PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA833 Public Disclosure Copy Project Name Sierra Leone Energy Sector Utility Reform Project (P120304) Region AFRICA Country Sierra Leone Sector(s) General energy sector (100%) Theme(s) Infrastructure services for private sector development (100%) Lending Instrument Investment Project Financing Project ID P120304 Borrower(s) Implementing Agency Environmental Category B-Partial Assessment Date PID Prepared/Updated 29-Apr-2013 Date PID Approved/Disclosed 13-Jun-2013 Estimated Date of Appraisal 22-Jul-2013 Completion Estimated Date of Board 29-Oct-2013 Approval Decision Public Disclosure Copy I. Project Context Country Context Despite a decade of peace and strong economic growth since the end of the civil war, living conditions in Sierra Leone continue to be a challenge. As of today, Sierra Leone ranks 177 out of 186 countries in the United Nations Human Development Index and has an estimated GDP per capita close to US$375, the fifth lowest in Sub-Saharan Africa. The latest poverty headcount estimates (2003) suggest that 67 percent of the population lives below the poverty line. In the near future, Sierra Leone will have to grapple with some big changes in the country context, which have transformative potential. Post-conflict recovery has been sustained, characterized by strong economic growth, infrastructure development, improvements in governance and public sector capacity building, and improved delivery of basic services. In 2011, real GDP increased by 6 percent and by an estimated 18 percent in 2012 due to the onset of iron ore production. Growth has generally been broad-based, led by agriculture, services and industry and supported by a step increase in public spending, especially capital spending on infrastructure projects. The start-up of two large scale iron-ore projects and a recovery in other mining subsectors, including bauxite, gold and rutile, drove growth in the industrial sector. Promoting sustainable and equitable investment-led growth will require Sierra Leone to build stronger institutions and accountability to ensure robust revenue management and maintain macroeconomic stability in the face of volatile foreign currency Page 1 of 6 flows. To this extent, developing human capital and enhancing transparency in the public sector will constitute critical steps. Public Disclosure Copy Sectoral and institutional Context During the period of civil unrest, Sierra Leone’s physical infrastructure, particularly electricity, water, and sanitation, suffered widespread destruction and lack of maintenance. As of today, a limited and depilated power infrastructure base continues to constrain electricity access. Sparse coverage and unreliable service particularly exacerbates poverty conditions in the country, while electricity tariffs remain among the highest in Africa. Inadequate energy supply is a major binding constrain to the likely economic transformation led by the mining sector and requires urgent attention. Oversight of the sector falls under the Ministry of Energy (MoE). There is one vertically integrated national utility, the National Power Authority (NPA), and no regulatory authority. Overall electricity access in the country is below 10 percent. Public electricity services are limited to selected areas. NPA’s distribution network extends to Freetown and the surrounding Western area (Freetown Capital Western area), covering less than 40 percent of the residents. The other distribution network in operation includes the isolated Bo-Kenema and Makeni systems in the south-eastern and northern regions. In rural areas, where the bulk of the population resides, electricity access is practically non-existent. Because of scarce supply and high costs, electricity represents only 7 percent of the total energy consumption. The large majority of Sierra Leone’s population is forced to rely on inefficient and polluting traditional fuels to meet their basic needs, resulting in adverse impact on personal health and safety as well as on the environment. Current power generation capacity remains highly inadequate to accommodate the country’s overall power demand. State-owned installed capacity totals 90MW approximately, including the 50MW Bumbuna hydroelectric power plant (Bumbuna) and the two thermal power plants at Kingtom (10MW) and Blackhall Road (16.5MW) that serve the Freetown Capital Western area, and the 6MW feeding the isolated Bo-Kenema system. Hydropower from Bumbuna is seasonal, producing less than 20 MW during the dry season. High costs of imported fuel for thermal power plants and Public Disclosure Copy transmission and distribution bottlenecks further reduce available generation capacity. Fast growth in the mining sector is associated to an exponential increase in energy demand, which calls for a major scale-up in generation capacity expansion but also for diversified approaches that allow exploiting synergies in electricity supply and facilitate sharing of benefits between the public and private sector. A recent and ongoing power emergency has further reduced power supply in Freetown capital area, compounding the challenges facing the sector. The emergency shutdown in November 2012 of one of the two units at Bumbuna and one of the two units at the Blackhall Road thermal plant in Freetown have brought generation capacity down to 22MV, creating a severe power supply crisis in Freetown area. Inadequate transmission and distribution capacity poses a major impediment to expanding power supply. The national transmission system consists of only one radial 161 kilovolts (kV) transmission line extending from the substation at Bumbuna to Freetown and connected to NPA's distribution network. Both transmission and distribution capacity is severely constrained due to high losses, which reach over 38 percent. Overall, it is estimated that the network can evacuate no more than 35 MW of power. The low voltage levels in certain areas as well as the high level of fault occurrence due to the aging network equipment contribute to poor quality of supply. At present, black outs and Page 2 of 6 load shedding are common place. NPA’s weak infrastructure and its managerial and implementation capacity limitations stand at the Public Disclosure Copy heart of Sierra Leone’s power sector challenges. Lack of adequate technical, operational and financial management capacity impedes the national utility to effectively improve its performance and properly rehabilitate its obsolete transmission and distribution infrastructure. Although NPA has competent engineers on staff, it has limited or no resources for proper operational and commercial management. An inaccurate customer data base, inadequate metering, billing and revenue collection systems and poor accounting have led to unacceptably low levels of commercial efficiency. The weak managerial and operational capacity and systems are causing the utility to be reactive to coping with the latest crisis on a day-to-day basis. Despite recent improvements in collections and loss reduction, NPA’s financial situation remains fragile. Transforming the power sector, including developing the country’s large hydropower generation potential, building a nationwide transmission network, integrating the mining companies into the sector, upgrading and expanding the distribution network and participating in the regional power market of the West Africa Power Pool (WAPP), will require large investments over the next years. Strong governance foundations and a sustainable business model for the sector are critical to leve rage investments by multiple private and development partners to realize these goals. A proper unbundling of the sector cannot be sustainably achieved without first improving NPA’s management and performance. Also, attracting top-tier private investment in generation will be difficult until the utility continues to be financial insolvent and not be perceived as a credible off-taker. The Government is firmly committed to transform NPA into a utility that operates under commercial principles with professional management and technical integrity. Two key components of this process are the upgrading of NPA’s management capacity, skills and systems to improve customer service, increase collections and enhance revenues, and focused and sustained investment to rehabilitate distribution infrastructure and reduce losses. Public Disclosure Copy The proposed Project responds to the most pressing priorities of Sierra Leone’s power sector, and seeks to do so in a strategic, targeted and coordinated manner. The Project and the recently approved Energy Access Project financed through the Sierra Leone Infrastructure Development Fund (SLIDF project) create a continuum of consistent, well sequenced, and integrated World Bank assistance aimed at establishing a sustainable framework for the development of the country’s power sector. The SLIDF project has been designed with a view of targeting the areas where immediate results can be achieved and preparing the ground for deeper reform of NPA. In particular, the SLIDF project envisages assistance on two fronts: a. urgent rehabilitation and upgrading of some of the weakest components of NPA’s primary distribution network, which allow stabilizing electricity supply in the short term; and b. reduction of system losses and improvement of collection rates as immediate measures to improve NPA’s finances. The proposed Project is designed to scale up support with a long-term view. The Project is centered on supporting a process of management change and reform within NPA through the establishment of a management contract, which will help transition the utility towards improved technical performance, better service delivery and financial viability as part of the ongoing reform process. The accompanying lending program targets the recovery of the electricity sector by further increasing availability and quality of electricity supply. II. Proposed Development Objectives Page 3 of 6 The Project Development Objective is to improve the operational performance of the National Power Authority. Public Disclosure Copy III. Project Description Component Name NPA Capacity Enhancement and Performance Improvement Comments (optional) Component Name Improvement of Electricity Supply in Urban Areas Comments (optional) Component Name Preparatory Support for Power Sector Investments Comments (optional) IV. Financing (in USD Million) Total Project Cost: 35.00 Total Bank Financing: 35.00 Total Cofinancing: Financing Gap: 0.00 For Loans/Credits/Others Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) 35.00 Total 35.00 Public Disclosure Copy V. Implementation The Project has two implementing agencies, NPA and the MoE. NPA will implement project activities defined under Components 1 and 2; the MoE will be responsible for implementing project activities under Component 3. Once on board, the Management Contractor will be responsible for conducting all of NPA’s business, including implementing investments under Component 2. A Project Oversight Committee consisting of a representative of the Ministry of Finance and Economic Development (MoFED), the Minister of Energy (or designee), the NPA General Manager and the MoE Permanent Secretary will provide guidance on policy and strategic issues, address high level implementation issues and meet at least annually to discuss project progress. The Committee has been constituted for the SLIDF project and will cover the proposed IDA Project as well. Each implementing agency will have its own project implementation unit, which will be responsible for management, supervision and fiduciary functions related to their assigned project activities. The MoE will rely on the PMU already established for the SLIDF project to carry out activities envisaged under Component 3. The PMU will be led by the General Project Coordinator currently being selected under the SLIDF project, and comprise of: a Supervising Engineer who is being hired under the SLIDF project to supervise investments; a Procurement Specialist and a Financial Page 4 of 6 Management (FM) Specialist recently hired under the SLIDF project; a Procurement Assistant, a FM Assistant, an Environmental and Social Development Specialist and a Public Relations/ Communication Specialist whose selection is underway. Public Disclosure Copy The Management Contractor will appoint a Project Implementation Unit to implement the investment program financed under Component 2, including urgent and prioritized investments. The PIU will be led by a Project Manager who will have responsibilities similar to those of the General Project Coordinator and also comprise of a Procurement Specialist, a Financial Management Specialist and an Environmental and Social Development Specialist. A Supervision Consultant will be externally hired to supervise implementation of urgent investments and preparation and implementation of prioritized investments. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ Comments (optional) Public Disclosure Copy VII. Contact point World Bank Contact: Elvira Morella Title: Energy Specialist Tel: 473-0727 Email: emorella@worldbank.org Borrower/Client/Recipient Name: Contact: Title: Tel: Email: Implementing Agencies Name: Contact: Title: Tel: Page 5 of 6 Email: VIII. For more information contact: The InfoShop Public Disclosure Copy The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Public Disclosure Copy Page 6 of 6