Document of The World Bank FOR OFFICIAL USE ONLY Report No: IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A SMALL GRANT IN THE AMOUNT OF USD (0.3) MILLION TO THE Republic of Madagascar FOR Madagascar Scaling Renewable Energy Program (SREP) May 15th 2019 Energy & Extractives Global Practice Africa Region Regional Vice President: Hafez M.H. Ghanem Country Director: Mark R. Lundell Senior Global Practice Director: Riccardo Puliti Practice Manager: Sudeshna Ghosh Banerjee Task Team Leader(s): Massan Elise Akitani ICR Main Contributor: John Donald Rennie ABBREVIATIONS AND ACRONYMS AfDB African Development Bank CY Calendar Year GoM Government of Madagascar IFC International Finance Corporation IP Investment Plan MDB Multilateral Development Bank CIF Climate Investment Funds CPF Country Partnership Framework ESOGIP Electricity Sector Operations and Governance Improvement Project ORE Energy Regulation Office ESMAP Energy Sector Management Assistance Program GoM Government of Madagascar GDP Gross Domestic Product IPP independent power producer IP Investment Plan LCPDP Least Cost Power Development Plan MEH Ministry of Energy and Hydrocarbons MWEH Ministry of Water, Energy, and Hydrocarbon PPAs Power Purchase Agreements PDOs Project Development Objectives PPP Purchasing power parity ADER Rural Electrification Agency SREP Scaling Up Renewable Energy Program in Low-income Countries SDGs Sustainable Development Goals TABLE OF CONTENTS DATA SHEET ....................................................................... ERROR! BOOKMARK NOT DEFINED. I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 4 II. OUTCOME .................................................................................................................... 14 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 18 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 19 V. LESSONS LEARNED AND RECOMMENDATIONS .............................................................. 20 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 21 ANNEX 2. PROJECT COST BY COMPONENT ........................................................................... 25 ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ...... 26 ANNEX 4. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Madagascar Scaling Renewable Energy Program (SREP) P159725 Investment Plan (IP) Country Financing Instrument Madagascar Investment Project Financing Original EA Category Revised EA Category Organizations Borrower Implementing Agency Ministry of Finance Economy and Budget Ministry of Water Energy and Hydrocarbons Project Development Objective (PDO) Original PDO The project development objective is to support the Malagasy government to prepare a renewable energy investment plan for consideration by the SREP for funding. Page 1 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-A2324 300,000 274,135 274,135 Total 300,000 274,135 274,135 Total Project Cost 300,000 274,135 274,135 KEY DATES Approval Effectiveness Original Closing Actual Closing 30-Jun-2016 01-Aug-2016 30-Jun-2017 31-Dec-2018 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 26-Jun-2017 0.05 Change in Loan Closing Date(s) Change in Implementation Schedule 28-Mar-2018 0.25 Change in Loan Closing Date(s) Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 14-May-2017 Moderately Satisfactory Moderately Unsatisfactory 0.05 02 15-Mar-2018 Moderately Satisfactory Moderately Unsatisfactory 0.23 Page 2 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) ADM STAFF Role At Approval At ICR Regional Vice President: Makhtar Diop Hafez M. H. Ghanem Country Director: Mark R. Lundell Mark R. Lundell Senior Global Practice Director: Anna M. Bjerde Riccardo Puliti Practice Manager: Lucio Monari Sudeshna Ghosh Banerjee Miarintsoa Vonjy Task Team Leader(s): Massan Elise Akitani Rakotondramanana ICR Contributing Author: John Donald Rennie Page 3 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Context Country Context 1. At the time of project approval in 2016, Madagascar was a low-income country where a clear majority of the population was extremely poor. With a population of about 23.6 million and a Gross Domestic Product (GDP) of US$10.59 billion, Madagascar ranked 155 out of 187 countries in the United Nations 2014 Human Development Report. Extreme poverty (per capita consumption under US$1.9 purchasing power parity – PPP – 2011 per day) was around four fifths of the population between 2001 and 2012 and over the same timeframe, absolute poverty (US$3.1 PPP per capita per day) rose from an estimated 84.1 percent in 2001 to 93 percent in 2012. Madagascar was also highly vulnerable to natural disasters, including cyclones, droughts, and flooding. It had been estimated that one quarter of the population, or approximately five million people, were living in zones at high risk of natural disasters. 2. Madagascar was emerging from several years of political and economic turbulence that followed from a political crisis that began in 2009. Following five years of political crisis, a duly elected government took office in 2014, returning the country to constitutional order. However, the crisis had devastating effects on the economy, poverty, and social outcomes. The return to constitutionality was widely welcomed, but it was only a first step in putting the country on track in terms of sustainable development. Despite continued tensions between the executive and legislative branches, important steps were taken following the election: a new National Development Plan and its implementation strategy were elaborated; a process for national reconciliation was initiated and democratic institutions were strengthened with municipal (July 2015) and senatorial (December 2015) elections taking place; macroeconomic stability was maintained and the Ministry of Finance launched reforms of its public finances, beginning with the customs and tax administrations; and respective Ministries established strategies for social protection, education, and universal health coverage and began to implement them. 3. The Government of Madagascar (GoM) was constrained by a paucity of public resources. Given the low level of public resources, the government had a limited ability to implement reforms and the fiscal authorities had little space to conduct countercyclical policies to stimulate growth. Madagascar’s tax revenue as a share of GDP has historically been among the lowest in the world and it was below ten percent in 2014. Strategies for increasing tax revenue had been elaborated and were beginning to show some initial results. The Government allocated a large share of the discretionary spending to unaffordable and poorly-targeted fuel subsidies and transferred to the Ministry of Finance the losses of the two troubled state-owned companies: JIRAMA, the public water and electricity utility, and Air Madagascar. Efforts were made to improve the performance of both companies, but progress was slow and vested interests in favor of status quo abounded. 4. Social and economic development was constrained by the lack of electricity. At the household level, inadequate electricity access constrained the delivery of basic social services and was a factor in inequality and exclusion within society. Unreliable power supply also made it difficult to do business in Madagascar. Insufficient Page 4 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) and unreliable electricity was clearly one of the most severe constraints in Madagascar’s investment climate. In Doing Business 2015, Madagascar ranked 189 out of 189 countries in difficulty, delay, and cost of getting electricity. The private sector cited the unreliability of electricity supply as one of the most important factors affecting competitiveness and had indicated a willingness to pay more if the reliability and quality of the electricity service was improved. Furthermore, expanding the mining, agriculture, and manufacturing sectors, with the corresponding gains in employment creation, would require an increased and more reliable supply of electricity. Access to electricity by the general population was about 14 percent in 2010, lower than many comparable countries. In 2016, it was estimated to have fallen to around 12-13 percent given population growth since 2010. New connections were increasing at a rate of approximately one percentage point annually partly because of JIRAMA’s inability to invest. Increasing access to electricity, particularly in suburban and rural areas, would result in the improvement of the living conditions of the beneficiary population and provide a stronger foundation for the development of income generating activities. Sectoral and Institutional Context 5. In 2016 the electricity sector in Madagascar was dominated by JIRAMA, the vertically integrated state- owned utility. JIRAMA had responsibility for the majority of the generation, transmission, and distribution of electricity in Madagascar. The Ministry of Energy and Hydrocarbons (MEH) provided oversight of JIRAMA’s electricity sector activities and also implemented government policy and provided strategic coordination of the energy sector. The Energy Regulation Office (ORE) reviewed and approved tariffs. The Rural Electrification Agency (ADER) was responsible for rural electrification through grid-extension and/or off-grid and mini-grid systems. Other important sector agents included private companies that were supplying power to JIRAMA under an independent power producer (IPP) arrangement and through power rentals. The legal and regulatory framework of the sector was developed in the decade prior to project approval. The Electricity Law of 2000 and its regulations enabled the establishment of a fairly comprehensive institutional framework. Following the promulgation of the Electricity Law, private investment became legally possible in the energy sector in Madagascar. IPP tariffs were negotiated on a contract by contract basis and supervised by ORE. 6. Access to electricity services was low countrywide, and even more so in rural areas. The estimated electricity access rate countrywide was around 12-13 percent, with an estimated 39 percent of the population in urban and peri-urban areas and an estimated 5 percent of the population in rural areas having access to electricity. This was mainly due to the country's poverty level and low population density, particularly in rural areas where over 67 percent of the population was living. Due to the adverse effects of the political crises of 2002 and 2009, and the continuing deterioration of JIRAMA’s financial situation, the country achieved little progress in terms of electrification between 2003 and 2013. 7. Electricity infrastructure and services had been deteriorating throughout the country. The electrical system in Madagascar was composed of two types of installations: (i) three interconnected networks, i.e., Antananarivo, Toamasina, and Fianarantsoa, which were controlled by JIRAMA; and (ii) about 130 isolated centers installed by JIRAMA and ADER. The interconnected networks, which accounted for about 70 percent of the total load of the country, were supplied electricity from hydro power plants, whereas most of the isolated centers were supplied by diesel power plants. The total installed capacity of the country was about 450 MW in 2014, of which about 50 percent was in the interconnected network of Antananarivo. The total firm capacity was decreasing due to a lack of maintenance, and the system was not able to fully satisfy existing demand. The suppressed power demand for the Antananarivo interconnected network in 2014 was approximately 40 MW Page 5 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) during the dry season, which would require the installation of additional generation capacity in the short term. In addition, the availability of some of the generator sets owned by JIRAMA had decreased due to a lack of maintenance. The total generation of the country was about 1,487 GWh in 2014 and the total energy billed was about 1,000 GWh, of which just over 51 percent was consumed by large customers (26 percent by medium voltage (MV) customers, and 25.4 percent by low voltage (LV) customers). The remaining consumption was by LV customers who consume less than 1,000kWh per month. 8. JIRAMA’s financial position had deteriorated significantly in the prior years, and the company was a heavy fiscal burden for the Government. The financial position of JIRAMA deteriorated between 2010 and 2013 due to declining operational efficiency, inability to collect revenues enough to cover costs, and the rising price of inputs, primarily imported fuel. 9. Weak planning and poor choices regarding generation options for the country had exacerbated the poor financial situation of the sector. Weak enforcement of sector planning over the preceding years and lack of governance in the development of generation options for the country translated into high costs for JIRAMA and the sector as a whole. To address the electricity supply gap, the Government and JIRAMA had entered into several ad-hoc, expensive, quasi-IPP/leasing contracts, awarded in general on a noncompetitive basis, to install thermal power plants running on diesel. This approach resulted in a large increase in the country’s cost of electricity production. The average supply cost was about US$0.23 per kWh in 2014, mainly because the share of thermal generation, which reached about 45 percent of total generation in 2013, significantly increased. On the other hand, the average revenue from JIRAMA’s sales was about US$0.17 per kWh. JIRAMA was relying on Government subsidies to pay the fuel bills, generator rentals, and energy purchases from private power generators, adding fiscal pressures on the already resource-starved State. The Government subsidy to JIRAMA was a heavy cost on the Malagasy treasury, and diverted resources from more productive expenditures with direct impacts on the poor. The amount of Government subsidies to JIRAMA between 2012 and 2013 was respectively about US$67.7 million and US$73.2 million, which corresponded to approximately seven percent of annual Government revenues. 10. The country was relying primarily on expensive and imported thermal fuel-based generation despite possessing an enormous potential in renewable energy resources, particularly hydro. Hydropower potential had been estimated at 8.4 GW although the economically exploitable potential had not been established. The number of untapped hydro sites had been reported as more than 800, ranging from a 10 kW (or less) to 600 MW located throughout the country. The development of renewable energy could be used to increase generation capacity on both grid and off-grid. Given the high cost of generation in Madagascar, the use of certain renewables could be used to lower the cost of supply. Renewables could also be used off-grid in isolated centers to substitute expensive diesel generation through most likely the introduction of IPPs. To realize the potential of renewables, the Government had to carry out systematic planning to identify and implement generation projects that represent the least cost options for the country, making it possible to move gradually away from imported, fuel-based generation. Page 6 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Rationale for World Bank Assistance 12. Scaling Up Renewable Energy Program in Low-income Countries (SREP) is part of the Strategic Climate Fund under the Climate Investment Funds (CIF). CIF supports developing countries as they move toward low emissions and climate resilient development. The CIF provides developing countries with grants, concessional loans, and risk mitigation instruments that can achieve significant leverage of private sector resources, investments from MDBs, and other co-financing. The objective of the SREP is to pilot and demonstrate the economic, social and environmental viability of low carbon development pathways in the energy sector by creating new economic opportunities and increasing energy access through the use of renewable energy. The SREP Sub-Committee approved the selection of 14 new SREP pilot countries, including Madagascar, in June 2014, expanding to 27 countries participating in the SREP program. 13. In September 2014, the Government of Madagascar was invited to take a leadership role in working with the MDBs to develop a full SREP Investment Plan (IP). This presented an important opportunity for Madagascar to begin an evidence-based investment planning process that could serve as a basis for developing the share of renewable energy generation in its energy mix. In September 2014 Madagascar received grant funding of US$300,000 for the preparation of the SREP IP in collaboration with the WB, AfDB, IFC, and other relevant public and private sector stakeholders. In January 2015, the SREP Sub-Committee agreed with the indicative allocation of US$ 50 million to Madagascar, which would be confirmed when the IP was approved. It was also agreed that the investment plans from the 14 new pilot countries would be endorsed on a first-come, first-served basis taking into account the quality of the investment plans, regardless of funding availability under the SREP. Funding for the projects and programs proposed in the investment plans would be contingent upon the availability of funds under the SREP. The GoM requested a preparation grant to enable it to prepare the SREP investment plan that would be presented to the SREP board to apply for the program. 12. The SREP program was a good fit for Madagascar’s energy sector given that the country had a pressing need to develop renewable energy projects that were not included in the Least Cost Power Development Plan (LCPDP). The LCPDP analyzes planning for generation projects in the parts of the country covered by the interconnected networks and mini grids. The SREP IP projects supplement this planning by both supporting the preparation of renewable energy projects covered under the LCPDP and by expanding project planning to rural electrification for small hydro and solar power system in remoted areas. The SREP IP therefore covers localities not integrated in the LCPDP, ensuring the two programs are complementary and part of an overall strategy to reach universal access in Madagascar. 13. The SREP IP was complementary to other support provided by the Bank. The Bank was implementing technical assistance, financed by the Energy Sector Management Assistance Program (ESMAP), which was mapping the potential of small hydropower projects (less than 20 MW) to improve datasets and increase the awareness of stakeholders (both Government and private sector) for facilitating the development of this renewable energy resource. The Bank was also supporting the Electricity Sector Operations and Governance Improvement Project (ESOGIP, P151785). ESOGIP aims to improve the operational performance of JIRMA and improve the reliability of electricity supply in the project area and, in the event of an eligible crisis or emergency, to provide immediate and effective response to eligible crisis or emergency. Some of the work being executed under this project includes developing the LCPDP, a tariff study, and an Electrification Strategy Access strategy. ESOGIP also includes financing for large hydro projects. Additional financing for ESOGIP was approved on June Page 7 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) 14th, 2018 to provide additional technical assistance to JIRAMA to ensure it fully implements its organizational restructuring. 14. The WBG was also helping the GoM develop utility-scale renewable energy capacity in Madagascar. The GoM had requested WBG/IFC support through the Scaling Solar program in June 2015 (P166925) for the implementation of grid-connected solar PV installations on an IPP basis IFC and the Government agreed to use the World Bank Group designed Scaling Solar approach to implement this project. Scaling Solar provides competitive and transparent tendering in countries with limited experience developing solar power, and helps countries access solar power more quickly and affordably than they could otherwise. It provides a simple yet innovative package that combines several World Bank Group services under one umbrella comprising: The World Bank’s partial risk guarantees, MIGA’s political risk guarantees, and IFC’s expertise in developing and financing power plants, which helps governments mobilize privately funded grid-connected solar plants. Project relevance to higher level objectives 15. SREP IP was therefore relevant for the sector given that the country needs to develop renewable energy projects that are not included in the LCPDP in order to enhance the share of renewable energy generation and reduce costs to ultimately increase electricity access rate in the country. The LCPDP targets projects of the interconnected networks and mini grids areas, while SREP IP projects are related to rural electrification by small hydro and solar power system in remoted areas. SREP IP covers all localities not integrated in the LCPDP, hence the two programs are complementary in order to reach energy sector goals in Madagascar. The GoM New Energy Policy (2015-2030) establishes important sector goals, such as reaching a 70% access rate (compared to 15% in 2018), having an energy mix that is 80% renewable energy (compared to 1% in 2018). The SREP grant/concessional funding can be deployed to remove bottlenecks and to create a strong enabling environment to attract private investment. 16. The project was aligned with the Bank’s twin goals of poverty reduction and shared prosperity and the SDGs. Reliable and expanded electricity supply is a key determinant of productivity and competitiveness and is critical to enable economies to attract investments, expand and diversify production, and ultimately create jobs. Insufficient and unreliable electricity is clearly one of the most severe constraints in Madagascar’s investment climate and an evidence-based investment plan for renewable energy represents is the first step to addressing these development challenges. This project is an important contribution to achieving SDG 7 of ensuring access to affordable, reliable, sustainable, and modern energy for all. 17. It was also aligned with the conclusions of the Systematic Country Diagnostic (SCD) and the themes elaborated in the Madagascar Country Partnership Framework (CPF) 17-21.1 In Madagascar, efforts to increase access had been hindered by the financial distress of JIRAMA, the lack of generation capacity, and the poor state of the grid. The project addressed these aspects as critical first steps to improving the expansion of electricity supply and access, in line with the goals of reducing poverty and promoting shared prosperity. The activity is grounded in the Systematic Country Diagnostic (SCD), electricity having been identified as the top constraint to private sector development (and employment). Building on the SCD, the CPF for FY17-21 identifies power sector reform and the need to improve electricity service as a top priority. The project also contributed indirectly to 1The project’s relevance was only assessed against the CPF17-21 at appraisal even though at the time the CPF was still under preparation Page 8 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) other CPF proposed objectives, such as the need to increase fiscal space (including for infrastructure investments and social spending) and improve agricultural productivity (which may require power inputs). 18. The project is aligned with national and World Bank country strategic objectives at both appraisal and at closing. The GoM’s 2015-2019 National Development Plan’s third and fifth pillar are relevant to this work. The third pillar is on inclusive growth and local roots of development and sight reforms to improve investment climate, supporting the development of the private sector, and focusing on the development of strategic sectors, including infrastructure. The fifth pillar is on valorization of natural capital and strengthening resilience to natural disasters. This pillar is focused on climate change and has a focus on articulating how the country’s natural resources can support economic and social development. 19. The WB CPF FY17-21 for Madagascar is grounded in the SCD, which identifies electricity as the top constraint to private sector development (and employment). This CPF aims to build on the current relative political stability to help address structural fragilities that hamper sustainable human and economic development in Madagascar. The CPF for FY17-21 identifies power sector reform and the need to improve electricity service as a top priority. The second focus area of the CPF is to promote inclusive growth and aims to facilitate and support the development of economic opportunities by the private sector in rural and urban areas. This includes building the critical energy infrastructure to address the constrains on the development of economic activities and access to markets.2 The SREP IP therefore furthers national and World Bank strategic objectives by establishing a rigorous and comprehensive plan for investments in strategic energy infrastructure. Theory of change 20. The project ultimately aimed to improve socio-economic development in Madagascar. The theory of change underlying this outcome begins with the activities that are part of the grant programming, such as consultations and development of a renewable energy investment plan. The output, the investment plan, would then be adopted by the government. The important assumption making the link between the IP and the long- term outcomes is that the IP leads to more investment in renewable energy. It is possible for an IP to be adopted and exist de jure but not be executed. In this case, there would be no tangible long-term development outcomes. 21. However, this assumption is justified as there are already activities working to realize it, such as the WBG scaling solar and LEAD projects, which are investing in renewable energy projects in Madagascar. The LEAD project is a US$150m investment to increase access to electricity services for household, enterprises, and health facilities in Madagascar. These investments will build on the pipeline established in the IP. 22. With the assumption that the IP will be executed and lead to increased investment in renewable energy in Madagascar, important development benefits can be realized. A recent World Bank literature review, “Energy, Economic Growth, and Poverty Reduction�, critically assesses the research on the relationship between the energy sector and economic growth. It identifies studies that provided evidence of benefits of energy projects by examining links in the following areas: (i) infrastructure and GDP, (ii) energy use and GDP; (iii) power outages and the performance of business; and (iv) household connections to electricity supply and various economic outcomes (income, employment, education, etc.). 23. The literature review provides insights into the importance of the SREP IP. Two recent studies by 2 World Bank Country Partnership Framework for the Republic of Madagascar FY17-21, May 30, 2017, pg 24-25 Page 9 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Calderon and Serven (2010a), and Calderon, Moral-Benito, and Serven (2011) have measured the stock of infrastructure in the power sector by the installed generation capacity. The results obtained provide strong support for the hypothesis that the stock of infrastructure is a determinant of the rate of economic growth of countries and by extension that the size of the power sector is a factor in determining the growth and level of GDP.3 24. Error! Reference source not found. presents a results chain diagram to summarize the pathways by which increasing renewable energy infrastructure can contribute towards reaching the development outcomes outlined in paragraph 19, such as the CPF FY17-21 focus area on promoting inclusive growth and support for the development of economic opportunities by the private sector in rural and urban areas, as well as SDG 7. Figure 1: theory of change The evidence of the adoption of the investment plan by the SREP is available here: https://www.climateinvestmentfunds.org/sites/cif_enc/files/events/files/srep_co- chairs_summary_june_2018_0.pdf (see agenda item 4). 25. For additional reference, the SREP IP’s objectives, strategic axes, and priorities are displayed in Error! Reference source not found.. Table 1: SREP IP strategic objectives and priorities Strategic axes Objectives Priorities Increased electricity access • To achieve the NPE’s access goal of 70% by 2030, the development of plants and mini- Development of rural grids in rural areas is essential electrification projects: • Given the size of the country and the rural electrification ENR distribution of energy demand, it is not and mini-grids economically viable to connect the whole country to a single interconnected grid 3 Bacon, R., and M. Kojima, Energy, Growth, and Poverty Reduction: A Literature Review, The World Bank Group, 2016, pg 7-9. http://documents.worldbank.org/curated/en/312441468197382126/pdf/104866-v1-REVISED-PUBLIC-Main-report.pdf Page 10 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Increased reliability of • Increase the rate of electrification in rural energy supply areas, which is particularly low Reduced generation costs • Reduce average generation cost Support for low-carbon • Improve the quality of service (capacity emission energy increase, decrease of power cuts Hybridization of isolated development frequency) JIRAMA centers Improved local economic • Better leverage to increase the share of development renewable energy Project Development Objectives (PDOs) 26. The project development objective is to support the Malagasy government to prepare a renewable energy investment plan for consideration by the SREP for funding. The PDO remained unchanged throughout the project. Key Expected Outcomes and Outcome Indicators 27. There was only one PDO level results indicator: renewable energy investment plan prepared (yes/no). 28. There was only one Intermediate results indicator: stakeholder consultations and finalization for the investment plan (yes/no). Components 29. The project had a single component: to provide support for advisory services for the preparation of the SREP Investment Plan, including: a) reviewing of existing studies that may be considered in the framework of SREP; b) identifying the most appropriate components and investments following specific criteria; c) reviewing the enabling environment form the development of renewable energy in the Recipient’s territory for necessary changes; d) reviewing and providing recommendations regarding the current business models, selection criteria and mechanisms in use and to be used by ADER as well as the National Electricity Fund; e) financing part of the costs associated with the Recipient’s participation to the Scaling Solar program ; and, f) provision of Operating Costs for project execution. Page 11 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) 30. The project’s work program oversaw the development of the IP through missions to Madagascar and consultations with relevant stakeholders. MWEH hired a Consultant in July 2017 to support the preparation of the IP. The Consultant undertook missions to Madagascar to prepare the inception report, which was submitted to MWEH in October 2017. The Consultant then prepared the IP by completing data collection, reviewing past studies, and consulting with the sector institutions and submitted the draft SREP IP to MWEH in January 2018. The draft IP was shared with AfDB, IFC, and WB for comments. 31. A joint mission, led by the WB, was held in Antananarivo from March 19 to 23, 2018. Representatives from the AfDB, IFC, and WB reviewed and discussed the draft SREP IP and agreed with the GoM on the priority investments of the IP. The mission supported the MWEH to undertake consultations mainly with private sector involved in Renewable Energy development to finalize the IP. The GoM then went through independent review and public consultations and updated the draft IP with stakeholder comments before finalizing the IP and submitting it to the SREP sub-committee. 32. The GoM and the MDBs agreed that the SREP IP should be submitted to SREP Sub-committee in May 2018 to be approved in June 2018. Given that there were funding constraints at the SREP level, this would increase the chance of receiving funding from SREP for the preparation and implementation of projects identified in the IP. The project was restructured to extend its closing date by 6 months from April 30, 2018 to December 31, 2018 to provide time to complete this process and submit for the last SREP sub-committee meeting, as well as to provide some flexibility in case the GoM needed more time to adopt the IP. 33. The project work schedule is displayed in Table 2. Table 2: project work schedule Action Date Project approval 30 June 2016 Project effectiveness 1 August 2016 GoM relaunched expression of interest February 2017 GoM hires consultant July 2017 Consultant submits inception report to GoM October 2017 IP submitted and reviewed for review by WB, AfDB, and IFC January 2018 IP sent to independent expert for review 11 April 2018 IP published for public review and comments 18 April 2018 Final versions of English and French IP 27 April 1028 IP adopted by the GoM 4 May 2018 Official submission of the IP 7 May 2018 Presentation of the IP to the SREP sub-committee 6 June 2018 Joint donor (AfDC, IFC, and WB) mission with stakeholders to validate the March 2018 priority investments of the draft IP Public consultations April 2018 Review of the IP by an independent expert April 2018 Integration of the comments of the independent expert End of April 2018 Approval of the IP by MEEH and submission to SREP Sub-committee Early May 2018 Page 12 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Approval of the IP by SREP sub-committee June 2018 Project closing December 2018 Clearance Final Audit Report April 2019 B. Project costs and financing 34. The project’s final disbursement rate was 91%. The final disbursement of the project was concluded in April 2019. The consultant hired for the IP completed the strategy for the implementation of scaling solar in Madagascar as the GoM wanted to prioritize this work. This resulted in charging US$100,000 for the scaling solar work and 179184 Euros for the SREP investment plan itself. Due to insufficient financing on the SREP project, part of the consulting fees representing an addendum of the initial contract for 45,960 Euros have been charged on ESOGIP project. Details on the project costs are displayed in Table 3. 35. A final audit was cleared the same month as the final disbursement, April 2019. Table 3: project costs Sub- Actual Difference Project Project Actual components Disbursed Amount (US$) Components cost (US$) Cost (%) Amount (US$) 1. Preparation Consultancy 200,000 174,135 25,865 91% The consulting fee of the IP for fees for of 45,960 Euros SREP in SREP have been paid on Madagascar Investment ESOGIP Project for and associated Plan insufficient funds technical on SREP project Consultancy 100,000 100,000 0 assistance fees for Scaling -up Solar Strategy Plan Total 300,000 274,135 25,865 91% Financing Required C. Significant changes during implementation 36. The project was restructured twice, once on June 16, 2017 and a second time on March 28th, 2018. The reason for each restructuring was to change the project closing date and the implementation schedule to provide more time to complete the IP and submit it to the SREP sub-committee. The project implementation delays were due to the client (MWEH) indicating it would focus on priority projects such as the LCPDP and NES. However, this did not impact the original theory of change. Page 13 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) II. OUTCOME Relevance: Rating: High 37. The project is aligned with national and World Bank country strategic objectives at both appraisal and at closing. The GoM’s 2015-2019 National Development Plan’s third and fifth pillar are relevant to this work. The third pillar is on inclusive growth and local roots of development and sight reforms to improve investment climate, supporting the development of the private sector, and focusing on the development of strategic sectors, including infrastructure. The fifth pillar is on valorization of natural capital and strengthening resilience to natural disasters. This pillar is focused on climate change and has a focus on articulating how the country’s natural resources can support economic and social development. 38. The WB FY17-21 Country Partnership Framework (CPF) for Madagascar aims to build on the current relative political stability to help address structural fragilities that hamper sustainable human and economic development in Madagascar. The second focus area of the CPF is to promote inclusive growth and aims to facilitate and support the development of economic opportunities by the private sector in rural and urban areas. This includes building the critical energy infrastructure to address the constrains on the development of economic activities and access to markets.4 The SREP IP therefore furthers national and World Bank strategic objectives by establishing a rigorous and comprehensive plan for investments in strategic energy infrastructure. Assessment of Achievement of Objective/Outcome 39. The Project Development Objective (PDO) is to support the Malagasy government to prepare a renewable energy investment plan for consideration by the SREP for funding. The grant achieved the preparation and approval of the IP. 40. The IP identifies 68 projects across the two strategic areas for renewable energy project in Madagascar. These projects, with include 59 projects for the hybridization of JIRAMA isolated centers and 9 projects for the development of rural electrification projects, are displayed in Table 4. There is a total of 53.1MW of generation capacity in the project pipeline, including solar, wind, and hydro generation technologies. The completion of these projects is not an outcome of the SREP IP; this project is only assisting with their preparation and financing. However, when they are completed the projects will contribute to further development outcomes, such as increasing the energy access rate and the reduction of the average generation costs. 4 World Bank Country Partnership Framework for the Republic of Madagascar FY17-21, May 30, 2017, pg 24-25 Page 14 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Table 4: SREP renewable energy pipeline Projects Type of RE projects Number Generation capacity (MW) Hybridization of JIRAMA Solar, wind 59 38.1 isolated centers Development of rural Small hydro 9 15 electrification projects Total Solar, wind, hydro 68 53.1 41. The SREP IP has formulated a financing plan and donor commitments for investments in the project pipeline totaling US$77.5m to 87.5m. The financing plan includes a total of US$44.8m to 49.9m for feasibility studies, technical assistance for project implementation, and investments for rural electrification by renewable energy and mini-grids (Table 5). It also includes US$32.7m to 37.7m for the hybridization of JIRAMA isolated centers (Table 6). This financing comes from SREP, the WB, the AfDB private sector window, the private sector, the Government of Madagascar, and additional funding. It leverages the SREP financing effectively, with a leverage ratio in the range of 1 to 3.1/3.7 for the rural electrification investments and 1 to 2.7/3.2 for the hybridization of JIRAMA isolated centers. 42. The SREP grant of $21.4 million includes $10 million for a World Bank rural renewable energy project to finance the development of rural electrification by renewable energy on mini-grid. This includes: • 9 sub-projects of small hydro and mini-grids and a technical assistance to strengthen regulatory framework; • Hybridization of isolated centers of JIRAMA: 59 subprojects of hybridization of JIRAMA centers by solar photovoltaic or wind turbines, totaling a potential installed power of 38 MW will be financed by AfDB. • The private sector participation is expected to be 37.7 million USD. Table 5: rural electrification by renewable energy and mini-grids, US$m AfDB Additional funding Private Government of SREP WB private Other DFIs1 Total sector Madagascar window Feasibility study 32 Technical assistance 1.4 4.9 for project 0.53 implementation 8.8 39.9 to Investment 11.54 5 to 105 7.16 7.57 44.9 Total 12 3 5 to 10 8.5 7.5 8.8 44.8 to Page 15 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) 49.8 SREP leverage 1: 3.1 to 1:3.7 [1] UE, AFD, ONUDI [2] Parallel Financing (loan) on ESOGIP (« Electricity Sector Operations and Governance Improvement Project ») [3] SREP Grant [4] SREP Financing of 1.5 $M (Grant) and 10 $M (Loan) [5] Private Loan from AfDB [6] Other Financings, mainly grant financing [7] Contribution to equity Table 6: hybridization of JIRAMA isolated centers, US$m AfDB Other Government of SREP WB private Private sector Total financiers Madagascar windows Technical 29 2 Assistance (10) Investment 611 Loan 5 to 10 (12) 25.713 30.7 to 35.7 Total 8 5 to 10 25.7 32.7 to 37.7 Leverage 1:2.7 to 1:3.2 ratio [8]UE, AFD, ONUDI [9]SREP Grant [10] The counterpart Funding could be the security payment Fund. [11] Guarantee [12] L’AFD is putting in place a line of credit « SUNREF » to support private sector. [13] Loans from other DFI, loan from commercial Bank, equity participation 43. The expected results of these investments are displayed in Table 7. These projects, when realized, have the potential to make significant contribution to the SREP indicators. This includes increasing installed capacity to generate renewable energy by 19MW (55GWh per year), increasing access to electricity through renewable energy by at least 12,500 households, and displacing 37,000 tCO2eq per year. It is important to note that this is not a direct outcome of the project; the ICR is only including this to highlight the importance of the IP and its project pipeline and financing plan and illustrate how it is a foundational planning document to reaching the energy sector’s goals. Table 7: SREP IP expected results SREP Indicators Expected results Increased installed capacity to • 19 MW (55 GWh per year) generate renewable energy Increased access to electricity • At least 12,500 households through renewable energy Page 16 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Low-carbon impact power • 37,000 tCo2eq per year generation developed Increased accessibility and • Pilot projects using a sustainable approach based competitiveness of renewable on private sector participation energy Increased industrial use of energy • Positive Impact on economic, social and • Strengthened institutional capacity environmental development • Increased energy security and electricity access (esp. in rural areas) • Increased government and private sector experience and capacity to develop RE projects in Madagascar • Displacement of diesel and kerosene and reduction of GHG emissions and environmental pollution Overall Outcome Rating 44. Satisfactory. The project only had one PDO objective, to create a renewable energy investment plan for Madagascar. This was achieved when the plan was delivered to the SREP sub-committee on June 6, 2018. Although the officially approved indicator is an output, the project’s achievement has been assessed against a deeper outcome of projects prepared and financed. As a result of the IP being approved, the project achieved further outcomes of catalyzing finance for the 68 projects identified in the IP. Other Outcomes and Impacts 45. No other outcomes or impacts relating to gender, institutional strengthening, or poverty and shared prosperity are reported. The IP is an important foundation for mobilizing private investment into Madagascar’s energy sector, but it did not have a direct impact on mobilizing private finance. Page 17 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. Key factors during preparation 46. The SREP IP preparation was informed by the World Bank team’s prior programming in Madagascar. The IDA-financed ESOGIP project was addressing JIRAMA’s finances and important studies for the energy sector, such as the LCPDP and a tariff study, and a National Electrification Strategy (NES). While the LCPDP and tariff study focused on grid-based projects, the NES defined the key technical, financial and institutional parameters of the GoM’s electrification approach. In line with the directives of the NEP, the NES attributes a strong priority to support the development of rural growth poles and lays out a least-cost electrification strategy that relies significantly on off-grid technologies. This analytical work provided a foundation for a more detailed investment plan and financing for off-grid renewable projects. 47. SREP IP’s letter agreement was signed on August 1st, 2016 with an initial closing date of June 30th, 2017. B. Key factors during implementation 48. In February 2017 the GoM re-launched the EOI, as the initial EOI advertisement had been unsuccessful. Qualified firms were shortlisted and the RfP was then launched. 49. The project experienced implementation delays and was restructured twice in order to provide more time for project completion. The three ISRs rated implementation as moderately unsatisfactory. 50. In June 2017, the closing date was extended to April 30th, 2018. The project’s preparation was delayed as the Ministry of Water, Energy, and Hydrocarbon (MWEH) needed to complete some priority projects and studies, such as the LCPDP, implementation of HFO projects, the launching of large hydro and solar projects (including the Scaling Solar initiative with the support of IFC), and the National Electrification Strategy (NES). The NES was completed in May 2017 and the preparation of the IP began in October 2017. 51. The second restructuring of the project extended its closing date by 6 months, from April 30th, 2018 to December 31st, 2018. The GoM and the MDBs agreed that the SREP IP should be submitted to SREP sub- committee in May 2018 to be approved in June 2018 to increase the chance of receiving funding from SREP for the preparation and implementation of the projects identified in the IP. Additional time was required to ensure that the IP was adopted by the GoM. Page 18 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. Monitoring and evaluation 52. The overall score for M&E design, implementation and utilization was substantial. A simple results framework was included in Annex 1 of the PAD. Three ISRs were filed; the first two were used to inform the project restructurings. 53. Compliance with environmental, social, and fiduciary risks was rated satisfactory at appraisal. No physical activities were being financed. Nevertheless, some screening was needed to make sure that the IP’s proposals would be consistent with Bank policy requirements. As designed this triggers OP 4.01 and was rated as B. 54. The project risk was rated moderate. No major issues were encountered throughout the project. B. Bank performance 55. The bank performance was satisfactory. The SREP IP was realistic and well designed. It fit within the broader SREP activities. This will increase the probability that the IP will be a catalyst for successful renewable energy transactions in the Malagasy energy sector rather than a stagnant document. 56. The World Bank team provided adequate and constructive oversight of the project to help ensure it reached it objective. The WB led a mission in Antananarivo from March 19 to 23, 2018, where AfDB, IFC and WB representatives reviewed and discussed the draft SREP IP and agreed with the GoM on the priority investments of the IP. The mission supported the MWEH as it engaged in consultations with representatives of the renewable energy private sector to strengthen the IP. When MWEH delayed work on the IP to focus on priority projects such as the LCPDP and NES the WB team was flexible in rescheduling the project to respond to the client’s priorities. C. Risk to Development outcome 57. The risk to development outcome is low. The SREP IP has already begun to catalyze financing for its pipeline from development finance institutes as well as the private sector. Moreover, the World Bank IDA- financed Least-Cost Electricity Access Development Project (LEAD, P163870) was approved on March 1st, 2019, with US$150m to finance its project development objective of increasing access to electricity services for households, enterprises, and health facilities in Madagascar. Page 19 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) V. LESSONS LEARNED AND RECOMMENDATIONS 58. Projects that are closely aligned with national sector strategic priorities are more likely to succeed. While the SREP IP was delayed as the client prioritized urgent needs in the sector at the time of appraisal, such as National Electricity Strategy, it remained closely aligned to the GoM’s strategic goals for the energy sector. Due to this, the will to follow through on the work remained to see it to completion. 59. Energy sector planning is critical to meeting energy sector strategic goals. The project catalyzed donors and stakeholders to address a need in Madagascar’s energy sector planning. As a result, there is now a project pipeline and financing plan that is a foundation for the investments required to meet energy sector strategic goals. 60. The capacity of the client to manage the procurement process was inadequate. The client needs to improve its capacity to manage the procurement process to ensure that it is complete in an efficient manner. Page 20 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) . ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS Page 21 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Increase the rate of electrification in rural areas Objective/Outcome: Reduce of average generation cost Unlinked Indicators Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Renewable energy investment Yes/No N Y Y Y plan prepared. 15-Jun-2016 30-Jun-2017 30-Jun-2017 31-May-2018 Comments (achievements against targets): The Investment Program was presented by the Government of Madagascar to SREP Sub-committee in May 2018 A.2 Intermediate Results Indicators Component: Hybridization of isolated JIRAMA centers Page 22 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) Component: Development of rural electrification projects: Rural electrification by ENR and mini-grids Unlinked Indicators Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Stakeholder consultations and Yes/No N Y Y Y finalization of the investment plan 15-Jun-2016 30-Jun-2017 30-Jun-2017 29-Mar-2018 Comments (achievements against targets): Page 23 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) B. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1 Outcome Indicators 1. Renewable Energy Investment Plan prepared (yes/no) 1.Stakeholder consultations and finalization of the investment plan conducted (yes/no) Intermediate Results Indicators 2. Approval after Presentation of the investment Plan to SREP Subcommittee completed (Yes) 1. Development of rural electrification by renewable energy on mini- grid: 9 sub-projects of small hydro and mini-grids, representing a potential installed capacity of 15 MW to be installed Key Outputs by Component 2. Hybridization of isolated centers of JIRAMA: 59 subprojects of (linked to the achievement of the Objective/Outcome 1) hybridization of JIRAMA centers by solar photovoltaic or wind turbines, totaling a potential installed power of 38 MW. Page 24 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) . ANNEX 2. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Preparation of the IP for SREP in Madagascar and 0 .30 0 associated technical assistance Total 0.00 0.30 0.00 Page 25 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Page 26 of 27 The World Bank Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P159725) ANNEX 4. SUPPORTING DOCUMENTS (IF ANY) SREP Policy Documents 1. Madagascar SREP Investment Plan 2. Madagascar SREP Investment Plan power point presentation World Bank Project Documents 3. SREP IP Project Information Document 4. SREP Restructuring document (Report no. RES31786) 5. SREP IP extension document (March 16, 2018) 6. SREP IP ISRs 1 and 2 7. World Bank Country Partnership Framework for the Republic of Madagascar for FY17-21 (Report no. 114744-MG) 8. World Bank Country Partnership Framework for the Republic of Madagascar for FY16 (Report no. 114744-MG) 9. Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) - Integrated Safeguards Data Sheet (Report No ISDSC17476) 10. Grant Agreement No. TF0A2324 11. Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) - Project Paper (Report No PP1937) Madagascar Project Implementation Documents 12. Madagascar Scaling Renewable Energy Program (SREP) Investment Plan (IP) – Implementation Completion Report 13. Final Audit Report Page 27 of 27