling Policy Environment:

Updating of the Rural Electrification Strategy, including the proposed financing mechanism for the concessionaires and private operators.

o Capacity Building for Local Communities, Potential Private Operators, Financial Intermediaries and Other Relevant Stakeholders.

Subcomponent B1.2 - Pilot Projects: Under this component, the REF would be replenished to finance four small pilot rural electrification operations from IDA funding. The financing of the GOB would provide for funding of the larger Rural Electrification Concessions. Average expected costs for the distribution grid extension and mini diesel grids are between US$250,000 and US$500,000. The REF will operate in accordance with its Operations Manual. It will both finance the development of business plans from potential operators whose initial depositions are judged to be of merit, and provide an investment subsidy based on delivered outputs.

Subcomponent B2 (implemented by the ESDP unit at the DGE)

32. B2 Modernizing Biomass Energy Services (IDA- and FFEM-financed). This subcomponent will target (i) community-based sustainable woodfuel supply systems; (ii) biomass energy efficiency and interfuel substitution, and (iii) rural community development support in the region of the Moyen OuCmC in Benin. The Moyen OuCmC region is a territory of

approximately 20,000 krn2 (20 percent of Benin's territory) in the basin of the OutmC River. It comprises nine counties and about 600,000 ha of more or less degraded forests (30 percent of the territory) where charcoal production is commonplace. The region is very accessible and close to the large markets, and thus constitutes the main area from which to supply charcoal to Benin's major cities: Cotonou, Parakou, Porto-Novo, Abomey, Bohicon and Ouidah. The Moyen OuCmC region covers at least 80 percent of their demand.

33. As a result, the fuelwood harvest exceeds the regeneration capacity of these degraded forests. The revenues from forest and wood energy exploitation are not benefiting the local population, as they are conducted by professional producers from outside the region. Strengthening the decentralization of forest resource management would be an important step in empowering the people living in this area to manage their forests on a sustainable basis. The Energy Directorate will implement this component at the ESDPIDGE. The activities will build on the achievements of the ongoing ESDP, and expand the area of intervention.

34. Subcomponent B2 will target the following areas:

Promoting Community-based Sustainable Woodfuel Supply Systems: The new project will support the implementation of a community forestry management plan for 300,000 ha of forests, and the inventory and design of the management plan for the remaining 300,000 ha in the Moyen OuCmC region. Design of and intervention methods for these activities are based on the proven World Bank-funded experiences in other Sub-Saharan countries, such as Senegal (Sustainable and Participatory Energy Management Project), Burkina Faso (Sustainable Energy Management Project), and Niger (Household E n e r a Project).

Promoting Biomass Efficiency and Interfuel Substitution: This component will entail: (i) expanding the adoption of improved carbonization systems to maximize the efficiency of wood-to-charcoal conversion, thus reducing aggregate wood requirements and pressure over forest stocks, while also reducing labor effort and maximizing producer revenues; (ii) promoting private sector-based programs for improved cook stoves (with emphasis on urban charcoal stove options); (iii) promoting private sector-based programs for the interfuel substitution of liquefied petroleum gas (LPG); and (iv) strengthening the capacity of the DGE to manage the energy sector information and monitoring system.

Supporting Local Economic Development: This activity is dedicated to the delivery of a variety of development services to the participating rural communities. These services will provide an incentive mechanisms for compliance with the "sustainable forest management plans." Activities will include: (i) promoting community participation in forest management decisions; (ii) promoting access to and sustainable exploitation of non-wood forest products by the local communities; (iii) generating qualified forest employment for local people, and promoting sound forest exploitation techniques; (iv) promoting apiculture and reforestation; and (v) using forest revenues to provide financial support to implement local development plans.

35. Component C: Sustainable Energy Services (US$6.68 million, all of which IDA- financed). Change to commercially oriented governance is fundamental to achieving sustainable reform of power markets. Commercially oriented governance irreversibly removes the

management and development of power supply from political and bureaucratic control to achieve commercial standards in management practices, financial performance, and the pricing of products and services. Changing these deeply ingrained attitudes is a major challenge for power sector reform in developing countries. This component will focus on making energy services to consumers more sustainable by focusing on (i) improved financial autonomy and performance of key sector institutions, and (ii) enhancing the capacity to better plan and regulate Benin's energy sector. This component provides assistance to CEB and SBEE, as well as institutional assistance to the MoE. It covers the following elements:

Benin Energy Sector Master Plan: The last Master Plan was prepared in 1997, and an update is urgently needed to guide least-cost development of the energy sector. Under this activity, the DGE will be trained to undertake future updates of Master Plans in-house. The activity also foresees to establish a roundtable mechanism for the energy sector to ensure technical findings are actively considered in policymaking. The DGE will lead this activity.

Enhancing Regulatory Capacity at the DGE: This component would enhance the regulatory capacity at the DGE in terms of technical and economic skills to assess regulatory intervention in the electricity sector, including setting tariffs. In addition to reviewing policies in relation to CEB and SBEE, the DGE would act as interim regulator for ABERME. The DGE will lead this activity.

SBEE Business Development Plan: The Business Development Plan would provide for a comprehensive strategy for the development of the SBEE as a distribution power utility. This five-year plan would contain information on policy, regulation, operations, and finances. It would also serve as a prospectus for investors and donors to understand the potential opportunities of collaborating with SBEE. It would also include a complete updated audit of all SBEEYs facilities, with a clear mapping of the distribution network. The plan would develop key indicators that would become part of a performance contract between the SBEE and the GOB. SBEE will lead this activity.

CEB Business Development Plan: This plan would comprise an overall comprehensive strategy for the development of CEB, including its role as a generation, import, and transmission company. As with the SBEE plan, this five-year business plan would contain information on policy, regulation, operations, and finances. It would serve as a prospectus for potential investors and donors to better understand the potential opportunities of collaborating with CEB. It would also develop key indicators that would become part of the performance contract between CEB and the High Authority that governs CEB, and in which both the GOB and the Government of Togo are represented. CEB will lead this activity.

Enhanced Environmental and Social Monitoring of Benin's Energy Sector: While CEB has good environmental and social rules and regulations in place, SBEEYs environmental and social safeguard systems are nascent. An environmental audit to be conducted at the SBEE in 2009 will provide guidance on where key environmental and social issues lie. Since 2006, the DGE is entrusted with the environmental monitoring of the energy sector, but de facto has not yet assumed this role. ABERMEYs capacity to monitor and verify compliance with environmental and social safeguard standards also needs to be built. The purpose of this activity is to enhance the sector's capacity to monitor and verify environmental and social

safeguards through sector organizations and the Benin Environment Agency (ABE). The component will be led by the ESDP unit at the DGE.

D. Lessons Learned and Reflected upon in the Project Design

Component A

36. Construction of Transmission Lines: Under the ongoing ESDP project, four entities are involved in the parallel financing of the northern Togo-northern Benin transmission line. However, all of these components are being supervised under a single supervision contract, which has ensured consistent development of the overall transmission line. The IAME project will pursue a similar strategy.

37. Implementing Agency for Energy Efficiency: The project will use the energy efficiency unit at the DGE as the operational entity for implementing the energy efficiency subcomponent. While ABERME is the agency responsible for energy efficiency, currently the DGE has the only active energy efficiency program. The creation of a dedicated unit for the energy efficiency subcomponent under the ESDP has led to significant improvements in subcomponent management and implementation. Therefore, the energy efficiency subcomponent under the IAME project will be built on the success of the ESDP by involving the energy efficiency unit while developing ABERME capacity for energy efficiency.

Component B

38. Contractual Framework for Private Operators operating under the REF: An important lesson from recent experience with private operators in the Mali rural electrification program has been that a sound contractual framework at the outset is critical to helping safeguard longer term contract stability. For this reason, the project design envisages a slower build-up of new operators initially, not only to ensure their quality but also to ensure that new contracts are satisfactory to all parties and reflect the early operating experience of ongoing schemes.

39. Setting up Effective Institutional Structures for Rural Electrification: Experience shows that no one institutional model for rural electrification appears unquestionably superior. However, common factors in cases where rural electrification has worked well include: (i) a high degree of operating autonomy of the responsible agency, and (ii) strict accountability of the agency for meeting its targets. Benin's ABERME as set up in 2004 is an independent agency. The dialogue with GOB during project preparation led to the adoption of a set of decrees in 2008 and 2009 that not only further defined the role of the agency but also helped strengthen its independence. For example, the decrees clearly defined ABERME as the sole entity responsible for rural electrification in the GOB. Finally component B1 aims at reinforcing ABERME's intellectual autonomy through the building of its institutional capacity.

5 See Barnes, Douglas, ed. 2005. Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs. ESMAPIWorld Bank.

E. Alternatives Considered and Reasons for Rejection

40. Involving not only ABERME but also the SBEE in rural electrification activities under the project: Initially it was considered whether the SBEE should be entrusted with extension of its grid into rural areas, and not only with the rehabilitation and densification of its grid. Ultimately, a decision was taken that ABERME alone be entrusted with activities on rural electrification under the project. The reason was that power companies often have institutional difficulties in meeting the special demands of rural distribution. Because the rural customer makes up such a small part of the business, companies do not pursue the numerous avenues open to them to minimize their cost of service. The result is that rural electrification becomes a tolerated loss maker for the company, and ways are found to cut corners in terms of customer ~ e r v i c e . ~ The SBEE in early 2009 is a heavily indebted company with poor cost recovery. Indeed, SBEEYs financial situation has been identified as a substantial risk for the project. Thus, it was viewed as best for SBEE under the project to focus on its core business and on measures that would lead to improvements in the performance of its core business.

41. Involving SBEE in the Efficient Light Bulb Program: SBEE was initially identified as a potential implementing agency for the efficient light bulb program of the project, which would take advantage of its customer service network. This network's function is to recover electricity bills, but could also be used to approach potential customers for efficient light bulbs. For the same reason as described above, this alternative was found risky for the project as SBEE is already experiencing difficulties in satisfactorily handling its core business. Therefore, the priorities for the SBEE are to upgrade its core operations and improve service to existing customers. Instead, the distribution of efficient light bulbs and the recovery of replaced incandescent lamps will be undertaken by private importers and distributors. In the proposed scheme, a private partner will be selected through tender for bulk procurement and distribution of efficient light bulbs.

111. IMPLEMENTATION

A. Partnership Arrangements (if applicable)

42. Parallel and Joint Financing: The project is to be financed jointly with:

Kreditanstalt fiir Wiederaufbau (KfW), who will finance the SakCtC-Porto-Novo transmission line in parallel. The European Investment Bank (EIB), which will jointly co-finance the Onigbolo- Parakou transmission line. Their Board date is expected in August 2009. The Global Environment Facility (GEF), which will finance the energy efficiency component in parallel. The French GEF (FFEM), which will finance the biomass energy component in parallel. The Energy Sector Management Assistance Program (ESMAP), which will finance the biomass energy component in parallel.

See Barnes, Douglas, ed. 2005. Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs. ESMAPJWorld Bank.

Annex 5 provides the exact breakdown of contributions of each donor and presents the project's cost table.

43. Activities of Other Partners: The proposed project is being fully coordinated with the other donors active in Benin's energy sector, and co-financing is being sought. The Agence Franqaise de Ddveloppement (AFD), European Union (EU), Gesellschaft fuer Technische Zusammenarbeit (GTZ), and the ECOWAS Bank for Investment and Development (BIDC) are currently active in the area of rural electrification. The Islamic Development Bank, the African Development Bank, the West African Development Bank, and the Nordic Development Fund are active in providing assistance for transmission, distribution, and grid extension in the northern part of Benin.

B. Institutional and Implementation Arrangements

44. The project has four implementing agencies: the DGE through the ESDP unit, SBEE, CEB, and ABERME. The ESDP unit at the DGE will recruit a project coordinator and nominate an environmental and social specialist before effectiveness. An acceptable procurement specialist and an acceptable financial management specialist are already part of the unit. All other agencies have nominated project coordinators. Implementing agencies have also nominated staff responsible for procurement, financial management and environmental and social safeguards as discussed during project preparation. The DGE, SBEE, and CEB are already implementing agencies under the existing ESDP project, and have established a good track record of collaboration. While ABERME has no experience as an implementing agency under a World Bank project, it is carrying out a project for the BIDC in the area of rural electrification. Moreover, targeted measures are foreseen under component B to help ABERME build its implementation capacity. A detailed description of the implementation arrangements is found in Annex 6.

C. Monitoring and Evaluation of Outcomes and Results

45. The monitoring and impact evaluation for the overall project will be the responsibility of the ESDP unit at the DGE. The ESDP unit will prepare and submit to IDA semi-annual progress reports, presenting an overview of steps accomplished and results achieved in the previous period, and next steps and targets for the' coming period. The report will alert IDA and the GOB of any problems or issues requiring special attention. The ESDP unit at the MoE will consolidate reports received from the other agencies participating in the project, including CEB, SBEE, and ABERME for the purpose of these semi-annual reports. In order to reduce the administrative burden, these reports may be integrated into reports for other energy sector projects effective at the time of issuance.

46. The ESDP unit at the DGE shall prepare on behalf of the Borrower and under terms of reference satisfactory to IDA a midterm review report on or about June 30, 2012. For results evaluation, the unit will conduct a midterm survey and a final survey on project completion. The MoE will submit reports on the midterm and final surveys to the Government, Government agencies, relevant stakeholders, and the funding agencies. For Component B, baseline surveys and follow-up surveys will be conducted.

D. Sustainability

47. The project is aimed at bolstering the sustainability of the energy sector through physical rehabilitation, and institution and capacity building. Following project implementation, results achieved need to be maintained. In this regard the weak finances of the sector are a concern that needs resolution to ensure sustainability. In addition, better planning of future investment needs is required to ensure that in the future the increasing demand for electricity can be met by affordable and reliable supply of power. For example, if Benin's energy system were sustainable, new transmission and distribution investments should be financed from revenue set aside earlier, as these would have been factored into the pricing for electricity. However, this has not been the case. The project's third component, Component C, focuses on rendering the project outcomes sustainable by assisting the Government and the power utilities in taking a planning and business-oriented approach. Component C also assists in strengthening the ability to regulate the sector, which should also help with its financial sustainability. Finally, the financial challenges of the energy sector are also being considered in a concerted manner by the World Bank and International Monetary Fund through the macro-economic dialogue.

E. Critical Risks and Possible Controversial Aspects

48. The main sector risks identified are: (i) ex ante cost recovery of power utilities is not ensured, (ii) sufficient availability of electricity supply, and (iii) heavy reliance on electricity imports from neighboring countries. Among the operation-specific risks figure: (i) the inability to complete co-financing arrangements; (ii) the inability to implement the project within budget and in accordance with the proposed schedule, (iii) weak financial management capacity at SBEE, (iv) adverse social and environmental consequences mainly associated with the construction of high-voltage transmission lines, and (v) a possible waning of government commitment to project implementation. Table 1 below provides a detailed description of the project risks and their ratings. The overall residual risk rating for the project is moderate.

Table 1: Risk Ratings

Substantial P Risks

Sector Governance, Policies and Institutions

Substantial

Sector Financial Viability: Ex ante cost recovery of power utilities not ensured. Tariffs have not kept pace with an electricity mix, which increasingly includes thermal power, and where sales prices of power purchase agreements have increased.

Sufficient Electricity Supply: (i) Benin continues to be heavily reliant on electricity imports. As these exporting countries continue to struggle with a mismatch of supply and demand in their own countries, imports to Benin are subject to some uncertainty. (ii) The availability of gas has been secured only for the foundation customers of the WAGP.

Mitigation Measures

The GOB has agreed to implement a Financial Improvement Plan for SBEE, which covers debt restructuring and a tariff increase before credit effectiveness.

The GOB is constructing an 80MW Power plant, and the WAPP is planning a regional 400 MW power plant to be located in Benin. Further, The GOB and the are pursuing the development of a 147 MW hydropower plant also under the auspices of the WAPP.

Risk Rating with Mitigation

Generally Weak Institutional Environment: A 2008 diagnostic study of the Ministry of Energy indicates that there is a weak implementation capacity at the DGE and ABERME.

Low Co-Financing: Inability to complete co- financing arrangements in time and magnitude estimated critical for this project.

Operation-specific Risks

Existing gaps in institutional capacity have been identified, including through the mentioned diagnostic report, and it has been agreed with GOB to proceed to implementing the recommended measures.

Although formal approval still has to be sought by some of the co-financiers, all partners have given satisfactory assurances that co-financing is secured.

Low

Moderate

Implementation Capacity: Inability to implement the project within budget and in accordance with the proposed schedule.

In order to minimize this risk, the project implementation is mainly based on proven project implementation arrangements.

Financial Management: The financial management at SBEE is weak.

Environmental and Social Safeguards: Adverse social and environmental consequences associated with the construction of the high voltage transmission

F. Loan and Credit Conditions and Covenant

Government's Commitment to project implementation might weaken

Overall Risk Rating

49. Conditions for CreditIGEF Grant Effectiveness

Technical assistance under the existing ESDP project aims at strengthening SBEE's financial management system.

Specific ESIAs and RAPS developed during project preparation provide for clear plans of action to safeguard the population and the environment.

The CEB Subsidiary Agreement, SBEE Subsidiary Agreement and ABERME Subsidiary Agreement have been executed on behalf of the Government of Benin and CEB, SBEE and ABERME respectively. The GEF Financing Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Government of Benin to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled. The Government of Benin has established the ESDP unit within the DGE under terms of conditions, composition and resources satisfactory to IDA and has staffed said unit with a project coordinator, an accountant, a procurement specialist, and an environmental and social safeguards specialist, under terms of reference and with qualifications satisfactory to IDA. The SBEE shall adopt the SBEE Financial Improvement Plan, under terms and conditions satisfactory to IDA. The CEB Subsidiary Agreement, the SBEE Subsidiary Agreement, the ABERME Project Agreement and the ABERME Subsidiary Agreement have been duly authorized or ratified by the Government of Benin and the Project Implementing Entities and are legally binding upon

Substantial

Low

Note: A detailed discussion of financial management risk and procurement risk is included in Annex 7 and Annex 8 respectively. Environmental and social safeguards are discussed in Annex 10.

The co-financing provided as part of the overall project b y the GOB is substantial, thus reflecting its commitment to this project.

Low

Moderate

the Recipient and the Project Implementing Entities in accordance with their respective terms.

50. Conditions for Withdrawal of Component B1

No withdrawal shall be made unless the Government of Benin has provided evidence satisfactory to IDA that ABERME is fully operational in terms of financial management, including financial and accounting procedures prepared by ABERME, under terms satisfactory to IDA and a computerized accounting and financial management system satisfactory to the Association.

IV. APPRAISAL SUMMARY

A. Economic and Financial Analyses

5 1. Project Economics: This project will generate significant economic benefits. The economic internal rate of return (EIRR) of both transmission lines is 22 percent, compared with the assumed capital economic opportunity cost of 10 percent. The EIRR of the distribution component is 14 percent. The EIRR of the energy efficiency component is 53 percent. The global EIRR of the project is 20 percent, reflecting the importance of the transmission line component both in terms of its investment costs and the economic benefits it generates. The table below is an overview of the project's economics. See Annex 9 for details on the economic analysis.

Table 2: Economic Analysis for the Increased Access to modern Energy Project (US$ million. NPV 10%)

(Subcomponents A l , A2,A3) Distribution rehabilitation (Subcomponent A4) Energy efficiency

I Note: A discount rate of 10% is assumed to calculate the present values for the economic analysis.

(Subcomponent AS) Total

52. Financial Situation of CEB: During the project lifetime, CEB's financial situation will be driven by (i) ongoing demand growth in Benin and Togo, (ii) the ongoing availability of low- price imported electricity, especially from Nigeria, and (iii) the need for further investments in transmission and generation capacity. Against this background, CEB's average tariff of CFAF 5 1 covers the company's operating costs, depreciation and amortization, and interest payments between 2008 and 2012, and CEB is recording net profits. Starting in 2014, additional depreciation and interest charges related to planned investments, such as the Adjarala hydropower project, would require an increase in tariffs or restructuring of CEB's debts. Annex 9 presents a detailed financial analysis of CEB.

10,107,847

4,479,606

53. Financial Situation of SBEE: SBEE is structurally a loss-making company as the average tariff of CFAF 81.7 per kwh does not cover production costs of CFAF 101.8 (2007

16%

53%

74,541,250 20%

data). SBEE has recorded net'losses since 2006, following the electricity supply crisis in Benin. In addition, SBEE is technically bankrupt as it has negative equity when only taking paid-in capital into account and before operating and investment subsidies. SBEE maintains a minimum degree of liquidity by creating arrears to CEB and other public sector suppliers, which allows it to pay its commercial lenders. It needs to rely on debt finance for its planned investments, and, as of 2007, already had a total financial debt of CFAF 97 billion with an annual projected debt service in 2008 of CFAF 12 billion. In sum, financial restructuring for SBEE is necessary to bring the company on a path toward financial sustainability. Elements of restructuring include: (i) recapitalization of SBEE; (ii) debt restructuring; (iii) tariff increase of at least 20% in 2009 to reach financial sustainability of SBEEYs operations; (iv) tariff indexation to maintain financial sustainability; and (v) improvement of its operating performance. Of these, (ii) and (iii) are of particular importance. Investments foreseen for SBEE are thus focused on maintaining its operational capacity and improving revenues through reduced losses and power outages. The policy letter will include key measures of the Financial Improvement Plan of SBEE. See Annex 9 for a detailed financial analysis of SBEE.

B. Technical

54. Component A: A technical feasibility study for the Onigbolo-Parakou and the SakCtC- Porto-Novo transmission line was prepared and found to be satisfactory.' It confirmed the engineering design of the proposed transmission lines that will enable a sound functioning of those lines within Benin's transmission network as a 161 kV double-strung line. Instead of linking Sakete directly to Porto-Novo, the study recommends to construct a substation in Tanzoun, and then link this through a 63 kV cable with Porto-Novo. Two 161 kV/63 kV transformers need to be installed at the Tanzoun substation. A comprehensive assessment was undertaken of the distribution rehabilitation measures proposed for funding, and found to be adequate to address the existing problems. The proposed measures include rehabilitation at numerous substations and power transfer stations in Benin's big cities. Annex 4 describes the proposed measures in detail.

5 5 . Component B: The REF is adopting a technology-neutral approach, looking for reasonable and cost-effective solutions to both private operators' and customers' needs. Technical quality control and conformity of equipment with accepted norms and standards, including for environmental compliance, is required for the sub-projects. ABERME will initiate a certification and/or labeling process of equipment satisfying standards in accordance with the Operations Manual of the FER. In addition, ABERME will work with the DGE toward the development of technical standards for efficient lighting and appliances.

7 See Electricit6 de France (EDF) (2008). Phase I : Etude de faisabilite Technico-kconomique.

17

C. Fiduciary

56. Financial Management: The financial management assessment established that the project's consolidated risk regarding financial management is moderate, which satisfies the Bank's minimum requirements under OPlBP10.02. Financial management arrangements will follow those in place under the ongoing Energy Services Delivery project (ESDP). The ESDP unit at the DGE will continue to handle the financial management for the components to be implemented by the DGE, CEB, and SBEE. It has established a good track record under the existing ESDP.

57. For ABERME, financial management arrangements have to be set up and do not yet meet the World Bank's minimum requirements. ABERME will only be given financial management responsibilities once it fully meets the World Bank's financial management requirements. Risk mitigation measures outlined in Annex 7 are designed to ensure that the residual risk for financial management drops to moderate.

58. Procurement for the proposed project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits," dated May 2004, as revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers," dated May 2004, as revised in October 2006, and the provisions stipulated in the Credit Agreement.

59. Procurement activities will be carried out by, or under the supervision of, the project coordination of the ESDP unit at the DGE. The ESDP unit will serve as the project's overall executing agency and will then supervise and coordinate procurement activities for all other project implementation entities (CEB, SBEE, and ABERME). The ESDP Procurement Specialist will work closely with the nominated Procurement Officers of other implementation agencies.

60. A procurement capacity assessment was conducted only for ABERME. As the DGE, CEB, and SBEE are implementing procurement activities under the current ESDP, there is no need to conduct another procurement capacity assessment as the procurement implementation under the ESDP is rated satisfactory. The assessment showed that ABERME is not familiar with the World Bank's procurement procedures and is not adequately staffed to manage or implement satisfactorily the project's procurement activities. Measures agreed upon to strengthen ABERME's procurement implementation framework are (i) the creation of a Procurement Officer position under the Director General (completed), (ii) the preparation of the Administrative, Financial, and Accounting Manual with the procurement section (before disbursement of component B. I), and (iii) the preparation of the Project Operational Manual that will describe the relationship between ABERME and all other institutions involved in project procurement process (completed).

61. In view of experience gained by the institutions concerned under the Energy Service Delivery Project (ESDP - Cr.395 1-BEN), the overall project procurement risk is rated low.

D. Social

62. Only the construction of the new transmission lines from Onigbolo to Parakou and from SakCtC to Porto-Novo is expected to have significant social impacts. The Resettlement Action Plans (RAP) find that along the line routing of the Onigbolo-Parakou transmission line, 123 families (about 640 people) need to be physically resettled, while along that of the SakCtC-Porto- Novo transmission line, 61 families (about 682 people) need to be resettled. The RAPs, which have been prepared for both of these transmission lines, clearly identify the measures that need to be implemented, including compensation to the families concerned. A basic archaeological survey has been carried out along the transmission line and has not indicated any substantial find. The RAPs were disclosed through the World Bank's InfoShop on January 21, 2009, and in- country on 28 January 2009.

63. Extensive public consultations have been held with key stakeholders among the affected population along the proposed transmission lines. Meetings were held both in rural and urban areas. Most are farmers and small local business owners, especially in urban and suburban areas. Lists of Priority Action Programs (PAPs) as well as safeguard instruments have been disclosed in accordance with World Bank guidelines. Nontechnical summaries were translated into French and local languages and disseminated sufficiently in specific locations in the field to further allow PAPs and beneficiary communities to appreciate the activities intended for the proposed project.

64. A Resettlement Policy Framework (RPF) has been prepared to address unexpected resettlement and compensation issues caused under components A4, A5, B and C, of the project.

E. Environment

65. Only the construction of the new transmission line from Onigbolo to Parakou and from SakCtC to Porto-Novo is expected to have significant environmental impacts. The Environmental and Social Impact Assessments (ESIA) finds that no real alternative exists to the proposed line routings. Moreover, the transmission line routing already circumvents urbanized areas such as KCtou and Parakou. The classified forest of Dogo and sacred forests will also be circumvented. Fetisheurs and their sacred areas will be avoided to the extent possible. Further, the ESIA finds that the overall benefits of the project outweigh its minor negative impacts. These include the loss of about 17,800 m3 of biomass, none of which is under protection.

66. Construction-related environmental and social impacts from the transmission line and the rural electrification activities will be managed through contractor-prepared and -implemented Environmental and Social Management Plans (ESMPs), including its Health and Safety Plans (HSPs). Damage to crops and structures during construction will be compensated for as part of the obligation in the contractor's contract. The relevant implementing agency of the various components will supervise this process.

67. Environmental or social issues, other than those for the above-mentioned transmission lines, will be dealt with in accordance with the ESMF and the RPF. Risks of increased deforestation through an inadequate implementation of the biomass component will also be

managed through the implementation of the Community Forest Management Plan and by the environmental-social specialist in the ESDP unit.

68. Environmental impacts of the component for improved lighting and appliance efficiency are negligible except for the potential release of mercury into the environment if compact fluorescent light bulbs (CFLs) are not adequately recycled. This aspect will be managed by the environmental and social specialist in the ESDP unit at the MoE and through contractual arrangements with the CFL suppliers and in accordance with the ESMF and the RPF. It is planned that burnt CFLs be collected through a cash refund system.

69. Environmental and social impacts caused by the SBEE and ABERME activities will be managed by the environmental and social units of these organizations, and in accordance with the ESMF and the RPF.

F. Safeguard Policies

70. The project has been rated Category B. Compliance with the Environmental Assessment Policy OP 4.01 and the Involuntary Resettlement Policy OP 4.12 was achieved when ESIAs and RAPS for the Onigbolo-Parakou and SakCtC-Porto-Novo transmission lines were prepared and disclosed by the World Bank's InfoShop on January 21, 2009. Similarly, an Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF) have been prepared to cover all other elements supported by the project.

71. The Natural Habitat (OP 4.04), Forest (OP 4.36), and Physical Cultural Resources (OP 4.11) Policies have been complied with by avoiding protected forest and sacred forest areas, and by avoiding fetisheurs and their sacred natural areas. A "Chance Find Procedure," as required by Beninese environmental law, will satisfy the remaining part of the Physical Cultural Resources Policy, particularly during construction phase.

Table 3: Safeguards Policies Triggered by the Project Safeguard Policies Triggered by the Project Yes No Environmental assessment [OPIBP 4.01) [XI [ 1 Natural habitats (OPIBP 4.04) [XI [ 1 Pest management (OP 4.09) [ 1 [XI Physical cultural resources (OP/BP 4.11) [XI [ 1 Involuntary resettlement (OPIBP 4.12) [XI [ 1 Indigenous peoples (OPIBP 4.10) [ 1 [XI Forests (OPIBP 4.36) [XI [ 1 Safety of dams (OPIBP 4.37) [ 1 [XI Projects in disputed areas (OPIBP 7.60)~ [ 1 [XI Projects on international waterways (OPIBP 7.50) [ 1 [XI

% By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the

disputed areas.

G. Policy Exceptions and Readiness

72. No policy exceptions are being sought. Bidding documents for key investment components are expected to be ready before the Board date, and draft terms of reference for a number of the first year's activities are ready for project implementation.

Annex 1: Country and Sector or Program Background

BENIN: Increased Access to Modern Energy Project

Country Background

1. Benin's Economy: Benin is a small country with a population of 8.7 million in 2006 and a per capita income of US$540 (2006) located in the Gulf of Guinea next to Nigeria. Following an economic collapse and political crisis in 1989, the country has moved to a pluralist democracy and free market economy. This resulted in three peaceful democratic transitions and enhanced political and social stability over the past decade (1996-2008). The democratic process is sustained by the inclusion of civil society in the political process and by freedom of the media. The country has undertaken important structural reforms which have helped establish fiscal discipline, open up the economy, privatize some public enterprises, introduce private management in other public enterprises, and improve incentives for private sector. Most social indicators improved steadily throughout the 1990s, particularly for education, health, water supply and rural sanitation.

2. Economic and population growth: GDP growth rates averaged 4.3 percent annually during the period 1996-2006. However, with a population growth rate of 3 percent per year during the same period, the per capita growth remains well below the Sub-Saharan average and is insufficient to achieve more inclusive economic growth. As a result, poverty is still important with 3 1 percent of the population living below the poverty line. Economic growth was slower in recent years: 3.3 percent for the period 2002-2006 compared to 4.3 percent for 1991-1996 and 4.9 percent for 1997-2001. While in 2007 80 percent of Benin's population was living in rural areas, urbanization is predicted to shift the weight of population from rural to urban areas with about 43 percent of the population predicted to remain in rural areas by 2025.

3. Relative to most other countries in the sub-region and to its starting point of economic collapse and political crisis in 1989, Benin achieved remarkable progress in sustaining robust growth while building a pluralist democracy over the past decade. Except for the economic shocks of the past two years (i.e., problems in the cotton sector and disruption in trade with Nigeria), growth generally exceeded other economies in the region, and productivity gains allowed per capita incomes to rise over the same period. The Government's structural adjustment program was successful in establishing fiscal discipline, opening up the economy, privatizing most public enterprises, and strengthening private sector incentives. Most social indicators improved steadily throughout the 1990s, particularly for education and health. But as Benin's first PRSP explained in 2003, these achievements did not translate into significant progress in poverty reduction.

4. The completion of the first PRSP, combined with irrevocable access to debt relief following the March 2003 Enhanced HIPC Completion Point, provided Benin with an unparalleled opportunity to pursue and sustain a more poverty-focused growth strategy for the well-being of all of its people. But this failed to materialize. That is why in the second PRSP (March 2007), the GOB reiterated its commitment to addressing poverty issues and refers explicitly to poverty reduction goals over the next fifteen years. It sets forth a national development program around four central pillars (i) consolidating macroeconomic stability

through accelerated private sector-led growth and rigorous public finance management, (ii) improving access to basic education, literacy, primary health care, safe water, and deepening the fight against new HIVIAIDS infections, malaria, and tuberculosis, with specific attention to vulnerable groups, especially women, (iii) strengthening good governance and reinforcing institutional capacities, and (iv) promoting long-term employment and building capacity for poor people to participate in the decision-making process and in production.

Energy Sector Background

5. Access to Electricity: The use of electricity is limited to 1.8 million people equivalent to 25 percent of the population. Benin's rate of electrification is in line with the average of Sub- Saharan Africa, also at 25 percent, and has been increasing steadily. In 1993, the average rate of electrification was only 10 percent, with 25 percent of the urban areas connected to the electric grid and 0.47 percent of the rural areas connected. In 2007, access to electricity in urban areas is at 53 percent while access to electricity in rural areas remains at levels of less than 2 percent. The geographical shape of Benin makes the country easily accessible for rural electrification, and presents good low cost options for extension of the electric grid.

6. Traditional Energy: Like most countries in Sub-Saharan Africa, energy consumption in Benin is heavily dominated by the use of traditional biomass energy such as firewood and charcoal for household purposes. In 2005, biomass energy constituted 59.4 percent of the country's energy consumption, versus 38.4 percent of petroleum products and 2.2 percent for electricity. The rapid increase in the demand for traditional biomass energy is driven by the strong increase in the population (an average increase of 3.4 percent). If current trends continue, by 2015 the annual demand for traditional biomass energy will increase to about 7.5 million tons of wood; the quantity commonly accepted as necessary to give the forest time to recover on a sustainable basis is 4 million tons.

7. Electricity Demand: Demand for electricity in 2007 was at 758 GWh, with the heaviest load stemming from the coastal area around Benin's capital Cotonou. Average household consumption has remained almost stable in the last few years and is in late 2008 at 1.23 MWWyear. Over the last two decades, electricity demand has continuously increased at a rate of about 7 percent per year. Most of the demand for electricity stems from households. In the industrial sector, the use of electricity is limited to few industries (agricultural foodstuffs, cotton, textiles, pharmaceuticals, and cement). In early 2007, industrial consumption remains well below 5 percent of the total demand for electricity. Limited access to electricity adversely affects economic growth.

8. Organization of the Electricity Sector: The CommunautC Electrique du Benin (CEB) is the import, generation and transmission company of both Togo and Benin, with headquarters in Togo. CEB is traditionally responsible for planning and procurement of generation and transmission resources needed to meet Benin's demand, including through independent power producers (IPPs). CEB supplies power to Benin's distribution company SociCtC BCninoise d'Energie Electrique (SBEE), Togo's distribution company Compagnie dYEnergie Electrique du Togo (CEET), and large industrial customers at CFAF 5 1 or US cents 11 in early 2009. SBEE is Benin's electricity distribution company and serves 346,273 customers at an average end-user tariff of CFAF 82 or US cents 18. While SBEE is traditionally not engaged in power generation,

the increasing demand-supply gap due to steadily increasing demand in Benin has been met by SBEE through supplemental diesel generation (both rental and own diesel generation).

9. Sector Regulation: The formal responsibility for sector regulation as per Benin's electricity code of 2007 rests with a regulatory agency. However, downstream legislation to set up the regulatory agency has yet to be adopted, and a committee has been established in November 2008 whose task it is to inter alia prepare such legislation. In the absence of such a regulatory body, sector regulation continues to be exercised by the Ministry of Energy and Water (MoE).

10. Rural Electrification: Traditionally, both urban and rural electrification have been entrusted with SBEE. However, progress of rural electrification has been slow, as the rate of rural electrification of 2% attests to. Recognizing that a targeted effort was needed to advance access to electricity in rural areas, the GOB established in 2004, the "Agence BCninoise dYElectrification Rurale et de la Maitrise de 1'Energie" (ABERME). ABERME is to administer the Rural Electrification Fund (REF), which will provide funding for rural electrification. The REF was formally established as part of Law no. 2006-1 6 of 27 March 2007 to be managed by ABERME. This law designates the REF as the unique funding mechanism for rural electrification. In addition, in November 2008 downstream legislation for the REF was adopted by the Council of Ministers setting out its broad rules of operation. The downstream legislation assigns the responsibility for future rural electrification initiatives to ABERME and its REF. SBEE will remain responsible for the existing network and for any ongoing rural electrification projects. The law allows for two types of approaches to be pursued for rural electrification under ABERME's leadership: (i) attribution of a concession; and (ii) local electrification initiatives. Both on-grid extensions and off-grid systems are eligible. The 2006 Rural Electrification Policy delineates 15 possible concessions for rural electrification with a clientele ranging from between 230,000 to 420,000 people. It also sets out a subsidy mechanism for private operators.

11. Energy Supply: In 2007, 579 GWh or 76 percent percent of Benin's energy demand were met through supplies from CEB, and 180 GWh or 24 percent were provided by SBEE mainly from own diesel generation. CEB's own production through hydropower generation at the Nangbeto hydropower plant (65MW) and production of electricity from gas turbines (2x25MW) amounted to 121 GWh, corresponding to 16 percent of Benin's electricity supply. The gas turbines continue to operate on jet kerosene (JET Al), until gas can be supplied from the West Africa Gas Pipeline (WAGP), which is expected for 2010.~ Benin is highly dependent on electricity imports from abroad, which represented 60 percent of total consumption in 2007. In 2007, the main source of electricity imported through CEB came from Nigeria with 251 GWh, corresponding to 33 percent of Benin's electricity supply. Other imports came from Ghana with 107 GWh, corresponding to 14 percent of Benin's supply, and Cbte d'Ivoire with 99 GWh, corresponding to 13 percent of Benin's supply. This represents a shift toward imports from Nigeria in place of imports from Ghana and Cdte dYIvoire following the completion of the transmission interconnection with Nigeria on 13 February 2007. Total system losses are estimated at 21 percent, with 17 percent from distribution. Compared with international standards, these are high, but in the context of West Africa, these represent a moderate level of losses.

8 CEB's gas turbines are foundation customers of the WAGP.

24

12. Gas for Benin: Benin is one of the shareholders of the WAGP, which is scheduled to make Nigerian gas available to Benin in 2010. The WAGP is estimated to reduce fuel costs for existing power generating facilities in Ghana, Togo and Benin by between 30-60 percent while providing opportunities to diversifying energy supply. A take-or-pay contract with CEB provides 5,200 MMBTU off-take per day for each of CEBYs two 25 MW gas turbines. Use by other parties in Benin needs to be contracted separately.

13. Future Supply Options: In order to meet the growing demand for fuel, the GOB is constructing thermal power plant:9 in Benin, 80 MW (8x10 MW) of dual fuel power plant is being constructed, which is capable of running on both jet fuel and gas. The running of the power plant will be entrusted to a private operator. Implementation of these turbines is expected to be complete by October 2009. Until the WAGP is connected and a gas contract with Nigeria can be signed, this power plant will be run on jet fuel, and is expected to contribute to closing the peak load. In addition, a 400 MW regional gas-fired power plant spearheaded by the West African Power Pool (WAPP) Organization and to be constructed in Benin is also being prepared, and Benin could potentially off-take additional power from there. Finally, Benin and Togo are now actively pursuing the completion of the proposed 147 MW Adjarala hydropower plant in the context of the WAPP, which is expected to provide a good complement to the overall power mix. These efforts will lead to closing the supply gap in Benin, and enhancing Benin's energy independence.

14. Challenges and Government Strategy to address these: Looking forward, the challenge will be to improve the energy supply characteristics and efficiency of the power sector, its financial viability, and the access of modern energy services to a broader part of the population. These accomplishments will enable the country to serve existing customers better, ensure financial viability, and generate the opportunities and means to bring more power to more people. The Government in place since 2006 has taken decisive steps to strengthen the sector's governance and to redress the financial viability of the sector. First results are already felt at both CEB and SBEE, whereby the immediate strategy has focused on issues of financial accountability and management. Overall, the Government follows a pragmatic approach to solving problems in the energy sector with an emphasis of regaining transparency and financial viability. A new sector-wide strategy for Benin's energy sector has been adopted in November 2008.

15. The challenges in the power sector have to be met by enhancing the capacity of CEB and SBEE to meet their respective roles, by allowing them to focus on their core activities. Given that plans for additional power plant are underway, CEB needs to focus on improving the existing transmission network to supply power more reliably and to a larger part of the country. SBEE in turn will need to focus on its core business of distributing power to its existing customer base. As new power plant becomes available, it should be possible to reduce diesel production by SBEE. It is expected that the currently existing contract for diesel power rentals that in 2007 alone generated 74 GWh or 10 percent of Benin's total energy supply can be discontinued in time. Meanwhile, rural electrification, which is generally loss-making, will be increasingly entrusted to A B E W E , which is able to administer upfront subsidies to investments. It is estimated that it will take another 2 years before ABERME and its REF are fully functional,

Power plant purchase and construction are overseen by a joint team at the MoE and SBEE.

25

and the Increased Access to Modern Energy (IAME) project will support this process. During this time it is expected that SBEE continues to complete ongoing rural electrification programs.

16. The proposed IAME project inserts itself into this process by targeting network reliability, quality of service, and access to modern energy services. It will help build a transmission network that is capable of providing the backbone for future access expansion and will allow the system to respond to basic technical design criteria. Investments in distribution and energy efficiency are aimed at increasing the resilience of the power system through reduced outages, losses and peak load. IAME complements these efforts through a bottom-up approach that aims at engaging the private sector and local rural communities to providing modern energy services for lighting and cooking through the development of a rural electrification fund (REF) and by enhancing biomass energy services. This includes institutional support to render ABERME and the REF fully operational.

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

BENIN: Increased Access to Modern Energy Project

Ongoing World Bank projects

Energy Service Delivery Project (ESDP) APL, Phase I (Cr.39510, US$45 million) IP/DO rating: marginally satisfactory

1. The Energy Service Delivery Project (ESDP) was designed to implement measures to provide for commercially viable access to modern energy services in Benin through targeted reforms and investments. The ESDP project comprises six components. Component 1 (Power Sector Reform) includes technical assistance to aid the passing of an Electricity Sector Law, establishment of a regulatory agency, and privatization of the public distribution utility SBEE. Component 2 (Studies) included key studies aimed at strengthening the electricity delivery in Benin. Component 3 (Transmission and Distribution System Expansion) included the extension of the northern-Togolnorthern Benin transmission network and measures for the reinforcement of the distribution system in Cotonou, Abomey-Calavi, and Porto-Novo. Component 4 (Environmental and Social Component) provides for environmental assessments. Component 5 (Institutional Strengthening and Capacity Building) aims to strengthen energy sector institutions. Component 6 (Biomass and Inter-fuel Substitution) aims at the rationalization of the biomass energy sector and the promotion of effective inter-fuel substitution options.

2. The Energy Services Delivery Project (ESDP) was designed as the first phase (APL-1) of an 8-year Adaptable Program Lending. APLl was designed as described above. The second phase, APL-2, was to provide investments for rural, peri-urban and urban electrification and was to be triggered once a set of sector reforms are accomplished. These sector reforms included the privatization of the distribution power utility Societe Beninoise d'Energie Electrique (SBEE). However, analysis conducted as part of APL-I indicated that there was no private sector interest in SBEE, and therefore privatization could proceed. Since early 2007, the Government of Benin (GOB) has moved to a policy which emphasizes addressing urgent investment needs to sustain the provision of power. With regard to SBEE, the GOB has focused on improving performance of the state-owned utility. In place of proceeding with APL-2, GOB and the Bank agreed in 2008 to develop a separate free-standing investment operation (the proposed Increased Access to Modern Energy).

West African Power Pool (WAPP) APL1, Phase 2 (US$15 million) IP/DO rating: marginally unsatisfactory

3. The goal of the West Africa Power Pool (WAPP) is to establish a well-functioning, cooperative, power-pooling mechanism for West Africa, as a means to increase access for the citizens of the Economic Community of West African States (ECOWAS) to stable and reliable electricity at affordable costs. Established formally in 2005, its 15 member states are working toward the implementation of a WAPP Master Plan, which sets out the regional priority investments. The WAPP investments have been supported since June 2005 by a World Bank US$350 million program.

4. In 2007, Benin imported 60 percent of its electricity from CGte dlIvoire, Ghana, and Nigeria. Energy security and stability is at the core of Benin's concern in the energy sector. Thus, Benin is among the countries in West Africa most actively engaged in the development of the WAPP. Since its establishment in 2005, Benin has hosted the WAPP secretariat in its capital, Cotonou, (www.ecowapp.org).

5. On June 29 2006, Benin received a World Bank Credit for the establishment of a "Transmission Backbone" between CGte d'Ivoire, Ghana, Togo, Benin, and Nigeria, which is to serve as the main trading tangent across these countries in the future. The credit made available US$15 million for Benin and US$45 million for Ghana.

West Africa Gas Pipeline Project (WAGP) (Benin is not the direct credit taker) IPJDO rating: satisfactory

6. The main objective of the project is to provide cheap, efficient, and environmentally friendly fuel to Benin, Togo, and Ghana, which will lower the cost of power and improve competitiveness of goods and services. The World Bank Group has provided US$125 million in guarantees to support the construction of a 678 km gas pipeline from Nigeria to Benin, Togo, and Ghana. This includes US$75 million from the Multilateral Investment Guarantee Agency (MIGA) and an IDA guarantee of US$50 million (all for risk mitigation in Ghana, which will consume 80 percent of the gas). Benin did not request IDA assistance for risk mitigation, but benefits as foundation customer from the supply of gas. OPIC provided insurance for the off-take risk from CEB.

Donor Projects

7. Rural Electrification (AFDIGTZ, €3.8 million). AFDIGTZ are implementing a project connecting 12 villages with 50,000 inhabitants to the SBEE grid, targeting about 2850 connections. Including awareness raising and marketing support, the project amounts to €3.8 million, to which SBEE contributes at least 20 percent, mainly through delivery of poles. Awareness-raising measures are implemented through a local NGO. The project aims to ease access conditions for the target group, via reduced connection fees, introduction of prepaid meters, and efforts to reduce construction costs of the distribution lines.

8. Rural Electrification (EU, AFD, DGIS). The GTZ is implementing a project financed by the EU Energy Facility to upscale the above project, in close cooperation with ABERME, SBEE (€2 million), AFD (€8 million), and DGIS (€2 million). The EU grant is €7.8 million.

Annex 3: Results Framework and Monitoring

BENIN: Increased Access to Modern Energy Project

Table 4: Results Framework PDO I Project Outcome Indicators I Use of Project Outcome 1

The objective of the Project is to improve reliability, efficiency and access to modem energy services in Benin.

P 1. Percentage reduction of power losses in Benin's transmission and distribution networks.

P2. Increased number of people with improved access to modern energy and electricity services.

P3. Benin's transmission network responds to (N-1) criteria.

Component A: Electrical Network Upgrading

Intermediate Outcomes

Improved transmission and distribution network

Intermediate Outcome

Improved energy-efficient behavior

Component B: ~ lec t r@cs ion and Modern Energy Services

Improved capacity to implement electrification strategies

Expanded decentralized, stand-alone generation systems

Improved natural resource management at community level.

Indicators Al. Construction of 3 10 km transmission line network. A2. Distribution-level voltage fluctuations less than 7 percent in the project area of network in key cities in Benin. A3. Reduction of Benin's peak load. A4. Lighting efficiency standards developed and applied.

B1. Rural electrification fund established and fully operational.

B2. Number of decentralized, stand- alone generation systems set up (baseline 2009 = 0; target 2012 = 4).

B3. Community-based sustainable woodfuel supply management system over 300,000 ha in the Moyen Ouem6, with a sustainable production capacity of 675,000 tons of woodfuel, in place.

Information - Shows the contribution of the project to maintaining and improving the overall reliability and efficiency of the network.

- High level of losses flag technical and commercial problems in operating the power system. Reduction of losses shows better reliability and also better access to power.

Use of Intermediate Outcome Monitoring

- To indicate whether progress in procurement and construction of the underlying investment activities is according to plans.

- For sub-component A5 a baseline and final survey will be conducted.

- To ensure good progress in activities aimed at making the Rural Electrification Fund functional.

Component C: Sustainable Energy Services

Effective mid- & long-term planning

B4. 300 workers trained in production of efficient wood stoves, and increased use of energy- efficient wood stoves.

C1. Energy Sector Master Plan completed and endorsed. C2. SBEE business plan developed

- To ensure that studies to prepare the above strategies and plans are smoothly procured and conducted

Arrangements for Results Monitoring

for sector development

1. Monitoring and impact evaluation for the project will be the responsibility of the Ministry of Energy through the Energy Services Development project unit at the Directorate for Energy (DGE). This will be reinforced by a monitoring and evaluation expert. For outcome evaluation of the project, MoE will contract a midterm review survey on project progress to a local consultant firm. A final survey will be conducted by the MoE itself, although subject to external review. MoE will submit, through the ESDP unit, the midterm review and the final review as part of their quarterly reporting obligations.

2. -The ESDP unit will build the capacity in the MoE to permanently retain a monitoring and evaluation function. This function could eventually be located in the MoE's planning department, but needs to be further assessed during project implementation. The capacity enhancement component for the MoE envisages the establishment of enhanced data management and planning capability in the MoE.

and endorsed. C3. CEB business plan developed and endorsed. C4. Environmental and Social safeguards are regularly monitored by all responsible agencies and mitigation measures are implemented in accordance with Benin's law and the environmental and social plans developed for this project..

3. The ESDP unit at the MoE will also prepare the quarterly progress reports, which aggregate information provided by all project participants, and which include the monitoring and evaluation indicators.

that the findings of the biannual reports and strategies are adopted and their findings applied.

4. The project will use the indicators in Table 5 below to measure the achievement of its objectives. The indicators and their base and target values are enclosed further below.

Project Outcome Indicators

PI. Power losses in Benin's transmission networks (in GWh)

P2. Increased number of people with improved access to modem energy and electricity services

P3. Benin transmission network responds to (N-1) criteria

Intermediate Outcome Indicators

Component A: Electrical Network Upgrading

Al. Construction of 3 10 Ian of transmission lines

A2. Distribution-level voltage fluctuations less than 7 percent in the project's network area in key cities in Benin

A3. Reduction of Benin's peak load and energy savings (in MWIGWh)

A4. Lighting efficiency standards developed and applied

Componeni B: Electrification and Modern Energy Services

BI. Rural electrification fund (REF) established and fully

Baseline

0

No

0

No standards

REF not functional

Frequency and Reports

Biannual Reports

Biannual Reports

Biannual 1 Reports

ata Collection and Reporting Data Collection I Responsibility for

Instruments I Data Collection

Through CEB's existing channels of data collection.

Through data collection by ABERME and MoE

CEB

ABERME, MoE

operational

B2. Number of decentralized, stand-alone generation systems set up

B3. Area of managed forest in the context of setting up a community-based sustainable woodfuel supply system (in ha)

B4. Number of new workers trained in production of efficient wood stoves, and increased use of energy efficient wood stoves.

Component C: Sustainable Energy Services

Cl. Energy Sector Master Plan completed and endorsed

C2. SBEE business plan developed and endorsed

C3. CEB business plan developed and endorsed

C4. Environmental and social safeguards regularly monitored and mitigation measures implemented

0

0

0

No current Master Plan

No business plan

No complete business plan

No

0

0

0

No current Master Plan

No business plan

No complete business plan

Yes

ABERME .

ESDP unit at DGE

ESDP unit at DGE

SBEE

CEB

DGEIABE

1

0

0

Master Plan prepared

Business plan prepared

Business plan prepared

Yes

4

300,000

300

Biannual Reports

2

100,000

100

Master Plan endorsed

Business plan produced annually

Business plan produced annually

Yes

4

200,000

200

Master Plan endorsed

Business plan produced annually

Business plan produced annually

Yes

Annex 4: Detailed Project Description

BENIN: Increased Access to Modern Energy Project

1. The project as envisaged has three major components that target the operational efficiency of the existing electricity system and increasing access in both urban and rural areas to modern energy services. The project overall financing envelope is US$178.50 million.

2. Component A: Electrical Network Upgrading (US$ 98.32 million, of which US$ 43.32 million is financed by IDA). This component will provide for necessary investments to allow for continued operation of the existing transmission and distribution grid, as well as for an upgrade of its functionality. The electricity grid in Benin does currently not comply with basic technical design criteria. Most importantly, the network does not comply with N-1 for northern Benin. The (N-1) criteria requires that, in the event of failure of one transmission line, there is at least one other transmission line to supply power. By June 2009, northern Benin will be connected to the interconnected grid in southern Togo, thus replacing the isolated power plants in Djougou and Parakou. However, the interconnection is via a single transmission line, making provision of power highly vulnerable thus and falling short of the N-1 criterion. Upgrading the network will provide the backbone for further expansion of the network to enable electrification in the north.

3. Under this component, two new transmission lines will be constructed, and distribution networks in key urban centers will be rehabilitated. The feasibility study for the project's transmission line1' construction (Onigbolo-Parakou and SakCtC-Porto- Novo) shows the significant positive impacts the project will have on the overall grid. From a technical point of view, the construction of transmission lines will improve grid operation, improve quality of service, and enhance reliability of transmission service. As discussed in Annex 9, the internal rate of return of the project is estimated at 22 percent. The transmission lines will reduce losses by about 24.31 GWh per year, and increase supply of energy by 14.1 1 GWh per year.

Subcomponent A (implemented by CEB)

4. Al: Construction of 161 kV 280 km Interconnection between Onigbolo and Parakou (IDA, EIB and CEB-financed). A key element is the 280 km transmission interconnection between Onigbolo (south-eastern Benin) and Parakou (northern Benin). This transmission line will allow the Benin network to meet necessary stability criteria and address energy security concerns. It will complement the interconnection between northern Togo and northern Benin that is being constructed under the existing World Bank Energy Services Delivery Credit (ESDP, Cr.3951-BEN). The transmission line is composed of the following elements:

Construction of the above-ground 161 kV transmission line between Onigbolo and Parakou of about 280km;

lo Electricitd de France. 2008. Phase I: Etude de faisabilitk Technico-Bconomique.

33

Replacement of the Onigbolo substation and connections with associated lines; Extension of the Parakou substation.

5 . A2: Construction of 161 kV Interconnection between SakCtC and Porto-Novo (KfW-financed). This critical transmission line will interconnect Benin's most important industrial zone located around Porto-Novo with the existing coastal transmission line and the WAPP Coastal Transmission Backbone that is already complete between Lagos and SakCtC. In addition to the industry already located in and around Porto-Novo, the "Benin Free Processing Zone" is being developed, which needs an interconnection with the main grid in order to ensure power supply for the industries located there. Availability of power is crucial for the future of the zone's development."

6. The transmission line is composed of the following elements:

Construction of the 161 kV SakCtC-Tanzoun transmission line of about 30km; A new substation at Tanzoun in the neighborhood of Porto-Novo with two line departures to the 161 kV line, two 161 kV departure transformers, two 161163120 kV 8017011 0 MVA transformers, and auxiliary equipment; Two 63 kV underground cables of a length of 4.2 km each, linking the Tanzoun and the Ouando substations; Extension of the 6311 5 kV Ouando substation; 12.5 MVAR condensator bank at the Cotonou-GbCgamey substation.

ion Line 63kV undergrcunc cable -.--.--.--.--.-.--.--.-

Modzcation of exist ng bays

-ONIGBOLO Suxtatlon 161 k~ (di;Flscement + rrodificat o i 2feristing bays)

2 ovcrico9 inco 161 1rV

Noto: Tho rwitctgosr at W4ETE substation ic siroady installed

Source: EDF (2008).

" More information on the industrial zone is available on their website: http://www.a- zfibenin.com/Eng/index.htm.

7. A3: Associated Supervision Consulting Services (IDA-financed). The associated consulting assignments would be provided for under this component. For the transmission line under A1 and A2, an option to extend current consulting assignments for a feasibility study and bidding documents to a supervision contract exists.

Sub-Component A4 (implemented by SBEE)

8. A4: Rehabilitation and Reinforcement of the SBEE Network (IDA and SBEE-financed). The purpose of this subcomponent is to strengthen the SBEE distribution network in the bigger cities in Benin, including Cotonou, Porto-Novo, Ouidah, Lokossa, and Natitingou, to improve the quality of power supplied. Benin's distribution network is characterized by long, low-voltage grid extensions, which experience significant voltage drop and a generally low quality of power supplied.

9. Rehabilitation of the Lokossa Substation: The substation at Lokossa is presently equipped with two16 MW-63/15 kV transformers. The existing 15 kV

, switchgear are in bad condition and will be changed. A new set of height 24 kV switchgears will also be installed to help meet the growing demand by, among others, the Sitex textile factory and a cotton-ginning plant. Protecting relaying systems and civil works for switchgear will be included in this rehabilitation. The objective is to improve reliability and to handle new demand.

10. Rehabilitation of the Circuit Breakers at Cotonou's Power Transfer Substations: In light of increasing demand, SBEEYs distribution system today faces serious shortcomings. Most circuit breakers in power transfer substations are defective and other substation equipment is outdated. As a consequence, most of Cotonou's substations can only handle a nominal load. The project will replace forty (40) 24 kV circuit breakers, including a relaying system. This rehabilitation will scale up the capacity of power delivered to Cotonou and improve the reliability of the distribution network.

11. Replacement of Defective Pole-mounted Outdoor MV Switches and Installation of New Switches on the Existing Lines: Most of the pole-mounted outdoor switches in the SBEE network are defective and not operational. Network operation is thus less flexible, and huge numbers of customers are cut off during maintenance or fault detection operations. The project will replace 100 defective switches and supply new ones where necessary for better operations. The expected result is to improve the ease with which maintenance can be conducted and a reduction of power outages from technical faults.

12. Rehabilitation of the Dassa Zoume Substation: At Dassa Zourne, the 63/15 kV transformer is not protected because the earth-current relaying system is not functioning. Two (2) 63 kV circuit breakers and disconnector set will be changed. A new protective relaying system will also be supplied together with their installation accessories.

13. Rehabilitation of the Kpanhouignan Substation: One (1) 63 kV circuit breaker and disconnector set will be replaced, and a new protective relaying system will be supplied with installation accessories.

14. Rehabilitation of Akpakpa UPEC Substation: This substation is supplied with one 63 kV line from Porto-Novo and one 63 kV underground cable from the Gbegamey substation. Seven (7) 15 kV feeders are used to supply customers in the Akpakpa area. Because of the defective condition of the circuit breakers, this substation is not operating at full capacity, and from time to time, the defective breakers are not able to isolate faulted feeders. The project will provide six (6) circuit breakers to replace defective ones.

15. Construction on a New Power Transfer Substation at Ouidah: To strengthen supply reliability at Ouidah, a power transfer station will be constructed. Three (3) 20 kV circuit breakers will be installed with a protective relaying system. The civil works for housing the breakers will also be conducted.

16. Rehabilitation of the Porto-Novo Underground MV Network: The Porto- Novo underground distribution network is very old, and most of the existing cables are made of oil paper-impregnated cables. These cables are therefore subject to frequent faults, which cause disturbances in the network. The project will replace 10 krn of impregnated cable with dry underground cables.

17. Construction of the Natitingou Power Transfer Station: In order to have more flexibility in supplying Natitingou and other remote areas, a transfer substation will be needed with five (5) circuit breakers and their relaying systems. Some civil works will also be conducted in order to house the equipment.

18. Other Rehabilitations: Five (5) 63 kV circuit breakers and disconnectors will be changed, and the relaying system will be upgraded at the Onigbolo and Allada substations.

19. Project Supervision: There is a crucial lack of technical expertise for project supervision and management at the SBEE. Most of the staff who gained valuable experience in the previous project have been moved to other positions. The supervision services for the works foreseen for SBEE will therefore be conducted by an experienced consultant, who will assist SBEE in approving implementation of contractor plans and drawings, supervising construction, certifying contractor bills, preparing implementation reports. The consultant will also assist during commissioning. Detailed engineering studies and bid documents will be prepared under the ongoing ESDP.

SubComponent A5 (implemented by ESDP/DGE)

20. Improving Lighting and Appliance Efficiency (GEF-financed). This sub- component aims to improve the energy services in urban areas for those customers who already have access to electricity. It plans to introduce energy-efficiency standards for

key household equipment in Benin, and reduce energy consumption and greenhouse gas emissions. The component focuses on appliances that have the most impact on the peak load, namely lighting and air conditioning. This subcomponent is further divided into two subcomponents:

21. A5.1. Energy-Efficient Lighting, Public Awareness, and Promotion of Energy-Efficient Equipment: This sub-component envisages the replacement of incandescent lamps with compact fluorescent lamps (CFLs). The CFLs will be procured in bulk using Efficient Lighting Initiative (ELI) standards and specifications. Households will be entitled to buy up to four CFLs on a first-come, first-served basis at a subsidized price. Particular emphasis will be on new consumers connected under the IAME. Households will be prevented from reselling CFLs, and they will be labeled accordingly. The returned incandescent light bulbs will be destroyed to prevent reuse. A conservative estimate is that about 350,000 incandescent light bulbs will be replaced as a direct result of GEF funding.

22. A5.2. Introduction of Standards and Labels for Efficient Light Bulbs and Air Conditioners: The purpose of this subcomponent is to establish clear efficiency standards in Benin for air conditioners and CFLs. The activity will target the reduction of the average electricity used per piece of household equipment installed and the peak load. This subcomponent is also further subdivided into three additional subcomponents that will help create the framework for developing a market for energy-efficient products in Benin. See Annex 12 for further details on subcomponent A5.

23. Component B: Electrification and Modern Energy Services (US$65.50 million, of which US$12.00 million from IDA). This component proposes to extend the provision of modern energy services in rural areas.

Sub-Component BI (implemented by ABERME)

24. Rural Electrification Fund (GOB- and IDA-financed). This subcomponent aims to increase the access to electricity in rural areas by (i) developing a sustainable institutional framework to support rural electrification, and (ii) demonstrating its capacity to engage in rural electrification through four pilot operations. This component will therefore be divided further in two subcomponents. Subcomponent B 1.1 will allow ABERME to build its capacity to satisfactorily fulfill its roles in the area of rural electrification as envisaged under the law. Under sub-component B1.2, four pilot operations will be undertaken, with the help of IDA financing, to establish the workings of ABERME and its REF. Financing from the GOB will help establish concessions. The law allows for two approaches to rural electrification in principle: (i) attribution of a concession; and (ii) local electrification initiatives. The REF'S draft operations manual describes the project cycles for both approaches (see Box 2 below).

Box 2: Project Cycles for the Rural Electrification Approaches Permitted under the REF through ABERME

Approach 1: Rural Electrijication Concessions (REC)

1 . Development of local electrification plans for RECs. - Terms of reference for the study; - Undertake studies; - Define priority projects and confirm size of concessions; - Prepare prequalification documents; - Prepare the bidding documents.

2. Launch the Bid. 3. Select the Concessionaire. 4. Agree on a Contract, including financing convention, book of works, and concession contract. 5. Construction of electrification infrastructure. 6. Monitoring and evaluation of the REC.

Approach 2: Attribution of Concessions for Local Rural Electrijication 'Initiatives

1. Local private entity expresses interest for a specific electrification activity; 2. Publication to establish whether other interested parties exist; 3 . Selection of most suitable candidate for that specific electrification activity; 4. Issuance of temporary permit for that specific electrification activity; 5. Preparation of a business plan to include:

- Feasibility studies; - Operational studies; - Environmental and social impact assessment.

6. Assessment of the business plan by a technical commission; 7. Agree on a Contract, including financing convention, book of works, and concession contract; 8. Construction of electrification infrastructure; 9. Monitoring and evaluation of the local rural initiative.

Source: REF draji Operational Manual (2008).

25. The activities envisaged for the two subcomponents are as follows:

Subcomponent B1.1- Planning and Development of Modern Energy Services for Rural Areas: This phase aims at building the institutional capacity of the newly created rural electrification agency ABERME to adequately fulfill its functions, and to establish a clear and transparent environment of intervention of the various actors working at the crossroads of rural electrification, including SBEE. The following activities are planned:

o Enhance ABERME's institutional framework: Upgrading of ABERME's Rural Electrification Department to enable it to respond to its future role (suitable staffing with engineers and financial analysts); Enhancing the Financial Department of ABERME to respond to World Bank requirements;

Establishing a separate unit for procurement at ABERME that directly reports to ABERME's Director; Establishing a monitoring and evaluation function in ABERME that is able to follow baseline and follow-up survey to ensure achievement of results; Establishing of an environmental and social function at ABERME that directly reports to ABERME's Director.

o Conduct Preparatory Studies: Comprehensive technico-economical analysis of the potential rural electrification concessions and their dimensions.

o Development of an Enabling Policy Environment: Updating of the Rural Electrification Strategy, including the proposed financing mechanism for the concessionaires and private operators.

o Capacity Building for Local Communities and Potential Private Operators, Financial Intermediaries, and Other Relevant Stakeholders.

Sub-component B1.2 - Pilot Projects: Under this component, the REF would be replenished to finance four small pilot rural electrification operations, with community participation and through IDA financing. Financing from the GOB will provide funding for larger Rural Electrification Concessions. Average expected costs for the distribution grid extension and mini-diesel grids are between US$250,000 and US$500,000. The REF will operate in accordance with its Operations Manual. It will finance both the development of business plans from potential operators, and will provide part of the investment related costs for the approved pilot operations.

Sub-Component B2 (implemented by ESDP/DGE)

26. Modernizing Biomass Energy Sewices (IDA- and FFEM-financed). This subcomponent will target (i) community-based sustainable woodfuel supply systems, (ii) biomass energy efficiency and interfuel substitution, and (iii) rural community development support in the region of the Moyen OuCmC in Benin. The Moyen OuCmC region is a territory of approximately 20,000 km2 (20 percent of Benin's territory) in the OuCmC River basin that spans nine counties and has about 600,000 ha of more or less degraded forests (30 percent of the territory). Charcoal production is commonplace. The region is very accessible and close to the large markets, and thus constitutes the main area supplying charcoal to Benin's major cities: Cotonou, Parakou, Porto-Novo, Abomey, Bohicon, and Ouidah. It is estimated that between 4 to 5 million urban and suburban residents consume 110 kg of charcoal each per year. Taken together, this represents consumption of between 400,000 and 600,000 tons of charcoal. The Moyen OuCmC region covers at least 80 percent of this demand. As a result, the fuelwood harvest exceeds the capacity of these degraded forests to regenerate. This trend is set to worsen, as a 20 percent increase in potential consumers is expected by 2025.

27. Revenues from forest and wood-energy exploitation are not benefiting the local population. The key woodfuel market players in the OuCmC region include: (i) professional producers from outside the region, (ii) the commercial owners residing downtown, and (iii) truck owners that ensure transport to the markets. For the professional producers, the carbonization of woodfuel is a rather lucrative activity. The traditional technique, and the one most commonly used, does not require any capital investment. Each team of three to five coalmen can produce between 50 and 80 bags per week and sell it to a truck owner for approximately CFAF 2,000 (US$4.50) per bag. After transport and several resales, this same bag will be sold to the end-user in the cities for between CFAF 3,500 and 5,000 (US$8-11) per bag according to the season.

28. In order for the forest to be managed on a sustainable basis, the decentralization of forest resource management needs strengthening: the January 1999 Decentralization Law formally transferred natural resource management to the local governments. However, until now the government has not yet provided the human and financial resources necessary to exercise this management at the county level. To facilitate the process, the Communaute Forestiere du Moyen OuCmC (COFORMO) was created in 2007. COFORMO is the association of local governments of five counties in the Moyen OuCmC region (Dassa, GlazouC, Save, Tchaourou and OuCssC) whose forests are the most exposed to pressure for wood energy. COFORMO will focus on: (i) institutional development; (ii) sustainable management of forest resources for the production of wood energy; (iii) transparent management of the wood-energy markets; (iv) development of alternative sources of energy; and (v) the measures accompanying these processes. In May 2008, COFORMO signed a partnership agreement with the Association des Communes Forestieres du Cameroun (ACFCam) and FCdCration Nationale des Communes Forestieres de France (FNCoFor) to promote local forestry governance. The agreement falls under the sponsorship of the Association Nationale des Communes du Benin (ANCB) and Economic Community of West African States (ECOWAS).

29. This component will be implemented by the Energy Directorate at the MEE. The activities will build on the achievements of the ongoing ESDP and will include the following sub-components:

30. B2.1 Promoting Community-based Sustainable Woodfuel Supply Systems: As part of the ESDP, an inventory of 300,000 ha of forest cover is being established, and a management plan is being designed. The IAME project proposes to support the implementation of this community forestry management plan for the 300,000 ha of forests, and the inventory and design of the management plan for the remaining 300,000 ha, in the Moyen OuCmC region. Implementation of these participatory systems is expected to result in a quantifiable output of 675,000 tons per year of "sustainable woodfuel," while creating income-generating activities in participating villages. The woodfuel will be commercialized through legally organized woodfuel markets, and the revenues generated by the taxes will be shared between the land owners, the local governments, and the Forestry Commission. Implementing management of both sustainable forests and woodfuel markets will be handled by AFIC-COFORMO, the forestry agency of the local governments' Association for Forest Resources Management

in the Moyen OuCmC region, in collaboration with the Forestry Commission. The main activities include:

Strengthening the capacity of the AFIC-COFORMO - (i) adopting a charter for the communal forest; (ii) providing the AFIC with required technical, human, and financial resources; (iii) providing the AFIC with fiduciary capacity. Classifying the communal forests - This entails delimitation of the forests in the field and promotion of access to ownership titles for the.loca1 governments. Implementing the community-based forest management plans (300,000 ha) by means of (i) reforestation, (ii) fertilization of savannas, (iii) afforestation work after wood cutting, and (iv) overall protection of managed forests. Managing forest use and woodfuel market - (i) promoting local cooperatives for wood cutting and charcoal production; (ii) organizing woodfuel markets, collecting taxes, and sharing revenues, and (iii) selling bark.

31. The design and intervention methods of these activities are based on proven World Bank-funded experiences in other Sub-Saharan countries such as: Senegal ("Sustainable and Participatory Energy Management Project"), Burkina Faso ("Sustainable Energy Management ProjectJJ), and Niger ("Household Energy Project"). In accordance with accumulated regional experience, the project design will support the devolution of responsibility for forest resource and woodfuel market management from the central government to COFORMO, the local government association, and will include the participation of village communities. This approach is supported by the legal and institutional mechanisms already in place within the context of the administrative decentralization in Benin.

32. B2.2: Promoting Biomass Efficiency and Interfuel Substitution: This component will be implemented by the Directorate of Energy within the Ministry of Energy. It entails: (i) expanding the adoption of improved carbonization systems to maximize the efficiency of wood-to-charcoal conversion, thus reducing aggregate wood requirements and pressure over forest stocks, reducing labor effort, and maximizing producer revenues, (ii) promoting private sector-based programs for improved cook stoves (with emphasis on urban charcoal stove options), (iii) promoting private sector- based programs for LPG interfuel substitution, and (iv) strengthening the capacity of the DGE to manage and update the Energy Sector Database of Information and Monitoring, designed with the support of the ESDP. The project will finance technical assistance and field training costs, field equipment (e.g., boots, gloves and cutters) and small tools for carbonization activities, technical assistance for the expansion of improved woodfuel cook stoves and LPG interfuel substitution, and consumer education/awareness campaigns and marketing promotion activities for interfuel substitution.

33. B2.3: Support to Local Economic Development: In this activity, the delivery of a variety of development services and elements to the participating rural communities is planned as an incentive mechanism for compliance with the "sustainable forest management plans." It will be implemented by the COFORMO in collaboration with the individual member counties. Activities will include:

Promoting community participation in forest management decisions; Promoting local communities' access to, and sustainable exploitation of, non- wood forest products; Generating qualified forest employment for local people, and promoting sound forest exploitation techniques; Promoting apiculture and reforestation; Using forest revenues to provide financial support for implementing local development plans.

34. The project will finance technical assistance, local capacity-building activities, small tools, and field equipment (forestry, apiculture, gardening, etc.) for rural communities, as well as equipment and small works (e.g., small pumps, water wells). Design of these activities is also based on the World Bank's successful operational experience; inclusion of these activities has been determined essential to the success of community-based activities. In particular, it is expected that the project will result in the creation of a strong sense of community ownership regarding sustainable natural resources and their management, and further, will provide for considerable income diversification and generation opportunities at the village level.

35. Component C: Sustainable Energy Services (US6.68 million, all of which from IDA financing). Change to commercially oriented governance is fundamental to achieving sustainable reform of power markets. Commercially oriented governance irreversibly removes the management and development of power supply from political and bureaucratic control to achieve commercial standards in management practices, financial performance, and the pricing of products and services. Changing these deeply ingrained attitudes is a major challenge for power sector reform in developing countries. This component will focus on rendering energy services to consumers more sustainable by focusing on (i) improved financial autonomy and performance of key sector institutions, and (ii) enhancing the capacity to better plan an regulate Benin's energy sector. The component would focus on providing assistance to CEB and SBEE, while also providing targeted institutional assistance to MoE. It covers the following elements:

Benin Energy Sector Master Plan: the last Master Plan was prepared in 1997, and thus an update is urgently needed to guide least cost energy sector development at large. Under the activity, the DGE will be trained to undertake future updates of Master Plans in-house. The activity also foresees to establish a roundtable mechanism for the energy sector to ensure technical findings are actively considered in policy- making. DGE will lead this activity.

Enhancing Regulatory Capacity at the DGE: This component would enhance the regulatory capacity at the DGE in terms of technical and economic skills to assess regulatory intervention in the electricity sector, including setting tariffs. In addition to reviewing policies in relation to CEB and SBEE, the DGE would act as interim regulator for ABERME. The DGE will lead this activity.

SBEE Business Development Plan: this plan would provide for a comprehensive strategy for the development of SBEE as a distribution power utility. The 5-year business plan would contain information on policies, regulation, operations, and finances. It would also serve as a prospectus for investors/donors to understand the opportunities and risks of SBEE. The business plan will also include a complete updated audit of all of SBEEYs facilities, including a clear mapping of distribution network. It will develop key indicators that would become part of a performance contract between SBEE and the GOB. SBEE will lead this activity.

CEB Business Development Plan: this plan would provide for an overall comprehensive strategy for the development of CEB, including on its role as a generation, import and transmission company. The 5-year business plan would contain information on policies, regulation, operations, and finances. It would also serve as a prospectus for investors/donors to understand the opportunities and risks of CEB. It will develop key indicators that would become part of the performance contract between CEB and the High Authority that governs CEB, and in which both the GOB and the Government of Togo are represented. CEB will lead this activity.

Enhanced Environmental and Social Monitoring of Benin's Energy Sector: While CEB has good environmental and social rules and regulations in place, SBEEYs environmental and social safeguard systems are nascent. An environmental audit to be conducted at the SBEE in 2009 will provide guidance on where key environmental and social issues lie. Since 2006, the DGE is entrusted with the environmental monitoring of the energy sector, but de facto has not yet assumed this role. ABERMEYs capacity to monitor and verify compliance with environmental and social safeguard standards also needs to be built. The purpose of this activity is to enhance the sector's capacity to monitor and verify environmental and social safeguards through sector organizations and the Benin Environment Agency (ABE). The component will be led by the ESDP unit at the DGE.

Annex 5: Project Costs (millions of US$)

BENIN: Increased Access to Modern Energy Project

Table 6: Project costs by component

Project Component

A - Upgrading of the Electrical Network

A1 Construction of the Onigbolo/Parakou Interconnection Lot-1

Lot-2

Lotd

Local

10.70

0.54

6.28

3.88

8.1 1

2.71

4.37 0.50

6.33

0.60

0.35 26.58

1.00

17.40 2.75 21.15

Supply and installation of Substations Extension & Compensation Equipment (Parakou & Onigbolo) Supply and installation of 280 km 161 kV Double Circuit Line Implementation of the RAP and ESMP

Implemen ling

Agency

CEB

CEB

CEB

SBEE

SBEE

DGE

ABERME

ABERME DGE

Project Cost

Foreign

27.26

2.14

25.12

0

14.96

4.10

10.86

0.00 0.50

25.30

0.60

3.12 71.75

1.00

40.60 2.75

4435

A-2 Construction of 161 kV Sakkt&Porto-Novo Interconnection

Cost

37.96

2.68

31.40

3.88

23.07

5.13

13.57

4.37 1.00

31.63

1.21

3.47 98.32

2.00

58.00 5.50

65.50

GOB

1.65 1.65

50.00 0.20 50.20

Lot-1

Lot-2

Lot-3

Supply and Installation of Substations & Compensation Equipment Supply and Installation of 30 km 161 kV Double Circuit Line and 63 kV Underground Cable Implementation of the RAP and ESMP

CEB

3.88

4.37

835

0.00

A-3 Construction Supervision for A1 & A2 A 4 Reinforcement and Extension of the Distribution

System A 4 Construction Supervision for Reinforcement and

Extension of the Distribution System A-5 System and Appliance Efficiency

Subtotal Component A B - Electrification & Modem Energv Services

B1.a Planning & Development of Modem Energy Services for Rural Areas

B1.b Rural Electrification Fund B-2 Modernizing Biomass Energy Services

Subtotal Component B

SBEE

1.50

150

0.00

IDA

10.99

1 .OO

30.13

1.21

43.32

2.00

8.00 2.00 12.00

Plan

ESMAP

0.00

2.00 2.00

Financing

GEF

1.82 1.82

0.00

KtW

5.13

13.57

18.70

0.00

EIB

2.68

20.41

23.09

0.00

FFEM

0.00

1.30 130

Project Component

Component C: Sustainable Enerm Services C 1 CEB Business Development Plan C2 SBEE Business Development Plan C3 Enhancing the Regulatory Capacity

C4 Energy Sector Master Plan & Project Management

C5 Development of an Environmental & Social Framework Policy for the Sector

Subtotal Component C Contingencies

TOTAL

Project Cost lmplemen ting

Agency

CEB SBEE DGE

DGE

DGE

Local

0.20 0.20 0.16

0.64

0.14

134

49.06

Foreign

0.80 0.80 0.64

2.56

0.54

534 8.00

129.44

Financing Plan

Cost

1 .OO 1 .OO 0.80

3.20

0.68

6.68 8.00

178.50

GOB

0.00

51.85

CEB

0.00

8.25

SBEE

0.00

0.00

IDA

1 .OO 1 .OO 0.80

3.20

0.68

6.68 8.80

70.00

GEF

0.00

1.82

ESMAP

0.00

2.00

KfW

0.00

18.70

EIB

0.00

23.09

FFEM

0.00

130

Annex 6: Implementation Arrangements

BENIN: Increased Access to Modern Energy Project

Implementation of Components A l , A2, A3, and C l : Construction of 161 kV Interconnection between Onigbolo and Parakou and between Sakkte' and Porto-Novo

1. Implementation of this Component will be carried out through a team formed within CEB, so that various activities under the project are mainstreamed in terms of its preparation, implementation, and later management. Hence, a separate project implementation unit (PIU) is not contemplated. This is the framework under which the ESDP project is being implemented, and which has proven to work well.

2. The Managing Director will have overall responsibility for the implementation of CEB's respective part of the project. However, he has nominated a project manager from the Studies and Development Department to be the focal point for the project within CEB, a procurement specialist, and a financial management specialist who will support the project manager in their respective responsibilities. The project manager will coordinate and manage project activities and interact across all departments in CEB, as well as with the MoE and IDA. CEB's Head of Environmental Service, who has already overseen the preparation of ESIAs and RAPS for the IAME project, will continue to monitor and implement environmental and social mitigation plans under the project (see also Annex 10). Figures 2 shows an aggregated version of CEB's organizational structure. The "Environmental Servicenis a sub-department of the "Studies and Development" Department.

Figure 2: CEB Organizational Structure

Directorate General

I Inspection of , Flnanclal kid I Services f-] Controlling

1 Department

Source: CEB

3. CEB has the necessary capacity and ability to implement the project. CEB will produce semi-annual reports and performance-monitoring indicators on key financial and operational aspects. CEB will submit its report to the ESDP unit at the DGE.

Implementation of Component A4 and C2: Rehabilitation and Reinforcement of the SBEE network

4. Implementation will be carried out by a team formed within the SBEE to allow for the project to be mainstreamed in terms of its preparation, implementation, and management. This is the framework under which the existing ESDP project is being implemented, which has proven to work well.

Figure 3: SBEE Organizational Structure

Central Admlnistratm and Financial Depament Central Techn1ca1Operat:ons Department

Source: SBEE

5 . The Managing Director has overall responsibility for the implementation of SBEE's respective part of the project. He has nominated a project coordinator from SBEE's Studies and Planning Department, a procurement specialist, and an environmental and social specialist. The last two will support the project coordinator in their respective responsibilities. Because of the substantial challenges in SBEE's financial management system, SBEE will not have any financial management responsibility under the project. Thus no financial management specialist will be

associated with the team. The procurement specialist nominated to work on the project will work under the guidance of the highly experienced procurement specialist at the ESDP unit of DGE. This procurement specialist will be associated with all procurement processes undertaken for the SBEE in this project. The project coordinator will manage project activities and interact across all departments in the SBEE, as well as with the MoE and IDA.

6 . A capacity review revealed the need for additional training in environmental and social management. Therefore provisions have been made to fund such training under the ESDP. The SBEE will produce semi-annual reports and performance-monitoring indicators on key financial and operational aspects. SBEE will submit its report to the ESDP unit at the DGE.

Implementation of Component Bl : Rural Electrification Component

7. During project preparation, the organizational structure for ABERME was reviewed, and a new structure agreed upon. This new structure will allow ABERME to fully assume its responsibilities and for all functions to respond to World Bank fiduciary guidelines. For example, a separation of the procurement and finances department was effected, and an environmental and social safeguards unit was established. On 15 May 2009 this new organizational structure was adopted by ABERMEYs Board of Directors. Figure 4 presents this revised organizational structure.

Figure 4: ABERME Revised Organizational Structure

Dlredor

I Development PollCies, Sratqic PI , and Monltonng & EvalusUon

CoMWotl~h

Source: ABERME

8. The Managing Director will have overall responsibility for the implementation of ABERME7s respective parts of the project. He has nominated a procurement specialist, a financial management specialist, and an environmental and social safeguards specialist who will assist in implementing the project. The capacity assessment undertaken for ABERME revealed significant deficiencies. As a result, IAME foresees substantial training and institution building for ABERME. Moreover, it is foreseen that the project personnel nominated to implement the project will be closely mentored by the ESDP unit at the DGE. The ABERME will prepare semi-annual progress reports, as well as performance and monitoring indicators on key financial and operational aspects. ABERME will submit its report to the ESDP unit at the DGE.

Implementation of All Other Components

9. All other activities will be managed through the ESDP unit based at the Directorate for Energy of the MoE. This unit has gained good experience during the existing ESDP project, and has proven its capacity to take on this new assignment as well. The current capacity in terms of financial management, procurement, accounting, and monitoring and evaluation is satisfactory. However, the environmental and social safeguards capacity at the ESDP unit is limited and will be strengthened through additional training.

10. The ESDP unit will prepare semi-annual progress reports, as well as performance and monitoring indicators on key financial and operational aspects. The ESDP unit will aggregate all information provided by CEB, SBEE and ABERME into a single document and submit to IDA for review.

Annex 7: Financial Management and Disbursement Arrangements

BENIN: Increased Access to Modern Energy Project

Summary

1. The objective of the Financial Management Assessments is to determine whether each of the project implementing agencies have acceptable financial management arrangements in place to take on the project's fiduciary responsibility. These arrangements include each agency's accounting system and reporting, auditing, and internal controls. The financial management arrangement for each implementing unit is acceptable if: (i) it is capable of recording correctly all transactions and activities; (ii) it supports the preparation of regular and reliable financial statements; (iii) it safeguards its assets; and (iv) it is subjected to a satisfactory auditing process. The Financial Management (FM) assessments of the implementing agencies were carried out in accordance with the Financial Management Practices Manual issued by the World Bank's Financial Management Sector Board on November 3, 2005. The conclusions of the assessment are summarized in Table 7. and Table 8 reviews country issues:

Table DGE

Financial management arrangements put in place by the DGE meet the World Bank's minimum financial management requirements under OPlBP10.02. The risk rating for the DGE is moderate.

Country Benin

: Conclusions from Finan SBEE

Financial management arrangements put in place by the SBEE do not meet the Bank's minimum financial management requirements under OPA3P10.02. The risk rating for the SBEE is high.

Table 8: Co 1 Issues 1 The GOB'S policy framework for

Budget ~ a n a ~ e m e n t (GBAR) is based on the 2005 CFAA and the recent 2008 PEFA' (Public Expenditure and Financial Accountability) assessment. Risks remain in the following areas:

Poor accounting recording and reporting system: Public accounts are generally incomplete and delayed. Control mechanism: Ex-post controls are uncoordinated and include several units working independently. External audits are delayed.

.al Management Assess] CEB

Financial management arrangements have an overall moderate risk rating, which satisfies the Bank's minimum requirements under OPlBP10.02.

lents ABERME

Financial management arrangements have to be set up and do not yet meet the Bank's minimum requirements under OPA3P10.02. The risk rating is substantial.

ntry Issues Mitigating Measures

Since May 2006, the GOB has taken strong measuresto address these issues.

-

A decree regulating internal audits has been adopted, and the use of exceptional procedures has been strictly limited. The issue regarding delays in preparation of accounts is being resolved with the future recruitment of additional staff and the deployment of accounting software to the sub- national level. Concerning external audits, discussions are underway with the GOB to improve the working environment of the Chamber of Accounts.

Surge in the use of expenses following exceptional

Togo

Fiduciary Risks and Mitigation Measures

suffered from a distorted budget cycle, expenditure execution problems, inadequate Treasury management, and poor internal and external budget controls.

A long suspension of the collaboration between Togo and development partners has affected the implementation capacity within the ministries and the country.

Benin - DGE

procedures. Public expenditure management has

and Fiduciary Assessment Review (PEMFAR) was completed in June 2006, progress has been made on fiscal and accounting reforms. The Government of Togo recognizes the importance of addressing the significant outstanding public expenditure management challenges. The 2008 PEMFAR is providing support to the authorities to update the recommendations of the 2006 PEMFAR. CEB is a regional organization with its own administration. Risk at country level does not substantially affect CEB activities.

2. The DGE, which is implementing the ongoing Energy Services Delivery Project (ESDP), already has in place an acceptable financial arrangement and is familiar with the World Bank financial management procedures. The same arrangement applies to the current project. Interim Unaudited Financial Reports (IFRs) are submitted on a timely basis and audit opinions are unqualified.

The overall inherent risk is Substantial The overall control risk is Moderate. The overall financial management risk is Moderate.

Since the Public Expenditure Management

Note: Togo is assessed in this table, because CEB is a bi-national company that is jointly owned by Benin and Togo. h he latest PEFA was completed November 2007.

BenidTogo - CEB

3. The CEB, which is implementing the WAPP APLl (Phase 2) Project, has an acceptable financial arrangement in place and is familiar with the World Bank financial management procedures. Under the ESDP, CEB does not have FM responsibility, as is the case with the current project. Audit opinions are qualified but weaknesses are being addressed.

The overall inherent risk is Substantial The overall control risk is Moderate. The overall financial management risk is Moderate.

Benin - SBEE

4. Findings for SBEE are presented in Table 9.

Table 9: Benin SBEE

Control Risks

Accountin

Inherent Risks Country

Poor governance Corruption Weak internal control environment Delay in the preparation and audit of state accounts

Entity Lack of FM capacity Huge delays in the preparation of the entities' accounts Lack of integrated billing and accounting systems Disclaimer audit opinion on the entity accounts Lack of transparency Weak internal control environment

Proiect Lack of FM capacity Delays in the submission of the project information

Internal Control H Funds Flow: S

Residu a1 Risk Rating

H

S

H

~p

Internal Audit I H

Risk Mitigation Measure Risk

for consolidation Disclaimer audit opinion on the entity accounts Weak internal control

External Audit: H Reporting and Monitoring: S

Risk Rating

Information System S Overall Risk: H Note: Risk ratings are as follows: H: High, S: !

As already done under the ESDP, SBEE will not have FM responsibility under the IAME project. In addition, SBEE will be requested to recruit an outside financial management expert to support financial system building at SBEE.

The new GOB has taken strong measures to fight corruption. Issues relative to internal control, reporting, and auditing are being addressed as mentioned above in the country issues section.

Same as above

S

S

Same as above Same as above Same as above Same as above Same as above Same as above Same as above Same as above M

S ~bstantial, M: Moderate, L: Low.

Benin - ABERME

5 . Findings for ABERME are presented in Table 10.

Table 10: Benin ABERME

Risk

Inherent Risks Country

Poor governance Corruption Weak internal control environment Delay in the preparation and audit of state accounts

Entity No experience in a World Bank-financed project No FM arrangement and system in place Weak internal control environment

Proiect Same as above

Risk Rating

S

Control Risks Budgeting Budget preparation process was relatively acceptable as all the currents expenditures are financed through government budget. No experience in the preparation of relevant project budget preparation nomenclature Accounting No experience in dealing with private sector accounting system. Staffing ABERME FM staff are not familiar with the World Bank FM procedures. This may affect the FM management of the project. Internal Control Public FM internal control

S

S

Risk Mitigation Measure

The new GOB has taken strong

S

Residual Risk Rating

S

measures to fight corruption. Issues relative to internal control, reporting, and auditing are being addressed as mentioned above in the country issues section.

A financial and accounting manual will be prepared. A computerized accounting system will be set up. Under the ongoing ESDP, ABERME Director of Finance and the accountant will be trained ("learning by doing") to be familiar with the FM Bank procedures.

ABERMEYs staff will be trained in the field of FM and control.

S

M

M

Training will be provided. Manual of procedures will be prepared to clarify the role and responsibility of the stakeholders. Annual work plans will be prepared and submitted to the DGE by November 30 of each year.

Manual of procedures will provide more detail on accounting system and information required.

ABERME Director of Finance will be trained to become familiar with the FM Bank procedures prior to the effectiveness date.

The Administrative and Financial Procedures Manual will set out a

M

M

M

M

M

arrangement accommodates the management of government allocation, but cannot be used for the IDA-financed project. There is no internal control arrangement for the project. Flow of Funds ABERME is not familiar with the World Bank FM and disbursement procedures. Difficulties in the timely submission of acceptable Withdrawal ApplicationlIFR may delay fund mobilization. Internal Audit There is no internal audit function within ABERME, and the internal audit department within the MoE (Inspection GBnBrale du Ministbre, IGM) may not have sufficient capacity and experiences to handle ABERME activities.

External Audit Overseeing Audit Institution has limited capacity. Quality of the project audit reports will not be acceptable. Delay in submission of ABERME audit report

Reporting and Monitoring Delays in the submission of

M

M

M

S

clear description of the approval and authorization processes.

ABERME FM staff will be trained by the FM and disbursement specialists to be familiar with the World Bank FM, reporting, and disbursement procedures prior to and after the project's effective date.

ABERME's manual will outline approval and authorization procedures with clear segregation of duties.

The IGM will carry out an internal audit of the project with terms of reference (TORS) acceptable for IDA and will issue a report on a biannual basis.

The IGM capacity will be strengthened by the project. An internal auditor may be recruited later if needed.

The project will be closely supervised. The external audit of the project accounts will be done by a qualified independent audit firm that is acceptable to the World Bank and is under the Chamber of Accounts' responsibility.

The project consolidated accounts, including components managed by ABERME, should be available in a timely manner as the above actions are implemented.

Also, the audit of ABERME accounts should be done in a timely manner. ABERME FM staff will be trained in World Bank FM procedures and

agreed IFR, as ABERME is not familiar with the IDA FM requirements Information Svstem There is no computerized information system in place; delays and mistakes during the preparation of financial reports.

Strengths and Weaknesses

Overall Risk:

6 . The implementing agencies exhibit the following strengths:

S

Both CEB and DGE have experience in the management of World Bank-financed projects and have acceptable FM capacity; The SBEE has a good knowledge of the World Bank's procedures; The IFR and audit report are received in a timely manner; ESDP audit opinions were unqualified; CEB audit opinions were qualified but identified weaknesses are being addressed.

Note: Risk ratings are as follows: H: High, S: Substantial, M: Moderate, L: Low. S

7. ABERME and SBEE exhibit the following weaknesses:

IFR. The com'ments provided during the review of the IFR will help improve their quality. A computerized accounting system will be set up in ABERME.

M

ABERME: (i) lack of experience in the implementation of Bank-financed projects; (ii) lack of knowledge of World Bank FM procedures; (iii) lack of FM and accounting information systems, (iv) no manual in place. SBEE: (i) considerable deficiencies in its systems of accounting, cost control, internal audit, billing, and collection; (ii) lack of qualified FM staff; (iii) inadequate .hardware, inadequate software, unclear instructions, long delays in transmitting important information, a high degree of centralization; (iv) audit opinion disclaimer; and (v) internal audit and control systems is inefficient.

M

M

Financial Management Arrangements

8. The DGE will have the overall coordination of the FM and accounting activities. It will be responsible for the management of the project funds for the technical activities it implements, as well as those implemented by the SBEE and CEB. These include budgeting, disbursement, financial management, reporting, supervision, management of the Designated Account A and C, and auditing. ABERME will handle its own operation as soon as its FM system and capacity comply with World Bank financial management standards. Details will be provided in the manual under preparation.

Disbursement Arrangements

Disbursement Methods

9. Disbursements under the Credit and the GEF Grant would be transaction-based. The direct payment application prepared by CEB will be sent directly to the Caisse Autonome d'Amortissement (CAA) for signature with a copy to the ESDPIDGE, which is the overall coordination unit of the project. The DGE will ensure that appropriate action has been taken to have the direct payment application recorded in the computerized expenditure management system, SystBme Intigri de Gestion des Finances Publiques (SIGFIP), and keep the CAA informed. Three Designated Accounts (A - IDA for DGE, B - IDA for ABERME, and C - GEF for DGE) will be opened at the Central Bank (BCEAO). Transaction accounts derived from each designated account will be opened at a commercial bank to facilitate payment for eligible expenditures involving operating costs, and Statement of Expenditure (SOE) procedure-based expenditures for relevant categories of expenditures as reflected in the Financing Agreement. Table 11 gives an overview of the types of accounts and currency used.

Report-based Disbursement

10. DGE: The DGE has full capacity for and experience in the preparation of an acceptable IFR. However, at the effectiveness date, the IDA Credit and the GEF Grant will be disbursed following the transaction-based disbursement. The conversion to report-based disbursements may be envisaged at any time during project implementation.

11. ABERME: At the effectiveness date, the Credit will be disbursed following the transaction-based disbursement. The conversion to report-based disbursements may be envisaged when ABERME has the capacity to produce acceptable IFRs.

Flow ofFunds

12. The CAA is the assigned representative of the recipient for the mobilization of IDA funds. Withdrawal Application requests are prepared by ABERME, DGE, and CEB, signed by a designated signatory or signatories (the signature authorization letter is signed by the Minister of Finance), and sent to the World Bank for processing. This procedure applies to all World Bank-financed projects in Benin.

13. Funds will flow from the IDA Credit and GEF Grant Account through the Designated Accounts opened at the BCEAO. The funds would be released to Designated Accounts A and B (IDA Credit and GEF Grant DGE), and Account C (IDA Credit ABERME), to be opened in a reputable commercial bank.

14. The Credit and Grant proceeds would be disbursed over a five-year period. Upon project closure, a period of four months (grace period) after the closing date, as agreed with the World Bank, would be allowed to complete processing of disbursement for expenditures incurred up to and until the closing date of the Credit and Grant.

Table 11: Type of Accounts and Currency I Implement I Type of Accounts and Status

ing Agency

ABERME

Currencv I

Transaction Account B in CFAF at commercial Bank Advance: CFAF 200 million

Designated Account B at the Central Bank (BCEAO)

Funds will flow from the Credit Account through the Designated Account (opened at the BCEAO and managed by the Independent Amortization Fund, Caisse Autonome d 'Amortissement, CAA). The account for daily operations (transactions account) will be opened at a commercial bank. Withdrawal Applications, to be sent to IDA, will be prepared by ABERME and signed by the CAA.

DGE for SBEE,

DGE, CEB

Designated Account A (IDA Credit) at the Central Bank (BCEAO) Transaction Account A in CFAF at commercial bank Advance: CFAF 300 million

Designated Account C (GEF Grant) at the Central Bank (BCEAO) Transaction Account C in CFAF at commercial bank Advance: CFAF 120 million

Funds will flow from the Credit Account through the Designated Account (opened at the BCEAO and managed by the Independent Amortization Fund, CAA). The account for daily operations (transactions account) will be opened at a commercial bank. Withdrawal Applications, to be sent to IDA, will be prepared by DGE and signed by the CAA.

Table 12: Credit and GEF Grant Allocation Proceeds

(2) CEB (Component A. 1) (3) CEB (other) (4) SBEE (5) ABERME (Component B 1.1) (6) ABERME (Component B 1.2) (7) Unallocated Total

Percentage of Expenditure to be

Financed 100

Category of Expenditures by

Implementing Agency (1) ESDP unit at DGE

10,990,000

2,000,000 32,330,000

2,000,000

8,000,000

8,000,000 70,000,000

Credit IDA (US$)

6,680,000

Grant GEF (us$)

0

0

0 1.818,182

0

0

0 1,818,182

3 5

100 100

100

100

Not applicable

Use of Statement of Expenses

15. The thresholds for which expenses will be paid or reimbursed on the basis of expenditure statements will be specified in the disbursement letter. The thresholds are as detailed in Table 13 :

I Benin construction contract US$300,000 for goods

Table 13: Thresholds for Expenses Paid or Reimbursed

US$200,000 for consulting firms US$100,000 for individual consultant

Country

Budgeting Arrangements

SOE Less than: US$500,000 for work under supply and

16. The project would adopt a comprehensive cash-budgeting arrangement. The budget will include all planned project activities for the year. Each entity will prepare its budget under the supervision of the DGE whose FM is in charge of the consolidation. The project consolidated budget will be submitted for IDA'S no objection.

Accounting Policies and Procedures

17. Project accounts will be maintained on a cash basis, supported with appropriate records and procedures to track commitments and to safeguard assets. Annual consolidated financial statements will be prepared by the DGE in accordance with International Accounting Standards. For ABERME, accounting and control procedures will be documented in ABERME Administrative, Accounting, and Financial Manual.

Reporting and Monitoring

18. Interim unaudited Financial Reports (IFRs) would be prepared by ABERME and DGE and consolidated by the DGE. The IFR will include sources and uses of funds by project expenditure classification. It will also include a comparison of budgeted and actual project expenditures (commitment and disbursement) to date and for the semester. ABERME and DGE will submit copies of the IFRs to the World Bank within 45 days following the end of a semester. The IFR format under the ESDP will be used, and the DGE will produce Annual Financial Statements. These statements will comply with International Accounting Standards and World Bank requirements. The Financial Statements l2 will comprise:

A statement of sources and uses of funds; A statement of commitments;

l2 It should be noted that the project financial statements should be all-inclusive and cover all sources and uses of funds, not only those provided through IDA h d i n g . It thus reflects all program activities, financing, and expenditures, including funds from other development partners.

58

Accounting policies adopted and explanatory notes; and A management assertion that project funds have been expended for the intended purposes as specified in the relevant financing agreements.

Audit Arrangements

Internal Audit

19. Internal auditing is a function that will help to strengthen an internal control environment. It is a management tool for informing the management how the implementing agencies are performing regarding compliance with policies and procedures. CEB and SBEE have their own internal audit arrangements. Internal audit functions for the DGE and ABERME will be assumed by the government's internal audit entity within the MoE.

External Audit

20. The supreme audit institution (Chambre des Comptes), which is responsible for auditing all public funds, has a limited capacity in terms of staffing and experience in auditing project financial statements. In view of this, an external independent and qualified private sector auditor will be recruited under the Chambre des Comptes authority to carry out the audit of the project's financial statements. Annual audits will be conducted based on the terms of references (TORS) satisfactory to the World Bank.

21. The Auditor will express an opinion on the Annual Financial Statements, and perform the audit in compliance with International Standards on Auditing. He will be required to prepare a management letter detailing his observations and comments, providing recommendations for improvements in the accounting system and the internal control environment. The project audit report on the annual project financial statements will be submitted to IDA within six months after the end of each project fiscal year. In addition, audited reports on SBEE, CEB, and ABERME financial statements will be submitted to IDA within six months after the end of each project fiscal year.

Fiduciary Compliance

22. There is no overdue IFR and audit report under the ongoing ESDP and none due by any of the entities concerned with this project. However, during the last four years, SBEE audit reports have been received with huge delays and with disclaimer audit opinions.

Supervision Plan

23. The intensity of on-site FM visits will be based on the assessed FM risk for the project. During project implementation, there will be one supervision mission during year 1 for the overall project, but two targeted supervision missions for the DGE and ABERME, complemented by desk reviews of quarterly IFRs; review of annual audited financial statements and management letter as well as timely follow-up of arising issues.

Table 14: Financial Management Supervision Plan

1 Training / capacity building I Annually I Report 1

Activity IFR, ABERME, DGE Audit report review, project, CEB, ABERME, SBEE Transaction reviews, participation in the SPN mission

Financial Reporting Obligations

24. The following are the project's financial management reporting obligations:

Frequency Bi-annually Annually

Bi-annually

ABERME and DGE shall maintain or cause to be maintained a financial management system including records, accounts, and preparation of related financial statements in accordance with accounting standards acceptable to the World Bank. The financial statements will be audited in accordance with international auditing standards. Once the project is consolidated, audited financial statements by SBEE, CEB and ABERME shall be provided to the Association for each period, not later than six (6) months after the end of the fiscal year.

Deliverable Review letter Review letter

Aide-memoire, FM rating

ABERME and DGE shall prepare and furnish to the Association, not later than 45 days after the end of each calendar semester, interim unaudited financial reports for the project, in form and substance satisfactory to the Association.

ABERME and DGE will be compliant with all the rules and procedures required for withdrawals from the Designated Accounts.

Fiduciary Compliance

25. There is no overdue audit report and IFR under the ongoing ESDP. SBEE audit opinions had disclaimers during the last four years, and its audit reports were received after huge delays.

Financial Management Action Plan

26. The action plan below indicates the actions to be taken for the project to strengthen its financial management system.

Table 15: Action Plan for Strengthening Project's Financial Management System

I accounting system in ABERME. I condition for I I Action to be taken

Set up a computerized financial and By when

Disbursement

I Draft the TOR for the financial audit

financial and accounting procedures I condition for 1 I

By whom ABERME

of the project. Prepare and adopt ABERME

Component B. 1 Complete DGE

Disbursement - -

manual. Draft the TOR for internal audit to be performed by the Ministry of

Arrangements for Good Governance

ABERME

~ n e r ~ ~ ' s internal audit department (IGM). Agree on the IFR format to be used bv ABERME .

27. In order to mitigate risks, many control mechanisms will be established. The main tool for governance control will be giving responsibility to an entity that will guarantee respect of basic governance and transparency principles at the program level. The fiduciary aspects of these principles are listed in Table 16 below. An entity will be designated to oversee these aspects, namely, the IGM of the MoE.

Component B. 1 Complete ABERMEDGE

Complete

Public contracts

ABERMEDGEIIDA

Table 16: Institutions for Governance Monitoring

Fight against corruption

New Procurement Code. National Public Tenders Regulation Board (CNRMP). Control entity: National Department of Public Procurement (DNMP). within the Ministry of Economy and Finance. Procurement Units (CPMP) in charge of procurement and contract control for contracts below the thresholds fixed in the Codes are operational within the ministry and SBEE.

Resposibility/Activity General Inspection Departments (Inspections Gbnbrales Ministbrielles and Inspection Ge'nbrale des Finances). Internal auditors in autonomous structures.

Index

1

Administrative and judiciary sanctions to infractions against the Procurement Code. Civil society organizations (FONAC and ALCRER), who are very active in the denunciations of corruption cases. Observatory for the Fight against Corruption (OLC). Transparency International. Nouvel Ethique.

Area

Internal control and auditing

4 External audit and

rendering of annual accounts

Audit Bench (chamber of account control). External private auditors.

Action Plan

28. In order to reduce implementation risks, mitigate corruption risks, improve governance, and sustain the project's achievements beyond its term, measures related to the project's fiduciary management will be strengthened. These measures will be in addition to those specifically intended to mitigate the corruption risks identified above. Some controls are thus either already effective or to be established in the very short term, such as the following: (i) the a priori procurement review and FM supervision, and (ii) the strengthening of internal audits and controls. Particular attention will be given by the Bank's team to the quality of internal controls and audits to ensure that they are conducted according to international norms and standards. The review of the TOR and the corresponding reports are one of the World Bank's means of control.

Mitigation of Collusion Risks

29. This part essentially deals with fiduciary issues. To reduce collusion risks, the project's main actions are to:

Appoint in ABERME fiduciary specialists who will support the management of procurement and financial management of goods and works for the project, and check the bids to detect any evidence of collusion; Make procurement information (plans, schedules, bidding documents, shortlists of consultants, contracts awarded, etc.) available to the public promptly upon request; Build capacity by providing guidelines and training on how to conduct clarifications/negotiations, as well as on monitoring contract implementation; and Benefit from the lessons learned during the first phases of the program in other countries regarding the most sensitive contracts. This allows for the achievement of harmonized technical specifications (particularly for the procurement of equipment).

Mitigation of Forgery and Fraud Risks

30. To mitigate against forgery and fraud risks, the project will:

Include a procurement specialist and financial management specialist within each implementing agency with fiduciary responsibilities, and build capacity in these fields in beneficiary structures that do not have fiduciary responsibility; Agree on a timeline for procurement decisions to avoid procurement delays, and therefore reduce opportunities for corruption; Review regularly financial accounting reports, including all supporting documents ; Conduct training as needed to improve the capacity of key personnel at all levels. Training will include, as necessary, aspects of procurement, financial management, design, and supervision of implementation.

Annex 8: Procurement Arrangements

BENIN: Increased Access to Modern Energy Project

Background - Procurement Reform

1. Benin: A Country Procurement Assessment Report (CPAR) assessing the national procurement system was carried out in April 1999 for Benin, and an action plan for procurement system reform was developed in November 2002. This action plan supports the modernization of the regulatory and institutional framework, and its objectives are to: (i) improve the management of public contracts, (ii) modernize public procurement procedures, (iii) strengthen capacity, (iv) establish an independent control system, and (v) adopt anticomption measures. In addition, the plan provides for the gradual empowerment of decentralized procurement entities, the definition of a strategic framework for capacity building in procurement, and the updating of tools such as standard bidding documents and a manual for procurement procedures to ensure the effective use of the procurement code.

2. Implementation of the new institutional framework has translated into the creation of:

The National Commission of Public Procurement Regulation (CNRMP): this entity does not manage procurement transactions. Rather, it is responsible for procurement policy, public procurement auditing, and complaint settlement from bidders. The CNRMP is comprised of representatives from public and private sectors and civil society; The National Directorate for Public Procurement (DNMP) is in charge of controlling the quality of procurement transactions; and The Public Procurement Units (CPMP) at the ministry level.

GOB is harmonizing the legal and institutional procurement framework with the WAEMU Procurement Directives that were adopted by its Council of Ministers in December 2005. To that end, a new procurement law has been adopted by Parliament in 2009.

Guidelines

3. Procurement for the proposed project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, as revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank BorrowersJJ dated May 2004, as revised in October 2006, and the provisions stipulated in the Grant Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the project, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior-review requirements, and timeframe have been agreed upon between GOB and the World Bank in the respective Procurement Plan. The Procurement Plan will be updated at least annually, or as required, to reflect the actual project implementation needs and improvements in institutional capacity.

4. National Competitive Bidding procedures may be used provided that: (i) bids are advertised in national newspapers with wide circulation; (ii) bid evaluation, bidder qualification, and award criteria are specified clearly in the bidding documents; (iii) bidders are given adequate response time to prepare and submit bids (a minimum of four weeks); (iv) bids are awarded to the lowest evaluated bidder provided this bidder is qualified; (v) eligible bidders, including foreign bidders, are not precluded from participating; and (vi) no preference margin is granted to domestic suppliers.

Procurement Documents

5. Procurement will be carried out using the World Bank's Standard Bidding Documents or Standard Request for Proposal (RFP), as applicable, for all International Competitive Bidding (ICB) for works, goods, and recruitment of consultants. For National Competition Bidding (NCB), the GOB shall submit a sample form of bidding documents to the World Bank for prior review and will use this type of document throughout the project once agreed upon. The Sample Form of Evaluation Reports developed by the World Bank will be used. For NCB, in accordance with paragraph 1.14 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the financing shall provide that: (i) the bidders , suppliers, contractors and subcontractors shall permit IDA, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and shall have said accounts and records audited by auditors appointed by IDA; and (ii) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines.

Advertising Procedure

6. General Procurement Notice (GPN), Specific Procurement Notices (SPN), Requests for Expression of Interest, and results of the evaluation and contracts award should be published in accordance with advertising provisions in the following guidelines: "Guidelines: Procurement under IBRD Loans and IDA Credits " dated May 2004, as revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, as revised October 2006. The GOB will keep a list of received answers from potential bidders interested in the contracts.

Procurement Methods

7. Procurement of Works: The works financed under the project will be for the supply and construction of plant and equipment. Works should be grouped in bid packages, which could stimulate foreign bids. Works will be procured through International Competitive Bidding (ICB). Contracts estimated to' cost less than US$3,000,000 equivalent may be procured through NCB. Works estimated to cost less than US$50,000 equivalent per contract may be procured through shopping procedures. Contracts will be awarded following evaluation of bids received in writing, based on

written solicitation issued to several qualified companies (at least three). The award will be made to the company with the lowest price only after comparing a minimum of three quotations opened at the same time, provided the contractor has the technical capacity to execute the contract successfully. For shopping, all project implementation agencies will keep a register of suppliers (at least six) updated monthly.

8. Procurement of Goods: The items would include office equipment, furniture, information system equipment, vehicles, and office supplies. Goods should be grouped in bid packages and should be procured through ICB. Contracts estimated to cost less than US$300,000 equivalent may be procured through NCB. Limited International Bidding could be used where there is either a limited number of suppliers or there are justifiable, exceptional reasons other than discrimination against suppliers. Goods estimated to cost less than US$50,000 per contract may be procured through shopping procedures. Contracts will be awarded following evaluation of bids received in writing, based on written solicitation issued to several qualified suppliers (at least three) who have a physical shop with relevant goods. The award would be made to the supplier with the lowest price only after comparing a minimum of three quotations open at the same time, provided the contractor's capacity to execute the contract successfully exists and the goods proposed conform to technical specifications. For shopping, the procurement specialist will keep a register of suppliers (at least six) updated monthly. Goods and works that meet the requirements for "Direct Contracting," referred to in paragraph 3.1 and 3.6 of the procurement guidelines, may, with the World Bank's prior agreement, be procured in accordance with the provision of paragraphs 3.6 and 3.7 of these guidelines.

9. Selection of Consultants: The project will finance Consultant Services such as studies, supervision, surveys, financial audits, training, and workshop facilitating; Consultant firms will be selected through the following methods: (i) Quality and Cost- Based Selection (QCBS); (ii) selection based on the Consultant's Qualification (CQS) for contracts whose amounts are less than US$100,000 equivalent and for which exceptional studies or research requiring specialized firms with a specific expertise and strong capacities are needed; (iii) Least Cost Selection (LCS); and (iv) Single Source Selection (SSS), with prior agreement by IDA, for services in accordance with the paragraphs 3.10 to 3.12 of Consultant Guidelines. An Individual Consultant (IC) will be hired in accordance with paragraph 5.1 to 5.4 of the World Bank's Guidelines. IC may only be sole-sourced with prior review of the World Bank.

10. Shortlists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines, if a sufficient number of qualified individuals or firms are available. However, if foreign firms have expressed interest, they would not be excluded from consideration.

11. Procurement of Non-consulting Services: Least Cost Selection (LCS) or Selection under a Fixed Budget (FBS) may be used.

1 2. Training, Workshops, Study Tours, and Conferences: The training (including training material and support), workshops, conference attendance, and study tours will be carried out and managed based on a plan of approved annual training and related activities. A detailed training or workshop plan giving the nature of the training/workshop, number of traineeslparticipants, duration, staff months, timing, and estimated cost will be submitted to IDA for review and approval prior to initiating the process. The selection methods will derive from the activity requirement, schedule, and particulars. After the training, the beneficiaries will be requested to submit a brief report indicating what skills have been acquired and how these skills will contribute to enhance their performance and contribute to the attainment of the project objective.

13. Operational Costs: Operating costs financed by the project are incremental expenses, including office supplies, vehicles operation and maintenance, maintenance of equipment, communication costs, rental expenses, utilities expenses, consumables, transport and accommodation, per diem, supervision costs, and salaries of locally contracted staff. The operating physical needs (thus excluding consulting) will be obtained using procurement procedures specified in the Project Administrative, Financial and Accounting Manual accepted by the World Bank.

Assessment of the Agencies' Capacity to Implement Procurement

14. Procurement activities will be carried out by, or be under the supervision of, the project coordination of the ESDP unit at the DGE. The ESDP unit will serve as the project's overall executing agency and will supervise and coordinate the procurement activities of all others project implementation entities (CEB, SBEE, ABERME). The ESDP Procurement Specialist will work closely with the nominated Procurement Officers of other implementation agencies.

15. The procurement capacity assessment was conducted only for ABERME. As the DGE, CEB, and SBEE are already implementing procurement activities under the current ESDP, there is no need to conduct another procurement capacity assessment because procurement implementation is rated satisfactory. Assessment of ABERME was conducted by the Procurement Specialist based in the World Bank's Benin Country Office. It reviewed the organizational structure, the procurement process and management, and the interaction between ABERME and the Ministry of Energy (the project's relevant ministry). This assessment showed that ABERME is not familiar with World Bank procurement procedures and is not adequately staffed to manage or render satisfactory the project's procurement activities.

The measures agreed upon to strengthen ABERME7s procurement implementation framework are: (i) creation of a Procurement Officer position under the Director General; (ii) preparation of the Administrative, Financial, and Accounting Manual with the procurement section; and (iii) preparation of the Project Operational Manual that will describe the relationship between ABERME and all other structures involved in the project procurement process. Table 17 below summarizes these activities:

Table 17: Project Preparation Action Plan

16. In view of the experience gained under the ESDP, the overall project procurement risk is rated low.

Task

1. Prepare the procurement section of operational manual.

2. Nominate ESDPIDGE Procurement Officer.

3. Nominate ABERME' s Procurement Officer.

4. Prepare the procurement section of ABERMEYs Administrative, Financial and Accounting Manual.

Procurement Implementation Arrangements 17. The ESDP unit at the DGE established in DGE will be responsible for the overall coordination of the IAME project implementation.

18. Procurement by the DGE: The Procurement Specialist recruited for the ESDP will be responsible for the coordination of all procurement activities. To strengthen the capacity of DGE, the Procurement Specialist will work with a Procurement Officer nominated by the DGE. Procurement tasks include: (i) preparation and updating of the procurement plans; (ii) preparation, finalization, and launching of the Requests for Proposal and bidding documents; (iii) drafting minutes of the opening of the bidslproposal, and preparation of the evaluation reports; (d) submission of procurement documents (TORS, RFP, bidding documents, evaluation reports, contracts, etc.) to the World Bank when prior review is required; (e) preparation of contracts, and overseeing payment to contractors; and (e) drafting of a procurement progress report. All prior- review documents for project procurement will be submitted to IDA through the ESDP unit. The Procurement Specialist will oversee and manage the project's procurement activities, ensuring that these activities are proceeding in a timely manner and according to project objectives. The Procurement Specialist will supervise the procurement process that will be carried out by the SBEE and ABERME, and will be responsible for the preparation of six monthly project procurement reports.

Completion

Within 3 months of signing the Financing Agreement. Within 3 months of signing the Financing Agreement. Within 3 months of signing the Financing Agreement. Before disbursement under category B. 1

Intermediate Milestones

Completed

Not applicable, satisfactory

procurement officer already in place.

Completed

Recruitment of consultant before effectiveness date

Responsib ility

ESDPI DGE

ESDPI DGE

ABERME

ABERME

19. Procurement by CEB. CEB will carry out its own procurement activities. Every six (6) months, CEB will provide the project Procurement Specialist a procurement activities report in order to facilitate the follow-up of project procurement and the preparation of the project overall procurement report. In addition, CEB will also be responsible for (i) preparation and updating of the procurement plans; (ii) preparation, finalization, and launching of the RfP and bidding documents; (iii) drafting minutes of the opening of the bids/proposal, and preparation of the evaluation reports; (iv) submission of procurement documents (TORS, RFP, bidding documents, evaluation reports, contracts, etc.) to the World Bank when prior review is required; (v) preparation of the contracts, and overseeing payments to contractors; and (vi) drafting. of the procurement progress report. CEB has nominated a procurement focal point for the project.

20. Procurement by the SBEE. The SBEE will carry out its procurement activities under the supervision of the ESDP unit Procurement Specialist. All project procurement prior-review documents shall be submitted to IDA through the ESDP unit. The SBEE should designate a procurement focal point for ESD project procurement activities relative to SBEE.

21. Procurement by ABERME. The procurement activities will be carried out by an ABERME-designated Procurement Officer under the supervision of the ESDP unit Procurement Specialist. The Procurement Specialist must clear all procurement documents prepared by the ABERME before publication or send them to bidders or consultants. All project procurement prior-review documents will be submitted to IDA through the ESDP unit.

Procurement Plan

22. The GOB has prepared a detailed Procurement Plan for project implementation which provides the basis for the procurement methods. The plan covers the first eighteen months of project implementation. This plan will be available at the implementing agency, in the project's database, and on the World Bank's external website. The Procurement Plan will be updated in an agreement with the World Bank at least annually. All procurement activities will be carried out in accordance with the original, or formally updated and agreed upon, Procurement Plan. The ESDP unit will be responsible for the preparation of the consolidated Procurement Plan.

Frequency of Procurement Supervision Missions and Audits

23. In addition to the prior review carried out by the World Bank, there will be one supervisory mission every six months and at least one World Bank annual Post Procurement Review (PPR). The ratio of post review is at least one review to five contracts. The World Bank may also conduct an Independent Procurement Review (IPR) at any time up to two years of the closing date of the project. Every six months, the implementing agencies will prepare and submit for World Bank review a project procurement implementation report as part of the project supervision documents.

DETAILS OF THE PROCUREMENT ARRANGEMENT INVOLVING INTERNATIONAL COMPETITION

1. Goods, works and non consulting services.

(a) List of contract Packages, which will be procured following ICB and Direct contracting:

(b) Prior review: all contracts estimated to cost above US$300,000 for goods and US$3,000,000 for works will be subject to IDA prior review as determined mandatory in paragraphs 2 to 4 of Annex 1 of the Bank's procurement Guidelines.

Description

1. Purchase of CFLs

2. Supply of equipment for testing laboratory 3. Transmission Line Construction for 161 kv Sakete- Porto-Novo ICEB 4. Transmission Line Construction for 161 kv Onigbolo- Parakou ICEB

5. Rehabilitation of distribution networWSBEE

(c) Post review: for each contract not submitted to the prior review, the procurement documents will be submitted to IDA post review in accordance with the provisions of paragraph 5 of Annex 1 of the Bank's procurement Guidelines. The post review will be based on a ratio of at least 1 to 5 contracts.

Estimate

Amount (US% 000)

650

250

19,500

35,000

'

31,630

Procurement Method

ICB

ICB

ICB

ICB

ICB

Pre qualificati on (yestno)

No

No

No

No

No

Domestic preference

(yestno)

No

No

No

No

No

Prior or Post Review

Yes

Yes

Yes

Yes

Yes

Estimated Bids openingl closing Date

July 10

March 10

March 10

March 10

July 10

Expected Contract

Signature Date

September 10

May 10

May 10

May 10

October 10

2. Consulting Services

(a ) List of Consulting Assignments with short-list of internationalfirms. -

(b) Prior review: (a) each contract estimated to cost more than US$200,000 per contract for Firms; (b) all single source selection; (c) all training; (e) all terms of reference of contracts for which the cost estimate is greater than US$5,000, and ( f ) all amendments of contracts raising the initial contract value by more than 15 percent of original amount or above the prior review thresholds will be subject to mandatory IDA prior review mandatory in accordance with paragraphs 2 to 4 of Annex 1 of the World Bank's Guidelines for the Selection of Consultants. For individual consultants prior review will be required on case-by-case basis.

Description

1. Supervision of construction of transmission IinesICEB

2. Preparation of business plan of CEBICEB

3. Supervision of rehabilitation work of distribution IinesISBEE

4. Preparation of business plan of SBEE

5. Master Plan for Benin's Energy sector/DGE

6 . Detailed study for rural concessions/ABERME

(c) Short lists composed entirely of national consultants: Short list of consultants for services, estimated to cost less than US$200,000 equivalent per contract, may be comprised entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. However, if foreign firms have expressed interest, they should not be excluded from consideration.

(d) Post review: For each contract for services not submitted to the prior review, the procurement documents would be submitted to IDA PPR in accordance with the provisions of paragraph 5 of Annex 1 of the World Bank's Guidelines for the Selection of Consultants. The post review will be based on a ratio of at least 1 to 5 contracts.

Est. Amount

(US% 000)

1,000

500

500

500

400

400

Method

QCBS

QCBS

QCBS

QCBS

QCBS

QCBS

Estimated contract

signing date

January 10

July 10

February 10

April 10

June 10

January 10

Prior and Post

Review

Yes

Yes

Yes

Yes

Yes

Yes

Estimated Bid Opening

Date

November 09

April 10

January 10

February 10

May 10

November 09

Annex 9: Economic and Financial Analysis

BENIN: Increased Access to Modern Energy Project

Economic Analvsis

Summary Findings

1. The investments envisaged as part of IAME project include (i) transmission system investments; (ii) distribution system investments, and (iii) lighting and appliance efficiency measures. All of these measures contribute to (i) reducing power system losses or wastage use of power, and to (ii) increasing access to Benin's underserved population. Costs and benefits in this section are analyzed on the basis of the respective components, and are subsequently aggregated. Costs and benefits have not been quantified for those components that are dominantly providing technical assistance as their benefits are not readily quantifiable.

2. The project will generate good economic results. The economic internal rate of return (EIRR) of both transmission lines is at 22 percent, as compared with the 10 percent assumed economic opportunity cost of capital. The EIRR of the distribution component is 14 percent, and that of the energy efficiency component 53 percent. The global EIRR of the project is 20 percent. Table 18 presents an overall overview of the results for the project. This section further discusses the cost-benefit analysis of the individual investment components.

Table 18: Economic Analysis for the Increased Access to Modern Enerpy Project (in US$; NPV, 10%)

Cost and Benefits of the Onigbolo-Parakou and SakBt6Porto-Novo Transmission Lines (Subcomponents Al , A2, and A3)

Components Transmission lines (Subcomponents Al , A2, A3) Distribution rehabilitation (Subcomponent A4) Energy efficiency (Subcomponent A5) Total

3. Currently there is one transmission interconnection with northern Benin under construction, which is set to be completed in June 2009. This interconnection is commonly referred to as the 161 kV northern Togo-northern Benin interconnection and is being financed by IDA, NDF, and BOAD under the ESDP. The proposed Onogbolo- Parakou transmission line provides an additional interconnection with northern Benin. The SakCtC- Porto Novo transmission line will interconnect Benin's capital Porto Novo and its industry through a high voltage line with the interconnected grid.

NPV

Note: A discount rate of 10% is assumed to calculate the present values for the economic analysis.

59,953,797

10,107,847

4,479,606

74,541,250

EIRR 22%

14%

53%

20%

4. The feasibility study by EDF (2008) for the 161 kV Onigbolo-Parakou and the 161 kV SakCtC-Porto-Novo transmission lines shows that the transmission line between Onigbolo and Parakou closes the transmission ring, thus enabling the transmission grid to satisfy basic N-1 criteria. The transmission interconnection between SakCtC and Porto- Novo secures the supply of electricity to Benin's capital city, Porto Novo.

Main Assumptions

5. All values are as of the year 2007 and where appropriate have been discounted for that year at the rate of 10 percent. The demand projection for this analysis is based on scenarios provided by CEB and assumes an approximate 6 percent annual demand growth rate. The lifetime of the transmission line is estimated at 40 years.

Investment Cost Stream

6. The flow of capital investments was taken from EDF (2008), and excludes taxes, duties, and price contingencies. Timing was based on the implementation schedule. The transmission lines are assumed to have a lifetime of 40 years each. The costs include double stringing of the lines, displacement of the Onigbolo substation, extension of the Parakou substation, and construction of a substation at Tanzoun. The costs also cover the costs for the implementation of the Resettlement Action Plans (RAPs) and other environmental and social monitoring required for both transmission lines. See Table 19 below for a detailed cost breakdown:

Table 19: Breakdown of Project Costs

, ,

1 A2. Sake'te' -Porto-Novo Transmission Line 18.791.000.00

Component Al . Onigbolo-Parakou Transmission Line Lines and transformers Extension of substations Environmental and social ~ l a n s

, , 1 Lines and transformers 14,166,100.00

Cost (millions of US$) 38,300,000.00 33,696,000.00

234,000.00 4.370,OOO.OO

Substations and capacitator Implementation of RAPS A3. Suuervision o f construction

Benefits

1,859,000.00 3,880,000.00 1,040,000.00

vestment Costs

7. The transmission lines will generate the following benefits:

58,131,000.00

Reduced transmission losses; Increased reliability of the transmission network (including through compliance with N- 1 planning criteria); Reduced non-distributed energy.

Source: EDF (2008).

8. The EIRR of the transmission lines is estimated at 22 percent. Benefits over the lifetime of the project are about double the original investment costs. Table 20 comprises a breakdown of the results.

1 EIRR I 22 % I

Table 20: Economic Analysis for the Onigbolo-Parakou and SakCttSPorto-Novo Transmission Lines (in US$, NPV 10%)

/ Note: A discount rate of 10% is assumed to calculate the present values for the economic analysis.

Discounted Costs Discounted Benefits Discounted Net Benefits

Cost and Benefits of the Rehabilitation and Reinforcement of SBEE's Network Subcomponent A4

58,593,028 1 18,546,824 59,953,797

Investment Cost Stream

9. The projected investment costs as detailed in Annex 4 for the rehabilitation of distribution levels network in the cities of Cotonou, Porto-Novo, Ouidah, and Natitingou are US$3 1.63million. An addition of US$1.21 million needs to be added to account for necessary supervision costs. Operation and maintenance costs are also taken into account.

10. An evaluation of this subcomponent's benefits resulted in the following: (i) the reduction of distribution-level losses through these investments; and (ii) the reduction in power outages due to technical deficiencies to be remedied by the proposed investments.

11. As the investments will be undertaken in the SBEE regional department of "Littoral 1,'' estimates for potential distribution loss savings and a reduction of power losses are based on their data. A summary with key information about that regional department is included below in Table 2 1 :

I Total losses 1 97.748.61 8.00 kwh I

Table 21: SBEE Regional Department Littoral 1

, , , Total unscheduled outages 1 414 hourslyear

Total generation and purchases of electricity Total sales

12. Benefits are based on the estimate that distribution-level losses can be reduced by 30 percent compared with the business-as-usual trend of distribution-level losses in Littoral 1. This corresponds to a 9 percent reduction against 2009 levels, as an increase of distribution losses of about 21 percent is estimated to occur in the absence of these investments over their lifetime (corresponding to an annual increase of about 0.5 percent). Investments are estimated to reduce unscheduled outages by 35 percent in

555,895,545.00 kwh 458,146,927.00 kwh

Littoral 1 compared with the business-as-usual scenario. The EIRR of the distribution rehabilitation activities is estimated at 14 percent, which is satisfactory. Table 22 summarizes these findings.

Table 22: Economic Analysis for the Rehabilitation and Reinforcement of SBEE's Network Subcomponent

(in US$, NPV 10%) I I Discounted Costs I 3 1.432.45 1 I , ,

Cost and Benefits of Improved Lighting and Appliance Efficiency Subcomponent A5

Discounted Benefits Discounted Net Benefits EIRR

13. The economic analysis for this component is based on a penetration rate of 350,000 CFL light bulbs in the Benin market over a period of 10 years. It is assumed that incandescent bulbs rated 60 Watt are being replaced by CFLs rated 15 Watt. The baseline survey indicated that daily usage per light bulb is about 5 hours. It is assumed that within the 10 years the CFLs that will be burnt will be replaced, as the revenue generated from the sale of CFLs enables further purchases. On this basis, load savings of 9.7 MW are derived. A 65 percent load factor leads to overall electricity savings of 146,953 MWh over a ten year time horizon, equivalent to savings of 14,700 MWh per year. The costs of the program are detailed in Annex 12. The benefits are evaluated at the average generation costs times of 72 €/MWh (EDF, 2008). Table 23 summarizes the results of the economic analysis, which are highly favorable.

4 1,540,298 10,107,847 14 percent

Note: A discount rate of 10% is assumed to calculate the present values for the economic analysis.

Table 23: Economic Analysis for the Improved Lighting and Appliance Efficiency Component [in US$, NPV 10%)

Overall Project Sensitivity Analysis

Discounted Costs Discounted Benefits Discounted Net Benefits EIRR

14. Table 24 summarizes the switching values of the investment costs and benefits for the two major inputs to three major components (transmission lines, distribution system investments, and energy efficiency). The switching value is the value at which the deviation from the base case would yield an EIRR of only 10 percent for the transmission lines, which is assumed to be the economic opportunity cost of capital. As the values in Table 24 demonstrate, only very large fluctuations in the investment costs or benefits bring the value of the EIRR down to the level of opportunity costs of capital. Put differently, the economic results appear robust.

1,818,182 6,064,538 4,479,606

53% Note: A discount rate of 10% is assumed to calculate the present values for the economic analysis.

Table 24: Switching values of investments costs and benefits (Base Case)

15. Further, a sensitivity analysis was carried out to quantify the impact of alternative assumptions on the EIRR for the transmission lines. Table 25 illustrates again the robustness of results. The EIRR is most sensitive to relative changes in the price for non- distributed energy. This reflects their relative magnitudes in the calculation.

Input Total Investment Costs Total Benefits

Switching value (percentage of Change) + 80 percent - 44 ~ercent

I Total benefits - 25 1 14 percent I

Table 25: Sensitivity Analysis

Total investment costs

Transmission loss reduction lower than expected Transmission system outages Value of non-distributed enernv

Financial Analysis

Percentage of change)

+ 25

". Reduction in distribution losses Lower price for non-distributed energy

CommunautC Electrique du Benin (CEB)

EIRR

15 ~ercent

- 50 - 50 - 50

According to its statutes, CEB is the sole electricity generation and transmission company for Benin and Togo. CEB's own electricity production capacity is limited to the Nangbeto hydroelectric power plant (2~32.8 MW) and two 20 MW gas turbines in Togo and Benin. The gas turbines have historically run on kerosene but are in the process of being converted to gas. CEB is heavily dependent on electricity imports from neighboring countries to cover its demand, including Ghana, CGte d'Ivoire, and Nigeria, making it highly vulnerable to changes in import conditions and availability.

18 percent 18 percent 15 uercent

- 50 - 50

Historical Financial Situation

19 percent 12 percent

16. Because CEB's average tariff covered its costs, it was profitable until 2004. At the same time, however, CEB did not invest in its generation capacity as required to keep up with demand growth and thereby increased its degree of energy dependence. When the availability of electricity imports started to decrease in 2005, CEB was not able to fill the demand-supply gap from its own production resources. The decrease by over 30 percent of available imports from CGte dYIvoire led the governments of Benin and Togo to invest in their own thermal emergency generation capacity through their national distribution companies. In accordance with the law governing CEB, CEB is the single buyer of electricity of both Benin and Togo. CEB was therefore obliged to buy this thermal power under the name of "additional energy" from the SBEE in Benin and the CEET in Togo to fill the supply gap. However, CEB was forced to purchase at tariffs

significantly above the tariffs for which it sells electricity to SBEE and CEET. This created a structural deficit and constituted and effective subsidy by CEB to SBEE and CEET. In addition, given the deteriorated financial situation of the distribution companies, CEB was in addition asked to purchase the fuel for the generation of "additional electricity". The costs to CEB between 2005 and 2007 are illustrated below in Table 27.

for CEB From SBEE (Benin Payment for "additional energy" Payment for fuel TOTAL Sales tariff to SBEE Loss to CEB

Table 26: Cost of "Additional Energy" 2005 2005 2006 2006 20071' 20071' 2005-2007

per kwh FCFA mm per kwh FCFA mm per kwh FCFA mm FCFA mm

From CEET (Togo) Payment for "additional energy" 1 0 3 . 701 130 2,904 15 131 3,736 Payment for fuel 3 77 83 728 805 TOTAL 103 701 133 2,981 98 859 4,541 Sales tariff to CEET 50 340 50 1,120 50 438 1,899 Loss to CEB 53 36 1 83 1,860 48 420 2,642 Total loss to CEB 102 1,974 157 6,637 108 3,702 12,313

Source: World Bank calculations based on CEB data /1: Purchase of additional energy by CEBfrom SBEE and CEET discontinued in August 2007

17. Against this background, CEB recorded net losses in 2005 and 2006, undermining the company's liquidity and capacity to service its debt. In August 2007, the governments of Benin and Togo decided to stop CEB's purchase of additional energy from the SBEE and CEET, preferring instead to subsidize the distribution companies directly. In addition, both governments provided CEB with an injection of CFAF 11.4 billion in 2007 to clear the substantial payment arrears that the CEET and SBEE had accumulated during the energy crisis. A regular clearance mechanism has been established.

18. These measures allowed CEB to reestablish their profitability, liquidity, and self- financing capacity at the end of 2007. CEB is operating relatively efficiently. Its personnel costs account for 5 percent of its operating costs only, and the bulk of operating costs are linked to the import and generation of electricity.

Projected Financial Situation

19. Going forward, CEB's financial situation will be driven by (i) the availability of a tariff increase, (ii) ongoing demand growth in Benin and Togo, (iii) the ongoing availability of low-price imported electricity, especially from Nigeria, and (iv) the need for further investments in transmission and generation capacity. Financial projections for CEB have been developed based on the following key assumptions:

(i) In terms of tariff increase, it is assumed that the governments of Benin and Togo agree to a tariff increase of 10 percent in 2009 for all customer categories.

(ii) Regarding demand growth, the demand scenario developed in CEB's Strategic Investment Plan 2007-2016 was adopted. However, the planning was updated the hydropower projects of Tetetou and Ketou were excluded.

(iii) Regarding imports, it is assumed that CEB will have access to imports from Nigeria of a maximum of 835 GWh p.a. between 2008 and 2014, increasing to 1,000 GWh p.a. from 201 5 onward. Other imports are projected to fill the gap between CEB's own project production capacity, whereby electricity from CBte d'Ivoire is projected to be tapped before additional imports from Ghana given their more attractive price.

(iv) In terms of CEB's own generation capacity, it is assumed that the hydropower plant at Nangbeto will operate at its capacity of 165 GWh p.a. The two gas turbines will have a production capacity of 100 GWh p.a. each following their conversion to gas. It is further assumed that the expected gas from Nigeria will be available starting in 2010, significantly reducing production costs for the gas turbines from CFAF 120 per k w h to CFAF 31.21 per kwh. In addition, it is assumed that the Adjarala hydropower station will start to be constructed in 201 1 and start producing in 2014, reaching its maximum capacity of 366 GWh p.a. in 2015 at a cost of CFAF 54.3 per kwh. It is further assumed that an IPP will be available to help address demand in the outer years (starting in 2017). Table 28 below shows CEB's historic and projected demand-supply balance. Projected transmission and other investments correspond to planned investments according to CEB's Strategic Investment Plan 2007-20 16.

(v) The on-lending agreement by GOB of the new IDA loan to CEB has an interest rate of 3 percent, a 5-year grace period, and a 20-year repayment period.

20. Based on these assumptions, CEB's average tariff covers the company's operating costs, depreciation and amortization, and interest payments between 2008 and 2012, and CEB is recording net profits. Starting in 2014, additional depreciation and interest charges related to planned investments, such as the Adjarala hydropower project, would require a small increase in tariffs or a restructuring of CEB debts. Table 29 comprises a summary of CEB's financial situation.

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Table 28: CEB's Financial Summary

CEB financial Summary Operating indicators

Energy produced (GWh) Energy imported (GWh) Total energy (GWh) Energy sold (GWh) Energy sold I total energy Transmission losses Growth of energy sold p.a. No. of staff Saledstaff (FCFA rnm) Energy saledstaff (GWh) Growth in energy saledstaff

Income statement Electricity sold (GWh Average tariff (FCFakWh) Electricity sold (FCFA bn) Operating expenses (FCFA bn) EBITDA (FCFA bn)

Depreciation (FCFA bn) Net income (loss) (FCFA bn) Operating Ratio (%) Labor costs % operating costs

Self-financing capacity Operating cash flow (FCFA bn) Debt service (FCFA bn) Capital expenditure (FCFA bn) Debt senrice coverage ratio

Balance sheet Capital (FCFA bn) Fixed assets (FCFA bn) ROFA (Oh)

Working capital (FCFA bn) Current ratio (%)

Sociiti Bininoise d'Energie Electrique (SBEE)

Historical Situation

21. SBEE is the electricity distribution company for Benin. While SBEE in accordance with its statutes is to limit its activities to distribution, it has developed some thermal and hydropower generation capacity (1 80 GWh in 2007). During the recent energy crisis of 2005- 2007, the Government of Benin also decided to rent additional diesel units which accounted for 74 GWh of SBEE's own production in 2007 and 13 1 GWh in 2008.

22. At the end of December 2007, SBEE had 346,273 customers. Distribution losses of 17 percent compare favorably vis-a-vis other African utilities, but leave room for further improvements. Operating efficiency, as measured by operating costs to total revenues or the number of subscribers per staff (see Table 30) requires further improvement.

23. SBEE is a structurally loss-making company, as the average tariff of CFAF 81.7 per k w h does not cover production costs of CFAF 101.8 (2007 data). SBEE has recorded net losses since 2006, following the electricity supply crisis in Benin. In addition, SBEE is technically bankrupt as it has negative equity when only taking paid-in capital into account and before operating and investment subsidies (see Table 31). SBEE maintains a minimum degree of liquidity by creating arrears to CEB and other public sector suppliers. This allows it to pay its commercial lenders. SBEE needs to rely on debt finance for its planned investments, and already has a total financial debt of CFAF 97 billion in 2007 and an annual projected debt service of CFAF 12 billion in 2008.

24. In order to clear the arrears owed by the SBEE to CEB, GOB has started paying the SBEE's arrears to CEB and is offsetting them against payments for public sector consumption. These payments amounted to CFAF 14 billion in 2007 and about CFAF 13 billion in 2008. In addition, the SBEE received CFAF 10.7 billion in operating subsidies in 2007 and a similar amount in 2008. The total payments by the GOB, including SBEE's losses, amounted to 3.9 percent of the national budget in 2007 (see Table 3 1).

Table 29: SBEE Historical Financials I ~i nancial lndica tors for SBEE' 2006 2007

Operating indicators

Energy generated (GWh) Energy imported (GWh) Additional energy (GWh)

Total energy (GWh) Energy sent to the network (GWh)

Total energy sold (GWh) Network efficiency (energy soId/energy sent to network) Transmission losses

Number of subscribers Number of staff

Revenues/staff (CFAF '000s) . Energie sold/staff (kwhlagent) No, of subscribers/staff

Income statement

Revenues (CFAF bn) Electricity sales (GWh) Electricity sales (CFAF bn)

Operating costs (CFAF bn) Operating costs % revenues EBITDA

EBITDA margin (%)

Net income (CFAF bn)

Average tariff (CFAF/kW h) Production cost (CFAFIkWh)

Loss per k w h sold (CFAF)

Cash f low Operating cash flow (CFAF bn) Debt service (CFAF bn)

Capital expenditure (CFAF bn) Debt service coverage ratio

Balance sheet Equity (CFAF bn)

Adjusted equity (CFAF bn)*

Net fixed assets (CFAF bn) RO FA (%) Working capital (CFAF bn)

Financial debt (CFAF bn) Current ratio (%)

I/ Source: SBEE Activity Report 2007, Audited financial statements 2007 2/ Before investment and operating subsidies and only counting paid-in capital (FCFA 5.4 bn)

Table 30: Government Payments to SBEE (2007 data) Payments by Benin Government to SBEE (in-FCFA) - 2007 Advances 14,000,000,000 Operating subsidy 10,736,904,000 TOTAL 24,736,904,000 Owed bv SBEE to aovernment: Fiscal debts Owed bv aovernment to SBEE: Government debtors Other accounts payable from government 4,387,258,000 Net owed by SBEE to government 2,249,517,000 Net loss SBEE (3,562,572,000) Total cost SBEE for government 30,548,993,000

Source: SBEE

Future Projections

25. Assumptions: Projections for SBEE's future financial performance have been made using the following key assumptions:

LV and MV subscribers are growing by 5 percent p.a.; SBEE's own generation stabilizes at 154 GWh p.a. from 2010 onward, including generation by diesel rental units of 76 GWh p.a. (about the level of generation in 2007); Imports of electricity from CEB make up for the balance to serve demand, i.e., 707 GWh in 2010, 1,040 GWh in 2015, and 1,416 GWh in 2020; SBEE implements a tariff increase of at least 20% in 2009; The tariff payable to CEB for imported electricity is CFAF 55 per kwh; The price of petrol is $60 per barrel; The SBEE undertakes debt restructuring and a tariff increase as part of a Financial Improvement Plan to restore its financial health (see next section); Investments are being carried out according to a phased out version of the SBEE's short-term investment program but without any subsidies from government; The new IDA project helps reduce commercial losses from 17.7 percent in 2007 to 15 percent in 2010, 12.5 percent by 2015, and 10 percent by 2020. Without the project, commercial losses are assumed to remain at 15 percent starting in 2015; Billing collection rates improve from 96 percent to 97 percent in 2015 and to 98 percent in 2020; The ratio of subscribers/staff increase from 170 in 2007, to 247 in 2009, and 260 in 20 10; The on-lending agreement by GOB of the new IDA loan to SBEE has an interest rate of 2 percent, a 10-year grace period, and 25-year maturity period.

Financial Improvement Plan

26. SBEE's historical financial performance clearly shows that it needs a financial improvement plan in order to ensure that it is financially sustainable. Adoption and implementation of such a restructuring plan is an effectiveness condition and includes a tariff

increase of at least 20 percent and a debt restructuring plan. These measures as well as other possible financial measures are discussed below:

27. Recapitalization of the SBEE: Following the separation of the company's water and electricity operations, outstanding capital of CFAF 4.573 billion was not paid in, and should be paid for by GOB. This can be done by eliminating the position "shareholders uncalled capital" on the asset side of the SBEE's balance sheet, and making a corresponding reduction on the liability side of the CFAF 14 billion advance that the government paid to the SBEE in 2007. In addition, the position "SONEB accounting separation" of CFAF 5.394 million should be eliminated on the asset side and the corresponding reduction made on the liability side of the CFAF 14 billion advance that the GOB paid to the SBEE in 2007. After these two accounting operations, the remaining balance of CFAF 4.03 billion of the CFAF 14 billion advance GOB paid to the SBEE in 2007 should be transferred to equity. By the same token, the CFAF 12.5 billion advance paid by GOB to SBEE in 2008 should be transferred to SBEE's capital.

28. Debt Restructuring: Debt forgiveness for retroceded loans for which GOB has received debt relief should be passed on to SBEE, and the outstanding balance of the 4 loans in question of CFAF 15.1 billion (2007 data) transferred to SBEE's capital.

29. Tariff Increase to Reaclz Financial Sustainability of tlze SBEE's Operations: It is necessary to increase the SBEE's tariffs to ensure the financial viability of the company. Scenarios show that a tariff increase of at least 20 percent in 2009 would help SBEE restore its profitability and cover its operating costs as well as the debt service going forward. A tariff increase of 25 percent would provide SBEE with a more comfortable margin (see table 33).

30. Table 3 1 shows the pro forma adjustments to the SBEE's 2007 balance sheet from the Financial Improvement Plan:

Table 31: Pro-forma Adjustments for SBEE's 2007 Balance Sheet

SBEE: Pro Forma Adiustments 2007 2007 Adiustment 2007 rev Non-paid-in capital 4,574 - 4,574 Total fixed assets 92,987 88,413 SONEB account separation 5,394 - 5,394 Total current assets 46,329 40,935 Stocks 4,573 4,573 Treasurv 8.181 8.181 TOTAL ASSETS 152,070 142.102 Nominal capital 10,000 10,000 Paid-in capital 5,426 4,574 10,000 Total capital 782 4,032

15,097 19,910 Advance received from government 14,000 - 14,000 Financial debt 97,024 . 67,928 Current liabilities 47,568 47,568 Treasurv 6.696 6.696 TOTAL CAPITAL AND LIABILITIES 152.070 142.102

Ratios:

Capital 1 Nominal capital (%) Debt I Cap~tal (x) Debt I EBITDA (x) Capital I (Debt + capital) (%) Debt 1 (Debt + Capital) (%)

Source: World Bank calculations based on SBEE data

3 1. Summary of Projections and Scenarios: Following these assumptions and the implementation of SBEE's Financial Improvement Plan as outlined, the SBEE's projected financial performance under the base case (20 percent tariff increase in 2009, new IDA loan included, financial improvement plan implemented) is summarized in Table 3 1, and scenarios are summarized in Table 32.

Table 32: SBEE's Financial Performance - Base Case (FCFA millions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Base case Actual Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Income statement items Revenues 50,130 59,367 63,416 82,239 88,897 96,094 103,010 110,424 118,372 126,892 135,772 143,916 152,550 161,701 171,401 EBITDA -7.542 8,498 6,661 16,030 18,890 21.558 24,099 26,889 29,931 33,241 36,763 39.954 43.368 47.018 50,922 EBlT -7,867 713 -4,196 3,559 4.931 6.634 8,823 11,559 13,814 16.427 19.670 22.583 28,977 32.349 35,974 Net income -12,381 -3.563 -8.945 -751 890 3,509 4,413 6,279 7,747 9.438 11,533 13,427 17,483 19,671 22,020 Balance sheet items Current assets 47,000 46,329 41,096 46,418 50,032 54,961 59,896 64.947 70,115 75,392 80,842 86,249 91,820 97,557 103,461 Net fixed assets 86,639 92,987 91,195 86,219 84,388 83,000 77,680 71,901 64,553 51,238 37,646 23,774 12,883 1,714 -11,234

Total assets 141,794 152,071 137,207 129,512 128,538 127,097 134,686 144,359 153,865 161,138 169,033 179,485 193,668 209,686 227,765 Equity 2,988 782 14,021 25,420 26,465 29,974 34,387 40.666 48,413 57,851 69,384 82,811 100,294 119,965 141,986 Current liabilities 52,535 47,568 37,545 37.030 40,949 41,076 40,881 40.664 40,417 40,135 38,411 37,385 36,070 34,442 32,473 Debt 80,961 97,024 79,028 63.658 60,074 56.047 59,417 63.029 65,035 63,152 61,238 59,290 57.304 55.279 53,306

Total liabilities and equity 141,794 152,071 137,207 129,512 128,538 127,097 134,686 144,359 153,865 161,138 169,033 179,485 193,668 209,686 227,765 Cash flow items Internal sources -4,015 6,550 1,913 11,720 14,849 18.433 19.690 21.610 23,864 26,252 28,626 30,798 31,874 34.340 36,968 Client advances 857 934 914 959 1,007 1,058 1.110 1,166 1.224 1,286 1,350 1,417 1,488 1.563 1,641 New borrowings (incl. IAME) 0 0 6,962 3,889 6,602 6.801 6.269 5,269 2,947 0 0 0 0 0 0 Government funding 0 0 3.055 0 0 0 0 0 0 0 0 0 0 0 0 Capital increase 19.129 12,150

Tolal sources -3,158 26,613 24,993 16,569 22.613 26.292 27,069 28,044 28,035 27,538 29,975 32.215 33.362 35.903 38.609 Capital expenditure 23,333 4.688 9,065 7,495 12,128 13.536 9,956 9,552 8,769 3,500 3,500 3,500 3,500 3,500 2,000 Debt service NIA NIA 7,340 7,896 10,057 11.491 3.616 2.797 2,101 2,676 2,811 2,953 3,102 3,256 3,325 Working capital increase -8,909 4.295 4,790 5,837 -305 4.802 5.129 5,269 5,414 5,559 7,173 6,433 6,886 7,366 7,872 (decrease) Changes in cash -17,582 17,630 3,797 -4,659 733 -3,537 8,368 10,426 11,750 15,803 16,491 19,329 19,874 21,782 25,412

Total uses -3,158 26,613 24,993 16,569 22,613 26,292 27,069 28,044 28,035 27,538 29.975 32.215 33,362 35.903 38.609

Kev financial ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Actual Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast

Income statement ratios EBITDA % revenues -15% 14% 11% 19% 21% 22% 23% 24% 25% 26% 27% 28% 28% 29% 30% EBlT % revenues -16% 1% -7% 4% 6% 7% 9% 10% 12% 13% 14% 16% 19% 20% 21% Net income % revenues -25% -6% -14% -1 % 1% 4% 4% 6% 7% 7% 8% 9% 11% 12% 13% Balance sheet ratios Current ratio 0.9 1 .O 1.1 1.3 1.2 1.3 1.5 1.6 1.7 1.9 2.1 2.3 2.5 2.8 3.2 Debt/(Debt+Equity) 96% 99% 85% 71% 69% 65% 63% 61% 57% 52% 47% 42% 36% 32% 27% Return on net fixed assets -14% -4% -10% -1 % 1% 4% 6% 9% 12% 18% 31% 56% 136% 1148% -196% Return on equity -414% -456% -64% -3% 3% 12% 13% 15% 16% 16% 17% 16% 17% 16% 16% Cash flow ratios Debt service coverage NIA NIA 0.26 1.48 1.48 1.60 5.45 7.73 11.36 9.81 10.18 10.43 10.27 10.55 11.12 Self-financing ratio 127% 25% 8% 71% 66% 70% 73% 77% 85% 95% 95% 96% 96% 96% 96% DebtlEBlTDA - 10.7 11.4 11.9 4.0 3.2 2.6 2.5 2.3 2.2 1.9 1.7 1.5 1.3 1.2 1 .O

Table 33:SBEE's Financial Performance - Scenario

2006 2007 Scenarios Actual Actual 10% tariff increase in 2009 Revenues 50,130 59,367 EBITDA -7,542 8,498 EBlT -7,867 71 3 Net income -12,381 -3,563 EBITDA % revenues -15% 14% EBlT % revenues -16% 1% Net income % revenues -25% -6% Debt service coverage NIA NIA Self-financing ratio 127% 25% DebtlEBlTDA -10.73 11.42 15% tariff increase in 2009 Revenues 50.130 59,367 EBITDA -7.542 8,498 EBlT -7,867 71 3 Net income -12,381 -3,563 EBITDA % revenues -15% 14% EBlT % revenues -16% 1% Net income % revenues -25% -6% Debt senilce coverage NIA NIA Self-financing ratio 127% 25% DebffEBITDA - 10.73 11.42 25% tariff increase in 2009 Revenues 50,130 59,367 EBITDA -7,542 8,498 EBlT -7,867 71 3 Net income -12,381 -3,563 EBITDA % revenues -15% 14% EBlT % revenues -16% 1 % Net income % revenues -25% -6% Debt service coverage NIA NIA Self-financing ratio 127% 25% DebffEBITDA -10.73 11.42 Base case without new IDA loan Revenues 50,130 59,367 EBITDA -7,542 8,498 EBlT ' -7,867 71 3 Net income -12,381 -3,563 EBITDA % revenues -1 5% 14% EBlT % revenues -16% 1% Net income % revenues -25% -6% Debt service coverage NIA NIA Self-financing ratio 127% 25% DebffEBITDA - 10.73 11.42

2008 Forecast F

2009 2010 2011 :orecast Forecast Forecast

2012 2013 2014 2015 2016 Forecast Forecast Forecast Forecast Forecast

2017 2018 2019 2020 Forecast Forecast Forecast Forecast

Annex 10: Safeguard Policy Issues

BENIN: Increased Access to Modern Energy Project

Social Impacts

1. The construction of the new Onigbolo-Parakou and SakCtC-Porto-Novo transmission lines is expected to have relatively significant negative social impacts. Both an Environmental and Social Impact Assessment (ESIA) and a Resettlement Action Plan (RAP) were initially prepared in 2004 and recently updated in April-May 2008. The RAPs found that along the line routing of the Onigbolo-Parakou transmission line, 123 families (about 640 people) will need to be resettled and/or compensated, while along the line routing of the Sakete-Porto-Novo transmission line 61 families (about 682 people) will need to be resettled and/or compensated. Both RAPs clearly identified the specific measures needing implementation, including for the compensation of concerned families. A basic archaeological survey has been carried out along the transmission lines and has not indicated any substantial findings aside those already highlighted in the RAPs.

2. So far, "rights-of-way" for both transmission lines pass mostly through agricultural lands (i.e., rural areas), whereas in suburban and urban areas some of the lands are used for construction and gardening activities. Moreover, the ESIAs found that, in either section considered, the overall benefits of the projects have more positive than negative effects (especially for urban areas where local inhabitants encounter frequent power shortages).

3. As prescribed for the Forest and Protected Areas, the fetisheurs' divinities and associated sacred areas will be avoided to reflect the development objective of the line, and will do no harm to beneficiary corridor - riparian communities. The final transmission line corridor design will help hrther guide the implementation of RAP-recommended activities so as to avoid unnecessary disturbance.

4. As for the use of the rights-of-way, presently no law prevents the usage of transmission line rights of way for agricultural production, including gardening for vegetable production. CEB has always allowed farmers and urban gardeners to pursue their income generation activities on the rights of way, provided they respect some minimal restrictions, such as not planting trees higher than 2 m, or building shelters. Consequently, CEB will continue to allow farmers (in rural areas) and gardeners (in urban areas) to use the new transmission line "right of way" as long as they respect these few restrictions. This will not only help maintain the income generation activities for these poor families, but also help keep the "right of way" clean and safe.

5 . Finally, all four implementing agencies (CEB, ESDP unit at DGE, SBEE, and ABERME) will establish or enhance their environmental and social units (ESU) and be provided with the appropriate training. Particular focus will be on World Bank safeguard policies. Generic Social and Environmental Clauses (SEC) will be developed and put in the bidding documents and implemented by the contracted Focal Point in relation to the SEU. Bidding documents will contain a clause with the proviso that contractors prepare and implement their own Environmental Management Plans (CEMPs). The contractors will need to employ an environmental / social specialist responsible for the implementation of the CEMP.

Environment

6. Only the construction of the new transmission lines from Onigbolo to Parakou and from SakCtC to Porto-Novo is expected to have significant environmental impacts. However, the draft ESIA finds that there is no real alternative to the proposed line routing. Moreover, the line routing already circumvents urbanized areas such as Ketou and Parakou. The classified forest of Dogo and sacred forests will also be circumvented. Fetisheurs and their sacred areas will be avoided. The transmission line "right of way" passes mostly through land used by agricultural activities.The ESIA finds that the overall benefits of the project outweigh its minor negative impacts. The negative impacts include the loss of about 17,800 m3 of biomass, which is not under protection.

7. Construction-related environmental and social impacts from the transmission line and the rural electrification activities will be managed through the preparation and implementation of the contractor Environmental and Social Management Plan (ESMP) and the contractor Health and Safety Plan. Damage to crops and structures during construction will be compensated for as part of the obligation in the contractor's contract. CEB's Environmental Service, which will supervise this process, will be strengthened for this purpose.

8. Environmental or social issues, other than those for the above-mentioned transmission lines, will be dealt with in accordance with the ESMF and the RPF. Risks of increased deforestation through an inadequate implementation of the biomass component will be managed by the environmental and social specialist in the ESDP unit at the DGE and through the implementation of the Community Forest Management Plan, which is being prepared under the ongoing ESDP project. This specialist will also be responsible for management of unexpected environmental and social impacts of biofbel production, should the latter be embarked upon.

9. Environmental impacts of the improved lighting and appliance efficiency component, will be managed by the environmental and social specialist in the ESDP unit and through contractual arrangements with the suppliers of CFLs in accordance with the ESMF and the RPF. Used CFLs will be returned and appropriately disposed of to avoid accidental release of mercury into the environment.

10. Environmental and social impacts caused by SBEE and ABERME activities will be managed by environmental and social units of the power utilities CEB and SBEE.

Safeguard Policies

11. The project has been rated as Category B. The Environmental Assessment Policy OP 4.01 and the Involuntary Resettlement Policy OP 4.12 have been complied with through preparation of an Environmental and Social Impact Assessment (ESIA) and a Resettlement Action Plan (RAP) for the Onigbolo-Parakou and SakCtC-Porto-Novo transmission line. An Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF) have been prepared, approved by the Bank, and been disclosed in-country and in the Bank's Infoshop. The ESMF and RPF cover all other environmental and social aspects supported by the project.

12. The Natural Habitats (OP 4.04), Forests (OP 4.36), and Physical Cultural Resources (OP 4.1 1) Policies have been complied with by avoiding protected forest and sacred forest

areas, and by avoiding of fetisheurs and their sacred natural areas. A "Chance Find" Procedure, as part of the contract, will satisfy the remaining part of the Physical Cultural Resources Policy.

Annex 11: Project Preparation and Supervision

BENIN: Increased Access to Modern Energy Project

Planned Actual PCN review 1211 912007 1211 912007 Initial PID to PIC 12/27/2007 10/07/2008 Initial ISDS to PIC 12/27/2007 01/14/2008 Appraisal 02/09/2009 02/09/2009 Negotiations 03/23/2009 03/25/2009 BoardRVP approval 06/23/2009 Planned date of effectiveness 12/15/2009 Planned date of midtenn review 06/30/20 12 Planned closing date 06/30/20 15

Key institutions responsible for preparation of the project:

Ministry of Energy, and Water (MoE), Benin CEB, Benin and Togo SBEE, Benin ABERME, Benin

Name Title Unit Fanny Missfeldt-Ringius Sr. Energy Economist, Task Team Leader AFTEG Daria Goldstein Sr. Counsel LEGAF Wolfgang Chadab Sr. Finance Officer LOAFC Franklin Gbedey Energy Specialist AFTEG Said Mikhail Consultant Power Engineer AFTEG Itchi Gnon Ayindo Sr. Procurement Specialist AFTPC Hugues Agossou Sr. Financial Management Specialist AFTFM Astrid Manroth Sr. Financial Analyst AFTEG Mohamed Arbi Ben-Achour Lead Social Development Specialist AFTCS Cheik Sagna Consultant Social Development Specialist AFTCS Robert Robelus Consultant Environmental Specialist AFTCS Alain Onibon Agricultural Economist AFTAR LCon Biaou Consultant Energy Efficiency Specialist AFTEG Lu T. Ha Sr. Program Assistant AFTEG PCpita Olympio Team Assistant AFMBJ

Bank funds expended to date on project preparation: US$249,000 Bank resources: US$435,625 Trust funds: None Total: US$435,625

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$] 5,000 2. Estimated annual supervision cost: US$100,000

Annex 12: Incremental Cost Analysis for the GEF Energy Efficiency Subcomponent

BENIN: Increased Access to Modern Energy Project

A. Background

1. The total energy consumption of Benin was estimated at 2,256 ktep in 2005 for a total population of 7.5 million. The consumption of modern energy is characterized by the total reliance on imported fuel oil and electricity, the increasing gap between demand and supply, the lack of grid reliability, and the poor performance of consumer equipment and appliances. The national electricity utility, SociCtC BCninoise d'Energie Electrique (SBEE), has 346,273 costumers. Total electricity consumption was estimated at 702 GWh in 2007, the heaviest load stemming from the coastal area around Benin's capital, Cotonou. Over the last two decades, electricity demand has continually increased at a rate of about 7 percent per year; most of the demand for electricity stems from households. Eighty-five percent of the total electricity consumed in the country is imported from Ghana, C6te dlIvoire, and Nigeria through the Electric Community of Benin, a bipartite utility supplying electricity to national distribution utilities in Benin and Togo. The remaining electricity needs are domestically generated by the SBEE and auto-producers. Thermal and hydropower plants acount for 99 percent and 1 percent, respectively, of the total domestic power generation.

2. One of the key challenges that the lack of attention to energy efficiency has introduced is the pronounced difference between peak load (at 120 MW) and base load (at 70MW). This is due to the use of inefficient appliances such as incandescent light bulbs and air conditioners during peak hours. It requires availability of power plants on standby at high capital costs. Benin's demand can further be characterized as follows::

The residential sector is mainly responsible for the peak load. The household sector accounts for 48 percent of the country's total electricity consumption, followed by the institutional and industrial sectors which account for 32 percent and 20 percent, respectively. Two daily peak loads are recorded: (i) a small peak is observed in the morning between 8:30am and 10:OOam when the government offices open; this morning peak is attributed to the air-conditioning equipment; (ii) the biggest peak load occurs in the evening between 7:OOpm and 10:OOpm when household energy need is high. Household equipment in Benin has a low energy-efficiency standard, including air- conditioning, refrigeration, and lighting equipment. Most household light bulbs are incandescent, leading to a significant gap between peak load and base load. Efficient bulbs when available are of low quality, and cannot withstand the high voltage fluctuations to which the Beninese grid is subject. The lighting market is not structured, and products and brands are imported from various countries. Air conditioners are not subject to any regulation, and the procurement of equipment is guided by low cost practices.

3. In March 2009, a detailed market study for lighting equipment was completed covering 4,500 households. The findings indicate that the key challenge in the Benin lighting market is the low quality of CFLs in the market, which results in households returning to incandescent or neon light bulbs. The survey estimate indicates that 85 percent of CFLs are of low quality. For example, 82 percent of households surveyed suggested that the CFLs burned out in less than one month. While 32 percent of households use CFLs, 80 percent are

not satisfied with the product. Moreover, many households that have used CFLs prefer to return to incandescent light bulbs because of this lack of quality. The key challenge in Benin's lighting sector is therefore in the areas of quality control and awareness of best standards. A smaller survey among government offices and hotels on the use of air conditioners revealed challenges of a different nature: while the air conditioners are being used for on average 10 hours a day, none of the parties surveyed knew about efficient air- conditioning systems.

B. Baseline Scenario

4. The Government of Benin has initiated several actions to address energy challenges on both the supply and demand sides. On the supply side, current actions include retrofitting existing power plants, participating in the West Africa Power Pool, investing in new power- generation plants, securing electricity purchase, enhancing a disruption-tolerant network and equipment. On the demand side, the Energy Directorate has initiated energy-saving projects to reduce electricity expenses in public buildings. Nevertheless, energy efficiency is still facing many barriers in Benin because of a limited budget, the lack of effective political engagement to promote energy efficiency, lack of an enabling environment for an energy- efficient industry, the lack of policy instruments to promote energy-efficient products, the low cost of inefficient equipment combined with the low income of most households, and the lack of education of decision makers, consumers, and equipment suppliers on energy efficiency.

5 . The baseline situation will continue to comprise operation of fossil fuel-based power plants to meet the peak demand and increasing electricity requirements of households; this is the result of poor performing end-use equipment and the low-cost practices in the marketplace. The situation can only lead to COz emissions from fuel oil-based power plants.

6. Under the baseline scenario, the marginal cost of electricity generation by thermal plant would remain US$0.25/kWh.

C. GEF Alternative

Scope and Objective of the Analysis 7. The GEF alternative is the proposed project as part of GEF's West Africa Energy Program. This focuses on practical interventions and projects on the ground that will demonstrate the technical and economic viability of promising renewable energy and efficient energy technologies and measures. In the GEF alternative, the equivalent power-generation capacity addition of the baseline scenario will be realized through energy-efficient equipment and market transformation measures.

8. The proposed GEF program is fully blended with the World Bank's Increased Access to Modern Energy Project (IAME), as presented in this document. The energy-efficiency program in Benin proposes to introduce standards and labels for lights bulbs and air conditioners, and disseminate efficient light bulbs to households through a bulk procurement scheme. An associated objective is to promote an energy-efficiency culture through consumer information and education, capacity building and awareness for major players, strengthening of regulatory and institutional frameworks including standards and labeling, and technical capacity building for testing equipment. The project is composed of two main subcomponents, described below.

Subcomponent A5.1: Energy-Efficient Lighting, Public Awareness, and Energy- Efficient Equipment Promotion

9. This component envisages replacement of incandescent lamps with compact fluorescent lamps (CFLs) and energy-efficient promotion activities. The CFLs will be procured through bulk procurement using Efficient Lighting Initiative (ELI) standards and specifications. Households, which are supplied by the SBEE, will be entitled to buy up to four CFLs at the price of a standard incandescent lamp on a first-come, first-served basis. Particular offers will be directed toward new consumers who are connected under the IAME.

10. Households will be prevented from reselling CFLs, and CFLs will be labeled accordingly. The returned incandescent light bulbs will be destroyed to prevent reuse. A conservative estimate is that about 350,000 incandescent light bulbs will be replaced as a direct result of GEF funding. The results of the survey completed in March 2009 were considered in determining this figure. An implementation manual was also prepared separately to describe all activities, key stakeholders to be involved and their roles, project monitoring, etc. This energy-efficient lighting and promotion subcomponent is further subdivided into three subcomponents that focus on CFL dissemination and capacity building and promotion of energy efficiency.

A5.1.1. Technical and Managerial Capacity Building of Public Agencies and Private Market Players

11. This subcomponent will include activities that will strenghenlbuild capacity building of the Energy Efficiency Unit within the Energy Directorate (DGE). The DGE will be implementing the project as well as the capacity of Benin's ABERME to lead energy- efficiency measures in Benin. The project unit will therefore be formally created within the DGE and will comprise the EE unit and staff from ABERME. The capacity for project management, monitoring, and impact assessment will be developed.

12. Moreover, other government agencies and private market players that have a critical role in energy-efficiency promotion and the implementation of project will be closely involved through targeted actions to ensure they are informed. The project goal and the expected outcomes will be explained to the utility (SBEE), customs services, Centre Be'ninois de Normalisation et de Contrdle de Qualite' (CEBENOR), other ministries, and equipment importers, distributors and retailers. The mobilization of key stakeholders will be carried out by the DGE and the EE Unit through dedicated workshops and meetings.

A5.1.2. Raising Public Awareness about Advantages of Using Efficient Light bulbs andAir Conditioners, through Media Communications

13. This subcomponent will involve activities aimed at advertising to help consumers make informed decisions in choosing energy-efficient products. As a first step, a specialized local firm will be hired to develop and implement a public awareness and media communication plan that will be approved by the EE Unit and the World Bank. The EE Unit will prepare the terms of reference as part of the implementation and operation manual. The plan will encompasses a market dissemination strategy for the introduction and dissemination of energy-efficient equipment, a consumer communication strategy including public awareness campaigns. Specific actions can be directed to particular market segments putting

emphasis on CFLs and market players by encouraging the participation of the private sector to promote and offer energy-efficient products.

14. A second step could comprise the deployment of ground actions including poster displays, brochure distribution, newspapers, TV and radio advertisements, public meetings, etc. Consumers will be informed on the benefits and incentives of using efficient lights and equipment.

15. This opportunity will also be taken to promote other efficient appliances, including refrigerators, electronics ballasts, T5 fluorescent tube lights, and promote energy efficiency in households and building in general. The awareness campaign will be designed accordingly. The awareness and media campaign will be implemented in three phases. Phase will precede CFL bulk procurement and distribution and will consist of moderate media communication. Phase 2 will consist of more intensive publicity and public awareness during CFL dissemination. Phase 3 will start after CFL distribution through the end of the project. As part of their activities, the DGE and ABERME will be encouraged to maintain the awareness and promotion of energy-efficient products, using lessons learned and material developed under this project. The awareness will also seek to build on real cases. For this purpose, one consideration is to procure and distribute in a preliminary phase about 15,000 CFLs to a sample of consumers for free. These consumers will be monitored based on their electricity bills. The results will be used to prepare publicity material, including TV spots, interviews, and testimonials about the bulbs' benefits.

A5.1.3. Distribution of Efficient Lighting in the Household Sector through Bulk Procurement

16. Under this subcomponent, the CFLs will be procured and distributed; the replaced incandescent bulbs recovered, stored, and destroyed; and the used CFLs recovered and stored. Procurement will follow ELI standards and specifications and be similar to that planned for the bulk procurement in Togo. Using ELI specifications and certifications will allow for quick and effective market development. A logo will be designed to identify the CFLs procured under this project.

17. Introduction of 350,000 CFLs to the market will create synergy with new connections under the IAME project. Thus, the additional offer of four CFLs for the price of an incandescent lamp will first and foremost be offered to consumers connected under the IAME. The improved quality and increased access to electricity in these zones will likely increase the rate of electricity usage. Therefore, offering high-quality CFLs to newly connected consumers and targeting zones responsible for peak demand will contribute to the project outcomes.

18. The preliminary estimate of the impact of CFL dissemination is based on a replacement of 60 W or 40 W incandescent lamps with 15 W CFLs, leading to a power saving of around 28 W per bulb. The peak load reduction is estimated to be 9.8 MW, corresponding to electricity savings of about 18,000 MWh per year

19. A private operator will be selected to supply and distribute the lamps under the supervision of the energy-efficiency unit at the Energy Directorate. Each CFL sold at a reduced cost will replace an incandescent lamp, which will be recovered, stored, and destroyed as was the case in Uganda.

20. For CFL recycling, there is no system selected at present; there ore, the recycling will have to await a broader recycling initiative from the private sector. However, the project will create synergy with the GEF global lighting project and other country-projects to determine a responsible way to eliminate the used CFLs.

Subcom~onent A5.2: Energy-Efficient Light bulbs and Air Conditioner Standards and Labels

21. The purpose of this component is to establish clear efficiency standards in Benin for air conditioners and compact fluorescent light bulbs selected for their impact on the peak load. It will reduce the average electricity use per piece of household equipment installed as well as for the peak load. This subcomponent is also subdivided into three subcomponents; they aim to create the framework for the development a market for energy-efficient products in Benin.

A5.2.1. Design of Label and Standards for Efficient Light bulbs and Air Conditioners

22. This subcomponent will involve the definition, validation, and application of energy- efficient labels and the establishment of minimum efficiency and quality standards for CFLs and air conditioners. These two types of equipment are chosen for their impact on the peak load. Lighting equipment is responsible for the evening peak demand, while air conditioners, mainly used in offices, create the morning peak demand. However, bulk procurement will be based on ELI standards and specifications to enable quick and fast delivery to the project, and development of the market; it will further demonstrate the benefits of efficient and good- quality light bulbs for both households and the utility, and promote energy efficiency.

23. All electrical appliances and equipment are imported. Therefore, for a small market like Benin, the best way to start would be the adoption (and adaptation, if necessary) of international standards, taking into account other initiatives in the region. A label will also be designed based on existing models in Africa and other continents.

A5.2.2. Enhancement of the Institutional and Legal Framework for Efnient Light bulbs and Air-conditioner Standards and Labeling

24. This subcomponent will enhance or develop a legal framework for enforcing efficient light bulbs and air conditioning in Benin. The project will build upon the existing framework of CEBENOR, which is already adopting some international standards, including electrical installations. The activities of this subcomponent will require exchanges between the several ministerial departments (energy, trade, industry, and finance) and any agencies that could exert influence in the enforcement of standards and label.

25. Some in-depth assessment will be needed to better understand the existing framework before deciding what is suitable. Based on the findings of the assessment, the project will work with CEBENOR and key national stakeholders to fbrther enhance or elaborate on the legal framework for energy-efficiency labeling and standards for efficient light bulbs and air conditioners. All enforcement mechanisms will be assessed and necessary policy measures fostered. This could include requiring equipment importers to obtain quality certification from CEBENOR through the testing lab for light bulbs, incentives to promote efficient products through tax exemptions/reductions, increasing taxes on low-quality equipment, etc.

A5.2.3. Design and Build a National Testing Facility for Efficient Lighting Products

26. This subcomponent proposes establishing equipment testing procedures and a testing laboratory to verify the quality of CFLs.

27. Initially, bulk procurement will be based on ELI standards and specifications to enable quick and fast delivery to .the project and development of the market. This will demonstrate the benefits of efficient and good-quality light bulbs for both households and the utility, and engender use and promotion of energy efficiency.

28. Following extensive discussions with the counterparts to ensure sustainability over both medium and long term, a lamp-testing facility will be established. However, to enhance cost efficiency, no new laboratory will be established; rather, additional types of testing equipment will be installed in an existing testing facility at the University of Benin, and the existing staff will be trained to undertake quality analysis. The purpose of establishing an in- country testing facility for CFLs is to provide Benin with a quality control instrument that will allow CEBENOR, the custom services, and the Energy Directorate to play a role in ensuring application of the label and standards; it will also guarantee the sustainability of the results achieved under the initial phase of the project, which focuses on bulk procurement of CFLs.

29. At of this moment, the quality control carried out by CEBENOR is on a voluntary basis. Therefore, the Energy Ministry will lead actions with ministries (Finance, Trade) and other government agencies to enforce minimum energy performance for light bulbs and air conditioners.

30. The range of testing services provided in Cotonou will not only benefit Benin, but also the land-locked countries of Burkina Faso, Mali, and Niger. The light bulbs for these countries are being imported from the ports of Cotonou (Benin) and Lome (Togo), and then transported up-country via trucks.

Subcomuonent A5.3: Project Management, Monitoring, and Evaluation

3 1. The two GEF subcomponents (A5.1 and A5.2) will be monitored and evaluated as part of IAME using appropriate monitoring and evaluation indicators. Main indicators regarding the GEF subcomponent will include COz emissions reducedlavoided, peak load (MW) reduction, energy saved (MWh), and adoption of standards. Other reduction indicators to be monitored are the number of lamps distributed, the number of lamps recovered, and the number of participating households. The project result framework is described in Section D below.

32. The World Bank will be responsible for the financial oversight, administrative control, and evaluation following World Bank and GEF standard rules and procedures. Monitoring and evaluation encompasses: (i) inception reporting; (ii) quarterly progress reporting; (iii) yearly project reporting, including project implementation review (PIR); (iv) tripartite project review (TPR); (v) field visits/surveys of sample beneficiaries and key stakeholders; (vi) midterm external evaluation; and (vii) final external evaluation.

33. The project will be implemented by the Energy Directorate of Benin (DGE) under the Ministry of Energy and Water (MEE). Delivering the outputs of the project, the actual

implementation, and daily management will be the responsibility of the project implementing unit (the Energy Efficiency Unit at the Energy Directorate).

34. Many other stakeholders and government agencies will play a major role during project implementation: the Benin Agency for Rural Electrification and Energy Conservation (ABERME), CEBENOR, EPAC, Ministry of Trade, Ministry of finances, Ministry of Environment, and SBEE.

Project Implementation Arrangement

35. Key national stakeholders to be involved in project implementation follow:

Energy Efficiency Unit at the DGE: The DGE is responsible for planning the energy sector, proposing regulations applicable to the energy industry, ensuring the enforcement of regulations and laws, and monitoring projects in the energy sector. Over the past 10 years, the DGE has developed the only energy-efficiency project (RESUCE) to reduce electricity expenses in public buildings. The capacity of DGE was reinforced by creating an Energy Efficiency Unit under the World Bank's ESDP. This unit will the project implementing entity and will report to the DGE and the World Bank.

Benin Rural Electricification and Energy Conservation Agency: ABERME is the agency responsible for energy efficiency, while the DGE currently has the only active energy-efficiency program. ABERME will be involved in all activities regarding knowledge transfer. The project will be the agent for building the capacity of ABERME.

Centre Bdninois de Normalisation et du Controle de la Qualitd: CEBENOR is responsible for setting up standards and quality control for products imported or manufactured in Benin. It represents I S 0 in Benin and is currently adopting about 200 international standards, including those for electrical installations. CEBENOR will be involved in standards and label setting.

Ecole Polytechnique dlAbomey-Calavi (EPAC): The EPAC is an engineering school under the University of Abomey-Calavi. It currently has an electric engineering and mechanical and energy engineering department hosting both an electricity laboratory and an air-conditioning laboratory. The existing installations will be upgraded to create equipment-testing laboratories envisaged under the proposed project; the project will build on the qualified and skilled human resources at the EPAC.

Ministries of Trade and Industry: All equipment and appliances sold in Benin are imported. As an institutional partner, the Ministry of Trade will be involved in the analyzing and reviewing the legal fiamework and the necessary modifications to adapt for energy-efficient standards and labels. Moreover, CEBENOR is an agency under the Ministry of Industry.

Ministry of Finance: As the project will require some financial arrangement from the government, the Ministry of Finance will be in charge of analyzing the financial implications for long-term sustainability of the project that could require

adoption of certain financial mechanisms (subsidies, taxes exemptions, etc.). Enforcement of the standard will also require customer services to be involved as an executing agency of the Ministry of Finance.

Ministry of Environment: This ministry will act as the GEF operational focal point and will ensure that the project is meeting the global environment benefit.

SocibtC d'Energie Electrique du BCnin (SBEE): The SBEE is the national utility responsible for electricity distribution in Benin. It will be a direct beneficiary of the project and will participate in the market survey and monitoring of the peak load and energy savings.

Furthermore, the private sector (equipment suppliers, retailers) will be closely involved as the executing entities for light bulb procurement and distribution.

36. To ensure the successful implementation of the project, support of all the stakeholders will be needed. Therefore, a Project Steering Committee (PSC) is proposed to assess the progress achieved and to provide advice and directives aimed at increasing the outcomes of the project. This committee will be formed by individuals, influential within the government; they will benefit from the feedback and information about project impact that will help them better understand the potential impact of further development of S&L programs in Benin. The PSC will comprise representatives of the Ministry of Finance, Ministry of Energy, Ministry of Environment, Ministry of Trade, private sector organizations, and the World Bank. Individual experts and institutions will be invited to provide input as appropriate to specific meetings. See Figure 5 below for the structure of the efficient-lighting subcomponent.

Figure 5: Structure of the Efficient-Lighting Subcomponent n

Check conformity of lamps

participants u

Global Environmental Benefits

37. The reduction of energy consumption in Benin expected from the successful distribution of efficient lamps (component A3.1) is about 18,000 MWh annually (or 2.6 percent of Benin's annual demand). The peak load reduction is about 9.8 MW (or 5 percent of Benin's peak load), and the corresponding reduction in greenhouse gas emissions is estimated at about 16,000 tons of C02e/year.

38. Introduction of energy-efficiency standards and labels for key household equipment in Benin (Component A3.2) is expected to result in significant energy savings and reduction of greenhouse gas emission. The preliminary estimate indicates that more than 33,000 MWh can be saved annually by adopting EE air conditioners. The resulting reduction in greenhouse gas emissions is estimated at about 30,000 tC02e per year.

39. Overall, it is expected that 46,000 tCO2e will be reduced annually from the two components. In addition to its direct effects, the project will lead to capacity building in energy efficiency, enhancement of the legal framework for energy-efficiency labeling, and standards and consumer awareness that should result in indirect energy savings and reduction of greenhouse gas emissions.

Consistency with GEF Focal Area Strategic Program Objectives and Outcomes

40. The project proposes to enhance energy-efficiency standards and labeling for key household appliances and lighting equipment in residential and commercial buildings in Benin, and introduce efficient light bulbs to households through a bulk procurement scheme. Therefore the project is consistent with the GEF-4 Strategic Programme CC-SP1: Promoting Energy Efficiency in Residential and Commercial Buildings under the Climate Change focus area.

41. Moreover, the proposed project will participate in achieving the GEF's global lighting program and Efficient Lighting Initiative, which aims at reducing global GHG emissions through a shifting of the global market toward efficient lighting technologies and accelerated phase-out of inefficient lighting.

C. Incremental Reasoning and GEFs' Role

42. Without the proposed project, the current government's efforts to reduce peak load would continue to be load-shedding, and low-performing equipment would continue to be used in the country. The lack of institutional and technical capacity, lack of policy instruments and awareness regarding energy efficiency would ensure that no future programs would be developed. Low-performance air conditioners and incandescent light bulbs would continue to dominate in the marketplace, and the purchase decision would continue to be influenced by the initial costs and not by the lifecycle cost. Even if new power capacity were added, consumption would continue to increase because of inefficient equipment. In the ongoing projects, the emphasis would continue to be on purchasing power and investing in thermal plants without addressing demand-side issues.

43. In the absence of the GEF funding, the potentially significant global environmental benefit of reducing CO2 emissions through the phasing out of inefficient lights would have limited success--energy efficiency is not common practice in Benin, and an enabling

environment for energy efficiency is absent. The country's focus is more on purchasing power, increasing generation capacity, and strengthening the distribution system.

44. GEF finding will help overcome current barriers that hinder the energy-efficiency market in the country. The project will create a market for energy-efficient products through introduction of efficient light bulbs and air conditioners. Expected outcomes are: (i) national technical, institutional, and legal capacity building, (ii) 200,000 incandescent lamps replaced with CFLs, (iii) public awareness of energy-efficient lights and air conditioners, and (iv) development of energy-efficiency standards and label for selected energy-efficient lights and air conditioners, as well as establishment of testing laboratories for air conditioners and light bulbs.

45. The marginal cost of electricity generation by a thermal plant in Benin is approximately US$0.25/kWh; the average tariff is at US$O.l8/kWh. The cost of the kwh saved by the project through the introduction of efficient lights in the market is US$O.11. Moreover, the deferred investment in thermal plant is estimated to be US$1,000/kW, while the load reduction by the proposed project is US$143/kW. Clearly, the energy efficiency alternative appears to be the least-cost option.

46. According to the preliminary estimate, about 18,000 MWh could be saved annually from the replacement of 350,000 incandescent lamps with CFLs. Moreover, it is expected that 10,000 high-performance air conditioners will be introduced in the marketplace. The overall direct energy savings attributable to the project are estimated to be 51,000 MWh per year, corresponding to a cumulative GHG emissions reduction of 375,000 tC02e over a 10- year period. The CO2 reduction cost is US$5 of GEF resources per ton of COz reduced, which is cost-effective compared with other GHG emission reduction projects. Moreover, the cost-effectiveness will improve significantly when indirect effects are accounted for. See Table 34 below.

Table 34: Incremental Cost Table

Cost Category

A5.1. Energy-Efficient Lighting, Public Awareness and Energy-Efficient Equipment Promotion

Baseline

With GEF Alternative

Incremental

US%

US$1.26 million (surplus costs for operating fuel oil- based power plants)

US$3.1 million

Domestic Benefit

A5.2, Energy Efficient Light bulbs and Air conditioners Standards and Labels

Global Benefit

US81.84 million, of which US81.4 million is being requestedpom the GEF

No domestic benefit is expected from the baseline as electricity will be generated at the highest cost. Reduced energy expenses for the utility and consumers. Reduced peak load. Deferred investments on power plants.

Baseline

No global benefit.

Increased level of GHG emission reduction from fuel oil-based power plants used for the peak load.

No baseline cost as this will be the status quo situation.

No domestic benefit is expected from the baseline

low cost and poor~quality equipment will be used with

No global benefit.

D. Results Framework for Project

With GEF Alternative Incremental

47. The Monitoring and Evaluation strategy will not only track the implementation and progress of each program component, but also assess the actual impact of energy-efficient instruments, peak load reduction, energy use reduction, and associated reduction of carbon dioxide emission. When necessary, interim evaluation results will be used to modify project activities and/or implementation methodologies. The project's final evaluation will be based on a comparison of the outcomes achieved at the end of the project with the success criteria developed on the basis of baseline conditions.

48. The project implementing unit (the Energy Efficiency Unit at the Energy Directorate) will be responsible for delivering the outputs of the project, the actual implementation, input management, and sound administrative management. The World Bank will be responsible for the financial oversight and administrative control, following standard World Bank rules and procedures. Success indicators and means of verification are detailed in Table 35 below.

US$0.82 million

A5.3 Project Management, Monitoring and Evaluation US80.82 million, of which US80.32 million is being requestedfiom the GEF

the associated high-energy expenses for consumers and the utility. Reduced energy expenses for the utility and consumers. Reduced peak load. Deferred investments on power plants.

Baseline

With GEF Alternative

Incremental

Increased level of GHG emission reduction from fuel oil-based power plants used for the peak load.

Total Baseline: US81.26 million Total GEF Alternative: US84.17 million Total Incremental Costs: USS2.91 million, of which US$1.82 is being requested from the GEF while the remaining US$1.09 million will be contributed by the Government and other stakeholders

No baseline cost as this will be the status quo situation.

US$0.25 million

US80.25 million, of which US80.10 million is being requestedfiom the GEF

No domestic benefit is expected from the baseline as low cost and poor-quality equipment will be used with the associated high-energy expenses for consumers and the utility. Reduced energy expenses for the utility and consumers. Reduced peak load. Deferred investments on power plants.

No global benefit

Increased level of GHG emission reduction from fuel oil-based power plants used for the peak load.

Outcomes I Subcomponent Outcome 1

Outcome 2

Outcome 3

Component Outcome 4

,

Outcome 5

uipment promotion Full involvement of stakeholders in the EE S&L program.

Marketing, promotion, and awareness plan in place by the end of 2009

350,000 CFLs distributed by 2012

Progress reports Legal and regulatory acts

Laws and regulations in place in the first quarter of 20 1 1

A5.1: Energy Efficient Capacity building and training of government agencies and other stakeholders

Build public awareness and promote energy efficiency

Distribute efficient lights to households by replacing 200,000 incandescent bulbs with energy-efficient lighting products

A5.2: Energy Efficient Introduce standards and labels for efficient and air conditioners

Enhance the legal and regulatory framework for energy-efficient equipment standards and labeling

Staff allocation Monitoring and evaluation Minutes of meetingslworkshops

Market or consumer survey every year

Field visits and consumer survey Progress reports Monitoring repods

Progress reports Legal and regulatory acts

Government gazette Progress reports Monitoring repods

It is assumed that there will be no delays from lack of government support with the participatory approach.

Proactive participation of importers, retailers of EE equipment, engineering firm, electrical technicians, and government bodies.

It is assumed that the new lighting technology will be adopted by the targeted beneficiaries.

It is assumed that Benin will adopt, and adapt, if needed, the best international standards, in synergy with Togo and the region

It assumed that the support and commitment from the government is consistent.

Lighting, public awareness and Number of workshops and training delivered Number of progress reports submitted by the project unit

Type and number of promotion activities organized Level of consumers' participation Change in the buying behavior of consumers Increase in energy-efficiency bulbs and air conditioners Lamps procured using ELI specifications Number of efficient light bulbs distributed Number of beneficiaries (households) Number of incandescent lamps replaced and destroyed

Lightbulbs and Air conditioners Standards and labels for CFLs and air conditioners Enforcement of standards and labels

Energy-efficiency law including standards and labels proposed Regulation proposed to support the implementation of standards, and labels for light bulbs and air conditioners International testing procedures for light bulb and air-conditioner testing adopted

energy efficient ec Staff members with minimal training

Awareness program planned in public buildings; households not targeted

15 W CFL will replaced 40-60 W incandescent lamp

Standards and Labels No S&L exists in Benin EE light bulbs and air conditioners Not planned

Outcome 6 Build CFL testing laboratory

Testing equipment procured and installed Handbook of procedures for lamp testing and certification

Only one metrology lab at Ministry of Trade and basic laboratory equipment at EPAC

It is assumed that market demand for testing will increase. The lab will serve as a national instrument for quality verification.

Enhanced capacities of existing laboratory at EPAC by 201 1

Contract for installation awarded Monitoring reports

49. The financial arrangement is shown in Table 36 below. GEF funding represents 44 percent of the project total costs.

I GEF financing I 1.818.182 1 181.818 1 2.000.000 1

Table 36: Project Financing Project Costs

(US$

50. The total project cost is US$4.17 million, of which of US$1.82 million is requested from GEF. The remaining US$2.35 million will be contributed by the Government of Benin (US$1.65 million in kind), the private sector (equipment suppliers and retailers), EPAC for setting up the testing facility, and the consumers in cash partial payment. As stated above, GEF funding represents 44 percent of the project total costs.

Co-financing Total

51. The GEF grant will be used principally as in-cash payment for acquiring efficient light bulbs, hiring consultants, and promoting energy efficiency, as well as for procuring testing equipment and setting up standards and labels (see Table 37 below).

Agency Fee (US$)

Total (US$)

2,350,000 4,168,182

Stakeholders (Private operators,

Table 37: Project Financing by Sub-component

I I I I A5.1.3 Distribution of efficient light bulbs 1 2,500,000 1 1,100,000 1 850 000 1 550,000

181,818

Subcomponent

2,350,000 4,350,000

Total ($)

Subtotal Component A3.1 A5.2. Energy-Efficient Light bulb and Air conditioner Standards and Labels A5.2.1 Design of labels and standards for efficient light

Financing Sources

bulbs and a; conditioners A5.2.2 Legal framework for efficient light bulbs and air- conditioner standards and labeling

I I I I

Subtotal Component A5.2 1 820,000 ( 320,000 ( 400,000 1 100,000

3,100,000

140,000

A5.2.3 Design and build a national testing facility for efficient lighting products

80,000

1,400,000

40,000

600,000

30,000

1,100,000

100,000

250,000

600,000

0

50,000 0

250,000 100,000

0

700,000

A5.3. Project management and M&E

Total project costs * Breakdown of other stakeholders' contribution: EPAC (US$100,000 in kind), private equipment distributors (US$250,000 in kind), and consumers (US$350,000 in cash as partial payment of CFLs).

250,000

4,168,182

100,000

1,818,182

150,000

1,650,000

Annex 13: Documents in the Project File

BENIN: Increased Access to Modern Energy Project

General

1. RCpublique du BCnin (2007). Programme dlActions Prioritaires de la StratCgie de Croissance et de Reduction de la PauvretC 2007-2009. FCvrier (draft).

2. RCpublique du Benin (2006). StratCgie de Croissance et de RCduction de la PauvretC. Version Provisoire. DCcembre (draft).

3. SIDA (2005). Manual for Capacity Development. Methods Document. Department for Method and Methodology. October.

4. World Bankloperations Policy Department (1993). Handbook on Technical Assistance. March, Washington, DC.

Energy Sector

5. CEB (2007). Programme d'investissement de la CEB. Horizon 2007-2026.

6. DGE, IEPF, ACCT, SynergyIEU (2002). Tableau de bord de l'energie au Benin 2001 (TBE- Benin). Rapport. Mars, Cotonou.

7. Franlab, Beicip (1 997). Etude de Marche du Gaz au Benin. December.

8. Holmes, C. H. (2004). West African Gas Pipeline Project. Market Report Update. Prepared for The West African Gas Pipeline (WAGP) Project. February, Rev 1.

9. Nexant (2002). Gas Market Promotion Strategies (GMPS) Study. Draft Final Report, June.

10. SBEEIMichel Patou (2006). Rapport de mission sur l'actualisation de 1'Ctude tarifaire. FCvrier.

11. SBEE (2006). Rapport de fin des Travaux de recensement des consommateurs de la SBEE.

Environment

12. L'Agence BCninoise pour llEnvironnement (ABE) (2006). Le Verdissement de la StratCgie de Croissance et de RCduction de la PauvretC de Benin (2007-2009).

13. L'ABE (2001). Guide GCnCral de RCalisation d'une Etude d'Impact sur I'Environnement. FCvrier .

14. L'ABE. Guide Sectoriel d'Etude dlImpact sur llEnvironnement des Projets dlElectrification.

15. L'ABE. Guide Sectoriel d'Etude dlImpact sur llEnvironnement des Projets de Gazoduc.

16. L'ABE (1999). Loi-cadre sur llEnvironnement en RCpublique du BCnin. Loi no. 98-030 du 12 fCvrier 1999 portant loi-cadre sur l'environnement.

Rural Electrification

17. Agence BCninoise dtElectrification Rurale et de Maitrise dtEnergie (ABERME) et Direction GCnCrale de 1'Energie (DGE) (2007). Assistance Technique pour le renforcement des capacitCs professionnelles de 1'Agence BCninoise dlElectrification Rurale et de Maitrise d'Energie (ABERME). Termes de rCfCrence (TDR). FCvrier.

18. ABERME et DGE (2007). Mise en oeuvre du programme prioritaire d'actions pour llClectrification des 1ocalitCs rurales du BCnin (P.P.E.R.). Etudes de faisabilitC de l'electrification de 150 1ocalitCs males par diffkrents systbmes et options Clectriques retenus par le programme prioritaire d'actions pour llClectrification des localitds rurales du BCnin. Termes de rCfCrence des Ctudes de faisabilitC. Janvier-fdvrier.

19. ABERME et DGE (2007). Electrification par raccordement aux rCseaux, de cinquante sept (57) localitis males au BCnin. Rapport dlCtudes de faisabilitk. Janvier.

Annex 14: Statement of Loans and Credits

BENIN: Increased Access to Modern Energy Project

Belli~b

Operatiorbs Pwlfolio (IBRDJIDA a~bcl Gtarlts)

As M Date 06 OtROOS

Closed ~ ro lec ts 59

l E H u X ^ Total Disbursed (Active) 114.66

of which has been repald 0.00

Total Disbursed (Closed) 892.29

of which has been repaid 109.69

Total Disbursed (Adive + Closed) 1,006.95

of which has been repaid 109.69

Total Undisbursed (Actlve) 155.53

Total Undisbursed (Closed) 0.00

Total Undisbursed (Actlve + Closed) 155.53

bcttve ~ r o i e c t s Dmerellce Betweell

Ewected albrl Actlldl

S i l p e ~ s i o l l Raring &i$lindl Arsorlllt ill US$ Milliorbg ~isblllsel,,elds"'I

project ID Ploiect Narrle M IBRD IDA GRANT Catlcel Untllsb. Olig. FIIII W t l

P113374 BJ - Emergency Food S e c ~ S S 2009 9 8.805292 -0.1 94701 PO96056 BJ- Multi Sectoral HIVIAID! S MS 2007 35 24.95279 1.3222153 PO82725 BJ-Decentral City Mgmt 2 ( S S 2006 75 46.951 55 4.3874867 PO79633 BJ-Energy Swc Delivery AF MS MS 2005 52 27.84305 18.324568 1.334321 PO71579 BJ-GEF Corn.-Based Coas S S 2008 4.3 4.006612 PO69896 BJ-GEF Forests &Adjcnt 1 MS S 2006 6 3.679348 2.2493476 PO96482 BJ-Malaria Cntrl Booster PI S S 2006 31 13.48962 9.0971618 PO81 484 BJ-Nati CDD SIL (FY05) S S 2005 50 17.58962 8.5688418

, PI04881 Compel &Integrated Growt S S 2008 25 24.70803 1.3269639 Overall Result 268 19.3 172.0259 44.788496 1.334321

(IFC) for Benin

Be nl n Committed and Disbursed Outstanding Investment Portfolio

(In USD Millions)

Committed Disbursed Outstanding

FY h ~ r o v Corn~a *'Quasi Partlcl -Quasi Partici - a1 - IIJ Loan Equity Equity 'GTIRM pant Loan Equity Equity 'GTIRM pant -

Annex 15: Country at a Glance

BENIN: Increased Access to Modern Energy Project

Sub- POVERTY and SOCIAL Saharan

Ben in A f r i ca 2006 Population, mid-year (millions) 8.7 770 GNI per capita (Atlas method, US$) 540 842 GNi (Atlas method, US$ billions) 4.7 648

Average annual growth, 2000-06

Population (W 3.1 2.4 Laborforce (%) 3.3 2.6

M o s t recent es t ima te ( l a tes t year available, 2000-06)

Poverty (%of population belownationalpovertyline) Urban population (%of totalpopulation) 41 36 Life expectancy at birth (pars) 55 47 Infant mortality (per 1OOOlive births) 89 96 Child malnutrition (%of children under5) 30 30 Access to an improved water source (%ofpopulation) 67 56 Literacy (%ofpopulationage 159 35 59 Gross primaryenroilment (%of school-agepopulation) 96 92

Male 0 7 96 Female 65 86

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1986 1996 2006

GDP (US$ billions) 13 2.2 4.3 Gross capital formationIGDP 0.5 TT.1 8.6 Exports of goods and servicesiGDP 6.7 15.8 0.5 Gross domestic savingsIGDP -2.5 3.4 6.9 Gross national savings1GDP 15 4.5 0.6

Current account balancelGDP -6.5 -8.4 6.5 Interest payments1GDP 16 0.7 0.4 Total debt1GDP 74.0 72.1 43.3 Total debt serviceieports 0.3 9,3 9.5 Present value of debtiGDP 9,6 Present value of debtiexports .. 57.0

1986-96 1996-06 2006 2006 (average annual gm vdh) GDP 3.0 4.5 2.9 4.1 GDP percapita -0.5 13 -0.3 11 Exports of goods and services 2.1 2.5 5.0

LO w- I ncome Development diamond'

Life epectancy

GNi Gross per primary capita enrollment

1 Access to improved water source

-Benin

- LOW-incomegroup

Economlc ra t l o r '

Trade

Domest~c Cap~tai savlngs o m a h o n

Indebtedness

-Ben!n

Lo w-~ncome gm up

STRUCTURE o f the ECONOMY

lSS6 lSg6 2005 2006 l ~ r o w t h o f capital and GDP (K) (%of GDP) 1 Agriculture Industry

Manufacturing Services

Househoidfinal consumptionependiture 87.2 85.9 78.1 General gov't final consumption expenditure 15.3 0.7 15.0 imports of goods andservices 32.6 29.5 26.1

(average annual gm wfh) 1986-s6 lgS6-O6 200

Agnculture 5.2 5.0 4.4 Industry 5.4 4.5 4.6

Manufacturing 6.6 4.4 4.5 Services 0.8 4.2 0.9

Household final consumption expenditure 2.8 14 -3.2 General gov't final consumption expenditure -0.1 8.8 14.5 Gross capital formation 5.1 12.8 115 217 lmports of goods and servlces 14 3.0 4.1

-Exports ---e-lnporta

Note 2006 data are prellmlnary estimates This tablewas producedfrom the Development Economics LDB database 'Thed~amonds showfourkey lndlcators In thecountry(1n b0id)compared wlthits lncome-groupaverage If dataaremlsslng thed~amondwil

be Incomplete h i l I x h r i . N r r l b $ Y *#' i U B d r ! t l r l U $ d t 1 F ti i * , ~ u j l ~?irdi&h$*hdd&inl~r~~~k~ K: 1 ~i,di~*, .J~~CIB 1 1 j ~ 4 l;4\d!l$/:U/- ~ ~ I ~ I K ~ ~ ' ~ P F $ F ~ ~ X I L ~ I A I S ~ ~ ~

PRICES and GOVERNMENT FINANCE

lnflatlon (%)

10

8

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4

2

0

01 02 03 04 05 06

G D P d e f l a t o r c C P l

Domestic prices (%change) Consumer prices Implicit GDP deflator

Government finance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit

TRADE

ls8' 1996 2006 / ~ x ~ o r t and import levels (US$ mlll.) I (US$ mi/lions) Total exports (fob)

Ginned cotton C ~ d e Oil M anufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (2000=WO) Import price index (2000=WO) Terms of trade (2000=WO)

B A L A N C E o f P A Y M E N T S 1gg6 c u r r e n t a c c o u n t ba lance t o GDP (%) I

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M e m o : Reserves including gold (US$ millionsj Conversion rate (DEC, local/US$)

E X T E R N A L DEBT and R E S O U ~ C E FLOWS 1986

(US$ millionsj Total debt outstanding and disbursed 989

IBRD 0 IDA 158

1996 ~ o m ~ o s i t l o n o f 2005 deb t (US$ mill.) 1

Total debt service IBRD IDA

Composition o f net resource flows Official grants 41 Official creditors 61 Private creditors -8 Foreign direct investment (net inflows) 1 Portfolio equity(net inflows) 0

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

2 40 65 A-IBRD E - Bilateral 27 41 49 0 3 6 G- Short-term

26 37 43 15 1 4 6 4

25 34 37 P

Note:This table was produced from the Development Economics LDB database. 9/28/07

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